December, 2018 - Sachse Construction

Life On High: the Renaissance of Rooftop Spaces is Here to Stay

Though seemingly opposite environments, cities are a lot like rainforests. At ground level, the world is dank, dark, and full of predators. Inhabitants seeking fresh air, sunshine, and privacy have only one direction to go: up.

So in the urban jungle, it’s only natural to build a “canopy” in the form of rooftop architecture. The popularity of rooftop amenities across residential, commercial, hospitality, and even health-care projects shows that’s exactly what’s happening.

 

Examples abound. When it opened in 2016, the Goettsch Partners–designed Hilton LondonHouse Chicago hotel debuted the city’s only trilevel rooftop; crowning the historic London Guarantee Building, it features an indoor bar, an outdoor terrace, and private top-floor dining inside the original Beaux-Arts cupola. In 2015, Facebook moved into its corporate headquarters in Menlo Park, California, with a nine-acre rooftop oasis that includes cafes, full-grown trees, “work cabanas,” and walking trails. And this summer, a 1.5-acre rooftop concert venue opened at New York’s Pier 17 in Lower Manhattan’s revitalized South Street Seaport.

Raising the Roof

According to Nathan Wilcox, principal at Austin, Texas–based architecture firm Sixthriver, the current obsession with rooftops began in the early aughts, when the US Green Building Council’s Leadership in Energy and Environmental Design (LEED) rating system brought sustainability to the forefront for architects, developers, owners, and regulators. In 2002, the City of Chicago passed an ordinance making green or reflective roofing compulsory for new and refurbished roofs. Thereafter, green roofs flourished.

There was just one problem: Early versions of green roofs helped the planet more than people. “Instead of a giant lawn covered with seed that you can’t walk on without crushing, people want to be able to sit at tables, walk around on pavers, and just generally use the space and enjoy it,” Wilcox says. “That first generation of green roofs just wasn’t set up for that.”

Still, it drew designers’ gaze upward, where they found surplus space they hadn’t previously considered. Now, years later, rooftops aren’t radical; they’re requisite. “There is a huge push to occupy rooftop space,” Wilcox says. “I think that’s partly an outcome of increased density and rising real-estate prices—trying to take advantage of every last square foot of space.”

Developers in cities that have run out of horizontal space must optimize vertical space—while maximizing revenue. That means infusing buildings with Instagrammable aspects that attract tenants and visitors without cannibalizing leasable square footage.

“It’s an economic model,” says architect Simon Ha, a partner at Los Angeles–based architecture firm Steinberg Hart. His hotel clients have been especially bullish on rooftop amenities, which attract guests and locals without sacrificing interior space. “My clients want something that’s going to set them apart,” he says. “The rooftop definitely does that, and they make a ton of money because of it.”

An Urban Oasis

Clients love rooftops because of the competitive advantage. Occupants love the view. “From one of our buildings [in Los Angeles], you can see all the way to the ocean, the Hollywood sign, the Santa Monica Mountains, and downtown. You can’t get that kind of vantage point without going onto the roof,” says Ha, whose firm’s projects include the multi-use 3033 Wilshire tower in Los Angeles. “There’s just something about being up high. It fills you with a sense of belonging to something bigger.”

Architects must design rooftops in a way that exploits instead of arrests that feeling, says Kevin Valk, partner and design director at architecture firm Holst, based in Portland, Oregon. Holst designed the LL Hawkins, a 125,000-square-foot LEED Gold apartment building in Portland, and The Fowler, a 204,000-square-foot apartment building (also anticipating LEED Gold) in Boise, Idaho.

When he designs rooftops, he uses drone photography to convey the view, then builds his design around it. On a rooftop pool, for example, a glass guardrail can provide safety without compromising the scenery.

“If somebody is lounging on a recliner, can they still see what you want them to see? You try to create as much visibility as you can,” Valk says.

San Francisco’s new 5.4-acre Salesforce Park embodies the best of rooftop design. Located atop the new Salesforce Transit Center, which opened in August, it features 13 gardens, a central lawn with trees and a picnic meadow, movable chairs and tables, an 800-seat amphitheater, a half-mile walking path, and a restaurant. Details such as outward-facing, single-person benches—where downtown workers can de-stress during quiet moments overlooking the city—indicate thoughtful design of PWP Landscape Architecture.

“What people really like about the park is that it gives them a new perspective on the city,” says Ashley Langworthy, director of the San Francisco office of Biederman Redevelopment Ventures, which manages and operates Salesforce Park. “It feels separate from the streets and the traffic and the horn-beeping. In that sense, it’s an urban oasis.”

