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Three Reasons Commercial Real Estate Professionals Should Be More Open To Tech

posted by: Admin in News

The real estate industry isn’t exactly known for being receptive to new technology. Many in the industry view technology as unnecessary, as countless people have built real estate empires and made untold millions from hammering the phones. Today, though, it’s getting harder and harder to compete in real estate without technology. In particular, there are three distinct advantages of technology that should have real estate professionals more open to adopting new developments.

Technology can help you conduct more business.

Whatever your role within the real estate industry, everyone can agree that you need to do more deals to make more money. If you’re an investor, you need to underwrite and bid on more investment opportunities. If you’re a broker, you need to convince more people to list their properties. If you’re an appraiser, you need to complete more appraisals — and so on.

My firm has found that the average real estate analyst takes several hours to initially underwrite a property and understand its surrounding market. This means looking at nearby properties and identifying rent comps, analyzing rent growth and demographic trends in the market, quantifying any value-add potential (whether through physical or operational improvements) and distilling everything into a concise summary to discuss with management.

People have limits, though. Just as you’d hire more people to increase volume, technology can be “hired” to improve deal flow. While CRM systems have had better adoption in the market helping real estate professionals track customer conversations, analytical tools have yet to really be adopted. Many analytical tools can be employed to help your analysts leverage data more effectively — reducing those hours of analysis time to only a few minutes in some instances. Other tools can help you dynamically visualize the results of your analysis and achieve insights more quickly.

Technology can help you conduct better deals.

When it comes to determining the market value of investment properties, appraisers are among the most trusted voices. However, even appraisers aren’t perfect. A 2011 study on appraisal accuracy found that commercial appraisals are typically up to 12% above or below the subsequent transaction price.

To address this same issue in home sales, many automated valuation platforms have applied data science and machine learning to come up with automated single-family home valuations. This technology has been around in single-family for a while, but it’s now starting to be applied more and more in commercial real estate too. Our product uses a similar approach to provide automated underwriting tools for multifamily — but there are plenty of other valuable tools to help you better analyze individual parts of deals.

As we all know, money is made in real estate when you buy a property. Today, technology today can help you make smarter acquisitions and improve returns.

Technology can help you resolve disagreements.

Have you ever seen asset management and acquisitions teams disagree on the feasibility of rent projections? Have you ever seen a broker and an owner disagree on rent comps? Of course, if you’re in real estate, the answer to both questions is yes. It’s bad for both clients and brokers when a deal is taken to market at the wrong price, and it’s bad for any company to have internal tensions. And no one likes to admit they’re wrong.

I think the most useful application of real estate technology is to be “the bad guy” or the tie-breaker to help resolve disagreements. It’s very common to point to third-party surveys and reports to justify assumptions, but it will likely become more and more common to do the same with new technology products.

From increased efficiency to increased accuracy to making the best investment decisions, today’s real estate technologies are here to help. Real estate professionals should be more open to technology — it’s an essential piece of the business today.

Author: Marc Rutzen

Source: Forbes. March 2018.

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How Driverless Cars Could Disrupt The Real Estate Industry

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Driverless cars could become a regular feature of the roads as early as April – at least in California, which has decided to allow fully autonomous vehicles to be tested on the roads (none of those pesky humans who have been present in test drives so far). Arizona has already become a fair-weather center for testing driverless vehicles, thanks in large part to the governor’s support, and Uber announced last week that it has finished testing its self-driving trucks in Arizona and is now beginning to use them to move goods across the state.

It’s not just the U.S., either. The British government launched a review last week of laws governing self-driving vehicles, with the aim of getting autonomous cars on the road by 2021, and other countries around the world are also experimenting with autonomous vehicles.

