Real Estate Management News- 08/15/2018

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August 15, 2018
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IREM® HEADLINES
Strategic Data
Nine Analytical Skills Required of Real Estate Asset Managers
More August Learning Opportunities with IREM Webinars

INDUSTRY HEADLINES
Mall Bear Doubles Down on Bet, Even as Shopping Centers Show Some Life
6 Tips to Improve Your Building’s Access Control System
Mattress Firm Explores U.S. Bankruptcy to Close Stores
It's Up to Multifamily to Listen to What Gen Z Is Saying
Arlington Ranked Among Country's Most Sustainably Powered Places
BREEAM New Construction Standard Launched in U.S.
Big-Box Retailers Come Up With Small Concepts to Grow in a Changed Landscape
What Are Miami's Hot Neighborhoods? Should You Rent or Buy? Here's Our 2018 Real Estate Study
How Malls Are Becoming the New Office Buildings
How Modular Components Are Redefining Multifamily Housing
Artificial Intelligence at Shopping Centers Will Transform the Shoppers' Experience
Mass Timber: Thinking Big About Sustainable Construction


 

IREM Headlines


Strategic Data

It’s easy to get caught up in the day-to-day routine of putting out fires. But, as IREM president Donald B. Wilkerson, CPM, points out in "What Property Managers Should Know About Market Performance," his latest column for NREI, he challenges membership to look beyond the day-to-day to also “understand what’s happening around us in the greater environment of commercial real estate value.”

And that’s the mission of IREM’s annual Income/Expense Analysis Reports. The newly released 2018 edition tracks the latest trends, as Wilkerson indicates, and the comparative numbers offer managers the opportunity to tweak as needed, “strategies to enhance that value.”

As he points out, the 2018 reports cover the comparative property waterfront. Whether it be the new demands made by condo and co-op owners as the single-family market continues to improve, the ongoing woes of the retail market, or the disconnect that seems to exist between rising commercial occupancy and collections, the reports cover the field with insights designed to assist property managers in their strategic mission for ownership.

As Don himself observes: “The nuances of the marketplace bear close watching for an accurate, comparative picture of performance, for building managers and for our constituents.”

For more information on the 2018 Income/Expense Analysis Reports, please click here. And for Don’s full article for NREI, click here.

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Nine Analytical Skills Required of Real Estate Asset Managers

The heart of real estate asset management is analysis: deciding how and when to spend money. For this reason, conducting financial analyses, reviewing leases, and evaluating proposed capital improvement projects are key functions undertaken by real estate asset managers. Research into their roles and responsibilities reveals nine specific competencies required of practitioners working effectively in the field:

1. Managing through the numbers – examining the performance of income-producing properties on an ongoing basis “through the numbers” to determine if things are going according to plan

2. Valuation fundamentals – the underlying basis for knowing if property values are being maximized and assessing the impact of decisions

3. Return metric calculations – the ability to calculate, evaluate, and communicate metrics such as internal rate of return, net present value, equity multiples over defined hold periods, and cash-on-cash return

4. Analyzing capital improvements – using these return metrics and valuation concepts on specific capital outlays to assess their potential impact on an asset

5. Analyzing proposed leases – calculating effective rental rates and mapping out all potential capital outflows associated with a proposed lease

6. Scenario analysis – comparing alternative business plans to determine the preferred strategy

7. Sell vs. hold analysis – combining quantitative analysis with qualitative analysis to assess the competitive positon of a property, its physical condition, the strength of its rent roll, and any other factors germane to a sale decision

8. Evaluating financing options – an understanding of debt financing and the impact of leverage on property-level cash flows

9. Joint venture modeling – more complex financial analysis involving the joint performance of debt and equity for multiple tiers of investors

These key analytical functions and their importance to asset management are explored Analyzing Leases, Capital Improvements & Financial Performance: The Role of the Real Estate Asset Manager by Dustin C. Read, Ph.D./J.D., associate professor of property management and real estate at Virginia Tech.

The report is published by IREM as part of its Real Estate Asset Management Initiative, which explores the points of connectivity between the property management and the asset management professions, as well as ways to help individuals working in both fields collaborate more effectively.
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More August Learning Opportunities with IREM Webinars

Don’t fall prey to “summer slide.” Keep your business development on track with one – or both – of these IREM webinars being offered next week:

Emotional Support Animals: Best Practices for Managing Resident Requests
The practice of fair housing is a complex and nuanced landscape, especially as it relates to handling emotional support animals. Join attorney Kathi Williams and Doug Chasick, CPM®, from The Fair Housing Institute, Inc. for “Emotional Support Animals: Best Practices for Managing Resident Requests,” as they explore topics such as the difference between service and support animals, FHA and ADA requirements, and best practices for managing requests for specific species, breeds and number of animals. This webinar is being offered on Tuesday, August 21 at 1PM Central Time. For more information and to register, click here.

