Real Estate Management News - 03/15/2017

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March 15, 2017
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IREM® HEADLINES
Health & Wellness Best Practice from Astar/Cardinal Capital Management
Medical Offices Impacted By Generational Divide in Healthcare Concerns
Keeping Up with Office Building Trends

INDUSTRY HEADLINES
4 Tips for Monetizing a Purchasing Strategy
Coming Soon to Your Local Mall: Celery and Dog Food
Food-Delivery Startup Targeting Office Workers Raises $6M to Expand
RadioShack Closing 187 Stores in Latest Bankruptcy Filing
Can an Office Building Make You Healthier and More Productive?
Luxury Amenities Boosting Occupancy Rates in Office Properties
Criminal Trespassing Bill Aimed at Apartment Complexes
Pacific Retail Capital Partners Test Launches New Digital Sensory Experience in Utah Prior to Roll Out at Shopping Centers Across the Nation
Owner Gets LEED Label for 3 Miami Office Buildings
Office Landlords Invest in Incubators for Tech and Bioscience Start-Ups
Staples to Close 70 Stores as It Copes With Shrinking Sales
New Jersey Complex, Once Owned by a Drug Giant, Becomes a Home for Many


 

IREM Headlines


Health & Wellness Best Practice from Astar/Cardinal Capital Management

“Growing Community Through Gardening” is a 2016 REME Awardwinning health and wellness initiative started by Astar/Cardinal Capital Management (West Allis, WI). Initially visualized as an opportunity for residents to participate in growing and sharing garden vegetables with each other, this program has evolved into much more. By utilizing corporate donations and volunteer manpower, residents are able to plan, tend, harvest, cook, compost and socialize in an effort to build healthier lives, while enjoying fresh produce grown in their own backyards. The program was envisioned as an amenity to allow residents to interact in a new activity, but staff highly underestimated the enthusiasm by which the program would be received! By-products included:
  • Journals were kept by the residents showing watering, weeding and fertilizing schedules
  • Residents started sharing meals together before and after each gardening session, which led to the formulation of a garden-grown cookbook that was shared with corporate donors who then increased their subsequent donations
  • Composting and birdwatching activities grew from initial interest in the gardening program
  • Year-end pot luck gatherings are held that utilize ingredients from the garden
  • Cooking classes are being taught in community kitchens, again utilizing garden produce
  • Residents follow @gardeningwhpc on Twitter to stay current with gardening initiatives
Check out the full story in the March/April edition of JPM.
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Medical Offices Impacted By Generational Divide in Healthcare Concerns

Excerpt from the March 6, 2017 IREM Blog posting by John Salustri.

According to a report newly issued by Marcus & Millichap, the generational divide between boomers and millennials is making itself known now in the medical office segment of the industry—and not just because boomers are feeling their age and millennials still think they’re indestructible.

Specifically, the millennials will pave the way for what the report calls an “emerging trend in the revitalization of healthcare,” which includes more transparency from insurance companies and providers as well as quick access to physicians, especially as it relates to costs and coverage.

So what does all of this mean to real estate? Obviously, the healthcare market, no matter the changes in delivery, is evergreen. There will be a slow demise in primary care operations and a rise in urgent/acute care centers and retail clinics, often located within pharmacies. This, says Marcus, is in the name of more efficient and affordable options.

“Large healthcare providers are acquiring and expanding services off campus and closer to residential areas, providing patients easier access to care,” says the report. “This has prompted the development of ambulatory surgery centers, stand-alone emergency rooms and large multi-tenant medical office buildings. As the way people seek medical care and how they approach changes, developers must keep up by offering flexible floorplates, convenient locations and amenities such as lean design, up-to-date technology and green building features.”

