Categories Narrative

Gaining a Competitive Edge in Office Buildings


Below is an interesting article from The New York Times about office landlords seeking a competitive edge in leasing space to tenants.  Our primary market is Phoenix, so when I travel or read, I am always watching out for trends and changes in what owners are doing and what tenants are leasing.  Here are three things that we are just starting to see in Phoenix:

1. New York building owners are installing auto-dimming windows into their offices to try and get a leg up on their competition.  I was on a Southwest flight a month ago and the windows on the plane had this technology.  I found it really cool. I don’t think it would change my decision to lease office space but it was great new technology.

2. $9.6 Billion was invested in Real Estate technologies for office connectivity and other amenities. This is going to be a game changer.  There is a lot of disruption starting to happen.  For example, Audio visual TI’s are $5 – $15/sf  more than they were just 5 years ago. Read this narrative every chance you get as this trend is one of my primary focuses.  

3. There is a ton of focus on automating building systems and creating remote access (which leads to more security risk).  These systems are trying to create a more inviting building for tenants. 

Keeping the above in mind but know that location, transportation, access, and floor plans are still the main decision drivers.  The more change we see, the more the fundamentals remain critical.  I remember back in the 90s there was a developer that built Class A buildings in Class B locations as a strategy.  The idea flopped.  Even today, those buildings are still very nice…and they continue to trade at a far lower price per SF because they can’t attract quality tenants at higher rents. 

If you want to talk more about these trends, shoot me an email or call. 







As Office Tenants Expect More Tech, Even the Windows Get Smart

To stay competitive, developers and landlords are being driven to add telecommunications infrastructure, video screens and, yes, glass that tints itself automatically.

By Jane Margolies
April 9, 2019

gaining competitive edge 1

Smart windows from View in a building in Midtown Manhattan darken as the sun becomes brighter. Developers and landlords that offer advancements in office space may be able to command premium rents. Credit Jeenah Moon for The New York Times

Office developers and landlords once had to think only about supplying electricity, plumbing and heating to workplaces, leaving tenants to design their offices to their own technical specifications.

But these days, the providers of office space are being driven to provide telecommunications infrastructure and add sophisticated technology like smart windows to better compete.

Every year, office technology becomes more advanced, and developers and landlords have to stay on top of the trends or risk falling behind. Those that have the technological prowess may be able to command premium rents, but those that lack it may be forced to offer a discount.

“It’s placing more pressure on buildings to be that talent magnet for tenants rather than just a people warehouse,” said Phil Mobley, head of research for Building Engines, a property management software company in Boston, and vice chairman of the technology committee of Building Owners and Managers Association International.

The increased attention to technological upgrades has attracted the attention of investors. Venture capital investment in real estate technologies was $9.6 billion in 2018, according to the data supplier CREtech. In the first quarter of 2019, it increased 250 percent to $4.9 billion over the same period in 2018.

The office space market is loosening in some cities. In New York, for instance, the vacancy rate rose to 9.2 percent in the fourth quarter of 2018, from 8.9 percent a year earlier, according to Cushman & Wakefield. As the market softens, office providers are scrambling to meet the expectations of tenants.

DivcoWest, a developer in San Francisco, is placing technology at the forefront of Cambridge Crossing, a 45-acre mixed-use development under construction in Cambridge, Mass. By offering high-tech infrastructure, Cambridge Crossing is angling for the same type of companies that have found a home at Kendall Square, a tech hotbed a half-mile away with tenants like Facebook and Google.

When finished, Cambridge Crossing will have six office buildings with 2.1 million square feet of space. Tucked underground, concealed behind walls and hidden in the ceilings will be an estimated 10 miles of fiber-optic cable, which promises robust Wi-Fi with uninterrupted connectivity everywhere on the premises.

The Dutch technology giant Philips has already signed on, leasing seven floors in the development’s first office building, which is nearing completion, for its North American headquarters.

Cables will enter the building through eight conduits — four in the front and four in the back — enough to accommodate multiple service providers and offer built-in backup, known as redundancy in the tech world. If cables in the front of the building go down for any reason, those in the back will carry the day.

Inside, the conduits route to an equipment room on an underground parking level. The room is capacious and will be climate-controlled — a far cry from the cramped and makeshift spaces, sometimes near the boiler room, that make wiring in older buildings vulnerable to overheating or an accidental whacking by a mechanic.

“In the past, we’ve done spare conduits into a building but not the redundancy,” said Tom Sullivan, president of development at DivcoWest.

As competition to provide the best technology in office buildings increases, some companies are trying to help developers achieve their goals. The New York consultant WiredScore, for instance, certifies the reliability of a building’s internet connectivity. So far, more than 1,800 office buildings globally have registered for or achieved its certification, with about half of them in the United States, according to the company’s founder and chief executive, Arie Barendrecht. Cambridge Crossing is being designed to obtain Wired certification for the entire development.

