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This Election Day will impact everything – including real estate

Posted on November 2, 2020 by Mike Kushner in Blog, Commercial Real Estate No Comments

Another reminder about the importance of the 2020 Presidential Election? Yes, but with good reason. We’ve been inundated with news, ads, and messages forcing very carefully crafted information upon us. There’s a lot we know about each candidate and their platform, but there is much more than we don’t know. This applies to all candidates and political parties. Tomorrow, the nation will vote for the candidate who represents the values and policies that best align with our own. However, I doubt anyone will say they agree 100% with any, one candidate. So instead, we’ll vote based upon the criteria that are most important to our own views. And if this happens to include the creation of new taxes, particularly on real estate, then there is something very important to consider.

Should Joe Biden become the next President of the United States, his plan includes a new probate real estate tax hidden in his platform that could cause a massive hit on capital gains.

Taxing Appreciation

As proposed by Biden, his new probate real estate tax would end the process of real estate heirs taking probated property on a stepped-up basis and instead require them to pay capital gains taxes on all appreciation that accrued on the property before their inheritance. This would put heirs on the hook for paying capital gains taxes on the appreciation of a property, plus any other profits earned above the current market value once the heir sells the asset.

Existing law is much more favorable to those who inherit real estate. For example, if someone purchased a property when it was valued at $100,000 and died when it had reached a fair market value of $1M, the owner’s heirs would inherit the property at a stepped-up basis of $1M. As a result, heirs under current law do not have to pay capital gains on the $900,000 in appreciation that accrued before the original owner’s death, and if they were to sell the property down the road, they would only pay capital gains taxes on any value above $1M.

Biden’s proposed tax changes as a whole would essentially add a fourth tax bracket to the capital gains schedule of 39.6% on income above $1M, meaning the top rate could reach 43.4% when we include the 3.8% net investment income tax.

How This Affects You!

When your parents pass and leave you the family house normally you inherit that property at what it is worth today. If you would sell that house, you would only pay taxes on what it is worth today and what it sells for. If Biden does away with the stepped-up basis you will inherit the property for what your parents paid for the property. If you decide to sell you will pay taxes on the difference between the original purchase price and what it sells for today.

In addition, a Biden presidency would greatly harm multigenerational ranches and farms by killing the next generation with taxes. Simply put, this election stands to drastically change the transfer of generational wealth as we know it.

It’s Not a Done Deal

First, nothing is known until after November 3 and the election results are tallied. Should Biden win, the change is far from a done deal as his plan could change or be voted down by the legislative branch.

Then there are some unknowns in Biden’s proposal, and how those are worked out could make the tax changes less of a blow, or even worse. For one, it’s unclear if death itself becomes a “taxable event” that forces heirs to pay capital gains taxes on all appreciated value at the time of their inheritance. It’s also possible the Biden plan may allow heirs to inherit real estate on a carry-over basis, so they only have to pay for the years of appreciation when they sell the asset, not at the time of inheritance. Another option is that heirs could spread their taxes out over time.

What is known is that if you care about these changes, and stand to be negatively impacted by them, casting a vote is the best way to voice your opinion on the matter. This is not to say any other candidate does not also plan to change other aspects of the tax structure, which will have a negative impact on at least one sector of the population. This is all the more reason to do your research before taking to your polling location.

The Big Takeaway

Regardless of candidate or political affiliation, the thing that matters most is that you cast a vote, and you do so being as well informed as possible. If you have chosen to vote in person, you still have ample time to do your own research and look for reliable sources. And when you do vote, consider what is most important to you and the candidate most likely to uphold this viewpoint when in office.

No matter the outcome – November 3, 2020 will be a historic day for the world!

What Does ‘Back to Business’ Look Like Post-COVID? – Part II

Posted on July 13, 2020 by Mike Kushner in Blog, Commercial Real Estate, Local Market, Retail No Comments

This is Part II in a two-part series where we look at how commercial spaces must adapt and implement new policies to adhere to social distancing guidelines. We interviewed Matt Luttrell, Partner at ThYNK Design LLC for his input on this timely and important topic. In Part I we focused on the issue of square-feet per person requirements in buildings and how this will limit capacity. We also discussed how HVAC systems might be used to create fresh air and healthier work environments. Now, we’re going to shift our focus to other tools and tactics commercial spaces can use to keep the spread of COVID-19 down. Keep reading to find out what these are.

Omni: Aside from greatly adjusting the layout according to social distancing guidelines of commercial spaces, what other changes or precautions could be taken to adhere to revised distancing guidelines in a more efficient and effective manner?

ML: When possible, the ability to predict and schedule activities and users can be a great tool for optimizing the use of space. In K-12 educational environments, the circulation of students and faculty is highly planned and will become even more necessary to ensure that occupant use and density do not overwhelm resources and create unhealthy situations. Likewise, it appears that restaurants will need to enhance and promote reservation systems to manage seating and staff while using delivering and curb-side services for extended patron options. More movie theaters will use on-line reservations and pre-selection of seats. These commonplace practices can have long-term as well as short term benefits and will most likely become more prevalent in our daily experiences.

Omni: You talk about the importance of scheduling as a way for schools and businesses to manage capacity and social distancing. But what about when this is not an option?

ML: When scheduling or reservations are not an option, such as in retail or grocery store settings, human or automated occupancy counters are being used to limit the number of users at any given time. Employing staff to do this can be quite costly, and if we’re honest, not a desirable job. For automated options, there are many venders, such as Sensource, that provide hardware and software that can easily be set up and adapted to an organization or business’s specific needs.

Omni: Beyond limiting capacity in a space, what other precautions can businesses take?

