The forecasts for commercial real estate haven't been so gloomy in years:
Analysts say most markets are so overbuilt and the recession has taken such a toll that for the next few years, at least, there will be no strong demand for speculative office space. Or shopping centers. Or hotels.
So what does a developer do when there's nothing to develop?
It may not be business as usual, but developers can still make a profit in the '90s by filling market niches where their services are in demand.
Some developers have moved ahead with demand-driven, build-to-suit structures with a high percentage of the space pre-leased. Others are working with banks and other institutional lenders, which need people to manage properties taken over through foreclosures. And some are upgrading older office buildings so they don't lose their tenants to newer structures with more amenities.
Still other developers are seeking to create new types of buildings that will address the needs of the '90s market, which is likely to be dominated by aging baby boomers and affluent senior citizens, two groups with plenty of time for leisure and recreational pursuits.
Others, meanwhile, are scaling down their activities or leaving the real estate business altogether -- at least until the economy regains its strength.
David Cordish is one developer who hasn't given up the search for a new building for the 1990s -- the kind of complex that will attract people and help rejuvenate cities the way the festival marketplace did in the 1980s.
He thinks he may have hit upon the right formula in Houston, where his firm recently was selected by Mayor Kathryn J. Whitmire to convert the former Albert E. Thomas Convention Center to a $30 million entertainment center, tentatively called "Downtown Houston!"
Mr. Cordish, an attorney and former federal housing official during the Carter administration, heads the Cordish Co. of Baltimore. His past projects include Trolley Square in Salt Lake City; Trappers' Alley in Detroit; Rainbow Centre in Niagara Falls, N.Y.; and Charleston Place in South Carolina.
For Houston, Mr. Cordish's goal was to build a complex that will lure people downtown after work and on weekends. He says it will be a step beyond the festival marketplace, with a mixture of shops, restaurants, nightclubs and other forms of live entertainment.
What Houston officials wanted is "a people generator," he said. "They have millions of square feet of office space. But . . . the place just clears out at 6 p.m. There's no place for the conventioneers to go downtown. There's no real reason to come downtown on weekends or at night."
Downtown Houston! will contain many of the same attractions one might find along a suburban strip -- restaurants, bars, entertainment, movies -- except that they will all be under one roof. A scale model of the project makes it look like an elaborate Tinkertoy, with colorful signs and banners signaling the different elements of the project.
As designed by Columbia Design Collective, the two-level complex will be created inside the shell of the 12-year-old convention center, with a pedestrian walkway slicing diagonally through the block-long building.
Plans call for seven restaurants, 11 nightclubs, six shops, a food court, a large performance hall for traveling Broadway shows and a section for high-tech companies to show off their latest products. In addition, there will be a number of interactive, participatory exhibits, including a theater that can simulate the experience of being in an earthquake or riding a roller coaster.
Mr. Cordish describes the complex as something of a cross between Trolley Square, Trapper's Alley, Church Street Station in Orlando, Dallas Alley in Dallas, Pleasure Island in Disney World and the new Two Rodeo Drive shopping center in Beverly Hills -- only larger than any of them.
"It's going to be interactive. It's going to be theater. It's going to be restaurants. It's going to be nightclubs," Mr. Cordish said. "What's mandatory is that people are going to be entertained."
Entertainment is one area where there are still plenty of opportunities for developers in the 1990s, analysts say, because aging baby boomers who will control the market will want more places to go in their spare time.
Second homes, restaurants and specialty retail centers are some of the developments likely to be in demand, according to Robert Frank, managing director of the Real Estate Securities Research Group of Alex. Brown & Sons.
John Hawks, director of strategic research for the DRC Group in Milford, Pa., believes there will be more demand for second homes, resorts, golf course communities and other recreational real estate.
"Baby boomers have been the primary force behind virtually every real estate boom," he said in a recent speech. "Today the leading baby boomer is 45. We must recognize what the real estate needs of a 45- to 54-year-old are. The research is quite clear it is leisure and recreational real estate."
The Cordish Co. plans to start construction in Houston later this year and open its project in late 1992. Mr. Cordish said he believes it's an ideal test site for a new kind of entertainment center because it is one of the largest cities in the country and people there are very forward-thinking.
"Houston is a major-league city," he said. "If this can work in Houston, then you can think about doing this in any of the top 10 or 15 markets in the country, whether it's Baltimore or Washington or Chicago or Los Angeles."
Build to suit
In contrast to Mr. Cordish, the Manekin Corp. has found a way to develop property at far less risk -- by completing "build-to-suit," customized projects.
Manekin's latest project is the North American headquarters of Telemecanique, a French firm that designs and makes switches, circuits and other control devices for machines and other heavy equipment. Based in Westminster since 1985, the firm's North American operation moved about 80 administrative employees last month into a new 60,000-square-foot headquarters at the Owings Mills Corporate Campus, a business park being developed on land owned by the McDonogh School.
A division of Groupe Schneider, Telemecanique is keeping its manufacturing operations in Westminster. But company officials wanted to establish a distinct headquarters to show off products and be closer to Baltimore-Washington International Airport.
After negotiating a land lease with K. S. Sweet Associates, the master planner for McDonogh School, Telemecanique officials asked Manekin to handle details of building the headquarters.
