Real Estate Management News - 08/16/2017

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August 16, 2017
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LEADERSHIP SPOTLIGHT
Buying, Selling and the Asset Manager

IREM® HEADLINES
Office Buildings Show Improved Performance
Everyone’s Talking About the IREM Global Summit

INDUSTRY HEADLINES
How the Office Lobby Speaks Volumes
How to Keep Floors Clean During Heavy Foot Traffic
Kohl's Is Defying the Retail Meltdown — and It's More Proof That Malls Are Dying
Healthy Job Growth Will Support Steady Absorption in the Office Sector
Why the Mallpocalypse Hasn't Come For The Mall Of America
Economy Watch: The Least Expensive Apartment Markets
Alex Rodriguez Wants to Open UFC Gyms at Shuttered Shopping Centers
Introducing RealPage Data Analytics: A One-Stop-Shop for Apartment Market Intelligence
Plans for 'Creative Office Space' at Former L.A. Times Site Head to Costa Mesa Planning Commission
Multifamily Developers Try to Solve the Parking Challenge
Discounters Gain Ground in U.K. Supermarket Wars
Ultra-Efficient Apartment Buildings in New England Are Part Of 'Big Wave'


 

Leadership Spotlight


Buying, Selling and the Asset Manager

“Over the past few years, there has been a growing focus at IREM on the increasingly sophisticated, highly nuanced relationship between property managers and asset managers,” IREM president Michael Lanning states in his most recent article for National Real Estate Investor. “Also coming under greater scrutiny is the relationship between the asset manager and a company’s acquisitions/dispositions team.”

As Dustin Read, PhD/JD, points out in his new book, Acquisitions & Dispositions: The Role of The Real Estate Asset Manager, the most successful combinations of talent exist in a culture of communication and respect across disciplines, Lanning reports. “In that way, in fact, there is little difference between the relative roles of asset manager and acquisitions/dispositions and that of the property and asset manager.”

Lanning notes that creating a collaborative dynamic across disciplines is a process that grows from the top down. “The structural organization of a real estate investment management firm must . . . be taken into account when exploring ways to help asset managers collaborate with acquisition and disposition teams,” writes Read. As one professional interviewed for the book is quoted as saying, “Acquisitions has to see asset management as a partner.”

“Clearly, it’s important that these teams be blended so everybody is working together,” writes the IREM president, “that both acquisitions/dispositions and asset management all understand what the buy, hold or sell objectives are, whether it’s a product or a portfolio, and indeed each brings a specialized skillset to the party. When everyone is on the same page and everyone takes ownership of what their roles are, siloed mindsets are put aside in favor of a productive working relationship.”

According to the IREM president, a culture of collaboration has to be developed from senior management and then communicated to the teams. “A failure to do so results in a siloed internal structure and a disconnect that frankly disrespects ownership’s investment vision. Everyone needs to be on the same page to properly, professionally and efficiently turn the investment strategy of the ownership entity into the reality of a profitable portfolio.”

Learn more by registering for IREM’s August 17th webinar The Real Estate Asset Manager's Role in Acquisitions and Dispositions and receive a free copy of Dr. Read's new publication.
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IREM Headlines


Office Buildings Show Improved Performance

According to IREM’s 2017 Income/Expense Analysis Reports fundamentals across the overall office building sector demonstrated improvement in 2016, led by downtown markets. Downtown office buildings saw a 10% increase in total collections and a 2.9% 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.

During 2016, downtown office properties total actual collections were 21.7 percent more than their suburban counterparts. Generally, a suburban office property is less costly to operate than a downtown building with total operating costs 23.2 percent less than those of a downtown building. All expense categories for suburban properties were less than those experienced by buildings in a downtown setting.

Though downtown properties reported higher total actual collections than suburban properties, the overall operating experience of downtown properties was slightly worse than properties in suburban office markets as reflected by the median operating ratio (total operating costs divided by total actual collections). The median operating ratio for a suburban development was .43 while a downtown building’s operating ratio was .45.

For more data on the performance of the office building sector, or other sectors, check out IREM’s 2017 Income/Expense Analysis Reports. If you don’t need information broken down by region or metro area, you can find the national trends for conventional apartments, federally assisted apartments, office buildings, shopping centers, and condominiums/coops/PUDs in IREM’s Real Estate Income/Expense Analysis National Summary .
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Everyone’s Talking About the IREM Global Summit

It may be known as the Second City, but come October, Chicago will be second to none for real estate professionals across the industry. The IREM Global Summit, October 10-13, is set to deliver a one of kind, contemporary conference experience for commercial and multifamily property and asset managers. Register by September 8 to save $100 for the full IREM conference experience, or save $50 on the Professional Education Pass if you don’t need business and governance meetings.

