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By Nathan Peck | TransActions
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WEST MICHIGAN — If real estate is all about location, Michigan is a place where there is considerable value for tenants.

Seneca Medical recently broke ground on their permanent facility in the Midlink Business Park in Kalamazoo as they opened temporary operations in Midlink’s warehouse space. The move was driven by customer demand, but was helped along by work with Bronson Methodist Hospital and Southwest Michigan First and favorable real estate rates, said David Myers, VP of sales and marketing.

Seneca had been looking at opening a facility in the state to serve markets in northern Indiana as well as Michigan.

“The trigger point was the real estate market; the timing was great to invest in Michigan,” Myers said. “Because of the interest in expanding outside the auto industry, we felt that the time was right to make that investment. Bronson viewed it as reaffirmation of the relationship with Seneca. Candidly speaking, we didn’t get some sweetheart deal. There is some (incentives), but that was not the impetus for us entering into the state. It was our natural growth and need to be servicing our customers.”

Based in Tiffin, Ohio, Seneca recognized the benefit of opening a Michigan distribution center, as it would demonstrate a commitment to its customers in the state. Seneca is investing $5 million to construct an 80,000-square-foot building at Midlink and expects to hire 50 employees within two years.
Myers expects to be producing $40 to $50 million in sales out of the Kalamazoo location. The Kalamazoo plant will alleviate logistical problems for Seneca as it relieves pressure on the plant serving its Indianapolis markets.

“Our customers were telling us the time is right for you to enter the market in a bigger way. There is an invisible wall, a perception when you are coming out of Ohio that we are too far away to adequately serve them,” Myers said. “We met with Bronson and Southwest Michigan First and they explained to us their model for attracting business to the region, why it made sense for us to locate in Kalamazoo. We could serve Detroit and Chicago, and our getting up to Gary and South Bend was starting to be a challenge for us. It all crystallized that Southwest Michigan makes a lot of sense.”

With no new speculative construction in the industrial or office markets, the commercial real estate market is looking to absorb the existing stock. The average asking rate for warehouse space in West Michigan is $4.18 per square foot, triple net, down from $4.66 two years ago. The effective rental rates, with landlord concessions such as free rent incentives, are off even more — on the order of 25 to 30 percent of the rates 24 months ago. Vacancies in the office real estate markets continue to climb over a year ago, though industrial lease rates are reaching the bottom and should start rebounding throughout 2010, said Robert Bach, senior VP of Colliers International.

“Interest on the part of tenants is picking up. More tenants are getting off the fence and are looking, Last year they weren’t even doing that,” Bach said. “We are still a ways away from equilibrium. It will take several years to get back to equilibrium.”

There is good news on the investment side of commercial real estate, said Bach. The only new construction in industrial or office space is built-to-suit. Many feared a wave of distressed properties would be hitting the market at the same time, wiping out investors and driving lease rates through the floor. The Federal Reserve and banks have worked to slow the steep economic declines.

“The investment market has bottomed out. There is a lot of capital out there waiting to be deployed,” Bach said. “Distressed properties are not getting on the market as quickly as we thought they would have. We will see a lot more distressed properties coming on the market in coming years. But there are mechanisms in place that will result, not in a tsunami of distressed properties, but a steady stream. It does not mean that we have dodged the worst of this yet, as there are a lot of troubled properties that have to be worked out.”

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TAGS:

• bronson methodist hospital
• kalamazoo
• midlink business park
• real estate
• seneca medical