Real Estate Management News - 03/07/2018

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March 7, 2018
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IREM® HEADLINES
Make an Impact With IREM In-District Meetings
Spotlight on the Industry’s Best and Brightest
Rebranding Must Serve a Larger Mission

INDUSTRY HEADLINES
'Fintech' Firms Take Bigger Bite of Manhattan's Office Market
Spec Suites Are All the Rage in Center City Office Buildings
Starbucks Says Empty Storefronts Are Leading to Lower Rents
Commercial Real Estate Contributes $935.1 Billion to U.S. Economy
Net Lease Research 2018, Part 1: Investors Continue to Expect Stability
One of Indiana's Oldest Enclosed Shopping Malls to Close
Retailers Post Strong Numbers — and Mall Shares Keep Falling
One of Charlotte's Biggest Malls Rethinks $50 Million Project Amid Retail Woes
Best Buy Closing 250 Small-Format Mobile Phone Stores
Healthy Building Gets a Boost in Multifamily
Has the Shine Come Off Real Estate?
Hudson Pacific Inks 102 KSF Hollywood Lease Renewal


 

IREM Headlines


Make an Impact With IREM In-District Meetings

Did you know that conducting a face-to-face meeting is one of the most effective ways to build a relationship with your legislator and their staff? As their constituent, you more than anyone else, have a claim to your representatives' attention.

“With a bit of time and effort, and barely any cost, if any at all, we can shape the policies that directly affect our businesses,” said Mindy Gronbeck, CPM, Chair of the IREM Legislative and Public Policy Committee.

Face-to-face meetings with legislators are a great way to advocate for your business and shape the policies that impact your bottom line. One of the issues we are asking members to support is the ADA Education and Reform Act, which in 2016 saw a 37 percent increase of ADA “drive-by” lawsuits. These lawsuits often result in property owners paying on average $3,000 - $5,000 in lawyers’ settlement fees, without any money left over to repair the ADA violations. Passing this important legislation will save you money and put the focus on making required changes—rather than lining lawyer’s pockets.

To learn more about the ADA Education and Reform Act, please review IREM's and NAR's video on this important issue.

You can schedule a meeting with your legislator at any time; however, each year, Congress takes several breaks, in which they work out of their local offices rather than on Capitol Hill in Washington, D.C. The purpose of these breaks is to meet with their constituents, hold town meetings and to keep an ear to the ground. Congress will be on one of their breaks from March 26 – April 6 and this is when we are targeting to conduct our In-District meetings. As you know, you can meet with three federal legislators – your two Senators and your Congressperson. Learn more about how to conduct and schedule a meeting with your legislator by going to our In-District webpage.

Remember, legislators are more likely to support positions their constituents feel strongly about, and there is no better way to communicate your issue than by having a face-to-face meeting.
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Spotlight on the Industry’s Best and Brightest

2018 REME Award Submissions Now Open

The REME Awards highlight the people and companies who are managing to make a difference in the real estate management industry.

Emphasizing innovative business practices, the REME Awards share successful initiatives to foster further advancement in the industry—locally, nationally and globally. Get the recognition you and your team deserve.

Winning a REME Award will raise the profile of your firm within the industry, give clients increased confidence in your work and provide you with a platform to promote your business.

And this year, thanks to our new online submission site, submitting for a REME Award is simpler than ever. Forget the hassle of downloading a paper form and complete your entire application online. No excuses, submit like a champion.

2018 REME Awards Categories Include:
• Corporate Innovation
• Corporate and Social Responsibility
• Employee and Leadership Development
• Sustainability Programs AMO® of the Year
• CPM® of the Year
• ARM® of the Year

Submissions are due June 1, 2018. Celebrate excellence by submitting today!
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Rebranding Must Serve a Larger Mission

IREM 2018/19 President Don Wilkerson, CPM, takes a look at the mission of rebranding in his February column for NREI. In it, he points out that new logos and reworked corporate names are springing up nationally as marketers and decision-makers attempt to dress their companies or organizations in a new and more modern style. He cites a recent article in Forbes that called the new emphasis on corporate brand a nod to “the increasingly transparent and accessible world driven by social media.”

“In all cases of rebranding,” Wilkerson writes, “there is a menu of three elements that go into the process, and organizations choosing to update their image can go for any or all of the choices.”
The first and most obvious is changing the company name; Google, which started as BackRub, is one example of a corporation that gave itself a new moniker. The second element he cites is an upgraded logo, but he also points out that these two options only go so far: “The effort is nothing more than window dressing if there is no mission to propel it forward, no commitment to realign corporate strategies and methods of operation that put into action a new organizational mindset.”

