I had the pleasure of attending the RECG 10th Annual Commercial Real Estate Forecast Conference in Chicago this week – starting off my Tuesday morning with a fireside chat between Debra Cafaro and Sam Zell.  .    Well over 1000 commercial real estate practitioners, lenders, developers and others were standing room only at the event.  Here’s some of the “live” recap from Debra and Sam’s chat:

8:06 am    Good Morning !  Things are getting started shortly.

8:15 am   Over 1000 people registered for this 10Th annual Commercial Real Estate Conference.  Organizers say it’s pre-recession levels.  Perhaps a good sign.

8:19 am Sam Zell and Debra Cafaro starting their fireside chat.

8:21 am Zell:  “Come clean by the end of ’13″

8:23 am  Zell:  “very little likelihood we’ll see new supply in the next 24-36 months”

8:25 am  Cafaro: “In a market with mixed messages – How do you decide to move forward as an investor, etc?”   Zell:  “Right now, the opportunities are linear.  Always transactions, always opportunity, unique situations” “Pick your spots, have a lot of patience.”

8:29 am  Cafaro: ” Retail thoughts?”  Zell:  “Retail, more than any other form of real estate has a very serious obsolesence (sp?) factor” “Disposable income has modified, hard to see growth in retail”

8:32 am  Cafaro: “We’re seeing you invest in partnership in 200 S Wacker, relatively small – why?”  Zell: ” It was very cheap, and made sense.  That was the only office building that made sense”

8:36 am  Zell: (on office) “We’re in a major downsizing.  There are many multi-national corporations in the US that have more employees overseas than previous.  And there has been no employee growth so…no growth”

8:38 am Zell:  (on hotel) “Hotel business has been largely over-supplied.  Tourism is attractive, dollar is relatively cheap, hotel business in 24/7 cities could benefit from no new supply”

8:40 am Cafaro:  “Multifamily – you love apartments, can you talk about EQR and the multifamily sector?”  Zell: “Have to add in single family market here…I think, American people have adjusted their love affair with single family house.   This dramatic mental change has lead to highest occupancy rates, somewhat unlimited demand….Multifamily business is, at this moment, best part of real estate industry – and will probably stay this way”

8:48 am Cafaro: “International – you’ve invested all over the world.  Let’s stay away from Europe for a second and talk about the Brazils, the Mongolias,….”    Zell:  “Simple answer.  Demand.”

8:50 am Zell ” Beauty of our international focus is where is the demand today and where will it be tomorrow.   Mongolia – enormous resources and geographically closer to China…and their economy is growing at rate of 20%”

8:52 am Cafaro:  “Let’s talk about our European leaders….and real estate”    Zell: “Why would anyone in their right mind invested in Europe?  There is zero or negative growth”

8:54 am Cafaro:  “You feel very strongly about the political environment”  Zell: “We cannot grow unless people are confident.  Destabilization of American economy is very dangerous.  We are the most predictable country in the world”

8:58 am Zell: “US cannot grow until there has been a replenishment of confidence.  This can only happen with the right leadership”

8:59 am  Cafaro: “What would you be leading with to get the economy and real estate market back?”  Zell:  “I would stop all new regulations.  We can’t handle what we have already”

9:04 am Cafaro: “You have truly been an amazing visionary in a way that has benefited all of us.  What do you want your legacy to be?   Zell: “I have always been a man of my word.   Clarity, principled, somebody who was given the opportunity.

9:07 am Zell:  ” I want people to think I thought about things, reflected on them, and had a global view.   And that I followed the 11th commandment:  Thou shall not take oneself seriously.”

9:08 am Cafaro “Thank you Sam”

Mike Eppli, Ph.D. Addresses NAIOP

In his “2012 Economic Forecast…The Road To Recovery” Mike Eppli, Professor of Finance and Robert B. Bell Sr. Chair in Real Estate at Marquette University made a key assumption about the future, charted out the recent past and put it together to conclude “Real estate is the best relative investment for 2012″.

To a standing-room-only Riverway Auditorium in Rosemont, Eppli set down one ground rule – that for the predictions to hold, short term interest rates would need to remain low, such as what the Fed policy appears to be.

“For the foreseeable short term future, that’s what the Fed keeps saying.  There’s not a lot of inflation pressure in the market today.”

Eppli’s preferred commercial real estate sectors for 2012 are apartments and retail.  We’ll take a look at retail and other sectors in later posts.  For now: apartments.

