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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 Rich Forslund, Summit Realty Group partner, office advisory; Jacque Haynes, Cassidy Turley senior vice president; Sherry Seiwert, Indianapolis Downtown Inc. president; J. Jake Sturman, JLL executive vice president; Brian Sullivan, Shiel Sexton Co. Inc. managing partner; Joseph Whitsett, TWG Development LLC CEO.
The discussion was led by IBJ reporter Scott Olson.
The following is an unedited transcript of the discussion.
OLSON: Morning. Quick story: We had a
little get-together about a week ago and the guys talked
about not wearing ties and I didn't know if they were going
to be serious, but apparently they were. First off, we
have Rich Forslund. Rich is a partner at locally owned
Summit Realty Group and has completed more than $450
million in office building transactions. Rich earned his
bachelor's degree from Indiana University in
telecommunications with an emphasis on marketing and
advertising. In his spare time he enjoys playing with
Barbie Dolls, having his nails painted, and eating snow
cones. He has three daughters and pretty much does
whatever they want and his wife wants to do.
Next up is Jacque Haynes. Jacque has 26 years of
commercial real estate experience specializing in landlord
and investor representation through development, leasing,
asset management, acquisition, and disposition of retail
shopping centers. Jacque is a Certified Commercial
Investment Member, she is an avid golfer and makes pottery
with her own pottery wheel and kiln.
Next up is Sherry Seiwert. Sherry is president of
Downtown Indy, formerly known as IDI established in 1993 as
a private not-for-profit. Downtown Indy addresses issues
that affect the area's growth and well-being by focusing on
development, management, and marketing. Sherry previously
served as executive director of the Indiana Housing and
Community Development Authority. She is a graduate of the
Indiana University School of public and environmental
affairs and enjoys riding her Harley. Next
up is Jake Sturman. Jake is executive vice president of
Industrial Logistics and Corporate Solutions Group in Jones
Lang Lasalle's Indianapolis office. Prior to joining JLL
he was a principal at Meridian Real Estate and since 2002
has completed $500 million in transactions. He received a
bachelor's degree in human and organizational development
from Vanderbilt University and enjoys water sports and
outdoor activities.
Next up is Brian Sullivan. Brian is managing
partner of Shiel Sexton which he joined in 1996 as partner
in charge of business development for the general
contracting and construction management firm.
Brian received a bachelors degree from Ball State
University and enjoys cycling, recently returning from a
Colorado cycling trip. He also enjoys photography and is
President Obama's official event photographer when he
visits Indianapolis.
Next up is Joseph Whitsett. Joe founded the
Whitsett Group now known as TWG Development in 2007. The
full-service real estate firm specializes in revitalizing
vacant buildings for affordable and market rate housing.
Joe graduated from Indiana University with a bachelor's
degree in accounting and later earned a law degree from the
University. He spent time at the Ernst & Young Accounting
Firm and the Ice Miller Law Firm before founding the
company. In his free time Joe enjoys spoiling his
grandchildren to the greatest extent possible.
Welcome. Thank you for your time today and a quick
note on the format. I will throw a question out either to
an individual panelist or the entire panel. Everyone
please way in and let us know your thoughts, take a minute
or two most so we can cover a lot of ground. In the
meantime, audience members please write down your questions
and we will get to them soon.
I will go ahead and start with you first, Rich.
Concerning the office market, what are the biggest
challenges facing the downtown office market, and at the
same time, what are some of the opportunities.
MR. FORSLUND: Well, I appreciate going
first. It reminds me of why I used to sit in the back of
the classroom. I would say the main three that seem to be
talked about right now quite a bit would be the office
vacancy in the towers, the parking, and you know probably
the justice center. You know, in regards to the tower
vacancy, we are probably at about 20 percent, and the issue
is they have just basically become — they dropped out of
vogue. You know, people want more of a creative type of
building, looking to feed a culture and ultimately, you
know, basically feed into the millennial discussion that's
taking place right now. As far as the opportunity within
that class, I think what people need to do is basically
start to merchandise those buildings a little bit more.
Basically walking into the building and simply looking at
it that that main lobby is a place to rub your feet and get
the dirt off is no longer really the discussion. It is
really a discussion of how do you turn that more into a
Starbuck's scenario, how do you turn that into something
that people are wanting to come down and drop into,
something that people want to ultimately create as part of
their space as well. So that's sort of that piece, and I
think there is groups that are doing that pretty well.
There is a lot of groups that in big cities are doing this
right now. I will just give you an example, a group called
Hearn that bought the John Hancock building. It was just a
normal, typical office tower. Basically those guys have
taken that and they have created the plaza, and although it
is an iconic building, it is just a building. So they have
taken that plaza and they have decided they are going to do
something neat with it. As far as creating sort of a
theme, they are doing a studio almost there, you know,
where they have groups that come in whether it is Dave
Matthews or what have you, they will come in, they will go
there, and it is just creating this ultimate vibe. So,
again, it is merchandising.
As far as the parking, where I go with the parking
is right now there is a lot of, you know, development,
positive development taking place. So if you look at
Cummins and if you look at the Flaherty deal, et cetera, it
is all wonderful things but of course we have got surface
parking that is going to be disappearing in there. So the
discussion is how do we react to that. What I would
suggest is we have got parking opportunities out there. It
is really just a change of a mindset. When I say that,
bigger city mindset is what we probably need to be sort of
leaning towards.
I can't tell you how many times, and this just
happened recently, where we are looking at a space with a
prospective tenant, you are in a gym, you are talking about
how they are going to wind out this wellness piece, you
know, they are asking about the elliptical and looking at
the treadmill, et cetera, and then as soon as the question,
now, where are we going to park and you mention we have got
options here three blocks away. Three blocks? And it just
down — you know, it is the urban, it is what it is. It is
part of being urban. I think to change that mindset we
could have lot of issues as far as the downtown discussion.
