Browse Category: Development

President Trump’s 60-Year Lease With Uncle Sam

The inauguration of President Donald Trump, titan of commercial real estate, marked the start of a great number of legal fights concerning his numerous undivested CRE holdings.  One set of concerns raised by the political opposition centers on what it means legally for the sitting President to be doing business with foreign governments, something that appears to be happening routinely within the context of his ownership of Trump International Hotel in Washington, DC, just blocks from the White House.  The broad argument from political opponents goes: with each hotel bill paid by a foreign government staying at the luxury hotel comes a potential conflict of interest as long as the President continues to own that hotel.

Any guest-related potential conflicts aside, the development details of the hotel itself may hold unprecedented potential conflicts. The hotel property was redeveloped inside a former Post Office owned by the US Government — more specifically, the General Services Administration, an independent federal agency established in 1949 that contributes to the management of around half a trillion dollars of US federal property including over 8,300 owned and leased buildings.

GSA is the owner of the Trump International building. The lease has a reported 60-year term with two 20-year options.  The lease has clauses that are drawing attention from industry and governmental players in a way that promises much fighting in the future.

Breach? No Way To Know Yet

The legal confusion is not made clearer by the political forces interested in it.  Efforts by Congressional Democrats to undermine the administration have called certain lease clauses into question: As USA Today reports:

The [hotel] lease reads: “No member or delegate to Congress, or elected official of the Government of the United States or the Government of the District of Columbia, shall be admitted to any share or part of this Lease, or to any benefit that may arise therefrom; provided, however, that this provision shall not be construed as extending to any Person who may be a shareholder or other beneficial owner of any publicly held corporation or other entity, if this Lease is for the general benefit of such corporation or other entity.”

Thus far, the landlord does not see a breach —  GSA has not been moved to act on the strength of these inquiries, stating:

“GSA does not have a position that the lease provision requires the President-elect to divest of his financial interests. We can make no definitive statement at this time about what would constitute a breach of the agreement, and to do so now would be premature. In fact, no determination regarding the Old Post Office can be completed until the full circumstances surrounding the President-elect’s business arrangements have been finalized and he has assumed office,” the statement reads. “GSA is committed to responsibly administering all of the leases to which it is a party.”

For a in-depth look at the lease, read Steven Schooner and Daniel Gordon’s legal analysis piece at Atlantic “Has Trump’s Election Breached His D.C. Hotel Lease?”

The potentials for conflict are certainly there – without them, GSA might not respond – and the wrangling over the outcome will no doubt continue for much, much longer.

Add this to the giant pile of unprecedented commercial real estate issues raised by the inauguration of Donald Trump.

Construction: The Employment Crisis (Almost) Nobody Talks About

Commercial development without skilled construction workers is a recipe for no development whatsoever. Yet the country’s educational system appears to be failing the construction industry – along with commercial real estate.

The system seems content to allow millions of students at for-profit colleges to be simply fleeced and abandoned, no more employable than they were before going into debt for their education. This is the for-profit education industry’s choice: a grab for the short-term, subsidized buck over the long-term benefit to the student and to the country.  Rather than orient itself toward trade education that actually meets the demands of the wider economy, the secondary educational system’s choice to turn away from the trades appears to have placed it on a direct collision course with the needs of the commercial development industry. Those needs are near all-time highs: the latest employment forecasts from the US Department of Labor say that the national need for these workers ranks higher than the needs for workers in all other categories save one (heath care).

Annotated table showing construction job growth

Programs To Patch The Gap

Correcting the course isn’t going to be automatic, or even easy. Construction mogul Bill Gilbane’s piece in Commercial Observer highlights the gap between industry needs and trade education by talking up investing in programs that address high school students in the funnel for careers in construction and design. Gilbane sings the praises of the Ace Mentor Program, an afterschool program that brings high schoolers into careers in architecture, construction management, engineering and other disciplines.

Beyond programs like Ace, development and real estate firms have opportunities to address the issue on their own.  As Gilbane writes about his company’s internal efforts:

But we must still do more to bring young people onboard and keep them long term. In order to meet future demand, we need to develop the pool of workers in our industry now. Developing the skills of younger professionals helps create our leaders of the future.

That is why we launched a two-year Management Candidate Acceleration Program (MCAP). The MCAP program allows younger employees to gain first-hand experience in each department at Gilbane Building Company and once they’ve completed the program, participants are prepared to step up into those roles full time—and their paths often lead to project or executive management.

This is essential to ensuring current young professionals become our next generation of leaders. It also supports our long-term employees on a path to continuous improvement. By providing technical and educational programs, we help our staff learn new skills to support their current roles and develop their leadership abilities.

