The Michigan Cardio Vascular Institute building, located in Saginaw, Michigan, is home to the largest group of cardiovascular services in the state and has 25,000 square feet of third floor office space available for lease.

Being a broker in a second- or third-tier city has its challenges. For example, rather than specializing in one property type, most middle market brokers must be versed in handling all property types in their given market.

In addition, companies that are relocating sometimes overlook middle markets for the premier addresses in larger cities. However, smaller cities do have their advantages, such as a higher quality of life, less traffic congestion and a lower cost of living.

Heartland Real Estate Business (HREB) recently spoke with some members of the brokerage and development community to discover their views of smaller markets. They are: Steven Martens, president of Wichita, Kansas-based Grubb & Ellis|Martens Commercial Group; Ken Newcomb Jr., vice president and co-manager of Evansville, Indiana-based F.C. Tucker–Emge Commercial Services Division; Kevin Crowley, COO with West Des Moines, Iowa-based Iowa Realty Commercial; Greg LaMarr, marketing coordinator for Saginaw Future; Bernie Andrews, marketing director for Columbia, Missouri-based Regional Economic Development; and Sunil Puri, president, and Pankaj Mahajan, vice president, of Rockford, Illinois-based First Rockford Group.

HREB: What are the main differences between working as a broker in a smaller market versus a larger market?

Newcomb: The main difference is that most brokers do not have the luxury of specialization in their respective market. While some brokers may concentrate their efforts in a certain segment of the market, most handle all types of transactions due to economic necessity.

LaMarr: As an economic developer, it is easier to have broad-based knowledge of market changes in smaller communities. It is important to have a handle on available properties, industry growth sectors, the community’s mood towards development and public policies supporting investment. In a smaller market, it is possible to understand all of these dynamics, and how they impact new and existing development.

HREB: What does a second- or third-tier city have to offer that a first-tier city does not?

Newcomb: A quality of life that appeals to the majority of people. An area such as Evansville, Indiana, has a high standard of living, low crime [rates], good schools, and you can still buy a nice home, in a good neighborhood, for less than $100,000.

Mahajan: [In] first-tier markets, retailers can have two to three stores whereas a second- or third-tier market can justify only one store. Retailers [sometimes] analyze and look into first-tier markets before they look at a second- or third-tier market, [which can be a disadvantage]. An advantage to working in a second- or third-tier market is that location is not as important to the retailer.

LaMarr: Saginaw and its surrounding communities, unlike large cities, offer the option of the urban experience, rural farmland, small towns and suburban neighborhoods. The area is small enough that residents know their neighbors, but large enough to offer first class healthcare, regional business services, and a variety of recreational and entertainment opportunities.

HREB: What are some of the unique challenges that a broker or developer might face in a smaller market?

Newcomb: Smaller markets require the development of a broad real estate base. They require knowledge and expertise in industrial, sales and leasing, retail, office, and investment market capability. Supply of quality product in a small market is always a problem. While the area we practice in is in a growth mode that we have not seen since post World War II, the supply of product has not kept up with demand.

Mahajan: Some challenges that brokers and developers face include working with city community development departments and land preservationists, and the lack of technological and qualified personnel resources. Brokers contend with the lack of qualified clients for available properties in a smaller marketplace. Tenants sign shorter term leases as they establish the validity of the smaller market, and this trend makes it difficult to amortize improvements over shorter terms.

Crowley: A broker needs to be diversified. While larger markets allow a broker to specialize in a product type or market, a market our size requires a broker to be on top of various product and submarket conditions.

LaMarr: The challenges in small and large cities are similar. However, in second-tier cities, community leaders get their arms around the issues and make a visible, long-lasting impact. In urban areas like Saginaw and Detroit, the challenges facing developers are site acquisition, environmental contamination, title issues and land assembly. In some cases there are also geo-technical challenges, and flood-plain and wetland issues.

HREB: How do you overcome some of these challenges?

Mahajan: By prudent planning, astute knowledge of and interaction with the community as a whole, and a positive attitude toward making the best of the market situations as they are presented on a day-to-day basis. Community networking and strong ethics [also] go a long way in smaller marketplaces. Cost conscious construction combined with a lean operation for a developer is a must.

Crowley: We overcome these challenges by maintaining a comprehensive, in-house database system [that] includes existing inventory in the office, industrial, retail and multifamily market. Office brokers then have areas of specialization and expertise that help them serve the client’s requirements.

LaMarr: Saginaw Future, Saginaw County Chamber of Commerce, Saginaw Neighborhood Renewal Service, the city of Saginaw and private businesses formed a committee and funded an initiative to address these challenges. [For example], the South Washington Improvement Initiative targeted the Washington Avenue (M-13) corridor, along the Saginaw riverfront. Funds are used to acquire properties, clear title and assemble properties large enough for redevelopment. The city of Saginaw [also] used grant funds from the U.S. Environmental Protection Agency to assess environmental conditions, and used other funds for demolition of structures. The effort has served as a national model for urban redevelopment.

HREB: What are some of the draws in your market that may convince a large company to locate there?

Puri: Some of the draws in our market include the availability of blue-collar employees, a comparatively low cost of living, superior access to a myriad of markets via air, freight, rail and parcel services, and the quality of life provided through parks and community services. There are major metropolitan markets within an hour from Rockford, [and the city] has access to six interstates within 45 minutes.

Martens: Wichita is the manufacturing center for the state of Kansas. Our workforce is world class, in their skills, training and work ethic. Wichita offers the amenities of a much larger metropolitan area, but with few of the hassles. [As] the region’s primary medical care provider and home of Wichita State University, Wichita has a lot to offer prospective employers.

Andrews: Columbia boasts a reasonable cost of doing business and a central location with good surface transportation. With three institutions of higher education located in Columbia, the area has an educated workforce with plenty of additional workforce training available to workers.

Lamarr: Saginaw is the largest city in the Saginaw/Bay/Midland county area. Companies look to this region because of proximity to market, transportation access, skilled labor force, affordable housing, first-rate health care and great schools. The Saginaw/Bay/Midland region is home to Dow Chemical, Dow Corning, Delphi and General Motors. It is located on the main artery of Interstate 75 and US 10, and it has port facilities and regional rail service.

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