Midwest Real Estate News October 2010 : Page 1

midwest WWW.REJOURNALS.COM **DIRECTORIES: Construction • Asset/Property Management Firms • Green & Sustainable • Business & Industrial Parks Guide Page 28 COMPANY PROFILE CenterPoint Properties: Success starts with having the right people By Dan Rafter, Editor Paul Fisher, president of Oak Brook, Ill.-based CenterPoint Properties, recently spoke with Mid-west Real Estate News about the company’s suc-cess even in a down commercial real estate market. Fisher said that it’s the people at Cen-terPoint who have made the commercial devel-opment company such a success. Midwest Real Estate News: I know this is a broad question, but what are some of the rea-sons for CenterPoint’s success over the years? Paul Fisher: We have a terrific collection of not just entrepreneurs, but also of support staff. Our finance, ac-counting and human resources people are all amazingly tal-ented. A great company always starts with great people. MWREN: How have you managed to fill your company with such talented workers? Fisher: We’ve over the years evolved an exceptional culture. I like to think of it as controlled entrepreneurship. We look at deals very creatively and we make sure that our creativity is also responsi-ble. I think that attracts a lot of skilled people to our company. continued on page 20 R E A L E S T A T E N E W S® THE DAKOTAS | ILLINOIS | INDIANA | IOWA | KANSAS | KENTUCKY | MICHIGAN | MINNESOTA | MISSOURI | NEBRASKA | OHIO | TENNESSEE | WISCONSIN OCTOBER 2010 Low unemployment, diverse businesses help Nebraska through down times By Dan Rafter, Editor When Kevin Rhodes surveys the commercial real estate landscape in Omaha, he can’t help but be optimistic. Rhodes, senior vice president of the commercial divi-sion at Omaha-based Seldin Company, is well aware that office, industrial and retail transactions are still sluggish across the city. But the phones are ringing again at Seldin Company. Tenants are looking for bigger spaces in which to set up shop. Others are looking for better locations for their busi-nesses. It’s certainly an improvement from 2009. Then, the phones didn’t ring nearly as much. “There is definitely some improvement on the com-mercial side in 2010,” Rhodes said, when analyzing the Omaha commercial real estate market. “There seems to continued on page 18 VOLUME 25, ISSUE 5 Women in Real Estate Page 31 **SPECIAL SECTION

Keeping Steady In Nebraska

Dan Rafter

When Kevin Rhodes surveys the commercial real estate landscape in Omaha, he can’t help but be optimistic.<br /> <br /> Rhodes, senior vice president of the commercial division at Omaha-based Seldin Company, is well aware that office, industrial and retail transactions are still sluggish across the city.<br /> <br /> But the phones are ringing again at Seldin Company.Tenants are looking for bigger spaces in which to set up shop. Others are looking for better locations for their businesses.<br /> <br /> It’s certainly an improvement from 2009. Then, the phones didn’t ring nearly as much.<br /> <br /> “There is definitely some improvement on the commercial side in 2010,” Rhodes said, when analyzing the Omaha commercial real estate market. “There seems to be more velocity when compared to a year ago. Some large users of space are in the market again, looking around. We are seeing the smaller tenants looking for new spaces. In some cases, they’re looking for larger space. We are encouraged by the activity that we are seeing.”<br /> <br /> Rhodes isn’t alone. Commercial professionals in Nebraska’s two biggest cities, Lincoln and Omaha, are seeing positive signs when it comes to commercial real estate.<br /> <br /> Of course, Nebraska, like every state in the country, has suffered from the economic Effects of the recession and its painfully slow recovery. But when compared to most other states, Nebraska has actually remained quite strong during even the worst days of the economic slowdown.<br /> <br /> There are many reasons for this. The pros doing business in this Midwest state point to two main ones: a diverse base of businesses that support both Lincoln and Omaha, and a low state unemployment rate.<br /> <br /> <b>Keeping at Work</b><br /> <br /> Randy Lenhoff, president and chief operating officer of Seldin Company, pointed to the low unemployment rate in Nebraska as one reason for the relative strength of the state’s commercial real estate market.<br /> <br /> While the national unemployment rate in the United States stood at 9.6 percent in September, it was just 4.6 percent in Nebraska.<br /> <br /> This low rate means that there are actually employers in Nebraska who are searching for new workers.