These educational and mentoring models — both external and internal — are worth looking at, throughout the commercial real estate and construction industries as the economy surges forward.  Let’s not let “business as usual” today serve to shut down huge business and employment opportunities in the future.

Where Is Commercial Real Estate Oversupply?

English: Welsh Assembly Office Construction De...

The national market for commercial real estate is a massive thing, a meta-market encompassing tens of thousands of localities, each with their own economies and histories, subject to their own internal logic — and illogic. When trying to take all of these in as a whole, it’s important to remember that the local stories always loom larger than might be apparent, and that effects are overwhelmingly driven by local needs, wants and preferences.

That said, some indicators are more easily acquired nationally than others. Construction delivery is one. More inventory arriving may influence performance for existing, surrounding inventory, but delivered construction always opens the door (when taken as an aggregate) to the possibility of overbuilding.

With that indicator’s strength in mind, Susan Persin’s piece in REITCafe (registration required) looks at national construction deliveries in the major sectors of CRE and finds where the numbers suggest demand and supply are growing out of balance, tipping toward supply.

In apartments, the high end of the market in NYC and SF get a jaundiced eye from Persin:

[…]REITs with significant investments in markets like Manhattan and San Francisco, such as Avalon Bay (AVB) and Equity Residential (EQR) have cut their revenue forecasts several times this year, citing weakness in these markets.[…]

Persin also noticed some developments in office markets in Dallas, Houston and New York that have the “o” word — overbuilding — rearing its ugly head. Quoting Sam Zell’s recent Bloomberg interview — a chipper affair otherwise — shows Zell concurring about a situation in NYC office that sees new construction as outpacing demand there.

Get the full article — with commentary on all the major CRE sectors of retail, hospitality, industrial  — at Trepp REITCafe for a free registration.

Photo credit: Wikipedia

Short Film: The Absent Column

Like a lot of Chicagoans, I’m something of an architecture nerd. Being proud of this town’s skyline and the engineering that went into it is second nature to Windy City natives, but we don’t often slow down to take a close look at the stories behind the world-famous postwar modern styles.  It’s an international story: the likes of Ludwig Mies van der Rohe, Bertrand Goldberg and Walter Netsch will not likely appear again, but their work as a whole forms the visual and functional vocabulary associated with modernism the world over.

Filmmaker Nathan Eddy’s documentary The Absent Column explores the story behind Chicago’s Prentice Women’s Hospital Building a 1975 Goldberg building in the brutalist style.  Colleagues of the architect as well as preservationists have faced off over the fate of this half-bunker-half-flower structure, and Eddy captures the story.  Definitely worth a look.

 

The Absent Column from Nathan Eddy on Vimeo.

 

Los Angeles Buildings Targeted For Earthquake Refit

English: Los Angeles skyline and San Gabriel m...

Brokers, property managers and landlords of Los Angeles: be aware that an updated list from the Los Angeles Department of Building and Safety (DBS) has arrived. The list identifies thousands of buildings that may potentially require earthquake retrofitting, including those sporting “tuck-under parking” designs and other popular constructions that are especially susceptible to collapse in earthquake conditions. The list contains over 23,000 addresses.

Buildings that are most vulnerable have been identified with the following criteria:

  • Consist of 2 or more stories wood frame construction
  • Built under building code standards enacted before January 1, 1978
  • Contains ground floor parking or other similar open floor space

How Do I Get The List?

You can get to the list in two ways. The Los Angeles Times has published a searchable website that you can use after the link.  You can also obtain the entire list by request to the DBS by contacting the LADBS Custodian of Records at (213) 482-6770, or email [email protected].

Soft Story Construction Targeted

In October 2015, Los Angeles passed an ordinance requiring retrofitting for “non-ductile concrete and soft-story wood frame” buildings. According to law blog JD Supra, inclusion on the list does not mandate retrofitting; it requires only that building owners within one year of receipt of formal notice from DBS prepare a structural analysis showing whether their buildings meet the earthquake standards promulgated in the ordinance. Further, appearance on the list does not constitute notice, says the JDSupra piece penned by Tetlo Emmen and Alfred Fraijo.

Photo credit: Wikipedia

BuildingRating.Org: Learn Your Local Gov’t Jurisdiction’s Building Energy Policies

Quick, no Googling –  on what does the US spend more on energy? Transportation or buildings?

It’s buildings.

Every year, $400 billion goes to energy to buildings, a sum that adds up to roughly 40% of the total US annual energy expenditure.  That makes energy to buildings is the largest single sector in US energy consumption, including transportation.

