Archives for November 2021

November 2021 CCIM Deal Making Session Properties

November 3, 2021 by CARNM

Thank you to all of the brokers, sponsors, and guests who attended the November 2021 CCIM NM Deal Making Session & Forum and to those who shared their properties.

Click here to view source PDF.

Click here to view the Thank Yous.

	Name	Property, City	Type	Price
1.	Kate Potter Chase Ruffin	4111 Barbara Loop SE Suite D-1 Albuquerque, NM	Office	$199,000
2.	Jim Wible, CCIM Riley Mckee Keith Meyer, CCIM, SIOR	NEC Cerrillos & Beckner Rds. Santa Fe, NM	Land	N/A
3.	Martha Carpenter Lisa Mercer	NEC Coors & Bridge Blvds. SW, Albuquerque, NM	Land	$950,000
4.	Corinna Yonemoto-Brown	524 Montano Rd. NW Albuquerque, NM	Office	$750,000
5.	Genieve Posen Jim Hakeem	NWC 4th St. & Mountain Rd. NW Albuquerque, NM	Retail	$1,303,500
6.	Chris Anderson Tai Bixby, CCIM	SEQ 24^th St. & Southern Blvd. SE Rio Rancho, NM	Land	$850,000
7.	Bob Feinberg Tom Jones, CCIM Kate Potter	1101-1219 Main St. SW Los Lunas, NM	Land	$6,000,000
8.	Steve Kraemer, CCIM Isaac Romero	1114-1116 Silver Ave. SW Albuquerque, NM	Multi-Family	$995,000
9.	Isaac Romero	2015 U.S. Route 66 Moriarty, NM	Land	N/A
10.	Jim Hakeem Genieve Posen John Algermissen	SWQ Unser Blvd. & Wellspring Ave SE Rio Rancho, NM	Land	$953,234

The Great Resignation Of Office Tenants Begins, As Occupiers Quit Leases And Move To Flex Space

November 1, 2021 by CARNM

According to JLL, flex space will be 30 percent of the office market by 2030. One of the key reasons for this is that unlike office suites of the past, which existed primarily to provide desks, flex space companies today are being used as one component of a client’s overall strategy.

John Arenas, CEO of flex space provider Serendipity Labs, explains how his company enables the overall business strategy of optimizing real estate commitments for clients, including major enterprise firms.

“Large companies now view flexible office as an extension of their real estate, because the product can meet corporate workplace compliance standards, settings and work styles,” Arenas said.

Another advantage of flex space for companies is that it turns a fixed cost into optional cost, leading to potentially significant cost savings when plans change.

“Flex space can help vary the occupancy cost for a larger and larger portion of their total population of employees,” Arenas said. “If a company had a total occupancy annual cost of $15,000 per employee, flexible office can help them reduce that cost because it’s not one desk for one person. You only pay for what you use. So it enables their real estate strategy, reducing the load on central corporate headquarters space.”

Part of why “only pay for what you use” becomes so valuable is the sheer unpredictability of a company’s long-term staffing requirements.

When a company signs a long-term lease for office space, changing corporate priorities and strategies over time, combined with equally unpredictable factors in the economy and society at large — like a global pandemic — make it impossible to accurately determine their space needs for even the next two years, much less five or 10. Therefore, matching the space they take with just the space they need becomes an impossibility.

Flex space solves this problem.

“When a company signs a 10-year lease, they will either not be using all of it, or will need more than they have during the lease term. So they will be incorrect for the majority of the time they are under that lease about how much space they really need,” said Arenas. “If you’re underusing it, then you’re paying for things you don’t need, and your cost per employee goes up. If you need more, that’s impacting your core business. So there’s an actual cost of being wrong, which occurs most of the time you’re in a 10-year lease, especially in regional offices.”

Flex space offerings from companies like Serendipity Labs also help buffer for uncertainty in an unsure business climate on the customer side, allowing companies to match their office commitments with their actual business opportunities.

