Situs Newswatch 5/8/2017

Ready or Not, CRE: Big Changes Coming with Self-Driving Cars

Self-driving cars are already on the road, and many experts predict they will be widely used within five years or less.

“The impact of driverless-cars on Commercial Real Estate will be huge,” says Situs CEO Steve Powel. “With these cars on the road virtually non-stop, the need for both garages in homes and in office buildings will be cut drastically.”

Here are some of the other changes experts in the field predict:

  • Urban areas will have a hub for self-driving cars, but it won’t be in the expensive part of town (currently occupied by garages) — it will be in the cheaper areas, right off the freeway.
  • Fewer gas stations, freeing up gas station real estate to be reclaimed.
  • Fewer parking lots. In 2016, in the D.C. area, commercial underground parking garages added 10 to 12 percent to the cost of office construction.
  • In residences, each additional parking space increased the cost of development per unit by 25 percent.
  • More demand for suburban and rural residences: While driverless cars will make urban life more attractive, they will also make having a long commute more feasible.

“CRE planners and builders must prepare for this new technology now or suffer the consequences,” says Situs’ Powel.

Cars now are an expensive asset but most sit idle 95 percent of the time, slowly deteriorating while doing nothing. But self-driving cars would not be owned; they would be shared.

As National Real Estate Advisors notes: Imagine how the daily routine of a family of four will change when cars drive themselves. One parent will leave early and head to work in the car, reading or sleeping along the way. Then, when the rest of the household is finished with breakfast, the same car will arrive home and pick up the other family members, first stopping by school and then the second parent’s workplace. With some time to kill, the car could next take itself to a repair shop, to the car wash, take an elderly or blind neighbor somewhere or earn some money running a taxi service. Before the workday is over, the car could swing by school and pick up the kids, dropping one at the soccer field and one at a piano lesson. Then, at 5 o’clock, the car could start at one end of city and pick everyone up on the way home for dinner as a family. While the family enjoys the evening, the car goes off to earn some money as a taxi. Instead of several cars moving everyone around for short periods, staying parked in expensive, environmentally damaging parking spaces for most of the day, the car is on the move most of the time.

Adds Situs’ Powel, “We see the future coming and need to take the necessary steps now to upgrade our properties. Time is not on our side.”

Mall Madness: REITs Pursue Multiple Strategies in Dealing with Tenant Troubles

PREIT declares the old business model of malls relying heavily on apparel and accessories tenants is dead. Simon Property Group continued its expansion overseas. General Growth Properties (GGP) made headlines by discussing “strategic alternatives,” and Macerich refined its portfolio by selling off several assets.

Each mall REIT had a different story to tell investors in the early rounds of recent quarterly earnings reports. They all shared a common long-term goal for their businesses, however: a focus on class-A properties as the most efficient way to deliver value to shareholders. Those priorities shone through during earnings calls.

Investors who continue to envision a regional mall as palatial space overflowing with apparel chains will not see eye to eye with executives at Philadelphia-based PREIT.

“The historical view of [the] mall, one that relies heavily on apparel and accessories, really is dead and a new model is rising,” Joseph F. Coradino, PREIT’s CEO, said during the company’s earnings call on April 1. He added that the company is taking a consumer-driven approach to creating its tenant mix, especially when it comes to replacing vacant department stores. “Today’s consumer craves a variety of offerings and is agnostic as to where they shop; they want [it] all and a personalized social experience in one place.”

To that end the company has focused on selling off underperforming assets and bolstering the remaining malls as places where consumers can find as much entertainment as they do outfits.

It replaced the Sears at Capital City Mall in Camp Hill, Pa., with a Dick’s Sporting Goods, and another Sears, at Woodland Mall in Grand Rapids, Mich., was replaced with a Von Maur, a high-service fashion anchor. In a sign of its commitment to include more entertainment tenants in its malls, the company added a LEGOLAND Discovery Center to the Plymouth Meeting Mall in Philadelphia.

In its call on April 27, Simon CEO David Simon highlighted the REIT’s international expansion efforts through its joint venture partnerships. In April Simon opened Siheung Premium Outlets in Seoul, South Korea, with partner Shinsegae Group. Also in April, it opened the Provence Designer Outlet, the first luxury designer outlet in the South of France, along with partner McArthurGlen Designer Outlets.

The ultimate value of a trophy mall property might be discovered through bids from eager investors. In the eyes of GGP CEO Sandeep Mathrani, however, the Chicago-based company’s current market value, $20.46 billion at press time, does not accurately reflect the true value of the properties in its portfolio.

“There is a wide discount between the private and public markets,” Mathrani said during the company’s first quarter earnings call on May 1. “The sum of the parts is far greater than GGP’s current price. We are reviewing all strategic alternatives to bridge the gap.”

Company officials are exploring a range of options. Those alternatives might mean monetizing one of its famed properties and using the proceeds to pay higher dividends or to buy back stock, Mathrani said.

read more: National Real Estate Investor


With the latest Situs take on “Mall Madness” and more, join Ken Riggs, President of Situs RERC, at 7:30 p.m. ET Thursday as he talks live with I24News.


Staples: Forget Our Stores, Go for the Delivery Option

Staples is overhauling its marketing as part of a high-stakes pivot away from what it was built on — selling low-priced office supplies at big stores.

