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In The Wake Of Amazon, Trophy Retail Properties Fall Short

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The retail world is in a state of transition. Over the last few years, several retail giants, including Sears, Kmart, JC Penney, Macy’s, Payless Shoe Source, Radio Shack and The Limited, announced multiple store closures or filed for bankruptcy protection. Overall, the number of retailers with debt rated at Moody’s most distressed level has tripled since 2009 – and Moody’s predicts this list will grow longer over the next five years.

Meanwhile, online retail giant Amazon generated $80 billion in sales in North America alone.

The idea that consumers might one day move away from traditional brick and mortar shops and conduct business primarily online is not new. But online shopping grew more slowly than projected for several years. Now, experts predict we’ve reached the point where the wave of people that have resisted e-commerce thus far may finally be ready to take the leap. Statistics seem to support the fact that we’re reaching critical mass when it comes to online commerce. According to TechCrunch, 79% of U.S. consumers now shop online, up from just 22% in 2000. And Statistasays 217.1 million people in the U.S. are online shoppers, with those figures projected to reach 224 million in 2019.

What will critical mass mean in terms of changes to the market and the retail landscape?

Pros and Cons

E-commerce offers numerous conveniences to consumers – imagine no more getting stuck in traffic jams or standing in long lines at retail establishments, for example. But online shopping is not a panacea. One challenge is all the cardboard required to ship products. CBS News recently reported cardboard recyclers were overwhelmed after 2017 holiday shopping. All that cardboard is a huge recycling challenge. Adding to the challenge is the fact that cardboard recycling is a surprisingly complex undertaking. Much of the recycling process takes place in China. And China is growing less interested in handling U.S. recycling, even at a profit, given the pollution and environmental damage the country’s leaders report they are seeing as a result. China officially banned the import of certain types of plastic waste for recycling purposes on January 1 this year. Cardboard could be next.

There’s also the issue of what to do with all the empty store space as brick and mortar retailers shutter their doors. Iconic brick and mortar retailer Macy’s has closed hundreds of stores over the last several years, leaving some premium retail spaces empty across the country. For example, Macy’s sold its 280,000-square-foot store at Stonestown Galleria in downtown San Francisco in January 2017. Last November, the company sold its 263,000-square-foot men’s store near San Francisco’s Union Square. Five floors had been occupied by the store, with the top three floors used for office space. But when Macy’s West Coast headquarters shut its doors in 2012, the office space was abandoned, and it sat vacant ever since.

Fortunately, there are several groups looking to repurpose those spaces – reimagining them as everything from hotels to workout centers to amusement parks and even affordable housing. But what if there’s too much space to fill too fast? Credit Suisse recently predicted 8,600 brick and mortar store closures in 2017, with more to follow this year. The company also predicted that that about one-fourth of the nation’s 1,100 shopping malls will close by 2022. If there are too many empty buildings to fill the market for those properties – even premium properties – could take a huge hit.

Lower property tax revenues, with no obvious way to replace them, and job losses are additional concerns. Traditional retail employs about 16.5 million Americans, which is almost 10% of the entire workforce. Estimates are that 6.2 million of those jobs are in areas targeted by e-commerce.

Online shopping is also changing how people invest. If you’re like many investors, the e-commerce buzz has not gone unnoticed. Investors are now far more interested in companies like Amazon than in retail behemoths like Sears. Fewer investors makes it even more difficult for those more traditional companies to stay afloat.

Finally, Amazon seems to wield a kind of power that has potential to run unchecked. If the company continues its push into new areas like fashion, medicine, grocery and just about anywhere else it wants to, and if it can do so profitably, dozens more industries could be affected. Unless brick and mortar retailers can adapt, and do so quickly, we could soon see more store closures and even less interest from investors.

Source: Forbes, February 2018

Author: Ryan Wibberly

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Gig Economy Grows Up as Lenders Allow Airbnb Income on Mortgage Applications

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Homeowners soon will be able to count income they earn from Airbnb Inc. rentals on applications for refinance loans.

A new program—expected to be announced on Thursday by Airbnb, mortgage giant Fannie Mae and three big lenders—will allow anyone who has rented out property on Airbnb for a year or longer to count some or all of that money as income.

Refinancing can be a way for a homeowner to tap home equity for renovations, college tuition or other big expenses, or to reduce their monthly payments.

Lenders have been tougher on income from side businesses and part-time work since the mid-2000s, when poorly documented income claims on mortgage applications helped fuel the housing bubble.

Airbnb, which launched in 2008, argues that its service includes reliable technology to track income, and that it is helping middle-class Americans stay in their homes by giving them a way to generate additional cash.

“The whole big idea behind Airbnb … was how could people unleash or capture the value of the home that they were in. Typically it’s the greatest expense for any family,” said Chris Lehane, head of global policy and public affairs for Airbnb. “I do think this announcement is a next chapter in that process.”

The mortgages will be backed by Fannie Mae, an acknowledgment that Americans today increasingly are earning money through the “gig economy,” such as renting out rooms or ride-sharing.

Initially, three lenders, Quicken Loans, Citizens Bank and Better Mortgage, will participate in the program. Fannie will evaluate the initiative and could decide over time to back mortgages from any lender that chooses to count Airbnb income in a refinancing, as long as the short-term rentals aren’t against local laws.

