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As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe NowIndianapolis Business Journal gathered leaders in the state's commercial real estate and construction industry for a Power Breakfast panel discussion Sept. 13.
Panel members included Aasif M. Bade, president, Ambrose Property Group; James Browning, vice president, real estate development, Browning Investments; John A. Crisp, senior managing director and principal, Cassidy Turley; Jeffrey M. Hagerman, president, The Hagerman Group; Ross Reller; senior vice president and director of land services, Indiana region, Colliers International.
The following is an unedited transcript of the discussion.
OLSON: So the first question couldn't have
worked out any better and it kind of segues into what
John Wise mentioned with BMO Harris about interest
rates. Interest rates certainly are a hot topic
these days, so as rates begin to tick up, what effect
does that have on the ability to get deals done? And
I'll throw that out to the panel in general. Ross,
would you like to weigh in first?
RELLER: On interest rates?
OLSON: Yes.
RELLER: No. My answer will become clearer
when we get to me on some other topics, but land is
largely unaffected by interest rates.
OLSON: Okay. John, would you like to take a
crack at it?
CRISP: Sure. Interest rates obviously have
the ability to have a big impact on projects moving
forward. I think it's going to be key that the folks
that are going to be in the leverage play they're
going to have exposure and if we get in a situation
where we have too many of those we probably have a
potential for another dip down the road if rates do
increase as we heard at the intro but it's something
we need to keep our eyes on.
OLSON: Okay.
?
BROWNING: I would chime in. I happened to
sit in a conference call yesterday and listen to a
lot of economists talk about 130 basis points
swinging the 10-year Treasury. Interestingly enough,
across the board, with some exception, it felt like
there was no effect on cap rates so far. One thing
that interested me in the comments that I heard
yesterday were that this was a fundamental market
condition where traders were actually running up the
interest rates related to Bernanke's comments but
there wasn't an inflationary tag-along to go with
that, so it'll be interesting as interest rates
continue to go up as people think they're going to,
I've heard speculation from where we are today in the
high 2s, but that it was headed for 4 and a half or 5
percent. I think the real question, which I
certainly can't answer, is will rates also, and when
I say "rates" I mean rents, will they also tag along
and increase and maybe keep our values stabilized as
the interest rates go up, but that's the million
dollar question, I guess.
OLSON: Okay. What effect does that have on
projects? How tough does it make it to get projects
financed? Aasif?
BADE: Yeah, sure. Hi, everyone. I think
?
interest rates are one of many factors that affect
real estate development, so there's obviously —
Jamie mentioned rents, which seem to never go up
except for multi-family, demand, construction costs
and land costs obviously have a huge impact, probably
more so than interest rates, on any development
project, and so as we're looking at a project and I
think our peer group that is doing the same thing is
more cautious as we're underwriting projects and
looking for a little better yield to cover the future
interest rate risk because rates will go up, I mean
there's no doubt about it, maybe not in the next six
months, but definitely as you look at a three or
five-year horizon, which I think most of our peer
group does, rates are going to continue to rise, I
mean they've just been so low for so long.
OLSON: Sure.
CRISP: So how are you underwriting as you're
looking at planning forward?
BADE: Well, I think we're just raising the
yields to cover for interest rate increases down the
road and that comes from raising rents.
OLSON: Okay.
HAGERMAN: And I think Aasif said it very
well with respect to the key word and that is
?
"demand," there's a lot of demand that is in place
currently because of, obviously, the slowdown over
the last three or four years, people aren't stopping
what they need to do, and even with the impending
rise and continuing rise of interest rates developers
have to get creative with how can we get these deals
done, whether it be continuing to be as aggressive as
we can with construction costs or look at public-
private partnerships, whatever the case may be, so
creativity is paramount to move forward to get it
done because of that demand.
OLSON: Okay.
BADE: I think one last thing is, and I think
John maybe alluded to this a little bit, but at least
we have seen banks reduce spreads a little bit, so
the banking environment is competitive for a lot of
deals, not necessarily every deal, but spreads have
come down a little bit which kind of helps to cover
some of that increase.
OLSON: Okay. On that note are there certain
projects that are easier or harder to get financed
these days?
