Is Construction Starting to Make Sense Again?

August 18, 2011

By Daniel Duggan

There were plenty of ear-to-ear smiles in Auburn Hills for the ground-breaking to celebrate the 55,000-square-foot headquarters for Henniges Automotive today.

Yeah, people are always happy at those events.

But this one was significant for a couple of reasons. The obvious: There have been very, very few of these events in recent history.

But the not-so-obvious reason for excitement on the deal is the math. Robert DePierre, CEO for the company, told me a little bit about his exhaustive search for office space. Buildings on the north side, east side and west side were all considered and then thrown out, he said.

“We looked at a lot of buildings and no one building had what we needed,” DePierre said.

Finding the combination of contiguous space, an additional lab component to be combined with the office space, and obviously the right price, was harder than it seems, he told me.

Matt Farrell, executive principal with Core Partners, and Randy Thomas, principal with InSite Commercial Group, the two brokers in the deal, said that the idea of new construction came up and proved to be a savings for Henniges compared to what he was paying in rent in Farmington Hills and compared to some of the rental options out there.

People talk all the time about how high the vacancy rate is for office space in metro Detroit, ranging from 15 percent to as high as 30 percent in some areas. But at the end of the day, brokers tell me over and over that Class A companies looking for Class A space have a very limited number of options.

While the cost to put up a building remains expensive, there are some exceptions to be found, as in this case. Driving the deal is that it’s in the Oakland Technology Park; land that was purchased for a song-and-a-dance from Chrysler in bankruptcy.

With the low land cost, Schostak Bros. & Co. is developing the building to lease to Henniges at a price competitive to using an existing building.

“As Michiganders, we have to benefit from moments like these,” said Gary Weisman, a principal with General Development Co., one of the owners of the park.

Weisman went on to say that through the tough times come great opportunities, such as the Oakland Technology Park. They bought 211 acres for $2.5 million – a price that would have landed them 6 acres of land in that park in 2006.

But it’s that ridiculous land cost that put the Henniges deal in the position to compete with existing buildings. It means bad news for development on land that people still value at $400,000 an acre, but good news for Weisman and his partners as they finish their second building in the park and think about doing more.

“After the meltdown, we begin anew,” Weisman said.

But at a lower price, he should have added.

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