Detroit August 2022 Key Take Aways
- Nick Maloof – Associated Environmental Services – We’re seeing a lot of the higher construction costs affect the clients, now they are 25 to 30% higher than they were a year ago. Rental rates have gone up, but not enough to cover the construction costs.
- Phil Seaver – ATA National Title Group – Quite a few projects were put on hold because of the construction costs. Industrial is the exception to that. Lenders are willing to extend lending until the costs come down.
- Steve Sallen – Maddin Hauser – Lots of stuff going on in my business. The macro picture from my world, things are not too bad. It certainly doesn’t feel right now like 2008 or 2009 when things came to a grinding halt, so I am mildly optimistic.
- Mike Sabrosky and Paul Hatcher – Oliver/Hatcher Construction – Market still remains robust for us. Electrical equipment, HVAC units, and rooftop units are out for 13 months now. It is forcing us to re-sequence the way we are building our buildings, we are spending money earlier to get the equipment when we need it. Cost escalations are still happening. Inflation alert, steel has gone up 125% since April 2020, and it is not coming down yet. Plastics are up 55%, so it has all increased in price, and chips and board are up 45%.
- Mike Mitro – Royal Oak Realty Trust – We buy industrial properties, and our cap rates are moving up, we have moved them up to 6.5 and brokers are adjusting their expectations.
- Tom Barrett – The State Bank – We are in a little bit of circling. Loan demand is strong, and deal flow is good. Normal mechanisms no longer make sense. Pricing off the historical mechanism is still fairly low, so we continue to look at that and make money.
- Matt Wilk – AVANA Capital – We have 2 sections; one is a private lending, and the other is Kuso. We are seeing the same trepidation around construction costs as you are. A little less thinly capitalized projects that have a lot of hair on them will raise a lot of questions about how we can control costs. Kuso tends to be a little lagging in that regard.
- Otto Kern – Bellwether Enterprise Real Estate Capital – Our company is full-service banking. We have corresponding relationships with Freddie, Fannie, and HUD. We are active in all asset classes. Lenders are assessing different market risks and borrowers are adjusting to the market rates. Rates are in the mid-4s and 5s. There has been a lot of discussion about liquidity in the market. Doing a lot of multi-family. We have done some unanchored retail. Mostly local tenants. We have done small office deals. Activity level is lower than it was at the beginning of the year and last year. We are trying to monitor our lenders’ pricing deals. There is volatility in terms of pricing.
- Bob Pliska – Sperry Commercial Global Affiliates – We are a commercial real estate company and have an equity company. Things are active the last couple of weeks and listed 3 deals in Michigan. Retail, apartment deal, and a campground deal.
- Scott Elliott – Signature Associates – All transactions take much longer today than in years gone by. Got a couple of office buildings underway now. Just slow to get finalized. A lot of out-of-town developers looking for parcels of land and locating parcels that have utilities or utilities nearby. Slower process and downsizing. The guys on the office leasing side have seen some good deals on their end.
- Barry Swatsenbarg – Colliers International – We are a little fuzzy, to say the least right now. Every deal is an asset class and asset specific. Certainly, a growing gap related to pricing. There is and will be some widening for stabilized products. Industrial overall, we are probably the shining star for the asset groups. The office segment is challenged, to say the least. Our team is active in about 16 markets.
- Matt Perlman – Plante Moran – I have several residential and commercial developers still pursuing new projects, but also a couple on the sidelines trying to find something that makes sense or waiting for the market to cool off.
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