Archives for October 2017

In this EXCLUSIVE Q&A, Robin Weckesser, president and founder of a3 Workplace Strategies, reviews how the new kids in the workplace differ from previous generations and discusses how corporate executives can respond.
Robin Weckesser, president and founder of a3 Workplace Strategies.
Look for balance in workplace solutions, not “one size fits all.”  That is one of the solutions provided by Robin Weckesser, president and founder of a3 Workplace Strategies, when chatting with GlobeSt.com about Generation Z and workplace design solutions. Check out the below Q&A for more on the subject and how you can prepare your office for both generations.
GlobeSt.com: What’s the big deal about Generation Z?
Robin Weckesser: While Millennials at work continue to make noise and generate headlines, quietly falling under the radar is the fact that Generation Z—those born between 1994 and 2010—is now the largest portion of the U.S. population.
Other generations have of course entered the workforce over the years, but this is different.  While Baby Boomers continue to retire, and Millennials assume more management positions, the “new kids on the block” are beginning to assert themselves and impose their values on workplace transformation strategies, including the ubiquitous open office.
GlobeSt.com: How does Gen Z differ from other generations?
Weckesser: Gen Z is similar to Millennials in that both groups enjoy multi-tasking and have an affinity for technology, but there are some telling differences.  For example, Gen Zers were very young or not born when the 9-11 attacks occurred. They have no idea what it’s like to live in a world without terrorism, and this this may cause them to feel unsettled and circumspect.
Even more so than Millennials, Gen Z is unique in that technology may be their sixth sense. Gen Zers are digital natives born into a digital world. They grew up with smart phones, iPads, broadband, and Instagram, along with all the latest techie trends that they are quick to adopt.  They are intuitive about social and digital media, and integrate all the latest apps into their socialization patterns.
GlobeSt.com: What do studies tell us about Gen Z?
Weckesser: Studies about Gen Z reveal some intriguing stats:

• 77% of 12-17 year-olds owned smart phones in 2015. They spend more than three hours a day using computers for purposes other than schoolwork. About three-quarters use their smart phones daily, more than they watch TV.
• They will likely generate $44 billion in annual spending, and this will affect the purchase of toys, apparel, food, entertainment, TVs, mobile devices, and, of course, computers.
• They are a self-conscious generation that wants to be in the know at every moment. If it’s not on social media, it didn’t happen.
• Gen Z uses social media to strengthen bonds with friends and develop new friends. They interact with people who they otherwise would not have met in the real world.
• Topping the list of employee benefits valued by Gen Zers is workplace flexibility.
• Gen Z students self-identify as being loyal, compassionate, thoughtful, open-minded, responsible, and determined.

GlobeSt.com: What about collaboration at work?
Weckesser: Generation Z college students prefer intrapersonal and independent learning over group work.  Solo work preference translates to workplace behavior, as only 38% said the ability to collaborate in the workplace was key to enabling their best work. This runs counter to most Millennials who generally thrive in collaborative environments enabled by open workplaces.
GlobeSt.com: How does Gen Z shape the workplace and impact its design?  And how should facility managers and corporate executives respond? 
Weckesser: Here are some tips:

• Look for balance in workplace solutions, not “one size fits all.” Flexible workplace design will likely include more “hybrid” offices that combine private space for heads-down work as well as open areas that promote collaboration.
• Be willing to train and educate staff regarding the benefits of different work settings. This begs the need for change management programs.
• Engage forward-thinking, experienced workplace consultants. The evolving, multi-generational workplace has spawned a new breed of contemporary project managers. These specialists embrace a holistic approach that accents sensitivity to all demographics in the workplace—and strives to find common ground.

GlobeSt.com: What lies ahead?
Weckesser: 37% Gen Z’s polled aspire to be a corporate leader, and 49% expect to work in their current industry their entire career.  So we need to welcome a new wave of decision-makers.
Gen Zers are demonstrating that they dream big and have a “we can change the world” attitude.  So maybe some DNA from the Baby Boomers has been transferred, which isn’t a bad thing.
GlobeSt.com: How can we prepare?
Weckesser: Drastic change won’t occur overnight, but it’s coming, and we need to be prepared.  We need to consider a new way of thinking to accommodate “new kids” and “older kids,” encouraging them to play nice in the sandbox. It’s all about adaptation and innovation for all generations working together.  It’s about the need to be sensitive to different styles while we’re still mindful of common corporate objectives and the bottom-line.
By: Natalie Dolce (GlobeSt)
Click here to view source article.

