Archives for February 2022

In the battle to optimize energy consumption in buildings, facilities managers have turned to Building Management Systems (BMS) as one of their greatest assets.

BMS became popular in the recent wave of smart building design. Their core function is to automate and regulate major mechanical and electrical systems to be as energy efficient as possible.

Since their emergence, there can be no arguing that buildings that employ BMS have generally been more energy-efficient than those that don’t. One estimation suggests that a functional BMS is expected to deliver 15-20% in energy efficiency savings.

As impressive as those numbers are, they can actually be counter-productive to reaching optimal energy efficiency. Energy consumption can in fact be reduced by as much as 50% when data gathered from smart monitoring systems is used in maximum effectiveness.

Three Limitations of Building Management Systems (BMS)

For those who employ a BMS, it is easy to get lulled in a false sense of security that they are doing all they can. But that is almost never the case. Improperly configured building management systems result in 20% of unnecessary building energy usage.

Even in buildings where the BMS is properly configured, they often aren’t enough to bring about optimal energy efficiency. Following are three inherent limitations with BMS.

1. Building Management Systems are Costly to Deploy

One of the biggest limitations of BMS is getting it installed in the first place. The cost to implement a BMS has been estimated to be between $2.50 and $7.00 per square foot. This is one of the biggest reasons the technology is not more widespread.

As it stands right now, too many owners and facilities managers aren’t seeing the ROI to convince them to go with a BMS in their facility.

2. BMS Can’t Cover the Smaller Equipment and Systems Effectively

Currently, most BMS are deployed in very large buildings (more than 100,000 square feet) and are dedicated to regulating the big energy consumers such as the building’s HVAC and lighting systems.

But what about all the other equipment and systems that make up a building’s energy and resource consumption?

A typical BMS cannot detect and track occupancy trends or water consumption levels. Nor can it detect extreme temperature fluctuations that can cause costly and inconvenient repairs to the building’s internal infrastructure.

3. A BMS is Not Easily Scalable

Today’s office buildings are in a state of flux. Coming out of the pandemic-related lockdown where people mostly worked from home, many organizations are now looking to reconsider the layout and space in their physical offices.

BMS systems are inflexible, so adapting to significant change is not going to be easy. Similarly, they are notorious for their lack of interoperability. Any disparate systems that are introduced may not integrate easily with an existing BMS.

Three Ways Sensor Data Complements BMS Data

The best way to get the most out of BMS is to deploy sensors, which add another dimension to data gathering in the building. Here are three ways sensor data complements BMS data.

1. Sensors collect more data

IoT sensors can gather a vast array of data, including asset temperature, occupancy, open doors and windows, humidity, and water. Because each of these sensors is designed for a certain purpose, they can be deployed in a targeted fashion to collect data that would otherwise be missed by a Building Management System.

2. Sensors are easy, affordable, and scalable

Sensors are the ideal complement to a BMS because of their ease of use and affordability. Most wireless sensors offer a fast, easy, and cost-effective way to build on existing BMS infrastructure in minutes.

Disruptive Technologies’ tiny wireless sensors, for example, operate through wireless technology, are easily installed with adhesive, and have a battery life of up to 15 years. This makes them ideal as a complementary technology to any BMS. It allows facilities managers to collect significantly more data than they would with a BMS alone and it can be done quickly without the need for an expensive and time-consuming retrofit.

Simply peel and stick the tiny (size of a stamp) sensors to anywhere in the facility where data gaps exist with the current BMS.

3. Sensors can be easily tailored to fill in BMS gaps

We know that a BMS is used to automate a building’s major systems, but that doesn’t necessarily mean it’s doing so with optimal efficiency. The BMS may be setting the lights and HVAC to power down at certain times, but is that based on real data or assumptions about usage?

Occupancy sensors, for example, can tell when a common room is unoccupied and can be further integrated into the BMS system to automate the powering off of lights when no one is around. Data from sensors gathered over time can also reveal occupancy trends which can lead to data-driven decision-making towards optimizing energy consumption.

