Archives for March 2019

Apartment deliveries will increase 15% this year over 2018, and apartment property managers are preparing for the increased demand.

New apartment deliveries are creating more demand for property management companies. Research from CBRE estimates that the top 66 metros in the US will deliver a total of 300,000 new apartment units this year. That is a 15% increase over 2018 deliveries. Multifamily investment will also increase this year, with an expectation of more than $150 billion in multifamily investment. Opportunity zone funds will also fuel additional investment this year as well. New deliveries will mean two things for property managers: more competition at existing assets under management and new demand from developers for property management representation.
“New deliveries always mean an increase in competition, which can be good news for multifamily owners and for property managers who are able to be nimble and adjust their marketing strategies effectively,” Cindy Wick, regional VP at Western National Property Management, tells GlobeSt.com. “The key is to pay close attention to newly developed product and make strategic decisions on how existing properties will compete.” More affordable older product can still be a competitor for newly delivered assets, which are often significantly more expensive. Particularly in urban areas suffering from housing affordability issues, older-product is in high demand.
In addition, property management firms can analyze amenities or complete upgrades to a property to add competitive amenities. “Another strategy is to implement strategic upgrades that offer residents the amenities they want most,” says Wick. “For example, in many of the properties we manage, Western National Property Management has recommended convenience apps or pet amenities that require a relatively small capital outlay to set up and deliver strong return on investment as residents choose these properties.”
Quality service at the property level with residents is also the key for property managers to drive value and occupancy at older assets. “The most important way to compete with new product is to reinforce personal connections with residents in existing properties,” says Wick. “Every connection with a resident—be it online or in person—builds a rapport that can be the difference between a lease renewal or termination. By focusing on exceptional customer service and ensuring that all team members are properly trained to deliver this service, property managers will be ready to compete with new multifamily developments.”
New deliveries and the ubiquity of apartment living today has increased the importance of utilizing an onsite property management firm. “As more multifamily units are delivered, especially in the unique Los Angeles market, it is essential to have an experienced property manager in place to ensure that each property is operated both efficiently and smoothly,” says Wick.
As a result, property management responsibilities are expanding as well. “In addition to handling on-site maintenance issues and resident relations, the best property managers are also advisors and counselors to multifamily owners,” adds Wick. “In many cases, our firm has identified strategies to save owners thousands of dollars in property expenses, simply by installing sustainable features or changing rent rollover schedules. As development continues to ramp up, multifamily developers who engage an experienced property manager early on will be most likely to benefit from the depth of services available.”
By: Kelsi Maree Borland (Globe St)
Click here to view source article.

Renovations are less expensive than ground-up construction, but internet service provider Stealth Communications explains what’s needed for optimal connectivity.

High speed internet connectivity with any business is crucial. Repositioning older properties, the value-add propositions cost less than new construction. But real estate owners and developers should be mindful of the fiber optics requirements and some of their complications when upgrading commercial property.
With Google’s $1 billion investment in its Hudson Square campus, the properties will need to be overhauled to make them tech ready. With that campus alone, 315 Hudson St. was built in 1907, 345 Hudson St. was erected in 1931 and St. John’s Terminal’s construction dates back to 1934.
That’s a lot of charm in the architectural styles but the original designs certainly weren’t created with the internet in mind. Plus, anticipate heavy usage. Paul Darrah, Google’s director of real estate NYC has said the company is growing at a rate of 1,400 employees each year.
With Midtown, historically the heavily favored business district, its aging building stock needs to ramp up the upgrades to compete with new product in Lower Manhattan and Hudson Yards.
Shrihari Pandit, the founder and CEO of Stealth Communications, an internet provider, explains what’s needed to achieve optimal connectivity in upgrading older buildings. This starts with the fiber hardware and technology.
“The point of entry is a conduit that connects the basement to the underground conduits in the street. It is essential to have one (or more) carrier-neutral point of entries for fiber providers to be able to pull their fiber into the building. The riser system is the way to pull fiber up to each floor,” explains Pandit.
Carrier neutrality refers to an external data centers that allow interconnection between many colocations (rented data centers) and interconnection providers. Carrier-neutral data centers are not tied to any one service provider (telecommunications, ISP, or other), which provides diversity and flexibility for the client, according to Digital Realty Trust’s blog.
Digital Realty is a REIT that invests in carrier neutral data centers and provides computer networking services. Its blog further explains that without carrier neutrality, with only one option for service, without competition, the internet customer could be charged higher prices and be subject to a more limited bandwidth.
Pandit opines that a robust marketplace of fiber providers best serves tenants. Because unlike gas and electricity utilities, there are significant technical differences in fiber connectivity. He advises landlords and developers to look for redundant connections with diverse paths. “The more choices available, the better the tenants’ needs can be served.”
In renovating the buildings, if a point of entry does not exit, one will need to be built. However, the cost should be seen as a capital investment that will improve marketability and retention, according to Pandit.
Next, riser systems need to be installed, so the high-speed internet can reach all floors. Pandit suggests adding stacked telecom closets on each floor where feasible. “This makes for easier access for fiber providers to reach additional tenants, minimizes drilling and other disruptions to connect new companies.”
Finally, he advises pre-wiring the space before tenants move in, to ensure immediate connections and productivity.
By: Betsy Kim (Globe St)
Click here to view source article.

