VOL. 130 | NO. 218 | Monday, November 09, 2015
Crosstown Developer: Complicated Projects Can Be Transformative
By Madeline Faber
The Memphis-area commercial real estate market continues to trend upward, industry leaders say. All asset classes are trending toward pre-Recession levels, and Memphis is taking on more complicated projects like the Crosstown Concourse redevelopment.
In his keynote address, McLean Wilson said that a diverse team and confidence are key to achieving complicated projects.
(Daily News/Andrew J. Breig)
“I learned the importance of being faithful to the process even though the answer or final product was still out of reach,” developer McLean Wilson said of his vision for Crosstown Concourse. Wilson, principal of Kemmons Wilson Inc. and co-leader of the Crosstown redevelopment team, presented the keynote at The Daily News’ 2015 Commercial Real Estate Review and Forecast on Thursday, Nov. 5.
The six-year process in turning the blighted Sears regional distribution center into an urban vertical village gave little certainty but required confidence, he said.
Most people value control over creativity and therefore shy away from the complicated projects than can truly transform an area.
Wilson said Crosstown Concourse, which is set to open in 2017, got off the ground because it wasn’t led solely by a real estate team. Accountants, designers, engineers, artists, educators, doctors – everyone had a seat at the table from the very beginning with decision-making power.
That collaborative energy, he said, created a village that the community needs and not just what a developer believes will be successful.
Wilson continued that the mix of tenants, which range from a charter high school to the Church Health Center’s headquarters, will strengthen each other and promote “social friction” by sharing space and resources in the 1.5 million-square-foot development.
The 500-student high school, for example, will be able to shadow other professionals in the building and have immediate access to an art-making lab housed at Crosstown Arts.
The Church Health Center will be able to recommend that patients decrease their stress levels by crossing the hallway and enrolling in adult education classes at the Goodwill Excel Center.
The best and most innovative work is born out of internal motivation rather than external reward, he added.
His team’s pride and faith in the city and belief in the project’s social impact held out when rational judgment said to pack it up.
“We had confidence in our vision, our path, our process, and we were fully committed,” he concluded.
That optimism in the Memphis market was equally high among the real estate professionals who presented sector updates, including Tim Mashburn, senior leasing associate with Colliers International, who discussed industrial.
“The hub of activity that we have now in the center of the city is going to reverberate through all asset classes,” he said.
Looking forward, investment sales will continue for Class A product, with 10.2 million square feet already sold year-to-date.
In Class A, rates will continue to increase due to supply and cost of speculative development, and vacancy will stay steady or slightly decrease in 2016.
For Class B, rates will slightly increase for newer product and vacancy will slowly decrease.
Mashburn predicts that tax incentives will need to be tweaked to keep pace with North Mississippi in attracting Class A developments.
Jimmy Ringel, chief operating officer at Makowsky Ringel Greenberg, provided a multifamily overview. Many Memphians are renting with homeownership falling to 64 percent, basically the same level as back in 1994.
Rental rates were an area of concern. Old construction, which makes up a third of Memphis’ stock, hasn’t seen any rent increases. Due to high property taxes, fixed costs and construction costs, most of the new product being delivered is high quality with higher rents.
By the end of 2016, Ringel expects that 1,332 new units will be brought to the market, with nearly half of them concentrated in Midtown.
With its newest building dating back to the early 2000s, the apartment boom could change the average affordability of Midtown.
The office sector is having a strong year, according to Kemp Conrad, principal and president of asset services with Cushman & Wakefield/Commercial Advisors.
The average lease is coming in at 80,000 square feet for year-to-date 2015, and most of those deals are organic expansions.
Cushman & Wakefield has leased 15,000 square feet in organic expansion this year, meaning that businesses throughout Memphis also are doing well, Conrad said.
He predicts that rents are going to continue to rise and more tenants are going to relocate from service center flex space to Class B office space.
With 1 million square feet currently planned, proposed or under construction, the retail market is bringing in many businesses that are new to the Memphis market, according to Brian Whaley, senior associate of retail brokerage services with CB Richard Ellis Memphis.
Retail sales are increasing nationally due to increased consumer confidence and low gas prices,
The third quarter is going especially well for Olive Branch and Germantown, with construction deliveries in the two submarkets totaling 288,000 square feet.
Both new construction and urban infill are strong trends – new projects like Tanger Outlets Southaven, The Shops at Saddle Creek and Germantown’s Whole Foods Market coupled with the revamped Crosstown Concourse, Highland Row and Central Station.
Whaley expects new construction and redevelopment to continue into 2016, with availability along prime corridors diminishing and asking rents slowly increasing.