Temperature sensors can also be used to conserve water resources by providing real-time data on water temperature. This eliminates the need for needless flushing of the system when adhering to legionella compliance.

All of these examples are potential gold mines of cost savings that can’t be realized through a BMS system alone.

Conclusion

A BMS has proven to be an effective way for facilities managers to reduce energy consumption and their building’s carbon footprint. Sensors are an excellent complement to any BMS by enabling more comprehensive data gathering that provides even deeper insights into energy and resource consumption.

By leveraging both technologies together, facilities managers can truly maximize energy efficiency and sustainability gains.

Source: “Why You Need Sensors For Your Building Management System (BMS)“

After more than two years of heavy lending on multifamily and industrial, lenders are searching for higher yields.

Mortgage bankers and lenders across the U.S. want real estate owners to know one very important fact: debt is widely available for retail properties after a couple of years of being hard to come by.

“People are still trying to figure out if there’s debt for retail properties,” says Tom Melody, managing director with Walker & Dunlop. “They’re wondering if they should be out in the capital markets, talking to lenders, and they’re curious if they’ll be able to get attractive pricing. The answer is yes, to all of it. But I don’t think a lot of people know that’s the case.”

Melody notes that the lion’s share of capital was “not really interested” in retail in 2021. And if they were, their interest was limited to grocery-anchored centers, which are widely viewed as the most recession-resistant property type within the retail sector.

But lender sentiment has shifted significantly, Melody says. Last week, he attended the 2022 Commercial/Multifamily Finance Convention and Expo in San Diego, hosted by the Mortgage Bankers Association (MBA). During the event, he dined with the heads of real estate or heads of loan originations for 22 different lenders.

“When I asked, ‘Who wants to invest in retail?’, most hands rose,” Melody recalls.

After witnessing the performance of various retail property types throughout the pandemic, lenders are feeling more comfortable with the asset class. Of equal importance, however, is the current composition of their existing portfolios, according to Claudia Steeb, managing director of JLL Capital Markets.

Most lenders, be they life companies or debt funds, are overweighted on the “hot” property types, specifically multifamily and industrial. As a result, they need to balance out their portfolios.

By focusing on multifamily and industrial loans for more than two years, lenders have built lower-yielding portfolios. Now, they’re realizing they must diversify into other property types to increase yields, not only for individual loans, but their overall portfolios.

“Retail is no longer a four-letter word,” Steeb says. “For the longest time, when I would call any lender, they’d say, ‘Please tell me you’re not calling about a retail deal.’ Now they say, ‘What do you have?’”

Sponsorship matters more than ever

A couple of months ago, Steeb and her capital markets team helped an affiliate of Lone Star Funds find debt financing to acquire Legacy Place, 424,500-sq.-ft. open-air retail center in Palm Beach Gardens, an affluent community 70 miles north of Miami that ranks among the wealthiest and most exclusive areas in the nation.

Completed in 2006 to 2007, Legacy Place’s open-air concept offers a walkable format and outdoor common areas with dining options. It is anchored by Best Buy, Barnes & Noble, Total Wine & More, Michaels and Petco, all of which are original tenants of the center. Other tenants include Ethan Allen, Miami Children’s Hospital, The Container Store, Bassett Furniture, The Capital Grille, Chili’s Grill & Bar and Five Guys.

The deal had a strong value-add component with a plan for re-leasing and some potential redevelopment opportunities, necessitating a flexible lender and a floating-rate loan, according to Steeb.

The strength of the sponsor garnered interest from about 50 percent of the lenders that Steeb and her team contacted. The number decreased as the deal moved into the underwriting stage, and Wells Fargo Bank ultimately provided a three-year, floating-rate loan.

Steeb acknowledges that if she came to market with this deal today, it might have received more interest from lenders. However, she doubts the outcome would be any different, given the terms she and her team were able to negotiate with Wells Fargo.

