After the grinding slowdown from the recession, the wheels of this region’s commercial real estate industry are again rolling along
The rusty adage of commercial real estate, “They only make so much land,” has tarnished the potential of Northwest Indiana, which has had a reputation of being a deserted island distanced from Chicago and the rest of the Hoosier state.
However, after the grinding slowdown caused by the recession a decade ago, the wheels of this region’s commercial real estate industry are again rolling along, greased by new developments, renewed hopes, and the rising possibility of the West Lake Corridor and Double Track NWI projects.
“There’s a lot of buzz about the Double Track project in the commercial real estate industry,” says Lori Tubbs, president of Commercial Advantage. Inc. in Merrillville. “Clearly, this is the biggest development that can affect several communities within Northwest Indiana.”
The Double Track project proposes a new set of rail lines between Gary and Michigan City, as well as new stations in Michigan City, Miller, and Ogden Dunes, costing roughly $350 million. The West Lake project would include nine miles of new rail line and four stations between Hammond and the Munster-Dyer border, costing roughly $775 million, including financing fees.
Indiana Gov. Eric Holcomb has said on numerous occasions that these projects will be “transformational” for Northwest Indiana, and the commercial real estate industry hopes to ride them toward a new identity for this corner of the state.
“We not only have had a lack of buildings, properties and zoned sites available, but also a lack of workforce,” says Tubbs, whose family-founded firm not only sells land properties but also job opportunities. “Along with Workforce Development, Ivy Tech and Purdue, we’re working to change that.”
“Too many out-of-state real estate brokers are still unaware of all the properties we have here,” she says. “Our region has a small footprint, but I think we’re doing pretty darn good overall. A lot of projects are evolving.”
Other key lynchpins for commercial growth are the Gary/Chicago International Airport, the Port of Indiana-Burns Harbor, and the proposed Illiana Expressway, which would connect Northwest Indiana and northeastern Illinois, economic analysts say.
“Traditionally, development challenges in Northwest Indiana have been associated with developers interested in pursuing sites with close proximity to the Illinois state border, as well as clean access to an expressway,” says Joe Rurode, director of economic development for the Northwest Indiana Forum. “But what has continued to evolve here, especially with the growing national demand for bulk distribution and warehouse facilities, is the confidence to push speculative Class A warehouse development further east and south beyond that upper corner.”
For example, the Garmong Construction Services’ 80,000-square-foot shell building in Valparaiso, and Becknell Construction’s nearly-completed 182,000-square-foot speculative building at Northwind Crossings Business Park in Hobart/Merrillville.
“We still see a large number of non-speculative projects interested in entering the northwest corner of the Northwest Indiana market, for the benefit of Indiana’s business climate,” Rurode says. “But we’ve also seen a considerable uptick in manufacturing, food and distribution companies interested in exploring sites and communities further out because of decent labor availability and significant quality of life improvements.”
Welcome to the middle of everywhere
The Forum recently launched a new publicity campaign, “Welcome to the middle of everywhere,” which could be the marketing mantra for commercial real estate here. The industry already has the benefit of riding the marketing coattails of several regional organizations, including the Forum, and the Northwest Indiana Regional Development Authority.
“We have a lot of hope that both rail projects will get done,” said Bill Hanna, president/CEO of the RDA.
And if or when they do, the projects can bring “development zones” within one mile of each new station to attract new commercial growth, with earmarked revenue reinvested back into those urban area zones.
“There are less options for commercial real estate development on the other side the Illinois border, and we also have a better tax climate here. We’re in a good position for 2018 and beyond,” Hanna says.
Holladay Properties in Portage, a full-scale land development and real estate company, has several projects in the works—and also in the books—throughout the region.
Its most promising development may be the Promenade at Founders Square in Portage, a mixed-use retail and residential development promoted as the city’s first real downtown center. It includes 306 residential apartments and 10,000 square feet of commercial space surrounding Founders Square and the Indiana American Water Amphitheater.
“Residential pre-leasing has been strong, with approximately 25 percent of the units already leased, and first tenants are expected to move in mid-year,” says Drew Mitchell, Holladay’s vice president of development. “Our first five buildings, comprising 200 residential units and ground floor commercial spaces, will be delivered and available for tenant move-in from June to October.”
The Promenade will provide luxury residential living in a walkable urban environment, which has not been offered previously in Portage, he notes.
“Commercial tenants currently interested in the project include a pub-style family restaurant, hair salon, insurance agency, retail bank, professional office tenant, and also the Greater Portage Chamber of Commerce,” Mitchell says.
