By Scott Olson, Skogman Commercial
Since starting a series of annual articles on Cedar Rapids in 2013 after the recovery from the historic floods of 2008 and 2016, I never anticipated the city would be facing an event in 2020 that would reach beyond those levels of flood impact.
Now, the COVID-19 pandemic has given our city new challenges for this year and beyond. Hopefully this is a once-in-a-lifetime health event that, unlike the floods, has impacted nearly every city in the country in many ways. But there is a reason Cedar Rapids was named “All America City” in 2014. Here is why I make that statement.
Scott Olson, Skogman Commercial
In February 2020, SmartAsset.com named Cedar Rapids the No. 2 “Most Recession-Resistant City in America.” Then as the pandemic spread, Business Insider named Cedar Rapids the No. 11 “Top American City to Live in After a Pandemic.” With the historic low interest rates created by the pandemic and a decade-low inventory of listed residential properties, Cedar Rapids was ranked by lendedu.com as the No. 34 city with the most affordable homes in the U.S. That report showed that 96 percent of our homes are affordable for the average household living in the city.
The city’s 2020 fiscal-year budget of $692 million that ended in June anticipated a surplus for the reserves of over $1 million. Even with all the additional costs and loss of sales, as well as hotel/motel gas tax revenues caused by the pandemic, the city ended the year with a $500,000 surplus due to cost savings efforts, and minimal short-term staff layoffs.
In May, Moody’s confirmed the city’s Aa.1 bond rating for general obligation bonds sold for fiscal-year 2021 capital projects by stating the following: Cedar Rapids, Iowa’s (Aa1 stable) credit profile benefits from a large tax base and a strong liquidity and operating reserves. The city serves as a regional economic hub and population center for eastern Iowa (Aaa stable).
The city’s sound financial operations are supported by revenue-raising ability and prudent fiscal management. These strengths are balanced against the city’s debt and pension burden, which are above average compared to peers.
Finally, this solid financial position was reaffirmed by Wallethub.com as Cedar Rapids was ranked the 14th “Best Run City in America.” This analyst study compares cities on financial stability, education, health, safety, economy, infrastructure and pollution. But fiscal strength is not the only attribute of this city. Cedar Rapids was just named the most caring city in Iowa by Insurify 2020 for the highest share of individuals working in altruistic fields statewide, including social work, healthcare, counseling, firefighting, teaching and more.
Even during the pandemic, we have had some great development news. The former 3.5-block site in downtown Cedar Rapids on the west side of the Cedar River, initially a hoped-for-casino site several years ago, is now in negotiation with a group of local developers to create a $90 million to $100 million project called Kingston Landing.
The development partners of Joe Ahmann, Chad Pelley, Nate Kaeting, Matt Swift and the Southgate Cos. plan a wide range of project components. They include a family fun center, a 12- to 14-screen movie theater, Big Grove Brewery, six mixed-use buildings, an outdoor gathering area/public plaza and a 600-car parking structure. The project will be built in phases in 2021 on this city-owned land. It will have a strong riverfront connection. The design will emphasize sustainability and create an impressive image from the elevated I-380.
The second major announcement was the selection of Cedar Rapids by aerospace giant BAE Systems to build a $139 million classified aerospace facility in southwest Cedar Rapids. Based in the United Kingdom, BAE recently purchased the military global positioning system from Collins Aerospace, which is the city’s largest employer.
This 200,000-square-foot office and manufacturing facility, being developed by Ryan Cos., will retain 650 employees already working in the Cedar Rapids and Coralville areas. Construction is slated to begin in October with a planned completion date by the end of 2021. When this facility is completed, it will make this area a major aerospace hub in the country to complement the city’s unparalleled status as a center for many of the world’s leading agricultural companies.
Finally, JRS Pharma LP of Rosenberg, Germany, just announced its fourth expansion since coming to Cedar Rapids in 2004. This $15.9 million investment will create an additional 9,600-square-foot production facility and tank farm plus bring 18 new jobs, many of them exceeding the state’s high-quality job threshold.
Industrial remains active
Despite the COVID-19 pandemic, industrial is by far the most active sector. E-commerce continues to be the driver, but local developers have embraced industrial construction with new facilities for local and national companies, plus speculative space.
The most active area is in southwest Cedar Rapids along I-380 near the Eastern Iowa Airport. Four buildings of 200,000 to 300,000 square feet are under construction as well as 10 other smaller buildings designated as single -user or flex warehousing throughout the metro area. This burst of new buildings, along with several large existing facilities becoming available, has created 1.8 million square feet of space in the active market. This is the most I have ever reported since my Market Overview started in 2001.
Active space in the last year has increased by almost 600,000 square feet. Several existing large buildings entered the market ranging from 81,000 to 190,000 square feet. The average rental rate increased from $5.47 to $5.52 per square foot due to new construction. Cedar Rapids is the manufacturing hub of the state of Iowa, but we have always lacked available spec space to meet quick expansion needs. That problem has been remedied.
