Categories Narrative, Tech Industry

CRE Lagging in Tech Adoption – Why?

Commercial Real Estate is notorious for NOT being market leaders in technology adoption. Why? The Urban Land Institute has an interesting article below that includes these explanations:

  • Old Timers. The industry is full of dinosaurs. Senior Real Estate professionals are the key to developing successful products, having the industry knowledge and expertise that tech companies don’t have. As we see more millennials enter, we will see a greater focus on tech adoption. 
  • User Interface. Until technology is easy to use, people don’t adopt it. CRE tech is just now hitting the simple interface phase.
  • Proprietary Information. Proprietary information has been the value proposition for brokers for decades. As this changes, technology adoption will increase and service delivery will become the de facto reason for advisor selection.

Technology means easier access to more and better information, improved market knowledge and increased transaction volume. With Costar, we can now do 5-minute searches on a computer and get comprehensive information that used to take days to find. And this is just the beginning. 

Coppola-Cheney is constantly looking to adopt and integrate the most beneficial technology programs to lower risk and increase accuracy. If you want to see how we use technology to help your next transaction, send me an email.

Craig
602.954.3762
ccoppola@leearizona.com

P.S.- Speaking of tech, Phoenix continues to attract tech-related companies, growing its ecosystem at an astounding rate. Click here to read more about how Phoenix is poised to become the next big tech hub.

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Why Commercial Real Estate Still Lags in Adopting New Technology
By Joseph Stecher
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June 24, 2016

At the 2016 ULI Spring Meeting in Philadelphia, ULI convened a meeting of chief executive officers of real estate tech startups, and other senior executives of real estate firms that have had success in adopting new technology.We were asked the following questions: “Why has commercial real estate been slow to adopt new technology, what are the impediments, and how can they be overcome?” Some of the answers, we realized, apply to every industry, but many are specific to how we do business.The takeaway from this article should be how leaders of real estate firms can develop best practices to blend technology into current business practices, and also why they should make the effort.

I suggest putting aside imprecise analogies like “we’re dinosaurs” and “we’re not digital natives,” because they allow senior people to abdicate responsibility to lead the firm in developing best practices around evaluation and use of new technology. In particular, these self-styled dinosaurs have deep business understanding—what techies call “domain expertise”—that software developers may lack but which they need to create and improve useful products.

A much more useful way to think about the specific contributions that a firm’s leaders can make to technology adoption is to understand that we are essentially reliving the literacy revolution of the 15th century, when Johannes Gutenberg invented the idea of the printing press using movable type. Before Guttenberg’s time, most jobs did not require reading and writing, because producing and distributing books was highly specialized and expensive. Literacy rates were under 50 percent or less in Europe, and probably much lower outside cities. There were literacy specialists like lawyers and especially the clergy, some of whom spent all their time copying and recopying classical and religious texts, just as today about 10 percent of the population can code and we think of them as technology specialists.

Thanks to Gutenberg, printed materials became easier and cheaper to reproduce and distribute. Jobs then changed and required literacy, and therefore more people had to learn how to read and write. Today, almost no jobs require digital literacy, but during the lifetime of people who are alive today, every job will require some level of coding, or ability to evaluate code, system design, and implementation. Right now, however, we are at an inflection point where people and organizations have to make decisions about using software, but are in essence looking at a printed page with no ability to evaluate the quality of the printing, paper, and ink, or even to know if the letters on the page are Genesis 1:1 or gibberish.

So what are some best practices for software assessment over the next ten or 20 years—that is, until digital literacy is as common as reading and writing is today? One pretty clear mistake is to let the “IT guys” handle it. Generally, members of that department lack the domain expertise to evaluate a product that the business team can use. At the other end of the effectiveness spectrum, many real estate firms are reportedly looking for a chief technology officer (CTO) who would combine in one person both domain expertise and digital literacy. Most firms, however, are not even considering the subject, so for the time being digital literacy is needed but absent from the decision-making toolkit of most real estate firms.

But just as virtually all real estate firms lack the software expertise to evaluate a product’s effectiveness in terms of both the impact on the bottom line as well as its functionality and scalability, it is also the case that few software developers have real estate backgrounds (though many do). They need their customers’ domain expertise to help evaluate and improve their new products.