ML: Thermal scanning of customers or guests determines if individuals have an elevated body temperature so that buildings can prevent a person showing symptoms from entering. This is another effective mechanism for controlling the spread of virus. There are readily available systems for small businesses that range from a $100 handheld scanner for checking individual temperatures to group and line screening systems for approximately $5,000. TEquipment.net provides an array of options for consideration.

Additionally, masks seem to be one of the more accessible and more effective tools for moving forward. While they are not 100% effective, it appears that they may significantly reduce transmission via air, which seems to be the primary source. No one seems to want to quantify how effective masks are, but based on common sense, the practice appears warranted. Given the ease, minimal costs, and purported effectiveness, masks seem to be the most readily available option for reopening our society without inundating our current resources.

No system is fail-proof, but simplicity and redundancy are always good principles when evaluating options.

Omni: In your opinion, can common areas like waiting rooms, break rooms, or lobbies realistically adhere to new CDC social distancing guidelines?

ML: These spaces are pinch points within every building. While they are designed to accommodate the building’s occupancy load, they are not intended to minimize interactions; they are generally shared spaces designed for efficiency and ease of use. Accordingly, each type of space has its challenges and should be evaluated for options, but these spaces are inherent barriers without actively implementing changes to a buildings configuration and/or user actions.

Reconfiguration can be a costly endeavor, especially if it is a short-term solution. Repurposing spaces may be a solution that allows for relief. Several areas traditionally found in a building, such as conference rooms and breakrooms, can be repurposed to address immediate needs. Breakrooms may be better utilized as an office or workspace for a limited number of employees, while employees are required to eat at their desks. Conference rooms could also become workspaces, or often, these rooms are located close to or adjoin lobbies/ waiting rooms and can become an extension of the room. These are potential short-term solutions and should involve an evaluation of HVAC, lighting, power, egress, and other potential code implications.

Omni Realty Group thanks Matt Luttrell for sharing this valuable insight to help us to better understand the challenges many business owners face when it comes to renovating and recreating commercial real estate space to accommodate social distancing and sanitization both now, and for what many feel will be long into the future. If you missed Part I of this two-part series, be sure to check it out here.

Do you own or work in a commercial space – office, retail, or industrial? What do you see being the biggest challenge related to COVID-19 required changes? Join in the conversation by leaving a comment below.

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What Does ‘Back to Business’ Look Like Post-COVID? – Part I

Posted on July 8, 2020 by Mike Kushner in Blog, Commercial Real Estate, Local Market, Retail No Comments

Based on the continually evolving data and recommendations, the efforts to mitigate the spread of COVID-19 while pursuing a more normalized personal and professional life has focused on separation, isolation, and decontamination. As things currently stand, it appears that the only potential remedy to return to a pre-COVID-19 environment is the development of a vaccine. In the meantime, business owners and professionals are faced with living with less than ideal situations. Some wish to persist with maximum isolation and separation; however, it appears that the majority have deemed the consequences of shutting down all interactions beyond a household as untenable, and have demanded that measures be developed to support an acceptable level of social and professional interaction. What is acceptable? Well, that is a matter of individual choice.

To help provide some insight on what options exist for businesses to re-open their doors to employees and the public we asked Matt Luttrell, Partner at ThYNK Design LLC, to weigh in. ThYNK Design, LLC is a modern architectural firm pursuing a better way to develop, deliver, and celebrate the immense value of good design. Given his experience and background, Matt shares some valuable information to help frame and evaluate some of the inherent issues in the built environment that conflict with the proposed social distancing guidelines. Here’s how he responded when Omni Realty Group asked him several key questions.

Omni: What industries are likely to be most impacted by the proposed revised building code distancing guidelines?

ML: The restaurant industry may face the greatest short-term and long-term challenges. The proposed social distancing guidelines directly conflict with historic planning principles as well as the industry’s business model. However, each restaurant, business, and building should be evaluated to determine what resources are available to develop an effective mitigation plan.

Omni: How will the introduction of new social distancing constraints impact the long-term viability of most existing buildings?

ML: With the recognition that the design and development of the built environment is in response to many considerations, including; user needs, business models, and building code requirements, the introduction of new constraints that directly conflict with established practices will challenge the long-term viability of most buildings. These challenges focus on developing an environment that effectively manages occupant density, frequency, and duration of interactions, surface contaminants, and air quality. To effectively manage these challenges, an inventory and understanding of the available resources and building configuration are required. These can include: building area, sizes of rooms, type, and capacity of HVAC system, operable windows, number of entry/ exit points from a space or building, quantity, and location of shared facilities (toilet rooms, break rooms, waiting areas) and flex spaces.

Each resource can impact the effectiveness of a mitigation plan and should be carefully considered, but the most significant challenge is how to overcome the area requirements per person. Expanding a building, reconfiguring interior spaces, and adding entry and exit points are not readily done. In addition to the expense, the required time frame for approvals and construction is prohibitive.

Omni: Can you provide more information to paint a picture of the potential magnitude of the problem you’re describing?

ML: The proposed social-distancing guidelines recommend a density of 1 person per 113 SF (area of circle with a 6′ radius) whereas standard planning practices include densities that are 2x to 10x higher.

Following are the maximum area allowances, per the 2015 International Building Code, for several of the more common functions included in buildings:

Assembly spaces:

-with concentrated chairs (lecture halls, waiting rooms, etc.):
- One occupant per 7 SF
-standing room (lobbies, areas holding events such as cocktail hours):
- One occupant per 5 SF
-unconcentrated chairs and tables (restaurants, breakrooms, open office)
- One occupant per 15 SF

Business areas: One occupant per 100 SF

Classroom: One occupant per 20 SF

Exercise rooms: One occupant per 50 SF

Retail: One occupant per 60 SF

Compared to the recommended 113 SF (area of a circle with a 6 radius) per occupant you begin to see the potential implications. As an example, a worst-case analysis would provide the following reductions:

Example 1: For a restaurant with a dining area design occupancy of 100 (15 SF per occupant) the occupancy would be potentially reduced to 13 occupants at 113 SF per occupant. This is a worst case and does not consider that you may have a family grouped so that they are separated from other family groupings.

