3/8/22 – Detroit Mastermind Group

Detroit March 2022 Key Take Aways

Martin Lavelle – Federal Reserve Bank

• We are all still trying to process what’s going on in Eastern Europe. Gas was over $4 for the first time since about 2008. There is increased uncertainty.
• The last consensus economic forecast that we received projected 2022 growth to be just under 2%. 2022 outlooked has been revised down a percentage point, which is different than 7% in 2021. January started slowly with Omicron.
• Given the pinch points, add in the invasion. Those already feeling the pressure of the higher inflation and economy will feel it more now.
• Looking at the employment gap, we have come almost back. More like between 2 and 3%. It continues to shrink, except for healthcare. Other sectors are still losing people.
• From the invasion, the most significant pricing will be energy and other raw materials. Palladium, platinum, rare earth materials. Not the parts themselves, but the materials.

Dave Dismondy – District Capital

• Was in San Diego for an industry conference. Probably 95% of lenders there. Rates are trending upwards. Most lenders have more money than they can put out.
• One of our acquisition partners is trying to pump up buckets of money to pump up their internal yield. It’s very exciting for us, we had a new entry into our market.
• Lenders will tell you, we put out a billion five last year and we are going to try to push to 2. They are quoting flat rates too, which is strange.

Matt Fenster – Etkin Real Estate Solutions

• Looking at general office deals, got a proposal for a client, and the rental rate was $18/foot. That is the same rate it was 30 years ago, but operating and other things have gone up.
• Building a new office building, it’s interesting how the markets are so different. I’ve been getting a lot of inquiries for medical space in nicer buildings. Potential for people who want to pay for development. Healthcare wasn’t hit with COVID. We never shut down medical buildings.
• Nobody wants office or retail, and they want healthcare and industrial.

Ron Sollish – Maddin Hauser

• Seeing a lot of clients trying to unwind their remote work and looking at ways to bring people back.
• We need to be together if there is going to be an exchange of ideas and come together. There is discontent. When you don’t have interaction, and when everything is transactional. There is no human interaction and there is a need for people to engage and interact. It’s not going to happen tomorrow, but it’s not as dire as we thought.

Mike Sabrosky – Oliver/Hatcher Construction

• The construction industry, as a whole, we are still trending in 2022, and our private developers are very eager to expand their buildings. We don’t see a lot of office renovations.
• We are seeing from the large brokerage community is let’s remodel our office space and lure people back.
• If you want steel, insulation, transformers, we send out design packages and pre-ordering before we get started. We have 6 and all the sales teams are all on pre-sales. Between supply chain and overall confusion – we are not missing our deadlines. We are buying from all types of places to accommodate clients and it pushes you to be better and keep the chain moving for clients.

Seth Haron – Marcus & Millichap

• A relevant piece of market information, is the Beaumont and Spectrum merger, 64,000 people making up the largest org in the state.
• In terms of the healthcare industry, we have seen hospitals merging and private equity getting involved. They are focused on pumping out dollars.
• In terms of trends in the healthcare real estate industry, we see a large push for outpatient buildings. Not a lot of new development in growth. With the aging demographics, to accommodate all of the perceived needs, we are starting to see a lot of outpatients, almost retail concept. We expect that to continue because it makes more sense for patients and healthcare providers. With the rising cost of construction, there is a rise in rental rates.

Dan Stys – Professional Engineering Associates

• The design side is pretty solid for us. A large number of people looking at industrial. The commercial has been solid for us too. Land development projects and fast food and car wash work. Residential seems to be solid.
• It has been encouraging. People are still interested in developments.
• Detroit Regional Partnership will take a property and see what level of due diligence is right for the property. We can do master planning and geo investigations and create a database of properties for investors to look at. This is an intent to respond to the past lost deals. This is a step to let developers from out of town know that we have a lot of pieces figured out for you.

Brad Rosenberg – Mid-America Real Estate – Michigan, Inc.

• Retail is still strong, and we haven’t been hit by anything. Some retail is being aggressive. That’s the good news. Many car washes. It is all positive.
• The bigger box retails are not paying that much more rent. I am getting nervous about the supply chain and interest rates.

Nick Maloof – Associated Environmental Services

• We have been staying fairly busy but slowed down in the past week. Have had a lot of clients calling and asking if we could speed it up as they are afraid things will get worse for them.
• On the other side, there is still a high demand for industrial.
• The state is getting a lot of money from the feds, and they have set up incentive funds, deciding what they will invest in. One fund has $100 million and another $400 million.

Tom Barrett – The State Bank

• Loan demand remains amazingly strong. Bank cannot hire employees with the necessary skill set.
• Have not experienced loan softness or deterioration. 3 weeks ago, we knew rates were on the way up. When everybody decides what’s going to happen, it is a good idea to bet the opposite.
• The long-term market isn’t reacting to what’s going on.

Margo Rosenthal – IPX Property Investment Services

• We are looking forward to interest rates going up – that’s how we make money.
• With Biden’s Build better, we spent a lot of the last 18 months working with Congress. We are not slated to be eliminated.

Eric Larson – Downtown Detroit Partnership

• We do a survey every year and we represent and you can see the capacity in which they were operating. We were at about 20% thru the pandemic. Rocket just came back on a flex work schedule. We just had a conversation with GM and they are coming back shortly. DTE is thinking about moving that up. The city of Detroit is back at work for the most part. Employment activity is picking up and we are at 35 to 40% now.
• Population growth in the downtown area has seen a 33% increase. Still lower than what we need. We need 10,000 people downtown. We are hovering at 7,000. The core of Detroit is Lodge to 75, Just south of LCA to the river, and it is about a square mile. 45,000 rooftops and dense population. The majority of the larger real estate is nonprofit, with the schools and hospitals.
• Tracking people who visit the downtown. Pandemic reduced that traffic to downtown. While the daytime work population has been the highest percentage, has somewhat replaced by the outside the city population, and our visitor population has grown quite a bit. It is tracking those using public properties. People have rediscovered downtown during the pandemic.
• Hotel occupancy, the retail industry got hit very hard during the pandemic. Very strong before the pandemic and was hit hard. Many of the larger hotel operations do not put all their rooms on the market and show a higher occupancy. All conventions were canceled in 2020 and most in 2021. Detroit was the poster child for rebirth, so it was attracting a lot of visitors that are not related to conventions. Detroit needs about 1500 more hotel rooms for convention status. That will take another 4 to 5 years.