Commercial Real Estate

0415cover_april

Developers back in business following difficult recession

Story by Sean Fitzgerald,  New North B2B publisher

An ugly four years following the end of the recession, commercial real estate has been on the upswing in northeast Wisconsin in recent years.

Manufacturers have been constructing new facilities and additions across the region for the past two years, and vacant production facilities are beginning to fill.

“Right now we have more activity going on than we ever have before,” said Tom Scharpf, owner of the 8-year-old Thomas James Real Estate, an Oshkosh-based commercial real estate brokerage specializing in industrial and warehouse space, along with office and vacant land. Scharpf illustrated his more active schedule noting a manufacturing space in Winneconne he’s listed for the past three years with little interest from prospective buyers or tenants. He’s currently working with two hot prospects for the property.

Readers of New North B2B’s Build Up pages note the resurgence of manufacturing activity as well. Nationally, industrial real estate vacancies are at a 13-year low and expected to become even more sparse by the end of the year. Many of those who survived the recession found ways to become more efficient with the space they had. Now, growing demand won’t allow some to increase production without adding expanded production space.

The Fox Cities community of Little Chute has benefitted from substantial industrial growth the past few years due in large part to its location near U.S. Highway 41 between Appleton and Green Bay, as well as its low energy rates in its industrial parks served by Kaukauna Utilities. The village added $23 million in new construction during 2014 – or more than 3 percent of its total property valuation – said Village Administrator James Fenlon, who noted more than half of that total was industrial growth.

“We have about 40 acres here in our industrial park, and we need to start planning for more before we run out of space,” Fenlon said, noting the potential for that and other privately-owned industrial-zoned land in the village to be absorbed quickly. “We’re working with no less than a half dozen – either current tenants or new businesses – on potential development agreements.”

In Fenlon’s first full year as the village’s chief administrative official in 2014, residents put together a first-ever strategic plan for the village, which places heavy emphasis on economic development. In the year ahead, Fenlon said that plan calls for greater promotion of its economic development tool chest, which includes a façade improvement grant for commercial businesses, a small business microloan fund which can award up to $30,000, and a revolving loan fund which can award as much as $50,000 to an expanding company in the community.

Large-scale retail

While vacant office space is being absorbed more slowly, Scharpf said the pendulum is swinging back in the direction of landlords, who’ve more recently been able to command higher lease rates and longer term commitments. But there’s not a tremendous demand to build new Class A office space at this point. Retail, however, is on the verge of an expansion once again in northeast Wisconsin.

Perhaps a unique phenomenon since Walmart went on a construction boom in northeast Wisconsin during the 1990s, three of the nation’s mega-retailers are preparing for new stores across the region. In the Greater Green Bay area, Michigan-based Meijer will be making its debut in the New North when it opens a monstrous supercenter on Green Bay’s west side in Howard in 2017. Mega warehouse club retailer Costco expects to open is second northeast Wisconsin store later this year west of the Fox River Mall in Appleton, while its competitor Sam’s Club – a subsidiary of Wal-Mart Stores Inc. – plans to begin construction of a store in Oshkosh later this year, its third in northeast Wisconsin. Each of these developments are expected to attract other smaller multi-tenant commercial projects nearby from retailers and service providers attracted to the high consumer traffic generated by these nationally known retail giants.

The Village of Howard Plan Commission just recently gave its recommendation for the proposed 193,000-sq. ft. Meijer supercenter near the U.S. Highway 41/WIS 29 interchange west of Green Bay. The estimated $12 to $14 million project would likely be constructed during most of 2016 and open for business in 2017, employing an estimated 200 to 250 people.

Down in the Fox Cities, Costco will begin construction this spring on a 150,000 sq. ft. store and fuel station just west of Fox River Mall in the town of Grand Chute. The 16-acre development off of Wisconsin Avenue is expected to open by October, and will likely attract other multi-tenant retail development sought by national franchises attracted to the consumer traffic Costco is expected to generate.

In Oshkosh, Sam’s Club officials are filing the final permits for a 136,000-sq. ft. club warehouse store on the site of a former Walmart store – since demolished and vacant for more than a decade – along the U.S. 41 retail corridor near the Experimental Aircraft Association.

These kinds of anchor retail establishments often negotiate development agreements governing the kinds of tenants who will occupy much smaller multi-tenant buildings in their outlots, such as national restaurant franchises and specialty retailers selling complementary – but not competing – lines of merchandise. Across the region, such locations have few vacancies.

“The good (retail) locations with the good anchor tenants are doing well,” said John Hintze, a commercial lender and vice president with First National Bank – Fox Valley. Hintze noted his clients developing retail properties who have greater equity are better able to be flexible with the lease terms these national retailers often demand. Such retailers come to the negotiating table with loads of demographic data and know exactly where they want to locate and exactly the amount of rent per square foot they should pay. Developers looking to land them as tenants often need to discount rents and sacrifice some short-term cash flow in favor of some longer term stability in their property investment.

“It’s really about having the flexibility to get the tenant in there,” Hintze said.

Building a downtown from the ground floor

The Greater Green Bay area community of Hobart was little more than a rural hamlet of western Brown County just a decade ago. Only incorporating from a town to a village in 2002, Hobart is the fastest growing community in Wisconsin, according to data from the state Department of Administration, and also ranks as one of the wealthiest communities in northeast Wisconsin with the highest median household income and highest average residential property values.

But there’s few retail and service providers to support this growing community. That’s about to change.

Shortly after current Village Administrator Andrew Vickers came on board in 2008, village residents developed a comprehensive strategic plan which set the stage for a brand new, contemporary community. The village purchased a 300-acre former bean field for $8 million along the State Road 29 corridor on its northern border with neighboring Howard, and its Centennial Centre at Hobart began to take shape.

In the more than five years since, 500 new housing units have been constructed and are nearly all occupied, Vickers said, as Hobart’s population grew by approximately 1,100 people, or nearly 20 percent.

“Our initial goal was bringing in rooftops,” Vickers said.

Two manufacturers have moved into the community: Centerline Machining & Grinding, a metal fabricator with a 30,000-sq. ft. facility and more than 30 employees; and EMT International, a manufacturer of printing technology with nearly 175 employees. In all, Vickers said about $67 million of new valuation has been added to the village’s overall property base since 2010.

This past January, village officials broke ground on the initial infrastructure for its roughly 100-acre commercial core, known as the MarketPlace district of Centennial Centre. “It’s essentially our downtown,” Vickers said.

The development dense, walkable plan for Hobart’s central business district anticipates a mix of specialty retailers, unique food and beverage establishments, various consumer services and additional housing. The proposed Hobart Crossing 178-unit high-end apartment development will begin construction this year.

“We’re shaping our community from the ground up – forever,” Vickers said, noting the village came together to establish relative lofty design standards for its new developments. “We have a long way to go, but we’re focused on ‘downtown’ Hobart.”

Vickers said he’s close to announcing a new multi-tenant commercial building which would house a chiropractic clinic as well as other office space. Vickers is pursuing a primary health care provider to come into the planned development with a clinic, and the village would also like to attract a convenience store and fuel station, as well as other consumer goods retailers such as grocery.

With a uniquely planned community being developed on the blank slate of a former agricultural plot and its ready access to heavily traveled Highway 29, Vickers said Hobart residents hope MarketPlace at Centennial Centre will become a draw for visitors outside the community as well.

“We’re changing our complete stance and lens on economic development,” Vickers said. “We’re urbanizing this area, but it’s going to be ‘urban Hobart-style.’”