Real Estate Management News - 08/09/2017

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August 9, 2017
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IREM® HEADLINES
Conventional Apartments: What Type is Performing Best?
“Death By Meeting” – Try Not to Kill Time
Pack Your Bags for the Windy City – Register Now for the IREM Global Summit

INDUSTRY HEADLINES
Social Spaces That Work Throughout the Workday
Apartment Slowdown Has Yet to Arrive
Seeing a Bright Future for On-Site Energy Storage
Want to Go Clothes Shopping? Visit a Uniqlo Vending Machine
Houston Apartment Association: Apartment Pools Can Be Hazardous
Litt Willing to Let HBC Devise Own Plan for Real Estate
How Providing Online Services Can Benefit Your Portfolio
Dillard's Is the Focus of Investors Over Retailer's Real Estate
What Can Your Buildings Do For You?
How To Prepare Your Elevator For Harsh Summer Weather
Rite Aid Looks Ahead to Stronger Store Base
The Rise of the Prefabricated Building


 

IREM Headlines


Conventional Apartments: What Type is Performing Best?

The conventional apartment sector continues to outperform most other property types. But within that sector, one type of conventional apartment community outshines the others. If you guessed the property type with the lowest average vacancy – you would be wrong.

According to IREM’s 2017 Income/Expense Analysis Reports, high-rise elevator properties lead the way nationally, with an average Net Operating Income (NOI) of $12.97 per square foot (psf) – a 25.9% increase over last year’s average. That is almost $5 psf better than the next best apartment type, low-rise buildings of 25 or more units. The NOI psf for other conventional apartment properties were: $7.99 for low-rise properties over 25 units; $7.61 for garden-style properties; and $6.52 for low-rise building of 12-24 units.

High-rise buildings achieved higher NOI even though they had the highest average vacancy rate of any conventional apartment property type at 6.6% of gross potential income. Even though low-rise properties of 12-24 had the lowest average NOI, they also had the lowest vacancy at 4.3%. Garden-style properties averaged 5.9% vacancy while low-rise building of 25 or more units had an average vacancy of 6.2%. While it seems counterintuitive, the property types with the highest vacancy rates also had the highest NOI.

If you are interested in the conventional apartment sector, or other sectors, check out all of IREM’s 2017 Income/Expense Analysis Reports. If you don’t need information broken down by region or metro area, you can find the national trends for conventional apartments, federally assisted apartments, office buildings, shopping centers, and condominiums/coops/PUDs in IREM’s Real Estate Income/Expense Analysis National Summary.
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“Death By Meeting” – Try Not to Kill Time

While poorly run meetings might not actually kill you, they can kill a lot of otherwise productive time. In his highly entertaining and informative book Death by Meeting: A Leadership Fable (Wiley, 2004) author Patrick Lencioni identifies the problems poor meetings can cause, and suggests some ways to make them better.

Many feel frustrated by how little they seem to accomplish in meetings. The meetings often rehash the same topics without ever coming to any final conclusions, get bogged down in irrelevant details or extraneous issues, and always last longer than scheduled.

Research conducted by the Annenberg School of Communications at UCLA and the University of Minnesota’s Training & Development Research Center estimate that executives spend an average of 40-50% of their time in meetings. The research also suggests that as much as 50% of meeting time is unproductive and as much as 25% of meeting time is spent discussing irrelevant issues.

A Wall Street Journal article suggests that following a detailed agenda and starting on time reduces the amount of time managers spend in meetings by 80%. If preparing detailed agendas and starting on time actually reduces meeting time by 80%, for someone now spending 50% of his/her time in meetings has the potential to free up an extra 16 hours of time each week to devote to more productive endeavors.

To learn more about improving your time management, or other leadership competencies, check out IREM’s Leadership Handbook for Real Estate Professionals.
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Pack Your Bags for the Windy City – Register Now for the IREM Global Summit

IREM Global Summit: Professional Education
Chicago, IL
October 12-13

The IREM Global Summit takes over Chicago this October, bringing together industry professionals from all facets of the industry and from across the globe. Don’t be left on the sidelines, register by September 8 and save $50!

