Capital Region

The year ahead for the Capital Region’s commercial real estate industry

Local expert predicts that the strongest demand for properties and property management projects will be from the light industrial segment
At left, a Bethlehem warehouse is an example of the type of commercial real estate CBRE deals in. At right, Richard Sleasman.
At left, a Bethlehem warehouse is an example of the type of commercial real estate CBRE deals in. At right, Richard Sleasman.

Richard Sleasman, president and managing director of CBRE-Albany, was asked by the Daily Gazette about the economic climate in 2019 for commercial real estate in the greater Capital Region, including the counties of Albany, Schenectady, Rensselaer, Saratoga, Warren, Montgomery and Fulton counties.

CBRE-Albany is the largest commercial real estate brokerage and advisory services company in the greater Capital Region as ranked by the Albany Business Review and based upon gross dollar volume of its transactions of $188 million in 2017. Sleasman is also chairman of the Capital Region Chamber of Commerce. The Siena College graduate lives in Colonie with his wife, Terri, and three sons.

In your opinion, how did the uncertainty and chaos on Wall Street and in Washington, D.C. impact the Capital Region’s economic climate for commercial real estate in 2018? 

I don’t think the political chaos in D.C. matters much at all until it results in clarity, if any, arising from it. The business climate doesn’t pivot quickly or knee jerk react to headlines coming out of Congress or the White House. Businesses react to legislation, laws, regulations, etc. that actually impact them. Certainly the Fed, with its actual or planned direction with interest rates, weighs heavier on business strategy than does a debate about who is appearing before Congress to testify on any one issue. Capital (with an A), as it pertains to the availability and the cost of money to banks and borrowers, is more critical than the Capitol (with an O) to the decision makers leading companies. Our national and regional clients that we service here in the Capital Region are executing one- to three-year strategic plans. Clearly, if legislative or regulatory direction on a state or federal level targets a specific industry, then the impacts could be sooner. An example would might be the Chinese trade wranglings that have immediately hurt many firms in our Capital Region that directly sell to China or source their raw materials from there. The shutdown also impeded those who needed paperwork processed through Federal agencies to conduct business.

Does what happens in Washington really have that much of an impact on the Capital Region? 

Definitely. Although few public companies are based in our region, most of the Fortune 500 have some presence here. They, along with the thousands of local companies of all sizes who conduct business in our backyard, are directly impacted by changes in tax laws, government regulations, transportation funding, minimum wage modifications, etc.

Your company has been involved in some of the biggest commercial real estate projects in the region last year: Dollar General’s 750,000 square foot distribution center in the town of Florida in Montgomery County and the sale of the First Prize Center in Albany, and the Albany Port authority land expansion,  among others. Anything like these big projects coming down the road in 2019 for Albany, Schenectady, Rensselaer, Saratoga, Warren, Montgomery and Fulton counties?

I believe you will see one, if not two, additional big box (>500,000 square feet) warehouse projects announced in 2019. The trending with eCommerce and its need for immediate access to the major markets of the Northeast make our region an interesting logistics play. North Jersey and Lehigh Valley, Pa., are, by far, the dominant light industrial markets in the Northeast. However, due to the lack of buildable and zoned land,  the costs to develop projects there create ever rising lease rates. Our market seems to be seen more and more by site experts as an attractive Plan B. Even 70 miles west of Albany, Tractor Supply has completed a 900,000 square-foot distribution center to service its Northeast stores, while Amazon is proceeding with a 1 million square-foot facility in Rensselaer County. While the I-84 corridor in the Newburgh, N.Y., area  has also experienced good growth, land availability is limited there as well.

The relocation of AYCO from Saratoga to Latham will be a major disruption to the Saratoga office market in 2019 and 2020. Although a smaller market than Albany, Saratoga Springs has for some time been a regional leader in lower vacancy rates and higher rental rates. With little available Class A space in Saratoga, this pending opening caused by AYCO will create opportunity for other businesses currently in the region, or new to it, to identify larger blocks of Class A space to consider in a Saratoga market usually devoid of any larger vacancies.

More from Outlook 2019

What is the overall climate for commercial real estate and large commercial property management projects in our region?

Retail is sluggish at best. Although some sectors, like automotive service and fast gas, are actively seeking locations on well located pad sites and/or in retail strip centers, the big box users and malls are going through transformative times, searching for adaptive re-uses. Examples of large empty retail spaces becoming grocery stores, aquariums, back room offices, fitness complexes, entertainment centers, and so on are redefining retail real estate.

The demand is strongest in the light industrial segment. The very limited inventory in recent years for Class A and better Class B buildings of all sizes has led to an overall sub 5 percent vacancy rate. It also has produced lease rates that are 30 to 40 percent higher than just five-plus years ago. Similarly, the per square foot sale values of these facilities  has risen from the historic range of $30 to $40 per square foot up to $60 plus per square foot. Little new, speculative construction is only making the supply strain worse.

