Real Estate Management News

February 12, 2020

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IREM ® headlines

IREM Attends NAR Policy Forum

Last week, the National Association of REALTORS® (NAR), conducted a policy forum to address housing affordability, a serious issue that affects areas nationwide. IREM CEO and Executive Vice President Denise Froemming, and Ted Thurn, director of government affairs, attended the one-day forum, which brought together hundreds of industry stakeholders, policymakers and academic experts to discuss housing affordability concerns.

Speakers such as Muriel Bowser, mayor of the District of Columbia, and Pamela Hughes Patenaude, former deputy secretary of the Department of Housing and Urban Development, discussed issues surrounding housing affordability and factors associated to its shortage. Lack of housing supply, access to credit, and prohibitive federal and state regulatory barriers were all identified as contributors to the crisis.

Forum panels went beyond recognizing issues by also discussing solutions, which included:

  • Introducing legislation that would restrict localities from receiving Community Development Block Grants (CDBGs) if they adopt rent control programs.
  • Reforming land use and zoning regulations by allowing higher densities, including smaller lots for single-family homes, and more allowance for attached homes and multifamily development.
  • Improving the Low-Income Housing Tax Credit (LIHTC) by passing the Affordable Housing Credit Improvement Act (S. 1703/H.R. 3077), which would increase the amount of tax credits allocated to each state by 50% over current levels and incentivize the construction or preservation of more than 550,000 affordable homes over the next decade.

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Fast-Track Your Next-Gen Leaders to the CPM

When your employees succeed, everyone in your organization succeeds. For property managers, earning the IREM CPM (Certified Property Manager) designation is an important step forward. To help the young leaders in your firm achieve their career goals and add more value to your team, IREM is offering an opportunity for real estate management professionals to fast-track to the CPM at half the cost.

If you know any up-and-coming property managers with at least two years of real estate management experience and who are 40 years old or younger, consider nominating them for the Next-Gen CPM Leaders Program. Selected individuals will be able to earn the CPM designation at a huge discount and complete the program along with young managers from all over the country.

Why participate in the Next-Gen CPM Program?

  • Statistics show that employers who provide professional development opportunities increase employee retention by more than 35%.
  • Get a savings of over 50% on earning the CPM designation.
  • Your company will receive recognition and publicity through IREM promotions.
  • Your selected employees will add more value to your firm with the knowledge they gain to navigate the dynamic world of real estate management.

Nominations will be accepted through March 15, using our online form. Official confirmations will be made in April, with individuals chosen for the program notified of their successful nomination and the next steps they need to take toward a rewarding career.

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Employee Leadership & Development Drive Corporate Culture at The RMR Group

IREM has recognized The RMR Group’s commitment to employee success with a REME Award for Employee and Leadership Development. REME Award winners have established exceptional practices and initiatives that not only stand out in a field of their peers, but improve the quality of their work environment, client experiences and communities at large. Known as an alternative asset management company based in Newton, Mass., The RMR Group has developed and executed programs designed to attract, develop and retain the best talent in the commercial real estate industry.

Training and development are core aspects of the company’s corporate culture. To earn the REME Award, The RMR Group demonstrated initiatives that prepare talented employees to lead, innovate and collaborate for creative problem-solving. These efforts have paid off, with a 44% increase in employees who’ve noted in a recent employee satisfaction survey they plan to stay with the company for more than five years, and a 10% gain in the number of employees who would recommend the company as an employer.

Eileen Kiley, RMR Group SVP and CHRO, says, “By continuing investment in leadership and employee development programs, The RMR Group is building a team of committed, engaged and talented professionals who are key to RMR being a premier, world-class alternative asset manager.”

Learn more about their breakthrough approach to advancing talent.

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Industry headlines

Macy’s to Close 125 Department Stores, Exit Weakest Malls
Wall Street Journal (02/04/20) Kapner, Suzanne

Macy’s Inc. last week announced plans to permanently shutter 125 department stores over the next three years. The announcement serves as an admission that at least 20 percent of its remaining locations cannot thrive as shoppers purchase more online and make fewer trips to shopping malls. Additionally, Macy's is cutting nearly 2,000 corporate jobs, closing several offices, and abandoning a dual headquarters in Cincinnati. All of its HQ roles will now be in New York. Macy's has struggled even as it has left the weakest malls and hiked spending on e-commerce.

