Strip-mall developer scales back as housing slump hurts small retail centers

A local developer known for its strip centers has stopped building new projects, scaled back its staff, and is trying to
unload several of its properties in an apparent bid to survive.

Williams Realty Group earlier this year shuttered its custom-home-building operation, DayMarc
Homes, and now observers are wondering if owners Dave Crockett and Marc Freije can keep the rest of Williams
afloat.

The 30-year-old
company owns or manages about a dozen retail strip centers in Indianapolis, Noblesville, Greenwood, Fishers
and Fort Wayne, along with a few office complexes.

The troubles come as woes in residential real estate are spreading into the commercial arena,
particularly strip-center development, which is heavily dependent on new-home construction.

Williams Realty grew rapidly in recent years
and was hit hard by the credit crunch and a slowdown in expansion for retailers.

But there were a few moves in particular that
played a lead role in Williams’ struggles, observers say. A few of the company’s speculative strip centers
have sat mostly empty, including Olive Branch Parke at State Road 135 and Olive Branch Road in Greenwood,
and Clover Creek Commons at State Road 37 and Pleasant Street in Noblesville.

Another bad bet: A plan to build three condo buildings of about 18 units each on Morse Reservoir
in Cicero, with prices ranging from $350,000 to $700,000. Only about half the units in the first building
have sold and construction of the others is on hold.

Williams recently engaged Kosene & Kosene Residential to help with the Cicero property, said
Jessica Gershman, vice president of development for Williams and the daughter of founder Freije. Adam
Crocket, the company’s leasing manager, is the son of the other founder.

Gershman said the company is "still alive and thriving" with about 700,000 square feet
of space under management or ownership, but she acknowledged times are tough. The company is moving into
the basement of its headquarters on Allisonville Road near 106th Street and subleasing its former space
on the second floor. It now employs about 15, down from 30 before DayMarc closed.

"We’re hunkering down and paying attention
at home, looking for acquisition activities if they come about, finishing up the development activities
we were working on, and weathering the storm like a lot of people," Gershman said.

The company’s portfolio has shrunk in recent months but still includes several notable properties,
including retail space next to Target stores at 116th Street and Interstate 69 in Fishers and at Southport
Road and Interstate 65 in Indianapolis, along with the Weston Pointe development along Michigan Road
in Zionsville.

Williams
is trying to sell centers along U.S. 31 near Stop 11 Road and at Washington Street and Post Road. And the firm has
hired locally based Halakar Real Estate to find buyers for three office properties: A complex at 10412 Allisonville Road where
Williams is headquartered is listed for $2.5 million; a small office building at 5455 W. 86th St. in Park 100 lists for $1.65
million; and the West Lake medical office park at 10th Street and High School Road is on the market for $1.2 million.

Williams Realty Group practically "went
into a bunker" back in March, leaving banks, investors and contractors wondering about what was
going on, said Chris Carriere, the company’s former director of finance and a victim of the company’s downsizing.

He said liquidity issues ultimately forced the
firm’s hand.

"They
got a little ahead of themselves, started spending the next deal before it closed," Carriere said. "Overhead got
out of control, and then the market itself went haywire."

The company now is trying to focus on its brokerage and property management businesses. It also
remains confident in its Chicago-based construction firm, Comprehensive Construction, Gershman said.
(Williams is no longer affiliated with locally based Capital Construction Services Inc.)

"Spec development right now is probably
not the best option for anyone in the retail industry," Gershman said. "Banks are tightening
up, retailers are no longer expanding furiously, but we still maintain a large portfolio and that keeps the engine
running."

Banks are
seeing some of the residential woes spreading to commercial development, and many are tightening the noose around
struggling developers.

Executives with Evansville’s Old National Bancorp discussed the problem on a July 28 earnings conference call with Wall Street
analysts. The first signs of trouble: Many strip centers built in anticipation of now-stalled residential developments are
sitting vacant, said Daryl Moore, the bank’s executive vice president.

"We are beginning to see as the large residential developments don’t happen, these retail
centers are beginning to come out of the ground, get finished and not leased up," he said.

That extra supply also hurts existing retail,
as tenants with expiring leases threaten to find lower rents elsewhere. And as more national retailers
such as Steve & Barry’s and Linens ‘n Things and restaurants like Bennigan’s and Steak & Ale file
for bankruptcy, that puts even more pressure on rents.

"Right now, retailers are being cushioned by rebate checks," said Richard Feinberg,
a retailing professor at Purdue University. "Once they run out this fall, then we’re going to have
a real crisis again, unless [the government] gives the consumer more money back."

Williams Realty Group probably can survive,
albeit as a shell of its former self, said one local broker familiar with the company’s struggles. It’ll
have to be smaller, and more focused.

"They’re trying to do the best they can," the broker said. "They’re good people who got caught up in the excitement
of the business, and the business changed."