Categories Narrative, Tech Industry

Another Look at the Corporate HQ for Tech Companies

In the beginning of 2014, I ran a five-part series on the new gigantic and expensive corporate headquarters that are being designed and built by the leading tech companies in the world. As we close the year, the NYT ran an updated article (we have included it below) on most of the headquarters we researched. They also had a few we did not cover.
 
Below are a ton of cool photos of the campus life, how they operate, and some highlights. 
 
Here are my takeaways:
–Natural light has become a huge, mandatory item for these companies.
–These headquarters run 24 hours a day, and function as small cities, providing all that goes with it (food, tech support, etc.).
–Disruption occurs within each company in addition to happening from other startups.
–Change is constant. Get used to it. Founder Mark Zuckerberg’s own line is, “The journey is one percent finished.”
–Temperature control is now essential. Studies show that if you are comfortable you will be more productive.
 
Enjoy the look back. Oh, at Google, you can also book training time with a former Olympic table tennis coach.

Craig
602.954.3762
ccoppola@leearizona.com


The Monuments of Tech

new york times
By: QUENTIN HARDY
March 1, 2014

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Peering Into Tech’s Monuments of Innovation Increasingly, Silicon Valley companies are fusing their buildings with values of change, productivity and their perceived corporate smarts and quirkiness.

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Big Internet companies love to talk about how they are “disrupting” one thing or another, but they still want what big companies have always wanted: workplaces that memorialize their products and values.

That is a challenge, because software is invisible and change is high technology’s most valued commodity. Insubstantial as a cubicle seems, in the tech industry it has given way to the long tables and broad whiteboards of open-plan offices, where everyone taps into a common Wi-Fi signal. Office teams grow or shrink in these open rooms, moving work and information as quickly as possible.

Want privacy? Wear headphones.

The blank-slate look of a big room may encourage communication, but it has an important drawback. “Without inspiration, open plan runs counter to creativity,” said John Maeda, a former president of the Rhode Island School of Design and now the design partner at Kleiner Perkins Caufield & Byers, the venture capital firm. “When you inject the ethos of the company, you’re trying to stand for something amid perpetual change.”

Inside Facebook

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Increasingly, Silicon Valley companies are paying builders to fuse their values of speed, change and productivity with their perceived corporate smarts and quirkiness. It is a big shift. Silicon Valley long prided itself on building world-changing technologies from the humble garage, or the nondescript office park. The new spaces are more distinctive, as companies seek to build a consumer profile and maybe even lasting loyalty.

The companies are dreaming big. Apple plans to build a new ring-shaped headquarters that will be as distinctive as its products. Up in Seattle, Amazon is building a new urban-style headquarters — utilitarian and functional, like its website.

When companies feel that they are changing the world as much as these tech enterprises do, they don’t need just offices. They need monuments.

Facebook’s Palace of Change

Facebook’s headquarters in Menlo Park, Calif., is a cluster of 11 buildings enclosing a Disney-like pedestrian square and a two-way promenade. The complex has a cupcake store and a barbecue joint, a wood shop, a print shop and an arcade. In addition, there are two cafeterias, a candy shop, a taco stand, a burger stand, a pizza stand, a chopped-salad bar and three small restaurants. (A noodle shop is coming soon.) Everything is free or subsidized.

The “Main Street, U.S.A.” feel is no accident. Sheryl Sandberg, the chief operating officer of Facebook, also serves on the board of Disney, and she brought in consultants from Anaheim and Orlando to perfect Facebook’s look. As in the Magic Kingdom itself, all of this fun is purposefully designed in the service of spontaneity.

No one has an office, though Facebook’s chief executive, Mark Zuckerberg, occasionally holds meetings in a large glass cube in the middle of the campus.

Facebook’s unofficial slogan is “hack,” an engineering term that has come to mean remaking something with an amateur’s passionate disregard for the usual rules. Facebook’s all-night hackathons aren’t just an echo of crashing out a project before a college final: They are efforts to keep experimenting, to try something new before some scrappy start-up does.

