Commercial Association of REALTORS® - CARNM New Mexico
by CARNM
Korin Crawford, executive vice president of Griffin Swinerton and Counselor of Real Estate (CRE), discusses the current $1t infra bill; the potential for the electrification of cities, renewable energy, building efficiency and broadband; shifting perspectives on 20th versus 21st century infrastructure investing, and more.
Source: “Griffin Swinerton’s Korin Crawford on forward-looking opportunities in infrastructure investing“
by CARNM
The topics of race and diversity in the U.S. have taken center stage in our national conversation, with many companies emphasizing diversity, equity, and inclusion initiatives in recent years. It seems only fitting to shed light on the topic of diversity — or the lack thereof — in commercial real estate. CRE has long been viewed as a male-dominated profession for the well-versed and sophisticated. While demographics within the CRE profession have started to shift, are they changing quickly enough?
The composition of the workforce has historically been predominantly older white men, with minority populations rarely seen in prominent commercial brokerage roles. Additionally, women were often found only in administrative, assistant, and property manager positions. Actual day-to-day transactions and top-tier roles seemed to be reserved for men with the lightest of hues. Perhaps these gender and racial disparities are what prompted America’s largest trade association, the National Association of REALTORS® (NAR), to take a closer look.
The National Association of REALTORS® Research Group conducted a sociodemographic survey of members within CRE in 2018. According to the “2018 Commercial Member Profile,” the median age of NAR’s commercial members is 60 years old with roughly 30 percent being 66 years or older. Women, meanwhile, accounted for 30 percent of the commercial member snapshot. The percentage of women in the industry has steadily grown over the past five years, with 62 percent of the women specializing in non-sales-related primary services. Men, interestingly enough, still dominate the primary service of property management, making up 57 percent to women’s 43 percent.
While the NAR survey did not address race or the ethnic makeup of its members, its 2017 report, “Choosing a Career in Real Estate: A Perspective on Gender, Race, and Ethnicity,” touches briefly on these topics. The study was conducted in part due to several multicultural organizations — such as the National Association of Real Estate Brokers (NAREB), the National Association of Hispanic Real Estate Professional (NAHREP), and the Asian Real Estate Association of America (AREAA) — requesting an analytic look into the race and ethnicity profiles of all NAR members. This report showed that 74 percent of the respondents were white, followed by 13 percent Hispanic/Latino, 7 percent Black/African American, 6 percent Asian/Pacific Islander, and 2 percent American Indian. Respondents could choose more than one category for race. Of the white members (both men and women), 12 percent worked in CRE exclusively, while all non-white members combined who exclusively practiced commercial made up 3 percent or less.
If everyone stays conscious of the issue and committed to the empowerment, development, and advancement of women and minorities in CRE, the industry will better reflect the society we serve.
There was also a large disparity in the report when comparing men and women who worked exclusively in CRE, with men accounting for 15 percent and only 4 percent women. Keep in mind the 4 percent of women is spread across all CRE service types, such as property management, consulting, leasing, brokerage, etc. Unfortunately, NAR was unable to drill down any further on the gender and/or ethnic makeup of members working in CRE due to the small survey size of CRE professionals. With minority populations making up roughly 28 percent of all real estate professionals, only 3 percent are working exclusively in CRE. Considering these numbers, it’s safe to say that minorities and women are underrepresented in the industry. To take it a step further, minority women in brokerage are grossly underrepresented in the industry. This is in spite of the fact that even American Express, in its “2019 State of Women-Owned Businesses Report,” found that Black-owned businesses make up 50 percent of all women-owned business.
The industry has started to see more women and people of diverse backgrounds emerging in brokerage and executive roles in top retail chains. In 2018, Marvin Ellison left his role as CEO of J.C. Penney to become the new CEO of Lowe’s, making him one of only four Black CEOs of Fortune 500 companies. In 2019, Javier Rodriguez became the CEO of DaVita, making him one of 16 Hispanics to lead a Fortune 500 company. Earlier this year, Walgreens recruited Starbucks’s COO, a Black woman by the name of Roz Brewer, and appointed her CEO of Walgreens Boots Alliance. At RLJ Lodging Trust, Leslie D. Hale is the first and only African American woman to hold the position of CEO of any public real-estate investment trust (REIT).
