Real Estate Management News - 06/21/2017

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June 21, 2017
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IREM® HEADLINES
Office Building Sector Shows Improvement in 2016
IREM Canadian Regional Conference Successfully Takes Place in Halifax, Nova Scotia
Using Your Rooftop to Generate Revenue: Live Webinar

INDUSTRY HEADLINES
The Mall of the Future Will Have No Stores
Amazon to Buy Whole Foods Market in Deal Valued at $13.7 Billion
Amazon's Whole Foods Buy Puts Shopping Centers at Risk as Real Estate Stocks Slump
Solar Paint Could Turn Buildings Into Green Hydrogen Generators
Apartment Owners Sue City of L.A., Saying Trash Pickup Program Needed Voter Approval
Tech and the Turnstile
Retailer Gymboree Files for Bankruptcy, to Close Up to 450 Stores
Co-Living Goes Mainstream, but This Is Not Roommate Roulette
Better Business Bureau Offers Tips on Safety in the Workplace
Audit Finds Systemic Problems in Fire Department Inspection Process
Las Vegas Casinos Bet on Shopping Malls to Capture Tourist Dollars
Nashville's Supply Side Shines


 
 

IREM Headlines


Office Building Sector Shows Improvement in 2016

Fundamentals across the overall office building sector demonstrated improvement in 2016, led by downtown markets. But, while downtown office buildings saw a 10% increase in total collections and a 2.7% decrease in median net operating costs, the suburban market remained relatively stagnant. Suburban office total collections remained virtually unchanged at $19.76 per square foot, while median net operating costs dropped by 2.6%. Vacancy rates held steady in downtown markets (8%) and increased only 1% in suburban markets (5%). Taxes and janitorial/maintenance costs continued to be the largest expenses in both downtown and suburban markets.

This information comes from data recently compiled for IREM’s 2017 Income/Expense Analysis®Reports. These reports are comprehensive, detailed studies featuring income and expense data from thousands of properties in major metropolitan properties and regions across the U.S. Income/Expense Analysis® data is as flexible as it is accurate. The reports cover: Office Buildings; Shopping Centers; Conventional Apartments; Federally Assisted Apartments; and Condominiums, Cooperatives & PUDS.

Customizable to suit the needs of property managers, asset managers, appraisers, assessors, developers, lenders, and anyone engaged in investment real estate, the reports are available in a variety of formats – including online labs and Interactive PDF/Excel files, so you can plug in your own data, sort, and manipulate. In a fact-based world, you need clean, accurate, pinpoint data to support your decisions and investment choices.

Pre-order the 2017 Reports by July 31 and receive a free National Summary report covering all 5 property types (a $250 savings).
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IREM Canadian Regional Conference Successfully Takes Place in Halifax, Nova Scotia

Members from all over Canada convened last week in Halifax, Nova Scotia to take part in IREM’s Region 14 Leadership Conference. Ben McGrew, CPM, President-Elect, Cheryl Gray, CPM, Secretary/Treasurer Nominee and Ron Penner, CPM, RVP, presented the program along with IREM staff. Topics included chapter management, innovative chapter projects, and engaging young professionals at the chapter level.

The importance of the IREM/REIC network as a source of information and professional knowledge was a general theme running through the conference. Chrystal Skead, CPM, ARM and former RVP, stated that these events are only the beginning of the network’s potential. “Being a member has given me so many career opportunities, and no matter where my work takes me, there is always someone local I can call on to provide the information I need to be successful.”

Sarah Sheila Birnbach completed the IREM program with a workshop on volunteer development. “Chapters should take selecting a volunteer for a position as seriously as hiring a new employee. A volunteer shouldn’t just be a warm body with a pulse; we need to interview them, train them properly, and reward them along the way for doing a good job,” says Ms. Birnbach.

Mike Lanning, CPM, 2017 IREM President, joined the conference to present the Outstanding Canadian Chapter of the Year Award for 2016 to Manitoba Chapter No. 114. “Manitoba Chapter shows such a strong commitment to increasing value for each member and the industry; it sets an example other chapters should follow,” he stated.

