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August 27, 2014
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LEADERSHIP SPOTLIGHT
Chicago Landmark AMA Plaza Earns IREM Certified Sustainable Property Certification

IREM® HEADLINES
New Income and Expense Data for Conventional Apartments

INDUSTRY HEADLINES
IREM’s Annual Office Building Study Yields Mixed Bag of Results
Shopping Center Income and Occupancy Levels Rise and Operating Costs Decline in 2013, New IREM Benchmarking Study Reports
Are Apartment-Complex Storage Units a Growing Threat to Self-Storage Businesses?
How Much of an Anomaly is Sarasota's New $315 Million Mall?
With Rentals in Fashion, Apartment Construction Hits 25-Year High
How to Unplug From Information Overload
Preserving Murals Should be Priority for Building Owners
Plan for Energy-Conscious Condos in Philadelphia
Apartment Landlord Shares Soar to New Highs, But Will Demand Keep Rising?
Tallahassee Apartment Complexes Move To Paid Visitor Parking
Manhattan Office Towers Keep Getting Pricier — But Incomes Lag Behind
Walk-Bike-Transit Scores Driving Higher Apartment Rents in Albuquerque


 

Leadership Spotlight


Chicago Landmark AMA Plaza Earns IREM Certified Sustainable Property Certification

AMA Plaza (formerly IBM Plaza), a 52-story downtown Chicago office building located at 330 North Wabash Ave. and the largest and last American structure designed by world renowned architect Mies van der Rohe, has earned the IREM Certified Sustainable Property certification from the Institute of Real Estate Management (IREM). Owned and managed by affiliates of Riverview Realty Partners and Five Mile Capital Partners LLC, and headquarters of the American Medical Association, the award-winning Landmark building has met the diverse but attainable requirements of the certification – drawn from categories ranging from energy and water conservation to waste and tenant engagement – that distinguish the property as a high-performance building.

Commented IREM 2014 President Joseph Greenblatt, CPM: “We applaud the efforts of AMA Plaza’s management to secure our certification, knowing that it aligns with their commitment to adopt the best in 21st century environmental practices and policies. Clearly, we have a common goal, which is to ensure the long-term viability of the precious and increasingly threatened environment that we all share.”

“The IREM Sustainability Certification raises the already high sustainability profile of AMA Plaza to another level,” said Susan Hammer, RPA, LEED® AP O+M, General Manager of Riverview Realty Partners and Riverview Realty Property Management, Inc. “In addition to traditional categories such as energy and transportation, the Certification also stresses tenant engagement, education, and outreach, which creates a leadership model for the building as well as for its tenants.”

The IREM Certified Sustainable Property certification is part of a program called IREM Sustainability, designed to help property managers and other practitioners strive for more-efficient, value-enhanced buildings. The program, powered by Green Per Square Foot, consists of three integrated parts: a web-based sustainability management platform, a challenge competition, and the property-level certification.

Learn more at www.iremsustainability.com
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IREM Headlines


New Income and Expense Data for Conventional Apartments

Net Operating Income (NOI) for four apartment types examined nationally rose between 4.8 percent and 9.9 percent from the prior year. NOI for low-rise buildings with 12-24 units rose 9.9 percent to $5.53 per square foot; NOI for low-rise buildings with 25 or more units rose 7.2 percent to $6.11 per square foot; NOI for elevator buildings rose 5.2 percent to $10.44 per square foot; and NOI for garden buildings rose 4.8 percent to $5.50 per square foot.

Gross possible rents for low-rise buildings with 25-plus units increased by 4.5 percent, raising the rent per square foot to $11.53. Elevator buildings reported a 3.8 percent rent increase to $17.70 per square foot; garden buildings reported a 1.7 percent gain to $11.09 per square foot; and low-rise buildings with 12 to 24 units reported a rent increase of 0.1 percent to $11.06 per square foot.

Expenses, for elevator buildings rose 0.3 percent to $7.82 per square foot; expenses for low-rise buildings with 12-24 units declined 4.5 percent to $5.68 per square foot; those for low-rise buildings with 25 or more units sidelined 1.5 percent to $5.37 per square foot; and those for garden buildings rose 1.3 percent to $5.33 per square foot.

Less than 50 percent of a typical property’s annual collections were used to cover operating expenses. All four building types remained relatively stable with low-rise buildings with 12-24 units experiencing the highest operating ratio at 49.7 percent, factoring in a 3.1 percent decline from the prior year. Elevator building reported the lowest operating ratio at 42.0 percent, representing a 1.5 percent decline from 2012.

