A Publication of WTVP

Maloof Real Estate Company, owned and managed by David M. Maloof and Daniel J. Maloof, recently changed its corporate name to Maloof Commercial Real Estate Company. The change was made to more accurately identify the company with the brokerage and development work with which it is involved, as Peoria’s oldest and exclusively commercial brokerage firm.

Since 1945, the company has specialized in the sale, leasing, and development of many commercial and industrial properties. The firm, first started by Mitchell J. Maloof in 1945, has been successfully developed by his two sons, David and Daniel. This partnership has been responsible for much of Peoria’s commercial and industrial sales and leasing activity, and has been instrumental in the attraction of well over 200 new businesses to the Peoria area.

Your company was founded many years ago by your father, Mitchell Maloof. How and when, as his sons, did you become a part of the business?

Dave: Our father, Mitchell, became active in commercial real estate back in the mid-1940s, when he was approached by some national companies with a presence in Peoria about having a building constructed to rent back to them. It was a new concept at the time in Peoria. The term “developer” hadn’t even been coined in those days. He started building a few small buildings for commercial tenants and was successfully doing so. His business grew as he made more and more contacts. The business was built as a commercial business; it has never dealt in residential real estate.

Dad had an office downtown, right across the street from City Hall, and it became the meeting place for various politicians and businessmen from the downtown business district. He was famous for having a wide variety of peanuts and candy in his office, where people could come and converse. He loved people, and had a real talent for being able to put someone with a particular real estate need together with a property that could satisfy their requirements.

After I graduated from Creighton University in 1972, I joined the business. I had a choice of either going to law school or going to work for my father, and I decided to do the latter. It proved to be a good move for me.

Dan: I then joined the business in 1982, ten years after Dave. I had been going to school in Arizona, but had worked commercial construction through my father’s company. My work had given me a great background in how buildings were built, managed and owned. It just seemed like a natural transition to come back into the family business. With Dad getting up in years, we knew that to continue to grow, we would have to make further inroads into the market and keep up with the trends within the industry. It was a good opportunity for me.

Dave: Dad was a great teacher. We couldn’t’ have asked for anyone better. He was always willing to teach us the trade, and not do everything himself.

At one point, our uncle Jim Maloof, who of course is not the Mayor of Peoria, was in my Dad’s real estate office, where he ran a residential real estate business, until such time as he outgrew his small office and established his own residential real estate company about 25 years ago. Today, he is primarily a residential real estate broker, while we have specialized exclusively in commercial and industrial real estate.

What are the ramifications for your business of having two real estate companies in Peoria by the name of Maloof – Jim Maloof Realtor, dealing primarily in residential real estate, and Maloof Real Estate Company, dealing strictly in commercial real estate? There must be ample opportunity for confusion in people’s minds about the two companies. Has this ever posed a problem?

Dave: There is no relationship between the two companies other than the name Maloof. But we recently took a poll, asking a number of individuals questions regarding their impression of the differences or similarities between the two companies. We found out that many people mistakenly thought the two companies were the same, and that Maloof Real Estates Company could have been a division of Jim Maloof Realtor. Because of that, we thought it was really time to establish a clearer distinction between the two companies. We have recently changed our corporate name to Maloof Commercial Real Estate Company. This clearly distinguishes the kind of work that we do from the residential business of Jim Maloof Realtor. We are exclusively a commercial and industrial brokerage and development company.

Do you ever get calls from people wanted to buy a house?

Dan: We probably get three or four calls a day regarding residential real estate. We simply give the phone number of Jim Maloof Realtor to these callers, as a matter of courtesy.

Do callers sometimes contact Jim Maloof Realtor when they intend to inquire about commercial property offered by your company?

Dave: Yes. Jim has had to instruct his residential real estate salesmen that, when calls come in because of our signs, those calls should be referred directly to us. He has had some success in being able to educate his residential salesmen about that. There have sometimes been mistakes made when someone calls directory assistance; depending on the operator, they may be given Jim’s number instead of ours.

