Space Race

space-race-leadTen commercial real estate professionals chime in on the state of the business in Vermont

From left to right front row: Nicole Senecal - Broker/Owner - Omega Real Estate Associates; Melinda Moulton - CEO/Redeveloper - Main Street Landing; Doug Nedde - Brokerage and Development - co-owner - Redstone; Steve Donahue - Donahue & Associates - principal; Esther Lotz - commercial broker From left to right back row: Tony Blake - principal - VT Commercial; Greg Dirmaier Co-Owner, Principal Broker - J.L. Davis Realty; Bob Bouchard - Property development manager - Pizzagalli

In an August 2009 piece in The Atlantic titled, “Maybe We Should All Be More Like Vermont,” Daniel Indiviglio quoted a Wall Street Journal article that lauded (kind of) Vermont’s strict mortgage-lending laws for protecting Vermonters from the deep slump that has ground down real estate in other markets across the country. “Now, by at least one measure, the state has the lowest foreclosure rate in the U.S.,” the article said.

Granted, this was a piece focused more on residential real estate, but the dynamic fits all kinds of real estate activity. We thought it was time to visit the trenches and talk to the people whose livelihoods depend on the vagaries of the commercial and industrial real estate market. We spoke separately with 10 commercial brokers.

Melinda Moulton, is the CEO/redeveloper of Main Street Landing. With Lisa Steele, she has been involved in commercial real estate and development since 1982, when they began buying property on the Burlington waterfront. “I have been involved in the creation of 250,000 square feet of built environment on the waterfront. I am involved in renting the spaces that we have and overseeing the renovation of those spaces, fit-ups, meeting with tenants, dealing with tenant issues. I also manage all of the marketing and advertising of the company.”

Tony Blake, a principal and broker with V/T Commercial. In commercial real estate for 26 years. “We assist and represent landlords and/or tenants in commercial real estate transactions. 65 to 75 percent of what I do is corporate real estate work: We are retained by regional or national or local corporate entities to locate and identify a lease transaction. I personally have about 50 properties listed right now, but keep in mind that a lot of what I do is representing the tenant.”

Nicole Senecal, broker-owner of Omega Realty, Williston. In real estate about five years; in commercial real estate about three years. “I would say that I do residential home sales and commercial sales and leasing. Right now, including all the commercial for sale or lease, I probably have about 35 listings.”

Stephanie O’Brien, president and CEO of O’Brien Brothers Agency Inc. With the agency for 20 years. “O’Brien Brothers Agency is a multi-faceted family real estate company going into our third generation. It has evolved from farming into real estate development. We sit on what I would call ‘raw land,’ un-permitted land that we’ve had for many years through farming or whatever. We’re not taking in resale and wouldn’t take in a commercial building to lease; we come from the perspective of our own inventory. We manage our own inventory and our own needs. The only sector of real estate we are not involved in is retail.” The agency’s vacancy rate is 6 percent.

Doug Nedde, founder and co-owner of Redstone. In commercial real estate for 25 years. “Redstone is a full-service real estate firm: We have a commercial brokerage division, a development division, property management, and a construction division. Our six brokers market between 80 and 100 properties at any one time; therefore Redstone has a very strong market presence.”

Esther Lotz of Esther Lotz Broker. Lotz does not invest in property herself, but is a commercial-industrial broker who helps property owners looking to sell and lease properties and others seeking to find property to buy or lease. She has been in the business 21 years. “Helping clients find suitable facilities for operations lets me be part of the process for creating jobs for Vermonters. I limit the number of listings that I take, so right now I have probably 30 listed.”

Bob Bouchard, development manager for Pizzagalli Properties LLC. With Pizzagalli for 24 years, first in property management, now in development. “We specialize primarily in commercial office space. My work encompasses researching property for new projects, coordinating design, acquiring permits, overseeing construction, then marketing and leasing the space.” Pizzagallli owns and operates a little over 2.5 million square feet.

Greg Dirmaier, vice president of J.L. Davis Realty. Licensed since 1976, but in commercial real estate since about 1983. “We’re brokers here. We do strictly commercial, not a mixture of residential and commercial. So leasing and selling of office, retail, and industrial space and obviously, land sales. Including both lease and sale, I have maybe 30 to 40 properties listed right now.”

Steve Donahue, owner-broker of Donahue & Associates. Started in commercial real estate in Vermont in 1992. “We represent several property owners through the state in their efforts to fill up their properties through leasing, and for another group of owners, we represent them on selling property. We also represent tenants seeking to relocate and find space or investors/buyers seeking to buy property.

Yves Bradley, a broker at Pomerleau Real Estate. In the commercial brokerage business about six and a half years. “We bought Commercial Property in 2000, so that was my initiation into commercial real estate. I am a financial adviser as well as a real estate adviser, so I help clients to potentially sell a property and get as much as the market will bear for it. We handle leases as well — a big part of the business — either trying to help clients find space that works for them or representing landlords. I have listed right now roughly 50 properties; that’s a blend of lease, sale — everything.”

