Investors Poised to Capitalize on Multifamily Real Estate Market

Written by Buildings Maintenance & Management Magazine on . Posted in Blog

Shared post from wealthmanagement.com

apartment buildings

As volatility remains ever-present and investors search for yield, where do you turn? Alternative investment vehicles seem to be growing exponentially and investors and advisors remain at the forefront of the allocation debate.

One asset class has remained tried and true: real estate, more specifically, multifamily real estate. Value-add strategies in the multifamily space remain steadfast, even during the most trying of economic conditions, and is one of the best hard, non-correlated assets acting as a hedge against inflation. Furthermore, value-add enables investors to be flexible by offering lower holding periods, often around three years, and managers have agility to allocate based on evolving demographic and economic indicators.

While REITs seem to hog the spotlight in real estate, they are simply too correlated with the general market and interest rates to offer diversification. Of all the real estate streams, multifamily is perhaps the best place to generate absolute returns based on national trends that signal high occupancy, high rental demand and low supply. Let’s examine:

Surplus renter demand outpacing supply

U.S. renters are driven by two groups, lifestyle renters and primary renters priced out of homeownership. Lifestyle renters, 69 percent of whom are married with no children below age 18, can afford a home but opt to rent due to its ease and capital preservation. Public opinion polls reveal homeownership is no longer a central tenet of “the American dream” as maintaining an owned residence is expensive, labor-intensive and many folks would rather enjoy amenities apartment communities offer. The lifestyle renter cohort emerged as a definitive renter following the housing bubble of the Great Recession.

Prime renters, (between ages 20-34) or millennials, lead a mobile lifestyle to follow the job market. This encourages renting as it offers young people the greatest flexibility or liquidity to find a better opportunity elsewhere. The mobility desire is reinforced by the difficult consequences of the recession, forcing this somewhat nomadic demographic to search for jobs away from their cities of origin. The prime renter age cohort is growing at its fastest rate on record as the children of baby boomers come of age. This record pace of growth is projected to increase prime renters age cohort by 500,000 persons per year through 2023.

Student debt is also afflicting prime renters at record levels, having increased nearly three times since 2004 for those under 30. This prolongs their attachment to rental properties or drives some to reside with family. More than one in five Americans with student loans are at least three months behind on a payment. Today, the percentage of prime renters living with parents is at the highest level since 1967, when these statistics were first collected. Even if those living at home attain employment or improved jobs, they will naturally emerge as renters because the barrier to entry for home buying remains tall. Home buying events are also being delayed, lengthening one’s status as a renter. The decision to marry and to have children are now at the oldest ages on record.

Yet construction of new apartments to meet the demand has failed to keep pace, resulting in today’s high occupancy rates, averaging 95.2 percent as of June 2016 according to Axiometrics. Axiometrics also reports multifamily permits issued in the trailing 12 months of 381,000 units, which compares favorably to the aforementioned growth in the prime renter age cohort, resulting in continued high occupancy levels coupled with above-average rental growth rates. Additionally, home ownership rates have yet to find a bottom almost a decade following their peak. Each 1 percent decline in the home ownership rate is estimated to represent nearly 1.1 million new renters, according to Census Bureau statistics.

Millennials pick suburbs over urban centers

The most opportunistic multifamily investments are not in the nation’s biggest cities of New York, Los Angeles or Washington, D.C. Rather, they are often in suburban areas in the South and Midwest, buoyed by business-friendly policies that have opened new jobs for millennials. Enhanced business environments have led to the relocation of major corporate headquarters such as Toyota, away from traditional Californian urban cores, to Texas, for example. Other key markets with thriving suburban economies include North Miami Beach, Orlando, Florida’s Gulf Coast, Dallas and Denver. New and sustainable jobs are emerging in the tech, corporate and financial services industries. These higher wages will allow young people to rent higher-quality apartments all the while having a multiplier effect on the local economy.

How to make the most of multifamily investing?

Multifamily properties, especially those in the middle market, provide a combination of significant yield and absolute returns in these increasingly volatile times. For advisors and clients, this can be an attractive avenue to achieve a steady return stream as traditional fixed-income allocations provide low to negative yields. In addition, value-add multifamily investing offers the prospect of capital appreciation, which is expected to result in absolute double-digit returns per year, while U.S. public equities are reaching record levels of volatility. Only managers that follow an agile strategy, use deep macro research and maintain local operator relationships can unearth properties that are poised to benefit from both demographics and local economic dynamics that drive value.

What do I need to know about budgets as a Service Manger or Technician?

Written by Buildings Maintenance & Management Magazine on . Posted in Blog

Shared Post by Mark Cukro | ServiceTeamTraining.com

Budgeting

If an owner or a Manager knows that you understand budgets as well as possess the technical and interpersonal skills to run a service department effectively you will be in high demand and very appreciated. Everyone wants a Service Manager that genuinely cares about the budget and displays the ability to effectively manage it on a day to day basis.

As a Supervisor or Service Manager companies expect you to not only be able to make repairs, schedule make-readies and handle the demands of this industry but also to be able to manage the expenses with a proficient level of expertise.

If you want to have a competitive edge amongst your peers and want to move up in the industry you have to have a good solid understanding of how a budget works, how to estimate the cost of a project, and also be self-correcting while managing the expenses and communicate the importance of it to the entire team. If everyone knows you take it seriously, they are much more likely to make better financial decisions.

