Transcript: IBJ Commercial Real Estate and Construction Power Breakfast

Indianapolis Business Journal gathered leaders in the state's commercial real estate and construction industry for a Power Breakfast panel discussion Sept. 10.

Panel members were Amy Burmeister, a multi-family broker at Summit Realty Group; Katie Culp, president of KSM Location Advisors; Philip Kenney, president of Wilhelm Construction; Dan Richardson, senior vice president of CBRE; Bryan Poynter, senior vice president at Cushman & Wakefield; and Gary Perel, senior director of retail services at ALO Property Group.

IBJ reporter Scott Olson led the discussion.

The following is an unedited transcript.

OLSON: We'll start with a question for Amy and one that is always a hot topic. So what is the downtown occupancy rate for the multi-family sector and what's the outlook for the downtown market given all the projects that continue to come online?

BURMEISTER: Ninety-five percent is the current occupancy rate for downtown, which includes affordable and market rate property. We've absorbed everything that we've constructed—student, affordable and market rate—so I think the outlook is good. If we see a 2 point drop in occupancy and we're at 93, 94 percent, that's still a phenomenal downtown market.

OLSON: So you foresee it staying in the 90s for a while?

BURMEISTER: Yes.

OLSON: Okay, great. Okay. Well, Katie, you help companies locating to Indiana land incentives. There have been some changes at the state level on how those incentives are doled out. Can you talk about those changes?

CULP: Sure, thanks. Yeah. As many of you may know over the last legislative session that some changes came about where a study committee is starting to look at EDGE credits and training grants and even put some caps on some of these programs. So there is certainly increased scrutiny on projects that are appearing before the state right now. I think in parallel to that something else has been going on where there's a real focus as the economy has been rebounding on really targeting incentives for higher wage jobs. So while I applaud that effort, it certainly is becoming more challenging to get larger amounts of incentive dollars for projects. There's increased scrutiny, and so I think it's probably a trend we're going to see as long as the economy stays where it's at.

OLSON: Okay, great. Well, Phil, Cummins is making one of the bigger investments downtown with the construction of its distribution headquarters building. With Wilhelm as the general contractor, what can you tell the audience about the progress of construction and what are some of the more challenging aspects of it?

KENNEY: Driving down here this morning I saw we were up to the second elevated level which we'll pour next week and then by Thanksgiving we should be up and have poured the roof out, so it's going very, very well. It's a safe project and the quality is very good, so progress is going well. You'll start to see the last follow the frame up in the air. The challenging parts of the project were/are, continue, just location, getting materials in and out, so logistics is an issue. Cummins has a long history of challenging architecture. You can see that, so there's a lot of angles and different layout issues that we have to work our way through to get the project built, but we're making some great progress.

OLSON: Great. Anybody have any thoughts on the design? I don't know if you've seen any renderings.

PEREL: It's beautiful.

KENNEY: I was talking to Bryan Poynter here before. He's an old eastside guy and we still live on the eastside and it's wonderful the investment that they're making on the eastside of downtown. I think it will be a great gateway to the city.

OLSON: Yeah. Okay. Well, Gary, one of the more hotter trends in retail seems to be micro-breweries. Is there still room for more and what else is hot in retail?

PEREL: Well, I think there's always room for great retail and great restaurants and microbreweries are certainly a part of that. I mean retail-wise in general I think the focus really is on millennials and what they like to do, and the trends as far as retail is concerned are e-commerce. How do you touch the millennials before, during and after the experience? But locally chef-driven restaurants are becoming very popular. Indianapolis has gone through great revitalization in that regard. It used to be chains, pretty much chain-city. Now it's unique and all the new concepts have really put Indy on the map as far as winning awards, the James Beard, so on and so forth. And QSR, quick-serve restaurants, are becoming even more popular and we've got gourmet pizza concepts and quick-fire pizza is really strong and gourmet burgers, so those are the trends I'm seeing.

OLSON: Steakhouses seem to be pretty hot downtown as well.

PEREL: Steakhouses are very hot and so long as they continue doing the kind of business they're doing, I think other players are going to continue to look at the market for that.

OLSON: Bryan, we're also seeing a lot of activity in the industrial segment. Do you think that the spec industrial space being built will be absorbed or should we be concerned?

POYNTER: We all come here to hopefully learn something, see friendly faces, and the only thing that I will take out of here today—because I'm not sure anything that I have will be insightful or intriguing—is that I think I want to work for Centier Bank. I need an application. After three name changes in two years, I could use an application. It's a very good question and the answer is: It's about time because we were at the beginning of the year anticipating absorption of what at the time was close to 4 million square feet of spec space sitting all over the city and all over the metro area. And thankfully we have probably close to 3 million square feet of leases that are either recently completed, as in the last couple of weeks, about 2 million square feet of renewals that are going to be happening, and I would go so far as to predict that before the end of the year or soon after the first of the year, another 3 million square feet of leases that are going to be coming to Indianapolis. So the answer to your question is: I don't think that we're overbuilt. Any developer, and many are in this room here today, are probably having meetings or discussions sometime today about where is the next location for a spec building and how big should that be.

