Situs Newswatch 9/29/2017

Creative Investors Can Thrive with Offices of the Future
Rapid changes in technology and the attitudes, preferences and working styles of millennials are forcing investors in commercial real estate to be more creative than ever. Landlords need to offer spaces with sleek designs and state-of-the-art technologies that produce a “wow factor” to attract new tenants, according to Situs RERC researchers.

“The influence of technology on office space design is remarkable,” says Jennifer Rasmussen, Assistant Vice President of Situs RERC. “Technology enables people to work anywhere and everywhere. I’ve seen offices that don’t even have desks.”

According to a 2014 Coldwell Banker Commercial Affiliates poll of over 2,000 adults, more than half of millennials prefer to work in an office with an open floor plan than one with cubicles and private offices. If companies want to attract millennials, they need to create an office environment that appeals to them. It can start with furniture that allows people to work while standing, sitting or even lying down.

But the key is setting up workspaces that encourage communication, collaboration and integration. Many offices have no assigned workspaces. Employees come in, plug in and get to work.

For many companies, location is becoming irrelevant. According to a Gallup survey released in February 2017, 43 percent of employed Americans said they spent at least some time working remotely, up from 39 percent in 2012. And according to a 2017 Quartz analysis of data from the US Census and the American Community Survey, a record 2.6 percent of American employees work full time from home, more than doubling since 2000.

There has been plenty of pushback to these trends, especially from some older workers and from people in industries where collaboration and open spaces aren’t as important or even a good idea. That same Caldwell Banker poll showed 72 percent of all workers surveyed said their first work preference is in a private office. In May 2017, IBM announced that its remote workers must abandon their home workspaces and relocate to a regional office or leave the company. Yahoo Inc. made a similar move in 2013.

So it’s not surprising that institutional survey respondents for the Situs RERC Real Estate Report for first quarter 2017 said top-tier new properties and/or newer quality construction in central business districts and high-quality suburban offices will continue to offer the best investment opportunities.

“Everyone wants to move into the newest, sleekest office space with the infrastructure to support ever-changing technologies,” adds Rasmussen.

Nonetheless, changes are coming wherever workers will do their jobs. The same year that Yahoo brought its workers back to the office, Kiplinger made some predictions about offices, including:

  • Sensors embedded in employee badges that track their moves throughout the workday.
  • Roaming robots with video monitors perched on their heads to provide around-the-clock video of what’s going on where and who’s doing what.
  • Computer screens working in tandem that let workers fling PowerPoint presentations to screens mounted on different walls with gestures or motion-enabled remote controls.
  • Office drones to track down workers, deliver small packages and provide surveillance, along with small screens for real-time video chats with workers.
  • Artificial intelligence at your desktop to take over mundane email and computer tasks.

Manhattan Real-Estate Sales Rise, but Not for the Priciest Properties
Manhattan’s “ultraluxury” residential market — apartments priced at $10 million or more — stumbled in the third quarter while sales strengthened among lower-priced, albeit still expensive, properties.

An analysis by The Wall Street Journal found that overall Manhattan sales picked up in the third quarter following a steep slowdown during the same quarter last year — a time, brokers said, when many potential buyers were caught up in the uncertainties of the presidential election and held off on purchases.

The number of sales rose 14% from the third quarter of 2016, but were still 4.3% below the same quarter in 2015.

Sales were up the most, by 23% for apartments that sold for $1 million to $4 million, a category marketers have taken to calling “affordable luxury.” The number of sales for $10 million or more fell by 25%.

read more: WSJ

BofA Seeks Paris Office for Post-Brexit Trading Space
Bank of America Corp. is in talks to secure office space in Paris to move part of its trading operations to the French capital as the U.K. prepares its exit from the European Union, according to people with knowledge of the matter.

The American bank is in discussions to lease about 100,000 square feet (9,300 square meters) at 51 rue de la Boetie in Paris’s 8th arrondissement, home to the Arc de Triomphe landmark, the people said, asking not to be named because the information is private. Bank of America initially plans to locate around 300 employees in the space, which could accommodate about 1,000 people, they said.

Bank of America declined to comment.

The Paris move comes after months of debate among some of the firm’s most senior investment bank executives over where to shift traders after Brexit. The discussion pitted fixed-income sales head Sanaz Zaimi and her colleague Bernard Mensah’s preference for Paris against equities head Fabrizio Gallo’s favor for Frankfurt, Bloomberg News reported last month.