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A conference area at Google’s headquarters.
The company has 70 more offices in 40 countries worldwide.
JIM WILSON / THE NEW YORK TIMES

Computer problems during an all-nighter? There are machines that dispense new computer peripherals, like keyboards, at no charge, if the help desk is closed.

There are posters everywhere, including the employee entrances, that exhort change, hacking and fearlessness. Typical sentiments include “Taking risks gives me energy” and “What would you do if you weren’t afraid?” The guiding spirit is Mr. Zuckerberg’s own line: “The journey is 1 percent finished.”

The buildings hold 6,000 people. In the past, Facebook moved around as many as 1,000 of them a month, reassigning them to new short-term projects. Walkways double as spaces for ambulatory meetings, held on the go so they are short and decisive.

Casual meeting areas are set off from the open plan by squares of plywood hanging from the ceiling, a visual “under construction” reference meant to reinforce the company’s ethos. Facebook even spent money to expose its networking wires, which dangle along the ceiling.

“It’s designed to change thinking,” said John Tenanes, who oversees Facebook’s buildings as its director of real estate. “Even if the meeting doesn’t move faster, we want people coming up with new stuff.”

And sometimes fooling around with old stuff. There are print and woodworking shops to keep employees grounded in offline experiences, including personal projects and the printing of many of the wall posters, which the company hopes will help them create more consumer-friendly software. Bike repair shops, along with a bank and the free food, help keep people close to campus.

Couches in the casual areas are often replaced with no advance warning. Similarly, design changes to Facebook’s home page are known as “moving the furniture around,” something that initially annoys consumers but pays off over the long haul, the company has found. People get used to change when change is expected.

Mr. Tenanes has an unusual relationship with his buildings. He worked in them when they were the headquarters of Sun Microsystems, a once-highflying company that was overwhelmed by tech changes. “In those days, every engineer had his own office. With a door,” he said. “It was considered status to have a door.”

Doors now seem an impediment, slowing the making of something new.

Across the street from its current headquarters, Facebook has commissioned a new building from the architect Frank Gehry. According to Mr. Tenanes, its large, open-plan space will hold 2,800 people, with 18-foot windows that look out on a 10-acre park on one side and a tidal marsh on the other.

For over a year, Facebook has scoured California for trees for the building’s rooftop plaza, which will also feature drought-resistant grasses. The plaza will have a coffee shop, a Shake Shack restaurant, a walking path and telescopes to witness the ever-changing marsh. A second path, at ground level, will accommodate bicyclists and walkers.

“You’ll be surrounded by world-class engineers,” Mr. Tenanes said of the structure, “and never more than 24 feet from a wonderful outdoors.”

Twitter’s Urban Aerie

In San Francisco, an elevator opens to walls clad with planks from a country barn. In case you don’t get the reference, the computer at the front desk is inside a faux birdhouse: This is Twitter, whose symbol is an emerging bird, and whose chief executive was once an improv comic.

Irony has crept into the architectural values of many Silicon Valley companies, as if the young royals of tech were relieving with a joke the embarrassment of finding themselves running multibillion-dollar businesses. At Twitter, though, the irony doesn’t creep; it charges like an ostrich.

Just outside the cafeteria, called “@birdfeeder,” a family of plastic, neon-colored deer stands near the couches, on which pillows bear the crocheted words “Home Tweet Home.” Irregular soft cubes serve as impromptu meeting areas. There are ample sticks and twigs on the walls and ceilings, as if nests under construction.

The company encourages informal meetings in this low-stress setting, hoping that it will help foster new ideas. Back in the business area, there are open-plan work spaces, along with individual file cabinets on rollers that can be moved to wherever an employee will next be working.

Here, as at many other tech companies, is a sense that nothing is permanent, that any product can be dislodged from greatness by something newer. It’s the aesthetic of disruption: We must all change, all the time. And yet architecture demands that we must also represent something lasting.