The way forward, then, is for the leaders of the firm to develop a process to bring to bear internal and external resources in evaluating software decisions.

CRE Tech
 
A good framework for understanding how real estate firms absorb software into daily practice is the above admittedly oversimplifed chart, which is relevant to all industries. In essence, it says that a software developer identifies a business practice—often involving spreadsheets, email, Post-it Notes, and voicemail—that can be better executed digitally. He or she develops some code that becomes a product, and eventually the product ends up in front of someone at a potential customer’s firm who agrees to adopt it, and then the adopter’s organization integrates the product into the way it does business. Two success stories are Hightower and VTS, which took a broken supply chain of information between leasing broker and building owner and digitized and standardized that flow of information in a way that delights their customers.During integration, the developer will almost certainly get “battlefield” feedback that is likely to be much more useful than could be derived from a smaller-scale test (called a “beta”). A smart developer will use this new information to improve the product and start a new loop of development, adoption, and integration.The first fork in the road for the customer is buy versus build, and in almost every case it is better to buy or otherwise rely on a company that actually builds software while the customer focuses on building actual buildings.But how a customer buys matters a lot. A successful model appears to be to appoint a senior person with parallel nontech authority and with deep domain expertise to be the adoption-gatekeeper tasked with evaluating many or even all of the new software solutions that vendors propose. The adoption-gatekeeper then oversees a product’s movement into the integration phase, using a small testing team of business people and IT people to evaluate both effectiveness and functionality. The test team should be a broad cross-section of users giving honest feedback—relying on quick, untested, top-down mandates appears to be a path to failure, possibly because the actual users/testers feel their voices will not be heard, so they don’t provide software developers the needed feedback to improve the product.

The gatekeeper also has to manage the process “up” so that his or her peers at the top of the organization understand the risks and benefits and lessons of the beta test. As the product moves through the Technology Feedback Loop, it can be rolled out to a wider and wider circle of users, who (a) will receive it knowing that it has already worked for colleagues with similar jobs, and (b) should feel that the Technology Feedback Loop is still operating and that the product has the potential to be further modified based on their feedback. The IT team is integrated into this testing team to assess functionality, integration with other systems, and scalability. A well-run integration program will be met with questions like “when do we get to try it?” instead of “do I have to use this?”

Some firms actually invest directly into software companies on the theory that if they help create something of real value through their inputs to the Technology Feedback Loop, they should share some of the upside. Furthermore, these firms understand the business environment and feel they have a competitive edge in evaluating what works.
Others are satisfied to participate in the Technology Feedback Loop without an equity stake, and eschew venture capital–style investing for two reasons. First, they are real estate investors and not venture capital investors, and they feel that they should use investors’ capital for the intended purpose. But also, while some investments do produce a massive profit, the venture capital model usually involves investing in a lot of losers, and a real estate firm is likely to invest in too few companies to have enough winners to offset the losers, so that the profits—if any—compare unfavorably to how that capital could have performed had it been invested in real estate. More subtly, product diversification in a venture capital portfolio matters as much as property and location diversification in a real estate portfolio, and the real estate firm whose tech portfolio consists solely of products that a firm might use in its “day job” is likely to have quite a concentrated portfolio. Another subtle point is that success in venture capital investing is often a result of early access to great teams and products, and real estate firms are likely to suffer from a negative selection of opportunity.

Conversely, until quite recently, venture capital has not been available for commercial real estate technology, possibly because venture capital investors did not see the massive market that exists for consumer products like Facebook, or even quasi-business (or “enterprise”) applications like Zillow/Trulia in residential. So one impediment to industry-wide adoption and integration of technology may be a gap in venture capital funding.

An example of how technology might create winners and losers in the future is the services provided by LiquidSpace and PivotDesk, which help tenants find short-term space—as short as a day—as quickly as one can call a Lyft car or book an Airbnb reservation. Landlords who work with these two firms have the possibility of extracting some revenue from usable space that cannot be rented (think of a floor that is encumbered by a near-term expansion option), while landlords who don’t reach for this low-hanging fruit will experience narrowing margins relative to those of their competitors.

