With Britain’s vote yesterday to leave the European Union, what are the implications for the “Brexit” in the commercial real estate markets? A quick collection of viewpoints — from before and after the vote — is below.
- Traders Bet Billions on Brexit Result (Bloomberg)
- Viewpoint: How Brexit would impact US CRE (NAIOP)
- Has Brexit already put the brakes on UK real estate? – (CNBC)
- Implications of Brexit from seven in the RE industry – (ThinkAdvisor)
- Brexit Effect on US Real Estate: Millenials May Be Priced Out Of Some Markets – (IBT)
- Brexit could curb overseas appetite for UK commercial property – (WSJ)
- What would Brexit vote mean for CRE? – (Journal Record)
- Brexit will ‘barely blunt demand’ for UK real estate (The Investor)
- How would Brexit affect the British real estate market? (Forbes)
- Real estate deals in the UK are getting ‘Brexit’ clauses (Fortune)
Yesterday, I faced a situation that any commercial real estate agent or property manager will find very familiar: I needed to make a set of duplicate keys. I had three originals, and needed a number of duplicates.
For me, the usual solution for this task is to head down to the hardware store. There I find the friendly neighborhood key cutter and wait for a bit as he or she selects the right blanks, grinds out the duplicates and then buffs them using a wire wheel, eyeballing for a good match all the way.
But this time, the friendly neighborhood key cutter was a vending machine.
Installed in the doorknob aisle, I found an eight-foot tall, chartreuse-colored robot. A screen on the face detailed the process and a credit card receptacle beckoned. Like it or not, I was about to begin my first robotic, self-service key duplication chore.
We’ll call my original keys A, B and C. A and B were padlock keys, C was a deadbolt key. The A and B originals used the same blank type.
I started with A, a padlock key. I inserted the original into a reader slot on the front of the machine, and it read the key’s teeth and shape. Through a window in the front of the machine, I could see the moving machinery and the tray of blanks it would pick from. A friendly voice and a well-designed software experience guided me through the process, which boiled down to a) insert key b) wait about two minutes for the machinery to read, select the right blank, cut the key, buff it, and drop the completed duplicate into a slot to be grabbed by the user.
Minutes later, I had my first duplicate. It had problems.
Above, you can see the matchup. The silver key in the foreground is the original, the brass colored key behind it is the duplicate. You can see the teeth are aligned, but the blanks are in fact different shapes toward the base of the keys. Here’s an extreme closeup showing the difference:
The blank selected by the robot actually left more key material on the duplicate than there is on the original. I’ve highlighted the difference in red. I expected this would produce a misalignment — even though the teeth appeared accurate, I expected that this duplicate would not travel into the lock deeply enough to work.
I moved on to B, my second padlock key. Remember, B and A are of the same type — they both have the same number stamped on them at the blank factory. I inserted the original into the machine and waited.
The result was interesting. Even though originals between A and B were cut on the same blank, this time, the robot refused to cut anything: it apologized and said on a message on the screen that it could not duplicate this key.
So far, I was 0 for 2.
The third key, C, was for a deadbolt lock. This time, the machine happily got to work, and the duplicate produced looked like a 100% match.
When I got back to the site of the locks, I tried A, and sure enough, it wouldn’t work no matter how much cajoling or graphite lube I added. It was a bust, and it was plainly because the blank selected by the robot was a mismatch — interestingly a mismatch that it appears the machine caught correctly on key B, when it refused to proceed.
Key C worked very well in its deadbolt, bringing us to a 33% success rate for the entire job. Something in the decades of history of using hardware store employees for this task — employees with good eyesight, experience in the trade and attention to detail — tells me that there’s room for improvement here.
One aspect of the job was that the machine produced duplicates that had burrs — small pieces of cut metal that stuck to the duplicate. This is normal in key cutting but should be removed before handing to the customer. I could see through the window inside the machine that a final step did include a wire wheel, but the wheel did not spin, rendering the duplicate messy when delivered. I had to buff the duplicates myself at a nearby workshop to remove these burrs, otherwise I risked inserting pieces of metal debris into my locks.
Was my experience typical? Was this machine out of adjustment or maintenance, or is there a fundamental flaw in the software and/or hardware? I can’t say. I do know that I preferred a living, breathing hardware store employee, usually wearing a vest, skilled in the task. Rarely if ever did these folks turn in a 33% success rate, making what should be a single trip to the hardware store into at least three trips — as well as having to finish the buffing job myself.
I suggest the machine makers work harder on making the key-duplicating part of the robot work as flawlessly as the payment-accepting part of the robot.
The global business classification called GICS is about to undergo a makeover, and real estate is about to come into its own.
GICS was created in 1999 as a classification arrangement to categorize every type of publicly traded company. GICS is a four-tiered, hierarchical industry classification system, consisting of ten sectors, 24 industry groups, 67 industries and 156 sub-industries. Classifications are assigned by a company’s principal business activity, and the classifications are used as a basis for market indexes such as a traded and tracked on financial markets.