Quick meetings take place in booths that look as if they were lifted from an upscale diner, with banquettes for two or four. Near the executive offices are the kind of angular couches and chairs that Dick Van Dyke would be happy to use for a pratfall. What is notable is also what is missing. At Twitter, you must request a desk phone. Employees use their cellphones, and the company pays the bill — for all major types, though a company official had to check to see whether this included BlackBerry and Windows Mobile, since everyone seemed to be on Androids or iPhones.

The main dining area, across from the elevator bank, is also known as the Commons. Twitter styles itself as the “global town square” for all the public conversations it hosts, and it likes the openness of the area not just for chance meetings but also for weekly gatherings where Dick Costolo, the C.E.O., presides from a raised platform. Information sharing has become a hallmark of Silicon Valley companies, particularly when things are going well. It is another way of fostering the idea, borne in the programming world, that hidden data is actually more valuable when shared.

Google’s Giant Testing Center

There is seemingly no part of Google that is not information-obsessed, and it shows in the kind of fine-tuned, all-knowing work space the company has built for itself. Its headquarters, in Mountain View, Calif., has its dinosaur and cupcake sculptures, and multicolored bicycles for intracampus transport. But don’t kid yourself: Even what seems like whimsy is a result of careful, data-driven decision-making.

For example, Google’s free meals, famous for their quality, are a result of detailed study. Executives were turned off by the inefficiencies of an ordinary paid cafeteria; people would spend too much time going elsewhere for lunch — or fumbling for change if they stayed. Even if that was a waste of a minute, it was logical to make food fun and free.

Google tries to measure as much as it can about its employees’ experience. When a new phone jack is installed at someone’s desk, the facilities staff will send an email within an hour, asking the employee to rate the experience for friendliness and efficiency. When green plants in a large frame are installed on an otherwise bland wall, it improves the look and increases the room’s beneficial oxygen, according to Anthony Ravitz, leader of the “Green Team” in Google Real Estate, the department responsible for the company’s facilities.

Mr. Ravitz cited studies of “biophilia,” or love of nature and its effects on easing stress levels. “We are after the holy grail for the knowledge industry — how to measure productivity,” he said. “That isn’t just how quickly you can type words, or how well you made a line of code. It’s about how you felt about it, and whether you had enough energy to play with your kids when you got home.”

To find out those things, Google Real Estate is more lab than furniture department. This is not to denigrate the humble chair: After an initial ergonomic evaluation, each new employee is fitted with the correct chair, which follows her if she is reassigned. During a reporter’s recent visit, Google Real Estate was testing five types of desk chairs, three relaxation chairs, 10 lighting systems, two heating systems and four ways to distribute heat. One woman at an adjustable desk walked on a treadmill as she worked, surrounded by greenery.

“If people are more satisfied with the temperature, they are more comfortable and creative,” Mr. Ravitz said. The goal is to make 80 percent or more of the population happy with the office climate — a higher figure than at most companies.

Google has 70 more offices in 40 countries worldwide, and works with designers in each place to maximize productivity and cut down on energy use. A Google employee badge should work in any of these places, but there are also nods to how space is used in local cultures. “Europe has more bench seating,” Mr. Ravitz said. Americans are chair people.

Google, which started in a dorm room, at one time occupied a garage, and then a series of nondescript offices within its present campus, which also includes the old headquarters of Silicon Graphics, another valley company that couldn’t cope with change. Google employees now play volleyball in its once-staid quad. The real estate group can also issue tables for playing pool, foosball or table tennis. (Training time with a former Olympic table tennis coach books up quickly.) Much of the makeshift recreational space is compensation both for Google’s long hours and the reality that most of its buildings are from an older, duller era.

The outsize dessert sculptures are one effort to break the monotony. A large statue of a man in a cage bears a passing resemblance to a young Bill Gates. No accident, according to Google lore.

Mr. Ravitz’s team has ripped out ceilings and installed skylights where possible, because “studies in education and health care show natural light affects how quickly people learn and heal,” he said. Carefully hidden behind lightweight screens are “nap pods” where people can catch a few winks in enclosed silence. High-backed couches for two, custom-made without flame-retardant chemicals, have special cushions that cut down on noise.

