Real Estate Management News - 10/10/2018

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October 10, 2018
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IREM® HEADLINES
NAR Crusades for Rental Activity Inclusion in TCJA Deduction
IREM’s South Africa Program Recognized by ASAE
Spend Your Time Wisely with a New IREM Webinar

INDUSTRY HEADLINES
What Do Asset Managers Want?
Shopping Mall Vacancies Are Highest in Seven Years After Big-Box Closings
Mattress Firm Bankruptcy: Nation's Largest Mattress Retailer to Close 700 Stores
The New Office Water Cooler
Booming SF Hits New High for Office Rent, Beating Dot-Com Record
Apartment Renters Paying Average of $41 More a Month Than a Year Ago
Landlords Get Innovative to Fill Vacancies
Why WeWork Is Expanding Its Footprint in Orange County
Vermont Department of Public Safety Announces New Federal Sprinkler Law
Developers Planning 85 Apartment Complexes Across Houston
How Much Interest Would Washington REIT’s Portfolio Get if It Comes on the Market?
Booming San Francisco Takes Unprecedented Step to Target Earthquake-Vulnerable High-Rise Towers


 
 

IREM Headlines


NAR Crusades for Rental Activity Inclusion in TCJA Deduction

The National Association of REALTORS® (NAR) continues to follow developments on the implementation of the Tax Cuts and Jobs Act (TCJA) and recently took action on behalf of those who own and manage rental properties to ensure the act covers income gained through rent collection. On September 27, NAR submitted a letter to the U.S. Treasury Department and the Internal Revenue Service (IRS) asking that all real property rental activity be eligible for the 20 percent deduction allowed for qualified business income under the TCJA. The letter stated that all rents from real property should qualify, as it seemed clear that Congress intended for rental income to be treated as income eligible for the deduction. NAR went on to express that without the change, millions of individual taxpayers who earn rental income from real property would face the burden of interpreting voluminous and confusing references to tax authority to determine whether they are eligible.

The IRS will hold a public hearing on the proposed regulations on October 16. NAR has requested that a representative of the association be allowed to testify on this issue.
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IREM’s South Africa Program Recognized by ASAE

When the American Society of Association Executives (ASAE) held its 19th annual Summit Awards dinner last week in Washington, D.C., IREM was one of the associations recognized as a Power of A Silver Award recipient. This recognition was given to IREM for its work in establishing a pathway to a professional credential in real estate management in South Africa.

Through collaboration with Witts University in Johannesburg and the South African Institute of Black Property Practitioners (SAIBPP), IREM successfully introduced the CPM designation to the South African real estate market, representing a significant first step in enhancing the recognition of property management among real estate owners and investors and elevating property management as a viable career choice.

ASAE created the Power of A Awards to showcase how associations leverage their unique resources to solve problems, advance industry and professional performance, kick-start innovation and improve world conditions.

The program in South Africa led to the formation of IREM’s first chapter on the continent of Africa, the IREM South Africa Gauteng Chapter, which was officially approved at the IREM Global Summit last month. Through the Minister of Public Works of the Republic of South Africa, T.W. Nxesi, who was present for the chapter formation, the government pledged its support to the chapter and to helping to bring much-needed education and standards to property management in South Africa.
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Spend Your Time Wisely with a New IREM Webinar

Time is one of our most valuable resources, yet we often squander it on unnecessary activities, to the detriment of more worthy endeavors. IREM’s new webinar, How to Master Your Calendar, goes beyond your daily planner by challenging you to look more deeply at how you spend your time, so you can invest it in the areas that mean the most to you—personally and professionally.

As part of How to Master Your Calendar, presenter and Eversmarts™ founder Gip Erskine, CPM, CCIM, will cover:

• 10 time bombs that prevent effectiveness and tips to avoid them
• Five success strategies that identify and prioritize what matters most
• Seven keys that boosts the probability of making the process work

This informative session will take place Tuesday, October 16, at 1PM CST. Ready to register and regain control of your day, your, month, your year? Click here.
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Industry Headlines


What Do Asset Managers Want?
Commercial Property Executive (10/02/18) Rosta, Paul

At the Institute of Real Estate Management's Global Summit, experts representing everything from asset management to property management to academic research discussed asset managers and their role in today's commercial real estate landscape. Among them was Dustin Read, an associate professor of property management and real estate at Virginia Tech University. He stated, "Asset managers are looking for property managers to understand the investor's strategy. Half the folks we talked to said, 'They don't know our strategy and they're not asking.'" Asset managers also look for the value property managers add by providing market insight. Transforming data into actionable information is one of the key ways for property managers to add value, according to Read.

