How to Justify an Additional $25 per sq ft for Office Conversions

Originally published on April 10, 2023 by Miles Haladay for NAIOP E-Newsletter.

America faces a multipronged real estate crisis. We have a stubborn residential housing shortage, high office vacancy rates, and flight from many downtown hubs that is killing off businesses servicing those areas. In West Coast cities like San Francisco, it’s been dubbed the “donut effect,” with workers moving farther away from the urban core.

We need to build 3.8 million more housing units in the United States to keep up with household formation rates – and we’re very behind. Construction rates need to double from now to 2030 to bring us up to speed. Climate change only raises the stakes: to stave off the worst-case climate scenario and double construction output in the next seven years, we need to slash per-project emissions by at least 70%.

Converting office towers into housing could solve multiple problems at once: increase available housing; revitalize downtowns and their property tax base; all while attracting populations to city centers where green living is easier.

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Canadian Government Amends Prohibition on Residential Property Purchase by Non-Canadians

Originally published on April 5, 2023, by Leona Savoie for NAIOP Newsletter.

The Canadian government enacted legislation on Jan. 1, 2023, that disrupted commercial and residential real estate development across the country. The Prohibition on the Purchase of Residential Property by Non-Canadian Act (the “Act”)  was originally intended to be a demand-side solution to make housing more affordable for Canadians by prohibiting residential purchases by non-Canadians over the next two years. However, the regulations under the Act, released only a week before enactment, unintentionally halted commercial investment in current and future residential and mixed-use projects in major metro areas.

The NAIOP Research Foundation issued a report last August highlighting the importance and contributions of commercial real estate to the Canadian economy. The report, specifically, found that the industry generated the following economic benefits in 2021:

  • Generated $148.4 billion in net contribution to GDP.
  • Created and supported 1.0 million jobs, of which 372,710 are direct jobs.
  • Generated $67.5 billion in labor income for workers.
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Work With a Purpose: How CRE Firms are Positioning for Success

Originally published on April 3, 2023, by Kathryn Hamilton, CAE for NAIOP E-Newsletter.

“There’s a really exciting trend emerging in hiring and compensation that’s going to accelerate throughout 2023,” opened Chris Lee, CEO of CEL & Associates, during a recent NAIOP webinar. “It’s the blending together of the quantitative – the numbers, compensation and bonuses – and the qualitative – workplace environment and benefits.”

Lee detailed compensation and benefits trends identified in his firm’s annual Compensation and Benefits Report, jointly published in partnership with NAIOP and specializing in commercial real estate firms and positions. In 2022, bonus realization for performance was around 90% of target – quite high, but a key tactic for attracting and retaining talent. Base salary increases in 2023 range from 4-6% overall, and higher for mission-critical positions.

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CLT UDO Info Sessions Planned, Time to Start Paying Attention!

The City of Charlotte UDO team is hosting two online (Zoom) informational sessions on Tuesday, April 11, 2023, to provide information about four proposed text amendments that have been filed.  If approved, these text amendments will be in place when the UDO and amended Tree Ordinance go into effect on June 1, 2023. They are: 

  1. RZ#2023-056 concerning Land Clearing and Inert Debris (LCID) Landfills;
  2. RZ#2023-057 concerning uses in Centers Place Types;
  3. RZ#2023-058 concerning a series of clean-ups to the existing adopted UDO, and
  4. Amendment making modifications to the Tree Ordinance.

The first session is scheduled from 12:00 noon to 1:30 p.m., and there will also be an evening session from 6:00 p.m. to 7:30 p.m.  The same presentation will be made at both sessions, so you may choose the time that is most convenient for you. 

Advance registration is required.  Please use the following link to register for one of these sessions. 

CharlotteUDO.org

NAIOP Chair Kim Synder Shares His Outlooks, Experiences

Originally published by Kim Snyder on March 27, 2023 for NAIOP E-Newsletter.

In the Spring issue of Development magazine, I shared some of my thoughts on our industry, my goals as chair, and what I see as NAIOP’s greatest member value. I had so much to share that I quickly ran out of room! So, I’m sharing an extended cut of our conversation with our Market Share blog readers. If you already haven’t, I’d invite you to read my recent column in the Spring issue of the magazine.

What are your goals as NAIOP Chair?

Our association is growing – surpassing new records at the end of 2022 – yet the membership structure is complex and can be challenging to explain to a new member. We need to simplify and streamline, making the structure easier to understand and removing any potential barriers for members. I’m pleased to share that a task force has been appointed to examine the structure.

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Economic Outlook: Hardships and Silver Linings

Originally published on March 20, 2023, by Larry Lichtenauer for NAIOP E-Newsletter.

