It’s that time again: the 2013 REALTORS® Conference and Expo is right around the corner. November 8-11 in Moscone Center in beautiful San Francisco is were the action is and where this year’s commercial practice program is running to keep you up to date on the commercial real estate sector’s many trends, tools and tactics for success.
We’ll be taking a look at selected speakers in the commercial track over the next few days here at The Source.
Negotiating the Commercial Lease
Monday 11/10 11:00 AM – 12:30 PM
Location: Moscone Center, Room 305
The esteemed Richard Muhlebach, CCIM, CPM, CRE will tackle the commercial and legal issues in the negotiation of commercial leases. A 40-year veteran of the industry with a special touch for retail and tenant representation, Richard’s decades of experience on both sides of the landlord and tenant representation picture show the way to add value to your client no matter the position you find yourself in.
No stranger to the commercial program at the Expo, Rich’s recent Expo presentations have included Preparing To Lease And Represent Tenants and Renegotiating Leases And Representing Tenants In A Recession. Rich is a sharp, approachable professional with the deep experience few in this business can claim — a can’t-miss at the Expo.
The Supreme Court gets to pick what cases it hears — and land is on the court’s mind lately.
Thousands of requests for cases are received every year by the Supreme Court. Each sitting justice has a crew of law clerks reading each request (called a petition or writ of certiorari) and these clerks compile memos about each case. The justices read these memos, meet and vote, and if four of the nine agree to hear a case, then it is placed on the docket. If enough justices don’t feel particularly compelled to hear a case, then the lower court’s judgement stands.
For whatever reasons, the pattern for the Roberts-led Supreme Court has been heavy on the land use and eminent domain related cases under the Fifth Amendment’s clause “ nor shall private property be taken for public use, without just compensation”.
Recent SCOTUS decisions in this area have gone against government and for land owners, including:
- Koontz vs. St. Johns River Water Management District (as I wrote about at The Source here and here): A Florida land owner was ordered as a condition of development of land he owned to improve drainage on an unconnected land parcel owned by the state and managed by the Management District. SCOTUS eventually ruled in favor of the land owner. The decision’s effect in other states is likely to handcuff local governments / permit-issuing authorities in what conditions they can attach to land development permits.
- Arkansas Game And Fish Commission vs. United States: SCOTUS ruled that seasonally recurring, temporary flooding of land can constitute a taking entitled to just compensation.
- Horne vs. Dept of Agriculture: Where the court affirmed the right of California raisin growers to claim a taking as a defense to enforcement action made by the government due to alleged non-compliance with regulatory efforts. This case reversed a long-standing lower court case from the 1980s that has stood in the way of takings claims. The reversal has also shown that “just compensation” is no longer the only remedy a party claiming a taking can request.
Before the court now is Marvin M. Brandt Irrevocable Trust vs. United States, a land use case that will be of interest to any broker, owner or developer of land with railroad right-of-ways. While complex, the case will decide issues concerning whether interest in land with such right of ways is held as fee simple or as an easement, and what happens when railroad use is discontinued.
The ramifications of Brandt will likely touch all 137,000(!) miles of railroad crisscrossing the US, meaning it’s a good idea to stop, look and listen for the decision in the spring.
In this week’s video from The Street, Broadstone Real Estate CEO Amy Tait talks about the new Reg D solicitation rules under the JOBS act from the perspective of a leader of a company in the REIT and commercial property management spaces.
As written here before, recent deregulation of SEC rules concerning the raising of capital for investments including commercial real estate aim to make it easier for sponsors of investments to pitch those investments to more people. Recent passage of the Jumpstart Our Business Startups Act (JOBS) signed by President Obama has done away with older barriers to those kinds of solicitations.
New Rules, New Processes
According to Amy Tait, under the previous Reg D regime, sponsors of an investments were prohibited from public pitches including web communications, or any interviews concerning offerings. That’s over now, and a wave of crowdsourcing for commercial real estate investment is intensifying.
