ULI Spring Meeting Notes| Philadelphia| April 2016

Successful Suburban Development

  • Massive wave of people ditching cars, moving to more walkable urban downtowns. True-more people doing so, suburbs continue to grow.
  • They are evolving to serve as economic hubs formed around office/industrial parks, shopping malls and lifestyle centers.
  • Many millennials prefer the idea of living in an urban setting. They still choose suburbs-they are demanding those suburbs be dynamic communities. As a result, more suburban communities are developing town centers and areas that resemble urban downtowns.
  • Developers are responding by providing diversity of housing—important to offer luxury housing that appeals to company executives-otherwise difficult to attract corporate headquarters to that suburb.—Ballantyne Corp. Park for example.
  • 3 Washington D.C. Suburbs-enjoyed recent growth in gross square footage development by creating places for gathering and social activities, placing transit oriented development around train stations and expanding transit options connecting neighborhoods to rail stations.

 

Need for Instant Gratification Drives Real Estate Ingenuity

  • On demand economy means goods and services can be delivered by a tap or swipe of the finger. Immediate gratification is what consumers expect. New project-the Bloc-large scale renovation of an aging downtown LA mall into a vibrant mixed use marketplace. Bloc highly anticipate that future customers and close observers of downtown development want to be instantly provided with updates. Ratkovich is documenting on Instagram, website and social media channels-the renovation and public meetings associated with the project.
  • Ten-X. Google Capital funded website for buying and selling properties. Goal is to condense transaction timeline. Typically 6 mos. to close a deal, deals on Ten-X executed in 30-45 days. Goal is not to replace brokers but free them to focus on client. Ten-X is the nation’s leading online real estate marketplace. Founded in 2007, have 1000 employees, have sold 200,000 properties worth over $37 billion. Largest sale ever—Manhattan Towers in Southern California–$96 million for 2 buildings totaling 309,734 square feet.
  • Home Away-on line portal for short term vacation rentals, pose no threat to hotel industry—offers an alternative method of booking travel and broaden menu of properties.

 

Flexiblity is the Key to Housing Design for the Future

  • Greater informality in housing design, greater emphasis on wireless technology, greater diversity in land uses-mixed use facilities,
  • Greater use of kitchen space as the “nesting center” of the home.
  • Seniors aging in place and millennials needing adaptable spaces to suit their lifestyles.
  • For millennials, more outdoor living space, open floorplans-particularly in the kitchen. Some rent out part of their space to help cover cost of ownership.
  • Micro units in NYC-300 sf-furnished with multi use furniture, that takes up minimal space and serves a variety of purposes. Amenities include fitness centers, retail space, bike storage and laundry rooms.
  • Live Large, Carry Little—Futures Company exec thinks this is the new norm—redefining consumer priorities. People value the ability to forge relationships over the ability to own products, want greater social connections with people—technology provides this. Smart phones outrank cars in importance, enhanced ability to rent or share, access to plenty of free or inexpensive services.

 

William McNabb—CEO of Vanguard

  • With political and economic uncertainty, coupled with fully valued equity markets, you will get an increase in volatility-expect a period of lower returns on your equity investments. Over past 80 yrs. returns on equities averaged about 10% per yr, after inflation equates to 6% real return. Over next decade Vanguard anticipates returns in 5-7% range, real returns in 3.5 to 5.5%.
  • Recovery is unlevered-consumer slow to borrow, decline in leverage is seeing debt reduction rather than credit availability.
  • Cyber Security-98% of transactions are on line, spend $100 million each yr on this security type.
  • Lots of bad guys-hackers, cybercrime guys in Vanguard’s operation center see over 1000 attacks per day.
  • People are paying a lot of attention to this. Gov’t agencies are coming together on this and Vanguard, T. Rowe Price, Fidelity are working together and cooperating, all about safeguarding their investors $.
  • 2 Factor Authentication-enter password and on another device, enter code that verifies within 10 minutes—better technologies are coming, but this is best they have now. Middle innings in terms of knowledge.
  • Vanguard is the largest 401 k money manager in the world. Boomers retiring now, theory that they will not put pressure on the market. Thinks people will live as long in retirement as they did working. Equities will be as important as diversification. Have been more focused on accumulation rather than decumulation—will see plans coming out to help us with this. How to make your money last is going to be important going forward—different from defined benefit plans available previously. Wall Street rigor and mid-west values is their mantra—put client first-then treat all employees with the Golden Rule. Want employees that are coming for a career, not just a job.
  • Book—The Art of Leadership—George Manning and Kent Curtis
  • Leaders should clear the way so everybody can do their jobs. He assumed CEO on 8-31-08—told employees they would keep their jobs, focus on the client-had town hall meetings-met with clients in the field, tried to keep everybody calm—leap of faith that we would come out of this crisis. 108 colleges and universities within 2 hours of Philly. 15,000 employees, 10,000 in Philly, operations in Scottsdale and Charlotte.
  • His view of millennials—positive, lots of creativity and passion, more skeptical about investing in the market but are willing to save-paying down some debt.
  • Need to simplify tax code—would reduce uncertainty among businesses.

