Detroit March 2023 Key Take Aways
Steve Sallen – Maddin Hauser: On Sunday, Steve a phone call from the CFO client of a manufacturing company with 500 or 600 employees and doing about half a billion in sales a year. What do his loan documents say about opening another account with other banks? And depositing them in various banks to diversify. Late Sunday night, the treasury department issued their announcement that they will cover all the accounts. We are at the edge of something we didn’t want to see again. Until Steve received that phone call, he was underestimating the impact that could have, and that changed my thinking on Sunday morning.
Scott Elliott – Signature Associates: Business in the office sector is still pretty high and stagnant, especially in Southfield and Troy, and even downtown. Bedrock’s folks are back to work on a limited basis. Large tenant assignments are pretty quiet now. Smaller markets like Birmingham are pretty tight. Rates are up and vacancies are few. Hasn’t changed over the last few quarters.
Dave Dismondy – District Capital: More money than there are deals. We are doing half the business that we did last year and the ones we are working on are small and don’t really make sense. There was a dip in treasury this week because of the banks.
Tom Barrett – The State Bank: The accounting rule in banking, you match assets with liabilities. Banks stagger their treasuries to 5, 7, and 10 and this could have an impact on lending in general. The call reports for your bank are online. Do the research yourself. We will probably do a fraction of the loans of what we did last year. Senior management at our bank saw this coming, so we tapped the breaks at the end of last year.
Phil Seaver – ATA National Title Group: Florida condo market is interesting right now because of the insurance issues. Every condo has to get a check-up. The cost for our check-up was $20,000. Others are getting charged $200,000. You have to special assess and they will only do it once they are paid. You have to prove you have had your testing done before any loans will happen. In Florida, insurance comes from the state. Electric cars are not allowed in underground parking, and any damage covered by an electric car it is not covered by insurance. HOA management company has to make sure they all do this. You are seeing many cash purchases there. 100-unit, 12-story was going to cost $3 million for the assessment. If you are buying a condo in Florida, take a look at the structural and other assessment costs.
David Hart – Maddin Hauser: David recently got involved with a lender that focuses on lending to companies that buy and flip, renovate, and flip shares, and their default rate has started to go up. Companies buying in Detroit and other places are not having success and that has become an issue.
Jack Oliver – Oliver/Hatcher Construction: We’ve actually seen quite a large uptick in opportunities over the past couple of weeks compared to the beginning of q4 of last year through January. Michigan is looking to be the EV capital of the world, which is a big focus of ours. Right to Work could impact the deal flow. There is worry about it. We are competing internationally for these projects and this could be a huge roadblock. They are trying to attract a number of international investors and groups from South Korea, and SE Asia. If the Right to Work goes down, we might not even be getting up to bat for these projects. Combine that with the lack of infrastructure. Semiconductor opportunities take a huge amount of water and wastewater, and we don’t really have those infrastructures ready.
Michael Harris – CoStar Group: There is more online activity. Michael was talking to a client, and he sees a lot of activity and searching, but they are standing on the sidelines.
Tony Roberts – Newmark Valuation & Advisory: Their volume is down 10 to 20% from last year. It’s always a little bit slower at the beginning of the year. They are continuing to hire and grow. There is a discussion of all the loans that are out there and what will become of them. There is still a market for those things. We are probably 50 – 100 basis points higher than last year. We have seen rental rates continue to go up. Construction costs remain high. Industrial vacancy is negligible for the business. Retail is still really strong. Multi-family has had a pull-back but is still strong with a lack of supply.
Robert Pliska – Sperry Commercial Global Affiliates: Funding is not really coming from the USA; it is coming from overseas. The USA is seen as a safe haven. A lot of the funding can come internationally. The top ten items that impact real estate, items we discuss are the clinical and global unrest and immigration across borders. The FED is an item because of the real estate issues, and the office market. The inflation reduction act is a green act and is less about inflation.
Todd Shelly – Professional Engineering Associates: We are maintaining backlog and staying busy, haven’t seen a drop off from last year. We have seen some out-of-state projects. Tennessee projects are taking a look at us.
Mike Ziecik – Farbman Group/NAI Farbman: Leasing clients have to decide whether to get rid of office space or hold onto it. They are leaning to unload the office space. The industrial trend now is its coming on the market a little lower, so it is trending down. Investors are coming in now and saying wait a minute, we will run the business from Excel until we get up and running. There is a lot of debt and private equity in those deals. You don’t really hear about the stress in the industrial marketplace. An industrial player that has a contract, they are only getting a 2 or 3-year contract. So, they can’t build. It’s a disconnect. Somebody has to take the risk to build the building. There is an over-demand than supply.
Billy Morrison – Steelcase: They continue to run lean and are in the process of closing some of their plants. Aviation, we are getting rid of our supply. Getting more resources into healthcare and education.
Mike Sabrosky – Oliver/Hatcher Construction: Every deal that is developed is being done with incentives. Several projects we’ve had to reprice several times. The debt service ratio is less than one. Other projects are smaller, mixed-use, and residential, those are going. Workforce housing grants are available through the state.
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