September 2019 - Sachse Construction
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Month: September 2019

Well Buildings Are Key to Employee Satisfaction

by Sachse Team

ORLANDO, FL—The way a building is designed and the way people operate within the building has an impact on the people inside. That is according to panelists during a breakout session at the CREW Network Convention. Whether they live, work or play in the building, the amenities you offer can impact satisfaction and retention for employees and tenants.

First up was speaker Jessica Cooper, International WELL Building Institute, who talked a bit about elevated stress levels, health, physical and mental well-being and more. “Whether it is meditation or some other form of being healthy, you have to do whatever enables you to do your best work,” she said. While she explained that medical care and genetics are important to wellness, the majority of your well-being is impacted by the environment you spend your time in.

“Many think of the well-being movement as an extension of the environmental sustainability movement. We are now looking beyond the planet to really focus holistically on humans.”

And as it relates to corporate organizations, she said that well drives value to organizations to attract and retain top talent, maximize human performance, build brand equity and more.

She also pointed to a few case studies from ULI that showed that healthy buildings can have a positive effect on both human health and real estate performance.  One such study was CBRE’s Toronto and Vancouver office. CBRE Canada president and CEO Mark Renzoni, recently said that the firm’s decision to pioneer WELL certification reflects the company’s belief that the office environment can and should add to the health of its people. “CBRE employees have access to some of the healthiest offices in the world, and by being first movers, we are in a unique position to counsel our clients through the process.”

Ware Malcomb studio manager, Erica Godun, said that moving to do work in a different place within an office is key to a better well-being. In addition, she notes that the goal is for the people who are at work have a better working environment.

“You don’t have to invest a lot of money into physically changing the building. You can manage your space better. Put in better filters. What is the water quality? You can also test indoor air quality,” said Jill Ziegler of Brookfield Properties. “Increase your property management to start. That can go a long way into upping your interior.”

There are lots of other things you can do with programming and amenities,” said Ziegler. “Also think about versatile spaces, which is something you can do without changing anything physically about the building.”

For building owners who are evaluating ROI, Ziegler suggests to listen and respond to tenants and occupants and do a triple bottom line cost benefit analysis. On top of that, she suggests tracking and improving on investor and analyst ratings.

Is Legal Cannabis CRE’s Next Big Tenant?

by Sachse Team

With 10 states plus Washington, D.C., legalizing cannabis for recreational use and medical marijuana legal in another 23 states, the marijuana industry is providing an opportunity for those in the commercial real estate to dip their toes into something new. According to the National Institute for Cannabis Investors, legal cannabis sales are projected to grow from $10.8 billion in 2019 to nearly $100 billion in the next five years.

Even at this early stage, the legal cannabis business appears to be exerting an impact on commercial real estate, According to a National Association of Realtors study, 34 percent of commercial members report an increased demand for warehouse space in states where medical marijuana is legal. Another 31 percent have seen an uptick in retail demand and another 18 percent report a similar increase in land demand.

“Cannabis seems to have the fastest growth projection of any major up-and-coming industry,” noted Charles Jack IV, senior managing director, Integra Realty Resources. “More states are likely to approve not only medical, but (adult recreational use).” Adult recreational use generates 80 percent Nevada’s marijuana-related revenues, he notes. But unique nature of the legal cannabis business dictates that potential participants should do their homework thoroughly before making the decision to enter the business.

High Hurdles

One of the most prominent challenges of the cannabis space within commercial real estate is the regulatory side of the business. Typically, cannabis production and dispensary facilities must be located at least 100 feet from residential neighborhoods and 1,000 feet from places frequented by children or minors. This includes city parks, schools, churches, childcare centers, playgrounds, libraries and residential care facilities.

For investors looking to enter this specialized market, location is a crucial factor in success, as it is for any asset category. “Where these buildings and properties are allowed to be operated is either like finding a needle in a haystack, or it’s open season and the market is too saturated,” said Bryan McLaren, chairman & CEO, Zoned Properties.

