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Midyear Outlook
www.nreionline.com
Midyear
Outlook
Insights from more than
50 frms on every aspect of
the commercial real estate
industry.
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CONTENTS
16 Capital One 31 H. Hendy Associates
Industrial Investors Get Creative Office of Tomorrow: Healthcare
Advancements Drive Workplace
17 CCIM Institute
Maintaining a Steady Course 32 H. Hendy Associates
Experience Over Everything:
18 CIM Group
Renter Perceptions Will
Baby Boomers and Their Kids
Transform Property Design
(and Grandkids) Are Fueling
Metropolitan Population Growth 34 H. Hendy Associates
Automation, IoT and 3D Printing:
19 Cityview
These Three Trends Will
Opportunities Ahead for CRE
Dominate Your Facility in 2020
Investors
35 Hunt Real Estate Capital
20 Colliers International
Organizing Opportunity
The Economics of Self-Storage
Development 36 Instant Group
5 EDITOR’S LETTER 21 Corfac International
The Midwest is the Next U.S.
Market to See Sensational
Adaptive Reuse Opportunities at
OUTLOOKS an All-Time High
Growth in Flexible Space
6 Acres Capital 37 JCH Senior Housing

22 Cortland
Is the Lack of Debt on For-Sale The National Senior Housing
Multifamily Must Embrace the
Condos Showcasing a Growing Market: A 2019 Midyear Review
Experience Economy
Economic Crack?
38 JLL
23 CoStar Group
8 Alliant Approaching the Golden Age or
As the Cycle Progresses,
How the “Go Local” Crusade is Investors Focus on Core and
a Food Bubble?
Impacting Retail Real Estate Near-core Assets
Finance 24 Cushman & Wakefield
39 JLL
Northern N.J. Industrial
9 ArborCrowd Financing Market Highly Liquid
Retail Investors Prioritize Quality
Disaster Lurking: Poor Assets that Provide Secure
Underwriting is a Threat to the 25 Downtown Doral Opportunities
Real Estate Market Office Space Midyear Outlook:
40 Landmark Real Estate
The Case for Office Parks in
10 Arbor Realty Trust Campus Settings
The Perils of Crowds
The Small Multifamily Market to
41 Levin Management
Remain Strong in 2019 26 Elegran Capital &
Advisory The Union of Bricks-and-Mortar
11 Aspirant Group E-Commerce Warehousing and and Online Retail is One of
New Environmental Lender Logistics Evolution Industry’s Hottest Mergers
Portfolio Insurance and Risk
27 FreddieMac Multifamily 42 Marcus & Millichap
Transfer Options
Multifamily Market Growing A Tight Labor Market Portends
12 Avison Young Faster than Expected a Steady Outlook for the
South Florida Port Activity Apartment Sector
Continues to Fuel Industrial 28 Gate Labs
The Best Smart Locks for 44 Matter Real Estate
Expansion Group
Rental Properties Have Three
13 Buxton A Social Imperative for
Crucial Features
Cover Photo: Getty Images
Three Emerging Trends Developers

Influencing Today’s Retail Real 29 Gemini Rosemont
45 Middleburg
Estate Industry Institutional Equity Investing–Art
The High-Income Renter
or Science?
14 Bellwether Enterprise 46 NIC
How to Avoid an Affordable 30 H. Hendy Associates
An Emerging Opportunity for
Senior Housing Crisis: Provide Work Has Changed, Why
Investors and Operators: Middle
for the “Forgotten Middle” Haven’t Our Offices?
Income Seniors Housing
3 / NREI Midyear Outlook: 2018/ www.nreionline.com

Midyear Outlook: 2019
www . nreionline . com
48 NMHC 66 SVN
vice president
An Update on Affordability The Abundance Economy is financial services group
Coming. Is the #CRE Industry William C. O’Conor
49 NB Private Capital william.oconor@informa.com 212.204.4270
Ready?
Why Student Housing Should be
publisher
Considered as a Historically 67 USAA Real Estate Marianne Rivera
Recession Resistant Investment Deliberating Commercial Real marianne.rivera@informa.com 312.840.8466
Estate Debt Funds publisher emeritus
50 NES Financial Rich Santos
Understanding Opportunity Zone 68 Ten-X richsantos@tengoalllc.com
Funds and 1031 Exchanges Demand for Commercial Retail ADVERTISING CONTACTS
Space Remains Stagnant, While
52 Nuveen Real Estate account manager/central and west
Investors Look to Reposition Christina Girardi
Technological Disruption in
Retail Properties christina.girardi@informa.com 347.515.1570
Commercial Real Estate
70 VEREIT key accounts manager/east
54 Partner Engineering and Matt Butcher
Science The Benefits of Real Estate matt.butcher@informa.com 212.204.4240
The More Things Change Partnerships During a Retail

Evolutions
55 Peck Hotel Consulting
Hotel Development: Boutique vs. 71 Virtua Credit executive director, content
& user engagement
Traditional Brand Midyear Trends in Hospitality David Bodamer david.bodamer@informa.com
Finances
executive editor
56 Phillips Edison & Company Elaine Misonzhnik elaine.misonzhnik@informa.com
Grocery-Anchored Real Estate: 72 Virtus Real Estate
Capital staff writer
Innovation at an Inflection Point
As Market Tides Shift, Certain Sebastian Obando sebastian.obando@informa.com
57 Point Inside Alternative Properties Can Offer
group design director
The Search for Understanding: Safe Harbor for Investors Kathy McGilvery kathy.mcgilvery@informa.com
How Tech Can Help Predict How
73 Woodcliff Realty group art director
Shoppers Experience Retail Sean Barrow sean.barrow@informa.com
Retail Landlords Advance
Projects
Sustainability marketing director
58 Prism Capital Partners Jay McSherry jaymcsherry@earthlink.net

74 W.P. Carey
Workplaces Focused on Lifestyle, senior director, production
Sale-Leasebacks Have Become
Growing Lab Demand Support Carlos Lugo carlos.lugo@informa.com
a Critical Tool for PE Firms.
Positive Trending in New Jersey
Here’s Why. production manager
Commercial Market Lauren Loya lauren.loya@informa.com
75 Yardi Matrix
59 RealCrowd Editorial Reprints: Contact us to purchase quality custom
Capital Markets Revolution
Where Are Real Estate Investors reprints or e-prints of articles appearing in this publication:
Underpins CRE Success informa@wrightsmedia.com / 877.652.5295
Placing Their Money This Year?
61 Sands Investment Group ADVERTISING OFFICES
NNN Property Influx Presents EAST—605 Third Avenue
New York, NY 10158
Buyers More Options
62 SIOR MIDWEST—200 West Madison, Ste 2610
Chicago IL 60606
The Industrial Boom Continues, 312-635-9116
but for How Long?
212.204.4200, www.informa.com
64 Stan Johnson Company
Multi-Tenant Retail: Private
Investors Lead Acquisitions
Nationwide, Especially in
Non-Major MSAs
65 SunTrust Bank
A Strong Outlook for Agency
Debt to Finance Multifamily
Properties in the Southeasty

EDITOR’S NOTE
Charting a Course in a Mature Real

Estate Cycle
t’s been more than a decade of recovery and growth for the commercial real estate sector. Previous
I real estate cycles have not typically lasted nearly this long. Everyone agrees at this late stage there’s
reason to be on the lookout for a correction. But at the same time, being too cautious could lead to
missing out on opportunities that still exist in a marketplace where fundamentals remain strong and we’ve
experienced a period without some of the excesses (i.e. overbuilding or capital markets that got too frothy
for their own good) that lead to downfalls in previous cycles.
That’s the context in which we present
our latest outlook supplement. This marks
the third year that NREI has assembled twice
...being too cautious could lead to annual looks at where the commercial real
estate market is heading. These supplements
missing out on opportunities that
are chances for companies to share insights on
still exist in a marketplace where all aspects of the industry.
fundamentals remain strong In this 2019 Midyear Outlook supplement,
and we’ve experienced a period we have included predictions and insights
without some of the excesses (i.e. from more than 50 commercial real estate
overbuilding or capital markets firms on all aspects of the commercial real
estate business. In the following pages you’ll
that got too frothy for their own
find commentaries exploring trends in every
good) that lead to downfalls in property sector and covering a wide variety
previous cycles. of topics.
What all these articles have in common is
they come from a broad collection of the best
companies and best minds in the business.
Per usual, on many topics we have more than one article. That’s always been part of the value of the supple-
ment. It’s an opportunity to see where there might be frictions in the market and opinions that vary depending
on the different perspectives firms bring to the table.
We hope you’ll find this latest collection useful. If you have additional thoughts on where commercial real
estate is going or are interested in being included in future outlook supplements, drop us a line. ■
David Bodamer
Executive Director, Content & Engagement
Contact David Bodamer at

david.bodamer@informa.com.

Is the Lack of Debt on For-Sale Condos Showcasing

a Growing Economic Crack?
By Mark Fogel
In looking toward the second half of 2019, in a decade that to supply and demand. The success of the project relies on
has seen relative stability in the commercial real estate sec- a keen understanding of condo supply (local demograph-
tor, something becomes apparent as one walks the streets ics), the rental market and occupancy levels. Additionally,
of Miami: there is an abundance of condominiums, but it is important to contemplate a correction in the market
seemingly not many in the beginning stages of ground-up and to work with a highly experienced sponsor. As we
construction. In key American real estate markets and gate- work within a market that is not as robust as it was five to
way cities, we are seeing a similar aesthetic. Is this due to an 10 years ago, these factors become even more critical, as
excessive proliferation of this property type? Is
demand in the condo market diminishing? Are
developers and lenders beginning to interpret the
current climate as a peak in values and rife with
risky investments?
The answer is certainly more complex than
any one of these singular interpretations. In 2006
and 2007, leading into the Great Recession, we
witnessed a similar, albeit heightened, scenario.
Real estate values were overblown, and lenders
were doling out loans to anybody and every-
body until capital flow lessened and it became
Photo: Getty Images

apparent that inventory was bloated. While
many borrowers did not heed the warning signs
of an imminently bursting bubble, lenders also
contributed to plunging America into the most
significant economic downturn since the Great
Depression of the 1920s.
It is unlikely that the U.S. will suffer the same scenario a seasoned professional will be able to adapt the business
it did over a decade ago anytime soon. However, the lack plan and bring a higher likelihood of completion to the
of debt on for-sale condos may be telling as we look ahead project.
to the next phase in the market cycle. Some are concerned While the imminent future is of course uncertain, the
that since funds have backed away from for-sale condos, current lack of debt flowing into for-sale condos could be
lending into a condo based on a per-square-foot price a sign that the industry climate is shifting. As construction
might result in diminished equity cushions if the market lending diminishes and units are sold, reducing the fresh
were to drop. To preserve potential rental fallback value, supply of inventory, the best solution will be to increase
lenders, developers and brokers now must be highly selec- deal selectivity while allowing the market to circle back
tive in the transactions they choose to facilitate. and regain strength as it renews. n
Multifamily condo buildings have become a ubiqui-
tous solution to quench the thirst of consumers looking Mark Fogel is the CEO and president of
to invest their capital in their home without purchasing ACRES Capital.
a standalone house. It’s not just gateway cities like Los Learn more at www.acrescap.com.
Angeles, San Francisco, Miami and New York that are see-
ing overbuilt condo markets, either. Places like Nashville,
Denver and Seattle have seen their inventory far surpass
consumer demand. In a real estate market that may trend
downward in the near future, this can be problematic.
In a downturn scenario, the most crucial criteria to
consider for best analyzing these investments boils down

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How the “Go Local” Crusade is Impacting Retail

Real Estate Finance
By Charles Krawitz
Mom and pop shops have gone from persona non-grata to

the new darlings of the retail real estate world. Iconic “local
favorites” are emerging as some of the most reliable tenants
for shopping center owners and lenders alike. It’s no surprise
that the most coveted local tenants are the ones offering
experiences or customized products that customers can’t find
Photo: Getty Images

on Amazon.
As recently as a few years ago, a major grocery store or
big-box retailer drove the success—and loan approval—of
a shopping center. Yet landlords are increasingly chal-
lenged to fill big-box space. In the Chicago area, for exam-
ple, available retail anchor space has doubled since 2012,
hitting an all-time high of 15.7 million sq. ft. in the first includes a stable mix of national brands and local shops.
quarter of 2019, according to CBRE research. Meanwhile, Alongside a Jimmy John’s, Great Clips and Verizon Wireless,
even big brands are experimenting with smaller formats, customers can find a one-of-a-kind Italian market, an ani-
like the Nordstrom Local concept and Amazon Go stores. mal hospital and a local dancewear shop. The diverse tenant
While there is still a place for national chains in today’s mix helped the center’s owner secure a $14.1 million cash-
shopping centers, smaller retailers have a bigger role to out refinance of the property in 2018.
play. That’s partly because the rise of Amazon came with
a juxtaposing consumer movement to “buy local” and Key ingredients for retail fnancing success
support small businesses. From craft breweries to clothing While the tenant mix plays heavily into financing decisions,
shops with carefully curated merchandise, consumers are it’s not the only factor. Credit officers are favoring infill urban
seeking unique experiences they can’t get online. locations in areas with strong demographics and population
The “go local” movement reached a fever pitch in 2018, growth. They’re also giving points for centers with staggered
with consumers spending a record $17.8 billion on Small lease maturities, which mitigates the risk that a slew of ten-
Business Saturday (not coincidentally, the day after Black ants will move out all at once when their leases expire. And in
Friday), according to American Express and the National today’s challenging retail landscape, lenders are scrutinizing
Federation of Independent Business. More than a passing the experience of property owners, seeking investors with a
fad, consumers’ infatuation with all things local is here to proven track record of success.
stay—improving local business owners’ appeal in the eyes As the retail landscape continues to evolve, shopping
of lenders looking to pursue shopping center opportunities. center owners shouldn’t overlook the value that local
stores bring to the tenant mix. After all, shops with strong
The e-commerce-proof tenant mix community roots are well poised for long-term growth. n
Underwriters evaluating shopping centers are looking for a
strong mix of internet-resistant and service-based tenants. Charles Krawitz is vice president of com-
When basic goods like laundry detergent, tube socks and mercial lending for Alliant Credit Union.
cell phones can be delivered to your doorstep with a few Learn more at www.alliantcreditunion.org.
clicks of a mouse, luring customers into physical stores
requires a different experience than what big-box retailers
have traditionally delivered. Local shops contribute to a
diverse tenant mix when located alongside well-known
national tenants, including discount merchandisers like
Marshalls, TJ Maxx and Ross.
Just northeast of Indianapolis in the hip and historic
community of Noblesville, Ind., Noble West Shoppes offers
a prime example. The nearly 60,000-sq.-ft. retail center

Disaster Lurking: Poor Underwriting is a Threat to

the Real Estate Market
By Adam Kaufman
We are still experiencing the longest period of economic from real estate. In fact, multifamily is often seen as a stable
expansion in U.S. history and the multifamily real estate investment because people always need places to live. That
market has benefited remarkably from it. said, sound underwriting backed by experience is critical to
But as is common towards the end of long periods of a project’s success as it can hedge against risks throughout a
growth, the market becomes flooded with new and inex- realistic business plan that anticipates future market condi-
perienced players (sponsors) who overpay for properties. tions, such as higher interest rates and slower rent growth.
This time around, thanks to historically low borrowing Among other items, sound underwriting means exten-
costs, these sponsors are using cheap debt to amass large sively studying the property and the local market to deter-
property portfolios.
Unfortunately, the strong economy and low interest
rates have masked questionable underwriting practices.
However, with the declining pace of rent growth and less
stable borrowing costs, these shoddy underwriting practic-
es are now coming to light.
As an example, imagine an inexperienced sponsor
acquired a multifamily property in 2012 with a projected
three-year hold period. At acquisition, they would have
been able to take advantage of low interest rates in the range
of 3 pecent to 4 percent. Additionally, they would have
experienced a national average rent growth of 4 percent to 5
percent between the purchase and subsequent sale in 2015.
Moreover, thanks to low borrowing costs at the time of sale,
that inexperienced sponsor would quickly find a buyer and
reap a handsome profit. mine if projected rents are attainable, the seller’s operating
However, that same scenario wouldn’t have played out expenses are accurate, and the projected exit price is realistic.
so well in 2018 as interest rates, while still fairly low, were We have reached a point in the current market cycle
up by nearly 2 percent on average since 2012. Additionally, where strong underwriting means the difference between
while the pace of rent growth had climbed to a high of success and failure. Investors must ask questions when
more than 5 percent in the third quarter of 2015, it has information is lacking and should thoroughly vet the spon-
since dropped steadily and was recently listed at 3.3 per- sor and the platform on which the transaction is being
cent in the first quarter of 2019, according to real estate offered. Ultimately, it is up to individual investors, real estate
data and analytics firm RealPage Inc. Moreover, RealPage sponsors and investment platforms to act responsibly. n
forecasts annual rent growth will be 3.1 percent this year
and just 2 percent for 2020. Combining high real estate val- Adam Kaufman is the co-founder and man-
ues, slowing rent growth and fluctuating interest rates, it’s aging director of real estate crowdfunding plat-
easy to see how an inexperienced sponsor who purchases form ArborCrowd, where he oversees the com-
a property today may find it difficult to realize any profit pany’s corporate growth strategies including
when he or she seeks to sell the property in 2021. Instead, business development, digital technology and sales initiatives.
the sponsor may be forced to sell at a discount compared Learn more at www.arborcrowd.com.
to their underwritten projections, or they may have to hold
the property for far longer than anticipated.
Photo: Getty Images
As evident, when market growth slows, the sponsor’s

experience in understanding the ups and downs of various
market cycles becomes even more important to the success
of the deal.
This doesn’t mean that individual investors need to run

The Small Multifamily Market to Remain

Strong in 2019
By Dustin Pevear
The small multifamily market is poised to remain healthy on-one through the life of the loan. This personalized
in 2019, due to strong investment activity and a signifi- experience ensures the borrower receives a customized
cant increase in liquidity throughout this cycle, following loan solution that helps them grow their small multi-
a record year of lending volume in 2018. family portfolio and add supply to a critical sector of the
Lending volume for small multifamily loans, defined commercial real estate industry.
for these purposes as loans valued at $1 million to $6 Overall, growth in operating income, a diversity of
million, reached $53.1 billion in 2018, the highest level capital sources and elevated demand for small multifam-
of activity in Chandan Economics’ post-financial crisis ily properties will continue to support healthy levels of
model estimates.
Initial readings for the first Estimated Small Balance Multifamily Origination Volume
quarter of 2019 totaled an annu- Through Q1 2019
alized $48.7 billion, which would $60
represent a modest pullback, but 50
the continued formalization of
40
the small multifamily market and
Annualized
favorable long-term demograph- 30
ic trends will support the sector’s
20
continued strong performance for
the rest of 2019. 10
Liquidity in the small multi- 0
family market has also improved 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
significantly throughout this cycle Source: Chandon Economics
due to the entrance of new inves-
tors and lenders, supported by an
increase in participation from the GSEs in the space. lending activity in the small multifamily market for the
Recognizing the need for more financing options in the foreseeable future. n
small balance space, Arbor Realty Trust was one of the
first lenders to participate in the Fannie Mae Small Loan Dustin Pevear is senior vice president and
program more than two decades ago and the Freddie chief underwriter of Freddie Mac small bal-
Mac Small Balance Loan program since its inception ance loans at Arbor Realty Trust Inc. Arbor
in 2014. Realty Trust Inc. (NYSE:ABR) is a nationwide
As one of only a select few lenders licensed under real estate investment trust and direct lender,
these programs, Arbor helps provide additional liquidity providing loan origination and servicing for multifamily, seniors
to the small multifamily market and contributes to the housing, healthcare and other diverse commercial real estate
goal of providing critical supply of affordable and mar- assets.
ket-rate rental housing nationwide. Learn more at www.arbor.com/blog.
Investors in the small multifamily market should
consider an agency small loan financing program due to
its many benefits, including lower interest rates and the
ability to achieve a long-term, fixed-rate mortgage that is
often non-recourse, with interest-only periods available
and flexible prepayment options. In addition, working
with a lender that is experienced in the small loan space
is critical for a borrower’s success.
Specialized small loan lenders like Arbor can walk a
borrower through the loan process and guide them one-

Trending–New Environmental Lender Portfolio

Insurance and CRE Environmental Risk Transfer
Options
By Geoff Haver
In the hushed hallways of bank management and lending

committees, no one wants to discuss the loan that went bad
whether foreclosure, default and worst of all—the collateral
is environmentally impaired. Questions will often surround
the financial strength of the borrower and what was missed
during due diligence and loan underwriting.
The answer may be that the borrower ran a streak of
bad financial luck. The environmental matters may have
been unforeseen.
Environmental insurance market trends:
The environmental insurance market is robust, fiercely
competitive, proven and continually evolving. If you con-
templated environmental insurance options in the last Pitfalls of environmental due diligence:
three years, disregard any thoughts you had about coverage Environmental due diligence via record subscriptions, Phase
and cost. The landscape has changed with over two dozen I and II’s are highly recommended in any CRE transaction.
environmental insurers offering site pollution insurance However, they are not the sole remedy for preventing envi-
(aka pollution legal liability, environmental impairment, ronmental risk and financial loss of impaired collateral.
etc.) resulting in vastly improved coverage at an all-time Errors in such reports are the leading cause of financial loss
low risk transfer cost (premium). from an environmental discovery as well as environmental
Mold was not gold for litigants however cleanup insurance claims. This is not a knock against due diligence,
expenses for mold have been quickly rising and are under yet errors happen and it could be as simple as a stable pool
underwriting scrutiny by insurers. Underground storage of undetected environmental contamination not in historical
tanks continue to leak and tank’s over 25 years in age are records or near the proximity of boring placements.
becoming difficult to insure. Phase II’s are not popular with borrowers and are a
Environmental insurance for CRE lenders/investors: moment in time that do not contemplate future contam-
In the late 1990s Lender Liability aka Secured Creditor ination caused by borrower post-closing or an expanding
or Collateral Protection was introduced by two major plume that may run through the property at a later date.
insurance companies. Subsequently one of those insurers Insurance is about risk transfer:
departed from the market leaving the other insurer to be From an environmental risk viewpoint, environmental
the sole source of Lender Portfolio Collateral Protection. insurance is not a five-minute “side” discussion at renewal
Today, there are six environmental insurers offering time. It is a business and financial strategy to reduce balance
Lender Liability whether stand-alone or as a hybrid sheet risk and provide funding in event of loss. For lenders
combining site pollution coverage with a separate lender driving loan approval efficiency, it may be a competitive tool
provision. In the instance where known environmental and valuable risk transfer coverage in the event of borrower
conditions exist, the site pollution coverage may exclude default. CERCLA lending safe harbors are pierceable. n
such conditions whereas the lender provision may allow
full protection of the known conditions, specifically for Geoff Haver is president of Aspirant Group,
the lender. LLC, a retail insurance broker specializing in
Breaking news—In April 2019, one of the envi- environmental insurance for lending and com-
ronmental insurers is now offering Lender Liability mercial real estate transactions.
on a portfolio basis. Developed for this insurer via a Learn more at www.aspirantgrp.com.
Photo: Getty Images
managing wholesaler is a Lender Liability on-line loan

management portfolio program that provides the loan
team with instant approvals and allocated premium for
closing. Minimum premium starts at $500 for the term
of the loan.

