LOGISTICS FIRMS REMAIN ROOM FOR RECOVERY A FUTURE FOR INFRASTRUCTURE SURVIVING VOLATILITY HUNGRY FOR SPACE The hospitality sector was devastated With potential bipartisan support for The pandemic turned the world upside COVID-19 has created opportunities and in 2020, but vaccinations, industrywide infrastructure, could 2021 be the year for down, so CRE professionals will need challenges as logistics providers continue efforts, and returning demand are a breakthrough in Washington, D.C.? creative options when renegotiating leases. to strive for last-mile effi ciencies. reasons for hope. COMMERCIAL INVESTMENT
SPRING 2021 REAL ESTATE
Back to the Office? As offi ces reopen, the COVID-19 workplace must emphasize fl exibility, safety, and collaboration.
The Offi cial Magazine of CCIM Institute Upcoming CCIM Institute Courses
Given the fluid nature of the COVID-19 pandemic, currently scheduled classroom courses may be canceled or rescheduled with little notice. If classroom courses are canceled, the institute will work with all students affected to identify course options that ! ensure the continued safety of students and instructors. DESIGNATION CURRICULUM COURSES Introduction to Development Workshop CI 101: Financial Analysis for CIRE June 8, 10, 15, 17, 22 & 24 ...... Virtual May 3–6...... Milwaukee ONLINE COURSES May 26–June 25 ...... Blended May 3 & 5 ...... Real Estate Development: Land Banking June 14–17...... Naples, FL May 4...... Calculating Building Size for Development June 21–24...... Honolulu May 6...... Leveraging the Historic Tax Credit July 13–16 ...... Barrie, Ontario May 7...... Loan Amortization in Commercial Real Estate July 19–22 ...... San Antonio May 10 & 12 ...... Construction: Management and CI 102: Market Analysis for CIRE Project Delivery Methods May 3–6...... Fort Lauderdale, FL May 10, 12, 14, 17 & 19 ...... Foundations for Success in CRE May 3–6...... Atlanta May 11 & 13 ...... Build Your Own DCF Model in Excel May 3–6...... Dallas May 14...... Financial Modeling for Real Estate Development May 25–June 22 ...... Blended May 18 & 20 ...... Evaluating Industrial Development Projects June 7–11...... Virtual May 19...... Increasing Commercial Real Estate Value with Cost Segregation CI 103: User Decision Analysis for CIRE May 21...... Creating Reliable Valuations May 3–6...... Charleston, SC May 24 & 26 ...... Real Estate Development: May 18–21...... St. Louis, MO Property Redevelopment June 8–11...... Charlotte, NC May 25 & 27 ...... Improve Retail Investment Return Using GIS June 14–17...... Dallas June 1 & 3 ...Variations, Manipulations, and Extensions of the IRR June 14–23...... Virtual June 3...... Low Income Housing Tax Credit Financing June 15–18...... Houston June 4...... Evaluating Self-Storage Investments June 15–18...... Louisville, KY June 8 & 10 ... Before and After Tax Discounted Cash Flow Analysis June 29–July 29...... Online June 9 &11 ...... Real Estate Development: Land Development July 19–22 ...... Albuquerque, NM June 14 & 16 ...... Corporate Services Representation CI 104: Investment Analysis for CIRE June 15 & 17 ...... Evaluating Medical Office Building Development Projects May 11–14...... Nashville, TN June 16 & 18 ...... Unlocking Value and Capital June 1–July 1...... Online with Sale-Leasebacks June 7–10...... Miami June 21, 23, 25, 28 & 30 ...... Real Estate Financial Analysis June 14–17...... Tulsa, OK Using Excel July 19–22 ...... Dallas June 28 & 30 ..Real Estate Development: Building Development June 29...... 1031 Tax-Deferred Exchanges WARD CENTER COURSES July 7 & 9...... Commercial Loan Underwriting CLASSROOM AND VIRTUAL COURSES July 12 & 14...... Real Estate Development: Land Packaging Commercial Real Estate Negotiations July 13 & 15...... High Tech Marketing for CRE May 6...... Virtual July 14 & 16... Financial Analysis Tools for Commercial Real Estate May 17 ...... St. Louis, MO July 20 & 22...... Evaluating Mixed-Use Development Projects June 2 ...... Virtual July 21 & 23...... Syndication and Crowdfunding Workshop June 14...... Louisville, KY July 26 & 28...... Lease Modification Strategies and Solutions Foundations for Success in CRE July 27 & 29...... Real Estate Development: Building Renovation July 11–12 ...... Barrie, Ontario July 29 ...... Splitting Profits in Commercial Real Estate July 30 ...... Senior Housing: Fundamentals and Benchmarks
For the most up-to-date schedule, visit www.ccim.com/education or call +1 (312) 321-4460, opt. 2 Upcoming CCIM Institute Courses SPRING 2021 | Vol. XL No. 2 COVER STORY Given the fluid nature of the COVID-19 pandemic, currently scheduled classroom courses may be canceled or rescheduled with CONTENTS little notice. If classroom courses are canceled, the institute will work with all students affected to identify course options that ensure the continued safety of students and instructors. ! COMMERCIAL INVESTMENT REAL ESTATE DESIGNATION CURRICULUM COURSES Introduction to Development Workshop THE OFFICIAL MAGAZINE OF CCIM INSTITUTE BACK TO CI 101: Financial Analysis for CIRE June 8, 10, 15, 17, 22 & 24 ...... Virtual THE OFFICE? May 3–6...... Milwaukee ONLINE COURSES May 26–June 25 ...... Blended May 3 & 5 ...... Real Estate Development: Land Banking June 14–17...... Naples, FL May 4...... Calculating Building Size for Development June 21–24...... Honolulu May 6...... Leveraging the Historic Tax Credit July 13–16 ...... Barrie, Ontario May 7...... Loan Amortization in Commercial Real Estate July 19–22 ...... San Antonio May 10 & 12 ...... Construction: Management and CI 102: Market Analysis for CIRE Project Delivery Methods May 3–6...... Fort Lauderdale, FL May 10, 12, 14, 17 & 19 ...... Foundations for Success in CRE As offices reopen, the COVID-19 work- May 3–6...... Atlanta May 11 & 13 ...... Build Your Own DCF Model in Excel place must emphasize flexibility, safety, 24 May 3–6...... Dallas May 14...... Financial Modeling for Real Estate Development and collaboration. By Sarah Hoban May 18 & 20 ...... Evaluating Industrial Development Projects May 25–June 22 ...... Blended DEPARTMENTS June 7–11...... Virtual May 19...... Increasing Commercial Real Estate Value with Cost Segregation CI 103: User Decision Analysis for CIRE May 21...... Creating Reliable Valuations PRESIDENT’S DESK May 3–6...... Charleston, SC The Heart of the Deal May 24 & 26 ...... Real Estate Development: 02 May 18–21...... St. Louis, MO Property Redevelopment INDUSTRY VOICES June 8–11...... Charlotte, NC May 25 & 27 ...... Improve Retail Investment Return Using GIS Multifamily’s Path Ahead 04 June 14–17...... Dallas June 1 & 3 ...Variations, Manipulations, and Extensions of the IRR CIRE PODCAST June 14–23...... Virtual June 3...... Low Income Housing Tax Credit Financing 20 29 The Hot Topic of Cold Storage 06 June 15–18...... Houston June 4...... Evaluating Self-Storage Investments June 15–18...... Louisville, KY June 8 & 10 ... Before and After Tax Discounted Cash Flow Analysis MARKET TRENDS 08 LOGISTICS FIRMS REMAIN A FUTURE FOR June 29–July 29...... Online June 9 &11 ...... Real Estate Development: Land Development HUNGRY FOR SPACE INFRASTRUCTURE July 19–22 ...... Albuquerque, NM June 14 & 16 ...... Corporate Services Representation WORLDVIEW France CI 104: Investment Analysis for CIRE June 15 & 17 ...... Evaluating Medical Office Building 10 COVID-19 has created opportunities and With potential bipartisan support for infra- Development Projects challenges as logistics providers continue to structure, could 2021 be the year for a break- May 11–14...... Nashville, TN BY THE NUMBERS WITH REIS June 16 & 18 ...... Unlocking Value and Capital Checking on the Recovery strive for last-mile efficiencies. through in Washington, D.C.? June 1–July 1...... Online 12 with Sale-Leasebacks By Beth Mattson-Teig By Elizabeth Vincent June 7–10...... Miami June 21, 23, 25, 28 & 30 ...... Real Estate Financial Analysis INVESTMENT ANALYSIS Failing to Plan June 14–17...... Tulsa, OK Using Excel 14 July 19–22 ...... Dallas June 28 & 30 ..Real Estate Development: Building Development BRIEFINGS
June 29...... 1031 Tax-Deferred Exchanges What’s the Risk? 16 WARD CENTER COURSES July 7 & 9...... Commercial Loan Underwriting CLASSROOM AND VIRTUAL COURSES CCIM Q&A July 12 & 14...... Real Estate Development: Land Packaging Beau Beery, CCIM Commercial Real Estate Negotiations 18 July 13 & 15...... High Tech Marketing for CRE May 6...... Virtual CCIM CANDIDATE SPOTLIGHT 32 34 July 14 & 16... Financial Analysis Tools for Commercial Real Estate Meet Amy May 17 ...... St. Louis, MO Smith 38 July 20 & 22...... Evaluating Mixed-Use Development Projects June 2 ...... Virtual July 21 & 23...... Syndication and Crowdfunding Workshop SITE TO DO BUSINESS CASE STUDY June 14...... Louisville, KY Recapturing the Magic 40 SURVIVING ROOM FOR July 26 & 28...... Lease Modification Strategies and Solutions VOLATILITY RECOVERY Foundations for Success in CRE July 27 & 29...... Real Estate Development: Building Renovation CRE INNOVATIONS Intelligent Analysis July 11–12 ...... Barrie, Ontario July 29 ...... Splitting Profits in Commercial Real Estate 42 The pandemic turned the world upside down, The hospitality sector was devastated in July 30 ...... Senior Housing: Fundamentals and Benchmarks so CRE professionals will need creative 2020, but vaccinations and returning options when renegotiating leases. demand are reasons for hope. DEAL MAKERS 44
Cover photo by Spreephoto.de; SurvivingCover photo by Spreephoto.de; photo by Robert Daly Volatility By Soozi Jones Walker, CCIM, SIOR By Nicholas Leider For the most up-to-date schedule, visit www.ccim.com/education or call +1 (312) 321-4460, opt. 2 CIREMAGAZINE.COM COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE 1 COMMERCIAL INVESTMENT PRESIDENT'S REAL ESTATE
Commercial Investment Real Estate, the official magazine of CCIM Institute, reports DESK on market trends and analysis, current developments in the field, and successful business strategies.
CIRE STAFF Publisher, Rich Rosfelder, [email protected] The Heart of the Deal Director of Communications, Larry Guthrie, [email protected] Senior Content Editor, Nicholas Leider, [email protected]
Contributing Editors: Moustafa Elsayed, CCIM, CSM; Tory Goldson; love this industry. I, along with my Thomas P. LaSalvia, Ph.D.; Elizabeth Vincent; Soozi Jones Walker, CCIM, SIOR COUNT colleagues at Shannon Waltchack, get Ito build wealth through buying prop- Design Consultant: Homestyles Media erties — all while earning a living through brokerage. It’s rewarding on so many lev- Editorial Review Board: Adrian A. Arriaga, CCIM; David B. Eaton, CCIM; els. While others of you may work in any David Ellermann, CCIM; Jeff Engelstad, CCIM; Eric B. Garfield, CCIM; Tony M. number of other areas of CRE, from due Guglielmo, CCIM; James L. Helsel, CCIM; Soozi Jones Walker, CCIM; J. Howard diligence to disposition, I’m sure you share King, CCIM; George C. Larsen, CCIM; Kevin G. Lenze, CCIM; Mark Lee Levine, CCIM; Albert S. Livingston, CCIM; Charlie Mack, CCIM; David L. Schank, CCIM this sentiment.
What’s at the heart of any deal we’re Editorial Address: 430 N. Michigan Avenue, Chicago, IL 60611-4084; Contact us at working on — what’s makes this career so (312) 321-4531 or [email protected] gratifying for me — is that we get to help people every day. The impact we make is far greater than the built Advertising: Heather Macaluso at [email protected] or (717) 430-2224. world we deal in. You see, a 1,500-square-foot lease to us might seem small, Subscriptions: $45 for nonmembers in U.S.; $55 for nonmembers in Canada and but it is everything to that family who put their life savings into a Mexico. Call (800) 532-8633. new venture. Reader Services: All dues-paying members of CCIM Institute receive ON A 4,000-foot office deal — it’s not just 4,000 square feet. To Commercial Investment Real Estate magazine four times a year as a member benefit. the office manager, it’s everything. To the people who work there, it’s Subscribe, purchase back issues, or order customized article reprints: how they earn the money to pay their mortgage. It’s how they are www.ccim.com/cire or (800) 532-8633 x4491. going to put their children through school. Make address changes: [email protected] or (800) 532-8633 x4491 That’s why people look to the CCIM pin — each of us brings Request reprint permission: [email protected] sophisticated analysis and evaluation skills to the table to make the Submit articles and editorial ideas: [email protected] most of every deal while never losing sight of the human factor — our clients and those we work with on a deal. Postmaster: Send address changes to Commercial Investment Real Estate, You’ll see that dedication reflected in our official publication, 430 N. Michigan Avenue, Suite 700, Chicago, IL 60611-4084. Commercial Investment Real Estate magazine, as well. Across all our Commercial Investment Real Estate (ISSN 1524-3249) is published quarterly by feature stories and departments, you not only gain valuable practi- CCIM Institute of the National Association of REALTORS®, 430 N. Michigan Ave- cal knowledge and insights to help grow your business, but you also nue, Chicago, IL 60611-4084. Periodicals postage paid at Chicago, IL, and addition- hear stories of CRE pros doing the deals and positively impacting al mailing offices. The opinions expressed in signed articles and materials appearing their clients’ lives. Success in the industry is built on trusted rela- in Commercial Investment Real Estate, including specific references to products tionships, and that goes for the one the institute nurtures with you, and services, are those of the authors and not necessarily those of Commercial our valued member, year-round through all our efforts, resources, Investment Real Estate, CCIM Institute, or the National Association of REALTORS®. © 2021 by the CCIM Institute. All rights reserved. and communications. KATE.Every time SIORs walk into a room, their Expertise, ethics, and empathy — these are the secrets to CCIM Institute, an affiliate of the National Association of REALTORS®, thriving in this industry — whether or not you’re a CCIM. Every deal reputation precedes them. Experienced, confers the Certified Commercial Investment Member designation to we do makes a difference. In the commercial real estate profession, commercial real estate professionals who have extensive training and knowledgeable and focused, SIORs represent that’s what CCIMs are known for. industry experience and complete a rigorous study program. Whether you have earned the designation, are on your path the absolute best in commercial real estate. to the pin, or taking courses from the institute for professional Executive Offi cers Access the world’s most elite network and development, I hope that everyone takes advantage of all that CCIM President, Timothy S. Blair, CCIM, Birmingham, Ala. open the door to game-changing opportunities. Institute has to offer to help you embody these values today and well President-Elect, Leslie G. Callahan III, CCIM, Atlanta into the future. First Vice President, David Schnitzer, CCIM, Addison, Texas Treasurer, Steve Rich, CCIM, Charlotte, N.C. SIOR. Your next big win is just four letters away. Executive Vice President & CEO, Gregory J. Fine, FASAE, CAE, Chicago
TIMOTHY S. BLAIR, CCIM 2021 CCIM Institute President Contact him at [email protected]. go.sior.com/kate
2 COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE SPRING 2021 COUNT ON
KATE.Every time SIORs walk into a room, their reputation precedes them. Experienced, knowledgeable and focused, SIORs represent the absolute best in commercial real estate. Access the world’s most elite network and open the door to game-changing opportunities. SIOR. Your next big win is just four letters away.
go.sior.com/kate INDUSTRY VOICES
By Nicholas Leider
BUILDING A BETTER GLOBAL BROKERAGE MULTIFAMILY’S ONE AFFILIATE AT A TIME PATH AHEAD
Some CRE experts speculate increased offer a pretty solid return,” Walter says. “It’s a interest in suburban and exurban areas with long-term investment that can be appealing a new emphasis on social distancing and when compared to retail or office. Right now, growing aversion to dense population centers. it’s especially important to be careful, to ac- Considering these broad trends, will major count for uncertainty, and to do the necessary metropolitan areas see a decreased demand due diligence.” for multifamily and office properties in cities As for long-term impacts in the de- like New York, San Francisco, or Chicago? sign, construction, and operation of multi- “There are certain jobs that can only family developments, Walter sees the market be done in these cities,” Walter says. “We’re responding to COVID-19 in a similar fashion expecting that there’s still going to be quite to localized natural disasters in the past. a bit of demand going forward. There was a “Obviously, I think the industry is still Caitlin Sugrue Walter, Ph.D. little bit more movement from major metros working through its response as we learn [in 2020] compared to previous years, but I more about public health and safety issues,” onsidering the national lockdown don’t see it as an exodus from these cities. It she says. “But I expect more emphasis on and resulting shelter-in-place orders was more that you didn’t have people moving things like ventilation and sanitation. I see Cafter COVID-19’s arrival in the U.S. in. For example, if you were living with your it more like how Houston responded to Hur- last spring, the multifamily market was ex- parents in a suburban area, and you held off ricane Harvey — to plan for flooding after a pectedly tight through June and July 2020. moving for a year.” major storm. A pandemic could be another But as state and local economies began to But COVID-19 did accelerate some thing that folks are going to make sure they open, apartment markets quickly regained population trends that were already noticeable put in their design needs going forward.” It’s a new chapter for brokerage with over 30 years of success behind it. Rand Sperry, an industry icon, momentum. Sales volume and market tight- in 2018 and 2019. The tumult — and growing But for now, CRE professionals can launched a new commercial real estate franchise opportunity in 2016. A better brokerage platform that ness indexes from the National Multifamily ability to work remotely — may have allowed keep a finger on the pulse of the multifam- Housing Council returned to pre-pandemic people to make changes sooner than later. ily sector by monitoring key figures like the harnesses state-of-the-art technology and training, and delivers a unique collaborative model delivered in the levels by January 2021. “There’s definitely been a shift to some NMHC’s Rent Tracker, which calculates the While the worst of the pandemic is areas that already started to see a fair amount percentage of rent payments made through- best interest of the broker and the client. Today, we are 58 affiliates strong and expanding domestically and in the rearview mirror — fingers crossed — of attention,” Walter says. “They appear to out a month. January 2021 clocked in at 93.2 internationally. DDDDDDDDDDDDDDDDDDDDDDDDDDDaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa multifamily is still facing an uncertain future. have become even more popular — particu- percent of payments made by the end of the But Caitlin Sugrue Walter, Ph.D., vice pres- larly Southern cities like Nashville, Tenn., and month, a slight dip from 95.8 percent in Janu- ident for the National Multifamily Housing Austin, Texas. The number of people moving ary 2020 and 93.8 percent in December 2020. Council, points to a healthy recovery in late to Texas in recent years is through the roof, so “It’s one indicator that’s helped show Gain access to experience, tools and technology that keep you at the forefront of the market and 2020 as reason for optimism. I don’t think that was a result of COVID-19. I where we were at throughout COVID-19,” enable you to better service your clients today and into the future. If you’re ready to join the industry’s most “We have seen a complete change in think there will be some more sorting out af- Walter says. “Holding up around 90 percent, the leasing season, thanks to the pandemic,” ter COVID-19 as employers figure out work- I think that’s reassuring to people. If some- value-based franchise platform and a rapidly growing network of Global Affiliates, we’d like to hear from you! she says. “If you look at 2020, the numbers from-home and remote work policies.” thing were to have happened, [that figure] were extremely different than the previous While the true impact of the pandemic would’ve shown it by now.” DDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDaaaaaaaaaaaaaa year. COVID-19 pushed everything back will play out over the coming years and de- to early summer, which was not as strong a cades, multifamily remains an attractive des- Nicholas Leider leasing season as we typically see. But we are tination for capital. Senior content editor of WWW.SPERRYCGA.COM still working through that and absorptions “Especially when compared to other Commercial Investment Real Estate are still pretty good.” property types, apartment developments Contact him at [email protected]. “Local Reach on a Global Scale” 949.705.5000
4 COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE SPRING 2021 Eeach office independantly owned and operated. BUILDING A BETTER GLOBAL BROKERAGE ONE AFFILIATE AT A TIME
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Gain access to experience, tools and technology that keep you at the forefront of the market and enable you to better service your clients today and into the future. If you’re ready to join the industry’s most value-based franchise platform and a rapidly growing network of Global Affiliates, we’d like to hear from you! DDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDaaaaaaaaaaaaaa
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Eeach office independantly owned and operated. By Nicholas Leider THE HOT TOPIC OF COLD STORAGE
The supply chain proved resilient amid myriad challenges in 2020, with cold storage developing into an especially promising sector of the industrial market in the years to come.
