Real Estate Management News - 09/04/2013

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September 4, 2013
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APM Industry

Message from the IREM President

New Income and Expense Data on Office Building Performance Captured in Just-Released IREM Benchmarking Study
Mistakes in Decision Making – Poor Critical Thinking
IREM Executive Edge: A New Learning Experience

Creative Office Emphasizes Cross-Pollination
Commercial Management Drawing More Players to the Table
Plots & Ploys: Marketing Gotham
Is Your Apartment Complex Safe During an Earthquake? Jim Clarke Explains
What Shrinking Offices Mean For Your Business Center
Washington Most Expensive City for Rental Income
New Apartment Buildings Will Require Sprinklers for Fire Suppression
Landscaping Key to Luring Top-Flight Office Tenants
Green Buildings Could Be Half U.S. Construction and Worth $248 Billion by 2016
Renter Demand Holding Fast So Far As Apartment Supply Wave Begins to Break
REITs Take a Back Seat in Real Estate Market
Silicon Valley Commercial Real Estate Boom: Expansions or Relocations?
Waterfront Upgrades Boost Already Booming Seattle
Energy Department Invests to Save on Heating, Cooling and Lighting

Leadership Spotlight

Message from the IREM President


For 80 years, IREM has believed in the power of knowledge and the importance of sharing it. We are committed to advancing the profession of real estate management while helping managers prosper and add value to their companies and the properties they manage.

Inspired by those core beliefs, I’m delighted to welcome you to the premiere issue of Real Estate Management News, IREM’s new weekly newsletter. The publication will contain the news, trends and information that real estate professionals like you need, carefully curated from thousands of trade, industry and business publications. We go through all the news that’s out there and give you the best, most vital and most relevant items.

Our industry is entering an exciting, important and transformative era, and we consider it our duty to provide real estate professionals with the knowledge, tools and best practices they need to excel at their jobs and lead the industry forward.

Creating Real Estate Management News and making it readily available as an industry-wide resource reflects and honors the fundamental values and commitments by which IREM is guided.

Happy reading! Please take a moment and let me know what you think of our first issue.

Elizabeth (Beth) Machen, CPM
IREM 2013 President
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IREM Headlines

New Income and Expense Data on Office Building Performance Captured in Just-Released IREM Benchmarking Study

In 2012, total collections for suburban office complexes nationwide increased 2.2 percent from 2011 levels to $18.62 per square foot of net rentable area. Similarly, downtown properties experienced a 1.9 percent year-to-year collections increase to $20.68 per square foot. Total actual collections for downtown properties were 11.1 percent greater last year than their suburban counterparts, versus 11.4 percent higher the prior year.

Total operating costs for suburban buildings in 2012 increased a mere 0.2 percent from the prior year to $8.34 per square foot of rentable area, while those for downtown properties rose 1.4 percent to $10.09 per square foot. Nationally, net operating costs for suburban buildings in 2012 dipped 1.0 percent to $5.97 per square foot of rentable area, whereas those for downtown properties increased a mere 0.7 percent to $7.17 per square foot.

In the aggregate, suburban properties proved 17.3 percent less costly to operate in 2012 than their downtown counterparts, with all expense categories less than those experienced by downtown buildings. The national vacancy rate for suburban properties in operation for 12 months was 10 percent in 2012, down 1.0 percent from the prior year. Downtown properties experienced an 8 percent vacancy rate, down from 9 percent in 2011.

For more information on any of the Income/Expense Analysis: Office Buildings products, check out the I/E Report products page or contact the IREM Customer Service Department at 430 N. Michigan Ave., Chicago, IL 60611-4090 or call toll-free to (800) 837-0706, ext. 4650.
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Mistakes in Decision Making – Poor Critical Thinking

IREM’s Job Analysis lists “Critical Thinking” as one of the top five competencies required for success. Real estate managers are constantly making decisions and solving problems. The profitability of a real estate management company, and the properties it manages, depends on skillful analysis and action.

The end product of critical thinking should be a well reasoned, well informed decision. Even when we have all the information we need, and have accurately analyzed and evaluated it, we still might come to wrong conclusions.