“Rental income on your own home is something that 10 years ago we almost never saw,” said Jonathan Lawless, vice president of customer solutions at Fannie Mae. “The fact is that we’re seeing this much more commonly across the country.”

Still, the move raises worries about encouraging homeowners to borrow more based on the unpredictable tourism industry.

“I think it’s a concern in terms of volatility, but I also think you don’t want to say absolutely not because it’s the future of work,” said Dan Immergluck, a professor at the Urban Studies Institute at Georgia State University, who studies the housing market, mortgage finance and foreclosures.

Airbnb has faced a host of regulatory challenges around the country. It has encountered stiff pushback from tenant advocates, for example, who argue it is exacerbating the housing shortage and driving up rents.

So far most of the scrutiny has focused on rental apartments and homes that are converted to full-time vacation rentals, with regulators generally tolerating homeowners renting out a primary residence.

There is a risk that could change. “If you’re in a place where it’s booming, but a year from now they’re going to clamp down on it,” that could jeopardize income generated from Airbnb, Mr. Immergluck said.

Executives at the three lenders said one crucial difference between the housing bubble and today is technology, which makes it easy to keep track of how much income homeowners are earning from Airbnb.

Jay Farner, chief executive of Quicken Loans, said technology allows lenders to gather reliable income data directly from Airbnb.

“If you were collecting rental income, in some cases you didn’t have to show it. In other cases you provided handwritten tax returns. Today, data allows us to see the real patterns,” Mr. Farner said.

He added the company has seen demand from homeowners who have been renting a room out on Airbnb and want to refinance and use the money to upgrade the guest quarters.

Vishal Garg, chief executive of Better Mortgage, said the program could be useful for empty nesters who rent out their children’s bedrooms and refinance to help pay for college tuition.

Mr. Lawless of Fannie Mae said Airbnb gives homeowners greater flexibility to cope with unexpected financial hardships.

“I can just increase the number of days that I’m renting out this room and increase my income,” he said.

Source: The Wall Street Journal

Author: Laura Kusisto

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A Skyscraper Made of Wood? Newark Developers Give It a Try

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In the contest to attract office tenants, many developers stick with the tried-and-true combination of concrete, steel and gleaming glass.

Lotus Equity Group is embracing a more natural material: wood.

The Manhattan developer said it is planning an 11-story Newark office building made with a wood structure for Riverfront Square, its 4.8 million-square-foot mixed-use development proposed on the site of the former Newark Bears and Eagles Riverfront Stadium and the old Lincoln Motel.

Designed by Michael Green Architecture, the building would rise like steps in three sections, ascending from six to eight and then 11 stories. When completed, the 500,000-square-foot tower would be among the largest buildings with a structure made of modern engineered wood in the U.S., building experts said.

Over the past decade or so more architects, engineers and developers have been exploring the use of robust mass-timber products or engineered-wood panels above six stories, the typical limit for wooden structures. The appeals of wood over concrete and steel are numerous, from a lower carbon footprint to a potentially faster construction schedule and less disruptive process.

The inside of the office tower as envisioned by Michael Green Architecture. PHOTO:MICHAEL GREEN ARCHITECTURE/LOTUS EQUITY GROUP

But perhaps most appealing is wood’s ability to create a warm environment by connecting employees to nature and enhancing their well-being and productivity—common buzzwords among companies looking to compete for workers. Companies in the tech sector in particular have been keen on these workplace designs, a factor viewed as a plus as Newark vies for Amazon.com Inc.’s second headquarters.

“The tech sector is recognizing that the future of office buildings has to be significantly different from what it was in the past,” said Michael Green, a Vancouver, British Columbia, architect whose firm has designed a number of tall, engineered-wood buildings in North America. “The workplace where you spend a third of your lifetime better be a place where you actually want to be. And it’s not going to be generic office tower.”

Wood won’t replace traditional concrete and steel structures, but the construction and development industry, typically conservative and slow to adopt new technologies, has been much more open to exploring its use in the past several years.

Michael Green Architecture also worked with design firm DLR Group and developer Hines on T3, a seven-story mass-timber building in Minneapolis. Hines has two other seven-story mass-timber office buildings—one in Atlanta, the other in Chicago—planned as part of separate joint ventures.

In 2017, architects from Perkins+Will, structural engineers from Thornton Tomasetti and researchers from the University of Cambridge published a study and design of an 80-story timber residential building in Chicago. A number of tall wood buildings have been proposed or completed in Europe and Australia.

The trend toward wood “is really growing out of understanding we now have to create environments for businesses to more effectively recruit, engage and retain their talent,” said Jon Pickard, principal at architecture firm Pickard Chilton. “All architects at the leading edge are looking for new ways and new rich experiences.”

Among potential trade-offs is the newness of the use of modern engineered wood for tall buildings. Concrete can be cost effective because it has been tried and tested, and many contractors know how to work with it, Mr. Pickard said. Researchers involved in the design and study of the 80-story wood building found that engineered wood consumed a lot of space in order to achieve the same structural performance of steel and concrete.