“The harder we work,” he said, “the more important it is to have space to get away from the chaos for a while.”

Categories Design, Narrative

Cozy in Your Cubicle? An Office Design Alternative May Improve Efficiency

Open office design, benching, and cool space layout have been topics we have discussed over the past few years. Below is a very interesting article on the start of the open office space movement and why it failed miserably. Today, we are seeing open office layouts in over 70 percent of new space designs. That does not mean the C-Suite officers have given up their offices. Not yet. But some are trying—see below. Also, I wanted to add two takeaways for you from the article:

1—The newest buzzword—you heard it here first: “activity-based working” or ABW. This basically means people are more productive when they get to choose where they work.
2—Changing to a complete open office is not easy nor fully vetted. People start picking the same spot each day or they take over the quiet room and make it their office. The trend is still in its infancy stages.

You can read the complete article below or just my yellow highlights. Stay tuned as we monitor the office space trends for you. Better yet, hire us to represent you on your next lease.

Craig
602.954.3762
ccoppola@leearizona.com


Cozy in Your Cubicle? An Office Design Alternative May Improve Efficiency

Bloomberg

By: Belinda Lanks

September 18, 2014


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Photograph by Adam Friedberg for Bloomberg Businessweek

In 1993, Jay Chiat had an epiphany while skiing in Telluride, Colo. The adman who created Apple’s (AAPL) memorable “1984” TV commercial thought it was time to “think different” about his own office: Chiat believed the workplace had become as static as an elementary school, with people only leaving their desks for lunch and for trips to the bathroom. He wanted his office to be more like a university campus.
 
When he returned to his agency, Chiat/Day, in Los Angeles, Chiat announced he was banishing job titles, workstations, landlines, and desktop computers. Employees could work from home, visiting the office anytime for client and team meetings. But when they did come, they’d have to store their personal items in a locker and sign out company-owned laptops and cell phones.

The experiment was an unequivocal failure. For starters, there weren’t enough computers and cell phones to go around. “You had people coming to work to get on line just to get their supplies to do their job,” recalls Bob Kuperman, then president and chief executive officer at Chiat/Day’s Los Angeles office. Because the lockers were too small to hold much paper, some staffers resorted to using the trunks of their cars as filing cabinets. Others started playing hooky. Chiat, who passed away in 2002, “was way ahead of his time,” says Clive Wilkinson, the architect who designed a new office for the agency after it was sold to Omnicom Group (OMC) in 1995. Too far ahead, he says, noting that the upheaval “placed an appalling burden” on the staff.
 
Chiat’s vision of the workplace may finally be having its moment. Wilkinson, who also designed Google’s (GOOG)headquarters in Mountain View, Calif., recently completed a 65,000-square-foot office in Midtown Manhattan that has a lot in common with the advertising legend’s folly. At Gerson Lehrman Group, all 250 employees are equipped with office-issued laptops and telephone headsets and can choose from a variety of workspaces instead of assigned offices or cubicles. At the end of the day, they store gear in personal lockers.
 
GLG’s Headquarters
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Employees at 15-year-old GLG, which pairs up people from different fields for professional development, begin their day by walking into a sun-splashed atrium furnished with comfy chairs. A barista is on duty at a polished brass coffee bar from 7:30 a.m. to 12:30 p.m. Staff can choose to work wherever they like: the cafe, a traditional or standing desk, a semi-enclosed carrel, or a closed-door booth.
 
The guiding philosophy behind this game of musical chairs is “activity-based working” (ABW), a term coined by Erik Veldhoen, a Dutch consultant and author of the book The Demise of the Office. The consulting firm Veldhoen founded argues that when people are able to choose where to sit, they structure their days more productively. “They are more conscious of what they’re going into the office to do and why they’re going to do it,” says Louis Lhoest, a partner at Veldhoen + Co.
 
