Two Cities, Two Plans for Change
DETROIT—Midwestern cities have gone
through an identity crisis in the past two
years. While being small kept real estate
losses down, emerging capital has instead
favored core markets such as New York
and Washington, DC.
Every Midwestern city is trying to escape
from the Rust Belt era and into prosperity.
A few, such as Kansas City, St. Louis, Detroit
and now, Cleveland and Cincinnati, are
adding casinos. Others have tried river or
lakefront redevelopment, though those
plans halted during the downturn.
If there’s a poster child for Midwest’s
woes, it’s Detroit, where residents have
considered turning empty neighborhoods
into farmland rather than new development, and a plan to install working lights
to make mothballed office buildings look
better is accepted without irony. Once the
US’ fourth most-populated city, Detroit
and the surrounding region have lost residents at an increasing pace.
Yet the market has shown some promise
in the past six months. The automakers have
improved margins and paid off debts. “I
think we finally got our financial house in
order,” said William Watch, the newly named
chairman of the Urban Land Institute’s
Detroit District Council. —Robert Carr
as principal, overseeing industrial and
office development and acquisitions
throughout suburban Chicago, as well as
new business development in
For more executive moves, please visit
CHICAGO—Grady Hamilton has joined
Trammell Crow Co.’s local business unit
Chicago Jobs Jog Up
Though the choppy start to the
employment recovery will moderate
Chicago payroll growth in 2010, area
companies will still expand head-counts by 40,000, or 1%, following
the elimination of 234,400 positions
last year. According to Marcus &
Millichap, the rate of job losses late
in the second quarter wiped out a
significant portion of the gains
recorded earlier this year. Thus far in
2010, employers have added 6,600
positions, a 0.2% increase and a
considerable improvement from the
second half of 2009.
06 07 08 09 10*
Source: Marcus & Millichap Research Services, BLS, Economy.com
Closer to the Grand Sale-Price Convergence
In the April issue of Real Estate Forum, I wrote that there would
be an orderly liquidation of distressed assets occurring over a two-to three-year period, rather than a brief fire sale. While I maintain
that viewpoint, there have been a number of positive signs in the
A turnaround is starting to look possible, for
a few reasons. There’s
been a realization that by selling banks, the
recovery will be weak with minimal job creation. Without a meaningful increase in
employment, material absorption will be slow
to non-existent. In the previous few down cycles, banks were bailed
out from their mistakes by a recovering real estate market.
Also, there’s the fear that the problems can still get worse.
Recently, a banking analyst interviewed the CEOs of the top
four Chicago-based, publicly traded banks. None were willing to
call a bottom on non-performing loans. From listening to bank
conference calls with investors, all project continued caution
regarding real estate.
We’ve also seen better pricing of late. Since pricing has
improved on non-performing assets due to a continued imbalance between realistic sellers and eager buyers, selling into this
market is more attractive to banks. Sales of buildings like 300 N.
By Jon Winick
LaSalle, which recently sold for the highest price per square
foot ($503) ever for any Downtown office building, provide confidence to banks that there is capital in the market.
Regulators, shareholders and capital sources have increased
pressure to show progress on non-performing assets. From our
conversations with local and national regulators, it appears that
they are putting more pressure on banks to resolve their problems,
not just manage them. Banks that need to raise capital have to
show progress managing their NPAs.
Finally, there are better capital ratios from selling banks.
Since resolving problem assets usually reduces capital, many
banks need to improve their capital ratios before they can transact. Several quarters of improved net-interest margins and a
leveling off of problem assets have allowed banks to strengthen
their balance sheets.
Hopefully, the next year is busy with Midwest banks increasing
activity in the valuation, disposition and management of their loan
portfolios. I expect to take approximately four to five portfolios to
market by the end of the year, and business is already beginning to
fill up for the first quarter of 2011. While there are still problems
that make it difficult to transact, we are closer to a grand convergence between buyers and sellers of distressed assets.
Jon Winick is president of Clark Street Capital in Chicago. He may be
contacted at email@example.com. The views expressed here
are the author’s own.