Some of the decision making mistakes made as a result of poor critical thinking include:
  • Taking the “First Right Answer” – Often there are better options out there. If time allows, don’t make a decision too quickly without considering other options.
  • “Jumping on the Bandwagon” – Companies tend to copy what they see others doing. The best companies seem to create their own path, challenging “conventional wisdom.”
  • Trying to Please Others – Making a decision simply to please the boss or client doesn’t always provide the best solution. It is often good to challenge authority.
  • Trying to Please Themselves – Decisions can be influenced by how you want to appear to yourself or others. People forget that making the best decision possible is also the best way to improve one’s image.
  • Applying Incorrect Logic – What sometimes sounds logical isn’t always so. The term “common sense” is often used to describe logical thinking – unfortunately, “common sense” often only becomes “common” in hindsight. The phrase “absence makes the heart grow fonder” sounds like common sense, until you consider another common sense phrase “out of sight, out of mind.”
For more on leadership competency, read IREM’s White Paper on Leadership Development: Critical Thinking.
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IREM Executive Edge: A New Learning Experience

The Executive Edge is a three-day education and networking event for real estate management professionals. There’s no better opportunity this year to learn marketable new skills, make new contacts, gain new business opportunities, and make yourself irreplaceable to owners and employers.

Laser-focused education sessions will help you learn to do your job better. Right away. IREM leads the way in the real estate management industry, and there's no one better qualified to guide you. Among the plethora of incredible learning opportunities:
  • Real Cutting-Edge Marketing Strategies That Allow YOU to Stand Out From the Crowd! Debbie Allen of Allen & Associates Consulting shows you how to refocus your brand and marketing plan to increase your income. Get a sample of what Debbie has in store by reading her articles.
  • Creating Sustainable Organizations: Mark Stapp of Arizona State University trains you to be both evolutionary and revolutionary. Discover problem solving models for innovation success and learn how to operate in a transformative global economy.
  • Keynote speakers Anant Yardi and Steve Rizzo will leave you breathless with their dynamic presentations.

IREM Executive Edge
October 17-19, 2013
Scottsdale, AZ.

Come for three days. Learn for a lifetime. Register today!
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Industry Headlines

Creative Office Emphasizes Cross-Pollination (08/26/13) Rossenfeld, Carrie

Panelists at the recent RealShare Orange County in California discussed the value of creative-office space in terms of sharing ideas and developing better, stronger, and more nimble companies. H. Hendy Associates founding principal Heidi Hendy detailed the office design her firm created for Goodman Birtcher, a global property group that owns and operates industrial and commercial space. The space features more collaborative spaces and no assigned seats for employees from the top down. Hendy stated, "There's no hierarchy. Everybody has an open environment, and it's working well. There's cross-pollination in this type of space.”

The state-of-the-art creative office also features a virtual receptionist and promotes interaction between new sets of employees every day. This ideally allows for more ideas to be shared and for everyone to be in the loop. The Irvine Co. is another firm that is incorporating a lot of collaborative space in its newly built offices. Quest Software has also jumped on the bandwagon. John Trulio, vice president of facilities management for the firm, said, "We're bringing panels down in our offices, and the new trend is going wireless. The staff works from their laptops; you pretty much work wherever you have an Internet connection." Trulio adds that his company is down to 150 square feet per worker. Some offices in Asia are down to 80 square feet per worker.
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Commercial Management Drawing More Players to the Table
Real Estate Weekly (08/07/13) O'Flanagan, Linda Barr

The Institute of Real Estate Management (IREM) expects to see more property managers make the leap to the C-Suite in the coming years. Joe Greenblatt, president-elect of IREM, remarks, "We are seeing a shift in real estate management as a career of coincidence, as it was for many senior practitioners, to a career of choice. We are now recruiting people who are very well educated, have earned a [Certified Property Manager designation], and are 25 years old." A 2012 survey on employee happiness by CareerBliss ranked accredited commercial managers second -- tied with executive chefs -- and surpassed only by software quality assurance workers. "As a group, managers are generally happy because they find their work gratifying," added Greenblatt. "They can see the tangible results of their work when so many of us can't."

Among IREM's main tasks has been to help these professionals make the leap to the boardroom via a platform of education and outreach. The organization has funneled its resources into everything from website upgrades and social media to education and leadership programs. Instead of targeting only members, it has embraced the management industry as a whole in an effort to raise standards across the board. Current IREM President Beth Machen states, "Our membership represents the upper end – the best educated real estate management professionals in the business, yet there are thousands of other real estate managers functioning in the same environment of increasing demands. We want to serve these people, as well."