The Region 14 Leadership Conference kicked-off the programming for the Real Estate Institute of Canada (REIC)’s annual conference entitled Growing Together. REIC is IREM’s longstanding partner and oversees member service and IREM education for IREM members and students in Canada.

For more about IREM’s international program, go to http://irem.org/about-irem/international-programs.
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Using Your Rooftop to Generate Revenue: Live Webinar

Wednesday, June 21, 2017 – 3pm ET; 2pm CT; 1pm MT; 12pm PT

Chances are you are reading this from your cell phone or over the Internet. That means you need a cell or WiFI signal. Where does your signal come from? Most likely a rooftop Wireless antenna. What's on the roof of your properties? If your answer is, "tar and the building's mechanical systems," then you are missing out on a potentially substantial revenue stream for your property. Join Mike Bickford to learn if rooftop leasing is right for your properties and to see if you have what it takes to manage rooftop leases.

Register Now!
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Industry Headlines


The Mall of the Future Will Have No Stores
Wall Street Journal (06/12/17) Fung, Esther

As retailers close bricks-and-mortar stores at an accelerating pace, shopping-center landlords are wondering what to do with all the vacant space. Their solutions all appear to have one common element: reduce, or even eliminate, retail from the equation. Some mall owners are plugging empty spaces with everything from churches to for-profit schools while they figure out a long-term strategy. Others are envisioning a more mixed-use future, converting their malls into vibrant streetscapes complete with restaurants, offices, and even housing. Others are razing properties altogether and turning them into industrial parks. This is due to a construction binge in the 1980s and '90s that left the United States oversaturated with malls, while growth in online sales has caused retailers to shrink their chains and divert more resources to e-commerce platforms. In total, retailers have announced 2,880 store closings from Jan. 1 through early April of this year -- more than double the same period a year ago, states Credit Suisse. Analysts further forecast that at least 400 of the roughly 1,100 U.S.-based malls will close in the coming years.

"The appetite for experimentation is there," observes Matthew Billerbeck, senior vice president of design and architecture firm CallisonRTKL. "The industry had gotten complacent and formulaic." One popular strategy is to convert enclosed malls into open-air "lifestyle centers," with everything from apartments and grocery stores to medical offices and other conveniences -- and significantly less retail. In Arlington, Va., Forest City Realty Trust is redeveloping the once-popular Ballston Common Mall to include 406 apartments. The firm is converting what was once Macy's furniture store on the mall's third level into a gathering space for residents that will include outdoor patios and landscaping. Meanwhile, the Fairlane Town Center in Dearborn, Mich., has attracted Ford Motor Co., which recently moved its entire engineering and purchasing staff into space once inhabited by department-store chain Lord & Taylor. Ford now ranks as the mall's biggest tenant.
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Amazon to Buy Whole Foods Market in Deal Valued at $13.7 Billion
Washington Post (06/16/17) Bhattarai, Abha

Amazon.com sent a major shock wave through the grocery industry late last week when it announced plans to acquire Whole Foods Market and formally enter the world of bricks-and-mortar retail. The $13.7 billion mega-deal shakes up a U.S. grocery industry that's been struggling to keep up with growing competition, both in stores and via the Internet. Amazon, which has long been testing new technology and innovations "in quiet corners," would now have a network of physical locations to both test and implement those ideas. Whole Foods currently operates more than 430 locations, but has had troubles attracting more mainstream customers as Wal-Mart and other rivals have stepped up their sales of organic and natural products. Under terms of the acquisition, Whole Foods would continue to operate under its existing brand, John Mackey would remain CEO, and the grocer would still be based in Austin. The purchase is on track to close in the second half of this year, pending shareholder and regulatory approvals.
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Amazon's Whole Foods Buy Puts Shopping Centers at Risk as Real Estate Stocks Slump
CNBC News (06/16/17) Thomas, Lauren

REITs took a beating in the equities market late last week following Amazon's announcement that it plans to acquire Whole Foods. Shopping center REITs tumbled more than their peers in the commercial real estate sector, with Regency Centers seeing its stock dip more than 5 percent at one point Friday afternoon. Also down were Kimco Realty, Brixmor Property, and Weingarten Realty. These various REITs own and operate shopping centers nationwide with grocery-store anchors. "This confirms ultimately that online e-commerce guys are going to have to go to brick and mortar," Boenning & Scattergood Managing Director Floris van Dijkum remarked.

