Real Estate Management News - 04/17/2019

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April 17, 2019
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IREM® HEADLINES
Honoring Our Planet by Keeping It Green
IREM Representatives Meet with Federal Housing Policymakers

INDUSTRY HEADLINES
Uber's IPO Filing Reveals Over $1 Billion in SF Office Spending
Macy’s Is Taking 36 of Its Stores and Putting a New Kind of Store Inside Them
From Pet Washes to Cookouts, Knoxville Apartments Offer Amenities to Attract Millennials
Bed Bath & Beyond to Close 40 Stores
As Office Tenants Expect More Tech, Even the Windows Get Smart
75,000 More Stores Need to Close Across the US, UBS Estimates, as Online Sales and Amazon Grow
A Challenge to One of Chicago's Biggest Draws for Companies
Walmart Rolling Out the Robots
Co-Working Operators Are Starting to See Competition for Tenants from Hotel and Apartment Owners
Walgreens Will Soon Open Primary Care Doctors Offices in Some Stores
Using Hybrid Insulation Solutions to Your Advantage
Owner of Kay, Jared and Zales Plans to Close 150 Jewelry Stores


 
 

IREM Headlines


Honoring Our Planet by Keeping It Green

Each year, Earth Day provides a chance to appreciate the awe-inspiring planet that we inhabit and collectively work to preserve it for future generations. The Earth Day Network says that more than 1 billion people participate in Earth Day activities each year.

Its mission could not be more vital today than it was in 1970 when the Earth Day movement began, as impacts from climate change intensify, threatening human health, communities and buildings.

The theme of this year’s Earth Day, which falls on Monday, April 22, is “Protect Our Species,” as the world faces mass extinction of wildlife. To celebrate Earth Day, you and your company can plan events around this theme—or choose whatever appeals to you or matches existing sustainability goals. Here are some examples of ways to celebrate Earth Day.
  • Plan a sustainability-related volunteering event for your staff.
  • Attend a local Earth Day event.
  • Start or take the next step in a sustainability initiative for your portfolio.
  • Launch a campaign to engage your tenants or residents in your green programs.
  • Sign up for a utility energy or water efficiency program.
  • Schedule an energy audit, retro-commissioning study, or waste audit.
  • Begin benchmarking your properties in ENERGY STAR® Portfolio Manager®.
Next year marks the 50th anniversary of the first Earth Day. To mark this anniversary, the Earth Day Network has launched an ambitious new plan to advance its mission. This plan tackles climate change on multiple fronts, through crowdsourced data; an event on the National Mall; a two-month, global clean-up campaign; and an effort to reach 50 million students worldwide with education on environmental issues.

Ready to plan an Earth Day initiative of your own? IREM has several resources that can give you the inspiration you need to get started.
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IREM Representatives Meet with Federal Housing Policymakers

Members of IREM’s Federal Housing Advisory Board (FHAB) traveled to Washington D.C. last week to discuss important federal housing issues with representatives of the House and Senate Appropriations Committees, the Senate Judiciary Committee, the Rural Housing Service and the Department of Housing and Urban Development (HUD).

One of the issues discussed with the Appropriations Committees and HUD focused on increased costs of property and casualty insurance in Presidentially Declared Disaster Areas. The last several hurricane seasons have revealed a problem for owners of affordable properties. After major storm events, annual premiums have gone up 50 to 400 percent, and the number of firms offering complete coverage is declining.

The FHAB discussed including language in the 2020 appropriations bill to allow HUD to grant year-to-year increases in rents to cover increased insurance costs. This rent adjustment would not be permanent. Rather, it would be reviewed annually and adjusted upward or downward in relation to actual costs incurred by the property for its insurance package.

Another issue discussed with policymakers included the Violence Against Women Act (VAWA). The law provides housing protections across federal housing programs to victims of domestic violence, dating violence, sexual assault and stalking. Reauthorization of VAWA recently passed in the House but still needs to be passed in the Senate. The FHAB requested that lawmakers pass language which was included in the 2013 VAWA reauthorization.

To learn more about IREM’s legislative initiatives, activities and policy priorities, visit our Public Policy page.