"Our goal is to reclaim and revitalize what a department store should be," comments Macy's CEO Jeff Gennette. "Department stores are still vital if they are done right. There is viability to having many categories and brands under one roof." To this end, the company is testing a new smaller store concept that it will open in strip shopping centers, where more people are shopping. It's also looking for profits from its commercial real estate, including an office tower it plans to build atop its Herald Square flagship store in Manhattan.

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5G Indoor Coverage Poses Problems for Office Buildings and Operators
TechTarget (02/01/20) Finneran, Michael

With 5G cellular coverage well on its way, enterprise and business managers should start considering how coverage will look inside office buildings. Though cellular operators have talked up 5G's coverage inside buildings, they are frequently referring to venues like stadiums and shopping malls, which tend to have plenty of wide-open space underneath a roof. But building owners and operators considering 5G coverage are concerned with reliability inside an office, which may not have an open layout. In fact, offices tend to have numerous walls and solid building cores that can disrupt coverage and leave radio dead spots. Meanwhile, innovations in energy efficiency, such as coating windows with materials to block heat loss, can also block coverage.

These factors mean that building managers may want to install a cellular signal source inside the building to boost coverage when 5G arrives. Traditional distributed antenna systems (DAS) that have been used to boost signal inside structures are incompatible with key features of 5G coverage. Consequently, property managers should be on the lookout for new innovations. One such innovation is a so-called small cell. A small cell would function similarly to a WiFi access point. They have already been installed at outdoor locations, and now some experts have proposed putting them inside offices to help users take advantage of 5G speeds.

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Bergen Town Tops List For Most Apartments With On-Site Gyms
Patch.com (02/07/20) Redmond, Kimberly

Apartment listing site RentCafe has found that Edgewater, N.J., has the highest percentage in the state of apartment properties with on-site gyms. That makes Edgewater the leading city in the Garden State for so-called "active renters," or people who like to work out where they live. A total of 83 percent of Edgewater apartment buildings have on-site fitness facilities, according to the RentCafe analysis. Meanwhile, Edgewater also boasts the lowest rent difference between buildings with and without on-site fitness facilities. The overall average rent in Edgewater is $3,190, while the average rent for an apartment building with a fitness center is $3,197.

Edgewater is not the only city in New Jersey that is friendly to active renters. New Brunswick, Hoboken, Jersey City, Bayonne, Marlton, Cherry Hill, Springfield, Somerset, and West New York also had plenty of apartment buildings with on-site fitness facilities. That trend mirrors a nationwide push for gyms. According to RentCafe, the percentage of apartments nationwide that had fitness centers in the 1970s stood at 29 percent. In 2018, that percentage had jumped to 89 percent. Even as gyms become increasingly common at apartment properties, statistics suggest that prospective renters do not view insufficient fitness amenities as a deal breaker. Some 70 percent of renters said they would still rent a unit in a building that did not have a gym.

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'Ghost Kitchens' Set Up Shop in Malls
Pymnts.com (02/02/20)

As demand grows for restaurant delivery, some retail property owners and operators are offering up vacant space in shopping malls to eateries in need of more kitchen space. Restaurants and malls have banded together to fight through the challenges posed by e-commerce. Eateries that are slammed with online delivery orders may struggle to quickly make meals for both in-person diners and people waiting at home. But new ghost kitchens help alleviate the stress put on restaurant staff by creating more space for people to work. That will help the restaurant industry navigate the next few years, as delivery orders are expected to continue outpacing dine-in and drive-through sales.

The arrangement is also beneficial for malls, who can fill in space that has been vacated by struggling retailers as e-commerce continues to grow. Delivery-only kitchens can currently be found in mall parking lots, storage areas, and unused retail space. Simon Property Group and the hotelier Accor have entered into a partnership with hospitality firm SBE Entertainment Group to expand ghost kitchens across the country. Altogether, the partners will create some 200 ghost kitchens at malls and hotels. SBE Chief Executive Sam Nazarian said the first of these ghost kitchens will be up and running in Chicago, Los Angeles, New York City, San Francisco, and Miami. Other ghost kitchens will be added to the King of Prussia Mall in Pennsylvania, Lenox Square in Atlanta, and the Sanderson London Hotel. By the end of 2020, the partners project they will have opened 85 ghost kitchens, with an additional 100 on pace to open in 2021.

