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Posts tagged "funding"

Home» Posts tagged "funding"

Top 10 Issues Affecting Real Estate – Part II

Posted on September 6, 2021 by Mike Kushner in Blog, Commercial Real Estate No Comments

In Part I of the “Top 10 Issues Affecting Real Estate” we covered topics 1-5 of the top issues we expect to have a lasting and immediate impact on real estate here in Central Pennsylvania and across the United States. If you missed it, start here!

Keep reading if you’re ready to dive deeper into issues #6-10 as we continue down the list of the most pertinent topics to real estate as they apply to various sectors.

#6 Housing Supply and Affordability

Decades of underinvestment and underbuilding have created a shortage of housing in America that is more dire than previously expected and will require a concerted, long-term nationwide commitment to overcome. As it stands, there are three things that most can agree on in the current housing market: 1) there is a tremendous need for affordable housing; 2) there continues to be a sentiment of a “Not in My Back Yard” mentality; and 3) there’s an ongoing supply deficit of market-rate housing.

A severe lack of new construction and prolonged underinvestment has led to an acute shortage of available housing to the detriment of the economy and certain segments of the public. This trend affects every region of the country, creating an “underbuilding gap” of 5.5 to 6.8 million housing units since 2001.

#7 Political Polarization

Simply put, we are squandering resources as we try to address problems that arise from the partisan divide, rather than problems confronting us as common issues. This hinders our productivity and therefore the nation’s economic strength. And the real estate industry’s well-being is a function of our economic growth. The economy and the real estate industry would be far healthier, as would American society, if the pattern of party-line voting in the halls of Congress could be transcended in favor of something very traditional: the defining of politics as the art of compromise.

#8 Economic Structural Change

What we’re seeing is many investors increasing their focus on property management aimed at retaining tenants and defending cash flow, while selectively seeking ‘value-add’ properties amenable to active asset management. The thinking is “focus on what you can control” during this period where macro-level uncertainty is the governing headwind at the policy level in terms of the structural problems in this economy. This is a significant economic structural change. Additionally, Cap rates ranging, on average, from 5% for apartments to 6.6% for offices are keeping pricing rich compared with the risk inherent in that underwriting uncertainty.

#9 Adaptive Reuse Reinvented

Adaptive reuse is not a new terminology but since COVID-19 it’s evolved into a re-examination of our suburban communities to reposition them for transformation before the opportunity for change passes them over. The trend we see now, and one that stands to have a large impact on commercial real estate is addressing the challenge of what to do with hundreds of defunct suburban malls and thousands of empty Big-Box retail stores that are surrounded by desirable and affordable neighborhoods. This makes it to the Top #10 list for four main reasons:

  1. Reconnecting our communities from what the Interstate Highway system divided from the 1950s to the 1980s
  2. Preventing blight that developed in our dense urban cities from flowing to the suburbs and secondary MSAs
  3. Restoring much-needed greenspace to our neighborhoods and cities that can germinate interaction of diverse demographic groups
  4. Promoting good ESG and diversity, equity, and inclusion policies

#10 Bifurcation of Capital Markets

Looking back over the last year and a half, what becomes clear is how different the market-changing event of COVID-19 was compared to prior market corrections. While transaction volume is slowly recovering, it’s still well below pre-COVID levels. Furthermore, the market has not seen the volume of expected distress sales, but there is plenty of capital ready to deploy! As we look to the remainder of 2021 and into 2022, performance will dictate the amount of distress and losses, and risk management should dictate markets, property types, leverage, loan structure, and pricing for mortgage debt.  The next year should also tell us if commercial real estate debt was too rich and whether perceived risk underestimated where pricing should have been.

*****

Among issues 6-10, which one do you believe will last the longest or have the greatest impact? Start a conversation by leaving a comment below!

And be sure to visit Part I to learn about issues #1-#5!

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Top 10 Issues Affecting Real Estate – Part I

Posted on August 23, 2021 by Mike Kushner in Blog, Commercial Real Estate, Local Market, Trends No Comments

We live in a rapidly changing world, and such changes impact every person, place, and industry either directly or indirectly. First, this was due to rapidly changing technology, which still has a profound impact on our daily lives. We live in a time where technology is changing more in a few months than it previously would in years or decades. This has led to great advancements, life-saving solutions, and modern conveniences, unlike anything the generations before us could imagine.

But in the shadows of the sudden onset of a global pandemic, some changes that have taken place recently were not so helpful or welcoming. Every business has felt the blow of COVID-19, and some did not survive the punch. For those who were able to adapt and survive, changes had to take place. Looking at commercial real estate, the most significant changes can be grouped into 10 core issues. Let’s take a look at the first five issues that have already and will continue to affect the real estate market for years to come.

#1 Remote and Flexible Work Environments

Over the summer, businesses began to return to in-person work environments, some partially and others fully. As of mid-June, it was estimated that 32% of United States businesses had reopened their physical office locations and employees were returning to (somewhat) normal work schedules. Nevertheless, commercial properties need to be prepared for lasting changes as the result, not only of this global pandemic but other factors that had been on the rise for quite some time.