Clearly a big step for the technology and automotive industries – no surprise that companies working on driverless vehiclesinclude Google and Uber, as well as traditional automakers like Audi, BMW, Ford, GM, Volkswagen and Volvo – the advent of human-less driving could also redirect the traffic of our days, how we live our lives and get around. Perhaps somewhat less obviously, a future filled with autonomous vehicles could also spur some big changes in where we live and work, thus affecting the real estate market in addition to the transportation and tech industries.

Of course, we realize that for all the buzz, driverless cars could turn out to change the world no more than Google Glass or to transform transportation no more than the much-hyped Segway. While the success rate of driverless cars may not be as predictable as some may like to believe, it can still be instructive to peer through the windshield of a driverless future and see what twists and turns might lie on the road ahead.

The value of transit hubs

One question worth considering is what the proliferation of autonomous cars could mean for public transportation and the value of the real estate that has been built around transit hubs.

The proximity of office and residential buildings to public transit hubs has traditionally been seen as adding value to the property by making commuting easy, a phenomenon that would seem to be bolstered by the low car-ownership rates of millennials.

“Clearly, any sort of big transit infrastructure program can act as a huge stimulus for the development of surrounding real estate,” said Scott Homa, a director of United States office research for real estate firm JLL. “It’s starting to emerge as a universal theme across the U.S.”

Sections of the U.S. that have seen real estate development near new rail systems or train stations include the Somerville suburb of Boston; Chicago’s Fulton Market; downtown Kansas City, Missouri; and Austin, Texas, the New York Times reported last spring.

It’s possible that the availability of driverless vehicles could, like the increasing prevalence of ride-sharing, simply become one more reason for urbanites to avoid buying a car – thus making proximity to public transit at least as valuable as before.

But there’s another possibility, too: The introduction of a driverless vehicle option could make access to public transit less important to commuters. And that could have a major impact on the needs and demands of the buyers, tenants and renters of office and residential properties (whether single-family or multifamily).

“AVs [autonomous vehicles] are expected to significantly reduce travel cost, time and congestion, while increasing safety,” accounting firm KPMG said in a 2017 report on the impact of autonomous vehicles on the public transport sector. “Cost-efficient self-driving cars could change commuter preferences away from conventional public transport.”

It’s important to remember that it’s not just privately owned four-door sedans that could be roaming the roads without any humans behind the wheel. The Netherlands, China and Switzerland have been testing self-driving public transportation options such as electric driverless shuttles with capacities of up to nine people, as well as full-sized driverless buses.

With driverless cars, shuttles and buses thrown into the mix, offices and residential buildings that might previously have been seen as less attractive for commuters because of their distance from transit hubs could become more appealing than before. Seen through a real estate lens, that greater appeal could translate into increasing demand and rising property values.

The flip side is that properties that commanded high value due to their proximity to transit hubs could suddenly find themselves losing their edge.

Even in neighborhoods already served by public transit, autonomous vehicles could potentially become a threat to existing transportation systems. By supplementing public transit – or in some cases, even replacing it – autonomous cars could potentially render the existing public transportation system less important, ultimately voiding the assumption that proximity to transit hubs boosts property values.

The need for parking

Many of us drive to work in the morning and park near the office, where our cars sit unused until we’re ready to head home at the end of the day. The average privately owned car in the U.S. is in use just 5% of the time and spends the rest of the time parked, according to architecture, planning and consulting firm Gensler.

“America’s parking footprint, estimated at 500 million parking spaces, consumes more land than Delaware and Rhode Island combined,” Gensler said in a report on driverless cars. In New York City alone, parking covers the equivalent of two Central Parks.

But that picture could change to the extent that autonomous vehicles roll into action.

If driverless cars really do put the pedal to the metal, one ramification of having a car zoom away as soon as you get to your destination could be a reduced need for parking lots – which are, of course, a form of commercial real estate, even if they typically don’t involve buildings.

“AVs remove commuters’ demands for street and lot parking,” KPMG said in its autonomous vehicles report. Consulting firm McKinsey & Co. estimates that autonomous vehicles could reduce the need for parking space in the U.S. by more than 61 billion square feet.