So the commercial real estate market is totally distinct from residential real estate?

Dan: Yes. There is a vast difference in the level of expertise and understanding necessary to handle commercial properties. Like so many areas today, specialization is critical to get the desired results. To illustrate, if you were to talk about Peoria real estate with any of the national commercial brokers in Chicago, St. Louis, or Indianapolis, the first name they will think of is our company, Maloof Real Estate Company, as far as the downstate Illinois commercial market is concerned. We work with these national brokers on a daily basis.

We are a member of New America Network, a national referral company with over 2,000 affiliated brokers in 145 markets throughout the United States and the world. It gives us insight and the ability to offer what is known in the industry as “seamless service.” Clients today, whether regional, national or international, want the ability to work with one company. By joining this network we can offer that in the downstate market we serve.

Dave: For instance, a New America Network Firm in Chicago, St. Louis or Indianapolis may have a national client for whom they need placement in several downstate Illinois cities. Since we have the exclusive market area for New America Network in Peoria, Bloomington, Springfield and Champaign, they would work through us. The Network also helps us market local properties. If a Peoria company wants to dispose of a large warehouse, for example, we will market the property through the Network, where brokers will disclose that property to their clients. New America Network is the country’s largest commercial network, represented by 145 of the nation’s top real estate brokers in major metropolitan areas. It has given us a strong, competitive edge in terms of providing extra marketing abilities to our clients.

Dan: We are also a member of the Industrial Development Research Council. IDRC is essentially the trade organization for corporate America’s real estate departments. Members, including most of the Fortune 500 companies, share information and trends. I believe that Caterpillar Inc. and Maloof Commercial are the only two Peoria member of the IDRC.

In view of the fact that you constantly work with people and companies from Chicago, St. Louis and other major metropolitan markets, what is unique about the Peoria market, a “second-tier” metro market? What are the major trends in Peoria commercial real estate?

Dave: Peoria does not have the kind of property supply you find in Chicago, for instance, where you might have 40 buildings in different locations from which to choose. Peoria is limited, because we are not a central hub for the airlines or for interstate highway exposure. Because of those limitations, we are considered a secondary market, albeit a very strong secondary market.

As a result, Peoria has never been known to be overbuilt, with lots of speculative space. In Chicago, you will find many buildings built simply because there is so much demand and so much population, that the changes of filling the building are greater. The downside risk is if a lot of developers build at the same time, all of a sudden you have a glut of space. We have seen that happen in Chicago over the past few years, and that city is experiencing a very slow absorption rate.
Peoria is a fairly conservative community. The policy of developers and lenders in Peoria has never been one of building a lot of speculative commercial space. Because of that, we don’t’ suffer from significant decline in rental rates or a lot of vacant properties which are tough to fill. Right now, because of the downtown office expansion, there are a lot of choices in the downtown marketplace, but that will be absorbed within five to ten years.

Dan: It’s not all because of supply. Much of it has to do with the office market as a whole. On a national basis, the office market is the slowest growing sector in commercial real estate. It seems like every deal we do lately in the office market is a contraction, not an expansion – as companies retrench in the 1990s. It’s an unfortunate thing, but companies simply do not need as much office space as they used to. They are much more efficient, highly computerized, and much more centralized. That hurts Peoria; because Chicago, St. Louis or Indianapolis is going to get the primary office, and we are going to get the secondary office, in most cases. Also, corporate America today is depending on “outsourcing” much of its “non-core” business to specialized providers.

Do you often find that there is nothing available to fit the needs of a company wanting to locate in Peoria?

Dan: If an existing building cannot be found, it can be built more economically here that anyplace else. However, right now the highest demand we have is for existing buildings simply because it’s quicker, simpler, and more economical than building new ones. We usually don’t have a big problem leasing or selling available space. When space is not available, companies usually decides not to build because it would take too long, or they can find space in a larger market which is just a few hours away from Peoria. That’ sour biggest problem – if they can’t find it in Peoria, they can find it within three hours of Peoria, even though they may have to pay a higher rate.