 

New Residential and MPC models that assure success—moderated by Gadi Kaufman

  • Stapleton-Denver-introducing new products to reach new buyers—higher density.
  • Be disciplined in your segment.
  • Green Valley Ranch-planned for 75,000 residents, targeting active adults, detached units, Anthem, Inspiration and Whispering Pines—55+ Denver master planned communities—smaller plans, don’t forget rentals—can increase absorption.
  • Imagination Homes by David Weekley—1st time buyer focused, simpler floor plans, standard finishes. Central living – hi density detached and attached, densities up to 25 units/acre
  • Encore-age restricted 55 and age targeted, single level plans with open design concept, Lifestyle Director.
  • Marketing—secret shopper, web linking process-customer sign up, can track customer, location tracking software and project beacon—-point is that data is the future—more focus on consumer behavior—watching retail world trends.
  • Innovation-takes time, involves failure, millennial workshops. Millennials-community based, lifestyle driven communities—mixed use, renters, lofts.
  • Renting by choice—they can afford to buy, need better design for lifestyle rather than by legislation.
  • Amenity ideas for younger audiences—MF developers have figured it out—look at their amenities. Using rooftops as cool gathering places.
  • Brambleton in N. Virginia – funding public art—creates value, different experiences.
  • Woodlands-Houston, Texas
  • Tejon Ranch-driverless cars—looking at spaces, working with regulators, rights of way, etc.
  • Google Fiber—what’s in it for you? work with local utilities-future development and millennials—complete master plan with technology.
  • Engaging the community in problem solving—do it early on—can anticipate future opposition. Know more about the consumer—your customer.

 

Development Opportunities in Shared Space

  • Co-housing, car sharing and micro unit housing are ways consumers are seeking to share the environment they occupy.
  • In D.C. near the Shaw metro station, a new multi-family building, Oslo, developed by Ditto Residential, is a design targeting Craigslist demographic—crowd that wants to live in D.C. and sees finding a group house or multiple roommates as a solution providing affordability. 9 units—33 bedrooms, 3 and 4 bedroom units—3 bdrms are 970 sf, 4 bdrms are 1400 sf. All residents have their own private space—bedroom and bath, plus shared space—living room and kitchen—helps reduce rent and fosters community building. Units have walk in showers, stackable washer/dryers, roof deck, 3 off street parking spaces for rent.
  • Hotel sector—young developer thought 1 size fits all in hotel industry was silly—all had a desk and couch and elements that took up space. Thought hotel could eliminate these and have common areas for conference work area, pitched to hotel group-Hyatt I think, they developed a project based on his idea.

 

Product Council Market News—Resort Recreational Development

  • Yellowstone Club and Big Sky—turning to the membership to sell properties, ski guides are major sales force.
  • Aspen-sales volume down 40% due to energy related issues.
  • Dallas housing market—can’t build homes fast enough-job growth and population growth outpace supply, 1.5 months’ supply of existing, 2 months of new—40 day average on the market, focuses on the $200k to $350k and over $750k.
  • Durango Mountain—High end buyer is not there—some is oil/gas last 6 months, normally would be seeing demand for hi end homes.
  • Hawaii-4 Seasons resort–$1400-$1500/night, feels a softening however, not sure if it is a cycle or just a shift.
  • Carolina coast—Kiawah sales are very strong, lot sales are flat—particularly the very high priced ones. Ocean Park–$500k to $4 million for lots.—OP is 70 acre park-looks and feels like a golf course, between the marsh and ocean—has revitalized the island.
  • Some discussion about condos in Charleston, new hotels at Palmetto Bluff and Sea Island—generating new, younger buyers. PB—420 completed homes with 160 under construction. Public programming and events are driving sales.
  • Luxury hotel business is really strong from an operational standpoint.
  • Significant number of honeymoon cancellations in Costa Rica due to Zika influence.

 

Trends discussion

  • Is there a resort product in the shared economy?
  • See clean, more glass, more contemporary products
  • Terraces as a room, more gathering spaces
  • Dog Park Bar—highest alcohol sales
  • East West partners-disconnect parking from condo sales—rent directly from the developer—doing this in d/t Denver
  • Examining young buyer’s needs—functional fitness center with proper equipment
  • More people playing tennis and pickle ball
  • Cultural experiences-cooking classes, farm to table, eat fresh, gentleman farmer-do it yourself.
  • Millennials—Airbnb—is that a resistance to commitment?
  • Demographic trends—will millennials move to the suburbs?
  • Concern about jobs—may not be paid enough to support a second home.
  • Book—Play—Stuart Brown

 

John McNellis—Making It in Real Estate

  • Must Buy it right—all happy real estate deals start with at Motivated Seller
  • If the numbers don’t make sense to you, sit it out. Think of yourself as a seasonal farmer, some good years, some not so good—might do 1 deal a year or multiple ones.
  • Where should you buy?—that matters a lot. Google—shrinking cities in U.S.—don’t develop there.
  • How should you buy?-make sure the Broker is highly motivated—financial incentives are powerful—make sure Broker gets his full commission.
  • If you must fall in love, fall for the numbers, not the property.
  • Don’t sweat the purchase contract. If price, contingencies, closing date are right, proceed. Do your own due diligence—read everything yourself. Learn to walk away.

 

Bob Hughes—“A thing well bought is half sold”

  • Offer a low price, you might get it. Need a cushion, may have to bail at some point.
  • Do not borrow money to buy land. You don’t have to have that land. If you don’t buy it right, you will be working for the seller the rest of your life. Have another choice—a second site in mind.
  • If the seller doesn’t say it, it doesn’t count. Meet with the seller and find out what his motivation for selling is.

 

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: