COLUMBUSJuly 2016 CEO REAL ESTATE INDUSTRY CULTIVATES WHILE IT CAN

By Jennifer Wray

Recently named the nation’s hottest market for apartment rentals, Columbus has seen a boom in commercial real estate, with dense, mixed-use developments proving especially attractive. But can it last?

Ask CBRE Group Managing Director Michael Copella to describe the state of commercial real estate in central and you’ll be met with a string of superlatives. The landscape, he says, “is very positive. It’s a very exciting time and there are strengths across all industry types, so I’d say there are great things happening in office development, there are great things happening in industrial, and certainly we’re seeing some pretty exciting retail projects as well.” Nationwide Insurance is moving associates into a newly completed corporate campus building at Grandview Yard, the 125-acre mixed-use project owned and developed by Nationwide Realty Forgive his enthusiasm, but he’s not Investors. wrong—now is a great time in the Columbus commercial real estate and efforts by local government, private segment within Columbus multifamily market. The area has some of the state’s companies and civic leaders. Central development, reports CBRE. Central highest occupancy levels when it comes Ohio is developing—not just outward— Ohio as a whole has a multifamily to commercial products, reports CBRE but inward, too. While it’s certain that vacancy rate of 4.2 percent, according in its “Columbus Real Estate Market the good times can’t last forever, real to CBRE. (The National Association of Outlook 2016,” and it looks to keep estate professionals are optimistic about Realtors reports national multifamily humming along. With unemployment prospects for the next few years. vacancy rates of 7 percent.) and interest rates down and rents on the rise, the commercial real estate landscape Going Up “Frankly, the recession was the vehicle of today is markedly different than that When it comes to apartment markets, that created the opportunities we see of a few years ago. Now, thanks at least in there are none hotter than Columbus, real today,” Rob Vogt, owner of Columbus- part to pent-up demand created by the estate service Zillow announced in April, based real estate research firm Vogt Great Recession, business is booming. ranking it ahead of Seattle (No. 2). “As Strategic Insights, says. Millennials fast as builders can put up new apartment took a pause from the job market and The new commercial real estate buildings in Columbus, Ohio, renters are returned to school. Many witnessed development and construction in snapping them up,” Zillow says. parents lose their homes or see drops in central Ohio reflects national trends The high-end market is the strongest value. “They saw what happened with their parents’ houses and (said), ‘you this year, reports Marcus & Millichap. “A ’s success has been the know, I don’t need that to happen to third of complexes will be located in the objective of attracting and retaining me. Renting affords me the opportunity city center, where demand is highest,” talented people,” says Nationwide Realty that, if something happens to me in the says the firm. Investors President and COO Brian Ellis. economy, I don’t have a house I have to “Really, when we made the decision to get rid of or lose value on,’” Vogt says. Tenants are willing to pay. Rents in invest in and build the Arena District, Columbus increased 4.4 percent in one of the motivations was that it Also, a growing number of people who 2015, reports Marcus & Millichap, would make it easier for Nationwide to could afford to buy a home are instead which projects 4.9 percent growth attract talent to our organization, which opting to rent, says Vogt. That’s fortunate, this year. Columbus renters will pay would be adjacent to this high-energy as Vogt notes, “The problem today is the an average of $862 in 2016, with neighborhood.” cost of land and construction materials renters seeking proximity to work and dictates that almost everything built entertainment venues paying a premium The 250 High project by Kaufman today has got to tug at the high end. You of about $130 more. Central Ohio’s Development and the Daimler Group just can’t build an apartment building or affluent are paying more still, topping is another such example of a successful a community anymore and not charge $3,000 for prime rentals Downtown live-work-play environment. In addition $1.50 or $2 per square foot rent.” and in . to an open floor plan and modern facilities, it offers common spaces Demographic changes are propelling Further afield, the Schottenstein Real for office, residential and retail users, a marketplace evolution. People aged Estate Group has seen apartment units including a rooftop patio. Yoga, wellness 20-34, about one quarter of Columbus’ in high-end command monthly classes and philanthropic events are population, are the “prime renter rents of as much as $2,000, about the cost available for all the building’s primary age group,” according to commercial of a mortgage payment, says President users. “Having office and residential and real estate brokerage firm Marcus & Brian Schottenstein. “‘Apartment’ isn’t retail all in a project, sharing common Millichap. a dirty word anymore,” he says. “People spaces, is something that’s unique,” want to rent now and rent longer because Kaufman says. “We’re finding