This is going to be a problem for many REITs that considered supermarket anchors to be safe havens. "How safe is Kroger now?" Dijkum asked. "Grocery was perceived as being safer. Now it's like . . . if you don't have the best grocer, you are not safe." Less-grocery-exposed REITs like Acadia and Federal Realty appear to be stable for now. "What is unclear is what the Amazon strategy will be and how it will leverage this asset," concluded analyst Daniel Binder in a note to clients.
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Solar Paint Could Turn Buildings Into Green Hydrogen Generators
SlashGear (06/16/17) Davies, Chris

Solar-powered paint capable of generating clean hydrogen fuel could turn office buildings into green power stations, new research by the RMIT University in Australia suggests. The key is a new compound that unexpectedly acts as a catalyst in a chemical reaction. First, the paint absorbs water. Then, it splits that water up into oxygen and hydrogen. Breaking apart water in that way is not new. The problem has been that it requires power to do so, which can make economically viable production of hydrogen questionable at best.

What singles the RMIT research out is the power source it is relying upon. Solar power gives the synthetic molybdenum-sulphide the energy it needs. The compound can be mixed with titanium oxide, a pigment that is already used in white paints. When in the presence of moist air, the resulting paint absorbs water and sunlight and gives off hydrogen gas. "Our new development has a big range of advantages," RMIT lead researcher Dr. Torben Daeneke comments. "There's no need for clean or filtered water to feed the system. Any place that has water vapor in the air, even remote areas far from water, can produce fuel."
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Apartment Owners Sue City of L.A., Saying Trash Pickup Program Needed Voter Approval
Los Angeles Times (06/12/17) Smith, Dakota

In California, a statewide apartment owners association has filed a lawsuit charging the city of Los Angeles with illegally setting trash pickup rates. The Apartment Owners Assn. of California has joined with L.A. residents Chuck Betz and Daniel Faller to file the lawsuit in Los Angeles Superior Court, seeking an injunction to stop the roll-out of Zero Waste L.A.. The "green" trash pick-up program run by the city is on track to launch in July. With Zero Waste L.A., the city created 11 waste-collecting zones, as well as signed exclusive operating agreements with haulers and established new rates for the service. Trash rates will very likely increase for some customers. "The suit alleges that the city violated Proposition 218, a 1996 constitutional amendment requiring voter approval before California cities can impose new taxes or raise taxes on property owners," the Los Angeles Times reports.

Attorney Carolin Shining, who represents the plaintiffs, contends that the new trash rate is really a tax. She points out that her clients are not challenging the city's goal of increased environmental benefits with Zero Waste L.A. But "the way they went about it is just wrong," she remarked. Faller currently serves as president of the 20,000-member Apartment Owners Assn. of California. For his part, Betz is also an apartment owner and a member of the apartment association. Their lawsuit further alleges that the trash rate is not equally applied to businesses and residents, Shining argues. The City Council in 2016 awarded trash-hauling contracts valued at $3.5 billion, selecting seven companies and their subcontractors to exclusively collect trash for approximately 65,000 accounts.
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Tech and the Turnstile
Security Management (06/17) Stowell, Holly Gilbert

7 World Trade Center, the first tower to be rebuilt after the Sept. 11, 2011, terror attacks that destroyed the Twin Towers, has been using turnstiles for access to its north and south lobby entrances since it opened in New York City's Financial District in May 2006. However, Angelo Provvido, property manager at 7 WTC, said the previous solution was not ideal. "We had maintenance issues with them—they were constantly malfunctioning," he said, adding that the turnstiles had a component that would sometimes strike people in their midsection or legs as they came in and out of the building. Kratos, the security integrator for Tower 7, helped the building evaluate several new turnstile options that would improve convenience for tenants and facilitate the overall flow of traffic. Provvido said management was impressed with Smarter Security's Fastlane Optical turnstiles, noting that "the slim design, the glass door features—those were all things that drew our eyes and our attention to the product" and ultimately prompted management to integrate the solution into the building's lobby.