While it’s just a blip, apartment home and lease fraud is now being measured on the Federal Trade Commission’s identity theft and fraud radar. Three years ago, identity fraud or theft related to the lease housing industry first showed up on the agency’s annual Consumer Sentinel report. The number of complaints − albeit just a small percentage of those about people posing as someone else – has increased.
U.S. consumer grievances involving identity theft have risen sharply since 2012. Last year, identity theft ranked third highest with 399,255 complaints (13 percent) on the list of 30 types of consumer complaints FTC measures. It was the number one complaint (46 percent) by enlisted military personnel.
The cost of identity theft and fraud is significant, last year soaring to $16 billion, according to the 2017 Identity Fraud Survey conducted by Javelin Strategy & Research. JS&R noted that weak identity verification processes contributed to the rising cost of identity fraud.

Identifying imposters becoming more critical during online leasing process

Whether it’s the use of synthetic or real consumer data to create fraudulent identities, the multifamily industry is having a rough ride. This is an alarming crime that, in a lot of cases, is becoming easier for thieves via online access. An imposter who signs a lease and doesn’t pay can cost a property thousands in not only lost revenue but turn costs, even damage, in just a short time before being evicted.
As the industry’s online picture continues to evolve, identifying imposters becomes more critical for properties who may never make a personal connection during the lease process.
“There are instances where people apply online with a false identity, move in, damage the apartment, stop paying rent and it costs a community thousands of dollars before kicking them out,” said Mark Wilkinson of RealPage Screening. “Up to 80 percent of applicants apply online, and that makes it easier to pose as someone else. You can’t verify their identity. A lot of communities might not double check before they move in or can’t tell if it’s a fraudulent document versus a real document. It’s probably more prevalent in last couple of years.”

Authenticating an applicant’s identity in addition to criminal, financial checks

RealPage Screening recently rolled out its new Identity Verification enhancement, a new feature that authenticates an applicant’s identity, in addition to running the existing criminal and financial checks.
The software performs a device assessment (phone, tablet, laptop, etc.) and identity validation for each applicant applying online. The company says the product will successfully validate more than 90 percent of applicants and filter the remaining applicant population into risk categories during the online application process.
High-risk applicants are flagged using a predetermined index score, or specific identity triggers. For example, an applicant who inputs the identity or social security number of a deceased individual or someone using multiple social security numbers gets flagged. Applicants who are considered medium-risk will be sent a one-time verification code via SMS text, email or voice call as they apply online to authenticate the information, a two-factor authentication process.
The applicant won’t be allowed to go to the next screening step until they pass this vital identity verification process. The service is similar to verification processes enacted by financial institutions when users change passwords and get a text or email requiring verification, says Wilkinson.
“It’s all taking place within seconds and doesn’t interrupt the consumer experience,” he said. “If the applicant is considered medium-risk they will receive the verification code right then and can go through the verification code process two or three times. If the online applicant fails either the device assessment or the identity validation the will receive a message to contact the leasing office to gain or provide further information.”

Going the extra step to avoid costly business decisions

Wilkinson said the industry isn’t immune to this activity and more and more of the company’s customer base is experiencing fraudulent renters. While the topic isn’t taboo, it’s clear the issue is mounting. Losing thousands of dollars in rent and turn costs because of an imposter is something most won’t discuss even if the applicant passed criminal and financial background checks.
Going the extra step of verifying personal identity lessens the potential that a property will be left holding the bag. The key is first verifying the identity of the applicant.
“It’s taking the traditional two-step check and adding in a vital third check,” he said. “Properties need to act, put the necessary barriers in place to protect their properties, residents and staff from being the next victim.”
By: Tim Blackwell (Property Management Insider)
Click here to view source article.