Example 2: A classroom designed for 25 occupants could have a reduced occupancy of 5.

As indicated by these examples, if we want to remain economically viable, then social distancing cannot be the only criteria for determining the use of a space.

Omni: How do commercial HAVC systems currently play into the issue, whether standing to hurt or help air sanitization and circulation in shared commercial spaces?

ML: For most people, the quality of a HVAC system is based on the system’s ability to control the temperature of a space. Only in the relatively recent past (10-20 years) has the industry focused on delivering improved air quality, increased fresh air, controlled humidity, and energy conservation within the typical system. Each of these four items should be evaluated as a potential resource or barrier for developing a mitigation plan. In the current environment, an incorrect understanding or use could potentially have disastrous consequences and it is highly recommended that a contractor or engineer be consulted to determine the full capability of your system.

Omni: Could you give a bit deeper into the impact of air quality on comfort and health?

ML: Air quality may be one of the more challenging issues when it comes to controlling a virus. One of the more prevalent components for managing air quality is the filter. The systems air-filter is rated according to the level of filtration needed/ desired for a given environment. According to Grainger.com, “What Is MERV Rating? Air Filter Rating Chart,” most commercial and residential buildings will have filters that range from a MERV 5 to MERV 12. A MERV 5 rating filters particles down to a 10.0 micron level and a 12 filters down to 1.0 micron level. A MERV 12 or higher, which is not very common outside of critical healthcare and clean-room environments, effectively filters pollen, dust mites, mold, and even cement dust.

However, according to various publications, the coronavirus average size is 0.125 microns. While this is substantially smaller than the particles that are filtered, it does not mean that these particles freely pass. This is due to a variety of reasons, but one of them has to do with humidity. Dry air allows particles to float freely/ unattached, while humid air promotes particles binding together. The larger particles are more readily filtered or trapped. A similar concept applies to our lungs. When we breathe air that is too dry it reduces the amount of mucus within our bodies; thus, part of our human filtration system is compromised.

Omni: Is there any research to back this up?

ML: A study conducted in Sydney, Australia indicates that the reduced humidity conditions associated with winter weather can lead to an increase in COVID-19 cases. The researchers identified that a 1% decrease in humidity could lead to a 6% increase in cases. So, what is the ideal relative humidity? In this case, it appears that the industry recommended RH of 40% to 60% corresponds with the current recommendations for mitigating COVID-19. Too little humidity and the filtration system is compromised, too much humidity and mold growth is supported.

Omni: So then, how is indoor humidity controlled?

ML: A/C systems are primarily designed for thermal control. Thus, most A/C systems control humidity by circulating warm, moist air over cold coils, which leads to condensation, which is collected and drained away. The key here is ensuring that the AC cycles the proper amount of time to allow the warm air to be adequately circulated over the coils and the moisture removed. This process relies on the A/C unit being correctly sized. This involves a variety of factors, including the number of people in a facility.

In essence, if a system is sized to provide cooling for 100 people, it accounts for the amount of energy/ heat and moisture generated by 100 people. Accordingly, it will work to get the temperature where it needs to be while accounting for the amount of humidity that needs to be removed. If the occupant load is reduced to 50, then the system is effectively oversized and will get the air to the desired temperature before it has a chance to remove the humidity. This leads to RH levels that can far exceed the recommended upper level of 60%.

Omni: What connection do you see between fresh air and healthier work spaces?

ML: Fresh air, or air that is not recycled, has become an integral component in the development of an HVAC system that supports overall occupant health. Sick building syndrome (SBS) developed following efforts to close-up buildings to establish greater energy efficiency, and a quick search will indicate that the SBS symptoms are frighteningly similar to COVID-19. The introduction of fresh air into a HVAC system does two things: it dilutes the air and pollutants, and it helps to pressurize a building. Diluting air is readily understood, but proper pressurization is equally as important. If a building is not properly pressurized, then air can start to stratify and pockets of dead-air form. This can allow areas of a building or room to be filled with contaminated air that can promote the spread of a virus. Most new systems include fresh air as required by the building code, but many older systems do not. A professional should be consulted to determine if your system incorporates fresh air or if it can be modified to do so. Simply put, a properly sized HVAC system that incorporates fresh air is a critical component in supporting occupant health.

As we move forward in this new environment, we seem to come across unforeseen challenges every day. But the response to all challenges is the same: assess, move-forward, reassess, move-forward… The one certainty is that we must be persistent in creatively evaluating the situation and developing solutions based on available resources. Stay tuned for Part II where Matt presents us with even more information on your topic!

Do you own or work in a commercial space – office, retail, or industrial? How do you feel like impact of COVID-19 will require changes be made to the configuration and functionality of your space? Please offer your comments or experiences in the comment section below.

Commercial Spaces Likely to See New Requirements for HVAC Due to COVID-19

Posted on June 1, 2020 by Mike Kushner in Blog, Commercial Real Estate, Local Market, Trends No Comments

COVID-19 has changed life as we know it. The home office became the new workspace, video conferencing replaced in-person meetings, events shifted to virtual delivery, and parents became homeschool teachers while trying to balance career demands. It’s safe to say that the majority of people are looking forward to a time when they can return to work and feel a sense of normalcy again. One of the most important elements of this being possible in the near future is the ability for businesses to create a safe and sanitary work environment while adhering to CDC guidelines. The sooner this can be accomplished, the sooner commercial spaces can begin to reopen.

