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A new century of progress in Motown

As the city prepares to celebrate the 300th anniversary of its founding, a burst of activity has industry players optimistic about the future.

Industry and labor can make not strange, but powerful, bedfellows. One of Detroit's defining works, in fact, is not bricks and mortar but the Detroit Industries mural by Diego Rivera in the Detroit Institute of Arts (DIA).

Commissioned by the late Edsel Ford in 1932 and executed by one of the world's greatest social artists, the fresco shows that the marriage of individual muscle, character and the modern industrial system is powerful and enduring.

And next year, Detroiters will celebrate the 300th anniversary of the city's founding by Antoine de la Mothe Cadillac, the fellow who named the city as Ville d'etroit and lent his own surname to a quintessential American symbol on wheels.

So, while perhaps not possessing all the sophistication or with-it-ness of a Paris or San Francisco, Detroit does have staying power.

Also, the city's ability to weather any economic downturn in stronger fashion than in the past will help solidify Detroit's attraction for outside investors, suggests William Harvey, senior vice president in the Bloomfield Hills office of Chicago-based Transwestern Commercial Services.

A decade or so ago, the real estate industry tried to smooth out the economy's waves through diversification. Now, Harvey says, globalization is the key.

"There is a healthy relationship between supply and demand," says Joel Feldman, vice president and associate broker for Friedman Real Estate Group in Farmington Hills.

Feldman notes that single-tenant lease-ups or build-to-suits in attractive markets like Troy or Rochester Hills "have been a blessing, making the market tighter and reducing the possibility of overbuilding.

"And we see a continuing latent demand for build-to-suit opportunities," continues Feldman. "These are credit-worthy, large corporate users."

Feldman also says that the office sector will continue to evolve for the advanced communications and computer needs of many users. And today's buildings are at work 24 hours a day, whether people are inside them or not.

Mike Gerard, director of the Southfield office of Northbrook, Ill.-based Grubb & Ellis and national director of its newly formed telecom specialty group, sees a new trend emerging. "We really have a fifth product category in real estate, telco facilities, as telecommunications is turning into a new class of utility," he says.

Gerard notes that 24 million fiber miles were set down nationwide in 1999, three times the amount set in 1993. Tenants for such facilities, Gerard adds, are seeking service by two electrical substations, multiple fiber carriers in the vicinity and as much as 200 watts of power per sq. ft. of space, more than 10 times the typical office scenario.

As a result, location is chasing infrastructure in many cases, bringing renewed or high value to older facilities or properties along fiber trunk lines or a favorable power grid.

Downtown office firms up Compuware Corp. is about to break ground on its 16-story, 1.1 million sq. ft. Campus Martius world headquarters. The company is relocating from its current headquarters in Farmington Hills, a Detroit suburb.

The move is considered to be a momentous one in Detroit because of the company's commitment to the central city. City officials are hopeful other companies will follow.

Robert Schostak, president of Schostak Brothers & Co. in Southfield, reports aggressive activity on the part of Kern Woodward Associates, developer of the Campus Martius site. Kern Woodward Associates is composed of Schostak Brothers & Co., Detroit attorney Melvin Hollowell Jr. and the Sterling Group.

The city is readying 1,100 underground parking spaces on the site of the former Hudson's Department Store. Schostak says that the development entity is considering a mixed-use project that would be built over the garage, which might include a hotel, as much as 500,000 sq. ft. of office space, and a two-level retail component.

Elsewhere in the CBD, office properties being readied for anticipated new demand include:

- the 320,000 sq. ft. Griswold Place at Fort and Griswold;

- 28 West Adams (now known as the Michigan Mutual Building); and

- the 21-story, 336,000 sq. ft. 1001 Woodward, the former First Federal building, directly across the street from Campus Martius.

In the suburban office market, broker John Gordy of Southfield-based Signature Associates - ONCOR International reports that rates and occupancies are strong with landlords holding firm to built-in lease escalations and offering limited, if any, concessions.

At Southfield's 2.2 million sq. ft. Southfield Town Center, property manager Greg Leshman reports that Blackstone Property Management will invest $2 million in upgrades to the landmark property.

Plans call for a new executive cafeteria, construction of a 5,000 sq. ft. fitness club and renovation of the 3000 Town Center lobby and common area. Leshman reports that Southfield Town Center, acquired last fall by Blackstone Real Estate Partner II, is now 94% to 95% occupied.

The Kojaian Cos., based in Bloomfield Hills, is currently upgrading and remarketing Travellers I and II, a stone's throw from Southfield Town Center, as well as Troy's Top of Troy building.

Overall, the Kojaian Cos. has purchased and renovated more than 2.5 million sq. ft. of office space within the past five to six years in the Southfield office market.

With Troy and Southfield established as mature office markets, Matt Fenster, executive director of Paragon Realty in Farmington Hills, looks to the M-5 corridor in Farmington Hills as a key emerging office market.

Paragon's "2nd Quarter 2000 Suburban Detroit Office Outlook" also reports that with more than 2 million sq. ft. of office inventory added in the past 30 months, the relocation of large tenants has sometimes created temporary jumps in Class-A vacancy.

At the same time, Bruce Morrison, director of Signature Associates ONCOR International's investment group, says that market fundamentals are likely to remain solid. "There is a good amount under construction but nothing crazy," says Morrison.

"Even if the economy slows down we can weather a downturn, as opposed to 1989 when single-asset owners were borrowing lots of money," continues Morrison. "Today, they are funding more out of their own cash. We don't see lenders taking control of properties or taking down rents."

