Archives for June 2020

Eight Must Reads for the CRE Industry Today

June 11, 2020 by CARNM

Restaurant companies with locations in multiple states struggle to navigate rules to reopen, reports the Wall Street Journal. A third of America’s malls are shutting down permanently by 2021, according to CNBC. These are today’s must reads from around the commercial real estate industry.

Restaurants Parse Extensive and Conflicting Guidance as They Reopen “Big restaurant companies with eateries in a number of states are struggling to navigate a thicket of rules as they seek to reopen dining rooms closed by the coronavirus pandemic.” (Wall Street Journal, subscription required)
Farewell to Gummy Bear Jars: Tech Offices Get a Virus Safety Makeover “Companies like Salesforce created workplaces with all the comforts of home. But now they may feel more like hospitals.” (New York Times)
Zara to Close 1,200 Stores as It Outlines Post-Coronavirus Future “Zara-owner Inditex SA ITX 1.91% said it is permanently closing as many as 1,200 stores—16% of its global outlets—and will pivot more aggressively toward selling online, as the fast-fashion giant maps out its post-pandemic future.” (Wall Street Journal, subscription required)
San Francisco Passes Sweeping Pandemic-Related Eviction Ban “Landlords will be permanently barred from evicting tenants if they can’t pay rent due to coronavirus-related issues, like job loss or getting sick from the virus, under legislation passed by the Board of Supervisors Tuesday.” (San Francisco Chronicle)
A Third of America’s Malls Will Disappear by Next Year, Says Ex-Department Store Exec “A third of America’s malls are going to shut permanently by 2021, according to one former department store executive, as their demise is accelerated due to the coronavirus pandemic.” (CNBC)
How Safe Office Reopening Strategies Are Reshaping Leases “As businesses nationwide pursue phased reopening, a key issue for commercial real estate owners and managers is how to safely resume the use of office space.” (Commercial Property Executive)
Signet Closing 380 Stores This Year as Sales Are Hit by COVID-19 “Signet Jewelers won’t reopen 230 stores it closed due to COVID-19 and then plans to close another 150 stores this year, executives said in a conference call held Tuesday.” (JCK)
A Roadmap for CRE Fund Managers Looking for Buying Opportunities “Real estate fund managers have three strategies to consider in responding to changing market dynamics.” (GlobeSt.com)

Source: “Eight Must Reads for the CRE Industry Today”

Using the Past to Predict CRE Pricing

June 11, 2020 by CARNM

One analyst doesn’t think prices will move the same way they did in the last recession.

While most investors have the phrase ‘past performance is not indicative of future results,’ memorized, the truth is it can still help to look at the past to understand future performance, according to Omar Eltorai, market analyst at Reonomy.
“While the last recession is not the same as the current, it is still helpful to acknowledge the historical experience—even if only to bookend our expectations,” Eltorai says. “This recession has different drivers which include a health crisis, business crisis, liquidity and solvency issues, shift in consumer behaviors and political disruption in both the foreign and domestic spheres.”
Eltorai cites the cause of the crisis, consumer and business financial health preceding the crisis and the speed and scale of government intervention as the main differences between 2008 and today. “All of these differences mean that pricing will likely not move the same as the last recession,” he says. “On one hand, the macroeconomic picture is much more dire than that of the last recession, which would suggest deeper and longer pricing declines.”
Before the last recession, apartment pricing was inflated because of converters buying condos. This time the situation is different. “In terms of condos, while the decreased inventory of residential units due to condo conversions does support higher pricing, this impact is greatly mitigated by the fact that this crisis has decreased the overall demand for close proximity to the cities where these conversions were taking place,” Eltorai says.
On the other hand, however, there is a strong investor appetite for commercial real estate and multifamily today.
“The lenders are in much better health, and there is a lot of private capital waiting and ready to jump in,” Eltorai says.
“Bringing all of these factors together and looking at multifamily across the nation, I believe that the next 18 to 24 months will show many properties selling at discounts to last years’ highs. Though there will be greater pricing support than the last recession from the large amount of appetite and dry powder ready to be deployed.”
To gather information, Eltorai studied the REITs. “REITs tend to have a quality bias baked in, as they are professionally managed and managed to maximize shareholder value,” he says. “However, the REITs are a good proxy because they collectively own a significant portion of the market and have regular and public reporting.”
Apartment REITs reported negative year-to-date returns of (24.3%) at the end of March, slightly below the (21.7%) for all equity REITs. Still, they performed much better than lodging (51.0%) and retail (47.2%), according to Nareit.
“Looking at the REIT performance, we can see that the residential REITs have recovered significantly since their recent lows and are performing better than hospitality and retail,” Eltorai says.
Within the residential sector, Eltorai says single-family home and manufactured housing REITs are performing better than apartments.
“The difference between apartments and single-family housing REIT performance is illustrative of the dispersal of employees as remote work is proven to be effective for many companies,” Eltorai says.
Source: “Using the Past to Predict CRE Pricing”

NAIOP: How Landlords Can Reopen Buildings While Avoiding Liability Risk

June 11, 2020 by CARNM

From implementing nonessential access bans to staggering arrival and departure times, a NAIOP brief highlights how building owners should adjust to occupants returning to the office.