Real estate experts say traditional considerations like location, access to transportation and floor-plate size remain the main reasons tenants pick one place over another. But hoping to gain some sort of advantage, some office providers are beefing up other sorts of tech in their buildings, including antennae for picking up and amplifying cellphone signals and lighting sensors that track the brightness of the sun.

The windows were supplied by View, a company in Milpitas, Calif., that makes “dynamic glass.” When the sun shines, a coating between the double panes of glass will darken, like self-tinting glasses. This reduces glare (which can cause eye strain, headaches and drowsiness) and heat gain (which may require turning up the air-conditioning, thus increasing energy use), while maintaining natural light.

As smart as the windows are, they will eventually become even more functional, said Rao Mulpuri, the chief executive of View, which in November announced a $1.1 billion investment from the SoftBank Vision Fund. He said windows would eventually be used like computer screens, displaying content and used for videoconferencing.

Some expect smart technology to expand beyond windows. Andrea Chegut, director of the Massachusetts Institute of Technology’s Real Estate Innovation Lab, predicts that interior office walls will one day be “turned into data centers, capitalizing on fiber-optic connectivity.”

Already, wall-hung video screens for sharing content, once seen only in boardrooms, have been proliferating. These types of audiovisual systems account for the largest cost increase in office design in recent years, according to the real estate services company CBRE. Five years ago, audiovisual costs averaged $5 per square foot; now, it’s common for developers to spend $10 to $20 per square foot on the systems.

At the gleaming new headquarters of the electronic trading platform MarketAxess, in Manhattan’s Hudson Yards and designed by the architecture firm Spacesmith, screens glow in practically every meeting space on the firm’s three floors, including the small “huddle” rooms where employees can duck in for quick one-on-one meetings.

In other ways, however, technology is intentionally concealed at MarketAxess — or it is moved off site. In the boardroom, there is no messy tangle of wires erupting from the table’s smooth marble surface; drawers under the tabletop provide electrical outlets and data ports. The room has two jumbo wall screens, but all the equipment powering them is tucked away in a walk-in closet down the hall. The office’s main data center is in New Jersey.
Daylight sensors along the windows dim lights when the sun is bright. Window shades go up and down depending on the time of day.

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Despite all the automation, some workers like to maintain a little control over their environment. At MarketAxess, software developers on the 17th floor decided the overhead lighting was too bright, so they shut off some of the lights in the ceiling fixtures above their desks. And the firm’s chief executive, Richard M. McVey, did not like the constant creep of window shades in his corner office.

“We turned his off,” said Daniel Wolff, global head of infrastructure for the firm.

Motion sensors that shut off lights in empty rooms have long been used in offices to save energy, but the monitoring information they provide, along with other building data, is increasingly being shared with employees.

Using mobile apps or computer software platforms often provided by the landlord, employees at some companies can use their cellphones to, say, scope out different gathering areas before deciding where to meet colleagues. After checking data on occupancy, daylight and temperature, they can decide whether to head to a sunny part of the office where others are already congregated or to a quieter spot where they can work without distractions. In turn, the data is being monitored by building operators to determine things like whether to increase the flow of fresh air to a crowded part of the floor or scale back janitorial services in a less-frequented area.

All of which raises the Orwellian specter of surveillance that tends to make some Americans skittish. Some companies in China have embraced facial recognition software at building security points, which, for example, allow employees to move from the lobby to an elevator without pausing to slap down building identification cards at turnstiles. But there has been resistance to such technology in the United States.

And even proponents of connectivity admit that the more digital offices become, the more security risks are created.

“There are so many great benefits of a digitally enabled building,” said Mr. Barendrecht of WiredScore. “There’s also a downside.”


Categories Narrative, Office Market

1-Minute Phoenix Metro Office Market Update: Q2 2019

It’s July in Phoenix and it is hot — both in temperature and in the office market.  The office market remains hot but office net absorption (job growth) cooled off in the 2nd quarter, posting just 245,000 SF in Q2.  Mid-year net absorption stands at 1.5 million SF and will likely hit 3 million SF by the end of the year.  There is 2.2 million SF of new construction in progress with most of it delivering by Q4 this year.  All these numbers mean vacancy held still at 16.9% during the first half of 2019.  We believe we will see a noticeable decrease in six months maybe even getting vacancy into the 15% range.  By Q4, we will have experienced another year where tenant demand outpaced new supply, and vacancy continues to tighten.

For this quarter’s report, I thought it would be helpful to compare Phoenix’s stats to the rest of the country.  Here is a link to a national Costar report released last month.  It’s 25 pages if you have the time to read it, but if you can’t, don’t worry, I have highlights:

  • National vacancy sits at approximately 9.75%, compared to Phoenix at 16.9% — This is normal as Phoenix is a growth market.  We cannot grow with vacancies in the low teens much less single digits.
  • Over the past 12 months New York delivered 4.9 million SF of new buildings; Phoenix delivered 2 million SF.
  • Compared to the 2.2 million SF under construction Lee & Associates Arizona reported this quarter, New York has 25 million SF under construction!
  • Phoenix’s net absorption over the past 12 months reached 4.4 million SF.  The ONLY area that scored higher was New York at 5.5 million SF.
  • Phoenix experienced a 3.6 % increase in rent growth while San Jose (Silicon Valley) grew at 7.6%.  No surprise, we are seeing a ton of activity from Northern California companies in Metro Phoenix.