BADE: I think multi-family continues to have
huge demand. It seems like every banker we meet
always asks what multi-family projects we have in the
?
pipeline, with which group, and I met with some
senior guys from JP Morgan Chase a couple months ago
and Joe Whitsett and I had lunch that week and it was
pretty amazing, they're dipping their toe back in the
water on commercial real estate, but the first
question is about multi-family. With that said, no
project, whether it's multi-family, office or
industrial, but no project seeking to finance in any
environment still requires equity and good sponsors
and a good project. To answer your question, I think
spec industrial and spec office continue to be
probably the most challenging projects.
HAGERMAN: And I would certainly add in the
fact that any type of project that you're looking at
that has parking components creates an additional
challenge because you typically see those as the
anchor, so those are tough to justify with respect to
financing packages, depending on where they are.
OLSON: Yeah.
BROWNING: A couple projects I've been
working on we've seen expectations from the banks
increase in terms of where interest rates are going
to be in the next couple of years, so clearly we're
seeing a rise in the area there in terms of how
they're underwriting projects.
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CRISP: But everything gets back to demand,
right?
BADE: Yeah, absolutely.
CRISP: And multi-family, is that — It's not
in the office market right now.
BADE: Right.
CRISP: Retail probably the same. So is it
multi-family and then industrial, is that —
BADE: Yeah, I think industrial's probably a
close second right there with multi-family. I think
retail has actually made a better comeback and has
come back sooner, quicker than the office market,
really.
OLSON: Okay. Well, the next question is a
topic we're exploring for an upcoming real estate
focus section and I'll throw this one to you, Aasif,
and then we can get the conversation going from there
with some of your experience downtown in the
multi-housing sector. The downtown market seems to
be experiencing an unprecedented housing boom with
thousands of apartment units in various stages of
development. With so many projects in development
how concerned are you that the market might become
saturated?
BADE: Sure. Well, I'll start out by saying
?
that two of my friends here at this table right in
front of me, George Tikijian and Joe Whitsett, who
Joe and Tony are partners on three projects in the
multi-family market in downtown Indianapolis and
speaking with them and working on some of George's
statistics and market trends, vacancy rates, and
instead of looking at the last year or two, which can
be deceiving, I looked at a 20-year period that I
think IDI put out in a report in 2012 that looked at
some economic indicators and I can't figure out why,
other than in the office and industrial realm, so why
not filling apartments downtown. You know, the
downtown Indianapolis apartment market for I think
George looks at it as Class A and B is fairly small,
5000 units and a lot of those have been built, maybe
even about half of those have been built over the
last three or four years, and the question really
isn't will the market become saturated. All of those
units are going to absorb and the question's going to
be what's the pricepoint going to be, is it going to
take a little slightly lower pricepoint to get people
to occupy those units. People want to live downtown.
A lot of people have fundamentally decided that
homeownership is not a key investment in their life
and apartments are no longer a place to live while
?
you save up money for a house. It's a style of
living. A lot of people from empty-nesters to IUPUI
students to 35-year-old people, you know, they're
professionals and they want to live downtown, so we
expect the market to continue to grow and do very,
very well.
OLSON: Great.
CRISP: I'm with you. I think that it
sometimes feels like maybe we're in the minority with
this thought but it seems like rent versus own is
here to stay for a while. This movement back to the
urban core is strong, and as Aasif said, it's the
young group as well as the empty-nesters and there's
no reason to believe if we keep things safe and clean
from a retail perspective, we have services to
provide and it ultimately leads into the schools,
continuing to have school options for this younger
group as their lives expand that it wouldn't last.
When I got out of school that was the dream, right,
you figured out how to save enough money to buy a
house and it doesn't seem like that's the case
anymore, it seems like it's a big risk. I think that
folks of all ages are looking at their investment in
their home as no longer an investment but more so of
a risk, and as the great developers that we have in
?
this room are providing wonderful opportunities to
meet that movement down to the urban setting I don't
see that there's a reason that that stops any time
soon.
RELLER: Scott, we're working with a number
of developers that believe there's this shortage of
for sale product for the move-up buyer in Center
Township. There are a number of factors that seem to
be leading the upscale buyer to look seriously at
downtown that have a number of major employers,
obviously Lilly, WellPoint, but also companies like
Angie's List that are attracting talent to the
downtown corridor and we're fascinated by what
appears to be a great depth not only to the for rent
market but also to the for sale market.
HAGERMAN: And I think, if I may add one more
thing, a key component to this and to support what
John has just said and that is we have to remember
today's younger folks I believe the last stat I read
is that by the time they're 30 will have three
different jobs, which is unheard of, I mean most of
us have had maybe three in our lifetime and they'll
have three by the time they're 30, so buying a home,
settling down versus renting doesn't seem as much of
an option compared to the opportunity to rent and
?
move on to the next opportunity.