Everyone’s Talking About iTalks: Who needs TED? Back by popular demand, IREM’s iTalks are returning for the 2017 Global Summit and are sure to have you talking. These short, 18-minute presentations are designed to deliver new ideas, solutions and inspiration. This year’s iTalks, just one of many flavors of timely industry education at the Summit, include:

EPA-1-100 Water Score for Multifamily Communities: Curious how your multifamily property stacks up in terms of water efficiency? The EPA’s ENERGY STAR® and WaterSense® Programs worked together to develop a 1-100 Water Score allowing users to track water usage through ENERGY STAR Portfolio Manager®, and to gauge how their properties compare against competitors.

How to Master Your Calendar: Gip Erskine, founder of EverSmartsTM, knows a lot about time––and how to master it––by discovering one truth: there’s no way to “manage” it. You can, however, work with it, by first determining what’s most important to you.

Maximize Your Use of the IREM Income/Expense Analysis Data: Learn how the use of benchmarking and analyzing historical trends can benefit your company. Hear Craig Cardwell, CPM, present ways to leverage the statistics found in IREM’s five Income/Expense Analysis publications.

Attend these iTalks and more – Don’t wait, register now!
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Industry Headlines


How the Office Lobby Speaks Volumes
JLL Real Views (08/14/2017) Pierce, Emmett

It only takes just a few seconds to form a first impression when walking into an office building for the first time. A properly designed reception and waiting area sends out a powerful message about a company's identity, products, and services. According to Vicki Eickelberger, Managing Director at Big Red Rooster, part of JLL, lobbies can be effective branding tools. She explains, "It is the first moment of the brand relationship. It is that sense of arrival and expectation. You are setting expectations for future interaction.” The best designed lobbies welcome visitors and guide them to the next stage of their journey. The use of decor, color schemes, furnishings, and even background music should blend together to communicate an immersive expression of the brand. A cluttered reception area, by contrast, can communicate a company's disorganization. Multimedia assets displaying appropriate content can provide a welcome distraction for visitors waiting for their hosts to meet them. Also, industry or in-house publications can help to communicate more information about the company's strengths, as well as reinforce their image.

Security screening areas should also tie in with the overall design. Eickelberger states, "Security is crucial to ensuring workforce safety, but we need to make sure it is integrated into the design so it isn't a glaring afterthought." Designers will ideally work with the space available to create something memorable without being overwhelming. Using indoor and outdoor areas to create a pleasing sense of open space is the strategy at the One Rogers Street office building, in Cambridge, Mass., for instance. The Hongkou Soho, a 29-story mixed-use building in Shanghai, uses its lobby to provide relief from the city's hustle and bustle. Meanwhile, the lobby for retailer Primark's Dublin headquarters includes a large cafe and bar. "In some places there is an intermingling of associates working and visitors getting ready to head off to meetings," remarks Eickelberger. "That creates sense of connectivity which helps to reinforce a positive and vibrant brand image."
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How to Keep Floors Clean During Heavy Foot Traffic
Buildings (08/09/17)

Most building do not grow physically by square footage, but instead by the number of people walking in and out of it on a daily basis. Extra foot traffic can add wear and tear to the floors of a facility or complex. To this end, building maintenance and repair company MaintenX International offers several some preventive maintenance tips to ensure floors stay in quality shape, even during times of high traction. Number one is to refinish floors. This entails washing down your floors and applying a fresh coat of quality floor finish. Ideally, this should be done before a building gets too busy. Tip two, be sure to clean outside. This means sweeping up leaves and removing any mud and/or debris from the entrance to keep it from getting inside.

