Commercial Real Estate and Residential Real Estate and Real Estate & Retail

IBJ Real Estate Power Breakfast transcript

September 21, 2013

Indianapolis 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.
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                           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
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                   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
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                   "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
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                   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
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                   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
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                   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
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                   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
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                   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
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                   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
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                   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
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                   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
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                   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,
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                   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
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                   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
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                   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
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                   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
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                   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
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                   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
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                   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
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                   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
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                   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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