Florida CCIM Commercial Alliance Committee – 1st Quarter 2019 in Review By Kent Cooper CCIM Chairman

On behalf of the 2019 Florida CCIM Commercial Alliance Committee, we are pleased to present the following updates.

The committee has sought to communicate with various CCIM Chapters throughout Florida. We have found through conversations with various Chapter presidents and other professional organizations such as SIOR, ORRA, IREM, ULI, NAIOP and NAREIT the commercial practitioner has been busy in 2018.

SIOR Reports: As the fourth quarter of 2018 unfolded and interest rates rose, the market tumbled. Rumbles of a recession began to be heard, attention turning to both the commercial real estate markets and whether or not we had reached an economic peak that would result in another downturn. The response from many SIORs and otherobservers seems to be a resounding “No”—or at least, not yet.

“We see continued momentum for users looking to grow and expand their footprint,” saysPhillip Breidenbach, Economic Peak? What Economic Peak? SIORs Still Bullish
By Steve Lewis Sponsored By SIOR Foundation SIOR, executive vice president, Colliers International. Developers continue to react by introducing new projects and investing in existing opportunities. While some indicatorscertainly hint at a slowdown, most of the companies we are talking to aren’t listening.”

“It seems that interest rates are beginning to creep up a bit, but treasuries still seem flat— thoughts are they may stay flat for some time,” adds John Culbertson, SIOR, founder and managing partner of Cardinal Partners in Charlotte, N.C. “Cap rates are very low, and atleast for industrial, we’re not seeing more than just a plateau.” He says that transaction volume has been slow and the deals being done tend towards new construction, but “there’s a great market developing as there’s a rush to new product.” Sites, he adds, “are very difficult to comeby.”

ORRA’s reports: The Orlando region is number 1 in the nation for job growth for the fourth consecutive year. According to the Bureau of Labor Statistics, the Orlando- Kissimmee-Sanford metropolitan statistical area (MSA) continued its trajectory as the fastest growing job market in the country for 2018.

The strongest growth in Orlando occurred within the professional and business services category, which accounted for a combined 30 percent growth. Construction followed close behind with 22 percent of the total growth while leisure and hospitality contributed 20 percent.

ULI Reports: Opportunity Zones are top of mind in the real estate industry today, with funds raising north of a billion dollars.

But Ram Realty Services’ CEO Casey Cummings isn’t buying in. “I don’t see the potentialthat other buyers are seeing,” said Cummings, whose Palm Beach Gardens companyinvests in distressed properties across the Southeast.

“Anyone who has [Opportunity Zone properties] for development thinks they’re sitting ongold, but if you are trying to underwrite and make sense of the project with today’s rents and costs, it’s very challenging for these areas,” he said.

Opportunity Zones were among the topics Cummings discussed with The Real Deal‘spublisher Amir Korangy in a fireside chat during Urban Land Institute’s West Palm BeachDevelopment and Investment Forum on Friday at the Hilton West Palm Beach.

As a developer and investor in retail and multifamily developments across the Southeast, Cummings spoke more about the broader real estate market than about West Palm Beach. Ram Realty specifically focuses on distressed and value-add properties in high- growth markets like West Palm Beach, Charlotte, and Atlanta.

In South Florida, the company owns Mainstreet at Midtown in Palm Beach Gardens, a mixed-use project on about 47 acres with 96,000 square feet of retail, restaurant and office space and 225 luxury condominiums. It also owns Indigo Station, a project with 7,675 square feet of retail and 226 apartments in Deerfield Beach.

NAIOP reports: Developers should avoid over-the-top nuclear options; instead, use smart bombs tailored to tenant needs.

AS THE WAR of amenities in commercial real estate rages on, a new tactical front has emerged: office buildings. If the competition within multifamily amenity offerings has taught developers anything, the go-big-or-go-home mentality reigns. Whether it’s abowling alley, yoga studio, rooftop deck, golf simulator or rotating art gallery — nothing isout of the question for many of today’s employers.

But with real-world budget constraints, it can be challenging to keep up with the competition. Here are three tactics for achieving victory in the modern office amenity war: When it comes to amenity packages among developers, competition is steep, and biggerbudgets don’t always win the lease. Most of the time, a carefully crafted and appropriate suite of amenities will hit home with future tenants more than grandiose excesses. That’swhy thorough market research is crucial for understanding which amenities will appeal to the target customer. Perhaps the most clichéd of office space amenities are thoseassociated with tech companies, thanks to media coverage of campuses like Google’sheadquarters in California. When imagining a tech company’s office space, visions ofpingpong tables, arcade games and hammocks come to mind.