Troubles in Paradise

Of course, oases don’t come easy. To create them, architects must contend with challenges that are inherent in rooftop environments. “The number one design consideration is solar orientation,” Wilcox says. “Setting your site up so that your building doesn’t block the sun from the deck is ‘Roof Terrace Design 101.’”

Rooftops’ altitude and exposure also make them magnets for heat. “We try to use very light materials to keep the heat load off the roof,” says architect Kricket Snow, an associate principal at Perkins+Will Miami. The firm recently designed a green rooftop for Baptist Health South Florida, a new outpatient facility with a wellness center that uses the rooftop for physical therapy and yoga classes.

Designed with Autodesk Revit, the rooftop features light-color pavers to repel heat and shade trees to provide refuge from it. “In Miami we have some pretty serious heat to contend with, so shade is a big deal for us,” Snow says. “In addition to specifying trees that will provide shade when they grow in, we have a canopy that rims the perimeter of the building; during certain times of day it will cast shadows onto the rooftop.”

Because of wind velocity and hurricane threat, the pavers on Baptist Health’s green roof had to be secured using special clips that keep them from becoming airborne, according to Snow. Roof elements of all sorts—including trellises, awnings, and furniture—must be considered. Water removal is always a major concern, says Snow, who sloped the facility’s roof to assist with drainage and used a pedestal paver system to create a level surface for wellness programming.

Architects must consider the extra weight of roof-decks, and they must creatively conceal obtrusive mechanical equipment that typically resides on rooftops. At Baptist Health, for example, Perkins+Will placed the mechanical equipment a level below the rooftop deck, completely hidden from view. At Salesforce Park, designers created mounded, vegetated “hills” to disguise elevator and venting shafts. And finally, local building codes dictate safety features such as guardrails, egress requirements, and occupancy limits, all of which place design constraints on architects.

Every building needs a roof. But does every building need a rooftop?

Probably not, but that won’t stop them from being built. “Ten years from now I think rooftops will probably be dialed back a little bit, but I don’t think they’re going away,” Wilcox says. “Our planet is only going to get more and more full, so we’ll need to continue maximizing all of the surface area in developments. Plus, there’s a ‘wow’ factor. These spaces are just really cool.”

Forecast for 2019: Strong Fundamentals to Support Continued Growth

December is a time to reflect over the past year and look forward to what 2019 has in store for our industry.

2018 was a year of continued strong growth for the CRE sector, and we anticipate the same upward trajectory in 2019. Yet, challenges may lie ahead for the industry, with an economic slowdown expected by the end of 2019. In the meantime, continued economic growth and job gains will fuel real estate demand and absorption in robust and up-and-coming markets.

Nationwide, office demand will generally stay strong due to job growth, with vacancy rates remaining relatively low. Suburban office sectors and central business districts will both see development around the idea that people like mixed-use areas that shorten the distance between work and home.

While nothing can compare to the excitement around Amazon’s recent HQ2 decision and, more recently, Apple’s planned billion-dollar expansion in Austin, we may see some notable corporate relocations as cities dangle incentives and invest in amenities that draw and retain a desirable workforce.

The industrial sector is also expected to continue its upward trajectory in 2019. E-commerce and faster deliveries are key drivers, giving rise to an investor trend of buying portfolios of small urban warehouse stock for use as last-mile distribution centers. Industrial sector rental rate growth will sustain momentum through 2019 and beyond, with a slowdown not expected for another two to three years.

Economy Sustains Multifamily

The multifamily sector’s current health will hold steady due to strong market fundamentals in most areas. Some areas are headed toward a glut of luxury multifamily developments. The concern in many cities about the dearth of affordable housing will continue.

There are several markets to keep on an eye on in 2019. We’ll single out Dallas-Fort Worth, which outpaces other U.S. metropolitan areas for property investment and construction, and tops the list of cities that real estate industry pros say will be best for their business in 2019, according to this year’s “Emerging Trends in Real Estate” report. (Raleigh-Durham, N.C.; Orlando, Fla., and Charlotte, N.C., were next in line.)

The coming year will bring challenges as well as opportunities. Following the second-longest economic expansion in U.S. history, a recession is inevitable at some point, and many economists peg 2020 as the year of reckoning. The more immediate challenges for the CRE industry include rising interest rates, tariffs and trade policy, labor shortages in the construction industry, and rising construction costs.

But on the whole, 2019 promises to be largely supportive of continued growth for the commercial real estate industry.