Professional Education Pass: Stay current with an evolving industry -- learn about new trends, best practices and tactics you can implement right away, all with the Professional Education Pass, just $349 for material that will elevate your career, if you register now. Curated for both commercial and multifamily property and asset managers, the Global Summit features sessions like:

Disrupted Technologies in Property Management: Think Big but Act Small: There are always tradeoffs between speed, durability, cost and operational maintenance. Machine learning and algorithms are the final component in the age of the platform… a powerful technology ecosystem that can help YOU leverage your business whether big or small. So what’s the next big thing? It’s called the Internet of Things (IoT) – and you should know about it.

So You Want to Be an Asset Manager? Recommendations for Property Managers Interested in Making the Move: Are you ready to make the move to Asset Management? What factors are likely to influence your success? Attend this session and learn to identify the skills and knowledge property managers need to move into an asset manager role, and determine whether an asset manager role is right for you.

Real Estate Fracking: Impact of the Sharing Economy on Commercial Real Estate: We’re all familiar with – or have used – popular sharing services like Uber, Airbnb and WeWork. Now this “sharing” model is coming to commercial real estate. Check out this session to learn about new technology applications and business models and find out how the sharing economy is poised to dramatically alter the real estate business.


Attend these sessions and more – including the much anticipated keynote sessions with John Foley and the Industry Leaders Lunch featuring volunteer leaders from BOMA, NAA, and CCIM on stage with the 2017 IREM President Mike Lanning, CPM.

Get in on the global IREM experience and register today.
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Industry Headlines


Social Spaces That Work Throughout the Workday
Buildings (08/01/17) Feit, Justin; Penny, Janelle

Far from distracting employees, breakout areas and spaces for socialization throughout an office or office complex can actually improve productivity. A casual chat over lunch can spark an idea. For years, business owners did not want to waste square footage on such things as plazas, multi-purpose rooms, break areas and other socializing spaces. They wanted to see how many bodies they could fit in a given work space. David Chason, a partner at AEI U.S. Studio, states, "It has come full circle in the last six to eight years. Designers have always put that into our designs, but clients and business owners are now listening to that and using square footage in a different way that affects retention of employees." For those lacking such space currently, thoughtful renovation can turn a humdrum break room into a space that achieves maximum use throughout each workday.

To this end, the article's author details three tips to draw people in. One, pay particularly close attention to cafe and breakroom design. "Food draws everyone together," states Amy Klinefelter, an interior designer for Gresham, Smith and Partners. "Providing large gathering spaces to collaborate and eat together is a great way to draw in younger employees and retain them longer." Two, instead of a break room, look at social spaces with multiple functions in mind. Chason describe such areas as the "town center" around which the workplace revolves. Finally, consider white noise or other acoustic solutions for open and common areas to keep socialization from distracting or bothering employees in nearby workspaces.
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Apartment Slowdown Has Yet to Arrive
Multifamily Executive (08/04/17)

The predicted apartment slowdown still has yet to impact the market, states Ten-X Commercial's latest US Multifamily Outlook. However, some aspects of the market are faltering. For one, apartment vacancies nationwide climbed 10 basis points during the first three months of this year to 4.3 percent, after remaining flat over the last year. Approximately 330,000 new rental units will be added to the inventory by the end of December, which will have a negative impact on vacancies as the absorption rate lags the influx of new supply. In the meantime, demographic trends continue to prop up the multifamily market, according to Ten-X data. Household formations stayed steady at around 1.6 million in 2016. Meanwhile, a solid employment market continues to fuel absorption, with debt-ridden Millennials increasingly delaying marriage and homeownership in favor of renting.