To add value most effectively, property managers are being urged to think boldly, take the initiative, and act like a partner. Bryan Furze, senior vice president of asset management at Federal Realty Investment Trust, stated, "I need someone who's going to demand a seat at the table." In the end, boosting the bottom line is an area property managers can contribute to enormously. Furze concluded, "It's actually a lot easier to reduce operating expenses than it is to drive revenue."
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Shopping Mall Vacancies Are Highest in Seven Years After Big-Box Closings
Wall Street Journal (10/04/18) P. B1 Fung, Esther

A rise in shopping mall vacancies across the United States has placed downward pressure on rents, which could signal that many retail centers are struggling despite strong economic growth and improved consumer confidence. Mall vacancy rates reached 9.1 percent in the third quarter, rising from 8.6 percent in the second quarter and marking the highest rate since hitting 9.4 percent in the third quarter of 2011, according to Reis Inc. Lower-end malls have not benefited from the broader revival, particularly those in Pennsylvania, Ohio, Michigan, and other more economically depressed areas with a glut of shopping centers.

Meanwhile, malls in wealthier neighborhoods with less competition continue to attract tenants. In fact, many are adding "new users like restaurants and theaters," observes Sandler O'Neill + Partners LP senior analyst Alexander Goldfarb. Finally, retailers are scrutinizing their bricks-and-mortar footprint and investing more in their online presence to accommodate a wider pool of shoppers who use different channels.
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Mattress Firm Bankruptcy: Nation's Largest Mattress Retailer to Close 700 Stores
AL.com (10/06/18) Gore, Leada

Mattress Firm, the country's biggest mattress retailer, filed for Chapter 11 bankruptcy this past Friday. In doing so, it announced plans to permanently shutter 700 "under-performing" stores. As many as 200 locations will close quickly with decisions on approximately 500 others coming in the next few weeks, according to a company statement. Mattress Firm currently operates about 3,300 stores in 49 U.S. states. However, the chain has struggled in the last several years as online competition in the mattress industry has mushroomed. Mattress Firm is expected to complete restructuring within the next two months. President and CEO Steve Stagner said the bankruptcy process will enable the retailer to "strengthen our balance sheet and accelerate the optimization of our store portfolio."
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The New Office Water Cooler
Buildings (10/05/18) Penny, Janelle

In office settings, the classic water cooler is giving way to multitasking machines that deliver still, sparkling, and flavored beverages with a fraction of the traditional footprint. Such water dispensers as Bevi and Vivreau systems serve up fresh, filtered beverages customized to the user's taste. At the same time, they eliminate cans and plastic bottles. Davin Wickstrom, business development manager for Vivreau, remarks, "One of our foundation goals is to eradicate plastic bottles from oceans and waterways, plus the man hours used to stock plastic bottles and the trucks to bring them." Sparkling and flavor taps appeal to younger office workers who grew up with such drinks as LaCroix. Vivreau is presently beta-testing flavors. Meanwhile, Bevi offers a choice of four at a time from a menu of 15, from unsweetened options like lemon and cucumber to sweetened ones like blackberry-lime and watermelon. Certain models, such as Vivreau's ViTap, can also dispense hot water to appeal to tea drinkers.

The small footprint of these units make them ideal for office breakrooms and any setting with limited counter space. Even the bigger units, most notably Vivreau's high-volume bottler for conference centers and meeting facilities, install easily under a counter with a space-saving tap on top. Both Bevi and Vivreau hook up to an existing water line and tuck the chiller, carbonator, and other components away inside a cabinet. "Counter space in corporate campuses is real estate," Wickstrom states. "Now you're not taking up a huge portion of people's breakrooms."
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Booming SF Hits New High for Office Rent, Beating Dot-Com Record
San Francisco Chronicle (10/03/18) Li, Roland

Cushman & Wakefield research shows that San Francisco hit a record-high price for office space during this year's July-through-September period, surpassing the previous high reached during the dot-com boom in 2000. Rents for new offices in the city's central business district topped $81.25 per square foot in the third quarter, besting the previous mark of $80.16 per sq. ft. in 2000's fourth quarter. In less than a decade, San Francisco-based startups ranging from Airbnb to Twitter to Uber have grown into major companies that have leased millions of square feet of new offices. For its part, Salesforce has emerged as the city's biggest private employer as it snapped up office towers downtown.