We asked each one a series of questions about how things have been going, about the state’s economy in general, and what their concerns are going forward. We were occasionally surprised by the answers. They’re an independent bunch, but all of them are right on top of their own markets.

“Well, I suppose it’s a matter of perspective,” said Tony Blake of V/T Commercial, who confessed he was a little reluctant to paint too bleary a picture, “as perception can become reality. People will ask, ‘Are you busy?’ Well, yes, busy; but the better question to ask is, Are we productive? The times when a commercial real estate broker is most productive are when times are really good or when they’re really bad, because then our services are needed.

“What we’re finding, now more than at any time I can remember in my career,” Blake continued, “is that there is no sense of urgency whatsoever on the part of prospective or existing tenants — a lot of fence-sitting, contemplating the next move. A lease termination triggers a serious look at the marketplace by the tenant, and the existing landlord steps up with an aggressive deal. Ultimately, of course, it is far less expensive to stay in a current location than to relocate.”

Steve Donahue agreed with this last statement. “You have a lot of people who are merely researching it,” he said, “seeking to see if there’s a better deal. But for a moderate sized business, a move is not a short-term fix but more a new direction they’re choosing to go, or a new property they need, so it’s not done lightly.

“We end up working in basically all the sectors of commercial real estate — office, retail, industrial, or land or investment, but probably spend the majority of our time on leasing, representing property owners who own office product.” Those properties include four buildings on Water Tower Hill, the Champlain Mill in Winooski, and Whitecaps in Williston (the site of the former Rossignol plant).

Bob Bouchard, who markets and leases space only for Pizzagalli-owned properties, echoed Blake and Donahue. “The market is soft. I think tenants out there are very savvy, and everyone’s looking to save and cut costs wherever they can. What I see is a lot of people checking their rents. Ours is new product, so we have to work that much harder to have competitive numbers.”

Like Pizzagalli, O’Brien Brothers Agency deals only in its own properties. “We had a higher vacancy rate at the beginning of the year than we do at the moment,” said Stephanie O’Brien. “I think a lot of that has to do with the fact that if we did have a new tenant, it was either to downsize or to reposition themselves in the market. If you have a good location, that helps.”

Another thing she’s noted is that there’s been a bit more of a challenge for companies on the national front, “because anyone who is playing on a national level — experiencing the down-sliding trends of rates — feels that that’s true everywhere, and it’s not. So we’ve had to spend time proving to people where the market is and educating them about the unique Vermont market and how we don’t have the tremendous peaks and valleys other markets have experienced.”

“The great recession has put considerable pressure on commercial property owners and their businesses,” said broker Esther Lotz. “That said, I can point to just one example of many successful manufacturers — RTAT (Rapid Turn Around Time), a precision machining company. This is a startup company in a very difficult market that is experiencing wild success.” Lotz went on to mention other, similar companies she has worked with recently that are creating jobs for Vermonters.

“Helping companies like that to find suitable facilities for their growth and operations helps me feel good about being a commercial broker,” Lotz said, “because I then am contributing high-paying manufacturing jobs for Vermonters.”

“There are companies absolutely still in growth mode,” said Yves Bradley of Pomerleau. “There’s little or no speculative building going on, with the exception, to a certain degree, of downtown Burlington. For example, Barbara Surprenant of ICV has a project at the corner of Battery and King streets.”

According to Nicole Senecal of Omega Realty, industrial has been the best market, while office and retail have been slower. “Prices have come down across the board,” she said, “but the percent of decrease has been much more in office and retail than in industrial. Sometimes what I find is I’m spinning my wheels a lot more because people are having a hard time getting off the fence, and unfortunately in my business, I don’t get paid unless I close the deal. I think we’re having to work harder for less benefit or money. I call it a learning experience, because it gives me the opportunity to learn a lot more about the business and helps me to gain patience with the process.”

“In the development arena, we’re very active,” said Doug Nedde of Redstone. “We’re moving forward right now on a 17-apartment complex in Shelburne, a 400-bed apartment complex for UVM on UVM’s land, and we are in the preliminary stages and hope to break ground in the spring on a 140-room hotel project in downtown Burlington on land we own. We’re also partnering with Pat Malone and have recently purchased the 88,000-square-foot Saputo Cheese plant in Hinesburg.”

This year has been a good year for Redstone and the brokerage, Nedde continued. “All six of our commercial brokers have been exceeding their targets this year and certainly exceeding 2009. I think 2010 is a bit more business as usual; people are a bit less fearful, and when they have a need, they act on that need to grow or obtain a more efficient facility.”

“We are kickin’ butt,” said Melinda Moulton of Main Street Landing, who has been very careful to nurture her longtime tenants and be sure rents stay affordable. “In the last two years, there have been no rent increases across the board, and this year, we’re doing very few rent increases. That allowed people to get a breath.