The integration process took about a year and was completed in April 2015. There are eight turnstiles, two of which are handicap-accessible, and tenants gain access by presenting an access card above a scanner on the turnstiles, which are equipped with both proximity and bar code readers. The turnstiles have swinging glass barrier doors that open to allow the person through, whereas "the old ones were more of a metal, bulkier turnstile," according to Provvido. Among other things, the turnstiles improve traffic flow by pairing the employee's profile with the floor number they work on, automatically reserving an elevator to take that person to the designated floor when they present their card to the turnstiles. In addition to the turnstiles, 7 WTC has a fully staffed security desk during the building's main hours.
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Retailer Gymboree Files for Bankruptcy, to Close Up to 450 Stores
Milwaukee Journal Sentinel (06/12/17) Bomey, Nathan

Gymboree has filed for Chapter 11 bankruptcy protection, aiming to reduce its debts and close hundreds of stores. The children's clothing chain plans to remain in business, hoping to regain its financial footing despite considerable challenges for bricks-and-mortar retailers. Gymboree's plan is to close between 375 and 450 of its 1,281 stores, according to a court filing. The Chapter 11 filing was widely anticipated after Gymboree refused to pay certain bills in the past few months, placing the retailer on a collision course with creditors. The company, which aims to slash $1 billion of its $1.4 billion in debt, expects to win approval for its plan by Sept. 24.
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Co-Living Goes Mainstream, but This Is Not Roommate Roulette
CNBC News (06/16/17) Olick, Diana

Co-living is poised to changed the apartment sector. Co-living basically means that strangers move in together, sight unseen, each signing their own lease for a private bedroom and bathroom but sharing common spaces. As rents soar in many desirable markets, younger renters are proving they are willing to upend the old find-a-roommate-on-Craigslist model that has served millions in years' past. Old, mainstream apartment developers are now rushing to cash in on the trend. Co-living is already disrupting the Chicago apartment sector. Property Markets Group, an apartment developer operating in the Windy City and elsewhere, designed and built one of the first rental apartment buildings specifically for co-living. Certain apartments in the new building in Chicago's Logan Square neighborhood have three bedrooms, each with their own bathroom. The common area is fully furnished, and the hall closet is oversized to fit three different individuals' belongings. Each resident has his or her own one-year lease. Unlike traditional roommate situations, no one in the apartment is responsible for anyone else.

To be sure, the building does offer regular units as it was difficult to find financing for a concept that is so new. Investors usually want to see a very clear rental revenue stream. The concept is the brainchild Ryan Shear and Noah Gottlieb, both principals at PMG and both Millennials. "When we left college, there was really no place that we could live," Shear remarked. "Social living, which is probably what summarizes what we're doing, it didn't exist. It still doesn't exist on a mass scale." Their buildings cost slightly more to develop than traditional apartment complexes because of the additional bathrooms and social spaces. But that can be made up in the rent, states Shear and Gottlieb. While rents are lower for each individual resident, the combined rent per apartment is higher. Such Other companies as Common and WeWork also offer co-living options, but they don't presently own or develop the buildings themselves.
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Better Business Bureau Offers Tips on Safety in the Workplace
Marietta Daily Journal (06/09/17)

The National Safety Council estimates that a worker is injured on the job every seven seconds, and every day, nearly 13,000 American workers are injured. To help prevent accidents in the workplace, the Better Business Bureau (BBB) recommends creating a workplace safety program based on spotting hazards early, evaluating their risk, and removing or controlling them before harm is done. It is equally important for a business, office, or retail store to have a safety program in place as it is for a construction site or warehouse. Measures to curb workplace violence include carefully reviewing security procedures for the company, storefront, employees, and customers. Leaders need to determine if security guards are needed and should set up avenues to resolve workplace disputes before they escalate. In addition, equipment and infrastructure should be in good condition. If someone sees anything he or she believes could be considered a workplace hazard, it should be brought to the attention of a manager/supervisor immediately.
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Audit Finds Systemic Problems in Fire Department Inspection Process
Houston Chronicle (06/15/17) Elliott, Rebecca