Reading of the SEC regs also shows their intent was to ensure that investors meet certain criteria of sophistication and wealth, which tended to limit the population to institutional investors or high net worth individuals.
It’s interesting to listen to Tait, a REIT assembler and manager discuss what has and hasn’t changed. The vetting of investors hasn’t changed — high net worth and institutional savvy are still highly sought after — but what has changes is the process of verification of the facts about the prospective investor.
Down To Brass Tacks
With a twinkle in her eye, Tait then does what couldn’t be done before, at least on-camera: pitches a pair of private non-traded REITs, one in triple-net retail, industrial and medical office properties, the other in residential. Of the net lease product, she announces the dividend is paying 6.6% , then touts a climbing share price and dividend sheltered from depreciation expense, plus happy investors.
One thing’s for sure: we can expect a great deal more communications from sponsors of REITs and other platforms/deals in the coming years under the new, more lax solicitation rules.
In a kind of perfect storm of commercial real estate media, this week found Michael Bull radio and web host of the nationally syndicated Commercial Real Estate Show a guest on NAR’s Commercial Connections Podcast hosted by Alex Ruggieri. The topic: market conditions for office and industrial are pointing users more than ever toward buying and away from leasing. The quick takeaways:
Buying Beats Rent Today Because…
- Low replacement cost. Especially in suburban office markets, properties priced at $50/sq. ft. below replacement cost are widely available
- Low interest rates. From federal programs providing 10% down terms and conventional loans with lockable rates, the credit picture is rosy, says Bull.
- Also helping is the classic love lenders have for owner-occupiers. Problem loans in CRE were usually to parties who had nothing to do with the business. Beyond that, banks are angling for deposit and services business, and an owner-operator is more likely to be in the need for banking services.
- Owners can borrow on equity down the road
- Bull mentions that leases in some cases don’t look as attractive as they once might have. Recent changes in lease accounting rules from FASB means that leases are no longer off a prospective renter’s balance sheet. Buyers don’t face these new rules changes
- Controlling occupation costs, the business environment and creating a great investment property are all common goals in buying
- Bull tells a great story about education magnate Stanley Kaplan and listening to the business advice of accountants
The data visualization business has long been critical to commercial real estate dealmaking. At the deal table, all the pro forma work, diligence and sales skill brought to bear can be for naught if, at the critical time, you’re still telling the client when you should be showing the client.
Today’s resources have lowered the barrier to data visualization in eye-popping ways. There has been a wave of Google Earth maps joined with 3-d animation to produce sales tools showing space and property – here are three.
Chicago Growth Animation 1862-2014
Midtown Manhattan, 1850s-2014
San Francisco Market Street Corridor 1877-2013
How Do I Use Google Earth For Data Visualization?
Got distance, area and 3D measurements on your desk? Chance are you wouldn’t be in commercial real estate if you didn’t. Using Google Earth to visualize these begins with Google’s Google Earth Pro product, an offering of the tech giant that includes movie creation, measurements and mapping of multiple points and more. Trial versions and free versions exist and are, as is often the case with Google technology, surprisingly powerful.
Probably best known for its ratings of retail businesses, Yelp is an online marketing powerhouse that leverages the reviews of ordinary customers into a highly trafficked, localized website. It’s a huge success because of the way Yelp has become a destination for people making a choice about something they need. The information on Yelp is to a great degree expected to be “organic” – real people making real reviews – and Yelp is only an “aggregator” or collector of this information.
We’ve seen that Yelp is by no means limited to retail. Professional services also use Yelp to drive business. And yes, commercial real estate professionals are on board right along with the doctors, accountants and lawyers. Each local Yelp has a commercial real estate category, and with it, potential new clients facing a CRE challenge and looking for help can find brokers, property managers, condo associations and other industry professionals and groups easily.