Every four years, the American Society of Civil Engineers (ASCE) publishes a report card grading the current state of national infrastructure categories on a scale of A through F.
“Since 1998, America’s infrastructure has earned persistent D averages, and the failure to close the investment gap with needed maintenance and improvements has continued,” the organization lamented in its May report, Failure to Act: Closing the Infrastructure Investment Gap for America’s Economic Future.
What we can expect: Increased travel times due to poor roads and airports; unreliable utilities due to an aging electric grid and inadequate water distribution; and higher costs for businesses to manufacture and distribute goods and provide services. By 2025, ASCE estimates this will have a $3.9 trillion impact on the U.S. GDP, $7 trillion in lost business sales, 2.5 million lost jobs, and cost families $3,400 per year in disposable income, it predicts.
The investment gaps through 2025 are staggering: $1.1 trillion for surface transportation, $105 billion for water and wastewater, $177 billion for electricity, $42 billion for aviation, and $15 billion for ports and inland waterways. But the ASCE contends that if Americans invest $3 more per day per family until 2025, the costly investment gap can be eliminated.

The Impact on Commercial Real Estate

The Trump Administration’s $1 trillion infrastructure pledge is a drop in the bucket, said Tranwestern director of GIS/location intelligence research Brian Landes.
“There’s great appetite among American citizens for both local and state government to fund such projects,” he said, noting this past November, 45 large cities proposed major infrastructure measures, and 33 of them passed. Now is the time to embark on such projects, he continued, as we’re in a low interest rate environment allowing us to borrow money more affordably for municipal projects.
One of the greatest current examples of neglected infrastructure is New York. After a series of derailments and costly delays impacting Amtrak, New Jersey Transit, and Long Island Rail Road at New York Penn Station, Amtrak—which owns the major transportation hub—accelerated infrastructure improvements to the station’s tracks and switches this summer, resulting in the frustration of cancelled trains and service changes for all three railroads.
The station already faces capacity issues that could be partly resolved by the Gateway Project, a $20 billion effort between Amtrak, the U.S. Department of Transportation, the Port Authority of New York and New Jersey, and the States of New York and New Jersey to increase capacity and alleviate congestion between Newark and New York City.
“The project intends to double the number of passenger trains that can travel into New York, which will make life easier for commuters and further boost demand for office space,” Landes said. “Office tenants will face less pressure to move operations to the suburbs, while the suburbs and multifamily properties in transit-oriented areas will see greater demand from shorter reverse commute times.”
The Gateway Project is only one example of how infrastructure can positively impact commercial real estate. He also pointed to efforts in Los Angeles, which has built more mass transit lines than any other city over the past three decades. “It has always been known as a car-centric city, but it’s focused on making the city more accessible to everyone,” he said. “It’s had a positive effect on the market, decreasing transportation times, commute times, and shipping times.”
Another city significantly improving transportation is Denver, whose Regional Transportation District (RTD) FasTracks program will add 122 miles of new light and commuter rail, 18 miles of bus rapid transit, 57 new transit stations and enhanced bus/rail connections. Since 2005, $5.5 billion has been invested or committed; RTD said every $1 invested in transit infrastructure translates into a $4 return over 20 years.
There has already been significant growth in residential development throughout the system, while commercial real estate activity has been more noticeable the past few years, according to RTD senior managing director for transit oriented communities Bill Sirois. In its Southeast Corridor, three quarters of commercial buildings developed over the past decade have been focused around rail, according to consulting studies.
South Florida and Charleston are two other success stories highlighting the impact of infrastructure investment.
Investment in Miami-Dade and Broward County’s ports and airports have resulted in Miami International Airport becoming the largest international airport in the U.S. when it comes to cargo volume—the ninth in the entire world—and it is the second largest international passenger hub with 109 airlines serving 154 cities with non-stop flights, according to Infinity Commercial Real Estate Partner John Dohm, SIOR, CCIM, Pa.
Additionally, Fort Lauderdale-Hollywood International Airport is in the top five fastest-growing airports in the U.S., while PortMiami and Port Everglades handles one million TEUs [a twenty-foot equivalent unit, used to measure container ship capacity] annually, he said.
The region has also benefited from the $5 billion expansion of the Panama Canal, with PortMiami being one of the few post-Panamax East Coast ports that can currently handle the largest ships, further opening shipping to and from the U.S. and South American Countries.
“Suddenly, Miami and the surrounding area are the jumping points to South America and no longer the ‘end of the line’ they once were,” Dohm said, noting this activity has created desire among institutional developers to be in Miami-Dade and Broward counties.
Charleston has also invested significant capital in preparing for a post-Panamax boom.
International intermodal rail lifts have already increased 170 percent since 2011, with 23 percent of the Port of Charleston’s containerized import and export volume moving by rail. This growth has led to the success of Inland Port Greer, which handled a record 103,639 rail lifts last year.
This growth spurred construction of a second inland port facility, called Inland Port Dillon, which will be served by CSX (Inland Port Greer was only served by Norfolk Southern). The project’s initial phase, delivering in 2018, is expected to handle at least 45,000 containers annually and handle the growing intermodal cargo volume between the Port of Charleston and markets throughout the Carolinas, Northeast, and Midwest.
Also under construction is the Hugh K. Leatherman, Sr. Terminal, a new, 280-acre terminal which, at build out, will boost capacity in the port by a full 50 percent, according to the South Carolina Ports Authority. Construction is currently underway, and the anticipated opening date of the terminal’s 171-acre first phase is planned for 2019. Nearby Port of Savannah is also expanding its intermodal transfer container facilities.
“Charleston and Savannah’s efforts, combined with the efforts of other East Coast ports—including New York and New Jersey, Norfolk, and Baltimore, as well as the raising of the Bayonne Bridge to 215 feet above water—will attract more larger vessels to the East Coast,” said Hagood Morrison, SIOR, MBA, Colliers International senior vice president and principal.
But there is still much to be addressed on the industrial side, according to JLL managing director, economist, and chief strategist Dr. Walter Kemmsies.
For one, the amount of GDP the country has spent on infrastructure has stepped down since the 1960s and 1970s, with more of the money supporting imports than exports. More robust roadways and waterways are needed to support the heavier exports, and the U.S. has generally neglected the Mississippi River System, he said, which has negatively impacted these exports.
And as e-commerce has taken off, ports need more inventory and more space—which is why intermodal facilities are critical.
“If you look around cities such as Los Angeles, Seattle, and New York, they’re pretty congested,” Kemmsies said. “With these primary markets saturated, it makes sense to put intermodal facilities in secondary locations that can serve larger geographic footprints. Instead of shipping something from the Port of Los Angeles to Chicago, why not ship to Nebraska or Kansas City? It’s faster and cheaper.”
These facilities also address decreased investment in roadways, which have suffered from funding deficits for the past 10 to 15 years, he added. Roads were not designed for such heavy use, and poor investment, in turn, has impacted the retail sector—consumers now see shopping in stores as expensive, a test of patience and requiring too much endurance.
There’s been some talk about public-private partnership to address this lack of investment, he said, but they historically haven’t been successful. The problem lies in the lack of enabling legislation from both the state and federal level, he noted.

