Developers say e-commerce, amenities will drive successful future

An ABC Heart of America webinar recap

This week Associated Builders & Contractors (ABC) Heart of America held an online developers panel moderated by Eric Mann with Emery Sapp & Sons.

Panelists included Andy Ashwal, VP, senior asset manager of GFI Management, Mike Bell, senior vice president of Hunt Midwest and Oscar Healy, regional vice president of Opus Design Build.

The discussion focused on the challenges as well as the opportunities surrounding future development resulting from the COVID-19 pandemic.

One of the trends the panelists are seeing skyrocket is e-commerce and the need for additional storage space as the U.S. supply chain has relied on ‘just in time’ delivery for many consumer products that are imported and shipped overseas.

“You’re going to see a change from ‘just in time’ deliveries to having a 5% safety stock being held in distribution facilities. Based upon different national brokers, you’ll hear numbers ranging from 500 million to 750 million SF of additional industrial space needed just to supply distribution centers that 5% safety stock,” said Bell. 

“It will bring manufacturing back to the US. I think ‘Made in America’ will mean something more than it has in the past, said Healy.

The panelists also predict a surge of data centers to help fuel e-commerce.

“Kansas City is seeing the first wave of data centers. We’ve always been seen as a lower-level tertiary market, said Bell. 

Panelists agreed other side-markets to the e-commerce industry include an increase in the need for robotics and higher, stacked building spaces.

The importance of the ‘live, work, play, stay’ concept of living is not going away anytime soon. Having amenities for offices and apartments will become of even greater value to millennials who might be staying in lofts and apartments longer than they expected.

“I think the trend of millennials staying in multifamily or maybe moving up to larger multifamily spaces is going to continue (as) they’re going to start to have children. They’re going to need services for their children there and play spaces. That has not existed in the Kansas City market, said Ashwal.

The need for additional on-site package delivery storage was also discussed.

“The ripple-effect of what’s going to happen on the office and multifamily side is there will be a need for larger package rooms to accept trackable deliveries. Refrigerated storage in office buildings will be a new trend to accommodate employees that want packages delivered to their office to bring home,” said Ashwal. 

Some of the obstacles the panelists are seeing now and going forward are cost of construction and shortage of labor.

“Material increases and labor shortages have caused issues on our side from a development perspective, said Bell.

The panelists agreed that municipalities that are “developer-friendly” will be more attractive to developers going forward more than ever before.

“If you don’t have a tax incentive or tax abatement in some of our various cities or counties, you’re at a competitive disadvantage,” said Healy.

The discussion ended with hope that the pandemic is creating opportunities, especially for industrial development because of Kansas City’s well-built infrastructure and land availability. Also, KC offers 90% of the U.S. within a two-day shipping window.

Associated Builders & Contractors Heart of America is a commercial construction trade association serving contractors and construction related firms across Missouri and Kansas. ABC connects contractors to industry information and safety resources; serve as advocates at the state, local, and federal level; and provide a variety of educational opportunities for those in the industry including our federally registered apprenticeship program in multiple trades.

Sponsors of the event included: Nabholz Construction, Emery Sapp & Sons, Fogel-Anderson Construction, IMA Financial Group, HTH Corporation and Autodesk.

Berkadia team remains positive, embraces new norm in midwest

As members of Berkadia’s Mid-Markets Group, we have seen first-hand the effects of COVID-19 across apartment markets in the Midwest. We have been fortunate to experience far fewer confirmed cases and deaths than the larger coastal metro-areas; however, the effects of the pandemic on the Midwest’s economy have still been significant.

“Stay-at-home” orders have saved lives, but they have also stunted local economic growth—particularly as these policies have shuttered small and mid-sized businesses throughout the region. The commercial real estate market is facing new challenges, but opportunities exist for those who have confidence in the long-term strength of the post-coronavirus apartment market.

Multifamily Industry Impacted, Opportunities Remain

At the beginning of this year, we were very confident we could match, if not exceed, our transaction activity from 2019. But now any attempt to accurately predict what the remainder of 2020 might hold for either our team or our industry is difficult.