Even in states where the production and sale of cannabis products are completely legal, there could still be pushback from NIMBY-minded community members. According to the National Association of Realtors, the concern about marijuana-related properties raised most frequently among the organization’s commercial members is the smell, followed by theft of cash on property, fire hazards and moisture issues.

Some states and municipalities may restrict the development or operation of facilities, which creates greater barriers to entry and an uptick in competition. That pushes development into more remote, less densely populated locations, such as the desert, where keeping facilities secure is generally easier and a facility is less likely to disrupt a residential neighborhood. As new laws take effect, permits and approvals will come with a learning curve. That makes it especially important for all team members—investors, developers, operators, tenants and owners—to be on the same page and to be familiar with rules regarding a cultivation facility or dispensary.

“Most of the licensees get bombarded (daily) with solicitations from real estate brokers and owners who are unsophisticated within the cannabis space,” explained Senior Director Rob Foster of Tower Commercial Real Estate. Unless those professionals can bring extensive experience with cannabis-related work to the table, getting in front of operators is an uphill climb, he added. In some cases, it is advisable for operators to find partners that have specialized experience in the cannabis business.

Financing poses another major challenge. Because marijuana is still an illegal narcotic under federal law, banks and institutional lenders will not finance cannabis-related real estate acquisitions or development. As a result, real estate deals require cash upfront or private capital sources. That makes it harder for smaller firms to secure the funds necessary to enter the market.

“There is a lot of consolidation happening within the cannabis space,” said Ori Bytton, founder & CEO of Natura Life + Science, a co-manufacturing facility in development in Sacramento, Calif., and founder of We Grow CA, a real estate management company specializing in leased cannabis industrial space. “Some of these smaller companies can’t handle the regulations and financial burdens. This business is hard to navigate, so you need to understand what you’re doing.”

In addition to funding, those looking to enter the cannabis real estate space should also choose advisers carefully. “Avoid attorneys and consultants that will charge you extra just because they can, since this is a risky business area,” McLaren warned. “Instead, find mentors and advisors that will charge appropriately and assist with your investment.”

The Grass Gets Greener

While the cannabis sector poses unusual challenges at every turn, the cannabis real estate market offers significant upside potential. In a 2018 survey by Denver-based Proptech developer Apto, 76 percent of commercial real estate brokers handling cannabis-related property transactions in states where the drug is legal in some form reported those deals pricing above market.

When potential investors are putting a strategy in place, knowledge is a key component. As with any other specialized real estate market, it’s vital to become educated on the cannabis industry, state and local regulations and the geographic area targeted for investment. “The industry itself has several degrees of difficulty in getting off the (starting) line, which creates a challenging environment to enter,” said Scott Allen, senior managing director, Tower Commercial Real Estate. “The goal is to move the process as quickly as possible.” He recommends becoming an expert in the local market and finding the best location allowed under local zoning.

From there, it’s about working out the cost of the development or investment while making sure not to overspend. Depending on location, operators can choose to focus on retail dispensaries, cultivation facilities in an industrial facility or running outdoor greenhouses as a lower-cost alternative. “Sometimes firms don’t realize they might get into a situation where the buildout of a cultivation facility can be expensive, more so than the building they purchased,” noted Jack. “Those in the real estate space have to understand they’re still dealing with a product that is illegal at the federal level. If there are issues, your property could be subject to a shutdown.”

That said, the cannabis business offers investors, operators and advisers considerable options in exchange for a level of risk that is decidedly higher than for most other real estate sectors. It’s an emerging industry with a range of opportunities for involvement.

“Investors are trying to put their dollars where growth opportunity exists. Those strategies might shift, but there is good risk mitigation on the real estate side of things,” stressed McLoren. “If there are challenges with the business itself, at the end of the day, these operators still have an asset that presents physical value, instead of a complete loss

Co-Living, Micro Units: Multifamily Real Estate Reimagined

by Sachse Team

It’s no secret that disruptive forces are reshaping real estate, particularly in the rental housing sector, resulting in a range of new platforms such as micro-units and co-living. As these new platforms have rapidly gained popularity, commercial real estate lenders now find themselves in the position of adapting and responding.