Apartments

Even though growth of households (household defined as that population unit required for rental occupation or home ownership) slowed in the 2000s, current research suggests a nationwide bump in households amounting near 350,000. Against a backdrop of a base 35 million apartments in the US, a pent-up demand for apartment housing is stemming from an oft-discussed trend: After completing school, college students are coming home and staying there – approximately 1.6 million young adults in this situation currently that would under different economic circumstances be in apartments.  As jobs return – and the latest numbers show some recovery there – this demand will hit the apartment market.  What will further stimulate demand, Eppli said, is the fact that the average age of marriage is on the rise in the US, which means that adults are staying in rental units longer than they have historically.  Delayed entries into apartments by students plus delayed exits from apartments into single family homes by marrieds equals heightened demand for rental units.

Professor Eppli had a lot to say about the entire commercial real estate universe.  Stay tuned for more gazing into the tea leaves — as well as some tips on how to put the info to work —  here at The Source.

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The Crystal Ball

It’s January in Chicago at The Source HQ.  The traditional climate may have left us —  very little snow and bitter cold thus far, thank you very much.  But one thing hasn’t changed:  it’s prediction season in the commercial real estate business.

Perched as we are on the edge of a new year, we struggle to get a narrative of 2012 before 2012 happens.  We sample the economic winds and peer into the tea leaves, trying to divine a trend, spot an opportunity, separate signal from noise.  Industry leaders share their outlooks, government agencies publish their data, our personal networks in our markets keep our ears to the ground.  And we pay close attention.

But why, exactly?

It’s one thing to read and follow this stuff, but how exactly might we use it?  That’s not so clear in every case. To hear that your local mall’s anchor tenant is expanding, prompting a friendly neighborhood tenant rep to cocktail-napkin that mall’s numbers and adjust expectations about the coming year’s negotiations – well, that’s pretty direct use of market intelligence.

But what exactly do you do when you hear something more diffuse and abstract, but with no less potential impact to your neighborhood beat?  When such-and-such agency or pundit proclaims a nationwide rise in medical-retail tenants is expected to continue…and that aforementioned mall has no such tenant yet?

This is a question we’re going to be exploring here at The Source this month.  We’ll be looking at a series of predictions, but what’s new is we’re going to be starting a discussion on how to use these predictions to get in front of opportunities, better serve communities and add value to transactions.  Steps to take to put these forecasts to work and make sense of abstract economic signals.

That’s my prediction, anyway.  I might be wrong.

Managing technology change in commercial real estate is a challenge with a lot of dimensions.  The act of staying on top of new sources of and tools for market data might be the first thing we think of when we consider technology change in our industry. But change doesn’t stop there.

Office property managers, brokers and reps already have a giant task in meeting the needs of clients.  Today, evolving technology is shifting those needs more than ever before. How can we relate these changes to our practice?

One way is to look for how specific technologies change the expectations of users of office space.  Take cloud computing.  When we hear about cloud computing, it’s tempting to write off the trend as something that we on the physical-world side of things don’t have to worry about but the IT guys and gals in the back rooms of large operations do.

As RealComm CEO Jim Young points out in the below video, nothing could be further from the truth.   The rise of cloud computing means, among other things, an expectation of constant wireless access to business applications by way of pad, phone and laptop.  That means that connectivity — “bars” on smart phones — are now a major deliverable for office space, something that today’s college grad workers and tenants can’t — and won’t — do without.

The can of worms this realization alone opens for property managers, brokers and reps is huge.  Are rent level calculations up to date?  And how were these decisions made?

A soup-to-nuts, interdepartmental approach to these questions is counseled by Young in the following video shot at the Atlanta Summit in 2011.  Thanks much to Coy Davidson for posting the video.     

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Image by sibhusky2 via Flickr

A big thanks for reading and Happy Holidays to commercial real estate pros everywhere!  Here’s looking forward to a great and successful 2012 from Baja to Maine, the Cascades to the Everglades.

Speaking of the whole map of the country, we found a cute story about a certain red-suited gift distributor taking their annual tour of the landscape at 30,000 ft.  Ho ho ho!

NORAD Santa trackers have a record holiday

DENVER (AP) – Santa piled up more than presents this year — trackers at NORAD say he also broke records during his global mission Christmas Eve.

Volunteers at Peterson Air Force Base in Colorado fielded just under 100,000 telephone queries about his progress late Saturday, breaking the previous mark of 80,000.

And his NORAD Facebook page approached one million “likes,” compared with 716,000 a year ago.

Volunteers at NORAD Tracks Santa said kids started calling at 4 a.m. Saturday to find out where Santa was.