If you need something approved, a piece of equipment or a project, let the appropriate people know and if something is unnecessary let them know that too. Is it a requirement, a recommendation, or a preference? Be sure to let them know and why, it will go a long way and build trust.

Often times, Service Managers and Supervisors use their history as the main predictor for how much they need to operate the service department for the upcoming year. However, it may help to ask a few questions before the budget requests are submitted for approval.

• Do I genuinely understand how to calculate the Net Operating Income and can I demonstrate it?
• Do I know and clearly understand the expectations of my Manager?
• Is the level of service we provide being delivered to our resident what we want it to be?
• Do we need more or less to meet our standards, goals and preferences?
• How much do we have for each category/code?
• What is our total budget monthly, quarterly, and annually?
• How much do we estimate per category per unit?
• What are my spending limits and who is next in the decision making process?
• What realistic results can we expect based on this request or change?
• It is more than acceptable to request more funds for something as long as it is justified and an effective Service Manager will know how to explain why it is important and needed.

As a Service Manager you really are responsible to the financial success of a property and when you can consistently demonstrate the ability to manage the financial responsibilities effectively you will be in more demand than ever before. It makes your day to day operations smoother and you are much more in control of your decisions which include purchasing and vendors.

You may need something as simple a few new uniforms and when you know exactly how much you have you’ll know whether you can or can’t without having to ask someone else first. When you present your request with facts and figures it is easier to approve and harder to reject.

If you need some help with understanding the budget, ask. Any effective Manager will be more than glad to explain how they read and understand it and what they specifically look for, including how they measure your performance. Keep in mind that they may have a different perspective and it is always helpful to know how they see everything.

Everyone that owns a business or company wants to have people they can count on to run the service department like a business while maintaining their standards and taking excellent care of the residents.

Just ask yourself. “If I owned a property, would I want a Service Manager that understands and effectively manages the money provided to them or would I prefer one that doesn’t know how and doesn’t care to learn?”

You will never “look stupid” for asking someone to teach you how to better understand budgets. Everyone that is a Manager, Regional, VP, or higher had no idea how to run a business at some point in their career.

When you do ask, you will be viewed as someone that will do what it takes to improve and be more effective.

I guarantee, if you become proficient in working with budgets you will have a significant advantage and everyone on your team will benefit and so will your residents.

OLYMPUS DIGITAL CAMERA Mark Cukro linkedin_blackfacebook_blackInternet logo black
Mark is the President of Plus One Consulting, Inc. and founder of Service Team Training.com.  He is a national speaker and a leading resource in the field of service team development and training. His certifications include, CAPS, CAMT I, CAMTII, CPO, CPO Instructor with the NSPF, and an EPA proctor for the 608 and R-410a certification.

ENERGY STAR Upgrades and Investment Analysis

Written by Buildings Maintenance & Management Magazine on . Posted in Blog

By Corey Lee Wilson

operating cost

Building upgrades for energy performance also generate cash flow, but not through sales; instead, they reduce the cash flowing out to pay for energy. In some circumstances, energy efficiency investments can also produce non-energy cash benefits, such as maintenance savings. From the standpoint of the organization’s financial health, reduced cash outflow—such as savings in energy and maintenance costs—is just as valuable as increased cash inflow from sales.

Organizations typically employ one or more financial analysis tools rooted in cash flow to study, rank, and choose among investment opportunities. To successfully compete for capital against other investments, building upgrades should be evaluated using the same tools. Improvement by providing diagnostic measures to evaluate performance over time.

Three cash-flow analysis tools—payback period, net present value, and internal rate of return—are commonly used to evaluate building upgrade investments that improve energy performance. For straightforward energy-efficiency investments, an initial outlay, or first cost (a negative cash flow), is followed by energy savings (a positive cash flow). The savings can continue for several years.

Payback Period (Option 1)

The most basic, and probably most common, financial gauge of a building upgrade investment is its payback period. It is defined as the time, in years, required for an investment’s cumulative cash flow (including the initial outlay) to reach zero.

As an investment analysis tool, however, payback has its shortcomings. It does not account for the cash flows that occur after payback has been achieved and thus does not measure the long-term value of an investment. Also, it treats all cash flows the same, whether they occur in Year 1 or in Year 5. In financial terms, payback ignores the time value of money: the principle that money received in the future is not as valuable as money received today.

Net Present Value (Option 2)

Net present value (NPV) is a measure of investment worth that explicitly accounts for the time value of money. Like payback period, NPV is computed from the stream of cash flows resulting from the investment. Unlike payback period, those cash flows are adjusted (or “discounted”) so as to place relatively greater value on near-term cash flows and relatively lesser value on cash flows that are more distant in the future.

The discount rate is an interest rate used to adjust a future cash flow to its present value: its value to the organization today, which normally corresponds to Year 0. The discount rate is expressed either as a percentage or as its decimal equivalent—for example, 10 percent or 0.1. The NPV of an investment is the sum of the present values of all the cash flows, including the initial outlay (expressed as a negative number).

NPV is a measure of the investment’s financial worth to the organization, taking into account the preference for receiving cash flows sooner rather than later. An investment is financially worthwhile if its NPV is greater than zero, because the present value of future cash flows is greater than the outlay. As the starting point for the discount rate, most organizations use their cost of capital—the rate of return that must be earned in order to pay interest on debt (loans and/or bonds) used to finance investments and, where applicable, to attract equity (stock) investors.