Right now, we have three 100,000 sq. ft. users looking for space in the industrial sector, and we can’t fill their needs, simply because we have sold or leased every large property left on the market. And, these particular users cannot afford the cost of a new building. But I guess that’s a good problem for us to have.

What are the reasons for the changes in the commercial real estate market in Peoria today versus ten years ago?

Dave: Ten years ago we were just starting to come out of the slump of the early 1980s. Interest rates were high; unemployment was high; very little development was taking place. People were leaving the Peoria marketplace because jobs were not available. We were in a position where the community’s economic welfare was very dependent upon Caterpillar. We did not have many strong service businesses in Peoria.

The last ten years have found Peoria becoming less dependent upon Caterpillar. The service sector has increased. This marketplace has done better recently than many of the close-by metropolitan marketplaces.

Peoria saw significant growth in the late 1980s – growth which has somewhat leveled off in the early 1990s. Although out area is not growing annually by 10-12 percent, we still have good, steady growth. We have a marketplace with a good demand for space, but a limited supply. That creates a healthy environment for our community.

Dan: A decade ago, it was a struggle to survive, with all of the negative things happening in the area. Today, commercial development in Peoria is much more service-oriented and upbeat. Even though Peoria is a secondary market, the retailers, office users and industrial users have realized that secondary markets can have much to offer in terms of sales opportunities, quality of life, and a trained workforce. In the past, many companies wouldn’t even consider secondary markets. If you just drive around Peoria, Bloomington, Champaign and Springfield today, you can see how this has changes over the last ten years. These markets have proven they can support growth in the retail, office and industrial sectors.

What are your observations about how companies outside the area view the labor problems between the United Auto Workers and Caterpillar in Peoria? Do they have a strong negative image?

Dave: There is a negative image. One of the first questions we are often asked is, “How is Caterpillar doing, and how is the relationship with the union?” The second question people will ask is, “What kind of labor force will be available for our business in Peoria?”

Dan: We have to remind people that the labor force in Peoria is not all union. There is a goof work force here, and it is a trained work force. But the perception in the national media is that it is a substantial and growing white collar community here.

We see more and more companies wanting to locate in markets like Peoria simply because the cost of living is lower and the quality of life is better than in a major metro location. That’s a big trend. Nationally, we still have a lot of work to do to overcome the negative labor image, and the current situation isn’t helping things. I would say Peoria’s number one problem, from a regional perspective, is a negative labor image. The second biggest problem is transportation.

Dave: Recently I was showing eight different sites to an 11,000 sq. ft. buffet restaurant operation. One of the questions I was asked was how I felt about the employment perspective, as far as the Peoria are being able to fill 100 jobs, in view of the competition of higher-paying union jobs.

Dan: I was recently with a manager from a telemarketing company interested in the area. We toured about eight office buildings. His main concern was also whether the Tri-County area could supply the company with enough workers for medium-pay wages for two shifts. He was concerned that the community might not be able to support his need for 100-150 employees as quickly as they would be needed. With the help of The Heartland Forum, we were able to convince him it could be done, pointing to companies like Ruppman Marketing, Customer Development Corporation, and Foster Gallagher. I believe he will come back and take another look at the area.

Dave: Peoria has been fortunate in having high wages paid to its union employees, but as a community we cannot depend on that. Over the long haul, we will probably see fewer union jobs in this market. More of these kinds of jobs will head south to areas which are less union-intensive. The Peoria area has added some 7,300 manufacturing jobs since 1987 – 1,300 in 1993 alone – according to the Economic Development Council’s Quarterly Economic Report. Not all of these jobs were union jobs, but that is a large number of jobs and it can tax the available workforce.