The office market will continue to be generally uneventful as different occupier segments ebb and flow with national trends. Trends with consolidation, centralization, outsourcing, shared work space, hoteling, co-working, etc., all make it hard to predict with any level of certainty. The office vacancy rates in the region have held steady in recent years between 11.5 and 12.5 percent. I strongly believe that the area will become a stronger cluster center for bio-science and pharma. The expansion of Regeneron, the advent of the new state sponsored Wadsworth Labs at the Harriman Campus near Albany, the arrival of Mexico-based Pisa Pharma, etc., will all create greater interest and demand by this industry sector for our region.

Are things getting better or worse? 

I don’t see worse being in the equation at this point. It is certainly possible that a cooling off period will occur in 2020 and 2021 but I don’t see a crash at all. Underlying economic indicators point to a soft landing at worst. Available capital for investment in real estate, equipment and inventory is still very strong and competitive; a very good driver. However, it’s becoming a broken record wherever I go that the shortage of skilled labor may be the single greatest threat to continued expansion. Overall, I’m definitely bullish through 2019.

Which county in the Capital Region is showing the strongest growth: Albany, Saratoga, Rensselaer, Schenectady or Warren?

Interestingly, the long sought-after ideal of a Capital Region, or more recently Tech Valley, has actually produced a very diverse local economy wherein no one county is a singular rising star while the others suffer. Each one has some great success stories to share. People are generally buying into the “singing off the same sheet page” as a region. I do think the Governor’s Consolidated Funding Application (CFA) process has helped unite this region for the common betterment of all.

Which projects are most memorable and important to you?

While I’ve personally brokered many hundreds of transactions involving nearly 9 million square feet, my most memorable deals are more about a difficult challenge presented and conquered for the success of a client. Three come to mind. First Prize Center in Albany tops my list. Over 20 years of on and off marketing, through numerous interested developers and contractors (several shopping centers, nursing home, FedEx, Costco, Walmart, train station), combined with a monster of a building, mixed municipal zonings, and several economic swings made this project a crowning achievement (and a relief) when it finally changed hands for a mixed-use development in 2018. Second may be the tri-party deal involving Pepsi Bottlers, the Regional Food Bank, and Orlev Provisions some years back. Success was achieved by knowing each party had its own unique real estate conundrum and marrying those interests to create three deals under one strategy. It’s hard to get a win-win-win. Lastly, you mentioned the 218 West Yard Road property in Bethlehem. In 1990, we brokered the build to suit lease for then GE Appliances at that location. After GE’s 10 term expired, we leased the building in its entirety to Appleton Papers for a successive 10 years. In more recent years, after Appleton vacated, we brokered leases there with Honeywell and Iron Mountain, leading then to a sale by our California based client to a regional investor. Our office now has it listed for sale again with its current owners out of NYC.

How much is your company involved in property management and how important is that for your bottom line?

We began our property management division just over eight years ago in response to a growing need for servicing properties that lenders and loan servicers had recovered through foreclosure. We’ve built that line of business to managing approximately 1.2 million square feet in the region ranging from institutional ownerships to investor and occupier entities. It is a key part of our three legged stool strategy of services. We can provide to a client a one-stop shop service opportunity: the ability to lease up their property, manage it while leasing, and then, if desired, sell the asset. We would seek to grow the management business by an additional 15-to-20 percent by 2020.

Can you list a couple property management projects CBRE is currently involved in? 

Generally, we don’t publicly reference our managed clients. However, our first major client was a Boston-based industrial investment group that owns a portfolio of warehouses in Fulton County that initially exceeded 800,000 square feet. We’ve been pleased to represent them for the leasing and management since 2011 and have helped them liquidate a few of the properties as well. We have one client that hired us recently to not only manage their four-building, 180,000 square foot campus but to also evaluate existing procedures and replace with a CBRE-Albany best practice model. That transformation not only saved significant costs but greatly enhanced the buildings’ efficiencies and habitation quality for the employees.

You have been with CBRE since 1984 and worked your way up to the top position in the Capital Region. What is your advice to a young person just entering the commercial real estate market?

Vision and perseverance. I’d look for the person who has a tangible level of entrepreneurial spirit, someone who understands that CBRE-Albany may provide a tremendous support system and reputation. However, that person also needs to understand that he or she has to treat his or her own real estate career as a start-up business requiring the same tenacity, drive, vision and hard work as any start-up would bring to the table. Those characteristics and our broad umbrella of support are a home run combination. And despite all the incredible transformations and efficiencies created by technologies, we are still very much a people business, so strong people skills are still paramount to success. By the way, we are looking to add another associate or two in the coming year.

CBRE-Albany is located at 210 Washington Ave. Extension (Suite 201). Sleasman said his company, along with a partner, purchased 210 Washington Avenue Extension in Albany several years ago. “We extensively renovated the property, securing an Energy Star rating in the process, and moved here in early 2017. The company has  15 associates and two others in management, five support staff, and an additional 10 plus in the property management business. We also have four CBRE appraisers that are integrated into our office and provide appraisal work throughout upstate New York,” he said.

More from Outlook 2019

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