While it’s not news that marketing professional services on Yelp is popular, Yelp has been in the news lately for one unfortunate side effect of its business model: gaming of the reviews.
Yelp’s Own Proposition
Yelp’s business model and revenues depend upon clients paying for advertising on the site. In the past, Yelp has used positions of positive reviews as leverage in the sales conversation. Until 2010, users could pay Yelp for a feature to have a positive review displayed on the top position of a company’s page, which was seen as getting in the way of Yelp’s claims of neutrality and publishing of “organic” reviews. Yelp was also taken to court in class action suits, winning a dismissal in California against claims that Yelp’s own sales team was strong-arming prospective advertising clients by suggesting that failing to advertise would cause positive reviews from appearing altogether or appearing high in results. New suits over this alleged practice have been filed in Connecticut.
This week, two developments cast more shadow on the neutrality of Yelp’s reviews. After a year-long sting operation, the New York Attorney General dished out more than $350,000 in fines to 19 companies found to be paying “reputation management” professionals to write fictional reviews on Yelp (as well as Google Local and CitySearch). From the NY AG’s office:
“Operation Clean Turf,” a year-long undercover investigation into the reputation management industry, the manipulation of consumer-review websites, and the practice of astroturfing, found that companies had flooded the Internet with fake consumer reviews on websites such as Yelp, Google Local, and CitySearch. In the course of the investigation, the Attorney General’s office found that many of these companies used techniques to hide their identities, such as creating fake online profiles on consumer review websites and paying freelance writers from as far away as the Philippines, Bangladesh and Eastern Europe for $1 to $10 per review. By producing fake reviews, these companies violated multiple state laws against false advertising and engaged in illegal and deceptive business practices.
The second development: this month, a pair of assistant professors at Harvard and Boston University have issued research claiming that upwards of 20% of Yelp reviews are fake.
It doesn’t take much thought to conclude that astroturfing, false advertising and deceptive business practices have no place in our industry. Ethics are not an option, and reputation is, in the end, the most important thing a commercial real estate professional brings to the table.
That said, I don’t think we should simplistically assume that new forms of advertising and marketing such as Yelp are tainted or inappropriate purely because they can be. Particularly among younger demographics, Yelp is reaching people at rare and critical moments in their lives and careers. Which means that the success of Yelp’s positioning is something to take very seriously - as seriously as professionals in this industry take their “old school” reputation management tactics of adding value, providing expertise and just doing a bang-up job for clients.
What’s Your Story?
In light of questions about neutrality and organic results, should commercial real estate professionals participate in Yelp? Has your office or the office of an associate gotten positive results from Yelp listings, reviews or advertising? Negative experiences? Drop us a comment and let us know.
The cost of developing a new structure from the ground up will just about always eclipse the cost of retrofitting a new one. In crowded Tokyo, where land couldn’t be at a higher premium, that rule was in full effect when the city won its $5 billion bid for the 2020 Olympic Games.
The plan revolves around a retrofit of the Olympic stadiums built for the 1964 games, which ushered Japan back into the post – World War 2 international community with a exultant splash and global attention through satellite TV coverage. Planners expect similar payoff for the city but this time with far less capital outlay than is common for Olympic development projects. The 2012 London games came in at a total cost to the UK of $12 billion, while the 2014 Winter games in Sochi, Russia are expected to cost a jaw-dropping $50 billion.
Though plenty are questioning whether the economic commitment could worsen Japan’s ongoing recession, Tokyo’s bid is a smarter, leaner vision of what’s traditionally expected of Olympic host cities. Rather than building entirely new venues, they’ll retrofit existing structures throughout the city—including the same stadium built for the 1964 Games, which will get a dramatic makeover by Zaha Hadid.
Working with the structural bones of the old stadium, Hadid will add a retractable roof and other contemporary perks—and save the city millions in the process. Two other 1964 venues (Nippon Budokan and the Tokyo Metropolitan Gymnasium, seen below) will also be used for the 2020 Games, and thanks to Tokyo’s excellent transit system, the city won’t need to invest much in new train and bus lines.