<br /> <br /> “We are seeing some job tightening,” Lenhoff said. “I don’t want to overstate that, but we are creating some jobs in the state. There are some good, solid companies here in Omaha. ConAgra, Union Pacific, PayPal, Berkshire Hathaway. We have a good variety of employers who have come through this downturn in reasonably good shape.” <br /> <br /> Lenhoff’s comments point to the second of Nebraska’s big success secrets: The state doesn’t rely on just one industry to power its economy.<br /> <br /> The University of Nebraska-Lincoln, of course, helps propel the economy in Lincoln, providing a host of jobs. But the state also features a robust agricultural industry and a thriving healthcare market.<br /> <br /> Then there are all the companies that have either headquarters or regional offices in Nebraska.<br /> <br /> “The broad-based employer base we have has certainly helped the state,” Lenhoff said. “Also, the fact that we are still an agricultural state has helped. Commodity prices have stayed up during the Recession, even during the worst parts of it. The farm economy is doing well.” <br /> <br /> This isn’t to say, though, that Nebraska and its two biggest cities hasn’t seen a slowdown in commercial real estate activity.It has.<br /> <br /> Just ask Tom Graf, a sales associate with Lincoln-based NAI FMA Realty. He’s noticed a definite slowdown in deal activity.<br /> <br /> “It’s just a bit sluggish right now,” Graf said. “We don’t have a lot of deal velocity right now.Not a lot of people are charging hard to get deals done. By and large, people are waiting out the present economic condition.They are not as eager to get out and look at properties.”<br /> <br /> There are even some buildings in the suburbs of Lincoln that have remained nearly empty since they were built, Graf said. Of course, developers had the bad fortune of erecting these buildings right before the commercial slowdown hit the country.<br /> <br /> It’s little surprise, then, that speculative building in Lincoln, as well as the rest of Nebraska, has ground to a halt.<br /> <br /> Graf, though, says that he’s happy to be working in Lincoln. Despite the sluggish nature of the market, the city is doing better than many others.<br /> <br /> A big reason, as in most of the state, is unemployment. Lincoln’s unemployment rate has barely touched 5 percent, even during the worst of the recession. And like Omaha, the city has a diverse employment base.<br /> <br /> “The University of Nebraska is a huge help,” Graf said. “There is such stability there. There are 20,000-some students who come here every year. There is the support staff at the university. Faculty members and administrators come here.That influx of people is very much healthy for our market in Lincoln.” <br /> <br /> Lincoln is also the state capital and the county seat. There are plenty of government jobs, then, to go around, too.<br /> <br /> “I’d say that we have more state office buildings than any other part of the state,” Graf said.<br /> <br /> The city is also home to some strong companies, such as Duncan Aviation, Assurity Life and metal-finishing company Lincoln Industries.<br /> <br /> Omaha has long been one of the cities that economic analysts point to as a metropolis that has survived the recession and its slow recovery in solid shape.Lenhoff says that another reason for Omaha’s success is that it draws shoppers from such a large area. This makes it an attractive city for retailers.<br /> <br /> Shoppers flock to Omaha from a distance of 150 miles away, Lenhoff said.The city also pulls in consumers from across the Iowa border.<br /> <br /> “Omaha being the largest city in the state, that has some obvious pull,” Lenhoff said. “We pull people from Western Iowa and from a big part of Nebraska.At the same time, we are the regional healthcare destination. We have a very Strong healthcare market here. The Nebraska Medical Center is here, the Methodist Health System is here.Creighton University’s medical school is also well-respected.”<br /> <br /> <b>Signs of Hope</b><br /> <br /> Rhodes spends large chunks of his days talking to commercial real estate professionals in Nebraska.<br /> <br /> The impression he’s received from all these conversations? Brokers and developers are seeing some signs of hope in Nebraska.<br /> <br /> Businesses, they say, are finally ready to start growing again, start hiring new employees again.