The industrial building activity has led to a flurry of land sales for development near the airport for major industrial buildings and future development, including the BAE Systems complex. Large land purchases for undeveloped ground have ranged from $15,000 to $39,000 per acre, with smaller parcels from $1.85 to $3.00 per square foot. This level of activity is unprecedented in our market but bodes well for future industrial projects and high-paying jobs in the city.
Retail activity begins to slow
This is a sector that was already changing due to e-commerce, but the impact on smaller retail businesses from the COVID-19 pandemic will be evident. Many businesses will not reopen after mandated closings followed by the reduced capacity permitted with social distancing. Many new and older retail developments have not seen any inquires except from existing tenants needing rent reductions.
Activity still continues at the new retail center, Edgewood Towne Center in northeast Cedar Rapids, with the completion of a new retail space for Dollar Tree and the start of a new multi-million-dollar Dupaco Credit Union branch. Also completed or under construction adjacent to this area is a Honda dealership and Hilton Garden Inn.
Development at Lindale Mall has been non-existent. The Westdale Mall redevelopment has progressed slowly with four new tenants and a successful apartment complex. Kwik Star is starting construction of three new convenience stores in NE/SW Cedar Rapids. Dollar Tree is also building a facility in northwest Cedar Rapids.
Another rapidly developing area is the east edge of Marion in the new $50 million Squaw Creek Crossing. This 20-acre development includes a Dupaco Credit Union, a retail strip featuring Pancheros Mexican Grill, a Pizza Ranch Fun Zone Arcade, Victory Sports Center, Kwik Star convenience store, a 93-room Hart family hotel and a 72-unit apartment complex.
Active retail space on the market dropped from 1.1 million to 850,111 square feet after the Westdale Mall spec retail space was dropped as an active listing, which totaled 280,000 square feet. Average rental rates decreased slightly to $13.35 per square foot. There were 26 pending and closed retail space leases in the last six months, with many being for small spaces and several were professional office instead of retail use.
Residential development
The metro downtown and surrounding residential area continue to see rapid multifamily and mixed-use development. Projects range from workforce housing to luxury apartments. Compared to many urban markets, our top-end units still rent for a very reasonable $1.25 to $1.50 per square foot per month. Single-family/duplex construction is on pace with 2019 due to the low interest rates, which enable families to upgrade to newly constructed homes. Our area median priced home sales is still only $185,000, which is why Cedar Rapids is ranked the No. 34 city with the most affordable homes in the U.S.
The historic downtown hotel project I wrote about last year has been put on hold until 2021 due to the pandemic, but two new hotels by the airport just opened. One hotel is planned for Marion and a new Hilton Garden Inn in northeast Cedar Rapids is almost complete.
To serve our growth and remain attractive for families, three of our four area school districts have new education facilities under construction.
Assisted living facilities continue to be developed with the Villa’s at Stoney Point, a $25 million, 99-unit project under construction. Construction of Hallmar Village, a 237-unit senior living facility offering independent and assisted living apartments plus long-term care units, is expected to begin next year. The project will include an adjacent innovation center for aging and dementia to be operated by Mercy Medical Center.
Another unique project is the conversion of a vacant historic manufacturing building in northwest Cedar Rapids, Chandler Pump, into Willis Dady Works, a program providing employment services and long-term supportive housing for people experiencing homelessness. This $3 million project will create an employment hub for one-stop workforce training plus direct employment. The upper level will include 14 housing units for individuals or families leaving homelessness.
Office sector in transition
This sector will be the one most impacted by the COVID-19 pandemic as the need for office space will start declining in the future. This will be due to additional office staff working from home, less density in the office layout and a desire of companies to cut their fixed costs for rent and utilities by reducing space.
Many large local and national companies are already downsizing with the success realized over the last five months in their ability to work remotely, which is now more feasible with today’s technology. Several of Cedar Rapids’ downtown companies are not returning to their office until 2021, with many looking to renegotiate less space when their leases expire.
Besides building owners impacted, many small retailers, restaurants, bars and coffee shops located near offices are struggling to survive based on these trends. I am anticipating up to one-third potential reduction of workforce in downtown Cedar Rapids in 2021. These office trends may also lead to a reversal of the number of young professionals and empty-nesters moving into downtown housing in the city cores, due to less workers downtown and the threat of exposure to COVID-19 if the pandemic continues. This pandemic may also cause office design to change from dense workstations and coworking spaces back to traditional office design.
On a positive note, construction has started on one new office building in the Fountains development in northeast Cedar Rapids. This three-story, 33,000-square-foot building developed by the Ahmann Cos. will house the Accel Group, an insurance agency, on the top two floors. The 11,000-square-foot first floor will be available for lease.
Overall, available office space has remained almost the same with 1.04 million square feet on the active market compared with 1.06 million square feet in December 2019. Rental rates stayed steady with an average rate of $11.24 per square foot. The impact of COVID-19 on future office use will become apparent in 2021.
Scott Olson is a real estate broker with Skogman Commercial Group at the Penthouse. The retired architect is also a member of the Cedar Rapids City Council. This article originally appeared in the August 2020 issue of Heartland Real Estate Business magazine.