Federal Reserve Bank on the current recovery…the good and the bad.

Last week I attended an SIOR event that featured a speaker from Federal Reserve Bank of Chicago, here are my notes.

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Recovery from 2009 has not been as strong as past recessions. Why?
1. Hesitant growth since 2009
2. Spike in financial stress. Tight lending principals. Now stress is low.
Solutions:
1. Fed has kept Fed Fund target rate close to zero. Fed raised rate 50 basis points in Dec 2015
2. Quantitative easing. Buying securities, fed holds over $4T.
Impacts:
1. Food below inflation
2. Energy (oil) price are low.
3. Long term unemployed (more than 6 months) is at its highest historical level, but it is going down. One example would be people who want to work full time only working part time.
4. Labor force participation is low, but getting better. One reason may be wages have not increased.
5. Broad based recovery. Auto and auto parts/components. Fed sees a 2.4% manufacturing increase in 2017.
6. Dollar has been increasing. Good for US consumer detrimental for exports/manufacturing.
Next:
1. Inflation is beginning to increase +\-2%.
2. Employment has been steady, but not growing too much.
3. IL. Unemployment is creeping up (bad).
4. Housing starts are increasing steadily over 1M per year.
5. Interest rates are staying low.

Market’s strength = closer to the end?

{Singing} It’s beginning to look a lot like 2007…record low cap rates, spec construction at a fever pace, high rental rate expectations, bullish forecasts of continued growth.  Despite what our presidential candidates would tell us, the real estate world is on a roll.

thMulti-channel distribution networks are absorbing distribution space at a phenomenal pace. eCommerce has in effect made warehouse equivalent to retail! More technology and more people are being deployed to meet global supply chain demands. The market dynamics are pushing all boundaries.

Unfortunately all good things must come to an end. Believe me I have my board and plan to ride this wave at maximum pace.  But how long can this last?  I hope a long, long time! In the mean time keep singing.

Despicable campaign by Indiana to lure Illinois companies, shows paltry results.

Enjoy this article discovered by Daniel Smolensky, SIOR in Crain’s Chicago Business.

January 03, 2015

Inside Indiana’s campaign to lure ‘Illinoyed’ businesses

By MERIBAH KNIGHT

INDIANAPOLIS—Victor Smith sinks into an upholstered armchair in his office and smoothes the wrinkles from his charcoal gray suit. It’s been a good year for Indiana’s secretary of commerce. Following the largest tax cut in state history, Smith presided over a record-breaking year for economic development that included persuading dozens of companies to jump the border from Illinois. Soon, Smith will walk across the street to the cavernous state Capitol and listen to Indiana’s Republican Gov. Mike Pence tout the relocations and expansions as proof that “Indiana is open for business.”

AR-301039989.jpg&maxw=600&q=100&cb=20150113010941&cci_ts=20150106131110Indiana Secretary of Commerce Victor Smith – KENDALL KARMANIAN

For now, though, Smith, a boyish-looking 46, is taking a few moments to show off his department’s promotional handiwork. “I love this one,” he says, pointing to one of a half-dozen snarky tag lines mocked up for potential advertisements. It reads: “Can you spell decifit? We can’t.”

Others—all conceived by Smith and his team—read: “Hoosier Santa now?” “Do you have financial envy?” “Psst, the folks who raised your taxes are on the naughty list.”

Many never made it to print, but the ribbing probably sounds familiar. For three years, in an economic development strategy aimed squarely at jobs and revenue in higher-tax states, Indiana has been trying to poach Illinois businesses. While they say the tactic has succeeded wildly, officials in Illinois say the impact of cross-border moves largely has been a wash, more political theater than anything substantive.

It all started in 2011 when Indiana spent a paltry $369,000 to line the highway from Illinois with billboards asking drivers if they were “Illinoyed by higher taxes?” Since then, the state has lured—by way of low corporate tax rates, good fiscal health and financial incentives—more than 100 companies to expand or relocate from Illinois.

