Four Corners: Why Traverse City’s Most Iconic Downtown Buildings Are All Selling At Once

More and more, 2022 looks like the start of a new chapter for downtown Traverse City. Along with the impending waterfront redesign, plans for Rotary Square and potential new affordable housing within the city limits, many of the city center’s most iconic buildings are hitting the market or changing hands for the first time. times for generations. The ticker sat down with Dan Stiebel of Coldwell Banker Commercial Schmidt Realtors – a real estate professional involved in many of the area’s biggest commercial deals – to discuss what all this activity means for the future of the town centre.

Ticker: It looks like a lot of downtown buildings are on the market, including iconic places like the Beadle Building and the Masonic Building. Overall, are we seeing more commercial real estate activity downtown right now, or does it just seem like it because a lot of the taller buildings are up for sale?

Stiebel: I think we are seeing more activity on the sales front. What has happened is that over the past two years, prices downtown and the demand for space downtown have skyrocketed. The city center is doing well and everyone wants to be there. 15 years ago, everyone only wanted to be on the two main streets of Front Street. If you were a block or two away you wouldn’t get foot traffic and it was actually more of an incubator until you got to one of those two main blocks. But then Bubba’s opened, and then Little Fleet, and I think Little Fleet really brought people to East Front Street and opened up that whole side of town. And now you also have more businesses on West Front, with Barrio opening, and Modern Bird, and Lil Bo changing hands. Thus, the city center as a whole is very strong, and then the main blocks become more popular as the area develops.

I think what’s happening now is that a lot of property owners who have been owners for a long time have seen the values ​​go up and said, “I’m not going to sell; it’s still a good investment!’ But then, for various reasons for different owners, that mindset changed. We definitely peaked in the market, and there was a pullback as interest rates rose. And I think everyone, in all aspects of real estate, said, “I wonder if rising interest rates are going to drive prices down. People didn’t want to miss the peak of the market and had to wait another 10-15 years for it to come back, especially if their goal was to retire at some point in the next 5-10 years. So I think we’ve seen a lot of people go through that thought process and decide that maybe now is the time to put their buildings on the market.

Ticker: Trade sales data from the first and second quarters show trade transactions and dollar value are both up in Traverse City this year compared to the past two years, and the average days on market is falling. Why this additional interest in commercial real estate? And what are we seeing with office spaces, given that many companies are still in remote working mode?

Stiebel: Investors see real estate as an excellent hedge against inflation. They see stock portfolios go down, bond values ​​go down, crypto goes down. Even precious metals, which have always been an excellent hedge against inflation, are down. But real estate continues to rise. So I think it was a godsend. And then residential real estate is more affected by higher interest rates than the commercial market, so the commercial market has benefited from more investors seeing it as a safer place to have their money. As construction costs increase, the value of existing buildings increases, so commercial buildings tend to hold their value or increase in value over time, especially in an inflationary market. The market has been really strong for these reasons.

As for offices specifically, Traverse City still has plenty of vacant space. We are starting to see more activity and more people occupying some of the larger offices. But there is still a large amount of office space available, and I think some of it will eventually be redeveloped and probably turned into housing. This option just makes sense: we have too many offices and not enough housing, and there’s really no reason why many office buildings in the city center can’t be converted into housing, except is that the economy has to work.

The other thing is that right now the small desk is the most popular option. If I had a 10,000 square foot office downtown, converting it to individual offices would probably be the best return on investment right now. There’s just a lot of demand from people who work remotely but want to get out of the house and just need something small. Whether this will persist for the next 10 years remains to be seen.

Ticker: What’s the scoop on the latest sales happening downtown? Again, many major buildings have hit the market lately, including the Masonic Building, Hannah Lay Building, 101 North Park, and more.

Stiebel: Your headline might be “Dan Stiebel Puts Every Corner of Downtown Front Street Under Contract”. It’s kind of crazy, because I always get calls from people who want to buy buildings downtown, and usually I’m like, ‘Okay, I’ll put you a list and maybe something will pop up. ‘here a year or two’. ‘ But right now, all these buildings are leaving at the same time. The Masonic Building is under contract and [the buyers] are in the middle of their due diligence. The Beadle Building, Jack Lane [of Real Estate One] did he put it up for sale, but I just brought in a buyer and we put him under contract; they are starting their due diligence process on this building now. And then on Park Street, the Grand Traverse Pie Company space, it’s a ground floor condominium unit and it’s also under contract. Thus, none of them are officially sold; they are all still available for sale. But we have buyers lined up and expect all three to close within the next two months. And then Boyne Country Sports is another condo unit, used as a 15,000 square foot retail space, and I’ve also been listed for sale, and it’s still available. So if anyone feels like they’ve missed the boat and want to buy one of the best parts of downtown Front Street, I still have one for sale.

The Ticker: What should residents expect for the future of these buildings?

Stiebel: The ones I’m working on right now, I would say only good things; everything the locals want. The tenants [such as the Grand Traverse Pie Co. space] will remain rented to tenants who are there for as long as they want to stay. All buyers are looking to do is earn income and keep tenants. All three buyers are local people with local businesses currently in Traverse. The Masonic buyer plans to one day move his own business to the space, but until then, all of those leases will be honored. And then the Beadle Building, I’ll just say all options are open. What I hear is that the owner of Mackinaw Brewing is planning to retire, so someone could take over, or it could become a different restaurant. But in general, I don’t think we’re going to see a ton of change [in what these buildings are used for].

The Ticker: Earlier this year, news broke that Cherry Republic was buying the Arcade building and making it their new headquarters. Could we see more downtown flagship businesses buying their own buildings, especially with commercial real estate looking like such an attractive investment?

Stiebel: I would say if you can find a building that someone is willing to sell and then own your own location, that gives you long term stability. Because basically you lock in today’s prices and you can stay there for as long as you want. Historically, we’ve had a lot of building owners who owned their own building and business downtown, and that’s why they’ve been able to stay in business, because it really helps them control costs. But there are also quite a few landlords who enjoy owning their downtown building and will continue to rent it out. And especially with landlords who have owned their buildings for a while, they can afford to offer very reasonable rates. Whereas with some of these buildings flipping, there’s really no choice but to raise the rates because the taxes are no longer capped.

For example, with the Masonic Building, the family that owns this building now has owned it for over 50 years. Taxes for the current owner are $20,000 per year; after the sale, it’s going to cost over $100,000 a year. This is a benefit for downtown Traverse City, because all that money goes into the city coffers. But this causes hardship for the new landlord – and therefore for any tenants in the building – as the landlord must find a way to make up for this lost revenue, which means the cost of uncapped taxes is deferred. the tenants. I think buyers and landlords get a lot of blame for buying a building and raising the prices or evicting all the tenants. But that’s not really what I see. Because unless the previous owner wants to sell a building for much less than it’s worth, [this issue with tax uncapping] is going to happen every time a building sells.

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