Chicago developer finding opportunity in local market
While the industrial vacancy rate has crept up this year, one property owner is steadily leasing space in the region and has also sold a site — despite the economy and credit crunch.
Franklin Partners, a commercial developer from the Chicago suburb of Oak Brook that entered the West Michigan market in 1997, announced it had leased 20,000 square feet of office space at 4147 Eastern Ave. SE for 7.5 years to the AMI Entertainment Network.
The company makes digital jukeboxes, bill changers and countertop video games and was known as Rowe International Inc. AMI Entertainment will locate its sales and administrative functions in the space. The building also houses bookings.com, a division of Priceline.com.
Franklin Partners bought the office building and manufacturing plant on the 27-acre site from the Dematic Corp. three years ago. The lease with AMI Entertainment means about 75 percent of the office building’s 96,000 square feet is occupied.
“We’re about three-quarters of the way there. I think we’ve got about 24,000 feet to go,” said Donald Shoemaker, who started Franklin Partners with Martin McCormick in 1995.
The former factory has 320,000 square feet and is vacant. But Shoemaker said he is exploring a number of alternatives to draw tenants to it, including more call centers like bookings.com. Franklin Partners has added windows, dropped the ceiling, and generally turned the plant into the type of single-story office space that appeals to call centers.
“One of the (reasons) I think we’ve had success with the building is we have redundant fiber-optic lines coming in, so there is fiber optics fed from divergent geographic paths. For someone like bookings, who runs three shifts seven days a week, they have uninterrupted operations there,” he said.
“And we have the ability to provide heavy parking there. We have 10 spaces for every 1,000 feet leased. There aren’t very many office buildings that can provide that much parking, and that’s kind of the nature of the call centers and the deals we’ve been looking for.”
Shoemaker said it only took 17 days to move bookings.com into its space on the second floor, so AMI Entertainment should be set to relocate to the ground floor as soon as the firm’s build-out is done. Shoemaker said Gary Tamminga handles all the move-ins and is the best facility manager he has ever met. Tamminga joined Franklin Partners in 2006 after spending 23 years with Steelcase Inc.
“He can deploy and get things done more effectively than anybody. That has helped us get the tenants’ confidence that we will get them moved in, and up and running,” he said.
Grubb & Ellis|Paramount Commerce and First Companies brokered the lease deal that brought AMI Entertainment from its site on Union Avenue in Grand Rapids to the building. Rowe International merged with Merit Entertainment in April to form AMI Entertainment.
“We are very pleased to be moving into this great facility, which represents a substantial upgrade for us,” said Ed Gundrum, COO of AMI Entertainment.
“We are pleased to be able to maintain a strong presence in West Michigan and, as the economy improves, continue to grow.”
When the Business Journal spoke with Shoemaker, he said Franklin Partners was in the process of selling a former Steelcase plant at 5353 Broadmoor SE in Kentwood to the Roskam Baking Co. Franklin Partners bought the huge building, which has 666,000 square feet of space, in late 2005. Roskam Baking signed a lease last year that gave the company an option to buy the plant, and closing was to take place early last week.
“They signed a long-term lease with an option to buy, which they’ve exercised,” he said.
Roskam Baking, a contract food supplier, plans to invest about $65 million into the plant and add 1,500 jobs to its work force over the next five years.
Another building owned by Franklin Partners is fully occupied. Alticor Inc., now Amway Corp., leased the 35,000-square-foot structure at 6940 Southbelt Drive SE in Caledonia last summer for its information technology department. The company signed a 10-year lease on the two-story building and holds an option to purchase the nearly three-year-old structure.
Franklin Partners sold the front half of the former Stow Davis, and later Bosch, building at 4300 44th St. SE in Kentwood to X-Rite for its corporate headquarters in 2005, two years after acquiring the 915,000-square-foot plant. Shoemaker said the other half of the building was nearly full, with about 15,000 square feet left to lease.
Franklin Partners first entered the market a dozen years ago when it purchased the former Kelvinator plant at 500 44th St. SW in Wyoming.
“Things have taken a little longer than we projected and that certainly impacts profits. But all things considered, in this economy, things have gone pretty well,” said Shoemaker.
Shoemaker said one reason Franklin Partners has had success here, even during a terrible economic time, was that the firm bought buildings with special features that stood out from other structures in the market.
For instance, he said Roskam Baking liked the former Steelcase plant because it came with a heavy manufacturing infrastructure. The utilities were looped throughout the facility, which made it less expensive for Roskam to go there than to have to transform warehouse space to meet its needs. Then there is the fiber-optic advantage bookings.com found.
“So I think we’ve had products that have been somewhat easy to differentiate from the competition,” said Shoemaker.
As to what the immediate future holds for Franklin Partners and the industry, Shoemaker thought values would continue to drop as banks face a scenario where a number of their commercial real estate loans may go into default.
Still, he sees a silver lining in that gloomy financial cloud.
“It’s not a ton of fun on the ownership side to see your values decline, but there will be opportunities to purchase real estate that are going to be incredible,” said Shoemaker.
“I spend a lot of time meeting with the large banks and their workout groups. They’re going to have these commercial loans that the regulators view as toxic, and they’re going to want to get those off their books as quickly as possible. So as a cash buyer who doesn’t need financing to close on real-estate deals, we are going to, I think, be very busy.”