OLSON: Okay. Well, just quickly following up on that, if those projects do in fact lease up as anticipated, what should the market expect in terms of new development? I think you mentioned 3 million square foot?

POYNTER: I don't know what the new number is, but I can certainly tell you if you drive around Indianapolis or any of the metro areas where there's development of industrial buildings, there are pads being scraped literally all over town anticipating that new, next wave. And when that hits, as I said before, most of these professionals sitting at the tables from a development perspective have had or are going to have conversation about when and what is the right size building. We can get into that a little later, potentially, but I don't know how much is going to come out of the ground next year. But look for another big wave.

OLSON: Okay, great. Well, switching to the office market. Dan, what would you cite as the most important trends in the Indianapolis office market?

RICHARDSON: Well, I would divide that between the suburbs and the CBD. So to start with the suburbs I would tell you that we've had steady demand now for several years coming out of the recession and we've kept a lid on new construction. For comparison purposes I'll tell you right before the recession, in that '07/'08 timeframe, in the suburbs we had about 900,000 square feet of speculative development and about eight projects and not a lot of pre-leasing in that. For those who don't follow square footage, that would be about the size of Chase Tower downtown. So contrast that to today when vacancy rates now are similar to where they were before the recession. We've got 220,000 square feet of construction in the ground and much of that is pre-leased—65 percent of it's pre-leased. So I would tell you in the suburbs that lack of construction and steady demand is leading to pockets of rental rate growth in the marketplace. So that's a great trend and one that's exciting to people, not just landlords in our city but investors from outside of the market seeing that take place. For the CBD, I would probably not point to a trend as much as we've got an event that we're waiting for and that would be the Salesforce.com deal. And I think people want to know where they're going to go, how much space they're going to take, how much space they're going to leave behind when they take the additional space and when they're going to take it. And I think that that'll be a big moment to kind of see where we head for the next couple of years in the CBD.

OLSON: Do you have any insight on where they're going?

RICHARDSON: No. There are individuals in the room that do, but not me personally.

OLSON: Okay. I'll throw this one out to the panel. What makes sense for the portion of the GM Stamping Plant site where the city had hoped to build the criminal justice center? Anyone who wants to weigh in, feel free.

BURMEISTER: I'll take it. I think it's bigger than that. I think it's the entire site. We've got a hundred acres downtown Indianapolis that's really a gateway to that section of downtown and I think we're missing the boat by looking at bifurcating it in any way. You have river frontage and an interstate exit. And if you look at Keystone at the Crossing, I think it was 50,000 square feet to start. None of these things were built overnight. And if we look at it as a long-term play, it looks a lot different than what we've been seeing, the ideas that we've been seeing.

POYNTER: I would even go further than that. I would say that if Indianapolis doesn't demand that that site become an iconic destination place to bring people from around the world, it's not just this or just that, but that whole project, I believe that that site is the future of downtown Indianapolis, and if downtown Indianapolis isn't strong, the rest of Indiana's not going to be strong to follow. And if we don't put an iconic destination on that, and I'm not smart enough to tell you or anybody in this room what that looks like today, I've heard ideas, that is the future of the state of Indiana in downtown.

CULP: I'd agree with that as well, and I think Amy's point about not bifurcating it is a good one. It's a little hard for me to get too excited about this landmark destination because I'm such a traditional economic development person and there's an easier, shorter solution to have more traditional economic development occur there right away. You could add to the tax base right away if you did some sort of mixed-use office/industrial development. But I think Bryan and Amy are exactly right: This is a kind of once-in-a-lifetime shot and I hope the city and the state take it.

KENNEY: I agree. I think I've got the most gray hair up here and I remember back when the city became the amateur sports capital and all the various venues that were developed then with government and the P3s back then—I'm not sure what they were called. But I think that's the area that the next big investment needs to be made if we're going to keep up with cities around here—Columbus, Nashville, all of these others. If we want to have people keep coming here, definitely there needs to be a huge investment in that area.

PEREL: Speaking of cities that have made that kind of investment and to have the kind of appeal aesthetically, I just think of Cincinnati downtown on the river, on the Ohio River. The White River presents that same type of visual appeal that I think can be purposed well.

OLSON: Okay, great. We've got our first question from the audience. I'll throw this one out to you as well, to anyone. Do any of you believe improved mass transit will be worth investment in ROI terms? Anybody have any strong feelings on mass transit?

