The disruptive force of the sharing economy is undeniable. As noted by tech cheerleader Tom Goodwin, the world’s largest taxi company (Uber) owns no vehicles, the most popular media company (Facebook) makes no content, and $25B lodging provider Airbnb owns no real estate, despite its operations adding up to giant impacts on apartment rents in its biggest markets. There is a chance that large apartment landlords will bring increasing levels of apartment inventory onto a collision course with hotels, at least in the top cities.
But measuring the impact Airbnb has on national hotel business is tougher – and the executive leadership of national hospitality operators doesn’t seem too worried about it. In Lydia DePillis’s piece in the Washington Post, collecting thoughts from hotel CEOs on conference calls, quotes from hotel execs were generally dismissive, noting that the amenities and service such as their industry is known for providing can’t spring from a vacuum:
Trade Group Highlights Multifamily Landlords
Hotel industry trade group AHLA released a white paper that claimed 40% of Airbnb’s revenue was from persons operating multiple units, prompting a pushback from the technology company and a bit of controversy, none of which has to date affected the CEOs outlook on Airbnb as a national-level threat to their hospitality expertise. Will the boardrooms remain confident in their business model, or will they get drawn into the technology-driven disruption as many industries have before them? Time will tell.
(Photo Credit: Wikipedia)
In the retail world, huge changes are being wrought by the growing domination of online shopping. The brick-and-mortar marketplace increasingly needs to find balance with customer demand for satisfying and convenient experiences. There is a perception that online shopping allows satisfaction and convenience because it reduces a community’s traffic congestion and emissions by keeping shoppers off the roads.
But that perception may be wrong. A study published weeks ago by the University of Delaware’s Civil and Environmental Engineering Department (paywall) took a careful look at the impacts of home shopping on traffic volume in the region surrounding and including Newark, DE. What they found was surprising.
During the multi-year study, researchers noted vehicle operations and greenhouse gas emissions under home shopping tended to rise, not fall as might be expected. An excerpt:
Home shopping imposes some mobility problems and costs on society in general. Heavy-duty diesel trucks have long been recognized as one of the most important source of environmental pollution (Kirchstetter et al. 1999; Sawyer et al. 2000; Lloyd & Cackette 2001). The increase in the number of delivery trucks contributes significantly to emissions of fine particulate matter (PM2.5). The increase in the number of delivery trucks implies the need for more parking spaces both at package distribution centers and on street networks. Residential and downtown streets were not designed to accommodate frequent truck stops, parking, loading, and unloading. In addition to interfering with through traffic and causing delay, there is already an increase in the number of illegally parked trucks, conflicts, and compromised safety. Some of the long-term impacts likely to develop are an increase in infrastructure maintenance costs (due to increases in truck volume), changes in land-use patterns such as the disappearance of large shopping malls with vast parking spaces, changes in labor markets (less demand for sales personnel, more demand for truck drivers), etc.
The study not only found that online shopping’s required fleets of new fulfillment trucks added to net pollution emissions, it also suggests that the customers weren’t using the time freed by e-commerce to stay off the roads, instead taking more trips than before for personal reasons.
The retail space industry’s evolution in the era of online commerce is undeniable. But there is still much to learn about what the changes really bring — and withhold.
As the retail sector grapples with waves of disruption caused by online shopping alternatives, retail center owners and operators are often faced with extra vacant retail space. These inventories of highly accessible, tall and wide format properties can be adaptively reused, often with minimal expense, into medical office buildings.
The accessibility of such space is probably the most significant factor that leads a former retail space into a new life as a medical office. Adding to the mix is the relatively cheap renovation cost — when space is wide and tall, wall demolition is often not needed.
Considering these and other issues when customizing a former retail space into a medical office building (MOB) is a great post by architect Craig Pryde of KTGY Architecture + Planning, published at REJournals.com.
Despite MOBs’ changing services, most facilities share common elements; waiting/reception areas, nurse stations, lab space, linen storage, exam rooms, procedure rooms, public and private toilets, and some specialty uses such as X-ray or imaging. These specialized spaces can present challenges in renovating the retail infrastructure, which may not be able to handle the increased mechanical, electrical and plumbing loads.