ommercial real estate professionals In this case, the industrial sector has seen We all like to eat, so it’s all about major pop- are only beginning to decipher the strengthening demand, with cold storage a ulation centers having fresh food available to Clong-term impacts of a once-in-a- particular property type that has a promis- their residents. century black swan event. Now roughly a ing future. year after COVID-19 swept across the U.S., To take a closer look at cold storage, CIRE: THE INDUSTRIAL WAREHOUSE the industry must adapt to widespread we spoke with Tim O’Rourke, managing di- SECTOR HAS BEEN SUCH A BRIGHT social changes to people’s behaviors — rector at JLL, who is also a team leader for SPOT IN COMMERCIAL REAL ESTATE like where they work, how they shop, and the industrial services group in Los Angeles IN THE COVID19 ERA. HOW HAS and a member of JLL’s Sup- THE OUTLOOK FOR COLD STORAGE ply Chain & Logistics Group. CHANGED IN THE LAST YEAR? WHAT O’Rourke details the important ROLE HAS COLD STORAGE PLAYED IN driving factors, including pop- THE ECOMMERCE BOOM? ulation and production, as well as the impact of infrastructure, O’ROURKE: Like you said, industrial is ESG, and technology. the darling of commercial real estate right now, so everyone has been looking at cold CIRE: YOU’VE OFTEN CITED storage for the last five years or so — main- THREE MAIN DRIVERS OF ly due to its investment spreads. Cold stor- COLD STORAGE THE THREE age tended to be 150 to 200 basis points PS OF PORTS MEANING above dry warehousing in the same mar- IMPORTS AND EXPORTS, ket, making it an avenue for an investor to POPULATION, AND PRODUC get additional returns. But looking at the TION. CAN YOU UNPACK THIS situation in early 2020, whether it’s Feb- CONCEPT A BIT? ruary or March, we saw issues within the food supply chain when COVID-19 started. TIM O’ROURKE: Basically, if you We saw a lot of impact on the grocery don’t have one of these three Ps, chains and on wholesale distributors. Half there’s no reason to have a cold their customer base had been restaurants, whether or not they travel. While we may storage facility. When we talk about produc- which were immediately shut down in a lot all prefer this pandemic to be a temporary tion, we’re talking about the Midwest and of states. That led to changes in consump- detour from “normal,” fundamental aspects pork and beef, the Southeast with poultry, tion and distribution too, because 60 to of everyday life will be forever altered. and potatoes in the Pacific Northwest. The 70 percent of our dollars had been spent But it’s the job of the commercial ports are all about the import and export of outside the home. But now that we were all real estate industry and its professionals to food, so it’s keeping that supply chain moving stuck at home and eating in, those dollars understand and adapt to a changing world. quickly. And finally, the last is population. remained inside the home.
6 COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE SPRING 2021 CIRE: DID YOU FIND THAT THE BOOM IN the spec we’re seeing is in centers where popu- O’ROURKE: All the new projects will ECOMMERCE GROCERY SALES OFFSET lation growth is the strongest, like in Arizona, be better for the environment than old, THE DIP IN RESTAURANT SALES? Texas, and the Southeast [U.S.]. out-of-date systems. They will reduce energy consumption. As we are retiring O’ROURKE: It definitely did. The latest CIRE: ARE YOU FINDING OPPORTUNTIES some of the older facilities in the U.S., numbers I’ve seen for online grocery sales OUTSIDE THE PRIMARY URBAN MAR with some more than 50 years old, were up six-fold since 2019. That’s a huge KETS? IS DEMAND GROWING IN SECOND these sites will be much better in terms increase. And that was part of the cold ARY AND TERTIARY MARKETS? of the impact that they have on the storage solution we were trying to find over environment. New construction is going to the last nine months. The other issue is the O’ROURKE: Demand is growing in those address a lot of the environmental issues consumption patterns that were changing. markets, but the biggest consideration is going forward. Technically, we weren’t eating and drinking transportation because that’s the largest If you’re in Los Angeles, Atlanta, more — it was just where we were consum- cost bucket when looking at these facilities. Dallas, or Chicago, these older freezer ing the product that changed. Many of these sites are located where trans- buildings lend themselves to being portation costs for the client are minimized upgraded, both in terms of energy CIRE: HAS COLD STORAGE PLAYED A — whether that’s a producer, a grocery chain, consumption and from an operational ROLE IN THE ROLLOUT OF THE VARIOUS or a wholesale distributor. If we look at the standpoint. A lot of these facilities may COVID19 VACCINES? supply and demand, there’s overall about not be great for storing product in the long 250 msf of cold storage in the U.S., with term, but there may be opportunities for O’ROURKE: The vaccines have had a mini- 78 percent of that cold storage built before short-term storage and delivery of product mal impact on the cold storage supply chain, 2000, with an average age of 42 years old. to large population bases. mainly because of temperature requirements. Looking at that, there’s definitely opportuni- The Pfizer vaccine, I believe, needs to be kept ties to tear down and improve locations that at -80 degrees Fahrenheit. The Moderna vac- can produce significant savings in energy. cine needs to be at -20 degrees Fahrenheit. Typically for cold storage facilities, the coldest CIRE: IN DEVELOPING NEW COLD temperatures are -20 degrees for ice cream. STORAGE FACILITES, WHAT In these sites, you can have blast freezing, but TECHNOLOGICAL ADVANCES ARE that wouldn’t be appropriate to store pharma- YOU SEEING IN THE INDUSTRY? ceuticals. What we’re seeing with the vaccines are mobile freezer units. This system is sep- O’ROURKE: There’s definitely an emphasis arate from the existing stock of 250 million on automation. When you talk about the square feet. workforce, automation, of course, reduces One instance that was highly publi- the need for hundreds of bodies in a facility, cized a few months ago was in Louisville, which helps keep down costs. The upfront Ky., where UPS took a 4,000-sf warehouse investment is higher — an automated freez- to install mobile freezer units. That single Tim O’Rourke building is capable of holding 14 million vials of the vaccine. That’s a ton of storage when LISTEN ON: you can hold 1,000 vials in something the size of a suitcase. Right now, it’s really an issue of distributing the vaccine and administering it. Apple Podcast
CIRE: FOR COMMERCIAL REAL ESTATE PROFESSIONALS, WHAT DO THEY NEED TO KNOW ABOUT THIS SECTOR er building could be eight or nine times the We’ve seen over the past nine months COMPARED TO DRY WAREHOUSING? cost of a dry building. But if one of your or so that there’s a ton of capital looking at COLD STORAGE CAN COST NEARLY larger cost buckets is labor, you can save in this sector right now — and for good rea- TWICE AS MUCH, AND CAP RATES HAVE the long term. son — and it’s not going away. Since the BEEN COMPRESSING. WHAT OTHER You can also improve efficiency in pandemic began, we’ve really discovered the CHALLENGES AND OPPORTUNITIES cooling systems, including low-charge resilience of the industrial sector, so there’s EXIST IN THIS MARKET? ammonia systems and CO2 cascade sys- strong investment interest going forward. tems that use different refrigerants. We’ve O’ROURKE: The real challenge is that it’s not moved away from the freon systems for the Nicholas Leider one-size-fits-all when talking about cold stor- most part, which tend to be less efficient. Senior content editor of age. Like I mentioned before, you’re talking Ammonia systems are also better envi- Commercial Investment Real Estate about -20 degrees for certain ice creams and ronmentally, although they are poisonous Contact him at [email protected]. -10 degrees for others. Proteins are 0 to 10 to humans so there’s always a concern for degrees, and then you get into some liquids safety in handling. Editor’s note: that need to be 36 to 45 degrees. There are This article is an adapted excerpt from a full- a lot of temperature ranges, so it’s really all CIRE: SPEAKING OF ENVIRONMENTAL length Commercial Investment Real Estate about flexibility. CONCERNS, WHAT OTHER IMPROVE podcast. To listen to the full episode, head to One of the biggest opportunities we’re MENTS CAN BE MADE IN THE SECTOR? SoundCloud, iTunes, Spotify, or wherever you seeing is in spec storage projects — right now, WHAT INVESTMENT OPPORTUNTIES ARE listen to your favorite podcasts. Don’t forget we’re tracking 28 projects totaling 6.3 msf. All OUT THERE IN THE COMING MONTHS? to subscribe, rate, and review.
CIREMAGAZINE.COM COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE 7 MARKET TRENDS
DEVELOPER TURNS INTEREST IN RURAL RETAIL REITS IMPROVE HOSPITALITY’S TO CROWDFUNDING LAND ON THE RISE RENT COLLECTIONS RECOVERY LOOKS SLOW FOR CRE FUND IN 4Q2020 BUT STEADY
Investing in commercial real Social distancing was a concept Though many retail outlets The travel and leisure sec- estate has typically been as- that rocketed from obscurity outside of grocery and home tor was arguably hardest hit sociated with institutions and into our collective conscious- essentials faced a difficult during the initial COVID-19 high net-worth individuals. ness in 2020. But the growing 2020, malls increased rent disruption in 2020. Sustained Crowdfunding works for start- desire for distance wasn’t kept payments to REITs through- by an expected volume of ups and small projects, but the to grocery lines and backyard out the year. According to data guests, hotels saw reservations practice hasn’t made much barbecues. Brokers reported collected by S&P Global Mar- disappear virtually overnight. headway into CRE. While re- increased interest in rural land ket Intelligence, 11 REITs fo- But now that vaccinations are tail investment in stocks made markets. According to a survey cusing on shopping centers all available, projections for the headlines earlier this year with from National Land Realty, 22 reported increases in rent col- sector offer a light at the end of the GameStop saga, CRE is a percent of land brokers saw a lections in 4Q2020 compared the tunnel. different market — one that’s significant increase in busi- to the previous two quarters. According to a February less liquid with longer invest- ness, while 33.6 percent expe- Federal Realty Invest- report from Moody’s Analytics, ment timelines. rienced some growth. ment Trust reported collecting national revenue per available But real estate developer Considering such in- 89 percent of rent in 4Q2020, room (RevPAR) will approach Jamestown hopes to prove the terest, land values increased the lowest figure of the pre-COVID levels by 2025. viability of crowdfunded CRE during 2020, with 44.5 per- 11 REITs, compared to 85 per- Thanks to Moody’s Analytics with the first direct-to-consum- cent of responding brokers cent in 3Q2020 and 68 percent projections of 5 percent growth er platform to be launched by seeing values increasing by 1 in 2Q2020. Kite Realty Group in GDP in both 2021 and 2022, a global real estate institution. to 5 percent. A lot of interest Trust topped the list in rental hotels will recover with a re- Interested parties can partic- focused on recreational land collections at 95 percent, fol- sumption of leisure and busi- ipate in Jamestown Invest 1 along with farmland. lowed by Retail Properties of ness travel, even if RevPAR will LLC at a minimum of $2,500. “Investors rediscovered American Inc. (94.1 percent) not entirely recover until the The fund acquired a major- a safe haven in land real estate and SITE Centers Corp. end of the decade. ity interest in the Southern in 2020, which made for a very (94 percent). Major metro areas such Dairies at Ponce City Market good year for land sales — with Office, industrial, and as San Francisco (-65 percent) in Atlanta, a historic dairy dis- record-breaking volume in the casino REITs all reported and Chicago (-61 percent) tribution plant that has been second half of the year,” said higher rates of rent payments will see the sharpest declines converted into an 80,000-sf Jason Walter, CEO of National (with the three casino REITs all in RevPAR from 4Q2019 to boutique office space and is Land, in a prepared statement. reporting 100 percent), though 4Q2021, while Knoxville, occupied by ten tenants. the mall-focused REITs saw Tenn. (-3 percent), and Fort improving rent collections Myers, Fla. (-15 percent), will
throughout 2020. be the least affected. leftThis page, to right: Onurdongel, Istankov TommL, Ricky Kresslein,
8 COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE SPRING 2021 RENTAL DEBT KEEPS SMALLER METROPOLITAN DALLAS LEADS SELFSTORAGE’S ACCUMULATING AREAS EYE MIXEDUSE NATIONWIDE OUTLOOK VARIES DURING RECOVERY REVITALIZATION CONSTRUCTION BOOM ACROSS THE U.S.
Eviction moratoriums spread With many people considering Unlike many other sectors of Entering 2020, some analysts across the U.S. as the country all the implications of work- commercial real estate, indus- feared the self-storage sector dealt with the first wave of the ing, living, and even visiting trial saw record levels of de- was becoming oversaturated coronavirus pandemic. Rental large coastal cities during the velopment in 2H2020. By the with new inventory. Some mu- forbearance has been another COVID-19 pandemic, some end of 3Q2020, more than 328 nicipalities were even putting a avenue to alleviate the pres- inland locations see oppor- million sf of industrial space freeze on new facilities. While sures faced by those negatively tunity in attracting new resi- was under construction across COVID-19 may have put the impacted by COVID-19. But dents or keeping others from the U.S. Dallas-Fort Worth brakes on some construction, now a year from the initial tu- leaving with mixed-use devel- topped all metro areas with 28 street rates for self-storage mult, as the economy looks to opments projects. million sf, with both Chicago units ticked upward in 2020. get back on track, accumulated Pittsburgh has been a and Atlanta topping 20 mil- According to a February report debt in rental properties is a model of reinvention, with the lion sf in construction projects. from Yardi Matrix, prices for significant concern for tenants metropolitan area attracting While Dallas boasted standard non-climate-con- and owners. new industries, including ro- the most activity, the Texas trolled units increased by A recent study by the botics, to replace manufacturing hub actually had more space 3.5 percent in January 2020 Federal Reserve Bank of Phila- that had left western Pennsylva- under construction in 2019. compared to the previous delphia estimates that tenants nia. But smaller, suburban loca- Denver had the largest year- year, while prices for climate- who lost employment due to tions are investing in mixed-use over-year increase in develop- controlled spaces increased COVID-19 have amassed more developments to help revitalize ments, more than doubling its 2.3 percent. than $11 billion in arrears. A residential, commercial, and re- pipeline to 7.4 million sf. That Of 32 metro areas ex- broader examination of the tail interest in downtown areas. increase includes the larg- amined by Yardi, California rental market by Moody’s Ana- Hamilton, Ohio, outside est speculative facility under boasted the three top-per- lytics estimates that more than of Cincinnati, for instance, construction — a 594,000-sf forming locations, with Inland $53 billion in back rent, utili- is transforming a downtown warehouse in Aurora, Colo. Empire, San Jose, and San ties, and fees have accumulat- paper mill into a $144 mil- In terms of vacancy, Francisco seeing the biggest ed by January 2021. lion mixed-use project that Baltimore, Houston, and increases in rental rates. Con- COVID relief passed in will include a sports complex, Phoenix all topped 8 percent, versely, Boston saw modest December 2020 included $25 hotel, convention center, and followed by Charlotte, N.C., increases in rates, but devel- billion in federal rental aid, but restaurants. Also, Green Bay, and Dallas-Fort Worth above opers abandoned 15 projects the multifamily sector faces Wis.; Akron, Ohio; and Can- 7 percent. Los Angeles, De- during 2020, more than any difficulties in recapturing de- ton, Ohio, all have relatively troit, and New York had the other market. layed rental income. impressive nine-figure plans to lowest vacancy rates, all below
This page, left to right: Gerber86, Tashka, leftThis page, to right: Gerber86, Tashka, Bill Dickenson, Douglas Sacha attract interest in the Rust Belt. 4 percent.