RICHARDSON: I do have strong feelings on mass transit. I've been working in the office market for 28 years and, quite honestly, 28 years ago our CBD office market was 11 million square feet and it's about 11 million square feet today and compare that to the suburbs. Again, it was 11 million square feet, the same as downtown, 28 years ago and it's about 30 million square feet today. So we've seen about three times the growth in the suburbs as we have in the CBD office space over that timeframe. And people come and ask, "What can we do to help grow the downtown CBD office market?" And we've been asking that question for 20 years and I believe it takes about 15 or 20 years to get mass transit developed in our city. And I think we just continue to miss the boat on that. If you look at places like Chicago that have the "L" and you look at a trend that's currently going on in office space where we're really on select occasions, not overall, using more density of office space, more people within the office space. We're starting to see in the suburbs now the need to build a parking garage and an existing surface parking lot to take care of that or not being able to fulfill requirements. And I think downtown is missing the boat on that. If we could get people downtown from a mass transit point of view and get them to fill these buildings, it's a great niche for us to fill to compete with the suburban market. So I'd be a great proponent of getting mass transit.

POYNTER: I have no idea unless it involves forklifts and then I'm for it.

OLSON: Okay.

KENNEY: I'm all for building more parking garages downtown, but I also support what everybody said here: We need mass transit. I have a lot of friends that come in from the east coast, the west coast, and they are amazed that we don't have it from the airport downtown or something as simple as that. So, yeah, we need it.

CULP: I agree it's needed. But it's such a difficult political sell. We in the Midwest are so married to our cars that I just think it will continue to be a challenge. I suspect we'll be having this conversation again in 15 years.

POYNTER: Why are you so down on everything?

CULP: Debbie Downer over here.

PEREL: I think downtown itself can be a nice little test sector for trying to figure out mass transit in a better, more efficient manner, and that's where things could start and then progress to the suburbs.

OLSON: Okay. We have another question from the audience before moving on. This one's for you, Phil, and it's one that we've discussed a little bit. It says construction shows no signs of slowing down. However labor availability is proving to be a challenge. How do you foresee the skilled labor shortage affecting the industry in the next five to 10 years?

KENNEY: There's shortages in the design community. There's shortages in the construction management community. Also in the trades. And the biggest shortage are the actual construction trades. And it's not that you're missing entire crews from a project, you're missing three electricians here or two bricklayers here. So it's spread throughout all these projects. And so you're going to start to see projects take a little longer to build and I think at some point you're going to see the costs go up. I think there's three ways we need to get over these shortages or start working on them. One is, if there's any politicians in the room, they need to solve the immigration problem, whatever that is. I think we need to convince young people that it's okay to go into a construction trade. There's some that don't need to go to college that you can make good money and a good living there. And I also think we need to convince the parents today that it's okay to let your child go into a construction trade. So I think you put all of that together and we'll begin to see that. But those kind of changes and adjustments are going to take 10 or 15 years to take care of the shortage that you're seeing

POYNTER: I think the question's maybe a little broader that was asked and would offer this: There's probably not an economic development professional, especially on a local basis or in any one of the municipalities, many of whom are in this room right now, that aren't working on a definitive, clear and precise answer to the question that they get every single time you take a manufacturer, a new warehouser, someone of any substance who's hiring hundreds of people. Before "How much is the land?" "How much are the economic incentives we'll get?” The most important question that they ask— and they don't want to just get the "We're all good here" (indicating thumbs up), "you'll have people”—they want to know where they're coming from and "Will I be able to hire those people?" No. 1 question: "Where is the labor coming from and will I be able to fill it?" So the economic development professionals that I'm aware of in this room that I work with and many of my colleagues do all are working on those studies to definitively answer that question.

CULP: Bryan, I didn't know you were an economic development expert in addition to industrial insider.

POYNTER: I just play one on TV.

CULP: Yeah, yeah.

POYNTER: See, you left our office, so I had to fill that role.

CULP: "Fill" you did.

POYNTER: Thank you very much, you got me.

CULP: I think that Bryan's right, to some degree.

POYNTER: It absolutely pains you to say that.

CULP: It did. It hurt a little.

POYNTER: Would you please note that in the record right there?

CULP: I think part of the challenge is kind of intrinsic with the nature of political and election cycles. Every time there's a change in the administration, someone tries to reinvent the wheel when it comes to workforce development and targeting some of these vo-tech issues. And so we're certainly about to embark on another change here locally again. And what I think makes a lot of sense: I know there's groups like EmployIndy that are starting to come together and really take a look at some targeted measures to address some of the things that Phil talked about. I'd love to see, you know, both sides of the aisle get on the same page and kind of work together to implement some of the plans that make sense. Maybe I'm just saying that to offset the Debbie Downer piece so that I sound a little more Pollyanish.

OLSON: Let's circle back to the GM Stamping site quickly here. Does the city need a new criminal justice center and if so where should it be built? Anybody have any opinions on that?

PEREL: Not there.

OLSON: Not there? Okay. Anywhere?

RICHARDSON: I don't have a site. But one thing that I don't think got a lot of press in regard to the criminal justice system: I'm sure it was more efficient and cost savings. But from an office viewpoint, we've got a couple of large office users in the CBD in multi-tenant buildings, being the public defender and the prosecutor's office, in probably 150,000 square feet and there's associated lawyers and people that want to be close to—may we call them their clients—so there was going to be a bit of a suction effect in a part of the city where we're having some difficulty with vacancy in that move. So it wasn't such a bad thing to necessarily see that and not take off for the office market.