CRISP: If you think about it, why wouldn't
you be attracted to it? You look at the Cultural
Trail, you look at our arts, you look at the
opportunities, the Pacers games, Colts games, you
have the zoo, you have IUPUI, there's a number I
heard, I think this is true, closing in on 20,000
full-time students, so people are living downtown
from the young to the folks that are more empty-
nesters, as we mentioned before. I was talking with
Al Kite, some folks at Kite about Al, you know, he'll
get off work, he'll head home, he'll get on his bike,
bikes around and utilizes the trails downtown, comes
back home, showers and has multiple options on
somewhere to go eat that night. There's a lot going
on based off what our city leaders have done over the
past decade, plus it provides a great option.
OLSON: Okay. Well, kind of sticking on that
topic, one of the most notable projects announced
this year is Flaherty & Collins plans to build an 81
million dollar 28-story tower on a piece of the
former Market Square Arena site. City economic
development officials hope the project will spur
additional development on the property to the south.
What do you think would make sense with that piece of
?
land? Anybody have any good ideas for that?
RELLER: For the site south of where Flaherty
& Collins are developing?
OLSON: Right.
RELLER: Well, I think the market will wait
and see how that absorbs. Obviously, it's going to
be a tremendous change to the skyline and improvement
to that part of the southeast quadrant of downtown.
I think they'll do extremely well but it is somewhat
an untested market since the only other residential
high-rises that we've had have been fairly mature in
age, so I wish them all the luck, but I'm not sure
you're going to see speculative land sales until that
absorption occurs.
CRISP: What seems to be working is mixed use
and so if a component of this could be office related
to get folks that are living downtown now for these
opportunities that we have been presented and we just
chatted about for more folks to be able to work
downtown, we have some vacancy that we need to fill
up, but if we could find that right company that has
belief in our market and belief to expand, which I
know that and from my understanding our city's
working on a few that could fill that, have that be a
mixed part with some retail and maybe some additional
?
residential, it seems that mixed use is the answer.
OLSON: Okay. I know a lot of readers of
Property Lines weigh in on wanting to see a large
retailer in that space. Does anybody think that
would make sense for that use? No?
BADE: Just real quick. Like I mentioned,
there is tremendous growth but the base that we
started with in terms of downtown residents is still
fairly low, I mean there's 5000 units right now, so
as that continues to grow retailers will look at it
more and more because it's entirely focused on
rooftops. There is a huge population downtown in
terms of office users that work there Monday through
Friday and then there's visitors for conventions, et
cetera, et cetera, so there is some demand for
retail, but let's face it, as we saw with what
happened at Circle Centre with Nordstrom's leaving
and that space, I think at least, I haven't heard
anything different, that's basically being repurposed
as office space, so I think that tells you the demand
for retail space at least in terms of a big box
retailer as I think you're, Scott, suggesting,
someone like Target, someone like that, there's
always going to be smaller shop users, I think the
retail experts in the room may disagree with me, but
?
I think in terms of a Target or a Meijer or a big,
huge department store like that going on that site I
think is a ways off.
OLSON: Okay. Well, moving north to Broad
Ripple, your project, Jamie, you're proposing to
build a 25 million dollar mixed-use development in
the Village consisting of 33,500 square feet of
retail and 104 apartment units. Jamie, how confident
are you that it will get done now that the City is
set to consider your request next month?
BROWNING: I was kind of hoping this question
would drop off the page. Every time it ends up in
your blog I get to read lots of really bad things
about myself, so if I say anything else I guess I'm
opening myself up to that.
BADE: I stopped blogging about you.
BROWNING: I'll try to put a niche around
this. We really like the facts related to this
project. If you take a step back, we bid on the
parking garage, it's now complete and open, and we
bidded on our site where the empty Shell station is
and we were obviously not successful and that project
was apartments and a 500-space parking garage. We
liked the site, and when we weren't successful people
came to us, and when I say "people," stakeholders
?