To this end, the Institute has signed educational Memorandums of Understanding with such firms as NAI Global and Coldwell Banker Commercial and has partnered with universities ranging from Cornell to Georgetown to integrate management skills to real estate curriculum. The result has been a 3 percent increase in membership over the last three years to 18,000 individual members managing approximately $2 trillion in real estate assets.

Plots & Ploys: Marketing Gotham
Wall Street Journal (08/28/13) Li, Roland

Monday Properties took marketing to a new level with its recent campaign to reposition 230 Park Ave., a trophy tower in New York City. Along with the usual broker parties and marketing center, the office-building landlord invested in a series of stylized videos about the structure. One of them flashes the building's logo like the bat symbol over the Gotham skyline. A second video creates an elaborate trip through time down Park Avenue. The effort appears to be paying off, as Monday Properties has leased over 225,000 square feet of deals at 230 Park since the end of the first quarter. This activity has brought the building to 92 percent occupancy. Aaron Twersky, the company's marketing director, says Monday management decided to produce the videos because of the building's rich architecture and history. He adds that 230 Park Ave. "screams New York."
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Is Your Apartment Complex Safe During an Earthquake? Jim Clarke Explains
KTLA-TV (Los Angeles) (08/26/13)

Jim Clarke, executive director of the Apartment Association of Greater Los Angeles (AAGLA), sees a need to retrofit a large number of apartment communities in the L.A. metro area to make them safer in the event of an earthquake. He just doesn't know how such pricey upgrades can be paid for. So-called "soft story" structures -- those with ground-floor parking with the apartments just above, usually with thin supporting columns and erected before 1978 -- are particularly vulnerable as proven in the deadly Northridge quake of 1994.

L.A. Councilman Tom LaBonge is asking the Department of Building and Safety to identify wood-frame, soft-story buildings for retrofit. However, if building owners are forced to retrofit, the cost will almost certainly be passed on to the residents in the form of higher rent. State and federal funding may be an answer, LaBonge states. "We have all the money in America," he cracked. "It's just in how you cut the pie." Clarke notes that those apartment communities built before 1978 are subject to rent control and, by law, cannot pass the retrofit costs on to residents. Those built after that year would likely hike rents to pay for the upgrades. He suggest FEMA get involved in the discussion and be proactive instead of reactive as was the case in '94.

What Shrinking Offices Mean For Your Business Center
Officing Today (08/26/13) LeClaire, Jennifer

Office space has definitely been shrinking in recent years, declining from 225 square feet in 2010 to 150 square feet this year, according to a new CoreNet Global study. The survey underscores how alternative workspaces are helping shrink the modern office. Richard Kadzis, vice president of Strategic Communications for CoreNet Global, warns, "Some employees may start to feel that the open-space pendulum has swung too far, at the expense of a worker’s ability to concentrate without interruption or distraction." Indeed, 43 percent of respondents say that they now have more collaborative space than private space where staffers can focus. Furthermore, roughly 50 percent of respondents either agreed or said they were unsure if employers in general are over-building collaborative space at the expense of focused work and privacy. Business centers, meanwhile, are positioning themselves to offer the best of all worlds. By offering big offices, small offices, virtual offices, hotdesks, and coworking space, business centers can truly fill the one-space-fills-all bill.

Washington Most Expensive City for Rental Income (08/27/13) Morphy, Erika

According to the Building Owners and Managers Association (BOMA) International's 2013 Experience Exchange Report, Washington, D.C. ranks as the most expensive city in terms of total rental income. The nation's capital clocks in at $44.30 per square foot. On the opposite end of the spectrum is Macon, Ga., which had total rental income of $8.16 per square foot followed by Shreveport, La. ($11.18); Columbus, Ohio ($12.09); and Huntsville, Ala. ($12.81) Total rental income includes rental income from office, retail, and other commercial spaces. BOMA researchers further note that average rental income has decreased slightly on a year-over-year basis nationwide, dipping 2.9 percent from 2011 to 2012. Commercial landlords are compensating for these income losses with greater reductions in expenses. BOMA further compiled a list of the five most expensive and least expensive cities in terms of total operating expenses. Stamford, Conn., ($16.11 per square foot) was tops, while Stockton, Calif., ($3.57 per square foot) was at the other end of the scale.
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New Apartment Buildings Will Require Sprinklers for Fire Suppression
Argus Leader (South Dakota) (08/21/13) Atyeo, Janelle

New apartment communities in Sioux Falls, S.D., with six or more units will now be required to have automatic sprinkler systems. The Sioux Falls City Council recently passed an ordinance that brings the city's code in line with a state law enacted two years ago. The new city code does not apply to existing apartment communities or those that have been renovated. Mike Top, the city's assistant fire chief, said national statistics show that people are 86 percent more likely to survive a fire in a building equipped with sprinklers.