“We enable companies to match a revenue opportunity they have in a new market with their lease obligation. This is possibly the first time that this has happened in the history of office space, so it’s really exciting to them,” Arenas said. “As a company looks to grow and puts a sales team in a new market, or meets a customer requirement for that market, they no longer have to sign a five- or 10-year lease, which is good because their customer contract may only be one to three years at most, not 10 years.”

The office equation has become even more complex for companies during the pandemic given the attraction of the hub-and-spoke, or core-and-flex, office model, where companies open smaller outposts in suburban locations close to where their employees live in addition to maintaining their traditional headquarters.

Here again, flex space is a key ingredient in keeping costs reasonable and appropriate throughout the endeavor.

“If you sign a traditional lease in a remote market, or a suburb, for a hub-and-spoke approach, you have significant capital costs and commitments to do that,” Arenas said. “You’re paying for part of the tenant improvement above your allowance, and you’re using your internal team and consultants and vendors to design and support the space in a way that’s not super efficient. If you’re supporting 10 floors of a headquarters, you have everybody you need at the headquarters to support it, such as the tech and operations team. It’s really inefficient for a company to try and extend the real estate platform for a remote office. There are no economies of scale for that. If you use a provider like us, we have economies of scale for supporting multiple locations.”

AI consultancy NeuraFlash has been using Serendipity Labs’ flex space as a hub-and-spoke solution, and they see numerous advantages to taking this approach instead of trying to develop this solution on their own.

“During the pandemic, NeuraFlash began looking for an office solution in the suburbs to get our employees out of their houses, but still close to home,” said Tom Hebner, vice president of product and insights at NeuraFlash. “Serendipity Labs Ridgewood had everything we needed, including great restaurants and amenities in the neighborhood.”

NeuraFlash has found the Serendipity Labs location incredibly useful, while also enjoying such a significant cost savings that their vision for the future of their operation has changed.

“Four of us use it every day. I walk to work, and our New York City employees can easily get here for meetings because it’s right across the street from the train,” Hebner said. “We are a growing company with teams across the country. Flexible offices allow us to be agile and match our lease commitments with where our staff are. I don’t see us going back to long-term leases.”

At a time when office life is rife with uncertainty and many are still reticent about returning to the office—all of Serendipity Labs’ offices feature high-efficiency filters with high air turnover. Flex office space from firms like Serendipity Labs is a healthy, cost-saving solution for companies of any size.

“We’re providing flexibility during uncertainty. That’s a fundamental value we provide,” Arenas said. “We’re providing a safe, trusted, inspiring place to attract people back to working together. That is something that’s hard to do.”

Source: “The Great Resignation Of Office Tenants Begins, As Occupiers Quit Leases And Move To Flex Space“

Thousands of Satellites Currently Orbit the Earth. An ABQ Firm Built a System to Monitor Them.

November 1, 2021 by CARNM

The Air Force Research Laboratory is betting $750,000 on a new system that Albuquerque-based data analytics firm RS21 built to prolong satellite operations through remote monitoring and intervention.

The system – dubbed the Space Prognostic AI Custodian Ecosystem, or SPAICE – applies artificial intelligence to detect problems before they arise, allowing ground operators to intervene in advance of failures to extend satellite functionality, said RS21 Chief Technology Officer Kameron Baumgardner.

SPAICE has already shown enough promise for AFRL to entirely skip its normal “Phase I” proof-of-concept seed funding and proceed to a “Direct to Phase II” small business innovation research grant. That allows RS21 to immediately build and install the new system for real-world testing on a satellite that was launched from the International Space Station earlier this year, Baumgardner said.

Once fully installed, SPAICE will provide a steady stream of data from the satellite and the space environment where it’s operating, including real-time information on everything from how components are functioning, heat levels inside the craft, and the satellite’s positioning to current weather in space, fuel-tank levels, and how charged the vehicle batteries are.