from Broad Ripple and people that were from the
Mayor's Office to Midtown Economic Development, so
on, said that "We really think this is a good project
and we'd love to see something happen here," and so I
stick to the facts of the project. We went back and
we scratched our heads and tried to figure out what
ought to happen there, and we relied on a study that
was done, commissioned by Department of Metropolitan
Development, the MDC, the Broad Ripple Village
Association called Envision Broad Ripple, and when
you look at that study they specifically said this
would be an area that needed to be redeveloped for
obvious reasons, the gas station's an eyesore and the
apartments behind there have probably seen better
days just because they're tired, and so what we tried
to do was we put together a project there that
complied with this Envision Broad Ripple Study and
the Envision Broad Ripple Study again identified five
areas and the criteria that they posed in that study
was architectural significance, mixed use project,
density, a key project for the Broad Ripple area
because it is in the entrance, on the way in, and
improve the image of the Village and we think we've
done that, and so as time went on there were some
kickback from the Broad Ripple Village Association,
?
they didn't particularly care for our architecture
and we made those changes and we made a bunch of
changes to the project that were required or
requested of us and of various stakeholders. In
fact, we reduced the size of the specialty grocery
store but we increased the size of the apartments,
which was something that they really wanted to see.
One other sort of factor of this project is that they
wanted the northside of the canal to be activated and
people to be invited to want to go there and again we
think this project does that. So I'm back to if you
really listen to the facts of what we've done here,
we really think that we've done the right thing and
that this project ultimately ought to be approved.
What we like about this project is it brings people
in to Broad Ripple during the day. We think that the
whole north side of that canal will be redeveloped at
some point in time and it'll bring other people in to
want to put retail there and sold of the old adage
rising tides lifts all boats, it's going to help all
of those retail projects along the north side of the
canal. I'm of the personal opinion Broad Ripple
needs this project and so we think that there's a
migration of patrons moving out of Broad Ripple into
different areas and this will bring people back. So
?
my answer, back to your question, is we hope that all
the facts that we've talked about here resonates with
the Department of Metropolitan Development and that
ultimately it's a project of improvements along the
site.
OLSON: Just a quick follow-up on that, are
you surprised at how much attention it's received?
BROWNING: It's always part of the process
and I think there's certain areas of the city, Broad
Ripple being included in one of them, that this is
going to be the process. Did I expect to file in
April and still be talking about it in October?
Probably not, but on the other side of it we expected
some resistance of the project, but I've listened to
the arguments that are being posed and most of them
are sort of confusing the story with the facts and
again I think we're hopeful that ultimately this will
all resonate with the Department of Metropolitan
Development and it will be approved.
CRISP: We live two miles away, two and a
half miles away, it's hard to look at it and see
what's there today and see what's planned and not
think this isn't a great idea and great opportunity,
so I know most of the folks it sounds like who blog
like to talk about negative ideas and thoughts, but
?
there's a lot of people who live in the area who are
really looking forward to this opportunity coming
true because it should lead to this additional
expansion and growth in a controlled manner, so
hopefully it happens.
BROWNING: And just one last comment. We
received a lot of support from the business owners in
Broad Ripple. I own a business in Broad Ripple, I
speak to those people all the time, and the amount of
support we get from people that actually own
businesses in Broad Ripple, neighborhoods
surrounding, the support is tremendous.
OLSON: Okay. We're going to switch gears to
office space and I'll start with you, John. The
downtown office market has been relatively soft with
vacancy hovering around 20 percent, but with whole
new office space in the pipeline will occupancy rates
begin to increase?
CRISP: It will probably stay sort of status
quo, in that static field. If you look at last year
second quarter and you look at this year second
quarter we're at the same number. As we look out 12
to 18 months, maybe towards the latter end of that,
you start to see a little bit of growth in occupancy,
but we've been a market that as we've taken one step
?
forward we take one back. We talked earlier about
the apartments and what those mean to our community
and how exciting they are. I personally think that
could be one of the bright stars out there, one of
the leads to helping that occupancy rate increase as
more folks begin to call downtown their home, but
it's hard to sit here and say that given the next 12,
15 months that we're going to see much difference
from what we've watched in the past year, so probably
static, though.
OLSON: Okay. Following up on that we have
AT&T freeing up space in its building, Baldwin &
Lyons is moving out to Carmel. Are there any types
of tenants that might be most viable for downtown?
CRISP: With what I do, which is represent
tenants, it's a part of the conversation where it was
not a part of the conversation two years ago. It's
unfortunate for the downtown that we lose a Baldwin &
Lyons, it's a little bit of my conversation earlier
that we take some great steps forward and we have one
that's a backwards step in Baldwin moving north. Now
as there's a viable option and viable opportunities
for people to live downtown it's in the conversation,
so I think it's safe to say that you'll see, instead
of the flight to the suburbs, which that seems to be
?
over, that you now have the audience who's looking at
it wants to know about and wants to visit the
downtown market, getting back to the reasons we
talked about earlier like the Cultural Trail and all
the other great things that are going on downtown.