Some of the most important considerations are how to effectively filtrate, circulate and sanitize the air in shared and common spaces to reduce the spread of viruses. What options exist to improve air filtration and sanitization in shared office, retail, or industrial work spaces? And what new requirements might we expect commercial spaces will need to adhere to in order to ensure a safe work environment for their employees?

To lend some expertise on this topic, Omni Realty Group turned to John Gunning, who is the Senior Mechanical Engineer at McClure Company, based in Harrisburg, PA. Working within the Engineered Services division, he is responsible for the design of building mechanical systems for the commercial, educational and industrial markets. He is a licensed Professional Engineer in Pennsylvania and a LEED Green Associate. John is McClure Company’s in-house expert on the subject of ventilation and dehumidification and is frequently asked to speak at both technical and non-technical seminars regarding these subjects.

We asked John a series of questions related to how office, retail, and industrial spaces may need to adjust the functionality of their air filtration and sanitization in light of COVID-19. Keep reading to learn what he predicts to be the “new normal” of commercial HVAC requirements in Pennsylvania and beyond.

Omni: Prior to COVID-19, what was considered the standard level of air filtration in most office spaces?

JG: Pre-COVID we would expect to see 1-2” thick filters with a MERV 6 to MERV 8 rating. However, some systems may use lesser rated 1” filters, MERV 4 or less, with mesh or washable media.

Omni: As people return back to physical office spaces after stay-at-home orders are lifted, what changes do you anticipate businesses making to their office spaces to be more sanitary for their workers, particularly as it relates to HVAC and air-filtration considerations?

JG: With much of the discussion of the transmission of COVID revolving around the virus in aerosol form, we can anticipate businesses thinking of their HVAC system as more than just a tool to keep the space at the correct temperature. Building codes require outside ventilation air to be introduced into the building to dilute contaminants. Over time, outside air dampers may have been closed for reduced energy usage or for service and there may not be sufficient ventilation air being provided to the building. The American Society of Heating, Refrigeration and Air Conditioning Engineers (ASHRAE) has also issued this position document which includes recommendations for building owners. Among the recommendations are upgrades to a minimum MERV 13 filter and use of ultraviolet (UV) lights in the airstream. Previous studies have also shown that optimal humidity range for human health and reduced infection rates of seasonal Influenza and other viruses is 40-60% relative humidity.

Omni: What are the options available for a higher standard of air-filtration in commercial spaces?

JG: Most commercial HVAC equipment will except a 2” filter. A 2” filter can be manufactured with an efficiency rating up to MERV 13. However, there is a trade-off in both cost and in energy usage as the more efficient filter will have a higher air pressure drop. This higher pressure drop requires greater fan horsepower to move the same amount of air through the filter as compared to a lower efficiency filter.

Omni: In your opinion, what industries most need to make such improvements to air-filtration?

JG: At present, healthcare facilities and some manufacturing businesses are the industries whose filter requirements must meet or exceed the latest ASHRAE recommendations related to preventing the dissemination of airborne pathogens. Office, Retail, Education and Hospitality business are candidates for filtration upgrades as more people return to utilizing these spaces.

Omni: In addition to HVAC and air-filtration changes, what other improvements might you suggest to business owners to increase the cleanliness of their air quality?

JG: Active dehumidification is strongly recommended in order to keep the space’s relative humidity below 60 %. Limiting cooling season humidity can also reduce the risk of mold growth which can be a source of respiratory issues. On the other end of the spectrum, maintaining humidity levels above 40% is of equal importance. To that end, we expect more owners to consider the use of humidification in the heating season. Incorporating UV lights, in the supply air stream, is documented by ASHRAE as an effective method to deactivate genetic building blocks of viruses. While newer, bi-polar ionization shows potential as a technology capable of deactivating airborne viruses, it has yet to be recommended by ASHRAE. When outdoor conditions permit, increasing the use of outdoor air to dilute indoor contaminants is beneficial.

Omni Realty Group thanks John Gunning for sharing this valuable information and helping us to better understand the changes that may need to take place to improve air filtration and sanitization in commercial spaces as the result of COVID-19. During this unprecedented era in all of our lives –and the history of the world – it’s so important to arm yourself with knowledge and options that exist to continue to improve the health and safety of our communities where we live, work, and play. John’s insight and explanation of enhanced HVAC filtration requirements for commercial spaces should be helpful to all Central Pennsylvania businesses who are looking for additional health measures they can put in place for the safety of their workers.

Do you work in a commercial space – office, retail, or industrial? How do you feel like impact of COVID-19 will require changes be made to the air filtration and sanitization in your space? We welcome you to share your questions or reflections in the comment section below.

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What does the major shift to virtual offices mean for commercial real estate?

Posted on April 28, 2020 by Mike Kushner in Blog, Commercial Real Estate, Trends No Comments

What does the major shift to virtual offices mean for commercial real estate?

All across our nation, businesses that once functioned from physical office space had to quickly transform their processes to function remotely as the government mandated stay-at-home orders to prevent the spread of the Coronavirus. This proved to be a strenuous and uncomfortable transition for most businesses, regardless of size or structure. Businesses with just a handful of employees, all the way up to organizations and institutions with thousands of employees scrambled to piece together the technologies and protocol that would allow them to remain functional, even when separated physically.

The typical boardroom meetings turned into Zoom calls, workshops and trainings that were to be conducted in-person, needed to mold into virtual delivery, and much more. As is to be expected, there was a steep learning curve and many technological challenges to overcome.