Overall, property types are performing roughly as we might anticipate. Industrial and multifamily have fared well so far, while leisure, hospitality, and retail are struggling. What we have seen so far with April collections has exceeded our expectations, but the multifamily industry’s ability to continue to collect rents into May and beyond will be imperative to the industry’s long-term success.

While we are maintaining optimism and thinking the bulk of the damage will be to this quarter’s numbers, we wouldn’t bet against those who believe this could carry well into Q3 or even beyond. We do see long-term positive indicators for multifamily and are hopeful for this downturn to be brief with momentum reestablishing next quarter.

While the current market may seem to be a no-go, transactions are still occurring. From an advisory standpoint, we are providing clients with real time information, asking questions, giving feedback, and offering words of encouragement to help them make the best decisions for their business and their partners.

Working In the New Normal

The shift to working from home has certainly been an adjustment, but a smooth process overall. We are not complaining about the occasional poolside conference call. But in all seriousness, it can be challenging to create new routines and work toward new daily goals. One definite upside? Communication with teams is even stronger than when we were all in the office.

Our Mid Markets Team—made up of investment sales, mortgage banking and servicing specialists throughout the Midwest—has become even more collaborative during this time. We are doing more to stay connected, keep a pulse on the market, and share valuable data real-time so that we can most effectively counsel our clients.

The time we used to spend commuting is now time we are spending virtually connecting with coworkers, clients, friends, and family. We are learning more about the people in our lives every day and it is comforting to know that we are all going through this together.

Where We Go Now

All-in-all we need to listen—sometimes without providing answers—and make peace with the fact that there are many factors we cannot control. We can take solace in knowing that this too shall pass.

We should also explore how to give back to the communities around us. Those of us who are fortunate enough to still have our jobs and our health simply cannot take it for granted. We can all find meaningful ways to help and we should act on them immediately. Soon enough, we’ll be back in the “norm,” but for now, it’s important to embrace the “new.”

Dentons shares observations of COVID-19 impact on U.S. commercial real estate

Real estate practice attorneys from Dentons, the world’s largest multinational law firm with $2.36 billion in annual income, recently held a webinar to share challenges their clients are experiencing due to COVID-19.

The live webinar included insight from William Taxay, Dentons, Pittsburg, Tandy Patrick, Dentons, Louisville and John Snyder, Dentons, Kansas City; and was moderated by David Quam, public policy group, Dentons, Washington, D.C.

Taxay began by addressing challenges faced by buyers, sellers, owners and developers and the logistical issues involved with closing transactions during a pandemic. For example, finding appraisers, recording offices and notaries is no longer an easy task.

Although some states have adopted electronic notary services (Kansas adopted electronic notary in 2005 and Missouri recently signed off on it on April 6, 2020), something as simple as recording a deed or initiating a title search, is now challenging in some jurisdictions. 

New development, which requires planning commissions, zoning commissions and local council meetings to hold a public meeting before moving forward, is inevitably going to slow down.

“We are still closing deals (because) we were signing up deals before this started and during this (pandemic),” Taxay said.

Patrick discussed issues with landlords and tenants, as many tenants are giving notice that they are unable to make their next payment. These notices have precipitated a review of existing leases by both landlords and tenants.

“It’s no surprise that most of our force majeure clauses in current leases do not mention the word ‘pandemic.’ Some leases don’t even have a force majeure clause. Some with this type of clause expressly carve out rent and require the tenant to continue paying all monetary obligations notwithstanding the occurrence of a force majeure event,” Patrick said.

If a lease doesn’t contain a force majeure clause, some considerations to look into include:

-Possible actions against personal guarantors on the lease

-Existing business interruption insurance that may provide coverage in this situation

-Other non-monetary existing defaults by the tenant under the lease

-Whether the landlord can apply tenant’s security deposit

-Whether the landlord or tenant in default based on other lease covenants such as continuous operation, abandonment, co-tenancy requirements or interruption of essential services at the property.

“I think most of our force majeure clauses in current leases are likely to be reviewed and revised in the days to come to address specifically rent abatement during a pandemic virus event and it may be a good idea to include a pre-negotiated agreement or formula regarding suspension of rent as well as perhaps requiring business interruption insurance that would cover pandemic events," Patrick said.

