Features

William Hughes The current recession, which began in December 2007, is one of the longest and deepest in recent memory. Since the start of the downturn, 5 million Americans have lost their jobs, with unemployment currently at 8.5 percent and rising. Despite the grim economic news, there are a few encouraging signs that suggest the worst may be behind us. In recent months, sales of existing and new homes ticked up, along with mortgage applications. The rate on a 30-year fixed mortgage is hovering near its lowest point since the early 1970s, and downward adjustment in home prices in recent years has brought them closer in line with incomes. As a result of increased affordability and government programs aimed at stimulating demand and preventing foreclosures, homebuyers who have been waiting on the sidelines finally are beginning to purchase houses. The commercial real estate market reflected the resilience of the economy during the first phase of the recession, with vacancies rising at a relatively steady pace through the third quarter of 2008. The primary exception was the retail sector, which had already entered a serious downturn due to weakness in the consumer segment and some overbuilding. The dramatic intensification of job …

Bruce Katz We all know about the success of value-oriented retailers — particularly discounters — during the past holiday season and into this year. Wal-Mart has continued to capture the headlines, as have other discount and off-price retailers like Costco, Sam’s Club, Dollar Tree and TJ Maxx. This stands to reason as the economic downturn has created a sobering concern for consumers’ personal financial situations. As a result, values and shopping habits are changing. But there’s another story in the news these days: the retailers — not discounters or off-pricers — that are doing relatively well because they offer value in whatever category or price range they represent. A list of retail companies from H&M and Urban Outfitters to Sephora and Coach has reported various degrees of success and continuing expansion. Their collective message is loud and clear: customers are shopping for value. But what is the value these retailers — and others like them — offer? What is it that they have in common with each other — and with the Wal-Marts of the world — that has led to their positive news stories? Customers have naturally become more cost-conscious and price is a key factor in their purchasing …

Patrick Schleisman While the high cost of steel is motivating some design and building professionals to consider wood for their non-residential projects, many are also choosing wood because of its environmental attributes. Whether the driving force is green building certification, the need to adhere to new energy or climate change legislation, or simply a desire to set their building apart as environmentally responsible, wood is increasingly being used to achieve sustainability objectives. Gene Dunwody, Jr., of Dunwody/Beeland Architects in Macon, Georgia, prefers to use wood because it’s sustainable as well as economical, and because it’s easier to find subcontractors who can fabricate and install it. Dunwody has recently encountered a lot of interest in the use of wood framing in commercial projects. Currently, Dunwody/Beeland is primarily using wood for all of their apartment and hotel projects. In 2008, Dunwody/Beeland designed Providence Village North Macon, a mixed-use project in Macon developed by Rob Ballard, who has always preferred the use of wood. The development originally featured four buildings with 70,000 square feet of retail using a concrete system on the second floor and 240 apartments on two wood-framed floors above. To decrease cost and increase efficiency, the design has been modified …

Jerry Katz and Ryan Nowicki On Earth Day 2008 (April 22), Los Angeles became the largest city in the nation to require new real estate developments to “go green.” No longer just an option to large developers, Los Angeles now requires projects larger than 50,000 square feet to comply with the Leadership in Energy and Environmental Design (LEED) standards issued by the U.S. Green Building Council (USGBC). With increasing concerns regarding climate change, global warming and carbon footprints, going green has fast become a trend in the United States. A variety of green building assessment programs, including Green Globes, Energy Star and LEED, have been developed recently to standardize sustainable design principles for more buildings. LEED is arguably the most prominent for mid- and large-scale projects. New legal issues are undoubtedly present with respect to every aspect of a LEED project, and legal counsel that is well versed in the many areas of green building is an integral component to any LEED project team. To those unfamiliar with building green, the incorporation of LEED standards into a real estate development project can appear at the outset to be confusing, disruptive and expensive to developers. However, the economic and environmental benefits …