These key findings, reported in the 2014 edition of the Income/Expense Analysis: Conventional Apartments, published by IREM, are drawn from a control sample of conventional apartments that have submitted data for the report consistently over the past four years. In terms of sample size, the report analyzes the previous year’s operating income and cost figures for 3,557 multi-family rental properties representing over 717,000 units across the United States and Canada.

The publication is an invaluable resource to build better budgets; identify ways to trim waste, address inefficiencies, and make needed improvements; prepare feasibility studies, appraisals and loan requests; and much more.

Check it out!
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Industry Headlines


IREM’s Annual Office Building Study Yields Mixed Bag of Results
Commercial Property Executive (08/19/14) Murray, Barbra

The Institute of Real Estate Management (IREM) has issued its "Income/Expense Analysis: Office Buildings" study, and this year's results were a decidedly mixed bag. The annual study looks at operating income and key expenses, analyzing more than 1,700 private-sector office complexes in major metropolitan areas across the United States and Canada. IREM reports that operating costs increased across the board compared to 2012, but not by much. Additionally, costs rose 0.6 percent to $8.39 per square foot at suburban office properties and 2.2 percent year-over-year at downtown buildings. The study further found that four of the five benchmarks for key expenses rose for downtown assets, but suburban properties actually experienced a decline in all five categories -- insurance services; real estate and other taxes; janitorial/maintenance; utility; and, lastly, administrative/benefits costs.

In other results, suburban properties in operation for 12 months or more saw a vacancy rate of 10 percent, while downtown office buildings' vacancy rates inched down from 8 percent in 2012 to 7 percent. "Surprisingly, perhaps, net operating costs for suburban office buildings have been very stable, decreasing just 0.5 percent over the last three years," stated Matthew O'Hara, a senior manager with IREM. "While slightly less so, net operating costs for downtown properties also have been stable, increasing just 3.1 percent since 2011."
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Shopping Center Income and Occupancy Levels Rise and Operating Costs Decline in 2013, New IREM Benchmarking Study Reports
Insurance News Net (08/21/14)

According to the Institute of Real Estate Management (IREM), the median income for open shopping centers across the nation in 2013, based on average actual occupancy, increased from $16.18 per square foot the year before to $17.18. Operating costs, meanwhile, decreased from $5.20 in 2012 to $5.08 per square foot last year. These are among the key findings reported in the 2014 edition of the "Income/Expense Analysis: Shopping Centers," a benchmarking study newly published by IREM. The annual study found that median income for open centers broken down by region ranged from $14.28 to $23.43 per square foot. The Northeast and Mid-Atlantic regions reported the highest income at $23.43 per square foot.

Researchers further determined that that insurance and taxes accounted for 43.4 percent of the typical open center's total operating costs in 2013, while contracted services made up 14.4 percent. They also found that the national occupancy level for open shopping centers was 93 percent last year, up from 92 percent the previous year. The IREM Income/Expense Analysis study breaks down open shopping center operating data into a number of categories, including: property size, age, type of anchor, type of lease, average actual occupancy (or AAO), and gross leasable area (or GLA). The study includes national, regional and metropolitan statistics, along with several special reports including leasing fees, tenant turnover, type of ownership, expansion, and gross sales analysis.
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Are Apartment-Complex Storage Units a Growing Threat to Self-Storage Businesses?
Inside Self-Storage (08/14) Vosburgh, Glenda

National Apartment Association (NAA) President and CEO Doug Culkin observes that for-rent storage space is a growing trend in the apartment sector, as more and more communities around the country are offering this amenity. One of the factors fueling the demand is a growing appetite for urban living, as many Millennials shun the suburbs and more people -- especially empty-nesters -- downsize from houses to apartments. Although the NAA does not have any statistics on the number of installations or resident use, it is important to note that over 25 percent of self-storage tenants live in apartments or condominiums. "Apartment square footage, in general, is decreasing, leaving storage and closet space at a real premium for residents," states Culkin. "The popularity of these spaces has also grown because renting has become a preferred lifestyle choice for many empty-nesters and retirees who want to downsize and forgo the maintenance and upkeep that a large home requires." Sizes and rental fees for the spaces vary depending on the community and the location.

Most apartment communities have unused areas in parking garages and parking lots that are ideal for creating storage space. Additionally, some communities are experimenting with garage units that are very much like gym lockers. Culkin notes, "They're most often built to blend in with the individual apartment community and are mobile, so they don’t require footers or concrete pads for installation." For-rent storage spaces are included in all of Criterion Development Partners' new apartment communities. Development associate Brandon Hancock says for-rent storage space adds a new revenue stream for apartment owners and can also serve as a valuable marketing tool. Lincoln Property Co. reports that demand for extra storage space is strong in most of the markets it has communities in. Lincoln’s storage spaces range from closet-size to garage-size. The Dallas-based company also provides shared, partially enclosed areas with fencing. The Chicago market, in particular, is seeing strong interest in for-rent apartment storage. Irini Boeder, regional marketing director at Lincoln, concludes, "I think it happens more in urban environments where the living spaces are smaller."
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How Much of an Anomaly is Sarasota's New $315 Million Mall?
Tampa Bay Business Journal (08/21/14) Kritzer, Ashley G.

