The subject was commercial real estate, but on several occasions the speakers found themselves talking about jobs. “Nationally, the commercial space market is in the midst of a solid recovery,” said Randall Mundt, president of Principal Real Estate Investors and featured speaker at the annual Commercial Real Estate Trends & Issues Forum, “but they’re growing slowly and unevenly because job growth, which drives commercial construction, has been uneven.”

Speaking at the April 5 breakfast event at the Renaissance Savery Hotel, Mundt said, “It’s likely that this decade will produce the weakest job growth in the U.S. since the 1950s.”

Panel member Rick Tollakson, president and chief executive officer of Hubbell Realty Co., applied that same theme to the Central Iowa economy. “Our biggest concern is job growth,” said Tollakson, whose company focuses on residential construction. The strength of the local economy does have one downside, he noted: “Because we have low unemployment, companies that think about locating here wonder where they’re going to find enough people to hire.”

Martha Willits, president and CEO of the Greater Des Moines Partnership, moderated the forum; Dan Dutcher, president of Development Services Corp., and Randy Minear, president of Terrus Real Estate Group, completed the panel.

Mundt, whose company covers about 60 U.S. cities in its research, said only about 40 percent of those markets have returned to their employment levels of March 2001. “Des Moines has been back at its peak for quite some time,” he said. “It outperforms much of the U.S. market from the perspective of jobs.”

Though commercial construction is also posting strong numbers, Mundt cautioned that some of the building, particularly in the warehouse and retail categories, is “premature.”

“The capital markets haven’t paid a lot of attention to vacancy rates,” Mundt said, and buyers spent an extraordinary amount of money on real estate in 2004. “The argument in the industry is whether this capital flow to real estate is structural or cyclical,” he said. “I think it’s structural, but it has been turbocharged by recent economic conditions.”

Mundt predicted that real estate will continue to be an active investment area as Baby Boomers begin to retire and look for stable places to invest their nest eggs.

Minear noted that individuals converting undeveloped land and other types of property to commercial real estate has become a bigger part of the Central Iowa market. “There are a lot of 1031 exchanges right now,” he said, referring to an Internal Revenue Service regulation that allows an owner to defer capital gains taxes by using the proceeds from a sale of property to buy another piece of real estate. “That’s a significant driver in our marketplace right now,” Minear said. “Some of those buyers are willing to pay more because they need to find something to buy,” which tends to ratchet prices upward.

Mundt said “tenancy in common” clubs are springing up across the United States in connection with the 1031 exchange concept. “You can put together a pool of people who need a 1031 and buy a building,” he said.

When the subject of downtown housing arose, the well-traveled Mundt said, “There are a lot of downtown housing projects in the cities we cover, and most of it is being done without tax credits.” The common wisdom among developers here is that downtown housing projects are impractical without such credits.

“If you need tax credits to do the project, the supply-and-demand economies aren’t there,” Mundt said. “I would have a concern about whether those projects are economically viable.”

Minear reminded the group “we have to be a little resilient” when it comes to downtown housing. “We’re going to get some level of bad news; some of these projects will miss their price points. But the good news is that the momentum has started.

“If one project doesn’t make it, that’s not a black mark on whether downtown housing can make it,” he said.

Selling the city

Central Iowa may be booming, but it needs to keep working on its national image, according to the speakers at the Commercial Real Estate Trends & Issues Forum.

“It’s difficult to get clients to come here to meet with us,” said Randall Mundt, president of Principal Real Estate Investors. “They want to meet in our Chicago office. But once you get them here, the place really sells itself.”

The up-to-date look of the downtown area, complete with skywalks, and improved shopping options such as Jordan Creek Town Center are important, Mundt said. Also, “I think our public schools are a huge selling point for getting companies and people to move here,” he said.

Hubbell Realty Co. President Rick Tollakson said, “When we recruit potential employees from other places, after we drive them through the Jordan Creek Town Center area, they’re totally impressed.”