And we can see that trend already in leasing. All of the above has led to vacancies coming down more than 500 basis points in the past seven years; but note that is in new construction, which presumably follows the above-mentioned design guidelines. Rents followed, rising nationally by 3.5% over that same period.
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Keeping Up with Office Building Trends

Last year, IREM reported that total actual collections for office properties were the highest in the following 5 metro-areas: San Francisco, CA; New York City, NY; Washington, DC; Austin, TX; and San Diego, CA. Absorption of office space was supported by a more intense pace of employment growth within the traditional office-using employment sectors. Vacancy rates in the office sector continued to trend downward, putting upward pressure on asking rents. However, a number of unknowns could have a significant impact on future growth, including.
  • Space utilization – will trends continue in terms of telecommuting, virtual and shared offices, and other office design efforts to reduce the square foot per employee
  • Economic and job growth – job growth has fueled occupancy growth, but will that continue or will recessionary clouds form in the next 12 months
  • Development pipeline – supply constraints have helped reduce vacancy rates and put upward pressure on rents. Will new development outpace or lag behind growth in occupancy demands
While these megatrends are important, what’s happening in a property’s local market has a greater impact on the property’s performance. The best business decisions are based on a thorough understanding of the facts, including the ability to compare your property’s performance against similar properties in your market.

The IREM Income/Expense Analysis Reports provides the data you need to conduct local market analysis and to identify opportunities for improving performance. Get the data you need now. And don’t forget that if you submit your property data you can get a 2017 Income/Expense Analysis Report for free.
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Industry Headlines


4 Tips for Monetizing a Purchasing Strategy
Property Management Insider (03/12/17) Lyman, Guy

Even with a fine-tuned, well-organized purchasing strategy, the costs associated with maintaining an existing apartment community or upgrading a new acquisition can really add up. Such expenses make it essential to get the most out of each investment in terms of fixtures, maintenance materials, and even office supplies particularly for large rental apartment portfolios. The article's author writes: "You should take four core components into account as you develop your portfolio's purchasing strategy – vendor consolidation, product standardization, compliance techniques, and involvement with a group purchasing organization." Indeed, step one entails narrowing your pool of vendors to ensure best pricing. After all, using multiple vendors and buying less from each often results in paying more.

Two, standardize products to help manage day-to-day spending consistently. Doing so streamlines purchasing and often results in higher savings. Tip three, be sure to communicate and enforce purchasing strategy compliance. The difference between the success or failure of implementing a standardized, consolidated purchasing strategy typically boils down to communication and reporting. Non-compliance often goes undetected due to a lack of reporting. A fourth and final tip is to joining a multifamily group purchasing organization (or GPO). Regardless of the size of your platform, a GPO is easy to use and it enables the apartment community to buy the right item, at the right price, from the right vendor all while ensuring compliance.
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Coming Soon to Your Local Mall: Celery and Dog Food
Wall Street Journal (03/07/17) Fung, Esther

More and more shopping mall owners and operators are courting a type of retailer they once ignored: grocery stores. With online retail continuing to reshape the way Americans shop, landlords of low- and mid-quality malls must adapt in order to stay relevant. While some are trying everything from restaurants to indoor skydiving, a few are starting to bring in supermarkets. Natick Mall in Natick, Mass., is leasing 194,000 square feet of space vacated by J.C. Penney Co. to Wegmans Food Markets Inc. The upscale grocer is planning to open a store in 2018. Meanwhile, Kroger Co. has bought a former Macy's department store at Kingsdale Shopping Center in Upper Arlington, Ohio, with plans to build a new store in its place. The main objective for owners of covered malls is to provide one-stop destinations where shoppers can pick up a wide variety of items and, ideally, visit multiple times a week.

"Consumers, particularly Millennials, are placing a high priority on experiences while also valuing convenience," remarks Tom McGee, chief executive of the International Council of Shopping Centers. "As a result, among other things, we are seeing more restaurants, movie theaters, health clubs and grocery stores serve as anchors." With regards to the grocery segment, the pace has accelerated sharply in recent years as higher-end supermarkets look to expand. Now, such institutional investors as private-equity firms are expressing interest in acquiring grocery-anchored shopping centers as they take on defensive investment strategies. Overall, investment in retail-property assets fell nearly 19 percent last year, but investment in grocery-anchored shopping centers and single-asset grocery stores climbed 0.4 percent, reports JLL.
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Food-Delivery Startup Targeting Office Workers Raises $6M to Expand
Minneapolis/St. Paul Business Journal (03/10/17) Grayson, Kathaerine

Foodsby, a food-delivery start-up that targets office buildings, last week closed on a $5.9 million round of venture capital as it prepares to expand into additional cities. The Minneapolis-based firm plans to put the funding partly toward expanding its geographic footprint, states CEO Ben Cattoor. It now offers deliveries in a total of seven U.S. cities, including Atlanta, Dallas, and Denver. Foodsby distinguishes itself from other online food-delivery services by orchestrating deliveries to commercial buildings rather than residential properties. How it works is commercial landlords sign up for the service for free and then promote it to their buildings' tenants. People working in each building can place orders from Foosby's partner restaurants, which make regular deliveries to the various properties.