CIREMAGAZINE.COM COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE 9 CANADA’S LEADING REAL ESTATE VIRTUAL EVENTS FORUMS CONFERENCES MARKET UPDATES WORLDVIEW: Join Us for More from: Industry Leaders Latest Trends & Strategies Networking FORUMS CONFERENCES FRANCE OTTAWA Canadian Apartment REAL ESTATE FORUM Investment Conference 4Q2020 Cap Rates October 14 September 22 & 23 Ottawa Conference & Event Centre (virtual event)
Office Retail O ro th in rice er S are Foot 4.7% 4.9% CALGARY RealREIT As of 4Q2020 Industrial REAL ESTATE FORUM September 29 & 30 (virtual event) Office 6.3% October 21 +9.3% TELUS Convention Centre Industrial +0.4% Montréal Real Estate Retail -1.5% QUÉBEC CITY Strategy & Leasing Conference October 6 2020 rice er S are Foot REAL ESTATE FORUM October 28 Palais des congrès de Montréal Quebec Convention Centre Office $668 Vancouver Real Estate Industrial $108 TORONTO Strategy & Leasing Conference Retail $529 REAL ESTATE FORUM November 3 December 1 & 2 Vancouver Convention Centre Metro Toronto Convention Centre YOY Growth in Deal Volume Global Property Market November 30 As of 4Q2020 Deal Volume 4Q2019-4Q2020 Metro Toronto Convention Centre Office Industrial Retail Deals Priced $10M and Greater Office $22.87 Industrial Retail -28.3% billion $4.91 $4.11 -33.6% billion billion -45.8%
Data provided by Real Capital Analytics MARKET INTELLIGENCE BUSINESS DEVELOPMENT COMMUNITY CONNECTIONS
Over 20 Great Benefits To REF Members Including 20% Discount On Forum & Conference Registrations t was just over a year ago when France and 2Q2020 before seeing some positive through the banking system resulted in few- was touted as the top European market signs of recovery in 2H2020, with more than er mega-deals, both in terms of volume and RealEstateForums.com Select REF Club 416.512.3807 Ifor foreign investors, with over $48.22 $31.76 billion invested by year-end. While number. As a result, CBRE reports that “the billion being poured into commercial real es- this figure represents a 32 percent year-over- average unit size [fell] from $50.58 million tate in 2019, according to BNP Paribas Real year decrease, it’s tough to top the record year to $43.52 million. Transactions less than Estate. But once the pandemic hit, France the country saw in 2019. Moreover, 2020 $117.62 million still represented more than * The above is subject to change without notice. experienced the same pains as countries all investment volume was still higher than the half the total investment volume, thanks to over the world. 10-year average of $28.23 million. Nexity’s sale of the Harmony building and Research by CBRE reports that invest- Similar to banks in the U.S., more URW’s shopping centers sale, for just over For details on these conferences and REF Club visit realestateforums.com ment decreased at a record rate in 1Q2020 restrictive underwriting of CRE in France $1.18 billion each.” Sponsorship and advertising opportunities available. Ben Carson [email protected] 604.730.2032 (Calgary, Edmonton & Vancouver Forums) 10 COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE SPRING 2021 Frank Scalisi [email protected] 416.512.3815 (all other events and advertising) CANADA’S LEADING REAL ESTATE VIRTUAL EVENTS FORUMS CONFERENCES MARKET UPDATES WORLDVIEW: Join Us for More from: Industry Leaders Latest Trends & Strategies Networking FORUMS CONFERENCES FRANCE OTTAWA Canadian Apartment REAL ESTATE FORUM Investment Conference 4Q2020 Cap Rates October 14 September 22 & 23 Ottawa Conference & Event Centre (virtual event)
Office Retail YOY Growth in Price per Square Foot 4.7% 4.9% CALGARY RealREIT As of 4Q2020 Industrial REAL ESTATE FORUM September 29 & 30 (virtual event) Office 6.3% October 21 +9.3% TELUS Convention Centre Industrial +0.4% Montréal Real Estate Retail -1.5% QUÉBEC CITY Strategy & Leasing Conference October 6 4Q2020 Price per Square Foot REAL ESTATE FORUM October 28 Palais des congrès de Montréal Quebec Convention Centre Office $668 Vancouver Real Estate Industrial $108 TORONTO Strategy & Leasing Conference Retail $529 REAL ESTATE FORUM November 3 December 1 & 2 Vancouver Convention Centre Metro Toronto Convention Centre YOY Growth in Deal Volume Global Property Market November 30 As of 4Q2020 Deal Volume 4Q2019-4Q2020 Metro Toronto Convention Centre Office Industrial Retail Deals Priced $10M and Greater Office $22.87 Industrial Retail -28.3% billion $4.91 $4.11 -33.6% billion billion -45.8%
MARKET INTELLIGENCE BUSINESS DEVELOPMENT COMMUNITY CONNECTIONS
Over 20 Great Benefits To REF Members Including 20% Discount On Forum & Conference Registrations
RealEstateForums.com Select REF Club 416.512.3807
* The above is subject to change without notice.
For details on these conferences and REF Club visit realestateforums.com Sponsorship and advertising opportunities available. Ben Carson [email protected] 604.730.2032 (Calgary, Edmonton & Vancouver Forums) Frank Scalisi [email protected] 416.512.3815 (all other events and advertising) BY THE NUMBERS WITH
By Thomas P. LaSalvia, Ph.D. CHECKING ON THE RECOVERY
The office sector faces hardships in the wake of COVID-19, but long-term projections show the market will persevere.
ismissing the coming structural chang- typical. During the year, U.S. effective rent warranted. This great work-from-home ex- es in the office sector would be naïve — levels declined 0.6 percent, while the vacancy periment has showed employers that certain Dbut so would signing the sector’s death rate increased 100 basis points to finish the tasks can be completed without constant certificate. While work from home has proven year at 17.8 percent. Given the traditional in-person supervision. Due to this, the per- adequate in many ways, the path forward is lag, the direct consequence of the economic cent of traditional office labor working from likely to be a simple expansion of the pre-pan- strife is likely to hit later in 2021. As shown in home at least one day a week is likely to dou- demic hybrid model. This in no way excludes the chart, effective rents are expected to fall ble from its pre-pandemic levels and top 40 the office sector from current and future space another 7.6 percent, with vacancy reaching percent in the near future. and capital market stress, but balance and nu- nearly 20 percent by the end of 2021. While the hybrid model is certainly ance are required in the discussion. Moving forward, the sector’s recovery is primed to expand to more firms and employ- Given the long-term lease nature in unlikely to be V-shaped — a check mark may ees, the increase in fully remote jobs will be the office sector, it is not surprising that 2020 be more appropriate. Many firms are paus- more muted and reserved for less creative rent and vacancy trends were mostly stable; ing expansion plans related to office space, occupations and tasks. Innovation needs in- recessionary lags of six to 18 months are and more than a few will feel a reduction is teraction. Economics teaches us that informal
Office Sector Trends and Forecast 0.20% $40
0.15% $30
0.10% $20 Vacancy Rate Vacancy Effective Rent/sf Effective 0.05% $10
0.00% $0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Source: Moody's Analytics
12 COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE SPRING 2021 Life With communication may be as important for the generation of new and valuable ideas than its formal and planned counterpart. Without the watercooler, future productivity suffers. In March 2020, when most The Pin office workers were sent home, much of the rest of their year was al- ready planned. In that circumstance, human nature allows us to bear down and complete those tasks with efficiency. But how many great new ideas were lost due to the lack of an office presence? It is this line of thinking that will prevent a more significant structural change in CCIM Institute provides its members with where we work and will also prop up the office sector moving forward. Additionally, GDP growth is likely to hit 5 percent each year for the most sophisticated knowledge, the next two years and will continue to be above its long-run average technology, and operational platform to for a short time thereafter. This bullish economic outlook is shared power their business. by many firms, prompting them to increase their mid- to long-run growth prospects. Even in the face of a new hybrid work situation, this trend will necessitate an increase in square footage. The recent leasing activity of tech giants Facebook, Apple, and Amazon, who have grown CCIM Membership Benefits through the pandemic, provide evidence of this phenomenon.
2023 Forecasted Difference in the Offi ce Sector: Lifelong Learning Before and After the Pandemic 10 Metros with Smallest 10 Metros with Largest Free and discounted courses covering Declines or Growth 2019 to 2023 Declines 2019 to 2023 development, data analysis, and more (Effective Rent) (Effective Rent) Birmingham, Ala. 0.8% San Francisco -16.0% Charlotte, N.C. 0.4% San Jose, Calif. -13.1% Little Rock, Ark. 0.4% New Orleans -11.2% FindaCCIM.com and Minneapolis 0.2% New York Metro -11.1% CCIM Connect Tacoma, Wash. -0.1% Orange County, Calif. -9.5% An exclusive global network for Charleston, S.C. -0.1% Houston -8.6% business and industry intelligence District of Columbia -0.8% Ventura County, Calif. -8.3% Atlanta -1.0% Las Vegas -8.2% Site To Do Business Richmond, Va. -1.1% Austin, Texas -8.2% Memphis, Tenn. -1.2% Fairfield County, Ohio -7.6% The industry’s best digital toolkit Source: Moody’s Analytics for market analysis
All this said, the recovery is unlikely to be uniform. The charts shown here illustrate the rent level difference from 2019 to its pro- jected 2023 level. While not a “death to density” situation, there is Member Advantage Program a bit of a difference in which areas are able to recover faster. Cali- fornia’s Bay Area, greater New York, and greater Los Angeles — all Exclusive discounts on travel, dense areas with expensive office sector real estate — will find a re- proptech, printing, and more turn to pre-pandemic rent levels a bit more difficult. But these areas historically have much greater variation in rents due to less flexibility in their development markets. There are also a few anecdotes and some data to support that DealShare some firms may be diversifying away from the more expensive cen- A database of listings tral business districts and finding satellite space in either the suburbs or less expensive metropolitan areas. These findings are very prelimi- not found anywhere else nary, though, and this data includes a lot of noise. To conclude, the worst is yet to come for the office sector, but it’s not predicted that this situation will be equivalent to e-com- merce’s assault on brick-and-mortar retail. Firms are still finalizing Commercial Investment their post-pandemic office space needs. Some firms may renew with Real Estate Magazine less space as leases expire, and others may even move to a new loca- tion within or outside of the current metro. Rent levels in New York The award-winning publication and and San Francisco will remain below their pre-pandemic levels until popular podcast that cover market later this decade, but it is expected that tech firms, both established trends and innovations and startups, will take advantage of the discount, ushering in a new generation of talent into those respective cities. Long story short, the office is not dead.
Thomas P. LaSalvia, Ph.D. Senior economist at Moody’s Analytics Reis Experience life with the pin. Visit www.ccim.com/benefits INVESTMENT ANALYSIS
By Moustafa Elsayed, CCIM, CSM FAILING TO PLAN
Commercial real estate should be a profit generator whenever possible, which may require creative thinking.
ot to put too fine a point on it, but discussion. The bigger the case, the big- profit is the ultimate goal in com- ger the variance. And they’re not alone Nmercial real estate transactions. All in missing out on this opportunity. aspects of the industry, including donation, How could Apple have capitalized on acquisition, disposition, build-to-suit, devel- the commercial property’s additional value? opment, redevelopment, restructuring, lease Every organization carefully crafts a business buyout, sale-leaseback, M&A, investment, plan for the core business, yet they fall short various accounting procedures, and so on, when it comes to the strategy for optimizing are designed to make commercial real estate One of the most the intangible asset premium in the real estate. into a profit center. One of the most valuable yet often Taking this into account, why would valuable yet often overlooked premiums by any organization an organization have to justify real estate as in the U.S. is the intangible asset of goodwill a cost center instead of a profit center? These overlooked premiums related to real estate. This goodwill premium costs — sooner or later — will create financial by any organization mostly is collected by investors rather than challenges that contribute to an organization organizational stakeholders, as seen in the going out of business. in the U.S. is the Apple example. The value skyrocketed be- This concept is rather simple, but cause of the Apple brand name. Unfortunate- a straightforward case study can help add intangible asset of ly, how to leverage an organization’s goodwill depth and perspective. goodwill related to asset through strategic real estate planning is not a course taught by any financial school, SKYROCKETING COST CENTER real estate. leaving industry professionals to rely on their In 2008, Apple had a store in the Third creative thinking skills. Street Promenade in Santa Monica, Calif. — Apple and other organizations can one block from a 17,750-sf building occupied capitalize on their goodwill premium by a Borders bookstore. The Borders proper- through a dynamic real estate strategic plan ty sold in August 2010 for $24.8 million, was — one carefully coordinated with the core redeveloped to 10,352 sf, and then leased to business milestones. Apple on an NNN lease. The building was In this situation, Apple could have sold again in July 2012 for $58 million and following: value, planning, strategizing, strategized to shift the store from a cost cen- once more in July 2014 for $100 million. modeling, and intangible assets, and, ter to a profit center. This route is very similar Here are some basic facts: Apple was most of all, they found themselves to those of other major companies like Pan well acquainted with the location and the fighting the wrong battle. Am, Macy’s, Sears, and JCPenney, which desirability of this property. From 2008 to • What could have been done differently? have all fallen from top American brands to 2014, the property was resold four times, all Apple could have strategized to shift bankruptcy. But before going further, mis- while Apple leased the property on an NNN the store from a cost center to a profit takes like this aren’t specific to one company basis. The property is currently assessed at center, but they actually passed on this or one market. It’s a common practice to use just over $112 million with a tax rate of 1.179 opportunity multiple times. commercial real estate as a cost center rather percent, which works out to $1.32 million. • Is this the only case where Apple failed than a profit center. No single actor can be • What did Apple fail to do? In this to plan? How about the spaceship blamed for this trend because it’s standard case, Apple failed to conceptualize the headquarters? This is a much bigger practice in the corporate real estate world.
14 COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE SPRING 2021 PLANNING VS. STRATEGIZING • Approaches are mismatched — for No matter if you lease or buy, you’re Successful planning involves a set of steps. example, specialized finance assigned to paying for the property you occupy. Now, Follow them and you’ll achieve what you accounting or corporate tax assigned to the question is: If there’s one thing that want; fail and you won’t reach your goal. real estate and vice versa. could prevent an organization such as Strategizing, meanwhile, requires a more ho- • There is a lack of applicability. Apple from shifting its real estate from listic approach to the situation — it requires • Improper classification takes place. cost center to profit center, what would knowledge, thinking outside the box, creativ- it be? ity, and innovation. When someone on the RIGHTING CLASSIFICATIONS The short answer is that people often battlefield identifies a certain spot as a strate- Improper asset classification can lead to many limit themselves to choosing between leas- gic position, for example, it means they have negative consequences — from fighting the ing and owning, despite more than three examined the location, analyzed it, observed wrong battle to turning capabilities into lia- dozen value-add options available for a its strengths and weaknesses, and identified bilities and not tapping into the power of an commercial property. Both leasing and own- important aspects that others couldn’t. intangible asset. For example, Apple’s biggest ing an asset are still considered a cost center.
Apple failed to take advantage of the increasing worth of its real estate in Santa Monica, Calif.
Looking at the Apple case, the com- asset is not the iPhone or any other physi- Take, for example, the spaceship headquar- pany planned for its real estate to be a cost cal product — it’s the intangible of its brand ters at an assumed value of $6 billion with center. It wasn’t seen in a strategic light recognition. Apple certainly knows that, but utilization of less than 5 percent since its in- — one that aims to monetize both tangible the company failed to strategize for optimiz- ception. What is the translation of cost per and intangible assets. The goal is to collect ing this asset in this instance. The intangible person for this property? that goodwill premium for the stakeholder’s asset in this case became a liability instead of Which of the value-added options benefit and not leave it on the table for oth- a capability, thus stacking up the cost center. could be appropriate to apply — is it leas- er investors. In addition to the cause cited in the ing, owning, planning, strategizing, or Along those lines, no matter what Apple case, cost centers can quickly snowball restructuring real estate with a creative market a busines is in, companies need to due to inadequate strategizing in other areas thinking? The real estate portfolio of any have a proper strategy to ensure financial as well. organization can either make or break it. sustainability. Financial sustainability is un- • Why would a publicly traded company The opportunity lies in carefully looking at achievable when: assign the real estate matter to HR? proper strategizing before rather than after • Strategizing falls short, as it did in the • The REIT is managed by someone who the fact. Apple case. has no experience in the commercial real • Some of the available options remain estate industry or any related industry. Moustafa Elsayed, CCIM, CSM unknown; what if the best strategic • A publicly traded REIT does not have a President and chief strategy officer of solution is the option the company isn’t real estate department, and so the trans- Corporate Commercial Real Estate Counselors even aware of? actions are handled by an accountant. Contact him at [email protected].
CIREMAGAZINE.COM COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE 15 BRIEFINGS
By Tory Goldson WHAT’S THE RISK?
COVID-19 has fundamentally impacted commercial leasing by changing the basic calculation behind pandemic risk allocation.
fter more than a year since the world first control. The scope of force majeure clauses varies and learned of COVID-19, landlords and tenants, often has exceptions. In addition, these clauses may do Aas well as their investors, managers, and lend- more than delay or suspend performance — they may ers, are continuing to deal with the ravages of the pan- relieve a party of its obligations where performance is demic on their assets and businesses. In commercial prevented due to causes beyond its control. leasing, what began with short-term rent deferrals has From the landlord’s perspective, the tenant given way to rent abatements and term extensions. should be allocated all property ownership risks with Temporary shutdowns have led, in some cases, to shut- respect to its premises during the lease term. Land- tering, and bankruptcies abound. Now, with summer lords will likely continue to see pandemic-related fast approaching, there is an expectation that vaccine types of risks as beyond the control of the parties supplies will surge as businesses start leasing new and falling under force majeure clauses. Landlords space in earnest again. will argue that these are risks of doing business, not How will the pandemic alter commercial leasing risks of property ownership. Many landlords are from the standpoint of risk allocation? We are already In new leases, updating their lease forms to place the risk of pan- hearing accusations during lease negotiations that demics more directly on tenants. Moving forward, one side or the other is engaging in “pre-pandemic” tenants will force majeure provisions will expressly include pan- thinking. Leasing policies and forms of owners and demics, illnesses of lesser proportions, governmental occupiers alike are being reviewed and updated as likely be orders related to those situations, and other decision-makers consider how best to approach pan- unwilling to public emergencies — without relieving the tenant demic-related risks — and other risks beyond their from its monetary obligations under the lease during control, for that matter — in the future. Obviously, the take the risk pandemic-related impacts. development of widely available, affordable insurance In addition, some landlords are broadening the or governmental safety nets to mitigate epidemic-re- of pandemic- releases and waivers in their lease forms to have tenants lated risks would impact lease negotiations in the long waive claims associated with the pandemic, such as term, but that remains to be seen and new lease deals related delays. those over a tenant’s lack of access to its premises, an in- are happening now. ability to operate due to pandemic-related governmen- Fundamentally, a lease is a long-term agreement tal orders, and measures taken by the landlord during where the parties’ interests are, for the most part, not and in the aftermath of pandemics, such as shutdowns, aligned, so virtually every provision involves a risk al- safety protocols, and reopening restrictions. location. The pandemic has forced the commercial real From the tenant’s perspective, risks should be estate industry to take a deep dive into some of its lease adjusted on a cost-benefit basis to avoid inequitable boilerplates. The force majeure clause has been spot- allocations and to accord the landlord risks that the lighted during the pandemic. The most common itera- tenant views as inseparable from property ownership tion provides for an extension of the time periods for a or as being included in the fixed rent. In new leas- party to perform its lease obligations if the party’s abil- es, tenants will likely be unwilling to take the risk of ity to perform is impacted by certain causes beyond its pandemic-related delays in the delivery of possession,
16 COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE SPRING 2021 construction, and the opening of their businesses in that risk (50 percent fixed rent abatement) if closures the leased space. run longer than 60 days during any year. Tenants will argue that they should not bear 100 Some landlords may decide to formalize a rent percent of the risk of future pandemics. They will not deferral right in leases that allow tenants an option to want to pay rent when they are unable to fully utilize take rent deferral under certain circumstances with their premises. Many tenants will propose lease provi- the landlord’s reasonable consent and after various sions where pandemic-related interruptions in their use submissions and required metrics are met, with pre- of the premises trigger rent abatement and, if interrup- set repayment terms. Similarly, landlords also might tions are prolonged, allow the tenant to terminate the consider having an early force majeure extension lease. Other tenants may address pandemic risks in a option with preset rent abatement that can be taken less direct way. They may seek greater flexibility in lease immediately if the tenant meets certain requirements. terms — shorter terms with more extension options or Having provisions that provide a roadmap for the type longer terms but with early termination options. of abatement and deferral arrangements seen over the Generally speaking, the underpinning of risk al- Some landlords last year have the added advantage of creating more locations in a negotiated commercial lease is to create certainty among landlords and tenants. They can also a fair allocation of anticipated risks among the parties. may decide to help landlords and their lenders and servicers navigate Casualty, condemnation, and service interruption pro- formalize a rent how best to handle such situations in the future. visions in a typical lease address the allocation of risks What is clear — it will be difficult for parties beyond the parties’ control in a more balanced way deferral right to come to any kind of industrywide consensus on the than the “all or none” approach of the force majeure best way to address pandemic risk in a commercial clause. Some landlords and tenants, especially in the in leases that lease in the near term. There are, and will be, lease sectors hardest hit by the pandemic, are negotiating to allow tenants an negotiations over this risk allocation and, as with any share pandemic-related risks. other issue, its resolution will depend on the parties’ Negotiations center on the scope of risks, as well option to take leverage and what each side sees in the long-term eco- how those risks will be shared. For example, the par- nomic and operational impact of the pandemic and the ties may agree to limit shared risks to governmentally rent deferral likelihood of facing similar challenges again. As parties imposed restrictions due to pandemics or public emer- debate whether and how to share future pandemic-re- gencies. On the allocation issue, the parties may agree under certain lated risks in commercial leases, everyone at the table that, in the case of a restaurant as an example, a re- circumstances. will share the hope that we never see another pandem- quired closure will afford a 50-percent rent abatement ic like COVID-19 in our lifetimes. while density impacts might result in proportionally less abatement (measured either by the reduction in Tory Goldson permitted density for in-person dining or by the im- Partner at Bryan Cave Leighton Paisner pact of the restriction on the tenant’s revenues or some (This article provides a general summary and is for combination of factors). Some parties are being more information/educational purposes only. It is not in- creative — or tortured, depending on your viewpoint tended to be comprehensive, nor does it constitute legal — with the tenant taking closure risk for the first 30 advice. Specific legal advice should always be sought days of impact during any given year (no fixed rent before taking or refraining from taking any action. The abatement), the landlord taking the next 30 days (100 opinions of the author do not necessarily reflect those
Photo by 10’000 Hours percent fixed rent abatement), and the parties sharing of Bryan Cave Leighton Paisner LLP or its members.)