OLSON: Okay. Well, Phil, in terms of a criminal justice center, just in conversations I've had with contractors, they talked about that project, kind of referring to it as I guess, "The Holy Grail." How big of a blow was it for the contractors to see that project disappear?

KENNEY: It hurt quite a bit because there was, first of all, a lot of time and effort put into development of proposals. And then when it didn't happen, it had everybody rethinking what they were going to do for the next couple of years on the project. So it definitely hurt. But, again, with all the other construction going on and all the other shortages we've seen, our industry seems to have overcome that.

OLSON: Okay.

KENNEY: Back to your previous question on location. I mean we want it somewhere in central Indiana, but there's a lot of great properties around with enough space for that project. If you look around the eastside, some of the spots there, the northwest side, wherever. It needs to be built somewhere here in central Indiana.

OLSON: Okay. Here's one for you, Gary, from the audience: Are there any other real estate districts in Indianapolis that aren't being capitalized upon?

PEREL: That aren't being capitalized upon? Well, it's hard to say. I think that as I drive around Indianapolis looking at sites and looking at markets, you look at places like Irvington that are blowing up.

POYNTER: That one's for you, Margaret.

PEREL: Exactly. I think that Indy's growing in every which way. I mean the eastside probably needs a little bit of love and that's certainly not an understatement. But everywhere else it seems to be just fine. The suburbs are expanding, the CBDs, call them the CBDs of the suburbs are growing, and I don't see too many voids at this point.

OLSON: Okay. This one's for you, Amy. We've talked about apartments. What's the outlook for condos? They seem to be making a bit of a comeback.

BURMEISTER: They are. There's still a lack of financing vehicle for large projects, unfortunately, but there's a real gaping hole of demand, especially for that $250 to $500,000 product. And so we're seeing a few developers tackle that now but in smaller scale because of the equity requirements and lack of debt facility. I think the outlook for condos is great and we'll probably see a few existing apartment communities converted, which will also help downtown apartment occupancy as we take some of those units offline. Overall I think the outlook is great for condos.

OLSON: Okay. Well, staying downtown, Gary, maybe you can start with this and see if we can get other comments from the panelists. In terms of Circle Centre mall, how concerned should the new administration be about the future of the mall given the deal that was cut to keep Carson's as an anchor?

PEREL: I mean developers make deals with anchors all the time. They're occupying a giant portion of space at the mall. I don't think the mall's going anywhere, and I know that Simon continues to stay focused on their leasing efforts. You know, the repurposing of Maryland Street with Yard House and Nada and the corner which will eventually become something. I know a lot of restaurant groups will take a hard look at that corner now that Dinosaur Bar-B-Que is not going in there. I don't see too many issues, and as downtown continues to grow and the downtown population continues to thrive and maybe public transit becomes a little bit better, I just think that people will continue to go downtown. The mall is central. It's always been a focal point and was the genesis of downtown Indianapolis or what it's become right now, so I think we'll be fine.

CULP: I do think that incentives are not often used or directed towards retail projects, but certainly the inception of Circle Centre had a lot to do with some creative approaches to incentives and getting that off the ground. If I were the next mayor, I would definitely be looking at creative solutions to support that because I think it's so critical to the success of downtown.

OLSON: Okay. Well, Katie, sticking with city-backed projects: How successful has the Ballard administration been in its quest to get vacant properties developed?

CULP: I think that they have been just as successful as anyone could expect. I mean that is a really difficult challenge to try, and there have been some legislative changes that have made it easier now, so the process is expedited a little bit. I know there's been some criticism, but many years ago I worked at city hall and that is a large, large task that faces them, so I think they're doing as well as they can.

OLSON: Okay. Well, jumping to e-commerce. Bryan, what effect do you think e-commerce has had on our market and what effect will it have in the future?

POYNTER: That is a great question and, again, everybody who develops industrial property is answering this question or evaluating this question. But I think the thing to take away from this is that e-commerce isn't cyclical. This is structural. So it's here and it's going to do nothing but continue to explode. And Indianapolis is absolutely the perfect location and why you see more and more often than not an element of e-commerce develop in these industrial buildings. There's unique challenges and all the developers know what those are—the excessive parking, the power, the massive amount of moving and conveying equipment that goes in there, the amount of employees that are doing business. But it's structural, it's not cyclical, so it's not just a flash in the pan.

OLSON: Okay, well, jumping to office, Dan. Office investment sales in Indianapolis are increasing. How does current activity compare to 10 years ago when sales volume and pricing were at record highs?