In mid-December, Pence spoke at the City Club of Chicago. Opening his speech, he thanked the club for the invitation despite his state’s “playful penchant to poach business.” Leaning into the lectern, Pence said he thought his state’s harshest jab came in the pages of Crain’s, in an ad telling Chicago-area readers, “Envy is a sin, but moving here isn’t.”

‘BEST SANDBOX’

The earnest push to target Illinois businesses started under Gov. Mitch Daniels, who—helped along by Illinois’ 30 percent hike in corporate income tax and nearly 70 percent hike in personal income tax—said he wanted to build “the best sandbox in America” for companies. In 2013, Pence picked up where Daniels left off and successfully pushed to lower the state’s corporate tax rate, which will drop from the current 7.0 percent to 4.9 percent by 2021. (On Jan. 1, 2015, Illinois’ rate dropped to 7.75 from 9.5 percent.)

But all that glitters is not necessarily gold. Jobs data show Indiana has a higher rate of growth in lower-end manufacturing compared with Illinois. This, experts say, means Indiana’s strategy may be appealing to companies that are footloose—but also low-wage and low-innovation.

“In some ways, it’s the easy way out,” says Howard Wial, executive director at the Center for Urban Economic Development at the University of Illinois at Chicago and a Brookings Institution fellow. “They can say they have attracted jobs. They have healthy job growth. But you have to look at the quality of jobs.” The problem with this strategy, Wial says, “is there is always someone who can beat them in a race to the bottom.” Texas and China come to mind, he adds.

Asked to respond, Smith says Indiana wages have been going up, averaging $20.17 an hour, according to the latest state figures. “We’re like, bring it on!” he says of the naysayers. (The most recent data from the Bureau of Labor Statistics, from May 2013, show Indiana’s average hourly wage is $19.61 and Illinois’ is $22.92.)

Indiana Gov. Mike Pence recognizes 16 manufacturers that will create 2,100 new jobs in his state over the next several years. Joining him at the press conference Dec. 18 are lawmakers, business owners and executives.
Indiana Gov. Mike Pence recognizes 16 manufacturers that will create 2,100 new jobs in his state over the next several years. Joining him at the press conference Dec. 18 are lawmakers, business owners and executives.
The recent example of food equipment maker AM Manufacturing could support either side in that argument. Exploring a move to Indiana, the company hit a snag that ostensibly rewarded sheer numbers of jobs over their quality. Mark Van Drunen, AM’s engineering and production manager, says his 35-employee company fell short of the 50-person requirement for certain tax credits, despite wages averaging more than $20 an hour.

“I made the argument that I am not bringing 50 minimum-wage employees—I am bringing 30 higher-quality jobs,” he says. In the end, his argument worked. Last fall, with $400,000 in tax incentives, AM moved its factory from south suburban Dolton about 5 miles southeast to Munster.

What’s more, Indiana’s personal income tax is not as low as it appears, even with a planned 5 percent reduction by 2017. While the state levy is only 3.4 percent compared with Illinois’ 3.75 percent, factoring in local income taxes can make it nearly equal, if not higher, depending on the county.

Smith, a former manufacturing company executive, likes to say Indiana has “a good story to tell” and “armed with the facts,” companies will “make the right decision.” In other words, because Illinois hasn’t gotten its fiscal act together—high debt, exploding pension costs and past increases in personal income taxes—Indiana is going to show folks what they’re missing. “Indiana just needs a bigger megaphone” is a phrase Smith comes back to again and again.

As head of the Indiana Economic Development Corp., a public-private company with about 60 employees and a budget of $75 million, Smith regularly logs 50,000 miles a quarter on the road. Once a month, he travels to Chicago, often in his state-issued Toyota Sequoia, to meet with companies and sell them on his state. Smith earns $162,999.98 a year, according to a state-maintained database of Indiana public-sector employees. On a mission to spread the word about Indiana, Pence and Smith rang in the new year in Israel, and they plan to go to Brazil this year.