Impending recession expected to be grinding, enduring and especially difficult for Class B and C office space

With all signs pointing to an economic recession – presumably arriving midyear or Q3 – how can the commercial real estate community best plan for this event, what lessons can be learned from similar downturns, how long will this period last and which asset classes will be particularly hard hit? Recessions cause hardships and are never a good thing, but what silver linings and opportunities will be available to savvy investors and progressive companies? Offering their insights and perspectives on this topic are Anirban Basu, chairman and CEO of Sage Policy Group and Jennifer LeFurgy, Ph.D., vice president of knowledge and research for NAIOP.    

An already-challenging real estate environment is poised to get worse

Jennifer LeFurgy (JL): The NAIOP CRE Sentiment Index is predicting a gradual slowdown this year in new development, as well as sales and leasing activity across the board, but we do not foresee a catastrophic event. The commercial office sector will be particularly impacted with projects paused, foreclosures and slower dealmaking, which rising construction costs and labor issues will exacerbate. Guidance is calling for a difficult first quarter, followed by a slow, but gradual pickup in late Q2 or early Q3. Research indicates that Class B and Class C buildings, particularly those located in urban areas, will face considerable challenges due to the number of employees still working remotely and the flight-to-quality trend prevalent among many tenants. An additional complication is a slowdown in the development approval process and difficulty in obtaining entitlements. As interest rates continue to rise, the office sector becomes increasingly risky, and we can expect to see more adaptive reuse projects.

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Financing Design Starts Long Before Construction Begins

Originally published on March 22, 2023, by Yonah Sturmwind and Kathy Kozak for NAIOP E-Newsletter.

“Where there’s a will, there’s a way.” This adage has never been more relevant for developers looking to finance new building projects. With Federal Reserve Chair Jerome Powell indicating that the Fed will continue to raise interest rates, traditional capital providers with strained balance sheets are pulling back on lending. And given the current economic outlook, many senior warehouse line lenders may also look to pull back on financing, opening the door for a more direct asset-by-asset approach. As a result, borrowers need to seek out alternative lenders that creatively finance their projects – enter nontraditional lenders and loan-on-loan financing partners.

How loan-on-loan financing works

Loan-on-loan (also known as “note-on-note”) financing is a common form of capital stack formation for bridge and construction lenders and offers a perfect example of a nontraditional lending approach that can provide financing for borrowers in a challenging environment. In a loan-on-loan arrangement, a senior lender (such as a bank, life insurance company or specialty lender) makes a loan to a building developer. That lender then secures senior financing for that loan from another capital provider at a lower rate, thereby increasing their margin and allowing them to offer more competitive terms to the developer. The loan-on-loan is collateralized by the loan to the developer and occupies the last loss position in the capital stack.

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CLT Area Planning Underway - Will You Get Involved?

Community Area Planning will build upon the engagement efforts from both the Charlotte Future 2040 Comprehensive Plan & Policy Map. Attend a Workshop to learn about the process and to share your input regarding future development and growth in your area. 

Meetings will be held beginning next week (March 28th) on Tuesdays at 11:00 am, Thursdays at 4:00 pm, and Saturdays at 9:00 am.

Click here to see the full list and sign
up for one or more workshop events! 

Major Tax Increases Proposed in Biden’s 2024 Budget

Originally published on March 15, 2023, by Aquiles Suarez for NAIOP.

President Joe Biden submitted his proposed fiscal year 2024 federal budget to Congress on March 9. While the term “March Madness” is usually associated with the NCAA’s college basketball tournament, you could be forgiven if you thought it might also apply to this budget proposal. That’s because it contains numerous tax increases that repeatedly failed to clear the House of Representatives and Senate when these chambers were controlled by Democrats. With the House now in the hands of a Republican majority, chances are low that a majority of these recycled provisions will make it into legislation.

But the president’s budget submission makes sense if you acknowledge that its primary purpose is as a political messaging document, meant to provide a contrast between his administration and Republicans in advance of the 2024 presidential election. It was somewhat predictable, therefore, that tax proposals which were part of the Biden “Build Back Better” agenda would resurface in the 2024 budget version. Anticipating this would be the case, earlier this year NAIOP members attending our Chapter Leadership and Legislative Retreat in Washington, D.C., met with their elected representatives on Capitol Hill, with tax policy a top NAIOP legislative priority discussed at their meetings. 

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Labor Trends in the Powerhouse Logistics Empire

Originally published on March 14, 2023, by Marie Ruff for NAIOP.

Experts dug into the data behind labor and workforce trends in California’s Inland Empire and the surrounding regions, one of the most competitive labor markets for distribution and manufacturing workers in the western U.S., during a session at NAIOP’s I.CON West in Long Beach, California. Speakers noted that alternative markets like Phoenix and Las Vegas/Reno could provide valuable options outside of the Inland Empire, especially when considering total cost modeling.