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Industry Headlines


Uber's IPO Filing Reveals Over $1 Billion in SF Office Spending
San Francisco Chronicle (04/12/19) Li, Roland

Uber's recent blockbuster public filing revealed more than $1 billion in planned real estate spending in San Francisco, where it ranks as the third-biggest private tenant. In the last 10 years or so, the ride-hailing company grew to own and lease approximately 1.7 million square feet across four City by the Bay neighborhoods: Mid-Market, Mission Bay, the Financial District, and Pier 70 in the Dogpatch. Only Salesforce and Wells Fargo have more commercial real estate. About 1 million square feet of that space is currently unoccupied and under construction in four adjacent buildings in Mission Bay, which will eventually serve as the company's headquarters when it opens in 2020. The bulk of Uber's office spending is tied to two of the Mission Bay office buildings, which total around 580,000 square feet and are part of the Golden State Warriors arena complex. Uber said it will pay $1 billion to lease the buildings over two decades, or $86 per square foot a year.

Uber is also part-owner of the buildings in an unusual arrangement. The company paid $136 million for a 45 percent ownership interest in the buildings. The Warriors NBA franchise owns 45 percent and Alexandria Real Estate Equities owns the remaining 10 stake. Rent at Uber's current headquarters, a former Bank of America data center located at 1455 Market St., is more than 40 percent cheaper than its future home base. Uber pays $16 million annually to lease 325,020 square feet there, or $49 per square foot, according to SEC filings by property owner Hudson Pacific Properties. Uber owns its other two Mission Bay headquarters buildings, which total around 423,000 square feet. However, it still has rent obligations there. Three years ago, Uber dissolved a joint venture partnership with Alexandria, which had planned to build the offices as co-owners. Under terms of the deal, Uber gained majority ownership of the buildings, but Alexandria owns the land underneath them. Consequently, Uber will pay Alexandria $175 million in rent for the land until February 2032. After that, the annual rent will increase in accordance with the consumer price index.
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Macy’s Is Taking 36 of Its Stores and Putting a New Kind of Store Inside Them
CNBC News (04/10/19) Kirk, Patricia

In 2018, Macy's bought Story, a retail store established by Rachel Shechtman in Manhattan's Chelsea neighborhood that curates merchandise around a theme or set of ideas. Retail industry watchers have been curious ever since. The department store retailer announced this past week that it is adding 1,500-square-foot Story shops to three dozen of its department stores nationwide, including at its Herald Square flagship location. The move is part of a larger plan for Macy's to divvy up some of its commercial real estate and look for new uses to fill what is now excess space.

Macy's is hopeful the new spaces, which will rotate inventory every couple of months and bring in different local brands over the course of the year, will encourage shoppers to keep coming back to stores. The first version of Story, dubbed Color, will be live in 36 Macy's stores from Wednesday until June 26, at which point a new theme will be rolled out. Color will include items ranging from crayon maker Crayola to makeup retailer MAC Cosmetics to denim brand Levi's and more than 70 small business owners. Roughly 400 different products will be featured in each space.
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From Pet Washes to Cookouts, Knoxville Apartments Offer Amenities to Attract Millennials
Knoxville News-Sentinel (04/10/19) McDermott, Brenna

Many millennial renters in Knoxville, Tenn., and elsewhere are looking for apartments with favorable rents, but more importantly, a space that fits their lives. Knoxville renters are predominately young professionals between the ages of 25 and 40, observes Brandon O’Connor, executive vice president of the Knoxville Apartment Guide. He states, "It's a good time to be a renter but the demand is strong and occupancy is high right now." According to a study of renter characteristics conducted by RealPage for 5.7 million lease transactions nationwide, eight distinct types of renter households have emerged. Among them is the "starting out" type (29 percent), followed by "young adult roommates" (21 percent); "perma-renters," or those with no interest in ever becoming homeowners (16 percent); and
"middle-income boomers" (11 percent).

Amenities often separate one apartment community from the pack. The latest Renting Housing Journal report shows that millennial renters are interested in smart-home technology like smart thermostats, along with such eco-conscious practices as energy-efficient appliances and low-flow faucets. Providing pet amenities like pet washes and dog parks have also proven to be a big draw in Knoxville and elsewhere. Some property management firms are even lifting breed restrictions. Meanwhile, more and more Knoxville apartment communities are starting to offer trendy amenities like car washes, food truck parks, and movie areas. Finally, a number of multifamily housing properties have shown an increased emphasis on resident engagement. O'Connor concludes, "I've got a lot of clients who are actively engaging their residents. They're throwing dinner parties, they're throwing cookouts by the pool," all in an effort to keep residents happy and foster positive online reviews.
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Bed Bath & Beyond to Close 40 Stores
CNN (04/13/19) Wattles, Jackie

