December 14, 2006
8 experts take a look at real estate’s future
By BARBARA TRAVERS
A panel of Commercial Real Estate Women members (CREW Seattle) recently weighed in on the future of their industries.
The question: “What do you anticipate to be greatest change or trend in your industry sector over the next 12 months? Five years?”
executive vice president
Leach has more than 25 years experience in commercial real estate lending. HomeStreet is a Northwest lender in multifamily and commercial property finance.
A: Success in commercial and multifamily will likely become increasingly challenging during the next year and beyond. Costs will continue to rise and returns diminish. While we don’t anticipate the same level of price declines in the Puget Sound region affecting other markets, the level of growth in value seen in recent years is less likely.
Concurrently, underwriting standards will likely tighten as capital sources are more cautious with their funds. Therefore, property managers and developers need to focus on asset management filling buildings with tenants and keeping them there.
As the cost of energy, especially gas, and development costs continue to rise, expect suburbanites to move downtown. We should also expect more use of sustainable building practices. Customers are looking for more environmentally friendly properties.
Stewart Title Guaranty
vice president of national title services
Hamilton-Bell has been actively involved with CREW Seattle, NAIOP (national board member and Washington state president), NACORE (past president), and NAPMW (national president).
A: The trend has been for increasing use of sophisticated technology to transmit information about commercial projects. All of the major title insurance companies are offering online systems for delivering documents and closing services. The move to electronic recording will hasten the development of ever-more-sophisticated programs to enhance the title/closing process.
Unfortunately, many of the advances over the next five years will be limited to major urban centers. Smaller counties will lag due to the costs of moving to the “paperless office” and because most document/information retrieval systems are on a go-forward basis.
Commercial transactions are trending towards larger liability amounts, thus we expect to see more reinsurance and co-insurance transactions. Coupled with this trend, it seems each title company has moved its emphasis in handling commercial transactions from the individual counties to a national commercial system.
leasing and marketing manager
Tarragon has developed more than 10 million square feet of commercial and multifamily projects in the Puget Sound region.
A: Recent department store mergers will require owners of enclosed shopping malls nationally to change the way they do business. They will need to add new tenant mixes and, in some cases, open-air wings with in-line shops to replace closed department stores. Meanwhile, the busy consumers want more out of their shopping excursions. Mall owners and developers must provide this experience through tenant mix and entertainment offerings.
In the next five years, we’ll continue to see redevelopment of older regional centers into lifestyle centers to gain urban presence in suburban markets and meet population growth demands. These new developments are catching retailers’ attention as they consider opening multiple stores in strong markets.
Preston Gates & Ellis
Skinner’s practice centers on commercial real estate transactions and includes the acquisition and financing of shopping centers, office buildings, apartment complexes and hotels.
A: After years of slow development in many segments, activity is booming in the Seattle area. New developments and redevelopments involve many moving aspects. Real estate lawyers should be part of complex teams needed to put these deals together. It’s important to be familiar with legal issues for a variety of project types, including hotels, mixed-use and condo conversions.
Public-private partnerships are also making their mark on important brownfield, transportation and other infrastructure developments. Lawyers working on these deals must know how public entities function.
On the finance side, a lot of capital is chasing good deals. This challenges lawyers to provide steady counsel to lenders looking at more creative deals while maintaining sound underwriting.
Although real estate is always local, real estate lawyers are increasingly involved in deals across the region, country and world. Working outside of one’s home turf requires knowing how things are done in other places and adapting as necessary. And because real estate is cyclical, lawyers must be attuned to downturns.
Touchstone is a developer of commercial real estate in the Seattle/Puget Sound area. O’Hanlon has been a partner at Touchstone since 1996.
A: In the next 12 months, the most important trends in office development are rising construction costs and increasing rental rates. Demand for space is increasing so rents will rise until the higher cost of new construction is justified.
In the next five years, retirement of baby boomers will greatly affect real estate. If more workers retire than enter the workforce, demand for office space will decrease.
More pension funds will go into real estate versus stocks to generate cash flow to pay retirement benefits, keeping cap rates low. However, if principal has to be liquidated to meet cash-flow requirements, the markets could be seriously impacted and cap rates will rise.
Trudy Powers Hoffman
Powers manages a range of projects that include multi-phased renovations, tenant improvement and corporate interior projects, and new construction. Sellen Construction is one of the largest locally owned construction firms in the Pacific Northwest.
A: As local construction volumes reach record highs, early strategic procurement is critical. Early commitment to key subcontractors and material suppliers is necessary to assemble the best teams, protect budgets and ensure on-time delivery. The expiration of multiple local union agreements in June 2007 also requires careful consideration.
Over the next five years, we anticipate that the increased use of building information modeling (BIM) technology will enhance the design and construction process, requiring more intense collaboration amongst all the project team members. Projects will be built digitally first enabling constructability and sequencing challenges to be resolved or avoided all together. This will pave the way for greater portions of projects to be prefabricated off-site.
Rush has more than 25 years of experience in workplace consulting, design and project management. She is a past president of CREW Seattle and in 2006 was elected to the National CREW Network board of directors.
A: In architecture the following three trends will have the biggest impact on our industry.
Sustainability will go mainstream. New research documents the increased benefits of a healthier work environment, which improves employee productivity and adds to the employer’s bottom line. As a result, we can predict that commercial real estate will finally embrace sustainability. Owners and tenants will demand healthier buildings in the near future.
Construction costs, including building materials, will continue to escalate with increased development world-wide. This will seriously challenge the development process and cause more market unpredictability during design and construction.
Transportation-related development: With an aging population, the trend is to create communities not tied to their cars. Development along transit routes will grow in popularity as we work to create walkable communities.
Barrientos is a development company specializing in urban infill multifamily and mixed-use in Seattle. It has eight apartment and condominium projects in development.
A: “Develop apartments quickly!” This seems to be the latest mandate. Supply and demand are working in favor of the apartment market, more so than in the past several years. While much has been written about the volume of condos now available and being built, the apartment market will show the greatest growth and activity in the next several years.
Several factors have converged to create a positive environment for apartment development: 1) the recent flood of condo conversions has reduced apartment inventories faster than developers can build new projects; 2) strong regional job growth has driven demand and population in-migration within the target apartment user group of 25- to 35-year-olds; 3) rents haven’t increased at the same rate as purchased-home prices; 4) national capital markets view apartments as lower risk and allocate investment funds accordingly; 5) the demographic bulge of the baby boomers’ children entering the workforce has not yet peaked.
These factors will drive apartment development to new levels in the next five years. And just like in the fashion industry, sometimes “old becomes new again.”
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