That’s because driverless cars could potentially pick people up from their homes, drop them off at the office or the mall and then leave to park in a less prime area – or, like taxis, won’t even need to park, but will just move on to the next customer and the next trip.

Uber, already a popular alternative both to cars and to public transit, in November agreed to buy 24,000 SUVs from Volvo to form a fleet of driverless vehicles. Uber has said its driverless cars could hit the roads as early as next year.

A reduced need for parking could have a mixed effect on commercial real estate.

It could reduce the real estate costs for owners who currently assume they need to be able to provide parking, and it could spark construction and development on the site of existing parking lots and garages, such as 143 W. 40th Street and 14 S. William Street. Both Manhattan sites are among the 300 locations run by Icon Parking, New York City’s largest parking lot operator, which would presumably need to decide how it wants to change lanes should driverless vehicles lower demand for parking.

On a larger scale, in densely packed cities like New York, where land is at a premium, a diminished need for parking lots and garages could have a dramatic effect on the supply and demand equation. If there were to be a sudden influx of land available for redevelopment (and yes, that’s a big if), that could go a long way to creating a buyer’s market.

And once we’ve got driverless cars pulling up in the pretty near future and reducing the utility of parking lots, the next question is: What’s going to happen to those parking lots?

The answer: We don’t know what exactly they’ll become, but it’s safe to say that if all the ifs and whens come to pass, those suddenly superfluous parking lots and garages will be turned into something, meaning increased construction and development.

Driverless cars are increasingly getting the green light. Whether they’ll become merely one more transportation option or fundamentally alter the way we go is still unclear – but if it’s the latter,  transportation is not the only industry that will be disrupted. The prospective ubiquity of autonomous vehicles might ultimately turn out well for commercial real estate as a whole, but we would be wise to expect some potholes along the way.

Author: Ely Razin is CEO of CrediFi, a commercial real estate platform providing CRE professionals and financial institutions with big data on properties, loans and securities in the U.S. market. He can be reached at ceo@credifi.com.

Source: Forbes, March 2018

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The Unloved Retail Sector Is Quietly Attempting a Rebound

posted by: Admin in News

After one of their toughest years ever, beleaguered U.S. retailers are enjoying a pickup in quarterly sales, helping to boost the shares of many brick-and-mortar operators even as the stock market stumbles this year.

The moves mark a partial respite for retailers, which have reckoned with sliding sales, record store closures and bankruptcy filings as consumers have increasingly shifted to shopping online. The bleak outlook led many investors to sour on the sector last year, sending shares of several department stores, including Macy’s Inc.,J.C. PenneyCo. and Sears Holdings Corp., down by double-digit percentages, while the S&P 500 knocked out a 19% gain.

But in recent weeks, a string of retailers has posted stronger-than-expected earnings, driven by a pop in holiday sales and further rounds of cost-cutting. That has helped spur a rally in shares of companies running everything including department stores, electronics chains and bargain outlets. The S&P 500 department stores subindustry index has climbed 19% this year, while an S&P 500 index tracking the performance of electronics retailers has risen 6.7% and the broad S&P 500 has gained 0.7%.

“Right now we’re seeing the perfect scenario for retailers: high consumer confidence, relatively low expectations [around their performance] and stronger-than-expected consumer spending. When you put all these things together you have the retail earnings season in a nutshell,” said Victor Jones, director of trading at TD Ameritrade.

To many, the retail sector’s early gains are the latest indication that the consumer is on strong footing—something that bodes well for the broader economy. Investors and analysts closely monitor measures including employment, household wealth and consumer confidence, as consumer spending accounts for about two-thirds of the U.S.’s total economic output.

Recent data have mostly been encouraging, showing U.S. consumer confidence rising in February to its highest level since 2000, even after the stock market tumbled. Retail sales slipped in January, but some economists say the figures could pick up, especially with many workers starting to take home larger paychecks following the U.S. tax overhaul.