These industry advancements have been a long time coming. According to the U.S. Census Bureau report, “Demographic Turning Points for the United States: Population Projections for 2020 to 2060,” by 2030, all baby boomers will be well into their golden years at over 65 years of age. Population growth is projected to be primarily driven by immigration and less by increasing birth rates. Individuals of two or more races will make up the fastest growing demographic segment in the country, with whites no longer a majority by year 2045, resulting in a more ethnically and racially pluralistic landscape.
While many companies promote diversity on their company website and marketing efforts, fewer are as intentional in following through with efforts necessary for real change. Diversity and inclusivity should be at the forefront of every organization. Different perspectives, experiences, and skills can create a framework for creative thinking and innovative ideas. Ideally, a diversified workforce also increases productivity, which in turn creates more jobs.
All REITs, brokerages, and CRE firms should examine their business operations and ask themselves if they are ethnically and racially diverse. If not, changes should be made immediately.
All REITs, brokerages, and CRE firms should examine their business operations and ask themselves if they are ethnically and racially diverse. If not, changes should be made immediately. If the answer is yes, the next step is to determine how to continue the advancement of diversity within the organization. Companies can promote diversity and inclusivity in several ways. Organizations can assist those who have been excluded or marginalized by opening the path to management early in their career. Other steps include:
CCIM Institute, in 2002, established the Cultural Diversity Education Program with the explicit goal of aiding in the advancement of underrepresented groups in CRE through professional growth and education. Qualified applicants are awarded discounted rates for all core courses required to achieve the prestigious CCIM designation. To date, more than 1,500 students have participated in the CDEP program and completed one or more courses. Many have continued on to receive their CCIM designation.
Let’s face it — this isn’t the first article to shed light on the lack of diversity in CRE, and it won’t be the last. While change is happening, the pace is painfully slow. But if everyone stays conscious of the issue and committed to the empowerment, development, and advancement of women and minorities in CRE, the industry will better reflect the society we serve. One day, CRE will truly be reflective not of the majority& — but of the collective.
Source: “Active Measures“
by CARNM
Due in part to the COVID-19 pandemic, more people want to build a new home, move somewhere larger, or renovate than ever before. As a result, there is a huge demand for homes and building materials. However, there is also a shortage of various construction materials, as you might already be well aware. If you’ve been to a hardware store or home improvement supercenter recently, then you can practically see the costs go up before your very eyes.
This important issue has a broad impact and will also have long-term economic consequences. Yet how did we get here? What is being done to counteract the shortage? What can be done by either individuals or governments? And how much longer can we expect higher prices and reduced access to continue? We cannot hope to explain everything in a single article, but we can shed light on the story so far and give some insight into where it might be going.
What’s the Problem?
Over the past year or so, lumber prices have skyrocketed, and even finding the stuff can be difficult. Also, add to the difficulty of finding the exact lumber needed (you can’t just substitute one type of wood for another). While contractors and sawmills are doing their best to make do or increase production, it currently isn’t enough. Even if some prices are down from their peak earlier this year, they are still debilitating to many.
Steel has also risen in price and become less available, which is just as impactful. Given the amount of steel used in practically everything, particularly larger buildings and construction projects, infrastructure worldwide is being affected. Public works and construction budgets are heavily impacted, and the extra costs have to be dealt with somehow, meaning delays, cuts to other things, or increased taxes.
On the private end, which we will go into a bit more detail about later, construction costs are skyrocketing just because of the materials needed. Labor is also an issue (especially skilled labor) due to increased demand. Nonetheless, the real impact has been these materials shortages. While the market often sorts itself out, the product or service in question here is living space, having severe consequences for people’s daily lives.
The contractors, who generally feel the biggest impact and buy the materials (whether for themselves or their clients), are noting serious material shortages. At least one thing they need for the project is missing, most likely lumber or steel. Lighting supplies or certain types of wiring are also in short supply, though the problem isn’t as acute. Contractors have to pass on the costs to their clients or suffer huge losses.