“One of the first questions I get from lenders today is: Who’s the sponsor?” Steeb says. “Regardless of the type of retail asset, lenders want an experienced sponsor. They don’t want to catch a falling knife. They want to work with borrowers who have established relationships with retailers and who know how to operate these properties.”

Additionally, lenders are making distinctions between different types of retail properties. “Certain retail fared well during COVID, and certain retail didn’t fare well (and probably never will again),” Melody notes. “Lenders are interested in the retail sectors and properties that have proven to be stable, even during a pandemic.”

And somewhat surprisingly, even unpopular retail property types such as enclosed malls aren’t receiving an immediate thumbs down from lenders.

“When I call a lender and say that I have an enclosed mall, they’re not hanging up on me anymore. They’re asking for details,” Steeb notes. “Retail may not be in the same place as multifamily or industrial, by any stretch of the imagination, but nothing is off the table.”

Motivated by specter of rising interest rates

Loan originations for retail properties increased by 73 percent in 2021, according to preliminary data from MBA. The retail sector ranked second behind industrial, which saw originations increase by 140 percent.

The increase in originations can be attributed both to acquisition and refinancing activity. Retail investment deal volume rose to $76.9 billion in 2021, an 88 percent jump compared to the previous year, according to Real Capital Analytics (RCA), a real estate data provider. RCA attributed some of that rebound to one-off entity-level transactions. However, when focusing only on individual asset sales, volume was up 65 percent in 2021 compared to 2020.

Of course, the pandemic skewed the year-over-year comparisons. To provide a more comprehensive view, consider  the five years though 2019, when deal activity in the retail sector averaged $77.2 billion. Deal volume for 2021 is in line with previous trends and certainly higher than during some recent years, according to RCA.

On the refinancing front, it’s not just loan maturities driving borrowers to seek new loans, Melody says. Though tens of billions in outstanding retail property loans will mature this year, according to MBA, many borrowers are refinancing several years before their loan comes due because they’re worried about interest rate hikes that economists have predicted over the next 12 months.

Even prepayment penalties aren’t enough to dissuade borrowers from refinancing, Melody says. Borrowers are doing the math, comparing the prepayment penalty to the amount they’d have to pay if they refinanced their loan at a higher interest rate.

“A prepayment penalty might look significant on the surface, but if a borrower is going into a new 10-year, fixed-rate loan, that pre-payment penalty is amortized over 10 years,” Melody says. “It might be 25 to 30 basis points, but if you think rates are going to go up 100 basis points or more, it makes sense.”

Currently, spreads for floating-rate loans are LIBOR plus 200 to 300 basis points, and spreads for fixed-rate financing are T-plus 200 to 300 basis points. The all-in rates for both floating and fixed-rate loans still look attractive—roughly 4.0 percent or lower.

“The reality is that sometimes the market is not great when borrowers go to refinance,” Melody adds. “It’s really good right now, and there’s a bunch of folks who want to take the risk off the table and be able to sleep at night instead of worrying where rates will be in two years.”

Increased retail allocation from all lenders     

The good news for retail property owners is multiple sources of debt financing are available today. Banks, life companies, CMBS and investor-driven debt funds are all actively lending for retail properties, and most have increased their allocations in recent months.

For longer term, fixed-rate loans on stable retail properties, life companies and CMBS lenders remain an attractive and viable option, Steeb says. Both offer non-recourse loans, though life companies are playing in the 50 to 60 percent LTV range, while CMBS is stretching to 70 percent LTV.

“CMBS is an interesting story right now,” Steeb says, noting that issuers are more focused on protecting the pools from anything that can go wrong. “They’re structuring around anchor tenant expirations with increased reserves to make sure the borrower has the funds necessary to re-tenant the property if the anchor doesn’t renew. That’s an improvement over the past couple of years where they wanted interest reserves and debt service reserves.”

Last year, CMBS issuance for retail properties increased to $9.93 billion from $2.78 billion in 2020. Retail properties accounted for 9.1 percent of annual CMBS issuance in 2021, nearly double the amount in 2020, according to Trepp.

