Residential and Commercial Real Estate Updates
Local real estate market opportunities
Julio Rios is vice president of mortgage lending for UW Credit Union, a leading home loan and financial services provider in the community. “We have a long-standing reputation as a trusted resource for home lending and we are continually ranked as one of the state’s top lenders,” he says.
Rios describes UW Credit Union as a consumer-focused financial cooperative that puts its members’ best interests first. “This starts with our commitment to providing financial education to our members, with the goal of helping everyone achieve financial success,” he explains. In fact, last year the organization reached 7,305 people through 245 financial education seminars. Monthly first-time homebuyer seminars are also well attended. In the first two months of 2017, more than 200 people learned about the home buying process, including information about down payment options, new regulatory and compliance changes, and available programs.
“Our home loan options are tailored to fit people’s budgets and unique scenarios,” Rios says, “and our information is accessible; consumers can learn about lending products through our website, over the phone, or in person–whatever works best for them. We also underwrite our loans locally, so decisions are made in a timely manner, right here.”
In terms of current trends, Rios says he is seeing first-time home buyers enter the market this year at a faster pace and in a better financial position than a year ago. “Rates are still historically low, and it’s a great time to purchase or sell a home,” he says. “Another current trend is increased competition for the homes that are on the market. “Inventory is tight, so buyers who are pre-approved for a loan may have an edge over other prospective buyers when they write an offer.”
Michael C. Morey is the vice president of Oakbrook Corporation, a full-service real estate advisory company offering property and facility management, brokerage, investment sales and acquisitions, construction management, and development services for both multifamily and commercial properties. Morey says, “Our firm has been a part of the Madison business community for 30 years. The company began with 80 employees managing approximately 400,000 square feet of office and 1,500 apartments. We have enjoyed steady growth throughout our history and today we employ more than 250 individuals in the management of over 6,500 apartments in Wisconsin, Illinois and Iowa, and a portfolio of roughly 2 million square feet of office and industrial space in Dane County.
Morey believes that what makes his firm unique is the broad range of services they offer to clients, as well as the depth and breadth of the staff’s experience. “Each project we work on presents a new set of challenges,” he explains. “We are able to bring the appropriate team members together based on their area of expertise to create a customized solution that meets our client’s needs.”
For the foreseeable future, Morey feels that commercial real estate trends will be driven by ongoing demographic shifts and changes in technology that are changing the way spaces are used and the desirability of certain locations. “There has been a revitalization of urban centers across the country, much like downtown Madison where you are seeing the rapid growth of ‘walk-to-work’ housing and the desire to be in an environment where residents can live, work and play,” he says.
In the business world, Morey is happy to advise companies so they can make thoughtful, informed real estate decisions, as a critical component of their long-term planning. “Our clients engage us because we understand how to create value for their organizations and maximize their investment returns,” he says. “We see opportunities for growth in all areas of our business. The challenge will be to anticipate how changes in the economic environment are likely to affect our clients so we can help them avoid unnecessary risks.”
Jeff Schleis, vice president of commercial banking for State Bank of Cross Plains, notes the importance of staying in touch with local municipalities and developers to help facilitate commercial development and the corresponding financing. “Commercial real estate and development are responsible for a large part of the economic growth in Madison,” he says. “Policies are always being discussed and revised, so it is important to understand current issues–this results in a lot of saved time and expense for our clients.”
Schleis learned about commercial development firsthand, since his family owned retail buildings and rental properties in northern Wisconsin. “I understood from a very young age how important certain factors are in commercial real estate ventures,” he says, “including location, maintaining the right look and feel for your property, and finding the right tenants.”
In college, Schleis helped friends purchase rental properties and start other small businesses. “I was helping people understand the financial side of business and speaking with banks on their behalf to find the right fit,” he says. “It was then that I realized I might have a future in banking down the road.”
Schleis believes that one of the advantages of working with State Bank of Cross Plains is that the bank makes the process of securing funding for commercial ventures clear and simple, while offering a wealth of expertise as the project gets underway. “That only happens when the financial team truly understands the industry and what customer needs, while placing a priority on clear communication,” he says. “It also helps tremendously when decisions can be made quickly and at the local level. We have a long history with that kind of involvement in growing the community.”
Assessing the current market, Schleis sees the overall price of commercial real estate at record levels, well above the peak prices in 2007. “Most data points to Madison’s continued need for multifamily housing and office space; interest rates have been historically low for several years, so some investors have turned to commercial real estate as a safe and attractive place to put cash over the stock and bond markets,” he says.
Looking ahead, Schleis says he is excited to watch Madison’s continued growth, including its dedication to startup companies. “Seeing the network of existing and emerging industry leaders is part of what makes Madison so interesting,” he says. Leon R. Wilkosz, CCIM, RPA ® is the senior vice president of property management-Midwest for Artis REIT, a diversified Canadian real estate investment trust that owns and manages quality commercial properties. Since its inception in 2004, Artis has built a $5 billion portfolio of commercial properties in Canada, Wisconsin, Minnesota, Colorado, Arizona and Texas comprising 27.2 million square feet of leasable area in 262 properties.