SOFTENING THE TONE

Kelly Harrington Nicholl, head of marketing at the development corporation since 2009, is the woman behind Indiana’s most memorably catty catchphrases: “Illinoyed” and “Stillinoyed.” But after years of poking fun at its fiscally challenged neighbor, Indiana is about to soften its tone. “We’re not going to beat up on Chicago anymore,” Smith says.

This means that a cluster of billboards along I-90 cautioning northbound drivers that higher taxes lie ahead will come down soon, Nicholl says. “It’s time to play nice,” she says. She declines to say whether Illinois’ newly elected Republican governor, Bruce Rauner, has anything to do with it. “There is a sunset to everything.”

Nicholl, 52, says she and her three-person team, comprising a copy writer, graphic designer and events coordinator, do 95 percent of Indiana’s marketing—from coining the catchphrases that line Smith’s office to buying the ad space. “We operate like a mini ad agency,” she says. She declines to give specific spending numbers except to say that Smith has raised her budget since becoming commerce secretary.

Despite Indiana’s bravado, the number of state-to-state moves are increasing in both directions, according to an analysis of preliminary data by the Chicago Metropolitan Agency for Planning. The data, supplied by New Jersey-based research firm Dun & Bradstreet, show 70 companies in Illinois relocated their entire business or branches of their business to Indiana in 2013, up from 40 in 2012. During the same period, 48 companies in Indiana moved all or portions of their businesses to Illinois, up from 39 in 2012.

It’s important, too, to consider the size of each state’s economy, experts say. About 5.8 million people worked in Illinois in 2013, compared with 2.9 million in Indiana, according to the Federal Bureau of Labor Statistics. Census data show in 2012 roughly 29,300 new businesses formed in Illinois, compared with about 12,700 in Indiana. And Chicago pulled in more corporate investment projects than any metro area in the U.S. in 2013, according to Site Selection Magazine.

While Indiana’s job growth is outpacing Illinois’, “things are mostly moving in the same direction,” UIC’s Wial says. “Indiana is just growing . . . from a smaller base.”

‘ALL GROWN UP’

Following the press conference, Smith and Pence stop by a local television station to talk up Indiana’s record year, which includes a commitment of $4.4 billion in corporate investment over the next five years, up from $2.63 billion in 2013. Afterward, they head to a tour of Elanco, a division of pharmaceutical giant Eli Lilly specializing in products for animal wellness. Elanco is about to spend $13 million building a vaccine research center. The lab, opening in early 2016, will be 48,000 square feet and employ 75 scientists with annual salaries averaging roughly $60,000. Smith grins. “This is the old farm all grown up,” he says.

While Smith admits companies might move to Indiana without the snarky billboards and print ads, he says the efforts of his team work as a catalyst. “It’s like throwing Miracle-Gro on a plant that is already going to grow,” he says.

As Smith and the governor head out, Pence stops to recall a recent conversation with Rauner. “I told him, ‘As near as I can tell, the only person talking more about Indiana’s economic record for the last year than me was Bruce Rauner.’ “

Do you expect to overpay on your lease?

US companies occupying industrial real estate, listen up!   The market has pivoted to a Landlord’s market, that means you will pay more.   Taking on this market without proper representation, well why not just tie a steak around your neck and walk into a Lion’s den…you’re dead meat.

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Chicago stats:

Unemployment is down to 6.2%

Vacancy rate has decreased to 8.2%, lowest since 2001!

15 million square feet is under construction!

This data tells us there are more people employed, the amount of available space is lowest since 2001, and developers can’t build enough space to meet demand (or to feed their performas).  What does it all mean? Asking prices are up and incentives are down like free rent, large tenant improvement dollars, and risk diversion, you are in a Landlord’s market… expect to pay more.