Now that Pennsylvania is more than a month into its statewide stay-at-home orders, many businesses have found new normal of working virtually. This is encouraging for those businesses who have managed to survive, and even thrive amidst such volatile times for our economy. However, it presents an uncertainty as to how businesses will choose to resume their traditional work environment, when they have permission to do so.

The Impact on Commercial Office Space – Nationally

Before COVID-19, around 43% of workers “occasionally” worked from home [versus 39% in 2012], 62% of workers said they could work remotely, and 80% of workers wanted to work from home at least “some of the time.” Working (remotely) through this pandemic will likely increase those percentages, spelling rough waters ahead for office landlords. Now during the stay-at-home and work-from-home orders, employers are seeing how they can operate with some or all their employees working remotely, and even do so as or more efficiently than when working from their traditional work environment.

As a result, it’s likely many employers will closely consider how they might leverage the cost-savings associated with reducing or completely eliminating the overhead of physical office space, which will result in increased office space vacancies, shorter leases, reduction of space needs from renewing tenants and less money available for tenant improvements. Vacancies will rise dramatically before they slowly decline. With approximately 8.1 billion square feet of office space nationally, the expected addition of another 335 million square feet through 2024 is very much in doubt.

The Impact on Commercial Office Space – Locally

Being the home of Pennsylvania’s capital will provide the Central PA region with some shelter, but there is little chance this market does not cool in the very near future. Employment gains have underperformed the national average for the duration of this cycle, and demographic trends are unfavorable. Residents are older, population growth is slow, and the state’s fiscal situation is, quite frankly, a mess.

Harrisburg is an underdeveloped capital compared to Columbus, Albany, and Annapolis; and the cultural epicenter of central Pennsylvania is in Lancaster. Harrisburg is trying to evolve into a knowledge-based economy and has adopted business-friendly incentives that have helped create nearly two dozen tech startups, which have generated 1,000 jobs. But the backbone of the economy still lies with Hershey and Rite Aid, which have headquarters in the region.

Fortunately, Central PA also has a strong education and medical economy that is reflective of statewide employment. Education and health services jobs, which now track evenly with government jobs in the state’s capital, grew by more than 4% annually. Expanding employment opportunities have increased demand for office space, and employment in office-using industries is well above pre-recession figures; but this remains, and likely will remain, a slow-growth market. Additionally, Pennsylvania as a whole will likely face significant financial problems after the virus subsides.

Vacancies currently sit at close to 6.6%, representing a year over year change of 0.0%, but are almost certain to spike in the very near future. While 12 month absorption figures (9,300 square-feet) can be negative, vacancies remain under control thanks to limited levels of new supply. The limited demand, and high number of small businesses operating here, could hamper the city for years if the quarantine carries on for months, as the federal government is estimating it will.

A New Work-From-Home Paradigm

When it comes to navigating the new work-from-home paradigm, we can expect “work-from-home” policies to be established to assure proper decorum, productivity standards, communication, and online protocols. Also watch for the adoption of four-day work weeks, shorter workdays, and greater reliance on technology for current employees. Extensions of sick leave “banking” and “healthy-to-come-to-work” standards are likely to become commonplace.

From the tech side of things, the use of platforms like Zoom, Go To Meeting and Blue Jeans video conferencing technology will become more popular alternatives than traditional in-person meetings. There will also be an increased expectation that these meetings will be as, or more productive than in-person meetings. Board management software and other secure online document management such as DocuSign, DropBox, and shared drives could electronically account for 70% – 75% of all “approval” transactions, for businesses who require such. Robust CRM (customer relationship management) platforms will be used increasingly to interact with customers and clients. Additionally, automation and outsourcing could replace 20% – 30% of employees who perform clerical, accounting, and administrative functions.

A Looming Recession

No matter how you look at things, the bottom line is that this pandemic will push the U.S. into a recession. There’s simply no way around it, at least immediately. Overall GDP growth in 2020 is expected to decline 10% – 13% which is the deepest recession on record. Some expect unemployment could rise to 10% – 15%, or higher, assuming a COVID-19 peak occurs by the 3Q.

The Central PA region has been significantly impacted by the Coronavirus. As of first quarter, the country closed up businesses and the federal government is estimating it will take months before there is a return to normalcy. There is no telling how long the shut out will occur, or what impact it could have on the Central PA office market, though it will likely be immense. Unemployment numbers are beginning to spike, and in the coming weeks, it is likely that hundreds of more businesses could fail, even with the Governor’s promise of reopening the Commonwealth on May 8. Additionally, rents will likely decline as vacancies skyrocket, and construction and investment activity will likely remain extraordinarily limited through the remainder of 2020.

The fundamentals of how Americans live, work, shop and play have changed and will not return to historical norms of behavior, consumption and lifestyles. The year 2020 will be analogous to the impacts of and transformative changes resulting from the Great Depression [1929 – 1932], which took more than 10 years to recover.

Where do we go from here?

Commercial real estate must look at this as an opportunity, just like every industry, to pause and pivot. The market prior to COVID-19 will not be the same market to which we will return. But we will return to something and we must learn to navigate this new landscape by remaining flexible, thoughtful, and strategic. Historically, Central PA has been able to withstand some of the most tumultuous economic storms on the past. Yes, gains are about to take a hard hit as the Coronavirus tears through the commercial real estate world, but this only means we need to bear down an be open to opportunities wherever they may arise.

One of the hardest hit areas of commercial real estate will be new construction. With little supply underway at second quarter, and the Coronavirus halting construction across the world, there is very little chance this market sees any notable projects deliver this year. Most projects since 2015 have either been build-to-suit efforts or significantly pre-leased prior to ground break.