CIREMAGAZINE.COM COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE 17 CCIM Q&A
By Nicholas Leider A FRESH START
Beau Beery, CCIM
arlier this year, Beau Beery, CCIM, of- BEAU BEERY, CCIM: I realize the pandemic a real estate broker. I did it because I knew ficially opened his own brokerage firm created difficult times for many industries — I was good at following systems for success, E— a crowning achievement for Beery but multifamily sales are not one of them! In and real estate has plenty of those. after 22 years of steady, focused work in mul- fact, my business has been stronger than ever I’ve always had relentless self-disci- tifamily real estate. The 45-year-old Florida during the pandemic. My CRE coach, Blaine pline. Laziness combined with ego is the resident had been planning such a move for Strickland, CCIM, of HBS Resources, and my worst combo. I’m the guy that when I go years, so he refused to let a global pandemic former partners at Coldwell Banker Commer- to a seminar, I write down every important and the resulting economic and social tur- cial have been helping me plan the transition note and step and carry out every one of moil stop him from realizing his ambition. to my own company for about three years. I’ve them to perfection. It is a compulsion. When In fact, considering the strength of the mul- been building a personal brand in the CRE my coach Blaine tells me what to do, I do it. tifamily market in 2020, the move to start space since 2000, and the time came when When my personal trainer writes out a work- Beau Beery Multifamily Advisors looked to it made more sense to have a stand-alone out and meal plan, I do it. I am the most mo- be perfectly timed. brokerage rather than continue with CBC. notonous human being I know. I do the same Alongside his new business, Beery exact things every single day over and over also published “Multifamily Investors Who CIRE: YOU STARTED BY MANAGING ONE again. Most find that horribly boring — I find Dominate,” an instructional guide for others MULTIFAMILY PROPERTY IN GAINESVILLE it extremely comforting. in the industry looking to improve, and rou- TO WHERE YOU ARE NOW AMONG THE tinely posts videos to his YouTube channel, ELITE IN CRE. IF YOU HAD TO POINT TO CIRE: CONSIDERING THE IMPACT OF Beau Knows Multifamily. ONE ASPECT OF YOUR PERSONALITY OR COVID19, HOW DO YOU SEE THE MULTI We spoke with Beery about the process CHARACTER TO EXPLAIN YOUR SUC FAMILY SECTOR RESPONDING? WHAT of starting a brokerage amid the coronavi- CESS, WHAT WOULD IT BE? SHOULD CRE EXPERTS KEEP IN MIND rus pandemic, the future of the multifamily WITH MULTIFAMILY FOR 2021 AND 2022? market, and his advice for CRE professionals BEERY: I chose a career I knew I’d be good looking to strike out on their own. at, not one I was passionate about at the BEERY: The multifamily sector hasn’t missed time. It may sound weird, but I believe the a beat due to the simple fact that everyone CIRE: CONSIDERING ALL THAT HAS worst advice you can give a young person still has to have a place to live, and home HAPPENED IN THE YEAR LEADING UP is following your passion. Don’t follow your ownership continues to be more and more TO LAUNCHING YOUR BROKERAGE IN passion. Do what you’re good at, continue to difficult to achieve. Frankly, the only negative JANUARY, HOW DID YOU GET THE master it better than anyone else, and then impact that I’ve seen are the mortgage pay- BUSINESS OFF THE GROUND DURING passion will follow. I wasn’t a kid in grade ment escrows that lenders are requiring now THE PANDEMIC? school and college who dreamed about being as a safety net. Those currently range from
18 COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE SPRING 2021 six to 12 months, but I think they’ll be gone better in your own company. I knew I could once vaccinations reach everyone. net more commission income having my own As for 2021 and 2022, I predict company than going to any other brand that continued constrained supply of assets for Customers are looking exists because I knew the customers I work sale, which will continue to drive up pricing. with couldn’t care less which company I was Everything I read says interest rates will con- for experience, guidance, with. With today’s technology and CRMs, tinue to be advantageous through 2023. Two every agent worth a grain of salt has the abil- unknowns are capital gains taxes and 1031 market intel, sales results, ity to reach tens of thousands of buyers with exchanges. Will the Biden administration and, most importantly, an the touch of a button. Customers are looking change those two extremely important com- for experience, guidance, market intel, sales ponents in the real state world? And if so, to agent they like and trust. results, and, most importantly, an agent they what degree? like and trust. I’m at a beautiful place in my life. CIRE: WHILE YOU’VE COOWNED A BRO If I never make another dime more than I KERAGE WITH NEARLY 100 AGENTS FOR make now for the rest of my career, but can THE LAST 10 YEARS, STARTING YOUR I’d say the biggest change is not having still work under 50 or 55 hours a week, I’ll OWN WITH JUST YOU AND A FEW STAFF the same negotiating power for the services I be the happiest guy. I don’t chase every deal MEMBERS IS A MAJOR CHANGE. HAVE use as I did when my partners and I had doz- under the sky, I don’t work with undesirable THERE BEEN ANY CHALLENGES THAT ens of agents. Now, it is just me. Marketing customers that will drag down my brand HAVE BEEN SURPRISING IN GETTING and listing tools, websites, and memberships and disrupt my life, I don’t work past 6 p.m. THE BUSINESS ROLLING? cost much less per person when you have 100 during the week, and on the weekends I only agents as compared to just one person. work on things that I enjoy. The rest of my BEERY: Not really. I’ve always believed that time is spent sleeping, training in the gym, customers follow good agents, not compa- CIRE: FOR ANYONE HOPING TO OWN driving my cars, and spending meaningful nies. In other words, customers don’t hire a THEIR OWN BROKERAGE IN THE FUTURE, time with my wife and kids for as long as God brokerage to sell their assets — they hire a WHAT’S ONE PIECE OF ADVICE YOU’D will allow me. specific agent. Rarely does a seller say, “We HAVE FOR THEM? must hire XYZ Brokerage to sell our asset.” Nicholas Leider The seller will say, “We need to call Beau BEERY: I would say it is time to go alone Senior content editor of Beery (or John Smith or Mary Adams) to sell when you know you can drive the same Commercial Investment Real Estate our asset.” amount of gross commission income or Contact him at [email protected].
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The CCIM Foundation recently launched its Veterans Scholarship Program, which is designed to provide veterans with funding for real-world education and a foundation for a new career in commercial real estate. The program allows qualifying U.S. military veterans to apply for up to $20,000 to use for non-degree-based commercial real estate education, including CCIM Institute. Up to five scholarships will be awarded in 2021.
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CIREMAGAZINE.COM COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE 19 By Beth Mattson-Teig LOGISTICS FIRMS REMAIN HUNGRY FOR SPACE
The COVID-19 pandemic has created opportunities and challenges as logistics providers continue to strive for last-mile efficiencies. he logistics industry is having a bit of a Charlie Brown moment. After years Tof working to kick the football through the uprights and score big in developing fast, cost-efficient last-mile strategies, the pan- demic is proving to be another game changer. Logistics firms have benefited from a surge in e-commerce that is feeding demand for more space. At the same time, supply chains need to adapt to a huge shake-up in where people are living and working that has further complicated last-mile delivery. Amid this disruption, logistics companies are trying to solve the same fundamental issues: How do they get products in the hands of consumer or business customers more quick- ly? And how do they improve cost efficiencies in last-mile delivery? “We have had a number of things con- verging at once. It wasn’t just the pandemic, but the pandemic has shined a spotlight on several issues that were evolving,” says John Dohm, SIOR, CCIM, a partner at Infinity Commercial Real Estate in Miami Lakes, Fla. The logistics industry is dealing with advances in technology that include auto- mation, robotics, and autonomous vehicles, as well as sensors and radio-frequency iden- tification (RFID) codes that not only track shipping containers but track every individ- ual item within those containers. Simultane- ously, the logistics industry had to account
for new and changing omnichannel delivery Photo by Anucha Sirivisansuwan
COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE 21 LOGISTICS FIRMS models, including click-and-collect and REMAIN HUNGRY “Prior to the pandemic, demand for curbside pickup, not to mention the need to FOR SPACE distribution centers and industrial properties account for the return of goods. was pretty high, and the interest in that lo- What does all this mean for the supply gistics real estate space has only grown in the chain? More changes ahead. In addition to pandemic,” says Carter Andrus, president of thinking about the amount and location of the Central Region at Prologis Inc. Certainly, space, a company also must look closely at the going to see new site-selection activity over the surge in e-commerce has spurred de- different types of space required based on what the next two years that we haven’t seen in a mand for more distribution and fulfillment part of the supply chain it serves, notes Dohm. long, long time.” space. Prologis reported in its 4Q2020 earn- The pandemic has put added pressure ings call that it signed 65 msf of new leases on supply chains and pushed companies APPETITE FOR CONSTRUCTION globally in the fourth quarter. New leases in to rethink how goods flow along that chain The pandemic greatly accelerated e-com- particular rose 22 percent year-over-year on from first mile to last. “COVID took the in- merce sales. According to the U.S. Census a size-adjusted basis. Although a broad range dustry from perhaps the first inning to the Bureau, e-commerce as a percentage of total of customers signed new leases in the fourth third or fourth inning, but we have a long retail sales increased from 11 percent in 2019 quarter, e-commerce activity accounted for ballgame still to go in the last mile,” says K.C. to 14 percent in 2020, with a total spending 19.8 percent of new leasing. Conway, CCIM, MAI, CRE, chief economist of $791.7 million on online purchases. It is Another factor boosting demand for CCIM Institute and principal of Red estimated that for every $900 increase in is that companies have been reassessing Shoe Economics. Costs for last-mile delivery e-commerce sales, there is one additional inventory levels and moving from the remain notoriously high, accounting for 40 square foot needed for distribution space, leaner “just-in-time” model to “just-in-case” to 50 percent of a company’s logistics costs, notes Joseph Fisher, CCIM, president according to some industry reports. On the of Fisher Investment Real Estate in India- consumer side, there are two main logistics napolis. “As we see these huge increases in models. One is the Amazon model, where online retail sales, that indicates a healthy products are being delivered direct to the need for increased distribution,” he says. doorstep. Another option is the click-and- That said, there are some counter forces to collect model. “I don’t think the Amazon that demand, including logistics facilities model is sustainable from a cost standpoint,” that are becoming more automated and ef- Conway says. “Even Amazon admits that it ficient, which allows occupiers to get more can’t continue with its last-mile cost burden revenue out of existing space per square foot, the way it is currently structured.” Fisher adds. The changes occurring in supply Market fundamentals in the North chains will push CRE professionals to sharp- American industrial sector remained strong en their site-selection skills. The costs associ- throughout 2020, and first quarter net ab- ated with not getting the logistics right, such sorption reached 82.3 million sf, according to Cushman & Wakefield. That is the highest first quarter absorption the firm has ever recorded. Cushman & Wakefield also is predicting that demand from e-commerce and a heightened The pandemic greatly focus on supply chain resiliency will drive ro- bust leasing activity, record construction, and accelerated e-commerce all-time high rental rates in 2021 and 2022. “The pandemic really accelerated sales. According to the U.S. about 10 years of e-commerce adoption into Census Bureau, e-commerce a single quarter last year. Consumers literally changed their buying habits overnight due to as a percentage of total stay-at-home orders,” says Adam Marshall, CCIM, SIOR, a senior managing director inventory, which is creating more demand for retail sales increased from at Newmark in Chicago. Retailers had to space. “That was one of the lessons to come 11 percent in 2019 to 14 scramble to offer new and better ways to out of the pandemic, where some companies shop at home, forcing them to increase dis- lost revenues because they didn’t have the percent in 2020. tribution space near population centers or stock on hand,” says Andrus. Supply chains hire third-party logistics providers to handle also are having to deal with reverse logistics, that e-commerce fulfillment. In Chicago, which is creating demand from the goods for example, demand for distribution space coming back into the supply chain, he says. is pushing location strategies into some ar- as insufficient truck docks or access to facil- eas that may have been overlooked prior to STRENGTHENING SUPPLY ities through roadways prone to heavy traf- the pandemic, such as large redevelopment CHAIN EFFICIENCY fic congestion, can be hugely expensive. “As sites within the city of Chicago and close-in Companies look at how quickly, how reliably, companies look at how COVID-19 changed suburbs. “That, in turn, has increased land and how costly it is to move goods along the demographics and where people work, the values and lease rates across the board,” Mar- entire supply chain. Transportation costs skillset required to do site-selection analysis shall says. Speed to occupancy also is very and related infrastructure both have a big needs to be much more robust,” Conway says. important right now, and new Class A spec influence on location decisions. The top three “Industry pros can benefit from beefing up buildings that are complete or near comple- issues when it comes to site selection for
site-selection skills, because I think we are tion are in high demand, he adds. logistics locations are the overall adequacy Janthra Photo by Vanit
22 COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE SPRING 2021 LOGISTICS FIRMS of the infrastructure, demographic growth REMAIN HUNGRY location, notes Andrus. “Real estate is loca- and shifts, and the fiscal health of states and FOR SPACE tion, location, location, but particularly so cities, notes Conway. with some of these last-touch, last-mile fa- Ports are still a prime focus because cilities,” he adds. the U.S. is still an import nation. The ports Struggles in the retail sector that have have done a really good job in keeping up been further compounded by the pandemic with infrastructure by dredging deeper chan- along supply chains and near large popu- could potentially create opportunities for nels, adding cranes, and supplying terminal lations, such as Southern California, New retail-to-industrial conversions in big-box space that can handle bigger ships. However, Jersey-New York, Dallas, Atlanta, Central retail and distressed malls. Retail locations other infrastructure — such as intermodal and Eastern Pennsylvania, and Indianap- have long been discussed as an attractive rail, highways, and utilities — must connect olis, to name a few,” says Andrus. There are to ports, notes Conway. Companies look for some good consumption drivers and barriers insights on infrastructure in the American to new supply in those areas, which have Society of Civil Engineers’ quadrennial infra- produced some outsized growth, he says. structure report that identifies weaknesses However, it is a little bit of a high tide raising Struggles in the retail and where more investment is needed in the all boats, since secondary and tertiary mar- nation’s highways, bridges, utilities, ports, kets also are benefiting from the demand for sector that have been and rail networks. “Companies are not going space. Supply chains are still serving those to go where there is failing or underfunded secondary and tertiary markets, just at a dif- further compounded by the logistics infrastructure,” says Conway. ferent scale, he adds. pandemic could potentially CLEARING OBSTACLES create opportunities Consumer expectations for fast delivery are driving the race for quicker, cheaper last- for retail-to-industrial mile solutions. “We are getting more and more used to getting things not only same conversions in big-box retail day, but in the case of things like groceries, and distressed malls. even in the same hour,” says Fisher. Those solutions often target close-in real estate opportunities. In Indianapolis, that demand has pushed values higher for older warehouse facilities that are more centrally located alternative for last-mile distribution due to to the population. proximity to dense population areas. Some In Chicago, the O’Hare market has of the stumbling blocks to those conversions been going through a redevelopment cycle have traditionally been high land and for the past 15 years, where older manu- building costs, neighborhood resistance, and facturing facilities are being razed to make difficulty in obtaining needed city approvals way for new, more efficient Class A distribu- and zoning changes. “On paper, repurposing tion space. “We’ve seen that for a long time retail centers to industrial makes a lot of in O’Hare, and now we’re seeing it in the sense, but the reality is that it is difficult to closer-in suburbs and in Chicago itself,” notes do,” says Marshall. However, more success Marshall. “Amazon is the leader in supply stories could provide some added traction chain strategy, and they have probably per- for those retail-to-industrial conversions. fected the last-mile supply chain, but we’re Last mile has the potential to be very starting to see others follow suit,” he adds. efficient, but it’s going to depend on signifi- For example, instead of having one or two cant advances and applications of new tech- large distribution centers in suburban Chi- nology. Additionally, supply chains will need Another challenge for logistics com- cago, Amazon is sprinkling these facilities to continue to evolve along with new technol- panies is that people sitting at the end of throughout the metro area. In 2020 alone, ogies and new delivery models and methods. some last-mile supply chains up and moved Amazon committed to over 14 msf of new Drivers, for example, are all fighting for curb during the pandemic. People relocated out of leases or build-to-suits in greater Chicago, space for pickups and deliveries. “I think we major urban centers such as New York and notes Marshall. are going to see a lot more of that, and it’s go- San Francisco and scattered to the suburbs, Demand for last-mile locations is ing to have to be solved by technology,” says secondary and tertiary markets, or different driving solutions that include occupiers that Dohm. Companies will need to rely more on parts of the country that were less impacted are willing to accept older facilities in as-is apps, cellphone location technology, autono- by COVID-19. Migration reports published condition. For example, Prologis purchased mous vehicles, drone aircraft, and robots. In by U-Haul and North American Van Lines the former Greyhound bus terminal in the the future, that technology will drive greater offer some clues as to where people are mov- Arts District in downtown Los Angeles. The efficiencies across supply chains and open ing and where supply chains need to expand 120,000-sf facility sits on eight acres and also more location opportunities, making it feasi- or contract. According to U-Haul, Tennessee has rooftop parking. Although it is an older ble for companies to squeeze into older, infill was the number-one state for inbound facility with 18- to 22-ft. clear heights, Prolo- locations, he adds. migration, followed by Texas and Florida. gis has several potential users that are inter- Overall, demand for space is wide- ested in the facility as-is because of its dense Beth Mattson-Teig spread across the country. “Where we have urban location, parking, and drive-thru Freelance business writer seen some outperformance is in key locations capability that make it a nice delivery based in Minneapolis.