At the March 2019 LIN Meeting held on March 20, 2019, 17 excellent properties were presented.
Thank you for presenting properties and attending the meeting!
Thank you to the Dave Hill CCIM who hosted City Place at 2155 Louisiana Blvd. NE.
View March 2019 LIN properties here.
View March 2019 LIN Thank Yous here.

It’s important that opportunity zone investments are fully vetted to identify risk factors, structured in ways that advance community development and quality of life, while providing an overall benefit to investors.

A new type federally qualified investment vehicle known as an opportunity fund allows individuals and entities facing capital gains taxes to defer and reduce their tax bite, while paying no additional tax on appreciation of the investment. The only catch is that investment has to be limited to designated areas known as opportunity zones, and the real estate investment requires significant capital improvements to the asset (generally ground up construction).
It sounds like a great deal for investors, and it is. But in the rush to defer gain and supercharge yield, it’s important to remember that these deals have to pencil out. Otherwise not only the yield but the initial investment can be at risk.
What Are Opportunity Funds?
Opportunity funds were created by the Congressional Tax Cuts and Jobs Act of 2017 to encourage affordable housing and business development in economically struggling communities. Opportunity Zones have been designated nationwide by Federal and state economic development authorities.
Real estate investors can defer and even reduce federal tax liability on current capital gains by reinvesting the capital gain in qualified Opportunity Zone assets and businesses.  In addition, the investor’s capital gain on the new Opportunity Zone investment may be tax-exempt if the investment is held for 10 years.
The program is designed to make it easier for Opportunity Zones to draw different types of investment that contribute to the community development “ecosystem.”  So an Opportunity Fund might be focused on real estate development and redevelopment,  or on supporting and growing businesses within the zones—or a combination.
Real estate related investment in Opportunity Funds include:

• Filling a funding gap for new or updated mixed-income and workforce housing;
• Upgrading commercial property to draw businesses and jobs;
• Investing in local firms engaged in development , property management and other services

Not for Everyone
While the benefits are great for deferring capital gains, Opportunity Funds aren’t right for every situation.  Opportunity Zone investments require significant capital improvements with inherent construction and market risk associated with value-add investment strategies.
Investors should also understand that Opportunity Funds are meant to be a long-term investment, between seven and 10 years for maximum benefits.  Longer term generally translates into lower annualized yields, but generally a higher multiple return on equity.
Opportunity Zones

• Defer federal taxes on any recent capital gains until the end of 2026
• Reduce that tax payment by up to 15 percent if the investment is held for seven years
• Pay no capital gains tax on any appreciation if the investment is held for 10 years

Overall, the national market for workforce and low-income rental housing offers attractive supply/demand fundamentals, given the lack of new supply recently generated in urban areas.
Opportunity Zone investments may not offer the best risk-adjusted yields in the market. Market risk may be higher given the socioeconomic profile that qualifies an area as an Opportunity Zone.  These are typically deals that might not pencil out without the extra tax incentives.
Therefore, it’s important that opportunity zone investments are fully vetted to identify risk factors, structured in ways that advance community development and quality of life, while providing an overall benefit to investors.
By: Jack Mullen (Globe St)
Click here to view source article.