While tech giants like Facebook and Spotify have done much to reimagine the modern office space, attempts by smaller companies to copy their offerings often fall short. Furthermore, amenities that entice the average Silicon Valley type may not appeal to everyone.

In fact, many commercial real estate developers say they are seeing a resurgence in high- end amenities designed for business executives in more traditional corporate settings. These include abundant parking; concierge business services; beautiful views; on-site dining and shopping; rooftop pools and gardens with sundecks or outdoor kitchens; commercial-quality fitness centers; club rooms with private lounges and demonstration kitchens; and corporate wine lockers.

Florida TAXWatch reports: The production and distribution of motion pictures andtelevision programs is one of the nation’s most valuable cultural and economic resources. The U.S. motion picture and television industry is a major private sector employer, supporting 2.1 million jobs and $139 billion in total wages in 2016.

In 2017, there were more than 4,400 established businesses in Florida’s film and entertainment industry (excluding digital media), employing more than 26,000 Floridians. These too are high-quality, high-paying jobs, with average salaries of more than $81,700. This is almost 69 percent higher than the average annual wage for all Florida industries($47,060). The total wages paid to employees in Florida’s film and entertainment industryin 2016 were $2.2 billion.

For decades, film and entertainment content was delivered to consumers through movie theaters and a limited number of television networks. With the advent of digital technology, consumers no longer wait passively for the release or delivery of media content. With digital technology, content delivery is more dynamic and personalized. Consumers can now view content through any number of technology platforms. This proliferation of content distribution platforms has created competition which, in turn, has created opportunities for job creation and new revenues for state and local governments — significant revenues.

IREM reports: The age of digital disruption has officially arrived. There is no turning back as businesses across all sectors, from real estate and retail to banking and automotive markets, leverage technology to adjust to an on-demand service model. We are officially in the midst of the 4th industrial revolution.

Off the top of our heads, there are industries that have been obviously impacted: Uber and Lyft have changed the transportation industry, our retail expectations are forever changed with Amazon, and Netflix has transformed the way we consume entertainmentmedia. Companies that didn’t adapt to this changing landscape fast enough were left behind—remember Blockbuster Video?

Today’s consumer expects mobile and modern experiences, but there is a gap betweenthis expectation and what the typical property manager is delivering. This gap is growing every day. The real estate revolution is happening now, and let’s remember thatdisruption like this is a good thing. Change offers opportunities for real estate investors and property managers to explore more on-demand solutions for their customers.

In a recent survey we conducted with John Burns Real Estate Consulting, we found that 82 percent of property management professionals face significant challenges managing leads and property inquiries. A well-equipped website, with guest cards that allow you to collect, sort and manage lead data saves staff time. When coupled with an auto-response, then timely and personal follow-up, it also satisfies the current demand for instant answers. Back office data also provides a granular view of how online visitors find your business website, metrics that demonstrate ROI on specific marketing efforts and the number of prospects who view virtual tours.

NAREIT Reports REITs have also done a much better job of laddering debt maturities, to help avoid large fluctuations in their cost of capital. REITs have extended their weighted average maturity of outstanding debt, from 60 months or shorter in 2009 to 72 months.

While those analysts and investors who follow REITs daily are aware of the strides our industry has made, it is a different story with generalist investors. Generalists often assume REITs are more levered than they are in fact, either because they are still viewing the industry through a pre-2008 lens or they are comparing REITs to other industries with different financial profiles.

Nareit stresses in its outreach meetings that REITs can sustain higher leverage levels because of the relative stability of operating cash flows generated from their underlying assets. REITs are holding hard assets on their balance sheets in the form of buildings and land that are transferable and can be more easily financed. It is also noteworthy that among the 10 non-financial GICS sectors, REITs are one of only two sectors (along with industrials) with lower leverage ratios today than where they were during the financial crisis.

Several factors come into play when looking at any specific company’s debt profile, andthere may be times when it is strategically beneficial for a company to use more leverage. On the whole, the trend for lower leverage has put the REIT industry on stronger financial footing than it was pre-crisis and has the industry well-positioned moving forward.