Smart Talk – Becoming a Communications Super Hero
Communication is the pillar of our personal and professional lives. But with increasing access to technology, it has become more difficult to field communication from multiple devices and platforms simultaneously, leading to communication pitfalls. In the upcoming IREM Webinar, “Smart Talk – Becoming a Communications Super Hero,” taking place Wednesday, August 22 at 2PM Central Time, you’ll learn key strategies to help with collaboration, organization and keeping everyone in the loop, along with how to ensure company culture support. Click here to register, and discover new ways to make sure your communications positively affect the relationships you have with others.
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Industry Headlines


Mall Bear Doubles Down on Bet, Even as Shopping Centers Show Some Life
Wall Street Journal (08/07/18) Fung, Esther

Hedge-fund manager Eric Yip, chief investment officer of Alder Hill Management, has become known for wagering on the demise of the weakest American malls. Now, he's raising the stakes, betting that some of the hardest-hit shopping centers are in a death spiral. His more aggressive stance is evidence of how some bearish investors are becoming bolder in these risky wagers against malls, defying a recent pick-up among certain brick-and-mortar retail chains and shares of mall owners. Yip has been purchasing a credit default swap index known as the CMBX, which tracks the values of mortgages backed by commercial real estate. Yip's investment increases in value when shopping centers, whose debt is reflected in the CMBX, struggle to make payments or default on their loans.

This year, though, mall performance has improved and even the weaker segments of the sector are showing some signs of a rebound. Better malls in wealthier ZIP Codes that face less competition have posted some of the strongest sales and solid rent income. Meanwhile, such retailers as Macy's Inc. and Target Corp. have recorded improved earnings after shuttering some stores and increasing their digital investments. A number of retailers are even expanding, easing concerns about shopping-center occupancy in some circles and helping owners refinance. Privately held arts and crafts retailer Hobby Lobby, for example, has opened 39 stores in the first seven months this year, including in spaces formerly occupied by Sears Holdings Corp.
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6 Tips to Improve Your Building’s Access Control System
Buildings (08/10/18) Craven, Valerie Dennis

There are a half-dozen key things facility owners and operators need to keep in mind when looking at strengthening a building's access control system. Number one, evaluate your access control system features. Too many facilities managers will go off how a system looks and verbal information, but not really delve into the specific features that deal with the day-to-day challenges they face. Two, determine your access levels. After all, not everyone needs access to all of a given building. Look at the building itself to determine what areas need different levels of access. Three, the article's author writes, "audit who has access." To avoid "access bloat," building managers need to either audit the system or set features to timeout access cards.

Four, update your technology. Property professionals concur that 125 kilohertz technology (like proximity readers) should not be used as such systems can be easily compromised. Instead, building owners should look at installing encrypted technology. Five, be sure to perform periodic testing of access control systems. All devices should be functioning as designed and expected. Finally, "speak up for security." The biggest weakness in access control is tailgating -- i.e., holding the door open for someone after you've gained building access. Tailgating is a vital issue for building safety, and managers must be aware of how hard it is to control.
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Mattress Firm Explores U.S. Bankruptcy to Close Stores
Reuters (08/07/18) DiNapoli, Jessica

Mattress Firm Inc. is considering a potential bankruptcy filing as it seeks ways to get out of costly store leases and permanently shutter some of its 3,000 locations that are losing money. The Houston-based company's deliberations are the latest example of a U.S. brick-and-mortar retailer struggling financially amid competition from such e-commerce firms as Amazon.com Inc. Steinhoff International Holdings NV, Mattress Firm's South African parent, has been working on a deal to restructure the debt of some subsidiaries with its creditors in the wake of an accounting scandal. Mattress Firm ranks as the biggest U.S. mattress retailer. Mattress Firm is working with AlixPartners LLP, a restructuring adviser, to help it assess its commercial property portfolio and potentially slim down its footprint of U.S. stores. A bankruptcy filing would enable the retailer to reject its leases and restructure its debt.
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It's Up to Multifamily to Listen to What Gen Z Is Saying
Property Management Insider (08/18) Blackwell, Tim

Apartment owners and operators have been bracing for the arrival of a new generation of renters. Millennials made a sizable impact in the apartment sector by transforming leasing and amenity preferences more than any other generation. Now, Generation Z is looking to follow their lead, especially in the areas of business and employment. A recent Deloitte survey asked nearly 10,500 millennials in 36 countries and 1,850 Gen Z-ers in a half-dozen countries about their views on business. Less than 50 percent of millennials now feel businesses behave ethically versus 65 percent a year earlier, and fewer believe business leaders are committed to helping improve society (47 percent compared to 62 percent).