With most new construction on hold, there could be the opportunity for existing office renovations. Many businesses may be looking to reconfigure their space to better isolate employees, adhere to whatever new social distancing protocols come from this, or install sanitary features like air purifying systems. Commercial real estate construction companies and developers would be wise to shift their focus to this type of work.

Another hard hit sector will be companies that provide shared and collaborative office space, like WeWork. In fact, society as a whole is likely to question the open office, collaborative work space, and creative office floor plans. Many businesses and sole proprietors chose to cancel their memberships to such services during the pandemic and it will be exceptionally challenging to regain all that was lost once the stay-at-home orders are lifted. For those who have found that they can effectively work from their own home office spaces, they may continue to do so in an effort to lighten overhead costs. Others may have been hit so hard by the pandemic that there is not a business to which they can return, further reducing their need for office space.

Again, the opportunity here is to reconfigure both the physical shared office spaces to be better isolated and sanitary, but also rethink the business model of how companies charge for space. Being flexible and fluid for business owners as they navigate the new normal is key right now.

To close on a positive not, the one clear winner in the office sector will be healthcare, medical office buildings, and biotech facilities. This sector is expected to grow 10% – 16% annually over the next decade as the entire local, county, state, and national healthcare facilities infrastructure and platform are reshaped, integrated and expanded as society mends and strengths as a result of a pandemic like the world has never seen.

If you are a commercial real estate professional, how have you been impacted thus far by COVID-19. Or if you are a business owner or employee who has transitioned to a virtual work environment, how do you anticipate this experience to transition your “new normal” once the stay-at-home order is lifted?

Join in the conversation by leaving a comment below.

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How Will Trump’s Tariffs on China Impact Commercial Real Estate?

Posted on August 8, 2018 by Mike Kushner in Blog, Commercial Real Estate No Comments

Note: This article was published by the Central Penn Business Journal. Click here to read the original version.

Earlier this summer, President Donald Trump approved tariffs on about $50 billion dollars in Chinese imports. Some fear this is certain to escalate a trade war between the world’s two largest economies. While others argue the short-term setbacks are outweighed by the long-term political and economic benefits. Which side will prove to be right? Only time will tell.

What we can expect, with a great deal of certainty, is that these tariffs will have a ripple effect on the United States’ commercial real estate industry. CRE professionals should be on high alert for several, short-term impacts that stand to reshape the investment decisions we make for the next five to ten years. Keep in mind, the tariffs must still undergo a review process, with hearings this month; however, should they be approved, here are the near-future impacts CRE professionals must be prepared to manage.

Higher Permanent Debt Costs and Construction Costs

CRE professionals should prepare for a 10-Year Treasury of about 3 ½ to 4%. Additionally, it’s reasonable to expect an increase in both permanent debt costs and construction costs. Higher prices for commodities, like steel, will hurt construction and infrastructure projects. The U.S. is already seeing more than 5% materials inflation in construction, and given these recent actions, it’s reasonable to predict this number could rise as high as 10%.

CRE Renovations Over New Construction

If the prices of construction materials increase as expected, this will change the landscape for how CRE professionals are investing in commercial real estate. An increase in raw material prices (aluminum and steel) would accelerate the trend for inflated construction cost that has already been going for years. Foremost, higher construction costs will make buying an enhancing existing commercial real estate the smarter investment over new construction.

Temporary Decrease in GDP

Even though the third quarter is normally the strongest quarter of the year, the addition of these tariffs could cause the GDP to fall below 3% this fall. However, this decrease in GDP will only be temporary if Trump prevails. It will take a patient economy to “ride the wave” until 2019 when it’s expected that GDP will reach 4% with exports rising.

Increased Inflation

In the short-term, these tariffs and counter-tariffs are predicted to add to the currently elevated 2.8% annual inflation. Let’s not forget that this inflation has already caused the Fed to raise rates in June and provides guidance for two more hikes in the second half of 2018.

What This Boils Down to for Commercial Real Estate

Commercial real estate (as well as residential real estate), is intricately linked to virtually every aspect of our nation’s economy; we often look to our construction and housing markets as a barometer to gauge current economic temperature, endurance, and vulnerability. The recent tariffs not only increase the costs of materials, but they may also ignite a global trade war, both of which can have a significant, negative impact on both local and national commercial real estate.

However there is one positive angle to consider. While much of the industry may feel the squeeze of elevated costs, the recent aluminum and steel tariffs don’t mean doom and gloom for the entire commercial real estate vertical. There is one sector that actually stands to benefit from the recent market flux: current property owners. Landlords of existing buildings won’t have to worry about increasing rents to cover new and unforeseen materials costs. These building owners can offer extremely competitive rent prices to potential tenants, ultimately undercutting the competition and stealing market share.

What other impacts do you anticipate Trump’s trade tariffs to have on the United States’ economy, within CRE or beyond? Do you feel short-term impacts outweigh long-term benefits or not?

Join in the conversation by leaving a comment below!

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Major Trends Impacting Central PA’s Retail Real Estate Market in 2018

Posted on May 24, 2018 by Mike Kushner in Blog, Local Market, Trends No Comments

For Central Pennsylvania’s retail real estate market, things are off to a, well, interesting start. The market has seen its fair share of ups and downs in recent quarters, and 2018 is no exception. On one hand, major retailers continue to shutter brick and mortar locations across the Susquehanna Valley. At the same time, other retailers are making the move into new locations. It can be hard to grasp what’s really going on in the market. Does the good outweigh the bad? What will the next quarter bring? The next year? For the answers, we turn to an expert.

Senior Market Analyst with CoStar Group, Chris LeBarton covers commercial real estate data in markets stretching from Western Maryland, including the Baltimore metro area, up through Central Pennsylvania for CoStar’s Market Analytics platform. His insight and expertise are helpful for understanding not only where the market currently stands, but how it’s likely to move in the future.