The city's average Class A asking rent has soared 124.1 percent since 2010, according to JLL data. "You've got real businesses that are operating, in some cases, with billions of dollars in cash flow," remarks Steve Anderson, managing director at JLL. "That was not the case in the dot-com era." In just the last year, Facebook has signed leases for a couple of new towers in San Francisco where real estate pros said rents surpassed the $100-per-sq.-ft. mark. Not to be outdone, Google now owns and leases a row of five office buildings near the Embarcadero. "Large tech companies have decided, for a host of reasons, they need or want to be in San Francisco," concluded Anderson. "The target employee that they're looking for does not want to commute." Instead, they prefer to be in an urban locale.
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Apartment Renters Paying Average of $41 More a Month Than a Year Ago
REJournals.com (10/05/18) Rafter, Dan

The latest Yardi Matrix study shows that the average monthly apartment rent nationwide continues to rise. According to RENTCafe, reporting on data from Yardi Matrix, the average apartment rent stood at $1,412 at the end of last month -- 3 percent higher, and $41 more a month, than where this figure stood a year prior. However, September's average apartment rent did drop slightly (0.1 percent) when compared to the month before. It marked the first time since February that average rents posted a month-over-month decrease. Looking at the Midwest, apartment renters in Chicago are paying significantly more on average each month. Yardi Matrix's numbers show that units in the Windy City cost $102 more to rent on average than they did just a year ago. In Columbus, Ohio, renters paid an average of $41 more to rent versus September 2017, while they paid an average of $28 more in Indianapolis when compared on a year-over-year basis.
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Landlords Get Innovative to Fill Vacancies
Multi-Housing News (09/28/18) Chatzieleftheriou, Alexandros

Both the National Apartment Association and the National Multifamily Housing Council recently predicted that demand for apartments will skyrocket over the next decade. As a result, apartment owners and operators nationwide are seeking innovative ways to set themselves apart in an increasingly competitive landscape for new multifamily housing development. For owners with vacant units that need to be filled, there are several options to minimize the time that their apartments sit empty. Three of the more rapidly emerging trends are explored in the article, including co-living partnerships. "Co-living" apartments enable building owners to give renters the option to double- and triple-up with roommates in shared suites. Such companies as Ollie and WeLive are now partnering with developers on co-living projects in markets throughout the United States.

Short-term stays are a second trend. While Airbnb has primarily served thrifty tourists since it was founded in 2008, the short-term leasing service has also attracted a number of business travelers. Companies are finding they can save money on short-term corporate housing costs that can instead go to such other expenses as conferences and retreats. Airbnb and CouchSurfing, among others, can help apartment owners achieve both 100 percent occupancy and steady cash-flow. But it's also important to understand they bring with them certain challenges. In New York, for example, it is illegal to lease an unoccupied apartment for fewer than 30 days. A third and final trend explored in the article is fully furnished apartments. For owners and managers, partnering with services that offer these living options is the best bet to ensure full occupancy for several years.
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Why WeWork Is Expanding Its Footprint in Orange County
GlobeSt.com (10/08/18) Borland, Kelsi Maree

Orange County, Calif., has been slow to adopt co-working offices, but that may be changing. WeWork is in the process of opening a third location in the county. This new facility in Irvine will target professional and business services and is being touted as further proof that co-working is poised for growth in the market and in new industries. Orange County will now have more WeWork locations than San Diego, but continues to lag far behind the 19 locations spread throughout Los Angeles. "We've seen interest in joining WeWork span far beyond our traditional tech startups and small business into professional services and enterprise," Kley Sippel, general manager for Southern California at WeWork, remarks. "Orange County is home to all those types of business, so it only makes sense that we'd start building the WeWork community there, too."

