Guest view: Doing deals and redeveloping institutional real estate
Real estate is everywhere.
Categorized into sectors, which include residential, commercial, office, industrial, institutional, and land, real estate isn't liquid like the stock market. Properties in a hot market can flow like water. In a depressed region they can stay still for over a decade.
But what happens when key pieces of large real estate are not moving in a warm market? Say, for example, the former Bishop McDevitt School, or the ultra-prime former William Penn High School, both in Harrisburg. Everybody talks about them. Ideas, visions, economic incentives and community motivation is strong, so what's the hold up?
In a decent market, if a desirable property is not moving, many times it can be attributed to either price (over) or condition (cost to cure), and most likely both. It's possible, that if the price was great and they still aren't moving, then perhaps there is not a strong projection of municipal consumer confidence throughout the region.
In my 18 years of experience as a commercial real estate broker, the ingredients to a successful deal include:
• Great timing
• One's ability to close
• The confidence of all the parties to the transaction
• A tight performance based contract
Dramatically speaking, catastrophic, unforeseen material discoveries and financial setbacks are common with large, complex real estate deals. But what happens when a deal becomes political? What happens when the perfect deal is affected by misguided social media backlash? What happens when $100,000 of copper is stolen while a property is under contract?
Some obstacles are unforeseen. Some obstacles are intentional.
Oddly enough, a real estate deal can live and die, and is brought back to life 10 times before it closes.
What happens when after your deal is finalized you get hit with so much red tape that not only do you lose your American dream, but a whole decade passes since you've settled, and your still vacant, big beautiful property is now rotting away like your net worth? With big redevelopment projects that require private/public partnerships, you better make sure you know what you're doing before you make your initial offer.
To make big redevelopment deals succeed long term, you truly need to be a coalition builder. Being difficult might cost you a year of zoning hurdles, or maybe a waged social media war has pitted your good intentions against boogeyman theories?
A good broker, or astute buyer and partnered seller can forecast these items 10 moves out, but even the greatest deal strategy won't work if the parties lose respect for each other. Sharp, creative instincts and above board professionalism many times can overcome obstacles.
One of the greatest business lessons that I learned in real estate deal making was from the Pennsylvania coal regions.
When I competed statewide and won the exclusive listing for the vacant, bankrupt, 200,000-square-foot, 7-story general hospital in Ashland, I had no idea that what I would learn in selling it would change my perspective on Harrisburg.
What was the lesson? When a municipality, or region is in financial distress, and challenges abound for attracting investment, it all comes down to the right attitude. When the promise of 200 new jobs was on the table for the vacant hospital, and enormous selling challenges existed, the local government mindset was that it needed the jobs and the investment for the advancement of its people versus the mentality of believing that the jobs and the investment needed the government.
Think about that perspective for a moment.
Did you know municipalities compete for business? The buyer for the hospital was looking all over the Eastern seaboard. As someone who loves Harrisburg, and believes its massively vacant usable square feet has the potential to be redeveloped with community support, I wonder if Harrisburg is being as competitive as it could be.
Between the former William Penn and Bishop McDevitt campuses, the immediate Harrisburg zone is sitting on hundreds of thousands of vacant square feet and acreage. The community is crying out for restoration. If everybody got for real, and a credible organization stepped up and redeveloped these parcels, it would have immediate net positive impact on the city's finances.
Occupied square footage equals jobs, an improved city and a path out of Act 47.
In reality, it's not that simple. It takes courage to step into deals like this, because your advertising campaign doesn't end when a contract is ratified. To close these deals, to achieve a successful transaction, you need to develop an "under contract" marketing strategy that includes working side by side with the great people who will be impacted by the endeavor. You need to rebut undue negative social media, you will need to address municipal concerns and you will need to instill confidence in the project as a whole.
Do you think a big campus redevelopment can't get done in Harrisburg? Did you know the city of Harrisburg has one of the greatest, current examples of how two highly reputable partners redeveloped a massively vacant campus spanning several blocks? If it were me, for these vacant schools, I'd want the same ownership style as the guys who purchased the former Polyclinic Hospital, which they successful rebranded as Penn Center. The fruit of their labor is amazing.
The title of this article is about getting tough deals done. Here's the story on the turbulent ebb and flow of selling the former St. Catherine's Medical Center: Listing & selling a former hospital in Chapter 7 bankruptcy.