The Power of Technology

Infrastructure investment less talked about—but critical for commercial real estate—is technology.
“I can talk to a colleague or fellow SIOR member in any state, and he or she might as well be right next to me in Washington, D.C.,” said Pete Larson, SIOR, executive vice president at Transwestern, pointing to greater relationship potential, more opportunities, and allowing professionals to accomplish more in less time.
“Like retailers use oceans and highways to ship product and information, our industry does so over the computer and phone,” he continued. “We don’t even need to have formal introductions to expand our footprint across the country and conduct business. The work we can now do all over the world is fascinating—I’ve sold properties in places that I’ve never even stepped foot in.”
Technology is also a way to invest in other infrastructure, Kemmsies added. For instance, tech transponders can feed information to a system and adjust traffic patterns if need be, a system already in play on Interstates 5, 105, and 710 in Southern California.
“If traffic starts to clump up, the transponders automatically lower the speed limit, which breaks clumps of traffic up,” he said. “Then the average speed goes up, the more traffic can go through, and you have a more productive highway system. However, we’re woefully underinvested in technology.”
By: Amanda Marsh (SIOR)
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For over a half decade we’ve been in an up-cycle, and commercial real estate professionals are starting to wonder how much momentum is left before the inevitable happens and the market begins heading south; or to put it a little more colorfully, is the bull market headed for the abattoir?