OLSON: Sure. Next question for you, Jeff,
contractors and the skilled trades often struggle
with attracting quality workers. Coming out of an
economic downturn how difficult is it today to find
those workers?
HAGERMAN: That's an excellent question. The
question actually isn't just prevalent today but it's
been prevalent for a long time. Unfortunately, our
industry has never been known as a really sexy
industry, so attracting young folks to enter
certainly the skilled trades portion of the business
but also the office component, the project managers,
engineers, superintendents, estimators, et cetera,
has really been difficult, and certainly throughout
the downturn the industry as a whole lost people, I
mean we were having enough problems getting enough
people in the early 2000s, mid 2000s to handle the
workloads, but as work went away people were looking
for something to do, a lot of people went back to
school, a lot of our industry people went back to Ivy
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Tech and different locations and have since not come
back to our industry, so as things turn, which we are
seeing much more activity in the industry right now,
the problem is twofold than what it even was before,
which has forced a lot of our firms to really relook
at how we train people internally, and four or five
years ago we saw this coming and we created the
Hagerman Institute within our organization to help
grow people within the organization, but from the
skilled side I know there's a lot of industry
associations that are working hard to recruit and get
people in to do the work, but we still fight the
persona that we're not a glamourous industry, which
has been very tough, so especially when there's a lot
of opportunities out here now for the young kids in
the computer science world and, quite honestly, when
people leave high school and they go into college
most of the counselors today are promoting those
different fields, you know, "Hey, this is the wave of
the future, this is where you want to be, this is
where the money's going to be," and that's something
that all of us here in the industry have been
actively engaging as well, getting out to the high
schools and getting out to the colleges to promote
our industry to make sure that we have substantial
?
forces, but we're already seeing the shortcomings, I
mean I think it was in the "USA Today" I think it was
last week of the top five professions that are in
dire need of people, two of the five are in the
construction industry, bricklayers and carpenters, is
two of the top five across the country and I also
read that we're 30,000 people short in welders out
there right now. Again, we have to continue to
promote, do a better job as an industry promoting and
this isn't that bad, there's a lot to it and a lot of
fun.
OLSON: On a related note, the city has
enjoyed a wealth of public projects in the past 10
years, including the building of Lucas Oil Stadium,
the JW Marriott, the expansion of the Convention
Center and the new Wishard Hospital. What's the
capacity for more construction and are there any big
projects in the works right now?
HAGERMAN: Yeah, there are a few in the
pipeline, not of that magnitude. We are not going to
see the Lucas Oils, at least in my view, for a while.
We do have a few. Obviously, the Lilly project is a
big project that's going on right now, you've got the
Market Square project coming up, Citizens, of course,
Roche, Chrysler has released some good news, they're
?
going to be doing some work. The next project,
decent size project, that I know as something that's
going to happen will be the redevelopment of the
airport, the old airport property, and there's a
couple of things being discussed at that location, so
are we going to see the mega-projects that we've seen
over the last six, seven, eight years, I don't see it
but I've been surprised before.
OLSON: Sure. I'll turn the next one over to
Ross. As the real estate market shows signs of
rebounding, how is that affecting demand for land and
values?
RELLER: Scott, the way we look at land is
almost like a teacher assigning a letter grade to a
student, we assign letter grades to land A, B, C, D,
and I like to say that there are A grade sites and
then there's everything else, and what really
happened starting in 2007 was the owners of a lot of
B and C grade sites were revealed as not having A
grade value. We saw an awful lot of lending
contribute to this, appraisals were kind of
ratcheting up with each new sale, and it wasn't until
the failure of AIG and Lehman Brothers that the
enormity of this mispricing of land was revealed, so
the interesting thing to me right now is the A grade
?
sites never lost value, they simply lost velocity.
Now that we're seeing some big industrial land deals,
it's supporting the previous values, some retail
deals supporting the previous values that have
occurred recently. Obviously, in multi-family,
especially in the urban core, we're starting with a
new round of escalating land values, which is fine.