Users order online and pay a flat fee of $1.99. Foodsby generates revenue by taking a portion of the sales. Cattoor got the idea for his business after watching food-delivery patterns at the suburban Twin Cities office building where he worked. "I watched the same delivery driver show up five times in about 45 minutes and thought, this is such an inefficient process," he noted, adding that eateries like Foodsby's approach because it lets them deliver multiple orders at once. The approach benefits Foodsby in that it doesn't hire its own drivers, as the various restaurants are willing to take on that on themselves -- a model that helps Foodsby scale quickly in new markets. When Foodsby enters a new market, it starts targeting that city's outer-ring suburbs, where office workers often have fewer convenient food choices.
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RadioShack Closing 187 Stores in Latest Bankruptcy Filing
USA Today (03/09/17) Snider, Mike

RadioShack has filed for its second bankruptcy in two years and will permanently shutter 187 more stores by the end of this month. That's roughly 9 percent of its 1,943 total retail locations. The troubled electronics retailer previously filed for Chapter 11 in 2015, resulting in nearly 2,400 store closings. General Wireless, a joint venture of Sprint and hedge fund Standard General, subsequently acquired the Texas-based chain and has run 1,518 stores. Also closing is the RadioShack portion of the 360 stores that it shares with Sprint. Another 971 stores are under evaluation for closure. Sprint reportedly paid General Wireless a $12 million "wind down payment." In exchange, it was transferred the leases for 115 stores, as well as equipment and furniture in 245 more stores where Sprint is the main tenant.
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Can an Office Building Make You Healthier and More Productive?
Boston Globe (03/10/17) Johnston, Katie

So-called well buildings are growing in popularity, boasting such features as indirect circadian lighting systems (to mimic the path of the sun), glare reduction elements, natural building materials, and sit/stand desks. One example is engineering and consulting firm Arup's recent move into its new offices at 60 State Street in downtown Boston Arup is aiming to become the first space in the New England region to be officially certified as a healthy building, part of a growing movement that looks beyond facilities' energy efficiency to the well-being of the occupants inside. In addition to using materials with fewer chemicals, Arup installed motorized sit-to-stand desks, showers to accommodate people biking or jogging to work, quiet zones and collaboration areas to encourage movement and minimize distractions, and a filter to reduce the amount of chlorine in the drinking water. There are no vending machines either, and the regular Friday bagel offering now includes everything from quiche and smoked salmon to avocados and Greek yogurt. Each employee also receives a map of healthy lunch spots within a five-minute walk of the office. Most of the lighting is indirect, with fixtures pointed up at the ceiling instead of down to reduce glare.

A growing body of research shows that improving lighting, as well as ventilation and heat control, improves workers' performance and even helps them sleep better at night. Architects and developers are beginning to tout these benefits to potential tenants as a way to attract a higher caliber of employee and get the most productivity out of them. The certification Arup is seeking, from the International WELL Building Institute in the nation's capital, includes dozens of requirements to improve air, water, light, noise, temperature, and other factors. They include lighting that mimics the color and intensity of sunlight, nine-inch wide sinks with 10-inch-long columns of water to keep people from bumping the basin and coming in contact with germs, and vending machines stocked with trans-fat-free snacks with fewer than 30 grams of sugar. In total, WELL lays out 100 standards. Over 300 projects worldwide, including seven in Massachusetts, are seeking WELL certification.
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Luxury Amenities Boosting Occupancy Rates in Office Properties
REJournals.com (03/10/17) Rafter, Dan

Helenia Madrigal, director of interiors for Chicago-based general contractor Summit Design + Build, stresses the importance of amenities when marketing office space to both existing and potential tenants. She has worked on tenant improvements in office buildings throughout downtown Chicago. With such experience, she asserts that those office buildings that offer the best amenities tend to see their vacancy rates plunge. So, what are some of the amenities that are becoming more popular in office properties? "First," she replies, "there is the addition of significant conference areas, rooms that can fit a couple hundred people. In these conference rooms, they've gone from very basic phone plug-in environments to very high-tech AV systems. They are doing teleconferencing. They have TV monitors."