If markets were interference free, they generally would run about seven to 10 years before turning, but government oversight and financial engineering has both extended cycles and crashed the economy. After a severe recession in the mid-2000s (felt most strongly in the commercial and residential real estate industries) there has been a long, sloping recovery. While it’s hard to read the tea leaves, it appears that parts of the commercial real estate market might have peaked.
“This up-cycle began in 2011 and so here we are seven years into a cycle that usually runs 10 years from peak to peak,” observes Jim Anthony, SIOR, CEO of Colliers International in the Raleigh-Durham office. “There are signs that the market is finally moderating, including a halt to cap rate compression and even some moderate cap rate rising.”
For the local view, SIOR Report checked in with commercial real estate professionals in cities in the Southeast, Midwest, and Southwest, and for a national perspective, Colliers International supplied some data points.
For our most recent data, as of the first quarter, Colliers reports office market fundamentals are at the strongest point in the cycle with peak occupancy and record rents, yet it also stated the market is cooling: occupancy is static, rental improvements are moderating, while investor strategies shift to suburban and secondary markets for higher yields.
Meanwhile, industrial markets continue to look so good, talk of the bull market going to pasture is almost non-existent. The U.S. industrial market held strong in the first quarter of the year, reports Colliers. Overall net absorption helped drop the vacancy rate to an all-time low, while demand kept new development solid and pushed asking rental rates to an all-time high.
For those on the transaction side of the business, Colliers was positively buoyant: nearly $14 billion in industrial assets changed hands in the first quarter of 2017, 3 percent higher than first quarter last year.
So let’s take a look at what all that means in a few local markets: two areas of the country red hot for growth, North Carolina and Arizona; and one with slower economic expansion, the Midwest.
Except for Florida, no other eastern state has experienced as much expansion as North Carolina. For folks in the commercial real estate business, tar-heel interest usually just meant Charlotte, but that has changed over the past decade with Raleigh getting a lot of new attention.
“Raleigh has gotten much buzz about being a burgeoning tech market and a destination for millennials,” says Anthony. “We have biotech and entrepreneurial software companies popping up. Job growth has been extremely positive and that has led to population growth.”
Just how buzzworthy is Raleigh?
“From 2014 through 2016, there were dramatic increases in the volume of investment sales in all property types,” says Anthony. “Apartments have traded hands furiously, industrial has been bid up to the highest levels in our market in terms of price per square foot and lowest cap rates, and Class A industrial buildings have seen sales at $80 a square foot. The best properties with the highest clear heights and best quality buildings haven’t sold for under $60 a square foot.”
Anthony adds, a few office transactions have achieved record prices and $330 a square foot has been recorded three times in our market. A mixed-use property that Anthony’s company sold, Pavilion East at Lakeview, went for $335 a square foot.
While that all sounds great, Anthony cautions Raleigh has seen the peak in pricing for this cycle and the velocity of investment sales have begun to slow. Sellers trying for record prices have been disappointed, which Anthony says, “tells you investors are not comfortable pushing the market up anymore. They are now anticipating moderating prices.”
In Raleigh-Durham, multifamily cap rates are still in the 4 to 5.5 percent range depending on class and location. There were some sub-4 percent sales back in 2015, but those are no longer happening, says Anthony. Office market sales are usually 6.5 to 8 percent cap rate, while industrial cap rates range from 6.5 percent for long-term good credit leases, up to 8 percent for lower class older properties.
I’ve been through a number of cycles,” says Anthony. “I don’t see any imminent reasons why there would be a crash, but we are definitely going to see moderation in pricing.”
Just a two and a half hour drive to the southwest sits North Carolina’s biggest city, Charlotte, which, unlike Raleigh, expects good times in commercial real estate to continue.
“The bull market is not nearing an end,” says John Culbertson, SIOR, CRE, CCIM, the managing partner for Cardinal Partners in Charlotte. “Everyone is looking at multifamily where there are signs of slowing, but indications suggest not enough housing and a lot of smart developers are continuing to look for new apartment sites.”
Charlotte dominates Mecklenberg County, which for the past 10 years, has been one of the fastest growing metro areas in the country. Home to Bank of America and other large banks, Charlotte was resilient during the downturn. The big surprise is that Charlotte is also the entry point for the burgeoning automotive industry in nearby South Carolina.