Below is a link to our Lee & Associates Arizona Second Quarter Office Report and as always, here are my 3 local takeaways:

  • Tempe is the Tom Brady of Submarkets in Metro Phoenix.  This city continues to beat its competition for job growth, all the time…… Just like it did in the first half of 2019.
  • WeWork signed yet another big lease.  The CoWorking giant took 90,000 SF in Downtown Phoenix with plans for additional locations.  They are coming to Phoenix in a big way.
  • Sublease inventory is declining.  A year ago, subleases accounted for 1.9% of the available space on the market. Today they are only 1.3%

Please give me a call to discuss these trends further or how I can help you with your office needs.




Click to Read the Report

Categories Narrative

5 Generations in the Work Force

I saw the below graph and article and it hit me:  there are 5 generations now in the work force.  How is anybody managing that?  Then my commercial real estate mind immediately kicked in and thought:  how are we designing space to accommodate the various needs of each cohort?

The truth is, I’m sure we are….at all.  What we are seeing is almost exclusive focus on the largest group—the millennials.  Why?  In 2016, they became the largest generation in the work force and they keep coming. 

Here are a few takeaways:

– How does management handle 5 different generations with many different opinions and work ethics?  This is really not a takeaway, rather a question because I don’t know the answer.
– Millennials now account for the largest generation in the workforce (35%), surpassing Gen Xers (33%).
– Millennials are more tech savvy. How will this affect the future of the workplace?
– Post millennials (born after ’96) already make up 5% of the workforce.
– With many Baby Boomers retiring every year, their presence in the workforce is declining and losing influence.

We deal with macro questions like this every day.  While we might not have all the answers, we can continue to ask better questions and help our clients navigate issues like these as they relate to their office space.


Millennials are the largest generation in the U.S. labor force

APRIL 11, 2018

More than one-in-three American labor force participants (35%) are Millennials, making them the largest generation in the U.S. labor force, according to a Pew Research Center analysis of U.S. Census Bureau data.

As of 2017 – the most recent year for which data are available – 56 million Millennials (those ages 21 to 36 in 2017) were working or looking for work. That was more than the 53 million Generation Xers, who accounted for a third of the labor force. And it was well ahead of the 41 million Baby Boomers, who represented a quarter of the total. Millennials surpassed Gen Xers in 2016.

Meanwhile, the oldest members of the post-Millennial generation (those born after 1996) are now of working age.

Last year, 9 million post-Millennials (those who have reached working age, 16 to 20) were employed or looking for work, comprising 5% of the labor force.

These labor force estimates are based on the Current Population Survey, which is designed by the U.S. Bureau of Labor Statistics and serves as the basis for its unemployment and labor force statistics.

In 2017 the Generation X labor force was down from its peak of 54 million in 2008. The decline reflects a drop in the overall number of Gen X adults (Census Bureau population estimates indicate that their population peaked in 2015). In addition, last year only 82% of Gen Xers were working or looking for work, which is lower than their share in the labor force in 2008 (84%).

Though still sizable, the Baby Boom generation’s sway in the workforce is waning. In the early and mid-1980s, Boomers made up a majority of the nation’s labor force. The youngest Boomer was 53 years old in 2017, while the oldest Boomers were older than 70. With more Boomers retiring every year and not much immigration to affect their numbers, the size of the Boomer workforce will continue to shrink.

While the Millennial labor force is still growing, partly due to immigration, it is unlikely that the Millennial labor force will reach the peak size of the Boomer labor force (66 million in 1997). The Census Bureau projects that the Millennial population will peak at 75 million. At that number, a high rate of labor force participation would be needed to reach a labor force of 66 million.

Note: This post was originally published on May 11, 2015, under the headline “Millennials surpass Gen Xers as the largest generation in U.S. labor force,” which reflected the Center’s definition of Millennials at the time (born between 1981 and 1997). This updated version reflects the Center’s newly revised definition, under which Millennial births end in 1996, and the incorporation of more recent information.

Categories Narrative

The Shrinking Middle Class


There has been a lot of talk about the middle class getting squeezed and the numbers below bear this out.  Take a look at the graphs.  What does this mean to the average worker?

  • Rent, medical costs and tuition have increased more than income, shrinking savings.
  • The median hourly wage in the U.S. is $27.35.
  • Since 1995, compensation for graduate degree holders has risen 28%.  Despite all the tech companies saying you don’t need a degree, the numbers don’t tell the same story.  I am happy to say my fourth child, Claire, just earned her undergraduate degree from LSU. All four of our kids have now graduated with at least a bachelors degree.  This statistic is one of the reasons why we pushed our kids to go to college.
  • Since 1995, compensation for those with only a High School diploma has only risen 5%.—This segment should be focused on a trade where the compensation is much higher.

