Grooters Not enough banks financing business endeavors

December 4, 2010
| By Pete Daly |
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“Banks aren’t banks anymore,” said Robert Grooters of Robert Grooters Development Co., still one of the largest of the privately held developers of industrial properties in the region.

Grooters said, however, that he is now seeing some glimmer of improvement in the industrial economy here, which he hopes will loosen up some of the capital held by the banks.

RGDC has about 1.5 million square feet of industrial/warehouse today. Since the 1980s, the firm has developed 15 million square feet of property, according to the company website.

If any West Michigan entrepreneur has been run over by the recession, it is Grooters. About 45 people who had agreed in 2008 to purchase condos in his 34-story, 206-unit River House development in downtown Grand Rapids later backed out, as the recession reduced the purchasing power of many consumers. Today, however, 75 percent of the units are sold, he told the Business Journal.

But the recession had a profound impact on business and industry, too, and that also hurt RGDC, which sells commercial land and leases office space and industrial space.

In August 2007, RGDC launched Grooters Green Group in one of the firm’s industrial properties on the south side of Grand Rapids near U.S. 131; it was a commercial/industrial waste removal service that recycled the materials it collected. In 2008, Grooters Green Group partnered with Goodwill Industries by hiring about 50 Goodwill workers at the recycling plant.

But Grooters said the recycling business had to close last year when world commodity prices plummeted, gutting the recycle value of scrap plastics and metals.

Another hit to Grooters’ industrial real estate business was the closing of many local factories since 2000, which created a glut of industrial/warehouse space in the region. Steelcase alone, he noted, closed many of its area plants, adding several million square feet of property to the real estate market.

“That had a big impact on the community,” said Grooters, but he added that now, many of the facilities that were vacant a couple of years ago are “getting filled up.”

“I see a definite swing in value of buildings in certain areas,” he said.

Some areas in the region that are relatively strong in the industrial/warehouse real estate market are in the vicinity of the Gerald R. Ford airport and in Walker, according to Grooters.

“The pendulum swings back and forth,” he said, indicating it appears to him to be about to swing back toward better economic times.

“A year ago, we didn’t get a call,” he said. Now, his staff is getting leads on two or three potential new deals each week.

“Automotive here is doing very well,” said Grooters, mentioning Lacks Enterprises Inc. The Cascade Township company is investing $2 million in new machinery as a result of a growing business with Honda.

Grooters said the manufacturing base of the regional economy is still strong; the challenge to owners of industrial and warehouse space is to provide manufacturers with energy-efficient space that saves money — “because energy costs keep going up.”

He said developers can buy old buildings “at super discounts” but they aren’t energy efficient, and “you could put so much into (renovating) old buildings that you can almost buy a new building.”

Food production, particularly baking operations, also are strong in the area, he said, pointing to ConAgra’s recent $18 million expansion in the former Elan Nutrition factory in Kentwood, which is expected to add more than 130 jobs — and not all hourly line workers, either. In late November, ConAgra began advertising openings for several middle-manager and higher positions at its Grand Rapids location.

Call centers and general office space are also a market for former industrial properties. RGDC has converted a number of former industrial spaces, “a niche we did for quite a while,” said Grooters, noting that the operating expense for industrial space is about $1.50 per square foot versus $6 for traditional office space.

RGDC built and still owns the building at 1351 S. Waverly Road in Holland that was occupied by Johnson Controls. When that automotive manufacturer moved out, part of the building was converted to office space and became a temporary home for the Haworth corporate headquarters, while the furniture maker’s new headquarters was under construction.

Now it is occupied by LeanLogistics on one side and a NOVO 1 call center on the other side that opened in September. The call center is hiring and predicted to employ more than 300 within a few years.

The trucking industry, which was on the ropes a couple of years ago, is making a recovery, too. Grooters said the trucking firms that survived the recession now have more business than they can handle, noting that one good example is Equity Transportation Co. of Walker.

Grooters said that in the 1980s when the economy was booming, his company would build a few 200,000-square-foot industrial buildings “on spec” to meet pent-up demand.

The difference today is that there are “extremely low interest rates” but great difficulty in getting a loan. And then there was the overall decline in sales and the drop in property and other asset values, which means many companies with reduced collateral values consequently lost their bank financing. Some that were growing, stopped growing. Others went out of business.

Grooters said it is “not right” for a bank to shut off financing that then triggers the closing of a company that has been successful for 30 or 40 years. “I think banks need to be a little more patient,” he said. “Most of these companies (with financial problems) are good companies.”

He readily admits, however, that the federal government changed the rules for the banking industry after the financial failures on Wall Street, which created “a mess” that effectively put banks out of business for the last couple of years.

Ever the optimist, Grooters predicts that the signs of recovery he is seeing, such as a reversal in declining industrial/warehouse lease rates near the airport, and the fact that no new industrial buildings are being built today, means “time is running out” on the good deals out there.

“There’s some good deals out there today,” he said. “You have to dive into them.”

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