The MacKenzie Companies Achieves Record-Setting Year & Projects Return of Investment Sales Activity
Lutherville, MD-based commercial real estate services firm completed more than 850 transactions and 185 separate construction projects to attain highest volume in both categories in company’s 56-year history
The MacKenzie Companies, LLC, a multi-disciplined commercial real estate and construction services group, executed more than 850 separate real estate transactions and completed more than 185 construction projects throughout the greater Maryland, Washington, D.C., and Northern Virginia area in 2023, both of which represent the highest totals in its 56-year corporate history. Despite the continued presence of headwinds related to the use of commercial office space, combined with other economic and geo-political uncertainties, MacKenzie is forecasting a robust upcoming year for the majority of real estate asset classes in the local region, led by a significant rebound in investment sales activity. The Lutherville, Maryland-based group operates six separate commercial real estate services divisions offering a full spectrum of brokerage, asset and property management, debt and equity placement, construction management and market research support for institutional owners, investors, private companies, and individuals.
“We are buoyed by the optimism exhibited by local companies looking to relocate or expand, development groups with renewed plans to initiate construction projects, falling construction pricing, continued vibrancy of the retail industry, and the availability of ready capital among investors seeking to seize new opportunities in the coming year,” stated Brendan O. Gill, President, and Chief Operating Officer of The MacKenzie Companies. “Investment sales activity was significantly muted last year in the face of a rapidly rising interest rate environment, but the Federal Reserve’s signal to lower benchmark rates in the near future has reinvigorated the appetite of both buyers and sellers. The commercial office sector still needs to overcome several on-going challenges related to back-to-work policies, but we believe stabilization in the capital markets and the skirting of the predicted recession will help turn the tide.
“2023 was a tremendously successful year for The MacKenzie Companies and, given the positive forecast for the economy and corporate diversity of the Maryland region, we are guardedly optimistic to continue our business plan in 2024,” Gill added. “Our team continues to rely on our strong real estate and business relationships, problem-solving abilities, and work ethic to achieve record-setting accomplishments that benefit our clients. The enduring fundamentals of the regional economy, expected drop in interest rates, and pent-up demand lingering from the pandemic, provides the foundation for what we expect to be another high-performing pace in 2024.”
The company, which employs more than 200 full-time commercial real estate professionals, hired four new leasing agents in 2023 and well as several additional professionals in the investment sales, construction, and property management, and expects to expand further in the coming year.
Investment sales activity expected to return to normalcy
“For a number of reasons, led by the expected lowering of interest rates, we foresee the dramatic loosening of the investment sales market which was markedly slower, if not completely frozen, during the majority of 2023,” explained J. Scott Wimbrow, President and Principal of MacKenzie Commercial Real Estate Services, the brokerage arm of The MacKenzie Companies.
Wimbrow adds that, “with prices for commercial office assets currently 30 to 50 percent below replacement cost, companies are realizing it makes financial sense to acquire its real estate, build equity and achieve better control of expenses, rather than pay rent and be subject to annual increases in operational expenses. The situation is further improved when the new owner purchases an asset with additional tenants and is income-producing.
“We are entering a once-in-a-generation opportunity to acquire assets in the Baltimore-Washington, D.C. region at pricing we are not likely to see again. An increasing number of companies are recognizing that this window may close by year-end, which is why we are forecasting robust investment sales activity in the coming year.”
Emergence of Industrial Outdoor Storage asset class
Another surging asset class, particularly in the Maryland region, is the Industrial Outdoor Storage (IOS) category. In recent years, IOS has emerged as a valuable piece of the logistics and supply chain, with end-users utilizing the space to store materials that may not need a conventional warehouse. In other instances, trucks and automobiles are placed on the lots while awaiting their next transport to a final destination. The sites typically range from five to 20 acres.
