Economic Update: Developers Plan for Eventual Rebound

By Dees Stribling, Contributing Editor, Commercial Property News New York–In light of the current doldrums for both commercial and residential real estate, what’s a developer to do? Be ready for the eventual turnaround, if possible. Development is typically a multi-year activity, after all. It also helps to plan your project in an area that’s more economically resilient than many others, due to relatively high household income. This week the village council of Winnetka, Ill., an affluent northern suburb of Chicago, granted approval of a 167,800-sq.-ft. mixed-use development downtown. Construction is not expected to begin for at least a year on the project’s 31 condos and 35,300 square feet of retail or other commercial space. “It’s already been a lengthy process, and we certainly hope that when we’re ready to begin, the demand will be there to support the property,” Robert Goldstein, managing partner at developer New Trier Partners L.L.C., tells CPN. “We believe it will, since Winnetka has one of the best suburban demographics in the nation.” The project will also dovetail with another trend in development, one stalled because of the recession, but which will eventually come back with considerable force: building sustainability. The Winnetka development will be the first structure in that suburb to obtain LEED certification. “There will be 75 million young adults—part of the echo boomer generation—coming into the apartment market in 2011,” Mark Humphreys, CEO of Humphreys & Partners, tells MHN. “ This is 20 months away, it takes about 15 months to complete a project that can be delivered by the spring of 2011. The developers who realize this opportunity now can be really successful. The smaller developers won’t be facing the kind of competition they usually do for land from the bigger developers because of the credit markets situation. They can take advantage of private equity, smaller community banks and the FHA loan program.”The jury’s still out on that broader economic turnaround, though there were a few more glimmers of it this week. Federal Reserve Chairman Ben Bernanke also made some optimistic noises on Tuesday when he told the congressional Joint Economic Committee that he expects economic activity to “bottom out, then turn up later this year. Key elements of this forecast are our assessments that the housing market is beginning to stabilize and that the sharp inventory liquidation that has been in progress will slow over the next few quarters.” Then again, the results of the bank stress tests are due later this week. That could be something of a “risk event” to the economy, to use analyst terminology. (With inputs from Anuradha Kher, MHN Online News Editor)