Are there any other distinguishing factors about the Peoria area which tend to shape outsiders’ opinion?

Dan: If you compare Peoria to Bloomington, Springfield or Champaign, we have a reputation for being a business center that these other cities do not. They are still considered rural communities by many. When you talk to retailers or industrial people, they don’t mention these cities first; they mention Peoria first. Peoria needs to keep focused on economic development, because these other communities are pro-business and are offering tremendous incentives, hoping to capture some of the available manufacturing, office or retail jobs.

Peoria and Bloomington-Normal are separated by just 30 miles of interstate highway, yet they do not work together. The Twin Cities has experienced rapid growth with the advent of Diamond-Star Motors and the expansion of State Farm. Are you optimistic about the Peoria and Bloomington-Normal communities ever someday working together to benefit the entire region?

Dave: No. I think we are in direct competition with Bloomington-Normal. We have to view some of these other communities as our competitors. We have to do so, because many times a client will look for space in Peoria at the same time they are looking in Bloomington and Springfield. As far as we’re concerned, we have to present Peoria in the best possible light, because we want the client to locate here. We want the jobs in Peoria, even though we do work in other markets. Although we provide services to our clients in those other communities, this is home base for us.

We want to maintain as much of a competitive advantage as we can here in Peoria. That’s why we need our City Council and Peoria County government to be sensitive to business development.

Dan: The rapid retail growth that Bloomington-Normal has experienced is because they never had any real growth previously. Peoria has always had good retail growth and a good central business district, compared to Bloomington. Bloomington-Normal has experienced this growth now because of their highway transportation and because of the expansion of State Farm Insurance. If they didn’t have those things, they wouldn’t have had all of that retail expansion.

Understand, all of those retailers have to be within a certain geographic area for their advertising and transportation needs. In other words, Champaign, Springfield, Bloomington and Peoria are all on one truck-driving circuit. Every one of these cities will eventually get the same retailers, because companies have to consider such things as advertising and transportation costs.

Dave: It may appear at first that one area has a retailer that another doesn’t, but eventually, if it is in Bloomington, for example, if will also end up in Peoria and vice versa.

How hard is it to develop in Peoria, or for companies to relocate to Peoria? Deservedly or otherwise, the city administration has had a reputation of being difficult to work with.

Dave: It’s different today than it was, because the city has had to refine the process and become more in tune with what other major communities have done to streamline the bureaucracy. Peoria is a “big city,” when compared to some surrounding communities. Just as it takes longer to deal in Chicago than it does in Peoria, it takes longer to do a deal in Peoria than it does in East Peoria or Morton. I think Peoria has received a lot of bad press simply because it has a level of government that smaller communities do not have.

The single most important thing Peoria could do to dramatically help development would be to offer additional economic incentives, such as full tax abatements. That has to come from the city and school board, which have to be willing to temporarily give up some funds; approximately half of the real estate taxes collected in Peoria goes to District 150.

Dan: District 150 has been unwilling to forgo – on an enterprise zone, full tax-abatement incentive basis – the majority of the tax bill, compared to surrounding communities. That’s a big stumbling block. It is the first incentive other communities offer on new construction.

Dave: The City of Peoria has made great strides recently to help the development process. They have had meetings with area developers, architects and builders to find a way to streamline the zoning and development process. That was spearheaded by City Councilman Dave Ransburg and the City Planning and Zoning Department. Many needed and requested changes have been implemented by the City.

In the development business, as long as you understand the rules, it’s a fairly simple procedure to get something done within the confines of city government. But, it usually requires the help of trained professionals to aid in the process. It’s those people who don’t understand the rules or haven done it before who face the difficulty.

Dan: The area is doing a good job stimulating development, through the Heartland Partnership and with good financing programs through local lenders. There’s no shortage of funds for projects.