The enclosed Mall at Unversity Town Center in Sarasota, Fla., is on track for an Oct. 16 grand opening. The $315 million project, which took nearly two years to build, is a fairly major anomaly in commercial real estate. Open-air shopping centers have dominated retail development for much of this decade. The last enclosed mall to open in the United States was in 2012, notes Jesse Tron, a spokesman for the International Council of Shopping Centers. That mall -- City Creek Center in Salt Lake City -- was also developed by Taubman Centers. Taubman, who teamed up with Sarasota-based Benderson Development on the Mall at UTC, says it remains a "mall believer" and has broken ground on another such project in San Juan, Puerto Rico. Development director John Eggert notes that Taubman management decides individually whether each new project should be an enclosed mall or an open-air center. Not the least of the considerations is the region’s weather, which makes Florida with all its heat and humidity a prime location for enclosed malls.
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With Rentals in Fashion, Apartment Construction Hits 25-Year High
Wall Street Journal (08/20/14) Timiraos, Nick; Zumbrun, Josh

A large portion of July’s gain in housing construction came from the multifamily sector. A rolling 12-month total of multifamily starts with no seasonal adjustment shows that construction for the year ended July 31 reached its highest level since 1989, based on Commerce Department data. Diane Swonk, chief economist of Mesirow Financial, notes that substantial gains in apartment starts are less bullish for economic growth than a comparable increase in single-family construction. That is because single-family housing has a bigger multiplier effect for both employment growth and consumer spending. Swonk writes: "We will take what economic activity we can get, but our housing market model was designed in the U.S. to build a lot of single-family homes for owners, not multifamily homes for renters." Single-family building permits are only up 0.8 percent through the first seven months of 2014 compared to a year earlier. By contrast, there has been a 17.5 percent year-to-date gain for apartment permits.

Researchers say the surge in rental units offers additional proof that job gains are boosting household formation. It also indicates a shelter shortage that will require more construction -- for both owning and renting. Climbing apartment rents could eventually give potential home buyers added urgency. A separate Labor Department report reveals that rents were climbing at their fastest clip in five years last month, up 3.3 percent year over year. Many Americans have had no choice but to rent because they either lack funds for a down payment or cannot qualify for a home loan. Others simply prefer the flexibility that comes with renting. In turn, apartment company stocks have been on a tear. Shares of Equity Residential and AvalonBay Communities, for instance, closed Tuesday at their highest levels since the companies went public in the early 1990s.
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How to Unplug From Information Overload
Property Management Insider (08/21/14) Blackwell, Tim

"The average person checks their phone at least 110 times per day," Patty Morgan-Seager of Seager Marketing told attendees at June's National Apartment Association Education Conference and Exposition in Denver. While cell phones, tablet computers, and laptops are important tools to help today's workers stay in contact and keep pace with the speed of business, these devices are so attached to people that they can become physically perilous. Users can feel overwhelmed by being connected from sunrise to sundown. Morgan-Seager said the mental drag that goes with staying in the conversation can interrupt the balance of work and play in life. She recommends re-conditioning one's self to put the devices down in an effort to find better work-life balance. "I think we should consider shutting down and stepping away from our devices, just a little bit at a time," she said. "Maybe 10-15 minutes at a time." Morgan-Seager reminded conference attendees that it is important to understand the difference between working hard and working with passion. For too many people, work has becomes life, especially when enabled by devices. She concluded, "If you're working for something you don't care about, it's called stress. On the flip side, if you're working hard for something you care about, it's called passion."
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Preserving Murals Should be Priority for Building Owners
The Advertiser (08/21/2014)

Some feel that the massive murals that adorn the sides of buildings in the heart of downtown Lafayette, La., should be a priority to business owners. But that's not always the case When the Old Lee Furniture building was converted into the now-defunct Karma Nighclub, white paint covered the spectacular mural titled, "Cajun French Accordion." The mural had been painted by internationally renowned artist Robert Dafford. While Dafford's murals are listed on Downtown Lafayette Unlimited's websites among 13 examples of public art, some are painted on the sides of privately owned structures. The owners may not know or care about the sentimental and monetary value of these murals. "The artist and property owner could enter into an agreement to preserve the art work," said Kate Durio, marketing director of DLU. But such clauses may not be popular with the purchasers of the art work and could give future building buyers second thoughts if the murals do not fit with the image of their business.
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Plan for Energy-Conscious Condos in Philadelphia
Philadelphia Inquirer (08/24/14) Arvedlund, Erin