The other thing is just getting creative as far as
the actual operator. Maybe you do a collective shuttle or
some type of circulator or something like that, especially
with all the multi-family that's kicking up, mixed use, et
cetera that's sort of kicking around, do something like
that. I know the guys over at Ambrose did a — they had to
accommodate a very dense use over at Landmark. They did
valet. So there are ways to play with this.
The other thing is if we are truly buying into the
wellness discussion and we are truly going to try to
implement those things, obviously walking would be part of
that, so incentivising those to walk. I think from those
that know, I think you are supposed to have like 10,000
steps a day or something like that; is that right? So
10,000 steps a day and I think we equate it — I did some
quick math on this so I am not going to mess this up — but
in regards to steps, let's see, we are looking at 350 steps
in a block, five blocks, 1500 steps, so it is not that bad
even if you are going five. So we have got that.
And then in regards to the justice center, I think
the main issue there is just the question mark that
surrounds it, right? So what is it going to happen there?
A far as — and obviously it is hard to do anything when
you don't know, right? In regards to the opportunities
there — I am being told to move — as far as the
opportunities there, I think it could just open the east
side up quite a bit. There is a lot of people that are
sort of already making moves on Delaware. We have worked
with some groups that are sort of buying and hedging on
that, so I think ultimately there is a lot of opportunity
that could come of that.
OLSON: All right. I will follow up
with Sherry. You brought back the downtown initiative to
address the vacancy. As financial firms increasingly move
to the north side to be closer to their affluent clients,
what kind of firms do you think will fill the void.
EIWERT: Tech firms. That's really who
we are hearing from. But as Rich said, they are looking
for that open collaborative space. And he alluded to the
criminal justice center, I think that we would lose a lot
of bail bondsman and that type of service, which I think
would be backfilled ideally by some of the small tech firms
and that is really who is wanting to move downtown at the
moment.
OLSON: Okay. Anybody have anything
they want to add on office before we move on? Joe, I will
go to you. Staying downtown, it seems the Cultural Trail
hasn't had a huge impact in terms of attracting retail and
housing. Where has the trail had the largest impact and
are there other areas of downtown that might be ripe for
development?
WHITSETT: Well, it seems like the place
where we are not developing right now, the Virginia Avenue
down to Fountain Square certainly has, the trail has
apparently it seems to me made a major impact right now in
development retail and restaurants and clearly the
apartment market that has I think now the creeping or
moving into the neighborhood off of Virginia Avenue even
into the single family market which is a great thing. You
know, the other areas we are looking at and I think are
great for development, clearly the northern suburbs are
still strong. We have got Carmel and Fishers that are on
fire still in the multi-family area. Downtown we like the
near south side. The west side is the criminal justice
center and things are happening on the west side already
and the two-way streets are going to be coming at IUPUI,
both New York and Michigan. I think the west side has some
real opportunities. The east side could be some
interesting play. I was real involved in the Super Bowl
Legacy project down there, and I think the east side
continues to focus on single family home ownership, at
least the near east side, more so than any multi-family
housing to speak of, and that's a great thing and that's a
tougher market and they are taking that on and I think
that's good, but from an investor perspective and a
developer perspective, the other sides of town. And the
near north side has always kind — not always, but in my
career been strong and continues to be strong for any type
of housing market.
OLSON: Anything you are seeing, Brian,
in terms of development in the building industry?
SULLIVAN: I think there is one of the
things that is really changing my world is just a change in
methodology in contracting methods. So a couple of
legislative sessions ago a design-build was afforded public
entity, so now K-12 are delivering more and more projects
with a design build delivery. This last legislative
session, construction management at risk became available
for public entities, notably higher ed who are — there are
several projects lining up for that delivery. And this is
all owing to the scarcity of resources that all the public
entities are facing. So it will be interesting to see.
You know, it is changing the historical relationships that
existed with architects, engineers, contractors, insurance,
finance, the whole spectrum. And in addition to those two
methods, P-3 which has been referenced related to the
justice center, the world has expected the US to enter the
P-3 arena for maybe ten years. We have been slow to sort
of get there. Long Beach was delivered about two years ago
and kind of a hybrid P-3 model, but everyone is looking at
Indianapolis with the justice complex. It is not for the
faint-hearted. It is a very complex transaction. It will
be very interesting to see how it plays out. Of course
there is political ramifications and all sorts of
complexity attached to it.
And then I think — and another thing that
certainly Joe has seen, a lot of the public entities,
again, private and public higher ed have hooked at
partnering with developers to satisfy some of their
facility needs. So these close working relationships with
housing developers, commercial developers, so sort of off
balance sheet transactions with some of the higher ed. So
this changing dynamic the way things get delivered is one
of the interesting things I think in front of us.
OLSON: Brian, for those who don't know,
including myself, what is P-3?
SULLIVAN: P-3, I'm sorry. I can define
that. So P-3 is Public Private Partnership. We have used
that term a lot in the industry, but it has taken on a
whole new level of meaning. When you are sourcing
privately $500 million, you know, the way these things get
delivered there is entity three entities, there is an
equity developer box, a design build box, and a facility
management box. These are 30 to 35 year transactions where
there is obligations to this — to a consortium or a team
of these three boxes to own, manage, finance, and operate
the facility for 35 years. So needless to say, they are
papered up very extensively. So that's it. I mean it is
private money pension funds and so on that are behind the
projects.
OLSON: Quickly just following up on
that last item, the whole P-3 idea, is that a wise idea
financial engineering wise?