Dave: One of the newer trends in the real estate business is to provide what we call “program management” for clients. When we provide this for a client, we are hired to act as their own in-house Real Estate Department. We will go out and find the site, hire the civil and architectural engineering necessary, help with the financing, help hire the construction company, and provide all of the expertise necessary to get the development done. A lot of businesses today do not want to allocate personnel and time for real estate development. They want to stick to their core business, so they hire someone like us to do that work for them. We are also doing a lot of “tenant representation” whereby a user will employ us to identify, compare, and negotiate locations and leases for their new space requirements.

Do you notice any substantial differences in dealing with the larger, regional banks like First of America, Magna Bank, Bank One, and Commerce Bank; rather than the smaller, local banks bought out by the regional banks?

Dan: I believe it can slow down the development process, since the local banks have to answer to the parent company in some city outside the market. It doesn’t hinder the process, but it is just one more step necessary in reaching a comfort level with a particular project.

Dave: There are also some distinct advantages. I’m no for huge consolidations which result in a limited number of choices, but in this case we have a number of choices of lenders in the Peoria market. The advantage of this whole consolidation scenario is that there are more funds available for a given project; it’s easier to get a larger amount of funds committed to a project than was possible before.

The quality of loans being placed in the Peoria market is dramatically better today as well. That is good, because we are not seeing a lot of high-risk, speculative developments, which could eventually cause the economy to have significant problems. The lenders are not just looking at asset-based financials; they are also looking at income-based financials. In large part, that was not the case in the past.

The banking changes have caused us, in the development business, to add a new level of accountability and professionalism, simply because of the stepped-up requirements now in place.

What is happening in Peoria commercial real estate in the main sectors? Let’s start with office space.

Dan: The suburban office market has limited supply. We are seeing a ten percent of less vacancy rate in the suburban area, from Pioneer Park south to Forrest Hill. I think you will see new office buildings developed, on a build-to-suit basis, on some of the main arteries in late 94 and early 95.

Downtown is a somewhat different story. With the three new buildings and movement by some major tenants, we have seen large blocks of space become available in existing buildings – anywhere from 10,000 to 20,000 sq. ft. Most major leases are ten-year leases with five-year buyout clauses. So the downtown market has a vacancy rate of 20-22 percent. I don’t see much movement taking place in the next 3-5 years, simply because so many companies have already made a move, and because the office sector is the slowest growing sector in the commercial real estate business. Don’t look for a fast absorption rate downtown.

Subsequently, office rates in the downtown area have fallen. You are going to get a much better rate today downtown than in the suburban area.

How do you answer those who say the new buildings downtown have simply translated into companies moving from older to newer buildings, with little net gain to the downtown office sector as a whole?

Dave: To some extend it’s true; there has been a lot of movement downtown from on building to another. These lateral moves really haven’t added employment; they really haven diminished the vacancy rate. There will probably be a ten-year absorption for the three major new buildings downtown.

We are seeing a larger distribution of downtown vacancy. For example, an older building which may have been almost 100 percent occupied may not be 20 percent vacant because of the lateral moves. Because of this, downtown office space has a very competitive pricing structure. Now is a good time for people considering a move to a downtown office to do so, because of the rates.

A bigger concern for building owners is what is referred to as “the virtual office,” where, with new technology, people can now create office space at home, in the car, on a plane, or possible desk space in a customer’s office building. Outsourcing and insourcing are also becoming routine ways for companies to cut office costs.

What is happening in the Peoria retail market?

Dan: Right now, there is a shortage of good retail space. If you drive into any of the major retail centers such as Sheridan Village, Evergreen Square, Metro Centre, Willow Knolls, Mt. Hawley Court, or Northpoint, there are virtually no vacancies. As a result, we predict the area will see some new smaller strip centers being built for specialty shops.

On the other hand, we thing there will be come more major “big box” players – 100,000 to 200,000 sq. ft. retail users – move into the market in late 1994 and 1995. These retailers know, given current trends, that they will be successful here. The most difficult part is finding the right site. Where is the right site going to be in Peoria in the year 2000? There are really only two choices – the western edge and the northern edge of the city.