<br /> <br /> “The conversation seems to be that people think that we have finally reached the bottom in terms of the recession,” Rhodes said. “And I think that businesses are compelled to want to grow. The charge of the business is to grow. I do think that businesses are being very prudent in their efforts to grow. So while we don’t think that we are going to see a huge boom in the marketplace, we do feel that we are going to see some modest growth. We are excited about that.” <br /> <br /> Both Lenhoff and Rhodes pointed to Union Pacific and ConAgra as two Nebraska- based companies – both are in Omaha – that are doing well even in today’s shaky economy.<br /> <br /> The railroad business has started to pick up again after a slow period, while the Food business has always been strong.<br /> <br /> As Lenhoff says, “You don’t cut out eating even when times are bad.” <br /> <br /> Consumers, though, have changed their eating habits. They are buying more of their meals at grocery stores as a lowercost alternative to eating out. Fortunately, this change of habit has not had a negative effect on ConAgra.<br /> <br /> <b>Conservative Nature Helps</b><br /> <br /> It’s become a bit of a cliché: The most successful markets in the Midwest are that way largely because of their conservative natures. These markets don’t experience the high highs and low lows of other markets across the country.<br /> <br /> Of course, just because something is a cliché doesn’t mean that it’s not true. In Nebraska’s case, for instance, a conservative nature has been a big reason why the state has weathered the recession as well as it has<br /> <br /> Most of the state’s commercial sectors never did see the massive overbuilding that other markets saw. This made even the worst days of the Great Recession a bit more bearable.<br /> <br /> Unfortunately, the state’s retail market was one of the few commercial sectors that did experience some overbuilding.<br /> <br /> “The retail market is overbuilt. There is some pain in that market,” Lenhoff said.<br /> <br /> What will bring retail back? That’s the big question, not just in Nebraska but across the country.<br /> <br /> “We need jobs,” Lenhoff said. “We need people to feel more secure in the jobs they do have. A lot of people here, like everywhere, are underemployed or worried about the security of their jobs. They are waiting another year to buy a new refrigerator, washer/dryer or new car.” <br /> <br /> “If your furnace goes out, you have no choice. You have to replace it,” Rhodes said. “But if the water dispenser on your refrigerator goes out, you can maybe wait until next year to replace it.”<br /> <br /> <b>Making Deals</b><br /> <br /> A recent deal completed by Omahabased NAI NP Dodge highlights the fact that while activity may be slower in Nebraska, it is still possible to get deals done.<br /> <br /> NAI NP Dodge vice presidents Chad Hansen, Dave Wilson and Jerry Hug, working on behalf of Harry A. Koch Company, recently brokered the sale of the Harry A. Koch Building in downtown Omaha.<br /> <br /> Project Harmony, a non-profit that provides services to in-need children, is the new owner of the 38,500-square-foot building, and will provide its community services from the location.<br /> <br /> Officials at Project Harmony said that the new space will be much appreciated.The community service organization had simply outgrown its current location.<br /> <br /> “We’ve done very well at our current location, but there simply aren’t adequate Parking and structural/viable options to meet increased staffing needs,” said Gene Klein, executive director of Project Harmony.“Every year we treat an ever-greater number of physically and sexually abused children. We must have room to grow so we can continue to provide critically needed services to children, and training and education to those who work on their behalf.”<br /> <br /> <br /> The sale didn’t take long, considering the state of the economy: NAI NP Dodge completed it within nine months of listing the property for sale.<br /> <br /> “It was a unique deal in that we only had the property listed for five months,” Hansen said. “It took just five months to get in contract with the buyer. We then had a completed sale from listing to closing in just nine months. That’s not the kind of market we are in. We are in more of a 12- to 24-month market.”<br /> <br /> Hansen said that much of the reason for this quick sale is a simple one: Project Harmony was the right buyer at the right time.<br /> <br /> Helping, too, is the fact that this was a cash deal. No banks or financing was involved.That certainly helped speed the process.<br /> <br /> “For the last 23 months, the banking industry has put the brakes on a lot of deals,” Hansen said. “We did not have to worry about that element. That was positive.”