But you don’t have to.  Embrace the approach of creating a competitive atmosphere where multiple buildings are being seriously considered you should be able to compress the rental rate and get some concessions from Landlords. Consider the vacancy rate of 8.2% it reflects nearly 90 million square feet of available space in Chicago metro!

If you have a renewal or are considering a new location:

  • Engage a real estate professional who has access to on and off market properties
  • Go see everything. You may not have 10 options, but there should be three or four and you need to leverage them.
  • Give yourself time, 9-12 months before your back is against the wall.

This is nothing new, but its never been more important.

Iconic Chicago hot dog company is moving its HQ

Vienna Beef the legendary Chicago hot dog and sausage manufacturer is moving to a new facility in Chicago. They happen to be down the street from my house. It makes sense that they relocate, we’ll be sad to see them go, but  so happy they they are staying in the city!! Click here to to see full article.

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Data indicates strong activity in industrial real estate market

From CoStar’s 2014 Mid-Year Report.
The Chicago Industrial market ended the second quarter
2014 with a vacancy rate of 8.5%. The vacancy rate was
down over the previous quarter, with net absorption
totaling positive 2,303,618 square feet in the second quarter.
Vacant sublease space increased in the quarter, ending the
quarter at 1,416,465 square feet. Rental rates ended the second
quarter at $5.23, an increase over the previous quarter. A
total of five buildings delivered to the market in the quarter
totaling 1,708,735 square feet, with 7,721,186 square feet still
under construction at the end of the quarter.
Absorption
Net absorption for the overall Chicago Industrial market
was positive 2,303,618 square feet in the second quarter 2014.
That compares to positive 327,193 square feet in the first quarter
2014, positive 6,177,633 square feet in the fourth quarter
2013, and positive 1,375,931 square feet in the third quarter
2013

.ship data
Tenants moving out of large blocks of space in 2014
include: Quantum Foods, LLC moving out of (269,591) square
feet at 550 W North Frontage Rd, Silgan Containers moving
out of (187,850) square feet at 1191 Lake Ave and Channel
Distribution moving out of (165,762) square feet at CMD
Business Park.
Tenants moving into large blocks of space in 2014 include:
Pactiv Corporation moving into 898,560 square feet at
Pinnacle Business Center, Ferrara Candy Company moving into
747,152 square feet at Carlow Corporate Center, and Midwest
Warehouse & Distribution System moving into 650,494 square
feet at Carlow Corporate Center.
The Flex building market recorded net absorption of positive
84,263 square feet in the second quarter 2014, compared
to positive 287,109 square feet in the first quarter 2014, positive
54,574 in the fourth quarter 2013, and positive 212,314 in the
third quarter 2013.
The Warehouse building market recorded net absorption
of positive 2,219,355 square feet in the second quarter 2014
compared to positive 40,084 square feet in the first quarter
2014, positive 6,123,059 in the fourth quarter 2013, and positive
1,163,617 in the third quarter 2013.
Vacancy
The Industrial vacancy rate in the Chicago market area
decreased to 8.5% at the end of the second quarter 2014. The
vacancy rate was 8.7% at the end of the first quarter 2014,
8.7% at the end of the fourth quarter 2013, and 9.0% at the
end of the third quarter 2013.
Flex projects reported a vacancy rate of 12.1% at the end
of the second quarter 2014, 11.9% at the end of the first quarter
2014, 12.3% at the end of the fourth quarter 2013, and 12.4% at
the end of the third quarter 2013.
Warehouse projects reported a vacancy rate of 8.3% at
the end of the second quarter 2014, 8.5% at the end of first
quarter 2014, 8.4% at the end of the fourth quarter 2013, and
8.8% at the end of the third quarter 2013.Rental Rates
The average quoted asking rental rate for available
Industrial space was $5.23 per square foot per year at the end
of the second quarter 2014 in the Chicago market area. This
represented a 1.0% increase in quoted rental rates from the
end of the first quarter 2014, when rents were reported at $5.18
per square foot.
Rental rates
The average quoted rate within the Flex sector was $10.31
per square foot at the end of the second quarter 2014, while
Warehouse rates stood at $4.91. At the end of the first quarter
2014, Flex rates were $10.33 per square foot, and Warehouse
rates were $4.87.accounting for 276,031,840 square feet of Industrial
space.
ServeAttachment-3.ashx