RICHARDSON: Well, we're not at record highs and we're certainly active in that market. If you look at 2006 and '07, I think we'd all look at an overheated market. And one of the things that I look at—I'm not alone in regard to whether our market might be overheated or not—is cranes and capital. How much new construction is going on in the marketplace because there has to be funding, there has to be capital for that new construction. And then also on existing transactions, how much leverage are you able to get on that, how much loan is part of that sale? Today we're at 70, 75 percent. Ten years ago it wasn't unusual to get that 70, 75, maybe 80 percent and then get mezzanine financing in the gap there. So you might be 90, 95 percent leveraged in that situation. So pricing was better in some sectors, particularly the multi-tenant, stabilized sector about 10 years ago. But as you come back today we don't have a lot of cranes in the air, as I mentioned earlier, in office. We have available capital but we don't have that strong mezzanine portion going on, and so our pricing seems to be in check. If you're looking for long-term leases and the stability of that single tenant, you're looking for medical. You're going to see pricing like you saw 10 years ago. But on the other side, even on value- add, if you're looking for quick turnaround on your money, you might get the same pricing you got 10 years ago. But that large segment of the stable market, we're probably still 50, a hundred basis points off pricing 10 years ago.

OLSON: Okay, thanks. One more quick follow-up office-wise, a question from the audience: How will trends toward open offices, like those in Google and Lilly, today affect renovation of existing office buildings and future development?

RICHARDSON: You need capital to do it, that's one thing, and thinking about the CBD market and how we're going to compete with the CBD market, one of the nice things about it is we've got a lot of owners with a good basis in their buildings in the downtown that are well capitalized and can put that money in. But you're looking at more power, you're looking at open ceiling grids, a lot of different things that are capital-intensive in doing that. The second half of that equation can be at times parking because of the density. We used to worry about a lot of downsizing as we went to open and some of that occurs. But we're seeing a lot more collaboration space along with it now. So we just see it kind of arranged a little bit differently. With that collaboration element, we see a lot of people needing a little bit more parking at that time, so we're not going to build mass transit in the next two years, which is certainly impossible. One of the things that I've seen the city do consistently is subsidize parking downtown. If you look at the different deals, going back to Simon and the parking that we gave them, they're parking in the mall. If you're looking at WellPoint, we're parking at Bankers Life for that. If you're looking at Rolls-Royce who on the Faris Campus, when Rolls-Royce came in and took the Eli Lilly space, they basically are putting twice as many people in that space and the city stepped in with some parking in the perimeter of that. So I'd love to see the city step up and do some additional incentives in parking to help landlords in that regard.

OLSON: Okay. Well, we've talked about the GM Stamping Plant property. There's others out there that present some good redevelopment opportunities. I guess I'll start with you, Amy, and anyone else can      provide their thoughts as well: Thoughts on the IPS/ Coca-Cola Bottling Plant property? What do you think makes sense there?

BURMEISTER: I work downtown but I don't live downtown. I would love to see a small-concept Target, something like that. Housing definitely makes sense for that site, definitely retail. I think we've got about 12,000 new bodies living downtown and they're demanding services and we don't have all of those services yet. So I'm not worried about Circle Centre mall because that space will be filled with services that we all require as downtown residents, as working downtown. So I would love to see some type of retail, larger box, larger scale retail on that site in combination with housing.

OLSON: You agree with that, Gary?

PEREL: Yeah, very much so. And plus the building itself, it has a lot of—the Coca-Cola building has a lot of great character and I'm sure that there's very creative and unique uses that I hear are being floated around by some very creative developers that could utilize that building for cultural and entertainment type of venues and obviously retail and residential very strong on Mass Ave. It seems like the absorption of retail on Mass Ave. continues to stay strong with new projects coming online and that location certainly has the opportunity for the density to add additional retail services. So it's a great site.

OLSON: Katie, any thoughts?

CULP: Yeah. Given there are some unique historical elements to the building that have to be preserved, it's certainly not your typical ground-up development and that presents challenges. And I'm acting like Bryan and getting a little into other areas outside my wheelhouse, but the Targets of the world and uses like that that are very sorely needed are less likely to want to invest significantly in something outside of their norm. So I think it will be important for the next administration to look at creative financing and incentive approaches to make that happen.

OLSON: Okay. Another property that's getting some attention and has one proposal that we know of at least, is the old Midfield Terminal, the airport property. Anyone have any feelings on what makes sense there?

CULP: That's a cricket sound. This is where we toss it to Table 6.

OLSON: Is that more than industrial, Bryan? Do you think?

POYNTER: I'm just not that smart.

OLSON: OK.

CULP: I think industrial would be definitely an easy way, or maybe not easy, but the most likely way to quickly fill that.

POYNTER: If I can, instead of answering that question, I wanted to talk a little bit more about e-commerce for a second. One thing, just a real quick note, you'll read in IBJ Property Lines, I'm sure: About a million and a half square feet of new leases that are going to be e-commerce related either just recently signed in and around the metro area and the thing about the e-commerce stuff, what we're seeing is they're younger companies. They're not necessarily the Amazons of the world, so the collateralization of those leases, the tenant improvements and the security of those leases is in question. But there are opportunities that are very different from what we normally think. But they are all based on e-commerce. So those will be either announced or they're out there now, but very shortly that's a significant absorption of space, the e-commerce world. Did I successfully avoid answering your question?