This all has ramifications for the future of leasing apartments. "Really, this generation [Gen Z] is paying attention to everything socially that we are doing," remarks Edr Vice President Kim Grisvard at a recent student housing conference. "It's about giving back or contributing, the whole fitness, wellness thing and also about being eco-friendly." Digital presence is another major factor with Gen Z, with so many relying on connectivity and spending large chunks of each day on social media. Gen Z is also about being in-person social, and apartment communities that provide both physical and cyber gathering spots will have an advantage in attracting and retaining residents.
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Arlington Ranked Among Country's Most Sustainably Powered Places
ARLNow.com (08/09/18)

Arlington County, Va., ranks as one of the most sustainably powered localities nationwide, according to a study on green cities by Commercial Cafe. Arlington ranked 15th in the country, while San Francisco, Seattle, and Oakland took the top three spots. Looking at individual categories, Arlington placed seventh nationwide with one of the highest shares of office buildings that are LEED-certified for energy efficiency by the U.S. Green Building Council. Of the county's 452 buildings, Commercial Cafe found that 106 have LEED certifications. Another eight are under construction. The group assigned points to localities based on how much they rely on sustainable forms of energy, including wind, solar, and hydropower. The researchers reduced points for how much carbon dioxide they generate or how much they rely on traditional energy sources.
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BREEAM New Construction Standard Launched in U.S.
Construction Dive (08/22/18) Slowey, Kim

Architecture, engineering, and design firm HOK and the U.K.-based Building Research Establishment (BRE) are partnering to promote the BREEAM (Building Research Establishment Environmental Assessment Method) New Construction standard to the U.S. market. Developed in 1990 and widely used abroad, BREEAM rates the sustainability of buildings and infrastructure based on performance benchmarks. HOK will advise BRE as it modifies the system for the American construction industry. HOK says it will start testing the program in the next month or so with new and existing clients and plans to "explore" the new standard with more challenging projects like sports venues and airports.

BRE was motivated to bring the new system to the United States following the success of the BREEAM In-Use standard, which enables owners of existing buildings to evaluate the extent of their sustainability and take steps to increase it. The BREEAM approach uses independent assessors to verify that the buildings comply with the requirements of BREEAM, which has more than two million registered projects and over 560,000 certified buildings in 77 countries. The Oaks shopping center in Thousand Oaks, Calif., was the first U.S. property to earn BREEAM In-Use certification. It features solar panels, LED lighting, energy-efficient HVAC equipment, a mixed recycling system, and improved thermal controls.
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Big-Box Retailers Come Up With Small Concepts to Grow in a Changed Landscape
National Real Estate Investor (08/09/18) Wolf, Liz

Big-box retailers are amending their brick-and-mortar strategies and experimenting with smaller concepts. Walmart, for instance, launched a convenience/grocery pick-up store concept called Walmart Pickup With Fuel two years ago. It operates two of these 4,000-square-foot locations in Colorado and Alabama. each of which includes standard convenience store items and drive-thrus for online grocery order pick-ups. Kohl's, meanwhile, is downsizing its real estate footprint in hundreds of locations and teaming up with grocery or convenience retailers. Aldi has agreed to be Kohl's first partner to sublease space in its downsized stores. "Adding a grocery store or other stores that are comparable makes Kohl's more relevant and makes a shopping trip to the store more suitable to the current way people shop," remarks Divaris Real Estate Consulting Chairman and CEWO Gerald S. Divaris.

Not to be outdone, Target Corp. is building smaller, more streamlined urban-format stores as it continues to adapt its brick-and-mortar strategy and reach consumers that live a good distance away from its traditional, suburban stores. By the end of next year, the retailer expects to operate more than 130 small-format locations nationwide. Swedish big-box retailer Ikea, whose typical stores are about 300,000 sq. ft. in size, is also testing smaller-urban format stores. It will open its first such location in central London this fall with more to follow across Europe. So far, no such locations have been announced for the United States. These stores will be more of a showroom experience and carry less inventory. Finally, Nordstrom is experimenting with a smaller-format store dubbed Nordstrom Local. These are around 3,000 sq. ft. versus a typical Nordstrom department store at 140,000 sq. ft.
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What Are Miami's Hot Neighborhoods? Should You Rent or Buy? Here's Our 2018 Real Estate Study
Miami Herald (08/06/18) Rodriguez, Rene

