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Back to the Burbs? Back to the Office? The Reading List

16 Oct 2020 10:25 AM | Anonymous member (Administrator)

If you missed the first Coronavirus Experiences webinar,  held jointly by BCONE and the NYCBP in September and entitled Back to the Burbs? Back to the Office?, please sign up for the 2nd part of the series being held on October 23, 2020 from 10am to 12:00 p, entitled Is Your Building Safe? This webinar series will continue into 2021 to cover the growing number of topics of interest to our professions.

The speakers at the September and October webinars have created a list of recent articles on the topics.  The Reading List is below.  Feel free to contribute to the list. If you’ve written a recent article on the topic or if you’ve read something of interest, send the link to sboyle@geiconsultants.com and we’ll keep growing the Reading List. 

https://www.crainsnewyork.com/residential-real-estate/looking-big-return-your-home-try-east-new-york-study-says?utm_source=real-estate-friday&utm_medium=email&utm_campaign=20201002&utm_content=article2-headline

A CrowdRx expert in heating, ventilation, and air conditioning systems did not find a single arraignment court in the city that was safe to be in, the report states: https://www.nydailynews.com/new-york/manhattan/ny-nyc-courthouses-crowdrx-report-unsafe-conditions-coronavirus-20201001-avpvzs435jd6xkxiuvq4z5cii4-story.html  Never heard of CrowdRx. They might become one of our potential speakers? 

And check out this piece on what some landlords are doing to make their buildings safe: https://www.nreionline.com/office/three-office-landlords-discuss-technologies-they-ve-implemented-protect-tenants-covid-19 

Excerpt: “Silverstein Properties has also upgraded its ventilation systems in offices to MER-15 or 16, which is similar to what hospitals use to prevent the spread of infection and refers to the number of times recirculating air is filtered. The system also adds in fresh air from outdoors. Kerret says that an even higher ventilation standard, MER-16 or 18, has been adapted for elevators, making them safe for more than a few people at a time, as long as everyone is wearing a mask. According to the CDC, to become infected with the coronavirus, it takes time for exposure to 1,000 airborn particles. Elevators at Silverstein’s WTC properties travel at 1,600 feet per minute, so with MER-16 to 18 ventilation—similar to ventilation in operating rooms—mask-wearing passengers are unlikely to become infected as they will reach their floors within about a minute.”

KBS has “deployed technology to help tenants make a seamless, safe transition back to the office as government mandates are lifted. This includes UV light, which kills viruses and bacteria, in HVAC systems and on surfaces in common areas, as well as touchless amenities and devices in shared spaces and high-traffic areas.”

https://www.us.jll.com/en/trends-and-insights/workplace/landlords-race-to-improve-air-quality-in-buildings

https://www.propmodo.com/what-building-operators-need-to-know-about-covid-19-and-air-filtration/

https://www.architecturaldigest.com/story/four-considerations-architects-will-need-to-make-when-designing-post-covid-homes

https://nyrej.com/architects-and-engineers-help-schools-envision-safe-designs-for-covid-era

https://www.thecity.nyc/2020/9/28/21492252/cross-bronx-expressway-covid-19-environmental-justice-nyc

Home Sales Surge In Brooklyn:

https://www.nytimes.com/2020/09/24/realestate/brooklyn-real-estate-sales.html

Vermont COVID Transplants:

https://www.nytimes.com/2020/09/26/us/coronavirus-vermont-transplants.html

https://www.bloomberg.com/news/articles/2020-09-16/the-truth-about-american-migration-during-covid

https://www.theguardian.com/world/2020/sep/26/escape-country-covid-exodus-britain-cities-pandemic-urban-green-space

Finance and Investment

Converting Malls Into Distribution Centers

Addressing the challenges of commercial property conversions.

Sep 21, 2020

Sponsored by Frank P. Crivello

Simon Property Group, Inc., the largest shopping mall operator in the United States, has entered into talks with Amazon about converting unused shopping mall space into distribution centers (DCs), according to a recent report from the Wall Street Journal. With the retail sector expected to lose up to 25,000 stores in 2020, the Amazon news is only one small part of larger discussion about converting unused commercial spaces into much-needed industrial real estate. While the COVID-19 pandemic has caused retail stores and offices to shut their doors, an e-commerce boom has left the U.S. logistics sector scrambling for access to additional distribution and cold storage space.

