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Sunday, 04 August 2013 21:34

Mixed-use, education and manufacturing projects dominate in Kalamazoo, Battle Creek

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Corporation Hall loft. Corporation Hall loft. PHOTO: JUSTIN MACONOCHIE

The commercial real estate markets in Kalamazoo and Calhoun counties still tell a story of recovery.

While companies continue to improve their performance and pump life back into their balance sheets, some brokers in the market are watching from the sidelines, waiting for the action to heat up once again.

[RELATED: Kalamazoo and Battle Creek projects that matter]

When businesses are up, the commercial real estate sector is up — and vice versa, said Ellie Callander, president and CEO of Callander Commercial in Kalamazoo.

Even though Callander said it’s tough times for deal making in Kalamazoo and Battle Creek, it’s not for the lack of trying — or access to capital, for that matter.

Both communities are seeing gradual improvement from the tremendous losses in asset value that hammered the real estate markets four years ago. It’s been a long climb back after some properties dropped between 25 percent and 75 percent of their previous values, Callander said.

“The absorption rate is definitely improving,” she said. “Not too long ago, it could take two to three years to get a property sold. Now we’re back to six to 12 months in some cases.”

While lending requirements have tightened up and interest rates are ticking back up, banks are still lending to the right deals. That’s especially true for quality industrial space, which continues to attract investors and sellers, sources said.

The trouble is there just isn’t much quality industrial space left.

That’s even evident at Fort Custer Industrial Park, which is filling up with expansions and new tenants particularly in the automotive supply chain, and the Western Michigan University Business Technology & Research Park, which is full but has plans to expand nearby to make room for more potential high-tech companies.

To add another layer of difficulty, many standalone buildings on the outskirts of both cities just don’t have the capabilities, transportation access and utilities for new tenants or investors, sources said.

Because much of the industrial inventory needs additional investment to bring them up to companies’ specifications, it remains a challenge for brokers to convince companies to buy, Callander said.

In dealing with site selectors, brokers are also having to do more inquiry and leg work in search of options as the available quality inventory dwindles. As a result, companies interested in Southwest Michigan are getting a dose of reality, Callander said.

Meanwhile in Battle Creek’s central business district, the same root problems are affecting the ability to get vacant storefronts renovated and filled with new tenants. That is, the inventory doesn’t necessarily match up with buyers’ needs.

Many of the available properties are too large for some of the interested retail parties and the businesses also aren’t interested in becoming landlords and leasing out the remaining space, said Cheryl Beard, director of commercial development for Battle Creek Unlimited.

“The biggest challenge we have for the (central business district) is we don’t have turnkey space. Most of turnkey space is occupied,” she said. “With the properties we have, these are not 90-day projects and developers get that, but end users looking now need space in 90 days.”

Given all these market hindrances and high construction costs, many companies are sitting on building plans.

The national Turner Construction Cost Index, which measures non-residential building prices, rose 4 percent since the same period in the second quarter of 2012, and it’s not materials that are causing the rise in prices. The New York-based firm said prices are on the rise because of contractors’ “limited capacity” and limited resources to spread around to major projects.

Sources said occupancy rates around both markets in Southwest Michigan have to jump a few more points before developers get comfortable with new construction or build-to-suit projects.

For Kalamazoo, Callander said the biggest challenge the city has had over the last 10 years to 15 years is the limited number of mixed-used, office/retail and residential space. But new developments are opening up options for both businesses and residents entering the community, she said.

“We’re in a healing mode,” she said. “We’ve all waited a long time for this to come back, and it feels good.”

Read 4588 times Last modified on Sunday, 04 August 2013 22:16

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