Chris joins Mike Kushner of Omni Realty Group for a Q&A series where we specifically look at the current state of Central Pennsylvania’s retail real estate market – as well as trends and challenges that stand to reshape things in 2018 and beyond. Here’s how Chris answers our most pressing questions.

Omni: With a net absorption of almost 95,000 SF, the Harrisburg East Retail submarket had a great bounce back quarter in Q1 2018 after four consecutive featuring net move outs. Can you elaborate on the various factors contributing to this?

Chris LeBarton: Retail leasing on the east side of Harrisburg has been fairly whippy this cycle, and certainly since 2015. So, putting too much stock into it is unwise. Minus Hobby Lobby’s move into almost 70,000 SF at Colonial Commons, this looks like less of a win. With that said, there are some strong pockets of buying power (median household income x households) in this submarket, including parts surrounding Colonial Park. In fact, Dauphin County has been one of the faster-growing counties in Pennsylvania since 2010.

Omni: What were the largest lease deals that took place in Central PA’s (Harrisburg East and Harrisburg West) retail real estate market in Q1 2018?

Chris LeBarton: Hobby Lobby’s move-in was the standout for sure, but there were a couple other sizable deals in the region. There was 15,000 SF leased in Carlisle on Newville Road and Ideal Auto Body absorbed 11,000 SF in Hanover. Also, Generations of Furniture signed a three-year deal on roughly 8,100 SF in Lancaster.

Omni: Amidst recent, massive retail closings, how would you say Central PA has responded/rebounded? What factors contribute to your assessment?

Chris LeBarton: Few areas are immune to the wave of big-box retail closings; stores like Kmart, Sears, Boscov’s, Macy’s and Toys R Us were once ubiquitous across the country. But a review of the biggest names shows fairly limited exposure in Central PA. Simply based on population density, natural tourism corridors, and buying power, this region isn’t swimming in malls and power centers. A review of a dozen or so metro areas inside Central Pennsylvania shows that, overall, vacancies are largely where they were coming out of the crash and in some cases improved.

In addition, several retailers that did not have a presence in Central Pennsylvania have absorbed space vacated by some of the big box closings. Stein Mart, Home Goods, and Hobby Lobby moved into the former Kmart on the Carlisle Pike. In Lower Paxton Township, Hobby Lobby opened in the former Giant Foods location and Giant moved across the road to the space vacated by Gander Mountain. At the Capital City Mall, Field and Stream moved into the former Toys R Us location. Overall, Central PA should feel encouraged that the region was no by means hit the hardest, compared to others. In fact, some significant regrowth has occurred as a result of many of these retail closings.

Omni: In your opinion, what are some of the future trends you expect to see in the Central PA retail real estate market?

Chris LeBarton: Mixed-use projects offering at least live-play (work there, or nearby, is an added bonus) with smart ground floor retail are all the rage. If areas outside of the major urban centers want to grow their population, they need to think about approving these types of projects. Naturally occurring affordable housing is becoming a big draw for those who want a nice place to live, but don’t want the high price tag. Developers who are trying to overcome the challenges of rising land and labor costs are looking more and more at secondary and tertiary markets, and there’s no reason Harrisburg can’t accommodate small-to-midsized projects with local/authentic retailers.

Another trend on the rise is related to the last piece of the “last mile” industrial craze and e-commerce. Central Pennsylvania is booming with warehouse and distribution construction; as a result, the biggest population centers in the region may see retailers testing new concepts here. Amazon Key, a home delivery service, opened in close to 40 cities last fall, and Walmart is doing all it can to keep up with the biggest player in the space. It would be reasonable to think that such trends could make their way to the Central PA retail real estate market as well.

While technology and the shift in the way consumers prefer to shop and purchase goods has had a significant impact retail real estate, we can expect the market to react and adapt – just like any industry must to stay afloat. The key to survival is for retailers to stay in front of emerging trends, keep an eye on competitors, and be willing to evolve.

How do you feel Central PA is responding to the changes and challenges taking place in the local retail real estate market? Are you more hopeful or more concerned? Share your thoughts by leaving a comment below!

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6 Things Disrupting Commercial Real Estate in 2017

Posted on April 13, 2017 by Mike Kushner in Blog, Commercial Real Estate, Trends No Comments

2017 has already brought with it a lot of change, and we’re just getting started. The New Year began with a new president, new policies and new regulations – and the full impact of all of this remains to be seen. As technology continues to advance at a rapid pace, the new ways in which we share and archive data is also impacting many industries, including commercial real estate (CRE).

This year has the potential to make significant changes to CRE. Some of these changes are good and some will cause us to adjust our business model and rethink the way we invest, build and lease. Take a look at the six things disrupting CRE in 2017.

Technology that threatens to replace traditional brokerage

Thanks to technology, CRE data is more ubiquitous and transparent than ever before. This enables tenants to quickly and seamlessly lease space online in a cost-effective, real-time manner. While this seems like a win for the tenant and landlord, it potentially threatens traditional brokerage models – cutting them out of the process. Brokers would be smart to diversify and expand their services to include consulting, investing in data and technology and collaborating with startups.

Shifting demographics

Right now we are seeing growing urbanization, baby boomers living longer, and millennials making lifestyle choices that differ from those of previous generations. Simply put, shifting demographics make it especially challenging to know the next best investment in CRE. While technology can be one of the biggest disrupters, in this instance it is an asset to helping CRE professionals stay on top of demographic trends. Software that accurately tracks and analyzes shifts in demographics is a valuable opportunity for CRE investors and developers to identify what type of space is in demand.

