DBIA panel of leaders shares lessons learned

The final session of the Regional DBIA Virtual Conference Week wrapped up last week, featuring a panel of local leaders who shared lessons learned over their careers.

Panelists included Maria Maffry, principal with BNIM; Andy Heitmann, vice president & operations manager with Turner Construction; Robert D. Regnier, executive chairman and CEO of Bank of Blue Valley; Dave Harrison, president of VanTrust Real Estate; and Mike Orth, executive vice president with Black & Veatch.

Here are the key take-ways from the panel discussion:

1.    Forge Your Own Path

Your career consumes more than 40+ hours of your week. Find something you enjoy. Don’t be afraid to forge your own path.

Robert Reigner talked about the opportunity to work for his dad developing Johnson County, but instead he chose to take a job in banking. His boss mentored him to find out what made him happy.

“Look for people and companies you respect. Promoting from within is important. When you find that, apply yourself and show them what you can do. I started my career as a safe deposit box clerk and left an executive officer," Reigner said.

“Working hard can be a head scratcher when people become billionaires by creating an app, but don’t underestimate hard work. Work hard, work smart and take risks early," Dave Harrison said.

2.    Find Opportunities from Within

Learn and understand your company’s why. From there, your personal skills and creativity can help you provide value to your organization in a unique way.

Maria Maffry joined BNIM in its infancy and was fortunate to know B, N, I and M. This early involvement gave her a special connection with the company’s purpose and culture.

“Thirty years ago, (a) chief business development officer did not exist. Let alone a non-architect leading in that way. The company allowed me to grow and explore. I was able to find opportunities in my organization and craft my role around that. As the firm grew, I was able to grow,” Maffry said.

“COVID has really challenged company culture. We’re all getting really good at Zoom calls, but it takes a toll on culture and collaboration," Harrison said.

The more we empower people to bring their unique skills to the table the more growth we can expect. Those people looking for opportunities to grow within the organization are people we can groom as our replacements.

3.    Failure Is Part Of Innovation

People don’t like to talk about failure. As an industry, we’re usually conservative when it comes to risk, but failure is natural and important.

“I had a boss move on to start another office. As a result, I was thrown into a project. It was probably too early, but I had a great safety net. I learned a valuable lesson to surround myself with a strong team. Lean in to discomfort and always be learning,” Mike Orth said. 

“Early on it’s easy to be a sponge. There is a point in your career where you think you know everything. That’s where adversity finds you. But that is a learning opportunity – it humbles you. How you react to it tells you a lot about yourself," said Andy Heitmann.

It’s important as leaders to be humble and vulnerable. We all have something to learn.

In closing, the panel was asked to address the importance of civic involvement in their careers. Each panelist noted how it contributed to their professional and personal growth and helped them see the needs in their community.

“Do your best to the leave the world better than you found it," said Reigner.

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The next KC-DBIA event is the Annual Golf Tourney on Sept. 16, 2020 at Shoal Creek Golf Course in Kansas City, Mo.

Sociologist makes case why the office must not go away

Dr. Tracy Brower, a Ph.D. sociologist and a principal with Steelcase, joined CoreNet Global KC and moderator, David Brite, strategic account manager at Steelcase, on a live webcast event yesterday.

Dr. Brower, who studies the sociology of work and the changing nature of work, workers and the workplace for Steelcase's Applied Research + Consulting group, discussed her expertise and perspective on working from an office versus working from home.

“One of the things we know is that it’s not an either/or (situation). Some amount of work from home will continue; but, we know the office is utterly critical and we know that it is so important to our success moving forward,” said Dr. Brower.

Dr. Brower contends that the office cannot and must not go away for several reasons.

The first reason has to do with innovation.  

“When we’re in the office together, we can move so much more quickly and we have this unimpeded fast flow of ideas. We just can’t go fast enough using technology. When you’re in person, you’re in a room together, building on each other’s ideas and you’re interrupting each other in a constructive way. That fast flow is critical for innovation,” said Dr. Brower.