With a figure that large, and with so much commercial property inventory having been built decades before serious energy efficiency features occurred to architects, owners and developers, you can bet that opportunities to save energy dollars in commercial property are huge.

Along with huge opportunities to control costs and rewrite operation and development plans, local government sustainability policies figure greatly in the bottom line of new and existing commercial property development. Getting to the actual policie, so as to know what flies in one state and doesn’t fly in another presents a challenge.

Building Energy Policy Briefs Aplenty

BuildingRating.Org is operated by the Institute for Market Transformation, a DC-based nonprofit dedicated to promoting energy efficiency in buildings, has done a service by collecting and making available an ever-growing archive of sustainable energy building policies for local jurisdictions across the US. Check out the most recent collection at these links today — and get a handle on how energy efficiency savings and local government relate with programs, policies and case studies.

 

Big, Bigger, Biggest: The Story Of The Skyscraper

https://www.youtube.com/watch?v=P7lWOkXuO8Q

The engineering and commercial histories of tall buildings tell an inspiring story of meeting and overcoming huge challenges in management, in materials science, in finance, in construction technology, and in environmental sciences.  Big, Bigger, Biggest is a beautifully made 45 minute film that covers it all, beginning in 1870 with the Equitable Life building in New York and culminating with Dubai’s Burj Khalifa, at 2,722 feet the world’s tallest artificial structure.

The film builds an amazing story with advance after advance in elevators, materials, architecture, heat management, craning, form construction and much much more. 100% worth watching or showing to anybody tasked with solving problems with space, this film is one of my favorite documentaries and I hope it will become yours as well.

BOMA Updates Best Practices For Sustainability Through BEPC Contract Model

The Building Owners and Managers Assocation (BOMA) International has just announced the updated version of their groundbreaking BOMA Energy Performance Contracting (BEPC) Model to incorporate new best practices into building maintenance. BEPC was originally created in 2008 by BOMA International in a partnership with the Clinton Climate Initiative (CCI), several major real estate companies and energy service companies (ESCOs).

BEPC Is Updated For Today’s Best Practices

Unfortunately, since the initiative started in 2008 there was not much market emphasis on retro-fitting buildings with new energy-saving technology during the crisis of ’07-’09.  Now that the market has vastly improved and recovery is well underway,  BOMA is updating and sharing their program more broadly with the commercial real estate world.

A standout for best practice from BPEC: investors are well-advised to be proactive in managing their assets so they can make strategic investments to drive rents and occupancy.  Exhaustive management of utility expenses has become a best practice, but many of the older buildings have infrastructure that is approaching or at the end of its useful life, limiting potential to get a handle on all the utility usage information that true best practice calls for.

Gear To The Ground

You can’t manage what you can’t measure, and when it comes to sustainable ant truly controllable energy usage, that means extra equipment. Technology upgrades will be necessary in order for the buildings to remain competitive in today’s market.  Such refits can be large capital projects tending toward the complex, carrying a variety of risks. However, the risk of doing nothing is very real, causing rising maintenance costs, utility costs, increasing complaints from tenants and potential tenants.  Left unaddressed – especially in a competitive environment, these costs will negatively impact the owner’s bottom line sooner than later.

BOMA International Chair-Elect, Kent C. Gibson, BOMA Fellow, president of Capstone Property Management, LC. was quoted in BOMA’s press release, “BOMA International is pleased to provide building owners with a valuable resource that can help them increase asset value, improve operational efficiency and demonstrate to tenants a commitment to sustainability.”  Among these are investigations into technology applications that will help understand what’s really called for to improve building performance and reap the true benefits.

BEPC Designed To Enhance Performance and Efficiency

The BOMA BEPC was designed to manage risk performance, facilitate projects that enhance building’s performance and efficiency and aid in delivering predictable returns on capital projects. BEPC provides a conceptual framework and supporting template documents to help private building operators develop and execute investment-grade retrofits to enhance the value of their properties. BEPC also provides transparency on performance expectations, pricing and a clear guidelines for managing their retrofit project so that the owners meet their goals and finish their projects within their desired timeline.

Since its beginning, BEPC has facilitated projects in more than twenty cities across five continents. The BEPC Model works with a variety of funding models including ESCO or third party, Property Assessed Clean Energy (PACE) programs and self-financing.

Read all about the BEPC Model from BOMA here.

 

IMT, Better Buildings Alliance Announce 2015 Green Lease Leaders

Brant Smith and Greta Garner
REALTORSⓇ Brant Smith and Greta Garner

The Institute for Market Transformation (IMT) and the U.S. Department of Energy’s (DOE) Better Buildings Alliance recently announced the 2015 Green Lease Leaders. Established in 2013 with support from leading real estate practitioners, the recognition program distinguishes property owners, tenants, and brokers who are effectively using the lease as a vehicle to drive energy and water savings in commercial buildings.