A third tip is to an obvious one ... have the carpets cleaned. This proactice measure, which can also improve indoor air quality, is often a crucial step in preventing wear and tear during the summer season. Four, rely on rugs. Mats, in particular, will capture sand, dirt, and other soils at or near the entrance and prevent them from dirtying the building. Finally, practive proper maintenance. Routine maintenance will help identify any divots, cracks, and other defects in your floor. By investing in a preventive maintenance plan, costly problems can be prevented down the line and often before they happen.
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Kohl's Is Defying the Retail Meltdown — and It's More Proof That Malls Are Dying
AOL News (08/10/17) Peterson, Hayley

While department stores, in general, have been shutting down hundreds of stores following years of declines in sales and traffic, Kohl's is doing quite well. Its quarterly profit soared jump 48 percent and executives said transactions grew last month, indicating positive momentum heading into the all-important, back-to-school shopping season. Kohl's has improved customer foot traffic without closing a ton of stores because it's somewhat immune to the massive drop-off in traffic to shopping malls. Nine out of 10 Kohl's department stores are situated in suburban strip shopping centers and other areas away from enclosed malls, points out Kohl's CFO Bruce Besanko. "You should not expect to hear anything about store closures this year," he added.

Actually, Kohl's has been investing in stores instead of closing them. Management has been rolling out smaller-format locations that are about 35,000 square feet (or roughly one-sixth the size of a Macy's store). It has also been improving inventory management and investing in bringing in more national brands like Under Armour --
a strategy that appears to be paying off. For instance, overall athletic-wear sales soared 14% during the quarter. "To a large extent, Kohl's has managed to buck the negative customer traffic trend by making its stores, and the product within them, more relevant," concludes GlobalData Retail analyst Anthony Riva. Finally, Kohl's has been boosting profits by holding fewer clearance sales and investing in such Web-based initiatives as "smart basket," which gives customers discounts for picking up items in stores rather than shipping them to their homes.
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Healthy Job Growth Will Support Steady Absorption in the Office Sector
National Real Estate Investor (08/11/17) Kirk, Patricia

A total of 209,000 new jobs were created during the month of July, more than the 183,000 jobs expected, reports the U.S. Bureau of Labor Statistics. In addition, the national unemployment rate dipped to 4.3 percent. Meanwhile, the number of employed Americans hit a new high of 146.6 million, causing the employment-to-population ratio to move up to 60.2 percent -- the highest it's been since February 2009. A Marcus & Millichap study shows that continued steady job gains have led to positive performance in the office sector, even though total absorption was 28 million square feet in the first two half of 2017 versus 38 million sq. ft. during the same period a year earlier. "This is not a bad number," remarks Alan Pontius, national director of specialty divisions at Marcus & Millichap. "Absorption has slowed, but it is still positive, and construction remains muted."

New office construction deliveries were the biggest story in the April-through-June period, with 16.1 million sq. ft. of space -- the biggest amount since 2009's second quarter. That brought total new product delivered this year to 28.4 million sq. ft., Cushman & Wakefield's second quarter 2017 office report shows. With healthy absorption, the office vacancy rate remained at 13.3 percent since Jan. 1. As has been the case throughout this expansion cycle, the tightest markets continue to be those with a strong technology sector, C&W researchers point out. The No. 1 challenge in attracting talent to such gateway markets as San Francisco and New York City is the high cost of living. Consequently, more and more employers are opening offices in markets with a lower cost-of-living and ideally an abundance of young, educated workers. Such markets include Denver and Phoenix.
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Why the Mallpocalypse Hasn't Come For The Mall Of America
Refinery29.com (08/09/17) Wang, Connie

When The Mall of America opened 25 years ago this week, what made it so different is now being copied at other surviving shopping malls across the United States. It had more than just stores and food-court eateries. The biggest mall in the country also came with nightclubs, a medical supply store, and an amusement park with a roller coaster and log flume. The Mall of America has since been host to a subterranean aquarium, a budget wedding chapel, office space, a community college, and even a Prince retrospective. It has also been progressive in its policies. In 2016 alone, The Mall of America made headlines by hiring an African-American Santa and closing its doors on Thanksgiving. As a result, it has become one of the few retail success stories in an otherwise uncertain time for the sector. Since Jan. 1, approximately 5,300 stores have closed, on pace to become the single worst year for store closures ever. All the while, The Mall of America claims that its shoppers spend 52 percent more per trip than the national average. In addition, more people visit it annually than Disney World.

The reason for The Mall's success is it has always subscribed to the notion of mixing retail with entertainment. Malls around the country have only recently been catching up, adding everything from Lego Discovery Centers and bowling alleys to surfing simulators and pizza buffets. In doing so, they are trying to become what the Mall of America already is and has been for years: a real and meaningful part of its local community. The Mall has indeed made it a policy to include local shops, groups, and spaces in its mix, calling them "an undervalued but crucial component" to its health. Finally, The Mall of America's size has enabled it to make meaningful resource and financial contributions that don't conflict with its bottom line. The Mall reportedly gives the equivalent of $12 million a year in cash, products, and in-kind support for charitable causes.
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Economy Watch: The Least Expensive Apartment Markets
Multi-Housing News (08/11/17) Stribling, D.C.