SULLIVAN: Time will tell. I think the
jury is out. The jury is out. You know, there is — as
people see how complicated these things are, it will be
interesting to see what the appetite is going forward. In
Canada, for instance, for 20 years virtually every social
infrastructure project, vertical and horizontal, roads,
bridges and vertical have been delivered this way. So they
have clearly adopted it as have the UK, South Africa,
Australia. So roads, bridges, but also hospitals, jails,
government office buildings, those are categorically social
infrastructure projects are all delivered that way if they
are over $20 million. So a lot of the world has adopted
this. It will be interesting to see. Ask me in about a
year.
OLSON: Okay. Moving on to retail,
Jacque, and getting back to mixed use developments, I know
those are going — leasing up well, retail space in several
mixed use projects has been slow to lease up. Is there any
reason for that or what do you see going on there?
HAYNES: How long do we have? There is
quite a bit that I believe is attributed to that and I am
very passionate about retail and I think you have to
understand two different types of tenants, whether you have
your national tenants and credit tenants or you have your
local what we refer to as our mom and pop tenants. So the
national tenants and the credit tenants continue to see
A-plus, Grade A locations, Keystone at the Crossing,
Hamilton Town Center, Anson, those areas that are really
drawing the national tenants at this time. When you look
at the mixed use developments, those are more comparable to
neighborhood retail centers. Neighborhood retail fills up
with your service-oriented retailers, so you will have
boutique stores, you will have maybe medical use, you will
have dental, you will have hair care services, dry cleaner,
et cetera. I think in the downtown area some of our
challenges that we face, by example, Great Clips, they are
a 12 to 1,400 square foot tenant, they require 400
customers a week, on average those customer get their hair
4.2 times, you know, they are going to recycle through. So
we had 1,400 units coming on delivery in 2014, one person
from every one of those units would need to show up at
Great Clips' door to make that store successful. So that
puts it a little bit more in perspective. How often I hear
from restaurants, you know, one office building or one
apartment community does not make for a good restaurant.
So I think that part of the challenge is we don't have the
density yet, but it is coming. I think that today we might
see some turnover in the tenancy that occupies the
buildings, but I think five years from now we are going to
see that tenancy improve, we are going to see the credit of
those tenants improve, and I think that if you could
duplicate Mass Ave, that's the reason why Mass Ave is
successful and some of the retail pockets that are
separated from all of the synergies that a retailers wants
is why it is more challenging.
OLSON: Okay. As a developer of some of
those projects, Joe, is there anything you are seeing?
WHITSETT: Yeah, I mean obviously
location is so important for the retail piece. You know,
we are trying to do and urban development is trying to do
mixed use with retail on the first floor. We have been
fortunate in our locations so far. They are not completely
filled up but we feel good about where we are with them.
Most of us in our company try to underwrite our deals so
that we don't need that rent from a commercial piece. And
we make less money doing that, but you have complete
flexibility then with who you bring into that space. We
have one tenant that is going to be credit worthy that is
bankable in terms of taking that lease and finance that
with a bank. The other two tenants that we have lined up
so far for one of our deals, they are small operations
which is exactly what we want. We don't need the big
retailer to come into our space. We didn't underwrite it
and sell it that way to our bank and to our investor. I
think that is key to have that flexibility because kind of
what I — I grew up here and have always lived here, what I
want in our buildings is what ends up being best for the
city, which is strong retail, independently owned, not that
it has to be, but I think the one national retailer on Mass
Avenue, Starbuck's, I am not sure if there is another one,
and that makes for a healthy environment, although
obviously there is always turnover on Mass Avenue.
OLSON: Who was the tenant you are
talking about, which project?
WHITSETT: We have at the Consolidated
Building, which is 115 North Penn. It is going to be
called Penn Tower Apartments. It is a 15-story vacant
building, it has been vacant for a long time, between the
BMO — just south of the BMO Harris Building that Senator
Donnelly is moving his Indianapolis office to that space
and then I think he reported the other day, a Hilton
franchise is taking the back part of that seven-story annex
behind us and they are taking the front piece, I don't know
how many square feet, but about a third of that total
space, for their lobby in the building that we have there.
So that's a very positive thing for us. Those are two
strong tenants that are going to be able to pay their rent
on time and are long-time tenants for sure, pending an
election for Senator Donnelly, of course.
OLSON: Jake, the next question is a
topic we are exploring for an upcoming real estate section
that runs September 22nd. The industrial market has been
hot for quite some time and now Amazon has announced that
it has introduced same-day delivery to Indianapolis. What
can Indianapolis do to ensure it gets more than its share
of these huge e-commerce distribution centers?
STURMAN: First off, I want to thank the
IBJ. The JLL table got the VIP treatment to be able to
leave first if they don't like what I say, way back in the
back there. So in any event, thanks everybody for being
here. The trend in e-commerce, first off, Indianapolis in
general has had a big boom in e-commerce in the last five
to ten years. And, you know, the opportunity for same-day
delivery since Indianapolis has four million square feet
with Amazon here locally. We were a test market and now we
are a permanent market for Amazon. Amazon is the clear
leader for same-day delivery. You know, as Scott and I
talked about, there is other retailers testing that market,
you know, from our perspective and will have some impact on
real estate. Here in Indianapolis probably not so much,
you may see or may have read that Amazon is considering
opening what they are calling sortation facilities across
the countries, there is 15 of them going in, two of which
have already been announced. So those will be more
same-day closer to a larger population and having
opportunity to be in that 250,000 square feet to 400,000
square feet versus like the Amazon buildings are over a
million square feet each. So, you know, the trend there is
I think as Brian said earlier, time will tell whether or
not it will work. Amazon in any opinion is really out
there in front of it to differentiate themselves from the
brick and mortar. As they get more and more pressure from
FedEx, private carriers, to try to get closer to their
consumer.
At the same point, we are seeing companies like
Wal-Mart, Macy's, ToysRUs, they are also doing things like
ship from store, I don't know if anybody has ever used that
yet, but an opportunity to actually use their local retail
store as a distribution mode. So you will order a product,
as long as the logistics of that product can either be
shipped from a distribution point like a fulfillment center
like we have here in Indianapolis or directly from the
store. So I think both of those trends will continue. You
know, same day for Indianapolis is huge because Amazon is
here so if anybody else tries it, I think this would be a
good test market even if they went up against the other
opportunities here.