Ten-X researchers add that as employment and wages continue to increase among younger adults, the 31 percent of 18- to- 34-year-olds still living with their moms and dads should be drawn into the market. This, in turn, will give rise to a key demand source that has yet to be fully tapped. "The current state of the multifamily sector is a perfect example of the time-honored notion that 'demographics is destiny,'" remarks Peter Muoio, chief economist with Ten-X. "While softening fundamentals indicate that the sector is poised for a slowdown, that shift has yet to arrive in earnest." Even as many major metropolitan areas are increasingly exposed to both cyclical risk and massive oversupply, the overall market is being sustained by significant societal shifts that are driving solid, sustained demand. Muoio concludes, "As long as gainfully employed Millennials and other Americans continue to choose renting over homeownership, a majority of multifamily investors can be confident that rents will continue to rise."
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Seeing a Bright Future for On-Site Energy Storage
Urban Land (07/17) Brass, Kevin

Commercial property owners are rethinking their attitude toward energy storage systems as battery prices decline and third parties offer new financing models. "Everybody is recognizing that it is a necessary component of the overall [sustainability] picture," says Sara Neff at Kilroy Realty Corp. A tracking report from the Energy Storage Association found that the first three months of 2017 was "the biggest quarter in history for the U.S. energy storage market." Battery pack costs declined from about $1,000 per kilowatt-hour in 2010 to $230 per kilowatt-hour in 2016, according to a report released in June by McKinsey & Co. At the same time, states like California, New York, Massachusetts, and Hawaii are turning to incentives to help push companies to find ways to manage their consumption.

LBA Realty installed a Stem-operated 1.3-megawatt battery system last year that is believed to be the largest indoor energy storage system nationwide at a 2.1 million-square-foot mixed-use complex in Irvine, Calif. The system is expected to reduce the site's energy costs by more than $90,000 in the first year of operation. Meanwhile, Kilroy Realty is working with Advanced Microgrid Solutions to install Tesla-made batteries in five of its office buildings in Southern California.
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Want to Go Clothes Shopping? Visit a Uniqlo Vending Machine
TechDigg (08/06/17) McKalin, Vamien

While online shopping for apparel continues to gain in popularity, there are still many occasions where people just need or want to go out and buy something to wear that day. Uniqlo wants to tap into this market with vending machines, believed to be a first for clothes shopping. The Japanese company plans to have up to 10 of its vending machines in place and operation across the United States in the next two months. The idea is to have these devices situated at shopping malls in Houston, Oakland, and other cities and also in airports. Uniqlo is not new to the U.S. market. When a chain of stores failed to gain serious traction in this country, however, it came up with the plan to have vending machines placed in several areas nationwide.

The consumer market is changing rapidly, and Uniqlo is among the retailers trying new innovations to keep pace. Uniqlo will still operate its brick-and-mortar stores, but there are no plans to construct the 200 or so retail locations by the end of this decade as originally envisioned. "The brand penetration in big cities such as New York, San Francisco and Chicago -- where we will open a new store -- is good, but not in the suburbs," concedes Fast Retailing CEO Tadashi Yanai. Currently, 44 stores are enough. As for the type of apparel Uniqlo plans to sell via its vending machines, it will be mainly jackets initially.
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Houston Apartment Association: Apartment Pools Can Be Hazardous
Houston Chronicle (08/04/17)

Apartment owners and operators take great pride in their swimming pools. For residents, it's often the most visible amenity. And it's how management leases available units -- by offering prospective residents visuals of relaxing at the pool on a hot summer's day. Apartment pools, though, can also be a hazard especially for small children. The Houston Apartment Association details several residents must be urged to keep in mind when living at a multifamily housing property with a swimming pool. First and foremost, there are likely no lifeguards. An apartment property is not the YMCA. Ideally, small kids should be within an arm's reach of a grown-up when in the pool. Two, no diving signs are real warnings. Most apartment pools are not built for diving, and many insurance firms no longer sign off on diving boards.