OLSON: Yep. Phil. Getting back to construction: What sectors are seeing the most activity?

KENNEY: Health care we haven't mentioned, but there's a lot of that on the drawing board right now with what IU Health brought forward a few weeks ago, Community Hospital Systems both at their eastside location and north side. So health care is making huge investments in their campuses is another one that we see a lot of. A lot of private developers are coming to us for budget estimates on various projects. Most of them have a parking component because of just logistics. So the private side is doing quite a bit. I think we're going to start to see the public universities, IU and Purdue, they're always doing something, I think you'll start to see them develop more and more projects over the next few years. So those are a few of them.

OLSON: Okay, great. Amy. We'll get back to multi-family. Some in the industry say the real test for downtown apartment market will come with Flaherty & Collins' Market 360 Project given its large size and higher rents. How do you think this will affect the local market?

BURMEISTER: Just in terms of unit delivery, I'll go back to my earlier comment on absorption. We're absorbing everything that we're building right now, so that's not a concern. For a long time we couldn't build apartments economically. It just wasn't feasible to build apartments in downtown Indianapolis. You look at Riley Towers—they were not successful ventures for the original developers and are hugely successful now. Then we moved to stick construction and that works. And now we're looking at podium plus four and that is working. So maybe it's time for concrete. I hope that it is. I think it's a gorgeous project and would be an amazing anchor for downtown. I hope we're there. We're seeing it in Minneapolis and Kansas City, some very similar markets, similar fundamentals. So it may be time.

OLSON: Okay, we've got another question from the audience. Phil, maybe I'll see if you can tackle this one first. It says: What is your opinion of our roads and infrastructure? What is our next source of funding and should the state impose a higher fuel tax to fund improvements?

KENNEY: I think the entire infrastructure question, from roads, bridges, from our sewer systems, all of those need investment. All the time on our projects, we're running into tying into different sewer systems that are a hundred years old. Well, something's going to happen there and needs to, so we need those kind of investments. I was talking to a guy earlier about the big investment on I-69 coming through town, what a disruption that is over the next 10 years, but it's needed. I have no interest in paying higher taxes. So I can't answer the question on how to pay for all of this. But it's something we definitely need an investment in, just looking at the roads and bridges, definitely.

OLSON: Okay, Dan. We'll throw an office question out there. What are companies looking for in downtown space and do you foresee downtown occupancy increasing any time soon?

RICHARDSON: Well, I'll take the second part first. Certainly we're going to see an increase in occupancy downtown and we're seeing it now. As I mentioned earlier, we're at pre-recession vacancy rates. So it's been not quite as vibrant as the suburbs in its takedown space but it is steadily moving along and we've got good news on the horizon. I mentioned the Salesforce expansion and a couple tech companies that just projected that they would need 470 workers over I think it was the next five years. that's 150,000 square feet of office space in the downtown. So we've got a momentum at this point in downtown that we haven't seen in a while. That's not going to blow vacancy down dramatically as it happens but it so much means that there's good news in the pipeline for us. As far as the work experience, it starts with the office space, then it's the building, and then it's the environment that you're in. And certainly downtown, as I said, we've got the right capitalization and the right basis for owners to build out what people are demanding in the downtown. We're not doing the LA Yahoo kind of “let's rent a warehouse on the perimeter of downtown and put a parking garage next door.” But we don't have that type of company looking and we don't have that kind of stock. What we do have is if you look at Pittsburgh, for example, Google built right next to Carnegie Melon and we've got a great university system in Indiana that produces a lot of engineers and we've got a lot of good people that can handle a lot of the tech needs. So I think we've got the workforce that can be there. A lot of that workforce wants to be downtown, so they'll want to be in close proximity to their office space. We can build out that office space for them. The buildings are having the right amenities. Because of the density they have in the buildings, they can usually provide more amenities than you can in the suburbs and I think everyone would agree in the last seven, eight years we've got a different look downtown and exciting things going on that gives you that environment. So I think that we've got good momentum and we're going to do well in the CB moving forward. I think we can do better but I think we're doing good.

OLSON: Okay, I'll give you a quick follow-up here. See if you can tackle this one from the audience: Why do we not have a tech park campus downtown yet. Why no Indianapolis Silicon Valley?

RICHARDSON: Well, I think we're making good strides in that area and certainly it takes time to do that. Personally, I don't know why we need to have to have a tech campus other than perhaps it's a designated area for tax abatement. I think we've got inventory downtown that can handle that type of use. If you're going to a little bit more of a research type use or something, then perhaps we need to do new development. But I think there's a lot of things pulling on it. I think it's whether it's the lack of or we're still building the industry in that regard and establishing ourselves having that workforce—and then do we really need it? I mean, are there other options there?