Wilkerson notes that many real estate companies and organizations, IREM included, are taking that third element to heart and looking for ways to address the evolving needs of a new generation. For more of Wilkerson’s thoughts on the importance of rebranding beyond mere cosmetics, and how IREM chose to address its rebrand, click here to read his column on the NREI website.
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Industry Headlines


'Fintech' Firms Take Bigger Bite of Manhattan's Office Market
Wall Street Journal (03/05/18) Morris, Keiko

Real-estate services firm JLL reports that space leased by financial technology companies or units of larger companies totaled about 877,000 square feet last year in Manhattan, almost triple the amount in 2014. Big drivers of demand have been the need for additional space for digital operations of established financial services firms and banks. The city also has become a hot spot for not-so-young startups who are adding to their staff and adding offices outside of Silicon Valley. "They are tapping into the acumen of the financial services sector here and the acumen we have built around the technology sector," said Sean Coghlan, JLL director of research.

The growth of leasing in the financial technology sector, often referred to as fintech, reflects the maturity of the city's overall technology sector in the past decade, with household names such as Alphabet Inc.'s Google, Facebook Inc., and Amazon.com Inc. continuing to increase their presence in New York City. Moreover, the city also attracts young college graduates. "The rise of fintech is tied to the strength of the city," said Bill Rudin, chief executive of Rudin Management Co., the operating arm of the Rudin family's real-estate holdings. "We've created an ecosystem that supports these companies and helps them find talent and provides support services, like legal, marketing, and other technology companies. So it all builds off of the city's strength."
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Spec Suites Are All the Rage in Center City Office Buildings
Philadelphia Business Journal (03/01/18) Kostelni, Natalie

In Philadelphia's Center City area, speculative suites that are move-in ready are increasingly being used to attract tenants and lease up space in their office buildings. These pre-built spaces vary in size, ranging from 2,000 to 10,000 square feet, and rents come at a premium since the space is already fitted out with carpet, painted walls, kitchenettes, conference rooms, and offices. Some of these spaces also are fully furnished, making it convenient for prospective tenants because of their turnkey quality. Market demand is high for these spaces among tenants that are not picky about color.

At the Wanamaker building, Rubenstein Partners and Amerimar Enterprises have outfitted a 7,136-square-foot spec suite on the 10th floor that it plans to market to tenants. At 1818 Market St., Shorenstein Properties is building out a 2,369-square-foot spec suite and completed a 5,800-square-foot pre-built space on the ninth floor. It is going bold and big as well, outfitting a 24,000-square-foot space on the building's seventh floor. At 1700 Market, Shorenstein is building out five spec suites, of which four will be 4,000 square feet and one 9,500 square feet. Nightingale Properties plans to carve out a 2,200-square-foot spec suite at Centre Square that will have views of City Hall. Most of the time, Shorenstein will charge a rent of $1 to $1.50 a square foot for these spaces.
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Starbucks Says Empty Storefronts Are Leading to Lower Rents
Bloomberg (02/27/18) Patton, Leslie

In a recent memo, Starbucks Corp. Chairman Howard Schultz said retail landlords are beginning to cut rents amid rising vacancy rates and the rise of e-commerce. This will benefit the world's biggest coffee chain, which has more than 14,000 locations in the United States. "Over the last few weeks, I have been in a number of U.S. cities and observed firsthand the abundance of empty storefronts across the country, in prime A1 locations," Schultz said. "We are at a major inflection point as landlords across the country will be forced (sooner than later) to permanently lower rent rates to adjust to the 'new norm.'"

He blames the empty stores on lower customer traffic and the high cost of leases signed in the past three to seven years. Starbucks is looking to new locations to drive sales growth, with comparable sales up only 2 percent last quarter on a global basis. The chain blamed its holiday merchandise for hurting the domestic business. Meanwhile, Starbucks has shut down its chain of nearly 400 Teavana stores due in part to their locations in poorly trafficked shopping malls. The chain also must contend with competition from other coffee shops and fast-casual chains trying to secure cheap sites. "We should be patient and disciplined in our approach," Schultz said. "This is not going to be a cyclical change in our occupancy expenses, but a permanent lowering of the cost of our real estate."
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Commercial Real Estate Contributes $935.1 Billion to U.S. Economy
Mortgage Professional America (03/18) Randall, Steve

The NAIOP Research Foundation says the new development and operation of existing office, industrial, warehouse, and retail buildings contributes $935.1 billion to the economy and supports 7.6 million jobs. The foundation's "Economic Impacts of Commercial Real Estate" report indicates that the commercial real estate sector commenced construction of 524 million square feet of new space in 2017, enough to house more than 1.3 million workers. Economic growth was helped by the strong construction sector. Total hard construction expenditures for the four building types included in the report totaled $98.6 billion — a $15.6 billion (18.9 percent) increase from 2016.
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Net Lease Research 2018, Part 1: Investors Continue to Expect Stability
National Real Estate Investor (03/01/18) Bodamer, David