How We Got Here

Housing affordability is under serious pressure, fueled by employment growth opportunities of the new digital economy, migration by Millennials and Gen-Xers to trendy urban infill areas, delayed household formation, the desire for a sense of community and the added pressures of student loan debt. The rents required to make new high-end construction projects pencil in highly desirable urban infill locations are increasingly out of reach for tenants. Developers first responded by building ‘micro units’ as small as 450 square feet in order to meet the burgeoning demand. Micro units are now widely accepted and this asset class has significantly outperformed other unit types.

The Co-Living Value Proposition

The new kid on the block is “co-living.” Similar to student housing, co-living tenants are willing to sacrifice some privacy for affordability, location, lifestyle and community. Co-living operators such as Common, Quarters and WeLive, have raised hundreds of millions in venture capital to acquire and manage thousands of co-living units. These operators long-term master lease a portion or all of an apartment building, and sublease rooms. Individual tenants lease a furnished bedroom within a two (or more) bedroom apartment, with a common living area and kitchen. The third party operator screens and prequalifies all tenants, maintains the building and common area, furnishes the units, pays utilities, and may provide cleaning and linen services. The rent is a fraction of the cost to rent an apartment in the same area, and the tenant avoids the out of pocket costs for furniture and appliances. And, if the roommate situation isn’t working out, a tenant can move to another apartment seamlessly.

Co-living enables the developer to “de-risk” its project while potentially earning outsized returns.  It provides access a larger pool of renters than simply offering high-end luxury apartments, while mitigating or avoiding lease-up risk and related marketing costs.  Revenue per square foot is maximized, and the net income from the master lease exceeds a conventional rental scenario as operating costs are limited to property taxes, insurance and maintaining the building shell. However, the developer typically has to demise the apartment units to a co-living-friendly design, which can cost more than standard apartments.  In exchange, the master tenant will enter into a long term master lease, post a large deposit to secure its performance, provide all the FF&E, and manage the building.

New Challenges for Lenders

Theoretically, co-living de-risks a multifamily project for lenders.  However, as a new asset class, for the most part lenders are underwriting projects to a conventional rental default scenario, in some cases requiring increased equity and/or replacement reserves. This is true both for construction loans and permanent loans. The rationale is that these new uses are unproven, and it is unclear whether co-living is a fad or here to stay.  If the operator fails, the owner’s default scenario is to run the project as conventional apartments, meaning many units would likely need to be reconfigured to traditional units.  Over time, as the business model proves successful, owners are hoping that lenders will look to credit quality behind the master lease and underwrite co-living projects as NNN leased investments as opposed to apartment assets.

Lenders don’t pick winners and losers, they just try to manage the risk.

Luxury Handbag Reseller Rebag Expands its Store Presence

by Sachse Team

Resale is booming and Rebag is capitalizing on it.

The digitally-native designer handbag reseller opened its eighth brick-and-mortar location, at Roosevelt Field mall, Garden City, New York. It is Rebag’s fourth retail location in the New York metro area and follows the company’s recent announcement of securing $25 million in Series C funding.

The new store features such signature Rebag elements as a wall devoted to Hermes and Birken bags and the “Rebag bar,” where customers can sell a bag or exchange a previous purchase for at least 70% of the original price. Customers can also shop the entire online and in-store assortment, which includes hundreds of designer bags.

Similar to Rebag’s other physical stores, the new location features pastel yellow hues, with an illuminated Rebag emblem welcoming shoppers. The space was designed by Red Antler and Small Office.

Rebag said its data-driven strategy has led it to open stores in areas of high online adoption, with plans to increase that portfolio to 30 locations in the medium term,

“We always consider our customers when we plan our retail expansions, and are looking forward to making Rebag accessible to the Long Island community,” says Charles Gorra, CEO and Founder of Rebag. “We’re especially thrilled to be part of the largest and most esteemed mall in New York.”