South Florida Port Activity Continues to Fuel

Industrial Expansion
By Wayne Schuchts
The robust Miami industrial market shows no sign of slow- well positioned to serve the burgeoning last mile delivery
ing, as ecommerce and logistics businesses fuels significant sector. As prices continue to climb, however, some users that
leasing, sales and construction activity. At the mid-point of are not as reliant on the seaports will move inland to find
2019, the market continues to attract occupiers looking to tap better value.
into key population bases along Florida’s southern coastline, Looking toward year-end, the market should continue
as well as those farther inland. to see low vacancy rates, with new construction filling in
As noted in Avison Young’s Spring 2019 Global Industrial as developers can find suitable land. The confluence of
Market Report, Miami ranked in the top five industrial mar- limited land, increasing construction costs, new tenants to
kets for construction, absorption and preleasing
of space. The market has seen historical activity
on the construction side, with 2.9 million sq. ft.
completed over a recent 12 month period and
3.9 million sq. ft. under construction at mid-
year 2019. Eighty percent of the current space is
being built on speculation.
Developers have been in pursuit of any
suitable land that can be developed to fill mar-
ket demand. In some cases, they are tearing
down older industrial facilities or converting
golf courses or other facilities into modern
distribution and warehouse space. The scarci-
ty of land is pushing up rents, despite record
new construction already added to the market
in previous years. Average asking rents have
increased by more than $1 per sq. ft. over the
past two years to $8.44 per sq. ft.
The Miami industrial market benefits from its stronghold market and growth of existing tenants will very likely drive
on international trade flowing through PortMiami and near- net rents to new highs over the foreseeable future. This rent
by Port Everglades. With recent expansion in the Panama growth won’t slow industrial activity, however. Miami is
Canal, these ports are on a strong growth path to support well positioned to maintain its status as a dynamic indus-
the growing industrial sector, particularly those businesses trial market that supports a wide range of ecommerce,
involved in ecommerce. Port Everglades is investing $1 billion logistics and related businesses. n
in infrastructure improvements to increase its cargo volume,
for example. Avison Young Principal Wayne Schuchts has
PortMiami ranks as the largest cargo port in the U.S., more than two decades of commercial real estate
with volume increasing by 20 percent over the past five years. experience and specializes in office and industrial
PortMiami had its most successful year ever in 2018 and property transactions in the Miami market.
broke a record in the first quarter of 2019 for its highest-ever Learn more at www.avisonyoung.com.
monthly cargo activity. Miami is the fastest-growing of the
top 10 U.S. ports and is beginning to catch up with other
premier industrial destinations including the Inland Empire/
Long Beach and New York/New Jersey.
As the third most populous state in the U.S., Florida has
drawn many ecommerce businesses looking to fill consumer
demand for everything from clothing to electronics to fresh
food delivery. Buildings close to the seaports are particularly

Three Emerging Trends Infuencing Today’s Retail

Real Estate Industry
By Tom Buxton
As we enter the second half of 2019, the biggest news in

the retail real estate industry is, ironically, not focused on
traditional retailers. Omnichannel retailing and experiential
retailing continue to influence the industry, but most of these
initiatives are well underway.
Instead, the commercial real estate industry is paying
attention to some non-retail trends that are having a grow-
ing influence on how retail real estate decisions are made.
Health and wellness

At the recent International Council of Shopping Center
RECon, it was clear from the buzz on the convention floor that two areas: improving the efficiency of real estate processes
healthcare is having a growing impact on retail centers. As the and providing greater access to information.
healthcare industry pivots toward a consumer-oriented busi- The industry is beginning to see greater integration of
ness model and as retailers continue to optimize the number technology across vendors. This reduces barriers to con-
of stores in their portfolios, healthcare providers have become solidate processes and make them more efficient—a win
desirable tenants for retail centers. for the end user.
But healthcare isn’t simply a shopping center trend. Technology is also elevating the level of insights avail-
Recently, health and wellness initiatives have emerged as able on current or target properties. Mobile GPS data
a new way for retailers to connect with customers. From in particular is opening a new world of site intelligence,
meditation classes to custom made orthotics, healthcare is although that power must be balanced with respect for
influencing retail brand strategy in addition to shaking up consumer privacy. The technology offers the potential
the tenant mix at shopping centers. for shopping center owners, investors and brand decision
makers to access de-identified and aggregated traffic and
Restaurant delivery consumer profile information for any site—including
A few short years ago, the restaurant industry was heralded competitor sites.
as being one of the few untouched by e-commerce. The Time will tell how much these technology advances will
introduction of third-party delivery platforms changed that. influence the way the industry operates, but the potential
Many brands are responding by rolling out delivery ser- for change is greater than it has been in years.
vices through the most popular third-party applications.
For example, Subway announced it is offering delivery at The bottom line
9,000 U.S. locations through partnerships with UberEats, The retail real estate industry is constantly evolving. While
GrubHub, DoorDash and Postmates. McDonald’s rapidly core retail industry dynamics are expected to remain steady
grew its delivery services from 200 test sites to 5,000 loca- through the end of the year, emerging trends in healthcare,
tions in less than two years. third-party restaurant delivery and technology will have a
Restaurant real estate teams are adapting store layouts growing influence on the industry. n
to reflect how customers are interacting with them today.
This can include adding pickup windows for online orders, Tom Buxton is president and CEO of Buxton,
reducing the number of seats in the restaurant, or even the leading provider of customer analytics.
designing delivery-focused stores. These shifting restaurant Learn more at www.buxtonco.com.
real estate requirements will gradually begin to influence
Photo: Getty Images
new store construction and remodels of existing stores.
Continued evolution of technology

Technology has transformed many industries and retail real
estate is no exception. The latest technology trends focus on

How to Avoid an Affordable Senior Housing Crisis:

Provide for the “Forgotten Middle”
By Richard Lynn
The United States is undergoing an unprecedented demo- A recent study on the “forgotten
graphic shift as 10,000 baby boomers reach retirement age middle” predicts that by 2029,
each day. As a result, senior housing will become more of 54 percent of seniors will not
a necessity than it already is, and in particular, affordable
have the financial means to pay
housing options for middle-income seniors will be vital; a
recent study on the “forgotten middle” predicts that by 2029, for their combined housing and
54 percent of seniors will not have the financial means to pay health costs.
for their combined housing and health costs. There is a sig-
nificant opportunity for investors and developers to address
this need and drive growth in the senior housing market.
But in order to ensure high-quality, truly affordable options, across the road was already planning intergenerational
private companies and government must work together to activities that would involve the new senior residents. All
incentivize the type of development that will satisfy the hous- we needed were the seniors to move in. But in the end, the
ing needs of middle-income seniors. development did not qualify for the 9 percent Low-Income
Housing Tax Credit, and we missed out on the opportunity
The landscape to provide high-quality affordable rentals to seniors in an
Today, affordable housing communities targeted at seniors area that badly needed it. There is a demonstrated need for
that offer health services like onsite medical care and fit- more flexibility in financing senior housing.
ness activities are becoming more common, and studies
show they help to reduce health care costs and the need for The way forward
expensive trips to the emergency room. Despite the success Just as the Low-Income Housing Tax Credit serves as the
of these programs, limited funding is available to make them primary vehicle for financing affordable housing today,
accessible to middle-income seniors. there should be an incentive for private companies to
At the same time, the number of middle-income invest in and build affordable housing geared toward mid-
seniors is projected to almost double from 7.9 million in dle-income seniors.
2014 to 14.4 million by 2029. Seniors on fixed incomes The need for affordable housing options for middle-in-
who do not qualify for Medicaid or other services targeted come seniors will only continue to grow, and so will the
at people at the lowest end of the income spectrum are investment opportunities and potential clients that go
forced to pay exorbitant costs for assisted living or private along with it. Investors should be looking for opportunities
caregivers. As this population continues to skyrocket, the to get involved, and government must create incentives to
problem will become even more pronounced. stimulate private sector innovation in this area to ensure
that as a society we give every senior the opportunity to
The opportunity to invest access and afford housing and services that support them
This is not rocket science: As the number of seniors grows, in their retirement years. n
so too will the demand for senior housing options. This chal-
lenge presents an incredible opportunity for private investors Richard “Rick” Lynn is a senior vice presi-
and senior housing operators to direct innovation and fund- dent at Bellwether Enterprise.
ing toward developing vital services and creating homes for Learn more at www.bellwetherenterprise.com.
a significant portion of the senior population. To do that, the
industry needs more financing vehicles directed specifically
at senior housing.
Recently, I worked with a client to facilitate the sale
of a parcel of land designated for senior housing. The
apartments were built and included both affordable and
market-rate units. All amenities were in place—clubhouse,
theater and more—and the director of a camp for children

Industrial Investors Get Creative

By Karen Williamson
The trends that have made industrial properties the darling purchasing or developing facilities in secondary and tertiary
of real estate investors are well known. The rise of e-com- markets. Growing populations dictate the need for additional
merce, coupled with the expectation of nearly instantaneous last-mile facilities, while access to major transportation links
fulfillment, has created an unprecedented demand for indus- makes many of these locations ideal for regional distribution
trial warehouse space. hubs. For instance, Sacramento witnessed a net migration
Developers, however, have not kept up with grow- of 55,000 individuals over the past three years, according to
ing demand. According to CBRE Research, demand has Marcus & Millichap. Resident growth, in turn, generated an
exceeded supply for 32 of the last 33 quarters. First quarter increased need for consumer products, heightening demand
2019 year-over-year growth in the construction pipeline of for local distribution points. This led to the absorption of 10
a moderate 4.6 percent indicates a low risk of oversupply million sq. ft. over the same time period.
in the near future. This situation translates into record low Investors are drawn to these areas not simply by the
vacancy rates and consistently strong NOI growth, making demand but also by cap rates that exceed what they can
industrial an attractive real estate class. achieve in primary markets. First-year returns in the
Not surprisingly, competition for strategically located, Sacramento area are in the mid-five percent range, signifi-
high-tech distribution centers has sharpened significantly cantly higher than in Los Angeles.
over the last two years. Institutional investors and foreign
buyers have entered the market in increasing numbers, Finding the right lender
driving prices up and compressing yields. Investors have not been the only members of the commercial
real estate community to notice the potential of industrial
A new life for old facilities properties. Banks and other commercial real estate lenders
In these circumstances, traditional investors are taking inno- have also taken note, increasing the weighting of industrial
vative approaches to achieve their target yields. In cities like assets in their portfolios and providing terms that had pre-
Los Angeles that have seen a decline in manufacturing and viously been associated with the multifamily market. For
where land values can make prohibit development, there is investors, this has meant longer amortization schedules,
an opportunity to reimagine old factories and warehouses in slightly more favorable rates and higher loan-to-value ratios.
key locations as 21st century distribution centers. Bridge financing for investors converting facilities is also
Investors have also been rehabilitating older buildings more readily available.
to meet the demand for flex space. These renovations allow Given the widespread lender interest in the industrial
up to 50 percent of the property to be used for nonindus- segment, investors should view competitive pricing and
trial purposes like offices or showrooms. These hybrid attractive terms as table stakes. As this market continues
structures are particularly popular in the technology sector to evolve and grow in unprecedented ways, it behooves
and often designed to resemble campus-like business parks investors to seek experienced lenders who understand the
with extensive landscaping and surface parking. dynamics driving its development, value relationships and
have the capacity to offer a full range of services. n
Investors bet big on short term leases
Another strategy investors are pursuing is to purchase prop- Karen Williamson is a senior vice president
erties in high-demand areas with short terms remaining on and California market manager for Capital
their leases. For instance, in the Inland Empire community One’s commercial real estate group.
of Eastvale, California, investors purchased a 760,000-sq.-ft. Learn more at capital.one/cre.
distribution asset occupied by Kmart, with a remaining lease
of 2.5 years. The in-place rent represented a considerable dis-
count to current market rents, providing significant upside
when Kmart’s lease ends.
Looking outside the major metros

Savvy investors are also tracking demographic shifts and

Maintaining a Steady Course

By CCIM Institute
Office investors work to place dry powder. Fla.; Las Vegas; Phoenix; Denver; Raleigh/Durham, N.C.;
Despite signs that occupancy and rent growth may be Nashville, Tenn.; and Minneapolis.
slowing, buyers maintain a healthy appetite for office prop- “Many of the core properties are priced to perfection,”
erties. Sales for 2018 (excluding entity-level transactions) Wells adds. “Most investors realize where we are in the
dipped 3.1 percent compared to $130.3 billion in 2017, cycle, and they are looking for more of a story.” That doesn’t
according to Real Capital Analytics. necessarily mean a full value-add, but they are looking for
Transaction volume was spurred by a very liquid upside with leasing potential, below-market rents, or needed
market. Investible capital held by global private equity property improvements, she says.
real estate funds reached a record high of $295 billion
in December 2018, according to Preqin, a London-based Transaction Volume ($ Billions)
research firm. Institutions are maintaining, if not increas- n Individual n Portfolio n Entity
ing, allocations to real estate, and many expect the oppor- $45B
tunity zone program to fuel more activity.
40
Where will that capital flow in a maturing market cycle
where rapid appreciation is disappearing, occupancy and 35
rent growth are slowing and new technologies and growing 30
demand for coworking space are likely to impact future 25
investment? “We are seeing investors being very careful with 20
their exit strategy, upside potential and anything that could 15
transform the market in the coming year,” says Rebecca
10
Wells, CCIM, senior vice president of investment sales at
Lee & Associates in Indianapolis. 5
Office vacancies are expected to increase to 13.2 percent 0
in 2019 and 13.6 percent in 2020, according to the ULI Fall 20013 2014 2015 2016 2017 2018
2018 Real Estate and Economic Forecast, while rent growth Source: Real Capital Analytics
will slow to 2 percent this year and 1 percent in 2020. In
response, some investors are tweaking acquisition criteria. Suburbs offer higher yields
“As the market cycle matured, we’ve become focused The suburbs are offering more attractive yields, too. As of
less on lease rollover risk and more on predictable income the fourth quarter of 2018, suburban cap rates averaged 6.8
stream,” says Mark Cypert, CCIM, a partner at Middleton percent versus 5.2 percent for CBD assets, according to RCA.
Partners, a Chicago-based private equity firm. The company However, investors are more selective in the suburbs, often
has shifted from value-add investing several years ago to avoiding outliers and choosing assets in attractive locations
acquiring institutional-quality assets with a core or core-plus with sustained demand and solid transit infrastructure.
profile in markets that have favorable employment growth. Acquisitions remain strong because even with some
softening in fundamentals, the outlook for office is still pos-
Capital continues to target secondaries itive. Cap rates are at or near the bottom in most markets.
Higher yields have fueled recent activity in secondary cities, However, investors remain bullish on the office investment
but investors are more selective in these smaller metros. market, even if that means being mindful of potential risks
Buyers are looking for markets with steady rent growth, ahead and working harder to find good investments. n
avoiding those where growth is flat, notes Paul Waters, Learn more at www.ciremagazine.com.
CCIM, COO at Integra Realty Resources in New York. For
example, Integra identified a 10 bullish office investment
markets in 2019 based on criteria including a level pattern of
rental rate growth and low variance in rents across submar-
kets. Aside from Manhattan and Chicago, the list includes
secondary markets like Broward County, Fla.; Jacksonville,

Baby Boomers and Their Kids (and Grandkids) Are

Fueling Metropolitan Population Growth
By Robert Dupree
Millennials and baby boomers are solidifying their stature Urban Population Percentage of Total Population
as city dwellers. For many, the preference for metropolitan 1960-20171
living represents a welcome and exciting change from a 60%
decades-long suburban existence. One survey of millennials 55
found that half were living in city neighborhoods, including
50
downtowns.¹ Meanwhile, the percentage of homebuyers in
their 50s in and around central cities has edged up, and more 45
than one-third of renters in such areas are 60 or older.²,³
40
As a result, for the first time since the 1920s, U.S. cen-
tral city population growth is outpacing the suburbs.⁴ This 35
urbanization trend is bringing new employers, develop-
30
ment and services to downtown areas, many of which lost 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
population and new investment to the suburbs in the last Source: The World Bank, www.worldbank.org
half of the 20th century.
While the Great Recession temporarily stalled the strong owners and operators with a track record of success
migration, it largely picked up where it left off early in the in metropolitan areas will be best positioned to continue
recovery as the burgeoning technology and energy indus- the growth trajectory of these vital markets while creating
tries drove growth in markets like San Francisco, Denver, maximum value for shareholders and tenants alike. n
Austin, Texas, Seattle and Washington, D.C. Seattle, Austin
and Denver, for example, ranked atop the fastest growing Endnotes
cities in the U.S. from 2010 through 2017, seeing their 1. Urban Land Institute, Gen Y and Housing: What They Want and Where They Want
respective populations increase by 18.7 percent, 17.9 per- It, 2015.
cent and 16.3 percent.5 2. Realtor.com, Reverse Migration: How Baby Boomers Are Transforming City Living,
Millennials began venturing into city centers in search May 17, 2016.
of a live-work-play lifestyle early this century and are 3. AARP, More boomers are packing up and heading downtown for a major change
choosing to live in metropolitan areas at a higher rate than of pace, February 20, 2018.
any other generation.6 Empty nesters, in favor of living 4. Nielsen, Millennials Prefer Cities to Suburbs, Subways to Driveways, March 4, 2014.
near cultural amenities and healthcare services, began 5. The Seattle Times, 114,000 more people: Seattle now decade’s fastest-growing big
moving downtown soon after.7 city in all of U.S., May 24, 2018.
The ongoing movement of these two generations into 6. Nielsen.
metropolitan areas continues to present real estate owners 7. Zipcar, Urban Boomers are Coming to Your City…and They’re Gonna Have Fun, 2015.
and operators with attractive opportunities. Both cohorts 8. Freddie Mac Multifamily, Profile of Today’s Renter, August 2018.
have an increasing propensity for renting versus buying 9. Kinder Institute for Urban Research.
which is fueling demand for apartments. Baby boomers are
one of the fastest growing groups of renters in the nation: Robert Dupree is a managing director in
recently 81 percent considered renting more affordable portfolio oversight at CIM Group. He leads a
than home ownership, up from 73 percent two years team focused on the composition, operations and
earlier.⁸ Three quarters of millennials felt the same way, investment priorities of all of CIM’s private funds.
an increase of 14 percentage points over two years. While Learn more at www.cimgroup.com.
developers are building apartments and condominiums
close to jobs and transit to meet these generational prefer-
ences, strong demand for market-rate workforce housing
persists in most metropolitan markets.⁹
The growing number of millennials and baby boomers
moving into cities continues to validate metropolitan areas
as vibrant places to live, do business and play. Financially

Opportunities Ahead for CRE Investors

By Sean Burton
Introduced as part of the $1.5 billion Tax Cuts and Jobs The 10-year minimum investment also emphasizes how
Act, the opportunity zone program is designed to encour- critical it is to partner with an experienced sponsor you
age development in the 8,700 areas of the country des- are comfortable doing business with for the next decade
ignated as opportunity zones. There’s been an incredible or more. A deal can look promising on paper, but if you
amount of interest in the program from investors hungry don’t have a strong partner with experience and integrity
for the tax incentives, but it’s important to consider a wide it’s not going to be a good long-term investment. With the
range of factors before diving headfirst into the opportu- level of complexity involved in opportunity zones, inves-
nity zone pool. tors should also seek out an attorney and accountant who
In many ways, opportunity zone
investments are like 1031 exchanges
with additional tax incentives that allow
for the deferral and elimination of taxes
(up to 15 percent on the contributed
gain and up to 100 percent of the gain
on the new investment) rather than
simply the deferral of taxes until a
sale. Unlike 1031 exchanges, any capi-
tal asset can be invested, and investors
only have to contribute their capital
gain. However, there are geographic and
improvement requirements.
The biggest risk of the opportunity
zone legislation is that investors will
abandon the fundamentals of real estate
in pursuit of the tax incentives offered
by the program. Supply, location and a strong understand- are intimately familiar with the intricacies of the program.
ing of the renter demographic are far more important than Solid real estate coupled with a trusted partner are the
tax advantages when evaluating a deal. fundamentals of a good opportunity zone deal. The tax
The two opportunity zone deals Cityview currently breaks are an added benefit that create additional incen-
controls are located in areas we would invest in regardless tives for taxpaying institutional, retail and family office
of whether they were in designated opportunity zones investors, while helping to bring much-needing housing to
because they fit within our investment parameters. Robust communities nationwide. n
demographic, job and income growth, a highly educated
workforce and lack of supply all guided our decision to Sean Burton is CEO of Cityview, a Los
pursue these West Coast projects, with the tax incentives Angeles-based multifamily investment
being an added bonus. This will continue to be our strate- management and development firm dedicated
gy, the only difference being that the opportunity zone leg- to redefining urban living that has generated
islation allows us to offer tax advantageous opportunities more than $4 billion in urban investment across more than 100
to a new class of capital: family office and retail investors. projects to date.
Investors should seek out locations that are solid in Learn more at www.cityview.com.
an upmarket, but also resilient when the economy isn’t
Photo: Getty Images
as strong. This is especially important given the mini-

mum 10-year investment horizon for opportunity zone
investments. For multifamily, we feel this means urban
locations with strong job growth, access to transportation
and vibrant culture.

The Economics of Self-Storage Development

By Tom de Jong
Individual self-storage facilities are neighborhood business- Percent Changes 2016-2019

es, generally serving customers within a three-mile radius 60%
with national average demand considered to be around seven n Asking Rental Rate Change n Labor n Steel Cost
50
square feet of self-storage per capita. In a three-mile market 40
with a population of 100,000 demand would be approximate- 30
ly 700,000 sq. ft. Facility operators need to be laser focused
20
on customer acquisition, retention and optimization of
10
tenant income.
0
New facilities opening today are far more appealing archi-
-10
Q1’16
Q2’16
Q3’16
Q4’16
Q1’17
Q2’17
Q3’17
Q4’17
Q1’18
Q2’18
Q3’18
Q4’18
Q1’19
Q2’19
Q3’19
Q4’19
tecturally and physically, offering superior security features,
access control systems, lighting, individual unit alarms and
more.
Self-storage development activity during the current rental rates significantly below underwritten rates until
cycle began in 2015 with 265 new facility completions and each of these facilities achieves stabilized occupancy rates.
will peak this year at an estimated 900 to 1,000 facilities This supply imbalance can push a facilities time to reach
nationwide. full economic occupancy and market income levels out by
24 months or more.
Growing pains
Multiple factors have driven up the cost to build new But on a positive note
self-storage facilities (see chart) including the cost of materi- With the increased exposure self-storage has seen over the
als (steel prices have increased by as much as 48.5 percent), past decade there has been an overwhelming amount of new
labor cost (15 percent) and land cost (depending on location capital flowing into the market. With interest rates remaining
could be 200 to 300 percent or more). Besides the typical cost at historically low levels and a lack of high quality, stabilized
to build many developers are choosing to build on ever more self-storage assets offered for sale it is still a sellers’ market.
challenging sites. Historically a developer would find a flat Cap rates for quality assets in top markets are at or below 5
three- to five-acre site and build a 40,000- to 60,000-sq.-ft. percent on in-place net operating income.
single story facility with mostly drive-up units. Today’s facil- In my opinion thanks to a diversified tenant base, con-
ities are 60,000 to 150,000 sq. ft. with sophisticated climate sistent income stream and growing demand, self-storage is
control and security features built on sites that can be an still the best place to invest! n
acre or less and are three or more floors in height. According
to Robert Stacks with RDS Construction based in Lakeside Thomas de Jong, SIOR, MBA is senior
California over 30 percent of his recent projects also include vice president with Colliers International’s
below-grade units to maximize the net rentable square foot- national self-storage group and is active in
age of a project, adding costs and complexity to new projects. self-storage brokerage, asset dispositions, site
Coupled with the incremental costs to build a modern selection and self-storage consulting across the U.S. Tom can
self-storage facility is a softening rental rate market with be reached at (408) 282-3829 or at tom.dejong@colliers.com.
average asking rents dropping 0.9 percent nationally for May Learn more at www.self-storage.realestate.
2019 versus 2018 according to Yardi Matrix.
These economic challenges are forcing developers to
take a more cautious and targeted approach to site selec-
tion and pushing aggressive developers into secondary or
even tertiary markets to find their next site.
The biggest risk developer’s face in the short-term is
oversupply in a submarket. Multiple projects being com-
pleted in a submarket within months of each other forces
facility operators to offer additional rent concessions and

Adaptive Reuse Opportunities at an All-Time High

By Sim Doughtie
Opportunities for adaptive reuse projects have never been a retail showroom and customer center for the tenant’s
greater than they are today. In speaking with my CORFAC business of RV sales, service and storage.
International colleagues across the country, I’ve heard the “The property needed more overhead doors, extensive
same story: Obsolete industrial properties are being convert- electrical and plumbing upgrades to be suitable for retail
ed into modern office lofts and upscale retail, and developers use,” Jaffe said. “More important, in cases like this, there
are breathing new life into underutilized retail and commer- are zoning issues that need to be resolved, involving every-
cial locations. thing from new signage to potentially making changes to
A recent report from the CCIM Institute and the sprinkler systems.”
Alabama Center for Real Estate concluded that current
adaptive re-use projects represent 1 percent to 2 percent of
all commercial real estate inventory in major U.S. markets—
“enough to impact absorption, vacancy and rental rates for
any property type in almost any primary or secondary U.S.
metro.” The report further notes that reuse projects will
likely double to 4 percent of commercial space by 2024,
“largely thanks to store and mall closings, as well as the
impact of e-commerce and artificial intelligence.”
The popularity of live-work-play neighborhoods fuels
opportunities for retail and last-mile industrial space,
resulting in more redevelopment and adaptive re-use
projects. And where there is user demand for real estate,
there is an abundance of capital looking to fund conversion However, most adaptive reuse opportunities are found
projects. Debt and equity sources have a large appetite for in areas targeted for economic development. The fed-
real estate, and redevelopment projects often provide lower eral government has added fuel to the fire by creating
risk and greater potential returns than class-A investment Opportunity Fund Zones, which allow investors to defer
or new spec development. and ultimately reduce capital gains taxes by reinvesting in
The urbanization trend has also created adaptive reuse distressed areas. Introduced this year, the program has not
opportunities beyond the city limits. Large companies that yet taken off as investors have sought clarification on the
move to cities often leave behind suburban office cam- law’s requirements. As these issues get resolved, the focus
puses that are ripe for conversion to multi-tenant mixed on adaptive reuse and urban development could see an
uses. A prime example is the former headquarters of Bell additional big boost in the coming years. n
Labs in Holmdel, N.J., which was redeveloped by Somerset
Development into Bell Works, a thriving “metroburb” Sim Doughtie, CCIM, SIOR, MCR, SLCR,
of retail and office space. Office leasing representative is president of King Industrial Realty/CORFAC
The Garibaldi Group/CORFAC International of Chatham, International in Atlanta, and serves as 2019
N.J., has leased over 1 million sq. ft. of office space at Bell President of CORFAC International, comprised
Works in recent years, and demand for retail space is just of 49 entrepreneurial real estate service firms in the U.S., five
as strong. in Canada and 18 in international markets.
Converting a property from one use to another doesn’t Learn more at www.CORFAC.com.
always mean a complete gut rehab, but they are rarely as
simple as making a few modifications. A good example is
Photo: Getty Images
National Indoor RV Center’s recent 170,625-sq.-ft. lease in

Surprise, Ariz. Represented by Andrew Jaffe, senior vice
president, and Rex Griswold, vice president of Commercial
Properties Inc./CORFAC International in Phoenix, the
deal meant converting the industrial/office building into

Multifamily Must Embrace the Experience Economy

By Bruce Cohen
The common wisdom is the real estate industry is heading Moreover, there’s an additional benefit to finding ways
into a time of more muted returns. We’ve been the beneficia- to delight customers—building brand loyalty, which we
ry of strong market tailwinds in which the rising tide lifted all believe will lead to enhanced returns. We believe mul-
boats. Now, it appears that our industry may be shifting into tifamily customers are willing to pay more for a better
an environment of “alpha” where returns are going to have experience, and we see a growing segment of our residents
to be truly earned. In the face of what is widely anticipated moving away from the traditional path to home ownership,
to be more challenging market conditions, Cortland believes instead deciding to be renters by choice. In this environ-
this is an opportunity for bold thinking—and we need look
no further for a potential roadmap than the Starbucks down Experience in action: Cortland’s
well living amenity program,
the street. Elevate, provides free
Starbucks was a pioneer in the movement from a group fitness
classes to
“product” to an “experience” economy, with successful residents.
companies shifting their focus to delighting their cus-
tomers. Every element of Starbucks’ business model, from
baristas writing your name on the cup to online ordering,
revolves around finding ways to elevate the customer expe-
rience. By changing the value proposition of a coffee shop,
Starbucks found customers happily spending far more
than they had been on their coffee.
We believe that as the real estate industry searches for
ways to extract excess return in an increasingly competi-
tive environment, we’ll see a shift in focus away from brick ment, we surmise that multifamily customers will reward
and mortar and real estate fundamentals towards custom- the company that does the best job of providing the best
izing the customer experience to enhance returns. For an product and the best service.
industry historically focused on design and amenities, Perhaps the environment of alpha will spur the industry to
we’re now talking Maslow’s Hierarchy of Needs. fully embrace the experience economy—enhancing our busi-
We believe the multifamily industry can and should ness and enriching our customers’ lives at the same time. Q
transcend from providing the basic physiological and safe-
ty needs of residents. There are opportunities to provide a This article does not constitute an offer, solicitation, or
path to self-fulfillment through a variety of amenities and recommendation to sell or an offer to purchase any securities,
programs geared to residents’ specific desires. Multifamily investment products, or investment advisory services and
providers should use available data and analytics to more is not intended to provide investment recommendations or
deeply understand their residents, with attention to market advice. View full disclosures here.
segmentation and customer priorities. We should be ask-
ing what motivates renter demographics and the nuances Bruce Cohen is a senior managing partner
of how renters determine where they want to live and why at Cortland, a product-to-people, multifamily
they renew or move on. We can use this knowledge to real estate investment, development and
market more efficiently while improving the experience management company.
we provide. Learn more at cortland.com.
This transition will require organizational evolution.
Our mindset must shift to focus on ways to enhance
every aspect of our residents’ living experience. With a
customer-centric business model, we believe that the next
generation of multifamily leaders may have backgrounds
in industries like hospitality and entertainment that have
long made their customer the center of their universe.

Grocers, Restaurants and Food: Are We

Approaching the Golden Age or a Food Bubble?
By Drew Myers
In contrast to closure headlines and e-commerce challenges, supply. But the grocery market is becoming more competi-
consumption of food & beverage continues to provide the tive. Total grocery space in the U.S. has risen from 2 sq. ft.
physical retail market with a robust source of tenant demand per person in 1990 to 3.5 sq. ft. per person today. For grocers
and steady streams of foot traffic. But as the food-centric opening space over the past few years, the average number of
share of tenant rosters continues to grow, questions arise: trade area competitors has risen 6 percent in suburban loca-
How much more can consumers spend on food? Have tions and 11 percent in urban locations. A primary contrib-
some centers reached a saturation point for their restaurant utor has been a push from nontraditional grocers into this
and grocery tenant mixes? How can tenants and landlords space (warehouse clubs like Sam’s Club and BJ’s, discounters
optimize productivity in this increasingly competitive envi- like Dollar General and increased grocery sq. ft. allocations
ronment? from heavyweight retailers like Target and Wal-Mart).
Restaurant roster composition headaches Key driver of outperformance is commercial

Restaurant and grocery spending has never been higher. real estate
American households spend about $7,700 on food each year, To succeed, understanding the proximate presence of
about 13 percent of total consumption, up from $5,150 in complementary and competitive retail and commercial
2000. Consumers today are also more willing to eat out: the real estate density growth is essential. In today’s market,
average annual spend at restaurants has risen by 28 percent high-caliber sites continue to outperform. In the top 25
since 2013. This translates into steady demand for retail percent of retail sites nationwide based on the quality of
space, particularly relevant for owners looking to backfill the location, rents have grown by a cumulative 19.4 percent
vacated space from big-box closures or apparel tenants since 2010, while occupancies today are over 96 percent.
downsizing. For the first time on record, the number of In contrast, sites with weaker demographics, heightened
sit-down restaurants in malls is on par with the number of competition and low levels of proximate real estate density
fast-food chains. have underperformed.
While the shift to food-centric destinations is produc- The biggest source of outperformance comes not just
tive, some challenges are on the horizon. There are signif- from demographics, but from the impacts of commercial
icant costs associated with bringing in more restaurants, real estate. Identifying rapidly densifying locales will be
as the capital expenditure associated with food operators paramount in the quest to mitigate risks of competition
tends to be higher than that of a traditional retailer. For and maximize in-store sales. For retailers, owners and
tenants, the magnified build-out cost of converting a retail market experts, gaining deep commercial real estate
traditional retail site to necessary specs represents a signif- data available should be the top priority.
icant barrier to entry. Landlords must factor in the cost of
broader site layout repositioning. 1. Based on the total spend on food away from home relative to the
Some landlords are concerned that the optimal compo- total restaurant SF in shopping centers for a given timeframe.
sition of restaurant space in their centers has already been
met, and any additional restaurant space will yield reduced Read the full report here. Q
results. Backing this is the fact that the total estimated
spend per sq. ft. of restaurant space in shopping centers has Drew Myers, senior consultant for CoStar
declined by 10 percent from 2008 to today1. portfolio strategy in CoStar’s market analytics
group, serves as a strategic advisor to some of the largest
Localized grocer competition a growing institutional investors, pension funds, REITs and commercial
concern lenders in the world.
Grocery-anchored centers continue to outperform relative Learn more at www.costar.com.
to other shopping center types. The national neighborhood
center vacancy rate has declined from a 2012 high of 10.5
percent to 6.7 percent in the first quarter of 2019, driven by
28 consecutive quarters of net absorption outpacing net new

Northern N.J. Industrial Financing Market Highly

Liquid at Midyear 2019
Shifing Consumer Habits, Ecommerce Growth, Last-Mile Distribution Fueling Demand
By John Alascio
Industrial market fundamentals and rent growth in top-tier

markets have created a highly liquid financing arena for
this red-hot asset class. GDP growth and industrial demand
generally move in tandem, so we are seeing solid demand in
Photo: Getty Images

most geographies. Vacancy in the top 30 markets is still well
below prior cycle lows and inflation-adjusted rents remain
below the height of last cycle. The continued fundamental
shift in consumer shopping habits and ecommerce growth,
coupled with last-mile distribution demand, remain the sec-
tor’s central drivers.
Major CBDs and industrial hubs—most notably the When underwriting, lenders are evaluating sponsors on
Newark/Northern N.J. Tri-State market here on the East a deal-dependent basis. Generally, they look for liquidity
Coast—are top targets for the lending community. Our and net worth to be 10 percent of the loan amount and
region offers infill product with limited land to develop, 100 percent of the net worth. However, some banks today
population densification and supply/demand characteris- will consider 5 percent and 50 percent. These criteria also
tics that support positive rent growth. Lenders are looking depend on deal size and level of property stabilization,
at everything from modern big-box product (30-ft.-plus length of remaining lease terms and tenant mix. As always,
clear height, institutional-quality assets) down to flex and all lenders are looking for strong prior experience and ability
smaller-bay infill assets proximate to the major thruways. to execute on business plans.
Multi-tenanted assets without concentrated roll or near- For example, earlier this year we connected Ivy Equities
term lease expirations are preferred, as are investment-grade with BBVA Compass, which provided $41 million in
tenancy and mission-critical locales for distribution/manu- financing for the purchase and future renovation/leasing
facturing/service-related tenants. A history of being/renew- costs of a 768,244-sq.-ft. New Jersey industrial portfolio.
ing/expanding at a property also are viewed positively. The sponsorship, value-add profile and clear business plan
As the market becomes increasingly tight, we anticipate led to attractive and flexible terms.
some significant, near-term shifts in the constitution of In the near term, we expect continued industrial financ-
industrial loans. In core hubs, with the imminent movement ing activity among banks, debt funds, CMBS and life
in rates, we anticipate debt yield and DSCR constraints as insurance companies. In general, industrial continues to be
pricing continues to set records. Additionally, as more institu- underweighted on most balance sheets across the board, and
tional capital comes into the market we are seeing per-sq.-ft. these financing sources are willing to lean in on pricing to
pricing above both replacement cost and historical trend win good deals. Looking ahead, we will see aggressive terms
lines. Borrowers who target value-add returns are increasingly from banks, particularly on cash flowing/light value-add
interested in assets with near-term roll where the tenant is industrial deals, while debt funds will likely compete by
below market, and lenders are leaning in to underwrite the offering higher leverage and ability to underwrite near-term
movement in rents given supply/demand characteristics. roll and tenants on month-to-month leases. n
For development, more lenders are offering spec con-
struction options to industrial developers at competi- John Alascio is executive managing director
tive leverage/pricing/structure. Lincoln Logistics Center of Cushman & Wakefield, equity, debt, & struc-
offers a perfect example. Our team in mid-2018 arranged tured finance, New York, N.Y./East Rutherford,
approximately $100 million in acquisition and pre-devel- N.J.
opment financing from Blackstone on behalf of Lincoln Learn more at www.cushmanwakefield.com or follow
Equities Group—for one of the largest port industrial @CushWake on Twitter
development opportunities in the New York Metropolitan
region. The 94-acre former U.S. Navy base site has 5,500
ft. of Hudson River frontage and over 1.5 million sq. ft. of
development potential.

Offce Space Midyear Outlook: The Case for Offce

Parks in Campus Settings
By Maria Juncadella
The low unemployment rate across the country has posi- In addition, as businesses grow and technology impacts
tively impacted the commercial real estate market by driving the workspace, tenants can choose from a wider range of
down vacancy rates and contributing to rising rents, includ- future space alternatives available within an office campus.
ing rents for office space. For example, The Offices at Downtown Doral has a
The fact that almost 200,000 jobs are being added each campus setting in the middle of Miami-Dade County with
month in the United States underscores the economy’s 1 million total sq. ft. and is thriving with a vacancy rate of
vigor, creating considerable opportunities for real estate about 6 percent, which is well below the average in Greater
developers and investors. With half of the global working Miami of 15.9 percent. This is a prime example that the
population being made up of millennials by 2020, it’s office campus offers tenants additional advantages.
essential to consider the needs of the next work-
force generation to attract and retain tenants and
capitalize on the booming office sector.
Millennials put a heavy emphasis on their work-
place. Close to 80 percent of them see workplace
quality as important when choosing an employer
and 69 percent are willing to trade other benefits
for a better workspace, according to CBRE. What
seems to attract millennials to one workplace over
another is the availability of amenities.
In the past, developers and property owners set
aside approximately 3 percent of space for amenities.
Today, it is recommended that owners allocate no
less than 10 percent to 12 percent to these convenient
features, according to research by Colliers International. With convenience becoming a major priority for the
One of the best ways to optimize amenity space and workforce, a true live, work, play and learn lifestyle isn’t
offer the most cohesive, well-planned amenities is through just a desire for millennials anymore, it’s a necessity.
an office campus setting. A campus with multiple office Campus offerings in urban settings present tenants with
buildings versus one standalone building allows devel- the ideal balance of amenities and convenience and are
opers to incorporate tailored and more diverse amenities establishing themselves as the wave of the future in the
that can result in increased rents, higher quality tenants, workplace environment. n
increased deal velocity and improved tenant retention.
Millennial-friendly amenities can include fitness cen- Maria Juncadella is managing principal of
ters with showers, green spaces, gathering areas with Fairchild Partners, one of South Florida’s top-
Wi-Fi, a game room, conference and seminar rooms, rated commercial real estate firms, currently
charging stations for electric cars, healthy food options, brokering the leasing for The Offices at
car washes, rooftop or outdoor workspaces, dry cleaning, Downtown Doral in Miami-Dade County.
lactation rooms, daycare and convenience stores. As the Learn more at www.downtowndoral.com.
“work-life blend” mentality continues to rise in popularity,
these amenities are imperative.
Location also continues to be a key amenity. As urban
core rents rise, we are seeing businesses move out of the
traditional downtown skyscrapers and shift to offices in
non-traditional office markets. The latter accommodate
more spacious workspaces and give employees additional
options for more accessible, affordable housing and good
schools, which are paramount to a wave of new families.

E-Commerce Warehousing and Logistics Evolution

By Donald Flynn
Over the last several decades there have been only five cat-
egories of industrial sub-sectors: incubators, business parks,
manufacturing, R&D, warehousing. However, investors now
track fulfillment. According to the 2019 Urban Land Institute
report: Emerging Trends in Real Estate, investors and devel-
opers surveyed throughout the world rated fulfillment as the
Photo: Getty Images

top development and investment product followed by ware-
housing, senior housing and multifamily. With increasing
need for last-mile delivery and e-commerce facilities, tenants
are increasingly looking for larger spaces, vacancy is tighten-
ing and rents are rising.
For some sector background, in the mid-1980s 75
percent of industrial buildings were devoted to manufac- part (traditionally a truck court), while allowing for con-
turing. This figure has since shrunk to roughly 20 per- tainer storage at the bottom of the facility.
cent while warehousing and fulfillment now account for Next, other than in the U.S., multi-story distribu-
roughly 80 percent of industrial space instead. The growth tion centers are the norm globally. For example, GLP
is primarily driven by e-commerce and the decline in ful- has a five-story, 1.37-million-sq.ft. building in Japan;
fillment time for buyers to receive orders. The year 2016 Goodman has a 24-story, 2.4-million-sq.-ft. building in
accounted for $360.3 billion worth of online sales while China; Prologis has a six-story 21.6-million-sq.-ft. building
$638 billion is projected in 2022. in Japan. However, last year Prologis completed a 590,000
In order to accommodate for these sales, merchants’ -sq.-ft. three-story building in Seattle, and with land pric-
supply chain challenges are being mitigated by relocating es trending upward we don’t believe we are far from this
these fulfillments centers closer to customers and focusing becoming more common in the U.S. as well.
on a higher cubic utilization. Finally, in order to achieve even higher cubic utili-
As a result, there’s been a radical change from a building zation, developers are building features such as massive
design standpoint in the logistics sector. Old manufactur- mezzanines and much higher clear heights than we’ve
ing buildings which were the bulk of industrial product traditionally seen to accommodate more operating floors.
were designed as square buildings with substantial, limited Higher clear heights are primarily the biggest requirement
docking and clear height. Now, with much of manufactur- to implement new technology and robotics that automate
ing offshore, buildings are designed with maximum dock fulfillment processes. To accommodate this technology,
height, large truck yards and container storage space. most often tenants find that clear heights in the 30-ft. to
Even within the past decade we have witnessed radical 36-ft. range are optimal, up to 40 ft. to 43 ft. depending on
building design change in the sector. Before the 2008 global the number of mezzanines required.
financial crisis, developers were primarily delivering single Of course, as technology and consumer behavior con-
loaded facilities with a single 125-ft. truck court. However, tinue to evolve, so will the sector. Those who adapt and
post-financial crisis we see the majority of tenants prefer a stay innovative will triumph. n
cross-dock with two 185-ft. truck courts.
Due to this shift, retail is also experiencing unprece- Donald Flynn is a senior associate at Elegran
dented evolution. Of all the malls that existed in 2000, it’s Capital & Advisory.
anticipated half of them will disappear by 2025 and that Learn more at www.elegrancapital.com.
urban planners will take advantage of the location close
to consumers and consider developing logistics facilities
in their place.
Further, we believe site flexibility will become more the
norm. For example, a cross-dock facility which provides
optionality for e-commerce parking loads on the upper

Multifamily Market Growing Faster than Expected

By Debby Jenkins
At the start of 2019, Freddie Mac’s Multifamily Outlook fore-

cast a continuation of the strong and stable market we have
experienced throughout the past few years. We anticipated
that new supply in certain markets would remain elevated
because of the healthy construction market, demand for
multifamily units would remain high due to ongoing demo-
graphic and lifestyle preference trends, and that rent growth
and occupancy rates would remain above historic norms.
We got it right, with one important exception: interest
rates. The 10-year Treasury rate was about 3.2 percent
in November and we expected a rising rate environment
that would push up mortgage and cap rates, slowing mar-
ket growth. Instead, rates promptly fell 50 basis points in stantially outperform the market. In the first quarter of 2019,
December and have since fallen another 70 bps. Today, there our delinquency rate was a mere 3 bps. In their history, our
is speculation that the Fed might lower rates and the yield on K-Deal structured securities have had less than 1 bp of losses
the 10-year Treasury has hovered around 2 percent. and 99.96 percent of loans securitized by K-Deals are current.
This lower-than-expected rate environment has grown More than 500 investors have participated in our
the multifamily origination market substantially. We see K-Deals already, and we continue to broaden our invest-
this in publicly available industry data, and it is reflected in ment offerings to attract diverse sources of private capital.
our new business volume. In fact, our Optigo lenders have In January, we completed our first credit risk transfer
continually reported increased mortgage demand over last offering through the Multifamily Credit Insurance Pool
year. Discretionary refinancing, sales activity and overall (MCIP). In May, we launched our Private Placement PC
deal volume is much higher than we thought it would be. Swap execution, which is designed to provide liquidity
As a result, volume for the entire multifamily origi- to small mission-driven financial institutions. And we
nation market could be upward of $20 billion more than recently priced our very first K-G Deal, which exclusively
2018’s record levels. securitizes workforce housing financed through our ener-
With our conventional production cap held constant at gy-efficiency Green Advantage® product.
$35 billion, a larger market means that both agencies are These innovations and others have helped Freddie Mac
focusing heavily on managing origination volumes so that continue meeting its mission of providing affordability, sta-
we can continue providing liquidity, stability and afford- bility and liquidity to the multifamily market. Nearly 90 per-
ability to the multifamily market through year-end. Despite cent of the units we finance support housing affordable to
these challenges, Freddie Mac’s prior approval underwriting renters earning area median income or below. And we work
model has allowed us to manage our pipeline with precision, to diligently manage our business so that we can remain
and we fully expect to remain within the cap while manag- in every market through all business cycles, helping make
ing increased inflows and mortgage demand. home possible for more and more Americans every year. Q
With the continued strength in our origination busi-
ness, Freddie Mac Multifamily has also worked to innovate Debby Jenkins is the head of Freddie Mac
our investor offerings. In June we celebrated the 10-year Multifamily, the leading provider of multifamily
anniversary of our K-Deal platform, our signature inno- debt capital in the U.S.
vation that has now securitized more than $300 billion in Learn more at mf.freddiemac.com.
loans and fundamentally transformed how our business
Photo: Getty Images
works. Today, we transfer nearly 90 percent of credit risk

on newly acquired loans, securitized through the K-Deal
and other credit risk transfer initiatives, to private inves-
tors, helping insulate taxpayers from potential credit losses.
Our continued credit discipline means our loans sub-

The Best Smart Locks for Rental Properties Have

Three Crucial Features
By Danial Ehyaie
Whether you’re a real estate investor who owns one rental app—whereas Wi-Fi can be readily accessed, if it is set up.
property or hundreds of multifamily units, you know proper- Three, flexible entry—the ability to offer multiple
ty management is an expense item that cuts into your profits. modes of entry, such as a keypad, biometrics, a mobile app
Tasks like cleaning, maintenance, changing locks and setting and a physical key backup, so that lockouts never occur.
up secure tenant access—all the work involved in managing a Entry should be as seamless as possible, which means
property—take up hours of time and fees each month. multiple modes of entry are required in the event one
Not too long ago, the cost of property management malfunctions. For example, if a smart lock offers only a
decreased when smart lock technology was introduced. thumbprint reader to get in and it breaks, users would be
Now, we’re beginning to see app-controlled pin code locks left standing outside.
on apartment units instead of traditional locks with phys-
ical keys. It saves tenants and landlords from a number
of headaches. An Airbnb host can now use a smart lock
to administer access to her property for a guest without
needing to physically be there to hand the key over. No
more hiding a key under the flower pot. Smart locks have
made remote access management easier for both landlords
and guests.
But there are dozens and dozens of smart locks to
choose from—it can be difficult to determine which smart
lock is “just right” for your properties.
Photo: Getty Images

Every property is managed differently. Depending on
one’s approach to property management, a smart lock
should have certain features, but in almost every case,
“Trusted Access” is the goal.
Trusted Access is the new standard of remote property
entrance security. Trusted Access is the ability to authenti-
cate those to whom you give access to your property, just There are dozens of smart locks to choose from and a
as your iPhone uses facial recognition to allow access to wide gamut of prices. As you research which smart lock is
your device. best for you, be sure not to skimp on these three features:
To provide Trusted Access at your properties, smart visual authentication, Wi-Fi connectivity and flexible
locks must have three key features: entry. Property management is not a small line item for
One, visual authentication—the ability to “see” a visitor real estate investors, but a smart lock that can ensure
to ensure an identity match, usually through the use of a Trusted Access will save you hundreds of dollars and hours
video camera. You can send emails and text messages with in the long run n
access codes but if you aren’t able to verify the person with
the access code, there’s nothing stopping them from letting Danial Ehyaie is the cofounder and CTO of
in, say, ten other people, with that access code. Gate Labs, the maker of a WiFi video smart
Two, Wi-Fi connectivity—the ability to remotely man- lock for secure and remote property access
age access to an entrance from a mobile device from any- management.
where there is an internet connection or 4G. Many smart Learn more at www.getgate.com.
locks offer bluetooth or other types of range-limited con-
nectivity, but access requires downloading an app, logging
in and pairing it to the lock, which is not an ideal process
for every guest, contractor and cleaner who needs access
to a rental property. In some cases, such as with a cabin in
Lake Tahoe, there may not be reception to download the

Institutional Equity Investing–Art or Science?