Another reason the office must stay relates to talent and engagement. 

“We want to keep people engaged, we want to retain talent, and that’s harder to do when people are home,” said Dr. Brower.  

In addition, Dr. Brower contends that the office is critical for reasons of humanity and empathy. 

“There is an absolute scientific connection between our ability to be present with other people and our health and well-being. When people are connected with others—person to person and not just connected through technology—they have less morbidity and less mortality. It is our instinct to come together in groups,” Dr. bower said.

Purpose is another critical reason to preserve the workplace. 

“When we are together in a place, it makes a really big difference in terms of our common sense of purpose,” said Dr. Brower.

Related to purpose is energy.

 “There’s something about being together that tends to energize us and motivate us,” she said.

 Dr. Brower contends that communications effectiveness is another reason we need the office. 

“When we have information density, it means that more people know more things immediately. It helps us stay aligned, and it helps us get things done. .We need to feel like we are tuned in.  We need to feel like we’re in the loop in terms of information,” she said.

Another reason the office is critical relates to variety and movement. When we are at home, our brains become really bored.  We need the variety and routine of getting out, Dr. Brower said.  In addition, working solely from home causes us to experience temporal disintegration. 

“That is the scientific reason that you don’t know what day it is. It’s a lot easier to remember when we can link the memory to physical locations that are different,” she acknowledged.

According to Dr. Brower, we also need to maintain boundaries. A little separation between home and office life is healthy.

Finally, the reason the office must not go away relates to culture.

“Culture is what people do when no one is looking. When we sent everybody home, we just didn’t have the same opportunities anymore to experience our culture. We can’t just look up and run into our leader who’s walking through the space and check in. We can’t look up and see our teammates around us,” she said.

“Familiarity breeds acceptance. The more we see people, the closer our relationship will be. The more we see certain information, the more we’re used to things, the more we tend to accept them and like them.”  

Being together in the workplace breeds our ability to bring diverse ideas together. “It helps us to feel like we can bring our best and like we are accepted to a greater extent within our broader culture as well,” noted Dr. Brower.

“We know we can work from home effectively. We’ve been doing it. We’ve also been hearing that people are starting to hit a wall. And we’re hearing that we know the workplace is more important than ever. So if there is a silver lining here, we are really, really understanding how important the office is because we just don’t have access to it in the same way anymore,” Dr. Bower concluded.

Industrial market flying smoothly through 2020 turbulence

Despite the economic turbulence COVID-19 has unleashed on 2020, the industrial real estate market seems to have buckled in for a relatively smooth ride, according to a recent CCIM KC panel.

Brent Miles, chief marketing officer and founding partner of NorthPoint Development and Joe Orscheim, SIOR, CCIM, senior vice president of CBRE, joined moderator Ben Boyd, CCIM Kansas City director of programs and vice president of Colliers International, for a webinar discussion last Friday about the state of the industrial market.

Both Miles and Orschein agreed that e-commerce is the major driver strengthening the industrial market as online shopping has exploded during the pandemic. Miles noted that increased demand for industrial space for companies like Amazon and Chewy is COVID-related, but he thinks the expansion represents a permanent change. 

“They are the infrastructure and the plumbing of how we’re getting goods,” Miles said.

According to Miles, NorthPoint Development, which owns approximately 75 million square feet of industrial properties across the United States, saw only about 5 percent of its clients request and receive rent relief.  

Orschein said he anticipated more requests from tenants for rent abatement than actually were made. Landlords, he said, used the requests as an opportunity to obtain updated financials, and in some instances, to extend the lease term by the number of months they abated rent. 

“It was good for both parties. It’s always good for a landlord to show that they’re looking out for their customer and obviously they want them to be financially strong so the project remains successful,” Orschein said.