Company Profile: CenterPoint Properties

Dan Rafter

Paul Fisher, president of Oak Brook, Ill.-based CenterPoint Properties, recently spoke with Midwest Real Estate News about the company's success even in a down commercial real estate market. Fisher said that it's the people at CenterPoint who have made the commercial development company such a success..<br /> <br /> <b>Midwest Real Estate News:</b> I know this is a broad question, but what are some of the reasons for CenterPoint's success over the years?<br /> <br /> <b>Paul Fisher:</b> We have a terrific collection of not just entrepreneurs, but also of support staff. Our finance, accounting and human resources people are all amazingly talented.A great company always starts with great people.<br /> <br /> <B>MWREN:</B>How have you managed to fill your company with such talented workers?<br /> <br /> <b>Fisher:</b> We've over the years evolved an exceptional culture. I like to think of it as controlled entrepreneurship. We look at deals very creatively and we make sure that our creativity is also responsible.I think that attracts a lot of skilled people to our company.<br /> <br /> <b>MWREN:</b>What are some of the other factors that have helped CenterPoint succeed all these years?<br /> <br /> <b>Fisher:</b> Another factor is our investment discipline. Since the beginning of the firm, we've always pursued a well-thought-out and defined strategy appropriate to the business environment. When we were public, we focused on the acquisition of industrial real estate, which then evolved into the development of industrial real estate.We always have targeted property that we could improve and sell, recycling our investment and profits into new investment.Over the years, we observed the growing importance of containerized freight and moved into developing intermodal facilities and ancillary industrial space. As a private firm, we've intensified and expanded this effort in Chicago and nationally in other portal markets with excellent rail connectivity to Chicago. We've concluded that the most valuable property is located proximate to rail and port infrastructure.Our core business has become building a portfolio of these properties through acquisition or development, while continuing our value added recycling business for less strategic properties in the same markets.<br /> <br /> We are always careful to protect and diversify our capital. We want to make sure that we have the firepower at all times to take advantage of opportunities in the marketplace.<br /> <br /> <b>MWREN:</b>From what I understand, CenterPoint isn't big on bureaucracy or red tape.<br /> <br /> <b>Fisher:</b> We have a very horizontal culture.We all see ourselves as participants in transacting business, as teammates bringing our respective skills to get a job done. I'm the President, but there isn't a real hierarchy here. We benefit from tremendous collaboration from everyone.It's been one of our philosophies from the beginning: Have two sets of eyes on everything.We try to put a lot of sets of eyes on the deals that we make to earn the greatest possible risk-adjusted return on our capital.<br /> <br /> <b>MWREN:</b>You talked earlier about controlled entrepreneurship. How do you make that balance between allowing your employees to be creative and making sure that the deals they are proposing make sense?<br /> <br /> <b>Fisher.</b> We have an independent duediligence team that looks at every deal.The dealmakers put together the transaction, and the members of the team take a long look at it. Every dealmaker is a great salesman, but we concluded we would benefit from an independent set of eyes to confirm the economics, examine the creditworthiness of the tenant, and look at the physical characteristics of the property.It all started 16 years ago when we asked an administrative assistant to coordinate physical and environmental inspections to make sure the required work was completed. She now is a Senior Vice President that leads a team of experts that doe this work. The team reports to my business partner, CEO Michael Mullen, who leads the real estate half of the business.The team can sometimes create heartburn for the transaction guys. But if we see problems, we won't proceed without adjusting the transaction. We always know what we are getting into and have to feel good about the potential for profit.It's better to make money knowing that you really made it instead of just making a deal and hoping it goes well. I've worked with companies that made a lot of money and lost it all. We don't want to be like that.