Orange County's slower growth may not be a sign of lower demand for co-working. It could just be there are more facilities in L.A. available to accommodate the co-working space and the characteristics WeWork requires in a building to move such a project forward. The newest WeWork location in Irvine fits the company's needs. It will hold the distinction of being the biggest co-working facility in the county, able to accommodate more than 1,000 members. Best of all, the building offers a wide array of amenities, ranging from bicycle storage and outdoor lounges to a fitness facility and on-site dining options. "The best WeWork locations are those that anchor the local community," concluded Sippel.
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Vermont Department of Public Safety Announces New Federal Sprinkler Law
VTDigger (09/24/18)

Federal tax reform legislation passed last year contains federal tax incentives for business owners to install fire sprinkler systems in existing buildings. The Division of Fire Safety, within Vermont's Department of Public Safety, wants business owners in the state to familiarize themselves with these tax incentives, such as allowing business owners to deduct the cost of retrofitting properties with fire sprinkler systems as a Section 179 expense. These federal tax incentives will sunset on December 31, 2022. Under the new law, Congress has added fire protection as an eligible expenditure under section 179 of the tax code.

Congress also increased the cap to $1 million as the amount that small business can deduct in a single year. This provision applies only to commercial buildings and cannot be used for retrofitting sprinklers in multifamily housing. Qualified commercial properties located within a state-designated downtown or village center may be eligible for additional state tax incentives for sprinklers and other code and building improvements. The National Fire Protection Association says the death rate per 1,000 reported fires was 87 percent lower in buildings with sprinklers than in those structures without them. Meanwhile, the civilian injury rate was 27 percent lower, and the fire fighter injury rate was 67 percent lower.
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Developers Planning 85 Apartment Complexes Across Houston
Houston Chronicle (10/05/18) Sarnoff, Nancy

Over this past summer, researchers tallied 68 apartment complexes proposed for sites throughout the Houston metro area. Today, there are a total of 85, according to the latest numbers from ApartmentData.com. Metro Houston's growing apartment development pipeline is primarily a result of strong job growth and last year's hurricane, which accelerated demand for new rental units as thousands of evacuees fled to rental apartments. While many of the displaced have moved back into their homes or found alternative living arrangements, there has yet to be a huge drop off in occupancy. The average apartment rent was $1,030 as of the end of the third quarter, up 3 percent year over year, ApartmentData reports.
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How Much Interest Would Washington REIT’s Portfolio Get if It Comes on the Market?
National Real Estate Investor (10/04/18) Wolf, Liz

Washington Real Estate Investment Trust appears to be streamlining its holdings at a time when property professionals are viewing diversified REITs with some skepticism. The Washington, D.C.-based REIT is looking to sell its 16-property retail portfolio, which contains more than 2.3 million square feet of space and consists of grocery-anchored community and neighborhood centers and regional power centers. All of its properties are concentrated in the D.C. metro area, and the REIT has contracted with an adviser to reach out to potential buyers. The properties could bring in approximately $800 million. "I don't think it's too surprising they're looking to sell off the retail portfolio," remarks Green Street Advisors analyst Danny Ismail. "It would be an easier story for them to sell if they were simply an office and apartment REIT in the Washington, D.C. region." Both of those sectors have registered faster net income growth than its retail properties. The REIT's total portfolio consists of 48 assets totaling more than six million sq. ft. of commercial space and over 4,200 rental apartments.

The potential sale of the shopping centers would come at a time when various e-commerce players are taking a big chunk out of retail centers' bottom lines. Washington REIT lowered its same-store retail NOI growth expectations as part of its guidance in its second-quarter 2018 earnings mainly because of "some lease commencement delays." Company officials say the retail portfolio is diverse with gyms, grocery stores, restaurants, and off-price retailers among the most attractive and stable tenants. They estimate that nearly 70 percent of the REIT's retail tenant base is "e-commerce resistant." Overall, the retail portfolio is 91 percent occupied with key tenants ranging from Costco and Food Lion to Gold's Gym and HomeGoods.
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Booming San Francisco Takes Unprecedented Step to Target Earthquake-Vulnerable High-Rise Towers
Los Angeles Times (10/04/18) Lin II, Rong-Gong

Late last week, San Francisco released a list of more than 150 of its tallest buildings, including many constructed before modern seismic codes, as part of an effort to assess the city's resilience against earthquakes. Officials are also calling for new construction rules to prevent unanticipated sinking of buildings and to make tall structures more resistant to wobbling during an earthquake. Further study is needed to determine which buildings, if any, are vulnerable and need a retrofit. "We must act before the next earthquake strikes to ensure the safety of residents, workers, and visitors," says San Francisco City Administrator Naomi Kelly.
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