The Inland Empire comes out on top according to many metrics in Hickey & Associates’ 2023 analysis, from its labor supply to location. “But if you look at the labor cost, the real estate costs, and the transportation costs, things start to change,” said session moderator Kevin Dollhopf, MBA, MA, MCR, IAMC Fellow, principal, Hickey & Associates. While the Inland Empire is great from a real estate market and returns perspective, occupiers are having heartburn from what’s going on, he added. 

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Multilevel Warehouse Design’s Vertical Puzzle

Originally published on March 10, 2023, by Kathryn Hamilton, CAE for NAIOP.

As industrial spaces move deeper into urban areas, the need to build up instead of out will increase. Vertical industrial – whether used for fulfillment, maker spaces, labs or light manufacturing – requires a new approach, different requirements and a whole lot of explaining.  

Russell Hazzard, AIA, president of MG2, led a panel of experienced vertical industrial developers and architects at this week’s I.CON West in Long Beach, California, that explored the advantages and challenges that accompany these types of projects.  

It’s important to consider three main elements of multistory industrial that differ from traditional single-story industrial before getting started, said Ken Sun, senior vice president, regional head of development – West region, Prologis. First is the target customer and their use, whether traditional warehouse, third-party logistics company, fleet management or another purpose. 

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The Capital Markets Outlook for Industrial Real Estate

Originally published on March 10, 2023 by Marie Ruff for NAIOP.

The industrial real estate market has been on fire, but this still-hot sector is expected to cool, according to the latest Industrial Space Demand Forecast from the NAIOP Research Foundation. A powerhouse panel of financial experts addressed the capital markets outlook for industrial real estate in a session at NAIOP’s I.CON West in Long Beach, California. 

Session moderator Jim Linn, executive managing director, Newmark, led the discussion. The panel included Valerie Achtemeier, vice chairman of capital markets, CBRE; Gregg Boehm, managing director, market officer, industrial, Ares Real Estate Group; and Max Gagliardi, CFA, senior managing director, capital markets, Dalfen Industrial. 

Where are you seeing opportunities? 

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2023 NAIOP NC Conference Recap

That’s a wrap on the 2023 NAIOP NC Conference! Hosted by NAIOP Charlotte, NAIOP Raleigh Durham, and NAIOP Piedmont Triad, 400+ CRE professionals representing 195+ companies from 40+ cities & 12+ states met in Pinehurst on March 2 to hear the latest macro-economic trends, why companies continue to invest and develop in the state, how to help build the next generation of CRE talent and find out what’s happening in different market segments.

View Conference Photos 


Congratulations to the 2023 Project of the Year Award Winners!

Take a closer look at each project

 


 

Thank you to our event sponsors for your support!

Presenting: CBRE
Lunch: LS3P ASSOCIATES LTD. | First & Early Partners | V3 Companies
Taste of Pinehurst Reception: McAdams | McMillan Pazdan Smith Architecture
Supporting: Cline Design Associates | Kimley-Horn
Lanyard: Bolton & Menk, Inc.
Wi-Fi: Kilpatrick Townsend & Stockton LLP | Stewart Title
Room Key Card: Choate Construction Company
Sessions: Blanco Tackabery | Brasfield & Gorrie, LLC | Elliott Davis | JDAVIS | MCI - Mechanical Contractors, LLC | Metromont | Richardson Properties, LLC | Windsor Commercial
Meeting Break: Alston & Bird

Participate in the 2023 NAIOP/CEL Commercial Real Estate Compensation and Benefits Survey

Originally published on March 9, 2023, by NAIOP.

NAIOP is again partnering with CEL & Associates, Inc. to compile the 2023 NAIOP/CEL Commercial Real Estate Compensation and Benefits Survey. A nationally known real estate advisor, CEL has conducted this survey – the largest in the industry – for 34 consecutive years.

Complete the survey by May 9. 

Go to the survey

This valuable survey is the national standard allowing commercial real estate businesses to stay current on salaries, bonuses and benefits for CRE professionals from executives to entry-level positions. Each company that participates in the survey will receive a complimentary electronic copy of the full comprehensive survey report – a $3,000 value!

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Cutting-edge Manufacturing Facilities Offer Glimpses of the Future

Originally published by Marie Ruff for NAIOP E-Newsletter.

The next phase of advanced manufacturing innovation is ready for launch in the Long Beach region of California. Attendees of NAIOP’s I.CON West were able to go behind the scenes on a project tour of cutting-edge advanced manufacturing facilities in Douglas Park, an industrial, retail and hotel center that spans more than 260 acres adjacent to the Long Beach Airport.

