Editor's note: This story is part of Southwest Michigan Second Wave's On the Ground Battle Creek series.
Developers of a “first of its kind” spec building for Battle Creek are confident that they will have tenants lined up to occupy the building, even though there is an increasing slump nationwide in commercial real estate as COVID-19 continues to wreak havoc on the sector.
A formal groundbreaking ceremony for the 270,000-square-foot building located at 211 Watkins Road took place at the end of September. The building is expected to be completed in Spring 2021, says Greg Dilone, Jr., Vice President of Development with Clark Logic & Industrial Partners USA, based in Portage, Mich.
Clark Logic and Great Lakes Capital, a private equity firm headquartered in South Bend, Ind., are co-developers of the $11 million project.
“Back in 2018 we started pursuing the land acquisition with Battle Creek Unlimited,” Dilone says.“We thought there would have been some issues because of COVID, but we still broke ground through all of this.”
The new spec building on Watkins Road will be 270,000 square feet and is expected to be completed in Spring, 2021. This is a "first of its kind" building for Battle Creek.
While such a building may be a “first” for Battle Creek, Joe Sobieralski, President and CEO of BCU, says it’s a model that has been used for economic development in other parts of the country. That it’s getting underway in the midst of a pandemic with tenants yet to be secured is not a concern for Sobieralski who says companies are seeking out and asking for this type of space.
“We’ve been working for a while to make something like this available,” Sobieralski says.“There is a shortage of modern buildings that meet the timelines companies are looking for to move into. It speaks volumes for our market that the developers are taking an ‘if you build it, they will come’ approach.”
Because it is a speculatory building, Dilone says it is being constructed with the flexibility to accommodate the needs of prospective tenants, instead of a particular tenant.
“That’s the whole idea behind building a spec or a shell,” he says.“Most of those tenants want to be able to move into it within 60 to 90 days. We are trying to build ahead of that market demand from larger tenants who have been passing West Michigan by for several years because the area didn’t have the real estate inventory that meets those demands.”
Sobieralski says there are no other spec buildings like the one being built in Battle Creek on the market between northern Indiana and Ann Arbor.
When completed, the building will include 7,000 square feet of office space; 32-foot ceilings; 50’ x 50’ column spacing; and 18 truck docks, with additional knock-outs for future development. The building is the first of three that are planned for the Watkins Road site.
An anomaly in commercial real estate
The spec building comes at a time when many office buildings and corporate headquarters throughout the United States continue to be under-occupied or absent of employees who have been working remotely since mid-March when stay-at-home orders took effect. While some of these businesses have brought workers back with staggered work schedules, the majority have not.
Although Battle Creek is the corporate headquarters for the Kellogg Company and does have commercial office space, Sobieralski says it does not have it to the same extent as found in larger cities such as Chicago or Detroit.
“We have a corporate headquarters and other things, but it’s not like we’re an office space mecca,” he says.
This is a good position to be in at a time when office buildings are sitting empty and leases may not be renewed.
“Companies have been forced to embrace remote working amid stay-at-home orders for all nonessential positions and businesses. In the process, corporations are seeing proof that productivity does not suffer, and employees may not need to return to offices in order to be productive and accomplish their work tasks,” says an article on CNBC’s Workforce Wire
.“It also may be part of required cost-cutting as companies plan for what could be a prolonged global economic slump.”
Commenting in the Workforce Wire story, Morgan Stanley
CEO James Gorman says he is uncertain about what work-life will look like after the pandemic but said the bank would need “much less real estate”
in the future. About 90% of Morgan Stanley’s employees have been working from home during the pandemic.
The outlook implies harder times for the commercial real estate industry, as the corporate reductions will come at the same time that retail and restaurant businesses may have to unwillingly vacate their commercial leases. Commercial property has spent years soaring but fell 1.3% in March
, according to Green Street’s Commercial Property Price Index, and many investors expect commercial real estate to remain under pressure.
As a result, Dilone says he expects to see a major repurposing of some commercial office spaces.
“The industrial segment is stronger than ever with the repatriation of businesses coming back to U.S. soil. In the manufacturing and distribution world, the wheels have to keep turning,” he says.“That’s where we (Clark Logic) started in 1969 and where we’re seeing success. There’s little to no failure in that arena.”
He adds that the region is attractive because of its economic variety. “Southwest Michigan is very diverse with large medical companies and automotive manufacturing.”
Flexibility and the right location
The Watkins Road site was chosen as the location for the spec building, Dilone says, because of its close proximity to Fort Custer Industrial Park, the largest industrial park in Michigan. It is centrally located between Interstates 131, 69 North and South, and I-94 which passes through Battle Creek.
“Battle Creek and is roughly the halfway point between Chicago and Detroit making it a hub for logistics operations traveling between the two major cities. It also has a Foreign-Trade Zone, three rail providers, and 25 international companies within Fort Custer Industrial Park,” he says.
Those international companies, all manufacturers of mostly auto parts, represent Austria, Canada, Denmark, Germany, and Japan. They join 60 other domestic companies that in total, employ about 13,600 people.
The configuration of the spec building enables it to house multiple tenants or one tenant, all of whom could be looking for industrial or manufacturing space to possibly complement work already being done by companies at the Industrial Park. Sobieralski says he thinks industrial space is going to become more lucrative because of re-shoring, the process of returning the production and manufacturing of goods back to the company's original country and the retailing shift to E-commerce.
Commercial space is still going to be needed, Sobieralski says, but it won’t necessarily be for offices housing workers.
“When a retailer delivers something to your door it’s made and comes from somewhere else,” he says. “Somebody has to make the Personal Protection Equipment needed during this pandemic and the food you buy at the grocery store.”
Dilone says his company will continue to build other sites in Southwest Michigan because the demand is there, especially for those that can accommodate manufacturing and industrial uses. Clark Logic has more than 2.5 million square feet of industrial manufacturing, warehousing, and distribution real estate. This includes spaces used by the recreational vehicle industry in northern Indiana.
“We’re confident that we can make this project in Battle Creek and others work despite COVID-19,” he says.
Sobieralski shares that optimism. He says the need for the manufacture of goods will continue at a steady pace and companies are finding ways to do it safely in the face of a global pandemic.
“For someone to take a risk and invest dollars says something about Battle Creek and what we’re willing to do,” he says.
Photo seen above: Participants in a groundbreaking ceremony held in late September for the new spec building on Watkins Road are from left to right: Mary Judnich, representing Sen. Debbie Stabenow; Greg Dilone and Jamie Clark, Clark logic; Battle Creek Mayor Mark Benkhe; Joe Sobieralski, Battle Creek Unlimited; David Casterline, Clark Logic; John Gallagher, Chairman, BCU Board of Directors; and Jason Raleigh, AR Engineering.