The single-tenant net lease sector is always a popular bet for certain commercial real estate investors, and National Real Estate Investor's most recent research into the sector indicates that it is expected to remain in solid shape for the foreseeable future despite being in what many perceive to be the late stages of the current real estate cycle. Fifteen percent of respondents this year said there is too much supply on the market for investment, up from 13 percent in 2017 and 7 percent in 2016. Thirty-five percent of respondents said there is the "right amount" of supply, consistent with the 2016 and 2017 surveys, and 27 percent said there is "too little" supply, down from 29 percent in 2017 and 35 percent in 2016.

Respondents estimate current cap rates for net lease properties to be at about 6.1 percent, but 63 percent expect cap rates to increase, down from 69 percent in 2017 but up from 42 percent in 2016. Forty-five percent of respondents believe the availability of equity in the net lease sector is unchanged from a year ago, compared with 48 percent in 2017 and 52 percent in 2016; 27 percent said equity capital is more widely available; and 10 percent said it is less available. Meanwhile, 46 percent said the availability of debt is unchanged from a year ago; 21 percent said it is more widely available, up from 19 percent; and 15 percent said it is less available, down from 21 percent. As for interest rates, 83 percent expect increases in the next 12 months, 15 percent expect rates to remain flat, and 2 percent expect rate decreases.
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One of Indiana's Oldest Enclosed Shopping Malls to Close
Associated Press (03/02/18)

One of Indiana's oldest enclosed shopping malls, the Mounds Mall in Anderson, will close its doors after more than a half-century of operation. Its final day of operation will be March 31. The mall opened in 1965 and was the first fully enclosed mall owned by Melvin Simon & Associates, and the second enclosed shopping center in Indiana.
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Retailers Post Strong Numbers — and Mall Shares Keep Falling
Wall Street Journal (02/27/18) Fung, Esther

Concerns about rising interest rates may have led to recent declines in share prices for mall real estate investment trusts (REITs), even as two major department stores posted stronger-than-expected sales figures. Macy's reported increases in same-store sales for the fourth quarter of 2017, and Dillards Inc. also reported better-than-expected earnings for the quarter. However, the FTSE Nareit Equity REIT Index dipped 2.3 percent shortly after, as REITs tend to perform better when interest rates are low or falling. The FTSE Nareit Equity Regional Malls Index declined a steeper 3.5 percent on Feb. 27.

Despite a steady occupancy level in many malls, there are growing concerns about pressure on rents and higher capital expenditures as they look to attract and retain tenants, many of which are shrinking their store footprints. There are some expectations that retail rents will stabilize over time, but analysts say shares of mall REITs might still be on shaky ground.
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One of Charlotte's Biggest Malls Rethinks $50 Million Project Amid Retail Woes
WBTV (N.C.) (03/04/18)

Starwood Retail Partners may not have abandoned its $50 million Northlake Mall project in Charlotte, N.C., but it has yet to break ground. The project would add more than 200,000 square feet on an 11-acre site next to the mall's entrance. It would include all kinds of retail, including a home furnishings store, entertainment, and restaurants. Construction was scheduled to begin in early 2017, but Starwood Retail Partners is looking to revamp the design to meet the needs of today's consumers.

Starwood Retail Partners has not yet signed any tenants for the new retail space. Northlake's expansion plans come at a particularly troublesome time for retailers as competition from Amazon and other e-commerce companies grows. In 2017, store closing announcements more than tripled to a record 7,000, according to retail think tank Fung Global Retail and Technology. This year could see even more closures, experts say. To entice consumers, mall owners are looking to the new in-demand tenants — grocery stores, bowling alleys, medical offices, and movie theaters. Over the last three years, mall owners have spent more than $8 billion in renovations, according to a September 2017 report from JLL, a Chicago investment management company that specializes in real estate.
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Best Buy Closing 250 Small-Format Mobile Phone Stores
Minneapolis Star Tribune (03/01/18) Kumar, Kavita

Best Buy plans to close all of its 250 small-format mobile phone stores, many inside U.S. shopping malls, by the end of May. In a letter to employees, Best Buy CEO Hubert Joly said the stores would be closed as the company continues to optimize. Best Buy first began operating the mobile phone stores in 2006, a year before the iPhone launched, he said. These mobile phone stores represent only about 1 percent of Best Buy's overall revenue and only about 1 percent of its total square footage. The retailer hopes to transfer the business to its 1,000 big-box stores and website, where it continues to improve its customer experience and make mobile phone buying easier.