Landscaping Key to Luring Top-Flight Office Tenants
Danbury News Times (CT) (08/21/13)

An impressive landscaping scheme at an office park can pay dividends for building owners and managers looking to lure top-flight tenants. In competitive commercial real estate markets like the one in Fairfield County, Conn., attractive landscaping can go a long way towards making a good first impression with prospective tenants. Jon Angel, president of Angel Commercial in Fairfield, remarks, "It's like dating. You only have one opportunity to make a first impression. Otherwise, you might not have a second date." The grounds surrounding a commercial building give potential buyers or tenants an indication of what they can expect when they step inside.

Eastern Land Management, a Stamford-based landscaping firm that focuses on mostly Class A properties, is one such firm that has seen an uptick in its client list since the recession in 2008. The firm has 150 corporate clients and some have more than one property, keeping its crews busy moving from site to site. Kathleen Wolf, a researcher who created the University of Washington's Urban Forestry/Urban Greening Research website, calculates that commercial offices with high-quality landscapes have 7 percent higher rental rates. Still, some commercial property owners need convincing. Tom Greene, vice president of the Ryer Associates commercial property brokerage firm, says he is always advising his clients to regularly maintain their grounds. Greene remarks, "If they want to sell or lease, they listen. The issue is how motivated is the owner, and financially is he able to do it." The cost varies wildly based on the type of vegetation and, of course, the size and condition of the parcel. Of course, Angel concedes that if a company is driven solely by leasing inexpensive space, the appearance of the grounds carries very little weight.

Green Buildings Could Be Half U.S. Construction and Worth $248 Billion by 2016
CleanTechnica (08/19/13) Marcacci, Silvio

A report by the U.S. Green Building Council (USGBC) says green buildings may represent over half of all commercial and institutional construction by 2016. The report by the USGBC is the first in a series of summaries concerning sustainability. The "People and Progress" says 4.3 millions of Americans are living or working in LEED-certified buildings. In addition, 6.2 million Americans experience a LEED project every day during daily routines. USGBC says green building construction could total $140 billion in 2013, 35 percent of U.S. construction is currently green related, and industry revenue could top $248 billion by 2016. In terms of the types of green buildings being built commercial buildings remain popular, but residential projects are gaining popularity. The continued exposure and increased popularity of green buildings and sustainable design is evolving from a novelty feature to something that is absolutely necessary.

Renter Demand Holding Fast So Far As Apartment Supply Wave Begins to Break
CoStar Group (08/21/13) Drummer, Randyl

CoStar Group's Midyear 2013 Multifamily Review and Outlook forecasts that tightening competition among apartment investors will yield both winners and losers during this next supply-driven phase in the multifamily housing market. Researchers expect the winning developers will be those that offer products that are new and different, capturing residents who have an expanding menu of housing options and amenities. That said, it is critical that developers position their communities as new, different, and better from an operational, technological and/or locational perspective -- especially in higher-end markets like Silicon Valley and Boston. The total number of units delivered is now outpacing net absorption by residents.

Property & Portfolio Research Inc. (PPR), CoStar's analytics and economic forecasting company, expects about 170,000 apartments to be delivered this year in the top 54 markets that PPR analyzes -- on pace to more than double the amount delivered last year. With over 65 million Echo Boomers ages 20-34 now entering their prime renting years -- more than at any time since the 1970s -- savvy apartment investors will continue to find opportunities in spite of new supply pressures. Last year, the U.S. apartment sector absorbed a net 130,000 units. PPR is forecasting another 150,000 net units to be rented this year, rivaling the peak of the previous up cycle.

