Economic Update – Long-Term Optimists Making Real Estate Plans

The Federal Reserve Bank of Chicago reported on Wednesday that manufacturing activity in the Midwest dropped to its lowest level since 1994, largely reflecting the sickly condition of the automotive industry. Compared to a year ago, the output of the Midwest region–which includes Michigan, Illinois, Indiana, Iowa and Wisconsin–was down 42.2 percent, compared with a 24.3 percent manufacturing decline nationwide. The slowdown is bound to further weaken demand for warehouse/distribution space, both in the Midwest itself and in other major industrial markets.On the whole, owners of industrial and other commercial property may indeed be in “survival mode,” a term the 1Q09 PricewaterhouseCoopers Korpacz Real Estate Investor Survey used earlier this week, as reported by CPN. But that doesn’t mean that some real estate companies aren’t planning ahead.”If we weren’t optimists, we shouldn’t be in real estate,” Steve Park, a senior vice president at the Alter Group, told CPN, referring to his company’s plans to develop a 650-acre mixed-use project it calls Cornerstone in Grayslake, Ill., which is in Lake County north of Chicago. At 3 million square feet of light industrial, R&D and office space, plus 500,000 square feet of retail and entertainment and housing, the project sounds like it’s from another time–maybe between 2003 and 2006, the last time developers were really thinking big.In a sense, Cornerstone is of another time, namely that unknown future when the recession is finally over, because the project has an anticipated timeline of about 12 years. “We believe the economy will turn around, and we want this project to be ready to take advantage of that,” said Park. “Lake County has needed, and will need again, space for businesses to expand.”Alter has been in discussion with the Village of Grayslake for about two years, according to Park, and will spend the rest of 2009 getting the various approvals and permits squared away, which will then be followed by some infrastructure work. “In the best case, we might get Cornerstone up and rolling in the spring of 2010, but it will ultimately be a function of the economy,” he added.When it does come time for the actual building to begin at Cornerstone, Park told CPN that the phase one industrial (about 80 to 100 acres) and phase one residential (100 to 150 units) of the project would be first. Wall Street seemed to respond positively on Wednesday to news from the U.S. Department of Commerce that noted that nationwide housing starts in February grew at an annualized rate of 22.2 percent in February from January, marking  the largest increase since January 1990 and the first rise in eight months. It may only be a temporary hurrah for both the stock market and homebuilders, however, since the uptick could have been because of relatively good weather in February. Still, the Dow Jones Industrial Average was up 90.88 points, or 1.23 percent, on Wednesday. The S&P 500 was up 2.09 percent and the Nasdaq was up 1.99 percent.