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How Apartment Buildings Can Become Showcases for Artists in DC
Washington City Paper (02/06/20) Rudig, Stephanie

Apartment buildings in Washington, D.C., often try to connect to the city's history and culture through art in the lobby and other common spaces. In some cases, this means photos of city landmarks. But one apartment complex, Avec on H Street, is bucking the photo trend by featuring pieces created by local artists. The project has been led by Marta Staudinger, who works for Latela Curatorial, a company that curates and acquires art for residential and corporate clients. Staudinger said that featuring local artists at Avec on H Street could serve as a showcase for the city's artistic and aesthetic spirit that other buildings can adopt, too. "The more art consultants, the more artists, the more galleries, the better for this city," she said.

Staudinger received approval from developer WC Smith before reaching out to a number of local artists. Many artists contributed pieces for Avec on H Street, with each featuring a placard with the artist's name and the title of his/her work. Samantha Branchaud, vice president of property management for Avec on H Street, said she and her staff are considering holding artistic events in the building and promoting artists' works elsewhere. Avec on H Street's management said it felt compelled to use local artists to demonstrate its commitment to the community.

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Mall Property Values Plummet 15 Percent: Will Big Shopping Centers Be Takeover Targets?
San Jose Mercury News (02/06/20) Lansner, Jonathan

Shopping mall values plunged 15 percent during the year through January, according to a price index by Green Street Advisors. It's a stunning drop, especially for relatively good economic times. In fact, researchers note, malls are the only commercial real estate niche with falling prices among 11 groupings tracked by the California-based firm. Green Street's overall commercial real estate index rose 2 percent in the last 12 months. Even strip malls, those small neighborhood shopping centers that feature everything from nail salons to convenience stores, registered a 1 percent gain for the year. Mall devaluation is not a new phenomenon, of course. Green Street's year-end 2019 industry report showed values over the last three years were down anywhere from 29 percent for high-end malls to 41 percent for typical "A-minus" malls. The firm has soured so much on malls that back in October it advised its clientele to shy away from investing in them.

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CBRE Research Points to Steady Demand for Large Warehouses
Supply Chain Management Review (01/27/20) Berman, Jeff

According to newly released CBRE research, e-commerce and logistics companies represented 52 percent of the 100 largest warehouse leases by square footage in 2019. However, that is down from 61 percent the year before. The report's authors said despite that decline, e-commerce and logistics were still responsible for 54 leases and approximately 45 million square feet. CBRE Associate Director of Industrial and Logistics Research Matt Walaszek said of the data: "There still is a lot of activity in this category as large retailers and e-tailers cater to their customers with shorter delivery times. We expect this trend to continue in 2020, given that consumer sentiment in the U.S. is still quite strong."

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Janitors, Security Guards in Twin Cities Vote to Authorize Strike
postbulletin.com (02/08/20) Sepic, Matt

Members of the Service Employees International Union in Minnesota voted late last week to authorize a strike in the event the union cannot reach a deal with multiple employers in the Minneapolis-St. Paul area. Negotiations are ongoing and the strike will only occur if they break down. But if the strike does occur, it could mean thousands of janitors and security guards working in retail spaces and office buildings across the Twin cities would step away from their positions. Iris Altamirano, the president of the union's local chapter, said the issue at the heart of the dispute is about sick days. Under city ordinances in Minneapolis and St. Paul, workers should get six sick days a year. But according to Altamirano, some janitors and security guards get three total days of sick leave.

In addition to the sick leave dispute, Altamirano said the two sides are haggling over wages. The union wants security guards' wages to rise by $2 per hour annually over the next four years, but employers have proposed an 81 cent raise per hour over that entire period. John Nesse, an attorney representing the cleaning contractors, said he was disappointed with the union's authorization of a potential future strike. Nesse said the sides have continued to work toward a resolution and predicted there would be "significant progress in the near future."

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Amazon Pumped the Brakes on Office Leases Last Year
Washington Business Journal (02/05/20) Capriel, Jonathan

An analysis of Amazon's office footprint suggests the company may be pumping the brakes on office leases for 2020. In just the past three years, Amazon has more than doubled its office footprint, with approximately 40 million square feet of space leased across the globe. But the numbers suggest Amazon may be shifting toward owning its own buildings rather than leasing. While leases still dominate its portfolio, its rate of leasing slowed considerably in 2019. Amazon increased its leased office space by about four million square feet in both 2017 and 2018, but in 2019 increased the leased space by just 1.4 million square feet. Meanwhile, Amazon's owned office space increased by one million square feet in 2019, the largest single-year jump since 2016.

