Commercial Industrial Market Conditions

Is trouble looming in paradise? Or are opportunities about to emerge and the sun about to shine? Well, that is a great question. One that depends upon where you believe the commercial real estate market is headed and which side of the “buyer/seller” fence you are on.

As professional brokers of Commercial Industrial real estate, we are fully knowledgeable of local market conditions…..in “real time”. We know what values properties are selling at. And we know what spaces are leasing for. This not only pertains to pricing. But to all associated business terms. And we are always happy to share that knowledge with investors and business owners alike.

And while we are often asked to “predict” where the market is headed, we typically avoid weighing in on that, since we are not clairvoyant. While we can accurately relay what has occurred and what can occur if the strong upward trajectory of the market continues, we cannot say with any level of confidence, that things will continue.

That said, we are in unusual times and we are beginning to see shifts in the wind. So, we felt it important to share our feelings….. and our concerns.

It should be no secret to anyone reading this that interest rates have remained flat, at historically low rates, for years. This is no longer the case, as interest rates on mortgages have nearly doubled in just the past few months. Interest rates are simply the “cost” of borrowing. And when the cost increases significantly, those additional costs must have an impact upon pricing.

Additionally, inflation has been almost non-existent for many years. Now we are experiencing a level of inflation that has not been seen in decades.

Further, for decades, the amount of new speculative construction for industrial real estate has been negligible. Almost non-existent. Today, in contrast, there is more than 10 million square feet of new speculative development either under construction or ready to begin, with all entitlements (permits, designs, site plan approvals, etc.) in hand.

All of these factors seem to be converging simultaneously and the predicted result is of concern to us. Over the past several years, and up until now, demand has far outweighed supply, causing property values and leasing rates to climb both rapidly and significantly. However, we are starting to see signs that we might be on the cusp of “change”.

While we can’t say for sure, we believe more and more properties are going to be coming onto the market and there will be downward pressure on values. In other words, we are feeling that we have reached a plateau of sorts……

A very wise large property owner mentioned years ago that it is best to “sell when you can, not when you have to”. That has been a prudent guide over the years and always looms in the back of our thoughts. Real Estate is cyclical and “timing” is of paramount importance, when it comes to property values.

So, the bottom line is “stay tuned”. It may soon be an optimal time to sell, while it may be the beginning of a period in which buying opportunities will soon emerge. So depending upon which side of the fence you are on, the advice is the same……strap your seat belt on and keep your eyes open

Suffolk approves Ronkonkoma development pact

The Suffolk County Legislature voted Tuesday to approve a memorandum of agreement for redeveloping about 86 acres of municipal-owned property on the south side of the Ronkonkoma Long Island Rail Road station.
The MOA was approved 14-3 with 1 abstention.

A development team headed by Jones Lang LaSalle will become the master developer for the project that would transform the site, now mostly used for commuter parking, into a mix of entertainment, hospitality and medical research uses.

The JLL team, which includes a Chicago-based investment group called Ronkonkoma Vision Project, Woodbury-based Cameron Engineering, Crawford Architects and venue management company Spectra, was selected by the county and the Town of Islip in April after answering a request for qualifications to reimagine the site located between the LIRR station and MacArthur Airport.

The development group has initially proposed a $1 billion concept that would create an arena, a convention center, 360,000 square feet of office space (including an 80,000-square-foot medical research facility), a 500-room hotel and 90,000 square feet of retail and restaurant space. The total project as first pitched would create 1.69 million square feet of development.

The development site includes about 40 acres of county-owned parking lot currently leased to the Metropolitan Transportation Authority, a 6-acre town-owned parcel just east of the parking lot and a 40-acre Islip-owned compost site south of Railroad Avenue.

According to the MOA, the development team for the south side will have eight months to come up with a final plan and “complete due diligence activities with respect to the feasibility” of the project, including “financial, market, construction, environmental, property ownership, and other aspects of the project.” If the developer decides to go forward with the pan, the term of the MOA can be extended for six more months.

Redevelopment of the property has been supported by the Ronkonkoma Civic Association which conducted a visioning of the site with the Regional Plan Association that began in 2016. The redevelopment on the south side of the LIRR station is aimed at complementing the ongoing Ronkonkoma Hub project, where Tritec Real Estate is bringing 1,450 residential units, 195,000 square feet of retail space and 360,000 square feet of office and commercial space to about 50 acres on the north side of the train station.

Long Island Association Vice President Matthew Cohen sent a letter of support for the proposed development to the Suffolk Legislature before the Tuesday vote.

“With development on the north side of the Long Island Rail Road tracks and renewed efforts to enhance the LIRR station and realize the full economic potential of the airport, the south side of the Ronkonkoma Hub could be a transformative project for the entire region…thus the LIA supports the continued study of Jones Lang LaSalle’s proposal for the south side of the LIRR tracks in order to determine what the market will support there,” Cohen wrote.

Plainview-based Rechler Equity Partners breaks ground Tuesday on the Hampton Business District at Gabreski, a new business park within Gabreski Airport on 50 acres owned by Suffolk County in Westhampton Beach.

Work has now begun on 220 Roger’s Way, a 60,000-square-foot industrial building that will be followed by eight more buildings totaling 440,000 square feet, according to a statement. Suffolk selected Rechler Equity Partners as developer for the project in 2009.

The new business park will offer space ranging from 1,333 square feet up to 100,000 square feet. Following the construction of the first building, development will begin on two office and medical buildings totaling 60,000 square feet. The business district will also include a 145-room hotel, a restaurant, a day care center, a health club, and a bank.

Company principal Mitchell Rechler said the new park will have the technology and design to accommodate today’s research and development, light manufacturing and office needs.

“Based on the response we got and our instincts when we were awarded the bid, we knew there was an opportunity to create a market where there would be significant demand.

One of Long Island’s largest mega-projects has taken another step closer to becoming a reality after the Islip Town Board voted to accept its environmental impact statement.

On Thursday, the town unanimously accepted the final environmental impact statement for the $4 billion Heartland Town Square development, which proposes to create 9,100 apartments, 1 million square feet of retail space and more than 3 million square feet of offices on 460 acres of former Pilgrim State Hospital land in Brentwood.

The first phase of the project, which still requires a change of zone and site plan approval, would build 3,500 apartments.

According to the project’s developer, the planned mix of rental apartments, shops, restaurants and offices will eventually generate about 23,000 permanent jobs, and at least 1,500 construction jobs annually throughout its build-out, which could easily eclipse 20 years.

As it is with most large development projects on Long Island, it’s been a long slog toward approvals. Developer Gerald Wolkoff purchased the property from the state for $20.1 million in 2001 and first proposed the project in 2002. After an initial public hearing on the plan in 2004, five years of back-and-forth negotiations with the developer passed before the town held the next public hearing in 2009.

There have been many obstacles, not the least of which was concern over traffic from the addition of thousands of residents and dozens of new businesses.
The Long Island Regional Economic Development Council put Heartland Town Square on its 2012 list of regionally significant projects and qualified it for $2.5 million in state funding that will go toward infrastructure and sewers.

Hi-Lume Corp. is in the process of purchasing a 57,500-square-foot facility in Hauppauge to serve as a centralized headquarters.

The Huntington Station-based commercial carpentry company will spend $4.54 million to purchase the facility, located on 5 acres at 175 Kennedy Drive, before spending an additional $3.31 million to construct a 17,500-square-foot addition. Once completed, Hi-Lume will move itself and its affiliates – Metro Interior Distributors, Liberty Doorworks and W.J. Northridge Construction, collectively known as Sutherland Building Group – out of three facilities scattered around Northwest Suffolk County and into the Hauppauge office.

“We’ve completely outgrown our facility,