July 28, 2017
By Dennis Kaiser
Connect Orange County brought together more than 450 attendees for the summer’s hottest CRE event on July 27th at the Balboa Bay Club in Newport Beach. Three deep-dive panel discussions featured some of the market’s top CRE leaders.
Engaging conversations involving top-of-mind topics ranged from the evolution of office and retail space to what’s driving the multifamily sector. The afternoon was capped by a special panel featuring the biggest players in development (pictured above). Connect Media will be recapping each panel in the coming days, but here are the key takeaways from yesterday’s conference.
Leasing Demands: What’s Driving Today’s Work and Retail Spaces
Retail Design Collaborative’s Mitra Esfandiari says retail has bled into adjacent uses requiring architects and planners to create comprehensive solutions that bring “authenticity and experiences” in response to e-commerce and Millennials. It is all about one common thing today she says, retail “wants to be a mix of uses from residential, entertainment, hospitality, etc. in order to bring in people.”
Voit Real Estate Services’ Eric Hinkelman notes the industrial market is setting price per square foot records in Orange County and is “crazy, crazy hot. We don’t have buildings to fill the requirements.” He also notes the tenant base in Orange County has diversified away from the mortgage business.
Equity Office’s Rich McEvoy says there’s been a shift toward “cultural experiences and service-oriented” environments that goes way beyond outdoor seating. In fact, that transformation has led to an “outdoor space arms race in Orange County to see who can create the best environment.”
DJM Capital Partners’ Stenn G. Parton says it isn’t about convenience anymore and those who compete on that level today won’t find favor with customers, since they can easily buy anything they want or need online. The focus, he argues, is on “experiences.” Retail centers today must “look like a MXU environment.”
Multifamily Leaders Talk Orange County and Beyond
Passco Companies’ Gary Goodman notes one of the challenges today, especially in a value add investment, is owners are reluctant to allow site visits for property inspections prior to putting up hard money.
The Bascom Group’s Jerome A. Fink notes the regulations cities have enacted to force developers to incorporate affordable units in multifamily developments are actually likely to exacerbate the housing crisis that cities envisioned would be solved. There will be less supply created, since developers won’t build projects that don’t pencil, thus markets will be further constrained as a result.
Western National Property Management’s Laura A. Khouri says Orange County has been a strong market since 2010 and they are seeing a stabilization of the market that’s going from 6% growth to now 5.5%. They are starting to see concessions, such as 4-6 weeks of free rent, especially in new product as new investors seek to fill up those developments. Though they are not seeing that on stabilized existing properties.
Marcus & Millichap’s Michael G. Derk says there’s “plenty of money chasing deals” but the big question is what are they going to trade into? He notes the B and C class properties are “really cranking right now since there’s really no place else to go.”
Shopoff Realty Investments’ William Shopoff notes the debt markets for construction have been challenged for the past 6 to 12 months. He says rising construction costs have really impacted the multifamily as well as the single family businesses. The significant price appreciation and rental rate lifts have been countered by the cost of construction.
Colliers International’s Pat Swanson notes there a lot of exchange buyers in the marketplace now and typically they’ve been “kicked around” in search of properties, so they are more willing to just “do what they can to get a property.”
Development: Orange County’s Power Players
NKF’s Greg May notes 2007 was the last time Orange County’s rents have been as high as they are now. He says, the market is “at the same place today. We took a big dip, but we’re back.”
Trammell Crow’s Tom Bak says job growth drives 90% of their decisions about where to invest or develop. He notes, the conversations around the investment committee table have shifted from ‘how long to go’ in this cycle, to now it is more of a defensive approach focused on ‘if something happens, what will hurt us?’
Buchanan Street Partners’ Robert Brunswick says investors want predictability, cash flow, and meaningful contributions from the alternative investment portion of their allocations. Investors are seeking “multiples” not just IRR any more, he says.
HFF’s Kevin MacKenzie says they’re seeing “more movement from institutional capital into the suburban transit-oriented office space.”
CT Realty’s Watty Watson says their focus is on “big entitled land buys that they can start construction on immediately” and “land bank” the rest. He says the firm has shifted from being a local private firm to one now focused on large-scale institutionally funded projects, especially those with an intermodal component.
For comments, questions or concerns, please contact Dennis Kaiser