The latest CBRE Research report shows that the country's most affordable major metro area -- at least when it comes to rent as compared to income -- is Raleigh, N.C. The rent-to-income ratio in Raleigh is 18.77 percent. At the other end of the spectrum is greater New York, where the rent-to-income ratio is a whopping 51.33 percent. For their findings, CBRE researchers compared 26 metro apartment markets that together have an average rent-to-income of 28.99 percent. The more affordable U.S. apartment markets by this metric tend to be in the Southeast and Southwest, with Albuquerque and Phoenix both under 20 percent. The Texas cities of Austin, Dallas, and Houston also have generally low rents compared to incomes. California tends to be on the expensive side, with Orange County, the Inland Empire, San Jose, Oakland, San Diego, San Francisco and Los Angeles all higher than the average of the 26 markets.
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Alex Rodriguez Wants to Open UFC Gyms at Shuttered Shopping Centers
Fortune (08/09/17)

Former Major League Baseball star Alex Rodriguez recently obtained the license to open UFC-branded workout gyms in the Miami metropolitan area. With stores at shopping centers closing at a record pace, Rodriguez is now actively scouting shuttered brick-and-mortar locations to fuel their expansion across South Florida. "It plays right into our wheelhouse," the former shortstop recently explained. "There's not a lot of people looking for 40,000 square feet in shopping centers." Rodriguez has experience in the niche, having spent the last several years helping open a chain of gyms in Mexico called Energy. His partner in that venture was Mark Mastrov, who co-founded 24 Hour Fitness and is part-owner of the Sacramento Kings. Now the pair looks to capitalize on the growing popularity of the UFC brand, named for the Ultimate Fighting Championship.

The two are scouting locations for roughly a dozen more gyms, hoping to have at least three "letters of intent" for new locations signed in coming months. In total, there about 120 U.S. workout gyms under the UFC banner. According to the International Health, Racquet & Sportsclub Association, the U.S. health-club industry grew 7 percent to $27.6 billion in revenue in 2016. One of the fastest growing corners of the fitness industry has been boutique studios, including CrossFit and SoulCycle. For its part, UFC launched its chain of gyms in 2009, offering an array of workout classes and training programs.
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Introducing RealPage Data Analytics: A One-Stop-Shop for Apartment Market Intelligence
Property Management Insider (08/09/17) Blackwell, Tim

With the apartment industry quickly adjusting to the changing landscape of the current cycle, RealPage Data Analytics is poised to provide a singular source for critical market information. The new platform combines the analytical powers of Axiometrics (apartment rent comps), Real Capital Analytics (sales comps and capital trends) and MPF Research (market research and forecasting). The goal is for RealPage Data Analytics to provide the most accurate market fundamentals, forecasts, capital trends, and asset-level granularity to date. Additionally, the enhanced platform is designed to bring together a client's internal data -- directly from any major property management system, updated daily -- with external data. In doing so, there will be no more need to go to multiple places for information. The commingling of all the data and analytical tools enables clients to make informed decisions regarding everything from apartment acquisitions to renovations to day-to-day operations.
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Plans for 'Creative Office Space' at Former L.A. Times Site Head to Costa Mesa Planning Commission
Los Angeles Times (08/11/17) Money, Luke

A vision to reshape the former Los Angeles Times newsroom and printing plant in Costa Mesa, Calif., into a creative campus with hundreds of thousands of square feet of office space is set to go before the city Planning Commission this week. Commissioners will be tasked with reviewing a three-phase, preliminary master plan to develop 655,000 square feet of office space on more than 23 acres -- a site currently occupied by the former Times facility, offices, a helipad, and a baseball field. The first phase, dubbed The Press, would redevelop and repurpose the Times building to create 339,063 square feet of offices. Building heights would reach 56.5 feet, and The Press would feature voluminous interior space and a series of tiered mezzanine levels to provide flexible use. Amenities would include uch as outdoor seating, sports courts, and an amphitheater.

