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Monday, 31 October 2011 10:50

Chicago’s Franklin Partners finds value in West Michigan industrial, commercial properties

Written by  Nate Peck
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Colliers

Donald Shoemaker (center), principal of Franklin Partners, has found a winning strategy by partnering with Derek Hunderman (left) and Duke Suwyn (right) of Colliers International.

PHOTO: JEFF HAGE

GRAND RAPIDS — Chicago real estate investor Donald J. Shoemaker knows two things about Michigan many of his peers in the Windy City don’t:

  1. Reports of the state’s industrial demise have been greatly exaggerated, and
  2. Don’t paint the entire state with one brush.

“People in Chicago ask, ‘Why are you going to Grand Rapids?’ They would say the same thing about Detroit or Flint,” Shoemaker said, noting the region has been largely undiscovered by outside investors. The reason: West Michigan was lumped together with the rest of the state during the decline of the automotive manufacturing sector in the early 2000s.

Shoemaker knows better.

“There is a strong manufacturing base here,” he says. “Walk around here, talk to companies around here and you’ll hear a different story than what you’ll hear in the rest of the country.”

That knowledge and a disciplined, Warren Buffet-like approach to value investing have helped Shoemaker’s Franklin Partners, LLC carve a niche buying and redeveloping West Michigan properties, particularly large industrial parcels, over the past decade and a half.

He follows a formula that would make the Oracle of Omaha proud: Find solid properties that are out of favor, pay cash, then renovate the property to suit current market needs. He then partners exclusively with the West Michigan office of Colliers International to broker the deal with new users.

Doing cash deals allows Franklin Partners to close transactions quickly, often at a discounted price. The Chicago firm then invests in bringing properties up to turnkey readiness so tenants can transfer their operations and be up and running quickly in a new site.

Shoemaker and Duwayne “Duke” Suwyn, president and CEO for Colliers’ West Michigan unit, have worked together for nearly 15 years to redevelop and market difficult properties, including former industrial properties that once housed Bosch Manufacturing, Steelcase and Siemens Dematic.

It wasn’t always smooth sailing.

Suwyn recalls his first deal with Franklin Partners didn’t end well. Suwyn, then at Grand Real Estate Inc., worked for Shoemaker to find a buyer for the former Kelvinator Plant on 44th Street. He headed into a meeting with Shoemaker one morning, feeling optimistic about the project.

Instead, he got fired.

“He thought he was doing the load of the work,” he said. “He leased and sold the building himself.”

Shared understanding

That rough start aside, Shoemaker found Suwyn to be an asset as he realized they shared an understanding of what industrial tenants need: the right space to enable them to grow their businesses.

While most developers will spread out their business among many brokers in a market, Shoemaker has defied conventional wisdom and utilized Colliers exclusively to broker deals in West Michigan.

Shoemaker says the reason he works with exclusively with Suwyn’s team is simple: “I don’t have to motivate them to market my properties,” Shoemaker said. “There is a shared intensity level. They are as motivated as I am.”

Timing is everything

Whether it was the renovation of the former Siemens Dematic plant in Wyoming or the former Steelcase facility at 5353 Broadmoor in Kentwood, Colliers and Franklin Partners find the timeline for transactions has become increasingly compressed. A recent lease deal was closed in 11 days from the client walkthrough to the company taking possession of the facility.

The key, Suwyn and Shoemaker say, is finding the right match between client use and the facility as tenants are often unwilling to make do with a space that doesn’t meet their needs exactly. The reason some industrial properties have lingered on the market is largely because of landlords’ inaction, they argue.

“Those building owners who don’t reposition the building prior to a tenant walkthrough prohibits them, candidly, from getting a deal done,” Shoemaker said. “We try to understand their requirements and know what the market needs. We don’t just lease space, we get them up and running. It is unique for landlords to relate to manufacturers and pre-facilitate a building so they can move in and be up and running within days.”

The stakes are high for companies as they evaluate the decision to relocate. A rebounding manufacturing sector has its perks and drawbacks, said Suwyn.

“If they make a move, they are moving their base of operations. Many companies are operating at such a high capacity that they cannot move because they cannot build up inventory enough to shut down their operations for a move,” Suwyn said. “Having a turnkey facility helps them mitigate risk and get up and running quickly.”

Rebounding real estate

Across West Michigan, the industrial real estate market remains strong as manufacturers look to increase their capacity. A drumbeat over the premature demise of manufacturing in the state has led many clients to believe there is a wealth of properties available in which to expand their operations, said Derek Hunderman, managing partner at Colliers International.

“Industrial seems to be our poster child. It is rather hot right now. Our overall activity levels have increased over the last 18 months; it’s a steady rise up. It is still a market dominated by trophies and train wrecks — there are very few trophies, but still some train wrecks out there,” Hunderman told MiBiz. “The thought is that I can find industrial space anywhere. The reality is there are very few good industrial properties on the market.”

Suwyn agrees. Companies looking to expand are finding they’re unable to lease property with adequate infrastructure, whether it is high-bay manufacturing space, proximity to transportation lines, or heavy-duty electrical service.

“We have literally no inventory,” Suwyn said. “We have clients looking at build-to-suit. We haven’t seen build-to-suit in years. I expect we will see speculative industrial construction within the next six to 12 months.”

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