OLSON: Following up on that, as same
day becomes the standard, does a lot of our distribution
stock become obsolete?
STURMAN: Not necessarily. I don't
think anything over the newer product, '96 and newer has I
don't think any risk at all. You know, as an example,
Amazon we all thought, you know and Duke is sitting down
here I am sure chomping at the bit to fill their next
center that is 36 foot clear. The older facilities, and
that's the clear height of a building, so from an
opportunity perspective, Amazon went into a lower clear
height building in Plainfield for their third distribution
center, excuse me, their fourth, so they are going into
some older facilities as well, so as much as we hope that
is the trend and e-commerce, the better clear height would
be as an example Wal-Mart.com, they are at 40 foot clear
and they are actually using mezzanine racking within that
facility or mezzanine for their employees to actually be on
and to create more space within the facility. I think, you
know, to go back to your initial question, same-day
delivery I don't think is the trend necessarily, I think
the — as long as you have a large enough footprint,
cross-stock, and the biggest trend right now is probably
auto parts for your employees. We are seeing higher head
count within the facilities all over the board as well as
trailer parks.
OLSON: Okay.
HAYNES: I might piggy back on that. As
we know, the lines between retail and industrial continue
to blur, but I just learned where Target is doing
fulfillment centers in urban markets and are building a
20,000 square foot store that is primarily there to accept
the same-day delivery and hopefully then the consumer walks
in, picks up sundries and other items, we are seeing that
roll out in larger markets. Hopefully that will eventually
be the case here.
OLSON: Lastly for you, Jacque, how does
that affect retail leasing as e-commerce becomes more
popular?
HAYNES: Did I jump on your question
there? I'm sorry. Well, I think, again, the lines are
blurred and I think we continue to see retailers adapt and,
sure, their footprints may become a little smaller, but it
isn't the death of retail. So they're adapting or they are
making fulfillment centers out of their retail — you know
we are finding that when sales are ordered on line, if the
consumer prefers to come in and pick it up then that's
great because they are resulting in additional sales as
they walk out the door.
OLSON: The question for you, Brian,
contractors in the skilled trades often struggle with
attracting quality workers, coming out of an economic
downtown, how difficult is it today it to find these
workers?
SULLIVAN: Right. Well, it is probably
not a surprise to you and most of the folks in this room, I
mean there is already a good deal of stress in skilled
trades. We were heading that way before September of '08
when the financial markets locked down and shut everything
down, so anyone who could age out, opt out in any manner
from skilled trades have done so in the last fews, so then
you all of a sudden ramp back up and we are starting to
reach some level of normalcy again in construction activity
and the problem has really been exacerbated. So, yeah, it
is real and it is going to create wage pressure. So right
now most folks in the related industries are doing what
they can to induce young particularly high school folks to
track into skilled trades where they can make a good living
and backfill some of those positions, but that won't happen
overnight. There is a great deal of discussion around that
right now.
OLSON: Okay. A quick reminder, as you
think of questions of your own, please either write them
down and pass them to an IBJ staff member or tweet them to
me at Property Lines. Getting back to the office market,
Rich, we talked a little bit about the justice center. If
you can expand on that a little bit, certainly a
contentious topic, what will it mean to downtown in terms
of taking ancillary office space with it?
FORSLUND: Vacancy. But, you know, with
that said, I mean it is one of those things where, as
mentioned before, it is a question mark and no one knows
exactly how this is going to fall out, but there is no
doubt there will be a time where vacancy will show up, we
will have to deal with that, but in regards to the
opportunity where I was starting to go before was, you
know, that area has always been sort of that east side,
there has always been — there has been a Mason Dixon line,
that far east side has sort of been cut off by the bail
bondsman and some of these different utilizations within
that area. With those going away, I think a lot of things
open up on that side of town. You know, we have already got
some big wins over there in regards to Cummins, Flaherty,
the Artistry, you know, there is a lot of light industrial
let's call it, buildings over there that could be in the
Cole Noble area which have a lot of adaptive reuse
possibilities as well. So, you know, take the example the
Trinity Mines Building for instance, those guys did a
really cool thing with that building and it is just
something that I see that could continue on.
And then in regards to Delaware in particular, you
know, we have recently done a couple deals over there, you
know, the 136 North Delaware where the credit union,
Indiana Credit Union has been forever, been vacant for a
very long time, and because of this new news and because of
things that people think are coming, you know, there is a
group that is going to come in there and totally redevelop
that building and you have seen the renderings probably, I
think they were just put out there this week, but that will
be really neat. There is an architect art design, Indy
Height bought the Barcelona tax building, did a lot of
really neat things with that, it has been vacant for some
time. I think people are going to jump onto that and I
think it is all — you know, if it does happen, I think it
can be a very positive thing for that area.
OLSON: Okay. Sherry, has your
organization taken any stand on the justice center or the
proposal for a music venue?
SEIWERT: I will say that we are
delighted about the criminal justice center concept and we
do hope that it goes forward. I think that ultimately for
downtown it will be great, and Rich just talked about the
east side and the transformation that will happen. I think
about the former Market Square site with Larry Kahn's new
development, the Cummins new development, the Artistry,
that whole east side if the jails were to relocate I think
would be completely transformed. You have got the transit
center that will break ground within that market east area
as well as old city hall. I think the music venue,
proposed music venue still has a little ways to go. There
is some controversy amongst the neighborhoods and there is
some discussions with White River State Park, but
ultimately it would bring a proposed 300,000 people down to
that area for a variety of music events as well as — and
it would double the seat size from White River State Park,
so ultimately I think it is going to be a great investment
for downtown.