The Global Hotel Construction Pipeline Ascends to New Record Highs

by Sachse Team

Lodging Econometrics (LE) recently compiled construction pipeline counts for every country and market around the world. Their analysts state that the total global construction pipeline ascended to a record high of 14,051 projects/2,327,923 rooms, a 9% increase in projects and an 8% increase in rooms year-over-year (YOY). The report summarizes development in 176 countries worldwide.

With the exception of Latin America, all regions of the globe either continued to set record high pipeline counts or have already settled into topping-out formations amidst concerns of a worldwide economic slowdown. The fallout after the on-going trade dispute between the United States and China continues to be the leading contributor.

But, low-interest rates and accommodative lending terms are the primary catalysts behind pipeline growth as the global pipeline should continue to grow for the foreseeable future, albeit at a much slower pace.

There is a record high 6,565 projects currently under construction worldwide having 1,192,398 rooms. Projects scheduled to start construction in the next 12 months; peaking at an all-time high for both projects and rooms, stands at 4,392 projects/636,080 rooms. Projects in the early planning stage continue to grow, with a 6% increase in projects and 10% increase in rooms, YOY, standing at 3,094 and 499,445 respectively.

The top countries by project count are the United States with 5,653 projects/693,207 rooms, just 230 projects shy of its all-time high of 5,883 projects set in the second quarter of 2008, and China with a current pipeline of 2,991 projects/592,884 rooms, which is a new high. The U.S. accounts for 40% of projects in the total global construction pipeline while China has 21%, resulting in 61% of all global projects being concentrated in just these two countries. Distantly following are Indonesia with 378 projects/63,196 rooms, Germany with 320 projects/57,689 rooms, and the United Kingdom with 280 projects/40,970 rooms.

Around the world, the cities with the largest pipelines by project counts are Dubai with 173 projects/50,832 rooms, New York City with 166 projects/28,231 rooms, and Dallas, TX with 162 projects/19,972 rooms. Los Angeles, CA follows with 158 projects/25,428 rooms, and Houston, TX with 146 projects/14,998 rooms.

The leading franchise company in the global construction pipeline is Marriott International with 2,534 projects/420,562 rooms. Hilton Worldwide follows closely with 2,334 projects/340,626 rooms. Next is InterContinental Hotels Group (IHG) with 1,769 projects/259,057 rooms, and AccorHotels with 980 projects/175,002 rooms. These four company brands account for 54% of all projects in the pipeline.

Leading brands in the pipeline for each of these companies are IHG’s Holiday Inn Express with 737 projects/93,415 rooms, Hampton by Hilton with 689 projects/90,634 rooms, Marriott’s Fairfield Inn with 397 projects/43,451 rooms, and AccorHotel’s Ibis Brands with 387 projects/54,683 rooms.

The first half of 2019 saw a total of 1,374 new hotels/196,237 rooms open around the world with an additional 1,675 hotels/236,334 rooms scheduled to open by year-end. With the global pipeline being at an all-time high, LE forecasts that new hotel openings will continue to climb with 3,168 hotels expected to open in 2020. In 2021, new openings are forecast to reach 3,171 hotels. Should all hotels forecast to open by 2021 come to fruition, it will be the largest surge of new hotel openings, collectively around the world, that LE has ever recorded.

Healthcare as a Workplace: 5 Ways Workplace Strategy Can Impact Healthcare Design

by Sachse Team

In recent decades, our relationship with the workplace has been transformed by the tech industry, which upturned our idea of the office. Today, organizations across a spectrum of industries plan spaces that support the well-being of their employees while enjoying the benefits of talent attraction and retention.

As healthcare organizations place increasing importance on patient experience and quality care, it is easy to forget that healthcare facility is a workplace, too. It is a place where professionals, experts, staff, and clients come together for a common purpose and where efficiency, process, and results are valued. Effective employers recognize that employees are an organization’s greatest asset and design their practices and policies to benefit both the employees and the organization.