“We couldn’t skinny it down as much as you could with concrete and steel,” said James Giebelhausen, a Perkins+Will senior project architect who worked on the study.

Ben Korman, Lotus’s chief executive and founder, envisions the roughly $1.7 billion Riverfront Square as a project that could help push Newark into the next phase of steady and organic growth. Located at the north end of Newark’s central district, the project would include about 2,000 apartments, a public square, more than 100,000 square feet of shops and restaurants, 2 million square feet of offices as well as hotel and entertainment space, all within seven to 10 buildings.

Mr. Korman expects to be able to sign an anchor tenant relatively quickly and secure construction financing for the office tower, noting the region’s thriving tech sector, Newark’s multiple means of mass transportation and its fast fiber-optic network. He points to last year’s lease deal bringing financial-technology firm Broadridge Financial SolutionsInc. to 2 Gateway Center as evidence of Newark’s attraction for major companies.

“We have a great deal of trust in this market,” Mr. Korman said. “We feel that the overall tech sector and Newark is positioned tremendously well.”

The manufactured wood that will be used for this office building is different from the typical wood-stick construction used in low-rise residential buildings, Mr. Green said. Usually the products used for wood towers consist of pieces or layers of wood from managed forests glued together to form massive, solid columns or panels. Under fire, these engineered-timber products create a char layer, sealing and protecting the main structural components and allowing buildings to remain standing for longer periods, architects and engineers said.

The office building, which would have roof decks, would be built on a concrete foundation, but above that the structural components including the core containing elevators and stairwells, floor systems, columns and exterior panels would be mass timber, Mr. Green said. The interiors would have exposed wood, while the facade could be clad with metal panels, brick or wood.

Newark’s building code restricts heavy timber construction to six stories, but a Lotus spokeswoman noted that tall wood building developments in other states have received exemptions to local code limits by demonstrating the safety of this wood-construction technology. The company believes New Jersey will be open to exemptions as other states have been, she said.

This type of wood construction can shave months from the construction schedule, eliminating the lengthy time it takes for wet concrete to dry and set and providing often faster assembly times for wood components, Mr. Green said.

“That time equals savings in cost for a many reasons,” Mr. Green said. “Savings for financing the project over time, savings for managing the construction over time, and faster ability to occupy the building.”

Author: Keiko Morris

Source: The Wall Street Journal

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BRE launches Centre for Smart Homes and Buildings to demonstrate ‘Internet of Things’, smart products and services

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World renowned building science centre, BRE, has launched the Centre for Smart Homes and Buildings (CSHB) a collaborative hub for industry, academia and the government. Working with a range of partners, including EDF, BT and Telefonica, the CSHB will work to facilitate and improve the use of smart products and services within the built environment.

Smart home & building devices and systems have the potential to dramatically change the way we live and work, and their rapid evolution is driving advances in digital technology and data services. The scope of these changes presents both opportunities and challenges in the fields of energy, health and wellbeing, safety and security, connectivity and data privacy. The centre will provide an essential resource to provide clarity and support innovation within the construction industry.

The smart homes and buildings market was valued at excess of $22 bn in 2017, and is expected to grow rapidly [12]. Experts predict that there will be more than 20 billion IoT-enabled devices by 2020, with a majority being linked to usage in homes and buildings[3].

With the increased impetus on housebuilding in the UK, many new build properties come with sensor-activated lighting, smartphone-controlled boilers and smart meters. Features which can help consumers to save money and energy and enable a more convenient lifestyle have demonstrated themselves as particularly popular. The entrance of Amazon Alexa and Google Home to the market paves the way for other voice-activated products to engage the industry. In commercial properties, there is a trend towards increased integration of building systems across shared networks and the addition of Internet of Things to existing Building Management Systems to enable additional functionality such as smarter facilities management, with exemplar smart buildings such as The Edge in Amsterdam emerging. These are the things the centre will be looking at with a specific focus on issues like performance, interoperability and connectivity to ensure that people can capitalise of the benefits that smart tech can bring.

A key feature of BRE’s new Centre for Smart Homes & Buildings is the Smart Home Lab, a house on the BRE site at Watford created to trial and test smart tech in a real setting. BRE are also trialling smart building technologies in their offices and developing small-scale city test beds across the site using Internet of Things (IoT) networks.

Currently being put to the test in the Smart Home Lab are a range of devices covering heating, energy use, safety and security, lighting and air quality. Scientists at BRE are also working with RNIB and others to look at how smart homes and buildings can best support independent living, helping older people and those with disability or chronic illness to live more independent lives both at home and work.
BRE would like to invite interested businesses to get in touch to explore how they can engage with the centre.

Dr. Martin Ganley, Director of Smart Homes and Buildings at BRE, comments, “Within the rapidly-growing smart home and building technology sector, the CSHB will play a vital role in providing clarity on the performance of devices and systems, ensuring that technology meets the needs of the end user, and in helping address emerging risks and common challenges.”

Ash Pocock, Head of Industry, Regulation and External Affairs for Smart Metering at EDF Energy, comments, “The BRE Centre for Smart Homes and Buildings provides an opportunity to help address issues which are common across industry, shaping policy, defining standards, supporting innovation and demonstrators. EDF Energy is proud to be a Gold Member of CSHB, as it seeks to address gaps and obstacles to progress, and the opportunity to deliver a more energy efficient home and building through connectivity and automation.”