that people Empty nesters are following suit. we’re allowing them to have everything like that kind of mix.” they want right in their backyard. … “The millennials and the boomers They’ll have a 24-hour fitness center, Taking it Downtown aren’t real excited about having single- they’ll have a resort-type pool, they’ll Suburban developments aren’t going family homes at this point, and both are have a community garden where they away anytime soon—when it comes to wanting an urban environment,” says can plant their own vegetables,” and raising and educating children, it’s hard Columbus Development Director Steve much more, says Schottenstein, whose to resist the ‘burbs’ siren call—but a Schoeny. company recently broke ground on growing number of people are drawn to Powell Grand Communities, the village’s downtown living. “Empty nesters and young professionals first large multifamily, mixed-use are interested in a certain kind of energy, development. (Schottenstein has similar “In 2011, population growth in urban walkability, a lifestyle to be able to have projects in Jerome Township areas began to outpace the suburbs in everything right at their fingertips and and Dublin.) the US for the first time in over 100 be part of the broader community,” says years. Firms and employers are following developer Brett Kaufman. Offices Built for Jobs the feet of the flow of urbanites, creating As of May, Columbus’ unemployment new vertical/mixed-use retail formats Vogt says he doesn’t expect demand for rate was 3.9 percent, under the national- and more collaborative and compact multifamily to abate any time soon, as average 4.7 percent, according to the office buildings,” reports National Real millennials eventually find a place of US Bureau of Labor Statistics. “There Estate Investor. their own, with or without a partner. is a war underway for talent, and so “This built-in market of millennials companies are using their space to Columbus is no different. “With more moving out of basements means that engage and attract talent,” says Copella. than 1,000 new units slated for the we’ll see apartment demand continue He adds a recent CBRE survey of C-suite Downtown/University submarket this pretty steadily, I think, for a number of and real estate directors found, “their No. year (2016), many households will obtain years,” says Vogt. 1 concern was having space that attracted urban lodging while others will move and retained talent. … No. 3 was having into neighboring areas that will have Builders completed more than 2,900 a space that was efficient and productive dense development,” Marcus & Millichap rentals in 2015, up 1.9 percent over 2015. and No. 7 was occupancy costs.” reports. About 7,500 people have made There are 3,000 units under construction “One of the primary factors in the Downtown home, more than twice the want to work now and into the future,” says White.

“If we want more jobs Downtown, if we want retail to be Downtown, if we want energy and nightlife and people living and working in our Downtown, we have to work together to make that happen,” Kaufman says. He and Daimler are partnering on a similar mixed-use project nearby. Two25 Commons is a $60 million, 12-story project with 121 apartments, offices and street-level retail expected to be complete by the end of 2018.

Also at the eight-acre Columbus Commons is Robert Weiler Company’s When fully complete, Grandview Yard will have more than 1.2 million square feet of commercial HighPoint, which features a mix of space, plus more than 1,300 residential units (apartments and condominiums). studio and one- and two-bedroom apartments. “Those apartments are all number there in 2000, when then-Mayor financing the replacement of cracked full, I’m happy to say, and on the ground Michael Coleman announced a goal to asphalt of parking lots with nearly $350 floor we have retail—and it’s filling up,” grow it to 10,000 by 2012. The recession million in new and renovated market- says President Robert Weiler, Jr. slowed his plans, but it didn’t halt them. rate buildings that house thousands of Downtown residents, and helped In May, Arshot Investment Corp. RiverSouth, at the southern edge of generate 1,000 jobs,” notes the Times. unveiled Millennial Tower, a $90 Downtown, has seen an influx of activity million, 400,000-square-foot mixed- as developers take advantage of natural Support from the city, organizations— use building proposed for what’s now amenities, chief among them green space such as the Columbus Downtown a surface parking lot. The 25-story and proximity to the Scioto River, and Development Corporation, Columbus high-rise will have 100 apartments and city incentives including tax-increment Partnership and Columbus 2020—the condominiums, 180,000 square feet financing and abatements and parks and the Downtown tax abatement of office space, terrace and outdoor partnerships with local nonprofits. program have moved the needle on amenity spaces, 40,000 square feet of There, you’ll find the $25 million development, says Kaufman. “The retail, parking, a conference facility and a Columbus Commons park on the site economics unfortunately just did not 24-hour fitness center—plus an outdoor of the former City Center mall, and the make sense without the incentives pool and a dog park. The views from the Scioto River, which has seen nearly and the initiatives to open up for structure’s floor-to-ceiling