CIREMAGAZINE.COM COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE 23 24 COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE SPRING 2021 By Sarah Hoban BACK TO THE OFFICE?
As offices reopen, the COVID-19 workplace must emphasize flexibility, safety, and collaboration.
CIREMAGAZINE.COM COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE 25 BACK TO THE OFFICE?
policies. But companies and employees will also have to examine the necessity of coming back to the office after a year of figuring out how to work remotely. Working at home, of course, is nothing new, but, Spiegel says, “the pandemic has accelerated many trends in the workplace that were already underway.” “We’re entering a near-term era of workplace flexibility,” he adds. “Companies are not yet sure of what they’re losing by not having people in the office, so they don’t know if they want to give up the office all together. Some people are comfortable working from home; others are challenged balancing family priorities and other things.” “There’s still a wide unknown out there,” says Scott Homa, senior vice president and director of U.S. office research for JLL. s the economic recovery begins and “Before the pandemic, 10 percent of who COVID-19 vaccines become readily you’d typically think of as an office employee Aavailable, businesses and real estate worked principally from home. We think professionals alike are working to determine that share is certainly going to increase, but their post-pandemic steps in the office market. it’s likely to increase more within a hybrid The 2020 numbers are bleak. A recent format,” where employees may come into the report from Cushman & Wakefield Chief office only a few days a week. The challenge Economist Kevin Thorpe noted that the of- in moving in that direction, though, he says, fice sector experienced 104 million sf of neg- will be managing the capacity of the space ative absorption in 2020 — more severe than and accommodating work schedules, safety the impact of the recession of 2008. In the protocols, and other factors. wake of COVID-19, 1.15 million office-using Another factor, particularly in jobs were eliminated, with office vacancy ris- high-density urban areas, is the commute. ing from 12.9 percent to 15.5 percent by the Homa notes that it may be a while before end of 2020. people are comfortable getting on crowded “Office leases are long term,” says Dan trains or buses. Add to that the commuting Spiegel, vice president and managing direc- time itself — a recent PwC/Urban Land Insti- tor for Coldwell Banker Commercial. “We’re tute study calculated an average of 227 hours in the discovery phase of what the future of a year saved by not commuting. The sav- office will be and what its impact on office ings, according to the study titled Emerging property owners will be. In the short term, Trends in Real Estate, “has been well the pandemic has driven employees home. received by many. That is certainly not sur- The question is, how comfortable will firms prising, since it is the equivalent of 28 days be keeping some of those people home per- that could be dedicated to work or leisure.” The question is, how manently versus the value of having them A large part of companies’ reluctance back in the office? Some firms are subleasing to invest too deeply in a remote format is the comfortable will firms be space because, in the near term, they’re not nature of the office itself. “The purpose of keeping some of those seeing the need for employees to come back the office in many ways is not just providing to the office. Other firms are taking space be- an environment for people to do individual people home permanently cause they’ve come up for renewal, and they tasks, but more so around the collaboration have to make a decision. We’re still in the and innovation that the physical space can be versus the value of having early stages of understanding what the long- used to facilitate,” says Homa. “People want term impact will be.” to be together to collaborate, problem-solve, them back in the office? More than anything, the watchword ap- and meet with clients.” pears to be flexibility. The first key will be how Offices provide other functions as well. companies decide to bring workforces back to “In-person workplaces are critical for com- the office. The Cushman & Wakefield report pany culture, innovation, [and] onboarding notes several big-picture factors that will affect for new employees,” according to Emerging this return, including the trajectory of the vi- Trends in Real Estate. Younger or new em- rus, the speed at which vaccines are rolled out, ployees may prefer the office environment,
how soon schools reopen, and government which could provide more opportunities for photo by Chee Gin photo by filadendron; this page, page, Previous Tan
26 COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE SPRING 2021 BACK TO THE OFFICE?
learning and making business and social the pandemic. “Just as restaurants are open- connections. In many cases, in-person work- ing up, these help create a desirable environ- places can offer more resources and tools ment for workers,” says Spiegel. “Presuming to help them be productive. The report also they can accommodate public health mea- points out that working remotely could pres- sures, I think those places will stay. We just ent challenges to some employees because of want them to be safe.” space or technology issues at home. The post-pandemic work environ- ment may give a boost to coworking spaces. CHANGING SPACE “I think what was originally perceived to be Coworking spaces help However companies choose to bring back a high-risk moment to coworking may be the workers, offices themselves will face physical salvation once the pandemic is addressed,” companies that might be changes. “We’re likely to see office layouts Spiegel says. “They present a workplace solu- change, in which there’s some de-densifica- tion that’s flexible, because it’s not long-term, reluctant to lease space tion, in which there’s a reallocation of space and ubiquitous, because there are so many from individual workstations to larger, col- locations.” Coworking spaces, he says, help because they’re not sure of laborative meeting spaces,” says Homa. companies that might be reluctant to lease their workers’ needs. The PwC/Urban Land Institute report space because they’re not sure of their work- notes that companies had been reducing ers’ needs. The flexible model lets them wait office space before COVID-19 by shrinking and see how the marketplace will shake out. the space per worker through bench seat- In fact, a recent report from Colliers ing and an increased use of common areas. International predicts “significant growth” This trend, though, will likely reverse — 63 of flexible workspace outside of CBDs. It also percent of the respondents said that because says the “flexible workspace supply outside of of social distancing recommendations, of- downtown locations is already causing a sup- fice tenants would now need to increase the ply pinch in some markets.” The report, Flex square footage per worker. Forward: What’s Next for Flex in 2021, adds In the short term, Homa says, offices that non-CBD flexible space will increase will also have to offer pandemic-related safe- dramatically this year, with supply coming ty features such as hand-sanitizing stations, from existing operators and new entrants as social-distancing measures and signage, and well as “repositioned retail and hotel assets.” touchless technology. Longer term, he says, “the pandemic has provided a renewed focus CITY VS. SUBURBS around health and well-being in general, and As the pandemic progressed through 2020, specifically indoor air quality. Ventilation, fil- many city-dwellers looked to relocate to tration, and air purification are huge issues, suburban and even exurban areas, both to whether that means upgrading HVAC equip- escape densely packed urban areas and have ment, putting higher caliber filters in place, more space as they started working from or even changing design specs around proj- home. Will offices follow? ects to provide operable windows or outdoor “There’s a tremendous amount of talk and terrace space.” about the urban-to-suburban migration, Such improvements will come at a but the larger issue is region to region,” says price; although Emerging Trends notes that because the demand for increased health and safety features has been so accelerated, the market is still sorting out the requirements and costs. The report quotes one developer who estimated costs “somewhere around 1 to 2 percent of our total development budget.” At the same time, such upgrades could end up being a competitive feature in the mar- ketplace. The report quotes one executive who said, “Smart building owners are going to want to say our building has the cleanest air quality.” Another competitive feature that went dormant in the pandemic but will likely re- turn? The trend toward high-end amenities, such as in-house gyms, coffee bars, and posh
This page, photo by Luis Alvarez This page, cafeterias will pick up where it left off before
CIREMAGAZINE.COM COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE 27 BACK TO JLL research shows that the sublease market THE OFFICE? expanded by nearly 47.6 million sf since the pandemic began, bringing the total to 141.5 million sf. The largest industry sectors giving back space were tech companies, who subleased 5.8 million sf, and finance Homa, “and all of that isn’t completely new with 2.9 million sf. By February 2021, and driven by the pandemic.” Companies though, Homa says “one encouraging sign relocate for such factors as climate, the tax has been an uptick in tour activity among environment, and the availability and cost of those sublease spaces that have been put on labor. He points to states like Texas, Florida, the market, as well as a handful of executed and other lower-cost markets that started to deals and a deceleration of blocks put on experience growth even before 2020. “But the market.” in terms of tenants making a 10- or 15-year It could take time for rents to show a As they navigate the post- commitment to the suburbs rather than the decline. A February report from Cushman city, that’s not something we’re seeing.” & Wakefield noted that historically, national pandemic office landscape, Spiegel, too, says he’s seen “a handful office asking rents don’t decline until four real estate professionals will of stories about companies consolidating op- quarters after vacancy begins to increase. erations in the suburbs, but I don’t think it’s In fact, the report points out, during the likely encounter a host of yet to be declared a trend.” Still, he says, “now last two recessions, no U.S. markets hit their that people have worked at home for close to overall rent trough within a year. There have unfamiliar challenges. a year, are they going to prefer to be closer been exceptions this time around; Colliers to their home if they’re suburban residents? 4Q2020 Office Market Outlook reports Or will we go back to what’s been the trend that the largest 4Q declines in major CBD of the last five years [with] similar workers markets were San Francisco (-9.8 percent), congregating in the CBD?” In the short term, Austin (-3.7 percent), and Manhattan (-2.8 he speculates that companies could offer a percent). And a February Moody’s Analytics hub-and-spoke model or alternative work forecast predicted a 7.5 percent decline in locations for suburbanites who have fled the 2021 and added, “We do not expect average city or who aren’t yet comfortable returning effective office rents to reach their pre-pan- to mass transit. demic levels until 2026.” Cushman & Wakefield data show that As property is leased, “landlords have cities are still making a strong showing in the been reluctant to move face rates,” says office market. While the firm’s sample size Homa. “But we have seen on a net effective was smaller for 2020, it reports that CBDs basis, inclusive of concession packages, some account for 30 to 40 percent of leases in a shifts that are more tenant favorable — large- typical year — a figure that didn’t change in ly through things like free rent and tenant 2020. In addition, Cushman & Wakefield improvement allowances. But landlords have says it found no evidence that many busi- had that bias to keep face rates fairly steady.” nesses were leaving big cities for smaller Leases did get shorter during 2020. JLL ones. About a third of all U.S. office leasing figures show an average term of nine years occurs in gateway cities in a typical year, and during the first quarter and seven years by that figure was similar in 2020 at 32 percent. 4Q2020, reflecting, perhaps, some lingering uncertainty about longer commitments. EXPLORING SUBLEASING As they navigate the post-pandemic As companies reassessed their space strategy office landscape, real estate professionals will in 2020, the subleasing market surged. likely encounter a host of unfamiliar challeng- es. To manage the road ahead, Spiegel recom- mends a basic tried-and-true approach. “Commercial real estate professionals are best equipped to handle market changes when they ask questions and understand the needs of their clients,” he says. “Ask about workplace issues: Is the workforce happy and engaged? The best professionals are those who ask probing questions about how the real estate asset is helping achieve the goals of the tenant and then listen carefully. Ask not just about near-term but long-term changes to the client’s business strategy or challenges that they can address through real estate.”
Sarah Hoban
Photo by DMPhoto Business writer based in Chicago.
28 COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE SPRING 2021 A FUTURE FOR INFRASTRUCTURE By Elizabeth Vincent
With potential bipartisan support for infrastructure, could 2021 be the year for a breakthrough in Washington, D.C.?
he new Congress and President Joe the coronavirus under control and providing similarly devastated by a winter storm, Biden’s administration have kicked relief to those who continue to be harmed demonstrate the urgent need for sustainable Toff the year with a major legislative by the virus and its economic toll. President infrastructure upgrades. package and a flurry of executive orders. This Biden signed the $1.9 trillion American Res- In its latest quadrennial report card, activity signals what could be an active year cue Plan Act on March 11, bringing the total the American Society of Civil Engineers for policymaking as the new administration amount of authorized federal aid to address (ASCE) gave America’s infrastructure sys- strives to deliver on its campaign promises the pandemic to $6 trillion. The American tem a C-minus grade. During a recent U.S. and legislative priorities — continuing the Rescue Plan Act provided: Chamber of Commerce virtual infrastructure busy legislative year that 2020 proved to • Additional stimulus checks to policy conversation, Thomas Smith, execu- be. With the presidential campaign in full individuals and households. tive director of ASCE, noted that, “Chronic swing, many expected 2020 to be a year of • $45 billion in rental, utility, and underinvestment in our infrastructure has legislative gridlock. But the coronavirus mortgage assistance. pretty serious consequences. Over the next turned predictions on their heads. • $7.25 billion in additional funding and 20 years, the average American household Congressional leaders came together expanded nonprofit eligibility for the will spend $3,300 a year due to infrastruc- in the early months of the pandemic to enact Paycheck Protection Program. ture deficiencies.” several major legislative packages to address • $350 billion for state and Many of our country’s infrastructure the crushing impact of COVID-19, including local governments. categories fared poorly. The ASCE’s report, the $2.2 trillion CARES Act. The CARES Act • $130 billion to schools. Failure to Act, which examines the economic created the Paycheck Protection Program and • Funding to assist with impacts of derelict infrastructure, concludes expanded the Small Business Administration’s businesses reopening. that if we do not act, we are forecasted to lose Economic Injury Disaster Loan program, • $25 billion for a restaurant $10.3 trillion in GDP from 2020 through 2039. providing desperately needed assistance to grant program. Leaders on both sides of the political businesses suddenly shut down or curtailed due • $14 billion for vaccine distribution. aisle have expressed enthusiasm for repairing to the pandemic. The CARES Act also autho- • An extension to federal weekly and modernizing our infrastructure systems. rized the Federal Reserve’s Main Street Lend- unemployment payments. What remains to be settled are the size of ing Program to provide loans to support small • An expanded child tax credit. such a proposal and how to pay for it. and midsized businesses. Additionally, the leg- With optimism that the effects of “There is a lot of bipartisan optimism islation included provisions for an employee the pandemic lessen as Americans continue with moving forward in the House and Sen- retention tax credit, a technical correction to to get vaccinated and the American Rescue ate on transportation infrastructure issues, the inadvertent 39-year cost recovery period Plan Act infuses relief, Congress is poised but the issue is the cost,” says Russell Riggs, to qualified improvement property rendered to tackle additional policy issues — like in- senior policy representative at the National during tax reform, mortgage forbearance, frastructure investment, taxes, and cannabis Association of REALTORS®. “After passing direct payments, and expanded unemploy- business financing — that could impact com- a $1.9 trillion pandemic relief bill, will Con- ment benefits. mercial real estate. gress have the appetite to enact another large Supplemental legislative relief was legislative package?” provided throughout the year to fine-tune aid INFRASTRUCTURE INVESTMENT Yet, as the ASCE economic analysis measures, better target relief, and authorize Second in priority only to the pandemic demonstrates, extraordinary costs are in- additional funding. Additionally, provisions relief bill for the new administration is the curred by avoiding these necessary invest- unrelated to the pandemic but significant for proposed Build Back Better plan to repair ments. Increasing the gas tax to adequately commercial real estate were passed in an end- America’s crumbling transportation, water, fund the Highway Trust Fund has been of-the-year omnibus bill, including a provi- and energy infrastructure systems while also considered in prior infrastructure proposals. sion making the Section 179D deduction for addressing the impact of increased climate “[But] the Highway Trust Fund is reliant energy-efficient commercial buildings per- risk and extreme weather events. The new on people putting gas in cars, and that only manent. Over the last several years, CCIM In- administration is also considering pushing pays for roads and transit projects,” Riggs stitute has been advocating for the long-term for a comprehensive infrastructure package says. “Fewer cars are going to be running on extension or permanence of the Section 179D that would be an essential piece of pan- gasoline. General Motors has committed to deduction to encourage sustainable develop- demic relief by providing good paying jobs producing all electric cars by 2035.” ment. The omnibus package also included a to further jump-start the economy. Biden’s Even if the gas tax continued to fill five-year extension of the New Markets Tax infrastructure proposal envisions repairing the Highway Trust Fund at adequate lev- Credit program and significant energy provi- and modernizing America’s transportation, els, it is only structured to fund surface sions, including renewable energy and carbon energy, water, and digital infrastructure transportation and transit projects. At capture project incentives. so they are globally competitive, equitable a February hearing by the Senate Com- across communities, and resilient to extreme mittee on Environment and Public works, LATEST CORONAVIRUS RELIEF weather events. The February deep freeze Committee Chairman Tom Carper (D-DE) Since January’s inauguration, the Biden in Texas that crippled the state’s electric discussed a national “vehicles miles traveled”
administration’s top priority has been getting grid and the water crisis in Jackson, Miss., approach to fund our nation’s transportation by Bill Clark page) Photo (previous
30 COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE SPRING 2021 infrastructure, explaining “those of us who A FUTURE FOR have legalized adult recreational use of use our nation’s roads, highways, and bridges INFRASTRUCTURE marijuana, and yet cannabis businesses still have a responsibility to help pay for them.” sometimes struggle to access capital and Taxing carbon emissions is another funding other financial services because marijuana approach that has been suggested. remains an illegal substance at the federal Another hurdle to overcome is the gap level. In April, the House of Representatives between the Republican and Democratic vi- “It’s also going to be narrower in scope than passed the bipartisan Secure and Fair sions of an infrastructure plan. Many on the many on the left would prefer.” Enforcement (SAFE) Banking Act, which left envision a comprehensive package that would provide a safe harbor to banks, encompasses climate risk and green job cre- TAXATION insurance companies, and other financial ation policies while some on the right envi- Changes in tax policy could also be on the institutions that serve cannabis businesses sion a slimmer package. Nevertheless, after a table this year. Biden has proposed raising the in states where marijuana is legal. Access March 4 infrastructure meeting with Biden, corporate tax rate to 28 percent, after being Secretary of Transportation Pete Buttigieg, lowered to its current 21 percent after the 2017 and members of the House Transportation tax bill, to fund the administration’s infra- and Infrastructure Committee, Ranking structure proposal. When asked about a possi- Member Sam Graves (R-MO) was optimis- ble wealth tax, Treasury Secretary Janet Yellen tic in an interview with The Hill explain- took that possibility off the table explaining Raising the capital gains ing, “I thought it was good, it seemed to be that a wealth tax has “been discussed but it is productive. The president was very engaged not something that President Biden has come rate for investors making and very open.” Both sides seem receptive out in favor of. I think it is something that has to compromise. very difficult implementation problems.” The over $1 million annually Biden administration has also suggested rais- would also effectually alter The ASCE 2021 Infrastructure ing the capital gains rate on long-term gains for earners making over $1 million a year. the preferred tax treatment Report Card The capital gains treatment of carried interest could also be facing scrutiny. The Tax of carried interest for Infrastructure Category Grade Cuts and Jobs Act of 2017 mandated that those earners. Aviation D+ for carried interest to qualify for long-term capital gains treatment, investments must be Bridges C held for three years. While President Biden Dams D has not explicitly proposed altering the treat- ment of carried interest, when asked about Drinking Water C- it, Yellen responded that “I think it is some- to capital can be a constraint for both the Energy C- thing that certainly deserves to be on the businesses and the real estate owners who list of things to look at.” Raising the capital host them. In addition, many insurance Inland Waterways D+ gains rate for investors making over $1 mil- companies are not willing to underwrite Levees D lion annually would also effectually alter the cannabis businesses. preferred tax treatment of carried interest for Advocates of the SAFE Banking Act Ports B- those earners. In February, a group of House are cautiously optimistic it could see move- Public Parks D+ Democrats introduced the Carried Interest ment in the near future. Senate Banking, Fairness Act of 2021, which would require Housing, and Urban Affairs Committee Rail B carried interest to be treated as ordinary in- Chairman Sherrod Brown (D-OH) indicated Roads D come instead of a capital gain. his support if the legislation is coupled with Some good tax policy news for drug sentencing reform. In an interview with Stormwater D commercial real estate is that a group of Politico, Ranking Member Pat Tommery Transit D- bipartisan Congress members introduced (R-PA) also expressed his support, “I am legislation to make permanent the Section sympathetic to the idea that people who are Overall C- 199A 20-percent deduction for qualified involved in [the] cannabis industry — in an Source: American Society of Civil Engineers pass-through business income. The pass- entirely legal fashion, in the state in which through deduction is intended to give busi- they operate — ought to be able to have ordi- NAR® is an active member of the nesses organized as S corporations, partner- nary banking services.” U.S. Chamber of Commerce and Bipartisan ships, and sole proprietorships tax parity Congress is facing myriad policy Policy Center’s Build by the Fourth of July with often larger corporations that received demands to assist the country in fully infrastructure coalition that currently has a tax cut in 2017. The deduction is currently recovering from the pandemic. With over 310 members. These coalition members set to expire in 2025, though the Main Street infrastructure the next priority of the represent an array of organizations, from the Tax Certainty Act would make this deduction Biden administration, a bipartisan effort National Wildlife Federation to the National permanent. CCIM Institute joined a letter in enacting a comprehensive bill could Bankers Association, which could signal an to congressional leaders in support of this invigorate the economy and provide the infrastructure package might finally be in legislation detailing how the impacts of the much-needed infrastructure improvements reach. “A bipartisan package is going to be pandemic on small businesses make this de- that would benefit all Americans. bigger in scope than many on the right would duction even more critical. initially prefer,” Neil Bradley, chief policy Elizabeth Vincent officer at the U.S. Chamber of Commerce, CANNABIS BANKING LEGISLATION Government affairs consultant explained in a recent New York Times article. Sixteen states and the District of Columbia with experience in CRE
CIREMAGAZINE.COM COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE 31 By Soozi Jones Walker, CCIM, SIOR SURVIVING VOLATILITY
The coronavirus pandemic turned the world upside down, so CRE professionals will need creative options when it comes to renegotiating leases.