Another discussion topic for business leaders to consider is that both real estate tech firms and real estate firms need to let go of the idea that controlling information is a necessary net competitive advantage. Obviously this topic is controversial. But many firms—includingCompStak, Honest Buildings, CoStar, Yardi, and MRI—have enormous amounts of customer data on leases, expenses, occupancy, construction costs, and many other data points. There is an argument that customers and the industry would benefit if they allowed these vendors to aggregate these data and publish them in a way that does not disclose any one firm’s information (so that average rent in midtown is $67.33, not rent at the XYZ building is $80). Not every real estate leader agrees that this trade of proprietary information is a good idea.

Counterintuitively, tech firms are guilty of “old thinking,” too. Many tech firms (often) outside of real estate tech build “application program interfaces” (APIs) that allow two websites to share information and processes to deliver benefits to customers that neither could deliver on its own. You are able to share your Flickr photos on your Facebook page, or embed your SlideShare presentation on your LinkedIn profile, because the two firms have in essence built a path between their sites that allow their customers to extract certain benefits from both sites. Regardless of how much you agree with the late Susan Hudson Wilson that the data want to be free, most real estate tech firms agree that they could do a better job with this kind of complementary sharing of data and other functionalities. Eventually, some existing or new firm could access this data through an API, combine the data with other information about the economy, and use the data to make better predictions about rents, tenant demand, construction, and perhaps government tax or land use policy. In this way, the firm could help investors and operators suppress the volatility and smooth out the fluctuations of over- and undersupply that contribute to the real estate industry’s boom-and-bust cycle. This might reduce the whole industry’s perceived investment risk, attract new sources of capital, and bring down the cost of capital across the risk spectrum, benefiting every member of the industry—and society as a whole.

Leaders of real estate firms and real estate tech firms have to get informed, and take a position on whether or not this new approach to information sharing is worth the cost. Some observe that other industries are beginning to benefit from “mining” vast repositories of customer data, weather data, and the like—called “big data” for short.  But the real estate industry—it could be argued—doesn’t even have the data yet.

And it is incumbent upon leaders of real estate tech firms to become teaching organizations and produce and publish case studies about how their products specifically benefit customers in practical ways today, with a bit less emphasis on changing the world.

So it is time to put the dinosaurs back in the kids’ toy chest, and to stop building a wall between yourself and the digital natives. Leaders of the real estate industry have the misfortune of having to lead in an environment where they should be digitally literate but are not because we are all living in the first day or first year of the second literacy revolution, but this one is a digital literacy revolution. Rather than abdicate their role in technology adoption and integration, leaders have to understand the value of their deep domain expertise in devising technology solutions for their firms, and implement a best-practice approach to the Technology Feedback Loop.

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Categories Narrative

27 More Rules of Thanksgiving Football

Once a year, we take time out from our weekly narrative to enjoy the holidays, say thank you to our clients and readers, and share Jason Gay’s hilarious rules for Thanksgiving Touch Football.   
 
This year, here are a couple of our favorites: 
 
–This is Peyton Manning’s first Thanksgiving as a retired football player, which means: he is going to be an utter nightmare at the Family Thanksgiving Touch Football Game.

— PEYTON: Omaha! Omaha! Guys, Omaha! ARCHIE: Peyton, give it a rest. We’ve been playing for 7½ hours. ELI: I am going into the house. Mom says we can watch “Finding Nemo.”

— If you’re playing in the Dallas area and a guy named Tony walks up and wants to join your touch football game, give him a few reps at quarterback. Guy has had a tough couple of months. It’s the least you can do.
 
Honorary mentions include #2 and #14. 

Happy Thanksgiving and have a blessed Holiday season.

 

Craig
602.954.3762

27 More Rules of Thanksgiving Touch Football
Will the family game be more contentious than the election? Will Tony Romo show up? And where’s the bourbon?
By Jason Gay
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Nov. 22, 2016
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Thanksgiving is upon us, and everywhere you look, there are nervous warnings to steer the dinnertime chitchat away from current, controversial topics like You-Know-Who. This is dull, timid advice. Assembling family and friends, eating too many carbs, overdoing it on box wine, and launching into loud, uncomfortable arguments that never reach a resolution and may conclude with a wrestling match spilling into the kitchen—that’s the magic of Thanksgiving!