So why not just make more lumber and steel? It sadly isn’t so simple. The production chains are relatively complex, and the materials must be shipped and processed from place to place. There could be delays in those shipping lanes, especially if overseas or lengthy travel is involved, and the end products still need to be shipped around the world. As we will highlight later, simply increasing production takes time as well.
For those looking for a simple answer, there isn’t one, but we will try our best to summarize:
Effectively, production in some places was reduced by an economic downturn before the pandemic and never recovered. While regular demand was being met, the pandemic created a massive spike due to the desire for bigger homes, new homes, and home office extensions, among other things. This was completely unexpected, and the markets were not prepared. Remote work necessitated these expansions, especially with it becoming more permanent (18 months in and many people are still working at home.)
Additionally, the pandemic disrupted the shipping of materials and products, leading to shortages in specific areas. There might not have been enough workers to transport the goods, or there might not have been the means to transport them. There is a labor shortage (or some would say a desire for higher wages across the board) in many industries, and it is still sorting itself out.
The market and economic powers will take some time to make it back up, as both the personnel and equipment needed to produce more construction materials will not appear overnight.
While practically every area of the economy is affected in some way, the most heavily impacted are:
Home Improvers: Anyone planning a DIY project will likely find problems at their nearest home improvement store. Materials might not be available, and prices are going up on top of the retail markup. Materials such as wiring are harder to come by. It might not be the best time to get into woodworking either.
Builders and Construction Companies: While the largest businesses might be able to use contracts and enormous buying power to their advantage, it still won’t be any cheaper for them, and there might be hiccups in shipping. Even with all the money in the world, if the materials aren’t there, they aren’t there. This could cause a ripple effect of delays for some time. Alternatively, employees might find their work hours more unstable than usual.
Small Contracting Businesses: They might be the most heavily hit, as they might not get the priority from lumber producers, and yet they have some of the greatest need for supplies. They use building supplies in small quantities all the time, and chances are they do not have the extra space to stockpile materials, at least not at the same scale as larger outfits.
Industrial Projects: Industry, in general, will ironically be affected by these challenges, despite industry creating the materials. A lot of steel is needed for large-scale production, and lumber is no different. Whether it is an upgrade, opening a new factory, or something else, everything just got more expensive.
We would also like to note that while shortages and problems you read about might usually be US-centric unless stated otherwise, this is a worldwide issue. Manufacturers in China are having problems, as are homebuilders in the UK. The exact scale of the problem may vary, but a globalized economy has all but guaranteed that this impacts everyone.
Natural Fluctuation
It’s worth noting there is plenty of natural fluctuation and change in lumber prices, and to some degree, steel prices. Building materials are needed in spurts, and this is, for the most part, a non-issue. It balances and evens out over time, and industries are prepared (to at least some degree) for this.
However, what we are seeing is far beyond the natural fluctuations of industry, and we are not likely to see a correction for some time yet. The demand is just too high, and too many people are unwilling to change their plans. Increased housing prices also make this more complicated.
When will we know when we are back into something resembling “normal”? Likely when we do not see significant shortages and when prices become reasonable again. We are unlikely to see prices ever return to pre-pandemic levels outside of a crash, perhaps due to inflation, but we can hope that stability will eventually come.
How does it look when it comes to the basic supply of iron and lumber?
In terms of lumber, production is strong, but there is the threat of wildfires raging across Canada and parts of the Western United States. Not only does this affect the lumber available but also the supply lines related to it. You can’t safely drive a truck through a raging inferno, and burnt trees do not make for the best wood.
Lumber also took a hit in recent years in terms of production. Due to an economic downturn during the great recession and less demand, some sawmills shut down or heavily reduced production. There was a steady increase, but it never reached pre-great recession levels. So, while there is a demand for more production, getting those sawmills running at full capacity again is not as simple as turning on a switch.
Looking at iron and steel, we did not see much difference, though there was a slightly similar trend. Demand is likely the main cause of issues here, and it should be noted that the shortages are not as pronounced across the board when it comes to steel.
