Commercial construction is on a roll.
by Heidi Prescott Wieneke
When Tim Healy started work for Holladay Properties in 2000, the South Bend-based company had nothing going on in Northwest Indiana. It was just him, a trailer and 386 acres of vacant land Holladay had purchased from Bethlehem Steel. Healy had his work cut out for him.
Holladay wanted this site to rival the strongest Chicagoland business parks and compete head-to-head for companies scouting those parks.
“The opportunity presented to me was to open a major development and to create a new regional office for our company in the Northwest Indiana market,” Healy says. And he had to accomplish this from scratch, because at that time, the market had no brand.
Healy quickly learned how the marketing maps and other commercial real estate materials that were given to companies looking at the greater Chicago area stopped at the Illinois-Indiana line. “We had to sell Indiana much harder than we do today,” says Healy, now senior vice president of development at Holladay.
But he never forgot the phone call he took from a Dallas real estate broker, who said a major auto manufacturer had completed a market study of its facilities and suppliers. That study concluded that DaimlerChrysler needed a cross docking facility in Portage.
That was the start of Holladay's AmeriPlex at the Port, a 400-acre high-tech industrial and commercial park. The DaimlerChrysler facility handles all small auto parts shipments.
“I thought, ‘Wow, this is easy,'” Healy says, alluding to his naivete about what it would take to build the Northwest Indiana market one project at a time. DaimlerChrysler-type projects would not be the norm. It would take years to build the market Holladay envisioned. “Little did I know that would be the only call like that in 14 years,” he says.
But Northwest Indiana has grown into a true competitor against Chicago. Commercial deal activity is up and expected to gain more traction as 2014 draws to a close, in large part because of the business climate. The cost of doing business in Indiana is lower than Illinois and that is enticing, engaging and attracting companies to cross the state line.
“We're seeing a lot of Chicago companies moving to Northwest Indiana. It is real. It's not a rumor. Whether the companies have a real estate broker working with them from Chicago who contacts us, or they contact us directly, they are interested and ask a lot of questions,” says Roy Roelke, associate broker at Newmark Grubb Cressy & Everett.
They ask about the communities in the northwest part of the state, and whether certain communities would welcome their type of business or industry. They want to know if they would face adversity or opposition. They ask about the workforce and about tax abatements.
“If they're looking at other states, Indiana usually has the better business climate,” Roelke says. “For those that are moving freight, the location is all about how much of the U.S. they can reach in the shortest travel time. We have reputable companies locating here and that's drawing others here.”
Parts of Northwest Indiana are seeing their highest level of commercial construction since the 2008 recession. Indiana is proving, time and again, the best fit for companies that want to move or expand their operations.
Alcoa Howmet broke ground in May on a $100 million aerospace expansion that will meet growing demand for the nickel-based super alloy jet engine parts it manufactures in LaPorte. The project is expected to create more than 325 new jobs by 2019. Urschel Laboratories is building a new $80 million headquarters on 71 acres in Chesterton. The company bought more than 160 acres to take into account plans for future growth. And Pratt Industries is constructing a $260 million recycling plant next to its cardboard box plant in Valparaiso. Dawn Foods is constructing a new distribution center at AmeriPlex at the Crossroads in Merrillville, along Interstate 65.
But it was Holladay's AmeriPlex at the Port in Portage that started the dramatic shift of business from Illinois to Indiana. And the business park continues to attract activity; MonoSol broke ground this summer on a second plant in that community that constitutes a $95 million investment in a 300,000-square-foot facility.
Commercial brokers agree that AmeriPlex at the Port is now considered a Chicagoland-area property, offering easy access to major transportation links by land, air and water, as well as savings in taxes, operating costs and land. Holladay has been quickly leasing The Belmont, the park's newest 50,000-square-foot speculative building.
Holladay has experienced success by building speculative space one building at a time. In 2000, DaimlerChrysler proved to be the first in a string of speculative projects. Activity was strong until the economic downturn that followed 9/11, and then again to a much larger degree after the 2008 recession.
“Speculative projects became harder to finance. It slowed us up, demand diminished and our ability to fill space was hampered,” Healy says. “We actually had some of our best years with build-to-suits during the recession. Companies cannot afford to not look in Indiana.”
To date, Holladay has constructed more than 3 million square feet in Northwest Indiana. While some of the projects have sold over the years, Holladay still largely owns and manages most of this commercial space.
Holladay has recently seen an influx of institutional buyers that were nonexistent when the company embarked on its Northwest Indiana expansion in 2000. “This is an important trend because lenders are able to validate property exit values, which assists in financing new projects, Healy says.