For instance, because MOBs require several interior spaces, rather than a large retail environment, they also demand greater control of HVAC equipment. This additional zoning may not be available through the existing HVAC units, and need to meet building codes, which require increased amounts of outside air and air changes per hour. As such, HVAC systems should be designed for flexibility as the functionality of the rooms change over time, and accommodate for growth as administrative space may be converted into exam rooms.
February’s Fortune piece on retailer Nieman-Marcus might help show the way forward for a retail industry struggling to find the balance between traditional retailing and e-commerce. In its new 106K SF store on Long Island set to open this weekend, Nieman’s luxury brand will pit its decades of experience against today’s demand for interactivity in every customer channel.
Aside from the somewhat reduced footprint for the new Nieman’s, there are two very interesting aspects to the opening from where I’m sitting: a new verb “clienteling” and a very cool-sounding new technology called memory mirrors.
So, the Neiman in Garden City, Long Island, the retailer’s first new department store since 2012, is pulling out all the stops. At 106,000 square feet, the two-level emporium is smaller than the average Neiman. But the location features a ton of natural light (something Neiman admits some of its stores lack), 37 works by local artists, and prominent tech.
In addition to mainstays like WiFi and iPhone-equipped sales staff (that are used for “clienteling,” like texting a photo of a new item the salesperson thinks might be of interest, the modern day version of the little black book), the Neiman store will have phone charging stations and memory mirrors by MemoMi. Such mirrors can capture an image and video of everything a customer tries on so she can see outfits side by side and ask friends off site for their opinions.
The 2,100-panel façade of the store, part of a new luxury wing built by Simon that also showcases a Tory Burch boutique, is meant to evoke the butterflies Neiman often uses in its imagery. The store will feature boutiques for brands like Tom Ford and Céline.
Neiman knows its stores have to be more special than ever to cut it with shoppers. After all, there is a Nordstrom and a Bloomingdale’s (a unit of Macy’s M 1.39% ) at Roosevelt Field for shoppers who want high end if not quite luxury. (Neiman finished a massive renovation of its Michigan Avenue store in Chicago last year and is doing the same at its stores in Palo Alto, Dallas, and Beverly Hills.)
Check out the entire Phil Wahba article in Fortune here.
The Wall Street Reform and Consumer Protection Act (also known as Dodd-Frank) was written in part to address the 2007-08 systemic risk crisis in credit markets caused by the mispackaging and mislabeling of bonds made up of collections of mostly residential mortgages that went bust. The banks that performed the packaging, regulators reason, each contributed greatly to the giant and hidden risks by routinely selling off the bonds they packaged. These were sold in their entirety, meaning the bank’s risk was effectively zero if it happened that the contents of the bond were found later to be in default.
What if, instead of being allowed to ship off truckloads of possibly mislabeled product, the packager was compelled by law to own a percentage of each package (bond) themselves? The systemic risk of the bond — and of the mortgage-backed bond business generally, regulators reason, would then have a built-in limit by forcing the packaging bank to “have skin in the game” themselves.
Enter a provision of the 2010 Dodd-Frank law called “risk retention” set to come online December of this year that does just that by requiring the issuing bank to “eat its own dog food” — requiring 5% of the resulting bond to be held by the bank, so that default risk aftermarket is shared by the bank.
What might be news in the commercial real estate space is that the commercial equivalent to residential mortgage-backed securities, called, unsurprisingly enough, commercial MBS (CMBS), has an exemption from the above kind of risk retention under Dodd-Frank. This is detailed well in today’s Bloomberg piece by Sarah Mulholland “Wall Street Girds For Real Estate Debt It Must Invest In”:
The new requirement, dubbed risk retention, applies to all types of securitization, the process by which debt is pooled together and sliced into bonds of varying risk and reward. Such offerings backed by home loans were ground zero for the financial crisis.
