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It’s a New Year – 2011! – The Babuk Report

It’s a New Year – 2011!

As I keep reminding people, any good Canadian Prairie Kid can tell you that there’s a good three or four days left to celebrate Christmas…

In exchanging Seasons Greetings with my colleagues, the universal response has been something to the effect that “2011 will definitely be better than 2010 because it couldn’t get much worse”.  There are all sorts of dark clouds out there, especially here in the States: an unresolved residential mortgage crisis, a glut of building space in virtually every market sector, perceived tight credit markets…. The list goes on.

Yet, many that I speak to mention that the private sector – in corporations – are sitting on $1.5trillion in cash reserves that sometime soon, under corporate law, they will need to spend.  The three areas the private sector could put these funds towards would be employee bonuses, dividends for shareholders, or capital improvements.  While any of these options will have positive economic ramifications, the latter option – capital improvements – speaks to using money to better one’s ability to compete in the marketplace.

While it was posted some time ago, I still stand by one of my first posts to The Babuk Report “The Rise and Fall of the McMansion and Other Midwestern Housing Trends”, with a couple updates.  As predicted, the era of the mega house has come to an end.  Even the practice of building more and more on the outer limits of existing urbanized development seems precariously endangered – virtually every US city is surrounded by miles of partially developed land packed full with empty building sites and partially completed houses, usually sited along streets finished with pavement and sewer systems.  It all came true.  Here’s what’s next:

While we may have a glut of existing building stock, we are a growing population that will need to be accommodated with building space.

Of the existing space that’s out there, some will simply become obsolete, having lived well beyond its serviceable lifespan.  Without a strong historical or emotional reason to preserve it, this type of building space will be demolished and either replaced with new, or the site vacated.  Entire sections of Detroit are seeing this – it made more sense to abandon entire sections of Detroit: relocate what few residents were left, abandon streets and municipal services, focus on areas with sustainable populations and return the rest of the city to agriculture.

The same may happen to buildings that lack the “location, location, location” mantra of the real estate industry, or are of a highly specific configuration that won’t lend itself to different uses – like trying to stuff a large public space into something with a small structural grid and low ceilings. This too may be replaced.

Of other building space that’s left in good shape, we’ll see more of it being renovated and updated, perhaps even being put to adaptive reuse.  The proposed Children’s Museum at Millennium Park in Chicago is a highly creative adaptive reuse of what would otherwise have been an abandoned parking garage.

Moreover, this development – more appropriately “re-development” will occur in areas that are already part of an established built up area.  As predicted, the areas inside cities closest to convenient public transit are more desirable than others, as the Chicago Tribune reported in an article describing suburban Palatine and it’s Metra Commuter Rail station.

As for financing – there’s money out there to be lent. It’s just that everyone is too squeamish to step up to the plate.

All said, here’s the opportunity: existing buildings and building sites well located inside existing desirable communities, close to transportation.  One might even start considering the sort of municipal debt and local tax burden, that can be discussed in a future post.   Start looking, and remember that there’s still a few days left to celebrate Christmas.