By Jon Dishell
A great leader once mentored me, “Equity is the mother’s

milk of all real estate investing.” While this may be obvi-
ous, the methodologies attendant to its utilization, like the
investment cycles it serves, come in a variety of forms which
have changed over the decades as real estate has become an
accepted asset class.
The nature of the sponsor and/or asset gives rise to
both the most prudent, and practical approach. With less
sophisticated sponsors in smaller investments, a syndi-
cation to friends and family remains the most common
execution. Conversely, in the institutional realm, options
are significantly more varied.
The availability of equity capital has increased over
time due to the now universally accepted premise that real
estate, like stocks, bonds and other asset classes, has finally which manager is best. An asset selection decision is typi-
earned a place in the institutional asset allocation model. cally employed only when an investor is comfortable with
The implementation of the class into the overall portfolio their ability to analyze the nuances of a specific investment.
has seen much deviation both by its magnitude (typical The ultimate determination as to how to best proceed
allocations are 5 percent to 10 percent) and the manner of can also fall to investment consultants. Ignoring the size,
adoption. For the latter, the most common approach is the type and perceived competency of firms, the main distinc-
commingled fund. tion is whether consultants have the discretion to make
The fund model allows investors to underwrite managers investment decisions or recommendations only. For the
and their strategies, but not the assets in which they invest as former, they become de facto investors and solicitation and
the sponsor is typically granted full discretion for investment servicing by investment managers is comparable to how
(and divestment) decisions. Most funds fall into two catego- the actual end-user investor is treated.
ries. Open-ended funds feature an infinite life, the ability to The last cycle resulted in a heightened focus on trans-
invest, or request the return of all or a part of their investment parency and served to increase the homogeneity of prod-
on a quarterly basis. The sponsor is compensated by asset uct types and offerings. This leveled the playing field and
management and other fees, but they do not typically partic- made choices simpler by reducing the breadth and compo-
ipate in profits. Closed-ended vehicles have defined invest- sition of the options. It is likely that this process will con-
ment, holding and divestment periods. Following the inves- tinue as the current cycle duration has resulted in a period
tor’s receipt of capital, plus an agreed upon preferred return, of greater circumspection. It will be interesting to see how
profits are shared with the sponsor. This provides sponsors this impacts the ways in which investors avail themselves
with earnings disproportionate to the original investment, of real estate investments moving forward. n
which is known as carried, or promotional interest.
On the other end of the spectrum lies the separate Jon Dishell is chief business development
account. In this investment structure, the investor retains officer of Gemini Rosemont Commercial Real
all decision-making rights and 100 percent ownership. Estate.
Although analogous to an asset management relationship Learn more at www.geminirosemont.com.
operationally, the manager is responsible for sourcing and
acquiring assets with the investor’s approval.
Photo: Getty Images
There are also hybrid approaches to each of these meth-

ods of investing. The underlying adoption may be predi-
cated by the investor’s confidence and ability to underwrite
managers and assets. In a commingled fund, whether open
or close ended, the investor is charged only with deciding

Work Has Changed, Why Haven’t Our Offces?

By Drew Carter & Anna Grayhek
“I am the CXO, but I’ll put you in touch with our Director of
Photo: Sherman Takata

Influencer Campaigns.”
What we do for work and how that work gets done is fun-
damentally changing. In response, many organizations are
scrambling for solutions or guidance. This is reflected in the
many office environments that have left behind traditional
offices and cubicles in favor of open plans, outfitted with
features meant to boost interaction and engagement. Yet, machine-learning technologies are able to reveal patterns
because of a vacuum of guidance and knowledge, many and predictions based on activity, providing actionable
of today’s businesses are merely chasing the latest trends. insights that make everyone in an organization more effec-
Innovations such as sit-stand desks, docking stations, wire- tive. For workers, relationships and interactions become
less displays, ideation technology and teaming areas have more dynamic and meaningful because technology can
already made their way into the office, but their potential anticipate needs and manage locations, resources, time
impact to the workforce is not well understood. zones and availability far better than we can. Organizations
With competition to attract and retain talent only leveraging these technologies will translate these advantag-
adding to the pressure, savvy employers will take a new es into performance, cost reduction and innovation.
approach to the design and function of their work environ- BYOD: Business technologies are also evolving away
ments in ways that take advantage of human capacity and from prescribed, dedicated, proprietary systems and
better manage the consumption of resources. empowering their employees to use their preferred devices
Here are transformations forward-thinking companies and software. These shifts increase productivity as employ-
are adopting. ees utilize systems they know, prefer and are more agile
Everything as a service. One huge market and cultural as they can be effective from anywhere on just about any
shift is the move toward “subscription over ownership.” device. This has also shown to reduce downtime and is
For many, accessibility is more desirable than ownership consistent with the trend toward divesting from owning
because it offers much higher flexibility and far fewer long- infrastructure. Some organizations also redirect the main-
term or high-cost obligations. This appeal is reflected in tenance/support headcount to roles that are focused on
the explosive growth of pay-per-use models for software, advancing what people can do.
equipment, skill sets and even facilities, as large enterprises High-performing organizations will improve their
and free-agents alike take advantage of on-demand space effectiveness, innovation and profitability by leveraging
that flexes with both quantities and types of work settings workplace design expertise to bring together organization-
needed. al psychology, architecture, technology and human well-
Human-centered design. Many offices today share the ness to create environments that are a clear contributor to
same general design as the first office spaces of the 1800s. Yet, the organizational mission and accomplishments. n
this design is based on old paradigms, including tools and
resources that are nearly obsolete. They do not reflect how Drew Carter is currents studio
technology and the nature of work has changed, or what we director and Anna Grayhek,
have learned about human and organizational performance. IIDA is workplace strategist at H.
In the 1950s, a concerted effort began to design envi- Hendy Associates.
ronments that made quantifiable improvements to work Learn more at www.hhendy.com.
by harnessing human potential. It turns out to be pretty
simple: create environments that focus on well-being and
interactions that advance communication and make our
workforces much more effective.
The data-driven workplace. Nearly everything we
touch leaves a trace in the digital world. Algorithms and

LOOKS GREAT.
WORKS GREAT.
WHERE PEOPLE WANT TO BE T E L : 9 4 9. 8 51 . 3 0 8 0 | H H E N DY.C O M
CREATIVE INTERIOR ARCHITECTURE AND PLANNING
Thought Leadership Services Include:
• Inspiration Sessions • Employee Satisfaction Evaluations

• Evidence Based Programming • Six Sigma, Lean Operation WE PRACTICE
• New Workplace Strategies Evaluation WHAT WE
• Workplace Protocols/Change • Lifestyle Design Innovations PREACH
Management • Workplace Wellness
Offce of Tomorrow: Healthcare Advancements Drive

Workplace Design
By Jennifer Walton & Susan Dwyer
Healthcare as we know it is expected to have a dramatic

shift by 2040, according to Deloitte. This healthcare indus-
try metamorphosis, which is paving the way for significant
technological advancements, will not only transition our
thinking from health “care” to health “maintenance” but also

will place a larger emphasis on detection and prevention
rather than treatment.
How will all this impact the corporate office? The short
answer is that it will demand a new iteration of workplace
wellness and design, an approach that already is taking place
in office environments today. Future workplaces will require
a new level of wellness integration and health-promoting
technology—that will go beyond onsite fitness facilities and the office that mitigate distraction and promote invigoration.
biophilic design—to truly enhance employee well-being These “invigoration zones” will allow overstimulated
(and in turn, reduce already rising healthcare costs). The workers to retreat and re-energize. Think indoor gardens
following are key healthcare trends and advancements that that promote reflection; sensory deprivation tanks to rebal-
will redefine office design in 2020 and beyond. ance and re-center; and meditation rooms equipped with
virtual reality to promote relaxation by virtually transport-
Wearables and sensor technology ing employees from an office to their chosen oasis.
Healthcare costs are the second-largest operating expense With stress and overstimulation costing U.S. employers
after employee wages. With this cost projected to double by up to $300 billion a year, healthcare advancements will
2030, employers are feeling the pressure to seek out solutions enable people—and companies—to focus on health and
that mitigate the hidden costs associated with poor employee wellness at the core of an office design. By integrating
health, which also can lead to turnover, lack of productivity wearables and sensor technology, companies can encour-
and disengagement. Wearables and sensor technology, a age healthy choices, mitigate stress, disengagement and
500-million-unit market by 2021, are mainstream in the con- absenteeism and better understand the types of invigo-
sumer world and we can anticipate companies implementing ration spaces and wellness design needed to best serve
this technology in future office designs. employees. Technology integration can be costly, but the
Consider this: a new sensor technology is placed on proof is in the pudding: for every dollar an employer
your office chair, your computer mouse and monitor. The invests in its employee’s health, it saves $6 in medical and
device is tracking your movements, posture and vitals. absenteeism costs, making the office environment a strate-
Beyond reporting out stress and blood pressure levels, the gic tool for business success. n
data also informs you when you need to take a break or
change locations. It also can give you warning signals for Jennifer Walton, principal and
activities and risks that can lead to illness and injury. Now corporate studio director and
that’s an office of the future. Susan Dwyer, project director
are licensed architects and LEED-
Invigoration Spaces certified professionals at H. Hendy Associates, a national
Many workplaces today feature coworking spaces and open interior architecture and planning firm commemorating 40 years
office environments to encourage collaboration. And while in business.
these spaces foster teamwork and inspire creativity, research Learn more at www.hhendy.com.
shows that employees in open office environments lose on
average 86 minutes a day to distraction. Not to mention, it
takes workers nearly 20 minutes to regain focus once disrupt-
ed. In order to get the most out of their collaboration spaces,
employers will also need to create designated places within

Experience Over Everything: Renter Perceptions Will

Transform Property Design
By Felicia Hyde
For years, Millennials have been coined the experience-driv-

en generation known for investing their loyalty and dollars
in experiences, not products. Now, consumers across age
demographics—including Gen X, Gen Z and boomers—are
starting to follow suit.
In the last few years, U.S. consumers spent four times
more on experience-related purchases than physical goods.
So, it’s no surprise that this desire for experience will influ-
ence expectations for living environments, too. Here’s a
look at how the growing demand for experiential living will
transform multifamily and even senior housing properties,
in years to come.
All-inclusive living
With the goal to provide renters with unique living expe-
riences and set themselves apart, multifamily developers soon shift from a luxury amenity to a resident “must have.”
are turning the operations dial up another notch—offering To accommodate, developers will replace underutilized space
tenants the next iteration of all-inclusive, hotel-like living. such as business centers and lobbies with coworking zones
This is going beyond dry cleaning and full-service concierge, and incorporate them as part of the initial design for
but rather unique offerings that inspire resident interaction new projects. Better than before, coworking spaces will be
and infuse the local culture. Multifamily communities of equipped with high-end technology, biophilic design and
tomorrow are offering residents poolside drink service and advanced scheduling tools.
incorporating pop-up shops—everything from local retail to
food and wine to art and handcrafted goods. Senior housing not so senior
The senior demographic is growing rapidly—nearly three
Wellness integration 2.0 times the rate of our total population—and this generation is
From float therapy to fitness on-demand to goat yoga, well- more active and social into their later years of life. Essentially,
ness services today do not fall short of providing consumers 85 years old is the new 65 years old. As a result, seniors look-
with options to sustain their mental and physical well-being. ing to downsize will search for living experiences that sup-
With global wellness valued at $4.2 trillion and wellness real port health, wellness and offer a strong sense of community.
estate named one of the top five fastest-growing sectors—and Looking ahead, this dynamic will spark a demand for senior
projected to grow to $198 billion by 2022—residents will living communities choc-full of hotel-like amenities—ulti-
soon expect the same offerings in multifamily environments. mately transforming senior housing design from traditional,
To attract and retain the next class of health-conscious con- outpatient models to high-end luxury apartments for active
sumers, multifamily owners and operators will need to inte- adults. n
grate innovative wellness solutions that fuel the mind, body
and soul. Think Himalayan salt rooms for detoxification, Felicia Hyde is principal and lifestyle studio
sensory deprivation tanks to induce relaxation and infrared director at H. Hendy Associates, a national
saunas to increase oxygen flow and circulation. interior architecture and planning firm.
Learn more at www.hhendy.com.
Photo: Adrian Tiemens
Coworking on steroids
Consider this: by 2020, 50 percent of the U.S. workforce will
be remote—prompting multifamily developers nationwide
to evolve their design strategies to support the growing gig
economy. In comes coworking spaces. While coworking is
not necessarily the new kid on the block, these spaces will

Automation, IoT and 3D Printing: These Three

Trends Will Dominate Your Facility in 2020
By Carolina Weidler
There are many considerations that go into setting up a

manufacturing or production facility. Site availability, envi-
ronmental issues and even high employee wages are often at
the forefront of the conversation. But don’t let those stop you
from building.
To overcome these challenges, many forward-thinking
companies are deploying creative solutions to cut costs and
increase productivity.

Take a look at a few key trends impacting the industry
and how it affects your building’s design.
People + automation
Automating your production line is no longer a thing of
the future. Robots are starting to prove their worth by per-
forming many tasks quicker and more accurately than peo-
ple. To this point, many facilities across Asia and Europe Advanced materials lead to simplifed space
have jumped on the bandwagon, yet adoption in the U.S. Additive manufacturing and the 3D printing industry is
is far behind. While the initial sticker shock has kept many forecasted to hit $15.8 billion for all products and services
companies from automating their production facilities, ris- worldwide, according to Wohlers Report 2019. And it isn’t
ing labor costs and the need for increased productivity are expected to slow down anytime soon. This method, in addi-
helping companies see the value in the investment. tion to the increased popularity of advanced materials (i.e.
With this shift comes the need to update space. The cre- ceramics, composites, bio-based polymers and nanomate-
ation of a process-driven facility can dramatically optimize rials), requires less material than traditional manufacturing
current space and production lines. In fact, one robot could methods.
potentially replace five people’s jobs. Therefore, facility The equation is simple—less material equals more space.
managers will need to consider how much square footage Taking this into consideration before you design your pro-
is needed to accommodate equipment versus people both duction floor can help you optimize space that was once used
on the assembly line and in pathways. They also need to to store large and heavy raw materials.
factor in design elements that allow for convenient access to There is no doubt that technology and advancements in
service or replace equipment. manufacturing will continue to evolve. But what was once
a hurdle can now be solutions for your production facility.
24/7 connectivity through Internet of Most important is a commitment from the start. Before you
Things secure a location and begin improvements to your space,
The Internet of Things is changing how facility managers take a hard look at the trends you plan to incorporate and
do their job. Take for example, looking at an app that tells design your space around those features. n
you when your machine might break down or need to be
replaced. This predictive maintenance can help save time Lean Six Sigma Black Belt and LEED AP
and costs by reducing downtime associated with unantici- professional Carolina Weidler is science
pated breakdowns. and technology project director at H. Hendy
But to benefit from this integrated technology, produc- Associates.
tion facilities need the infrastructure to make it work. Just Learn more at www.hhendy.com.
like adding a charging outlet to your garage space before buy-
ing a Tesla, the production floor needs to consider the plug-
in and WiFi usage needed to accommodate connectivity. It
can also require spaces to be designed with fans and venti-
lation systems in place to keep machinery from overheating.

Organizing Opportunity
By Bruce Katz & Michael Saadine
Opportunity Project Investor Non-Market

Opportunity Zones have advanced from page 130 in the Tax Zone Type Type Expectations Tools
Bill to front-page news. As the space moves from theory to Upside Capture
Experiencing Growth Require
practice, participants need a systematic approach to identify Incentive Agnostic
projects that will catalyze development within underinvest-
Path of Growth
ed communities. Whether focused on mixed-income units
Incentive Intended Holistic Catalyze
in housing-deficient gateway markets, knowledge sector
Cusp of Growth
office in high-growth secondary markets, or downtown
space in ex-industrial markets, Opportunity Zone incen- Incentive Insufficient
Deeply Distressed Request
tives have the potential to enhance private investors’ value Shortsighted
creation and social impact. Target deal set is highlighted in blue.
Opportunity Zone Types: The first step to leveraging the

incentive is understanding the economic conditions of the projects with an added community focus. Shortsighted vehi-
over 8,700 individual tracts. Those Experiencing Growth cles focus on extracting fees from less sophisticated investors
have already seen economic upside and are receiving or are and channel capital into Incentive Insufficient deals.
prepared for private investment, regardless of incentives.
Neighborhoods in the early stages of organic growth, or Non-Market Tools: Public sector, philanthropy and non-in-
responding well to public investment, are Path of Growth vestor parties will step up to guide the incentive to drive eco-
tracts. Census tracts on the Cusp of Growth are well posi- nomic activity towards communities that otherwise would
tioned, but due to historic stigma or economic challenges, not benefit. Affordability requirements, aligned financing
still need to ‘prime the pump.’ Deeply Distressed tracts bear structures and mandates to work with community stake-
entrenched poverty and structural challenges requiring sig- holders can help require inclusion. Direct, tax-related and
nificant public investment. tenant-facing subsidies, below-market land deals and public
sector/institutional tenancy can catalyze growth. It never
Project Types: Opportunity Zone projects range from emi- hurts to request project alignment, as developers seek to
nently viable to rushed and mishandled. Incentive Agnostic remain favorable with non-market stakeholders.
projects were planned or would have been achieved regard-
less of Opportunity Zone benefits. While these projects In Conclusion: While the incentive lacks the precision to
catch negative headlines, they are just a piece of a bigger pie. ensure benefits flow exclusively to projects maximizing social
Incentive Intended projects are below the cutoff of being and economic benefits, patient, community-focused invest-
financially attractive, and become so by participating in ment can catalyze the economic dynamism this ground-
Opportunity Zone benefits. Projects lacking the economic breaking bipartisan legislation seeks. Neighborhoods in the
profile to be viable or fully benefit from Opportunity Zones path of, or on the cusp of, growth will prove to be the sweet
are Incentive Insufficient and risk being rushed to comple- spot where holistic investors and non-market tools combine
tion to accommodate the tool’s fervor. to execute the incentive’s vision. n
Investor Expectations: Opportunity Zone development Bruce Katz is the founding director of the Nowak Metro
requires expertise spanning equity risk underwriting, legal/ Finance Lab at Drexel University -bjk342@drexel.edu.
tax, fiduciary experience, familiarity with transitioning neigh- Michael Saadine is senior vice president, equity strategies at
borhoods and public-private structuring. Upside Capture Hunt Real Estate Capital - michael.saadine@huntcompanies.com.
investors focus on enhanced returns for deals they would have Learn more at www.huntrealestatecapital.com.
pursued regardless. Holistic vehicles are managed by long-
term focused groups with public-private, emerging neighbor-
hood experience. These groups focus on Incentive Intended
projects, may leverage tools to properly invest in Incentive
Insufficient projects, and can capitalize Incentive Agnostic

The Midwest is the Next U.S. Market to See

Sensational Growth in Flexible Space
By Michelle Bodick
The U.S.market for flexible space showed sensational growth Office Demand in the Midwest
last year. Supply in flexible space increased in states such 1,500 5,000
as New York, California and Texas with an average of 12 n Enquires n Number of Desks
percent. Yet the high workspace costs in these hubs have 4,000
prompted a new market for the growth of flexible workspace: 1,000 3,000
the Midwest.
2,000
States such as Kansas, Nebraska and Oklahoma have 500
shown growth rates of over 20 percent when comparing 2017 1,000
to 2018 center counts. The economic growth rate data from 0
0
the U.S. Census Bureau clearly shows the Midwest is thriving. 2014 2015 2016 2017 2018
From 2010 to 2017, the Midwest’s GDP grew at an average 1.7 Source: The Instant Group
percent, with Detroit, Cleveland and Minneapolis all showing
growth of above 2 percent, and Columbus topping the chart at space, have seen a growth of 24 percent while hybrid spac-
3.2 percent. To put these numbers into context, the Northeast es, defined as a mixture of coworking space and private
achieved average growth of 1.1 percent. office space, a growth of 18 percent.
In 2018 flexible providers, including WeWork and
Investment into the Midwest Industrious, have expanded into Midwestern cities.
VC funding has been pouring into the Midwest through Traditionally, these cities have been slow to see growth
investments in start-ups. The total amount of VC money of flexible space providers since traditional office space
raised in the Midwest during 2016 totaled $3.7 billion. This is comparatively affordable. However, demand is spiking.
number increased to $4.5 billion in 2017. Showing positive Large companies are also choosing to locate satellite offices
returns, the total value of successful exits in 2016 was $1.6 in these cities, with the number of 25+ desk requirements
billion, increasing to an impressive total $5.1 billion in 2017. doubling year over year since these flex spaces often come
AOL co-founder Steve Case has led a pitch for eco- with major cost savings, including drastic reductions in
nomic renewal for all American cities driven by start-up rates and limited initial capital expenditure/set-up costs.
investment and technology-based entrepreneurialism. He
created a fund called “Rise of the Rest”—a $150 million Future growth
vehicle. Additionally, some of the entrepreneurs behind the The Midwest Business Condition Index reported the 20th
region’s home-grown success stories, such as Indianapolis’ consecutive month of growth, and it’s unlikely this growth
ExactTarget, have launched funds of their own to plant an will curb any time soon.
entirely new crop of tech companies in the Midwest. When looking at future growth markets, cities that have
previously suffered hard times, where prices are currently
What is the impact on the offce market? lower leave room for growth and development. These can
With traditional real estate growing increasingly unafford- be key areas of opportunity for flex.
able in the traditional urban hubs, companies are looking to For the full report, visit instantoffices.com/blog. n
reduce the impact on their balance sheets.
Demand for office space grew between 2014 and 2015 With a proven track record in sales and marketing, Michelle
as the total inquires grew by 40 percent, followed by a Bodick has led the Instant Americas team as managing direc-
growth of 1 percent in 2016, 26 percent in 2017 and finally tor for the last four years focusing on growing the team and
42 percent in 2018. This correlates with our data on center the brand.
growth showing that 2014 and 2015 peak for growth and a Learn more at www.theinstantgroup.com.
resurgence in 2018.
The Midwest has seen an increase in flex space with
an average year-on-year growth of 20 percent. Coworking
spaces, defined as shared environments where individuals
are not employed by the same company work in the same

The National Senior Housing Market:

A 2019 Midyear Review
By Cindy Hazzard
The senior housing industry is a need-driven business. to the high end of the market, a number of operators
Divided into three major market segments: unlicensed and developers are shifting their focus to the middle
facilities such as independent living (sometimes referred to market of the senior housing industry. This continues
as active adult) and licensed facilities which would be skilled to be the largest underserved senior population needing
nursing facilities (SNFs) and assisted living facilities (ALFs), residence.
nearly every family, regardless of their financial resources, According to the Seniors Housing Acquisition and
will require the specialized care from one of these segments. Investment Report the average price of ALFs rose in the
This fundamentally acts as a driving force last quarter of 2018 with an average price of $204,000 per
for the senior housing industry no mat-
ter the overall climate of the economy.
As investors are realizing the immense
need for these facilities and services, senior
housing transactions in 2019 are on track to
achieve record levels, however several fac-
tors could affect the market performance
moving forward.
REITs continue to divest assets that
that no longer meet their operating cri-
teria. Many have become active in the
marketplace as buyers, believing it is
stabilizing. Private equity also continues
to be an active participant in the space.
Foreign investors continue to enter the
marketplace. Insurance providers, a new
player, are slowly entering the sector
as they recognize its value. There is more demand for unit. Independent living rose to $251,800 per unit. SNFs
multi-level campuses, most notably active adult with fell 2 percent to an average of $75,600 per bed.
either an assisted living or memory care component. As new product continues to come online, some mar-
Skilled nursing, while still actively trading, is considered kets continue to struggle with absorption rates. If this
the riskiest by most investors. continues, it will cause some turbulence in cap rates and
The most notable issue that continues to plague the ultimately effect ALF pricing.
entire industry is the labor shortage. Given the robust Still currently, overall valuations should remain strong
economy, finding and keeping entry level workers remains through the balance of 2019. n
a challenge. In response, many operators are attacking the
issue by finding new ways to retain staff using simple yet Cindy Hazzard is president of JCH Senior
very effective ways to make staff feel “appreciated” like Housing Investment Brokerage.
improving appearances of breakrooms and/or holding Learn more at www.thejchgroup.com.
once a month special “Thank you” lunches. These efforts
cost very little but go a long way toward improving team
atmosphere. SNFs continue to feel turbulence and anxiety
as the new Patient-Driven Payment Model is becoming a
Photo: Getty Images
reality, taking effect October 1, 2019.