Three, most states require apartment communities to provide certain safety equipment such as a shepherd's crook, a ring buoy with a throwing rope, and an emergency phone. If any of these things are missing, management should be contacted immediately. Four, gates and fences. The Houston Apartment Association notes that every apartment pool in Texas has to be surrounded by a fence with a self-closing, self-latching gate. Other states have likely followed suit. Finally, there is the matter of safety and sanitation. Pools are not for pets. Also, residents should be mandated not to bring glass containers, as they might break and cause injury.
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Litt Willing to Let HBC Devise Own Plan for Real Estate
Reuters (08/03/17) Tilak, John

Jonathan Litt, who is pressuring Hudson's Bay Co. (HBC) to put more effort into monetizing its commercial real estate, said late last week that he is willing to let the retailer develop its own plan for doing so. The investor -- whose Land and Buildings Investment Management LLC disclosed a 4.3 percent stake in Hudson's Bay back in June -- wants to know how the company will generate value from the properties, including a timeline for implementing the plan. Litt told Reuters last Wednesday, "We would like to have them articulate a detailed plan on how they're going to unlock the value inherent in the real estate in the portfolio."

Earlier, he threatened to launch a proxy contest to overhaul Hudson's Bay board of directors if it does not act to leverage the value of the property assets. Litt wants HBC to focus more on its real estate than its retail brands, including reinventing the iconic Saks Fifth Avenue flagship store in New York City and withdrawing completely from Europe. "Our view is the department store business is changing rapidly," Litt explained. "There is likely a higher and better use of many of the locations which they own."
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How Providing Online Services Can Benefit Your Portfolio
Multi-Housing News (07/26/17) Fuhr, Meeghan

For years, many apartment owners and operators with small portfolios have gotten by without providing online services for residents. However, as online portals have become increasingly common, they have also become less expensive and much easier to customize for any size portfolio. As a result, residents have come to expect this when searching for a rental unit. They now view the ability to complete tasks online as a given and not a bonus. The ability to pay rent online is key. Ray Szabo, a property manager with Santa Barbara Real Estate & Investment, says providing this service is beneficial to owners. "Having an online payment system eliminates the opportunity for a myriad of excuses that residents have for why they weren't able to pay their rent on time, such as issues with the mail, running out of checks, and so on," he explains. "It's much more convenient from a landlord's perspective to know that you will get paid on time." In turn, most residents have come to prefer making their payments online, as well. Doing so is a lot safer and more convenient.

According to the article's author, there are many different online payment services that can provide extra convenience, such as recurring payments, automatic reminders, and e-mailed receipts. Aside from monthly rent payments, other services can be streamlined online, too, including: resident applications, approvals and denials, maintenance request submissions, and copies of leases. Residents want to have as much knowledge at their fingertips as possible. So the more an owner/operator can provide them, the more value they typically see. Of course, there can be some downsides to removing the interaction between residents and management. One issue that frequently comes up among apartment residents is that they feel their maintenance requests aren't being handled as quickly when submitted online. With regards to technology, it's best to start small and take it from there.
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Dillard's Is the Focus of Investors Over Retailer's Real Estate
CNBC (07/31/17) Thomas, Lauren; Picker, Leslie

Snow Park Capital Partners is calling out Dillard's for the untapped value of its commercial real estate. Jeff Pierce, managing director of the New York-based investor, which owns a 2 percent stake in the department store chain, said, "Dillard's is essentially an unleveraged real estate company that is masquerading as a low productivity retailer." Dillard's owns approximately 48 million square feet of real estate, with about 25 percent in Class A shopping malls that can command more than $650 per square foot in sales. However, Dillard's is only averaging about $125 in average sales per square foot.

