The news coming out of Detroit continues to be positive as the automotive industry continues to post gains as it proves that it can be competitive in both domestic and international markets. Introductions at the North American Auto Show by the domestic automakers prove that Detroit’s Big Three can produce cars that appeal to the public at large. The 2012 North American Auto Show attracted the highest attendance since 2005.

The Big Three are better integrating their platforms for new cars across their product lines to achieve better fuel economy, efficiencies, build quality and respond to customer demands. General Motors has shown that it can still be king of the hill by taking back the top spot as the largest automobile manufacture from Toyota which it lost in 2008. Celebrations have been muted since Toyota suffered from the earthquake in Japan early last year.

Michigan has benefited from these gains with an unemployment rate drop to 9.3 percent, lowest in more than 3 years. While the sales of existing home in Michigan fell slightly in 2011 while average sales prices rose modestly, there are signs of a second year of stabilization after several years of deep plunges. We are starting to see signs of improvement on the commercial real estate front as absorption rates albeit mild are heading in the right direction while rents in some cases are start to creep up.

As 2012 continues to progress, we are hopeful that the positive news on the automotive and employment front continue to be positive. In the mean time we will enjoy our time in the limelight as Detroit Takes Center Stage!

Sincerely,

Matthew B. Fenster, CCIM, MCR

mfenster@paragoncrs.com

Over the past three years, leasing activity had been greatly reduced from activities seen in previous years. With the collapse of the financial markets, bankruptcies of General Motors, Chrysler and several Tier One auto suppliers; most small, medium and large companies took a wait and see attitude and put off any significant financial decisions for fear of not knowing what might come next. Over the past year, we have seen a resurgence of the automotive industry with Ford, General Motors and Chrysler all showing gains in sales and profitability.

The industrial markets in the suburbs have seen increased activity with automotive suppliers absorbing space to accommodate new contracts. The larger well located buildings have experienced increased interest while activity in smaller buildings is expected to filter down in 2012. 2012 will also see the development of new industrial buildings on a build-to-suit basis; companies who cannot find suitable facilities and will have to opt for a building constructed to fit their requirements.

On the residential front, we are starting to see construction of new housing in the most desirable areas. While construction financing is still hard to come by, the better capitalized builders are able to start construction out of capital reserves. With few spec homes available on the market these builders are hoping to fill a gap albeit a relatively small gap in the market. The best improved lots have also been snapped up by builders: some are even talking about having to go back into the land development business so that they have buildable sites in locations they believe will sell.

As the Southeastern Michigan real estate markets slowly climb out of the recession of the past few years, we are looking at 2012 with cautious optimism. 2012 will prove to be a year of transition as we are in an election year. In the meantime Optimism abounds for 2012!

Sincerely,

Matthew B. Fenster, CCIM, MCR

mfenster@paragoncrs.com

We have all been watching with great interested as the Republican presidential candidates jockey for position to win the Presidential Nomination. They each have their unique tax and employment programs to get our country back on track; albeit some plans are better thought out than others. President Obama delivered his Jobs Plan to congress which only a portion was approved while the Congressional Super Committee has failed to come up with its $1.2 trillion budget on spending cuts. It is clear that our law makers in Washington are having a hard time seeing the forest through the trees!

On the State level, Governor Snyder is pressing forward with his plans and has to make some difficult and unpopular decisions in order to get the State’s budget back on track. There is talk that the State may have to appoint a financial manager for the troubled City of Detroit so that they can get their finances in order. Recently Mayor Bing announced plans to make significant cuts and layoff a large chunk of the City’s workforce to stave off further financial crisis, the City Council responded by saying that the announced cuts were still not enough to balance the City’s budget.

We have seen continued improvement from the automotive sector; Ford, General Motors and Chrysler have all announced new investment and job hires during the past year and based upon its confidence in Chrysler, Fiat has upped its stake in the Auburn Hills manufacturer.   Chrysler’s rebound has been so that it has expanded beyond its headquarters leasing 210,000 square feet at 1075 W. Entrance Drive in Auburn Hills. We are seeing the supplier base follow suit acquiring new facilities either through purchase or lease to fulfill new contracts.

On the other side of the equation, we are still seeing distress in the real estate markets as rents are still far below the levels to support the debt that many buildings need to support. Banks are still very tight with their credit making it hard for owners of commercial real estate to refinance their properties and live to fight another day. It is clear that we are not yet Out of the Woods but hopefully we are walking in the right direction.

I hope you and yours have a Safe, Happy and Healthy Holiday Season and New Year!

Regards

Matthew B. Fenster, CCIM, MCR

mfenster@paragoncrs.com

We are inundated on a constant basis from the numerous media sources and avenues about the state of the economy, status of the S&P 500 and bi-partisan gamesmanship in Washington; all in real time! It’s hard for investors and consumers alike to perceive the economy in a positive light and have any semblance of confidence while consistently being barraged by these news sources.

What we are not hearing are some of the positive aspects of our local economy. Michigan is leading the nation in job growth as the automotive industry continues to recover. Other industries are starting to look seriously at our region due to our highly skilled work force, engineering brain trust and relatively low cost of living and operations compared to other regions across the country.

