Staying positive in a troubled market

December 9, 2008
| By Pete Daly |
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For a commercial real estate executive who demonstrated a good business sense early on, the best advice Aaron Young can offer now is that "everybody's got to stay positive" in the face of the economic situation facing America — especially Michigan.

"The only thing we can control right now are our attitudes, right? I'm forcing myself to laugh more," said Young, president and COO of The Wisinski Group.

The 38-year-old, who said his life is mainly "work and the kids," evidently finds it much easier to stay positive when he thinks about his wife, Charlotte, and their three children, ages 2 to 7. In an interview with the Business Journal in late November on the day of the first heavy snowfall of the season, most of the talk was about economic turmoil — but Young digressed for a moment to mention he was looking forward to getting home a little early that day to get the sleds out for the kids.

Young did offer some serious observations about the economic crisis that some might find encouraging.

Since "the banking industry went into disarray, it has really frozen up the markets," he said. In commercial real estate, there are projects that aren't getting financed. He added that companies "aren't able to access capital for general operating purposes, let alone real estate related" expenses. But Young has reason to be hopeful for a change in that situation because "that $750 billion bailout package hasn't hit the banks yet."

Although some people have expressed the opinion that banks are "sitting" on the bailout loans from Congress, Young said he is certain for the most part that the money hasn't even gotten to the banks yet.

Aaron Young
Company:
The Wisinski Group
Title: President and COO
Age: 38
Birthplace: Grand Haven
Residence: Ada
Personal/Family: Wife, Charlotte, and three children, ages 2 through 7.
Biggest Career Break: "Meeting Jim Droge Sr. of Droge Construction Co. back around 1999. We've done about 15 projects together. That really got me focused on retail investments and brokerage."

"Maybe in a few select cases the money has gotten to the bank, but it isn’t like the federal government pushes a button and everyone gets all this money. You have to go in with a formal application requesting a certain dollar amount," he said. "This is so much more complicated than people understand. …  All I know is that liquidity from a banking standpoint has not hit the market yet."

Young said that around mid-November he asked a banker when the bailout funds would be in circulation and the banker did not know.

"I know of some very specific banks that I won't name that have their applications in (for bailout loans from Congress), and they have not even gotten a response yet. And their comment is, 'We can't do anything until we get those funds in,'" he said.

The current economic situation is complicated by major problems in several sectors simultaneously, including retail sales, housing and auto sales.

Young is an expert at retail real estate. On the side, he is one of the owners of U.S. Retail, a Muskegon-based company that operates nine Pet Supplies Plus stores, mainly in Alabama and Texas. Young handles the company's real estate transactions.

A native of Grand Haven, Young earned a degree in finance and marketing at the University of Michigan. When he was 24, he started a cleaning company called Progressive Building Services and sold it three years later. He noted that it is still in operation today.

Young first went to work at S.J. Wisinski in 1998. He said he left there about six years later to start his own company, Retail Development Group. About a year and a half ago, he returned to Wisinski, now known as The Wisinski Group, as president and COO.

He said retail is a reflection of disposable income, and he believes housing is a leading indicator for retail sales.

"When is (housing) going to come back? I don't think anybody knows, but from a retail perspective, I think we are three to five-plus years out," he said.

"Everything I'm saying right now hinges on what's going to happen with the automotive industry and their bailout. Who's going to fall out? If Chrysler falls, what's the trickle-down effect of something like that — just in our region? I can't quantify that."

Young said commercial real estate transactions have traditionally been about 50 percent sales and 50 percent leasing.

"With respect to real estate, right now, without liquidity (available capital), we're probably about 90 percent leasing," he said. And the retail leasing market is in flux, too, due to the downturn in the U.S. retail industry.

According to the U.S. Department of Commerce, retail sales in October were the worst in years. Young noted that the recent failure of Circuit City was a shockwave in the retail industry, it having once been "the darling child" of the retail electronics industry.

"Unfortunately, I think we're going to see quite a few filings (for bankruptcy) come the first quarter of '09, so we are going to see an increase in retail vacancies for sure in '09."

Young said retail real estate is already seeing "a lot of renegotiations" mid-way through leases.

"Right now the national retailers are not opening new stores, period, but if they are doing anything, they have a relocation strategy," he said. The relocation would be in the same area but with a better leasing deal.

"They're negotiating this landlord against that landlord," he said.

The fact that lease incomes will be going down will tend to reduce the overall value of commercial properties, he said.

It is not all doom and gloom in commercial real estate, however, at least not in Young's perspective.

"There's a handful of healthy local/regional banks that are doing deals," he said, "like a United Bank or a Byron Bank. If you approach them, they're trying to do deals.”

Just be advised that the loan values have changed of late. Two years ago, he said, capital for real estate deals could be borrowed with only 15 to 20 percent down. Lately, however, the banks are looking for 30 to 40 percent down from the borrower.

Still, the commercial real estate industry is "fortunately seeing a lot of leasing activity, a lot of movement in office (space), and then we've had some very sizable industrial deals in the last 90 days."

In late November, a Southwest dairy products company, Arizona Maricopa Associates LLC, finalized its purchase of the vacant former Delphi plant in Coopersville. The plant had stopped making auto parts in 2006, with the loss of almost 700 jobs.

Young said individuals with cash to invest in commercial real estate are "nesting" right now due to widespread losses in the stock market and the uncertainty in the economy. But he pointed out an economic reality: Eventually, "that money is going to come back and they're going to find some really opportunistic deals. They're going to take advantage of the market conditions being created right now."

"I don't want to paint a negative picture because we are going to come out of this. The question is when," he said.

Here in Michigan, in particular, the uncertainty surrounding the Big Three’s appeals for help from Congress is the wild card.

"I don't know anybody who fully understands the impact of a Chrysler or GM going out of business," he said.

"We'll see," said Young. In the meantime, "Everybody's got to stay positive."

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