Amazon is set to boost its office footprint considerably with its headquarters in the Washington, D.C. area. For now, the online retail giant is leasing space in Crystal City, Va., but it will eventually move over to nearby Pentagon City where it will own its buildings. The project is expected to be finished in 2023. Amazon is also expanding its footprint in other ways. The company is expected to bring a physical grocery store to Washington, D.C., in the near future. It has also expanded its fulfillment and cloud computing data centers, which saw an increase of 34 million square feet in 2019.

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Sephora to Open 100 Stores in 2020, in Bid to Grow Outside of the Mall
CNBC News (02/04/20) Thomas, Lauren

At a time when many retailers are scaling back, Sephora this past week announced major expansion plans. Owned by Louis Vuitton parent company LVMH, the beauty retailer aims to open 100 stores in 2020 -- its biggest real estate expansion to date and more than twice its 2019 store growth. Sephora's focus in the new year will be expanding outside of shopping malls. "We love our stores in malls . . . but the focus on this next 100 is more off-mall locations," states Jeff Gaul, senior vice president of Real Estate and Store Development at Sephora Americas. "We are getting closer to where she lives and works, where she does most of her errands . . . where she can pull right up and grab something."

Geographically, Sephora will be looking to expand in such markets as Charlotte and Nashville as part of a so-called "hub and spoke strategy," with the so-called Sephora hubs having already been planted in major metros. Furthermore, Sephora's next set of stores will be smaller than its existing locations, spanning approximately 4,000 square feet, with more of a focus on fragrances and hair care.

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Houston’s Office Market Continues to See Tenant Demand for New Construction
Houston Business Journal (02/03/20) Bridges, Lisa; Virgilio, Blake

If you asked most commercial property analysts if Houston's stagnant office sector is due to supply or demand, most would answer "demand" because of five consecutive years of lower oil prices. Looking at the numbers, though, many would be surprised by what the data reveals. Houston office tenants are still occupying more space -- 2 percent -- than in 2015. However, when oil retreated in 2014's fourth quarter, new construction still continued. The effects of that additional space have been as much of a detractor to a healthy office sector as any demand issues. More than 14 million square feet of new inventory was delivered during the 2011-2014 peak of the office market. Since 2015, there's been an additional 23.1 million square feet added with another 3.6 million square feet in the works thanks to an ongoing "flight to quality" trend of new tenants' demanding Class A+ projects to attract and retain top talent.

Of the 1,672 existing office buildings chronicled in the latest Colliers International survey, a total of 73 buildings have 100,000 square feet or more contiguous space now available for lease or sublease. Of those, there are 21 with 200,000 square feet available for lease or sublease. The research further showed that Houston's office market registered positive net absorption of 1,656,883 square feet in the last three months of 2019, a sorely needed improvement from the negative net absorption recorded in the previous two quarters. Houston's average asking rental rate decreased to $29.82 per square foot from $29.89, mainly because of the average CBD Class B asking rate dipping to $30.64 per square foot. Finally, Colliers found that Houston's office leasing activity decreased from 3.3 million square feet to 2.7 million square feet in the fourth quarter.

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16K Apartments to Be Delivered in South Florida This Year: Report
The Real Deal (02/03/20) Kallergis, Katherine

According to Berkadia's annual report and 2020 forecast, nearly 16,000 apartments will be delivered in South Florida this year, almost double the 8,871 units completed last year, fueled partly by population growth. The largest in the region will be the 639-unit first phase of Property Markets Group's Society Las Olas in Fort Lauderdale. Other new deliveries will include the 447-unit Gio Midtown in Midtown Miami. Berkadia reports that rents climbed just 1.4% in South Florida last year to $1,642 per month, and occupancy rose 60 basis points to 96% on a year-over-year basis. In 2020, the report predicts that the region's monthly effective rent will jump 2.1% to $1,677. However, it has become more difficult for developers of high-rise apartment towers to obtain construction loans, as low interest rates have kept borrowing costs "very tight" and cap rates are very pressed, driving up property values, says Jaret Turkell, senior managing director at Berkadia. Meanwhile, Turkell predicts that investors from New York and California will continue to invest in South Florida's multifamily market, spurred by rent reform in their home states.

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