Building upgrades typically involve proven technologies and generate predictable savings. This makes them, in most cases, fairly low-risk investments. Where an organization’s overall business activities are riskier than its energy-efficiency opportunities, a discount rate below the organizational cost of capital would be appropriate.

When multiple capital sources—loans, bonds, internally generated funds, and stock—and varying levels of project risk are involved, determining the cost of capital and the appropriate discount rate can get quite complicated. Rather than trying to select the discount rate yourself, you should consult financial experts within your organization to determine if there is a standard discount rate or a standard methodology for selecting the discount rate.

Internal Rate of Return (Option 3)

The internal rate of return (IRR) is an alternative cash-flow analysis tool closely related to NPV. IRR is a percentage figure that describes the yield or return on an investment over a multiyear period. For a given series of cash flows, the IRR is the discount rate that results in an NPV of zero.

Once a potential project’s IRR is in hand, the question becomes, is it high enough to justify the investment? The answer, unsurprisingly, is that it depends on the organization’s discount rate: If the IRR is greater than the discount rate, the investment is financially worthwhile. If no formal discount rate has been established, try comparing the IRR for the project in question to the IRRs for other projects that the organization has recently funded. Or if project-specific financing will be used, compare the IRR to the interest rate on the financing.

When used as the threshold for an acceptable IRR, the discount rate is often called the hurdle rate. As with NPV, it may be appropriate to apply a hurdle rate greater than the cost of capital to prospective investments that are especially risky—or one below the cost of capital to investments of low risk. Energy-efficiency projects that rely on proven technologies are often in the latter category. As with the selection of a discount rate, it is important to consult with financial experts within the organization in order to determine an appropriate hurdle rate.

Selecting an Analysis Tool

Which financial analysis tool should you use to evaluate energy-saving building upgrades: payback period, net present value, or internal rate of return? The short answer is to use whichever tool your organization normally applies to evaluate investments. For instance, if all investment decisions in your organization are evaluated using payback period, then you should at least include the payback period in any proposal to fund a building upgrade.

Be aware, however, that relying solely on payback may result in forgoing building upgrades that will more than pay for themselves if given enough time. It is not uncommon for organizations to have informal rules that restrict discretionary investments to projects with two-year or better payback. That means a building upgrade costing $7,500 and yielding $2,500 in savings for 10 years would be rejected—even though the cash-flow stream provides an impressive 31.1 percent IRR.

If there is leeway to choose the evaluation tool or to present more than one result, either NPV or IRR is a better choice than payback period. Both measures are rooted in time value of money concepts and account for the benefit stream over the entire useful life of an investment. There are some circumstances, however, in which IRR analysis might yield misleading or confusing results. One such situation involves choosing between mutually exclusive investments—that is, when faced with an either/or decision. The option with the higher IRR is not necessarily the better choice, because the other option might provide greater total worth.

The Investment Analysis Process

The analysis should cover as many years as an organization can reasonably expect to receive the benefits of the investment. That period often corresponds to the useful life of the equipment involved, but it might be shorter, depending on the certainty of plans for future use of the building. If, for example, the organization has a 10-year lease on a building in which upgrades are to be installed, it should probably limit its analysis to 10 years, even if the equipment is capable of generating savings beyond that point. Do not shortchange a project by cutting the analysis short when a longer time frame can be justified.

The cash-flow examples used so far follow a very simple pattern: A single investment is followed by several years of steady cash flows from energy savings. In the real world, building upgrades are not always so simple, and there are additional impacts on cash flow that must be taken into account.

Suppose, for example, that an organization is considering replacing conventional light fixtures that use incandescent bulbs with hard-wired compact fluorescent lamp (CFL) fixtures throughout a building. There will be an initial outlay for the fixtures and the CFLs themselves, followed by multiple years of energy savings, because the wattage used for lighting will be cut by roughly two-thirds. But there will be additional impacts on cash flow. If the analysis applies a 10-year time frame (because the new fixtures will last at least that long), it will also need to take into account:

  • The avoided cost of incandescent bulbs.
  • The cost of replacement CFLs.
  • Labor savings from fewer changes.

Additional Components of the Cash-Flow Analysis

For any measures added or removed through the upgrade, you need to think through all the ways in which expenditures could be increased or reduced and then quantify and include those cash flows in the analysis. For example, if the performance of an energy-saving upgrade is expected to degrade over time, the value of the savings should be reduced accordingly.

Even if the physical energy savings attributable to an upgrade are expected to remain constant over the period of analysis, the value of those savings may vary due to changing energy prices. Rising energy prices will, of course, increase the cash flow from energy-efficiency investments. If an organization has access to price forecasts that are specific to its energy suppliers, it makes sense to factor those price changes into the analysis.

Organizations that are required to pay corporate income taxes should analyze investment opportunities on an after-tax basis. Including the effects of taxes, unfortunately, requires several adjustments to cash-flow analyses. Four important tax considerations include:

  • The savings in energy expenses resulting from building upgrades count as taxable income. Paying taxes on that income reduces the net cash benefit to the business.
  • Many building upgrades are subject to depreciation for tax purposes.
  • Income taxes affect the cost of some types of capital and thus affect the discount rate.
  • Tax deductions or credits may be available for certain types of energy-efficiency investments.

