Jablonski Featured in Inside Business

Waiting Game

Real Estate developers are in a holding pattern for major projects until the economy provides clearance for takeoff. Forget about grand ideas of expansion and developing pristine new office space. What do you think this is? 2007? Hardly. Most Northeast Ohio companies have made it their mission in recent months to simply survive the current economic downturn, and have put real estate development on the back burner.That’s bad news for the region’s real estate development companies.

“New product coming online is virtually nonexistent,” says Mark Jablonski, president of retail development and consulting firm CenterMark Development in Cleveland.Charles Ratner, president and CEO of development company Forest City Enterprises Inc. in Cleveland, agrees. Projects are not getting done, and banks are hesitant to lend. “It’s extend and pray,” he says.

David Browning, managing director of Cleveland real estate brokerage CB Richard Ellis Group Inc., says the industry has taken a hit this year. Retail, industrial, or office space, it doesn’t matter. The business for each of those sectors is down between 20 percent and 60 percent.“Based on the overall economy, the attitude of many firms is that they are battening down the hatches and focused on getting through this period of time,” Browning says. “It takes time, and costs money in retrofitting a space, and then you have the added cost of distraction [in developing the office space].

Paralysis in the credit market and uneasiness on the part of bankers has made it difficult to find a loan for large-scale real estate projects, though smaller deals are still getting done.“Credit is extremely hard to come by for projects that are of scale,” Jablonski says. “If there’s a $35 million shopping center that a developer wants to refinance, it is virtually impossible to do. But a freestanding retail space, that a developer is seeking only $1 million for, there is ample credit for that. It all comes down to risk.”

Despite the frozen real estate market locally, Forest City Enterprises reported improved financial results for its second quarter, which ended Sept. 8. The company cut its net loss from eight cents per share in the second quarter of 2008 to one cent per share for the same quarter this year.Though the real estate sector is far from recovery, Ratner says his firm has positioned itself well to manage the current slump.“We have reduced our overhead, taken cost out of the business as other companies have,” he says. “We’re not investing new capital in development projects. We’re keeping very good projects going. … We’re running a more efficient business.”

“Every company is seeking to reduce the cost of their real estate holdings through property tax reductions, lease pass-through analysis and other measures,” says Bill Gagliano, chair of the real estate practice group at Ulmer & Berne. “Our firm is involved in many of those efforts for clients.” Ratner hears talk of how the economy is moving forward and that the recession officially ended in August. “There’s a lot of talk of recovery,” he says. “I don’t know where that talk is coming from.” He predicts there might be a turnaround in the middle of next year at the earliest.“We do not see any indication that fundamentals of the real estate business are improving,” he says. “In order for our business to improve, our customers’ business must improve.”

Browning says he expects the broader market won’t turn around any earlier than the start of 2010. Northeast Ohio’s real estate sector might take somewhat longer, he adds. “We tend to lag the trends of the first-tier markets by 12 to 18 months,” Browning says. “We really only saw the depth of the downturn in the fourth quarter. Other markets saw the downturn earlier.”


Leave a Reply

Your email address will not be published. Required fields are marked *


You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>