They wanted a two-story structure that could house about 100 employees initially yet provide room for another 100 or so in the future. They also needed a showroom for their products, training facilities with state-of-the-art audiovisual equipment, a laboratory for testing and repairing equipment, as well as spacious dining and conference facilities.
They also had a tight construction timetable that called for construction to begin in mid-1990 and to be completed in time to show clients they were entertaining at the 1991 Preakness. Manekin met the timetable.
Under its agreement, Manekin owns the building and leases it to Telemecanique. Manekin's role was to hire the architect and space planner, to get designs that were acceptable not only to the users but also to the business park, the school and the county; to obtain permits; to hire the general contractor; and to oversee construction.
According to partner William Winstead, Manekin has erected 10 to 15 build-to-suit structures over the past decade. It is winding up work on new offices for a local advertising agency, Trahan, Burden and Charles, at Charles and Chase streets.
For a company such as Manekin, the presence of a strong tenant makes it possible to obtain construction financing for a new building. The fact that it is a corporate headquarters enhances other multitenant projects Manekin has nearby.
"This was a good opportunity," Mr. Winstead said. "We had an excellent working relationship. We're certainly looking to do more of this."
It worked out well for Telemecanique, too, according to Vice President Patrice de Gail. "The cost is practically the same, and we have something that suits us very well."
Other firms are rehabilitating existing projects in lieu of new development.
For years, Carl and Edward Julio have been among the most respected office developers in Baltimore County, with a number of successful projects built from scratch. In 1987 they expanded their holdings by acquiring the massive Executive Plazas office complex in Hunt Valley -- and that set them on a new direction.
Completed in the early 1970s, the Executive Plazas complex is one of the largest in Hunt Valley, with four office towers and a total of 525,000 square feet of space. But except for its size, there was very little to differentiate it from other office buildings nearby.
The Julios have worked to retain tenants and to attract new ones by making the complex more attractive physically and by adding programs and services, according to consultant Mel Herzberger Jr.
In recent years, Mr. Herzberger said, the current owners have spent $3 million to remodel the common areas and to add a series of shops and services in the Underground, the lower-level center that connects the office towers. The Underground includes restaurants, a post office, copy center, dry cleaner, bank, medical center, optician, beauty shop and the most recent addition, an art gallery. It also includes a local branch of Catonsville Community College, as well as facilities suitable for business meetings.
This year, the developers are sponsoring a series of outdoor events at lunchtime, including a flower show, a jazz performance, a concert by the Peabody String Quartet and a Texas-style barbecue.
Their building has been the site of a blood bank, a Toys for Tots drive and a letter-writing campaign to soldiers in the Persian Gulf war.
By adding more services and amenities, Mr. Herzberger said, the owners have helped a once-sterile suburban office building compete with buildings in more urban locations, where restaurants and shops of all kinds are within easy walking distance. They also help make employees who work in the building more productive, he said, since office workers will be less likely to get in the car and disappear for an hour or more at lunchtime.
And so far, Mr. Herzberger said, the changes have been instrumental in helping the landlords retain tenants and attract new ones. More than a quarter of the space has been released since the Julios bought the building.
"If ever there is an example of suburban office developers trying to make their building more than four walls, this is it," he said. "The response has been very positive. It's not a sterile environment. It's more like a little city than a suburban office building. And that goes a long way in our negotiations with tenants."
Asset management is another direction in which many developers and brokers are moving. As lending institutions inherit properties through foreclosure sales, they often seek the services of specialists who can turn around troubled buildings.
In recent weeks, the announcements of new asset-management operations have been almost as frequent as the number of buildings that have become the subject of foreclosure proceedings.
Riggs Bank of Washington and Spaulding & Slye Colliers, a Washington real estate company, have begun working together to provide property and asset marketing and management on office buildings in suburban Washington.
The Bank of America has hired Charles Evans, the head of Evans Land Company and former executive vice president of James Rouse's Enterprise Development Co., to be the asset manager and owner's representative of the Brokerage at the Inner Harbor, which the bank acquired in a foreclosure sale in February. Dixon Harvey, another alumnus of Enterprise and Riparius Development Co., recently launched an asset management and property acquisition company called Black Rock Associates.
One of the most aggressive approaches to asset management has come from the BSC Financial Group, a network of local companies that includes Atlantic Auctions Inc.
Chairman Raymond Nichols recently hired two former Trammell Crow Co. employees, Dan Feeney and Paul Bayer, to head up a new division to manage and lease properties for others, BSC Leasing & Management Corp.
As an auctioneer, Mr. Nichols sees a lot of lenders in need of professionals who can manage properties until the economy improves and the properties can be sold for a decent price.
The chief difference between this company and another BSC division that manages properties for the federal and state government, he said, is that it's not trying to liquidate properties but to hold them and improve their value. So far, they are managing four shopping centers, including the Bay Bridge Marketplace and the Festival at Pasadena.
Mr. Nichols isn't surprised that a lot of people are entering the field right now.
"Developers, as they run for cover, are now saying: 'What options do we have?' They now see themselves as capable of doing what we've been doing for the past eight to 10 years, which is working for banks and other institutions in an asset management mode. . . . There are all sorts of companies bidding for work."
But unlike some of the other directions that developers are taking, he said, asset management is not necessarily one that holds many for the long haul.