This article was written at the end of 2018.  There is some evidence that wages are starting to rise pretty rapidly for those with only a HS diploma.  Let’s hope that continues.

Give me a call or email me if you would like to discuss this any further. 









The Shrinking Middle Class: By the Numbers

By Nicolas Rapp and Matthew Heimer
December 20, 2018

The American middle-class ideal was forged in the decades after World War II, when economic growth and wage increases climbed in lockstep for nearly 30 years. That pairing dissolved abruptly in the 1970s. Between 1973 and 2017, according to the Economic Policy Institute, the productivity of the economy grew 77%—but average compensation rose only 12.4%, adjusted for inflation. This divergence coincided with a shift in economic gravity, away from manufacturing and toward services and “knowledge industries.” That shift weakened the labor unions that had helped rank-and-file workers in many professions claim a bigger share of the bounty. Just as important were tax reforms that favored investment and real estate earnings over wage income. The upshot: an economic order in which the capital-owning class enjoys great advantages—and the costs of admission to and exclusion from that class grow ever higher.

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The Tightening Squeeze of City Living
The information revolution has increased the concentration of jobs in certain U.S. cities, especially in a few hotly competitive coastal metro areas. That dynamic has driven housing costs beyond what many middle-class earners can afford, making it harder for them to save for home ownership or other financial goals. (The median U.S. hourly wage was $27.35 in November; it’s lower in most of the Midwest and South.)
Methodology info (PDF)

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To The Victors Go The Spoils
Tax breaks for investors and property owners have helped concentrate wealth among the top 10%. The growing impact of higher education on earnings has had a similar effect. Since 1995, average income for graduate degree holders has risen 28%; for those with only a high-school diploma, that figure is 5%.

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In Awkward Global Company
The bottom 90% of U.S. earners take home a smaller share of income than do their counterparts in most industrial economies—including in far less free societies like China’s.

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Purchasing Power And Savings Wane
Incomes haven’t risen as fast as rent, medical costs, or tuition—three of the biggest burdens for U.S. households. As a result, savings rates have declined, leaving middle-class earners more vulnerable to being bankrupted by an emergency or a job loss—and less able to put away money for retirement or for future generations.


Categories Narrative

The National Office Market continues to roll on


I keep telling my team:  right now is what the top of the market feels like.  In the United States, one out of every seven people moving out of state moves to Arizona.  The economy is hot.

How long can it continue?  Who knows, but NAIOP is forecasting another great year for the rest of 2019 and into 2020.  I have highlighted a few key points but the whole report can be accessed by clicking here or the link at the bottom. 
1—The U.S. economy is still growing.  Arizona is doing even better.
2—An interesting trend is more SF per employee.  This is the first time we have seen a reversal in the trend of more and more employees into smaller spaces.  I think this is an anomaly.
3—Office employment is growing at twice the rate of general employment.
4—These are the good ole days. Enjoy the ride.







The NAIOP Office Space Demand Forecast
Office Leasing Activity Expected to Grow Amid Sustained U.S. Economic Strength


Second Quarter 2019 Report
Bennett Gray



NAIOP Office Space Demand Flier 2Q19_Page_1

Read the entire article here

Categories Narrative

Being A Successful Real Estate Investor


When I wrote How to Win in Commercial Real Estate Investing, I spent all my words on the process of investing.  Not the psychology of the business.  Below is a great (and short) article on the 4 P’s of being a successful investor. I would recommend that everyone think about these words before they jump into the CRE investing world.  
–       Be passionate about investing in real estate. This is what ensures longevity throughout the investment.
–       Be persistent when the going gets tough. You will have your fair share of problems, you must stay strong and get through them.
–       Be patient. Rash decisions can get you into trouble in this type of investing.
–       Know and trust the process. Shooting from the hip can result in bad decisions along the way.

Investing in CRE can be very rewarding and frustrating and fantastic and horrible and well…every emotion.  I was recently on the 7 Rules Podcast with Nick Raithel where we discussed my 7 Rules for Real Estate Investing.  It’s a great podcast to listen to if you want to focus on the important issues when investing in Commercial Real Estate.  If you want to listen, let me know and I will email you the link.  If you decide to get on board, enjoy the ride.









4 P’s of a Successful Real Estate Investor
By wpuser
GC Realty
November 6, 2017

So you want to be a successful real estate investor?  It seems so easy looking in from the outside.  Working for yourself, setting your own hours, making money on vacation are just some of the perks of being a real estate investor.  But it takes a lot of hard work and the 4 P’s to be truly successful as a real estate investor.

“Passion will move men beyond themselves, beyond their shortcomings, beyond their failures.” – Joseph Campbell

Do you wake up ready to take on the world?  You can hardly sleep because you are excited about what you are doing.  Passion is what makes it no longer work.  You don’t even realize how many hours you put in because it isn’t work.  It is deeper than that.  It is in your soul to be a real estate investor. This passion carries you and makes it easier to get through those difficult times.