REITs Take a Back Seat in Real Estate Market
Toronto Globe & Mail (Canada) (08/18/13) Perkins, Tara

In Canada, the hammering that REITs are now taking in the market is weighing on their appetite to purchase such property assets as office buildings, shopping centers, and factories. CBRE Ltd. researchers note that REITs accounted for only 29.3 percent of the C$14.7 billion that was invested in Canadian commercial property acquisitions during the first six months of 2013 versus 48.2 percent of the C$14.8 billion spent in the first and second quarters of last year when they were the largest player in the game. However, CBRE is actually boosting its forecast for the total amount of commercial real estate that will change hands in 2013 to between C$26 billion and C$27 billion. Private equity firms and pension plans are stepping into the gap. The former accounted for 13.6 percent of investment volume during the first six months of this year -- an increase from 2.4 percent a year ago. The latter accounted for 13.2 percent compared to 9.8 percent year over year. CBRE Chairman John O'Bryan states, "This period of opportunity is not being overlooked by those who struggled to compete with the REITs last year."

Silicon Valley Commercial Real Estate Boom: Expansions or Relocations?
San Jose Mercury News (08/18/13) Avalos, George

A growing number of property professionals are concerned that the ambitious building projects underway by such companies as Apple, Facebook, and Google could cause them to vacate hundreds of thousands of square feet of their current offices and turn Silicon Valley's commercial real estate boom into a bust. So far, these companies have been fairly tight-lipped about their moves. At the same time, some realty experts have expressed hope that most of these new projects represent expansions instead of relocations. Apple is proceeding with plans for a "spaceship" headquarters in Cupertino, Calif. This raises questions about the permanence of recent leases in Santa Clara and Sunnyvale. Analysts say most of the leases appear to be long-term. However, Apple does have escape clauses in at least some of the rental agreements.

Facebook, meanwhile, is renovating and moving by stages into a 1 million-square-foot Menlo Park corporate campus previously occupied by Sun Microsystems. The social networking giant is vacating 400,000 square feet of offices in Palo Alto. Still, owner Stanford University is demolishing one of the two buildings and replacing it with student residences. The second structure is expected to be leased soon. So, the net result is a Facebook expansion of approximately 1.4 million square feet. Finally, Google has been leasing buildings in Sunnyvale, working with NASA on a huge Mountain View campus, and is renting large buildings in Palo Alto and Mountain View. Brad Lyman, a Cornish & Carey senior vice president, marvels, "They are always expanding, always gobbling up more space."

Waterfront Upgrades Boost Already Booming Seattle
Yakima Herald-Republic (WA) (08/16/13) Yu, Hui-Yong

Seattle's commercial real estate sector, one of the country's hottest, is getting a boost from a 7,000-ton tunnel-boring machine nicknamed Bertha. In July, the world's biggest tunnel driller started work on a 1.7-mile underground freeway along the city's downtown waterfront. This freeway is the centerpiece of a $3 billion redevelopment effort that will bring new parks and public areas, along with commercial and residential developments. Kevin Shannon, head of western U.S. office sales for CBRE Group Inc., raves, "It'll improve transportation, amenities, and quality of life. Those things all help Seattle improve its credibility as a key gateway coastal market." A modernized transportation network is poised to attract greater investment to a city that has already witnessed a surge in demand for commercial space, adds Dan Fasulo, managing director of Real Capital Analytics. Indeed, Seattle has surpassed such bigger markets as Washington, D.C., and Chicago for office-building sales since the start of 2012 thanks to its growing population and increased hiring at, Boeing, and other firms.

Energy Department Invests to Save on Heating, Cooling and Lighting (08/14/2013)

The U.S. Department of Energy recently announced a dozen projects to develop innovative heating, cooling, and insulation technologies along with open source energy efficiency software to help commercial buildings and homes save energy and money. These projects will receive roughly $11 million in Energy Department funding, matched by about $1 million in private sector investment. About $5 million will be invested in three projects -- led by the University of California, Virginia Tech and Carnegie Mellon University -- to develop open source software that helps building owners and operators measure, monitor, and adjust lighting, HVAC and water heating energy use to save energy without compromising performance. Around $6 million will go toward nine projects that will develop new energy efficient building technologies, including heating, ventilation and air conditioning (HVAC) systems and building insulation. The initiatives will also help curb emissions of hydrofluorocarbons (HFCs) -- potent greenhouse gases primarily used in refrigeration and air conditioning.

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