In the big scheme of things the land cost is probably
not much more than a rounding error in the cost of a
successful project. The big dynamic change is the
appraised value is no longer money in the bank to the
borrower. It used to be before 2007, 2006 if you
owned the land free and clear you could probably
borrow the lion's share of what you needed for the
improvements. Now the lenders are looking at the
full faith and credit of the borrower's ability to
pay the money back, so the only projects that are
being funded, the only land that's being developed,
has an immediate income source either through a rent-
paying tenant or the ability to almost immediately
monetize the improvements, so that's really what
we're seeing with land. Unfortunately, there are an
awful lot of property owners sitting on a 2006
appraised value that represents a number they may
never see in their lifetime and that's part of the
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education process, it's part of an unfortunate aspect
of the overlending that occurred, but I'm very
excited that we are seeing a great deal of value in
some of the recent transactions in industrial,
multi-family and so forth.
CRISP: What's interesting, when I started I
had the opportunity to spend three years with the
folks at Browning, it was a big tool in the tool
chest, part of your gig was go out there and identify
land sites that we could control because that is a
map to the future, and I'll be interested in, Aasif,
Jamie, your take on this, but it seems like
developers are much more cautious about that idea and
the fact that they need to have 400 acres, 500 acres.
It seems like they're looking at to the landowners
and presenting the idea, it seems like landowners are
starting to hear a little bit that "You need to be
our partner, we're going to bring a bunch of value,"
but the idea that "we're going to take down this land
and we're going to sit on this," especially for the
publicly-traded companies, the Dukes of the world, it
doesn't seem like that idea of planning for the next
park in a big manner is that attractive. Jamie?
BROWNING: Well, I think on the office side
the land ownership is a necessary evil, you want to
?
be there when the market comes to you. I think the
downturn of the market has probably slowed down a lot
of the velocity in terms of turning over land. On
the industrial sector, which is just a different
animal, I think the way that market is that you've
got to have property, you've got to be ready to build
buildings, so they're two different animals.
BADE: I would chime in that I think it's
interesting, Ross made a couple points about how
things have changed since 2006. Without that capital
flowing so freely people have had to approach this in
a much different way, there's not developers that
have access to millions of dollars carrying an
inventory of land, so they're thinking differently.
I came from Duke where when I left five years ago and
started Ambrose they had 5000 acres of land around
the country that could more than double their real
estate holdings in terms of development and I
remember on the tail end there was a big push to sell
land to trim that down because there was a
fundamental shift, especially with merchant builders
and people coming into the different marketplaces
around the country, including Indianapolis, where
developers would come in, secure a site, put it under
contract, win a deal or build a spec building and not
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hold onto the land, maybe not even take title to the
land until they started the construction of the
building, so I think that is prevalent more and more
today. I'd also mention I think because developers
refrain from having huge land inventory, I think
tenants look at things a little differently, tenants
maybe are being more proactive, I mean there will be
at least a couple real estate deals I think that will
happen at the end of the year where the tenant chose
the land site and then went to multiple developers
and said "Okay, this is the land we want, here's the
price, give us a proposal for what you're willing to
do for us as the developer."
OLSON: I'm going to go ahead and stick with
you, Aasif, on the next question. To help spur
development the City sometimes steps in and offers
financial assistance. What role should the City play
in promoting development and offering incentives?
BADE: I'm a developer, so I'm obviously pro
incentives and sometimes when it's another developer
I'm not as supportive. I'm sitting here saying that
and a lot of people think that, but at the end of the
day you can never please everyone, so I think the
City does what they do, there's a long-term vision
and a long-term plan to achieve what they want to
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achieve, grow downtown physically and just what's
existing provide great public safety and education
and among other things that will help development
just on its own. However, there are some deals that
just simply need incentives to happen in order for
them to happen, so there are those deals and I think
it's important for the City to carefully consider all
of those and do the projects they think in the long
term will help the city. I think if we all sit here
and think about projects like Circle Centre Mall, JW
Marriott, the Conrad Hotel, more recently CityWay, at
the time those projects were done and announced I'm
sure everyone had lots of opinions to the positive
and the negative about them and lots of bloggers
raised lots of questions, but I think most everyone
would look back and look at what they've done for
downtown lately and say that they like the vision
that the city's at and where we are today versus
where we were 20 years ago, I think we'll say the
same thing 10 and 20 years from today.