“The industrial sector is hot,” says Culbertson. “Rents continue to rise and there is a lot of development that is in the pipeline. I anticipate continued growth in the industrial sector here because we are an economy driven by the momentum of our own growth, which continues to have long-term growth projections for distribution. E-commerce is also expanding, accounting for 9 percent of total industrial absorption right now.”
Charlotte is a more regional e-commerce industrial market for companies trying to get same-day or next-day delivery. As a result it gets few 1 million-square-foot facilities; most distribution buildings are in the 250,000 to 500,000-square-foot range.
“Occupancy rates have been at record levels (93.1 percent occupancy for Class A space) and absorption is the highest since 2005,” says Culbertson. “Rents are up 15 percent over the past three years. Market rents for Class A is $4.65 a square foot. Over the next six months, vacancies will increase as new products are being brought on the market. Rental rates should remain steady.”
Culbertson concludes, “The easy money for investors has been made, but there is still money to make.”
The fastest growing county in the country is not in North Carolina, but in Arizona. Maricopa County, home to the sprawling Phoenix metro, takes the title, and as can be expected the commercial real estate market has been good. Peter Batschelet, principal and industrial specialist with Lee & Associates in Phoenix, doesn’t expect that to change any time soon, especially in regard to industrial.
“If the country continues at a 1.5 percent or 1.9 percent GDP growth that’s good, we’ll have another 18 to 24 months without a hiccup – provided all the external factors remain stable,” says Batschelet.
As for Phoenix, Batschelet comments, “we are not blowing the national markets out of the water, but we are exceeding every bar being set right now. As wages improve in Phoenix (growing 50 percent higher than national average) more people move here.”
In regard to industrial, the sector is diverse with big transportation, manufacturing, and construction occupancies. “We have an extreme amount of demand and little supply,” says Batschelet. “Contractor yards – they don’t exist; manufacturing buildings are hard to find; and in bulk distribution there are few opportunities. Supposedly there are 3 million or 4 million square feet of leases circling Phoenix right now.”
Phoenix is a big industrial market with 350 million square feet of space. Occupancy for the whole market stands at 9.6 percent. “We are trending in the right direction,” says Batschelet. “If we land a few of these bigger deals our vacancy will drop very quickly. We still have speculative building going on.”
Phoenix also boasts a lot of incubator product, meaning 2,500 square feet to 5,000 square feet. Generally, those vacancies are less than 5 percent.
“We see all these smaller companies coming out of the woodwork,” says Batschelet. “When you see these smaller spaces being filled up, that is a great sign.”
Phoenix, Charlotte and Raleigh have benefitted from capital moving from the core cities of New York, Boston, and San Francisco to secondary markets as investors look for better yield. Capital has also pushed into the middle of the country and a later beneficiary has been the Midwest.
“Across the entire Midwest we have enjoyed enormous investment interest,” says Mark Kolsrud, SIOR, CPM, a senior vice president at Colliers in Minneapolis. “We have attracted a lot of displaced capital, which has moved from core markets because of ridiculously low returns. Cities like Minneapolis have seen new investments because investors just can’t satisfy their yield needs in these other markets.”
The difference in returns on a core asset, whether it is industrial or office, can be 150 bps, between Minneapolis and primary cities.
Kolsrud’s company boasts buildings for sale in 14 states across the Midwest. For example, it has a five building industrial portfolio in the Minneapolis market that’s 820,000 square feet. “We are getting incredible interest from local, national, and international institutional buyers,” Kolsrud says.
Foreign capital has been chasing two Midwest, multi-state aggregations that Colliers is brokering, a portfolio of 24 buildings, all single-tenant net lease and another portfolio of 13 single-tenant, net-lease buildings.
“We have more deals today than last year at this time,” Kolsrud says.
He is very optimistic for the near future. “In the second-tier markets things will get even better. Through the next 12 months we’ll see the current trend keep going. A lot of product sitting on the sidelines is poised to hit the market so I expect good activity.”
The only negative on Kolsrud’s crystal ball is that there might be some slowdown in core assets such as CBD office buildings and larger, high-ceiling, industrial portfolios as a lot of those have already sold.”
In June, the Wall Street Journal ran a story with the title “A Turning Point for Commercial Property,” citing softening sales, loan standards tightening, loan growth slowing, and stocks lagging. The question for investors, the article concluded was, “how fully these risks are appreciated now?” Or, to express the sentiment differently, which way will the bull market turn?
By: Steve Bergsman (SIOR)
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