Jeff Green There are certain key factors that virtually all successful lifestyle center projects share that are positive prognostic indicators for long-term viability. While there is no magic formula and every project must be evaluated within the context of its individual market demographics, psychographics and competition, there are a number of important conceptual, design, development and leasing elements that successful lifestyle centers have in common. A closer look at some of these core factors enables us to draw some important universal conclusions about what constitutes a high-quality development. Mixing It Up In lifestyle center development, as in life, diversity breeds success. Lifestyle centers that are a part of larger mixed-use developments will generally perform much better than stand-alone competitors. These projects often benefit from built-in “demand” components, due to the diverse nature of their offerings and generally broader overall appeal. Virginia Beach Town Center in Virginia Beach, Virginia, is a mixed-use development that includes two hotels, condominiums and apartments, a large office component, and destination retailers and restaurants — just the right mix to breed retail success. Whether it is the on-site consistency provided by hospitality and residential elements, or the diverse combination of destination restaurants and entertainment components, variety …

Bernard J. Haddigan The retail sector is in the midst of a perfect storm caused by the crash in housing, frozen credit markets and the worst job loss cycle since World War II. The excess spending of 2003 to 2007 has swung to what appears to be extreme caution by consumers and businesses, wiping out numerous retailers and driving most others to contract and go into survival mode. Retail real estate, a mirror reflecting the economy and credit markets, is in turn feeling the pain. While the recession has become self-sustaining in many respects — toxic assets on bank balance sheets have led to tighter credit markets, reduced liquidity in the marketplace has caused businesses to reduce payrolls, and lagging consumer confidence has resulted in falling sales for retailers — unprecedented government intervention is expected to eventually help stabilize the system and re-establish capital flows. Nationwide, retail construction is expected to slide by more than 30 percent in 2009; however, the decline will not prevent vacancy from increasing substantially due to store closures and reduced retailer expansion. Major tenants are making significant efforts to renegotiate leases already in place to avoid closures. For quality tenants, many owners are ceding, aware …

Keith Kidwell, SIOR, CCIM Valuing a property or portfolio even in the best of market conditions is a subjective exercise. This subjective exercise is only further complicated by nature of the fact that we clearly don’t have the luxury of a robust commercial real estate market on our side. So my question is this: Have commercial real estate values hit the bottom, will they continue to fall, or are they already starting to recover? In many cases the answer to the aforementioned questions can vary based on the quality of the asset, the property’s asset class, the type and quality of the tenant mix, the property’s location, supply and demand drivers such as new construction starts, absorption and vacancy rates, capital and credit availability, and any number of other factors which make planning difficult at best. Owning commercial property during these challenging economic times can perplex even the most savvy and sophisticated principals. It has been my experience that challenging economic times require both superior strategic planning and excellent tactical execution. That being said, I’m always amazed at the number of commercial real estate owners, individuals and institutions alike, that don’t have a Strategic Asset Management Plan (SAMP) in place …

Michael S. Schimmel Although, historically investors view real estate investment trusts (“REITs”) as relatively constant, the downward trend of the real estate market and the decimation of nearly 50 percent of the value of the stock exchange over the past year has drastically impacted even fundamentally sound companies. The combination of market uncertainty and lack of consumer confidence, coupled with the fact that some believe the United States has officially been in a recession since December of 2007, helps to demonstrate the vulnerability of every aspect of the real estate sector. This article briefly explores certain basic fiduciary duties that directors and trustees of public REITs owe to the company. While many consider the concept of fiduciary duties straightforward and simple, it is quite the contrary. In fact, this aspect of corporate governance has an extensive body of case law, countless volumes of secondary sources and treatises, and most notably, a highly complex intricate web of both federal and state statutory laws. Since REITs acquire, manage and/or invest in real estate assets or loans that are secured by real estate and simultaneously issue shares in these investments to shareholders, various duties and responsibilities attach to the individuals managing and overseeing …