Here’s the entirety of the GICS categories today. You’ll notice real estate is currently a subgroup of the “financials” sector:
|2020||Commercial & Professional Services|
|25||Consumer Discretionary||2510||Automobiles & Components|
|2520||Consumer Durables & Apparel|
|30||Consumer Staples||3010||Food & Staples Retailing|
|3020||Food, Beverage & Tobacco|
|3030||Household & Personal Products|
|35||Health Care||3510||Health Care Equipment & Services|
|3520||Pharmaceuticals, Biotechnology & Life Sciences|
|45||Information Technology||4510||Software & Services|
|4520||Technology Hardware & Equipment|
|4530||Semiconductors & Semiconductor Equipment|
|50||Telecommunication Services||5010||Telecommunication Services|
Moving On Up
Proposed in 2014 and expected to be rolled out by August of this year is a major change to the categories concerning real estate. Currently, real estate is arranged as a sub-category of the big-ten category of “financials”. The change will bring real estate out from that classification and elevate it to a new, eleventh category named, surprisingly enough, “real estate”.
Why the move? At REIT.com, the prevailing thoughts in a piece about the move are that it reflects the evolution and success of the real estate investment trust (REIT):
Michael Grupe, executive vice president for research and investor outreach at NAREIT, describes the change as “another important and warranted event in the long-term growth and development of stock exchange-listed REITs and real estate companies.” He notes that the classification structure of GICS frames much of the product development, investment research, media coverage, and investment strategies of both institutional and individual investors.
Mike Kirby, chairman and director of research at Green Street Advisors, points out that the commercial real estate sector hasn’t had its own Sector classification in the past because it had been difficult for investors to access the sector through listed securities prior to the Modern REIT Era.
“The success and growth of the U.S. listed REIT market has changed that, and classification of real estate as a sector in GICS is a welcome validation of the fact that any diversified investment portfolio needs significant exposure to REITs,” he said.
The sector classification provides “yet one more rebuttal to anyone treating REITs differently than other equities. So this change should, at the margin, make them more attractive to the generalist community,” Kirby adds.
Applications are now open for the Commercial Innovation Grants program held by the Commercial and Global Services division of the National Association of REALTORS®. The program provides financial resources for new commercial programming at REALTOR® associations that have an active commercial structure.
To obtain approval, proposals must demonstrate an impact on the association. Winning projects might take the form of new programs, new products, services or processes that improve an organization’s commercial real estate presence.
Check out the page at Realtor.com/commercial dedicated to the program to find the grant application form as well as a nice listing and summaries of proposals that have been green-lit, ranging from new software applications to learning-day sessions to new study methods examining cases of listing proposals — and everything in between. You’ve got time to think it through: completed forms must be submitted by December 31st, 2016.
Ready, set, innovate!
How To Apply
To apply, download and complete the Commercial Innovation Grant Application (.DOC, 35KB). If you have any questions during the application process, please contact Shara Varner at 312-329-8282 or via email at firstname.lastname@example.org.
Key Dates for the second cycle of 2016 Commercial Innovation Grant Applications:
- June 1st: Application period opened
- July 31st: All application materials due
- August 31st: Grant recipients contacted
If you’re in the office space industry and you’ve ever wondered where it would lead if you followed the money to the top office markets in the world, take a peek at CNBC’s collection of eye-popping dollar figures per square foot in commercial centers across the planet. Learn the moves from last year’s list — gainers and losers might be surprising. From Shanghai Pudong districts’s relatively modest $132 per square foot all the way to…well, check out the list to learn the top. (No, it’s not New York.)
Like a lot of Chicagoans, I’m something of an architecture nerd. Being proud of this town’s skyline and the engineering that went into it is second nature to Windy City natives, but we don’t often slow down to take a close look at the stories behind the world-famous postwar modern styles. It’s an international story: the likes of Ludwig Mies van der Rohe, Bertrand Goldberg and Walter Netsch will not likely appear again, but their work as a whole forms the visual and functional vocabulary associated with modernism the world over.
Filmmaker Nathan Eddy’s documentary The Absent Column explores the story behind Chicago’s Prentice Women’s Hospital Building a 1975 Goldberg building in the brutalist style. Colleagues of the architect as well as preservationists have faced off over the fate of this half-bunker-half-flower structure, and Eddy captures the story. Definitely worth a look.
Beth Mattson-Tieg’s nifty deck at NREIOnline takes a useful look at the leading risk factors felt today by real estate investment trusts (REIT). The REIT marketplace is a prismatic view into commercial real estate fundamentals while they put prices on portfolios and sectors in ways that make investment easy. This means that what REITs face are good indicators of what the broader CRE market faces, and that facts on the ground often mean similar things to portfolio managers as they do to individual owners and investors.
Where do the big risks lie in the list? Does industry consolidation come in as a higher risk than environmental liabilities? Where do changes to REIT tax benefits rank? And capital acquisition — it it still brutally difficult? On that last point:
Although REITs tend to be a little more conservative on leverage, access to capital remains a concern as a large portion of the REIT market is continuing to trade at a discount to net asset value (NAV). After record issuance in 2015, when U.S. equity REITs issued $75.6 billion in common and preferred equity, unsecured bonds and term loans, overall capital issuance through March 21 is down by 18.6 percent compared to the same period a year ago, according to Fitch Ratings. In addition, REITs are concerned about the disruption in the CMBS market over the past nine to 10 months.
