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Lauth Group leads slide in commercial real estate

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Year In Review

The outlook for commercial real estate development continued to worsen in 2009, as one major name faltered and other companies scrambled to redesign their business models and capitalize on the carnage.

Each of the city’s major development firms shed employees as demand and financing for speculative projects disappeared. Simon Property Group Inc. CEO David Simon went so far as to say, in a conference call with Wall Street analysts, that new retail developments are “dead for a decade.”

The most prominent local victim of the downturn was Lauth Group Inc., the once-mighty developer of more than $3 billion in projects. The company filed several subsidiaries for Chapter 11 bankruptcy protection in May. Company officials blamed the impatience of a major lender, Chicago-based Inland American Real Estate Trust, for the filing.

But the company, which grew rapidly to keep pace with an insatiable demand for new office, industrial and retail developments, simply could not go on once the projects dried up. Lauth started 2008 with about 450 employees but had fewer than 50 late in 2009, as the company’s principals sought to renegotiate with lenders and emerge from bankruptcy protection as a mostly property-management-oriented company.

Few commercial property owners had any equity left in their buildings, let alone enough to meet the higher thresholds banks were demanding. And funding from commercial mortgage-backed securities—a $1 trillion funding source just three years ago—had disappeared entirely. With so many commercial properties under water, real estate players in 2009 began positioning themselves to take advantage of what they saw as an inevitable shakeout.

Those seemingly best positioned to take advantage of the downturn included real estate investment trusts such as Simon that had access to public capital. Simon in December agreed to acquire Prime Outlets in a $2.3 billion deal and was setting itself up for a possible bid for its largest U.S. competitor, Chicago-based General Growth Properties.

Meanwhile, smaller local development firms had to find other ways to bring in revenue as they waited out the market. Condo and retail developer Kosene & Kosene, for one, opened a residential brokerage operation.•

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  1. How much you wanna bet, that 70% of the jobs created there (after construction) are minimum wage? And Harvey is correct, the vast majority of residents in this project will drive to their jobs, and to think otherwise, is like Harvey says, a pipe dream. Someone working at a restaurant or retail store will not be able to afford living there. What ever happened to people who wanted to build buildings, paying for it themselves? Not a fan of these tax deals.

  2. Uh, no GeorgeP. The project is supposed to bring on 1,000 jobs and those people along with the people that will be living in the new residential will be driving to their jobs. The walkable stuff is a pipe dream. Besides, walkable is defined as having all daily necessities within 1/2 mile. That's not the case here. Never will be.

  3. Brad is on to something there. The merger of the Formula E and IndyCar Series would give IndyCar access to International markets and Formula E access the Indianapolis 500, not to mention some other events in the USA. Maybe after 2016 but before the new Dallara is rolled out for 2018. This give IndyCar two more seasons to run the DW12 and Formula E to get charged up, pun intended. Then shock the racing world, pun intended, but making the 101st Indianapolis 500 a stellar, groundbreaking event: The first all-electric Indy 500, and use that platform to promote the future of the sport.

  4. No, HarveyF, the exact opposite. Greater density and closeness to retail and everyday necessities reduces traffic. When one has to drive miles for necessities, all those cars are on the roads for many miles. When reasonable density is built, low rise in this case, in the middle of a thriving retail area, one has to drive far less, actually reducing the number of cars on the road.

  5. The Indy Star announced today the appointment of a new Beverage Reporter! So instead of insightful reports on Indy pro sports and Indiana college teams, you now get to read stories about the 432nd new brewery open or some obscure Hoosier winery winning a county fair blue ribbon. Yep, that's the coverage we Star readers crave. Not.

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