In addition, top-flight amenities can include fancy bar and lounge areas, full-service kitchen areas, rooftop decks, and on-site fitness facilities. In the buildings Madrigal and her staff have worked on, the ones with amenities such as the ones listed above had occupancy rates at around 70 percent previously. "By the time we were done with the amenity spaces and a year had gone by," she noted, "these buildings were usually at occupancy rates of upwards of 90 percent." Meanwhile, many suburban office buildings are offering larger meeting rooms. This way, tenants do not have to find an outside location for a meeting every time they want to convene with a group of more than 15 or so people. So, why is the office sector seeing a growth in these amenity types now? Madrigal stated, "Maybe building owners are now realizing that offices are not just a place for people to come in and work. . . . The more you can offer people, things that are important to them, the more attractive your building is."
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Criminal Trespassing Bill Aimed at Apartment Complexes
WMCTV.com (Memphis) (03/06/17) Douglas, Andrew

A bill intended to keep people from trespassing at apartment communities is making its way through the Tennessee House and Senate. Apartment dwellers overwhelmingly say their biggest complaint is people who do not live in their complex coming and causing problems. Under the new proposal, apartments would be considered private property and an individual could be charged with trespassing if he or she does not live there. Supporters have pointed to a letter from the Memphis Firefighters Association, expressing its ongoing concern about large crowds at apartments that can intimidate and threaten first responders. "Firefighters will have over 100 people around them -- trying to perform life saving skills -- at one time from time to time," said former Memphis City Councilman and current state Senator Lee Harris, who drafted the legislation. To date, the bill has passed one senate committee.
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Pacific Retail Capital Partners Test Launches New Digital Sensory Experience in Utah Prior to Roll Out at Shopping Centers Across the Nation
Benzinga (03/08/2017)

Pacific Retail Capital Partners (PRCP) this month completed the initial phase of its major renovation at The Shops at South Town in Utah, which includes testing a concept it plans to roll out nationwide. The installation of this massive digital and sensory experience is the first of its kind in the state, creating a distinctive experience aimed at driving traffic to its retail and restaurant tenants, while enabling the center to reimagine the shopping experience for tech-savvy Millennials, multi-generational households, and customers with limited mobility. Najla Kayyem, vice president of marketing for PRCP, comments, "As the first center in Utah to offer anything like this, we focused on creating entertainment, showcasing art, educational, and interactive content plus news offerings that are accessible to people of all abilities and ages to reconnect communities that may have once felt distinct."

Among the highlights of the new digital sensory experience at The Shops at South Town are a half-dozen digital directories featuring touch screen technology, real time deals from patrons' favorite stores, live streaming, selfie photo capabilities, and more. In addition, there is a new, 13-foot-by six-foot, ultra high-resolution interactive play wall for children, featuring unique gaming options such as a custom developed emoji game created by PRCP and Quince Imaging, Inc. Also new is a large, multimedia wall display featuring movies, sporting events, digital art, and other entertainment options. The enhancements have been welcomed by guests and retail tenants alike as they provide unique advertising and messaging opportunities, as well as provide a distinctive space for community learning via interactive digital displays.
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Owner Gets LEED Label for 3 Miami Office Buildings
The Real Deal (03/05/17)