FORSLUND: The other thing I mentioned
real quick is in regards to the towers or let's just call
it the Gold Building 251, that's good product. So I know
there is obviously people that are concerned and there will
be winners and losers throughout this thing, but that is
good product and it has a place. The gold building in
particular as far as my world is concerned, it is laid out
extremely well and I just see it — you know, someone is
going to pick that up and it is going to turn into
something, you know, should this continue on.
OLSON: Brian, with the justice center,
she mentioned the transit center, what are some of the
other projects that might be on the radar of contractors or
are those the top two that you are looking at?
SULLIVAN: You know, I mean it is kind
of all sectors are actually starting to show life again to
be perfectly honest. Office, even though I am aware of the
vacancy rates, I mean there are a number of known brands
that are looking for new consolidated office buildings
downtown. Hospitality, you know, we are finishing several
hotels now in Chicago and Bloomington, but also there are a
number of projects proposed for Indy yet. We are doing a
22-story hotel in Denver right now, so the hospitality
industry has been strong and one we recently expected Indy
to play into that. Mixed use, obviously notably anchored
by the residential multi-family has been really
transformative model that has hit the market place and
there is more of that in our future. You know, obviously
the corrections justice center is going to create all kinds
of tangential activity, the transit center is not
theoretical, it is under construction, it is real. Higher
ed in and around Indy, every one of them have ambitions and
projects on the boards, so there is sort of across all
sectors, there is activity. I didn't know if I would live
long enough to say that, but it looks good.
OLSON: Good. Joe, you mentioned
hospitality and you brought up your hotel for the
Consolidated Building, can you tell folks how that deal
came together?
WHITSETT: The hotel specifically?
OLSON: Yes.
WHITSETT: One of our partners, Dennis
Dye, it is like a lot of people in this room, it is about
relationships and who have you known and who you have done
business with before. Dennis had the contact with Jeff
Good of Good Hospitality out of Valparaiso and they have
known each other for years and we knew that he and Dennis
were looking for something to do in Indianapolis, he
already operates some of the suites on South Meridian
Street, so it was kind of a natural — well, it was natural
for him to look at Indianapolis and for those of you who
have ever been in the Consolidated Building since it closed
or in the Annex, this guy has some vision because he walked
into and said, yeah, this could be nice and it is really
not very nice right now to say the least. But, you know,
it is a group like that who has a vision and who has the
resources and frankly our willingness to say let's think
about this, it wasn't what we thought would be back there
when we bought the building, we didn't know what would end
up in the annex, we thought it would be vacant and we would
figure it out after we got done with our apartment
redevelopment. I am going to say it was a win for us to
say the least.
OLSON: Sure. Lastly on hospitality,
Sherry, with this project and the two hotels that are
proposed across from Bankers Life Fieldhouse, is there
anything specifically that's driving interest in downtown
hospitality wise?
SEIWERT: Well, Brian just told me that
he had folks in this week and couldn't find rooms for them.
I think we are not prepared to take on any large hotels but
the boutique, smaller hotels certainly want a place in and
around the downtown area. I think it is just the explosion
of the residential development that of course brings
additional development with it. So I think that we will
hear about a couple more.
OLSON: Good. Staying downtown, Jacque,
Circle Center will be 20 years old next year, is it
starting to decline or what needs to be done to ensure its
success for 20 more years?
HAYNES: Well, obviously just my
opinion, I don't think Simon has left me any messages
asking for my thoughts on this, but I would say that, you
know, from a structural component, you know, the mall is in
good condition. It is kind of a timeless, ageless,
seamless mall. I think they did a great job at Granite
City creating an opening to the sidewalk and, you know,
re-tenanting that and some of the upgrades they made for
that. I think that if I could think big and maybe spend
their dime doing it, I would look at how could we
incorporate more retail to the street level, and I realize
there is physical components that make that challenging,
let alone the financial side of it, but could we not have
two-story retail, bring H&M down to the street level, bring
Banana Republic to the street level. I think if there is
one thing that our mall streetscape misses is that. You
have a little tiny window opening over at Carson Prairie,
and with the absence of Nordstrom, which a lot of retailers
felt was on the wrong side of the street anyway, so I think
you need to have that presence on Illinois, and if there is
a way they could create that, it would be ideal.
OLSON: Anything possible with the space
that's available now in terms of creating some of that with
what's vacant at Nordstrom?
HAYNES: I think we will see a big
change when Yardhouse comes along. I will be anxious to
see how those plans look. You know, they are in serious
discussions with Dinosaur Barbeque and I have visions of a
giant dinosaur head coming out the mall. Maybe they will
just take the one from Children's Museum and move it a few
blocks south. I think that's going to create a good
streetscape and, you know, and that's what retail needs. I
mean that — Bill French and I are on a bent all the time
about let's let retail look like retail. And so if we
could create that along the mall, it would be good.
OLSON: All right. Switching gears to
industrial, Jake, is the area around Plainfield still the
leader in luring industrial projects or what are some of
the new areas around the city that are starting to emerge?