All that data will automatically combine with detailed information about the spacecraft itself, such as the manufacturing process used to build it, creating a “neural network” for instantaneous monitoring and assessment.

“SPAICE is based on deep-learning AI that mimics how the brain is structured,” Baumgardner told the Journal. “It looks at a set of inputs to understand how they correlate to identify patterns and predict things. In this case, we’re looking at the system health of the satellite.”

That can enable satellite operators to detect anomalies and take action to correct them before something goes wrong, Baumgardner said.

SPAICE provides automated, real-time monitoring, data-feed and analysis, but it allows operators to make final decisions on needed action to help them build trust in the information received.

“With AI, folks who have done everything themselves for years often have a hard time trusting algorithms to do things for them,” Baumgardner said. “SPAICE presents data in a way that adds context for decision making, but it doesn’t actually make decisions for operators.”

RS21 won first place last December in the annual “Hyperspace Challenge” managed by AFRL and the ABQid business accelerator, run CNM Ingenuity, which oversees all of Central New Mexico Community College’s commercial endeavors. That generated broad interest in the new AI system from government agencies and commercial satellite manufacturers and operators, said RS21 President and CEO Charles Rath.

“We believe our AI-powered platform will be transformational for industry to improve situational awareness of satellite operations and save money,” Rath told the Journal. “Our phone is ringing off the hook from government entities and satellite producers. … We believe the SPAICE system could become the standard for AI and machine learning for preventive maintenance across the industry.”

Source: “Thousands of Satellites Currently Orbit the Earth. An ABQ Firm Built a System to Monitor Them.“

A New Phase of Industrial Development?

November 1, 2021 by CARNM

For the first time in years, Albuquerque developers have started building industrial space on a large scale without having tenants lined up, which may mean relief is on the horizon for the city’s notoriously tight industrial real estate market.

“It’s finally been pushed over the edge … in terms of getting developers to pull the trigger on projects without necessarily having leases in place,” said Riley McKee, senior advisor for NAI SunVista in Albuquerque.

SunVista’s most recent quarterly report on the industrial market, published in late October, shows the industrial vacancy rate has dropped lower than ever, to 1.39%, after years of decline.

However, the report also notes that four large projects, totaling around 500,000 square feet, are in various stages of construction, design and planning.

Erick Johnson, managing broker at Johnson Commercial Real Estate, said one warehouse, a 150,000-square-foot facility located at 7200 Bluewater NW, is currently under construction, with others in the pipeline.

Other developers, including Albuquerque-based Titan Development, declined to comment on the specifics of projects in the works before construction begins. However, McKee said the new projects are largely concentrated on the city’s West Side, near Interstate 40.

Additional projects, totaling 665,000 square feet, have been proposed with no timeline yet, according to the report.

McKee said the new developments in progress, which would nearly double the amount of industrial space available for lease, would be a welcome relief for bulk distributors and large manufacturers.

However, the builders venturing into the speculative market are facing challenges of their own, from labor shortages to high commodity prices, that threaten to delay or derail at least one of the long-awaited projects.

We’ve got to figure it out,” said Scott Goodman, vice president at Goodman Realty Group. “… Otherwise, no new industrial (space) will be built for a very long time.”

Current challenges

The new projects are significant in a city that has historically not seen a lot of industrial construction built on spec, or without a tenant lined up.

“Our market has historically not been a very speculative market,” Johnson said.

Bill Robertson, senior vice president and principal at Colliers International’s Albuquerque office, said Albuquerque has not seen a large-scale industrial property built without a tenant lined up since before the Great Recession.

As a result, the industrial vacancy rate has been trending down in Albuquerque for years, as growing companies work through the city’s existing supply of industrial space without much new development in the pipeline.

“It’s a supply and demand issue: lots of demand, no supply,” Robertson said.

Robertson said a pair of recent changes in Albuquerque have exacerbated the shortage. First, the COVID-19 pandemic and associated restrictions caused stores to close, prompting a number of retailers to pivot to an e-commerce model. Robertson said he expects the trend to continue, even as the pandemic abates, noting that the sector still has room to grow in Albuquerque and across the country.