The changes are creating an opportunity for real estate investors. Industry lobbyists won a concession from lawmakers to create an exemption for the CMBS market, allowing a third party to take on the risk on behalf of lenders as long as they agree not to sell their investment for at least five years. Banks will be held legally accountable if the firm they sell to violates the rules.
The CMBS market has a built-in cohort, called B-piece buyers, that buys the riskiest portions, absorbing losses first in exchange for a hefty yield. Firms including Ellington, DoubleLine Capital and KKR & Co. have entered the space in recent years, which was dominated by a handful of specialists prior to the financial crisis. Several B-piece buyers are seeking to raise funds to step in for the banks, though it may be difficult to find investors willing to lock up their cash for five years or more, said Warren Friend, an executive managing director at Situs, a commercial real estate consulting firm.
Securitization of real estate debt on the commercial side may never present the kind of systemic risk that brought us a giant recession, in part due to the underlying illiquidity that commercial properties tend to represent. That said, CRE investors living in the world of Dodd-Frank face a different landscape than before, hopefully not one where risk pitfalls are more hidden.
Photo Credit: Wikipedia
The latest survey of the national CRE market was published late last week. The key takeaways from the most recent survey sampling randomly from nearly 50,000 REALTORSⓇ holding an interest in CRE:
- Sixty-six percent of commercial REALTORS® closed a sale.
- Sales volume rose 7.4 percent from one year ago.
- Sales prices increased 4.1 percent year-over-year.
- Cap rates averaged 7.8 percent.
- The average estimated transaction value slid from $1.9 million in Q3 2015 to $1.6 million in Q4 2015.
- Sixty-three percent of members completed a lease transaction.
- Leasing volume advanced 3.0 percent from previous quarter.
- Leasing rates increased 2.5 percent over the previous quarter.
- Concession levels declined 3.1 percent on a quarterly basis.
- Inventory shortage topped the list of current challenges, followed by buyer-seller pricing gap and local economic conditions.
To read the entire report, click below!
Despite the fact that it remains a federally illegal Schedule 1 drug, 2015 is the year that legal marijuana sales hit $1 billion. While still a far cry from its elder, comparable national markets — wine and spirits ($123 billion wholesale + retail), tobacco ($43 billion), brand-name pharmaceutical manufacturing ($149 billion) — the legal market in weed grew at a rate of 184% year over year in 2015.
Centered in the states of Colorado, Washington, Oregon, Alaska, and Washington, DC, where recreational cannabis has been legalized, the market is even wider than the above thanks to the legalization of medical use of pot in 23 states and Washington DC.
That adds up to a lot of commerce, which needs a lot of space for custom and secure retail, warehousing and growing operations. As always, meeting those space needs are commercial property professionals who make it their business to serve business.
How are today’s legal-marijuana property brokers and other professionals branding themselves and conducting that commerce? Without any implication of endorsement or preference, let’s take a quick look at a search sampling of the industry:
Avalon Realty Advisors
http://www.avalonrealtyadvisors.co/ – Winning the SEO sweepstakes today by coming in on top for the natural Google search results for “marijuana commercial real estate” is Colorado-based Avison Realty Advisors. With a website reminiscent of a traditional RE / professional services firm, they make a pitch for competency in a new commercial marketplace, including MMJ/RMJ consulting, which concerns itself with Colorado medical (M) marijuana operators transitioning to retail (R) operations.
Commercial Marijuana Realty (CMR)
http://www.commercialmarijuanarealty.com/ – Cast in contemporary web layout, this web pitch promises a mix of property and professional skills including turnkey properties, assistance with licenses, and investment opportunities. Seems also to be a network play, expanding presence in the emerging business niche by running or possibly franchising multiple websites, as at least one other high-ranking site carries the CMR imprint.
http://420mls.com/ – Using a sharp presentation one might call “the NORAD command center of the legal marijuana property market,” listings concerning all aspects of the business from growing to logistics to retailing are included. Also on show: properties in states where legalization is limited to medical prescription.
More Undoubtedly To Come
While these three basic presentation styles form a decent, if rough snapshot of today’s web pitches, expect the rush to profit from this emerging market to grow in intensity, eventually encompassing evergreen concepts in real estate from REITs to franchising and everything in between.