Frequently, the benefits of building upgrades extend beyond energy savings to other areas such as improvements in employee comfort and productivity or corporate image. If these benefits can be projected and expressed in monetary values, it is best to factor them into the cash flows. Often, however, they are difficult to quantify. In such cases it is advisable to describe the benefits in words and include that information as a supplement to the financial analysis.

Consultation Services

Consultants with industry expertise and relevant training such as the LEED AP Operations & Maintenance, Facility Management Professional (FMP), and the Certified Construction Manager (CCM) credentials like CLW Enterprises can provide ENERGY STAR Portfolio Manager set-up, monitoring, and benchmarking services.

If you would like to learn more about how your buildings can utilize ENERGY STAR benchmarking or attain ENERGY STAR certification, please contact Corey Lee Wilson at CLWEnterprises@att.net or call (951) 415-3002 or follow the link to www.CLW-Enterprises.com.

Article content courtesy of the ENERGY STAR Building Upgrade Manual published by the US EPA in 2008.

5 Apps to Make Your Buildings Smarter

Written by Buildings Maintenance & Management Magazine on . Posted in Blog

By Amanda Marsh | Shared post from the Hightower Blog

smart buildings with apps

When the industry talks about smarter buildings, it’s usually centered on building or energy management systems. But there is technology beyond those systems that will make your property innovative and ahead of the curve. Here are a few unique apps:

1) KastlePresence

Still scanning a badge to get into your office building? That’s so 2015, KastleSystems chairman Mark Ein tells The Washington Post. Thanks to a series of sensors that recognize an app on his iPhone, KastlePresence allows Ein to enter his parking lot and office building without waving anything around. Property managers can also use the technology to view occupancy data trends by building, floor, or suite and understand common room usage in real-time. A dozen office buildings are using the technology, including Vornado’s corporate building in Crystal City, VA. Around 50 buildings have signed up to implement the system by year’s end, reports WaPo.

2) MyPORT

In May, Schindler Elevator Corporation announced the launch of its MyPORT app in North America. By communicating with the building’s PORT Technology elevator interface, building occupants can walk around the building freely just by having their smartphones on hand. For instance, the app can verify user identity and summon an elevator; turn lights on and off; or lock and unlock doors. Special authorization codes via SMS text messages can also grant access to building visitors.

3) Envoy

Next time you visit an office building or tenant space, you might find yourself signing an iPad instead of a check-in book.Envoy’s digital sign-in app notifies tenants of guest arrivals through email, SMS, Slack or HipChat; allows visitors with the Envoy Passport app to sign in with just a tap; supports 17 different languages; allows visitors to digitally sign waivers, nondisclosure agreements, or other legal agreements; creates custom badges; and sends alerts about unwanted visitors, among other features. Last year, it raised $15 million in Series A funding from Andreessen Horowitz.

4) Comfy

Last month, Building Robotics Inc.—known better as Comfy—raised $12 million in Series B funding, with Emergence Capital leading the investment, joined by CBRE and Microsoft Ventures. Facility managers connect Comfy to the building’s HVAC system, allowing occupants to use the app to select a location and make a request to instantly warm or cool a space. Based on occupant preferences, the system then optimizes the workplace for comfort, productivity, and savings.

5) Skyrise

Skyrise’s tenant engagement app for commercial office buildings provides a direct link between the building administration and tenants. Property managers, for instance, can use the app to broadcast messages in the event of a fire drill, emergency, critical news or even share a custom greeting. It also provides tenants with a digital bulletin board to connect with other tenants or share news; a way to book on-site and off-site amenities; share deals; and communicate events both in and near the building.

ABOUT
Amanda Marsh
Amanda Marsh is the founder of Buzzmaestro, a business writing and editing firm. She has been a commercial real estate journalist for over a decade, with stories published in Bisnow, Commercial Property Executive, Multi-Housing News, Real Estate Weekly, BOMA Magazine, and other industry publications.

Medical Office Buildings: Just What the Doctor Ordered?

Written by Buildings Maintenance & Management Magazine on . Posted in Blog

By Liz Wolf | Shared Post from the Hightower Blog

Medical Office

To say that U.S. medical office is a hot property sector is an understatement. However, if you’re looking to invest, you need to know that by far the majority of medical office space is locked up by hospitals and healthcare systems.

How hot is it?

“Last year was a runaway record sales year for medical office,” Mindy Berman told Hightower. Berman is managing director and healthcare practice lead in the capital markets group of JLL. Total transaction volume for U.S. medical office buildings jumped to $9 billion in 2015; historically, peak years were in the $5 billion range.

There’s a lot of money chasing healthcare real estate. It has proven to be a relatively recession-proof sector and typically can offer higher returns and less risk than some other commercial real estate sectors.

“The real clincher was the downturn in the late 2000s… and the durability of medical office,” Berman explained. “It performed very well through the downturn and real estate investors realized physicians don’t move out of buildings; they sign long leases. They tend to renew in place. Therefore, rents and the income from these buildings don’t have the same volatility that commercial office, industrial, and retail have during downturns.”

Add baby boomers and the ACA impact

The aging population and the Affordable Care Act (ACA) make healthcare the fastest-growing segment of the U.S. economy.