Although high barrier to entry communities remain
attractive to developers, the vigorous construction has
slowed due, at least in part, to rising construction cost.
In response to the abundance of product that caters

As the Cycle Progresses, Investors Focus on Core

and
Near-core Assets
By Arielle Weston
As the cycle matures with slowed growth on the horizon but appetite for smaller core assets, particularly when value
strong underlying occupier fundamentals, an apparent shift is below $200 million. Larger core deals beyond that size
in strategy among institutional buyers in the office sector can also draw interest if they have the right combination of
is developing. Over the past three quarters it has become yield, term, location and credit.”
evident that investors, after having deployed record capital As the year progresses, transactions of this profile are
into secondary markets, are once again favoring high-quality anticipated to attract strong buyer pools as investors target
assets in primary markets, focusing on lower-risk strategies. smaller price tags in response to cyclical changes.
While overall office transaction activity slowed by 4.1
percent last quarter, JLL’s latest U.S. Investment Outlook Pricing in core markets or at near record lows; secondary market
shows that primary markets are seeing an uptick in the cap rates largely holding steady but near-term softening expected.
share of overall liquidity. Bay Area markets such as San
9.0 %
Francisco, Oakland-East Bay and Silicon Valley, led the n 10-Year Treasury n Primary n Secondary
8.0
growth in liquidity during the first quarter, with each expe- 7.0
riencing over a 15 percent increase in transaction volume. 6.0
This is a continuation of a trend that emerged last year 5.0 5.0%
with major cities U.S. cities like New York, Los Angeles and 4.0 4.0%
Chicago seeing office investment volumes rise in 2018 fol- 3.0
2.0 2.6%
lowing two consecutive years of decline. Meanwhile, office
investment in secondary markets fell 11 percent last year. 1.0
0.0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Q1 2019
Investors’ ‘fight to quality’ and the deal
Note: 10-year yields as of March 31, 2019
size sweet spot Sources: JLL Research, NCREIF, Board of Governors of Federal Reserve System
Investors are concerned about the longevity of the bull mar-
ket. But after years of record fundraising, many still have
capital to deploy. In fact, dry powder from closed-end funds Abundant debt to bolster refnancing
focused on North America hit a new high of $206 billion in activity
the first quarter of 2019. Five funds closed at more than $1 Opportunities of scale are rare to market and are anticipated
billion in the first quarter alone. to see increasingly thin buyer pools throughout the year.
With the economy still strong and tenant demand Further, with interest rates expected to hold steady, many
for office space continuing to boost rents by 2.4 percent owners may opt to hold their prime assets and refinance
last quarter and drive vacancy down to 14.7 percent on instead.
average nationally, now may be the time to strike on select However, for those assets that fall within the pricing
opportunities. sweet spot, we anticipate many owners will want to cash
However, with limited value-add opportunities of scale out as investors clamor to deploy their capital. n
on the market, investors are re-thinking acquisition oppor-
tunity profiles. While large-ticket core and core-plus Arielle Weston is a manager of research for
opportunities are still viewed as expensive—cap rates for JLL’s investor services research.
these assets in primary markets are often around 4 percent Learn more at www.us.jll.com/en/trends-and-
—a preference for non-trophy transactions of this profile insights/research.
is emerging, ranging between $150 to $300 million in size.
“Investors remain selective but are willing to be aggres-
sive for the right opportunities,” notes JLL International
Director Bruce Miller, who is based in Chicago. “We are
seeing investors increasingly focused on yield. That mani-
fests itself in great appetite for value add and opportunistic
transactions. Here in Chicago we are also seeing strong

Retail Investors Prioritize Quality Assets that

Provide Secure Opportunities
With total transactions slowing, quality investments are still up for grabs
By Naveen Jaggi
The big figure that everyone seems to be focusing on is other positive for the savvy retail investor in 2019 is the
that overall transactions were down 4.9 percent quar- Fed’s current policy on interest rates. With interest rates
ter-over-quarter through March of 2019. While true, that remaining steady, investors might feel less pressure and be
only tells part of the story, as many of the assets currently more comfortable taking on additional debt.
available on the market are larger high-quality assets and Due to a renewed focus on high quality risk appropri-
savvy retail investors are taking notice. When there is a ate opportunities and the levelling out of interest rates, we
lot of market uncertainty, investors naturally gravitate to anticipate that overall transaction volume will increase
investments with safer outlooks, which is why we’re seeing slightly through the end of the year. We anticipate private
many quality investments sit on the market as investors capital investors with, bigger appetites for risk, to lead
seem willing to wait for the perfect opportunity. the charge, especially when it comes to smaller sub 30
While investment on the
institutional side was down
7.8 percent in the first quar-
ter, we are still seeing some
institutional investors being
enticed to make transactions.
Especially, as an influx of
larger high-quality assets con-
tinue to come to the market.
Interestingly, we’re also seeing
institutional investors move
away from the larger portfolio
transactions that they looked
at previously to focus on small-
er transactions. REITs are also
favoring high quality and stra-
tegically placed retail locations
as seen by the recent purchase of the Melrose Market by million-dollar transactions. Experienced operators who
Regency Centers earlier this year. are confident in the fundamentals and ready to take full
While there is some slowdown in market, we are also see- advantage of attractive debt financing stand to benefit the
ing many reassuring signs for retail investors in the first half most in the latter half of 2019. n
of 2019. Most notably, the renewed interest from retail inves-
tors in power centers—outdoor shopping venues with three Naveen Jaggi, president of retail advisory
or more big box retail locations. At the beginning of 2019, this services. Naveen leads the retail brokerage
subsector saw a 30.4 percent increase in transactions, making business at JLL, he is responsible for the
the first quarter of 2019 the most active trading quarter for overall strategy, business development and
power centers since the first quarter of 2016. While this is growth of the platform.
due in part to the subsector being looked at again after a few Learn more at www.us.jll.com/en/industries/retail.
years of tempered investment activity, investors are keen on
the opportunities for value creation that exist in the space.
Investors are interested in grocery anchored assets,
Photo: Getty Images
prioritizing healthy retail centers with a strong grocery

brand tenant. While single asset grocery transaction vol-
ume in the quarter rose a moderate 2.3 percent over a year
ago, the average price per sq. ft. increased to $225—a 20.7
percent increase from the same period a year ago. The

The Perils of Crowds

By David Kidder & Adam Deermount
Back in the nascent days of the current economic cycle, a We are now at a point where the risk/return for well-lo-
substantial number of developers and real estate investors cated, lower-cost suburban apartment development and
honed-in on one market segment in particular: high-end, value-add opportunities exceeds that of high-end urban
infill multifamily. The investment thesis was simple: side- infill. The land component on suburban projects is sub-
lined lenders, tight credit and impaired family balance sheets stantially cheaper, meaning that developers can build a
meant that a mortgage was out of the question for all but the lower-density project that is less sensitive to soaring costs
highest quality borrowers. than podium, wrap or tower construction. At the same
At the same time, conditions were perfect for urban time, the yield-on-cost for such projects is often 100 basis
growth. A significant decrease in crime since the 1990s,
the emerging millennial generation’s perceived affinity
for experience and community over material goods, as We are now at a point where
well as a newfound preference of well-paid young people
the risk/return for well-
for mobility over stability, would lead to a high level of
demand for infill, multifamily housing rich with abun-
located, lower-cost suburban
dant amenities. It would be an understatement to say this apartment development and
investment thesis has proven correct. value-add opportunities
However, the industry is now very aware of the oppor- exceeds that of high-end
tunities in high-end urban infill for-rent housing and mar- urban infill.
ket returns have responded. Land and construction costs
have soared, creating a feedback loop where developers
need to hit ever-higher rents by adding generous amenities
to their projects, which in turn pushes the cost of devel- points or more than what can be achieved on luxury urban
opment up. The result is that the only projects that can infill, even at substantially lower rents.
be profitably developed in urban cores fall into the luxury However, much of the development herd has not yet
category, unless they are subsidized. taken note of this and the specter of career risk has kept the
The projects that do get built typically have a very low bulk of investment capital targeted squarely at the low-re-
yield on cost, often below 6 percent—which is frequently turn urban core, despite a better risk/return in the suburbs.
below the loan constant on an amortizing permanent agency Urban infill luxury apartments have been a great
loan. In addition, thin and still shrinking developer spreads, investment for years now but the space has become incred-
means that relatively small movements in cap rates, construc- ibly crowded and, as we’ve seen from recent events at the
tion costs or financing can wipe out profits—or worse. summit of Mount Everest, too much crowding can be a
At the same time, an interesting demographic trend dangerous thing. n
has been taking form: large-city population growth is
slowing to a crawl (and in some cases has actually trended David Kidder is president and
negatively), while suburban population growth continues managing principal and Adam
to rebound. Deermount is managing
This makes sense as the same upwardly mobile millen- principal of Landmark Real Estate,
nials who craved city life in their twenties are now settling a Southern Calif.-based commercial real estate investment
down and starting families as they move into their thirties. platform.
Additionally, the most desirable suburbs are now offering Learn more at www.landmarklc.com
urban amenities that make them more attractive to young
millennials than the strip mall-laden suburbs of old.
Despite this suburban growth trend and diminishing
urban infill returns, most multifamily development is still
heavily focused on the urban high-end, leading to higher
vacancy and lower rent growth.

The Union of Bricks-and-Mortar and Online Retail is

One of Industry’s Hottest Mergers
Shopping center tenants and landlords are embracing a “simply retail” theme.
By Matthew K. Harding
One of the hottest mergers in the retail industry to date in Smart retailers know they
2019 involves the strengthening union of bricks-and-mortar need to provide what today’s
and online operations. What we previously have differentiat- “connected” consumer wants
ed as e-commerce or traditional retail today is, simply, retail.
in order to remain relevant now
The strongest evidence we are seeing in the shopping center
environment can be found in a marked shift in how retailers and into the future.
are using and configuring space—and how landlords are
accommodating their needs.
In today’s omnichannel world, “click and collect” has ed as pure e-commerce as well. Physical store expansion
become a huge driver of traffic to brick-and-mortar loca- among retailers like Casper, Warby Parker and Wayfair
tions. Target reported its stores fulfilled nearly 75 percent provides proof of concept, with more to come.
of the company’s fourth-quarter 2018 digital sales. Further, In turn, retail landlords are working to provide spac-
the company’s first quarter 2019 digital sales grew 42 per- es and services that meet tenants’ evolving needs. This
cent—with same-day fulfillment services (pick-up, drive- includes designating pick-up parking and exercising flex-
up and delivery) accounting for more than half of that ibility to support companies in their efforts to right-size.
growth. Home Depot, another major retailer with strong Some landlords are even supporting their retailers’ digital
first-quarter 2019 results, previously reported that half of marketing needs with consumer-facing marketing such as
its e-commerce business is buy online/pick up in store. dynamic property websites and social media/marketing.
Smart retailers know that ancillary sales are a big win Physical plant improvements are on an uptick as well.
in these situations, and they are striving to make the cus- Within our own managed portfolio, we have four reno-
tomer experience as convenient as possible. Everything vations in various stages, as we work to establish property
from self-serve lockers, to curb-side loading, to space aesthetics that complement our retailers’ fresh, inspir-
redesigns that emphasize showrooming are in the mix. ing in-store experiences. Additionally, tenant mixes are
And it is working. trending to tie in more dining and recreation, while the
Consider Macy’s first quarter 2019 earnings announce- incorporation of outdoor gathering spaces is establishing
ment of six consecutive quarters of sales growth. Jeff environments for social interaction and projecting a sense
Gennette, Macy’s chairman and CEO, noted in a press of community. These efforts all are serving to distinguish
release: “As an omnichannel retailer, we are focused on properties as destinations of choice for retailers and con-
growing our customer base by providing a great experience sumers alike. Q
across all channels.” Macy’s reported that brick-and-mor-
tar sales “improved sequentially” during the first three Matthew K. Harding is CEO of commercial
months of the year, while its digital business experienced real estate services firm Levin Management
double-digit growth. Corporation (North Plainfield, N.J.), which
Findings in Levin Management’s own Retail Sentiment maintains a growing, retail-focused portfolio of
surveys—which poll store managers in our 105-property, 105 properties totaling 15 million sq. ft. in the Northeast and
15 million-sq.-ft. portfolio—are highly encouraging as Mid-Atlantic states.
well. Retailers are using technology to their advantage at Learn more at www.levinmgt.com. Follow LMC on Twitter,
an increasing rate and in a wide range of manners. They LinkedIn and Facebook
are adapting their business models in a variety of ways
as well—including increased training and focus on cus-
tomer service. In our 2019 Outlook survey, 68.2 percent
of respondents who have adapted said they are seeing the
benefits in terms of sales and in-store traffic.
Smart retailers know they need to provide what today’s
“connected” consumer wants in order to remain relevant
now and into the future. And this applies to brands found-

A Tight Labor Market, the Cornerstone of Elevated

Household Creation, Portends a Steady Outlook for
the Apartment Sector
By John Chang
Steady economic growth and favorable demographic trends workforce housing will remain solid as household forma-
continue to keep the national apartment market on solid tion stays elevated due to the tight labor market. At the
footing. Demand remains driven by the healthy labor mar- same time, class-A and -B apartments will experience rel-
ket, boasting an unemployment rate under 4 percent. While atively steady absorption, keeping their respective vacancy
large primary metros have experienced steady job creation measures in the lower-5 and upper-4 percent bands.
for the majority of the current business cycle, more economic National apartment vacancy will see a gradual incline over
growth is percolating inland from these areas to secondary the next few years as the current expansion continues to
and tertiary markets. Many smaller markets are witnessing mature, although demand should stay fairly healthy even if
increased employment growth as businesses establish new
operations in these areas and shift their recruiting methods Tight Labor Market Benefiting
to attracting local talent rather than trying to relocate talent Apartment Sector
to existing facilities. n YOY Job creation n Vacancy
Workforce housing is benefiting from tight labor con- 4 8%
ditions as people who have traditionally had difficulty
3 7
Job Creation (millions)
Vacancy Rate
finding work are able to secure jobs and have the oppor-
tunity to live on their own, boosting household formation 2 6
in the process. The unemployment rate for those with a
1 5
high school education or lower has fallen significantly over
the past several years, applying added pressure to hous- 0 4
ing demand for inexpensive units. Availability of class-C ‘12 ‘13 ‘14 ‘15 ‘16 ‘17 ‘18 ‘19*
apartments has trended downward faster than other asset
Trailing 12-month average
classes, moving vacancy to the low-4 percent range at *Through Q1
the end of the first quarter. These more affordable units Sources: Marcus & Millichap Research Services, Real Page, Inc, U.S. Census Bureau
will continue to face strong demand as the labor market
remains robust, with job openings outnumbering job seek- economic momentum slows.
ers by roughly 30 percent. Positive demand drivers point to a promising outlook
Healthy demographic trends are providing an addi- for the apartment market into 2020, though risk of a
tional boost to apartment markets nationwide, with life- slowing economy could begin to erode momentum. The
style changes and evolving housing preferences guiding longer-term outlook is clouded by geopolitical issues,
demand. As many millennials delay starting families but the sector’s foundation remains solid. The prolonged
relative to previous generations, the need for rentals will expansion and positive demographics will sustain rental
remain elevated, particularly in urban areas where young housing demand, offering apartment investors a wide
professionals are attracted by the popularized live-work- range of investment opportunities. n
play dynamic. With millennials being the nation’s largest
generation, they will be crucial to apartment demand John Chang serves as the senior vice presi-
moving forward. Baby boomers will also play a key role dent and national director of research services
for the sector as empty nesters downsize and transition to for Marcus & Millichap Inc.
urban lifestyle apartments. These factors will put further Learn more at www.marcusmillichap.com.
pressure on apartment vacancy rates as new supply strug-
gles to meet demand.
Deliveries are set to eclipse 300,000 in 2019, for the
fourth consecutive year, as builders aim to keep stride
with rising demand. Heavily developed submarkets across
several major metros will generate a modest uptick to the
national vacancy rate this year; however, absorption will be
generally strong nationwide. Leasing activity of traditional

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A Social Imperative for Developers

By Jim Stuart
In a society that is increasingly divisive, lonely and unhap- when the pace of business puts time at a premium, and
py, it’s time to ask the real estate development community technology and communication channels have bound
what role it serves in promoting human connections and people to workstations, reducing the frequency of hallway
addressing this new social imperative. Health and wellness discussions and random conversations.
are suffering from the impact of a culture that has replaced Office, hospitality and retail tenants should reflect the
quality relationships with quantity of digital connections surrounding environment, community interests and the
built through false personas. How can everyone look so state of mind of the modern workforce. A global coffee
happy online, yet feel so miserable off? chain can be replaced by a local roaster, a household name
A frightening thought: If we accept the premise
that the needs of today’s citizenry compel us to view
space not solely by the measure of cost per square
foot, but how that space supports occupiers’ need to
attract top talent or customers, then it’s not a stretch
to conclude that the majority of commercial stock
is incapable of generating emotional interest—and
therefore, increasingly irrelevant. Soulless shopping
malls, isolated office space, boring neighborhood
centers—no wonder people are not engaged in the
built environment.
Photo: Getty Images

Our firm believes that real estate development
can be a curated experience designed around busi-
ness needs as well as aspirations and requirements
of the new “audiences.” We challenge traditional
values and models of old school leaders. New think-
ing demands flexibility, purpose and inclusiveness.
Developers can take a leadership role in serving todays’ restaurant replaced by a scratch kitchen concept and irrele-
needs of businesses craving new built environments and vant art installations replaced by projects that arrest people
the new generations that have made fulfillment and joy, in their tracks, forcing moments of reflection.
often via experiences over things, a top priority. Matter is The next cycle requires innovation and courage, prag-
committed to being thought leaders and creating places matism and poetry, to create developments that serve
that promote untethered work environments, encourage social needs, which unsurprisingly connect to business
social interaction and elevate opportunities of inspiration needs. Our industry thrives when we keep people at the
and reflection to must-haves over nice-to-haves. center of our work, when humanity is an expectation, not
We believe any project can be planned in advance to an exception. It’s time to get started. ■
embody this approach with a people-centric vision, creat-
ing different spaces that reflect intimacy and nuance, that Jim Stuart is a partner with Matter Real
are true to their native environment as well as the needs Estate Group, a community-minded develop-
of the community. Ideally, residents and end users will be ment firm.
able to walk short distances to all the amenities modern Learn more at www.matterrealestate.com.
employees require and experiences they crave—cafes,
health and wellness, social venues, innovative restaurants,
movies and cultural events—all without needing a car.
Such a project will include catalysts to maximize the
minutes when people are together, help them slow down,
instigate connections and conversations and spark rela-
tionships. This is needed now more than ever, in a time

The High-Income Renter

By Patrick Lynch
Amid the shift to urban luxury apartments and rising con- Distribution of High-Income Renter Households in
struction costs, rents at new apartments have risen rapidly. the United States by Monthly Rent Paid
18%
According to the U.S. Census, the median asking rent of an
apartment delivered in the first quarter of 2018, and leasing 12
up in second quarter of 2018, was $1,666, a 16.2 percent
6
increase over apartments completed in the fourth quarter of
2014 and leasing up in the first quarter of 20151. Renters with 0
Under $1,000- $1,250- $1,500- $1,750- $2,000- $2,500- Over
high incomes are needed to occupy these apartments. $1,000 $1,250 $1,500 $1,750 $2,000 $2,500 $3,000 $3,000
All statistics presented in this article, except where Source: 2017 American Community Survey PUMS data
otherwise indicated, are based on the author’s analysis of
Public-Use Microdata from the American Community One interpretation is that with such a high share of
Survey, accessed via IPUMS-USA, University of Minnesota, High-Income Renters spending less than they probably
www.ipums.org. could, a substantial pool of high-rent demand remains for
new apartments to absorb. Another possibility is that many
High-income renters concentrated in major High-Income Renters would prefer not to spend the amount
coastal metros needed to live in a new apartment. Even in New York, where
There are 2.37 million multifamily renter households in the the average rent, per CoStar, for even a class-B/C apartment
United States with incomes over $100,000 (hereafter, “High- is $1,876, 29 percent of High-Income Renters were paying
Income Renter Households”), or 12.6 percent of the total 18.8 less than $1,500 on rent in 2017. Clearly, the wish to save
million multifamily renter households. However, 49 percent money for other purposes motivate some of them to spend
of these High-Income Renter Households are located in much less on rent than they theoretically could afford.
just six metro areas: New York, Los Angeles, San Francisco,
Washington, D.C., Chicago and Boston. For comparison Conclusion: caution is warranted for high-
these same metro areas only account for 26 percent of all end apartment development
other multifamily renter households in the United States. Apartment projects must of course be evaluated in the con-
text of their local markets but this macro-data nonetheless
The high-income segment has grown rapidly suggests that investors in high-end apartments should be
but the pace will slow cautious. The growth in High-Income Renters is likely to
Despite a current market share of just 12.6 percent, High- slow and a sizable portion of existing High-Income Renters
Income Renter Households accounted for 32 percent of the may not consider an expensive apartment even if they are
total growth in multifamily renter households in United “income-qualified.” Caution is particularly warranted in
States from 2006 to 2017. secondary and tertiary metro areas, where High-Income
The rapid growth in High-Income Renter Households Renters typically make up less than 10 percent of the market.
was driven largely by a shift from homeownership to rent- For the full report, contact plynch@livemiddleburg.com. n
ing. In 2006, 88.0 percent of households with incomes over
$100,000 in 2018 dollars, owned their home. As of 2017, 1 U.S. Census. Survey of Market Absorption of New Multifamily Units.
the homeownership rate among this group had fallen to https://www.census.gov/programs-surveys/soma.html
83.3 percent. However, the rate now appears to be stabiliz-
ing. If so, it will likely mean much slower growth among Patrick Lynch is vice president of research
High-Income Renters in the near future. at Middleburg.
Learn more at www.livemiddleburg.com.
Nearly half of high-income renters pay less
than $1,500 for rent
The chart shows the distribution of High-Income Renter
Households in the United States by the monthly amount they
pay for rent. 42 percent spend less than $1,500.

An Emerging Opportunity for Investors and

Operators: Middle Income Seniors Housing
By Beth Burnham Mace
Projected Financial Resources of Middle-income

Delivering on its mission to enable access and choice for Seniors Compared to Assisted Living Costs, 75+, 2029
Americas elders, the National Investment Center for Seniors
Average Assisted 6.6M (46%) Middle-income seniors will
Housing & Care (NIC) provided a grant to NORC at the 4 3.7
Living Rent + have annual fnancial resources >$60,000
Medical Costs = with housing equity
$60,000
University of Chicago to conduct a demand study that quan- 2.7M (19%) Middle-income seniors will
tifies and characterizes America’s middle-income seniors’ 3 3.0

2.7 2.7
have annual fnancial resources >$60,000
excluding housing equity
2.5
Seniors (millions)
2.3 2.3 2.2
cohort. The results of The Forgotten Middle: Middle Market
2 1.8 1.7
Seniors Housing Study were initially presented at a Health 1.5
1.2
Affairs policy briefing in Washington, D.C. on April 24th and 1
then at an Investor Summit in New York on May 21st. 0.5
0.4
0.2 0.0
Some notable takeaways from the study include: 0 $24,450 to $30,001 to $40,001 to $50,001 to $60,001 to $70,001 to $80,001 to Over
•The middle market investment opportunity is large $30,000 $40,000 $50,000 $60,000 $70,000 $80,000 $90,000 $90,000
and growing with over 14.4 million seniors anticipated to n Excluding Housing Equity n With Housing Equity
be in this cohort by 2029—6 million more than today. Note: Numbers depicted are in 2014 dollars
Source: NIC Middle Market Seniors Housing Study
•More than half of these middle-income seniors (54
percent) will not have sufficient financial resources to cover
projected average annual costs of about $60,000 for assisted for additional care. In fact, 60 percent are projected to have
living rent and other out-of-pocket medical costs a decade mobility limitations.
from now, even if they generated equity by selling their •Lower marriage rates, fewer children and less access to
home and committed all of their annual financial resources. caregivers may increase the need for paid, private seniors
•That said, 46 percent or 6.6 million seniors will be able housing solutions.
to cover the costs, highlighting a significant demand pool •At today’s utilization rates, more than 700,000 units of
that is not being tapped into today. seniors housing will be needed to satisfy potential demand
•An additional 2.3 million middle-income seniors could from middle market seniors by 2029. For perspective,
meet the yearly costs of rent and other costs if these costs today’s stock of investment grade, market-rate seniors
could be reduced by $10,000 to $50,000 from $60,000. housing properties with more than 25 units is estimated at
•The middle-income seniors cohort includes today’s 1.6 million units (does not include board and care units).
retiring workforce housing cohort—teachers, firefighters, The study and its results pave the way for new conversa-
government workers and nurses—individuals with financial tions about how to address the needs of this growing group
resources between $25,000 and $74,000 annually for those of seniors. We hope that equity and debt providers, as well
between the ages of 75 and 84, and $24,000 and $95,000 for as operators and developers, will get together to think of
those over 85. Note that the middle-income cohort excludes innovative, but practical, solutions to serving this group of
those who may be eligible for Medicaid on one end of the America’s seniors.
income spectrum and those who can easily afford seniors Join the discussion. Together, let’s figure out housing
housing on the other end of the income spectrum. and care options that meet the needs of our workforce
•This study goes beyond other studies by including seniors. n
financial resources as a measure of wealth beyond simple
income. Home equity is considered as a supplement to Beth Burnham Mace is chief economist
financial resources. of the National Investment Center for Seniors
•It’s notable that levels of education are projected to Housing & Care (NIC).
continue to increase, which results in a higher average Learn more at www.nic.org/middlemarket.
income for future seniors.
•Future seniors will be more racially and ethnically
diverse and more educated than today, potentially altering
the care needs and preferences of this cohort.
•Many middle-income seniors may have health and
mobility needs that may cause them to leave their homes