Bed Bath & Beyond's turnaround plan includes shutting down about 40 stores this year if the company cannot negotiate better lease terms at some locations. The plan also includes testing new retail concepts like "lab" stores that sell more food products and home decor items. They also boast different layouts that aim to give shoppers better views of the merchandise. Bed Bath & Beyond has been experimenting with 21 of these stores since last year, and company officials say they have performed better than traditional locations. Executives confirmed last week that the struggling retailer's sales are still in decline, though, and the chain lost money last quarter. Despite the 40 or so closures, Bed Bath & Beyond also expects to open 15 new locations. The company currently operates 1,024 stores in the United States, Canada, Mexico, and Puerto Rico.
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As Office Tenants Expect More Tech, Even the Windows Get Smart
The New York Times (04/09/19) Margolies, Jane

Demand for new technologies from office developers and tenants is fueling competition between suppliers, with upgrades like smart windows and fiber-optic cable to improve redundancy attracting attention from investors. For example, developer DivcoWest is installing an estimated 10 miles of fiber-optic cable beneath and within six office buildings in a mixed-use development in Cambridge, Mass., promising Wi-Fi with uninterrupted connectivity. According to New York-based consultant WiredScore, more than 1,800 office buildings worldwide have so far registered for or been accorded certification for in-building Internet connectivity.

Some office providers are enhancing other kinds of technology in buildings, like installing antennae for picking up and amplifying cell-phone signals and lighting sensors that track the brightness of the sun. Even more sophisticated capabilities are expected, with Rao Mulpuri, CEO of smart window maker View, predicting windows will eventually be used like computer screens.
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75,000 More Stores Need to Close Across the US, UBS Estimates, as Online Sales and Amazon Grow
CNBC News (04/09/19) Thomas, Lauren

According to a recent UBS note to clients, apparel retailers, home furnishing businesses, and consumer electronics companies will need to shutter more U.S. stores as e-commerce sales continue to proliferate. The note read: "Store rationalization needs to accelerate meaningfully as online penetration continues to rise." Assuming online sales' share of total retail sales in the U.S. increases from 16 percent currently to 25 percent by 2026, around 75,000 more retail stores will need to close, said analysts Jay Sole and Michael Lasser. Essentially, for every 1 percent increase in online penetration, between 8,000 and 8,500 stores must close. "Within that 75,000 number, about 21,000 clothing stores, 10,000 consumer electronics stores, 8,000 home furnishing stores and 1,000 home improvement stores should close," UBS estimated. Since Jan. 1, more than 5,000 store closures have been announced by such retailers as Gap, Victoria's Secret, and Gymboree.
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A Challenge to One of Chicago's Biggest Draws for Companies
Crain's Chicago Business (04/12/19) Ecker, Danny

In Illinois, Cook County's new way of assessing the value of commercial buildings may create a more transparent property tax system. However, it could also make it substantially more expensive to lease office space in Chicago. As new Assessor Fritz Kaegi starts shifting more of the metro area's property tax burden onto commercial buildings by valuing them based on real market sales and income data instead of the previously "baffling" method Kaegi says was used by former Assessor Joe Berrios, downtown commercial property owners are in for tax sticker shock when Windy City properties are reassessed in 2021. Because office buildings typically pass along such expenses to their tenants, the changes threaten one of Chicago's prime selling points for businesses: Relative to other major markets, it's a bargain.

For now, downtown office landlords continue to revel in a leasing boom due to historically low unemployment and the longest bull market in American history. Companies moved into more offices in the central business district over the last three months than in any quarter since 2016, reports CBRE. But higher property taxes will almost certainly test Chicago's value proposition for office tenants and challenge office building owners who are uncertain about when the leasing boom will go bust. "This transition is going to be a bit of a bumpy ride," Elizabeth Gracie, a tax attorney at the law firm, stated during a recent presentation on property tax changes for Cushman & Wakefield.
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Walmart Rolling Out the Robots
The Wall Street Journal (04/09/19) Nassauser, Sarah; Cutter, Chip

Walmart is expanding its deployments of robots in its stores to help track inventory, clean floors, and unload trucks, as part of initiatives to control labor costs as it invests more on higher wages and new services like online grocery delivery. The company said at least 300 stores will add automated devices that scan shelves for out-of-stock products this year, while software-powered autonomous floor scrubbers will be deployed in 1,500 stores. In addition, Walmart will more than double the number of conveyor belts used at its stores that automatically scan and sort products as they come off trucks.
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Co-Working Operators Are Starting to See Competition for Tenants from Hotel and Apartment Owners
National Real Estate Investor (04/10/19) Kirk, Patricia

