Commercial parks on I-380 Corridor seeing a slow thaw
Economy, government uncertainty keeping developers on hold
While some spec development is on the horizon, most new commercial undertakings along the Interstate 380 corridor for the next few years will be good old-fashioned owner-driven projects.
Proving the exception is The Fountains, a commercial development slated for Edgewood Road and Highway 100. Developer Joe Ahmann of Ahmann Design is planning to build nearly a quarter-million square feet of Class-A office and neighborhood retail on one of the city's prime corners.
The Fountains has just one tenant committed as the plans are being made, but Ahmann is hoping to continue the positive momentum from his Boyson Square development in Hiawatha.
Boyson Square is 10 acres of smaller office buildings totaling 130,000 square feet. It has added roughly 90,000 square feet of new office space in the last three and a half years.
Although the market may have enough overall office space, Ahmann believes it could use more Class-A office space, typically the most modern, and priced accordingly. He plans to construct larger office buildings able to handle a larger tenant than his previous projects, or be divided into smaller spaces if needed.
He also thinks the market will embrace a mixed-use development with amenities such as a place to get a hair cut or a new charger cord for the cellphone.
Elsewhere in the Cedar Rapids metropolitan area, the new Tower Commerce Center in Hiawatha built about 3,000 feet of road infrastructure last year. Six lots in the center have been sold in its first two years.
One new building is already going up for Legacy Stone, an early buyer, and Crystal Group, a nearby business, has acquired a lot for expansion.
The action has the attention of developers such as Don Primus of the big Airport Commerce Park near Eastern Iowa Airport. Spurred by more inquiries about lots, he's planning to extend roads next spring that will open about 60 more acres.
Primus is confident some deals will be done in the Cedar Rapids metro area in the next year or so. He just isn't sure where they'll land.
While those are encouraging signs, longtime market observers don't see a new wave of commercial development — and especially speculative development such as that planned by Ahmann — just around the corner.
Ahmann's spec project is "the only one of any significance being kicked around," said commercial real estate specialist Dave Drown of GLD Commercial Real Estate.
Commercial real estate specialist Scott Olson of Skogman Realty sees most of the demand coming from businesses that are ready to build new instead of continuing to lease older space because interest rates are near an all-time low and construction costs are generally favorable.
Some of the businesses are just approaching the end of a lease cycle, Olson said, while many are expanding and would have to move anyway because they need more room.
That pretty well fits the pattern of what developer Jon Dusek, president and CEO of Armstrong Development Co., is seeing at Tower Commerce Center. While some new businesses are moving into the area, more of the market consists of existing businesses ready to own some real estate.
A typical buyer is the owner of a small or medium-sized business who sets up a corporation to develop the project and lease it back to his or her operating company.
Ahmann said his own recent leasing experience at Boyson Square shows there's still plenty of demand for leased commercial space.
What's holding the market back, developers contend, are concerns about whether the economic recovery will be sustained, or if it will be derailed by the failure of Congress and the President to avert the so-called fiscal cliff looming at the end of the year.
"The economy and government uncertainty has really impacted new projects and will continue to do so until Washington has settled down," said Tom Slattery of the 36-acre St. Martin Airport Plaza, located at the northwest corner of the Interstate 380-Wright Brothers Boulevard interchange.
Slattery said he's in serious talks for one project at St. Martin Airport Plaza right now, but has lost two projects to suburban locations in the past 18 months.
Across I-380 at the 128-acre Prairieview Technology Park, developer Jim Sattler also would like to see more activity from prospective buyers. He's in a different boat than Slattery because Prairieview Technology Park is focused almost exclusively on Class-A commercial offices and isn't open to considering retail or light industrial.
Sattler said Coralville, North Liberty and Hiawatha developments have been more fortunate in capturing projects Prairieview would like to land. But even so, it's hard to point to a single project that he could say Prairieview clearly lost.
Developers such as Sattler, Primus, Dusek, Ahmann and Slattery likely will have the front-row seats when the recovery does reach full swing in the Cedar Rapids commercial market. Their projects are within I-380 locations prized by businesses because they provide quick access to the area's key north-south thoroughfare.
"We still think it's a promising area, just as we did when we started," Sattler said.
When the overall economic recovery appears to be clearly on track, developers said, companies have hoarded cash waiting for the right moment.In Dusek's words, "You have companies sitting on hold for three or four years and it's not flood-related. It's economy-related."