Commercial real estate: Showing signs of life

Commercial broker Michael J. KeenanDespite a slow market for commercial and industrial properties, some real estate professionals say the first quarter of 2008 is an indicator this may be a good year after all.
"Things are picking up quite a bit," said Michael J. Keenan, owner of DeGroat Keenan Commercial in Saginaw. "The first quarter of '08 has been a significant upturn for us."

DeGroat said commercial properties are moving well in Kochville Township, north of Fashion Square Mall.

"There has been significant hotel activity and interest in Saginaw," he said, adding that he is closing deals on other commercial properties that have been vacant for several months, including one that was vacant for two years.

While the commercial market is still slow, industrial properties are moving well, said Larry Miller, president of The Miller Group in Saginaw Township.

"The interesting thing about our business is that there is always someone out there looking," he said. "We are affected by the economy, but not like residential real estate, which is affected by the economy and emotion."

His marketing strategies for commercial and industrial properties have not changed because of the slow economy, Miller said.

"The biggest change that we have seen in the past 10 years is high-speed Internet. We're marketing everything in a completely different way."

Moving a commercial property is very simple supply-and-demand economics, said Keenan, a licensed certified general appraiser. Quite often the stumbling block is a seller having unrealistic expectations of what the property is worth, he said.

More frequently, he is seeing a discount of 30 percent to 45 percent from what the seller is asking and what actually is being paid for property.

"It just depends on the motivation and urgency of the seller," he said.

There is no firm method to use when determining whether a vacant building should be torn down, he added.

"It really is a case-by-case basis," he said, but after a certain number of years the property gets what he calls "sick building syndrome." After being vacant for so long, it is more cost effective to just tear it down than pay for renovations, he said.

One example of that is the building on Gratiot Road in front of the Kroger/Kmart strip mall in Saginaw Township. That building has been vacant for about 10 years and if anyone does buy it, it is very likely they will have to tear it down, Keenan said.

Likewise the property at Green Acres Plaza on State Street in Saginaw Township, where Kroger is building a new store on the site of the former Farmer Jack grocery store. It was more cost effective to re-build than use the existing building, Miller said.

However, tearing down commercial properties is not all that common in the Tri-Cities, Miller said, pointing out that it happens more frequently in bigger cities.

"We don't have a lot of buildings so we try to protect them," he said, noting that demolition is more likely when a national company purchases a commercial site.

Other cities keep track of how much commercial property is vacant, but Saginaw does not, Miller said.

"There is probably more on the market than there was five years ago and there's not a lot of new people coming in," he said, "but the industrial market is starting to move, so that keeps us pretty busy."

Miller calls the current slack market a cyclical phenomenon.

"Everybody's hurting right now," he said. "This happens every 20 to 25 years, but it is starting to stabilize and this should be a pretty good year for us. There are a lot of positive signals."