“The phones are ringing like crazy,” Lt. Cmdr. Bill Lewis said Saturday.

Read entire story here.

How can college football and listings data combine to help out commercial real estate professionals?

Once upon a time, access to listings was the largest missing piece of commercial property marketing.  Today, depending on the market, a decent supply of listings is almost a given on the web.  Nowhere moreso than at CommercialSource.com, naturally.

Solving one problem only gives rise to another.  We have more access to more data than ever before.  What we now need is to know what to do with all those listings.  How do we turn data and information into knowledge and wisdom?

One way to describe a commercial property market research is to call it an effort to watch the flow of things – people, tenants, dollars, attention, construction.  And when we look at markets nationally, we are looking for fixed locations where these flows converge — especially in secondary markets not known for their powers of economic concentration.

Coldwell Banker Commercial’s College Bowl Property Finder is a great example of how to pattern property searches around places of convergence and economic importance in secondary and tertiary markets.

Coldwell Banker Commercial College Bowl Commercial Property Finder

Searching for commercial properties for sale or lease nearby to 35 games in 30 different cities was never made easier than it is here.  Use it for ad hoc economic analysis in dozens of different ways – hospitality analysis, comps, cap rate thumbnails – or plot an investment strategy centered on the economic impacts represented by the bowl games to the surrounding community.

(“Communities” would be more accurate.  In one case, I found this tool’s idea of “nearby” a little optimistic — should the Fiesta Bowl in Glendale, AZ really be listed as “nearby” to 138 miles-distant Flagstaff, AZ?    Then again, better to have too much data than too little, right? )

Tools like CBC’s College Bowl Property Finder will only grow in number across the business as time goes on and the industry continues to find ways of turning listings into gold, saving practitioners time and sparking imaginations across the marketplace.

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Cover via Amazon

When Patricia Lynne, CCIM addressed a commercial audience at NAR’s annual conference in 2011, she talked of a radically shifting office space marketplace.  She saw the common cubicle-farm concept of office space rapidly falling out of favor with the youngest office workers.  The millennial generation are used to high mobility, high connectivity and knowledge work, and the cube farms across the country just weren’t set up with these things in mind.

Further, a wave of venture capital is crossing the country, funding startups in technology and related fields, trying to springboard the next Groupon or Amazon.  The shared office model being second nature to the generation of workers  that will power these startups means that the office real estate practitioner who ignores this new pattern of economic development is likely missing out on a big chunk of the future.

While the predictions suggest a growth in alternative office occupancy models, a look around the web confirms it.  Indeed, shared office space, incubator-style arrangements idealized for startups and membership-based rental models are on the rise in primary and secondary markets.  Traditional office building listings websites and services are generally a poor fit for this market, so let’s take a look at some of its key sites that define the online marketplace in shared office space.

Craig’s List - Due to its information simplicity, CL remains hospitable to the shared office listing alongside the listings for more traditional listings for buildings, floors, blocks and the like.  Due to Craigslist’s history and cultural positioning with the technology industry, it will probably always be a stop for the prospective technology startup on the hunt for affordable, flexible and appropriate digs.

SuiteMatch – Powered in part by Zillow listings, this site provides listings in over twenty major cities.  Searches for spaces in Chicago came up with bupkus, so I got an impression of thin offerings, although listings did show up in markets highly identified with tech startups such as San Francisco. Just not as many as I expected.

Regus – Using Google AdSense aggressively and an effective landing page strategy to market shared spaces and suites, Regus is a player in this market that displays full understanding of search marketing .

SharedBusinessSpace.com - This “national office sharing directory that solely focuses on unused space for rent that is available within an established business location” boasts”hundreds” of listings and focuses on 10 major markets.  Kudos for being upfront about the amount of listings, but I wished I could find more.

ShareYourOffice.com – Neat design, map support and information-rich listings make this worth a look when considering a marketing plan for shared office space.

Overall, I saw all the hallmarks of a major marketplace in its early stages – plenty of room to grow.  What are some sites catering to shared office space that you’ve seen?

