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Developing balance

Developers throughout the region have to maintain a tough
balance when it comes to pursuing a project and marketing it at the same time.

Developers throughout the region have to maintain a tough
balance when it comes to pursuing a project and marketing it at the same time.

On one hand, developers want to tell potential tenants and
customers as much about the project as possible. Getting the word out early
helps draw business, some local developers said.

But it’s important to not launch the news too early. If a
property owner finds out a big development company wants to build on their
turf, they will ask for an unreasonable sale price. And if speculators find out
developers are interested in certain tracts, the speculators snatch up the
property first or buy surrounding properties the developer might need. The
speculators then drive up the selling price far above market value, some
developers said.

“It’s a classic problem that in economics classes they call
the free rider problem,” said J. Alex Hartzler, president of WCI Partners, an
urban development group based in Harrisburg.

Hartzler is renovating scores of old, blighted houses in a
portion of the city’s midtown section called Olde Uptown.

Housing revitalization projects such as Olde Uptown require
the acquisition of dozens of properties. Sometimes, speculators find out about
a project early and stand in the way until they get their price. Hartzler has
dealt with this before on midtown Harrisburg projects, he said.

Some big Harrisburg developers buy properties under
different names to avoid speculators, said Mayor Stephen R. Reed. When certain
developers names are affixed to future projects in the city, the price of
properties can go through the roof, he said. Noted Harrisburg developer Vartan
Group Inc. often bought properties under straw names, Reed said.

Reed has worked with many developers on revitalization
efforts in Harrisburg since taking office in 1982. 

There is a cast of characters who make a living from
speculation in the capital city, he said. Their efforts have caused some
development projects to go away, Reed said.

“In some cases if the property is vacant and blighted, the
city can exercise the power of eminent domain to seize title. In some cases it
works, others it doesn’t,” Reed said. “A private buyer has no recourse. They
can either wait them out or simply build around them or abandon the project.”

That is a downside to real estate development, but it also
is a sign of a healthy real estate market in the city, Reed said. When he took
office, the city was devastated and considered the second most-distressed city
in the U.S. He couldn’t give away plots of land for developers to build on. Now
the opposite exists.

To help developers avoid paying exorbitant prices for
properties, Reed has recommendations.

First, they must do their legwork ahead of announcing a
project if they want to make sure they get the property and make it happen,
Reed said.  That doesn’t mean they should
file their land-development plans right away. They should do that after they know
they have the investors and know how to make the project a go.

Despite wanting to ward off speculators and others who want
to stand in the way, one thing still exists. They need to find out how much
interest exists for projects.

Aside from market studies, developers often rely on real
estate agents to gauge a need in the marketplace.

Development group Crossgates Inc. relies on brokers to work
with potential clients. Crossgates is a Washington County-based firm with an
office in Swatara Township that develops business parks and industrial parks.

Gregg A. Schwotzer, president and chief executive officer of
the company, tries to make sure a deal is signed before he attempts any
publicity for a project, he said. The company has developed Dauphin County
business parks, including TecPort Business Center in Swatara Township and
HarrisPort Business Center in Lower Swatara Township. Crossgates also developed
WestPort Business
Center in Lower
Allen Township,
Cumberland County;
and NorthPort Industrial
Park in Union
Township, Lebanon
County.

“If we tell you we have a project, 99 percent of the time we
do,” Schwotzer said. “It’s very difficult because you want people within the
business community aware that you have something. On the flip side, you don’t
want to get too far in front of yourself and not be able to do something.”

Schwotzer said he sees business people throughout the region
pick up an option to buy a piece of property, have drawings drafted before any
approvals are in place, and the projects never get developed.

“In the development community, we call it fishing. They’re
trying to throw bread on the water to see what type of response they get,”
Schwotzer said. “It’s not our style.”

Crossgates works with different real estate groups,
including Wormleysburg, Cumberland County-based NAI CIR, to market projects.

Agent Dan Alderman works with Crossgates. When his clients
ask him to keep projects confidential, he calls people he thinks might be
interested in moving into a building. It’s not often that a deal is kept
confidential. It only happens 10 percent of the time or less, Alderman said.

“Sometimes, we will be marketing the property and the
sellers don’t want to tell the whole world it’s for sale because they don’t
want their customers to get concerned,” Alderman said. So you sit back and say,
‘Who are likely buyers for this and call those companies.’ You don’t put signs
out and market it and put it on the Internet. You are limiting yourself
severely.”

Property owners get harder to negotiate with when a big-box
developer comes in and wants to buy property, Alderman said. They ask more for
their properties because they figure bigger developers can afford it, he said.

But not all property owners are out to bleed developers.
There are instances in which a neighboring property owner will find out about
the residential renewal work Hartzler is doing, and they work to improve their
properties, too, because they believe in what he is doing, he said.

“We have attracted a few people, too, who do good,” Hartzler
said. “That’s the flip side. There are people who live there a long time, and
they are fixing up their houses. There is a negative to it, potentially, and a
positive to it.”

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