Hospital systems are now shifting more non-acute care to off-campus facilities to deliver more cost-effective care. Convenient outpatient clinics are quickly being constructed in order to retain patients in a very competitive environment. Also, there’s significant consolidation occurring among hospital systems as they seek greater scale to compete for market share, staff and patients.

This prospect for bigger networks has attracted capital investors, who are increasingly seeing healthcare as a secure, mainstream asset class.

But there’s a lack of supply

“We’ve been in this persistent, low-interest rate environment where investors are clamoring for yield and stability, and capital for healthcare real estate has just been extraordinary, “ Berman said. “The problem is there’s nowhere to deploy this money, because most of the property is locked up in hospital and physician groups.”

Hospital systems and healthcare providers still own the vast majority of healthcare real estate. According to JLL, there’s an estimated 51,000 medical office properties in the U.S. with a total value of approximately $315 billion — “however, only 17 percent is owned by investors and the preponderance is owned by hospitals and providers,” Berman said.

How can investors get their hands on more of this product? One way is through hospitals and healthcare systems monetizing their real estate.

Taking advantage of market conditions?

As healthcare expenses continue escalating, hospitals and health systems are looking for ways to generate additional capital. Some are recognizing just how valuable their real estate is. Some systems are even starting to ask if it’s time to monetize their assets to fund new acquisitions, IT, physician recruitment, outpatient facilities, etc.

“Monetization is definitely a trend as a lot of these hospital systems are under cost pressure,” Coy Davidson, senior vice president at Colliers’ Houston office, told Hightower. “Reimbursements are going down and they need to expand — and they need the capital to expand — and this is typically a strategy. They might own eight medical office buildings on their campuses and basically monetize those – they sell and lease them back – to create the capital for further expansion or whatever capital needs they have.”

The proof is in the transaction

In the biggest deal of this kind, Milwaukee-based Physicians Realty Trust will pay approximately $700 million for a 52-building,  3.1 million-square-foot portfolio of medical office space across 10 states. The seller is Catholic Health Initiatives (CHI), one of the nation’s largest health systems, which was represented by CBRE.

Many of the other top healthcare real estate deals in 2015 involved REITs purchasing healthcare systems and their associated real estate, reported Colliers.

They include Ventas REIT’s $175 billion deal with Arden Health Services and Medical Properties Trust’s $900 million deal with Capella Healthcare. In both of these transactions the REITs not only acquired the real estate, but also part of the hospital-operating company.

These types of monetizations will continue — “as long as the market remains hot,” said Michael Sharpe, principal of The Davis Group in Minneapolis, which specializes in healthcare real estate. “Many healthcare organizations want to improve their overall balance sheet by just having more cash on their balance sheet—so that’s a key driver. ”

Good for brokers, too

Sharpe also said monetization helped brokers as well as landlords.

“Most healthcare organizations don’t have that level of expertise within their own shop, so they’re looking to external brokers to help them puzzle this out and understand should they own the real estate? Should they lease the real estate? If they currently own real estate, should they sell it? If so, to whom and how?”

Berman cautions calling healthcare monetization a “trend,” because she hasn’t seen enough of it.

However, she believes medical office will remain attractive.

“We’re going into volatile times with Brexit and the world economy, but we’re still in this very low, persistent interest rate environment,” she said. “Volatility is good for investment in U.S. medical office, because what’s affecting healthcare economics in this country is completely divorced from the EU, from terrorists. It’s completely unrelated, so it continues to be this safe haven. Medical office will stay hot, regardless, because it has been discovered, and a disruptive environment is only going to reinforce those trends.”

ABOUT
Liz Wolf
Liz Wolf is a Twin Cities-based freelance writer with 30 years of business and commercial real estate reporting experience. She previously served as editor of the Minnesota Real Estate Journal.

America’s Mayors Resolve to Strengthen 2018 IECC

Written by Buildings Maintenance & Management Magazine on . Posted in Blog

SHARED BY: BILL FAY | 

CA Capitol

America’s mayors delivered a crystal clear message at their June annual meeting: Energy codes protect our homeowners and tenants, our grids, and our Nation.

In 2008, Austin Mayor Will Wynn told the US Conference of Mayors (USCM) Energy Committee he chaired that because America’s model building energy code–the International Energy Conservation Code, or IECC–is developed by local and state officials, mayors have a unique opportunity to play a substantial role in national energy policy.  Our homes and commercial buildings are the “elephant in the room” of energy consumption, using 42% of all energy, 54% of our natural gas, and 71% of our electricity.

On June 27 this year, the USCM unanimously adopted Resolution 49 in support of putting America’s Model Building Energy Code–the IECC–on a path of reasonable, but steady improvements toward net zero building construction. Mayors made it clear they do not want the 2018 IECC, which will be finalized this November, to be the first energy code that is weaker than the IECC it updates.

They know that the power is in cities’ and code officials’ hands, that when it comes to IECC updates every three years, the lion’s share of the governmental voting comes from municipal employees whose voting on the last three IECC updates has boosted new home energy efficiency by a total of 38%!  The mayors’ resolution:

  • Warns of the threat of proposals that roll-back or trade away the efficiency of the current 2015 IECC,
  • Calls for a modest 5% boost for the 2018 IECC, setting a sensible course that would achieve net zero homes by 2050, and
  • Encourages mayors to ensure Governmental Member of the International Code Council cast their full slate of 4, 8, or 12 votes electronically this November.

