March 30, 2018 Comments Off on Buy, Build, Sell, or Hold: Investment & Development Insights Views: 2896 California News, Los Angeles

Buy, Build, Sell, or Hold: Investment & Development Insights

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By Dennis Kaiser

Connect Real Estate Los Angeles featured a jam-packed afternoon of conversations, networking and presentations. More than 500 gathered at the Hotel Indigo in DTLA and heard from commercial real estate leaders and economists about the trends driving decisions in Los Angeles.

The investment and development panel was moderated by Cushman & Wakefield’s Marc Renard, and focused on factors driving redevelopment and new development opportunities in Los Angeles, as well as a regional view on investment, development, and asset performance in SoCal.

Renard kicked-off the discussion by noting he hasn’t seen a more “intriguing time” to be in commercial real estate,” given the opportunities and threats to the business. “There’s real changes occurring that commercial real estate needs to be cognizant of,” he said. But for those who anticipate correctly, “there’s alpha returns if you get in early.”

He pointed out that given the “profound changes in our industry,” it is vital to correctly ascertain which companies will rise above the competition. As a frame of reference, he suggested looking at the top five companies by market cap. Today, that list is comprised entirely of tech companies, when 10 years ago there was just one tech company among that group.

The rapid growth of tech and related companies seeking a more creative or modern work environment has pushed developers and building owners to provide the type of space those companies demand.

Rising Realty Partners’ Chris Rising says it is important today to consider more than just rent costs though. Companies kicking the tires on space now look at total employee cost, as part of a location search. They want to make sure the work environment – including spaces with compelling historic stories, amenities and a dynamic surrounding neighborhood – will help them to compete for great employees.

But in his experience, the planned budgets for bringing those creative visions to reality are rarely sufficient, “no matter how robust the budget was,” he said. The emergence of IoT in the workplace has pushed the boundaries of office space out. He envisions space designs without keyboards, and new acoustic requirements to accommodate employees talking to devices. Yet, regardless of the TI requirements, it is critical to plan for the future since it is unlikely an owner will build out that space at the same level when it comes up for re-leasing.

Harbor Associate’s Joon Choi agrees that companies today “gravitate to authentic settings or buildings with a story.” One way the company has worked to compete for companies in suburban office environments is to create a new product that is a sub-brand. These “bespoke offerings are customizable buildings” that offer companies a “branded campus feel.”

Jamison Realty, Inc.’s Jaime Lee pointed out they are seeing a significant rise in construction costs over the past several years, still there’s restraint within the capital markets. She noted that projects that penciled three years ago might not today, given the increasing construction costs, though the appetite is still strong.

Bentall Kennedy’s Amy Price suggests a savvy investment or development strategy is to follow where talent wants to be, as well as where jobs are. That’s a shift from 10 years ago, when people made lifetime commitments to a job. Today’s employees are more willing to change jobs for a better opportunity. Top companies attract talent, and that’s become a significant driver of where people want to be now.

One trend Price notices is the “push-pull with Millennials” surrounding what they want in their careers and life. They are torn between urban or suburban opportunities where jobs and a vibrant neighborhood are. In some cases, they are willing to live in a one-bedroom apartment, even with kids, in order to reduce commutes, she says.

Price notes that the investment market is “recalibrating to historic levels,” though she admits investors got a bit “spoiled, particularly on the core side.” She says, there’s “definitely cycle recalibration” underway now as investors “adjust to not getting the returns they were used to.”

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