Then there is another factor: the fact that there is a shortage of lumber and steel (among other things) contributes in and of itself to the construction materials shortage. If businesses and future homebuilders know they will need lumber but do not expect things to get better soon and cannot guarantee a supply, they will get as much as they can. This happens even if they do not need it this second or the price is inflated. After all, it might not be available later, and the price could be even worse.
The shortage was at the point where professional organizations and news outlets were warning builders to stock up where they could. Furthermore, experts advise against builders and contractors locking in prices for anything, given the potential rising costs. This is a massive problem in itself, as the construction industry is dependent on agreements to move forward. Organizations and future homeowners dislike uncertainly and cannot agree to prices they might not be able to pay in the future. All of this might lead to lawsuits and breached contracts.
It is much like the run on toilet paper during the start of the pandemic. While there was plenty to go around and supply wasn’t heavily affected by the pandemic, the fact that everyone went out and started hoarding it all at once caused a massive shortage and plenty of problems. While cleaning supplies made sense, it was just irrationality that drove the trend for toilet paper.
Some of the construction industry shortages result from people or contractors trying to buy as much as they can find in case they need it later or perhaps hoping to sell it at a profit. This is a bad scenario in which panic buying is somewhat justified on a smaller level but only worsens the industry as a whole.
The changing idea of work and the office plays a lot into the shortage, and any good investigation into the topic must start there. Why is the demand for housing and building materials going up?
As more people are working remotely, the considerations of a commute are going down, and more people want to invest in home offices. This means more people are moving out to the suburbs or even rural areas and building their dream homes.
Furthermore, even with some offices deciding to just not open up, with the workplaces deciding to go entirely remote or downsize significantly, one might think that those office buildings would be easier to rent. And they are. Compared with just a couple of years ago, it is relatively easy to get office space in most places. However, it is not as though these offices have been converted into proper living spaces or can be right away. There might be a lack of interest from the property owners just yet, or zoning issues to contend with. The landscape of your nearby city might change due to the remote work shift, but it will not happen overnight.
COVID-19 also hit production of some things more directly. Some sawmills and factories of various sorts were impacted by the pandemic, closing down for some time. This lack of production is not made up easily, and there might not be enough qualified workers in those areas anymore. People will have to move back, and that takes time as well.
Many say shipping delays and shortages caused the building materials shortage, which is absolutely part of the problem. While there are many factors, the shortages in certain areas result from the previous economic downturn and distribution issues.
The problems with shipping go two ways. The problems with shipping lead to a construction material shortage, and the construction material shortage leads to problems with shipping (we need steel for bridges, etc., after all). On top of infrastructure needs, many things used for shipping require materials such as steel and lumber. Even keeping up with things under normal circumstances is a fine-tuned machine with little room for error.
Look at shipping containers, for example. They are certainly not the most complex things to build and use relatively little in terms of materials. However, a lot of steel and wood (the floors in shipping containers are generally wood) that go into containers. Both materials are suffering from supply problems, with thousands of containers needing to be built each year to keep up with demand and the retiring of old containers.
This, in turn, has led to a shipping container shortage in some areas, which can have long-lasting effects. They are almost the red blood cells of modern industry, taking products to exactly where they need to go worldwide. There is no sensible alternative, and we need thousands upon thousands of them. Sure there are plenty already, but they do wear out over time or do not meet the standards for proper shipping. Unless the shortage is solved, the problem will worsen, or shipping will get more expensive, which affects everyone.
And what does a lack of shipping containers mean more specifically? Delays with shipping even if there are ships to get everything where it needs to go. This then leads to bidding wars for the available containers (which isn’t good for costs of products worldwide), with companies and people waiting weeks to potentially months to get a container. This is a particular problem with goods that spoil and can lead to shortages of other products in storage.
In short, the economy is so tightly knit together that one snag in the chain can cause issues, and something as simple as a lumber or steel shortage can have a ripple effect. It can be hard to contain such problems in any reasonable amount of time. Any efforts to artificially manage or control the shortage can backfire if the administration isn’t done correctly.