isruptions happen all the time. The uncommon in the office sector, the cancella- Risk also explains why significant next one is sure to come — what tion fees can be hefty. amounts of subleased office space has been Dremains unknown is what form In the wake of the pandemic, tenants hitting the market. Some tenants, seeing the it will take and when. The COVID-19 and landlords/owners are renegotiating volatility of 2020 and the near future, hope pandemic, for instance, is a black swan and modifying leases every day. Pinterest, to minimize costs and recoup some revenue event that could take a century of hindsight as an example, recently cancelled a lease for from their decreased need for real estate. to put it into proper context by the type 490,000 sf of office space in San Francisco The commercial real estate market re- and scope of its impact. While this latest that included total rent payments of $440 mains volatile, even if we all hope the worst of disruption is unlike previous systemic million. The cost to walk away from that deal COVID-19 is behind us. Considering such un- volatility, like the Great Recession, was an astonishing $89.5 million. Why would certainty, plenty of tenants and landlord/own- commercial real estate professionals need a lessee pay that much to buy its way out of a ers will be faced with the prospect of subleases to adapt to the changes resulting from this deal? Risk. and buyouts in the coming months and years. most recent disruption. Here’s a quick rundown of many One such change requires of the considerations that go into that industry pros hone their Sublease Rent Is Lower Than Contract Rent lease modifications. abilities to prepare for the wide- spread lease renegotiations in EOY Sublease Rent Contract Rent Difference SEEKING A SUBLEASE the coming months and years. At its most basic, a sublease is 1 $45,000 $50,000 ($5,000) Leases tend to be long-term con- an exit strategy for the tenant. tracts in CRE, extending three, 2 $45,000 $50,000 ($5,000) By signing an agreement for an- five, 10, or 20 years into the other user to take their place in 3 $45,000 $50,000 ($5,000) future. In that time, businesses the premises, the original tenant will change, and the economy 4 $45,000 $50,000 ($5,000) becomes the primary tenant, and will have its ups and downs. the new renter is the subtenant. 5 $45,000 $50,000 ($5,000) When a tenant and landlord The subtenant occupies the space sign a lease, there is typically an 6 $45,000 $50,000 ($5,000) and pays all or a portion of the anticipation that the market and rent owed under the original lease 7 $45,000 $50,000 ($5,000) use of the space will continue agreement, but the primary tenant uninterrupted throughout the 8 $45,000 $50,000 ($5,000) is still on the hook financially and term of the agreement. While legally, with all rights flowing Present Value at 10% ($26,675) early termination clauses are not through the primary tenant.
32 COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE SPRING 2021 Sublease Rent Is Lower Than Contract Rent situations could include a retailer moving from brick-and-mortar to online sales. H&M, Contract Lower Contract Higher for instance, has closed a significant number Than Market Than Market of stores as it emphasizes e-commerce. • Wants new user • Wants better user Looking at a second case study, Will buy out • Wants higher rent imagine the tenant owes the landlord Owner $1 million over five years. From the • Likes user • Enjoys excess rent Won’t buy out perspective of the tenant, who desires to • Wants security • Doesn’t want new user at lower rent exit the property, if the landlord could lease the space to another occupant for $150,000 Will buy out • Wants better space • Wants lower rent a year, that is a shortfall of $50,000 a User • Enjoys bargain rent • Enjoys space year or $205,010 in today’s money when Won’t buy out discounted at 7 percent. But from the • Can sublet at a profit • Wants security landlord’s perspective, the tenant owes them $1 million. Even if the landlord agreed to Every situation is unique, but many if there is a reduction in rental income, discount the remaining rent owed at the tenants consider subleasing for a few com- how will the primary tenant account for same discount rate of 7 percent, they would mon reasons: the difference? be owed $820,039 today. • Need more space. If a client has But other issues in the real estate mar- By comparing these two figures, you’ve outgrown their space, they will need ket may complicate the subleasing process. established a negotiating range. In determin- to relocate to accommodate a growing You may not be able to find a new tenant for ing what to accept on a buyout, the landlord business with greater needs. In this a space. Imagine if you were looking to sub- must consider multiple variables. case, a sublease can cover all or a lease a boutique retail property in May 2020, • What additional value might come from portion of the existing location. for example, amid COVID-19 shutdowns. a stronger tenant? • Need less space. A business headed in a To see how this plays out, let’s look at • How long might the space be vacant? smaller, leaner direction could also ben- a case where a tenant was able to sublease a • Can the property be repositioned efit from a sublease. Think of an office property for less than the existing lease. How with a different user? building in April 2020 — the business would you determine the value of that sub- Additionally, if the property is leased may have required every employee to lease in today’s dollars? for $150,000 per year, instead of $200,000, work for home for months or longer, so In this case, there are eight years left the net operating income is reduced by 10,000 or 20,000 sf of office space is no on a lease that’s $50,000 per year. The sub- $50,000 per year. This shortfall could cause longer a necessity. lease agreement is for $45,000 a year. As- problems if the landlord has a loan with a • Things change. A tenant may look to suming the primary tenant’s discount rate is debt-service coverage ratio and loan-to-value sublease if their business ratio requirement. Most loans model has changed signifi- How Much Would the Tenant Pay to have covenants that require cantly. Think of Walmart certain benchmarks throughout as an example. When these Terminate the Lease? the term of the loan. If these stores started to include EOY Market Rent Contract Rent Difference aren’t met, a default or capital groceries, their footprints 1 $150,000 $200,000 ($50,000) call may occur. greatly increased, leading to The volatility across the spread of Supercenters. 2 $150,000 $200,000 ($50,000) commercial real estate markets Walmart subleased many 3 $150,000 $200,000 ($50,000) doesn’t appear to be going away Division 1 stores to smaller soon. Reworking leases, subleas- retailers while they looked at 4 $150,000 $200,000 ($50,000) ing, and buyouts are skills that larger facilities. 5 $150,000 $200,000 ($50,000) many CRE professionals need to • Costs need to be cut. Some have in their toolboxes. Knowing businesses may have to sub- Present Value at 7% ($205,010) the goals of all involved parties lease some or all their space — including tenants, landlords, to stay afloat during difficult owners, and other parties, in- economic times. 10 percent, the difference in present value of cluding financing — will help you advise cli- • The space is obsolete. A tenant may the two leases equals negative $26,675. This ents when deciding the best course of action look to sublease if a space or building is total is crucial when considering if a sublease as the industry enters a post-COVID world. obsolete due to changing technology or is the correct path forward. business needs. Soozi Jones Walker, CCIM, SIOR To pursue a sublease, a tenant TALKING ABOUT A BUYOUT President and broker of Commercial must first make sure the landlord is If a sublease doesn’t make sense, a buyout Executives Real Estate Services in Las Vegas properly notified. Language in the lease could be another exit strategy for tenants. A Contact her at [email protected]. should detail what this entails — whether more drastic move in some ways, a buyout the landlord needs to give permission can give a landlord/owner a chance to possi- Editor’s note: in writing or other parameters are bly lease at a higher rate, thereby increasing This article was adapted from the established. The tenant or user of the their building value, while tenants can exit CCIM Institute course, “Surviving space also needs to consider who profits leases that have become burdensome. Volatile Markets Mitigating Lease Risk,” from the lease in the event the sublease Prime candidates for buyouts include a new online, self-paced course from rent is above the contract rent. Will that big-box stores that have closed permanently, CCIM Institute’s Ward Center for go to the tenant or landlord? Conversely, such as JCPenney, Sears, and Kmart. Other Real Estate Studies.
CIREMAGAZINE.COM COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE 33 34 COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE SPRING 2021 By Nicholas Leider ROOM FOR RECOVERY
The hospitality sector was devastated in 2020, but vaccinations, industrywide efforts, and returning demand are reasons for hope.
erspective isn’t the easiest thing to maintain when facing unprecedented challenges — and the PCOVID-19 pandemic provided plenty of those for commercial real estate markets in the year-plus since the resulting shutdown affected nearly every facet of daily life in the U.S. But with a year in the rearview mirror, hotel prop- erty owners, operators, investors, and guests alike have gained enough perspective to know there is light at the end of the tunnel. Plenty of variables will dictate just how far the sector has to go to reach it — but it’s a comforting thought for an industry that’s been to hell and is on its way back in 2021. “Hope is going to be driven by the widespread dis- persion of a vaccine,” says Geraldine Guichardo, global head of research for JLL’s Hotels & Hospitality Group and head of Americas Hotels Research. “Once people feel more comfortable traveling and do not fear the risk of becoming contagious, there is real pent-up demand to travel again.” But overcoming unprecedented challenges will not be possible without some suffering, in this case in the form of distressed sales, bankruptcies, and closures. While every market — bull or bear — is unique, there are lessons to be learned from history. “Look at what happened as we emerged from the Great Recession,” says Daniel Lesser, president and CEO of New York-based LW Hospitality Advisors. “Nobody was holding national meetings or conventions, but Las Vegas, for instance, was booming. I’m very optimistic, just seeing the amount of money that’s out there chasing quality opportu- nities in the hotel space. That says a lot to me because these
are smart, sophisticated folks with a track record of success.” Graphic by HH5800
CIREMAGAZINE.COM COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE 35 SETTING THE SCENE ROOM FOR ROAD TO RECOVERY Before looking ahead at what hopes to be a RECOVERY While 2020 has become synonymous with sunny future, 2020 deserves a complete reck- chaos and disruption, COVID-19 and its oning to fully understand the damage caused fallout didn’t disappear when the calendar in the wake of COVID-19’s arrival on Ameri- flipped to the new year. But as vaccines were can soil. Numbers cannot tell the entire story, approved, distributed, and now being ad- but the narrative they do share is an ugly one. has remained above 20 percent since the on- ministered across the country, the hospitali- According to a February report from set of the pandemic — that means one in five ty real estate market can begin to look ahead CBRE, overall demand for hotels dropped properties are still in immediate danger. The to the future of the sector. 35.9 percent in 2020 compared to the pre- overall CMBS delinquency rate jumped to 10 “A lot has changed in a year,” says vious year. Occupancy dropped 36.8 percent. percent, fueled largely by lodging and retail. Bram Gallagher, Ph.D., senior economist Average daily rates dropped 29.6 percent. But after the initial shock of the pan- with CBRE. “The pace of immunizations has The most telling is that RevPAR (or the reve- demic, activity began to resume in various increased, and we’ve had two recent stimulus nue generated per available room) dropped a sectors of the travel and leisure industry, with packages — it’s been mostly good news of late. whopping 55.5 percent. hotels opening to a completely altered con- That being said, the first two quarters of 2021 “U.S. hotels suffered the worst annual sumer landscape. are still going to look a lot like the last half occupancy level in 2020 since the Great De- “Leisure travel proved to be a stronger of 2020. But the market is improving and pression in the 1930s,” according to the CBRE segment of demand throughout the pandem- should return to near 2019 performance in report. “The biggest declines in RevPAR in ic as travelers experienced lockdown fatigue aggregate by late 2023 or 2024 realistically.” 2020 occurred in larger gateway markets. and planned last-minute trips, escaping to Leisure travel is expected to return rel- These markets suffered from a lack of group drive-to destinations,” according to JLL’s Ho- atively quickly, with millions of people ready demand, fewer inbound international travel- tel Investment Outlook for 2021. to escape after largely remaining in place ers, and a reliance on airline travel.” On a year-over-year basis, the num- for a year plus. Business and international What has proven so devastating bers were as bleak as expected. But relative to travel, however, could continue to remain about the pandemic is just how quickly and days immediately following the initial lock- depressed. For the everyday traveler, the in- completely demand vanished. Hotels, to no- down, occupancy rates, for example, began to creasing vaccination rates provide hope of a body’s surprise, exist on a day-to-day influx inch upward. Overall occupancy for all hotels return to something in the realm of normal. of room reservations, with food and bever- cratered from 63 percent in February 2020 “It really comes down to confidence,” age income and other ancillary spending to 20 percent in April, according to CBRE. says Lesser. “Frankly, that’s what’s missing for flowing from the occupancy. Hotel owners But that figure gradually increased through a lot of people right now — the confidence to get on an airplane or stay at a hotel. [These U.S. Hotel Property Buy/Hold/Sell Recommendations properties] have been proactive in trying to build that confidence, but I don’t know if it’s Fort Lauderdale, Fla. 23% 40% 37% up to hotels, airlines, and rental car compa- West Palm Beach, Fla. 23% 41% 36% Cape Coral/Fort Myers/Naples, Fla. 22% 56% 22% nies. To some extent, it just comes down to Orlando 22% 38% 41% getting vaccines in arms.” Charleston, S.C. 21% 45% 34% Deals in hospitality real estate, mean- Austin, Texas 16% 59% 25% Miami 15% 45% 39% while, should inch upward after last year, Tampa/St. Petersburg 14% 46% 40% which saw overall volume drop by 60 per- Washington, D.C. 14% 52% 34% cent, according to JLL. Jacksonville, Fla. 14% 36% 50% Deltona/Daytona, Fla. 13% 50% 38% “We predict that global transaction San Antonio 11% 56% 33% volume could be up between 35 to 40 per- Raleigh/Durham, N.C. 10% 53% 37% cent in 2021,” says Guichardo. “The activity Nashville, Tenn. 9% 56% 35% Greenville, S.C. 9% 48% 43% will largely be driven by resort markets and Knoxville, Tenn. 7% 47% 47% urban centers that are highly dependent on Louisville, Ky. 7% 33% 60% fly-to international travel.” Virginia Beach/Norfolk, Va. 7% 60% 33% Those primary urban markets — Tallahassee, Tenn. 5% 53% 42% Portland, Maine 0% 64% 36% namely New York, San Francisco, Chicago, and Los Angeles — will face difficulties 0% 20% 40% 60% 80% 100% thanks to a reduction in both international Buy Hold Sell travel and air travel from within the U.S. Source: Emerging Trends in Real Estate 2021 survey Note: Cities listed are top 20 rated for investment in the hotel sector; cities are ordered according to the Business travel, which is expected to lag be- percentage of “buy” recommendations. hind leisure, is another roadblock to recov- ery for these major metropolitan markets. and operators watched demand for their the summer months, holding steady between “Convention business, group travel — offerings vaporize in a matter of hours in 40 and 50 percent before increasing rates of these sectors may be slower to recover,” Gal- March 2020, as state and local governments COVID-19 in November pushed occupancy lagher says. “Trade shows and conventions, across the U.S. announced shelter-in-place back down. typically scheduled a year or two ahead of orders and lockdowns. Luxury hotels bore the brunt of this time, may not occur later this year. We may To punctuate COVID-19’s crushing difficult market, with occupancy down 71.8 see reduced activity which could be a bit of a effect on the hospitality industry, look to the percent year-over-year in 4Q2020, while headwind for large urban markets.” spike in delinquency rate for commercial upper-upscale properties saw a 64.2 percent As daily life ground to a halt through mortgage-backed securities. Chugging along YOY decline. Economy hotels, mean- the spring and summer of 2020, many spec- around 1.5 percent at the end of 2019 and into while, saw an occupancy decrease of only ulated about what COVID-19 could mean for 2020, it spiked to 24.3 percent in June and 14.8 percent in 2020. densely populated cities. Social distancing
36 COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE SPRING 2021
0 20 40 60 80 100 isn’t exactly the first thing that comes to ROOM FOR An emphasis on space, sanitation, and mind when thinking about the New York RECOVERY safety will also drive how solutions are deliv- subway or Chicago “L,” for instance. With ered to satisfy customer preferences. offices closed and many amenities of city life “Hotel parent brand companies unavailable to its residents, a portion of the should start thinking about how hotels can population began relocating to suburban or be reconfigured to feature larger bedrooms exurban settings. “I don’t recall there ever being as much that allow guests to work productively, But is this trend an immediate reac- capital as right now, just chasing yield,” Lesser work out comfortably, and rest easily,” tion to the pandemic or a long-term societal says. “U.S. commercial real estate is still very Guichardo says. “We saw evidence of shift in preferences? The answer to this ques- appealing. Drilling down further, looking at this in 2020 with the outperformance tion will not be evident for years or decades to hotels, it’s been proven time and time again of extended-stay hotel product, which come. Commercial real estate experts, how- on a risk-adjusted basis, hotels can provide typically features oversized bedrooms with ever, seem to believe that city life may change superior returns.” small kitchenettes.” — but the Big Apple isn’t going to be a ghost With a significant portion of hospi- Some additional modifications could town anytime soon. tality properties in serious trouble, oppor- be extensions of industrywide trends from “If somebody doesn’t believe New tunities will not be few and far between. before the pandemic. Less frequent visits York’s coming back, they probably don’t have a great outlook on the rest of the world,” Lesser says. “Frankly, I think the smart mon- Revenue Per Available Room (RevPAR) of Hotel Industry ey goes into New York now at a deep, deep in the U.S. from 2001 to 2020 discount to three years ago.” $100 Regardless, secondary and tertiary markets continue to benefit from this initial response. With air travel slowly inch- $80 ing upward, destinations reachable by car for both leisure and business travel have become more appealing. $60 “Look at Atlanta, St. Louis, or Jack- sonville,” Gallagher says. “These places are trying to capture some of the business lost by $40 primary markets this fall and into next year. It’s not game-changing demand, but drivable locations have potential.” $20
CHANGING EXPECTATIONS $0 While many experts continue to speculate on what’s in store for 2025 or 2030, there are 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 plenty of changes and opportunities for the Source: Statista hospitality industry to tackle in 2021. Total volume of transactions for 2021 could increase 35 to 40 percent from last Distressed assets will be hitting the market, from housekeeping, for example, were mar- year’s muted levels, according to JLL. “We with some inevitably being purchased for keted as a way to reduce the carbon footprint expect investors to not only continue favor- conversion to uses other than hotels. But the of the guest and the property. Now, such an ing assets in less dense and resort markets, long-term health of the market sector does not initiative nicely dovetails with a desire to re- but also those assets that implemented swift appear to include a significant contraction duce interactions. changes to support changing guest expec- in supply. Open spaces will still be a priority for tations by focusing on technological ad- “It’s no secret that several hotels guests, so property owners and operators vancements and wellness,” the report states. have closed or will close as a result of the may have to examine what areas of a property While gateway cities and those dependent pandemic but, over the next couple of are not essential to maximize revenue. These on air travel may face near-term difficulties, years, the pipeline of hotel development spaces — both indoors and out — can then these locations do present opportunities will improve as developers and investors be offered as comfortable and safe spaces for acquisition. see performance rebound and have more outside the room to work or relax. And after much of 2020 was spent certainty as to the industry’s path forward,” While hotels face plenty of uncertainty, on the sidelines, private equity funds and Guichardo says. as much as any major sector of commercial high-net-worth individuals have plenty of As for the consumer experience inside real estate, the outlook isn’t as dire as it was dry powder with increasing pressure to find hotels in a post-COVID-19 environment, six or 12 months ago. Increasing vaccination appealing targets. technology will be key. rates, industrywide efforts to improve safety, “Private equity groups have been rais- “A lot of updates will include quick- and steadily increasing demand for travel ing a flurry of capital to invest and now are er adoption of technology that was already and leisure all point to a slow march toward facing pressure from their investors to find a growing in use before 2020,” Lesser says. normalcy in a post-COVID-19 world. space to invest this capital in,” Gallagher says. “Things like keyless entry, self check-in, “For opportunistic players, the hotel space even the delivery of a toothbrush to your Nicholas Leider can prove to be an attractive investment, room by a robot — we will see these Senior content editor of particularly as more assets emerge at an at- measures embraced because the market is Commercial Investment Real Estate tractive basis.” extremely competitive.” Contact him at [email protected].