“People who really weren’t able to make it, they moved out. We have a policy at Main Street Landing: In many instances, if it’s a local business and they’re not doing well, we just forgive them the lease and they move on. So at one point, we had quite a few vacancies. I said we need to lower these rents in order to encourage people to come into the project.

“Not a lot of places in town have spaces as small as we have — in the Wing Building, especially, we have 300-square-foot spaces. They can come in on a month-to-month lease, and if it doesn’t work out, there’s no suffering. Next thing I know, I’m down to 1 percent vacancy rate and people are happy. Maybe it’s because the economy’s coming back. Merrill Lynch down at Lake and College just expanded their space, so we are not sensing an issue. It was probably the best year I’ve ever had last year. So go figure.”

“Leasing is, for most of our brokers, our bread and butter; sales are icing on the cake,” said Greg Dirmaier of J.L. Davis Realty. Especially these days, he added, leasing outnumbers sales activities. “Activity depends on where you are in the county. Downtown Burlington has pretty much held its own in terms of office space, but there are certainly vacancies in the suburban area. People are no dummies: They see advertised rates, and if you’re going to be looking for a lease — usually in three to five years — you’re going to be looking around. The good news is that the leasing kind of churns away; everybody has to renew it at some point, so there’s always activity in leasing.

“Business owners are much more committed to doing things than they were a year ago,” said Dirmaier. “The market in general has seen a correction; landlords have seen the correction and adjusted. I think the only thing you can say is for now we’re on an upswing — and the upswing could turn to a downswing with some announcement of any kind — so you can’t say people are 100 percent assured and committed to a trend. It could turn in a moment’s time, but it’s positive and much better than it has been.”

“In terms of commercial real estate,” said Bradley, “I think we’re far better off than most communities. We don’t have that much vacancy; haven’t lost a significant amount of retail. You go to other states, and it’s rather staggering to see how much is empty.

“That being said, I do see us in a sensitive period in terms of job creation and job growth in the state, and I feel that we are trying to be competitive, but we are faced with an incredibly competitive environment in terms of what other states are offering as incentives to relocate. I also worry very much about the loss of the manufacturing sector that I’ve seen occur over the last several years. Manufacturing jobs are what I call the bread-and-butter jobs.”

“The permitting process in Vermont is what saved us from what so many other states are going through,” said Moulton, mentioning Act 250. “The permitting in Burlington is tough to get through. A lot of people complain about it. Well, that’s what saved us in Vermont; it made sure that we didn’t get this huge overflow of commercial development that caused the big hit. Environmental laws and strict controls over just random development have protected us one hundred percent.”

So why don’t other states follow Vermont’s guidance? These issues are never cut-and-dried, and even within the state, opinions vary. This was clear in a couple of quotes from the WSJ piece.

Critics say such rules put a brake on growth. Vermont politicians are “patting themselves on the back because we saved ourselves from this catastrophe,” said Joel Schwartz, director of the economic development office for St. Johnsbury, a town in northeast Vermont. But developers and others “can’t march into the state and start doing business.”

Indiviglio maintained that kind of growth is fake. “Just ask Florida,” he wrote, and proceeded to quote, again from the Journal article.

Jeffrey Carr, Vermont’s state economist, defends the state’s market guardrails. “The critics of the regulatory environment would say, ‘Great, you prevented the car accident by never getting in the car,’” he said. “We got in the car, and we went the speed limit instead of going 70 in a 35-mile-an-hour zone.”

In our group of professionals, O’Brien credited our lack of peaks and valleys to the fact that Vermont has worked hard over many years to create a balance. “Vermont has had a good, balanced approach to development; however, in being mindful of the future, we need to continue to create a healthy, youthful, and vibrant community, and that is going to require change. We have to continue to assess things, capacity being one of them, opportunity being another, and we cannot fear change.”

Part of keeping a balance is recognizing that we have to have jobs; we have to have housing; we have to create opportunity; and we have to be mindful that sometimes it’s appropriate to speed up, pull back, or reassess. It’s important for those conversations to continue if we’re going to maintain balance.”

Like many of our interviewees, Bouchard finds much room for improvement in navigating Vermont’s permitting process. He chuckled as he said, “I would say Chittenden County still has so much potential for growth — if we could only wade through the permitting process in a more efficient manner!”

“I really believe that in Vermont,” said Moulton, “we’re so small and we know everybody and there’s this power of the people that we all come together and have these extraordinary groups, whether it’s the Chamber or BBA or VBSR — groups of responsible people who sit around tables and think about what we need to do to make our state a great state. We’re just a bunch of opinionated busybodies who care about our state.”

We’ll give Tony Blake the last word. “You can’t hang a dollar value on lifestyle. When I travel out of state and talk to other people, they ask, ‘How in hell do you make a living up there?’ I say, ‘It’s the lifestyle we’re living.’” •