Starting in the mid-1990s, ABW began making inroads through Europe and elsewhere. In 2009, Wilkinson—who became acquainted with ABW in 2006 while touring offices in the Netherlands—completed his first ABW project in Australia for theMacquarie Group (MQG:AU), a global financial company based in Sydney. GLG’s office is the largest implementation of the concept in the U.S. Proponents argue that ABW isn’t a space-saving solution like “hoteling,” where workers can reserve workstations in advance, or like “hot desking,” where they’re free to sit at any available desk. “We have room for 350, but we only have 250 people working for us,” says Richard Socarides, GLG’s head of public affairs.
 
(Click here for a video from the article online)

ABW can be a hard sell. Managers “have to learn to cope with not having people within their line of sight,” Lhoest says. Workers may also find it tough to give up a desk of their own. One of the few liberties workers are afforded in Dilbert-style cubicle farms is the freedom to festoon pin boards with images of pets, loved ones, and, yes, Dilbert comic strips. In ABW setups, laptops fill the void; users can summon to their desktop thousands of dog pictures at will. In fact, Wilkinson sees the tendency toward personalizing workstations as a response to bad design. “If you have an exciting work space,” he says, “you really don’t need to decorate it further.” Luc Kamperman, another Veldhoen partner, likens a traditional office to a used Toyota and a well-executed ABW workplace to a Porsche, only “you have to share the keys.”
 
To get employees to buy in, GLG allowed each department to appoint representatives to an architectural committee and held town hall meetings. Veldhoen + Co. conducted workshops in preparation for the transition. “You’re really asking for trouble if you don’t carry your staff along with you,” Wilkinson says.

Yves Béhar, the designer responsible for the look of the Jawbone fitness tracker and the SodaStream (SODA) carbonated water dispenser, likes the ABW concept but says his firm, Fuseproject, couldn’t function without designated workstations: “We work with mockups and project-based tools, and those have to remain in place overnight.” In ABW offices, desks are wiped clean at the end of the day.
 
After a couple of months in the office, a few people at GLG have begun to nest, returning to the same desk each day, and some have co-opted the booths as all-day private offices. Department leaders have tried to set an example by moving around, and management is considering a policy to encourage holdouts to sit in different places. GLG is making a concession for the intensely introverted: a quiet zone where they can retreat from ambient chatter—like the quiet car on Amtrak’s Acela commuter train.

Categories Economy, Narrative

Employment Growth – Employer Payroll Survey vs. Household Survey

My favorite economist who tracks the national economy and the US office market is Peter Linneman. He produced the graph below which shows job loss and gain during the recession. This graph demonstrates exactly why I follow the jobs market so closely and why most office markets in the US have been slow to recover. Surprisingly, there are just a few markets that have done exceedingly well. Austin is at over 600% of prerecession jobs and Houston is at 308%. Nice!
 
Phoenix sits at only 68% of the jobs lost, creating an office market vacancy still over 20% today. Take a look at your market and where it stacks up. There are a couple that are still just above 50%, with the rest still struggling to just get back to where they were six years ago.

 

Craig
602.954.3762
ccoppola@leearizona.com


 

Linneman_Dec 2014

Categories Narrative, Tech Industry

One Commercial Real Estate Tech Industry to Watch Close for the Good AND the Bad

Crowdfunding has become a hot market for all kinds of ideas, such as the potato salad guy who raised over $55,000 for his recipe (Click here to learn more). The commercial real estate market is not immune to this new trend. With the passage of a new law, there has been a 334% increase of crowdfundings in commercial real estate properties year over year. This brings excitement and a huge dose of caution.
 
First, the excitement. Growing the investor pool and transparency in our market has been a huge deterrent. The advent of REIT’s solved these two issues. Now an investor has to believe in the operator, their investment strategy and the actual projects that the REIT has acquired. Crowdfunding allows individual investors to invest in specific properties and invest smaller amounts in most cases.