STURMAN: Sure. Plainfield and the I-70
corridor I think carries a national brand now, you know,
much the same as maybe the Inland Empire, I-80 in Chicago
or Great Southwest in Dallas. So what that does for our
local community is it brings other institutional investors
that are looking to the Midwest to invest dollars here, so
you will see or you have seen a boom in speculative
development both in Plainfield and all around central
Indiana. So from a Plainfield versus the other markets, it
is I think a safe choice for a developer first and then
because of the critical mass for the last 10 or 15 years,
it is a safe choice for a tenant. And most of the demand
in Plainfield is third party logistic firms. So as you
create a campus like Osborne Hussey Logistics is an
example, it is an easy choice to grow your business there
and if developers have built space, you tend to stay around
where your current employee head count is. So I think
Plainfield has done great, I think there is great things to
come as both All Points Midwest gets built out and the West
Point area continues to go. As far as emerging markets or
other markets that we have seen demand, Greenwood has a
speculative development building under construction with
Quadrangle. You know, there is other markets that we have
never seen spec, maybe prelease early, you know, five or
ten years ago in Lebanon with GDI and North Point doing a
750,000 square foot facility up there, so I think all of
the markets are ripe for development. Tenant demands are a
little bit off this year, but I think as we approach the
fourth quarter we will see some of these fill. And lastly,
the only area that we haven't seen spec or maybe emerging
market to keep your eye on is the east side. You know, as
an opportunity for Mount Comfort to continue to grow and
then why those all make sense is we have seen a little bit
of a labor discussion enter Plainfield in the southwest sub
market, so as a case in point, Ulta really didn't want to
be in Plainfield at the end of the day, they chose
Greenwood and it was between Mount Comfort and Greenwood
and most of that was labor driven versus development
driven.
OLSON: Okay. Joe, we are getting a lot
of interest from the audience on the multi-family area. So
I will throw this one out to you: Do design relatively
inexpensive materials used in current multi-family projects
especially downtown make those property viable long-term?
WHITSETT: Who asked that question?
Well, I will just say as a downtown developer, and like I
said before, I have lived here all my life, I think we have
to have a quality design, quality product inside and out.
It is as much about the apartments and the quality of
what's in those apartments, everything from the appliances
to the paint to the counter. You just can't slap down
granite counter tops and say this is a great apartment
anymore, and you shouldn't. It is not good for your
investment. I wonder if I am right about that in that
there are projects in town I will say that I don't think
are of the highest quality material and I don't know that
they will sell those for any less than we will sell ours
for, and that doesn't have to be the test. There is
another test which is what's better for the community,
what's better in the long term, or hold the property
yourself and not sell it. We have historically been and
want to be a long-term holder of real estate and of
apartments. That's not always going to be the case. We
have at least one investor who is not wanting to be and
will not be a long-term holder so if we can't buy them out
we will probably sell one of our developments at some point
in time in the future.
But in the meantime, there is no reason to not
spend additional money to make it a higher quality product.
That's my personal view and I will just say I don't know
who it is that they are talking about or at least I am not
sure I do.
OLSON: That was our next question. On
the contracting side, Brian, how does that affect you guys
in terms of when you come into a project material wise?
SULLIVAN: I'm probably not going to
have a long answer on this one. I mean clearly it is okay
to have this conversation, I think we just — we are
finishing Iron Works up at Keystone at the Crossing and I
think it is a really good example of good design, good
materials, you know, an owner who clearly is building for a
long-term hold. So, you know, obviously I value that and I
hope we all do. If we all value that then the right
decision is being made, I will leave that answer to stand.
OLSON: Another quick reminder, as you
think of questions of your own, please either write them
down and pass them to an IBJ staff member or tweet them to
me at Property Lines. Rich, getting back to the vacancy
issue downtown, we talked a little bit about technology
firms moving downtown but they generally prefer older
buildings with a certain character such as the Century or
Gibson buildings. I know you hit on this a little bit
earlier, but do Class A office towers have a shot at
getting these kinds of tenants?
FORSLUND: They do. They do. I think
it is just a matter of what's happening right now and we
were in a meeting yesterday internally and sort of had this
conversation, but it seems that the office world is
basically becoming more retail than ever, if that makes
sense. You know, merchandising is a really big deal and
the product is a really big deal, a lot of that is
basically stemming from groups, tenants, companies, looking
to create a culture or basically, you know, they are trying
to create a culture and they need their real estate to help
them do that. You know, as far as the towers are
concerned, there is groups doing it. In the big cities it
is already happening and it is going to have to happen here
soon because we simply don't have that many loft type
buildings, et cetera. So, again, it is just a matter of
getting in. I know there is a couple groups that are
looking at, for instance, Regions Tower and Market Tower,
in conversations with those guys, you know, the status quo
in regards to the way those are set up, the lobbies, et
cetera, it is going to change. And, again, what is it
going to change to? There is a lot of ways to tackle this
but it is basically that Starbuck's. You know, it is
creating that vibe or that pulse within that plaza type
feeling in those common areas. That's what people are
looking for. They are trying to create more than a place
to just walk from outside to inside to their office. And
so, yeah, I think there is not going to be a problem
overall in the long term, again, it is just reacting to
what people are looking to buy right now.
OLSON: Okay. On the other side I have
got Joe with the mixed-use projects, we talked about retail
not leasing up, is office good for mixed-use projects? Are
you seeing some interest in office users?
WHITSETT: No, not really. We have had
some people approach us about could we buy your building
that we were going to convert to apartments and the answer
has always been no because it is either no because we want
to do it or no because they don't want to pay the right
amount, but either way it is a no. You know, I feel like a
solution on the office side or at least part could be
converting some of the — more vacant buildings to housing
than we are doing right now. When we bought 333 Penn, the
American building, it was an office building that was
probably 45 percent occupied and it was actually with
Ossip, Ambrose Property Group where they had worked with
the existing tenants on really an exit pattern or exit plan
for them. That can be done. Again, I prefer it to be in
historic buildings, unfortunately that's where the young
entrepreneurs want to have their offices also. There is a
way to make this work to get more people downtown in
existing buildings, lower the vacancy rate, have the
residents go more vertical than spread out in a four-story
building with retail on the first floor which is what we
are seeing a lot of still. I would rather see the
residents in 15-story buildings or 18-story buildings, even
if there is some office mixed in it.
OLSON: Okay.
FORSLUND: I would note, too, the other
thing to consider in thinking about the towers is no matter
how much someone is looking to go the loft or look for that
really creative building for their company, there comes a
time and size better yet where that's not possible. You
know, efficiencies of these towers, the way these are set
up, the amount of square footage you can stack into them
and be an efficient user, you can't find that within a
loft, so there is always going to be a life for these.