CULP: Indianapolis often appears when we're doing national site selection projects, it makes the radar for tech projects, but it usually falls off as the list becomes shorter and I think it's largely attributable to the workforce. So I think as we develop workforce development strategies that continue to foster the tech community, we will continue to see a lot more success in that regard.

OLSON: Okay, thanks. Well, Gary, in terms of downtown retail and talking about the office space, some of the tower owners have or are incorporating restaurant space into their plans to attract more tenants. What are your thoughts on that strategy?

PEREL: I think it's a great strategy. It's what works downtown and people want unique amenities and unique places to eat and entertain. I think the other thing that perhaps developers could focus on and I think are is street retail, which Mass Ave. has done a great job with, and slowly Fountain Square and Fletcher Place are starting to catch up. And as these larger projects tend to go up, unique street retail, urban retail, will hopefully come as well.

OLSON: Okay. Staying with retail, Gary, here's one from the audience: So this morning my wife commented, “Great, Google is going to compete with Amazon for home delivery. Just think, we will never have to go to a store again.” Is this a problem?

PEREL: No, I don't think so. I think that retail, to our previous point with e-commerce and just technology in general, retail will want a hard presence for their products. People still like to touch and feel what they're buying. And the visual aspect of the Apple store, the Microsoft store, you go into those stores and you could easily buy a phone online, but those stores are filled every day because they're driving that customer to the store. So I think, at least from that regard, we'll be fine.

OLSON: Okay. We talked a lot about e-commerce, Bryan. What are some of the other trends in industrial that we're seeing?

POYNTER: I feared for answering any of the other questions about retail because if beloved Katie is wrong, I don't want to be right. So I'm not going to comment. But on e-commerce I will tell you that Indianapolis is kind of a reverse. First of all, anybody who represents a tenant that gets a sea crate from China should be prepared that in the coming couple of months as we prepare for Christmas, the mess at the ports of Long Beach are going to disrupt the chains coming all over this country. And Indianapolis is uniquely situated with e-commerce. Instead of it coming from the ports inward, e-commerce is now taking it from a more centralized approach outward. You're going to see this over and over again. But I think a takeaway from this is to be prepared. If you represent a tenant, you own a building that has a reliance on the shipping ports, we're in for a big problem in the next three months.

OLSON: Okay. Here's one for the panel that I'll throw out there. Several apartment projects are tied to TIF funding. What are the pros and cons of public-private partnerships? Katie, do you want to start?

CULP: I am a little afraid to, Bryan, but, yeah.

POYNTER: Go ahead, answer this one.

CULP: TIF is a very powerful tool and I know it's been controversial in some communities and certainly you see groups like the City-County Council taking a very sharp focus at TIF projects. So unfortunately, the result is it takes a lot longer to kind of work through these processes. But TIF is powerful. Tax abatement is talked about often at the local level and is very, very important, too. But I think TIF is potentially the most powerful tool that a local municipality has to encourage development because there are fewer restrictions and there are some creative applications there. So I think public- private partnerships, they can be risky, they're politically challenging, but they're absolutely worth it.

OLSON: Phil, as a contractor, any thoughts on that?

KENNEY: No, I agree a hundred percent. A lot of the projects we worked on that were part of a TIF, the government has been able to carve out, like the parking component made it a lot of sense—private developers, as I mentioned before, need a parking component and that was a piece of it. And without that TIF, I'm not sure that those projects would've gone forward. So we're all for it.

OLSON: Okay.

BURMEISTER: We just completed an RFP and awarded for a mixed-use development in Brownsburg and Brownsburg needed parking, desperately needed parking. And because it's Brownsburg and the rents for apartment and for retail don't look like those in like a Carmel or a Keystone at the Crossing submarket, we needed TIF to get this project done. And it was a six-year labor of love from the property owner that resulted in a public-private partnership which will really redevelop all of downtown Brownsburg. This will serve as the anchor for a whole new downtown. So for that project, it was absolutely essential, a catalyst for the entire development.

OLSON: Okay, I'll throw one out from the audience again. Have you noticed any further fallout and public image impact from the same-sex marriage issue from earlier in the year? Has it affected the commercial marketplace?

CULP: Crickets again. You know, it has certainly come up, especially on national projects, particularly with those where we're working from the coasts—deals that are coming from larger markets where this issue has long been dealt with. But I think that changes have been made where regardless of where you land on the issue, the Supreme Court has made some decisions. And so I think it's time to move on and I think the IEDC is doing a tremendous job of trying to really target effectively site consultants and users to this market, to our state and to work through that issue.

RICHARDSON: Most of my day is spent talking to out-of-state investors about local property here in Indianapolis and I have not had it come up. It came up while it was going on, never mentioned again, and I've seen no difference in the appetite for investing in Indianapolis.

PEREL: I think while it was going on, I think it was a little bit of a conversation point. I don't see it coming up in conversations at all.