In doing so, mayors are delivering a strong message that our nation needs to continue to reap the benefits of ever-more efficient homes and commercials buildings:

  • Enhancing homeowner financial stability, improving home comfort, and increasing home resale values,
  • Lowering energy bills to owners, putting tens of thousands of dollars in the wallets of families owning efficient homes over the 70-100 years they stand,
  • Lowering energy costs to tenants (because landlords can pass the cost of energy on to their tenants, energy codes are one of the strongest incentives to efficient apartments and rental property),
  • Stabilizing power grids with buildings that perform better during heat waves and cold spells when energy demand and cost is highest,
  • Enhancing our national energy and environmental policy, by reducing energy and climate emissions from their largest source.

Writing about the potential 2018 IECC rollback and trade-off proposals in my April blog post, I asked “Whose Code Is It Anyway?”  Based on the mayors’ leadership, it’s clear that they know that the IECC belongs to the local and state governmental members that develop it.

Read Resolution 49 here.

Watch Mayors Discuss Building Energy Efficiency.

Watch excerpts of the USCM Forum on the 2018 IECC, or view the USCM Forum in its entirety.

2016 LEED Homes Awards Announced

Written by Buildings Maintenance & Management Magazine on . Posted in Blog

This year’s LEED Homes Awards are scattered across the entire US, showing the growing acceptance of LEED building ratings.

Late last month, USGBC announced the recipients of its annual LEED Homes Awards, which recognizes projects, architects, developers and homebuilders who have demonstrated outstanding leadership and innovation in the residential green building marketplace.

“Homes represent a critical piece of the buildings industry and our daily life,” said Rick Fedrizzi, CEO and founding chair, USGBC. “We applaud these amazing honorees for their significant contribution to greening the residential sector by implementing strategies that positively impact the environment and enhance the health and well-being of their occupants.”

The LEED Homes Award winners include multi-family, single-family and affordable housing projects and companies that are trailblazers in the residential sector and have prioritized incorporating sustainability within their projects in 2015. This year, for the first time, the awards also recognize the “LEED Homes Power Builders,” which USGBC developed to honor an elite group of developers and builders who have exhibited an outstanding commitment to LEED and the green building movement within the residential sector. In order to be considered as a Power Builder, developers and builders must have LEED-certified 90 percent of their homes/unit count built in 2015. Homes at any LEED certification level—certified, Silver, Gold or Platinum—were eligible for consideration.

LEED Homes Award Winners:

Project of the Year: The Woodlawn, Portland, Ore.

Developed by SolTerra, The Woodlawn is a LEED Platinum, 18-unit mixed-use apartment building featuring some of the most innovative design and construction strategies that are shaped to reconnect occupants with nature. Constructed with primarily reclaimed and highly renewable materials, and featuring 4,500 square feet of ecoroof, an outdoor roof terrace, and 1,100 square feet of living wall siding.

Outstanding Single-Family Project: The Taft School Faculty Residence, Watertown, Conn.

Winning team: The Taft School, Trillium Architects, BPC Green Builders, Steven Winter Associates

The Taft School faculty home serves as a high-performance residence and learning lab for students. It is Connecticut’s first building to achieve LEED Platinum certification under the Building Design and Construction rating system for Homes using the new and more stringent LEED v4. The design and construction process is used as a teaching tool for science classes. The students monitor the energy use and there is also a vegetable garden, chickens and a rain garden on site as part of a comprehensive sustainability site.

Outstanding Single-Family Builder: Frankel Building Group, Houston, Texas 

At the forefront of sustainable residential building, Frankel Building Group continues to show its commitment through the design and construction of LEED-certified homes. Frankel Building Group puts an emphasis on homeowner education and continues to promote the LEED program in its market. In 2015, they completed 28 custom homes, all built to LEED for Homes standards, 26 of which have or will be designated as LEED-certified.

Outstanding Affordable Builder: National Church Residence, Columbus, Ohio

National Church Residences (NCR) is the innovative leader in integrating home and supportive services for seniors and vulnerable individuals, enabling them to live healthier and more satisfying lives. Their vision is to continually improve communities by transforming the way seniors and vulnerable populations live and thrive. NCR is committed to pursuing LEED as a sustainability standard. Since achieving LEED Platinum for Buckingham Place in 2009, NCR has pursued LEED as their choice of green building certification on more than 15 projects.

Outstanding Affordable Project: Brookside Village Housing, Farmington, Maine

Winning team: Brookside Partners LP; Amec Foster Wheeler Environment & Infrastructure—Herbert Semple; AIA Architect/Project Manager; Pinkham & Greer Consulting Engineers—Tom Greer, PE; H. E. Callahan Construction Co.—Jeff Ohler

Brookside Village comprises 32 one-bedroom units of affordable elderly housing. This LEED Platinum project has net-zero energy usage and is a low-income, federally subsidized housing project. All materials selected and systems designed in the building are highly sustainable and extremely energy-efficient, enabling developers to meet the prime project goal—to provide the comfortable living environment necessary for the elderly residents.

Outstanding Multifamily Project: Tilley Lofts, Watervliet, NY

Winning team: Redburn Development; Kirchhoff-Consigli Construction; Harris A. Sanders, Architects, P.C.