Source: BRE Group

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Changes In Commercial Real Estate Are Rewriting Landlord Rules For The 21st Century

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The digital transformation is more than just another buzzword. As the millennial workforce prepares for middle age, Gen Z is now also entering the workplace and continuing the drive for better technology and mobility. The future of commercial real estate is forcing landlords to evolve and meet a new set of tenant demands.

The entire landscape is evolving as we increasingly see consolidation and specialization in new and upcoming industries. Even finance, which has previously been accused of being slow to adapt to the digital world, is beginning to embrace flexible office space and diverting from its traditional office background. Tenants now have a much longer list of requirements than the traditional amount of square footage based on X amount of square feet per head.

Using office space in multiple ways to provide greater flexibility and efficiency is rapidly rising to the top of wish lists in boardrooms across the globe. The key words here are “flexible” and “service.” Commercial real estate is being disrupted by tenants who have seen that flexibility and service can be a reality thanks to companies offering these types of perks to work spaces. Traditionally, landlords have thrown companies into these concrete boxes, while they take a check every month until your 10-year lease is paid off. As the head of a flexible office space provider, I know that it is imperative that this tradition changes.

Why The Modern Office Needs A “Third Space”

Digital natives now expect the ability to work on the move across a plethora of devices and their requirements can be as simple as an internet connection in a quiet space for an impromptu meeting. The office landscape as we know it is changing and the mobile working revolution is helping third spaces race to the top of wish lists.

As a result, we are witnessing a rise in third spaces that enable businesses to flex when required with additional meeting rooms, facilities and amenities. The increasing need and desire for reimagined workspace is only the beginning of the disruption of commercial real estate.

Rethinking Flexibility

Tenants are leading a fundamental change and forcing landlords to pay attention. There will always be a tendency to cling to the past and operate as business as usual. But, it’s not as simple as carving out a little part of a building to satisfy these needs and outsourcing some aspects to companies like WeWork. Landlords need to take a step back and have a wholesale look at the way they’re approaching space, how they lift up their buildings and change their customer engagement mindset. While most landlords have the resources to do this, they just can’t see the financial justification to invest in systems that support change. However, I believe this is beginning to change. In the interim, they are outsourcing this change to operators like us.

A Closer Look At The 21st Century Landlord

Historically, landlords would divide their assets into concrete boxes and attempt to lock tenants into costly long-term leases that run for five to 10 years. But, times have changed and even retail giants like Amazon and Google are embracing the so-called pop-up era. Commercial real estate landlords should already be thinking about offering more flexibility, more amenity, more community and a customer service experience to avoid empty or underused real estate. Some key approaches landlords should consider include:

1. A mix of long-term leases with flexible space options must be created.

2. The building experience needs to change to be more service- and hospitality-oriented.

3. Landlords must focus on building service income streams, as well as rented income streams.

4. Use common areas to better create amenity and community within the building.

The future of reimagined office space looks incredibly promising for obvious reasons. But the bigger question is how those involved in commercial real estate need to reimagine their systems in order to meet an evolving set of requirements for their future clients. In a world where industries must disrupt or be disrupted, the time to hone in on customer pain points is right now.

Source: Forbes. January 30,2018.

Author: Marcus Moufarrige

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Malls Never Wanted Gyms. Now They Court Them

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Todd Mullins and his wife, Julie, started going to a shopping center 15 minutes from their Palm Beach Gardens, Fla., home about a year ago—after they joined a gym inside of it. They work out at the Orangetheory Fitness there three to four times a week, and at least half the time visit a nearby juice shop, restaurant or Trader Joe’s, he says.

“There would be no other reason to go to that mall,” says Mr. Mullins, a senior pastor at a local church.

Mall owners long treated gyms like pool halls, unwanted tenants that attracted lower-rent visitors who were unlikely to shop. Now they’re giving health clubs some of their best real estate.

The reason is twofold. Retailers have closed hundreds of stores across the country amid increasing competition from online shopping, leaving mall owners to grapple with declining foot traffic and rising vacancies. At the same time, fitness centers have boomed and diversified, and a proliferation of smaller, boutique gyms that draw higher-end customers have created more attractive tenants that are easier to accommodate.

The result is that health clubs that were once pariahs at malls are helping transform them into hubs of living, working and playing.

Members lift weights on the fitness floor at the Life Time Athletic gym in Franklin, Tenn. With brick-and-mortar retail struggling and fitness surging, health clubs are taking over the anchor spaces previously held by department stores in shopping malls.
Members lift weights on the fitness floor at the Life Time Athletic gym in Franklin, Tenn. With brick-and-mortar retail struggling and fitness surging, health clubs are taking over the anchor spaces previously held by department stores in shopping malls. PHOTO: JOE BUGLEWICZ FOR THE WALL STREET JOURNAL

“Twenty-five years ago, the best real estate was given to the department stores,” says Sandeep Mathrani, CEO of Chicago-based GGP Inc. “And the department stores sort of prevented you from doing anything but having retail shopping. So today, their sort of slow retraction is giving us the opportunity to reinvent the wheel.”