On the surface, converting malls into DCs and warehouses seems like a great idea. Malls are conveniently located near population centers and tend to have spacious ceilings that should be well-suited to racking and material handling systems. As with any commercial property conversion, however, turning shopping mall units into DCs will not happen without overcoming some challenges.

Zoning

Shopping malls aren’t usually zoned for industrial use. Industrial facilities are loud and bring in a significant amount of heavy truck traffic. Zoning restrictions will vary widely at the state and local level depending on the mall’s geographic location. Convincing a planning board or city council to modify the land use permissions for a large commercial area such as a shopping mall may not be easy—especially if that mall is surrounded by residential properties. For some areas, the promise of jobs and economic stimulation may be enough to sway the decision-makers, but it’s likely that many areas will not be willing to rezone.

Sharing

While multi-tenant logistics facilities are nothing new, it’s rare for a distribution center to share a facility with retail tenants. The discussions between Amazon and Simon Property Group seem to be focused on occupying abandoned J.C. Penney and Sears stores. If the rest of the mall remains occupied by dozens or more retailers, new processes and planning will be required to mitigate the risk of negative business impacts.

Here are some examples of potential problems that property owners would need to account for:

  • A steady flow of large delivery vehicles and semi-trucks might make commercial shoppers nervous and deter them from visiting other stores in the mall complex.
  • An industrial facility may have dozens or hundreds of employees on a single shift. Retailers in the mall would want owners to ensure those workers don’t monopolize preferential parking, while the DC tenant may prefer their employees to park close by.
  • While mall security focuses on loss prevention and customer safety, security at a distribution center has different needs.

While none of these issues are necessarily deal-breakers, it’s important that commercial property owners, existing retail tenants, and new industrial tenants address concerns up front to establish good business relationships.

Renovations

Though any new retail tenant in a mall would need to renovate the space to some degree, the level of renovation required to convert a former clothing retailer or electronics store into a functional distribution center would be more extreme. For example, concrete floors in retail stores may only be 3” to 4” thick while a warehouse may need to be 6” or more.  Parking lots and driveways also have the same potential issue; asphalt for a retail parking lot is not as thick as needed for constant heavy truck access. There may also be limitations to the type of equipment the industrial operator would be able to use. For example, installing conveyors or other permanent material handling systems may not be feasible. Fortunately, recent advances in picking robotics and wearable technologies might make it possible to implement automation without permanent installations. If the mall only has a single loading dock area for all tenants to share, a distribution center would likely monopolize that area with its stream of inbound and outbound shipments, so additional docks would need to be added.

Benefits

While there are certainly challenges, operating a DC out of a mall does have some benefits:

  • The employees from the distribution center are likely to shop at stores in the mall on breaks and before and after work, which will be a boon to struggling businesses.
  • Most malls are conveniently located within minutes of major highways and already have large, accessible parking lots. This should facilitate easy access for inbound and outbound truck drivers.
  • If the mall has lost some of its large anchor tenants, it’s likely that the community will benefit from the jobs provided by a distribution center.

About Phoenix Investors

Founded by Frank P. Crivello in 1994, Phoenix Investors and its affiliates (collectively “Phoenix”) are a leader in the acquisition, development, renovation, and repositioning of industrial facilities throughout the United States. Utilizing a disciplined investment approach and successful partnerships with institutional capital sources, corporations, and public stakeholders, Phoenix has developed a proven track record of generating superior risk-adjusted returns, while providing cost-efficient lease rates for its growing portfolio of national tenants. Its efforts inspire and drive the transformation and reinvigoration of the economic engines in the communities it serves, currently encompassing over 30 million square feet. Phoenix continues to be defined by thoughtful relationships, sophisticated investment tools, cost-efficient solutions, and a reputation for success.

https://www.nytimes.com/2020/09/24/realestate/brooklyn-real-estate-sales.html?referringSource=articleShare

https://www.wsj.com/articles/renters-flock-to-suburbia-upending-decadelong-urbanization-trend-11602581401

https://www.nytimes.com/2020/10/09/realestate/new-york-city-real-estate-return.html

https://www.nytimes.com/2020/10/09/nyregion/nyc-moving-coronavirus.html

https://www.nber.org/papers/w27930

https://www.nytimes.com/2020/10/12/climate/home-sales-florida.html?action=click&module=News&pgtype=Homepage 

From Peter Meyer, Ph.D. U of Louisville:

The U.S. housing market, which has been a bright spot in the pandemic-battered economy, is running out of fuel.