Lenders and borrowers are facing their own challenges as well.

“Some federal banks are allowing loans to be closed without appraisal for 120 days because appraisals might not (hold the same value) right now,” Snyder said.

While the borrowers are requesting to delay payments and/or reduce interest rates, lenders are in need of cash escrow and additional collateral, in some cases.

“At some point the reality is, there will be forbearance requests. There will be massive loan defaults. We heard one loan servicer that already has 1,000 forbearance requests in the pipeline. The hotel industry is getting hammered, with occupancy down 70 percent and revenues down 80 percent from this time last year, a historic hit to the industry,” Snyder said.

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If you are interested in learning more perspective on COVID-19 and other current issues, you can sign up for Dentons continuing event series here.

Kessinger Hunter sees explosive post-pandemic opportunities for industrial marketplace

Before diving into detail regarding the state of the market “post COVID-19,” it is important to share that Kessinger Hunter employees and brokers are working remotely and doing their very best to stay active and engaged in business while taking care of their families, communities and clients first.

Many industry experts have been discussing what the commercial real estate world will look like once the virus passes and all the stay-at-home orders are lifted. Many of the national brokerage houses have held calls pontificating about the difficult times ahead for commercial real estate once the pandemic has passed. However, leaders and their discussions around the industrial space are concurring, and Kessinger Hunter agrees, that the bulk industrial marketplace will be stronger than ever.

Market conditions suggest three things are going to drive industrial real estate. All will put upwards pressure on space demand and rents.

• E-commerce – companies lacking online capabilities or an online presence are missing sales during the stay-at-home orders and are going to be proactive in establishing online capabilities for customers and clients moving forward. Exponential growth is expected in the space these companies lease. Real estate economists project for each $1 billion of new e- commerce business that is created, it drives an estimated need for 1.25 million SF of new industrial space. This growth alone is expected to create another 900 million SF of demand.

• Just-in-time warehouses – these warehouses typically only maintain enough inventory on hand to be able to deliver “just-in-time” to the end users. It is anticipated that these operators will add about 5% to their inventory on hand in the future. This is projected to create new demand for 1.2 billion SF of additional warehouse space.

• Near shoring – this group of businesses has been hurt by having manufacturing outside of North America. These companies are predicted to bring more manufacturing to the US which will give them greater control over their logistics. This will especially affect the Midwest area of the U.S. where the north-south supply chains go from Mexico to Canada.

It is for these main reasons that Kansas City, and the entire country at large, will see explosive growth once the world returns to “the new normal.” While industrial brokers and developers ride out this difficult time and prioritize taking care of family, the community, and clients, they must also be prepared to keep up with the new industrial norm.

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Daniel B. Jensen, SIOR is a principal for Kessinger/Hunter & Company, LC. Dan specializes in industrial brokerage and development on both a local and national level.

Dan is an inductee of the Midwest Real Estate News magazine 2016 Commercial Real Estate Hall of Fame, a member of the Society of Industrial and Office Realtors (SIOR), a member of the KC Area Development Council (KCADC), a board member of the Olathe Economic Development Corporation (EDC) and a member of the Council of Supply Chain Management Professionals (CSCMP). Dan has been active in commercial real estate since 1985.

If you are interested in submitting a guest column for the MWM Newsletter publication, please send to lisa@metrowiremedia.com for consideration.

PURE and simple ways to prepare for office return

As you read this, you’re probably sitting at your dining room table, your living room sofa or some make-shift office in your home.  It may not be designed to be as efficient as your office’s workspace and it may lack good ergonomics, but it is comfortable and safe and you have learned to adapt to your environment to be productive.   

Since forever in time, office spaces existed so that employers could create “work-focused” environments, where productivity could be managed, where workers could communicate more effectively and where collaboration and camaraderie are encouraged.   

In recent years, however, as mobile technologies advanced, more progressive companies embraced the idea of teleworking as a significant way to save in real estate costs and as a way to attract a more mobile and diverse workforce.  Yet, for some industries, and for some businesses, the idea of a full-time remote workforce is still years away. In 2018, less than 25% of the U.S. workforce worked some hours from home on an average day.   