The investor said the department store operator's properties alone should be valued at upwards of $200 per share. "It's fair to say that Dillard's may not be getting the highest and best use for some or all of their owned space," noted Pierce. "In fact, our estimated rental value to more productive retail tenants exceeds the company's entire current income as a retailer." This is not the first time an investor has pressured Dillard's. In 2014, Marcato Capital Management built up an ownership stake in the retailer in an effort to get the company to spin off its property into a REIT.
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What Can Your Buildings Do For You?
Huffington Post (08/03/17) Mandyck, John

New scientific research suggests that green office environments can boost employees' work performance and even their health. The Harvard T.H. Chan School of Public Health launched new research in this field a few years back -- research that was made possible with support from United Technologies. The study's results show that optimized indoor environments and office spaces in certified green buildings improve both health and productivity. Research on call centers, for example, document improved performance when desks were reoriented to window views. The findings have the potential to accelerate green building adoption because it demonstrates that green buildings are not only good for the environment, but they are good for human beings also. This is important due to the fact that 40 percent of global energy is consumed in buildings.
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How To Prepare Your Elevator For Harsh Summer Weather
Facility Executive (08/02/17)

Schindler Elevator Corp. offers several tips for building managers and facility operators on how to protect their elevator equipment and occupants before, during, and after a storm. During the summer months when weather can be potentially hazardous, it is particularly important that property management takes proper precautions to help prevent elevator damage and safeguard occupants. For one, a diagram showing the location of your elevators, car numbers, and the elevator car phone number should be in your designated security area. Additionally, management should have the elevator company's emergency phone number available along with any required numerical designations. Prior to any inclement weather happens, building and facility managers should inspect the elevator machine room's ventilation openings, doors, and windows for possible rain leakage. If water leakage is found during the inspection, prevent water from reaching electrical panels by installing metal splash guards around ventilation openings and weather stripping around any machine room doors that open to the building's exterior.

If a storm is close, there are several steps that should be taken to prevent damage to elevator equipment. The first is to close all vents and openings at the top of the hoistway. This will prevent water from entering the elevator shaft. Second, barricade the machine room. In addition, make sure that no occupants are left in buildings that are reliant on elevators for egress. "If buildings have elevators that are enclosed, managers should run each car to the center of the building, or to the top floor for two-story buildings," urges Bryan Budnik, Director of Customer Excellence & Repair at Schindler. "Elevators exposed to the outdoors should always be run to the floor below the top." In case there is a need to exit passengers quickly, building managers and their staff should also familiarize themselves with their equipment's emergency systems. Finally, during the storm, refrain from using an elevator at all due to the water or wind-driven water that can disable elevators and result in dangerous passenger entrapments.
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Rite Aid Looks Ahead to Stronger Store Base
Chain Drug Review (08/01/17) Redman, Russell

Rite Aid believes its new deal to sell nearly half of its stores to Walgreens Boots Alliance (WBA) will leave it with a better performing store base. Rite Aid said it would have 2,336 stores following the sale to WBA, compared with 4,522 currently, according to a filing with the SEC. Of the post-sale stores, 1,337 have Rite Aid's Wellness Store format, which company executives say typically show about a 1 percent higher prescription count than other Rite Aid locations and more than 3 percent higher front-end sales on a comparable-store basis.

Rite Aid's store portfolio following the sale to WBA will be higher-performing in both the front end and the pharmacy, it said in the filing. Average sales per store for Rite Aid after the transaction are projected to be $6.106 million versus the current $5.737 million. "Our remaining store base . . . is a financially stronger group of stores on a per-store basis than the store base today. We will have a higher average front-end sales, script count, and EBITDA per store," Chairman and CEO John Standley remarks. Rite Aid and WBA expect to close the deal within six months, pending Federal Trade Commission clearance and other closing conditions.
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The Rise of the Prefabricated Building
Bisnow (08/01/17) Bunch, Julia

Modular construction continues to grow in popularity as more companies realize the benefits. The growing interest is also likely due to lingering effects of the Great Recession and a lack of skilled laborers that never returned to the construction industry. The construction technique is best used commercial retail, institutional buildings, data centers and hotels. While modular construction can result in quicker building times, the downside is that flexibility to change building design plans is lost when using prefabricated building pieces.
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