Many suppliers have job openings for engineers that they are having a hard time filling. General Motors is still planning on adding jobs and just announced the reopening of its former Saturn plan in Spring Hill, Tennessee; the Orion Twp. plant is in the running to add 500 jobs to build a new compact vehicle. Faurecia North America has just announced that it plans to hire 800 employees in engineering, human resources and purchasing in Michigan

On the housing front; sales volume of existing homes continues to modestly improve while new home starts have started in limited quantities and areas; all part of a positive message in the undercurrent of the negative national picture.

Unfortunately these positive aspects of our economy have to live in the shadow of the nation’s larger more problematic issues. Until the general consumer can start to have some confidence with the leadership in Washington and we start to make some headway on the larger more complex issues the economy will continue to flounder because IT’S ALL A MATTER OF PERCEPTION!!!

Regards

Matthew B. Fenster, CCIM, MCR

mfenster@paragoncrs.com

We have seen many lenders take the “extend & pretend” approach to resolving their defaulted loans by extending the terms of the loans, agreeing to forbearance agreements or by not dealing with the situation at hand. In some cases this approach has allowed the owner/borrower to find a replacement tenant or sell the property in order to resolve the situation; in other cases it has prolonged the inevitable.

With default rates on CMBS loans hitting 12.9% during second quarter 2011 and banks following suit, we have not seen the light at the end of the tunnel. There are a significant number of loans with principal balances in excess of the property’s current value; until property values return to their former levels or these loans get resized, we will continue to see the default levels we have grown accustomed to.

While the world economy continues to sputter along, Michigan was third highest in job growth during June behind the much larger economies of California and Texas. This is a direct result of the continued rebound to the domestic automobile industry. Each of Detroit’s Big Three posted Second Quarter profits, Ford $2.4 billion, General Motors $2.5 Billion and Chrysler $320 million and have announce new hiring programs in the past 90 days. This trend does not stop with the automotive industry; Troy based staffing companyKelly Services Inc.reported a jump in revenue and earnings for the second quarter. Kelly reported second quarter revenue of $1.4 billion. This represents a 16 percent increase from $1.2 billion in the second quarter of 2010.

The world’s economies continue to provide concern and uncertainty for consumers and business owners alike. We have seen the economic tsunami hit in 2008/9 and if the World’s economies continue to falter, we will know that THE SECOND WAVE IS COMING!!!

In order to have a true revitalization, Detroit’s business and governmental leaders understand that in addition to attracting business into the City, you have to also grow the population.  Detroit’s population has dipped to under 1 million residents in the past couple of years.  Companies such as Quicken Loans and Compuware Corporation are rolling out incentive programs to their employees to relocate their residences downtown.

In support of these initiatives Troy’s Somerset Collection is bringing high end shopping to Downtown Detroit to be located at Merchants Row on Woodward Avenue throughout the summer.  In order to truly attract residents to the downtown area, basic needs will have to be addressed including grocery stores, public safety and education.  As the City of Detroit continues to struggle with its budget shortfall, public safety and education will be challenging issues.

Quicken Loan’s founder Dan Gilbert has relocated his headquarters into approximately 250,000 square feet in the Compuware Building and has been buying up office properties in Detroit including the First National Building, Chase Tower and the Dime building. His modus operandi has been three fold; first to house operations for his company, second to attract new business to the Central Business District and thirdly smart real estate investing at historically low prices.

The seeds of this activity were sown in the mid-90′s when General Motors purchased the Renaissance Center as a re-commitment to the City of Detroit.  Recently Skidmore Graphic Design along with Blue Cross Blue Shield of Michigan are among companies either relocating or expanding their presence in the City of Detroit.  As we move forward, we hope that the momentum will continue so we can continue to witness the REBIRTH OF A DOWNTOWN!!!

In January, we saw what we believe was the bottom of the real estate markets in terms of values and rental rates while buyers are active on well priced assets that provide an income stream; lenders are starting to cautiously look at lending on commercial real estate investments again.

In February we were able to take heed of the new optimism and enthusiasm coming out of the North American Auto Show while Volkswagen of America announced that it renewed its lease of 338,000 s.f in Auburn Hills furthering its commitment to the area. General Motors announced plans to increase production of the Chevrolet Volt while both Ford and Chrysler announced increased production on certain models and adding shifts to its plants.

March saw Metro Detroit rallying around Chrysler’s battle cry “This is the Motor City and this is what we do!!!” ad campaign that debuted at the Super Bowl while the area proved that it is still a viable area to attract outside investment as evidenced by the acquisition of 1250 Brown Road by California Based Shamrock Capital Advisors and Newton, MA based CommonWealth REIT’s acquisition of 777/789 E. Eisenhower Parkway in Ann Arbor.

As new governor Rick Snyder got down to business in April presenting his new budget for the State which included proposed revised incentive plans and tax credits for companies looking to relocate to Michigan.  We are also starting to see municipalities take a more liberal view of their zoning ordinances in order to help landlords find new uses and tenants for their vacant buildings.

Also during the first half of the year we have seen the auto manufacturing and parts sector add more than 33,000 jobs as profits increase at both Ford and General Motors while Chrysler has repaid $7.5 billion in loans to the U.S. Government.

What will the second half of the year bring us?  The month of May saw a flattening of demand in auto and housing sales, in part due to the increased gas prices. In June we saw Anglo Irish Bank take passion of 1.2 million square foot Baluster Park in Troy from Emmes & Co. which is currently less than 35% occupied. We will continue to see mix messages of both good and not so good news coming out of the real estate markets during the balance of 2011.