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Through many movie and music references,
Spencer Levy, part of the Global Client Care team at
CBRE, delivered a keynote presentation at BizTimes Media's annual Commercial Real Estate and Development Conference focused on macroeconomic trends, capital markets and fundamentals like attracting population and workforce.
The keynote presentation was followed by a panel discussion with some of Milwaukee's commercial real estate industry leaders to weigh in on Levy's presentation, provide some Milwaukee-specific insight and share some of their plans for 2024.
Discussion was centered around the conference's theme of "Prepare your next move: Are you positioned for future opportunities?" as the commercial real estate world grapples with challenges such as higher interest rates and construction costs.
Levy said that the defining feature of the real estate market is higher interest rates and the "waiting game" that the industry is playing in hopes that rates will go down. He predicted that interest rates will stabilize in 2024 and be accompanied by a mild recession.
"But I will also tell you that we keep getting it wrong and the economy has continued to outperform," Levy said.
In the presentation, Levy highlighted the new power that labor has over management with a low unemployment rate and a labor shortage, which is being felt in the nation's office market with remote and hybrid work and the demand for high-quality space. Employees have leverage over employers to maintain work-from-home arrangements and employers are seeking higher-quality office space in part to entice employees to come into the office.
He noted how Milwaukee is well-positioned for future manufacturing and industrial opportunities due to its supply of blue-collar workers, and noted the overall strength in the multifamily housing market; he encouraged developers to seize on incentives to build non-class A housing types.
Accounting for future climate risk, economic risk, political risk and other opportunities, Levy said the Great Lakes region is well-situated for future growth.
"The Great Lakes region looks pretty damn good over the long term," he said.
Amid demographic shifts in the United States, Levy said that having high quality talent is crucial for cities to grow. He recommended that Milwaukee work to position itself as an attractive place for employers and employees, and be less worried about rising cost of living.
"Having a low cost of living is a race to the bottom," Levy said. "Having high quality talent is a race to the top."
"(Levy said) 'Low cost is a race to the bottom' and I think that is the type of conservative thinking that still drags Milwaukee down," said
Tim Gokhman, managing director of development firm
New Land Enterprises, in the panel discussion.
While Levy touched on the influence that national and international politics are having on the industry, he said that, in real estate, "all politics are local."
Panelists also had thoughts about metro Milwaukee and Wisconsin's local politics, including on issues such as NIMBYism, inefficiencies in zoning and the difficulty of expanding mass transit.
What are panelists' next moves in 2024?
"I don't think that we have to wait," Gokhman said. "...The fact remains that Milwaukee is one of the most constrained housing markets in the United States. We can build and build and build and the market will not only be fine, but the market needs it and will not be okay if we don't build."
Gokhman said that in 2024, New Land Enterprises is looking to expand its mass timber building development strategy around the country. He also said the firm is going to be working on a model to develop workforce housing projects.
Marianne Burish, executive vice president and broker at
Transwestern, said she will be watching commercial mortgage-backed securities for properties in various states of distress.
"There's no shortage of deals in the marketplace, the complexion just changes as economic times change," Burish said. "I'll be working every bit as hard or harder in 2024 and 2025 to probably do the same amount of deals but make less because of the impact of interest rates on deal values."
Kevin Newell, CEO of development firm
Royal Capital Group, said the firm will be in "cautious growth mode" in 2024 and positioning the firm "to be ready for the punch" when the development environment becomes friendlier.
"We're still doing a significant amount of land acquisitions, but we're also looking at traditional multifamily acquisitions as well, not so much in the Midwest right now, we're focused on growth markets, and that's been something that's been good for business, though Milwaukee will always be a significant portion of the business."
As a development and investment firm founded in 2022,
Three Leaf Partners chief operating officer
Derek Taylor said the company's leaders knew they were entering the market at a challenging time.
"We've built a team over the last two years, we have that team in place and now we're in the position to execute," Taylor said.
Taylor said in 2024 the firm will continue to foster partnerships with other development firms, but also look for new partnership opportunities with nonprofits or faith-based organizations, for example.