Otherwise, you might as well drive to Arby’s and eat sitting by yourself in your car. (Which can be pretty magical as well.)

If you really need to release some Thanksgiving aggression, there’s always the family touch football game. This is the Journal’s sixth edition of the Rules for Thanksgiving Family Touch Football, which can only mean one thing: I am running this gimmick straight into the ground. Still, I want to thank every Journal reader who asks for it, passes it on to family and friends, and even sends me the score of their family game. I am honored you have made this a tradition, and as always, I assume no responsibility if you tear an ACL.

Here we go:

1. Let’s get this out of the way: Nobody needs to talk about the 2016 Presidential election during the Thanksgiving touch football game. The election should only be discussed during dinner, after the guests have had at least six cocktails, all glassware and sharp cutlery has been removed from the house, and everyone at the table is wearing a hockey helmet.

2. There is no warm-up for family touch football. Look, buddy: Dad just got up off the couch for the first time in three hours. He’s warmed up. Let’s get this show on the road before his lower back seizes again.

3. There’s someone at your Thanksgiving touch football game who does not know how to play football and really isn’t interested in joining the game. Please know: This is your best available option at quarterback.

4. There’s also an old Basset hound next door named Skippy, who barks at the garbage truck and licks peanut butter straight out of a jar. Skippy is your second best quarterback.

5. Skippy is also the second best quarterback on the Cleveland Browns.

6. If you’re playing your family touch football game at Mar-a-Lago, I’d ask Ivanka to play QB. Nothing personal against the other players. Just like Ivanka at the helm.

7. Your cousin Tammy has brought her new husband, Big Randy, who was an all-Big Ten linebacker and actually played a season on the practice squad with the Packers. There’s a lot of pressure on Big Randy to show what he can do on a football field, without maiming anyone in his new family.

8. Hey, look—Uncle Kenny lost some weight! He’s been taking CrossFit classes, which he’s only mentioned 137 times since arriving.

9. Also, don’t ask Uncle Kenny about his fantasy team. Not unless you have three hours to spare listening to why he passed over Devin Funchess in the seventh round of his fantasy draft.

10. Please avoid that giant bubbling tub in the driveway. That is not a garbage barrel. For the 10th year in a row, your cousin is trying and failing to deep fry a turkey with that recipe he found on the internet.

11. If it looks like a catch, it’s a catch. What is this, the NFL?

12. Still confused about a catch? Ask the cat. The cat has as good an idea as anyone at the NFL.

13. Yes, the NFL is cracking down on end zone dancing—but how dare you throw a penalty flag on grandma’s touchdown celebration? She’s been working on her “Pepperidge Farm Shake” for six months, and besides, I think she just broke her hip.

14. Your mom is a wise and loving person, and you’d think she isn’t holding it against you that you’ve dropped two passes in the end zone. But she is. She definitely, silently is. Mom wants a W.

15. Actually, I heard you played very well in the Thanksgiving touch football game last year, and you’re the best player in your family.

16. Whoops, that’s just some fake news I found on Facebook.

17. Your Thanksgiving game will be watched by two toddlers, six squirrels, and a passing hawk. Yes: Your family touch football game has the same audience as Thursday Night Football.

18. Avoid any family members with connections to Michigan and Ohio State. They have a big game Saturday, and they’ll want to talk endlessly about how their school invented football.

19. To please the NFL, we need two teams to play a crummy Thanksgiving touch football game in London.

20. This is Peyton Manning’s first Thanksgiving as a retired football player, which means: he is going to be an utter nightmare at the Family Thanksgiving Touch Football Game.

21. PEYTON: Omaha! Omaha! Guys, Omaha! ARCHIE: Peyton, give it a rest. We’ve been playing for 7½ hours. ELI: I am going into the house. Mom says we can watch “Finding Nemo.”

22. If you’re playing in the Dallas area and a guy named Tony walks up and wants to join your touch football game, give him a few reps at quarterback. Guy has had a tough couple of months. It’s the least you can do.

23. This year’s halftime show is everyone quietly discussing the neighbors’ divorce.

24. Important note: This year the Chicago Cubs won the World Series, Cleveland won an NBA title…and the Detroit Lions have won five of six and are now 6-4 and in first place in the NFC North. I’m just putting that out there for when someone invariably dumps on the Thanksgiving Lions game.