Features What the CRE Workforce Will Look Like in 2019

FPL forecasts a positive outlook for commercial real estate salaries, bonuses and workforce growth forecasted for 2019. For its annual “Real Estate Compensation Pulse Survey, the global professional services firm polled 276 real estate companies globally in several areas including compensation via base salary, overall performance, annual bonus, long-term incentive, and workforce growth.

Compensation amounts and hiring activity picked up in 2018 and continued increases are forecasted for 2019. Such positive projections signals corporate optimism even though there is some sense of caution, given the current climate.

“The optimism stems from performance in 2018 and from capital flowing into the industry,” says Josh R. Anbil, Senior Managing Director FPL Associates L.P. “I think companies are cautious for a few reasons, including the length of the current cycle, difficulties finding single asset investments, and concerns over rising interest rates.”

Even though pay levels are already at an all-time high, members of executive management are less likely to receive salary and bonus increases when compared to others within the organization as salaries for top executives do not change year-to-year in the same way as salaries for the broader organization, Anbil tells GlobeSt.com. “Executive pay is performance-based and incentive-driven, meaning that salary is a relatively small percentage of total pay. The real estate industry has done a nice job when it comes to focusing on variable incentive pay for executives, not fixed salary.”  Real estate investments are longer term in nature, which is why executive pay focuses on long-term incentives, Anbil explains.

While salaries and bonuses are rising, long-term incentive (LTI) amounts are staying flat indicating that many firms still take the view that cash is king in today’s marketplace. Nevertheless, over 80% of companies expect to broaden LTI eligibility, issuing LTI awards to a larger group of employees in 2019.

“Long-term incentives vary by business model, so there are multiple forms across the types of companies in the survey. The more common forms are stock-based awards, carried/promoted interest, equity in deals, profit-sharing, and deferred cash awards,” Anbil says.

Looking ahead, the upward trend in hiring seen in both 2017 and 2018 will continue into 2019. 53% of companies expect an uptick in workforce in 2019 and the average projected increase among these firms is 9%. Only 6% of firms will reduce workforce in 2019, whereas 14% of firms made reductions in 2018 and 15% of firms did the same in 2017, says the survey.

Geographically, workforce expansion will be most prevalent in Asia and the U.S., the same as this past year. Mid-level professionals are also in more demand than more senior and junior levels within organizations.

Middle management jobs in key real estate functions, including acquisitions, asset management, capital raising, and development are in demand, Anbil says. There are two reasons for this: First, there were fewer jobs at real estate companies for young professionals in 2008, so now there is a smaller talent pool for individuals with 8-10 years of experience. Second, members of the more senior ranks are approaching retirement at many organizations and succession is top of mind, he says.

Property management, asset management, and acquisitions were the functions most frequently cited by survey participants as the function in greatest demand, which can be explained by recent challenges in finding attractive investment opportunities and an emphasis on growing cash flow from existing assets. “Said differently, real estate companies need people who can put capital to work in a tough pricing environment and those who can maximize the performance of the existing portfolio.”

Industry Execs, Investors Weigh 2019 Sector Projections

Construction equipment and contracting executives from publicly owned companies offered investors optimism in their 2019 market outlook at a Credit Suisse investment conference last month in Miami. The mining sector’s continuing upward momentum in the next year and big overseas energy contracts set to be awarded are highlights, even with capacity and other risk factors looming.

“Infrastructure, nonresidential and energy spending continues to drive healthy demand for construction equipment in the U.S. which is expected to continue into 2019,” said Jamie Cook, lead Credit Suisse analyst for the sectors, in a Dec. 3 note. But she noted a mixed outlook for the China equipment market, noting that Caterpillar dealers “remain positive, though suppliers are more cautious.”

Relating comments from design and construction executives, she said they predicted several large petrochemical and LNG project awards made in Canada and Mozambique “by year-end and into 2019.” Gas pipeline construction is set for “multiyear growth into 2020-21,” said Cook, with wireless and wired infrastructure investment accelerating in the second half of next year and mining sector awards picking up by midyear “following a strong year in 2018.”

She notes that “despite the recent pullback in commodity prices, customers are not yet changing timing on [final investment decisions], however the timing of projects is always at risk, in particular given the increased size and complexity of awards.”

The outlook is set to take a toll on industry’s project delivery, warns Cook. “Capacity constraints remain a concern and contractors remain focused on sequencing of projects and project selectivity in order to meet demand,” she said.

Despite the optimism, some 44% of investor attendees at the conference were bearish on the industrials sector in 2019 compared to the rest of business, while 31% were bullish and 25% neutral.