Remote working, the acceleration of internet retail, and the demand for larger and more natural spaces and other pandemic-era behaviors have created the “perfect storm” to drive significant change in remote work and mobility in commercial real estate. One of the greatest lessons learned during COVID is the escalating demand for more flexible, easily adaptable, and sharable spaces and CRE professionals need to be prepared to make their spaces more conducive in order to meet these demands and remain competitive.

#2 Technology Acceleration and Innovation

Technology continues to hold its place high on this top 10 list, but this year for a slightly different reason. In the wake of COVID-19, more people than ever before had to rapidly adapt and accept technology (particularly those who allowed for remote interactions with the world) as a way of life. The question before us now is what new habits have formed as such, and how many people will revert to “old tech” ways of doing things. Our prediction is that a lot of the new technology people had been trained to use over the last 18 months will “stick” and as a result, there is a higher comfort level – especially among older generations – with using remote technologies to live, work, and entertain.

For commercial real estate, the biggest impact can be seen in cybersecurity, supply chain logistics, and price instability. None of these are new concepts, but in a span of months if not weeks in some cases, the world saw high profile hacks, shortages of resources like microchips, lumber and labor, and rising prices across the board. The accelerated upgrade of connectivity, security, and hosted processes mean utilization is being maximized and any place is now a potential workplace. This creates new pools of vacancy and pools of availability enabled by technology.

#3 Environmental, Social, and Governance Initiatives

Environmental, Social, and Governance (ESG) programs in real estate continue to be one of the best ways to reduce carbon emissions, accrete value, and demonstrate reputational value in the market. This was greatly accelerated during the onset of COVID-19. At the same time, workforce development, Diversity, Equity, and Inclusion initiatives, and recognition of the importance of health and wellness in commercial real estate are setting new expectations for building operations and how to engage stakeholders and the communities in which real estate owners and users invest.

The expertise, creativity, and innovation that the real estate (and finance) industry is well known for are highly valuable for assessing and mitigating risk and creating value for investors, occupants, and the capital markets that serve them. The biggest shift to note for this trend is an increased value that real estate professionals can bring to other markets that are creating and implementing ESG programs in an effort to be socially responsible and attract top talent.

#4 Logistics

Simply put, logistics is what makes our economy “work.” It’s at the epicenter of every product-based service and that has never felt more evident than during COVID-19 when so many goods were delayed across the globe, and even domestically. The supply-chain funnel is still recovering as we continue to experience shortages and delays. Logistics post-COVID-19 will disrupt commercial real estate models for years to come. We can expect disruption in commercial real estate capital allocation, with more funding to industrial property and less to retail. There will also be less dependency on physical stores and more on modern eCommerce warehouses that will be increasingly automated with less reliance on labor. The biggest takeaway for commercial real estate professionals is to keep a keen eye on the changing logistical strategies and solutions of the economy. As these cause shifts in the market, the demand for CRE will also shift. Where one sector will turn down, another will rise. We can expect the waves of change to continue to roll in, impacting real estate for years to come in big and permanent ways.

#5 Infrastructure: New Imperatives Emerge

Similar to issue #4, it takes infrastructure to support logistics. The government has turned a keen eye to allocating funding and initiatives to support improved roads, bridges, airports, ports, mass transit, and other traditional infrastructure needs. With billions of dollars in proposed funding, many new imperatives to improve our nation’s infrastructure have emerged. This includes the expansion of broadband, last-mile deliveries to homes and businesses, automation and optimization of systems, and an increased focus on renewables. This is a huge issue to tackle and it seems we’re falling behind the clock with every passing second.

To put this issue into perspective, the American Society of Civil Engineers gives U.S. infrastructure a score of C-, classifying it as “poor” and “at risk,” while the World Economic Forum’s Global Competitiveness Report ranks the U.S. 13th in the world. If the American economy is to remain top tier, we need to invest aggressively and strategically in the future of our infrastructure to keep up with the competition and demand. The funding coming in from Capitol Hill attempts to do this, but the question remains whether it will come quickly enough. Change and improvements take time, even more so when we’re talking about major infrastructure improvements. The United States is racing the rapid advancements of technology and the mindset of an “I want it now” world.

*****

Among these top 5 issues, which one do you believe will last the longest or have the greatest impact? Start a conversation by leaving a comment below!

And stay tuned for Part II of this topic where we dive deeper into issues #6-10!

[Online Resources] Real Estate, advice, agent, blog, broker, businesses, buy, central pa, Commercial Real Estate, CRE, employees, expert, factors, funding, government, harrisburg, home office, industrial, infrastructure, insight, issues, landlord, laws, lease, logistics, Mike Kushner, office, office environment, Omni Realty Group, pa, pennsylvania, professional, property, remote working, retail, sell, taxes, top 10, trends, virtual office

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