The COVID-19 pandemic, and stay-at-home mandates, thrust all of us into the workplace of the future.  Everyone quickly learned how to create a work-focused enclave in their home.  We learned how to adjust our behaviors and our expectations. And by now we all realize that we can perform our work using a myriad of remote devices.  And technology, not proximity, allows us to communicate, as well as collaborate.  

Unfortunately, the future is not here, and many of us will be going back to the office within the next few weeks.  If COVID-19 is still transmittable, how can workers be expected to go back to the office? What will our employers do to our office environment to reduce the spread of pathogens?  How can we make sure that our co-workers remain respectful of our personal space and continue to social distance? Will it be the same? 

As employers prepare for the end of the quarantine and the work-from-home experiment comes to an end, our fears are providing good fodder for designers, workplace consultants and office furniture manufacturers. 

In the not-so-distant future, workplace design may be reflective of the lessons learned during the pandemic of 2020. There is no reason to delay. In the short-term, employers can make some immediate changes, making the workplace appreciably safer, with little associated cost.

Employers will need to strengthen the distinction between private and shared space. Over the last decade, these lines have blurred and employees will begin to demand more privacy in order to feel safe while doing their work.    Employers can make available more private/restricted areas where employees can go to feel safe, protected, and in control of their environment. 

In the open plan work areas, employers can increase the distance between workers by spreading them further apart or by flipping the orientation of their desks. Shared “hot-desking” should become a thing of the past.  It will be essential in some cases to add cleanable/wipeable privacy screens to help reduce the transmission of pathogens via droplets or aerosolized particles.

With the shrinking of personal workspaces over the years, offices have incorporated collaboration spaces for thought-sharing, idea generation and social interaction.   These will continue to be critical to maintain the moral and productivity of employees working in already cramped personal spaces.  

But how will these look post-COVID-19? The size of collaboration spaces may shrink to limit the number of people using them.  Some collaboration spaces may even have restricted uses to control the number of people who have access.  Furniture may be spread further apart and be designed with antimicrobial fabrics and finishes for easy cleaning. Cleaning supplies could be readily available for users to clean potentially contaminated surfaces.  Improved air filtration systems can be installed to help eliminate the spread of airborne pathogens. 

Employers should consider placing sanitizer dispensing stations throughout the office, especially in social or shared spaces and near break rooms and bathrooms. Over the past month we’ve become accustomed to having antibacterial sanitizers within arm’s reach, at the grocery store, in our automobiles, our purses or bags and around our home.  We are already beginning to change our behavior.  Company-provided sanitizer stations are an effective and inexpensive way to encourage better hygiene.  

Businesses should adopt or modify workplace policies regarding better hygiene, workspace cleanliness, and safe-distancing. Stricter guidelines should be implemented forbidding an employee to come into the office if they, or someone in their family, is a carrier of a potentially contagious virus.  Adopting teleworking protocols after COVID-19 should be an easy first step in increasing employer’s openness to allowing remote work while an employee is convalescing or caring for others.   

Environmental branding companies and flooring manufacturers are quickly innovating products that can be integrated into the interior design of a workspace that will provide visual cues, reminding people of safe social distancing, encouraging hand-washing, and that route people through an office in a way that mitigates the risk of transmission of viruses. These product will help keep our workplace essentially the same, but they will be a constant reminder to everyone how expectations have changed the way we work. 

Many of these products are available for immediate application and the ideas are simple to implement. Employees returning to the office will want to find that their workplace is safe, but that the “new-normal” is still a place where work gets done, is fun and where co-workers can engage and share ideas.  The key to the efficacy of any solution will be in how we change our behaviors and tendencies. 

Jean-Paul Wong is president/CEO of PURE Workplace Solutions, located at 3525 Roanoke Rd in Kansas City, Mo. PURE provides commercial furniture solutions and workplace consulting for all work environments including office, healthcare, education, hospitality and government. 

If you are interested in submitting a guest column for MWM Newsletter publication, please send to lisa@metrowiremedia.com for consideration.