The Central Maine Business Breakfast on the state of commercial real estate in the region brought together about 30 people Tuesday at the Holocaust and Human Rights Center at the University of Maine at Augusta to talk about the challenges and opportunities in commercial real estate.
Bill Mitchell, owner of GHM Insurance Agency and property investor and developer throughout Waterville; Andrew Silsby, president and chief executive officer of Kennebec Savings Bank; and Kevin Mattson, a commercial real estate developer and investor in northern New England served as the panel of experts.
These are the highlights:
• Developing distressed properties carries with it both costs and risks. Mitchell, who has redeveloped a number of properties, has found that tenants in the Waterville area have been used to paying relatively low rents. Getting prospective tenants to understand why rents on rehabilitated buildings are higher and why that will improve the economics of the city overall will take a process of education over time.
• One of the trends in Augusta real estate is more institutional money coming into the market, Mattson said, which opens up opportunities for developers to turn their properties more quickly. At the same time, the challenge in Augusta is that it’s a tertiary market (relatively small population), so refilling a vacated space is more difficult and can take time. Preparing for that takes planning and capital. Even so, opportunities still exist in the capital city region.
• The emerging cannabis market will have broad effects in the region. Mattson said the existing warehouse space south of Richmond has been leased in competitive bidding wars for marijuana production. But when the rules for the emerging cannabis marketplace are set, the national growers that will engage in production on an industrial scale — 40,000 to 50,000 square feet — they’ll be seeking existing space, including vacant retail spaces. Mitchell said the current use of warehouse space for growing marijuana is causing some demand problems. But it remains an illegal substance at the federal level, and insurance companies are not writing policies on commercial properties leased to a cannabis-related businesses. Silsby said most financial institutions will not finance a property that has a medical or recreational marijuana tenant in it.
• The ongoing shift to buying more and more consumer goods online will have consequences for more than just national retailers. While there is demand for smaller, boutique-style retail spaces, that online shift means developers can be reluctant to make that kind of investment. In downtowns, where developers are renovating upper floors into market-rate apartments, having several smaller retail spaces on the street level that are rented out can offer a measure of security against an economic downturn. Replacing a single larger tenant may leave a space that would be harder and take longer to fill with a tenant of the same size.
• The commercial vacancy rate in the industrial sector in central Maine, like in southern Maine, is practically zero. “That’s almost a crisis in my line of work,” said Keith Luke, Augusta’s deputy director of development services, whose charge is economic development. Those not in the marijuana industry looking to move from a 7,500-square-foot facility to 15,000 to 25,000 square feet find, to their frustration, that nothing is available.
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