Nearly half said companies should set their primary corporate focus on better margins next year, with 36% citing cash management and 16% noting growth.

More than 54% of investors said they agreed with Credit Suisse’s outlook for “robust” industrial sector merger-and-acquisition activity next year, with 46% disagreeing. Also, about 57% of investors said there will be more “big breakup” transactions next year/

More than 78% of investors predicted the economy will neither improve or get worse but 49% say the S&P 500 index will rise next year.

U.S. Holiday Retail Sales Are Strongest in Years, Early Data Show

Shoppers delivered the strongest holiday sales increase for U.S. retailers in six years, according to early data.

Total U.S. retail sales, excluding automobiles, rose 5.1% between Nov. 1 and Dec. 24 from a year earlier, according to Mastercard SpendingPulse, which tracks both online and in-store spending with all forms of payment. Overall, U.S. consumers spent over $850 billion this holiday season, according to Mastercard.

“Wall Street is running around like a chicken with its head cut off, while Mr. and Mrs. Main Street are happy with their jobs, enjoying their best wage increases in a decade,” said Craig Johnson, president of Customer Growth Partners, a retail research and consulting firm. A recent drop in gas prices has helped last-minute spending, he said.

Sales have been generally strong throughout the holiday season, led by increases in online shopping. Retailers entered the holidays with momentum as online sales jumped 26.4%from a year earlier between the Wednesday before Thanksgiving through Black Friday, one sign of an early buying surge, according to Adobe Analytics.

Buying slowed in early December in part because an unusually early Thanksgiving made it harder for retailers to sustain sales through the entire holiday shopping period, analysts and consultants said. But shoppers picked up the pace ahead of Christmas.

 With Christmas Eve falling on a Monday, many retailers geared up to capitalize on a last-minute push from shoppers who were counting on the final weekend to wrap up their gift-buying. Chains including Walmart Inc. and Target Corp. extended deadlines to get online orders delivered before Christmas, while Amazon.com Inc. in some cities offered Prime members the option of free same-day delivery on Christmas Eve.

Many retailers also touted the option to buy online and pick up in store through Christmas Eve. Overall, sales in that category increased 47% from Nov. 1 to Dec. 19, according to Adobe.

 Mastercard found that sales from online shopping grew 19.1% between Nov. 1 and Dec. 24 compared with the year-earlier period.
The retail industry is undergoing another major shift — to e-commerce. How did we get here? Photo: Associated Press

Still, next year presents a challenging environment as buying continues to shift online—a trend that is hurting many retailers, including department stores. Sales at department stores fell 1.3% in the period tracked by Mastercard, in part due to store closings. Stores that mainly sell apparel, however, experienced robust sales, growing 7.9% during the same period. Overall, sales from bricks-and-mortar stores rose 3.3%.

“We have seen some things really solidify” amid a strong economy and many retailers making investments to grow online, said Steve Barr, consumer markets leader at consulting firm PwC. But this holiday season shows that “the pace of change to online, especially mobile, is really not easing up,” he said.

Some retail clients are cautious about next year, Mr. Barr added.

“While we haven’t seen the consumer retreat, I do think there is a heightened risk with volatility in the capital markets and rising interest rates and uncertainty in Washington, D.C.,” Mr. Barr said. “Retailers are a bit on edge about what 2019 might be.”

For Tenants, More Than a Place to Sit and Do Work

Three office trends for next year: Continued large companies coming here. Demands for affordability. And new office landlord leasing dynamics including business ecosystems that help create value/profits.

That’s what Bruce Ford envisions. He is Transwestern’s president for the Southeast region based here, overseeing all the firm’s business lines. He is also responsible for Transwestern’s regional operations, overseeing the day-to-day management, financial planning, and marketing of the firm’s Southeast offices including Atlanta, Miami, Orlando and Nashville.

The first trend: “Going into 2019, Atlanta will continue to see significant companies making long-term investments in Atlanta,” he tells GlobeSt.com. Recent major moves here included Norfolk-Southern moving its Virginia headquarters to anchor a Midtown office project. Capital One is also looking to open a new tech office here and others are expected next year.

Rents at times reaching astronomical levels

The second trend: With asking rents rising and reaching new records in every Atlanta submarket, tenants are more inclined to look for less costly options.

“Therefore, users are looking for affordable space first, of course, in the most desirable neighborhoods. Vacancy has plummeted in urban Class B properties, with Midtown Class B space at just 4.3% vacant, and Buckhead close behind at 7.3%,” he says.

