Detroit August 2023 Key Take Aways
David Hart – Maddin Hauser – David discusses his challenging projects and how none of them are resolving. One is in Birmingham and the other big one is up in Woodward. He’s supposed to be in trial, but because the Oxford shooter is taking up the courthouse these days, everything is waiting to take our turn in court. There are a lot of fights.
Scott Elliott – Signature Associates – The small office sector is active, and CoStar reported that the average deal is like 3,200 square feet and that is true in Detroit and across the country. Real premier buildings are still in high demand, they’re high, but not too high. Good class-A buildings with quality spaces are doing well. Larger spaces are being renewed.
David Dismondy – District Capital – Doing a lot of refi’s with life insurance companies. Banks are not interested in the deals, so they are doing a lot of hand-holding with borrowers that he wouldn’t normally have access to. There are no good terms now. Life insurance companies get the premiums every month and so they will put money toward Triple B corporate bonds that are more liquid and less risky. They have to price a wider spread now. Rates are now 6.5 %. Lots of deal flow. Rates for 10-year money are around 6% and younger people are taking 5-year deals because they think rates will drop. Did a bridge loan in Detroit. Issues will stay siloed and won’t screw up our industry. Life companies are getting more conservative. CMBS rates are in the 7s, but to compete, they will be more aggressive with the interest. They will go to a higher loan to value.
Dan Stys – Professional Engineering Associates – Started to see a slowdown in our surveys and are starting to get concerned about the development stuff in the pipeline. Will probably start to see new developments tailing off. Commercial buildings are more reasonable. Employment has gotten better. For the last 12 months, it was difficult to find talent. Civil engineers have been hard to find and in high demand. Higher-skilled ones are difficult to find. Had to make adjustments in the last several months to hold onto them.
Brian Fineran – CoStar – Has been getting increased calls from big investment groups from the coasts looking for deals in the Michigan area. Larger industrial players with Goshen and some of the big shovel-ready sites. Doesn’t think any of it is going to come to fruition – just doing due diligence. The impression is they have funds available with the authority to deploy capital and but will probably waiting until next year. With interest rates now, we will see increased volatility over the next few months. Not seeing a critical shortage of housing in the Michigan area. Southeast Michigan and West Michigan doing okay. Lansing area, the greatest percentage of influx is from the Detroit area. That is what is driving Lansing.
Steve Sallen – Maddin Hauser – The buzz on the floor in tourist towns is that workers have nowhere to live. In seasonal towns that has become their main issue. Even if they can hire them, they can’t move in. Traverse City is our example of that. They are really struggling.
Julia Pilarski – Detroit Regional Partnership – Julia works with Shannon in the program with their strategy for industrial and agricultural land and has a whole community engagement, they are hoping to get that stamped out next month. Acreage, location, wetlands, etc. Working with DTE and they have done work with the pipeline. Acreage size is an important aspect of the program. They get a lot of questions about the “Right to Work” laws. They are working on the narrative around that. According to Julia, it hasn’t really changed that many things. States like Ohio are attracting more, and they are unionized states. Julia indicates that if you can get in a room and explain it, it helps. She is curious over the next year to see if it is going to change.
Tom Barrett – The State Bank – Tom says that his doors are open, and rates are low. Macros that will impact: CMBS maturities are happening and they bleed off into banks. Some of the big boys are trying to sell off their big loans. Spreads are higher. Deposits would rule the day. If you don’t have deposits with your local bank, and your loan matures, you will get the cold shoulder. Very limited appetite in general. Better with CNI loans and USSA and other loans, and real estate loans are tough now. People are looking for homes. Thinks there will be more chaos in the finance market before these things resolve.
Tony Roberts – Newmark Valuation & Advisory – From a valuation standpoint, volume is off, down 20% in revenue year to date. August is projected to be the best this year. We did just do a CMBS portfolio. Life insurance companies have always been there. Banks have taken a step back. There are very few banks that are closed off completely. Credit unions step up and do smaller deals. Seeing activity and transactions are way off and not as much activity impacts the cap rates and valuations. We thought the cap rates would trickle up with the interest rates. We haven’t seen any indications that cap rates are up over 200 points since last year. Office building changing to self-storage. This is not a new idea. We appraise sub-divisions. Values are holding strong with subdivisions. Vacancies are increasing a little bit.
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