Elsewhere in the region, Holladay has leased 97 percent at the 63,000-square-foot South Pavilion on the campus of the Franciscan Saint Margaret Hospital in Dyer. In Merrillville, the 389-acre Ameriplex at the Crossroads development offers sites up to 75 acres for office, industrial and commercial use. In Michigan City, the firm recently completed the Haskel building, a 64,000-square-foot, flex-industrial building. And is planning a new single-story building at its Lifeworks development on Hwy. 421, a 10,000-square-foot building suited for medical and retail tenants who desire highway visibility and easy access.
“Available office space in the Northwest Indiana market is becoming quite scarce,” says Mike O’Connor, Holladay’s vice president of development and leasing.
Between active and booming
Commercial marketplace activity across this region is strong, with industrial and office markets even stronger, according to David Lasser, principal broker at Commercial In-Sites, LLC, in Merrillville.
“Residential new construction is back to somewhere between active and booming,” he says.
This matters because retail development historically follows residential rooftops and related demographics. This will likely not change very much, he says.
“The global, national and local retail shift to online sales is stunning, and it remains to be seen what impact it will have,” Lasser says. “But changes, mergers and downsizing by the anchor stores will likely continue to occur to find equilibrium with the massive population that still prefers to shop in store.”
Industrial growth in the less than 25,000-square-foot market is strongest, and local developers are meeting the market, he says. Larger high-ceiling distribution and light industrial growth, up to 1 million-square-feet, is also gaining momentum.
“Because Northwest Indiana is continuously recognized as the true Chicagoland suburb that it is,” Lasser says.
For example, 12 multi-story “Class A” office buildings are reporting 100 percent occupancy, and four new construction multi-story office buildings will break ground this year in Hammond, Highland and Crown Point, he adds.
Ken Williams, a commercial real estate broker for Prime Real Estate in Crown Point, said the demise of retail real estate is greatly exaggerated.
“The day of the shopping mall may be done, and online shopping will continue to grow, but smaller, neighborhood retail centers will continue to do well,” he says, noting a recent survey showing that nearly half of its respondents still prefer shopping in physical stores rather than online.
One of the popular sayings in commercial real estate these days is “Retail’s loss is industrial’s gain.”
“There will be continued demand for warehousing and distribution centers,” Williams says. “The demands of this sector compared to real estate needs are different from the traditional uses of industrial property we have had in Northwest Indiana. One of our challenges is going to be constructing buildings that meet those needs. Given our location, I think that we have a great opportunity to become a logistics center of the country.”
Technological advances will allow businesses to do more with less office space. And younger entrepreneurs want more open-space floor designs, which may pose another challenge, he says.
“I would like to see continued emphasis on redeveloping older properties, including finding new uses for them when appropriate,” Williams says.
Tipping point or maximum peak?
Chris Deutscher, owner of Christopher Michael Properties, a brokerage firm in Michigan City, points out the need to develop commercial areas away from busy intersections and high-traffic corridors across our region. For instance, areas in the proximity of the Interstate 94 and Interstate 65 corridor, as well as Route 30 and Interstate 65 in Merrillville, where the twin towers office and retail space will soon to be razed, following the removal of the Radisson Hotel and, soon, the Star Plaza Theatre.
“We’re seeing a real estate rush right now, but we don’t know yet if this is a tipping point that will stretch out to those lesser developed areas,” he says. “Or if we’re possibly reaching the maximum peak for this real estate cycle.”
Deutscher echoes other brokers by believing it will take major employers relocating to this region before substantial commercial growth takes place.
“When they start coming in, the demand will take off,” he says, noting the need here for more residential housing that would attract top-tier executive professionals.
Tim Brust, a commercial real estate broker for Wille Stiener & Brust, Inc. in Valparaiso, was raised on a farm in Union Mills and now specializes in farmland properties.
Brust is again seeing “happy buyers and sellers” regarding agricultural or rural properties, rather than reluctant sellers and cautious buyers. “It’s nice again going to closings,” he says.
Historically, farmland sales are directly related to commodity prices, which are again trending down, a good thing for the market.
“Farmland sales go in different cycles than other commercial properties,” Brust says.
Some farmers will simply not sell their property to developers, even if its price is inflated high above market value. The value of money doesn’t compare to the land’s sentimental value.
With that said, more corn and soybean fields are being developed these days, especially in St. John, Crown Point and Cedar Lake, Brust says. The key to any farmland development is access to water and sewer, as well as road infrastructure. Without these necessities in place, a property’s usage may remain agriculture forever.
“Keep in mind that many people who own farmland properties have an emotional connection to their land. Or they may get only one chance to buy the right piece of land,” Brust says. “And as they say, they’re only making so much land.”