KENNEY: I'll agree, and for that period of time it was, having been a resident of Indiana for 54, almost 55 years, it was really the first time I was embarrassed to tell people I was from Indiana. But I do know as other contractors around the country contacted me, a lot of their locations were using it against us in their economic development. I think as these guys have said, I think we're over that right now.

OLSON: Okay, here's one for the panel. We'll start with you, Amy. General question: What concerns you most about the real estate industry? What makes you most bullish?

BURMEISTER: I'm the multi-family person, so I'll talk about multi-family. As we're seeing more units come online downtown and then also in Nora, Fishers especially, and then a few projects in Hendricks County, some of the residents are new residents and some are coming from college. But the others are coming from other apartment communities. So looking at occupancies in, let's say the Castleton submarket, which used to be the place to live when many of us got out of school, is not really anymore the place to live. So people are moving to Carmel or the suburbs, and so while there's still rent growth in Castleton, it's 2 percent instead of 6 percent like we're seeing in some of the suburbs. And the same thing is happening downtown. So mile square occupancies are still high and rent growth is some would say 11 percent—I think it's more like 8 over the last 24 months—but in sort of the segment between 22nd Street and 38^th, we've seen declining rents and declining occupancies, so that's a concern. I think it presents an opportunity to recapitalize some of those deals, but it's definitely a concern. What's the second part of your question?

OLSON: What makes you most bullish?

BURMEISTER: The people flooding downtown. I mean the development is exciting. I'm excited about the condo market. We need more "for sale" housing. I'm excited about Irvington and Fletcher Place and some of these areas that have really benefitted from the huge downtown rents and lack of affordability for a large segment of the population have made those areas really desirable and that's exciting. So I'm very bullish on sort of the outlying markets, Hendricks County and in some of those subpockets of downtown.

OLSON: Okay.

CULP: I think what I'm most concerned about is indirect to commercial real estate and its workforce development. And I think Phil and I talked about it a little earlier and I don't think it's true of just construction trades. I think in order for Indianapolis and central Indiana to really be on the map nationally, we have to identify and then be able to articulate what our workforce product is and communicate that to—so that we're not just getting offshoots—locally grown businesses which are critically important, but that we're also garnering national attention for users to flock to our market.

OLSON: Anything you're most bullish on?

CULP: I would echo, I think that it's really been fun in my career thus far to see the suburban areas really develop uniquely, to see a lot of the cool industrial projects go to the suburban markets and to see all the changes in downtown Indy with Mass Ave., Fountain Square, all of those places.

OLSON: Phil, what about you?

KENNEY: I'm always bullish on Indianapolis because it's a wonderful place to live and raise a family. So short-term, I'm bullish, but I think still going back to one of your previous questions: Our next mayor and all the developers and everybody need to have a longer range plan out 20, 25, 30 years. What's going to happen as each young family starts to raise their families here? What's next?  And to keep them here, I think you're going to need that type of long-range planning.

OLSON: Anything you're most bullish on?

KENNEY: Again, just the cost of living here, as I said, there's no science to it, but I can always tell living in Irvington how things are going by the number of young families and baby strollers out. I mean that's a great sign—when there's that many young families living in some of those areas. So I am really high on Indianapolis.

OLSON: Okay, Gary, what about you?

PEREL: Well, I'm generally exceptionally bullish on Indianapolis and the surrounding market. There's just so much growth going on everywhere and it's really exciting to see. I think the only thing that I think everybody is a little cautious about, as Phil stated, was the cost of construction and the rents as they relate to the cost of construction, whether it's the entire project or individual restaurants, retail projects. So that's the fine balance with the expendable income and the population to support the rents and the costs associated with that. So that's where I would be cautious. But otherwise, I love the growth in the suburbs. I love the growth in the CBD. It's just a really exciting time around Indianapolis.

OLSON: Okay, Bryan?

POYNTER: Industrially a lot more sweet than sour, for sure. You see a lot more user building sales this year but there's still a real lack of inventory for user sales for owners. The mid-size market, that 75 to 200,000 square foot, we need more and I think the market will respond. But there's inventory of that and new development coming along in all places. Labor is a question mark. But, again, we have the adequate opportunity to fill the needs of jobs that currently exist. And don't forget manufacturing, Indianapolis, around the state of Indiana, rather, 30 percent of the state's economic output is manufacturing and you look at $1.2 billion being invested in Fort Wayne, manufacturing is another sweetspot.

OLSON: Great. Dan?

RICHARDSON: On the office investment side, I always worry about the availability and the price of capital in our markets. Investment deals are highly leveraged, if you will, 70, 75 percent. I'm not as worried much about the pricing. I think we've got some room to run up on that a little bit. I'm always worried about the availability, and although I don't have a reason to believe it's going away any time soon, it's always a concern for me. On the positive side, I would tell you that the recipe of good demand and little supply leading to rental rate growth is a great story in the investment market if it plays wells for people wanting to invest in the market and that's what I'm most bullish about right now.

OLSON: Okay, great. Well, that'll do it for this morning's panel. Good job. Thanks a lot.