While the broader stock market has managed to rise for years even as many retailers lagged behind, investors and analysts say a pickup in shares of brick-and-mortar operators would be an encouraging sign that the economy is continuing to grow.

“It’s good to see the consumer discretionary sector moving up, especially after it not being a leader for so long,” said Lori Calvasina,head of U.S. equity strategy at RBC Capital Markets, adding that consumers are looking fairly strong.

Macy’s is among the beaten-down stocks that are seeing a bounce. Shares jumped 3.5% Tuesday, bucking the S&P 500’s 1.3% decline for the day, after the retailer posted stronger sales over the holiday quarter and said it had signed a deal to sell part of its Chicago store. The stock is now up 21% for the year.

“We know consumers are out there, and it’s up to us to win with them,” Macy’s Chief Executive Jeff Gennette said on the company’s earnings call.

Discount apparel retailer TJX Cos. also tore higher, with its shares rising 7% to a fresh 52-week high on Wednesday after strong holiday sales helped it beat analysts’ estimates for fourth-quarter same-store sales. For the year, it is up 9.4%.

Dillard’s Inc., the Little Rock, Ark.-based department store, surged 17% Tuesday after it reported earnings and revenue that topped analysts’ expectations, while shares of Best Buy Co. jumped 4% Thursday, even as the S&P 500 fell 1.3%, after the electronics retailer reported same-store sales surging in the holiday quarter as demand for video games rose.

But not all retailers have shared in the recent gains. Within the S&P 500 consumer discretionary sector, which includes dozens of retailers, as well as e-commerce giant Amazon.com Inc. and online streaming service Netflix Inc., nearly half the stocks are posting losses for the year.

Among the biggest laggards: Victoria’s Secret parent L Brands Inc., whose shares have slid 28% this year as the company has struggled to reverse a decline in sales. The firm reported better-than-expected revenue for the fourth quarter Wednesday afternoon, but lowered its forecast for first-quarter profits, sending shares sliding.

Newell Brands Inc., the maker of food containers, Mr. Coffee machines and Elmer’s glue, has fallen 14% in 2018 after having to lower earnings forecasts several times last year.

Despite a flurry of strong results, the S&P 500 consumer discretionary sector is expected to post slower earnings growth than many of its counterparts. With nearly all results in for the latest quarter, earnings for the sector are expected to rise 9.1% from the year-earlier period, according to FactSet, below the 15% projected for the broader S&P 500. For the following quarter, earnings are expected to grow 6.6%, versus 17% for the S&P 500, according to FactSet.

The disparate gains in the sector have led some to caution that, once again, it pays to be picky within the retail space.

“Even though there’s underlying strength in the data supporting the overall sector, you still have to be careful here,” said TD Ameritrade’s Mr. Jones.

Author: Akane Otani
Source: Wall Street Journal, March 2018
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We’re Overbuilt in Retail

posted by: Admin in News

America’s inventory of shopping centers is ominously overbuilt. Even if the migration of retail sales to the internet had not brought chronic overbuilding into sharp relief like it has, pre-recession overbuilding created a distorted ratio of retail space to consumers in the US. By comparison, the ratio of retail space to population in the US is double the rate in Canada, and quadruple the rate in Germany. Think about that for a moment.

Prior to the Great Recession, REITs and other institutional owners had four means to grow their revenue pie:

    1. Build new shopping centers, which they did with their in-house development teams.
    2. Acquire individual existing shopping center assets that met their investment criteria.
    3. Acquire competing institutional portfolios.
    4. Improve operating margins via increased rents or reduced costs.

Pre-recession, businesses such as DDR, Brixmor, Regency Centers, Kimco and Weingarten each had extensive in-house development teams tasked to develop new shopping centers. However, as the reality of overbuilding and internet competition, as well as other factors, has stifled the pace of new shopping center development, institutional owners have dramatically reduced ground-up development expectations as a means to grow revenues. This in turn has put increased pressure on fostering growth through other means, such as the acquisition of existing centers, preferably in core markets.