Demand for shared and flexible work space

Speaking of demand, co-working spaces, flexible leases and pop-up office locations that businesses can rent for just a day or two are growing in popularity. What professionals are now referring to as “the sharing economy” is disrupting the way many organizations lease and use CRE. What this means to investors and property owners is they need to adjust their spaces and leasing models to keep up with their competitors. Startups want configurable spaces and flexible leases to meet the ebb and flow of business growth. CRE needs to rethink its approach to space design, lease administration and lease duration.

A focus on “healthier” spaces

Advances in technology now provides the potential to promote occupant health and wellness in CRE spaces! Sensor data can be used to monitor ventilation levels, create a healthier environment, and as a result, boost occupants’ employee productivity. Properties that invest in implementing these technologies can add value, and a competitive edge, to their space as society increases its desire to live, work and place in “healthier” spaces.

Mass closing of brick-and-mortar retail locations

2017 began with an onslaught of major retail locations closing the doors to stores across the nation. Central Pennsylvania is no exception. As many of these retailers try to “right the ship” and avoid bankruptcy, they are shifting their focus toward online retailing. Malls and shopping centers, who relied on these stores as their anchor, are also scrambling to find their footing or risk closing their doors as well. The good news is that many of the vacated locations are able to find another business wishing to move in. This also provides the opportunity for the redevelopment of retail locations. For better or worse, the disruption of online retailing is one that is here to stay.

Evolution of distribution and logistics

In theme with the major movement toward online retailing, consumers have become accustomed to quick distribution and delivery of goods – in some cases, same day. As a result, this disruption increases the demand for large retail and industrial spaces that can function as two property types, such as retail properties that double as fulfillment centers. This could be a very good things for owners of industrial spaces who can potentially focus on smaller and more flexible spaces within cities to enable faster delivery.

Change is inevitable and this year is poised to bring a lot of change to commercial real estate. Nevertheless, much uncertainty remains as the government puts into place new policies and regulations. Additionally, it’s difficult to anticipate what new technologies could be released at any time and further impact CRE. With all that in mind, 2017 also brings with it a lot of opportunities for the industry. Being aware of these potential disruptions and closely monitoring their momentum can help you harness the power of work with – not against – these trends.

Is there another trend or disruption you feel should be added to this list? Share your insights by leaving a comment!

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How Tenant-Only Broker Representation Will Shape the Future of Real Estate

Posted on December 8, 2016 by Mike Kushner in Blog, Tenant Representative/Buyer Agent No Comments

Note: This article was originally published by www.DukeLong.com. Click here to read the original version.

How Tenant-Only Broker Representation Will Shape the Future of Real Estate.

Tenant-only broker representation is quickly growing in popularity and moving into the mainstream of real estate. Now more than ever, people looking for space realize they need a broker to solely represent their interests. It doesn’t take much more proof than to examine the success of the two premier exclusive tenant rep firms that are now part of multi-billion dollar companies. The Staubach Company, founded by Roger Staubach who pioneered the specialty of tenant representation,was acquired by Jones Lang LaSalle (JLL) and did $6 billion in revenue in 2015.

Studley, another firm offering exclusive tenant representation, was acquired by Savills, a global real estate powerhouse that did £1,283.5 million in revenue in 2015. If this trend continues, and I expect it will, other brokerage firms will need to adjust their practices to provide what clients want – fair and exclusive representation. Here is how I predict tenant representation to shape the future of real estate.

Technology will change the role of a tenant representative, but not replace it.

With technology making it easier than ever for potential tenants and buyers to find available properties, the future role of a tenant representative will be less about helping someone find space. Rather, tenant representatives will be sought out to provide advice, negotiate and exclusively represent the interests of the tenant/buyer.

Successful tenant representatives will use technology to streamline and automate the ways in which they research properties. This will allow them more time to reinvest in providing clients with their expertise and non-conflicting representation.

Large brokerage firms will need to “pick a side.”

In November 2016, the California Supreme Court upheld a lower court ruling that a listing broker had a fiduciary responsibility to both the buyer and the seller in a “dual agency” transaction. This case dealt with the 2007 sale of a Los Angeles home that was marketed as 15,000 square feet, but in reality was 11,000 square feet. The buyer reasonably felt like the brokerage company had pulled a fast one on him, especially since the house was both listed and sold by Coldwell Banker.

This court decision has potentially far-reaching impact on how commercial and residential real estate brokerages do business. While some may be able to continue doing business as usual and make their disclosures a little more apparent, the large brokerage firms may find it more difficult to do that and still be able to adequately represent both sides of a transaction. Essentially, large brokerage firms will need to pick a side. Will they represent the buyers or the sellers?

I predict we will see more real estate brokers choose to exclusively represent one side or the other so that they don’t risk the appearance of (or real) conflict of interest that just might result in a costly court battle.

Clients will get smart about seeking out exclusive representation.

Potential buyers and tenants are getting smarter about bringing their own representation to the table. Because of recent news stories and court cases, like the one mentioned above, light is finally being shed on the questionable practices of brokerage firms that represent both sides of a real estate deal. In nearly any other industry, this conflict of interest would never fly. Finally, real estate is catching up and buyers and tenants are seeking out exclusive representation to ensure a fair deal.

For many reasons, the growth in tenant-only broker representation is a good thing. It means tenants and buyers are getting equal representation in real estate transactions. It means companies are recognizing the conflict of interest in representing both sides and making changes to offer better transparency and disclosure clients. Finally, the growth in tenant-only broker representation means real estate professionals can and should specialize. People don’t want a Jack of All Trades, they want an expert who exclusively represents one side of a deal.

Note: This article was originally published by www.DukeLong.com. Click here to read the original version.

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