For retail properties that are in transition, perhaps those with a value-add component or an upcoming lease renewal for an anchor tenant, financing is available with national and regional banks. However, many banks are limiting their retail property lending to sponsors who have an existing relationship with them.

“Right now, banks are very sponsor-focused and very relationship-focused,” Steeb says.

Debt funds hook borrowers with flexible terms

Meanwhile, many borrowers are increasingly turning to debt funds to finance their deals. A number of investment firms have raised debt funds, in addition to several life companies searching for higher yields, e.g. MetLife, PGIM (a subsidiary of Prudential Financial) and Voya Financial.

Though the cost of debt tends to be higher with debt fund loans, most borrowers are more than willing to pay a premium for the flexibility that debt funds provide. Typically structured as two- to five-year, floating-rate debt, these loans provide 60 to 65 LTV, as well as “good news” funding when properties achieve certain milestones related to property improvement plans.

First National Realty Partners (FNRP) is just one example of a retail property investor that has obtained financing from debt funds. The Red Bank, N.J.-based firm was one of the most active buyers of grocery-anchored shopping centers in the U.S. in 2021, closing more than $500 million in acquisitions.

FNRP’s strategy to acquire and hold assets for three to five years means that life companies and CMBS loans are less attractive, according to Jack McLarty, managing director of debt capital markets. He points specifically to the lack of future funding facilities as a drawback to this category of lenders.

“Future funding facilities are extremely important to us because, to the extent that we can leverage them, it’s going to help us return more to our investors, which is ultimately our goal,” McLarty says.

With so many deals in FNRP’s pipeline, McLarty is chatting with a variety of lenders on a regular basis. “Ten years ago, retail wasn’t a sandbox that everyone was playing in,” he says. “But now there’s a lot of liquidity from a lot of different sources, including some folks who dropped out a while ago, but now they’re back and wanting even more.”

Source: “Yes, Lenders Are Interested in Financing Retail Properties“

The future of work. It’s a point of deep uncertainty, and for office owners, it can feel like they are grasping in the dark.

Office owners are having to make decisions now, decisions that might affect the future of their businesses for years to come, boost profitability or put them out of business — all with very little information about how people will choose to work in future and how they will use office real estate. The much-vaunted “return to the office” has been delayed multiple times by new variants of the coronavirus and the reality is that the world is still in the very early stages of a multi-year process of experimenting on how we will work in the months and years to come.

The number of outcomes is almost endless. With that in mind, Bisnow has created a “choose your own adventure” to help you map out how the world of work might evolve.

So here is the scenario: You’re the owner of a 54K SF office building leased to a single tenant, a white-collar firm that straddles the worlds of professional services and tech. The building was built in 1993, and it has good bones: ample natural light, decent floor-to-ceiling heights, big floorplates, with columns all in the right places. But it has seen better days, is a bit run-down and has nothing in the way of amenities. The HVAC and insulation are old, meaning it’s not very energy-efficient.

It is located on the edge of the central business district in a big city. It has transport links and nice restaurants and bars nearby, but they are a bit of a walk away.

Your tenant has been assiduously following government regulations, asking staff to work from home when case numbers were high, and trying to bring staff back in a safe and measured way when cases recede.

Your occupier is planning for the future — there are two years left on its lease, and it needs to make some decisions about its future and how it will operate in a new world.

Can you work with them to negotiate the future of work and maintain a valuable office asset? To find out, take the first step on the adventure …

One of the key factors that will affect the future of the office is how companies and their employees balance working from the office and working from home or elsewhere. What policy will the tenant in your office building decide upon and how will it make that choice?

If you think it will make staff come in five days a week, click here.

If you think it will go fully remote, click here.

If you think it will adopt a hybrid policy, click here.

Source: “Can You Negotiate The Future Of Work Without Breaking The Office Market? A Bisnow Choose Your Own Adventure“

Currently, some of the promoters seem to be cryptocurrency trading companies.