As COVID-19 restrictions relax, employees are ditching their sweats and returning back to the office. However, COVID-19′s infectiousness and dramatic impact on commercial building occupancy presents new challenges for buildings welcoming back workers.
Commercial real estate development association NAIOP recently outlined the operational, maintenance and inspection tasks commercial buildings should implement to ensure a healthy return and workspace for all tenants.
NAIOP released its “Navigating a Safe Return to Work: Best Practices for US Office Building Owners and Tenants” brief this month highlighting best practices. The guidance was drawn from various sources including the US Centers for Disease Control and Prevention, commercial real estate companies Cushman & Wakefield and JLL, a recent NAIOP webinar and media reports.
Noting low occupancy rates of commercial buildings stemming from layoffs and quarantines, NAIOP suggested maintenance staff thoroughly inspect buildings for damages that may have occurred during vacancy. Those inspections include checking fire life systems, mechanical systems, water systems, conveyances and drains and pipes.
Before reopening, building owners should also conduct an air flush of the building to reduce pollutants in interior spaces. Additionally, the HVAC system’s fresh air intake should be increased and configured to maintain positive building air pressure. Ideally, NAIOP wrote, HVAC systems should run completely on fresh air.
Different cleaning and building operations will also be required as occupants will likely have higher sanitation expectations. Restrooms, elevators, break rooms and other high-traffic common areas will now require multiple cleanings per day, according to NAIOP. While daily cleaning will still be permissible for some tenants, others will require multiple cleanings per day as workers arrive during different shifts. Cleaning operations may also shift to business hours so employees can ensure their office is being cleaned regularly.
As more employees head back to the office, the potential for coronavirus spread still lingers and social distancing and the removal and rearranging of high-touch communal objects should be considered, NAIOP wrote. Along with placing social distancing reminders and disinfected products throughout common areas, NAIOP suggested removing door handles or removing some interior doors altogether.
While noting the usage of placards to remind occupants and visitors of safe spacing in elevators, NAIOP acknowledged limiting two or three people to an elevator during peak morning or evening traffic isn’t realistic. Instead, NAIOP suggested building owners collaborate with tenants and implement staggered employee arrival and departing times or dedicate specific elevators to departures.
To be sure, NAIOP’s suggested practices are to stem coronavirus spread, but some building owners may be tempted to test everyone that enters their building to mitigate a health risk. But that practice can lead to higher legal liability for landlords, NAIOP noted. Although the Equal Employment Opportunity Commission recently updated its guidance and now allows employers to screen employees for fevers, that doesn’t extend to landlords’ occupants.
In contrast, screening tenants and visitors could create a legal “duty to care,” NAIOP wrote. However landlords’ risks doesn’t end there. The building owner also risks liability if they fail to deny an infected individual entry into its building, according to NAIOP. To mitigate that risk, NAIOP suggested restricting entrance from the general public and nonessential visitors and encouraging tenants to conduct their own screenings.
Source: “NAIOP: How Landlords Can Reopen Buildings While Avoiding Liability Risk”

Property Managers Have Had to Quickly Digitize

June 10, 2020 by CARNM

The pandemic has made technology become an essential tool in the property management toolbox.

Property managers have been slowly adopting and adapting to new technologies, but since the onset of the pandemic hit, technology has become an essential tool in the property management toolbox. Technology has become an integral way to communicate with residents, vendors and conduct basic business operations. According to a recent survey conducted by AppFolio, 23% of property managers have increased dependence on technology since the beginning of the pandemic.
“Shifting to so many remote processes has led property management teams to lean heavily on technology to support their business continuity,” Stacy Holden, industry principal and director at AppFolio, tells GlobeSt.com. “Residents still need to pay rent and submit maintenance requests, and prospective residents still need to be able to book showings, tour units and sign leases. Technology allows for the progression of many regular activities to be done remotely and on-demand, ensuring property managers can continue to meet the needs of current and prospective residents.”
Digital rent collection is one of the biggest changes for property managers. Since the pandemic, most property managers have shifted to some form of online or digital rent collection. “The entire rent collection process for many property management companies shifted to enable contactless rent payments,” says Holden. “Instead of having residents drop off their rent checks to property management offices, companies are emphasizing the option for their residents to pay using online renter payment portals, so that payment can be made electronically, with no interaction between property management teams and the residents.”
Property managers are also allowing property managers to track payments, particularly as rent collections have been watched closely each month. “Software that allows property managers to track payment plans and adjust late fees easily, enables them to provide flexibility to their residents during this time,” adds Holden.

In survey, respondents also noted an increase in technologies that support virtual showings. “It enables leasing activity to continue even though in-person interactions may not be possible,” says Holden. “It’s critical that leasing activity doesn’t come to a halt, especially for buildings that found themselves at lower occupancy when the pandemic hit.”
Holden doesn’t expect the trend to slow down. Technology adoption is here to stay, and she expects that technology will continue to be integral following the pandemic. “In the post-COVID-19 future, remote work will continue to be a significant driver of technology adoption, and the level of convenience technology affords will be an expectation by property management professionals and renters alike, well into the future,” she says. “This was apparent in the recent survey we conducted with thousands of property management professionals across the country. You can read more on these findings here.”
The cost of new technologies has been a deterrent for many property owner; however, Holden says that the cost is offset by operational efficiency in the long run. “Implementing property management tools will lower operational costs overall because it streamlines business,” she adds. “Our approach at AppFolio is to provide innovative solutions for all our customers’ most important workflows, such as leasing and maintenance, into one software, therefore simplifying their technology implementation and cost.”
Source: “Property Managers Have Had to Quickly Digitize”