Now for the caution. Highlighted below in yellow is some of the “fine print” in this kind of investing. First, each individual needs to do their own due diligence. If they are novices, then there is a huge risk for loss. Also, fees will need to be monitored as this type of investing can be very expensive. Finally, the industry is so young, all these projections will inevitably turn out incorrect. Some will be low, but I bet most will be too optimistic. 
 
If you are a developer or buyer, why not try it out? If you are an investor, I would wait for this trend to sort out to see who will survive. Or you could buy my book on commercial investing (Click here to buy) to get the basics.

Craig
602.954.3762
ccoppola@leearizona.com

P.S. We were fortunate to represent Patent Law Group in negotiating their new lease at Chandler Office Center.

For the full postcard, click here.

Patent Law


 

Crowdfunding Scales Up

NAIOP

By: Ellen Rand
Fall 2014

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This being baseball season, a baseball metaphor seems apt to describe the stunning year-long rise of real estate crowdfunding: dramatic growth aside, we are still in the bottom half of the first inning. Crowdfunding is much like old-style syndication, but with the turbo engine of the Internet behind it. Internet-based platforms — funding portals — for raising both equity and debt are enabling individual investors and real estate owners and developers to connect directly. And investors are doing just that, with minimum investments ranging from $100 to $1 million.

Industry denizens call it a quantum leap forward in improving the efficiency and transparency of conventional, often archaic, fundraising for commercial real estate. Crowdfunding platforms also are reaching out to individual investors as well as to developers and owners of smaller projects that typically do not get a second glance from institutional investors.

These platforms typically create a limited liability company as a “special purpose vehicle” for each project. They post all relevant information about the project on their website and handle all reporting to investors. Project sponsors cut one check to the LLC according to the terms of a deal, from which the platform pays out returns to investors. Everything related to a deal on a portal’s website may be transparent, but that doesn’t mean investors needn’t conduct their own due diligence before making an investment. As William Skelley, founder of iFunding, pointed out, “we don’t advise anyone on due diligence.”
 
Why and how has crowdfunding made the leap from “what’s that?” status in just a year? In September 2013, the Jumpstart Our Business Startups (JOBS) Act Title II eased up solicitation rules for private companies seeking investors. Those people must be accredited investors, able to prove that they either have an individual annual income of $200,000 or more or a net worth (excluding their primary residence) of $1 million or more. Rules for Title III of the Act, regarding nonaccredited investors, have yet to be promulgated. But that hasn’t stopped dozens of portals from entering the fray.

A Pioneer’s Perspective

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Ben Miller
 
If anyone knows how quickly the business has grown, it is Ben Miller, co-founder of Washington, D.C.-based Fundrise, a pioneer in the field. Miller and his brother Daniel started the company in 2012. Interviewed for an article that appeared in the fall 2013 issue of Development, Miller said that crowdfunding would “scale faster than anyone expects.” That included himself, as it turns out. Miller’s biggest surprise in the last year has been the growth of new portals, partially a result of the low barrier to entry, he said. Fundrise has grown substantially, too.
 
“We get calls from 10 developers a day,” he said. Consequently, Miller now spends more of his time on company management issues, building the company’s team, and with investors. (Before that, he spent more than 60 weeks visiting three cities a week to meet with real estate companies.) Last year, Miller expected to be working with 100 developers in a year’s time; that number now is closer to 300.

One sign of the changing times: three years ago, when Miller met with Larry Silverstein, chairman of Silverstein Properties Inc., developer of the World Trade Center in New York, to discuss the concept, Silverstein said, “Great. Let us know how it goes.” But relationship building pays off. Several months ago, Fundrise raised more than $31 million in its first round of funding from a group of prominent technology, real estate and other backers, including executives of Silverstein Properties as well as Renren, a large social networking company based in China, and individuals in several real estate firms.
 
“Our market will start looking like the public market, with $10 to $20 million a month raised, for iconic buildings,” Miller said.