Morf3D: Advancing Aerospace with Additive Manufacturing

The first stop on the tour: Morf3D, a company that primarily serves clients in the aerospace, space and defense industries. These industries require highly specialized equipment that meets stringent specifications including being durable, lightweight and thermal-resistant, which Morf3D achieves using metal additive engineering and manufacturing.

The 90,000-square-foot Douglas Park building was a spec building that Morf3D has been adapting to suit the varying needs of their clients, from security clearance requirements to power needs. Some tenants require temperature control within four degrees to keep the equipment running smoothly and prevent any quality concerns with the products; others require the temperature to not vary more than two degrees.

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CommercialEdge: Office Market Sales Decline and Vacancies Continue to Rise

Originally published on March 6, 2023, by Eliza Theiss for NAIOP E-Newsletter.

Three years after the COVID-19 pandemic upended the office sector, it remains in flux. While many businesses have fully committed to hybrid and remote work arrangements, others are becoming more adamant about getting employees back into the office. And, according to the CommercialEdge U.S. office market analysis, there will be even greater uncertainty and upheaval as the industry transitions to a new status quo.

In 2023, higher interest rates are anticipated to negatively affect both the new supply pipeline and transactional activity; while some buildings will be constructed in desirable sites, many other projects will be postponed or abandoned entirely. Moreover, in addition to fewer office transactions, higher rates will also result in reduced property prices for those that do trade.

At the same time, tenants’ flight to quality is also expected to continue in 2023. Businesses that want workers in the office more frequently are looking for high-quality amenitized space to tempt workers to come in, which can mean embracing smaller footprints in prime locations.

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What’s Working for the Workplace

Originally published on February 27, 2023, by Janet Pogue McLaurin AIA, FIIDA, NCIDQ , LEED AP for NAIOP E-Newsletter.

Office workers around the globe scrambled to suddenly work from home in March 2020 at the beginning of the COVID-19 pandemic. As the global pandemic raged from weeks to months to years, we adapted to virtual meetings and new ways of working. It fundamentally changed how we work and our expectations of the office. Over a period of time, Gensler surveyed 2,000 U.S. workers as they were returning to the office to understand the new role of the office, what’s working and not, and what’s missing in the work experience.

The Role of the Office has Shifted

Throughout the pandemic, we conducted 11 workplace research surveys — six alone in the U.S. — to capture how the pandemic has shaped the workplace experience. During this time, the top-ranked reason cited by employees to return to the office was “working in-person with my team/colleagues” — consistent across countries, generations, and industries. In our latest research, “to focus on my work” emerged as the top-ranked reason workers say they are coming into the office. Work activities based in the physical space, such as access to technology, scheduled meetings, and access to specific spaces, materials, and resources, also rise to the top.

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NAIOP Insights: Key Considerations for Adaptive Reuse Projects

Originally published on February 16, 2023, by NAIOP.

From pricing to building codes to zoning and beyond, developers embarking on an adaptive reuse project must consider key factors that can make or break its success.

Steve Smith, principal with Cooper Carry, explores the importance of location, authenticity of a building, and the important return on investment that make adaptive reuse projects successful.

This NAIOP Insight was filmed at CRE.Converge 2022.

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Electric Vehicle Charging Infrastructure Top Priority for Local Governments

Originally published on February 15, 2023, by Toby Burke for NAIOP E-Newsletter.

Cities and counties are increasingly adopting local ordinances that are intended to spur the electrification of our transportation system in order to reduce greenhouse gas (GHG) emissions from fossil fuels. A survey by The U.S. Conference of Mayors identified electric vehicles (EVs) “as the most promising technology for reducing energy use and carbon emissions in their cities.” Local efforts to support the use of EVs by both the public and private sectors will require the development and expansion of a reliable and sustainable EV charging system.

Efforts by mayors and local governments to transform the nation’s transportation system from fossil-fueled vehicles to electric ones has been boosted by the federal government and the private automobile industry. Both the Biden Administration and major U.S. carmakers – Ford, General Motors and Stellantis (Chrysler) – have set aspirational goals for EVs to account for 50% of all vehicle sales by 2030. These aspirational goals reflect growing consumer interest for electric vehicles that will further accelerate the demand for a sustainable EV charging network across the United States.

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NAIOP Insight: Industrial Development Near Residential Areas

Originally published on February 9, 2023, by NAIOP.

E-commerce facilities located near residential communities enable faster delivery and access to the workforce who will help companies expand. Explore how developers are working with communities to find creative solutions to their concerns and position these facilities for success.

NAIOP Insight by: Brian Quigley, Executive Vice President, Conor Commercial Real Estate

This NAIOP Insight was filmed at CRE.Converge 2022.

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