OLSON: Okay. Jacque, we talked a
little bit about Circle Center; moving east, Simon
relinquished ownership of Washington Square Mall. What
could a new owner do to turn around that property?
HAYNES: I think in malls like
Washington Square we are seeing across the country
redevelopment trends within them and, you know, listening
to Mike, one great thing would be add a trade school. That
area needs an employment base to sustain it, I think if
there is a way that we could add a trade school, that would
be very helpful. Look at medical uses, alternative retail
uses, I think those are the things that we will see and
redevelop a mall like that. As far as the east side goes,
HH Gregg is relocating and taking a bigger footprint. I
recently backfilled a Panera that vacated because the store
no longer fit their footprint on East Washington Street,
but before they were out of the space, we had retenanted
the space with Vision Works. So I think the market is
still very viable. I think that, you know, but they are
going to need a community based — something that draws the
people in whether it is grocery, whether it is education,
whether it is medical, but it is going to take that kind of
service within it because I don't know that you are going
to find a significant amount of retailers that will invest
into the mall. If they could, again, figure out how to
turn the mall inside out, that would be very helpful.
OLSON: What do you think the interest
might be in owning that property?
HAYNES: I think we will see interest.
I think there is always an entrepreneur out there that
seizes that as an opportunity. You know, at some point
there will be a price point that it makes sense. It will
be an opportunity to reset the basis so that the next owner
can come in and spend the money needed for the
redevelopment side of it. But I think, again, you have to
look at the economics in that particular part of the trade
area and what can you do that can improve jobs, that can
improve the ability to have consumers shop. I mean one
thing again nationally that we are seeing is kind of the
lack of the middle class consumer and if anything, that
area has probably been hit the hardest by that, so it
really is pushing either trends towards severe discount or
luxury on the high end and you have to find a way to turn
that around in that location so you can bring that consumer
back in. And as Greenfield becomes more developed, that is
going to put even a little more pressure on Washington
Square area because the Greenfield residents will have
choices in their own market. So I think that it can be
done, I think for the right price, and I think somebody
will be creative enough to make that work.
OLSON: Okay. Sherry, you talked a
little bit, hit on old city hall earlier, what are the
chances of that attracting a major reuse and what might
make the most sense for that building?
SEIWERT: Well, it is a beautiful
building and it — but it has this huge atrium, so you need
to think about what the appropriate reuse is. I know that
the City has received a number of possible reuses, and I
think they are still looking at a few but, you know, it is
going to be — it is getting harder to find. I think it
will be a mixed reuse. I don't think it will just be one
taker, how is that?
OLSON: Okay. Following up on that
theme of reuse, a question from the audience, if IU Health
builds a new flagship hospital or consolidates on the IUPUI
campus, what is the potential for reuse of the old
Methodist Hospital campus? Anybody have an opinion on
that?
SEIWERT: Joe is like the king of reuse
buildings, you probably ought to ask him.
WHITSETT: You know, I think back and I
try to think of the last successful reuse of a major
hospital building. It is really hard to think of.
St. Vincent got reused for awhile as public housing, I
think, or Section 8 housing. It was Section 8, not public.
And then, Brian, your company tore all of it down except
for the front of it and made it a use that actually worked
because those are very difficult to figure out how to use.
St. Francis Hospital in Beech Grove has been vacant for
over a year now and they are working on a use and working
with people on a use but I am not sure it is going to
happen. The reuse of the land at Methodist Hospital, I
haven't thought about this before recently and it is an
easier thing to figure out than reuse of the hospital
except for maybe Brian.
SULLIVAN: Since my partners and I own
the property across the street, in a big way I am very
interested in any ideas that folks have out there. But,
you know, one of the realities is IU Health has invested
very significantly right across the street in their
neuroscience complex so it is not all together crazy to
think that it will remain an important asset and attract
other health-related uses.
FORSLUND: We use — this is years back,
but we marketed the old Winona Hospital and we see where
that went. So, you know, the issue with the hospitals and
when you are dealing with those, the depths within those
and the shear size of them, you know, people like window
space and those aren't exactly set up for that, you know,
in regards to office or pretty much anything across the
board when you are looking at multi-family, et cetera. So
those are tough.
STURMAN: Maybe the jail. Just a joke.
OLSON: Jake —
SULLIVAN: I read about it in the IBJ.
OLSON: — an industrial related
question for you. Obviously the local office market is
seeing outside interests, how much are we seeing outside —
how much outside interest are we seeing in the industrial
market?
STURMAN: I think there is more buyers
than sellers right now. We are seeing an influx of capital
like we have never seen before, I mean pre downturn buyers,
portfolios that either have already closed and outside
investment and parks that maybe saw significant vacancy
that have since been backfilled. We have seen groups like
Cross Lake enter the market, Exeter Property Group in a big
way come in our market and so that the capital side of the
business is I think pretty efficient right now and sellers,
it is a good time to sell portfolios. And where I don't
think the fundamentals are out of whack, most of the price
per square foot of the sales that we are seeing both on the
institutional bulk industrial side and the portfolios, you
know, the cap rates seem low, but we always look at the
price per square foot and that's comparison replacement
cost and as that lease rolls whether it is a long-term
single tenant or the portfolio sales. Back to your initial
question, there is a number of buyers from out of town
looking here, and then you have also got local buyers that
are looking at the portfolios either with joint venture
partners from out of town, so we have great local operators
that are bringing institutional money into the market as
well.
OLSON: Okay. We have got time for a
few more questions. Joe, this is what I had for you and an
audience member also submitted it. Obviously a lot of
activity going on downtown multi-family wise, always the
question of a saturation point; what do you see there?