It’s a fact of life in commercial property development that infrastructure must keep up with new construction. Value of new construction approaches zero when connectivity to that property – transportation, electrical, telecom, water – is not available.
The obligation to run internet connectivity to remote locations is a huge challenge that brings a capital-intensive need up against a vast physical frontier. When pushing data or telecom cabling into that frontier, costs can be astronomical and networks can be physically fragile.
But one project at Google is imagining a way to change all that.
Meet Google Loon: a technology project that aims to bring internet access to remote areas not by running cable on or below the surface of the earth, but instead by sending hot-air balloons over the surface, parking them in more or less fixed locations, and tricking them out with solar-powered LTE radios similar to the towers that power the data connections on your smart mobile devices.
The result: a data network floating 20KM over the ground, providing connectivity to areas that will not see a fiber optic cable for decades, if ever, thanks to the crushing economics of physical network construction.
Infrastructure that floats above is infrastructure that spreads on-the-ground property value faster and farther than ever before. That’s why Loon is worth watching. Follow this amazing project here.
Crains Chicago Business reports that McDonald’s corporate HQ is bugging out from its sprawling suburban Oakbrook, IL campus back to a locale it once called home — downtown Chicago. The reasons seem to stem from the classic reverse-migration of white collar workforces from suburban enclaves to metropolitan districts. Beyond that, the fast-foot behemoth’s business woes might play a role in the decision as well. From the Ryan Ori and Peter Frost piece in Crain’s:
McDonald’s is in advanced negotiations with Sterling Bay to move its headquarters to well over 300,000 square feet in a structure the Chicago developer plans to build on Randolph Street, according to people familiar with the deal.
The office development is planned on Oprah Winfrey’s former Harpo Studios campus, which Sterling Bay bought for $30.5 million in 2014.
The deal comes about nine months after McDonald’s backed out in the final stages of a deal for more than 350,000 square feet at One Prudential Plaza near Millennium Park.
McDonald’s is believed to have considered several existing office buildings as well as potential new projects before settling on Sterling Bay’s redevelopment west of the Loop and the Kennedy Expressway in the northwestern edge of the West Loop.
After former Harpo buildings are demolished, construction of the new office building McDonald’s will occupy is expected to be completed by 2018.
Back For More CBD Magic
The McDonalds HQ move would mark a return to downtown, as the company headquarters once called home the 1930 LaSalle-Wacker building at 221 N. LaSalle, growing to occupy eight floors before moving to Oakbrook in the 1980s.
Having visited the truly huge Oakbrook McDonalds HQ complex many times, what struck me immediately about the deal was its potential to represent a backdoor real estate downsizing for the company. To speculate: if the company moves 100% from its campus, currently arrayed around a four-story, 700,000 sqaure foot building, nothing in today’s news item suggests more than 300,000 square feet for the new location. That’s a haircut on space of more than 57%, which, if pulled off, should please shareholders on its face, as the burger giant faces strong headwinds globally and peak profits are well in its rearview mirror. All that said, the company’s full relocation plans, future employment levels and ultimate disposition of the Oakbrook campus are unknown at this time. It’s a story to follow for sure.
Earlier this month, the US Senate Banking Committee held a hearing critical to borrowing in the commercial real estate industry. The hearing, entitled “Improving Communities’ and Businesses’ Access to Capital and Economic Development” included discussion of a House bill introduced by Rep. French Hill (R-AR) tagged H.R. 4620, the “Preserving Access To CRE Capital Act”.
The Act, according to a May 19 letter sent from NAR President Tom Salamone, makes a modest yet important change to the “Qualified Commercial Real Estate” (QCRE) exemption to the commercial real estate risk retention rules slated to go into effect in December of 2016 under Dodd-Frank.
The issue centers on the class of commercial mortgage-backed securities (CMBS) called single-asset, single-borrower, or SASB. In his letter, President Salamone continues:
The Preserving Access to CRE Capital Act makes a modest but important change to the “Qualified Commercial Real Estate” (QCRE) exemption to the commercial real estate risk retention rules slated to go into effect in December 2016. These impending rules are, as written, overly broad. Single asset/single borrower (SASB) commercial mortgage backed securities (CMBS) are not exempt, despite being low-risk, and not the type of transaction the Dodd-Frank Act was intended to regulate. Rep. Hill’s legislation would fix this oversight by widening the QCRE exemption to include SASB and interest-only loans. Without this fix, liquidity rates will be impaired and borrowing costs will go up.
CMBSs are important sources of financing for commercial real estate projects of all kinds, providing about 25% of all commercial real estate lending in the country1 . They are especially important in secondary and tertiary markets, where they provide a significant portion of the financing for smaller, “Main Street” businesses. Arbitrarily reducing liquidity in the CMBS market will thus reduce liquidity across the board and raise borrowing costs for commercial real estate loans in all markets.
H.R. 4260, introduced in the house in February, promises to address the problem of overly broad risk retention rules. To learn how, you can read the entirety of the bill after this link.