siness sh e- R.J. KING SPECIAL TO THE JEWISH NEWS 111111he combination of a construction and real estate slump both in metro Detroit and across the nation has hurt the economic re- covery, slowed the crew on of new jobs and sapped the wealth of developers to such an extent that some find them- selves building rich, yet "cash poor." Many still are building prop- erties with the help of investors — or other people's money. But these days, the building busi- ness may leave little cash in the pockets of developers, especial- ly if properties are not fully leased and rent money is spent on hefty maintenance costs. The downturns are signifi- cant given that every other eco- nomic recovery over the last 20 years has been helped signifi- cantly by an upturn in com- mercial and office construction. The last recession, combined with the over-building of com- mercial and office space in the 1980s, has pushed the real es- tate industry into its worst de- pression since the 1930s. While most experts don't ex- pect the real estate and con- struction markets to recover anytime soon, the current downturn has created signifi- cant problems for developers, especially those who find them- selves shoveling money into buildings that are not leased to capacity. "The first thing that hurt de- velopers were changes in the (1986) tax laws that served to dry up cash flow and to remove the ability to write off real es- tate losses (on tax forms)," said Michael Horowitz, president of the Selective Group, a real es- tate development firm in Farm- ington Hills. "The financial industry also pulled back from lending to any- one with a hand out. Develop- ers today can't attract capital from banks and they have a dif- ficult time arranging financing. The savings-and-loan crisis also strained the industry, especial- ly as many of the (office) build- ings owned by S&Ls in the south are now up for sale at be- low-market prices." As the cash flow of develop- ers for current or future projects has shriveled, the number of construction jobs in the United States has dropped from 5.1 million in 1988 to 4.5 million last year, according to the Bu- reau of Labor Statistics. In ad- dition, experts project it will take 10 to 13 years to absorb the glut of va- cant office space across the country. Because of the construc- tion industry's ripple effect on related indus- tries, other professions have suffered as well. Among those industries are architecture, building supply and manufac- turers of nails, cement and fur- niture. Another side effect to the slump has been a drop-off in contributions to the Allied Jew- ish Campaign on behalf of area developers (see related story). The real estate business once considered the best way to make money is at its lowest point since the Great Depression. "We've been holding our own since 1990 in the office market, which is actually getting a lit- tle better, but obviously no one is starting any new buildings," said Bob Katzman, vice presi- dent of the Burton Katzman Development Co. in Bingham Farms. "Our family has been in the business for 80 years, so we've learned a few things over the years," Mr. Katzman said. "One of the things we didn't do in the `80s was leverage ourselves to the hilt. Any time there's a re- cession, there's always a shake- out. It's always been the survival of the fittest." One of the secrets to the devel- opment firm's suc- cess has been diversi- fication, said Mr. Katz- man. The company has holdings in in- dustrial, office, residential and retail. Mr. Katzman said the firm also was studying a pub- lic stock offering, but he de- clined to provide further details. Perhaps reflective of the sod- den mood of developers, many declined to be interviewed or did not return phone calls. "What we find is that devel- opers must be rather creative to keep their holdings from falling apart, or if they're in dire straights, from going bankrupt," said Pat O'Keefe, a partner with Conway, MacKenzie & Dun- leavy, a turn-around manage- ment firm in Birmingham that specializes in real estate. "I know developers who have sold off holdings to service debts on other properties." "Our family has been in the business for 80 years, so we've learned a few things over the years." Bob Katzman Another way developers can raise cash, said turn-around specialist James V. McTevia, president of James V. McTevia & Associates, Inc. in Eastpoint, is to take a real estate firm pub- lic. He cited the recent offering of Taubman Centers, Inc. in Bloomfield Hills. The develop- er of Twelve Oaks Mall in Novi, Fairlane Mall in Dearborn, Lakeside Mall in Sterling Heights and Briarwood Mall in Ann Arbor and 15 other such projects across the country sold 26.8 million shares of stock last November. The offering raised $300 mil- lion which billionaire Alfred Taubman's business used to re- structure as a public real estate investment trust and to pay off existing debt. "The best way for us to grow was to become a public compa- ny. This has been under explo- ration by us for the last five to seven years," said Chris Ten- nyson, senior vice president of corporate affairs for Taubman Centers. Other big developers who have sold or have filed in recent months to sell a stake in real es- tate empires to the public in- clude Edward J. DeBartolo of the DeBartolo Realty Corp. in San Francisco, Martin Bucks- baum of General Growth Prop- erties Inc. in New York and Melvin Simon of Simon Prop- erty Group Inc. in Indianapolis. Mr. McTevia said such offer- ings will become more popular in coming years as the sale of stock raises much needed cash, allows developers to maintain control of their properties and provides a means for debtors to clear their slate with lenders.