“Persistence is to the character of man as carbon is to steel.” – Napoleon Hill

Your passion allows you to persist when things are bad.  And believe me they will get bad.  Whether it is problem tenants, a down turn in the market or too many repairs; at some point you will question what you are doing. But your persistency is what will keep you going and you will persist through because of the passion that you have for investing in real estate.


“The key to everything is patience.  You get the chicken by hatching the egg not by smashing it” – Arnold Glasow

I can’t say enough about patience.  Patience is what keeps you out of trouble.  So you have all this passion and you are fired up, ready to buy your first real estate investment property.  Your patience is what prevents you from jumping into a deal too quickly.  Patience allows you to do your due diligence.  Patience allows you to realize that if you don’t get this deal, it is ok because there are many deals after this one.  I’ve been around plenty of people that couldn’t just sit on their hands and wait.  Sometimes there isn’t anything to buy and you have to be OK with that.  Spend that time on something else in your business.  It is the deals that you rush into that cost you the most.  It could cost you time, aggravation and worst of all money.


“If you can’t describe what you are doing in a process, you don’t know what you are doing.” –W. Edwards Deming

Process brings everything together under one united system.  Without the processes, there is no business.  There is a free for all where you make decisions based upon a gut response rather than the facts.  The process keeps you in check.  The process is like a safety net.  If you set it up and stick to it (assuming it catches everything) you should be in good shape.  Typically problems happen when you decide that you know better than the process that you spent hours working on.
Passion, persistence, patience and process will help you become a successful real estate investor.  It is what gets you out of bed in the morning. It keeps you going when the going gets tough.  It allows you to be at peace while you wait for the right opportunity.  It brings all of these together into a plan, so you can stay focused on what you are doing.  These form the foundations of a successful real estate investor.

Categories Narrative

Vertical Warehousing


The entire world is being disrupted.  Readers of this narrative know this.  Here is the latest disruption: vertical warehouses with four stories. Why are these taking off? 
–Consumer demand for instantaneous delivery has caused the industry to take a hard look at the “last mile” and seek new ways to speed up delivery.
–Developers are looking to Asia and cloning their multi-tier warehouses and bringing them to a city near you.
Below is a great article on this trend. Here is another if you want to read more. 

Currently, the ideal locations for these warehouses are:

  • Densely populated urban areas
  • Areas with low vacancy rates and high rents
  • Areas with high land costs requiring density of development

 The whole supply chain is being remade, this is just one way it’s manifesting itself.  

To discuss these disruptions further, feel free to give me a call.







In the age of Amazon there’s nowhere to go but up
JANUARY 16, 2019
building design


Multistory warehouses could help speed ecommerce delivery in urban centers.

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“Ecommerce needs three times the space of any other kind of retailing.”

That observation came from Hamid Moghadam, CEO of Prologis, the world’s largest warehouse owner and developer, during a March 14, 2017, interview with Jim Cramer on the TV business program Mad Money.

That same month, Prologis paid a reported $28.3 million to acquire a 205,409-sf former ABC Carpet & Home outlet in The Bronx, N.Y., which Prologis converted into the first multistory distribution center in the eastern U.S.

Online sales pivot on distribution. Consumers who purchase merchandise from their desktop computers or mobile devices have high expectations about quick and reliable delivery. As ecommerce approaches an estimated 12.4% of retail sales by 2020, it is imperative for distribution centers (DC) to be near where consumers live, especially in cities whose transportation infrastructure did not anticipate exponentially more delivery trucks.

But close-in urban real estate is expensive and often difficult to come by for the massive acreage that these DCs require. So some developers are taking a fresh look at building warehouses vertically, and justifying the added cost by the rents these facilities might fetch.

Last October, Prologis, working with Craft Architects and Sierra Construction, completed its first ground-up multitier distribution center in the U.S., a three-story, 589,615-sf facility named Georgetown Crossroads for the Georgetown neighborhood in Seattle where it’s located.

Ware Malcomb, in collaboration with developers DH Property Holdings and Goldman Sachs Asset Management, has designed a 375,000-sf, three-story warehouse on four acres in the Red Hook section of Brooklyn, N.Y., whose construction (by design-builder Hollister Construction Services) was expected to begin in January 2019, with completion scheduled for early 2020. (The developers paid nearly $50 million for this land, according to The Real Deal.

The Red Hook facility, at 640 Columbia Street, is one of five multistory warehouses in New York City that Ware Malcomb is involved in various stages of production, confirms Michael Bennett, LEED AP, Principal with the firm’s Woodbridge, N.J., office.
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Ware Malcomb’s three-story warehouse in the Red Hook section of Brooklyn, N.Y., is one of five it has under development.

While still a rarity in North America, multistory warehouses are common in Asia, where land costs are prohibitive and smaller trucks are used to ship products. Through October 2018, Prologis had opened 84 multistory warehouses in Asia, and has another 25 under construction, according to Rick Kolpa, Senior Vice President and Market Officer in the firm’s Seattle office.