International politics and trade deals complicate matters even further and must be considered if we understand the issue on even a basic level. For example, tariffs can heavily affect the price of lumber one way or another and impact supply or demand artificially. Although there is a demand for building materials across much of the world (due to globalization), there is also a lot to be said about the interests of nations and companies influencing their direction.
The shortage itself might cause some policy changes. Lumber might be redirected towards certain emergency efforts, given the unfortunate wildfires and devastation in some areas. Steel is always in need for strategic and political purposes, and the government will usually get its hands on something first if only to create a strategic reserve. If a country wants lumber or steel before anyone else, chances are they are going to get it. Local governments might not fare as well, but the national policy is another matter entirely.
Other issues and worldwide situations also compound the problem. A global chip shortage that is unlikely to be resolved until next year is impacting everything from car manufacturing to smartphone production. It can also complicate trade routes, with expected cargo loads falling short. While the pandemic is relatively under control in many countries, other countries are still experiencing heavy outbreaks, affecting everything from port efficiency to allowed travel to whether people can even go into work. Until the pandemic is dealt with globally, international trade will be affected to some degree, exacerbating the shortage of several materials.
This only scratches the surface of the issues at hand. While professionals and experts can usually stay on top of an ongoing crisis, some things cannot be accounted for and controlled.
As with many problems, it is hard to say for sure. While the market will deal with the problem naturally, that might not be the quickest solution with so many factors and interests already in play and trying to manipulate the situation.
It is unlikely that there will be a reduction in demand for these materials, even as the pandemic subsides. While many people will be going back to the office eventually, there is much to be said about people remaining in remote work positions permanently. People like it, many employers warmed to the idea, and it generally saves costs for both employers and employees. As a result, the demand for larger homes will stay constant.
Alternatively, if the production of building materials increases adequately, then the shortage will be mitigated if not solved. However, the increased demand for housing (among other things) must be met, and there are a lot of houses to build if the home market forecasts are to be believed. Loggers and lumber mills might work with trees, but they do not grow on them. Steel mills can only produce so much, and they are not built in a day (or even in a year). We can find a long-term production solution, but it will take time.
There will likely be differences in how long this takes depending on the material involved. While everything is connected, a steel shortage solution will not fix lumber and vice versa. Fixing the shortage of other materials will help lower costs in general but may take longer or shorter depending on the material involved and many other factors.
The more hopeful are saying that the shortages will end later this year, but it could go well into 2022, depending on how the remote work trend plays out (how permanent it will be) and what actions are taken on the part of governments.
Looking over all of the above information can be overwhelming. It can even be outright confusing. There are so many factors at play, all interconnected, that the problem of the shortage feels like a knot. This is also true for governments and agencies of all sorts. You can be assured they are looking at this as well, considering it affects many of them.
Yet what can governments and agencies do to act on the situation?
Reading this, you are probably not the head of state of any government. You probably don’t have much power to influence policy. So what is there to be done on an individual basis? It depends on your situation.
There’s a ton to this story. Unfortunately, it probably won’t wrap up in any meaningful way until next year at the earliest. We do hope, however, that you have a better understanding of the situation. The materials shortage is a complex issue with no singular solution. Still, ideally, production ramps up or demand shifts, and once a few threads of the problem are solved, we can ideally unravel the rest of the issue more easily. Thank you for reading, and may the shortage end as soon as possible, especially if you are affected.
Source: “The Construction Materials Shortage: The Story So Far“
by CARNM
Lifestyle centers may be one of the most undervalued retail asset classes currently. According to JLL, increased customer foot traffic, declining vacancies coupled with growing rental rates and broad-based expansion plans from retailers are bolstering confidence and signaling that lifestyle centers will come back strongly.
While smaller grocery-anchored retail has dominated investment demand recently, the increase in vaccinations and re-openings is motivating shoppers – and investors – to return to other retail segments.
Lifestyle centers were conceived as a modern-day interpretation of the mall and are known for their outdoor settings and incorporation of other uses like office, multi-housing and hospitality space. They also usually include upscale, national-chains, and specialty retail with dining and entertainment options.