Secondly, Robertson said other markets that have legalized recreational cannabis have seen industrial vacancy rates drop as producers look for space to grow and extract cannabis.

“They’re out looking and there’s nothing available,” he said.

Consequently, Albuquerque’s already-low industrial vacancy rate has plummeted in the past 12 months. SunVista’s report notes that 543,363 square feet of industrial space were available in the third quarter of this year, down 49% from the same quarter in 2020, itself a near-record low at the time. Robertson said the space that is still available is generally older, and not suitable for modern manufacturers and distributors.

Local and state economic development leaders have noticed that the lack of space leaves Albuquerque at a competitive disadvantage when bidding on projects. A report commissioned by the state Economic Development Department urges the state to pursue industries that need warehouse space, including the advanced manufacturing industry, but acknowledges that the lack of shovel-ready industrial sites is a weakness.

“Despite abundant land in the state, site selectors have had difficulty in finding land that is suitable for light manufacturing and industrial activity,” the report reads. “Specifically, the lack of facilities, infrastructure and building specifications desired by manufacturers have led some out-of-state manufacturers to decide against locating in New Mexico.”

Shocking costs

Even with projects in the pipeline, developers are finding it challenging to bring them to fruition. One of the largest planned developments, an approximately 400,000-square-foot complex being developed by the Goodman Realty Group, is likely to be scaled back, Goodman confirmed Wednesday.

Earlier this year, the company announced plans for a three-building industrial complex at the corner of Central Avenue and 118th Street, totaling 400,000 square feet. However, Goodman said the company is looking to “value engineer” aspects of the project, which could include shrinking the footprint of the building.

“We’re trying to figure out how to make it work, because we need for it to work,” he said.

Goodman cited the high cost of materials and the shortage of labor as reasons for the delay. He noted that concrete prices, which have soared this year due to supply chain challenges, and high construction demand, came back higher than expected.

Multiple brokers noted that contractors have been busy with build-to-suit projects for Amazon, Facebook and other large companies. Goodman said labor shortages are also a contributing factor, meaning that contractors have less capacity to take on new projects.

“They’re just slammed with what they have,” he said.

Goodman said developers in other states have told him they’re surprised at how much more expensive building in New Mexico can be, which Goodman believes is due to New Mexico’s tax structure and the state’s relatively small industrial construction sector.

“Everybody’s shocked at how much it costs to do construction here,” he said.

As a result, Goodman said his team will look at all aspects of the West Side project, considering removing some of the dock doors or having fewer buildings.

“As a developer, you always hit hurdles and you just need to figure out how to go through it,” he said.

The future of industrial?

Despite the challenges, brokers remain heartened that lease rates have finally risen to the point where it’s cost-effective for builders to build on spec going forward.

The SunVista report shows that lease rates inched above $8 per square foot earlier this year and currently sit at $8.70. McKee said this recent uptick put leases in the range where more developers would look at building without a tenant lined up.

“Landlords and developers are confident they can get the deal done before the building is complete, just because of the energy that’s in the market,” he said.

McKee said most of the new development in the city is clustering on the western edge of the city near I-40, which offers easy transportation access to other markets. The area has been popular among new arrivals to the city, with Tempur-Pedic and Amazon each establishing locations near the east-west interstate.

“That’s where a lot of the future growth is. … It’s really the only place we can grow,” McKee said.

McKee added that he’s hopeful the planned developments will help the city meet demand for space, but he acknowledged that most of what’s being built is on the larger side, intended for bulk distributors. Even with new projects in the pipeline, smaller distributors and manufacturers may not find the space a good fit. McKee said he’s hopeful rates are high enough to make some smaller spaces feasible for developers in the next few years. ”It’s just another segment of the market that’s currently untapped,” he said.

Source: “A New Phase of Industrial Development?”