<br /> <br /> <b>MWREN:</b>CenterPoint also creates and assigns a credit score to potential tenants at its properties. This seems like something most commercial real estate companies don't take the time to do.<br /> <br /> <b>Fisher:</b> We do have a credit-review process. Our credit manager independently has to approve the credit behind a lease. One in three tenants gets rejected through this process. This is a system that we have had in place for years now. We have developed our own credit score and it's proved to be highly effective. It's an important layer of review and has kept our bad debt expense low.<br /> <br /> Our tenants are manufacturers. They Have credit departments. Businesses check credit. Why shouldn't we? This sometimes creates tension among our transactors, of course, but all understand it's a good thing.<br /> <br /> <b>MWREN:</b>It sounds like you have a lot of safeguards in place to protect you from potentially negative deals.<br /> <br /> <b>Fisher:</b> We also have a Management Committee comprised of all our senior officers from all disciplines. Deals are submitted to this committee and dealmakers have to identify the risks, possible returns, and the range of results. We then go in a room where everyone can comment on the transaction. All have an equal vote. If there are any dissenting votes on the committee, we have to report it to the board. That's only happened two times in 20 years, because the rule incentives consensus.Harmony is important in an entrepreneurial firm. You get it when everyone is assured of a say.<br /> <br /> <b>MWREN:</b>How important is this constant back-and-forth communication to the success of CenterPoint?<br /> <br /> <b>Fisher:</b> If you came to our offices, you'd see that we have glass partitions between our offices. The executive staff sits on what we call Main Street, the hallway that connects the cafeteria to the rest of the office. Visibility and open doors promote dialogue. During a typical day, people spend most of their time talking about deals, about the business. Communication underlies the successful collaboration that we value here.<br /> <br /> <b>MWREN:</b>You believe in the value of forecasting, too, right?<br /> <br /> <b>Fisher:</b> We have a very elaborate forecasting model. We re-forecast the company continuously. We want to look at the implications of how what we are doing now will affect us in the coming years. The sharing of information that gets incorporated into our forecasts has allowed us to stay out of trouble during this downturn, as well as exploit opportunities.<br /> <br /> <b>MWREN:</b>What other steps has Center- Point taken to succeed?<br /> <br /> <b>Fisher:</b> We were one of the first real estate firms to hire a Chief Information Officer.The way you best control a company is by keeping the staff small, but very talented.By hiring a CIO and investing in systems, we've been able to keep our staff small and quite organized. We have created very detailed processes and systems.And we have also adopted the policy of outsourcing everything we can to best-inclass vendors. Being small and supported by top notch outside consultants has allowed us to be very nimble.<br /> <br /> <b>MWREN:</b>Are there any developments that CenterPoint is now working on of which you are especially proud?<br /> <br /> <b>Fisher:</b> The biggest project we have going on now, and probably most emblematic of our business strategy, is in Joliet. It's an intermodal center that we're calling the Port of Illinois. It encompasses 36 square miles and, when finished, will include the two largest intermodal yards in the country and will have about 30 million square feet of buildings. This inland port will move about 4 million to 6 million containers a year, ranking it with the combined ports of New York and New Jersey.We have eight or nine similar projects on a smaller scale going on now around the country.<br /> <br /> We are expecting to thrive now that recovery has begun. As survivors with capital, we are ready to move forward aggressively. Our acquisition and development activity is accelerating. This will still be a slow-growth year, but we are bullish on our intermediate and long-term prospects.

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