The attraction of multistory warehouses to American developers corresponds with the doubling over the past five years of land prices for single-story warehouses in the U.S. Spurred by ecommerce, demand for industrial real estate exceeded supply for 32 consecutive quarters through mid-2018, according to CBRE.

Ecommerce’s growth has also instigated demand for instantaneous delivery services. In the first quarter of 2017, UPS polled 5,000 online shoppers in the U.S., 64% of whom expected orders placed by 5 p.m. to qualify for next-day delivery; 61% expected orders placed by 12 p.m. to qualify for same-day service. Three-quarters of respondents said they would pay a premium for expedited shipping.

Meeting those expectations is problematic to achieve, however, as America’s aging infrastructure deteriorates, with one result being intractable traffic congestion.

“Acceptable routes of delivery are diminishing,” laments Kolpa. Quicker delivery increasingly depends on the proximity of warehouses to the product’s destination, the so-called “last mile.” But finding closer-in land within some urban cores with enough acreage to support a single-story distribution center has become exceedingly hard—and expensive.

Based on their population densities, vacancy rates, and potential ecommerce penetration, CBRE sees several metros—including San Francisco, Miami, Chicago, Los Angeles, Dallas/Fort Worth, Houston, and Atlanta—as being ripe for multitier warehouses.

“At some point, there’s a need for an urban distribution solution, and multistory warehouses seem to be the logical fit,” says Ed Klimek, AIA, NCARB, Partner with KSS Architects, which designed a 700,000-sf, two-story warehouse that is expected to start construction in March 2019 on a 20-acre site along Bruckner Boulevard in The Bronx. Its developers Innovo Property Group and Square Mile Capital Management reportedly paid $75 million for the parcel.

Situated at a six-way interstate intersection with highway access to port and city, this building, when completed in late 2020, would be 15 minutes from 9.4 million residents. The design includes 28- to 32-foot ceiling heights, a two-lane ramp, a 130-foot truck court, 90 loading docks, 800-lb floor load capacity, a fenced perimeter, and onsite parking with 486 spaces. The building will also offer 55,000 sf of corporate office space.

“Innovo wanted something that would maximize the land, optimize the building, and would be adaptable for single and multiple tenants,” says Scot Murdoch, AIA, Partner at KSS.

In designing the facility, KSS and its development partners took into account the business audience, the state building codes for entrance and egress, the balance between total square footage and the number of truck docks needed, and even how to skin the building (its façade blends precast panels below and heavy-metal panels above).

Prologis, says Kolpa, hasn’t found much difference in the construction cost of multi- vs. single-story warehouses. (Prologis hasn’t revealed the cost for Georgetown Crossroads in Seattle). But Bennett of Ware Malcomb says the cost for a multistory warehouse in New York would run anywhere from $185 to $280 per sf, depending on how its rentable space is defined. That compares to a construction cost of between $60 to $110 per sf for a comparably located single-story warehouse.

Without revealing numbers, KSS’s Klimek and Murdoch say their cost estimates pencil out within Bennett’s range.

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KSS Architects has designed a two-story, 700,000-sf distribution center, 2505 Bruckner Boulevard, that could get started in 2019.

Multistory warehouses nearer to urban centers are expected to be able to charge higher rents, although proof of that theory is still anecdotal.

Bennett believes higher rents can be justified by emphasizing that a vertical warehouse “provides tenants with a Class A opportunity, closer in.” He also notes that such warehouses are nearer job centers at a time when warehouse tenants in general are having a harder time hiring and retaining workers.

What makes a multistory warehouse unique, says Bennett, is its “stacking and ramping” features that can handle 53-foot trailers. Ware Malcomb’s design also “future proofs” the building so that it can accommodate “vertical transportation” elements like robotic rovers for picking and drones for delivery. The façade will include solar panels to get the building as close to net zero energy consumption as possible. And its layout will be flexible enough to convert to more office space if warranted. Bennett anticipates that Red Hook’s third floor will be leased primarily for light manufacturing.

Prologis’s Seattle warehouse is equally flexible on each of its three floors, which can be subdivided. Its first two floors, with 24-foot and 28-foot clear space, respectively, have up to 100 dock-high doors available. The third floor is for build-to-suit office and maker spaces.

Kolpa was reticent about discussing where else Prologis is looking to build multistory warehouses. He would only confirm that a facility in San Francisco is “pending.”

It remains to be seen how broadly developers embrace this concept, particularly in markets like Texas where land is still plentiful and relatively affordable.

JLL reported last spring that a large parking lot near New York’s John F. Kennedy International Airport was in the planning stage to become a three-story warehouse. And KSS has two warehouse projects in the works in Washington, D.C., one of which would be multistory.

Klimek observes that while multistory warehouses are definitely a trend, they won’t be the be-all and end-all solution. “Multistory warehouses will continue to be site-specific,” he says.

amazon 4

amazon 5

The 2505 Bruckner Boulevard facility has 74 loading dock doors on the first level, with the second level for freight and office space.