MetLife Real Estate has secured the U.S. Green Building Council's Leadership in Energy and Environmental Design (LEED) certification for three of its office buildings in Miami's Waterford at Blue Lagoon office park. With help from Cushman & Wakefield, MetLife Real Estate obtained the designations after a $3.5 million investment in the properties. The upgrades ranged from energy-conserving roof replacements and new LED light fixtures to renovated restrooms and the laying of marble floors in the three lobbies. "A LEED designation is a tremendous differentiator for landlords looking to drive asset performance," remarks Tim Rivers, senior managing director of asset services for Cushman & Wakefield in Florida. "MetLife Real Estate's capital projects have helped the Atrium buildings further solidify their ability to compete with the newer Class A buildings" in the Waterford at Blue Lagoon office park. Tenants include Club Med, Discovery Channel Latin America, Johnson & Johnson, Oracle, and The Art of Shaving.
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Office Landlords Invest in Incubators for Tech and Bioscience Start-Ups
National Real Estate Investor (03/09/17) Kirk, Patricia

Lawrence Gellerstedt, Southeast leader in the tech practice group of Cushman Wakefield (C&W), observes that the boom in technology start-ups is shaping trends in office space. Owners of big traditional office buildings are looking to increase their appeal by taking small chunks of space and putting some tech start-ups there to give their buildings a hip, cool vibe in order to attract bigger, creditworthy tenants. According to Gellerstedt, the way they are attracting these tech start-ups is by either putting in co-working outfits like WeWork into their space or offering short-term leases and other flexible terms. In Indianapolis, for example, office landlords are reconfiguring multi-tenant buildings into 1,000- to 2,000-square-foot tech suites to accommodate start-ups and other new businesses.

At the same time, major companies with a vested interest in the economic growth of a community or industry sector are also getting involved in helping entrepreneurs grow their businesses by teaming up with start-up accelerators to create incubators in free or discounted spaces. For instance, Cox Communications has agreed to sponsor a start-up incubator in Atlanta created by its innovation arm StarTech. The facility is located in a former Sears department store, which has been repositioned as office space. Start-ups accepted into this incubator program receive free space for up to five months, along with access to educational programs and other resources to help them develop and market a product or service.
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Staples to Close 70 Stores as It Copes With Shrinking Sales
Chicago Tribune (03/09/17) Turner, Nick

After posting a 7 percent decrease in same-store sales for the fourth quarter, Staples late last week announced plans to close 70 retail locations throughout North America. The move follows the shuttering of 48 stores in 2016. Staples had 1,255 locations in the United States and 304 in Canada as of the end of its last fiscal year. Winnowing its store count is part of the retailer's master plan to shift away from traditional brick-and-mortar retail. Moving forward, Staples will looke to sell more business services and connect with customers online. To this end, Staples offloaded its retail business in the United Kingdom last quarter. It should be noted that this latest move comes nearly one year after Staples failed to acquire Office Depot when U.S. regulators blocked the merger on antitrust grounds.
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New Jersey Complex, Once Owned by a Drug Giant, Becomes a Home for Many
Wall Street Journal (03/04/17) Morris, Keiko

Just a few years ago, a 110-acre research-and-development facility in Bridgewater, N.J., was on the verge of permanently closing as companies were consolidating and moving to big cities. Today, a joint venture of investors is breathing new life into the complex. Advance Realty LLC partnered with CrossHarbor Capital Partners LLC to purchase the property in 2013 from Sanofi. Their bold plan has been to create a life-sciences campus for companies in the pharmaceutical, biotechnology, and medical-device sectors. The complex's village-like layout includes spaces for retail stores, eateries, and even apartments. The bet appears to be paying off, as the joint venture has leased over 80 percent of the site's 800,000 square feet of research space among eight buildings, drawing large tenants, mid-sized companies, and start-ups.

In recent years, more companies have indeed been moving from suburban office campuses to big cities as they seek out younger and more urban-minded workers. However, some suburban campuses have been "getting second acts" with bargain-hunting landlords purchasing the sites at low prices and then luring companies with amenities and pedestrian-friendly settings. At the Bridgewater complex, for example, Nestlé Health Science agreed to invest $70 million to build out an 180,000 square-foot technology center. Meanwhile, the township has rezoned a portion of the complex so the owners can replace nearly 400,000 square feet of obsolete office buildings with 400 rental apartments and approximately 275,000 square feet for shops, restaurants, and a wellness center. Construction is on pace to commence this fall.
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