The role that agriculture plays in the US economy is enormous, owing in part to the fact that the US is by far the largest exporter of ag products. As a critical sector in commercial real estate, agriculture receives a great deal of attention from federal government econometric researchers, which gives ag land investors and market watchers a wide range of data to use. But what are the leading indicators (predictive of future price moves) and what are the trailing indicators (numbers that follow motion in other numbers)? What’s cause and what’s effect in this marketplace?
As if to answer the question by trying to answer *any and all* questions under the topic’s umbrella, the US Department of Agriculture (USDA) publishes a mountain of data concerning the agricultural land market, and it’s available for free.
Beginning with the National Agricultural Statistics Service’s publication, Land Values 2015 Summary , investors can learn recent histories in farm land value by state, broken down by irrigaged and non-irrigated land as well as by a host of other types.
It’s a great starting point to explore the relationships between land prices and the prices of agricultural products, as well as the phenomena of inflation, agricultural land speculation and interest rate policy as they apply to this giant sector of the national commercial land market.
RLI Educational Tracks Are Available
The REALTORS Land Institute (RLI) is ready to help professionals navigate the ins and outs of the agricultural land marketplace with continuing education and conferences focusing on this sector, including the upcoming National Land Conference in Dallas, March 11. Learn more at RLILand.com
Consider an office building that comfortably supports 2,500 workers…with fewer than half as many desks. A building where all the lighting panels are connected by ethernet cable, making every panel controllable and customizable using an smartphone app. A building sporting enough photovoltaic solar paneling to power the entire footprint, including electric car charging stations at the parking lot. A parking lot that recognizes your car and directs you to an empty spot in the morning.
These and more high-tech features are all part of Amsterdam’s fifteen-story, 430K S.F. office building dubbed The Edge. The tower is home to international consulting firm Deloitte, who helped work on the technology, providing both technical capability and the all-important tenant’s perspective at the same time.
Owned by Germany-based Deka Immobilien and designed by London’s PLP Architecture, The Edge has been lauded for its sustainable features and deep designs that even repurpose rainwater to flush its toilets. The project is a living proof that the challenges of energy and resource efficiency can meet and be mitigated with the demands of tenants. The building systems do not create perfectly seamless solutions with every feature, but it’s a clear leap forward into a future where office experiences will leave the 20th century behind.
On this week’s earnings call, General Growth Properties CEO Sandeep Mathrani took a question about today’s foot traffic in GGP’s numerous malls located nationwide. In the answer was a piece of news the retail property world only might have anticipated: Amazon.com is planning on a radical expansion of its brick-and-mortar efforts. Currently, Amazon operates only one shop in Seattle, but Mathrani suggests the number is about to explode.
“You go to Amazon opening brick-and-mortar book stores, and their goal is to open, as I understand, 300 to 400 bookstores,” the CEO said. “It’s a very interesting evolution, because the cost of the last mile is that important,” Mathrani said to investors. “The mall business, if you appreciate that it’s more focused on fashion, is very different than a staple business where you’re buying commodity. In the mall business, the impact of eCommerce is a lot less—it’s actually your friend, not your enemy.”
While this statement doesn’t qualify as any more than a rumor — Amazon declined comment to the original reporters at Ars Technica — there is a logic to such a move.
As shipping prices rise — it makes sense that ship-to-store options will be increasingly demanded by online retail customers, which could be the come-on that puts numbers of e-tailing customers back into their cars to come to the shopping center. In December, UPS and US Postal Service raised rates approximately 5% and 9.5% respectively, which, when matched with steeply rising volumes of parcels, ensures that the bite from shipping costs will loom large on Amazon’s bottom line going forward.
It’s worth noticing that the retailing operations formula that supports ship-to-store appears to apply an upward pressure on square footage demand at lease time, because such stores will have to carry out a mini-warehouse role in addition to traditional customer-facing retail. These hybrid footprints will be necessary to keep up with the demands of customers who want what they want when, where and how they want it.