AmeriPlex at the Port is one of several projects in Northwest Indiana that are continuing to see increased post-recession demand for industrial and commercial space, says Jeff Bennett, founder and president of McColly Bennett Commercial Co., in Bourbonnais, Ill.
Also creating interest are the LaPorte intermodal project and Becknell Industrial's 200-plus acre master-planned NorthWind Crossings business park.
NorthWind is located near Interstate 65 at the 61st Avenue exit in Hobart, just 25 miles from Chicago. Home to more than a dozen businesses, NorthWind is shovel-ready and seeing increased demand from prospective tenants, Bennett says. “As we travel to investors in Chicago, we are commonly approached by industrial developers looking for land to develop the next industrial park along 80, 94 and 65,” he says.
The interaction McColly Bennett real estate brokers have for potential industrial development in Northwest Indiana seems to be twofold, he says.
“There is interest from industrial Realtors and REIT who look for enough land mass along major transportation routes to build warehouse distribution facilities to service Chicagoland and Northwest Indiana. Their interest is in 200 acre-plus to accommodate buildings from 250,000 square feet to 1 million square feet,” Bennett says.
The other area of interest comes with small manufacturing facilities looking to move from taxation and regulations that exist in Illinois.
“Seemingly, we see the increased demand in retail development based on consumer confidence and improved spendable income,” Bennett says. “And Northwest Indiana has been a leader in new home starts in places like St. John and Crown Point, so we're seeing the need for new retail facilities to satisfy the improved demand.”
An increase in new housing starts often leads to retail, restaurant, hotel and service industry growth. Dennis Larson, vice president of Diversified Commercial Real Estate and Commercial Co. of Munster, says his company has been involved in expanding the presence of national clients in Merrillville and Hammond.
The market is better today, but Larson said it is very selective.
“You follow every lead you get, and until the buyer finds he can't get financing, you just play it out,” Larson says. Ross Dress for Less, Gordmans, smaller sandwich shops and dollar concepts–from Family Dollar, to Dollar Tree, to Dollar General–are adding locations, he says, but the large national restaurants don't open as many new locations as they used to.
“Opening a steakhouse today is twice as risky as opening a Dunkin' Donuts,” he says, because many retailers and restaurants are still feeling cautious. They're afraid of the economy and whether their numbers will be where they need them to be for greater expansion in the next couple of years.
The Shops at Main in Schererville has seen success in the past year with new tenants like Ross, Gordmans, DSW Shoe Warehouse and HomeGoods, but Larson says these stores are not the high-end retailers that had been pegged for the center back in 2007.
“We're getting good tenants, but not as many high-end tenants. It's not easy for some to pull the trigger on a new location,” he says. “The comfort level that allowed owners to say, ‘Let's just open a store' isn't there anymore in this economy.”
Commercial brokers like Roelke said they have been hearing a recurring topic at real estate conferences: outsourced jobs are coming back to the U.S.
“They're coming back to Northern Indiana because transportation rates overseas are becoming so great for containers and rail. Wages are also going up and they're experiencing quality control issues. This translates into more requests for property and for space,” he says.
While there appears to still be excess inventory from the economic slowdown, Roelke says some of that available space is not suitable for companies looking to expand. Ceilings are not high enough or buildings are too outdated and inefficient.
“Even though sales are still not back up to the normal levels we saw before the recession, we've been seeing many more requests for land,” Roelke says. Companies today aren't always willing to retrofit their operations into a space that doesn't quite meet their needs.
“Northwest Indiana is coming back fairly strong because of its association with the Interstate 65 corridor, which has been the fastest-growing corridor in the country,” he says. And that corridor is precisely where some commercial brokers see the most opportunity heading into 2015. There has been talk of some potential speculative development near the planned Illiana Expressway, a 47-mile tollway south of Chicago that leads into Indiana.
Todd Dickard, senior associate broker with South Bend-based Bradley Company, gives Holladay Properties credit for developing the AmeriPlex projects, but he says the time has come to add more product to Northwest Indiana, especially since brokers now consider the area a submarket of Chicago.
“I'd like to think Northwest Indiana is ready for a fourth or fifth park,” Dickard says. In addition to manufacturing and distribution, health care is a growing industry segment.
“We have a product problem and that's pretty well understood and agreed upon. We don't have a lot of good functional space. We could use more product for distribution in Northwest Indiana,” he says. “Business activity is up and better–much better now than it has been the past few years and compared to the recession. It's obvious and we're all encouraged.”