Mr. Mathrani says gyms are one element in making regional malls as well-rounded as downtown areas were years ago, with a YMCA and small shops as well as department stores. GGP plans to integrate fitness centers into half of its 115 malls in the next decade, he says.

Phillips Edison & Company has gyms in 44% of its more than 340 grocery-anchored shopping centers, according to CEO Jeff Edison. In the mid-1990s, the company had just a few centers with gyms because tenants viewed typical gym-goers as teenage weightlifters more likely to hang out on the curb than to shop, Mr. Edison says.

Westfield has 33 U.S. malls, many with assets greater than $1 billion. More than half of them have some sort of health club, up from about 10% a decade ago.

Many of the new tenants at shopping centers are gyms and specialty fitness studios that in some cases are barely bigger than a Starbucksstore. But owners of regional malls also are welcoming sprawling, full-service health clubs as anchor tenants, sometimes replacing the stores that once excluded them.

Members enter the Life Time Athletic gym in Franklin, Tenn. The company is also opening a 180,000-square-foot health club in Oklahoma City’s Quail Springs Mall.
Members enter the Life Time Athletic gym in Franklin, Tenn. The company is also opening a 180,000-square-foot health club in Oklahoma City’s Quail Springs Mall. PHOTO: JOE BUGLEWICZ FOR THE WALL STREET JOURNAL

GGP is replacing a Macy’s at Oklahoma City’s Quail Springs Mall with a 180,000-square-foot Life Time health club with indoor and outdoor pools and tennis courts. GGP soon will open the first gym, a Planet Fitness , in Honolulu’s Ala Moana Center, whose 350 stores include Louis Vuitton and a Tesla showroom.

Years ago, health clubs were “on a long list of prohibited uses that included massage parlors, billiards halls and pawnshops,” says Steven Gartner, managing director of retail at CBRE, the commercial real-estate services and investment firm. If gyms were allowed in malls at all, landlords often relegated them to back corners.

The fitness industry brings its own risks. Streaming fitness servicesused remotely are on the rise, and the growth of health clubs is outpacing membership, according to the International Health, Racquet & Sportsclub Association. Many midprice gyms have struggled to compete with boutique studios and bargain chains.

Yet overall, fitness has been booming. More than 57 million people belonged to a health club last year—19.3% of the U.S. population—and memberships have jumped 26% since 2009, according to IHRSA.

Gyms fit into a broader push by mall owners to reinvent themselves as centers of entertainment at a time when so much of apparel sales have moved online. Landlords are adding restaurants, ice-skating rinks, pools and other recreational options to boost sagging foot traffic.

People spend time in the lounge at the Life Time Athletic gym in Franklin, Tenn.
People spend time in the lounge at the Life Time Athletic gym in Franklin, Tenn. PHOTO:JOE BUGLEWICZ FOR THE WALL STREET JOURNAL

There is also evidence that gyms might not be the retail repellent that mall owners long thought. More than 40% of health-club members reported household incomes exceeding $100,000 in 2016, according to IHRSA, compared with 26% of the overall population.

Consumer spending at fitness centers climbed 3.7% in the third quarter over last year, according to Atlanta-based spending-data analysis firm Cardlytics. By comparison, spending on apparel at brick-and-mortar stores rose 0.5%.

And people who work out are more likely than ever to shop afterward because it has become socially acceptable to wear fitness clothing outside the gym, says David Jamieson, chief operating officer at Kimco Realty Corp.

Kimco owns 507 mostly grocery-anchored shopping centers, about one-third of which house health clubs. A 2015 Kimco case study found the arrival of LA Fitness gyms at two shopping centers, one in Connecticut and another in the greater New York metro area, prompted 15% to 20% rent increases for nine new, neighboring tenants, Mr. Jamieson says. Six existing tenants had sales increases of 30% or more in the year after the gym opened, he says.

A recently announced project in Atlanta’s upscale Buckhead neighborhood illustrates fitness’s role in remaking the traditional mall. Life Time is building a 90,000-square-foot health club with a rooftop pool and bistro as part of Simon Property Group ’s ongoing transformation of Phipps Plaza. Life Time also will offer workspace memberships as part of a program called Life Time Work, an outgrowth of the rising number of people who do work at the gym.

Members participate in a yoga class at the Life Time Athletic gym in Franklin, Tenn.
Members participate in a yoga class at the Life Time Athletic gym in Franklin, Tenn. PHOTO: JOE BUGLEWICZ FOR THE WALL STREET JOURNAL

Equinox, the New York-based luxury health club chain, will be an anchor tenant in a $125 million expansion of The Shops at Willow Bend, a 1.3-million-square-foot complex in the Dallas suburb of Plano, Texas.

The two-story, 35,000-square-foot Equinox, slated to open in late 2018 next to Neiman Marcus, will feature a roof deck for classes and events, says John Albright, vice president of development for Starwood Retail Partners, the mall’s developer and operator.

“We’re like the nice-looking girl at the dance. Everybody wants to dance with us these days,” says Dan Adelstein, vice president of international development for Orangetheory Fitness.