Digitally Native Brands Join In
“Leasing demand from new tenants in the market, such as digitally native brands, as well as traditional mall retailers looking for an off-mall growth strategy, are accelerating the desirability of this asset class to consumers,” said Senior Managing Director Chris Angelone, JLL’s retail co-leader in capital markets. “Investors are taking notice and will seek out performance and growth potential. Two to four years from now, high-performing lifestyle centers will reclaim their spot as a trophy, core asset class among investors.”
Matt Hammond, SVP/Partner, Coreland Companies, tells GlobeSt, “Retail in this post-pandemic era is all about comfortable outdoor spaces. Customers are looking for restaurants with plenty of outdoor seating, amenities and shopping that does not mean entering an enclosed mall. Grocery-anchored shopping centers have driven tenant and investor demand for the last year-and-a-half.
“It’s an extremely competitive market, whereas re-emerging lifestyle centers present growth opportunities. Amazon and GrubHub are convenient, but there comes a point when customers are ready to enjoy retail or restaurant experiences again.”
Owners Reinvesting to Improve Common Areas
Patrick Toomey, Executive Director, Institutional Property Advisors (IPA), tells GlobeSt, “Shopping center owners who have reinvested into improving common areas – particularly providing gatherings spots and open areas – are going to be more successful in the long run.
“We are social beings and those centers that provide the opportunity to mingle safely will continue to grow in popularity. Retailer sales at these locations will, of course, be the ultimate litmus test, but the Data showing consumer travel patterns bodes well. Retail in general is coming back as an acceptable risk adjusted return asset as investors are seeing that retail did not fail dramatically as was feared at the onset of the COVID pandemic.
“Additionally: We have seen that post-pandemic a lot of consumers are engaging in ‘revenge spending’ which is driving sales and foot traffic. The most successful properties in the lifestyle category do an excellent job of placemaking and creating Instagram-worthy moments for their consumers.”
Phil Purdom, Director of Southeast Real Estate for Hines, says that “Lifestyle is now all working together, retail, residential and office are in sync. Millennials want to live, work, play and even walk their dog in one place.”
Lawrence “Larry” Taylor, Founder and Chairman of Christina, tells GlobeSt, “Though this is not a new concept, lifestyle centers are resurging in the post-COVID era given the ever-evolving demands of today’s consumers, which are largely propelled by accessibility and convenience.
“Many lifestyle centers offer a tailored mix of retailers and eateries in a more intimate, community-focused, and pedestrian-friendly setting. Consumers are drawn to experiential shopping and dining destinations, and as a result, lifestyle centers have proven to be more adaptable, providing curated and personalized services that traditional malls cannot.”
Occupancy Strong at New Towne Centres
Monica Klawuhn, vice president of brokerage leasing firm Zuckerman Co., leads leasing efforts on a range of mixed-use projects in the Southeast, one being Mount Pleasant Towne Centre, located just outside of Charleston in Mount Pleasant, S.C. The 510,000-square-foot open-air lifestyle development is anchored by Belk and Regal Cinemas and notable national tenants include lululemon and Peloton.
The Towne Centre has fared well amidst the global pandemic, with occupancy remaining steady and vacancy never exceeding 5%. As revenge spending and pent-up demand increases, Klawuhn sees the continued success of high-density mixed-use destinations.
She forecasts future trends for retail centers involving the rise of entertainment districts, digitally native brands opening brick-and-mortar stores, experiential retail, mall redevelopments, rollback of e-commerce, drive-thrus and walk-up windows plus parking spots dedicated to ride share, store returns and to-go delivery.
Compared to malls, lifestyle centers have the lowest average vacancy, 6.5% versus 6.8% for super regional malls and 10% for regional malls. According to JLL Research, during the second quarter of 2021, lifestyle centers are drawing 46% higher rents than regional malls and 11.5% higher rents than super regional malls.
Source: “Lifestyle Centers Have Become One of the Most Undervalued Retail Asset Classes“
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