25. Do the Lions know everyone falls asleep in the Thanksgiving Lions game? Thanksgiving Lions football is like “Twinkle Twinkle Little Star” for adults.

26. The game is over when ESPN’s Adam Schefter tweets that Dad has fired himself and is drinking beer in the garage.

27. Finally, don’t talk about the score of the game at Thanksgiving dinner. Discuss safer, quieter topics, like You Know Who.

I wish you all a peaceful Thanksgiving, full of good food and the love of family, and most important, a great touch football game.

If inspired, send me a photo and the score of your family game and Journal Sports will publish them online next week. Reach me at Jason.Gay@wsj.com or tweet to @jasongay.

Lastly, in these unsettled times, can we all agree on one important thing?

The kids need to do the dishes. It’s good for America and good for them.

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Categories Economy, Narrative, Office Market

CRE Crowdfunding

Crowdfunding Commercial Real Estate acquisitions is all the rage. However, like everything, there are opportunities and liabilities in placing your investment dollars in a crowdfunded deal.  

Below are two different articles with highlights. But first, a quick summary:

Liabilities:

  • Investors lack the industry knowledge and experience needed for real estate investments
  • Too many uncommitted investors
  • High legal fees
  • High platform fees

Opportunities:

  • Allows for smaller amounts of capital to buy a piece of an investment
  • Gives real estate entrepreneurs another avenue to raise capital other than highly-regulated banks
  • Investors retain tax benefits sooner
  • Provides access to a more diverse portfolio

 

If you aren’t sure if crowdfunding is right for you, give us a call.

 

Craig
602.954.3762
P.S.- Click here to read an article about CRE crowdfunding being used right now for this unique development in Portland, Oregon.
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Challenges, Pitfalls and Problems with Crowdfunding Real EstateBy Jordan Wirsz

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06/14/2016

It seems only a few short years ago, the “holy grail” of raising capital for developers and private issuers opened up. The term “crowdfunding” saw headlines all over the United States, and the sense of optimism that capital raisers had was at an all-time high. We even saw people crowdfunding to start crowdfunding companies. Crowdfunding conferences emerged all around the country, and regulators looked on in horror as every Tom, Dick and Harry had some new gimmick to fund through crowdfunding.

But the reality of crowdfunding is very different than the outward appearance of a sleek, easy and quick way to get deals done. From the outside looking in, a capital raiser would see crowdfunding as an opportunity to put their project onto the investor’s equivalent of “eBay” where people just see the offering, click buy, and all of a sudden your offering is full. However, the realities are a stark contrast to what most people, especially real estate developers and issuers, perceive.

Real estate technology is evolving rapidly, and not the least of which is how developers and investors raise capital. Crowdfunding, the natural evolution of real estate capital sources, has seen an incredible number of platforms (aka websites) rise up, some more successful than others. Competition amongst them is high, and although their business models vary, the net result is a relatively common core group of users that see all of the same deals or at least types of deals.

There are two primary types of crowdfunding real estate investors:

The individual: There are individual investors who like to log-in to online platforms and make their own assessments and judgements of which deals they want to invest in. Unfortunately, these investors might often choose to invest in the best sales-pitch, not necessarily the best deals. From the issuer’s perspective, these investors carry a lot of risk. They are relatively low in experience, and the potential for litigation is high. Additionally, most of these individual investors believe in diversification as a fail-safe to one deal going bad… Which naturally sounds good, but ultimately proves to be a failing strategy when compared to just doing “good deals.” Unfortunately many investors who participate in real estate investments through crowdfunding are of modest means, and no matter how many disclosures they sign, the optimism outweighs the risk in their minds. This is why I have made it a point to only work with accredited investors who have the means and experience in accumulating wealth to understand the risks.

The institution: More and more, institutions are looking at “crowdfunding” type opportunities to diversify their holdings. When an emerging manager, or perhaps even a family office decides to diversify into real estate, they might consider crowdfunding as a means to enter the asset class. Institutions and institutional type investors like simplicity. Unlike the reality that all developers and true hands-on real estate investors understand, institutional folks don’t understand how “hands on” real estate really is. So, they seek a “hands off” approach by finding other people to do the hard work through crowdfunding, or alternatively through publically traded or even private REITs. Institutional types like the “push of a button” buy and sell process. Even to individual investors get romantic about the idea of sitting at a computer screen, clicking a mouse, and getting a good return on their investment. After all, real estate investing is a “sexy” concept.