Some managers suggested the firm split trading by asset class between the two cities, people briefed on the talks said at the time. The firm still must decide where its investment-banking hub will be, the people said. Chief Executive Officer Brian Moynihan said in July that the “preferred location” for the main legal entities in the EU is Dublin, where the company already has a foreign banking license.

read more: Bloomberg

Germany’s Schäuble Expected to Step Aside as Finance Minister
Wolfgang Schäuble, one of Europe’s elder statesmen, is set to bow out as Germany’s finance minister in the wake of the country’s election, ending an era in which he shaped Europe’s response to its debt crisis.

Chancellor Angela Merkel’s conservative party said it would nominate Mr. Schäuble as president of the Bundestag, Germany’s lower house of parliament, a role equivalent to parliamentary speaker in other countries. Mr. Schäuble indicated his willingness to accept the nomination, according to a statement from the Christian Democratic Union and its Bavarian sister party, the Christian Social Union.

Sunday’s election delivered a blow to Germany’s conservative alliance, handing it its worst result since 1949 and weakening its bargaining position in talks about forming a new government. The pro-business Free Democratic Party is expected to demand the finance ministry — the second-most important job in the German cabinet after Ms. Merkel’s — as part of its price for serving in a coalition government.

German policy on Europe is likely to broadly stay the same. The FDP shares Mr. Schäuble’s attachment to strict fiscal rules for eurozone countries, and his doubts about bailout aid for Greece. Mr. Schäuble, a longtime believer in deeper European integration, was somewhat more open than the FDP — or Ms. Merkel — to France’s current push for closer ties among euro members.

Mr. Schäuble, a 75-year-old veteran conservative lawmaker, has been a political heavyweight for three decades. He helped negotiate Germany’s reunification in 1990, the same year he survived an assassination attempt by a mentally ill gunman, leaving him paraplegic. Ms. Merkel ousted and succeeded him as conservative leader in 2000, but he later served her loyally as interior minister and since 2009 as finance chief of Europe’s largest economy.

read more: WSJ

Home Builder Lures Millennials With Offer to Help Pay Their Student Loans
Student-loan debt has been an obstacle for many potential home buyers. Now, Lennar Corp. is trying to do something about it.

A subsidiary called Eagle Home Mortgage plans to introduce on Tuesday a program under which Miami-based Lennar will pay off a significant chunk of the student loan of a borrower who purchases a home from them.

Housing observers said other builders are likely to look to mimic the program, which could help lure more of the critical first-time-buyer segment into home purchases.

Such programs come with the risk, however, that the incentive drives up the price of new homes.

“Obviously there’s a benefit to bringing more people into the home buying market. We’re trying to design something here that supports affordability and creates that path to homeownership,” said Doug Cropsey, a senior vice president at Eagle.

read more: WSJ

How CRE Fundraising Is Changing and Why
There is no doubt that commercial real estate fundraising has been changing in the past few years. Nowadays, there is much competition for high-quality assets, which makes capital distribution even more demanding. We wanted to see how fund managers should react given the circumstances, so we’ve asked Jason Burian, partner in CohnReznick’s Commercial Real Estate Industry practice, to give us a few insights.

First, he pointed out three main steps that fund managers should consider:

  • Maximize alignment with investor preferences — While investors are reacting to increased political and economic uncertainty by shifting to core and core-plus investment strategies, most fund managers are still focused on value-add and opportunistic strategies. Additionally, while investor interest in multifamily and retail continues to dip, office, industrial and mixed-use properties are enjoying heightened attention. Given the increase in competition for capital, most funds have less leeway then they once did to chart their own course independent of prevailing investor desires.
  • Have a clear macro-level view of the direction of the market — The situation is hardly helped by the influx of foreign investors, to whom U.S. compressed cap rates look solid compared with their home markets. Whether or not it makes sense to stay at the table depends on how much higher you think valuations can go.
  • Manage and maximize operating income — Even if it appears that valuations will continue to rise, operating income plays an increasingly crucial role in achieving a 15 percent return on exit.

read more: CPE

Economy Watch: Most Metros Enjoyed Growth in ’16
Real gross domestic product increased in 267 out of the 382 U.S. metropolitan areas in 2016, according to a recent Bureau of Economic Analysis report. Within the metros, there was some variation. Real GDP growth year-over-year by metro area ranged from up 8.1 percent in Lake Charles, La., and Bend-Redmond, Ore., to a drop of 13.3 percent in Odessa, Texas, presumably due to the energy sector’s contraction.

The sectors of the economy that stimulate demand for office space enjoyed considerable growth in most metros, BEA data revealed. For instance, professional and business services grew 2.7 percent across the nation’s metropolitan areas in 2016. That industry contributed to growth in 273 metro areas, most notably in Oshkosk-Nennah, Wis., and Ocala, Fla., which grew 2.6 percent and 5 percent, respectively.

read more: CPE

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