Offering an alternative to traditional office space, co-working space providers have been vying with office building owners for tenants for several years. Now, they face new competition from hotel and multifamily housing operators, who are entering the co-working market at a rapid clip. Many such operators are using co-working spaces as an amenity to attract and retain new residents or hotel guests, as well as raise brand awareness. Others are looking to capitalize on an increasingly lucrative niche by establishing in-house co-working facilities that charge a membership fee and are open to the general public. A recent workplace study by International Workplace Group -- the parent company of Regus, Spaces, and HQ -- found that 50 percent of full-time professionals globally work outside a traditional office at least 2.5 days a week. Demand for co-working space is expected to increase, as more employers adopt flexible work policies.

In particular, the growth of co-working spaces at apartment properties is exploding, observes Elyse Linowes, founder of Linowes Design Associates Inc., an interior design firm that works with multifamily housing developers like Equity Residential and UDR. "It is a 'must have' amenity for [luxury] apartment projects today," she stated, adding that co-working space and an "over-the-top" fitness facility are the top two amenities prospective residents look for when picking a new apartment. Texas-based Craftwork is one firm focused on providing apartment operators with additional income by leasing underutilized space for a specialty coffee bar and co-working space. Craftwork creates a co-working environment with free access for apartment residents. But it also offers social and dedicated office memberships to non-residents, including access to conference rooms and meeting spaces.
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Walgreens Will Soon Open Primary Care Doctors Offices in Some Stores
CNBC (04/10/19) LaVito, Angelica

Walgreens has announced it will open primary care doctors' offices in some of its stores in Houston through a partnership with VillageMD. VillageMD will run primary care clinics in five total Walgreens locations, working with social workers, nurses, and store pharmacists. The offices will be within the stores, but they will have a separate storefront and a door connecting the two spaces. Unlike existing Walgreens walk-in clinics, visitors to the doctors' offices can go for annual physicals and any other ailment they would normally see their physician for.

Walgreens Chief Medical Officer Patrick Carroll said the offices will include six to eight exam rooms and a waiting area, with the first offices scheduled to open by the end of the year. "What the Village Medical at Walgreens is going to offer is really high-quality primary care that can both improve quality and reduce costs at very convenient locations with a huge benefit quite honestly of that pharmacy support to work on adherence [to prescription drugs]," Carroll stated.
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Using Hybrid Insulation Solutions to Your Advantage
Buildings (04/04/19) Babineau, J.R.

When building or renovating a structure, choosing insulation is an important step in achieving goals for occupant comfort and energy efficiency. During this process, everything from the building's age, size, and location to current building codes should be taken into consideration. Hybrid solutions can help meet these goals and considerations, working to the advantage of both building owners and managers. Two or more products create hybrid solutions aimed at creating a stronger building envelope and offering such benefits as thermal and moisture protection, maximized air-sealing, and increased privacy throughout the space. "The most common hybrid insulation solutions combine spray polyurethane foam and fiberglass, or mineral wool within a framing cavity," writes the article's author.

Hybrid solutions allow each material to do what it does best, while avoiding potential pitfalls and/or minimizing excessive costs. In a hybrid solution, spray foam is typically installed to the minimum thickness needed in order to minimize cost. The rest of the framing cavity is then insulated with blow-in insulation, fiberglass, or mineral wool batts. The spray foam air-seals the cavity, eliminating air leakage. Hybrid insulation solutions often deliver superior thermal performance compared to systems with only fiberglass or mineral wool. Additionally, hybrid solutions deliver excellent sound control. They also offer budget flexibility in enabling building owners and operators to combine a product at a higher price point with a more economical product.
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Owner of Kay, Jared and Zales Plans to Close 150 Jewelry Stores
Fox 8 Cleveland (04/05/19) Harris, Brittany

Signet Jewelers Ltd., the parent company of Kay Jewelers, Jared, and Zales, has announced those three chains will be shuttering 150 stores by 2020 because of declining sales. Such factors as a highly competitive promotional environment and lower-than-projected customer demand for legacy merchandise collections are prompting the closures. Moving forward, Signet Jewelers CEO Virginia Drosos says Kay, Jared, and Zales will focus on opening stores in locations outside of shopping malls. Signet Jewelers ranks as the world's biggest retailer of diamond jewelry.
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