CRISP: Aasif, I agree, you've got to be pro
development and you can go back to Mayor Lugar,
Hudnut, Goldsmith, Peterson and, fortunately, with
Mayor Ballard and his team, you mentioned some of the
projects and the mall was sort of a crazy idea when
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it was introduced and how to go about making it
happen and the hotel we're sitting in today, same
thing, you get to the axis of the 400 block, you get
to the MSA site, those should do what these past
sites have done and not only allow those projects to
happen but allow development to happen in the
surrounding area, and sometimes I think people lose
sight of the temporary and full-time construction
jobs that can be created, lose sight of the fact that
in a hotel like this there's somebody who's doing the
table cloths, you know, Cintas is coming in and they
have a new opportunity because there's a new
development that's happened, Monarch selling the
booze here and the beer, it's those opportunities
that are created, and again we've been fortunate on
both sides of the aisle to have mayors in our city
who have been pro development and that's something
that hopefully happens and continues in the future
and obviously deploying that capital wisely, but if
we can look at the past whenever we're doubtful of
what we're doing today history would tell it's been a
pretty good thing.
RELLER: There is a large threat to the
continued redevelopment of downtown that most of us
don't think about because we don't see it and that's
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the deteriorating infrastructure of sewer and water
lines under our city streets. In some parts of
downtown the infrastructure dates to 1898, so I don't
know if you call this an incentive, but clearly you
cannot burden the developer with the cost of updating
that city infrastructure, and if the City is serious
about the continued growth and vitality of downtown
they're going to have to figure out a way to update
the sewer and water infrastructure.
HAGERMAN: Ross, you took the words right out
of my mouth. You mentioned a strategic balance
between the incentives and what role the City should
play and it's one thing to support continued
development of buildings and projects, mixed-use
facilities, et cetera, but 'til we spend the time to
really analyze and understand the infrastructure
needs, and there are a lot of needs with respect to
the infrastructure and they need to come first to
support the development which obviously will support
the people coming here, so we've got a lot of issues
there that we need to tackle.
OLSON: Okay. This is the last question I
have for you guys before we open it up to audience
questions and throw it out to all of you guys here.
We talked about it a little earlier with the
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Nordstrom space. "Indianapolis Star" is in
negotiations to take some of the former Nordstrom
space following the sale of its building to TWG
Development for a massive mixed-use project. Would a
"Star" move be positive for the mall or a sign that
office is more viable for the space than retail?
RELLER: I think one of the things the market
reset has illuminated is that we really have too much
of everything, in every single zoning category we
overbuilt, so it's not a negative that Simon and
downtown are recognizing that the mall may have more
retail space constructed than the market demands. I
think this is just a healthy, normal adjustment to
changing market conditions.
CRISP: The spot demands everything, and it's
interesting, I was talking to a developer last night
and the word that came out was "crossroads," it would
appear that in all segments, in particular office
downtown, we're at this crossroads where we have
significant inventory, we have deals, there's places
to put folks, but a lot of the space that's out
there, on one hand we have the space, on the other
hand we have the users who want something different,
they want something a little bit more exciting, they
want something that is a better fit to the employees
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that they're trying to attract and to retain, so what
do you do? Probably a part of it is some
redevelopment of what the intended use was to
something different like what's going on with the
mall, then if you start to do that and you start to
look at what do we put up new or what do we redevelop
to this new, hip idea of what's out there, can we do
it and will they pay for it, and you look at the
ExactTargets, Angie's List was brought up earlier,
these companies, we're working with a few new sort of
tech-related firms that have a younger talent pool
and they want it. It's interesting to see will they
pay for it, and it would seem like we're moving that
way, but we need to figure out how to take some of
the existing and probably reassign it.
BADE: I think that's a great point that John
just made, it's really interesting the kind of office
space that's being absorbed fairly quickly and,
frankly, the traditional office users, it seems like
John would know better than I do, but the law firms,
et cetera, et cetera, the leases in the traditional
office buildings, they're all giving back space to
become more efficient because of the new way of doing
business and being leaner, so it's fairly
interesting, so people are growing and want office
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space that's different than what's available, maybe,
and the traditional office users a lot of times,
although they may be there, they're smaller and
leaner whether they're taking on new space or
renewing their existing lease.
CRISP: If we can pick up on it and we can
make this work, you're right. So it went from we had
rightsizing that went on which was distressed sort of
rightsizing, the company was going "I've got to get
out of some of this space" and now you have the
traditional users, the law firm, and I'm leaving here
and going to a meeting with a firm that's going
through this right now, their competitive set is
doing it different, and so how do we look at the
buildings that we're in today and make them work for
the next 10-year cycle, and so there's a rightsizing
of sorts there for other reasons but it's a big piece
to make that occupancy number get more in line with
something that would lead to rent growth, get it away
from the 19 or 20 percent that we see today.