The Boca Raton, Fla.-based chain has opened more than 700 U.S. locations since its 2009 founding. Orangetheory’s classes lead people through a circuit of treadmills, rowing machines and free weights. Classes typically run an hour, eliminating gym-floor wandering and keeping parking-lot traffic moving, Mr. Adelstein says.

People work out during an Orangetheory Fitness class.
People work out during an Orangetheory Fitness class. PHOTO: ORANGETHEORY FITNESS

Orangetheory recently teamed with Hy-Vee, a West Des Moines, Iowa-based chain of more than 245 Midwestern grocery stores, to build studios adjacent to and inside stores. The first joint location opened earlier this month in Shakopee, Minn., outside Minneapolis.

Owners of grocery-anchored shopping centers see fitness as a way to fend off competition from Amazon, whose acquisition of Whole Foodsannounced its push into fresh-food sales.

Christa Pelc says she often jumps on an elliptical machine at Anytime Fitness in Hoffman Estates, Ill., then picks up dinner ingredients at Mariano’s, a natural-foods grocery store next door. “It’s really so convenient,” the 29-year-old real-estate paralegal says. “I’m in love with the place.”

A SoulCycle studio is scheduled to open early next year at Westfield’s UTC outdoor mall in San Diego. It will nestle beside two restaurants that serve organic and locally sourced foods, and a short walk from several cosmetics stores—also hot-sellers.

“We’re thinking of this as an ecosystem,” says David Ruddick, Westfield executive vice president of leasing. “It’s not just a workout.”

Source: Wall Street Journal. November 2017

Author: Rachel Bachman

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Retail Rents Decline in Big U.S. Cities as Landlords Succumb to the Retail Storm

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The retail storm pounding weaker real-estate markets is starting to lash America’s biggest cities.

Malls in smaller cities have been suffering for years from store closures as retailers adjust their store footprints to changing consumption habits and rising online sales.

Now retail rents in some of the priciest cities in the U.S. are falling back to earth after years of strong growth, as the retail reckoning spreads to properties once considered immune.

Over the past 12 months, rents in New York, Washington and Boston declined between 0.4% and 1.4%, while rents were roughly flat in Chicago and San Francisco, according to data from CoStar Group,CSGP -1.00% a commercial real estate data provider. Across the U.S., rent growth averaged 1.8% in 2017, down from 2.7% in 2016 and the slowest pace since 2012.

The availability rate across all retail property types, including enclosed malls, open-air malls, grocery-anchored centers and strip centers, rose to 6.6% in the fourth quarter of 2017, up from 6.1% a year earlier, according to CBRE Econometric Advisors. Availability rates include both vacant space and spaces that are currently occupied but are marketed to potential tenants because they will be vacant soon.

“We’re seeing downward pressure on rents,” said James Hull, founder and managing principal of Hull Property, a retail real estate company based in Augusta, Ga. “Some of that comes from too much space and too few tenants.”

Hull Property, which owns about 15 million square feet of retail space in 13 states, said some tenants are more cautious these days, opting to sign leases of three years versus the previous norm of five to 10 years. Mr. Hull added that, depending on location and availability of space, his firm sees rent increases in about 20%-30% of lease renewals signed.

A surge in the number of bankruptcy filings and store closures announced by apparel retailers and department stores has hung over the sector, particularly second-tier malls in less affluent areas. While discount retailers and grocers such as Dollar GeneralCorp. , TJXCo s.,Five BelowInc. and Lidl are still opening stores, they are focused mainly in standalone retail centers and open-air centers rather than enclosed malls, according to research firm Fung Global Retail & Technology.

Meanwhile, some downtown areas that experienced skyrocketing rents a few years ago are now showing significant weakness.

The substantial number of empty storefronts in New York City, for example, finally has taken a toll on landlords, who are starting to adjust their prices accordingly. CBRE said average asking rents in Manhattan plunged 18% to $721 a square foot in 2017 from 2016. Manhattan’s retail real estate market, which is more affected by tourism than that of other cities, is subject to volatile swings. Average asking rents peaked in the fourth quarter of 2014, exceeding $1,000 a square foot.

SL Green RealtyCorp.SLG -0.28% , a big office building owner in New York City, said rent negotiations for retail space at its 719 Seventh Ave. building in Times Square would take some time.

“We acknowledge it was more of a challenge than we expected,” said Marc Holliday, chief executive officer at SL Green during the company’s fourth-quarter earnings call last week. “We’re still in sort of a discovery phase in terms of the market, block by block.”

Some pockets of the country remain strong. Asking rents in Nashville, Orlando, Atlanta, Dallas-Fort Worth and Denver rose by 5.1% to 7.3% over the last 12 months, while in Los Angeles and Miami, rents rose 2.3% and 2.8% respectively, according to CoStar.

Retailers are becoming more selective in where they open new stores or sign renewals, and in affluent, high-density locations, landlords say they are still able to command higher rents.

“Retailers are disproportionately targeting their less-productive locations for closure, while demand for strong locations remains robust and unmet by new supply,” said CoStar in a report.

Tom McGee, president and chief executive officer at International Council of Shopping Centers, said the industry is in a good position with regard to supply, noting that the millennial population will be aging into its prime consumption years while the modest growth in new shopping center development in the past 10 years could keep market fundamentals balanced.