DON’T MISS THE NIC!
Unparalleled Networking with Seniors Housing
& Skilled Nursing Leaders
REGISTER TODAY!
www.NICevent.org
An Update on Affordability
Continued afordability challenges raise the risk of rent control policy action going forward,
clouding investment outlooks and underscoring the need for creative and collaborative solutions
By Doug Bibby
With housing affordability dominating headlines, many Rent Control Risk

jurisdictions across the country are considering policy States with elevated, moderate and severe risks of legislative
changes to address the causes and effects. In some cases, the action on rent control policies.
proposed changes are rather dramatic, including things like
rent control measures, rent caps and antigouging measures.
Understandably, multifamily investors are concerned about
what these changes might mean for their investments.
It’s difficult to get a gauge of how policy changes might
affect asset values or how many deals might be sidelined until
there’s more clarity in areas where these debates are happen-
ing. However, what we can say for certain is the velocity at
which these initiatives are hurdling at us is unprecedented.
We need a response—a bold, comprehensive housing plan
and a toolbox of real, workable solutions that can be adapted
to the unique needs of communities everywhere.
What’s different this time lawmakers such as Elizabeth Warren are also finding ways
NMHC has a long history with issues of affordability. We to work in provisions that explicitly encourage states to
were formed in 1978 after a small group of prominent apart- remove preemptions on rent control.
ment builders and owners came together to overturn the While these developments are concerning, the positive
destructive aftershocks of rent control. While this story line is there is political engagement where there largely hasn’t
sounds familiar 40 years later, achieving a similar outcome been. Policymakers are finally understanding the severity
today is more challenging. of the problem and approaching it with the correct degree
We know what’s at the root of today’s affordability cri- of magnitude. Moreover, there are ideas and legislative
sis—surging rental demand, stagnant incomes, punishing initiatives that we can support, albeit with some changes.
regulation, rising construction costs and chronic housing We need what amounts to a modern-day Marshall
underproduction—but the discussion direction and tone Plan for housing. We need to attack these challenges with
have made a dramatic shift. The focus has moved from solutions that are responsive to the challenges facing com-
housing economics to housing inequality. Tenants’ rights munities. Most important, the private sector needs public
groups, social justice advocates and other progressive partners at all levels of government who are willing to be
organizations are forming a national movement, creating creative and look beyond policies that have been tried and
momentum for misguided policies like rent control. failed in the past.
We encourage all to visit www.growinghomestogether.
Assessing the threat levels org, a new online hub to spark discussions and progress
Since 2017, the number of states that have considered rent around the housing affordability crisis. It highlights creative,
control account for more than half of the nation’s total apart- successful policy solutions at the state and local levels. n
ment stock. However, there varying levels of threats. We are
seeing a lot of legislative movement on rent control in states Doug Bibby is president of the National
like California, Colorado, Illinois, New York, Oregon and Multifamily Housing Council (NMHC) in
Washington. While we have largely been able to defeat these Washington, D.C. He can be reached at
initiatives, there were losses in Oregon and, most recently, dbibby@nmhc.org.
New York. Learn more at www.nmhc.org.
Legislative action will continue into 2020, and we see
these issues being elevated. High-profile politicians like
Bernie Sanders, Kamala Harris and Alexandria Ocasio-
Cortez have taken up the mantle of rent control. Moreover,

Why Student Housing Should be Considered as a

Historically Recession Resistant Investment
By Brian Nelson
Student housing investment prospects have risen significant- U.S. College Enrollment Population Growth
ly over the past nine years, with student housing now solidly 24
established as its own sector in the investment community. 22
Population (millions)
It’s heartening to note that student housing is historically not 20
correlated with downturns in the economy. Here are some 18
things to know and look out for as you plan your investments 16
now and shortly: 14
1990 2000 2010 2020 2030
Preparing for 2020 recession? Source: National Center for Education Statistics
While more than half of investors and investment advisors
worry there will be an economic recession in the United tance to campus. With the school as an anchor, the demand
States within the next 12 months, according to the fifth for housing should stay strong.
annual Advisor Authority survey, entitled “Safe Havens in an The second thing to do is lock in a long-term fixed
Uncertain World,” the good news is that enrollment histori- interest rate and a nonrecourse (no personal liability) loan.
cally increases in a recession. The idea is that when a reces- This is one of the great things about real estate in 2019—
sion hits, people are more motivated to get college degrees so with nonrecourse loans available; investors can build their
they will be more likely to get a job. portfolios with more confidence than they could other-
Students will always need housing, and that’s why wise. But it’s critical that they manage expense growth.
off-campus housing has historically been such a good With student housing investments, the largest expense
investment option. With the geography around college cam- comes from the interest rate. If the interest rate is fixed for
puses inherently limited, the supply has been relatively low, approximately 10 years, revenue growth should contribute
but demand has been constant. That’s potentially great news to the bottom line more quickly.
for investors: this low supply should keep demand strong. By following these guidelines, it’s now possible for
With a well-positioned property, you may be able to keep it investors to own part of a 900-bed, brand new, fully
full year in, year out, plus the potential for cash flow. upgraded and turnkey class-A student housing property
for as little as $50,000. n
The state of student housing
Today’s students want their housing to support a healthy, Not an offer to buy or a solicitation to sell securities.
balanced lifestyle. They want access to collaborative study Securities offered through Emerson Equity LLC, member
settings, easy connectivity to WiFi for homework and enter- FINRA/SIPC only in states where Emerson Equity LLC is
tainment and package lockers to keep their deliveries safe registered or operating pursuant to an exemption from regis-
until they can retrieve them. tration. Emerson Equity LLC and NB Private Capital are not
So as 2020 approaches, it’s important for investors to affiliated. All investing involves risk. Speak to your tax and/
be mindful of the priorities of today’s students. Beyond or investment professional prior to investing.
providing comfortable living space, you want to deliver an
unforgettable living experience. Profit from student housing Brian Nelson is the founder and president of NB Private
investments is only sustainable as long as you are providing Capital, a student housing investment company, and the
a fun place to live and a compelling living environment that’s previous co-founder of Nelson Brothers Professional Real
friendly, safe and conducive to their studies. Estate, offering 1031 exchange replacement properties within
a DST structure.
Where to invest Learn more at www.nbprivatecapital.com.
What’s a good criterion for investors to consider for student
housing with such a variety of properties to choose from and
that have the potential to perform well?
Our philosophy is tha the first thing to look for is
investment properties located near or within walking dis-

Understanding Opportunity Zone Funds and 1031

Exchanges
By Lemery Reyes
What are Opportunity Zones funds and The 1031 exchange is a nearly century-old method
1031 exchanges? to defer taxes on capital gains or depreciation recap-
Both Opportunity Zone funds and 1031 exchanges are ture, and many investors that use 1031 exchanges “roll
ways of reinvesting gains from the sale of property into theirs forever until the great basis step-up in the sky,
other property in order to avoid current taxation and and the tax is presumably never paid on those assets,”
obtain valuable tax benefits. Both regimes were created by explained Lang.
Congress and codified in the Internal Revenue Code. Both The Opportunity Zones program, however, is quite
are important tools for managing tax liabilities and for new and was created by Congress as part of the Tax Cuts
acquiring tax-advantaged investments. One is driven by and Jobs Act of 2017 by adding two new sections to the
a national agenda to promote investments in certain loca- Internal Revenue Code, Sections 1400Z-1 and 1400Z-2.
tions; the other is driven solely by the taxpayer’s agenda. The purpose of this new program is to encourage long-
One regime is very old; the other is very new. Which is the term investments in low-income communities across the
right one for you? Read on… United States. There are over 8,700 Opportunity Zones in
“They are almost like kissing cousins because they are the country, including territories such as Puerto Rico, and
in some ways parallel, but there are important differences investors can defer tax on any prior gains properly invested
here,” shared Jim Lang, a shareholder with Greenberg in a Qualified Opportunity Fund (QOF) until the earlier
Traurig, who participated in our Opportunity Zones webi- of the date on which the investment in a QOF is sold or
nar in April. exchanged, or December 31, 2026.1
Investors with a 1031 exchange who reinvest in “like-
kind” replacement property defer the tax on the gain from • If the QOF investment is held for longer than 5 years,
the sale of the existing property, unless and until they sell there is a 10 percent exclusion of the deferred gain.
the replacement property. If the investor decides to once • If held for more than 7 years, the exclusion is increased
again roll their investment into another eligible, “like-kind to 15 percent. 2
property,” the gains continue to be deferred until a property • If the investor holds the investment in the Opportunity
is finally sold in a taxable sale. The Tax Cuts and Jobs Act Fund for at least 10 years, the investor is eligible for an
of 2017 made major changes to Section 1031 by limiting the increase in basis of the QOF investment equal to its fair
scope of eligible property to only real property and eliminat- market value on the date that the QOF investment is
ing entirely the eligibility of personal or intangible property. sold or exchanged.3

How are Opportunity Zones investments Opportunity Zone funds allow

and 1031 exchanges similar? How are they the elimination of any capital
different?
gains taxes earned from
Both Opportunity Zone investments and 1031 exchanges
provide significant federal tax benefits and impose a 180-
the Opportunity Zone fund
day limitation on the time taxpayers have to complete the investment, under certain
investment.4 But what makes them different? conditions
According to Jill Hamer, attorney and founder of
CRE NET in New York, both the 1031 exchange and
Opportunity Zones funds are similar, but the Opportunity is taxed as either a partnership, such as a limited liabil-
Zone funds have a distinct advantage over 1031 exchang- ity company, or a corporation, which in turn invests in
es. “Opportunity Zone funds allow the elimination of an Opportunity Zone business (which itself is either a
any capital gains taxes earned from the Opportunity partnership or corporation), or directly into Qualified
Zone fund investment, under certain conditions,” said Opportunity Zone business property. 1031 exchanges do
Hamer, who recently hosted an Opportunity Zone event at not require the use of a fund, and they actually prohibit
Fordham University School of Law. “So, not only does an using a corporation or a partnership as a vehicle through
Opportunity Zone fund investor have the ability to defer which to invest in property. 1031 exchangers can invest in
and reduce their initial capital gains tax bill, they also may real property anywhere in the U.S. (if the property sold is
be able to eliminate the payment of any capital gains taxes domestic property) or internationally (but if the property
certain conditions.” sold is international property); but QOF investments are
Hamer wanted to reemphasize an important point that limited to the Opportunity Zones. 1031 exchangers file a
many discussions about QOFs skip over. “Keep in mind single IRS Form 8824 for the year of the sale of their prop-
that the elimination of any subsequent capital gains taxes erty, while QOF managers must report annually through
assumes that the value of the underlying investment in the IRS Form 8996.
Opportunity Zone fund increases,” said Hamer. “For this For more information contact 1.800.339.1031 or info@
reason, investors should carefully choose an Opportunity nesfinancial.com. You can also read more about the NES
Zone fund.” Opportunity Fund Administration Solution by visiting
Greenberg Traurig’s Jim Lang also noted another dif- www.nesfinancial.com/oz. n
ference between Opportunity Zones and 1031 exchanges:
“When you use an Opportunity Zone fund to invest 1. Internal Revenue Code Section 1400Z-2(b)(1).
through, you are just investing your gains dollars. You are 2. IRC Section 1400Z-2(b)(2)(B)(iii) and (iv).
not investing your whole investment.” Thus, if the investor 3. IRC Section 1400Z-2(c).
has basis in the property sold, then they need only invest 4. IRC Sections 1400Z-2(a)(1)(A) and 1031(a)(3)(B).
the capital gain—the difference between the sales price
and basis—in the Opportunity Zone fund in order to get Lemery Reyes is the social media and content manager at
the maximum tax benefits. This provides liquidity for the NES Financial, a Silicon Valley FinTech company providing tech-
basis in the property sold and provides cash to the investor. nology-enabled solutions for the efficient back- and middle-of-
In contrast, with 1031 exchanges, in order to get the fice administration of complex financial transactions. In the
maximum tax benefit, the exchanger must reinvest in Opportunity Zone space, our purpose-built Opportunity Fund
property of at least the same value, including the amount Administration Solution provides investors optimal visibility into
of any debt secured by the property. This often requires Opportunity Zone Fund performance and investment informa-
that the exchanger add in new funds or borrow again, since tion through a secure web-based portal, which is accessible
debt secured by the existing property must usually be paid 24/7 anywhere from any device.
in full upon its sale. Learn more at www.nesfinancial.com.
Aside from the differences in the tax rules and tax
benefits, there are several other differences between QOF
investments and 1031 exchanges. 1031 exchanges are
now limited to real estate, but QOF investments are not.
QOF investments require that the investor invest in the
Opportunity Zone through the use of a legal entity that

Technological Disruption in Commercial Real Estate

By Jack Sibley
Defining disruptors Illustrative Timeline of Disruptors to Commercial Real Estate

Amazon. Uber. AirBnB. These companies have reshaped
entire industries based on a disrupting the status quo. For
an industry such as real estate which has historically focused
on cyclical change, reacting to these structural disruptors is a
challenge that will become increasingly crucial to the future
of real estate investment.
To chart a course through this uncertainty, disruptors can
be mapped in several ways. First, there are the regulatory
and political disruptors. These tend to be short term, binary
in nature and are typically either well understood (e.g. new
accounting rules) or very uncertain (e.g. trade wars).
On the other end of the spectrum are demographic
disruptors such as urbanisation, the ageing population in are now entering the workforce and starting households.
developed markets, climate change and the shift of eco- This shift in demand has been responded to on the supply
nomic power to the East. These are the globally disruptive side by companies such as Amazon and WeWork, who
megatrends often affecting regions rather than individual have been able to disrupt an asset-heavy industry by being
markets, and which are grounded in long-term projections extremely well capitalised and willing to sacrifice short
with high certainty, making them attractive fundamentals term profits for long term market share.
to anchor resilient investment strategies. For real estate investors with medium- to long-term
Finally, there are technological disruptors, which are investment horizons, there are two major technological
usually driven by innovative business models and new disruptors reshaping real estate today that bear close
technologies. In contrast to regulatory and demographic attention:
disruptors, technological disruptors typically operate over • Digital commerce, which is impacting retail and logistics.
a medium-term timeframe and their impact is exponential • The subscription economy, which is impacting offices and
in nature. Their success is largely driven by market forces, residential.
making them global in nature. For these reasons they
are highly relevant to real estate and critical to real estate As the graph illustrates, we are just beginning to witness the
investment strategies. impact that these technological disruptors will have on real
estate, including:
Navigating technological disruption in real • Smart Cities—5G and the Internet of Things
estate • Big Data and Artificial Intelligence
Regulatory and demographic disruptors have always existed • The Future of Transport: Autonomous, Electric and
to some extent within real estate, but the prevalence of tech- On-Demand
nological disruptors within real estate is a recent phenome- • FinTech and the Blockchain. Q
non. In short, historically real estate has historically not been
the most dynamic or innovative industry. As many other Jack Sibley is a technology and innovation
industries have found themselves structurally changed by strategist, real estate, at Nuveen.
technological disruption over the last twenty years, real estate Learn more at www.nuveen.com.
has largely stood still, having not been forced into making
any significant structural changes.
However, what today’s consumer want their built envi-
ronment to provide has fundamentally evolved, creating
the opportunity for disruption. The rise of the internet and
mobile has fundamentally changed the way we consume,
particularly for the new generation of Millennials who a nuveen company
Investing in skylines
and bottom lines.
As a top fve global manager of commercial real estate,
it isn’t business as usual. It’s investing by example.
Visit nuveen.com/realestate
New name, same team, same expertise.

TH Real Estate is now Nuveen Real Estate.
ANREV/INREV/NCREIF Fund Manager Survey 2018; survey-illustrated rankings of 162 fund managers globally by AUM
as of 31 Mar 2019. Nuveen provides investment advisory solutions through its investment affliates. 8217_0719
The More Things Change

By Joseph P. Derhake, P.E.
After a very healthy first half, 2019 continues to buck for deals create pressure to execute quickly, and thereÕs
all predictions of recession. The labor shortage, concerns no room for course corrections mid-project. ThatÕs where
around trade tariffs and political uncertainty may add up construction risk management (CRM) becomes critical.
to a cautionary cocktail that impacts the way our clients do There is a CRM strategy for every level of exposure. For a
businessÑbut it hasnÕt slowed them down. If anything, CRE fraction of your total construction costs, you can mitigate
investors feel increasing urgency to put money to work. risk and keep your project on track, making CRM a smart
Nowhere is there more urgency than in the California buyÑparticularly for those who are new to construction or
residential market, where developers are racing to beat a those with tight development timelines.
major regulatory change that will take effect
in 2020: CaliforniaÕs ÒNet ZeroÓ residential
building standard. Effective January 1, all new
single-family residences and low-rise multi-
family properties must use net-zero electric-
ity. That is, they must have adequate solar
arrays to offset all electricity used for cooling,
plug-in equipment and lighting. California is
the first in the nation to enact such a code,
but even for California, itÕs an ambitious stan-
dard. Currently only 15 to 20 percent of new
Photo: Getty Images

homes have solar panels. While the policy
will reduce greenhouse gas emissions, it will
also create a significant headwind for devel-
opers struggling to keep up with the stateÕs
demand for affordable housing and may have
the untended consequence of restricting the
already inadequate housing supply.
Nationwide, investors are taking advantage of lower Economic uncertainty and regulatory changes are noth-
interest rates and a wide variety of lending options. We are ing new for CRE investors. In a shifting landscape, savvy
seeing a plethora of private equity-backed, non-bank lend- investors step up their risk management game by arming
ers crop up. Through these ventures, investors are explor- themselves with solid due diligence; making smart buys
ing new positions in the capital stackÑequity players and informed decisions; and relying on vigilant, responsive
foraying into the debt market, debt funds taking on con- asset management to keep properties performing. In other
struction loansÑand their relative inexperience with these words, itÕs business as usual. n
positions triggers greater reliance on our risk management
services. Furthermore, as these funds are largely unregu- Joseph P. Derhake, P.E., is the CEO
lated, there is more subjectivity in risk management and of Partner Engineering and Science, Inc., a
more leeway in tailoring due diligence and construction market-leading environmental, energy and
risk strategies to suit the risk appetite of their investor base. engineering consulting firm serving real estate
Our construction practice continues to grow as inves- investors, lenders and corporations throughout North America
tors favor value-add projects, whether due to lack of inven- and western Europe.
tory or the hunt for a bargain. From mod rehab to full- Learn more at www.PartnerESI.com.
scale redevelopment, everyone has a hand in a construc-
tion project. Apartment rehab projects are most active.
Developers and financiers in construction loan positions
all want feasibility studies and project cost reviews and
they want them fast. Late-cycle jitters and competition

Hotel Development: Boutique vs. Traditional Brand

By Jon Peck
Boutique hotel supply and demand is growing at a much an independent hotel, some matter more than others.
faster clip than traditional branded hotels. According to the Specifically, the brand company, design firm and operator
Highland Group 2019 Boutique Hotel Study, demand for are critical to articulating and delivering a unique, expe-
boutique hotels grew at a year-over-year rate of more than 8 riential and highly differentiated product for which the
percent, while overall US hotel demand grew a mere 2 per- consumer in your market is willing to pay a premium.
cent in 2018. A consumer shift as significant as this should Suites, lobbies, event space, fitness centers, retail and
be noted if you are considering a hotel development project. F&B outlets are all options to potentially differentiate and
Let’s get a few definitions covered. Boutique hotels fall drive profitable incremental revenue. The key is to get the
into three major categories: independent, lifestyle and soft
brand. An independent hotel is not brand or chain affili-
ated. Lifestyle would include national brands such as Aloft
and Kimpton. Soft branded hotels, such as Autograph by
Marriott or Curio by Hilton, are often conversions from
independent hotels. Essentially an owner plugs into the
brand reservation system and pays a royalty fee for this
privilege, generally resulting in the hotel retaining its inde-
pendent status.
The hotel business is a street corner business—supply and
demand fundamentals are key drivers when selecting a prop-
erty type and size. In suburban or soft urban markets where
a hotel is the highest/best use of the land, traditional branded
options are often your best option. As barriers increase,
markets tighten and average room rates rise, “upper upscale”
boutique hotels are more economically viable.
If your feasibility work shows the market supporting a programming right while keeping the gross square footage
high-end boutique, your next selection is between lifestyle as low as possible.
or independent. The level of hotel development experi- A final thought—you can hedge some risk by designing
ence of you and your team have will drive this decision. the hotel to follow critical soft brand requirements such as
The branding, design and operating experience required life safety standards. This could give you the option to con-
for an independent is crucial. If you don’t have people on vert to a soft brand later if the property is not performing
the team who have “seen the movie,” forgo independent on the top line.
and opt for a lifestyle hotel. The national hotel chain has Selecting the best product is an early step in a successful
defined the brand and key design elements for you and hotel development and, by extension, important in achiev-
finding a hotel operator that understands a national life- ing/exceeding your financial objectives. n
style brand is easier than finding one for a newly branded
independent. This option allows you to take advantage Jon Peck is president of Peck Hotel
of consumer trending toward lifestyle/experiential, while Consulting. He has been directly involved in
avoiding some development risk. more than 60 hotel openings and acquisitions.
Still reading? Do you have ground up hotel devel- Learn more at www.Peckhotelconsulting.com.
opment experience on your team and want to consider
developing a unique, independent hotel? Before you get
Photo: Getty Images
too deep in pursuit costs, be certain you have a lender rela-

tionship(s) and a robust enough balance sheet to support
this option. Lenders love to check the brand box! Next,
you’ll need to assemble the right team.
All team members matter. However, when developing

Grocery-Anchored Real Estate: Innovation

at an Infection Point
By Jeff Edison
This year, the grocery industry has already answered any on food sourcing and freshness, to name a few. In addition,
questions about its health and survival. Next, it will answer in-store and warehouse robotics and artificial intelligence
questions about its evolution. Both answers are positive for are helping to fine-tune online grocery delivery.
grocery anchored real estate. Amazon’s new stores will invite further innovation,
News that Amazon will open new grocery stores both from the e-commerce giant itself and the tradition-
in addition to its Whole Foods chain has validated the al grocers. We believe the competition will drive better
omni-channel model for grocery shopping. Contrary experiences for customers and ultimately be positive for
to the opinions of some analysts, online-only offerings the industry.
appear unlikely to replace tradi-
tional grocery stores.
Instead, competitors such as
Amazon have decided they need
to combine online shopping with
a more robust brick and mor-
tar presence. This is a big nee-
dle mover for grocery anchored
real estate demand, as one of the
world’s largest companies looks to
spread its physical footprint.
The launch of Amazon’s stores
will also provide a fresh peek at
the company’s own vision of a
successful brick and mortar ser-
vice model. We’ll find out what
merchandising looks like, how
Amazon handles check in and
check out and any new tricks it
has up its sleeve to improve cus-
tomer service. Sales volumes from these stores will give A stronger industry, and increased property demand
us insight as to how these new iterations resonate with as Amazon builds out its brick and mortar presence, are
consumers. creating a positive backdrop for grocery anchored real
In many ways, the launch could be an inflection point estate in the coming years. We look forward to seeing how
for grocery industry innovation. Whatever Amazon’s store it plays out. n
looks like, other traditional grocers are bound to respond.
Already, we’ve seen considerable grocery industry Jeff Edison is chairman and CEO of Phillips
innovation, unlike any point in its history. Traditional Edison & Company.
grocers have not been complacent about Amazon, exper- Learn more at www.phillipsedison.com.
imenting with a host of new features and technologies to
entrench themselves as the source most consumers depend
on for food.
Some of the exciting innovations on the horizon
include tablets that help store employees optimize shop-
ping routes so they can efficiently fulfill multiple click and
collect orders; grocery shelves that sync with customers’
mobile phones and light up so customers can find items
®
on their grocery list; and increased data and information

The Search for Understanding: How Tech Can Help

Predict How Shoppers Experience Retail Projects
By Jon Croy
It’s an age-old question that has plagued retailers and their In addition, marketers can receive the actual MAIDs of
landlords: What do shoppers want? Where do they go when shoppers, allowing them to see who visited a specific store,
they’re in a store or shopping center, or even at the airport? or category of stores, virtually tracking numbers (not spe-
For the bulk of the industry’s history, shopping center cific individuals). Where does a shopper typically go after
developers and managers and those companies that run leaving a Sephora at XYZ mall in a major tourist location?
the retail concessions at airports, have relied on a bit of Does an area resident behave differently from a tourist?
data and a lot of gut instinct to determine the best tenant By combining technologies, we can learn those answers
mix and marketing programs to increase customer visits quickly and reliably.
and sales.
More recently, the industry has been awash in technol-
ogy that can provide all sorts of mapping and store count
data. Other tech can count footfall at properties and indi-
vidual stores. But information is one thing—knowledge is
another. Knowledge takes that data, puts them in context
and allows the user to form conclusions on which to base
business decisions.
We’re just at that point now, and it will only become
more sophisticated, yet more user-friendly going forward.
This year’s ICSC RECon saw the retail real estate industry
acknowledge and promote the fact that to achieve maxi-
mum efficiency and results in an increasingly connected
world, managers and owners must invest in technology
that helps them understand their customer—what they
want, and how they want to experience a property. Marketing people can finally have hard data to evalu-
As a tech company, we’ve evolved from indoor mapping ate the successes of their various events and promotions
to creating a research tool called Retail Space Explorer. and target customers with personal messages on multiple
Using geo-accurate maps as the foundation, it uses data devices, on Google searches, Facebook and other sites. At a
to automatically determine spatial relationships between most critical time in our industry, we may begin to answer
places, people and things within the center, including that initial question: Where do our shoppers go? n
retailer adjacencies, that help users evaluate critical leas-
ing, site selection and promotional programs. Retail Space Jon Croy is CEO & founder of Seattle-based
Explorer helps retailers and landlords mine data in the Point Inside. Jon has held a diverse set of
physical world, not unlike how Amazon facilitates online executive roles in various tech companies,
retail sellers. with responsibilities including sales, marketing,
But what may matter even more is getting inside the product management, finance, engineering and operations. His
heads of consumers. Geofencing, which helps businesses career includes experience with Andersen Consulting, Telecom
engage audiences by sending messages to smartphone users, Italia Mobile, Time Warner Cable, McCaw Cellular, AT&T
can be combined with mapping technology to help man- Wireless, Synchronoss and TeleCommunication Systems.
agers learn where they’re going and marketers to contact Learn more at www.pointinside.com.
them. By utilizing cell phone data—Mobile Advertising ID
(Mobile Ad ID or MAID)—we can see how many people
Photo: Getty Images
enter or exit a location and how long they spent inside

each store. The results will allow developers and retailers
to assess adjacencies for optimum location in their leasing
and relocation strategy. Retailers can assess the presence of
competitors both inside the project and nearby.

