Some office owners still getting loans
The demand for office space in the metro area grew slightly over the last quarter, as documented in a report from Grubb & Ellis|Paramount Commerce, and credit still remains available to certain building owners.
“For owner-users that are going to be occupying space, there are still loans being made. And if you can get a loan, the terms are actually still very favorable. It’s tough to get, but if you get it, the rates are good,” said Chris Beckering, an office advisor with GE|PC.
The same, however, can’t be said for speculative buyers thinking of buying an empty building or for developers considering putting up a new office structure.
“It’s very difficult to get loans right now and lenders are requiring significant equity contributions, far greater than what we’ve seen in the past,” he said.
“If someone was buying a building at or below the appraised value and they put down 20 percent equity, that was pretty typical. But now we’re seeing equity requirements in the 25- to 40-percent range for speculative buyers. It’s all based on the level of risk. If you’ve got a full building, you can still get 15 to 20 percent equity,” he added.
As for the vacancy rate, Beckering called the metro office market “the little engine that could.” In spite of what some real estate professionals consider to be an uphill battle to get lawmakers to reform the Michigan Business Tax and lenders tightening most credit terms, he said he continues to see empty space slowly being absorbed.
Beckering said the heftiest gain in lease activity last quarter took place in the southeastern sector of the county, mainly at Centennial Park. Foremost Insurance built the mixed-use development more than 30 years ago at I-96 and 28th Street SE around its former headquarters. It was ahead of its time.
Centennial Park went up as a project that added residences, a golf course and retail services to an office park address long before mixing uses became a popular style of development. Today, mixed-use is almost mandatory in most instances.
“Right now, it’s rebounding. It was really one of the first mixed-use developments of its kind. Foremost was really on the cutting edge of walkable urbanity as it relates to a suburban setting,” said Beckering.
New owners, a new owners association, an additional 36th Street interchange off M-6, and being tucked into in the Cascade Township Downtown Development Authority district has revived interest in Centennial and turned the park into an improved multi-tenant address that Beckering said has affordable lease rates that go for around $17 a square foot.
“We’ve seen a real mix of tenants coming in there. There has been some expansion of the existing tenant base, and we’ve seen tenants new to the market,” he said.
“People are realizing that the fundamentals that made this park great when it was originally built are still in place. Now with the buildings being spruced up inside and out by the new owners, it’s a really attractive place for office tenants.”
Of course, the single, biggest lease deal during the last quarter occurred in the southwest suburb when Priceline.com agreed to take 45,000 square feet in a Wyoming building owned by Franklin Partners of Oak Grove, Ill.
As for the downtown market, Beckering said the occupancy rate dipped a bit recently as some professional services downsized and cut back on their space.
Rents for Class A properties over the past quarter ranged from $14.75 a square foot to $29.30 a square foot, based on where a building is located, its condition, its age and the number and type of amenities landlords offer tenants.
The market’s overall vacancy rate for the third quarter was 17.4 percent, 16.4 percent in downtown and 17.9 percent in the 10 suburban markets. GE|PC reported the metro area has 13.6 million square feet of office space.
Beckering said it was a good thing that the local market didn’t get too caught up in the office-building craze that took much of the nation by storm earlier this decade. By not doing so, the market avoided the rollercoaster inventory ride that almost always follows an expansion period.
“During the last two booms in the national office market, we didn’t really boom. We saw slow and steady growth of our tenant base, so we didn’t do a lot of new construction,” he said.
“While we don’t benefit from any pretty, new buildings, it’s actually quite good for the fundamentals of the office market in that we’re not increasing our inventory of available space.”