Adaptation is the key to survival and competitive advantage in biology - and commercial real estate. With markets changing rapidly, several commercial real estate professionals are finding new ways to adapt successfully to these constant evolutions.
Trends such as vibrant downtowns, alternative lending, property and land reuse, and international investment in the U.S. can be ideal springboards for new business opportunities. Nationwide, individual cities are changing character, with an influx of millennials coming in and baby boomers moving back.
“Indianapolis used to be a flyover market for commercial real estate; now we are on the radar,” says Angela Wethington, JD, CCIM, vice president of asset management and development at Browning in Indianapolis. “The greater Indianapolis metro area has seen tremendous growth and activity in urban expansion and diversification.”
Developing Vertical Villages
Progressing beyond traditional urban renewal, developers in Memphis, Tenn., are strengthening its downtown neighborhoods. Two years ago, Shawn Massey, CCIM, became involved as a leasing broker in transforming the Crosstown Concourse from an abandoned 10-story Sears distribution center into a vertical urban village.
“I saw a niche for third-party retail leasing representation for urban and mixed-use projects in Memphis,” says Massey, a partner at The Shopping Center Group LLC in Memphis. “Only a few developers had leasing teams with experience in urban projects. By leveraging our firm's success in the Atlanta market, I became involved with the Crosstown Concourse.”
The 1.1 million-square-foot redevelopment created a mixed-use property, with 620,000 sf of commercial and office space, 265 residential apartments, and 65,000 sf of first-floor retail space. The new retailers include a healthcare provider, a high school, an urban grocer, several local specialized restaurants, a bank, a pharmacy, and a credit union. As of May 2017, the office and residential spaces were nearly 100 percent leased and more than 85 percent of the retail space has been leased.
“I had the opportunity to collaborate with a team that wanted to create a great neighborhood in a 10-story space,” says Massey, who got to know the developers when he set up a tour for members of the Memphis CCIM Chapter in 2014. “A community has to include open green space and a sense of space. Those involved included an art history professor, architects, and a local real estate developer.”
Great neighborhoods with an urban feel create a great experience for shopping, so they can compete with online experiences, according to Massey. He credits his work with the Crosstown Concourse for giving him a new perspective about neighborhood development in urban settings. More important, this project has become the springboard to his firm's new business niche in Memphis.
Spurring Reuse Development
As markets swiftly evolve, commercial real estate professionals are adopting new ways to change properties to different uses, which, in turn, are transforming their communities. For example, in most of California, property values are sky-high, making development tough for all but companies with deep pockets. Opportunities, however, abound in repurposing properties for the highest and best use.
William Shopoff, CCIM, seeks less expensive properties for redevelopment in transitional neighborhoods, those that require repurposing, or need environmental cleanups. For a recent mixed-use project in Newport Beach, Calif., Shopoff and his team are building urban parks, promenades, apartments, and retail space to create a complete community.
“The apartments we are building offer many amenities, including resort-style pools, exercise facilities, an internet café, and social areas for connecting with neighbors,” says Shopoff, president and CEO of Shopoff Realty Investments in Irvine, Calif.
In another case, his firm bought a 100,000-sf former Target store out of bankruptcy. Shopoff plans to lease the frontage space, about 30 to 40 percent of the property, and either turn the back space into self-storage units or tear it down and build multifamily units.
“The best solution is to repurpose the space because it would be tough to lease more than 30 to 40 percent of the property,” he says.
When his firm considers buying properties, it looks at many factors, such as the surrounding environs, the change of use, adjustment of what's changing for zoning and development in the area, and how much it will take to fix environmental issues. “We recognize good opportunities, where other buyers see obstacles,” Shopoff says.
In Las Vegas, Sean Deson, CCIM, has evolved his firm's niche from a national agency business to a national direct private lender. Through the years, his company has adjusted its investment strategy to profit from changing market dynamics.
“We invest in value-added office when office can further leverage nearby existing amenities, such as hospitality or retail,” says Deson, president of Deson & Co. “These amenities are largely a byproduct of the adjacent facilities.”
Successful commercial real estate professionals are harnessing the inherent connection, elasticity, and resilience in urban centers to develop new mixed-use communities or to repurpose existing structures. Some firms, such as Browning, have restructured their teams into industry specialization groups, facilitating greater target market knowledge and collaboration.