Miles said that availability of labor remains a concern in the industrial market, with uncertainty about how future stimulus or bailout legislation will affect unemployment and labor. 

Orschein noted that there is a challenge to find “really good tracts that are ready to go” in the Kansas City area in order to satisfy demand. “We’re getting weekly calls from out of town developers and capital sources that are looking to land here in Kansas City, and we just need more land. We’ve got to figure it out. There’s strong demand, and we’re not seeing any kind of a slowdown so we’re encouraging everyone to just keep putting them up and we’ll all fill them,” said Orschein. 

Orschein also noted that rental rates in the Kansas City industrial market are “pretty steady and level” and that he is seeing lower cap rates. He anticipates that the local industrial market will see one or two big institutional players enter by the end of the year. 

“Everybody is taking note of Kansas City,” Orschein said.   

According to Orschein, there is strong demand for industrial space for the food industry; however, the challenge is to figure out food requirements and freezer cooler needs. 

“It’s obviously very expensive and highly specialized, but the need is there. We’ve just got to figure it out in Kansas City. In the industrial world, it seems like after the first couple of weeks of COVID hitting, it’s like everybody just got on the same page and said let’s all get back to work and keep the train moving,” Orschein said.

Developers face post-pandemic challenges

a MWM CRE event recap

Roxsen Koch, shareholder with Polsinelli PC, and Jason Swords, principal with Sunflower Development Group, joined moderator Christine Johnston, CPA, CGMA, CMA, partner with MarksNelson LLC, for a live webinar discussion hosted by CREW KC this Tuesday.

The panelists discussed tax increment financing (TIF) in Kansas City, Mo., economic development incentives and future challenges facing developers in a post-pandemic world.  

Koch began with explaining that TIF is an economic tool enabled through the State of Missouri which allows developers to capture the tax increment that a real estate project generates in order to finance a project which otherwise might not be financially feasible. 

Although TIF has been used by developers on many prominent projects in Kansas City, Mo., its future use may be more limited, especially to finance any hospitality and retail project in the immediate future, according to Swords.

“I think that’s the tool for keeping jobs,” Swords said.

Koch, who was involved with the financing of the Loews Kansas City Hotel project, said TIF financing along with several other economic development tools, were incorporated into the hotel project.  Although its opening was delayed, the hotel recently opened amid the pandemic.

“Obviously, timing is everything. We were very fortunate to obtain the financing when we did. In today’s market, I don’t think you would see the project come forward. Any project of this nature in Kansas City, Missouri really would be substantially on hold until we knew more about what the world in the future would be,” said Koch. 

According to Koch, there are a lot of challenges amongst successfully financing a project today. 

“You need to have investors who want to have a certain return on their investment to be committed to the project. You have to show you have a team that’s knowledgeable in the construction of that particular project and the operation of that particular project,” said Koch. 

Swords predicts that getting a deal financed in the next few years is going to be tough.

“We’re only seeing the beginning of the triage that is out there. Fifty percent of our small business tenants aren’t going to make it. I think there’s a lot of money on the sidelines waiting for distressed assets,” said Swords. 

Both Koch and Swords agreed that TIF will always be a tool for developers in Kansas City. 

“If policymakers do not embrace the use of TIF on projects that the city wants to see developed, then investors will simply take their money someplace else and they won’t invest in Kansas City,” said Koch.

Swords acknowledged that although obtaining incentive tools from Kansas City, Mo. is not an easy process, the city has been a leader in spurring redevelopment. 

The duo agreed that the one market segment where consumer demand remains strong is housing. 

“I think that everything else is too spec, too tough, too difficult. Housing is the only kind of project we’re working on today,” said Swords. 

Koch added that developers still need economic development tools to make housing projects happen. Although TIF is not typically used to finance housing, Koch noted that there are other economic development tools available to developers such as tax abatement.

“I think that the important thing is to sit back and be prepared for what’s to come. None of us really knows what that looks like right now,” Koch said. 

