Journal of Property Management - January/February 2010

REGIONAl OUTLOOk
RECESSION EFFECTS ALONG THE GREAT
LAKES Part Two: Michigan, Ohio, Pennsylvania and New York

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The Great Lakes states of Michigan, Ohio, Pennsylvania and New York have not been immune from the effects of the U.S. economic downturn and credit and crisis. The region has not hit the lows that many other areas across the country have reached, but economic progress has been sluggish, at best.

In New York, the greater metropolitan area (the populated areas in the states of New Jersey, New York and Pennsylvania that are within a typical commuting distance of Manhattan, N. Y.) is laboring under a nearly 10 percent unemployment rate. The state government is enduring its own fiscal challenges, further slowing down development in the state, especially in Albany and other upstate markets where the state government, as well as vendors and service providers, is a prime tenant of office space.

Yet, activity in the real estate markets has begun to pick up recently. September was the

THANKS TO THE RECESSION, TOWER 31, A 42-UNIT RENTAL HIGH RISE IN MIDTOWN, N. Y., IS THE LAST LARGE PROJECT SIMON DEVELOPMENT GROUP HAS COMPLETED. IT WAS FINISHED IN 2006.

PHOTOGRAPHY
© SiMON
DeVeLOPMeNT
GROuP

fourth consecutive month of one million square foot plus leasing activity in Midtown Manhattan, according to CB Richard Ellis, AMO®. And the decline in asking rents has slowed significantly.

Still, major new real estate developments have been mostly on hold as the credit markets remain stingy with financing. Matthew Baron, a principal with Simon Development Group, owns $300 million of property in the New York metro area. His last large new development was a 42-unit rental high rise in Midtown named Tower 31, which was completed in 2006—just before the economic recession hit.

“The problem is leverage today,” Baron said.
“You can’t get construction financing. When
you don’t have it, you wipe out 95 percent of
the people out there who are going to be doing
development.”
In this environment, the focus is on tenant
retention, according to many real estate experts.
Re-leasing is an expense most owners can’t
afford right now, so property managers must be
proactive in the area of customer service to keep
tenants from moving.

“It’s a tough environment out there,” Baron said, “so you can’t be the grumpy landlord who is not responsive to tenants. Understanding that is very important.”

Pennsylvania’s real estate markets did not undergo the huge buildups that occurred in other regions, so the area is not enduring as big a shakeout. Still, the metro areas of Pittsburgh and Philadelphia are struggling with rising unemployment rates. And while smaller banks are starting to lend money to local businesses, large-scale financing for major developments is still proving difficult to obtain.