“This structure allows us to have an early seat at the table with institutions, municipalities, and quasi-public institutions, which drive mixed-use developments,” Wethington says. “In this way, we can act as a partner as the opportunity evolves, rather than reacting to an individual request or a specific request for proposal.”
For example, Wethington's group is collaborating with another Browning team specializing in higher education to develop the Purdue Innovation District for the Purdue Research Foundation. Expected to span 30 years, the development encompasses multifamily and graduate housing; hospitality; retail; light industrial; office; and research and development.
Wethington's team consults with the higher education team to ensure the multifamily and graduate housing components include collaboration space, green space, and bike storage. Also, the team has shared past experiences about optimum design and construction of the buildings for more efficient operation and management.
“We are leveraging the best practices across our teams,” Wethington says. “Mixed-use projects touch a lot of specialty teams.”
Kamil Homsi, CCIM, has built a company that connects Middle Eastern investors with local U.S. commercial real estate markets. Political and economic instability in the Middle East and much of the world has created an appetite for buying U.S. commercial properties, which provide investors with stability, along with solid growth.
With offices in New York City and Dubai, United Arab Emirates, Homsi spearheads a team of analysts and assistants in both offices, connecting the entire team through video and teleconferencing media. He admits the transcontinental undertaking is demanding, yet fundamental as more deals are successfully closed in the U.S.
Since Homsi continuously raises capital in Dubai, establishing an office there to demonstrate his abilities and to earn the trust of the extended ruling families and other high net worth individuals was integral to the business model.
“My business is built on generational wealth - optimally managed to grow and to make it last for future generations,” says Homsi, president at Global Realty Capital LLC. “My investors don't always aim for immediate profits; they aim for safety, security, and status, while seeking long-term investments.”
From 2010 to 2013, Homsi invested the portfolio primarily in U.S. multifamily properties. In the years that followed, as the multifamily asset class became too competitive, Homsi moved to more sustainable investments, such as senior housing, student housing, and industrial properties.
“Senior housing is logical because people always grow old, and, at some point, they need to downsize and look for facilities to help care for them,” Homsi says. “Kids are always going to college and need apartments because universities don't build enough dorms.”
For industrial properties, Homsi prefers looking into areas with busy ports and easily accessible major highways, such as the northern New Jersey, Maryland, and Florida coasts, as well as Long Beach, Calif., and Houston. Geographically, his senior housing portfolio investments are located in the Northeast and Southeast, while his purchases of student housing focus on the Midwest region closest to college districts.
“The value of my business is bridging the investment and cultural difference between foreigners and U.S. markets,” he says.
Adapting to changing marketplaces is the key to thriving in today's evolving markets. Transformation and innovation in commercial real estate are a winning combination.
Strategies for Office Leasing
by Tim Lee
While fundamentals point to a healthy office market overall,
fundamental changes are coming. The rising popularity of co-working spaces, the
trend toward working remotely, and the demand for creative office spaces are
certainly having an impact on traditional office space.
Due to these changes, how are property owners staying
competitive and attracting tenants? Here are three ways in which owners can
help drive leasing and maximize occupancies during 2017.
On-Site Meals. With tech companies, such as Facebook,
offering employees meal plans, many traditional office tenants are seeking
similar food amenities to attract millennials.
By offering on-site food options, such as converting the
ground floor of an office building into a restaurant or welcoming food trucks,
landlords can attract and retain quality tenants, resulting in long-term
stability and increased property value.
Integrating Amenities. An amenities arms race is underway as
owners incorporate the latest in lifestyle and tech amenities to attract
tenants and secure leases. By integrating a host of cafés, fitness centers, art
displays, and bike-sharing programs, owners can create a live, work, and play
environment, which will appeal particularly to millennials.
In addition, providing high-speed Wi-Fi and internet access
propertywide is critical for securing leases with tech tenants. Since the tech
sector comprises nearly 25 percent of office leasing activity, owners must
offer convenient fiber access and amenities such as USB outlets and video
Flexible Communal Spaces. As the office sector continues to
evolve, tenants are increasingly demanding flexible, creative workspaces, which
foster a culture of collaboration and innovation. These communal spaces include
multiple open spaces, where tenants can host staff and client meetings.
Looking ahead, office landlords that pay attention to shifts
in tenant demand and cater to the tastes of the modern workforce will have the
most success in leasing their office space in 2017 and for years to come.
Tim Lee is vice president of corporate development and legal
affairs at Olive Hill Group. Contact him at email@example.com.