Magazine article Journal of Property Management

Recession Effects along the Great Lakes Part One: Illinois, Wisconsin, Minnesota and Indiana

Magazine article Journal of Property Management

Recession Effects along the Great Lakes Part One: Illinois, Wisconsin, Minnesota and Indiana

Article excerpt

A common view about the Midwest is that during an economic expansion, the highs don't get too high, and during a recession, the lows don't get too low. This appearance of relative stability in states like Illinois, Wisconsin, Minnesota and Indiana during rocky economic times has always made the Midwest attractive to many investors.

Take Illinois, for instance. The latest unemployment figure for the state is at 9.9 percent, as manufacturing across the area continues to take a pounding. Foreclosures continue to increase and real estate investment activity remains weak. In Chicago, unemployment is even higher at 10.5 percent, slightly more than the national rate. The rising unemployment throughout the state is reducing demand for office and retail space.

But even under these struggling economic conditions, some exciting development continues. CB Richard Ellis, AMO, reports the Wilson Yards Shopping Center in Chicago's City North neighborhood, which will feature 190,000 square feet of retail, is scheduled to open in late 2009. The company also has 325,000 square feet of suburban office space under construction in Illinois.

"Financing has become so difficult that it is hampering economic recovery in the real estate market," said Geoffrey Ruttenberg, a Chicago real estate developer and CEO of the Brixton Group. "But we've seen an increase in activity in the last 6 months."

Ruttenberg is near completion of phase one of CA23, a 36,000 square foot residential development in Chicago's West Loop. CA23 consists of 48 units from 2 to 4 bedrooms ranging from 2,000 to 4,000 square feet. There's private elevator access, a 600 square foot outdoor terrace and a center atrium design to provide extra sunlight.

QUALITY IS JOB #1

When new development slows down, developers must focus on operations for their existing properties, and Ruttenberg said it is critical that his property managers be diligent, responsible and pro-active toward running his properties.

"We try to build a more sophisticated product," Ruttenberg said. "The properties need to be in pristine condition. I want somebody to care for it as if they are living there themselves."

Joe Learner, a vice president with real estate services firm, Studley,

agrees that during times of decreased development activity, investors need an experienced and expert hand in running operations on their existing properties.

"Everybody who owns a property is looking for ways to become more efficient," Learner said. "But sometimes a short-term fix becomes a long-term problem."

Learner thinks a common mistake inexperienced property managers make is to cut costs in ways that affect the tenants. If cost-cutting causes the quality of the building to go down or the quality of tenant services to suffer, then you've created more problems for yourself than you have solved.

"Good, experienced property managers know how to trim costs without it affecting the tenants," Learner said. "That's the kind of expertise you need when you are focusing on enhancing the value of your properties."

IN DEVELOPMENT

Ninety miles north of Chicago, Milwaukee is struggling with a depressed office market and a dampening of real estate development overall. Some development is still getting done, however. A new 126,580 square foot Target at the Shoppes at Fox River opened this year, along with a 61,000 square-foot Pick 'N Save. …

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