Today, healthcare organizations are in a similar situation to many businesses. New models for funding and compensation mean that healthcare teams are being asked by their organizations to do more with less time and space. Many healthcare organizations we collaborate with share similar goals with our corporate clients. They tell us they want to improve ethics, performance, and community.

What can healthcare organizations do? Healthcare organizations have an opportunity to respond to financial pressure and competitive challenges with improved workplace design strategies to attract and retain the best talent. By doing so, they’re also engaging and invigorating care teams already in place in their mission to improve health and wellness in their communities.

What do workplace and healthcare design have in common? More than you might initially think. They share a common set of drivers: changing business models, globalization, demographics, need for talent, evolving technology, connectivity/mobility, team safety, and the need for efficient and effective processes. As with any workplace-design project, successful healthcare workplace design requires a strong vision and a powerful approach to branding, space usage, and creation of opportunities for engagement.

So, what are the basic elements and best practices that create a high-performing workplace? And how do these relate to the healthcare workplace? Here are five approaches we have developed in workplace strategy and design to keep in mind when renovating or designing a new healthcare work space.

1. Look for opportunities to create multiuse spaces

Designers must understand the program needs of their client but also question them when appropriate. Many users will assume they need to replicate each of their current spaces in a new design without considering their actual usage or alternatives.

That kind of thinking risks duplicating outdated space.

To design an optimal facility, we need to research how spaces are being utilized, if they’re used at all, and if they can serve dual or multiple purposes. Designers must balance creating spaces that can serve multiple functions with the need for dedicated and inspiring spaces.

2. Increase utilization

A successful healthcare-delivery model balances financial considerations and focused patient care.

We can design to help achieve this balance by combining like spaces together, making the space efficient for the task at hand, and optimizing operational flow. For example, if there is storage in the room that is underutilized, does it need to be kept in the space or can it be moved to an adjacent area or purged altogether?

By increasing the efficiency of space utilization and care team travel distances, design can enhance patient care and shorten wait times.

3. Integrate technology

To remain competitive, organizations need to stay on top of the latest tech trends and incorporate them into patient treatment, especially as quality of care becomes more crucial to profitability and survival.

For example, not every room needs the highest quality audiovisual equipment. We can find savings for our clients by avoiding duplication of expensive equipment. If we recognize that departments can share, we can save both money and square footage.

Also, consider the generational gap in care-team members. Take advantage of the tech-savvy, team-based learning style of the Gen Y staff to recruit and retain, but do not eliminate the traditional way of working or knowledge-sharing of their senior colleagues.

 

4. Build in flexibility

As technology, the workforce, and research quickly morphs, it’s important that healthcare designers incorporate flex space to meet a range of ever-changing demands. Often this means we are tasked with creating an expansion space or build-on module that allows for the addition to or duplication of high-demand areas as needed.

5. Direct resources toward the primary mission

We can bundle department budgets and save money by combining new research areas, collaboration spaces, and support resource areas. This frees up funds for portions of the project that weren’t in the original scope that ultimately must support the healthcare organization’s mission of patient care.

Why design healthcare space as workplace space

Design for healthcare has advanced over the decades, incorporating more evidence-based and patient-centered care, as well as an emphasis on providing natural light and views.

But there are still some areas that need attention. The patient rooms may be different today but much of the healthcare space has remained the same. But by looking at our healthcare institutions as places of work, we can reimagine them, ultimately improving the day-to-day environment for the care team and outcomes for their patients.

Why Is Automation So Hard in Commercial Real Estate?

by Sachse Team

In 2016, Harvard Business Review released a study ranking how digitally advanced the different sectors of industry were.

Real estate ranked below mining and just above agriculture and hunting.

In the three years since, we have witnessed the rise of proptech, which is applying a modern approach to many of the individual functions carried out as people interact with the built environment. But, to truly enable digitization of the real estate industry, it’s my view that there needs to be a greater fundamental change in how the industry works.