Industrial remains vibrant A second-quarter survey of metro Detroit industrial markets, published by Grubb & Ellis, shows that of the 500 million sq. ft. of industrial space charted, the overall availability was 33.7 million sq. ft., or 6.74%.

The weighted rental rate for warehouse and manufacturing properties was $4.76 per sq. ft.; and for R&D facilities, $8.85 per sq. ft.

The DeMattia Development Co. of Plymouth reports that approximately 500,000 sq. ft. has been developed at its Michigan Industrial Park.

According to Gary Roberts, DeMattia's executive vice president of development, about 30 acres of an original 144 acres remain for development at the park, one of a number of relatively new industrial and high-tech parks bridging Wayne and Washtenaw counties along Michigan Avenue, as well as south along Interstate 75.

Among Kojaian developments, company officials report that one of its two 395,000 sq. ft. buildings at Interchange West, located at I-275 and Haggerty Road, is now fully leased to Detroit Center Tool.

And Kojaian's sprawling Wixom Technology Park, at I-696 and Wixom Road, will include as much as 200,000 sq. ft. of spec high-tech space, as well as 22 acres available for build-to-suits.

An example of the bridge between communications and high-tech industrial properties is Pomeroy Investment Corp.'s Southfield TechneCenter II. Pomeroy, based in Bloomfield Hills, will break ground this fall on the five-building, 200,000 sq. ft. research and technology park, across Lahser Road from the entity's fully occupied 605,000 sq. ft. Southfield TechneCenter. One major attraction: fiber optic trunk lines that run along Lahser Road.

Retail hums along Jim Bieri, Detroit-based retail consultant and leasing representative, reports that Detroit area regional malls are doing well. "There is pressure for spaces, and things are generally healthy," says Bieri.

"Leasing deals are full price and sales are strong. I've been amazed at the increase in sales in the last couple of years," adds Bieri, crediting the strong national economy for reversing questions expressed as recently as five years ago about the survival of malls.

In its spring retail market report, the Southfield office of Palo Alto, Calif.-based Marcus & Millichap notes several important trends for the metro Detroit retail sector. Steve Chaben, vice president and regional manager, reports the following highlights:

- Retail completions dropped by 10% in 1999 compared with the previous year, largely due to delays in anchor-tenant commitments in larger projects. Still, with almost 4.5 million sq. ft. under construction and another 3.8 million sq. ft. planned, Marcus & Millichap expects completions to increase more than 50% this year over 1999 levels to almost 4 million sq. ft.

- Vacancies are remaining steady at about 4.5%, with anchored centers showing the greatest occupancy strength with less than 3% vacancy on average.

- Investment sales activity continues to be concentrated on smaller, unanchored centers. Seventy percent of 143 sales in 1998 and 1999 were of buildings smaller than 20,000 sq. ft. at an average selling price of $81 per sq. ft.

Hotel sector holds steady In a spring 2000 survey of nearly 28,000 hotel rooms in Wayne, Oakland, Macomb and Washtenaw counties, Ann Arbor-based Hospitality Advisors reported a 1999 year-end occupancy rate of 68% and an average daily rate of $80 for Southeast Michigan. Those figures varied only slightly from year-end 1998 when occupancy was reported at 69% and the average daily rate was $76.

Hospitality Advisors' Chuck Skelton remarks that while limited-service properties continue to be built across metro Detroit, the area is deficient in full-service properties with the necessary meeting spaces to house corporate and social events.

Luxury leads apartments In its "2000 Detroit Apartment Market Study," real estate appraisers and consultants Terzo & Bologna Inc. of Livonia report nearly 30 new apartment communities were constructed in metro Detroit in 1999, adding a total of 2,600 units.

Among properties reporting consistently to Terzo & Bologna, rental rate growth of 3.24% for the past year was noted. At the same time, overall current market vacancy is 3.8%, up from 2.9% the previous year.

Among luxury apartment developers, the Toll Brothers Michigan Division of Toll Brothers Inc. of Philadelphia has completed more than 1,000 units of its Lake Village Luxury Apartment Homes.

Next up will be the 184-unit, second phase of Lake Village of Auburn Hills, scheduled for completion early next year. Three other properties in Southeast Michigan are being considered for niche locations, according to Gilbert "Buzz" Silverman, president and CEO of the Toll Brothers Michigan Division, which is based in Farmington Hills.

"These are full-service living environments, whether it's groceries, delivery or dining out with respect to food, cleaning services and so on," says Silverman. "The real profit is in the Lake Village brand, with complete service from A to Z. Discerning consumers are seeking an outstanding value for their rent investment."

Still, because of metro Detroit's outstanding single-family home prevalence and the affordability of for-sale housing, Silverman estimates that $1.05 to $1.10 per sq. ft. is the realistic rate ceiling for Detroit area renters.

The Village Green Cos. of Farmington Hills reports that its Regents Park community in Troy, which will eventually total about 365 units, is 45% preleased. Village Green spokesman Tim Smith says that the Regents Park branding philosophy is under consideration for other Midwestern markets, including Chicago, Minneapolis and Cleveland.

Also joining the Village Green, Village Park and Regents Park brands will be a fourth product, City Apartments, which are urban apartment communities in downtown areas. The first City Apartments is the renovation of a historic building in downtown Chicago to 184 market-rate apartments, scheduled for completion in early 2001.

Smith adds that Village Green intends to identify and develop similar efforts in the range of 200 to 300 units for the downtown Detroit multifamily marketplace.

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