According to an audit released late last week, the division of the Houston Fire Department that's responsible for ensuring building safety keeps inadequate records, does not examine buildings on a regular schedule, and has inflated its inspection numbers -- all while exceeding its overtime budget. The audit for fiscal years 2015 and last year is the latest in a series of scatching critiques of the Life Safety Bureau. Just 526 of Houston's more than 5,000 apartment buildings were inspected in the past two fiscal years, the audit found, which is well under the bureau's goal of 470 apartment inspections a month. Many of the 28 high-risk problems, from an incomplete inspection database to poor job training, were identified by the city controller's office over a decade ago.

The audit found that city inspectors provided many hotel, motel, high-rise, and apartment building owners and operators with self-inspection checklists instead of conducting inspections themselves. It further learned that the city does not require the Life Safety Bureau to inspect buildings prior to issuing certificates of occupancy, except in the case of hazmat facilities. Fire Chief Samuel Pena has vowed to make changes, including the finalization of a risk-based inspection program and regular inspection cycle by this summer. He assures that Houston will also work to ensure fire inspections are completed before city officials issue any certificates of occupancy.
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Las Vegas Casinos Bet on Shopping Malls to Capture Tourist Dollars
Seattle Times (06/13/17) Parmley, Suzette

Eager to attract non-gaming spending, more and more Las Vegas casinos are putting in retail pavilions where they once had fountains or other splashy attractions. Such spending is now almost double the gambling revenue in Sin City. For instance, Resorts International executives have held preliminary talks to replace the 22 million-gallon Bellagio Fountains with a boutique shopping and restaurant promenade. Three years ago, Treasure Island Hotel & Casino drained a lagoon that was used to stage a pirate show in front of the property to convert it into retail. In 2015, Bally's converted a garden that has been a landmark of the Vegas Strip into an outdoor mall, dubbed the Grand Bazaar Shops. The tables began to turn in 1999, when retail and other nongaming revenue collectively exceeeded casino gambling for the first time. The gap has continued to grow in the years since.

Retail has become so hot along the Strip that it is now common to find multiple locations of the same brand. Mike Mixer, executive managing director in Colliers International's local office, said there have been at least three $1 billion-plus sales transactions in the past year for shopping-mall properties on the Strip. They include: Crystals at CityCenter, the Fashion Show Mall, and the Miracle Mile Shops at the Planet Hollywood resort. "Both high-end luxury and discount retailers are enjoying success," adds Mixer. Michael Hirschfeld, co-leader of JLL's National Retail Tenant Services, is among those enthusiastic for the future. He concluded, "The brands now want to be here because the people are here. And based on the stats, they're here shopping."
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Nashville's Supply Side Shines
Commercial Property Executive (06/06/17) Croitoru, Evelina

Yardi Matrix reports that strong demand fueled by robust population gains and consistent job growth have kept the Nashville multifamily housing market at a high level. Investors acquired more than $1 billion in apartments in 2016 in the city. A booming economy is broadening the city's labor force at a rate well above the national average, helping to drive demand for housing. Nashville's knowledge-based economy thrives due to growth-oriented industries, such as health care, which continues to attract a highly educated workforce. Overall, employment is healthy, with 24,300 jobs added in 2016. Meanwhile, the Nashville Metropolitan Transit Authority approved nMotion, a $6 billion transit plan that will develop a large number of high-capacity and rapid transit services over the next 25 years. Public-private collaborations, such as the Partnership 2020 initiative that aims to create economic growth in the region, are also drawing investors to the area. Yardi Matrix forecasts a 4.5 percent rent increase for the full year.
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