Sales Activity
Tallying industrial building sales of 15,000 square feet
or larger, Chicago industrial sales figures fell during the first
quarter 2014 in terms of dollar volume compared to the fourth
quarter of 2013.
In the first quarter, 91 industrial transactions closed
with a total volume of $539,789,301. The 91 buildings totaled
13,210,857 square feet and the average price per square foot
equated to $40.86 per square foot. That compares to 154
transactions totaling $637,990,562 in the fourth quarter. The
total square footage was 15,821,506 for an average price per
square foot of $40.32.
Total year-to-date industrial building sales activity in 2014
is up compared to the previous year. In the first three months
of 2014, the market saw 91 industrial sales transactions with
a total volume of $539,789,301. The price per square foot has
averaged $40.86 this year. In the first three months of 2013,
the market posted 85 transactions with a total volume of
$232,203,922. The price per square foot averaged $31.84.
Cap rates have been lower in 2014, averaging 7.37%,
compared to the first three months of last year when they
averaged 8.56%.

Culture drives revenue, right?

employees-meeting-1940x900_29876Your Company Culture Can Survive Your Wild Business Success BY 

A positive company culture is often the first casualty of a fast-growing business. Culture expert Paul Spiegelman shares some tips for creating a culture that will grow along with your company.

It’s a common problem facing many fast-growing businesses: How do you maintain the great company culture you had as a young start-up when your company is scaling so rapidly?

Speaking at this year’s Inc. 500|5000 conference, Paul Spiegelman, co-founder of the Inc. Small Giants Community, offered up some insights to that question. It’s a topic he has experience with. Spiegelman grew his business, the Beryl Companies, from three people to 400. After selling it last year to Stericycle, a large public company, Spiegelman stayed on as Chief Culture Officer to tackle the challenge of bringing a positive culture to Stericycle’s more than 14,000 employees. Here are some of the tips he gave attendees on making culture something that can grow along with your business.

1. Make company culture a priority. “Scaling culture is the last thing you’ll have to worry about if you make it the first thing you care about,” says Spiegelman. He suggests instituting a system of processes that makes culture a priority, which will grow naturally with your business as it expands. “No matter what stage you are at, culture needs to be a priority in your business,” says Spiegelman. “It isn’t easy, but there is nothing more fulfilling seeing the impact it makes on the lives of your people.”

2. Never compromise your values. At the heart of any company culture is a core set of values which should never change says Spiegelman. “Use those core values to lead your vision every day. Regardless of whatever other changes your company may face, those values need to remain unchanged.”

3. Don’t tolerate people who aren’t committed. Or, as Spiegelman less delicately puts it, “Get rid of the whiners, losers, and jerks.” Team members that don’t fit into the group can be toxic to a positive culture, so don’t hesistate to get rid of them. “You need to tell your team, ‘We  are on a mission. If you don’t want to be part of that mission, you should go work somewhere else.'” He stressed that once you have made the decision to make culture a priority, then you should have no tolerance for team members who go against that decision.

4. Hire for fit, not skills. There will always be people out there with the skills capable of doing the job. So Spiegelman suggests hiring people that, first and foremost, would work well in your organization. It may take a little longer, but it will pay off in the long term.

The benefits of establishing a strong company culture go beyond just happy employees. Spiegelman stresses that there is a strong correlation between the well-being of your employees and the success of your business. “Happy employees lead to satisfied customers who will want to become loyal customers,” he says. “It all feeds back to the growth and success of your business.”

Link to: Your Company Culture Can Survive Your Wild Business Success | Inc. 5000