OLSON: Okay. This is a question from the
audience. What do you think about the US 31 freeway
conversion's impact on Hamilton County?
RELLER: Well, I really think it continues to
benefit Carmel disproportionately to Westfield.
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Obviously, Westfield is going to incur a little more
disruption during the construction than Carmel. One
of things that's kind of interesting to watch is how
well prepared Carmel is for this changeover in terms
of Pennsylvania Street to the east and Illinois
Street to the west becoming the alternative routes
for traffic while the new interchanges are being
constructed. This is one of the most remarkable
public investments in my lifetime to affect Hamilton
County. I think it's going to be tremendously
positive, should have the ability to move
significantly higher volumes of traffic, but I really
think that as the economic development corridor
expands Carmel is well positioned to retrieve a
disproportionate share of the new economic
development. They still have a fair amount of land
appropriately zoned in the US 31 overlay corridor and
as yet undeveloped, so it'll be interesting to watch.
Whether or not Westfield will reap the benefits
quickly, the jury's out on that.
OLSON: Okay, here's a popular question.
What role will transit play regarding development?
Is there a need? Anybody want to take that one?
RELLER: Well, I think all of us like the
idea of mass transit as long as we don't have to pay
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for it through higher taxes, and I'm not sure there's
any evidence that mass transit is economically
justified in such a vast, sprawling part of the
country as central Indiana, but there are initiatives
that IndyGo and others have adopted that are being
tested and I'm all for it as long as I don't have to
pay for it unless I want to use the service.
HAGERMAN: I think there is a lot of
opportunity for additional development of mass
transit. Again I think trying to think to the
up-and-coming leaders who will be taking care of all
of this eventually, that's what they're used to,
that's what they want and I think it's a great way to
create density and, obviously, everybody's not going
to live downtown, they're not going to live in
Fishers or Carmel, I mean they're going to be all
over the place and to give them ease of access to
different locations to work is important and I think
that will spur economic development as you see more
people enter the central Indiana region because of
the easibility of transport.
OLSON: Okay. Next question goes back to the
multi-family discussion. With a decreasing
percentage of full-time jobs within the overall US
workforce and more part-time jobs due to ObamaCare
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implementation, what effect will the reduced income
of the upcoming millennial generation have on current
levels of multi-family rental rates?
BADE: Is that a question or political
statement?
CRISP: Who knows, but right now it seems to
be the only rent that's growing in real estate.
You're not looking at rent growth in office, I don't
believe you're seeing rent growth in industrial or
retail, but multi-family is still continuing to see
it, so I don't know, I don't know that that's
something that Flaherty & Collins is worried about
right now. It seems like it's an in-demand area
right now.
BADE: The only comment is there's 5000 units
downtown. We're not growing from a hundred thousand
to 200,000 or something like that, or even 25 to 50,
we're growing from 5000 to maybe 7500 over here in
the pipeline over the next couple of years, I mean
that is a relatively small number of units based on
the demand out there.
OLSON: Okay. Unfortunately, we're about out
of time here, so this is our last question. What is
your perspective regarding development opportunities
and the future of the area south of South Street and
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Lucas Oil Stadium?
BADE: I guess everyone's probably thinking
about the GM Stamping Plant more on the west side as
opposed to south of South Street, but clearly I
think, especially with key city-supported projects
downtown, it will continue to grow its footprint. If
you look at CityWay, that was a step in the right
direction going south and east. Rolls-Royce made a
huge investment at the Faris Campus and that has done
great things for just south of South Street, I guess,
and there's probably a long way to go, but downtown
will continue to grow in all directions, I think.
BROWNING: We took a hard look at lots of
properties around that area and while right now I
don't think they're probably going to be sold at this
point or the sellers are in a position to want to do
that, but we think it's a good area and has lots of
potential.
CRISP: And, Aasif, you said CityWay and what
that's meant to the city, to our city, has been
fantastic and it would seem like the stamping plant
would be — That RFP is due next week, is it? I
think we're going to start to see some ideas come in
next Friday. That would seem like that would be the
next area more so than just south of downtown, but if
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we could have an opportunity to see that growth
anywhere near what CityWay's meant to our southeast
side of downtown would be great.
OLSON: Okay. Well, thank you, gentlemen,
for taking the time to be with us today.
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