Workplaces Focused on Lifestyle, Growing Lab

Demand Support Positive Trending in New Jersey
Commercial Market
By Edwin H. Cohen
New Jersey commercial real estate market fundamentals Tenants’ desire for a strong
and trending continue to head in the right direction, with sense of “place” extends
several notable themes gaining traction through the first half beyond the corporate campus.
of 2019. Development and redevelopment—across sectors
—continues to accommodate the changing needs of tenants
and subsequently is helping our state remain on a positive a relocation from Brooklyn), Hackensack Meridian’s new
trajectory. NIH-designated Clinical Research Center and Celularity
have made Northern New Jersey their home. Steel is rising
Workplace lifestyle takes center stage in Clifton for Quest Diagnostics’ 250,000-sq.-ft., owner-oc-
To begin, corporations are recognizing that investing in their cupied lab, which will be the largest in Quest’s network of
real estate enables them to create the type of workplace life- major laboratory facilities across the country. Additionally,
style—with plentiful enhanced amenities, image and atmo- a proposed four-story, 164,000-sq.-ft. speculative laboratory
sphere—needed to develop teams rich with top-quality labor. building on the same campus will represent New Jersey’s first
One of the most important site selection factors for tenants major spec lab in recent history.
in the current climate involves establishing themselves in Simply put, Governor Murphy’s vision of New Jersey
locations that can and will attract the talent needed to foster becoming the destination of choice for innovative compa-
business growth and profitability. nies is coming to life throughout the state, with the promise
Tenants’ desire for a strong sense of “place” extends of further momentum ahead.
beyond the corporate campus. Today’s best-in-class profes- One of the Garden State’s greatest strengths lies in
sionals are drawn to career opportunities that not only deliv- the diversity of its tenant base—historically, today and
er appealing 9 to 5 environments but also are established moving forward. In 2019, across industries and among
within communities that offer the more urbanized housing, companies with available revenue, there exists a penchant
dining, retail, cultural and recreational opportunities that for next-generation, class-A product. In short, what’s hap-
contribute to vibrant, balanced lifestyles. All of this provides pening throughout the market today caters specifically to
robust upside for the commercial real estate community the evolving requirements of New Jersey’s business and
today and into the future—by creating solid justification for residential populations and reflects the commercial real
the advancement of development and redevelopment proj- estate industry’s initiatives to advance the state’s long-term
ects that are revitalizing and redefining the regional market. economic health. Q
Over the past year, household-name brands like Ralph
Lauren Corporation, TD Ameritrade, Ricoh and others have Edwin H. Cohen is principal partner of Prism
committed to major leases in the region. And we are seeing Capital Partners. He joined the Bloomfield,
sustained inquiries from additional companies seeking N.J. based company in 2003 after a 40-year
headquarters-quality accommodations. career as one of the most prominent members
Within this context, the regional development community of the regional real estate brokerage community. Prism Capital
is looking at new multi-tenant office construction for the first Partners is an experienced real estate owner/operator with a
time in years. This represents a noteworthy shift from projects proven track record of creating value through select real estate
centered on the repositioning of Northern New Jersey’s aging investments and developments.
suburban campuses—a trend that continues to be the “bread Learn more at www.prismpartners.net. Follow Prism on Twitter
and butter” of the marketplace. Across the board, ameni- and LinkedIn
ty-rich environments have been—and will remain—central in
the design and redesign of spaces and properties.
Supporting an innovative state

Growing demand for state-of-the-art laboratory space also
is a “must watch” trend here at the heart of 2019. Over
the past few years, companies like Modern Meadow (in

Where Are Real Estate Investors Placing Their

Money This Year?
By Adam Hooper
Real estate continues to attract high net worth investors who indicated that the sponsor’s experience and track record are
recognize it as a relatively safe asset class with tremendous very important to their investment decision, it seems that
potential to increase ROI. Within the real estate category, once they complete their due diligence on the platforms and
investors have many choices as to where to place capital, sponsors, they tend to feel very aligned with those entities in
including core, value-add and opportunistic investments. So, working toward achieving their investment goals.
where are they focusing their attention this year? In addition to the financial advantages of investing
In a recent survey conducted by RealCrowd, we asked in value-add assets, many investors are also attracted to
high net worth investors which real estate strategies they the social impact of these investments. Adding value to a
are looking to invest into, and over 80 percent of
them responded that value-add opportunities were a
part of their plans. While core-plus real estate came
in second at 67 percent, opportunistic investments
were targeted by 49 percent of respondents, which
shows that investors are relying significantly on the
upside of repositioning to increase ROI.
Another sign of this mindset is real estate investors’
rising interest in secondary and tertiary markets. In all,
72 percent of our survey respondents said they plan to
invest in secondary markets in 2019, and 32 percent
said they’re eyeing tertiary markets for real estate deals
this year. Although 52 percent of those surveyed are
still targeting primary markets, it’s clear that valuations
in those markets have grown too rich for many high
net worth investors’ blood, spreads have thinned out
and they are looking elsewhere for higher yield on their property elevates and revitalizes the surrounding area and
investments. Value-add opportunities tend to be easier to benefits the local community. This is also the philosophy of
find and have less institutional competition in these cooler the new federal Opportunity Zone legislation, which seeks
markets, so the chance of buying an asset at a lower price, to enhance the lives of people in underserved zones of the
renovating it, and selling it for a significant profit is much country by incentivizing economic investment in those
greater than it would be in the primary markets. areas via capital gains tax breaks. Whether the motivation
Promising for the commercial real estate market as a is financial, philanthropic, or a combination of the two,
whole is the way high net worth investors are viewing it as improving real estate is a movement that continues to gain
a central investment strategy. Nearly half of survey respon- momentum among investor groups. n
dents said they want to allocate more than 25 percent of
their portfolio to commercial real estate, an indication of Adam Hooper is the co-Founder and CEO
how highly they value the category as part of their portfo- of RealCrowd, one of the first real estate
lio-diversification strategy. equity crowdfunding companies. RealCrowd
It’s also worth noting that the high net worth cohort is has hosted more than $5 billion in real estate
also tech savvy, with 79 percent of those surveyed saying offerings through its platform, spanning more than 200
they choose to invest in real estate directly through an online investments across 38 states. Contact Adam at adam@
platform. Their preference for direct investing as a means of realcrowd.com.
Photo: Getty Images
growing wealth and rounding out their portfolios appears to Learn more at www.realcrowd.com.
be growing, as 33 percent said they made between two and
four online real estate purchases in 2018 and 53 percent said
they plan to make between two and four of these purchases
in 2019—a 20 percent rise. Since 58 percent of respondents

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NNN Property Infux Presents Buyers More Options

(and Better Market Leverage)
By Kaveh Ebrahimi
Midway through 2019, we’re continuing to see investors on the second floor and above and coffee shops, restau-
embrace the advantages of low-risk triple net lease (NNN) rants, grocery stores, gyms, service-oriented businesses
properties by shifting their investments away from higher and more on the ground floor.
maintenance property types. The market is rich in triple NNN inventory has been robust. Due to an influx of
net opportunities, and a number of key product types available properties, buyers have more options. In the
are driving the stabilization of the market and increasing current market, buyers can be more selective, which gives
inventory levels at the same time. them more leverage in the market and the option to choose
In the medical office space there is a focus on new devel- the best fit for their investment portfolio. n
opment and construction,
and as a result, this sector
is expanding aggressively.
Urgent care clinics, surgery
centers and other special-
ized practices are starting
to move away from sharing
or leasing space from hospi-
tals. Instead, physicians and
specialists are partnering
up and opening their own
practices or buying or rent-
ing space in shared medical
office buildings where there
is good traffic and neigh-
boring tenants.
Another trend that is
continuing with momen-
tum is 1031 exchange cap-
ital being used to purchase
low-risk, low-maintenance
triple net leased properties. Investors are selling man- Kaveh Ebrahimi is a net lease advisor at Sands Investment
agement-intensive properties like apartment complexes Group, based in the Santa Monica, Calif., office. Sands
to invest in NNN properties, increasing their returns Investment Group (SIG) is a commercial real estate brokerage
(without having to perform landlord duties) thanks to the firm that specializes in the buying and selling of net lease
strong, stable cap rates driving the NNN market. properties for private investors and institutions across the
Despite news of big box brands downsizing their retail United States. Our industry knowledge, experience and vast
locations, the NNN retail market remains strong and network of buyers and investors are integral in our client-
stable, particularly in the restaurant and medical sectors. forward strategies.
Rates are stable, therefore, the NNN market continues to Learn more at www.signnn.com.
hold its values. Markets like, Texas, Tennessee, Colorado
and Florida are particularly strong at the moment, but
overall, there is a lot of revitalization going on across many
Photo: Getty Images
markets—which is good to see.

As part of this revitalization, we’re seeing that existing
shopping centers are turning into lifestyle centers. People
are gravitating to the concept of creating and living within
their own micro community; with living and office space

The Industrial Boom Continues, but for How Long?

By Robert G. Thornburgh
There is something about the middle of any year that always

provides an interesting opportunity to evaluate where the
commercial real estate market has been—but more impor-
tantly, what the future will hold.
Photo: Getty Images

For major industrial markets across the United States,
there is very little indication that current momentum will
cease any time soon. An extraordinary level of demand
continues to exceed supply—this is true for investments,
available land, or highly functional, well located logistics
space for lease. While every submarket is unique, record
breaking absorption, rent growth and limited opportuni- Technology & further disruption
ties are leading conversations. The commercial real estate industry as a whole is bracing
Based upon these factors, the outlook for the remainder for more change—much of this being influenced by tech
of 2019 will be more of the same, presenting both chal- advancements and consolidation. The extensive use of tech-
lenges and opportunities for everyone from brokers and nology, evolving business models and changing investor and
developers to the businesses that occupy industrial space. tenant expectations are all redefining our landscape at an
accelerated pace. Companies will have to realign priorities
More shock & gridlock for occupiers and adapt to new demands. The most nimble and creative
Primary markets with sophisticated supply chains and large will see a major competitive advantage as they win away
populations continue to see the majority of logistics-related customers, top talent and corresponding profits.
demand. However, the limited number of options for today’s
tenants presents one of the greatest challenges to our industry. Looking ahead
According to CoStar, the U.S. national industrial vacancy rate Not surprisingly, everyone is on the hunt for any signals of
was 4.9 percent at the end of the first quarter. There are also the next recession. With increasing concern, the industry’s
several major sub-markets, including Los Angeles and New focus on a potential downturn could ultimately lead to one.
York City to name only a few, that sit well below the national As worried businesses and consumers take steps to reduce
average. With massive increases in rents over the last five spending, we could unintentionally create our next condition.
years and a finite number of options available in the market, The good news is that for now, CRE professionals
companies are coming to grips with a new normal—not only should plan to continue to ride the wave as the economy
in terms of the increased expense in the form of rent, but the holds steady. Looking ahead, for industrial—we can fully
likelihood of having to relocate to other submarkets in pursuit expect strong demand to remain for the foreseeable future.
of the right facility to accommodate growth. Perhaps a period of adjustment and stabilization, but there
is little indication that our market is officially running out
No land, rising construction & labor costs of steam. n
Developers continue their best efforts to bring new product
to the market. Kidder Mathews and other respected sources Robert G. Thornburgh, SIOR, CCIM, CPM,
are consistent in their estimates of over 280 million sq. ft. is an executive vice president and partner with
of industrial space currently under construction or in the Kidder Mathews, a member of the company’s
pipeline, a 4.2 percent jump from last quarter. With these executive leadership team directly involved with
new deliveries, we will naturally see minor adjustments to the firm’s overall vision, growth and strategy.
vacancy and absorption. Yet, the industry also faces massive Learn more at www.sior.com.
constraints due to the limited amount of land available.
The corresponding rise in values, construction and labor
—while not new trends—could be viewed as emerging
headwinds. As a result, expect significant growth prospects
to emerge in secondary markets.

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Multi-Tenant Retail: Private Investors Lead

Acquisitions Nationwide, Especially in Non-Major
MSAs
By Brandon Duff
The retail industry remains under a microscope with some

suggesting that we are amid a “retail apocalypse.” Such
descriptions are likely extreme, considering brick and mortar
retailers are exposed to e-commerce competition to varying
degrees, as evidenced by an estimated 80 to 90 percent of all
retail sales still conducted in-store. Additionally, many retail-
Photo: Getty Images

ers are evolving to meet the ever-changing preferences of the
consumer to adapt and remain relevant. Despite the industry
transition, there are opportunities in today’s marketplace that
remain very attractive, especially to private investors.
In recent years, private capital has dominated overall
multi-tenant retail acquisitions nationwide. In 2014, private
buyers comprised 42.2 percent of this sector’s total sales vol- tors being private buyers, there has been a large flow of
ume across all markets. Since then, private buyers have taken capital into the sector as these groups chase yield and
market share from institutional investors and other buyer cash flow. Compared to properties these investors are sell-
pools. By 2018, they represented 71.9 percent of total sales ing—low cap rate, management intensive properties like
—up 29.7 percentage points. Institutional investors remain multifamily assets—retail is often an attractive alternative.
active today, yet their reduced acquisition activity is concen- And finally, private investors are aggressive when pur-
trated mostly in major metro areas. Private investors are also chasing opportunities in growing non-major MSAs they
active in major MSAs, currently representing almost half the believe have business friendly environments, well run local
sales volume. However, most notable has been the increased governments, or strong economies. Private investors are
investment in non-major MSAs by private buyers. In 2018, willing to pay more for high-quality properties in these
private capital represented 73.0 percent of acquisitions in types of markets, whereas institutional investors are getting
non-major MSAs, whereas just four years ago, private buyers priced out. We’ve seen this trend supported by recently
represented less than half of all sales in non-major metros. closed transactions that have received multiple offers from
This investment by private buyers has also driven overall sales both institutional and private investors nationwide. And
volume in non-major MSAs, with fourth quarter 2018 sales the private groups have consistently been 50 to 75 basis
being up 29.2 percent year-over-year. points more aggressive in pricing.
Considering the criticisms surrounding the retail indus- Overall, the buyer pool for multi-tenant retail has sig-
try, why are private buyers choosing to invest billions more nificantly changed and is no longer limited to only institu-
into retail properties than they did just four years ago? tional investors, REITs and a small subset of locally based
And why are they placing a much larger bet on non-major private buyers. Today, private capital is dominating the
MSAs, which some perceive as higher risk markets? space and chasing properties anywhere in the county that
First, even with the scrutiny of the retail industry, many offer strong property-level fundamentals and attractive
retail properties continue to provide excellent proper- risk-adjusted returns—characteristics that multi-tenant
ty-level fundamentals, and private buyers that don’t adhere retail assets should continue to offer for the foreseeable
to third-party investors or shareholders often have greater future. n
flexibility to pursue opportunities. Additionally, a lower
cost of capital driven primarily by low interest rates has Brandon Duff is managing director at Stan
been readily available to all buyer profiles, allowing private Johnson Company.
buyers to be more competitive in major MSAs where cap Learn more at www.stanjohnsonco.com.
rates are aggressive, as well as driving attractive risk-ad-
justed returns in non-major metros where less buyer
competition exists.
Furthermore, with the near-term future of 1031
exchanges no longer uncertain and most exchange inves-

A Strong Outlook for Agency Debt to Finance

Multifamily Properties in the Southeast
By Artin Anvar
Based on recent population and employment growth, the are highly incentivized to move quickly to invest in mul-
Southeast is one of the most opportune markets for invest- tifamily properties in select cities in the Southeast. In the
ment in market rate multifamily properties. According to first quarter of 2019, SunTrust provided a 10-year, $27.5
recent population estimates released by the Census Bureau, million Freddie Mac acquisition loan for a 327-unit mul-
from July 2016 to July 2017, Charlotte, N.C., (No. 7), Atlanta tifamily property built in 1986 and located in suburban
(No. 10) and Jacksonville, Fla., (No. 13) were among the 15 Nashville, Tenn. SunTrust also originated a 10-year, $23.2
cities or towns with the largest population growth in the U.S. million Fannie Mae refinancing for a newly constructed
According to ALN Apartment Data’s 2019 Q1 multifamily property in North Carolina during the first
Multifamily Review, new multifamily properties are
more evident in Georgia, Kentucky, North Carolina,
South Carolina and Tennessee compared to other
regions. Cities such as Atlanta, Charlotte, Raleigh/
Durham, N.C., and Nashville along with some of
the larger Florida cities—Orlando, Miami, Tampa
and Fort Myers/Naples—have added large numbers
of new multifamily units in the first quarter.
Even though the first quarter presented an
elevated level in supply, the growth in multifamily
stock in the Southeast has not caused rents to slow
down or occupancy rates to decline. During this
period, multifamily properties across the Southeast
boasted average occupancies above 90 percent with
strong rent growth compared to other regions.
Southeastern cities such as Atlanta, Lexington and
Louisville, Ky., and Memphis, Tenn. gained approximately quarter. Additionally, SunTrust is actively originating one
2 percent in rent appreciation in the first quarter. to three-year term bridge loans for properties leasing
Also, employment growth continues to expand across up, needing seasoning periods, partnership buy outs and
the Southeastern region. According to the Bureau of Labor bridge to HUD loans for newer multifamily properties and
Statistics, from April 2018 to April 2019, North Carolina, constructions loans across the Southeast. n
South Carolina and Tennessee employment growth increased
by 1.1 percent, 1.8 percent and 2.0 percent respectively. Artin Anvar is a managing director
Investors are flocking to the current multifamily prop- in SunTrust Bank’s commercial real estate
erty stock in the Southeast. As a result, SunTrust sees platform. Specializing in structuring multifamily
strong investor demand for long-term agency financing and seniors housing debt and with more than
to replace shorter term floating rate loans, especially in 20 years of commercial real estate finance experience, Anvar
some of the high-growth Southeastern cities with newer is responsible for originating SunTrust CRE loans, including
construction. Additionally, continued roll over of agency HUD, Fannie Mae, Freddie Mac and bridge transactions. He is
debt in the next three years should fuel demand for new located in the Washington, D.C. office.
long-term agency debt to refinance the region’s multifam- Learn more at cre.suntrustrh.com.
ily property supply.
Capacity for Fannie Mae, Freddie Mac and HUD loans
Photo: Getty Images
is strong. SunTrust’s agency pipeline of loans funding

through the first quarter of 2020 remains robust with
bridge, floating rate and long-term financing sourced
across all three Agencies.
Because interest rates are still at historic lows, clients

The Abundance Economy is Coming. Is the #CRE

Industry Ready?
By Diane Danielson
Stephen Covey defines the abundance mentality in The 7

Habits of Highly Effective People as:
“[T]he paradigm that there is plenty out there and

enough to spare for everybody. It results in sharing of
prestige, of recognition, of profits, of decision making. It
Photo: Getty Images

opens possibilities, options, alternatives, and creativity.”
Covey was speaking to the individual mindset. But

what happens when abundance invades an industry? For
taxis, abundance came in the form of Uber. For hotels, it
was AirBnB. The music industry was hit with subscription
models. And Amazon has created a platform disruptive of An untapped supply in the built environment does
multiple industries. In all cases, technology was used to exist, but as we saw with Uber, AirBnB and Amazon, it
decimate scarcity. takes a decentralized technological platform to unleash an
In scarcity economies, supply is limited. If you control abundance economy. What could this look like in CRE?
supply, you control pricing. In abundant economies, pricing • Blockchain will begin to track the built environment,
is driven not by supply but by demand because there is ade- usher in data standardization, smart contracts and ulti-
quate supply to meet all demands. Economist Barbara Gray mately create a platform where AI can assist in search.
of Brady Capital Research Inc. describes it as “The Long Tail • Cities will be digitized and augmented reality will give
meets The Blue Ocean.” If you want it, you can find it. us information overlays in real time via our smartphones.
Artificial scarcity occurs when stakeholders place lim- • Online crowdfunding, along with shifting demo-
itations on supply. In CRE, artificial scarcity exists through graphic changes, has opened up the market to new inves-
legacy systems of data/client hoarding, pocket listings, tors coming of age in the “sharing economy” where inno-
zoning and geographic licensing limitations. All are sys- vation and transparency are valued over legacy systems.
tems designed to keep competition out. However, abun- What does this mean for the brokerage industry? It
dance is still coming to CRE. How will this play out? means moving beyond matchmaking to creative prob-
There will be an increase in buildings indexed and lem-solving. It means that superior technologically-en-
tracked as commercial properties due to the following: abled marketing and enhanced client experiences will
• Expansion of indexed markets. The bulk of CRE matter more. It means letting go of scarcity paradigms and
transactions happen in markets currently indexed by legacy systems. It means adopting an abundance mindset
industry players. However, as Opportunity Zones demon- to remain highly effective in the representation of clients.
strated, markets are being overlooked. Abundance ultimately means more opportunities for all
• Densification of indexed markets. By 2050, it is who are willing to take the leap. Q
predicted that 90 percent of the U.S. population will live in
urban areas. This means that the vast majority of real estate Diane Danielson is the COO of SVN
will be in densely-packed, easy to document locations. International Corp. a commercial real estate
• A shift from residential to commercial. Urbanization brokerage franchisor with over 200 offices
is increasing renter-occupied property as people follow around the world.
jobs to cities and seek affordable housing. In less urban Learn more at www.svn.com.
areas, we are seeing a rise in single family residential port-
folios, which is shifting even more residential property into
the commercial market.
• Adaptation and reuse of existing building stock.
Outdated buildings can morph into new uses as asset classes
blend and zoning regulations adapt to meet society’s needs.