Trust me, there is nothing “cheap” about raising capital from a crowdfunding platform.

Dealing with the two different investor types can be challenging. On one hand, the individual investors might buy into an investment with less due diligence than an institutional investor would, but the dollar amounts are usually small. On the other hand, institutional investors might bet bigger, but they’ll scrutinize every offering to a high standard, and I’ve found, they often ask the wrong questions and focus on the wrong things. Albeit, they have their own way of doing things.

The real challenge with crowdfunding real estate isn’t necessarily the investors, but more so, the issuers…i.e. the developers or real estate investors who are trying to raise money from outside sources that they don’t understand. Real estate capital raisers are more often than not, self-promoting real estate developers and investors. They are not in the securities business, and they often have little understanding of the implications of being in the securities business. As an issuer raising capital from other investors, there is a complex standard of doing business that not only protects the investors, but protects the capital raiser from extenuating and undue liability, both regulatory and litigation. Believe it or not, the most problems any capital raiser will have is not with the investor who invests $1 million, but the investor who invested $5,000. The lack of sophistication and understanding, in addition to the lack of experience in risk management and risk knowledge, is a dangerous combination.

The other side of the real estate business, when using outside capital, is the securities business, which most real estate investors/crowdfunding issuers don’t have any experience in at all. I liken that scenario to a baggage handler at a local airport, climbing into the co-pilot seat of a Boeing 737. Just because you work in real estate, with investors, does NOT mean that you have a good understanding of the rules and regulations around being a securities issuer, nor does it mean that you understand the risks of regulation.

In addition to the challenges and pitfalls discussed above, one very important problem with crowdfunding is the lack of commitment that any crowdfunding platform will give you to “fill the offering.” I have seen countless examples of investors and developers trying to raise money in crowdfunding sites, only to achieve a minimal percentage of what they actually need to do the deal. So you raise half your funds… Then what? You can’t do half of a real estate deal because you only have half the capital needed. And besides, UNDERfunding yourself is one of the biggest mistakes anyone can make. So, the choice becomes either find another source of money, or don’t do the deal. Frustrating, but no crowdfunding platform will guarantee that you will fill your offering.

Few investors/developers who consider crowdfunding realize how expensive crowdfunding can be, and as such, fail to pro forma the true costs and risks associated with even attempting to raise the funds. Many crowdfunding websites will charge subscribers to look at deals… But they will also charge the issuers who are trying to raise capital. And those fees aren’t always small… It can cost thousands, even tens of thousands, to list your deal on one or more platforms. Next, before you put your deal out to raise capital, you’ll need all the proper disclosure documents. Oh how many times I’ve heard, “Oh Jordan, don’t worry about that – I found a template online!” That is usually the second or third signal to “run” away from that deal. There are no online templates which are sufficient to use for disclosure documents and subscription documents to investors. A lawyer, and an experienced securities lawyer at that, should always be used in the creation of disclosure documents and offering documents. That cost can range from $5,000 to $50,000 very easily, depending on the size and complexity of any given deal.

The next area of cost, is usually a percentage that the platform charges to raise the capital. For example, if you want to raise $500,000, the platform might charge a fee of 5% to 10% of that amount. Not only does that dilute the investor (another disclosure by the way), but it also dilutes the return… And as such, the developer’s profit.

Trust me, there is nothing “cheap” about raising capital from a crowdfunding platform. By the time you figure in legal fees, platform fees, and a good split with the investors, crowdfunding often turns a “great deal” into a mediocre deal at best.

There are many ways to raise capital, crowdfunding included. Crowdfunding has worked well for many issuers, developers and real estate investors. However, there are also other, easier, and possibly better ways to skin that cat. Working with fewer, larger investors who you can count on is by far the best way to raise real estate investment capital. Beware of the allure of crowdfunding, while not completely understanding the challenges, pitfalls and problems of this method of raising capital for your real estate projects.