"Ultimately, it's going to provide creative office space with great outdoor amenities, which is what today's tenants are looking for," stated Hoonie Kang, a partner with Kearny Real Estate Co. Kearny is collaborating on the project with Tribune Real Estate Holdings, a subsidiary of former Times owner Tribune Media. The two companies co-own the plant and property. In 2014, Tribune Media spun off its newspaper holdings into a separate company known as Tribune Publishing. Employees of the Times and Daily Pilot moved out of the Costa Mesa complex in the fall of that year. The Press would take up nearly 14 acres of the overall site. Plans for the remainder have yet to be finalized, although the preliminary master plan contemplates erecting two new five-story office buildings with accompanying four-level parking structures. Future projects also could include “retail, hotel, things like that,” stated Kang.
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Multifamily Developers Try to Solve the Parking Challenge
National Real Estate Investor (08/08/17) Anderson, Bendix

Nationwide, multifamily housing developers are fighting for the right to build fewer parking spaces at new apartment buildings and complexes in downtown areas. National Multifamily Housing Council (NMHC) President Douglas Bibby remarks, "There is a growing awareness among housing officials that the required parking ratios are out of whack with reality." People use fewer parking spaces if they live in places with close-by stores, restaurants, and amenities and transit options for longer trips. Apartment developers, of course, need to make sure they don't skimp on the number of parking spaces they provide at their communities. After all, parking still ranked as the community amenity that residents desire most in the 2015 NMHC/Kingsley Resident Preferences Survey. But if they build too much parking, the empty spaces may be difficult to re-purpose for any other use.

In urban locales, parking often needs to be stacked in concrete parking or underground structures that may be expensive or impossible to demolish. To be sure, in a handful of places, the matter has already been settled. In the high-rise neighborhoods of New York City, for instance, many new apartment developments are now underway with few or no parking spaces. Officials in Oakland, Calif., meanwhile, have reduced their minimum parking requirements in the city's downtown, which is served by several mass transit options. Officials in San Francisco have rewritten their parking requirements, too. Instead of forcing apartment developers to build a minimum amount of parking spaces, the code prevents developers from building more than a certain number of spaces per rental unit. Finally, developers are creating transit options for their residents by welcoming car-sharing companies like Uber. To this end, they are creating designated Uber drop-off and pickup areas close to the lobbies of their apartment buildings where residents can wait for vehicles from car sharing services to arrive.
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Discounters Gain Ground in U.K. Supermarket Wars
New York Times (08/04/17) Tsang, Amie

The Brexit vote and its impact on the U.K economy and outlook have opened a door for cheaper grocery stores like Aldi and Lidl to gain market share in the United Kingdom. Britain's supermarket sector is ruthlessly competitive. Major retailers like Morrisons, Sainsbury's, Tesco, and Wal-Mart's Asda all jostle for market share by offering loyalty schemes, online shopping, home delivery, and special offers. Long dismissed in Britain as shops targeting only lower-income discount-hunters, Aldi and Lidl have steadily made progress and, since Brexit, their growth in market share has accelerated.
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Ultra-Efficient Apartment Buildings in New England Are Part Of 'Big Wave'
Rhode Island Public Radio (08/07/2017) Bever, Fred

Passive housing, a new type of energy-efficient construction, is drawing greater attention in parts of the United States. Such residences, which are built to achieve ultra-low energy use, are proving to be so efficient that developers can eliminate central heating systems altogether. Imported from Germany, it's been only a boutique building style until recently. New England, in particular, is joining a surge in large-scale passive housing development. The latest example is Bayside Anchor, a four-story, 45-unit building in Portland, Maine. Architect Jesse Thompson said the project had to be cost-effective enough to get financed by public and affordable housing groups. The building has great insulation, includes triple-glazed windows, and the exterior walls are several inches thicker than basic code would require. And, indeed, there is no central heating system. Instead, each of the 45 apartments has a small baseboard electric heater with an estimated electricity cost of just $125 a year.

Of course, it takes more than thick walls to achieve those energy savings. It also takes a near-perfect seal on the building's envelope, along with a high-tech ventilation system to purge moisture while keeping warm or cool air in depending on the weather. Thompson describes it as the building's "lungs," but the technical name is a "heat recovery ventilator." He remarks, "So all the bad air, all the bad smells go out. But the heat stays in." Officials at the Passive House Institute say it is still a huge request to finance market-rate units that won't realize full energy-efficiency savings for decades. Momentum for large-scale passive housing really did start gaining in 2016, though, when the number of buildings the Chicago-based Institute certified doubled -- a number that is on pace to more than double again in 2017 with projects getting bigger and bigger, including a 350-unit New York City high-rise.
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