CIREMAGAZINE.COM COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE 37 CCIM CANDIDATE SPOTLIGHT
By Nicholas Leider AMY SMITH
Texan through and through, Smith SMITH: My brother-in-law had taken the began her lifelong interest in the 101 class and suggested that my father Abuilt environment through her fa- and I take one of the classes. He was ther’s construction business. After earning a aware of both my desire to learn more degree in psychology, she started her career about commercial real estate and also in finance, including construction, oil and my parents’ plans to continue developing gas, and ranch management accounting. their properties. My father and I drove to Now that she’s completed all her Austin, Texas, for the two-day intro class. coursework and is preparing her portfolio, I was impressed by the training and the Smith hopes to sit for the CCIM Compre- education. Every property is different, but hensive Exam later this year. Commercial one of the first things I learned with this Investment Real Estate spoke with Smith education is how to truly compare those about her journey into commercial real estate investment options and select the best one. and toward the CCIM designation. I quickly realized that this was going to be a differentiator in my real estate career. CIRE: WHAT EXPERIENCE, PROFESSION I knew I wanted to continue! ALLY AND PERSONALLY, LED YOU TO SEEK THE CCIM DESIGNATION? CIRE: HAVE YOU BEEN ABLE TO PUT Amy Smith YOUR EDUCATION TO USE? HOW HAS THE AMY SMITH: Over 15 years ago, I started my DESIGNATION CURRICULUM IMPACTED journey assisting my parents as they devel- YOUR PROFESSIONAL ABILITIES? oped and grew their commercial properties. Mac McClure was the instructor for my SMITH: At the beginning, I used this CCIM 101 class, and later, I had the oppor- knowledge when purchasing my first rental tunity to work for McClure Partners, while property. The CCIM education that I had also earning my MBA. Due to some changes completed at that time helped to ensure my in the 2008 economy as well as my person- decisions were on track and lessened the al life, I returned to the private sector but stress of that first purchase. I have continued continued to pursue the CCIM designation. to use this education with additional My passion for commercial real estate has purchases, as well as assisting my clients continued to grow, and, as soon as I had an with the necessary information to help them opportunity, I transitioned back to becoming make the best decision. a full-time real estate agent. I was working with a client who owned a multi-tenant property for many CIRE: WHAT WAS THE AHA! MOMENT years. We discussed options of replacing it WHEN YOU KNEW IT WAS WORTH THE with another property, but in the end, they TIME AND EFFORT? were ready to sell. Their assumptions for the
38 COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE SPRING 2021 sales price were mainly based on the value enough. My broker, Gary Vasseur, is excited of the building. Through my CCIM educa- for me and encourages my path to the CCIM tion, I was able to share the need to include designation. Heather Konopka, CCIM, is an the future rent rates as an increased value to incredible woman and an inspiration. I ad- the property. This resulted in a much larger mire her work ethic and her knowledge of sale price that exceeded their expectations. the CCIM education.
CIRE: WHAT HAS BEEN THE MOST CHAL CIRE: GROWING UP IN THE LENGING ASPECT OF YOUR JOURNEY CONSTRUCTION BUSINESS AND NOW TOWARD CCIM DESIGNATION? WORKING FOR A FAMILY FIRM, WHAT My passion for CRE BENEFITS DO YOU SEE IN A FAMILY SMITH: The biggest challenge for me has has continued to grow, APPROACH TO CRE? been trying to find the balance between single parenthood, education (including my and, as soon as I had SMITH: I met Gary Vasseur when we MBA), managing personal real estate, and worked a challenging deal together. I was continuing the pursuit of my commercial an opportunity, extremely impressed by the way he handled real estate career. I transitioned back the entire transaction and ensured that I have a great support group that keeps all parties were satisfied. Vasseur me grounded. I spend time with my family, to becoming a Commercial Real Estate Inc., is a small and I love watching my grandkids grow. We firm with an attention to detail and focus enjoy traveling, and when we are on vacation, full-time real on the client. Getting a deal executed is, of I feel it is important to unplug. For me, per- course, the goal, but the relationships with sonally, those moments of relaxation and fun estate agent. my clients and counterparts are primary. are a way of recharging. Vasseur Commercial also has that same passion for people and ensuring their needs CIRE: WHAT SUPPORT STRUCTURES are met. HAVE HELPED YOU DURING THIS PROCESS? Nicholas Leider Senior content editor for SMITH: My family has been incredibly sup- Commercial Investment Real Estate portive of me, and I cannot thank them Contact him at [email protected].
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CIREMAGAZINE.COM COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE 39 SITE TO DO BUSINESS CASE STUDY
By Nicholas Leider RECAPTURING THE MAGIC
One CCIM designee helped a client find financing and acquire an Orlando-area hotel for conversion to multifamily housing.
year after COVID-19 came to allowed Pierce’s client to bolster its business “The targeted tenants are primarily dominate all aspects of life in the U.S., plan, which helped with the underwriting of the resort workers, people from Disney and Ait’s easy to draw a distinction in the the financing. Universal properties, and those working world as pre-pandemic and post- in surrounding hotels and restau- pandemic. But Ken Pierce, CCIM, rants,” Pierce says. “The data we col- CIPS, can trace one major deal lected was invaluable because the directly to those fretful days when assumption was that a lot of these schools were closing, events were people would depend on public getting canceled, and toilet paper transportation to and from work,” was flying off the shelves. he says. “We basically dropped a Pierce, owner of Orlan- marker in the middle of Kissimmee do-based Pierce Florida Realty, had and did half-mile, one-mile, and a client scheduled for a closing on two-mile searches.” March 13. The property was an old Pulling the profiles of the hotel with Pierce’s client aiming to surrounding neighborhoods by convert it to boutique studio apart- income, age, homeownership, and ments targeted at hospitality and other categories, Pierce quickly entertainment workers for Disney narrowed an initial shortlist of 10 World and other tourist destinations properties to one ideal candidate. in the area. After the March closing, devel- “Literally, it was in that time opment on the adaptive reuse frame when everything began shut- project stalled as the coronavirus ting down,” he says. “We weren’t even shut down Florida’s economy. But sure, frankly, whether the bank was construction resumed in the sum- going to go ahead and pull the trigger.” mer of 2020, with the first units But the deal was completed expecting to be on the market by — thanks in part to the research April 2021. done by Pierce through Site To Do “After the initial shutdown,
Business. Detailed demographic in- Ken Pierce, CCIM, worked with a tapestry map within Site To Do Business to locate my client was able to get back to formation and transportation data the ideal property. work,” Pierce says. “Converting
40 COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE SPRING 2021 an older hotel property to new apartments can be intense, having to replace so much and convert the units from hotel rooms to a multifamily property.” The pipeline of hotels-to-multifamily conversions may be widening in the wake of COVID-19, but it was an established trend well before the virus upended daily life in 2020. The Orlando area was flush with aging hotels during the real estate boom leading up to the Great Recession of 2008-2009. Developers were converting hotels built in the 1970s and 1980s into condominiums — only to be caught in the cold when the bubble burst. “After that first wave of revitalization, things slowed down a bit,” Pierce says. “But investors are again looking at these types of possibilities. I’m expecting tourism to come back in a big way as vaccinations continue and we near herd immunity. People have been stuck inside for a year — and what’s one of the first places they’ll want to go? Orlando has to be on top of that list with Disney World and Universal Studios.” This adaptive reuse project highlights an interesting fold in the commercial real estate market as it continues to react to the COVID-19 pandemic. The conversion repurposes an outdat- ed hospitality property to address expected demand for work- force housing by people in the travel and leisure industry. While such retrofitting may become more common in the near future, Site To Do Business can continue to deliver data and infograph- ics for CRE professionals to identify and enable the repurposing and revitalizations of these sites.
Nicholas Leider
Demographic data allowed the client a deeper understanding of the property’s Senior content editor of Commercial Investment Real Estate surrounding area. Contact him at [email protected].
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CIREMAGAZINE.COM COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE 41 CRE INNOVATIONS
By Nicholas Leider INTELLIGENT ANALYSIS
Improving efficiency and decision-making, artificial intelligence holds plenty of promise to boost performance in CRE.
sign of artificial intelligence’s “What we are doing right now with AI of local markets and property types. But the potential is that the boundaries — and what our mission is – is to think about natural fear is there — if it happened to them, Aand limitations for the developing pushing boundaries of what is possible,” he could it also happen to me? technology aren’t fully understood. The says. “But really, AI doesn’t replace people. Not quite, according to D’Angelo. applications — from machine learning and It is something that is most powerful when Many applications involving AI are direct- advanced analytics to robotics and systems it works with people and [as a part of] peo- ly focused at minimizing work, but it’s not processing — are currently in development, ple’s instincts, intuition, and judgement. AI is the high-level executive functions that are with AI proponents bullish on impacts that best when married together with the kinds of threatened. could reshape much of our world. things that people are fundamentally good at.” “There’s fear [of AI] taking work away, John D’Angelo, managing director at Automation, robotics, and AI can be but frankly,” he says, “we are talking about the Deloitte Consulting, which launched its De- scary topics for many who have seen head- type of work that is not particularly enriching loitte AI Institute last year, specializes in oper- lines about major job sectors potentially for people to be doing. The big opportunity ational transformation in real estate operating becoming obsolete. Think of travel agents to use technology is to shift your focus to companies, investment managers, and service before the rise of aggregating sites like Ex- high-value activities.” providers. He sees commercial real estate as pedia, Priceline, and Orbitz. Commercial Data entry, for example, is not the an industry that could greatly benefit from real estate professionals provide services bread-and-butter work of highly performing development in AI and adjacent technologies. that may require more in-depth knowledge brokers or investors. And what if data could Photo by Tulcarion
42 COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE SPRING 2021 Build Your Network be collected, collated, and packaged for CRE professionals without the human legwork usually associated with it? “The pot of gold at the end of this technology rainbow is freeing up people to do better things,” D’Angelo says. “If new tech- With Ours nologies can capture data and put it to work, you can improve deci- sion-making. You can see its value and how it can be applicable in improving performance.” The implications of the COVID-19 pandemic are still play- ing out, but such disruption across CRE industry sectors will have CCIM Institute’s Industry Sponsor Program connects plenty of professionals examining business practices and looking for improved efficiencies in processes. Just as the pandemic led to you with the industry’s top commercial real estate a boom in e-commerce, it could also make many CRE practitioners professionals for: more willing to adapt and leverage technology. • face-to-face networking; • print and web media exposure; and • customized commercial real estate education Technology will have a major based on CCIM Institute’s respected role in the much nearer future as designation program. everyone learns to live in a world opening up from COVID-19. To learn more about CCIM Institute’s Industry Sponsor opportunities, contact Patricia Pereyra, Director of Business Development, at [email protected].
“We’ve seen over the last decade, especially the last two or Join the Ranks of These Elite Companies three years before the pandemic, a growing awareness or curiosity,” D’Angelo says. “Many people were asking, ‘Where do I apply tech- nology?’ and ‘How do I best use analytics?’ But I think in a very real way, we’ve seen that accelerate over the last year — and I think this is going to pay big dividends as we play out the next decade.” Technology will have a major role in the much nearer future as everyone learns to live in a world opening up from COVID-19. CRE sectors will have markedly different priorities, experiences, and demands. But office is a great starting point for a discussion of just how people will safely and effectively return to a workplace. “In many ways, office is going to be a poster child in the ad- vancement of technology adoption,” D’Angelo says. “AI can improve building maintenance, for instance, by helping you understand when a major mechanical system needs to be replaced before it goes up in smoke. A smart building can know how people are using dif- ferent spaces so you can decrease electricity and AC costs.” While steering clear of the “creepy” factor, like when a build- ing or office knows too much about you, these applications can ensure heavily trafficked areas are properly cleaned. Or elevators function in a way where social distancing is respected. “A ton of data from building systems and sensors can be used to improve our decision-making,” D’Angelo says. “We have all these cases where we are raising the IQ of a building and, in turn, produc- ing a bunch of benefits for the industry.”
Nicholas Leider Senior content editor of Commercial Investment Real Estate Contact him at [email protected].
Editor’s note: For more from John D’Angelo on analytics, artificial intelligence, and the future of commercial real estate, listen to his full-length episode on Commercial Investment Real Estate podcast. Listen online at www.cirepodcast.com or wherever you stream your favorite podcasts.