Deliberating Commercial Real Estate Debt Funds

By Will McIntosh
The amount of capital flowing to commercial real estate

(CRE) debt funds has risen significantly in recent years.
According to Preqin, 2018 marked the fourth consecutive
year in which debt funds raised more than $100 billion.
Commercial Mortgage AlertÕs (CMA) 2018 annual survey
identified 120 firms (up from 90 the previous year) actively
investing in high-yield debt on commercial properties, which
is a common strategy for debt funds. Indeed, institutional
investors have gravitated to the CRE debt space in record
numbers, driven by the following market characteristics:
Tight Lending Conditions: Bank construction loans
outstanding remain 50 percent below 2008 levels. Similarly,
annual CMBS issuance has averaged around $85 billion
over the last five years, down more than 50 percent from provide a buffer against value erosion in the event of a
2005-2007 levels. downturn. Therefore, if a recession is on the horizon as
Term Flexibility: Debt funds have the flexibility to offer the consensus outlook seems to suggest, the return perfor-
higher LTV ratios. A recent RCA study found that 20 percent mance of debt funds should be relatively secure, absent an
of loans originated by debt funds were at 80 percent LTV or extreme shock to CRE values. Despite the influx of capital
higher, nearly double the amount by all other lenders. into the sector, the opportunity for private investors to fill
Attractive Relative Returns: The relative performance the gap vacated by traditional lenders still exists, albeit in
of high-yield debt versus a core equity investment has a more competitive environment than just a few years ago.
been compelling to many investors, especially as core cap Furthermore, a healthy pipeline of opportunities should
rates have hovered near record lows. For example, implied continue to emerge as the market approaches the later stag-
core cap rates were near 4.3 percent in 2018 according to es of the current cycle, where borrowers will likely require
NCREIF; given where mortgage rates are today (around 4.0 flexibility and creativityÑsomething traditional lenders
percent), core equity returns are modest relative to the poten- generally cannot provide due to the current restrictive
tial return in debt funds which can range from unleveraged lending environment. n
returns of 6 percent to the mid-teens for levered strategies.
However, investors are also, understandably, reassess- Important Disclosures
ing the market today given record levels of dry powder on These materials represent the opinions and recommendations
hand, an increasing number of firms vying for business of the author(s) and are subject to change without notice.
and a waning economic outlook. USAA Real Estate, its affiliates and personnel may provide
Some debt fundsÑparticularly those without an estab- market commentary or advice that differs from the recommen-
lished track record, pipeline, or back office infrastructure dations contained herein.
Ñwill likely fail to deploy capital or overpay for the risk
they are taking. The high-yield strategies that debt funds Will McIntosh is the global head of research
typically implement are sophisticated, requiring years of at USAA Real Estate.
experience and an established network of industry con- Learn more at www.usrealco.com/research.
tacts to be successful. It is plausible that some newcomers
to the sector may lack the expertise and competency to
navigate current market conditions. Furthermore, mount-
Photo: Getty Images
ing anecdotal evidence suggests that many of the sectorÕs

new entrants have struggled to gain traction with borrow-
ers, which may ultimately lead to them exiting the market.
One of the most appealing aspects of debt fund strate-
gies, when executed appropriately, is that they can typically REAL ESTATE

Demand for Commercial Retail Space Remains

Stagnant, While Investors Look to Reposition Retail
Properties
By Peter Muoio
As the first half of 2019 comes to a close, the retail segment Francisco; Dallas; Salt Lake City, Utah; and San Antonio,
remains flat across the country, largely due to continued Texas as the top five investment markets for retail real estate
pressure from e-commerce and shifts in consumer spending, —or the top ‘buy’ markets. These markets have all posted rent
which have resulted in a high and stagnant retail vacancy rate. gains and lower vacancy rates. Overall, the Southwest region
According to Ten-X Commercial’s recent Retail exhibits better buyer demographics and stronger economies,
Market Outlook, retail vacancy rates have stagnated which provide a boost to traditional retail.
at 10.2 percent since 2018 and are projected to remain Meanwhile, Milwaukee, Pittsburgh, San Francisco,
around this elevated level through the rest of the year and Northern N.J., Philadelphia and Memphis, Tenn. have
into 2022. The high retail vacancy rates can be attributed been classified by Ten-X as the top five ‘sell’ markets—or
to reduced demand for space due to store closures in the areas where investors should consider selling their assets.
face of e-retail competition, as well as
the need for smaller store footprints. Top 5 Buy 4Q 2018 2022 Change in 4Q 2018 2022 Change in
Classic anchor retailers such as Sears, Markets Rents ($ psf) Rents ($ psf) Rents (%) Vacancies (%) Vacancies (%) Vacancies (bps)
JCPenney and Neiman Marcus have Austin, TX 22.10 24.06 +8.9% 6.6 5.8 -80 bps
been hurt by the rise in e-commerce,
as online sales continue to gain mar- San Francisco, CA 34.30 36.36 +6.0% 3.2 3.0 -20 bps
ket share once owned by brick and Dallas, TX 16.62 17.62 +6.0% 11.8 11.4 -40 bps
mortar retailers.
Salt Lake City, UT 14.88 15.56 +4.6% 12.0 11.9 -10 bps
Effective rent growth has also
stalled in the upper-1 percent range San Antonio, TX 14.80 15.40 +4.1% 8.6 8.0 -60 bps
for the past two years, while the most
recent quarterly effective rent growth
remained at 0.4 percent, a slight 1.6 percent gain from a These cities have suffered from weak rents and higher
year ago. vacancy rates and will likely struggle through 2022.
Despite increasing e-commerce activity, commercial While the rise of e-commerce is hurting brick and mor-
real estate investors remain active in the retail sector. Many tar retailers everywhere, some areas of the retail market are
retail property buyers appear to be looking for redevelop- holding up better, as retail deal volume has increased in the
ment and repositioning investments. For example, Seritage south and southwest metros.
Growth Properties purchased 235 Sears stores in 2015, Heading into the second half of 2019, retail funda-
converting the vacant spaces into offices, apartments and mentals will likely remain under pressure, while investors
restaurants. continue to search for creative re-use of retail properties. n
Investors are also using Ten-X to search for retail oppor-
tunities. Retail properties listed on the transaction platform Peter Muoio is the chief economist and head
have had an influx of activity since the beginning of 2019. of data insights at Ten-X where he heads a team
In March, average visits to Ten-X retail listings were up 24.4 that provides data insights to senior manage-
percent from a year ago, even as sector fundamentals have ment, the sales, broker and buyer channels of
been weak and stagnant. Furthermore, interested buyers Ten-X, marketing and product, as well as Ten-X clients using
viewing the secure document vaults hit a three-year high in data generated by bidding on the Ten-X platform, Ten-X web
the first quarter of 2019—marking a 53 percent increase in site usage and external economic and real estate data.
the number of visitors compared to the same time last year. Learn more at www.ten-x.com.
Despite continued weakness in the overall retail sector,
investor sentiment is stronger than it was last year. Given
the trend toward retail repositioning and development,
investor activity in the sector could remain strong even as
fundamentals struggle.
For spring 2019, Ten-X identified Austin, Texas; San

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The Benefts of Real Estate Partnerships During a

Retail Evolution
By Thomas W. Roberts
The previously narrow definition of retail has expanded, for large experiential entertainment retailers, home and
and companies have evolved out of necessity. In a video garden, furniture, convenience and discount stores.
titled, “Why There’s No Retail Apocalypse,” The Wall Traditionally, capital providers work closely with
Street Journal recently explained how companies have tenants to finance growing businesses through real estate
increased the amount of shopping opportunities avail- partnerships such as sale-leaseback and build-to-suit
able to consumers to achieve success in a changing retail transactions. Because tenants typically need their housing
environment. The video states, “Retailers are evolving to long-term, triple-net lease properties with a minimum
accommodate a greater range of customer behavior.”1 With lease term of 10-years in strong markets are ideal. In
retailers adapting to meet consum-
er needs, infrastructure updates are
being made in retail and e-com-
merce industrial properties to facil-
itate new services. The adoption of
concepts such as buy-online-pick-
up-in-store, entertainment-service,
experiential shopping and omni-
channel retail, impact supply chain
logistics and retailers’ physical loca-
tions. Although this evolution provides a major opportu- today’s industry, tenants focused on experiential, dis-
nity, retailers will need to make the appropriate business count and necessity-based concepts and those who have
investments to implement these changes. adopted an omnichannel or service-oriented strategy, are
Companies looking to unlock the value of their real appealing partners. Successful retailers have implement-
estate so that it can be redeployed into higher returning ed strategies to accommodate the changing shopping
investments, such as remodels and expansions to suit the habits of consumers. The capital expenditure required
needs of consumers, should look to real estate partnership for this transformation can be substantial, but real estate
opportunities as a funding source. Sale-leaseback and build- partnerships provide an opportunity for retailers to real-
to-suit transactions can be an effective tool for maximizing locate capital for the evolving market environment. n
a company’s capital for growth, especially during a retail
evolution occurring in a conducive capital market environ- 1. The Wall Street Journal, “Why There’s No Retail Apocalypse”
ment. Both sale-leaseback and build-to-suit transactions
serve as an impactful way for businesses to monetize their As executive vice president and chief investment
real estate assets, allowing them to utilize capital for various officer at VEREIT, Thomas W. Roberts
aspects of their business, including expanding to new loca- oversees VEREIT’s real estate transaction
tions, improving retail space, investing in online assets and activities for single-tenant retail, office and
opening new distribution centers. industrial properties, including acquisitions, sale-leaseback
The benefits of utilizing a sale-leaseback deal structure transactions, build-to-suits and dispositions. VEREIT is a
can be illustrated through VEREIT’s recent partnership corporate capital provider focused on owning and managing
with a growing retail fitness concept. This retailer, which high-quality, income-producing single-tenant commercial real
specializes in both experiential and service-based retail estate.
through popular workout classes and personal training Learn more at www.VEREIT.com.
sessions, recently partnered with VEREIT to complete
two sale-leaseback transactions. VEREIT acquired five
properties across four states, allowing the tenant to
free up capital for future expansions, existing location
upgrades and an investment in online booking software.
VEREIT has also executed sale-leaseback transactions

Midyear Trends in Hospitality Finance

By Ethan Schelin
A recent report by CBRE Hotels Americas Research states Opportunity Zones in the Sun Belt
2019 is expected to be the 10th consecutive year of hotel Stemming from the 2017 Tax Cuts and Jobs Acts,
market growth and the fifth straight record-level year with Opportunity Zones encourage long-term investments in
hotel occupancies rising to 66.2 percent, due in part to a 2.1 low-income communities nationwide. Investors with capital
percent demand bump. The result? A 1.9 percent hotel sup- gains now have a significant tax incentive to reinvest those
ply increase, making it a prime time to add hospitality assets gains into a dedicated opportunity fund. If the investment
to your portfolio. is held, the capital gains liability is reduced by 10 to 15
Choosing to enter or expand in the hospitality market percent in the first five to seven years and reduced to zero
is easy; the challenging part is securing funding. Below are
three financing strategies providing investors significant
cost advantages:
Modular construction
Modular construction is now seen as a viable option for
fast-tracking large commercial projects. This strategy con-
sists of fabricating pods or units in a factory that are then
shipped to the job site and assembled. This can shorten con-
struction timelines by approximately 50 percent, as the unit
construction can happen concurrently with the foundation
work and is already being implemented by leading hotel
chains like Marriott.
The repetitive nature and technological advances in
factory manufacturing enable workers to be cross trained
in various trades allowing them to perform more efficient-
ly. Additionally, modular construction requires a large
percentage of money to be disbursed upfront versus at the after 10 years. The Sun Belt region is an area that is primed
project’s completion, making it appealing for contractors. for growth through opportunity zones. This region is expe-
riencing industrial development and job expansion, and
PACE fnancing business and leisure travel accommodations are key. In fact,
Property Assessed Clean Energy (PACE) Financing is Virtua Credit recently arranged a $15 million construction
becoming an increasingly popular alternative for owners of loan to finance a 128-room SpringHill Suites by Marriott in
older structures that require significant renovations. PACE Avondale, a suburb just west of Phoenix.
financing permits owners to make major repairs to outdated If the market continues to grow at its current pace, I
systems without a large, upfront cost. The loan is then paid foresee these trends pushing well past 2019. n
off over 10 to 30 years. Treated as a tax assessment on the
property, the debt is solely tied to the asset itself making it Ethan Schelin is the president at Virtua Credit, a commercial
transferable should the owner choose to sell it. Because these real estate advisory and investment firm that arranges capital
loans originate from private capital, owners can use them to for institutional real estate assets nationwide.
fund up to 100 percent of the upgrade cost with limits up Learn more at virtuacreditcorp.com.
to 20 to 30 percent of the assets’ value. In the past, hoteliers
would seek capital from debt, equity, mezzanine, or a cash
Photo: Getty Images
combination. With PACE Financing, hoteliers now have

another financial option for energy-saving renovations.
As society continues to become more environmentally
friendly, we can expect the trend to gain momentum in the
hospitality industry and beyond.

As Market Tides Shift, Certain Alternative

Properties Can Offer Safe Harbor for Investors
By Terrell Gates & Zach Mallow
While the current real estate environment offers plenty of

risk and uncertainty, it’s safe to assume that we have entered a
period of late cycle investing. Property fundamentals remain
fairly healthy, despite the wavering occupancy and waning
rates in some sectors and markets due to years of robust
development. Valuations are generally high and cap rates are
Photo: Getty Images

historically low. In such an environment, justifying a winning
bid by extending rent growth from the recent past into future
base case assumptions is increasingly unwise.
Yet we don’t believe prudent investors should take
their money off the table. At Virtus Real Estate Capital we
employ defensive strategies that account for inherent risks
like flat passive rent growth and a change in economic matched for the current environment. Despite the constant
climate. We focus on markets and sectors that provide a uncertainty in national healthcare policy, the Centers
greater margin of safety by solving affordability or inuring for Medicare and Medicaid Services projects annual rate
needs-based social issues and thus perform regardless increases of above 4 percent for the next several years.
of where we find ourselves in a cycle. Healthcare and These projections encompass changes in reimbursement
Workforce Housing are two such “safe harbors”. rates and care delivery and remain surprisingly resilient
The argument for affordability is evident when compar- against possible changes in insured rates from any possible
ing class-A apartments to older workforce housing assets. repeal of the Affordable Care Act. This is because the bulk
Investors historically favor class-A assets, yet these have of this new demand derives not from increased insured
shown some of the weakest overall performance in recent rates for lower-income patients, but from the “Silver
years due to concentrated supply growth competing for an Tsunami” of aging baby boomers. The crest of the boomer
affluent minority of the renter pool. Inventory growth in generation is currently aging into the increased-care-needs
CBD areas has been over twice the rate of any other urban years that drive medical office demand, which has been
type, with some submarkets cresting into truly disruptive bolstered further by the dramatic rise in outpatient versus
inventory growth dynamics. Downtown San Diego, Miami inpatient care delivery.
and Tampa have all seen annual increases in class-A apart- For years, Virtus has been active in these kinds of ever-
ment inventory of over 30 percent during the last year green property types whose demand endures regardless of
alone. economic moods. In an environment where once rising
Meanwhile, workforce housing assets—typically older tides are now shifting, we believe such a strategy is espe-
apartments targeted toward the average renter’s median cially fitting.
income—have exceeded class-A in both rent growth and Read disclosures at www.virtusre.com/no-offer. n
occupancy resilience through this entire business cycle.
They also retained occupancy better during the last eco- Terrell Gates and Zach
nomic downturn and rebalanced their rates faster. This Mallow are founder/CEO and
stems from the fact that new construction costs simply director of research, respective-
cannot justify market rents achievable by median rent- ly, of Virtus Real Estate Capital,
er households. Workforce housing assets also offer the a real estate private equity firm focused on delivering healthy
possibility for renovations that can raise rates and add risk-mitigated returns during all phases of the market cycle.
value through NOI growth without relying on passive rate Learn more at www.virtusre.com.
increases. Thanks to their distance from the rent levels of
new class-A assets and their ability to satisfy the needs of
a median renter, Workforce housing assets offer greater
leeway and safety.
Healthcare properties are another defensive sector well-

Retail Landlords Advance Sustainability

By Rudolph E. Milian
Shopping center companies are focusing on sustainability

measures and reducing costs and greenhouse gas emissions
at their retail properties across the United States and Canada,
according to an open discussion this past February at the
International Council of Shopping Centers’ (ICSC) inaugural
Beyond Sustainability Summit.
The two-day think tank of small, midsize and large
publicly-traded REITs and private companies held in
Miami—which I helped to coordinate as part of a volun-
teer organizing committee—was attended by almost 40
senior-level professionals with responsibility for sustain-
ability measures for retail real estate companies.
These companies are increasing the efficiency of resource cardboard and construction waste but a better coordinated
use, including energy, water and materials while reducing effort with the tenants is required to improve on waste
building impacts on human health and the environment diversion of paper, glass, plastic and metal. Some landlords
during the building’s lifecycle, through better siting, design, in Canada have implemented sustainable food courts that
construction, operation, maintenance and removal. use non-disposable glassware, dishes and utensils, which
Mall developers as well as grocery-anchored shopping are common to casual-dining restaurants with table service
center operators are generally installing electric vehicle rather than the traditionally disposable fast food material
charging stations, making LED retrofits with lighting sen- employed at food courts and food halls. The remain-
sors for parking lot lighting, canopy over sidewalks and ing biodegradable organic (wet) waste is broken down
pylon signs and are setting energy and water use reduction by organisms through composting, aerobic digestion or
targets to monitor progress. One company reduced electric- anaerobic digestion.
ity consumption by 38 percent since 2003, accounting for There was no clear consensus as to the benefit or
about a 20 percent reduction in greenhouse gas emissions. adoptability of building certification in North America
Some companies are using solar power and battery as voiced by the participants. Among the more popular
storage to produce renewable energy and partner with a methods are LEED, BREEAM, BOMA BEST (for Canadian
third-party vendor that installs equipment, evaluates cre- companies) and IREM CSP. For reporting and disclosures,
ative financing structures and engages with the shopping larger companies have their own sustainability reports
center owner to ensure a successfully executed project and available on their websites and cited the MSCI ESG
investment. In addition to onsite power generation to pro- Index, Sustainalytics, GRI, GRESB and CDP as means for
duce and use renewable energy, such as solar, fuel cells and third-party reporting. There was consensus that sustain-
access to microgrids, some companies are procuring ener- ability metrics are only one factor for investors to invest in
gy through virtual power purchase agreements (VPPAs) retail property assets. The environmental, social and gov-
and bulk power transmission agreements (BPTAs) enti- ernance (ESG) performance is more of a necessary check-
tling the user access to an intra-state transmission utility. box rather than the driving force to invest in a particular
To save water, many landlords are improving their publicly-traded REIT. n
landscaping irrigation methods by using smart irrigation
controllers with advanced weather sensors and drip irri- Rudolph E. Milian, CRRP, CEO of Woodcliff
gation; all considered the low-hanging fruits for exterior Realty Advisors LLC, is the author of The
water use reduction. Many are installing native plant RetailGreen Agenda.
Photo: Getty Images
material that requires less water consumption, also known Learn more at www.woodcliffllc.com
as xeriscaping. Several landlords are investing in low-flow
fixtures, aerators and automatic shut-offs to deliver sizable
water reduction in restrooms and water closets.
On waste reduction, landlords are mostly recycling

Sale-Leasebacks Have Become a Critical Tool for PE

Firms. Here’s Why.
By Gino Sabatini
Growing PE fund sizes Average U.S. PE Fund Size Over the Past Five
2019 first quarter middle market private equity deal activity Years
slowed compared to 2018, with declines in public markets
and the government shutdown creating adverse pricing for $1,600
private equity (PE) backed IPO exits. Despite decreased
deal volume and exit values, fundraising figures remained 1,200
steady in the quarter, boosting dry powder available for
$. billions
new investments. Strong investor demand led PE firms 800
and sponsors to grow the scale of their funds, with vehi-
cles between $1 billion and $5 billion accounting for over 400
three-quarters of capital raised. In fact, the average PE fund
0
in 2019 has raised 70 percent more compared to all of 2018, 2015 2016 2017 2018 2019
demonstrating the substantial increase in fund size, based
Source: Pitchbook
on data compiled by Pitchbook.
Elevated deal multiples liquidity, allowing an earlier return of cash to investors,

Multiples on new deals have remained elevated, fueled by thereby boosting IRRs.
the swelling dry powder base. The challenge for PE fund
managers is to be competitive on securing new investments Conclusion
while meeting investor return expectations. Consequently, In the current environment a sale-leaseback can effectively
dividend recaps and add-ons have become more common decrease acquisition multiples and allow PE firms to be more
as general partners (GPs) endeavor to boost returns in the competitive in bidding for new acquisitions. A well-struc-
current elevated pricing environment. tured sale-leaseback with an experienced capital partner pro-
vides PE firm portfolio companies with access to an efficient,
Increased deal sizes and longer holding periods alternative and flexible source of long-term capital. In addi-
Along with larger funds, deals have grown in size and com- tion to helping PE firms achieve targeted investor returns, it
plexity. Longer holding times for investments are becoming is critical to work with a good capital partner who has the
more prevalent. Traditionally PE portfolio companies have experience and resources needed to support their tenants’
been held for three to five years before being exited. Fewer longer-term operating objectives through follow-on projects
than 50 percent of middle market exits occur in under five including expansions, building upgrades and build-to-suit
years, with the median holding time currently at 6.8 years. funding for new facilities. n
The top 25 percent of exits are hovering around a decade. As
a result, there are increasing numbers of long-dated funds W. P. Carey is a long-term real estate investor with a
with investment periods extending to 15 years or more. diverse net lease portfolio, spanning a range of property
types, geographies and tenant industries.
Sale-leasebacks: an innovative capital
source to mitigate risk and increase IRR Gino Sabatini is head of investments at
To mitigate the risk of larger deal sizes, higher multiples, W. P. Carey Inc., one of the largest diversified
longer holding periods and uncertainty around longer-term net lease REITs with a history of working with
interest rates, many GPs are turning to sale-leasebacks as a real estate brokers and private equity firms for
critical component of the capital stack. Because land and more than 45 years.
buildings tend to sell at higher valuations than the company Learn more at www.wpcarey.com.
itself, PE firms can sell a portfolio company real estate asset
and rent it back under a long-term lease, thereby capturing
a multiple arbitrage and blending down the initial purchase
price multiple. Post-acquisition, a sale-leaseback can create

Capital Markets Revolution Underpins CRE Success

By Paul Fiorilla
How many of us could harken back a quarter century and has enabled the CRE industry to not only survive the
have any clue what would become of the commercial real roller coaster of market fluctuations over the last 25 years,
estate market? My guess is not many. including the global financial crisis, but to thrive relative to
This comes to mind because the CRE Finance Council competing financial segments.
(CREFC) is celebrating its 25th anniversary this year. We have for years talked about the “Wall of Capital”
The Washington, D.C., based trade group was originally that has boosted the industry in the wake of the Great
called Commercial Real Estate Secondary Market and Recession. Investors of all stripes—foreign and domestic,
Securitization Association before changing its name institutional and small—have come into the industry and
(twice) as it branched from CMBS to
the entire commercial real estate finance
industry. CREFC has grown to represent CMBS Volume, YOY Change
more than 300 companies and 9,000
$250
professionals.
But 25 years ago, it would have been 300%
hard to predict the evolution in the capital 200
markets, especially debt financing tools. 200
CMBS was then a new product developed 150
$ billions
as a financing alternative when traditional

100
balance sheet lenders were sidelined by the 100
savings & loan crisis and real estate market
crash. Creating a new source of debt helped 50 0
commercial real estate to emerge from a
period of crisis. 0 -100
It’s hard to imagine what would have
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
become of the industry if debt remained
n CMBS Volume n YOY Change
difficult to obtain for an extended period.
However, I think that the recovery during Source: Commercial Mortgage Alert
that time is only a small portion of the real
significance of the CMBS market. More
importantly, the development of CMBS helped usher in pushed prices to all-time highs. There is a record amount
new ways of thinking about, structuring and consuming of dry powder of funds that want to buy properties but
real estate debt. can’t find the right deals or the right prices.
The commercial real estate capital markets have There’s a lesson in there somewhere about market
become much more complex, with a steady stream of new peaks and cycles, but the strong demand that fueled the
structures that target a wide variety of investor demands robust recovery would not have been possible without the
and borrower needs. Those innovations include—but are plethora of structures invented by the creative people who
not limited to—securities such as CMBS, GSE agency debt developed and continue to develop this industry. n
and collateralized loan obligations (CLOs). Even tradition-
al portfolio lenders have also embraced a wider variety of Paul Fiorilla is director of research at Yardi Matrix.
loan products, while in recent years debt funds have grown Learn more at www.yardimatrix.com.
to fill even more market niches. None of that would have
or could have happened without the creative mindset ush-
ered in the early 1990s.
Why is that so significant? Advances in structuring
have been a critical part of maintaining and enhancing
the market’s functionality, accessibility and liquidity. That

Building Engineering & Assessments
Construction & Development Services
Environmental Consulting & Remediation
Energy & Sustainability Consulting

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NEITHER Informa NOR ANY THIRD PARTY CONTENT PROVIDER OR

6 Acres Capital 37 JCH Senior Housing

Three Emerging Trends Developers

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The More Things Change Partnerships During a Retail

58 Prism Capital Partners Jay McSherry jaymcsherry@earthlink.net

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Charting a Course in a Mature Real

Contact David Bodamer at

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Is the Lack of Debt on For-Sale Condos Showcasing

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How the “Go Local” Crusade is Impacting Retail

Mom and pop shops have gone from persona non-grata to

Photo: Getty Images

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Disaster Lurking: Poor Underwriting is a Threat to

As evident, when market growth slows, the sponsor’s

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The Small Multifamily Market to Remain

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Trending–New Environmental Lender Portfolio

In the hushed hallways of bank management and lending

managing wholesaler is a Lender Liability on-line loan

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South Florida Port Activity Continues to Fuel

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Three Emerging Trends Infuencing Today’s Retail

As we enter the second half of 2019, the biggest news in

Health and wellness

new store construction and remodels of existing stores.

Continued evolution of technology

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How to Avoid an Affordable Senior Housing Crisis:

14 / NREI Midyear Outlook: 2019/ www.nreionline.com

Industrial Investors Get Creative

Looking outside the major metros

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Maintaining a Steady Course

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Baby Boomers and Their Kids (and Grandkids) Are

18 / NREI Midyear Outlook: 2019/ www.nreionline.com

Opportunities Ahead for CRE Investors

as strong. This is especially important given the mini-

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The Economics of Self-Storage Development

Individual self-storage facilities are neighborhood business- Percent Changes 2016-2019

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Adaptive Reuse Opportunities at an All-Time High

National Indoor RV Center’s recent 170,625-sq.-ft. lease in

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Multifamily Must Embrace the Experience Economy

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Grocers, Restaurants and Food: Are We

Restaurant roster composition headaches Key driver of outperformance is commercial