glass walls $80 million in improvements to the development for our city,” he says. will be “outstanding,” says Principal waterway and its environs. Bill Schottenstein. The $50 million, 12-story 250 High Among those taking note of the building opened in November and is 99 To the Yard and Beyond city’s work is the New York Times, percent leased. Downtown Columbus Northwest of Downtown is Grandview which in May featured Columbus’ hadn’t previously seen office and Yard, a former warehouse site swiftly efforts Downtown. multifamily vertically stacked in a mid- turning into a lively multi-use rise development, Daimler President development thanks to Nationwide “Columbus’ strategy of seeding Bob White, Jr. says. “It was a really Realty Investors. Since NRI broke ground anticipated private real estate investment exciting project; the office in particular at the 125-acre site in 2009, Grandview with taxpayer money defied the tactics of was really received by the marketplace. Yard has become home to a hotel, a low taxes and public spending austerity A large, efficient floorplate, combined workout facility, restaurants, a grocery that gripped Ohio’s state lawmakers with a 100-percent, 15-year real estate store, offices and more. In late 2014, through and since the recession. But city tax abatement made it very attractive (to Nationwide announced it would open officials say their decisions have paid businesses) to move into the brand new a 500,000-square-foot campus for more off, attracting developers into privately space, space that reflects how they than 3,000 associates, most of whom are shifting from offices in Dublin. In have about 300 workers, while nearby, at The poorest part of the city has the best, May, NRI, the real estate development the southeast corner of Lyra Drive and close-up views of its imposing skyline.” affiliate of the Nationwide insurance and Gemini Place, NP Limited Partnership financial services company, welcomed has teamed up with Kansas City-based In 1983, repeated flooding in the workers into the first of what will be VanTrust on Polaris Gateway, a proposed neighborhood (and resulting losses of three four-story offices. Plans $100 million, 500,000-square-foot lives and homes) prompted the Federal call for a second building of 160,000 mixed use development. Further north Emergency Management Agency to square feet to open in 2017 and a third on I-71 is Northstar, a partnership declare virtually all of Franklinton a opening in 2019. between Weiler and NRI. Since the late floodplain and Columbus to restrict 1990s, developers have invested about construction. Building stock declined Eventually, Grandview Yard will have $50 million in the southern Delaware and people left in droves until a long- more than 1.2 million square feet of County site, which will complement awaited, seven-mile, $193 million commercial space, plus more than housing with retail, office, restaurant, floodwall opened in 2004. 1,300 residential units (apartments senior housing and hotel projects. The In his 2011 state of the city address, and condominiums). area has gotten a boost from neighboring Coleman laid out plans to remake Tanger Outlets Columbus, opening in Franklinton into an “affordable live- Developers are seeing success in other late June. Immediately to the south of work community tailored to the creative areas near Downtown. They include NRI’s Buggyworks project in the Arena District and, in the Short North, a proposed 12-story high rise from the Pizzuti Companies and mixed- use projects from White Castle Inc. with Borror Properties and the Wood Companies with Schiff Capital. In , Wagenbrenner Development will break ground on the fourth and fifth phases of its Jeffrey Park project. “If there’s a property to be developed, people are starting to look at it—if it’s in a space that is well-connected, active and has the potential for a fair amount of density. These are the things that we consistently see as being successful,” Shoeney says. This includes the area’s further-flung neighborhoods and suburbs, especially in the northeast portion of central Ohio. Developers are seeing success in other areas near Downtown, including NRI’s Buggyworks project in the Arena District. East of I-270, at North Hamilton and East Dublin Granville roads—Columbus’ last undeveloped interchange—lies the 350,000-square-foot outlet mall is sector.” In the years since, development Hamilton Quarter. The $250 million, NorthGate Centre, a 746-acre mixed- followed, with East Franklinton, the 320-acre site is being developed by use project blending homes, restaurants, community’s more industrial area Daimler, Casto Communities and New hotels and businesses. near Downtown, the focus. Creative Albany Co. and will combine retail, spaces opened at 400 West Rich, the offices (including 320,000 square feet for Focusing on Franklinton Idea Foundry (the country’s largest off-price retailer Big Lots), senior living With activity ticking along Downtown “makerspace”) and Glass Axis—and and multi-family units. and elsewhere, civic leaders and private dining and drinks can be found at developers are turning their gaze west Strongwater Food and Spirits and Last year, Columbus committed itself to Franklinton, site of the city’s first Land-Grant Brewing. to helping fund a $27.4 million “S” settlement in 1797 and, in the words curve connector. of the Atlantic, “Columbus’ most More recently, East Franklinton has downtrodden neighborhood.” Says the been energized with plans for additional Swedish home furnishings store IKEA magazine, “It’s an interesting (but not all commercial development. In mid- will open at Polaris next summer and will that uncommon) geographic paradox: June, Kaufman announced a project that would replace Phillips Coney “Right now apartments are red-hot, and I think there’s Island and National Office Warehouse some risk. I think in the big picture, urban residential on West Broad Street with a multiuse development featuring 50,000 square projects are going to be successful, but there could be a feet of offices, 241 studio, one- and two- bump or two in the road as we continue to build the bedroom apartments, retail, public art, a population back in the center city.” climbing wall and more. “We are pretty impressed with how things are starting to —Brian J. Ellis organically unfold there,” Kaufman says of the neighborhood. In its announcement about the rise reasonable construction schedule,” Vogt in rates, the central bank projected says. During the downturn, many skilled Meanwhile, Robert Weiler Co., Casto only “gradual increases” and said they laborers left the industry altogether, and Donald W. Kelley & Associates should stay low “for some time.” Just “and it’s seemingly less popular for the are partnering with the Columbus when change might happen remains younger generation to focus on and pick Metropolitan Housing Authority and unclear. Unemployment is low, jobs up a trade,” notes White. “If you talk to Smoot Construction on a high-rise, have been added and wages are finally subcontractors, (you’ll find) it’s tough for mixed-use building on West Rich Street. increasing—all of which would point to them to find qualified, skilled employees The development will have 800-1,000 an increase—but as the labor market has to handle the workload.” units, mostly studio or one-bedroom, of grown, the stronger dollar has weakened which about 40 percent will be priced as manufacturing and impacted inflation, Kaufman says he hopes Columbus’ affordable “workforce units,” thanks to a according to Marcus & Millichap. That success doesn’t backfire. “The sentiment city grant. said, a moderate increase would be a I hear is that people feel like we’re over sign from the Fed that the economy the hump and no longer need to do Weiler says the project will also have has strengthened. the things we’ve done to get us this some retail, with the Greater Columbus point,” Kaufman says. He disagrees. Arts Council among its tenants. A May survey from CIT Group in “Tax abatements, incentives, working partnership with Forbes Insight finds together—you take these things out NRI is among developers snapping that of the 201 senior real estate of the equation and things will come up land, including the former Byers executives canvassed, most were to a grinding halt,” A sudden halt to Chevrolet property on West Broad optimistic about the state of CRE, with city incentives “is going to totally put Street. Ellis cautions that Franklinton 52 percent saying they believed their the market out of balance,” with some is not the same as the Arena District market segment was “strong” or “very property owners losing as much as half or Grandview Yard, where NRI is the strong.” Respondents named interest of their properties’ value, Wagenbrenner exclusive property owner and developer. rates, consumer confidence, the global predicts. For similar reasons, he “In East Franklinton, we are one of a economy, employment and US tax rates expressed concern about efforts to number of developers that are working as top factors driving CRE investments. move toward ward representation on on revitalization.” Still, 44 percent said certain segments are . poised for “significant decline.” Looking Forward Such events aside, Ellis says he has been “Despite various global and domestic Says Ellis, “Right now apartments are around long enough to see real estate hurdles hindering economic growth, red-hot, and I think there’s some risk. I cycle, ebb and flow. “Columbus has had, steady job gains and stable leasing think in the big picture, urban residential historically, a little shallower valleys and demand should help keep commercial projects are going to be successful, but not as steep of peaks” when it comes to real estate activity expanding in 2016,” there could be a bump or two in the road commercial development. “I think that’s finds a cautiously worded report as we continue to build the population been good, you know, slow and steady jointly authored by Situs Real Estate back in the center city.” growth. … I expect that will continue. Research Corporation, Deloitte and We’ll probably see a dip at some point, the National Association of Realtors. Vogt says construction costs are a but it won’t be too soon, and when we The report, released in early February, concern, too. Finding skilled craftsmen do, I don’t think it will be as severe as describes “not-great-but-not bad US to do the work, plumbers and you see in other, more go-go markets,” economic growth.” electricians, framers and concrete work, he reflects. In December, the US Federal Reserve all of those subcontractors are so difficult increased its key interest rate range to to find and are in so much demand 0.25-0.5 percent, still quite low. that it’s difficult to ... put together a