The rebranding campaign kicks off next week with nationwide television commercials in which stores are nonexistent and products are only shown in passing. There’s no mention of discounts either.

Instead, the spots star and extol office and building managers as they fix copy machines, clean up spills and restock the break-room — all with the help of Staples’ delivery business. These are precisely the workers the company sees as crucial to its revival from years of falling sales because they make the purchasing decisions for more than a million U.S. small businesses.

“We wanted to tell a new Staples story,” said Frank Bifulco, the company’s chief marketing officer. “It’s going to convey to all audiences that Staples is much more than a retail office-supply company.”

After U.S. regulators blocked the company last year from buying smaller rival Office Depot Inc., Staples shifted from consolidation mode. Instead, it began to aggressively pursue customers in the $80 billion-a-year U.S. midmarket — or businesses with fewer than 200 employees. Staples currently has less than 5 percent of that market. The plan includes adding 1,000 people to its sales staff, acquiring regional distributors, and offering memberships and services to make office and facilities management easier.

This is all part the company’s push to expand its delivery business, which offers customers a sales representative and online ordering. This division was already generating more revenue than the brick-and-mortar stores, which have struggled as more consumers shop online. Staples, based in Framingham, Massachusetts, still has about 1,500 locations, but continues to pare the number down.

read more: Bloomberg

Starbucks’ Embarrassment of Riches

During its first quarter earnings call former Starbucks CEO and current Chairman Howard Schultz talked about how the company had a problem due to the success of its Mobile Oder & Pay system.

That technology allows customers to skip the line and move immediately to the order pickup area. In some stores, because so many people were using Mobile Order & Pay, it created traffic in those areas as well as delays in people getting their orders.

In many ways the problem is an embarrassment of riches. It’s a case of being so wealthy you have filled both your jewel vault and your auxiliary gem storage area, leaving you with a storage conundrum. Still, while being too successful is a problem most companies would like to have, it’s still a problem that needs to be solved.

Backups and congestion caused by too many people using Mobile Order & Pay impacts the chain’s best customers — people who not only use its app, but have a credit or gift card connected to it. Those are people Starbucks wants to better serve using technology and new CEO Kevin Johnson addressed what the company was doing to fix the issue during the chain’s

Johnson explained that the company was tackling the problem in waves during the call.

Wave one actions have largely been completed and included additional training and reallocation of partner roles to Mobile Order & Pay during peak, testing of additional labor at peak in select stores, implementation of new approaches to order consolidation at the hand-off plane, and new tools and processes to support beverage and food production. These actions alone enabled quantifiable increases in both March and April, and improved the customer experience as evidenced by recent customer service scores.

In the second wave, which has already begun, the company plans to introduce a new digital order manager (DOM) as well as adding labor in its busiest stores based on the results of testing done during wave one.

read more: Fool.com

Most U.S. Homes Are Worth Less Than Before the Crash

You can’t blame a homeowner in Fresno, California, for viewing the thriving metropolis to its northwest with both envy and dismay. While San Francisco home values have surged since the recession, Fresno’s housing market is stuck in a rut. Less than 3 percent of homes in the city and its environs have returned to their pre-recession peak, according to a new study from Trulia. Median home values are a teeth-clenching $78,000 below their pre-recession peak.

The difference between the two California markets helps explain a key dynamic of U.S. housing a decade after the foreclosure crisis. Popular measures of the landscape, like S&P CoreLogic Case-Shiller Index and the FHFA House Price Index, show the market has recovered to levels last seen before the housing market went bust. But according to Trulia, this isn’t the whole, significantly bleaker picture.

Nationally, just 1 in 3 homes are worth more now than they were at their peak. While tech hubs in the Bay Area and Denver and job centers like Dallas or Nashville have seen home values explode past earlier highs, there are more losers than winners when you look across the country, Trulia’s analysis shows. And it’s really bad news if you live in Las Vegas, Tucson — or Fresno.

Many of the losers aren’t just losing — they’re getting trounced. There were 28 metros where fewer than 10 percent of homes have recovered their value since the bubble burst. Las Vegas has seen less than 1 percent of its homes returning to or surpassing what they were worth before the recession. The median sales price there is down a full $91,000 from its peak.

read more: Bloomberg

Kushner Sells Home for 2nd Highest Price Ever Paid in Brooklyn

A Brooklyn townhouse at 27 Monroe Place developed by Kushner Companies — where presidential son-in-law Jared Kushner was CEO until he resigned in January — has sold for $12.9 million, Gimme Shelter has learned.
That makes it the second most expensive home to sell in the borough this year, according to city property records.

The Brooklyn Heights home — which sparked the interest of Matt Damon’s wife Luciana Barroso, who did not end up buying it — was originally asking $16 million. In 2014, Kushner Companies bought the townhouse for $7.41 million from Brooklyn Law School.

Built in 1844, the five-story home is 25 feet wide and 7,000 square feet. It comes with five bedrooms, six bathrooms and three powder rooms — along with an elevator, radiant-heated floors and a chef’s kitchen with a dumbwaiter to the parlor floor butler’s pantry.

The listing brokers were Leslie Marshall and James Cornell of The Corcoran Group. Brooklyn’s priciest sale of the year (and the most expensive apartment ever sold in the borough) occurred at 1 Main St. in Dumbo in March. Its Clock Tower triplex penthouse finally sold for $15 million to Colombian art dealer Lio Malca.

read more: NY Post

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