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NAR 2012 Treasurer Bill Armstrong’s podcast wrapping up the year in legislative issues for REALTORS® touched on a series of important issues affecting commercial real estate. Podcasts are great (I like to listen in the car), but when the issues include far-reaching legislation, it’s important to break out and take a closer look at the content in text – to make it visible to readers and in the search engines.  So let’s break it out:

• NFIP Flood Insurance:  The House and Senate recently signed off on a second short-term extension (through December 16th 2011) to the National Flood Insurance Program.  This benefits both commercial and residential real estate practitioners.  That means there’s been no lapse in the NFIP authority to issue flood insurance.  Bill also mentioned that NAR will continue to urge Congress to pass a five-year extension, and reminded REALTORS to respond to NAR’s call to action in support of the NFIP extension at realtoractioncenter.com 
• FHA Mortgage Loan Limits: Congress restored a two year extension to FHA mortgage loan limits. Through 2013, the limit stands at 125% of local area median home prices. “While that doesn’t impact commercial real estate directly, our industry depends on a thriving workforce and housing market, so this is an issue that all commercial practitioners will benefit from”, said Armstrong.
• Credit Union Member Business Lending Bill: The House Financial Services Subcommittee held a hearing after NAR’s support for this idea.    This bill impacts commercial practtcioners by raising the cap on credit union member business lending lending from 12.15% to 27.5% of total assets (for well-capitalized credit unions). This allows more capital to be available to struggling small businesses occupying commercial buildings. “NAR will continue to engage Congress and other stakeholders to push for a raise of the business lending cap for credit unions,” said Armstrong.
• As part of the Small Business Jobs and Credit Act of 2010, NAR was able to help create a new commercial refinance program implemented by the Small Business Administration.  This allows small businesses to refinance certain owner-occupied commercial real esatte loans.  The new refi option was initially restricted to small businesses with CRE mortages maturing by end of 2012.  After extensive NAR lobbying, small business borrowers will be allowed to refinance certain CRE loans maturing after that date.

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New ideas in commercial real estate are emerging to help us with age-old business challenges. Brokers have more tools than ever to aid in gaining information on markets and properties and to build networks.   But how many truly new ways to add value come along?  How can we serve our communities How creative can we really get in this industry?

To put it another way, what can be made part of the deal that is new, that captures the imagination, serves a mutual need and differentiates one broker from the next?  How can we make deals special?

Lately, we’ve seen a rise in a creative new business model that combines old-fashioned networking, commissions and charitable giving.   Different brokers around the country have struck upon a new way to add value by channeling portions of commissions into the hands of worthy causes that clients want to see funded.   Let’s take a quick look at two of these “benevolent broker” models:

Charity Realty International  The New Jersey-based effort of a Rochelle Park, NJ firm specializing in office, industrial, investment and real estate consulting,  is helmed by President James F. Costanzo.  ”I have always had the dream of becoming a philanthropist,” says Costanzo, whose firm has pledged to donate 20% of its net revenue to various charities including Alzheimer’s Disease Research.

Rather than donating a percentage of profit or relying on himself to always donate when the paycheck reaches his pocket, Costanzo felt the most up front and consistent way to contribute was to include the donation as part of the contract.

“I pledge this up front, contractually in writing … it takes all of the human frailty of what you might do with the money once you get it out of the equation,” Costanzo said.

Also inserting charitable giving into the commercial real estate process is Chicago-based  Investing In Communities.  IIC allows clients to fund their favorite nonprofits for free by including the giving in the structure of the clients’ real estate transactions.   Replacing referral fees with a philanthropic approach, real estate professionals become members of IIC for a small fee, and pledge to contribute a percentage of commissions to the nonprofit selected by the client.

As the season is upon us, I have to wonder; what other charitable commission or referral fee ideas are out there?

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The role of commercial real estate in the explosive, near double-digit growth of the Chinese economy might be imagined as follows: factories, dozens at a time, rise everywhere in the previously empty landscape, all to to meet the world’s demand for China’s manufactured goods and thereby pull along China’s economy and society into ever-greater prosperity.

Only half of that is true. Demand for goods is real, and factories and offices  have certainly proliferated – 2011 saw 1 trillion yuan ($157 billion) in commercial real estate investment. But China’s enormous growth is hiding a desperate struggle with the other pieces of the economic puzzle.

As it turns out, a sad thing happened on the way to Chinese prosperity. China’s building policies created a commercial and residential real estate glut that is nothing short of jaw-dropping. Empty, giant apartment and condo towers, desperate agents handing out collateral on highway exit ramps, and lonely maintenance staff sweeping floors of enormous shopping malls with 99.8% vacancy – these are not the images we expect to see when we consider the recent history of China’s impact on the world economy.  Yet this is what a TV crew for the Australian Broadcasting Company found in a 2011 piece called “China’s Ghost Cities And Malls”.

Warning: your heart will break when you meet the toy retailer stranded in an empty mall with no neighbors, no customers and no idea of what went wrong.

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