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Commercial real Marketing platform for Commercial real estate Commissions and Integrated property data estate marketing commercial real estate listing platform accounting application and listings platform professionals for CRE JILL RASMUSSEN, CCIM THE BIGGEST DEAL and two colleagues with Davis in Minneapolis represented MOB Investor Partners in its more than $160.6 million sale of a portfolio of medical offices to Davis MOB Investors LLC. Totaling 438,690 sf, the properties are located across several states in the U.S. Lease and sales comp Underwriting and Cloud-based software Commercial real estate Mapping, aerials, flyers, data platform asset management for custom marketing marketplace and and customer analysis packages and more technology platform for retail real estate
OFFICE Deanna Collins, CCIM, and Michael Honc, CCIM, represented HC Lowry LLC in its $3.3 million pur- Printing and delivery Valuation, forecasting, Demographic and Investment management Commercial real estate BIG DEAL Dan Adamski, CCIM, with JLL in Pittsburgh chase of a 6,641-sf office property in Denver from an services and transaction platform site selection platform software lease management represented Novitas Solutions in its more than $18.26 undisclosed seller. software million lease of 95,087 sf of office space in Mechanics- burg, Pa., from Tech Park Associates. Adamski also repre- Tom Fennell, CCIM, with Dickson Commercial Group sented Westinghouse in a more than $8.35 million lease represented Fennemore Craig in its more than $3.5 of 33,174 sf of office space to Seneca Resources, a more million lease of 12,000 sf of office space at Village at than $3.07 million lease of 18,800 sf of office space to Rancharrah in Reno, Nev., from Tolles Development Phoenix Rehabilitation, a more than $4.23 million lease Company, represented by Dominic Brunetti, CCIM. Fen- On-demand printing for National Association Negotiation Client and deal Engineering, to South College, and a more than $6.11 million lease of nell also represented an undisclosed lessee in a more than business and marketing of REALTORS® (NAR) management platform management platform environmental, and 22,568 sf of office space to Larson Design -- all in Cran- $3.38 million lease of a 16,472-sf office space in Reno. berry, Pa. Additionally, he represented Perkins Eastman materials membership energy services in its more than $5.27 million lease of a 15,225-sf office Dan Adamski, CCIM Michael Frye, CCIM, with RE/MAX Realty Group property in Pittsburgh from FAC 525 LLC. in Fort Myers, Fla., represented Royal Palm Coast Holdings in its $5.25 million sale of a 55,499-sf office Ian Black, CCIM, represented Certified Collectibles space in Cape Coral, Fla., to an undisclosed buyer. Group in its $4.4 million purchase of 20,809 sf of office space in Sarasota, Fla., from Lake Jackson Cathy Jones, CCIM, and three colleagues with Sun Commercial and Real estate marketing Property listings, Integrated SEO, email, Marketing platform for Venture LTD. Commercial Real Estate represented an undisclosed residential database with platform analysis, and and social media building owners, asset seller in the more than $5.68 million sale of a portfolio predictive analytics CRM solutions marketing platform managers, and brokers Dan Brunetti, CCIM, with Dickson Commercial of six office buildings in Las Vegas with a total of Group represented an undisclosed buyer in the $11.2 50,754 sf to an undisclosed buyer. million purchase of a 65,377-sf property in Reno, Nev. Along with three colleagues, he also represented Paula Lea, CCIM, and one colleague with Cushman Washoe Redevelopment in its $6 million purchase of a & Wakefield represented an undisclosed party in 21,781-sf medical office property in Sparks, Nev., from leasing 29,112 sf of office space in Las Vegas for more Publication of the latest Travel discounts on Automated analytics for Apps for business tools, an undisclosed seller. than $9.31 million from an undisclosed lessor. Lea trends in economic hotels, rental cars, real estate calculators, and analysis and two colleagues also represented an undisclosed buyer in the $5 million purchase of a 24,530-sf office development and cruises, and more reports property in Las Vegas from an undisclosed seller. corporate real estate
To learn more or apply to become a provider, visit 44 COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE SPRING 2021 www.ccim.com/advantage CCIM Institute’s Member Advantage Program Exclusive member-only discounts and services
Your CCIM Institute membership gives you access to additional discounts and programs for travel, printing, tech tools, and more. Check out the latest providers:
Commercial real Marketing platform for Commercial real estate Commissions and Integrated property data estate marketing commercial real estate listing platform accounting application and listings platform professionals for CRE
Lease and sales comp Underwriting and Cloud-based software Commercial real estate Mapping, aerials, flyers, data platform asset management for custom marketing marketplace and and customer analysis packages and more technology platform for retail real estate
Printing and delivery Valuation, forecasting, Demographic and Investment management Commercial real estate services and transaction platform site selection platform software lease management software
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To learn more or apply to become a provider, visit www.ccim.com/advantage OFFICE Justin Thibaut, CCIM, with LSI Companies in Fort Myers, Fla., represented an undisclosed seller in the Marcus Pitts, CCIM, Justin Lossner, CCIM, and more than $6.72 million sale of 10.58 acres of land in Michael Minard, CCIM, with JLL represented an Naples, Fla., to an undisclosed buyer. undisclosed seller in the $10.5 million sale of an office property in Aktoona, Iowa. The trio also represented an undisclosed seller in the $5 million sale of a 36,436- RETAIL sf office asset to an undisclosed buyer BIG DEAL Dave Wallace, CCIM, with CRE Consul- Jill Rasmussen, CCIM, and a colleague with Davis tants represented Golden Paws Assistance Dogs Inc. in in Minneapolis represented Xchange MOB Partners the $6.35-million purchase of a 29,901-sf retail space LLC in its more than 15-year, $14.32 million lease of a in Naples, Fla., from TMCFM, Inc. 19,000-sf office property in St. Louis Park, Minn., to a medical firm. Daniel Berger, CCIM, with U.S. Commercial Realty in Lancaster, Pa., represented Good’s Store in its $4.55 Jason Reddington, CCIM, with LevRose Commercial million purchase of a 92,500-sf former Kmart retail Real Estate represented an undisclosed seller in the property in Ephrata, Pa., from an undisclosed seller. more than $4.34 million sale of a 49,493-sf office Jim Dunham, CCIM building in Phoenix to an undisclosed buyer in a 1031 Michael Campbell, CCIM, with NNN Investment exchange. He also represented an undisclosed seller in Co. in San Diego represented an undisclosed seller the more than $4.07 million sale of a vacant 41,000-sf in the more than $5.77 million sale of a Starbucks office property in Mesa, Ariz., to an undisclosed buyer. location in Dana Point, Calif., to an undisclosed buyer. Reddington also represented Forever Corporate in its more than $3.41 million, 66-month lease of 23,020 sf of Faraz Cheema, CCIM, and Ron Struthers, CCIM, office space in Scottsdale, Ariz., to One American Bank. with Coldwell Banker Commercial NRT in Potomac, Md., represented Coastal Land Inc. in the $3.7 million Robin Santiago, CCIM, represented Scott Cooley purchase of a 31,400-sf retail property in Richmond, in the sale of a 42,363-sf office property in San Jose, Dave Wallace, CCIM Va., from WPB & DSF LLC through a 1031 exchange. Calif., for $16.55 million to an undisclosed buyer. She also represented Walt Hoefler in the $4.8 million Terry Earnest, CCIM, with Chesterfield Commercial sale of a 6,780-sf office property in Cupertino, Realty represented HSW LLC and RMW1 LLC in its Calif., to the Great Enlightenment Lotus Society of $7.15 million sale of a 153,682-sf retail property on 11 Northern California. acres in North Chesterfield, Va., to 360W CAF1 LLC represented by Josh Peck, CCIM.
LAND Gary Heinfeld, CCIM, Christi Royse, CCIM, and two colleagues represented an undisclosed seller in BIG DEAL Jim Dunham, CCIM, and a colleague rep- the more than $8.22 million sale of three Kneakers resented the buyer and seller, both undisclosed, in a Café locations. $20 million deal for 21 acres of land in Sioux Falls, S.D. Amelia Henry, CCIM, with Logic Commercial Real Enn Luthringer, CCIM, with CRE Consultants Estate represented EQ Sahara LLC in its $8.6 million represented Encompass Health Corp. in its more than sale of a retail center in Las Vegas to VIV Sahara $4.08 purchase of 7.31 acres of land in Cape Coral, Rainbow LLC. She and a colleague also represented Fla., from LG Pine Island and Pondella LLC. Sahara Fitness LTD in its more than $6.22 million sale of a 42,355-sf retail property in Las Vegas to Marc Magliarditi, CCIM, and two colleagues with Chad W. Clay. Logic CRE represented an undisclosed seller in the $7.4 million sale of 12.95 acres of land in Las Vegas. A. Scott Henry, CCIM, represented BH Properties in Dallas in the $4.4 million purchase of an 87,000-sf Steve Massell, CCIM, represented Red Rock LLC retail property in Corsicana, Texas, that was formerly a in its $5 million sale of 25 acres in Cumming, Ga., to Gander Outdoors, from an undisclosed seller. Westshore Realty Partners. Gary Lyons, CCIM, and a colleague with Avison Michael Reeves, CCIM, with Adams Commercial Young represented LSP Verris Eastchester LLC in the Real Estate represented Waken Meat Company in its $9.45 sale of Eastchester Shopping Center, a 63,000- $6.9 million sale of a 3.5-acre plot of land in Atlanta sf retail property in High Point, N.C., to Peters to Middle Street Partners. Development LLC.
46 COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE SPRING 2021 Rebecca Martin, CCIM, and a colleague with MULTIFAMILY RBM Real Estate Solutions represented Aidan Inc. in its $4.2 million purchase of Merryhill School, a BIG DEAL Gary Cooper, CCIM, and Anthony 11.090-sf retail property in Lone Tree, Colo., from DeMarco, CCIM, with Colliers International in Carlyle Holdings LLC. Martin and a colleague also Cleveland represented a court-appointed receiver represented NDoubled LLC in its $3.6 million in the $30.1 million sale of the Vista, a 949-unit purchase of a 11,609-sf retail property in Lone Tree multifamily property in Lakewood, Ohio, from a from Akbeldiente LLC. Chicago-based purchaser.
John Propp, CCIM, and Michael Honc, CCIM, Jim Dunham, CCIM, and two colleagues with Jim represented T R Thompson LLC in the $6.26 million Dunham & Associates represented an undisclosed purchase of Thompson Parkway, a 15,140-sf retail prop- seller in the $19.7 million sale of a 134-unit multifamily erty in Johnstown, Co., from Johnstown Plaza LLC. property in Sioux Falls, S.D., to an undisclosed buyer. Frank Amodio, CCIM He and two colleagues also represented the seller in the $9.8 million sale of Graystone Townhomes, INDUSTRIAL a 66-unit multifamily property in Sioux Falls, to an undisclosed buyer. In addition, Dunham and one BIG DEAL Frank Amodio, CCIM, represented Mar- colleague represented the seller in the $7.7 million keting Research Park LLC in its $10.6 million sale of sale of Santa Rosa Townhomes, a 65-unit multifamily a 200,000-sf industrial property in Suffield, Conn., to property in Sioux Falls, to an undisclosed buyer Rug Pad USA. represented by Jordan Rieffenberger, CCIM.
Todd Hamilton, CCIM, with Citywide Commercial Cathy Jones, CCIM, with Sun Commercial Real in Phoenix represented an undisclosed buyer in the Gary Cooper, CCIM Estate represented an undisclosed seller in the more more than $3.18 million sale of a 29,995-sf industrial than $4.28 million sale of a 55,850-sf multifamily asset in Tempe, Ariz., from an undisclosed seller. property in Las Vegas to an undisclosed buyer.
A. Scott Henry, CCIM, represented B.H. Properties Devin Lee, CCIM, and three colleagues with in its $9.8 million purchase of a 187,000-sf industrial Northcap Commercial represented an undisclosed property in Laredo, Texas, with a short-term lease seller in the more than $27.27 million sale of Pinehurst from an undisclosed seller. Condominiums, a 197-unit multifamily property in Las Vegas, to an undisclosed buyer. Lee and three Gary Lyons, CCIM, and two colleagues with Avison colleagues also represented an undisclosed seller in Young represented ROIF 6000 Pelham LLC in Anthony DeMarco, CCIM the $22.15 million sale of Hilltop Villas and Stewart the more than $5.07 million sale of a 64,607-sf Villas, five multifamily properties with a total of 226 industrial property in Greenville, S.C., to Diversified units in Las Vegas, to an undisclosed buyer. Medical Inc. Marcus Pitts, CCIM, Michael Minard, CCIM, and Marcus Pitts, CCIM, Michael Minard, CCIM, and Justin Lossner, CCIM, with JLL represented an Justin Lossner, CCIM, with JLL represented an un- undisclosed seller in the $55 million sale of a 775- disclosed seller in the $8.6 million sale of a 163,360- unit multifamily property in Cedar Rapids, Iowa. The sf industrial property in Bettendorf, Iowa. Pitts and three also represented an undisclosed seller in the Lossner also represented both undisclosed parties in $22.45 million sale of a 328-unit multifamily property the $3 million sale of a 56,000-sf industrial property Justin Thibaut, CCIM in Cedar Rapids to an undisclosed buyer. in Ankeny, Iowa.
William Rollins, CCIM, and Justin Thibaut, MIXEDUSE CCIM, with LSI Companies in Fort Myers, Fla., represented Uline Inc. in the more than $45.3 BIG DEAL Justin Thibaut, CCIM, with LSI Com- million purchase of City Gate, a 103-acre industrial panies in Fort Myers, Fla., represented an undis- property in Naples, Fla., in two phases from an closed seller in a $6 million sale of a 174.67-acre undisclosed seller. mixed-use development in Bonita Springs, Fla., to an undisclosed buyer. Michael Yurocko, CCIM, with SLC Commercial Inc. in Stuart, Fla., represented Packers of Indian River Jason Reddington, CCIM, David Wallach, CCIM, in the $5.5 million sale of a 100,000-sf industrial and a colleague with Levrose Commercial Real property in Fort Pierce, Fla., from Contender Boats Estate in Phoenix represented Triumph Real Estate Inc., represented by Matthew Rotolante, CCIM. Investment Fund in its more than $4.67 million purchase of a 29,000-sf mixed-use property in Scottsdale, Ariz., from Red Rock Worldwide LLC.
CIREMAGAZINE.COM COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE 47 On-Demand Access to Your FINANCING Brian Resendez, CCIM, with SVN | Bluestone & Hockley in Portland, Ore., represented an undisclosed BIG DEAL Glenn Thomas, CCIM, with Pathway seller in the $3.25 million sale of a 132-unit hotel Professional Development Capital Corp. in Nyack, N.Y., arranged for a $73.5 property in Spokane, Wash., to Kapoor & Kamal LLC. million loan through Madison Capital Realty for an eight-property portfolio in New Jersey. SPECIALTY Devin Lee, CCIM, and a colleague arranged the $5.6 million financing for MCR Apartments, a BIG DEAL Mark Illsley, CCIM, and two colleagues CCIM Institute knows that everyone in the industry has busy schedules filled with late hours, especially if 111-unit multifamily property in Las Vegas, for Glenn Thomas, CCIM with CRBE in Phoenix represented both buyer and sell- LMNOP Properties LLC. er in the $15.25 million sale of Gig Harbor RV Resort, a you're in the middle of a deal. 10.9-acre, 115-site property in Gig Harbor, Wash. Tim Tran, CCIM, with the Ivy Group in Fremont, The institute's self-paced courses provide the same quality education and practical application, while Calif., represented both undisclosed parties in Robert Adams, CCIM, with Adams Commercial financing the more than $3.17 million SBA loan for a Real Estate represented the Urban Redevelopment allowing you the flexibility to learn on your own schedule. Plus, some courses offer continuing education 11,416-sf industrial property in Union City, Calif. Agency of the City of Decatur in its more than credits for your licensing requirements. $4.92 million purchase of a 22,000-sf specialty John Trost, CCIM, with SVN | Alliance Commercial property in Decatur, Ga., from Boys & Girls Clubs Real Estate Advisors represented both undisclosed of Metro Atlanta. DESIGNATION CURRICULUM SELFPACED COURSES parties in financing the more than $3.11 million Hugh Wade, CCIM loan for Lakeside Executive Park, a 24,000-sf office Cameron Jeffs, CCIM, with Coldwell Banker • CI 101: Financial Analysis for CIRE • CI 103: User Decision Analysis for CIRE property in Port Orange, Fla. Commercial represented an undisclosed seller in the $4.15 million sale of a 29-acre specialty property in • CI 102: Market Analysis for CIRE • CI 104: Investment Analysis for CIRE Pescadero, Calif., to Lemon Hill LLC. HOSPITALITY Curtis Skomp, CCIM, with RE/MAX All Keys Real WARD CENTER FOR REAL ESTATE STUDIES SELFPACED COURSES BIG DEAL Hugh Wade, CCIM, with Spire Commer- Estate in Key West, Fla., represented an undisclosed cial in Anchorage, Alaska, represented The New Lion seller in the $5 million sale of a marina in Marathon, DEVELOPMENT SPECIALTY TRACK LLC in the $9.3 million sale of a 60,290-sf hotel prop- Fla., to an undisclosed buyer. • RE Development: Acquisitions • RE Development: Market Studies and erty to the Municipality of Anchorage. Mark Illsley, CCIM Marketing Strategies • RE Development: Approvals and Permits • RE Development: Physical Improvements • RE Development: Dispositions • RE Development: Transportation • RE Development: Environmental Factors and Accessibility CCIM ROI • RE Development: Financing CORE CURRICULUM REFRESHER COURSES (AVAILABLE ONLY TO CCIM DESIGNEES) • CI Concepts Revisited: Methods and Models • CI 103 Revisited: User Decision Models
TOM FENNELL, CCIM, AND TRAVIS HANSEN, CCIM • CI 102 Revisited: Market Analysis Models • CI 104 Revisited: Investment Decision Models
ALL OTHER SELFPACED COURSES • Build Your Own DCF Model in Excel • Preparing to Negotiate
onsidering the immediate and all-encompassing im- “The buyer that was awarded the deal had to move quickly • Capital Markets: Making the Case for • Real Estate Financial Analysis Using Excel Investment Real Estate pact of the COVID-19 pandemic’s first wave last year, and put up nonrefundable money upon the opening of escrow, • Splitting Profits in Commercial Real Estate it’s easy to forget the extended timeline of many trans- which speaks to the competitiveness and lack of inventory in C • Essential HP10BII Financial Calculator Skills actions in commercial real estate. Whether buying acres of our market.” • Surviving Volatile Markets: Mitigating Lease Risk vacant land or selling a downtown retail location, many people The two sides also negotiated a phased leaseback af- • Ethics look well beyond 12, 24, or 48 months. ter the closing to accommodate the seller while it found a • Troubled Assets and Opportunities in the After the initial shutdown in the U.S., Tom Fennell, secondary location for its operations. Fennell and Hansen • Financial Modeling for Real Estate Development Age of COVID-19 CCIM, with Dickson Commercial Group in Reno, Nev., met were both happy to be dealing with industry-leading profes- with a client looking to expand — and expand quickly — due sionals while tying up the loose ends of a time-sensitive and • Foundations for Success in Commercial Real Estate • Using Excel as Your Financial Calculator to business growth related to COVID-19. Fennell eventually intricate transaction. came across an 89,259-sf industrial property on the market. “We always find another CCIM [designee] great to work • Last-Mile Logistics: The Final and Represented by Travis Hansen, CCIM, the undisclosed seller with because they have an added level of competency,” Fennell Most Expensive Link in the Supply Chain discovered just how competitive the market was for available says. “Considering the added complexity of this transaction warehouse space. during COVID-19, it was reassuring to know I was working “There were competing offers for the site,” Fennell says. with an experienced and knowledgeable counterpart.”
For more information or to register today, visit
48 COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE SPRING 2021 www.ccim.com/education or call +1 (312) 321-4460, opt. 2 On-Demand Access to Your Professional Development
CCIM Institute knows that everyone in the industry has busy schedules filled with late hours, especially if you're in the middle of a deal. The institute's self-paced courses provide the same quality education and practical application, while allowing you the flexibility to learn on your own schedule. Plus, some courses offer continuing education credits for your licensing requirements.
DESIGNATION CURRICULUM SELF-PACED COURSES • CI 101: Financial Analysis for CIRE • CI 103: User Decision Analysis for CIRE • CI 102: Market Analysis for CIRE • CI 104: Investment Analysis for CIRE
WARD CENTER FOR REAL ESTATE STUDIES SELF-PACED COURSES DEVELOPMENT SPECIALTY TRACK • RE Development: Acquisitions • RE Development: Market Studies and Marketing Strategies • RE Development: Approvals and Permits • RE Development: Physical Improvements • RE Development: Dispositions • RE Development: Transportation • RE Development: Environmental Factors and Accessibility • RE Development: Financing
CORE CURRICULUM REFRESHER COURSES (AVAILABLE ONLY TO CCIM DESIGNEES) • CI Concepts Revisited: Methods and Models • CI 103 Revisited: User Decision Models • CI 102 Revisited: Market Analysis Models • CI 104 Revisited: Investment Decision Models
ALL OTHER SELF-PACED COURSES • Build Your Own DCF Model in Excel • Preparing to Negotiate • Capital Markets: Making the Case for • Real Estate Financial Analysis Using Excel Investment Real Estate • Splitting Profits in Commercial Real Estate • Essential HP10BII Financial Calculator Skills • Surviving Volatile Markets: Mitigating Lease Risk • Ethics • Troubled Assets and Opportunities in the • Financial Modeling for Real Estate Development Age of COVID-19 • Foundations for Success in Commercial Real Estate • Using Excel as Your Financial Calculator • Last-Mile Logistics: The Final and Most Expensive Link in the Supply Chain
For more information or to register today, visit www.ccim.com/education or call +1 (312) 321-4460, opt. 2 Binge on this monthly podcast that tackles the topics that matter most to commercial real estate professionals with industry leaders, including:
Examining Cross-Border CRE Investment with BFIN’s Managing Partner Maggie Coleman
Last-Mile, Supply Chain & Infrastructure Solutions with CCIM Institute Chief Economist K.C. Conway, CCIM, MAI, CRE
Deloitte’s John D’Angelo Sees AI as an Exciting Technological Development for CRE
Reonomy’s Rich Sarkis on How Big Data Can Fight Uncertainty in a COVID World
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