Although the Peoria area is seeing moderate growth, some wonder how we support all of the new retailers without hurting existing operations. What id your analysis of the situation?

Dave: You will see some of the smaller retailers suffer because of the larger store which have come into the market. On the other hand, all of this new retail activity somehow breeds additional sales in a couple of ways. It creates excitement in the marketplace, causing some people to buy products they may not have bought in the past. Also, as the Peoria retail sector grows, it becomes regional, attracting consumers from the rural areas up to 30 and 40 miles away.

Some smaller stores will have to fine-tune their operations to compete with larger discounters. There is still no substitute for service, however; it will always be an important factor in the retail business. Those companies which provide a high level of service and quality will always be successful in this marketplace, because many people are willing to pay for it.

Where does the industrial and warehousing sector stand?

Dave: The big interest seems to be in “flex space,” where perhaps 10-20 percent of a building may be office space or showroom, with the balance committed to warehousing or light manufacturing. There is a strong demand for that kind of space, from the 5,000 to 25,000 sq. ft. user. There is a shortage of properties in that range; consequently prices have remained strong. Peoria has done very well absorbing all of the vacancies we had in the mid-1980s, when we had approximately 650,000 to 750,000 sq. ft. of vacant industrial space in the Pioneer Park area alone. We’re down to a fraction of that today. Peoria has never been known for the 100,000 sq. ft. and larger buildings, because we are a secondary market.

Dan: As the area’s largest employers outsource more to suppliers and vendors, the industrial real estate market continues to strengthen, because of the importance of suppliers being close to their customers. I think you will see new construction in the industrial sector as well as expansion of existing properties. At the moment, there are virtually no 100,000 sq. ft. buildings available in the Tri-County area.

Dave: We think the industrial sector will remain the strongest commercial real estate sector in the Tri-County, followed by the retail sector and finally, the office sector.

What is your analysis of the planned Heartland Riverfront Development project?

Dave: We don’t think it’s going to be an overnight success. For the most part, downtown development which focuses on retail has never been very successful in any marketplace, with the exception of cities which have had a very strong residential component downtown, like Chicago. St. Louis has some retail centers downtown which have not done very well at all.

Dan: Secondly, riverfront usage is seasonal in Illinois. Combined with the difficulty of downtown retail, riverfront development is a tough sell. We applaud the city for doing something, and we thing the Eckwood Park area and the area just north of the Murray Baker Bridge will be the choice development areas.

Dave: The Bergner’s block downtown is ideal for office development. It would be nice if the City could get involved to attract a major insurance company, for instance, to that block. Perhaps incentives could be offered in terms of rent subsidies, relocation expenses, tax abatement, etc. Downtown Peoria is a service/office-oriented area. If the City could successfully offer large office users incentives to locate downtown, the riverfront development would follow.

Dan: It seems to me that they are putting much emphasis on the riverfront development first, when they should be concentrating on attracting new office users downtown. The focus could be readdressed. In our opinion, the focus should be on relocating companies into the downtown area which will then attract restaurants and entertainment by natural progression. The failed downtown mall project was an example of getting out of the natural development flow. Before you can have retail, you have to have traffic. To generate traffic, you need more companies. Getting people to the downtown area on a commercial basis should come first.

If the Peoria-to-Chicago highway becomes a reality, what effect do you see that having on Peoria area commercial real estate?

Dan: Such a highway would be the most important positive thing that would happen to the Peoria market. If you ask any public warehouser how transportation costs in Peoria compare to other cities in which they have a hub, they will tell you that it is expensive to transport here. It’s the single biggest drawback companies have to relocating to this market. Interstate 74 is not filling the bill for Peoria. A new highway would have a dramatic effect on the market – from retail to industrial to office – spurring a tremendous amount of growth. IBI