“Artis REIT chose to invest in Madison for several reasons,” Wilkosz says. “The area provides stable growth for investment firms looking to supplement their portfolios, and the culture provides a great story for potential investors.”He believes that Madison properties offset more volatile investments on the East and West Coasts. As the state capital and home to a major university in the heart of the Midwest, this area provides low risk with steady growth. “Madison also ranks high on many ‘best place to live’ lists year after year,” Wilkosz says, “with its lively population, outdoor activities and cultural assets. It’s amazing how many people grow up in this area or attend school, pursue other interests and eventually return to this area.”
With real estate holdings that were originally part of T Wall Properties, Artis REIT now owns roughly 1.6 million square feet of Class A property in western Madison and Middleton. The company’s space-planning and brokerage teams provide leasing services to both eastside and High Point office parks, and the property management team manages the High Point properties along with other Artis REIT properties.
“Our office and retail buildings are in prime lifestyle areas where employees and customers can enjoy shopping, good food, and hiking and biking trails within walking distance of their work places,” Wilkosz says. “They also typically have short commutes to work from their neighborhoods.”
As senior vice president and director of commercial real estate at First Business Bank, Brian E. Hagen offers lending and deposit services to local real estate developers, investors, contractors and management companies. “We provide both construction and term financing for office, retail, multifamily, industrial, hospitality, and residential land development projects,” he explains . “I’ve personally been involved with commercial real estate lending for more than 15 years in the Madison market.”
Hagen believes that what sets First Business Bank apart from other banking institutions in Madison is the company’s focus on business banking and its relatively small number of clients, compared to competitors. “This allows us to provide more attention to our clients and build stronger collaborative relationships,” he says. Another significant advantage is our clients’ ability to have direct contact with decision makers. All of our lending decisions are made locally here in Madison.”
In general Hagen considers the market very strong right now for both new apartment construction and single family homes. “In spite of rising construction costs and rental rates, there is a steady demand for new apartment projects, and vacancies are still running below the long-term average,” he explains. “Single family housing is benefiting from lower inventory creating a seller’s market, which is also driving up prices along with construction costs on new houses. I believe both are indicative of the strong overall economy in Madison–it’s a well-educated, affluent community with steady population growth and a strong job market.” Hagen currently sees many clients inquiring about locking in long-term mortgage rates. “We have had historically low interest rates for more than eight years, with very little concern from clients that they would ever increase again,” he says. “But rates have been edging up over the last four months and there are indications that the Federal Reserve will continue to raise rates over the next few years.”
Todd Cegelski is senior vice president for the Commercial Real Estate Group at Johnson Bank. A part of Johnson Financial Group, the bank has been in the Madison market for more than 20 years and has financed a variety of commercial real estate developments. In addition to its activity in Dane County, the company has commercial real estate (CRE) groups in Milwaukee, Minneapolis and Phoenix.
Cegelski says, “Johnson Bank is a second-generation, family-owned, privately held institution and the second-largest bank based in Wisconsin. As such, we often work with other family-owned, privately held companies because we can understand and relate to their inherent challenges.”
In terms of recent trends in commercial real estate, Cegelski says he has seen “continued urbanization across all of our markets, with many large multifamily projects being built in central business districts. Both locally and nationally, new multifamily construction projects have accounted for well over half the new commercial real estate projects. The industrial sector has been strong, as many national distributors are looking to build-out their supply chain. We are also seeing select opportunities in office and retail buildings in all of our markets.”
He believes that new construction will slow down in the next 12 to 18 months to allow time for the multifamily projects currently underway to be completed and stabilized. Cegelski also expects proposed regulatory changes to take effect within the next year.
Mike “Freddy” Frederick is the owner, estimator, accountant, secretary, clean-up guy, and construction manager for JM Frederick Custom Homes & Properties, LLC, so he is accustomed to attending to every detail of a construction project–large or small. He began his career in home construction as an apprentice carpenter, then worked his way up to foreman and then construction manager, working for several large builders in the Madison area. In 2009, Frederick founded his own company, built on decades of experience in home construction.
Because Frederick runs his business independently, he has very low overhead and can often offer his services at lower prices than his competition. “I really work hard to keep my projects within budget,” he says. “That way my clients can use the money they save on builders’ fees to upgrade the materials and finishes for their house.”
Frederick says he currently sees a lot of home designs that focus on the kitchen, with an open floor plan that merges into the dinette, creating one large area where people can congregate. Also in demand are stamped patios, fire pits, and screened porches that allow homeowners to transform their yards into another living space.
Frederick estimates he completes 10 custom building projects per year, and in the past has built both custom and spec homes in Madison, Verona, Fitchburg, Blue Mounds, and other parts of Dane, Rock, Green, and Iowa Counties. This year he will also have a house in the Parade of Homes at The Legend at Bergamont in Oregon. “This is a nice area, and a busy area to build in,” he says. “Even when the numbers for home building were down, the Madison area was still thriving. With the university and all Madison has to offer, once people get here they seem to like it and they choose to stay.”
One of the most challenging parts of his business right now is hiring framers to actually work on the construction projects. “Fewer young people are entering the trades,” he says. “It’s getting harder to find people who are interested in working in the building industry.” —
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