Also tipping in landlords’ favor this year is the tax overhaul, which promises significant savings for retailers, a group that has paid among the highest effective tax rates over the years.

“It will provide some with a little extra cash cushion that may lessen the urgency to strategically close stores where the financials may still make sense, such as a store with flat sales or even ones that are just modestly losing money where leases are going to end anyway in the next 18 months,” said Garrick Brown, vice president and head of retail research at property consultancy Cushman and Wakefield.

Source: The Wall Street Journal. January 30, 2018.

Author: Esther Fung

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Say Goodbye to Garages as Developers Imagine a Driverless Future

posted by: Admin in News

Mass adoption of driverless cars is still years away, but architects, developers and planners already are designing new projects with autonomous vehicles in mind.

Developers are starting to build offices with internal parking structures that can be converted to office space if demand for private parking decreases. New master-planned projects in cities like Toronto, Los Angeles, Oslo, San Francisco and Boston are being designed with features like curbside drop-off areas for passengers and e-commerce deliveries that replace traditional parking lanes.

“The term that we’re hearing over and over again is ‘future-proof,’” said Jeffrey Shumaker, director of Urban Planning and Design at architecture firm Kohn Pedersen Fox Associates in New York.

Novel ideas are being floated for the distant future as well as the messy transitional years until mass adoption of driverless vehicles is complete. For example, Gensler already is looking at ways to free up green space in housing developments by replacing driveways with common storage areas for autonomous vehicles.

Meanwhile, a Reebok and Gensler venture has been studying how to repurpose gasoline stations in the future when driverless vehicles will visit remote charging stations instead. One idea: fitness centers that include playgrounds, workout areas and fresh food stores.

“Today on your way home, you stop at the gas station to fill up,” said Joseph Brancato, a Gensler regional managing principal. In the future, the Reebok venture envisions transforming the properties into stations for “recharging human beings” where you “get an additional workout, buy some farm-to-table food and maybe pick up some holistic medicine,” he said.

Real-estate developers and architects are thinking about a driverless future today because many of the structures and streets they’re designing will still be around decades from now. They see the benefit of including enough flexibility into today’s projects so that they can later adapt to changing transportation patterns with limited cost.

Much of the future-proofing underway involves master-planned communities with new approaches to streets, bike lanes and other infrastructure. For example, Kohn Pederson is designing a complex in Shenzhen in China with an elevated loop that could be dedicated to autonomous vehicles and underground parking areas that could be converted into retail space or other uses.

Planners also are studying flexible streetscapes and parking guidelines for Boston’s Seaport development and for Sidewalk Toronto, a joint effort by the government and AlphabetInc.’s Sidewalk Labs focusing on about 800 acres on Toronto’s eastern waterfront.

The San Francisco Giants baseball team is looking down the driverless road with architecture firm Perkins + Will in their planning for Mission Rock, a 27-acre project south of AT&T Park. Planners are designing streets and buildings that can adapt to declining parking demand and the growing need for better curbside pickups and drop-offs of passengers and packages. Apartment buildings are being designed with more space—including cold storage—for package deliveries from Amazon.com and other e-commerce businesses.

“These projects are beta-testing the autonomous future,” said Gerry Tierney, co-director of Perkins + Will’s mobility research lab.

Parking garages that can be converted into other uses already are being built. For example, Gensler designed the new Cincinnati headquarters building for data analytics firm 84.51° with three floors of above-ground parking that can be converted into office space.

That’s possible partly because the parking-floor heights are higher than those in typical garages. Also the facades of the parking floors resemble the rest of the 841,000-square-foot building.

Gensler is exploring ways to convert stand-alone parking-garage structures into apartment buildings that could be used for student or other forms of low-cost housing. This could be done with modular units designed to slide into the structure easily, Mr. Brancato said.

The backs of these structures might be designed so they could open up to the outside to bring in natural light, he said. “Parking garages are big and deep, and with residential you want as much natural light as you can get,” he said.

Expense is a major obstacle to convertible parking structures. Whether they’re stand-alone or part of a building, they cost more to build than conventional garages. Because their ceiling heights need to be higher, convertible garages contain fewer spaces, making the idea a nonstarter with many developers.

Long term, though, parking conversion can pay off, Mr. Brancato said. For example, he said Gensler is studying one convertible project in Denver’s trendy RiNo district that would initially include 117 spaces per floor, about 17 per floor fewer than if it were built using a conventional design. But if it is eventually converted into office space, the return on investment would be more than 40%, compared with 18%, he said.

There’s also a danger in designing buildings without taking into account the approach of the driverless future, Mr. Brancato added.

“We’re designing structures that aren’t going to open for another four to five years,” he said. “If people don’t think about these changes, some of them are going to be irrelevant by the time they get built.”

Source: The Wall Street Journal. January 30, 2018

Author: Peter Grant

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10 Things To Consider Before Investing In Commercial Real Estate

posted by: Admin in News

The commercial side of real estate can be an appealing proposition for any investor. It offers you the ability to dip into a new pool of clients and grow your business interests. But, the commercial side of real estate is also a different beast that requires some additional considerations versus the residential side of the business.