Reaching Nonaccredited Investors

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Grady Thrasher
 
Not all portals are limited to soliciting from accredited investors; state law sometimes enables portals to market to and accept investments from nonaccredited investors. Grady Thrasher, co-founder and CEO of CrowdVested in Georgia, explained that its model is to give local people the opportunity to invest locally, with a $500 minimum. Among the benefits: property owners can show that there is community support for a development and, ultimately, the development returns funds to local pockets. Over the past year, Thrasher, an attorney who already had worked extensively with real estate developers, has spent a lot of time educating investors.
 
“Real estate is an ideal place for crowdfunding,” he said. “It’s tangible; you can touch it; it’s surrounded by metrics. Ultimately, it’s easier to explain than a software patent.”

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Mark Roderick
 
Crowdfunding attorney (and blogger) Mark Roderick of Flaster/Greenberg PC in New Jersey got involved in the field, he explained, because when the JOBS act was being discussed, “I thought that this would be the most transformative legal change in my lifetime. So I decided I would make it my business to get involved and learn.”
 
How should developers and property owners approach crowdfunding as a new source of capital? Roderick recommended that developers could become portals themselves. “They have the deal flow and the investors,” he said. “Put the deals online. Create it from existing deal flow.” If they are looking for an existing crowdfunding site, he also advised them to look for those that have a lot of capital and the ability to close a deal. Pay close attention to how fees are structured and how the portals will split any promote that becomes part of the deal.

A Look Into the Future

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Kevin Arrabaca
 
What can we expect to see in the next several years? The business will continue to grow, but not all portals will gain traction and consolidation is inevitable, industry observers say. As Kevin Arrabaca, president of real estate investment at AssetAvenue, said: “A lot of groups are [run by] core real estate people but not technology people; or they’re technology people, with a service background, but without a lot of real estate expertise.” AssetAvenue itself first focused on debt investments, but now includes development, investment in cash-flowing properties and refinancing. It also works with what Arrabaca called a rotation of institutional investors.
 
The portals themselves may morph into forms that depart from their origins. Joey Jelinek, co-founder and CEO ofGroundBreaker, for example, explained that, based on feedback the company had gotten from operators who wanted something unique to them, GroundBreaker has revamped its architecture so that each operator can have its own privately branded portal: “You get your own sandbox, with full control of your web-based portal.” Operators can make their own decisions about minimum investments, how they will vet investors and how they provide information to them. GroundBreaker will provide the software (for which it is compensated) and also will act as an investor lead generator through its own website, for which it expects to earn a fee as well.
 
Luan Cox, CEO of Crowdnetic (see “Crowdfunding Metrics” below), believes that one key challenge to the nascent industry’s growth is the risk that a bad actor (either at the issuer or the portal level) could tarnish the industry’s reputation. Both issuers and project sponsors must focus on public awareness, education, promotion and publicity, she said.
 
Along with growth, consolidation and change, bigger names, bigger projects and bigger investments seem inevitable. For example, the Carlton Group, an international real estate investment bank in business since 1991 that has been involved with numerous high-profile transactions, has created the Carlton Accredited Equity Crowdfunding portal. Unlike many of the sites that require minimum investments of $1,000 or $5,000, Carlton’s price of entry is $1 million.

Moreover, there will be more specialization, not only by property type or by equity or debt, but also by geographic area. CityShares LLC, for example, provides accredited investors the opportunity to invest in appreciating New York City neighborhoods (some of which may be just shy of the gentrifying stage). It launched its first Neighborhood Investment Fund (NIF) for Bedford-Stuyvesant in Brooklyn and will invest in a portfolio of residential and mixed-use properties there.
And here, perhaps, is the ultimate irony. An industry that arose to disrupt the status quo of raising capital through conventional means, particularly institutional capital, has caught the eye of major investors, such as venture capital funds, as well as lending institutions and investment banks.

Nor is it out of the realm of possibility that a few of these portals will become public companies themselves. But that’s for the industry’s later innings.

