Have big institutions, global commercial real estate players, tight lending restrictions, and a crushing recession pushed small, entrepreneurial developers out of the business? I.con panelists conceded, during a session titled “Dissecting the Current Industrial Development Cycle,” that it is becoming more difficult for smaller developers to make deals in many markets.
Paul Earnhart, senior vice president, Lee & Associates, said that the commercial real estate development business has morphed into a global business with global players. John Magness, senior vice president and director with Hillwood Investment Properties’ West Coast office, concurred, stating that “the number of true developers — the people who will go out and buy land and take that risk, go through entitlements, go through construction, and spec[ulatively put up] a building — has shrunken considerably.” Finally, Kim Snyder, president, Southwest Region, Prologis, said that it is becoming increasingly difficult for a small developer to buy or option two or three pieces of property and put up $500,000 deposits on each to hold those properties while securing equity or debt financing and actually constructing a building. “Do two or three of those,” he warned, “and anybody’s checkbook will become depleted.”
Snyder added, however, that there always will be special projects that are perfect for the small developer: “There are always those unique transactions that one person can do with a couple of associates. These are not high-volume or high-leverage type projects; instead, they are the 100,000-square-foot rehab, infill project where it is possible to make $20 or $30 per square foot. I think that business is going to be there,” he concluded.