Categories Narrative

Analyzing Business Opportunities


We all know we have to do our homework when analyzing any business opportunity.  Doing due diligence  from every side and perspective will help protect your interests (and money).  Below are some reminders and a priority list for conducting your due diligence to limit your risks and hopefully ensure your ROI:
Financials first, all else is a waste of time until the numbers pass the smell test.
SWOT (strengths, weaknesses, opportunity, threats) analysis. Assess all sides of the business to see if it is sustainable for the future.
– Is the owner essential to operations?
– Know what you will owe in tax post-acquisition.
– And the biggest takeaway is to always work with a team of accounting, legal, and commercial real estate professionals to understand all sides of the deal.
Several times a year, we will have a client bring us into an acquisition (under an NDA) or strategy change to analyze the potential transaction or change from a real estate perspective.  They get real numbers for their project, not just a plugged number that may be way off.
We are here to help. Call us if you have any questions.






A Guide to Analyzing Business Opportunities

By Barry Stuart
the broker list
April 21, 2018

guide to analyzing bus opps

There are important elements to consider when analyzing business opportunities and reviewing a business with the intent to purchase. Taking the time complete a thorough investigation is critical to discover the hidden facts.

First Glance
Don’t invest time or energy until you’ve seen the financials. I estimate that only 30% of owners who request an evaluation have realistic expectations. It is my policy to see a recent 12 month income statement before investing too much time.

Important Questions
Why is the owner selling?

Is there competition or new technology threatening the business? Answering this question will typically involve speaking with owners of similar operations in other markets and using as many other resources as possible to investigate completely.

Can future potential income be taken into consideration? It’s important to know the potential that exists to add value to the operation. That future potential should not be used to form your opinion of how much it is currently worth.

How integral is the current owner to the success of the business? If the owner is the current principal driver, are you able to find a suitable replacement who can achieve your future growth expectations?

How do you deal with unreported cash taken from the business? It’s difficult to substantiate and cannot be used to determine its current value.

Make sure the owner has talked to his accountant and is aware of tax implications of the sale. You don’t need to hear after investing time and money in your due diligence process that the owner has decided not to sell due to excessive tax that will be triggered upon disposition.

Determining the price
Internally generated income statements are acceptable for my initial review. An important part of my formal due diligence must be analysis of “Notice to Reader” statements used for tax purposes.

There are obviously many different types of businesses which means that there could be a high amount of capital assets (such as a manufacturing plant) or low or no assets (such as an insurance company). Typically the value of the business will be more weighted on the reconstructed EBITA rather than the value of the assets.

EBITA is an acronym for earnings before interest, taxes and amortization. Before calculating EBITA it is always necessary to determine if it is necessary to reconstruct the expenses. Examples of when adjustments are required include but are not limited to, attributing market value numbers for all wages including Operations Management ( the current owner(s) may be paying themselves above or below market ), removing personal insurance or vehicle expenses, adjusting for a one time legal expense or an unusual non-reoccurring capital improvement.

There may be occasions when you know that property taxes or lease costs will be increasing considerably next year. Factors such as these could significantly reduce the bottom line.

Businesses such as hotel/motels, apartments and self-storage facilities are commonly appraised by applying a cap rate to EBITA to arrive at a combined value for the business and real estate.

The formula is different in examples where the business could easily operate from an alternate location but the real estate and businesses are nonetheless being purchased together. In that case it is necessary to calculate the value of the real estate and the business with separate methods.

Differences between an Asset Sale & Share Sale
Agreeing to enter into a “share sale” means that you will be assuming the owners depreciated book value of the current assets. This will impact your annual corporate tax payable. I advise that the owner’s accountant calculate the consequences of a “share sale” to both buyer and seller. Be sure that the “share sale” purchase contract provides for the liability of future employee remuneration and unknown legal issues that could surface.

It is common practice to establish an “asset sale” value based on 3 to 4 times EBITA on businesses under $10M.  Businesses with a value above $10M warrant a higher multiplier. Once the “asset sale” number has been established, the “share sale” value is arrived at by reducing the “asset sale” price by an amount equal to the savings in tax that a seller will realize by entering into that “share sale”.

Other Considerations/Questions
Is there deferred maintenance or outdated systems which will require significant capital expenditure in the near future?

Does the business rely upon one or two key clients or is it well diversified?

Is it important for the owner to spend time training the new owner?

Financial institutions aren’t typically excited about lending based on “goodwill”. Are you aware of the amount of initial investment and ongoing cash that will be required?

Is the purchase/sale contract a document which has been developed for this type of specific business purchase? There are many elements of a business sale that differ from a real estate purchase.

This gives you a quick overview of some things to consider. Be sure to engage a team of professional accounting, legal and commercial real estate advisors to assist with due diligence and closing.


Categories Narrative, Office Market

1-Minute Phoenix Metro Office Market Update: Q1 2019


The Metro Phoenix Office market continued its trend of positive net absorption this quarter in a BIG way.   Fresh off a year of posting 2.8 million SF of net absorption (job growth) in all of 2018, Metro Phoenix hit 1.1 million SF in just the first quarter 2019, sending vacancy down to 16.9% from 17.57%.  If this, or something close to this, rate of absorption continues for the rest of the year, tenant demand will substantially outpace the 2.2 million SF of new building supply delivering this year.