Best Buy's mobile phone sales dropped slightly in 2016, but grew in its most recent quarters with new phone launches from Apple and Samsung. Last year, after emerging from a multiyear turnaround and surviving the existential threat brought on by Amazon, Best Buy posted strong sales growth amid a favorable product cycle and the improving economy. At their peak several years ago, Best Buy operated a little more than 400 of the mobile phone stores. But in recent years, it has been closing dozens of them every year. It has been shuttering fewer big-box stores, roughly 10 a year over the past few years. Best Buy's mobile phone stores in Canada will remain intact.
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Healthy Building Gets a Boost in Multifamily
Multifamily Executive (02/28/18) Castenson, Jennifer

Healthful, sustainable development is the focus of this year's Multifamily Executive Concept Community project, with the theme of "Building Positive: Living Well." The architecture firm Skidmore, Owings, and Merrill and AMLI Residential, which owns more than 25,000 multifamily units, are teaming up for the project. The 2018 Concept Community (CC) aims to shift the developer mindset to one that embraces both profit and social responsibility, rather than profit alone, which experts say makes sense given that building regulations increasingly are calling for more sustainable development and such buildings yield a better return on investment.

The CC aims to show multifamily professionals how to incorporate advanced processes, programs, and solutions into their projects to build both sustainably and profitably, and the team will collaborate with leading experts in the fields of energy performance and wellness to quantify the impact of the project's solutions. The 2018 CC will focus on AMLI 900, built in Chicago in 2014, with the team reinventing the building's design and construction program using 2018 specifications to show how AMLI 900 would appear today if it were built in an optimally sustainable fashion. The team will compare AMLI 900's original 2014 design and construction program with the 2018 CC version using the latest energy-performance metrics at the Multifamily Executive Conference in Las Vegas in September.
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Has the Shine Come Off Real Estate?
The Acorn (02/28/18) Loesing, John

At the recent economic forecast breakfast in Westlake Village, Calif., sponsored by CB Richard Ellis (CBRE), real estate experts from the Conejo Valley discussed how tomorrow's shopping centers will look radically different, given new customer buying habits and the impact of Amazon on traditional shopping. CBRE Senior Vice President David Rush said that in order to survive, the shopping center of tomorrow must feature more value-oriented stores alongside upscale dining and entertainment uses. "Box retail is cautiously expanding and Internet sales have expected that," he said. According to a CBRE report, retail sales and store rents rose slightly in the Conejo Valley and Ventura County markets, but the county's vacancy rate rose from 5.1 percent in the fourth quarter of 2016 to 7.2 percent in the fourth quarter of 2017. Rush believes the slowdown in construction and lease rate growth will let some steam out of the area's retail sector in the coming months.

Meanwhile, the future of office real estate also remains uncertain, with CBRE Senior Vice President Michael Slater noting that "the office world is morphing. From the leasing perspective (2017) was the worst year since the 1990s. ... We just didn't see a lot of absorption." He said K-Swiss and the Ryland Group have exited the area, and Baxalta and State Farm are leaving California altogether. According to CBRE, office vacancies stood at 14 percent in the Conejo Valley at the end of 2017, but reached nearly 33 percent in the Simi Valley/Moorpark market, up from 30 percent at the end of 2016. Slater added that the new trend in the office market is toward executive suite leasing with an emphasis on hi-tech amenities and a reduced footprint. He expects office lease rates to remain flat in the Conejo Valley and East County area this year, and new construction will decline. Experts at the conference predicted that all sectors of commercial real estate will see a boost from the new tax laws in 2019.
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Hudson Pacific Inks 102 KSF Hollywood Lease Renewal
Commercial Property Executive (02/28/18) Rosario, IvyLee

Hudson Pacific Properties signed a 10-year lease renewal through December 2028 with Trailer Park, a full-service agency specializing in content creation and entertainment marketing. Located at 6922 Hollywood Blvd., Trailer Park has been a tenant at the Los Angeles office building since 2001 and will be working on renovating its 102,977-square-foot space to accommodate the company's growth. Rapt Studio was tapped to assist with the space's architectural designs.

The 205,522-square-foot Class A building features 12 stories and 33,694 square feet of retail on the first and second floor. Built in 1967, the property was last renovated in 2007 and is home to other tenants including H&M, The Coffee Bean & Tea Leaf, U.S. Bank, j2 Global, and American Apparel. Hudson Pacific acquired the asset back in 2011 from CIM Group for $50.3 million, according to Yardi Matrix. The building is within close proximity to the TCL Chinese Theatre, Hollywood & Highland Center, Hollywood Roosevelt Hotel, and the Dolby Theater.
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