CCIM economist navigates road to recovery

K.C. Conway, chief economist of the CCIM Institute and director of research for Alabama Center for Real Estate, delivered an economic update webinar to commercial real estate professionals last week.

As a whole, Conway believes the economy, which spiraled downward with the COVID-19 lockdowns, is far from recovery, a perspective reinforced by recent comments from Jerome Powell, chair of the Federal Reserve. 

“If we were recovering and creating 2.5 million jobs a month, do you think the Fed would make the statement that it was not even thinking about making interest rate hikes until 2022? Not even 2021? This tells you how fragile the economy is; how much intervention the Fed is going to have to do,” Conway said.

Conway predicts that there will be a massive oversupply of oil as supply cut production agreements expire at the end of June. 

“I think energy is going to remain very, very volatile. That’s good for the consumer and for transportation, but it’s not a good indicator that things are really recovering from the economy. I don’t think energy is saying we’re there yet either,” Conway said.

The housing market also does not reflect a recovery. With eight percent of mortgages subject to forbearance agreements which won’t expire for six to 12 months, Conway said we’re not going to fully understand the impact of housing until next spring. 

“When you also look at what’s rising in terms of mortgage delinquencies, we’re essentially at 15% of all homeowners delinquent in their mortgages or in forbearance, and that’s record numbers even compared to 2009,” noted Conway.

According to Conway, there are four metrics which are most predictive in determining when we’ve arrived at recovery. The first is the Transportation Security Administration (TSA) daily passenger count, which is currently in the 200,000 to 300,000 range.

“If we don’t see this climb back toward 1.5 million this fall, we are in serious trouble," Conway said. 

The second metric upon which he relies is the number of loans transferred to special servicers. He noted that these loan transfers are reaching record numbers.

The third predictive metric is transaction activity. Conway said that activity currently is locked up because the 500 largest pension and institutional funds are not investing in commercial real estate until they get past their mark to market accounting at the end of June and determine how to reallocate capital. However, Conway is optimistic. 

“Capital is coming back this fall to commercial real estate,” he said.

The fourth and final predictive metric is corporate earnings. He encouraged his audience to follow the earnings of companies that drive their local economies, including those companies that are the major tenants of local retail centers and office buildings.

Conway also predicts major changes to logistics. 

“What we’re going to see is the rest of the world awaken to the fact that it’s a really bad idea to put all of your manufacturing dependence in one place in the world.” 

Consequently, he said some of the manufacturing currently done in China or other parts of Asia will move back to Europe and the United States, but much will go to Mexico, increasing the importance of Kansas City, local intermodal installations and Kansas City rail as trade moves more north and south, rather than from the west coast to the east coast.

Conway noted that casualties of the pandemic will include the failure of one in four businesses and the closure of 40 percent of restaurants nationally. Consequently, a lot of inventory and equipment that was ordered pre-pandemic but not shipped during the shutdown will arrive at businesses that have closed.  

“That’s about 50 million SF of additional warehouse space that we’re going to have to have to store orders that have finally come in. This will provide adaptive reuse opportunities for properties like closed big box retailers and department stores in enclosed malls,” Conway said.

Conway predicts leisure and travel properties will change substantially as well, shifting hotels in the future to be smaller with exterior room entry and contactless features. 

In addition, Conway sees every ratio to which the commercial real estate industry is accustomed, to change.

“Density ratios in office, density ratios in restaurants, expense ratios, occupancy cost ratios . . . parking ratios because we’re going to do more ‘click it and pick up,’ rather than ‘park and drive in,’ which will add a whole new dimension to future site selection,” Conway said. 

“What I think is going to make the difference is what’s called immunity passports,” which currently are being utilized in Europe. 

Immunity passports in the United States will rely upon technology that is already available, although HIPAA laws will need to be amended. 

Conway predicts that within two years, we are going to have mouth swab kits to test for antibodies.