The entertainment industry (which ranked very highly in HBR’s 2016 analysis) has completely undergone a digital transformation. Prior to this, it saw many novel and gimmicky technologies that were not focused on the end user’s experience but were focused on protecting the interests of the oligopolies that own the assets. For instance, Sony owned DRM, the technology that could be used to protect their copyrighted materials — but DRM didn’t have a robust platform for distribution and so got completely disrupted by apple iTunes Store. A lot of travel agencies invested a lot in online portals, but they didn’t automate and thus got their lunch handed to them by Expedia.

When disruption comes, it may not even come by somebody with the best product or technology, they may just have a better story. The two best examples that I can think of are Global Crossing, the telecommunications services company, and Napster, the music file-sharing company.

Both of these companies had a proposition that excited the customers of telecommunications and media companies, respectively—and neither company lived up to their wild potential.

Even though they did not have a robust business model or appropriate infrastructure to survive, they were the harbinger for things to come for those two industries. The result was established players set-up, paid attention, and fundamentally adjusted their business models, realizing that digitization would, in fact, unlock greater value. Those that did not perished. WeWork is that harbinger for the property industry.

The marketplace has decided that it wants flexibility, services, amenities, and quite possibly, community. This demand will only grow with the millennial workforce. This new stream of demand presents great opportunity for revenue generation but brings additional complexity to an already complex business. To tackle this complexity, landlords outsourced the problem to WeWork and their copycats. Now with the real possibility that WeWork will go the way of Global Crossing and Napster, landlords must acquire their own capability to manage what their customers want.

There are landlords attempting this with “innovation teams,” “new flexible business units,” and “tenant engagement portals,” but these things are still run as silos, not as part of the core property offering. In most cases, the innovation teams have no power in the business to implement the innovations they come up with. Until there is a native frictionless way to engage with the market, the real benefits will not be seen as they have been in other industries that have been digitized and automated. Without rules to protect the rights of the landlord and the other community members, the digitization of the real estate industry will comprise nothing more than a collection of limited disconnected applications, as it is now.

There are three issues that are roadblocks for the property industry to solve these problems.

The first is that everything in property is siloed; there are many disparate systems that don’t communicate with each other — and that is an obvious problem.

The second is asset managers have never been focused on customer experience (I know this because I was a professional tenant for 21 years), rather they are focused on a 20 percent return for the asset. If they are meeting that benchmark, then good enough is good enough. I believe there is a lot more value to be unlocked.

The third is that technology people and property people do not speak the same language. There are very few people who manage to cross this chasm. Most prop-tech solutions are designed by technical people with very little property experience and sometimes the result is a beautiful technical solution that doesn’t solve the real property problem.

Global Crossing was not the end of the internet; Napster was not the end of the entertainment industry or digital rights management. WeWork is not the end of commercial real estate or flexible workspace. I think, after a rough patch, if landlords take a root and branch approach to how they manage their portfolios and get rid of their inertia against change, then it’s probably the start of a long-term boom.

Building Support for Climate Action Depends on Linking It to Health, Economic Benefits

by Sachse Team

Generating public support for climate action may require more extensive education about the health and economic benefits, according to a report from the U.S. Green Building Council.

The report, “Standard Issue Volume II,” surveyed 1,850 adults across the U.S., and found that while most people believe environmental problems are important, they do not believe the issues are significant enough to make action a priority. The report also discusses steps that could mobilize more public support and provides tools to help motivate people to get involved.

Respondents were asked to rate how important environmental problems were to them, and 82% said that they believe environmental problems are very or somewhat important, an increase of eight percentage points in the six months since USGBC began conducting the research. However, the report found that of those, only 49% believe that environmental problems are very important, while 33% say they are somewhat important.

Just over 60% said they were most passionate about protecting the health of their family and friends. Yet, 39% of respondents said they have never considered or don’t know the impact buildings have on the environment and their health.