 


 

How Crowdfunding Has Permanently Changed Commercial Real Estate
By Nav Athwal
 
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MAR 21, 2016

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Crowdfunding platforms make it possible for investors to connect with private real estate deals online without running into the obstacles that have traditionally been associated with commercial real estate investing. No longer does it take $50,000 or more to invest in a commercial property. Instead, it’s possible to participate in deals with as little as $5,000. Alas, it isn’t only institutions like the Harvard and Yale Endowments that can capitalize on the benefits of adding commercial real estate to the portfolio.
 
In terms of diversification, crowdfunding is positioned to offer investors a wide range of commercial investment types including office buildings, self-storage units, retail properties, healthcare facilities and multi-family residential properties. These platforms offer both debt and equity investments, which are geographically varied, allowing our investors even more control over their diversification strategy.  Real estate crowdfunding also makes it possible for investors to take advantage of those tax benefits mentioned earlier. Deals are typically structured using a pass-through entity such as an LLC, which allows the value of the various deductions to pass through to investors.
 
But investors aren’t the only ones benefitting from real estate crowdfunding.  It has also emerged as a new way for entrepreneurs and small companies investing in real estate to raise capital more efficiently than what banks and traditional private money sources can offer.  Coming out of the great recession with banks becoming more regulated and credit getting tighter, real estate crowdfunding has filled the gap by connecting real estate entrepreneurs with a new base of investors and capital.
 
However, despite its obvious benefits, crowdfunding for real estate is not without its limitations. For example, most crowdfunding for real estate platforms are limited to Accredited Investors only thus serving only a subset of the general public. Additionally, as is inherent with commercial real estate investing, investments in crowdfunded real estate are illiquid and not freely tradable like stocks. Despite these shortcomings, crowdfunding is the first step towards making commercial real estate accessible to investors that have historically been excluded.  And I’m personally excited to see where it goes from here.

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Categories Economy, Narrative, Office Market

Suburban Office Markets

The current recovery has been anemic, not just economically but in terms of new office construction as well. Long term, the lack of new buildings is good as overbuilding is not a concern. With the emergence of millennials in the work force and live/work/play environments,  suburban office markets have been even slower to recover. As the Central Business District (CBD) submarkets continue to tighten, developers are now looking more and more to the suburbs.
 
–       Housing-bust metros (including Phoenix) still lag from normal pre-recession levels. (However, this is finally changing in Phoenix.)
–       Pent-Up suburban office space development is becoming a hot commodity as speculative development in the suburbs has lagged and CBD rents rise as space becomes scarce.
–       The rent premium a tenant will pay for a brand-new building is substantially higher than current rents. We will see if tenants will pay up for new.
 
Metro Phoenix is an interesting market.  We have Live/Work/Play in several submarkets creating opportunities for tenants to shop the market and really focus in on their needs (employee demographics, access, amenities, etc.).  Let me know if you want to discuss this further.

Craig
602.954.3762

P.S.- Find out who is more aggressive, Craig or Andrew, in this week’s video with Michael Kosta. Click here to watch.

Why C2 Pt 1
(Having trouble viewing the video? Click here)

Office Developers Size Up Suburban Markets for Spec Development

Major CBD Office Markets Still Where Most of the Action Is, but Suburbs are Getting a Second Look Amid Dearth of Large Blocks of Space

By Randyl Drummer
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September 29, 2016

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With construction cranes crowding the downtown skylines in the San Francisco Bay Area, New York City, Seattle and other large CBDs, office developers and investors may do well to branch out into markets and submarkets where competition with other projects isn’t so keen and the barriers to entry aren’t as daunting. “There are many markets out there that are late-recovery plays offering significant rent upside and limited risk from new construction,” said Walter Page, director of research, office, CoStar Portfolio Strategy, during a webinar presentation titled “From the Ground Up: Late-Cycle Development Strategies,” presented with Hans Nordby, managing director of CoStar Portfolio Strategy, and managing consultant Lee Everett. 

Certain downtown and suburban submarkets within former housing-bust metros such as Sacramento, Phoenix, Orange County, the East Bay of San Francisco and even the San Fernando Valley submarket in Los Angeles are still only seeing a fraction of their pre-recession construction levels. Tampa, Atlanta, Austin, Miami, Washington, DC; and Boston continue to lag below historical norms for new supply. 