The 80,000-square-foot Tilley Ladder Warehouse—once the oldest ladder manufacturing facility in the country—sat mostly vacant over the past 10 years. In spite of its neglected condition, the structure, conveniently located in Watervliet’s Port Schuyler neighborhood, in close proximity to a park and bike trail and easily accessible to the interstate, presented an ideal site for energy-efficient apartments. Through collaboration with Sustainable Comfort, Inc., the warehouse was converted into 62 luxury loft-style apartments, achieved LEED Platinum and is now considered one of the nation’s most energy-efficient residential developments.

Outstanding Multifamily Developer: Forest City Realty Trust, Inc., Cleveland, Ohio 

Forest City Realty Trust has achieved LEED certification for many property types, including office, retail, multifamily and entire neighborhoods. They certified their first of 25 total LEED projects in 2006, and since 2008, have certified eight multifamily projects containing more than 2,600 units. Half of those certifications were achieved in 2015. Currently, Forest City has 11 multifamily projects containing more than 4,000 apartment units pursuing LEED certification.

For the complete list of winners, including the LEED Homes Power Builders, read the full press release from the USGBC.

Ready or Not, New FASB Rules Are Here

Written by Buildings Maintenance & Management Magazine on . Posted in Blog

By Billy Fink | Shared post from the Hightower Blog

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The long awaited new lease accounting standards are here. And despite years in the making, some companies are finding themselves behind the curve in putting processes and systems in place to adapt to the new regulations.

The Financial Accounting Standards Board (FASB) officially issued the new accounting standards in February. The changes are aimed at creating greater transparency as it relates to how companies record leases on their balance sheets. The proposed lease accounting changes will remove the distinction between finance leases and operating leases, and recognize operating leases as both an asset and a liability.

According to a new Deloitte survey poll, only 9.8% of financial and accounting professionals surveyed said their companies are prepared to comply with the new standards. “I think companies are starting to come out of the fog now and thinking about how they are going to implement the changes. But, I think the ones that are just starting now have a long road ahead of them,” says Katie Murphy, a partner in the Real Estate and Leasing group of law firm Goodwin.

Companies that have already started are ahead of the curve. Yet there are some legitimate reasons why firms have put FASB on the back burner. The process of circulating proposed drafts and fine tuning the proposed requirements has been dragging out for nearly a decade. Companies did not want to start too early before they had a firm idea of what the final standards would look like.

There has been more activity in putting new lease accounting processes and systems in place over the last year. Officially, public companies will have to start reporting in fiscal or calendar year 2019 and private companies in 2020. However, public companies that use Generally Accepted Accounting Principles (GAAP) accounting will have to report comparative figures starting two years prior, effectively 2017. Some firms are already looking at 2016 as a “dry run” to get up and running and work out any potential problems, says Murphy.

In a 2016 Lease Accounting Survey conducted jointly by PwC and CBRE, 70% of the firms surveyed said they plan to start implementing the new standard this year. However, only 10% had selected a software solution to accommodate the new standard.

Initially, the biggest stumbling block is gathering all of the data, because it requires a different level of analysis than the old rules, notes Murphy. Existing leases won’t be “grandfathered” in or accepted under the old rules. Companies will have to go back and look at all of their existing leases to make sure they have all of the needed information. “It is going to be a hard and painstaking process to get all of that data,” she says. As such, the new standards will also have a bigger impact on companies with a high number of leases, such as retail and restaurant chains that have hundreds of locations.

Deloitte’s survey found that retail/distribution firms were the least prepared with 61.2% of respondents expressing concerns over readiness. Other sectors that also rated high in that regard were automotive and telecoms at 59.3% and 56.9% respectively.

Another key difference is that companies have traditionally met reporting requirements by utilizing a hard lease abstract or by a spreadsheet. That is not going to work under the new standards, because there are assumptions that need to be made about lease trends that will require more than just plugging numbers into a spreadsheet. So, the two main steps for companies in preparing will be introducing new lease accounting software and also having increased coordination and communication between the accounting group and the business and legal people who negotiate and enter into the leases, notes Murphy.

“Under the new rules, if circumstances change, assumptions need to be reevaluated and the reporting adjusted,” she says. “So, it is more of an ongoing process than in the past, and it will require a lot more effort on behalf of companies to manage their portfolio.”

ABOUT
Billy Fink
Billy Fink is a marketing manager at Hightower focused on writing the best of CRE news and trends. He previously worked at Axial, and is a graduate of Columbia University.

4 Ways Competition is Heating Up in CRE

Written by Buildings Maintenance & Management Magazine on . Posted in Blog

By Billy Fink | Shared post from the Hightower Blog

Los Angeles, California, USA downtown cityscape.

Over the past 30 years, the commercial real estate industry has transformed from a “mom-and-pop” industry to an institutional asset class where owners manage massive, complex, and global portfolios.

Although this development is good news for many CRE professionals, it is not without its consequences. As more money flows into the asset class, competition has worsened across the entire industry.

Competition for Deals

The most significant rise in competition has been on deals. Over the past few years, billions of dollars — from institutional and foreign sources — have flowed into real estate and driven up prices for desired assets across primary, secondary, and tertiary markets. This flow of capital has far outpaced new construction and new development, leaving commercial owners in a classic supply and demand challenge: there are more dollars in the industry chasing each deal.

To handle this rise in competition for deals, many commercial owners have sought investors with deeper pockets, developed a clear specialization in their investment strategy, or sought secondary markets. 