The third trend: He says to expect a continuation of changing dynamics next year. “There has been a greater emphasis on efficiency with businesses consolidating and putting more workers into less space. Also, the rise of alternative workspaces, including coworking space and the uptick in leasing at nontraditional buildings, has impacted the market. Both trends present opportunities such as helping companies become more efficient or providing the kind of curated office experience that makes workers want to come to an office.”

Creating tenant value

Landlords are starting to view their buildings as business ecosystems that create specific value for tenants. “Instead of filling free space with just any company with office needs, they are seeking and recruiting tenants with synergistic attributes to those already occupying the building,” he says.

The ultimate goal is to go beyond offering a place to sit and do work but to positively affect tenants’ profit margins.

New Parking Deck Gets HDC Approval as City Weighs Large SoMA Lease

A new 580-space parking deck on a large development site has received a green light from the Detroit Historic District Commission as the city seriously considers a lease for about 100,000 square feet for several departments at the project site.

The deck, which would be part of the development generally referred to as South of Mack Avenue, would have six levels of above-grade parking but “visually appear” like a five-story deck, according to commission briefing documents.

In addition, the city is mulling an office space and parking deal over 10 years for several departments, including parks, transportation, health, general services and Detroit Employment Solutions Corp., according to a source familiar with the matter. They would move into existing buildings on the SoMA site from other locations around the city.

“The city is always looking at ways to more efficiently address its space needs,” David Massaron, the city’s COO, said in a statement to Crain’s. “While we won’t comment on a specific option, any such lease would first need to be approved by City Council.”

 It starts at $18.50 per square foot and increases incrementally every year for 10 years, and includes parking for at least some employees at the rate of $165 per space per month, the source said.

The development cost for the deck was not revealed in a Historic District Commission document, and the developer behind the SoMA project declined to disclose a construction cost or time frame to start or complete it.

The median parking structure cost for the Detroit market is $20,634 per space, according to Kalamazoo-based Carl Walker Inc., a parking consultant that was acquired by WGI last year. At that rate, it’s an $11.97 million project, not including the cost of the four to six commercial spaces that are expected as part of the development immediately east of the Wayne State University Bonstelle Theater.

Plans from a year ago presented to the Brush Park Community Development Corp. say that seven stories of residential space above are possible in the future.

“We have a little further to go in the approval process” for the deck, Adam Nyman, of Birmingham-based Professional Property Management Co. of Michigan, said in an email.

He and his father, George Nyman, have been working for several years on the SoMA project, which consists of about 7 acres of property spanning about two blocks immediately east of Woodward Avenue and south of Mack.

Detroit-based Neumann/Smith Architecture is working on the SoMA project, while Southfield-based Rich & Associates also consulted on the parking deck.

The site is also where Brooklyn-based furniture brand West Elm plans to build a new boutique hotel.

US Economy Grew at 3.4% Rate in Q3

The U.S. economy expanded at a solid 3.4 percent annual rate in the third quarter, slightly slower than the previous estimate as consumer spending and exports were revised lower. The economy is expected to slow further in the current quarter.

The Commerce Department said Friday that growth in the gross domestic product, the economy’s total output of goods and services, was revised down from an earlier estimate of 3.5 percent. The still-strong performance followed a sizzling 4.2 percent advance in the second quarter and a moderate 2.2 percent increase in the first quarter.

Economists believe that economic growth is slowing in the fourth quarter to around 2.5 percent. For the full year, GDP growth is projected to top 3 percent – the best showing since 2005.

President Donald Trump has often cited the upturn in economic growth as evidence that his economic program, which includes a $1.5 trillion tax cut passed last year, has lifted the economy to a stronger growth path.

The Trump administration insists that the impact from the tax cuts, deregulation and tougher enforcement of trade agreements will keep the economy expanding at a sustained rate of 3 percent in coming years.

The GDP report on Friday was the government’s third and final look at the July-September quarter.

 Driving Friday’s downward revision was an even bigger decline in exports of a category that includes industrial machinery, as well as slower consumer spending on non-durable goods such as gasoline and other energy products.

Consumer spending, which accounts for 70 percent of economic activity, still grew at a solid annual rate of 3.5 percent.

The Federal Reserve on Wednesday boosted its key policy rate for a fourth time this year but lowered its outlook for rate hikes next year from three down to two. The projection of fewer future rate hikes failed to calm Wall Street investors, who sent stocks sharply lower. They had been hoping for the Fed to declare a pause in its rate hike campaign.

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