The Seibert brothers are renovating a former Mount Airy warehouse in Philadelphia. Scott and G.C. Seibert, who grew up in Jeffersonville, are helping their parents renovate and maintain investment homes. The brothers got their start in the building business with projects such as Weccacoe Flats, a green-conscious development in Queen Village done through their company, Bancroft Green. The Seiberts are razing a warehouse on Carpenter Lane to construct a 25-unit condo and mixed-use building. The project, 520 Carpenter Lane, will be Leadership in Energy and Environmental Design-certified. Construction is scheduled to start in early 2015 and, with some modular designs, should be completed in six to nine months, G.C. Seibert said.
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Apartment Landlord Shares Soar to New Highs, But Will Demand Keep Rising?
Wall Street Journal (08/20/14) Whelan, Robbie

As the economy continues to recover and construction of new multifamily housing surges, shares of the nation's biggest apartment owners are trading at all-time highs. Behind the rally is three factors: one, a significant increase in apartment construction; two, positive job growth; and, three, a continued preference on the part of young people to rent over buying. The Commerce Department recently reported that construction of multifamily housing hit an annual pace of 423,000 units in July -- its highest level since January 2006. "It's a combination of demographics, living preferences, and purchase behavior that is all favoring rental housing today," said AvalonBay Chief Executive Tim Naughton. But Naughton cautioned that there could be some headwinds on the horizon. He concludes, "In terms of economics, construction costs are now outpacing rent growth since the trough, which starting to squeeze yields a bit."

Essex Property Trust CEO Michael Schall said that his company may trim its apartment development pipeline from roughly 10 percent of the company's enterprise value to around 5 percent, partly because construction costs may be rising faster than income from apartment communities. Schall states, "We're going to be more conservative at this point in the cycle."
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Tallahassee Apartment Complexes Move To Paid Visitor Parking
WCTV.com (FL) (08/18/14) Alcock, Andy

Florida State and Florida A&M University students moving into off-campus housing this month may be in for a bit of a surprise. Around 20 Tallahassee apartment communities are launching a new paid parking system for visitors. It's all started by a new company dubbed Parknpay App. Visitors to each of the communities can use the app to pay for parking with either a credit card or debit card. Payments can also be made to the firm's website. Parknpay App founder J.D. Camp says it is up to the individual communities as to what to charge. He adds that the main purpose is not money, but safety. People who pay for the spots are required to submit their names, e-mail address, and license plate number for easy tracking by apartment managers and their staff. Camp remarks, "I think it's worth it if it's just a couple of dollars just to make sure everybody's who's here is supposed to be here."
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Manhattan Office Towers Keep Getting Pricier — But Incomes Lag Behind
The Real Deal (08/20/14) Pincus, Adam

The sales price per square foot for Class A Manhattan office space has surged over the past few years, rising from $783 per square foot in 2012 to $1,310 per foot through the second quarter of 2014. However, the 20 top-grossing office properties have generated more modest returns. Using income and expense data compiled by Genesis Computer Consultants, 13 of the top 20 properties were ranked by gross revenue by The Real Deal and saw revenue increases of less than 10 percent in 2013 compared with the year before -- far less than the 35 percent spike in sales pricing between 2012 and 2013. The top grossing property, the Empire State Building, saw its revenue grow by just 8.4 percent to $188 million. The second highest was Mitsui Fudosan America's 1251 Sixth Avenue, which recorded an increase of just 3.4 percent to $179 million. Because the an exhaustive survey was not done for all of the city's biggest properties, The Real Deal said it merely offers a snapshot of the bigger picture.
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Walk-Bike-Transit Scores Driving Higher Apartment Rents in Albuquerque
Albuquerque Business First (08/20/14) Scott, Damon

Apartment communities in the Albuquerque, N.M., metropolitan area that have solid walking, biking, and transit scores command an average rent that is nearly 26 percent higher than those that do not. The news was revealed at the recent Apartment Association of New Mexico's 2014 outlook meeting. Local apartment expert Todd Clarke said that cities that cater to Millenials' desire to rent and use mass transit are definitely seeing a payoff. According to the association's results, the university corridor commands the highest rents in the city, followed by Downtown and Uptown. Clarke said Millennials are also seeking studio apartments, which is changing the apartment landscape citywide. The walk-bike-transit scores have become an increasingly valuable tool for property developers and real estate brokers. For instance, Walk Score gives Downtown Albuquerque a score of 98 and Mesa del Sol a 2, Clarke said.
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