A Developer Takes the Plunge

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David Pittman
 
For owners and developers contemplating dipping their toes into these new waters, the experience of David Pittman, principal of Acacia Real Estate Group, is noteworthy. Frustrated with the lack of institutional capital available for smaller industrial developments, Pittman attended a crowdfunding conference, read a lot about the subject and spent considerable time talking with people at GroundBreaker last summer. Acacia was looking for equity investment for smaller, for-sale industrial properties in the San Gabriel Valley of California, which has experienced low vacancy, high demand and antiquated supply.
 
So Pittman decided to take the leap, to raise up to $5 million in equity for the Los Angeles Flex Center, a 13-acre site for six buildings of 35,000 to 50,000 square feet each. The total project cost is expected to be $27.2 million, with the cost of closing on the land $12.88 million. Acacia offered investors a 10 percent preferred return and an estimated total return of 59 percent, with an estimated maturity of two years.

Pittman approached this process with skepticism, he said, because GroundBreaker was still in its infancy. “These things are structured for people with a long lead time. It’s hard to do if the window to close is short.” Fortunately, Acacia had some flexibility on timing. In January 2014 the project began raising money, with 65 individuals signing on to invest $500 to $50,000 a piece. Acacia is investing 10 percent of the equity and has additional equity investment from other sources. The crowdfunded portion, he said, is “gravy.”

The experience has been “interesting, but not something I’d be completely sold on yet,” he said. “Mostly what I’ve seen is for existing property, not for development. The key is to be able to raise money quickly. You have to have an extensive network of people to tap into.” But, he added, “there are always new opportunities out there. You have to embrace them. I don’t see this going away.”

Crowdfunding Metrics

Crowdfunding 7 2
Luan Cox
 

Since the rules allowing for general solicitation went into effect, Crowdnetic, a provider of technology and market data solutions to the global crowdfinance marketplace, has aggregated data for 48 U.S. real estate “private issuers publicly raising (PIPRs).” From the end of the first month of data collection (October 31, 2013) through May 31, 2014, the number of total PIPRs in the industry grew by 336.4 percent.

Of those PIPRs, more than half were involved with residential real estate, while nearly one quarter were involved with two or more real estate categories. The percentage involved solely with nonresidential (office, industrial, retail and hotel) properties is in the single digits. The total amount of recorded capital commitments received by these 48 PIPRs since inclusion in Crowdnetic’s data is nearly $23 million. After services and technology, real estate is the third-largest crowdfunding business category. The states attracting the most crowdfunding capital are California, New York, Texas, Florida and Illinois.

Categories Economy, Narrative

Spheres of Influence

Every now and then I see cool graphs that grab my attention. Site Selection magazine ran the below graphs showing the top industries and the top projects of the year (2013).
 
I found the following insights:
–Where companies are headquartered and the size of each company are very interesting. There is some clustering, but not always.
–Transportation is driving the economy, especially in Asia.
–The shale gas and fracking revolution is here and it is powerful.
–The global economy is now so ingrained into our world that we cannot even think about separating it. 
 
At the bottom of the page, below the graphs, is a model provided by Bill Koenig from Of Interest Today. Take a look to see where all the parts of a Boeing jet come from in the world. Amazing.
 
We live in the most exciting times don’t we?

Craig
602.954.3762
ccoppola@leearizona.com

P.S. Last week, Dodo Cheney, Andrew’s grandmother and International Tennis Hall of Fame member, passed away at 98 years old. When Andrew started working with me 14 years ago, I forced him to fly over to California to introduce me to Dodo. She was 84 years young at the time. It is not every day you get the opportunity to meet someone who has won a grand slam singles title as well as 391 US tennis championships. She did not disappoint. Feisty, competitive, and funny, she lived her life the way all lives should be lived, with passion. God Bless her and the entire Cheney family. What a legacy she leaves. The picture below of Andrew and Dodo was taken at Wimbledon’s Centre Court back in 2003. Click here to read her obituary from the New York Times.

Dodo and Andrew_cropped 3        Dodo_NY Times 2

Andrew with Dodo at Wimbledon in 2003 and Dodo with John McEnroe, her presenter when she was inducted into the International Tennis Hall of Fame in 2004.


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