Confidence and capital are key to recovery in commercial real estate

    While far surpassed by the coverage of the home mortgage and Wall Street meltdowns, a growing awareness of the hurdles facing commercial real estate across the nation and here in Wisconsin has developed recently. Several reports in the last couple of months have driven the point home, highlighting escalating vacancy rates in Metro Milwaukee (Wisconsin’s largest market), in the industrial, office and retail markets.

    The slower pace and diminished capacities are not a surprise; commercial real estate is inherently tied to employment, which has plummeted at alarming rates, and the overall health of the economy.

    When businesses are thriving, they are expanding, hiring more employees, and looking at additional investments, all of which have an impact on the commercial real estate market.  Likewise, as employers have downsized and reduced their payrolls to weather the current economic storm, the demand for commercial real estate and Realtor services also contracts.

    And while the worse might not be over, Realtors continue to be optimistic, employing a wealth of ingenuity, and foresight that will ultimately better position the Wisconsin market to grow as the economy itself right-sizes and begins (hopefully) another ascent.

    The keys to a successful recovery in commercial real estate are confidence and capital.

    Real estate is, by nature, a business for entrepreneurs and risk-takers. Developing, purchasing, managing or marketing a property takes a significant investment of resources, time, patience, and confidence.

    Confidence is a key to a successful turn-around in commercial real estate as Realtors, property owners and businesses alike are looking for positive momentum to demonstrate a shift in the risk/reward relationship. What went down will, hopefully, go up again, creating demand for space and real estate services.

    Public policy and the actions of our government at all levels will have a significant impact on our confidence moving forward. Particularly in Wisconsin, public policies aimed at encouraging and rewarding investment are critical. Recent changes in state law such as an increase in the capital gains tax and prevailing wages mandates on private construction projects are ill-advised and send the wrong message to investors and entrepreneurs, as do similar local proposals such as the sick leave and prevailing wages mandate ordinances in the City of Milwaukee.

    As institutions, individual investors and businesses look to come out of the recession and begin to move forward with growth planning, Wisconsin needs to be cognizant of the policies that will attract, and probably more importantly, detract them from looking here. 

    Another component to our confidence level is the availability of capital, the second key to a successful market recovery. As the financial markets and government regulators continue to toil through the devastating impact of the crashes that lead to the current recession, the ability to access capital has been severely inhibited. Banks have been tied up in reevaluating their positions in every market, including commercial real estate, and requirements for available capital have been substantially amplified as those same government regulators purportedly look to stave off any further disaster.

    While lenders are working diligently to meet the pent up demand for capital, the market has not been entirely thwarted by current conditions. I’m told by our Realtor professionals that listings in southeastern Wisconsin are growing, as is the caliber of property coming onto the market. Property owners and Realtors are working closely together to position for what many believe will be a strong rebound over the next 18 to 24 months.

    Without a crystal ball it is impossible to predict with any exactness when the alignment of confidence and available capital will spark a renewed vigor in the commercial real estate market in Wisconsin. Reasonable professionals and experts see it on the horizon, however, and agree that they are the undeniable keys to recovery.


    Jim Villa is the president of the Commercial Association of Realtors Wisconsin (CARW), a trade association representing commercial Realtors, accounting firms, appraisers, architects, attorneys, bankers, builders, contractors, developers, environmental specialists, title insurance companies and other industry related businesses.

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