Rising land prices near major ports have priced out some owner and investment groups, causing users to seek suitable acreage in the surrounding counties. Baltimore is a primary destination for roll-on/roll-off cargo, particularly automobiles, trucks, and heavy equipment cargo, and there remains continuing demand for storage sites with immediate proximity
“In response to the robust activity and competition for this asset class, MacKenzie now has a dedicated team of professionals which work to identify sites, match sellers with buyers and arrange financing to bring sales to a successful conclusion,” Wimbrow said.
Companies taking a flight-to-quality approach with office space
As leases expire in the post-pandemic era, companies are placing greater importance on finding buildings that accommodate their hybrid employee workforce, match their corporate image, and provide an advantage to recruit and retain talent. When it comes time to initiate the search for new office space, organizations are increasingly gravitating to amenity-rich buildings which are best suited to capture the attention of employees and increase productivity. As a result, Class B and C buildings, or those in poor locations are struggling to compete.
Diminished occupancies are significantly impacting the value of commercial office buildings when they come to market. A prime example is a recently-sold 16-story, 335,000 square foot office tower in Bethesda, Maryland which is currently 40 percent leased and traded for approximately 22 percent of its last sale in 2019. One South Street, a 479,000 square foot building in downtown Baltimore sold for $24 million last summer after trading for more than $66 million in 2015.
Industrial/warehouse category cooling but optimism persists
Despite the discernable dip in the volume of industrial leasing activity in Maryland last year, owners and investors of this asset class remain optimistic about its long-term prospects. Available land remains at a premium in the Baltimore-Washington, D.C. region, and this is especially true for sites with excellent highway access and visibility. The price generated for the land reflects this scarcity, overall demand, and high barrier to entry for strategically-located sites. Owners of late have become a bit more aggressive in lease negotiations, with an increased amount of rent abatement and the offering of additional tenant improvement dollars.
“With more than 10 million people residing in the fourth-largest Metropolitan Statistical Area encompassing Baltimore and the Nation’s Capital, the warehouse/industrial sector will always play an important role in the regional economy, as reflected by the still low 7.4 percent overall vacancy rate combined with average asking rents hovering in the $10.50 PSF net range. New construction starts have slowed from the frenetic pace experienced during the past three to five years, and this is reflected in the rise of rental rates which have doubled and even tripled in some cases,” stated Wimbrow.
Brick and mortar retail is still in demand
Retail has been the proverbial punching bag over the past several years yet, despite challenges inflicted by the pandemic and the growing popularity of on-line shopping, the national vacancy rate of under 5 percent proves that this sector always finds a way to reinvent itself and thrive. New concepts ranging from fitness boutiques to pickleball to medretail are seemingly standing in line and waiting to seize the next available vacancy from the iconic chain store that may have fallen from grace. There also seems to be an endless supply of new fast-casual and quick service restaurants anxious to enter new markets.
Grocery stores were the shining stars during the pandemic and, although sales volumes have returned to more normal levels in a post-pandemic world, there is no denying that the grocery category remains the most important anchor and that grocery-anchored shopping centers remain the darlings of the investment community.
“Our retail industry is still dominated by food users, but this growth segment should continue to underwrite this specialized economy and provide the strength needed to offset the negative factors in the global economy,” stated Tom Fidler, Executive Vice President and Principal, MacKenzie Retail. “People still want to go out, eat, be entertained and shop.”
“For more than five decades, MacKenzie has concentrated its efforts on providing timely and value-add real estate solutions for businesses and organizations in the middle market, an environment we are extremely comfortable and proficient given its emphasis on local companies and mainstream America,” stated Brendan Gill. “This is an area that did not suffer extensive damage from the recent pandemic, is responsible for 80 percent of the nation’s economy, and one that MacKenzie can offer differentiation from those with a national presence given our focus on local relationships and our ability to remain in touch with members of our community. Maryland offers an extremely diverse business climate and is propelled by the presence of companies serving the medical, education and federal government sectors. Every fundamental is pointing to an active year in 2024.”