There will also be dozens of new structures built, but almost all of them will be wedged into downtown Tokyo to reduce transit times and energy costs. A compact Olympic Village will be built on Tokyo Harbor and, when the Games wrap up, it will be converted into housing. This plan has its roots in the 1960s, at least conceptually: In 1960, a young architect named Kenzo Tange proposed the construction of a massive housing development across Tokyo Bay. It was never built, but the plan influenced urban design for decades to come.
The plan leans heavily on retrofitting – check out the proposal video from the architect to get a sense of what’s on tap for Tokyo.
The overlap between health care and commercial real estate is a special territory that requires traditional broker/agent/manager skills be directed and shaped to serve the needs of medical practitioners. Doctors on both the buy and the sell side of medical office property deals stand on unfamiliar ground as they feel the pressure of medical consolidation and other trends in health care in a post-Affordable Care Act world. Real estate professionals need to know how to help.
Delaware County, PA brokers Jacobs Realty Group seem to have a handle on the problem. I recently noticed their video promoting brokerage services to the medical office building marketplace and thought they had hit it out of the park. It’s an example of great success in messaging to this unique market.
Breezy without being cloying, informal without being useful, and fully aware of the office property challenges many doctors face. Not too short, not too long and so ideal for social media. If you ask me, medical office property marketers across the country could take a tip from their example.
It’s not everyday that we get to talk to a Amazon best selling author, but on the most recent Commercial Connections Podcast our host did just that. Rod Santomassimo, author of “Brokers Who Dominate” and founder & president of The Massimo Group has a 15 minute conversation with our host Alex Ruggieri in which he goes over the traits from his D.O.M.I.N.A.T.E. system that have helped shaped the top producers in the North America approach their careers.
Listen or Download the podcast here.
Since breaking ground in 2013, Boston’s Brigham Building For The Future is a project that has been turning heads around the medical property community for its unusual approach to specialization and foot traffic. The 11-story, 620,000-square foot project is located on the campus of Brigham and Women’s Hospital in the city’s Longwood Medical Area and will house nine floors of medical research with two floors of medical clinic area.
A major premise behind the research building design according to architect NBBJ is to support what’s called translational research — a modern conception of scientific research that, in short, makes immediate bridges from the scientific work to the practical applications.
What’s New In Space Allocation
Traditionally, most medical research takes place in spaces separate from clinical spaces. An invention or innovation in medical care can take years to develop and further years to be applied to patients. Translational research is a way to radically shorten that extra time by quickly “translating” findings in basic or pure research into meaningful health outcomes.
The building design that supports translational research is one that intentionally mixes foot traffic flows. From a property management standpoint, the usual medical office principles of space specialization are turned on their head: the intent is to put researchers and doctors in the same spaces, the same hallways, the same atria, the same conference rooms.
NYU’s 227 E. 30th St.
Exemplifying the trend is another early adopter in New York. New York University’s Langone Medical Center’s Translational Research Building. Stressing the integration of space users of both medical/clinical and research purposes, the building houses a great deal of “dry lab” research space — labs that more resemble traditional office space in that the bulk of the work is done on electronic or computer equipment and not “wet” test benches with flasks and bunsen burners.
As health care continues to evolve in the US, the responsibility levels of both providers and patients for improving outcomes is on the rise. Because US health care costs too much and produces too few positive health outcomes when compared with other world democracies, it follows that health care needs to become a smarter conversation and collaboration between patient, researcher and doctor. By rethinking clinical space, translational research spaces facilitate these conversations uniquely. At the same time, they provide efficiencies of space that the entire industry is seeking, expressed in waves of medical office consolidations. Expect to see more of these kinds of translational research medical properties in all markets as US health care continues to evolve and improve.