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While developers haven’t been building at the feverish clip of the previous cycle, the uptick in interest in development among core and value-add funds, plan sponsors and foreign investors, especially from China, has been tangible in the first three quarters of 2016. 

“Never before have we seen such a diversity of our clients interested in either building development or lending on that construction,” Nordby said. 

The long office supply lag in these late-recovering metros could finally bring development opportunities in the submarkets of such secondary markets such as downtown Milwaukee and suburban Tampa, the CoStar analysts said. 

“If you’re looking to build, it may not be as bad a time to start now as you may think,” Nordby said, citing investment sales, rent growth and occupancy growth in many markets which in many cases exceeds their historical averages since 2000. 

Overall U.S. office supply addition has been muted throughout the recovery. Despite pockets of strong building in Silicon Valley, San Francisco, New York, Seattle, Dallas and a few other top markets, total projects under construction currently make up just 1.5% of U.S. office inventory, well below historical trends, with just 36% of metros seeing more new office space entering inventory than their long-term averages. 

In fact, overall office construction, which has remained flat for more than 18 months, now appears to trending down, Nordby said. By comparison, 79% of metros currently have apartment construction levels above their average since 2000. 

Pent-Up Suburban Demand Could Bring Opportunity

At the same time, the share of U.S. office construction projects in downtown districts versus suburbs is picking up significantly, currently at 38% of all office construction. Suburban office development has fallen in recent quarters, now totaling about half the 250 million square feet under construction in the suburbs at its peak in 2000. 

With brisk levels of office construction already underway in the top coastal markets and CBDs, this slowdown in suburb supply may be a window of opportunities for well-informed and savvy developers. 

Suburban markets such as Tampa and West Portland, OR, are looking like an increasingly good bet for investors based on rising occupancy, lower rents, pricing upside and the virtual absence of construction compared with history. 

Suburban office product is also getting more sophisticated based on tenant feedback. Version 2.0 of the suburban office park includes single-tenant office buildings outfitted with larger, more open floorplates and higher parking ratios. For example, a 150,000-square-foot building developed for GoDaddy in Tempe, AZ, has a whopping 6.7 parking ratio for its 1,350 employees, who are occupying fewer square feet per work and enjoying perks such as a yoga room and indoor go-cart track. 

Spec Resurfaces In Suburbs

Investors are taking their next step into speculative development since the recession in markets with a growing shortage of available space for large tenants. For example, in Tampa, Vision Properties — which in February acquired Renaissance Park, a five-building, 573,053-square-foot master-planned suburban corporate office campus north of Tampa International Airport — vowed eight months ago to consider developing an office building on a four-acre vacant site in its new acquisition without a tenant in tow. 

Vision plans to make good on that vow in November, breaking ground on a three-story, 111,600-square-foot building in the master-planned office campus, acquired for $100 million from Liberty Property Trust. Mountain Lakes, NJ-based Vision has already secured site work permit and applied for a building permit on Tuesday. Construction is expected to take just 12 months. 

Many relocating firms are warming up to secondary Sunbelt markets such as Tampa and Charlotte, and expanding in those metros grow attached to the benefits of lower labor, tax and business costs, including Fortune 500 companies such as Johnson & Johnson, Bristol-Myers Squibb and Citigroup, Will Bertolero, vice president of asset management for Vision Properties, tells CoStar. 

“Even tenants within our own park were skeptical and a bit shocked when we decided to go spec,” Bertolero said. 
“With the lack of large contiguous blocks of space in the market with structured parking, right now is the prime time to move forward.” 

Vision has received many inquiries for requirements of between 30,000 to 50,000 square feet and one prospective tenant may even take around 100,000 square feet, the vast majority of the building, Bertolero added. 

CoStar’s Page noted that spec makes a lot of sense in Tampa, a market generally oriented toward smaller tenants where it’s more difficult to reach the 40% or 50% pre-leasing to begin construction as might be required to construction in larger CBDs. 

“The time is right to do this as construction activity is exceptionally low,” Page said. “We are finding that the rent premium a tenant will pay for a brand-new building is higher than most investors realize.” 

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