REJournals.com - Commercial Real Estate Property News for Chicago and the Midwest

Phil Simonet

Phil Simonet, principal with Paramount Real Estate Corporation in Minneapolis, is seeing more activity these days: more proposals and inquiries. The challenge remains converting this activity into closed transactions.

Midwest Real Estate News: How are the Twin Cities faring today when compared to other markets across the country?
Phil Simonet: We are similar in that we have the same terrible characteristics right now, high vacancy rates, difficult financing with a few exceptions, that other markets have. There is still a weak deal flow in the city.

MWREN: Are there any signs of hope right now?
Simonet: We are seeing more activity in 2010 in terms of people looking, requesting proposals and looking to buy than we did in 2009. As a whole, the industry has somewhat of a positive or more positive view of the market as a result of the increase of activity relative to 2009. The key is converting that activity to actual transactions that close.

MWREN: Here’s the tough question: How do you do that? How do you convert that activity into closed transactions?
Simonet: You’ll see more transactions when the buyers and sellers, who historically have had somewhat of a gap between them, start moving toward each other in terms of what the deal is going to look like. We are seeing more of that now. We are seeing landlords who are extremely aggressive. We are seeing occupiers and users of space saying that this is a great time to make a deal, even if it is early. This is a great time to lock in attractive terms for three years, five years or more.

MWREN: How about financing? How difficult is that to obtain these days?
Simonet: If there is a credit-worthy user who is buying a building, who wants to be an occupant/owner, you can drive attractive financing terms. If an investor buying a marquee asset that is well-located, a top asset with minimal lease rollover, the lenders are willing to finance that type of transaction.

MWREN: Are there any sector types that seem to be coming back stronger than others?
Simonet: Multi-family is coming back. Vacancy rates in multi-family are decreasing, and rental rates are increasing. Beyond that, you have industrial that is starting to come back, though it still has a long ways to go. Depending on the product type, office/warehouse vacancy rates are starting to decrease. Activity is increasing. Retail remains the worst. There is simply no consumer demand right now. In retail there is a tremendous vacancy rate. Office space still has high vacancy rates, too, depending on what submarket you are in, the CBD or the suburbs. It’s an extremely attractive time to be out looking for lease space. Landlords are offering tremendous concessions, nice tenant improvement packages and aggressive rates. Healthcare seems to be gobbling space, too.

MWREN: When do you think that activity will return to more normal rates?
Simonet: I was hoping yesterday , but I’d say that we should see some normalization in the middle of 2011 or in late 2011. There’s so much uncertainty in the marketplace today, whether it’s the economy, the stock market, employment growth or the federal debt. All these factors create uncertainty. This uncertainty paralyzes some people from making decisions.

MWREN: Is there anything unique about the Minneapolis/St. Paul region that you think can help it return to normal times faster than other markets?
Simonet: Our unemployment rate is only about 6.8 percent. That’s less than the national unemployment rate. That is a result of us having a very diversified economy here. We are not tied into a handful of industries. For an MSA the size we are, we have a surprisingly large number of fortune 500 companies that are national and international located here. That helps us.

Tags | healthcare, industrial, Minneapolis, Minnesota, Office, Paramount Real Estate Corporation, Retail, St. Paul

© 2011 Real Estate Communications Group. Duplication or reproduction of this article not permitted without authorization from the Real Estate Publishing Group. For information on reprint or electronic pdf of this article contact Mark Menzies at 312-644-4610 or menzies@rejournals.com