The brokers recognized are market leaders who successfully add value for clients on major sustainability and energy issues, providing crucial guidance as the demand for green buildings grows.

This year’s recipients are:

“In addition to so many forward-thinking property owners and tenants this year, we’re excited to be celebrating commercial brokers too as they play such a vital role in real estate transactions,” said Adam Sledd, Director for IMT’s commercial real estate engagement program. “Brokers facilitate many interactions between landlords and tenants, and are relied on to identify and add sustainable best practices into the lease—this year’s Green Lease Leaders show a clear sign of the mastery of proven measures to reduce operating expenses and lessen the impact of buildings on the environment.”

A green lease encourages collaboration to take action to improve efficiency, saving tenants and building owners on average, 10-20 percent each month on a building’s energy and water bills. Since brokers are central to all aspects of a commercial transaction, their knowledge and expertise in clauses and addendums that cut energy waste is crucial for savings to be realized. A study released by IMT last week showed that green leases could deliver nearly $3 billion in annual savings for the U.S. office sector alone.

Historically, real estate owners and tenants have had difficulty integrating sustainability into the lease process due to tension between owners and tenants over responsibilities and cost-sharing arrangements.

The Green Lease Leaders program is helping to define green leasing and shine a light on replicable solutions that can be employed by others to get past split incentives.

“Today I’m pleased to announce the continued success of the Green Lease Leaders program,” said Dr. Kathleen Hogan, Deputy Assistant Secretary for Energy Efficiency at DOE, during a presentation at the

Better Buildings Summit. “This effort is showing that cooperation on energy efficiency is no longer just a niche practice.”

For more information on the Green Lease Leaders program, visit greenleaseleaders.com, and to learn more about the benefits of green leases, visit the Green Lease Library at greenleaselibrary.com.

ABOUT THE INSTITUTE FOR MARKET TRANSFORMATION

The Institute for Market Transformation (IMT) is a Washington, D.C.-based nonprofit organization promoting energy efficiency, green building, and environmental protection in the United States and abroad. IMT’s work addresses market failures that inhibit investment in energy efficiency and sustainability in the building sector. For more information, visit imt.org and follow us on Twitter at @IMT_speaks.

ABOUT THE BETTER BUILDINGS ALLIANCE

The Better Buildings Alliance is a U.S. Department of Energy (DOE) effort to promote energy efficiency in U.S. commercial buildings through collaboration with building owners, operators, and managers. Members of the Better Buildings Alliance commit to addressing energy efficiency needs in their buildings by setting energy savings goals, developing innovative energy efficiency resources, and adopting advanced cost-effective technologies and market practices

Rising Labor Costs Means Higher Construction Costs For 2015

According to Chicago’s award winning Leopardo Companies annual industry report Construction and Economics Report and Outlook, the low price of oil is reducing the cost of construction.  Unfortunately at the same time, a lack of skilled labor and heightened demand is increasing construction costs.

Leopardo reports that nearly 25% of the skilled construction workforce has left the industry since 2008.  Older workers are retiring and fewer younger workers are entering the trades than in the past. Several contractors and subcontractors have closed since the downturn, too. This leaves fewer skilled laborers to handle the level of work, which is at pre-recession levels currently.

Current, historically low interest rates are helping to fuel an increase in construction activity. In Chicago, large-scale projects in the office, retail and multifamily sectors are leading the boom.  Chicago examples include the expansion of McCormick Place, 3,000 new residential units in the downtown area are to be built in 2015 (that’s up from 5,000 over the last two years) and the redevelopment of the Fulton Market Cold Storage building for Google. All are taking advantage of lowered costs and all are challenged in general by the crunch in skilled labor at the same time.

Is the construction cavalry coming?

Contrasting the downbeat labor news are national numbers for the sector. Even though the costs are increasing and staffing is a challenge, the US Bureau of Labor Statistics said in their April 2015 report that, “Construction added 45,000 jobs over the month.  Employment in construction has grown by 280,000 or 4.6 percent over the year.  Specialty trade contractors added 41,000 over the month.  This growth split between residential and non residential specialty trades.”

This is great news for the new commercial development industry because the increased costs and scarce labor resources don’t seem to add up to a dampening of the the ongoing growth in the commercial real estate sector.

The United States Census Bureau reported that commercial construction projects in New York, N.Y. hit $20 billion dollars in 2014.  Dallas and Houston are right behind New York with over $11 billion in commercial construction projects during 2014.  Even with its challenges, the future is looking bright.