Competition for Capital

Many GPs are fighting a two-front war, feeling pressure on both the deal side and the fundraising side. According to a recent survey of owners across the industry, 67% of commercial owners feel that competition for investment dollars is increasing. Institutional investors are not cavalier with their money. They want to pick the firms with the absolute best yields. Limited partners are placing greater emphasis on better tools, real-time reporting and visibility into performance.

Many proactive owners have decided to adopt new technology to help them better report and analyze their portfolio. 

Competition for Talent

The industry is also beginning to realize that firms are in a war for talent. The next generation of CRE leaders expect a different work environment with mobility, modern tools, and data at their fingertips. The companies that lag behind are finding it increasingly difficult to recruit top CRE employees and are suffering from a growing talent gap. This next generation of CRE professionals is demanding change in its employers, encouraging new ways of working, and new technologies to drive the business forward.

Competition for (the best) Tenants

The last major area of competition is for tenants. Although many believe it is an owner’s market — after all, office leasing activity is strong — that doesn’t mean competition for tenants is not still increasing as well. As a matter of fact, 80% of owners indicated in our survey that competition for tenants is increasing.

Over the past couple of years, low interest rates and a recovering economy encouraged billions of dollars of transactions, and many owners are now trying to find the right tenants to satisfy their specific ROI strategies. As a result, they’re waiting to satisfy certain returns, even if it means a short-term loss. Competition is heating up for tenants.

ABOUT
Billy Fink
Billy Fink is a marketing manager at Hightower focused on writing the best of CRE news and trends. He previously worked at Axial, and is a graduate of Columbia University.

2 Types of Resort Real Estate on the Rise

Written by Buildings Maintenance & Management Magazine on . Posted in Blog

By Ian Ritter | Shared Post from the Hightower Blog

Casino RE

Resort real estate, which was hit hard by the recession, has had some good news so far this year. Casinos and theme parks have major plans to expand their offerings and real estate footprints.

Casinos cash in

With the economy chugging along steadily, casino properties are prime examples of success stories of mixed-use assets.

These resorts are much more than simply large facilities for blackjack and slot machines. Retail and restaurants are huge components of these assets. For example, Forum Shops at Caesars, attached to the Caesars Palace resort, in Las Vegas, is the fifth-best performing asset in mall giant Simon Property Groups’ portfolio, with sales per square foot clocking in at $1,616, and other casino-resort retail areas attached to casinos generally perform strongly as well. Additionally, Las Vegas casinos are arguably the largest locale in one area to house celebrity chefs, from Bobby Flay to Todd English.

Then, of course, on top of these casinos, eateries and shops, are hotel rooms, and depending on the development, for-sale condominiums, making Las Vegas a true 24-hour city with several commercial real estate components

And, the money is following in step. Back in the spring, two large resort-casino operators went public. MGM Growth Properties had an IPO that raised just over $1 billion, the largest public offering since October. It’s now buying out its partner in the Borgata Hotel Casino & Spa in Atlantic City for $600 million. Meanwhile, Red Rock Resorts raised just more than $531 million after going public. It’s now in the process of purchasing the famous Palms Casino Resort in Las Vegasfor just under $313 million.

But this isn’t just a Vegas phenomenon. A Sands Casino Resort opened in former steel town Bethlehem, Pa., in 2009, followed by a 302-room hotel, and a 133,000-square-foot outlet shopping center. Additionally, celebrity chef Emeril Lagasse has several restaurants in the development.

The resorts for the rest of the family

Theme parks are destinations that are also seeing a lot of traction lately, and are mixed-use giants in their own right. Several major operators have big plans to build both new facilities and expand existing assets across the country.

Legoland, for example, has been particularly busy. The company’s new-development proposal is a $500-million project in upstate Goshen, N.Y. But like casinos, it’s not just going to be highlighted by a theme park. It will also include a 250-room hotel, and retail and restaurants are sure to follow when the facility is expected to open in 2019.

Disneyland, in Anaheim, Calif., is also looking to grow its real estate muscle. The company is building a 700-room luxury hotel on its grounds that will include a rooftop restaurant. This follows the purchase last year of 14.7 acres of land abutting its resort, which will include offices and a campus for West Coast University, as well.

Comcast is expanding its Universal theme park concept in Orlando. The company purchased 475 acres in a vibrant tourism area there, with plans for an entertainment complex. It seems fair to say that there is some major development happening on the theme park front.

The fall out

Both of these asset types have a lot of ancillary CRE benefits not placed on the actual properties themselves. With millions of annual visitors to these facilities, surrounding restaurants, retail centers, and timeshare communities, benefit from the major traffic.

If consumers have expendable income, both casinos and theme parks are go-to places to spend money. They are economic engines within the geographic areas they cluster, for employment in a variety of industries, as well as retail and dining sales. Things seem to be looking up for these commercial real estate sectors, now that the overall U.S. economy is performing favorably on a consistent basis.

ABOUT
Ian Ritter
Ian Ritter is the former Content Director for Connect Media, a Web site that covers commercial real estate nationally, with a focus on California. He is also the Online Content Manager engineering firm GRS Group and writes blogs about national industry trends. Formerly, Ian was the Retail Editor at GlobeSt.com, among other titles over nearly a decade, and was also an editor at the International Council of Shopping Centers publication “Shopping Centers Today.” He holds a Master’s degree in Journalism from Columbia University.