Office REIT likes residential

Switch: A major commercial property real estate investment trust finds greener pastures in the hot residential market.

March 17, 2004|By Jamie Smith Hopkins | Jamie Smith Hopkins,SUN STAFF

The last time the office market was this lousy, Manekin LLC made a fleeting foray into residential development.

This time, the Columbia company best known for building, brokering and managing offices says it has branched out for keeps.

Projects in early stages in Harford County, Cecil County, Delaware and Pennsylvania will produce in excess of 3,500 lots over the long haul - more than a decade - for the company to sell to builders.

"Rather than starting small, we're starting large," said Richard Alter, president and chief executive officer of the 150-employee company. "This looks like a good line of business."

Soaring prices for homes and lots are enough to tempt anyone toiling in the currently underappreciated office sector.

Sale prices for homes in the Baltimore region rose by 15 percent last year, the Maryland Association of Realtors said. Profits from offices, on the other hand, are being dampened by vacancy rates hovering around 14 percent in the metropolitan area, according to CoStar Group Inc. - worse even than in 2002 and 2001.

"What had been our bread and butter business ... has been in a 30-month trough," Alter said.

The vast majority of the publicly traded real estate investment trusts stick to one thing. But Manekin, a private company founded as a brokerage in 1946, is hardly the first to delve into several sectors of development at once.

"If one end of the market takes a hit, you've got something else to fall back on," noted J. William Miller, senior vice president at the commercial real estate firm of NAI KLNB. "It never hurts to be diversified."

The Rouse Co., which is developing Columbia and has its headquarters there, prepares land for every type of building. Greenebaum & Rose Associates, with offices in Baltimore and Washington, is overseeing a large mixed-use community in southern Howard County. The Tower Companies in North Bethesda has worked on office, apartment and retail projects for decades.

Income from rent

"From a business standpoint, the model is the same," said Charles A. Segerman, senior project manager for the Tower Companies. "The income comes from rent."

MIE Properties Inc., a Catonsville company whose one-story flex buildings dot the landscape, also owns about 2 million square feet of retail space.

It also holds a portfolio of about 2 million square feet of multistory offices and is working on three residential projects at the moment, including an 800-unit community in Bowie.

"We look at a piece of land and say, `What would maximize the value?' " said Ed St. John, MIE's president and chief executive officer. "We're not stuck with `what we do.' We do it all."

Manekin is doing more all the time.

Sitting on 1,000 acres

Sitting on 1,000 acres during a weak office market in the late 1980s, the company got some of the land rezoned to residential and sold 500 lots to homebuilders.

At the time, it was an aberration, not a transformation.

Ten years ago, the Rouse Co. gave Manekin the opportunity to develop some retail. It's been only a small part of the company's business since, but it put Manekin on a path back to residential.

To close a Giant Food supermarket deal in Delaware about two years ago, Manekin had to apply for mixed-use zoning that allowed not just the retail but 66 residential lots.

The company's development team figured this wouldn't be a one-time phenomenon.

"Zoning officers and government officials like this planned zoning," Alter said.

Now the company is involved in six residential projects, most with partners.

2,800 home lots

The largest are part of major mixed-use communities: Bulle Rock in Havre de Grace and Bainbridge in Port Deposit.

Alter expects to get at least 2,800 home lots from the two combined, though it will take a while - site development started about a year ago at Bulle Rock and has yet to begin at Bainbridge.

Manekin recently began developing land in Loganville, Pa., for 480 lots, is soon to develop the Delaware property that propelled it into this line of work to begin with and recently added two other properties in Harrisburg and Stewartstown in Pennsylvania that together have space for about 200 lots.

Almost a third of Manekin's business comes from land development. Historically, the lion's share of that development was office-industrial.

That probably won't be the case ever again.

"Going forward, depending on market conditions, you might see 40 percent residential, 50 percent office and 10 percent retail," Alter said.

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