WHITSETT: You know, we watch that
closely. I know every multi-family developer who is
working downtown, there are a lot of them in the room I
see, I know they watch closely also. I actually E-mailed a
couple people in our office last night and said what is our
company line on this question, and it was the same as what
I was going to say anyway, I think Midwest Real Estate
News, whoever reads that, had an article recently about
downtown, the housing boom, multi-family, and is it going
to end and they said no chance, not soon, and of course it
will some day. They barely mentioned Indianapolis. It was
Minneapolis, St. Louis, Cleveland, other cities and we are
ahead of most of those. I would say we are behind
Minneapolis in downtown multi-family redevelopment in terms
of just how many have been built. We're in the middle of
the pack of that. I would say we have a better downtown
than almost all of those cities in terms of other amenities
thanks to groups like Downtown, Inc. and people who were
here long before us in downtown redevelopment. And so I
don't see an end to it soon. We on our most recent
property released, we beat our pro forma rents by seven
percent. We would like to believe that that's bringing in
more retailers who will, you know, you do need the
households to get the retailers in and the restaurants in
and it seems to be working. And when you get those, I mean
whoever goes downtown, goes out to eat downtown on the
weekends, it is hard to get in and that's a good sign.
There are a lot of really good — we were talking at
breakfast, there are a lot of really good restaurants
downtown to choose from, now more than there used to be,
which are going to bring more people downtown. So we don't
see an end to it in the short term, but I have lived
through enough recessions and ups and downs to know that
the housing market isn't dead forever, and there are young
people who are going to turn 30, 35, have kids and say, you
know, unfortunately they are still going to say what school
system do I want my kids in if I can't afford a private
school and, you know, we always come back to is IPS the
perfect school system for what we need to really keep the
excitement about downtown housing.
OLSON: Any other input from the panel?
SULLIVAN: This is a global trend, look
at people all over the world are moving to urban centers,
so we are seeing the results, the pressures from that. I
am kind of surprised and maybe disappointed even that we
don't talk about mass transit anymore in a venue like this.
WHITSETT: The white flag is up.
SULLIVAN: The white flag is up? Well,
it gets apt to everything that we have talked about here
whether it is pressure on office parking ratios or getting
employees to employers. The proof of concept has been
strong in transit-oriented development with something as
simple as the cultural trails, you know, and bike share.
Look at how many developers are valuing that, locating on
or near it and advocating it, promoting that as one of the
first things about their properties. I think that's one of
the things that we need to sort of make sure it gets back
up on the priority list in our conversations.
FORSLUND: It is a constant
conversation. One of the things as far as demand and, you
know, why folks are coming in and looking at Indy. There
is obviously a lot of reasons they are showing up, but when
they are here, what is interesting is the feedback that we
get. The connectivity, the bike share, you know, basically
the progressive nature of where our city is going is really
helping us. You know, electric car share, Cultural Trail,
bike sharing. We were just talking at breakfast, what was
that number?
SEIWERT: 68,000.
FORSLUND: 68,000 bike share riders in
the how many?
SEIWERT: Four months.
SULLIVAN: We are negotiating six new
stations right now and we are constantly pressured by chair
of the boards of those two organizations who are under a
lot of pressure to create sort of Cultural Trail lights to
reach out into the next tier neighborhoods. So it is
great, but we need to do more on the transportation?
HAYNES: It goes to the success of the
retail, too, that's greatly aided that.
FORSLUND: If you look at Fountain
Square in particular, it is more of a retail push, right?
But that Cultural Trail showed up and suddenly that's the
spot, right? It has been discussed forever as the next
Broadripple, as the next Mass Ave but it wasn't happening.
As Soon as that trail showed up, maybe it was just
happenstance, but certainly it was good timing.
OLSON: We will end on this note, we
will just go down the line. Quickly, what advice would you
give to somebody getting into your business?
FORSLUND: Into my business? Be
patient. Getting into my business? You know, be ready to
think. I think, you know, with everything that's taking
place right now, you know, sort of the commodity discussion
of price is disappearing, at least in the office world, and
it is really becoming something where it is not just always
how much I am paying but whether what else it is doing for
me, and so thinking and being able to think in those terms,
I think puts you in a different place.
HAYNES: Be creative. I think you have
to look for solutions that are outside of the box, and we
hear that term all the time so not to make light of it, but
it is very necessary. So be creative, don't let barriers
stand in your way and don't let the fact that someone said,
oh, that won't work. That's all the more reason it should.
SEIWERT: Well, there is only one
Downtown Association so you can't have my job, but if you
were, that you we are an authentic urban area, which is
great and there are a lot of other suburban areas trying to
create the same thing, but we still compete with other
cities so we have to be open to change. We can no longer
be a nine to five, you know, downtown office space. We
really need to be a 24/7 multi-dimensional neighborhood and
be thinking about how we create active space and a lot more
related to our downtown.
STURMAN: Be specialized on something
that you are good at or really care about and be passionate
about that specialization within brokerage. But also keep
your eyes open about all the other disciplines out there.
I am working on other types of projects with specialists in
our office. And then Mike Hurless told me, if you can go
to dental school, go to dental school, don't get in real
estate.
SULLIVAN: So I would say be adaptable.
I mean you can't fall in love with one sector. So if it is
hospitality, for instance, and you say by golly we are the
best builder of hotels in the world and then nobody is
building a hotel then you have problems. So you have to be
adaptable. And in those areas where you feel like there is
market potential, short-term, mid-term, long-term, you
better develop some expertise. You need to be able to sit
down with an owner and understand their pro forma almost as
well as they do so you are dealing with the same challenges
in the right way.
WHITSETT: Well, it harkens back to one
of the questions for me, go ahead and spend the money to
deliver a high-quality project now. You will either get
that money back or you will at least retain the value so
much more than if you cut corners and try to deliver a
product of lesser value to the community or to your
company. I just think that's the right way to go.
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