Yet, while twenty or even ten years ago, institutions could reliably secure several independently-owned assets annually, relentless consolidation in the industry and the success of numerous high quality REITS has mercilessly winnowed down the playing field of better quality one-off assets that come to market each year.

With the growth in institutional ownership has come the parallel rise of more sophisticated owners and managers of these assets. That sophistication has put constant pressure on rents and costs over the past two decades. Today, revenue growth through further operational improvements can at best have a single digit impact on a portfolio’s annual returns.

These limitations to revenue growth – from reduced ground up development, to declining individual asset purchases to decelerating rent growth have conspired to create a greater focus on growth through acquisition, or merger. 2017’s acquisition of Equity One by Regency Centers, and Property Development Centers by TRC, and Westfield by Unibail-Rodamco were examples of these market pressures.

Look for more consolidation over the next five years. The combined influences of an overbuilt US marketplace, surging internet competition, further retailer bankruptcies and creeping interest rates will unquestionably result in shrinking avenues for growth among REITS and their institutional peers. The firms with the weakest ability to generate revenue growth for the hedge funds, retirement systems and other patrons that invest with them will face an interesting two-sided truth. On the one hand they will confront the reality that the only option to create value may be through a sale. But on the other hand, a limited supply of institutional caliber assets will likely result in intense competition and soaring valuations once their portfolio hits the market.

The sober CEO who sees a sale as a realistic possibility should already be thinking about timing. Depending the on the size of the portfolio, a quarter point increase in rates may result in tens of millions of dollars in lost value. Interest rates are clearly set to move steadily higher after years of ultra-low rates, with the Wall Street Journal recently suggesting that up to four interest rate increases may be in store for 2018.

CEOs and their investment bankers should work double time in 2018 trying to identify the right interested seller, or acquirer, before interest rate movement reduces, or eliminates, the advantages to capture value through a sale or merger.

In addition to more sale and merger activity, these changing market dynamics are also creating pressure for owners to both diversify and densify their properties, as a method to create new streams of revenue. The densification of historically retail-only sites into mixed use environments, with housing or office space that creates the opportunity for these properties to grow vertically has begun to take root with some, but not all, institutional owners.

Wall Street has historically invested in REITs because of something called the purity of the play. REITs create the opportunity for investors to place specific bets on targeted assets classes, such as suburban grocery-anchored centers (Regency Centers), power centers (DDR), apartments (Essex Property Trust) or class A office in core downtowns (Equity Office). As market pressures compel owners to create new revenue streams and diversify, the purity of the play will have to be replaced by a new narrative. One that speaks more to mixed-use, core markets and densification. Given the overbuilt landscape of US retail space, diversification away from pure retail will represent both a desperately needed new stream of income beyond retail rentals and a hedge against flattening retail rents, retail bankruptcies and thinning operating margins.

While an overbuilt US market for retail will continue to take a toll on select owners and investors, a market-driven correction in the form of more acquisitions & mergers, and the diversification and densification of historically retail-only properties is already well underway.

Source: The Registry, February 24, 2018.

Author: John Cumbelich

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McNellis: Is the 1031 Exchange Panacea or Placebo?

posted by: Admin in News

Upon selling a supermarket last week, we deposited our proceeds into a 1031 exchange account. Call this maneuver the triumph of hope over experience, because we have had precious little luck exchanging properties over the past ten years, pulling off just one trade from among a half dozen attempted. What happened with the failures? Simple, in each instance we decided we would rather pay the taxes than trade into properties that were—in our view—wickedly over-priced or snake-bitten with risk.

Why are we trying again? Because now may be retail’s time. Buyers are migrating away from retail, sellers are soul-searching and, somewhere between still gaudily-priced trophy properties and power centers beset with “box risk”, we might find a decent deal: that is, an unleveraged eight percent return without untoward risk. Whether this will prove out remains to be seen, a topic for another day.