Aside from one major lease over 150,000 SF (Voya Financial), the transactions in the first quarter underscored steady, medium-sized growth in the Valley. We love this consistent growth.  Many businesses expanded operations here while several groups continued to plant their first flag in the region.  Greater Phoenix clearly holds an unfair advantage over other metropolitan markets with its quality of life, quality of workforce and it doesn’t hurt to have the nation’s most innovative university, Arizona State University (ASU), in our backyard.

Similar previous trends continued over the past three months including Tempe (home to ASU) remaining the hottest submarket with high demand and single-digit vacancy. All other areas south and east of Sky Harbor airport captured the most leasing activity.

Below is a link to our Lee & Associates Arizona First Quarter Office Report and as usual, I’ve included my top 3 takeaways:

  1. New Product Leases– Digging deep into the 1.1 million SF of net absorption in the first quarter, 889,000 SF of it took place in buildings constructed in 2010 or later.  This means 80% of employers want the buildings being built this cycle.
  1. Camelback Corridor turns the Corner– After a negative absorption of 110,000 SF in 2018, The Camelback Corridor posted 155,000 SF of positive net absorption in Q1 2019.  By the way, this submarket holds the highest average lease rates across all classes at $35.56/SF.
  1. WeWork Continues to Make a Splash– WeWork signed the 2nd biggest lease in Q1 at 68,968 SF, three months after it signed 54,000 SF in another submarket.  Time will tell how well the co-working giant competes with traditional landlords in this market.


Want to talk more about these trends or how I can help you with your office space?  Give me a call.








Click to Read the Report

2019 Q1 Office Report 1

Categories Narrative

Building Collaborative Areas vs. Coworking Space


For those who have followed my narrative for a while now, you might recall that WeWork and the overall rise of Coworking office space has been on my radar for the past few years (Click here to read “Rise of Collaborative Workspace” and here to read “WeWork now a $5 billion co-working startup”).
The market is always shifting.  Building owners are adjusting to what many see as a long-term trend in office space that is here to stay. But is it?  
Here are some of my key takeaways:

  • Common area amenities such as Tenant Lounges, Conference Rooms, Gyms and Cafés/Food trucks no longer just get you the tour, they are mandatory.
  • The more urban the building the “cooler” the building has to be to compete.
  • Co-working space in a building is seen as an advantage by less traditional tenants (Start-ups & tech companies).
  • Technology and Flexibility are here to stay — adapt or die.

If you want to talk about the Coworking trend and what you or your company is doing, shoot me an e-mail.







CRE Trends, Economics and More
A Wide-Ranging Conversation
By Trey Barrineau
Winter 2018/2019

Excerpt from Development Magazine ‘CRE Trends, Economics and More’
Despite the rise in work-from-home options, Harris said statistics show that demand for of­fice space continues to grow.

“Of­fice-using employment has grown at times at almost double the rate of the general employment growth rate factor,” said Harris. “And yet office absorption just undershoots what it should. I think companies are still very hesitant to expand and spend more money for space, but they’re hiring people. I would say historically something has to give. You can’t expect people to work in a Starbucks-like environment for so long. There’s got to be a pain point.”

The downside to the equation is that a recession could leave coworking companies like WeWork “pretty exposed,” said Harris.

“WeWork is basically a services-based hotel model,” he said. “WeWork is about flexibility. When you’re locked into a 10-year lease in a traditional of­fice space, it’s hard for a business to plan. The flexibility you get with WeWork is extremely valuable.

Harris said it is important for companies to have slack space in order to hire more people.

In response, Foster noted that the NAIOP Research Foundation recently published a paper, “Activating Of­fice Building Common Spaces for Competitive Advantage,” that looked at co-working in of­fice buildings. It showed that owners of of­fices like having a co-working center in their building because it serves as the flex space, so as tenants expand and contract, they can do so in that building.

Stapp wondered if what’s happening with WeWork is challenging how the commercial real estate industry deals with built space.

He noted that use of space has typically been tied to a speci­fic place, for a speci­fic period of time, with the space commitment sealed by a lease. He suggested that if a landlord owns 20,000 apartment units, his objective is to keep cashflow in his portfolio. The user, on the other hand, wants extreme mobility. Rather than having a lease for a defined space over a defined period of time, why not operate a portfolio that’s available to everybody? Through the use of technology, if a tenant wants to move, he or she can pick a new unit that’s available somewhere in the portfolio.

“It’s a total rethinking about how we generate revenue, how we keep people in space, how we use space, and the extreme mobility that it provides,” Stapp said.

Harris said WeWork is providing “space as a service” to businesses, a concept seconded by Stapp.
Activating Office Building Common Spaces for Competitive Advantage

By Richard B. Peiser, Ph.D. and Raymond G. Torto, Ph.D.
November 2017


Click here to read the full article. 

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