With buyers eager to take advantage of low mortgage rates, the inventory of homes to buy is scarce. That’s driving up prices and threatening to derail the boom by pushing homeownership out of reach for many Americans.

For homebuilders, the huge demand for housing is an opportunity to crank up construction and solve the inventory crisis. Instead, some are deliberately slowing things down as they grapple with supply shortages, surging lumber costs and intense competition for labor and land.

“It’s smart business,” said Gene Myers, chief executive of Thrive Home Builders in Denver. “But that means continued shortages and higher prices.”

After the Covid-19 lockdowns in March brought sky-high unemployment, most builders expected a crash. What they got was a brief pause followed by a crush of buyers armed with the lowest interest rates on record and a burning desire for more space in the suburbs.

Inventory shortage

There was pent-up demand for housing when the pandemic hit, after a decade when builders mostly focused on the higher end of the market, constructing fewer, more expensive homes. Recently, they’d shifted focus to cheaper properties for the massive millennial generation now aging into homeownership.

But with higher costs eating into profit margins, builders might once again chase the wealthy who want bigger homes with large yards and home offices. That comes as the inventory shortage has gotten even more acute.

The supply of existing homes, shrinking for years, is at an all-time low. At August’s sales pace, it would take a little more than three months to run out of new homes for sale, the lowest level on record, according to government data dating back to 1963. That’s down from almost six months in February.

Sales of existing homes jumped 10.5% in August compared with a year earlier, outpacing new home sales for the first time since 2015, according to Redfin. That came as fewer new homes were listed for sale.

New home construction this year will hold steady at just under 900,000, about the same pace as in 2019, according to a projection by the National Association of Home Builders. For 2021, the industry group forecasts that starts will increase slightly but will be held back by the cost and availability of building materials.

Lumber spike

The trouble for builders is that vacant land takes about two years to be developed, a process slowed by local government regulations. Meanwhile, lumber prices are expected to add $16,000 to the cost of a typical house, according to the NAHB.

They’ve risen because producers idled saw mills in the U.S. and Canada in March and still face timber shortages resulting from a beetle infestation and wildfires, said Joshua Zaret, an analyst at Bloomberg Intelligence.

Homebuilders aren’t the only ones bidding up the price of wood. Quarantined families have been especially busy remodeling during the pandemic. This summer’s hurricanes and wildfires will also add to demand once the insurance checks start coming in.

Slowing sales

Builders can keep raising prices to stay ahead of costs, to a point, said John Burns, an Irvine-based real estate consultant. But some are raising them by as much as 2% a month, he said.

“If that went on for two or three years, we’d be very concerned about affordability,” Burns said. “Every time prices go up, it’s great for homeowners and bad for the renter who aspires to be a homeowner.”

Stocks of homebuilders have climbed in recent months as orders for new homes surge. The looming issue is that the demand for housing is outstripping supply at a time when construction has gotten more expensive.

Lennar, the biggest builder by revenue, said it’s intentionally limiting sales to homes already under construction to avoid buying lumber at today’s high prices. The company says it’s trying to be patient, betting it can continue to hike prices to help offset the higher costs.

“Sales could have been stronger with a singular focus on volume,” Stuart Miller, the company’s chairman, said on an Sept. 15 earnings call. “It is challenging at best to materially ramp production in this labor-constrained market, and it’s even more challenging to replace entitled land.”

Wood shortage

Alan Gerbus, a second-generation Cincinnati custom builder, is already in the hole on a house before he’s even started. He submitted a contract to his buyer in late June for an $800,000 house but his costs just for wood products jumped $25,000 by the time it was signed 40 days later.

“The lumber supplier said he can’t honor that price,” Gerbus said. “I’m praying for the lumber prices to start falling by the time I’m ready for delivery.”

Even if builders wanted to plow ahead, it’s hard to get wood these days. Robert Pool, co-owner of Main Street Lumber, a family business in Denison, Texas, that sells products to builders, said he had to turn down some new customers early in the lumber supply crisis because he wanted to be sure he’d have wood for his existing customers.

Pool’s price for oriented strand board, widely used for roofs and siding, more than doubled to $24 a sheet in March, he said.

“It hurts when you have to tell somebody no,” he said.

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