Let’s instead consider the 1031 exchange itself. It is unquestionably the greatest gift to the brokerage industry since Moses decreed the six percent commission (try paying less on a house sale and you’ll learn how deeply this commandment was carved in stone). Absent the 1031, a large but unknowable percentage of owners will never sell, preferring to ride a property straight off a cliff rather than pay avoidable taxes. (About one-third of all 2017 California deals involved a 1031 exchange buyer). Thanks to its palliative effect, America’s commercial deal volume is significantly greater than in countries that tax real estate sales profits. As decent and good-hearted as Canadians surely are, they share our Yankee enthusiasm for tax avoidance and, as a result, Canadian deal flow per capita is about 85 percent of ours. Yes, American brokers should all have tattoos that read “Born to 1031,” but is it that great a deal for principals?

It depends.

It depends on how you invest in real estate. Successfully exchanging is harder if you’re a developer rather than what is widely, if inaccurately, known as a “passive investor.” Developers want wholesale, risk-laden real estate to which they can add real value. You can find wholesale deals in the 45-day designation period, high-risk career projects, but relatively seldom can you solve or swallow half of their risks within the 180 day closing limitation. By the way, a great way to go “one and out” is to close on a deal with untamed risks.

On the other hand, if you’re that passive investor, if your milieu is finished, 100 percent leased real estate, you can readily find that within the 45 day identification period, wring out or assume whatever risk the property entails and have time enough to close within the overall 180 day period. Whether the deal will have a happy ending is another story—ask long-time veterans about their worst deals and, often as not, they began with a trade.

As importantly, the efficacy of the 1031 as a wealth-builder (presumably your ultimate goal) depends on the breadth of your financial perspective, your perceived range of investment alternatives. If you’re starting out, if your portfolio consists of real estate and pocket change for pizza (basically, my financial statement for many years), if every dime you have is either invested in property or sitting in a bank earning zero percent, the 1031 is as critical to your success as a booster rocket is to the Space Shuttle: it’s the only way to get lift-off. Even trading into a marginally-located Walgreen’s with a fixed return of 5 percent is lights-out better than paying 33 percent in taxes (if you’re in California) and having your remainder earn zero.

If, on the other hand, you have a little more experience and could be comfortable with investing in nothing more exotic than an indexed mutual fund (one consisting of a broad basket of a stock exchange’s representative companies) you might be doing yourself a disservice buying that Walgreen’s.

Even in tax-crushed California, the math is intriguing. Buy the Walgreen’s and you’re neck-deep in concrete: you have a 5 percent yield for the rest of your life and the hope that the property has residual value when the lease burns off (i.e. that prescription drugs are not delivered by drone). Pay your combined state and federal taxes of about 33 percent, you have total liquidity and you need only average 7.5 percent on your after-tax dollars to equal your Walgreen’s 5 percent.

This is not an idle comparison. Taken as a whole, the S&P 500 has averaged somewhere between a 7.5 and 10 percent total return since 1928 (pundits vary in their estimates; the Federal Reserve’s own raw data suggests a shade under 9 percent). If this long-term trend were to continue (Warren Buffet is quite certain it will), you would be far better off paying your taxes, putting away the balance into the market and letting it grow rather than worry about leaky roofs and Walgreen’s bending you over the next time its lease extension option arises.

And I will tell you from personal experience that your jaundiced banker is far more impressed with $10,000 in a Fidelity account—real money—than with your claimed equity of $100,000 in an LLC.

If you can stumble across a fair deal in the 45 days, the 1031 is your best friend. But before you pull the trigger on a Walgreen’s in South Dakota, you might consider paying your taxes and expanding your investment horizons.

Source: The Registry, February 26, 2018

Author: John McNellis

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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

posted by: Admin in News

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

posted by: Admin in News

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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