Patience is a virtue with these transactions as the sales cycle is longer, requiring an investor to remain vigilant with the market demand. But many indicators point to commercial real estate as a strong choice for agents looking to move their business forward in 2018.

Ten members of Forbes Real Estate Council shared the one thing investors should be aware of before getting involved with commercial real estate. Here is what they recommend:

1. Remember Everything Takes Longer

Compared to residential investing, everything takes longer. Due diligence is months instead of days. Finding new tenants takes longer. Build out or renovation is longer. But the leases are longer, as well. Patience is key. It just takes longer. – Roger Blankenship, Flipping America

2. Understand The Market

Investors need to understand the market they are investing in. Having a good wherewithal of the fundamentals (legal implications, competition, vacancy, rents, etc.) will allow them to make savvy investments that could yield high returns. This will enable investors to fine tune their commercial realestate investments and diversify their portfolio. – Juan ZaragozaExan Capital LLC

3. Consider Area Demographics And Trends

When investing in commercial real estate, the investor needs to consider demographics and trends for the area. Do they play into the reason for investing? Do you plan to develop? If so, find a local broker who understands the area and knows the playbook of the local authoritative agencies. You will need to understand civil engineering and environmental law in this playbook! – Rita SantamariaChampions School of Real Estate

4. Assess Risk By Property Type

Risk assessment is very different in commercial when compared to residential real estate, and varies greatly by property type. The success of two residential properties right next to each other is typically similar, while commercial buildings in a similar position could fluctuate independently, so it’s important to understand the range of risks inherent to your potential investment. – Nav AthwalRealtyShares

5. Avoid Failing Businesses Or Business Models

If your tenants include restaurants, grocery stores, bars or business models that are migrating online (like banks), you need to assume that they will default on their lease at one point, and you need to prepare your insurance correctly to make sure you are covered when that happens. Search for failing businesses and do your best to not deal with them as there may not always be a golden parachute. – Kent ClothierReal Estate Worldwide

6. Know The Time Frame For All City Approvals

After working with more than 75 different city jurisdictions for the overall city permit approvals, I know it can take one month or even a few years prior to receiving a building permit. Before buying a commercial property, set up a meeting with the local authorities to determine the required approvals — from planning and zoning, site plan, city council, etc. – Pamela J. J GoodwinGoodwin Commercial

7. Understand Market Trends’ Impact On Demand

It’s important to understand the dynamics of the property type you are selecting. For example, if you are looking to invest in retail, consider the near- and longer-term impacts of e-commerce on tenant and consumer demand. If you are looking at offices, consider how trends like co-working and telecommuting could impact demand for office space in your market. – Gary BeasleyRoofstock

8. Be Ready To Have An Active Role

Investing in commercial real estate is not a passive investment. The most successful investors take a very active role. They have systems and processes in place to ensure that the property is achieving its maximum operating potential. They are constantly keeping tabs on development and economic trends in the local market, as well as broader economic trends. – Jay CrottySkyView Advisors

9. Find Capital Or A Good Deal

To be successful in commercial real estate you need two things: capital or a deal. Currently, the market is flush with capital and if you can find an attractive deal, the equity will be there for you. If you don’t have a deal and are worried about high valuations, finding a patient source of capital should be your priority. Lining these two items up will give you the credibility to be successful. – Brian MilovichCalvera Partners

10. Consider CRE Debt Instead

Some investors aren’t aware there is opportunity to invest in real estate with less risk and greater potential return than property ownership — through investment in commercial real estate(CRE) debt. With returns in the range of 8-10% and a stronger standing than property owners in the event of a market correction, this opportunity is often overlooked by those looking to dive into CRE investing. – Evan GentryMoney360

Source: Forbes Real Estate Council, January 29, 2018

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Future bright for retail real estate, retailers, Weinswig says.

posted by: Admin in News

Rising sales and solid shopping center occupancy rates signal a bright future for shopping centers and retailers, and they also challenge a false narrative about the decline of physical retail, according to Deborah Weinswig, managing director of Fung Global Retail & Technology, as cited in a CNBC report.

“Store closures grabbed the headlines and drove the ‘retail apocalypse’ narrative in 2017 and into 2018,” Weinswig told CNBC. But “total in-store sales continued to grow, yielding an uplift in sales densities across U.S. retail,” she said. “Moreover, occupancy rates in open-air shopping centers and super-regional malls [sized in excess of 800,000 square feet] proved resilient.”

Malls and open-air centers are reinventing themselves by leasing up experiential tenants and similar nontraditional uses in spaces once occupied by department stores and other big-box anchors, Weinswig notes. Meanwhile, major REITs Brixmor, DDR, GGP, Kimco and Simon all report occupancy rates at or above 95 percent, she notes.

“GGP and others have been dialing down their exposure to apparel specialty stores, and a number of these companies have focused on grocery-anchored centers or sought to bring in more grocery tenants to their existing centers,” Weinswig said.

Open-air centers, meanwhile, are considered one of the “most resilient retail real estate segments,” Fung Global notes in a report, adding that these are often anchored by robust retailers like Dick’s Sporting Goods, Kohl’s and Whole Foods.

Source: ICSC, January 2018

Author: Edmund Mander (Director, Editor-In-Chief/SCT)

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