The Greater Downtown Miami area has emerged as a hot market for renters, according to the 2018 Miami-Dade Real Estate Study. Nearly 4,800 new apartments have been completed from 2014 to this year in the area. Another 5,062 rental units are currently under construction. The fourth annual survey was conducted by the polling firm Bendixen & Amandi International and the Miami Herald. Researchers further found that Miami-Dade's housing affordability crisis is worsening. Over half of the county's families spend more than 30 percent of their gross income on rent -- the third-worst rent-to-income ratio in the United States. According to the Miami Association of Realtors' June 2018 report, median single-family home prices rose from $335,000 to $355,000 year-over-year.
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How Malls Are Becoming the New Office Buildings
Pymnts.com (08/08/18)

With shopping malls falling on hard times in an increasing number of locales, plans to repurpose them as offices and workspaces are springing to the forefront. Creative property managers say co-working might just be the perfect space filler for waning malls and other big retail spaces. A recent Jones Lang LaSalle study forecasts that co-working sites will grow at retail properties at a rate of 25 percent through 2023. Those shared office spaces, according to the same research, are expected to account for nearly 3.4 million square feet of retail space in the next five years. "We feel very confident that integrating co-working into retail will be a slam dunk in urban areas," Jamie Hodari, CEO of Industrious, remarks. "I think it's pretty clear based on the demand analysis that we've already done that this will be successful."

Furthermore. it is an arrangement that works for workers and business owners alike. Adam Pittenger, founder and CEO of Moved, recently told CNBC News that by working out of WeWork's Fulton Center, he was able to grow his business from one employee to more than a dozen. "There are intense benefits to the density of being in a space that is both commercial retail and close to residential," he explained. "Living in the era of 'on demand,' we all want things now." On his walk into work each day, for instance, Pittenger passes an Apple store, a Shake Shack, and several other retailers and coffee shops that he frequents.
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How Modular Components Are Redefining Multifamily Housing
Multifamily Executive (08/10/18) Malcolm, Carl

The high-end apartment sector has experienced strong growth in the past few years. During that same time span, a latent demand for affordability has emerged as an untapped market that has been underserved for years. More and more developers are looking to affordable projects, which are appealing to lenders when they reach the cap on the high-density/high-rent projects that had been ruling many markets. Cost-consciousness has become increasingly important, and being able to shave time off the construction schedule can save money on the construction loan and extra months of interest while getting to revenue generation sooner.

Modular production is one hedge against labor and construction costs and schedule overruns. Modular building provides consistent quality and shortens the design time by providing a kit of parts that design teams can work with instead of needing to design everything from the ground up. To succeed with modular, take the best ideas in terms of both exterior and interior spaces and figure out how to execute those ideas in the factory rather than build them piece by piece in the field. Each individual component requires its own set of considerations -- from interiors, including kitchens and bathrooms, to common spaces, including stairs and elevators, to exteriors, including framing and cladding. Modular components can ultimately redefine apartment living by providing quality housing with more reasonable rents, thereby attracting more residents.
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Artificial Intelligence at Shopping Centers Will Transform the Shoppers' Experience
Yucatan Times (08/06/18)

Artificial intelligence, merchandise purchases through retinal recognition, and health diagnostics at restroom areas are just three of the high-tech features some shopping centers will have in the next decade. That's according to "2028 Retail Future," a new report issued by J. Walter Thompson Intelligence. The marketing communications firm's research indicates that within a decade, hyperconnected microcities will prevail around the globe where shopping and wellness services will be available for all citizens. Shopping centers will feature sensory gardens and water paths that will allow relaxation. Furthermore, devices will be in place that measure the levels of hydration and vitamins in the human body.

"With technology at the service of the client, the main idea is to make the shopping experience less stressful and more interesting. Thus, eye scanners can help both parties: sellers and consumers," the report reads. "In addition, artificial intelligence may help to organize the transit of people within the premises, by reporting which areas are congested or help the shopper to choose businesses where there are no long waiting lines." Finally, J. Walter Thompson Intelligence predicts that people will be able to scan products using their cellphones and obtain all the data about each and every item, from available colors and sizes to prices and nutritional information.
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Mass Timber: Thinking Big About Sustainable Construction
Civil & Structural Engineer (08/09/18)

Timber is being explored as an energy-efficient building material for large structures. John Klein, a research scientist in MIT's Architecture Department, notes that the United States has an abundance of forest resources and that there are efforts afoot to determine if such resources can be used in a sustainable manner. Research has shown that timber structures can be built to resist fire in a way that's comparable to a steel structure. However, there are obstacles to wider use of timber. Current U.S. building codes, for instance, limit the amount structural wood to five stories in residential buildings and six stories for commercial buildings. These codes would need to change if wood is to be used for larger building projects.
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