Category Archives: Real estate news

The Rise of “Urban” Suburbs

The Rise of “Urban” Suburbs

We tend to think of urban areas and suburban areas as completely different entities. One is filled with skyscrapers and buslines and the other is filled with houses with picket fences and well maintained landscaping. In reality, the line between these two residential and commercial real estate areas is continuing to blur in 2020. This trend is holding true in mid major cities like Pittsburgh and large cities like New York and Boston alike. So called urban suburbs are extremely appealing to young renters/home buyers as well as businesses. This is because they mix affordability with convenience and amenities. 

 

This trend is what has driven the surge in investment and migration to neighborhoods like East Liberty, Lawrenceville, and, 20 years ago, the South Side. And it’s what is driving the speculative investment in next-level urban suburbs like Sharpsburg, Millvale, Carrick, and parts of the North Side.

 

With this in mind, today we will discuss the rise of urban suburbs by defining urban and suburban areas, pin down what it means to be an “urban” suburb, and why younger Americans are pushing real estate trends in this direction. 

 

Defining Urban and Suburban in 2020

Defining Urban and Suburban in 2020

Per the Census Bureau, “urbanized areas” are regions in or surrounding a city that have more than 50,000 people living in them. If these neighborhoods are within the limits of a city, they are thought of as urban, and if they are outside city limits, they are colloquially referred to as suburban. Urban clusters, on the other hand, are urban areas with fewer than 50,000 people. In a more general sense, we tend to think or urban areas as being more metropolitan with less space, more people, and greater access to amenities like public transportation and entertainment. 

 

Suburbia exists somewhere between urban and rural living. One of the definitions of the word suburb reads: “the residential area on the outskirts of a city or large town”. While this has traditionally been true and still remains true in many cases, the residential aspect of this definition is changing. Commercial real estate in the suburbs is extremely active and lucrative as many individuals look to live, work, and play close to urban environments without the hassle of fighting against rush hour traffic.

 

What are “Urban” Suburbs?

What are “Urban” Suburbs

Despite a great deal of focus being placed on the idea of a Great Inversion, where affluent Americans are favoring cities over suburbs, the majority of Americans today continue to live in suburbs. Although it is true that some suburbs are facing challenges, many that are referred to as “urban suburbs” are thriving. In lieu of an official government definition of what constitutes a suburb, let alone the different types of suburbs, urban suburbs have come to be defined by their characteristics, namely urban neighborhoods outside of the city that provide a mixture of access to urban centers, universities, a stable housing market, reputable public schools and transportation. 

 

An example of an urban suburb is Mount Lebanon, an affluent neighborhood 7 miles south of Pittsburgh, with a median home value of $209,506, a reputable public school system that has won multiple National Blue Ribbon School awards, and a light rail system that provides easy public transportation to downtown Pittsburgh. Uptown Mount Lebanon has another key feature of urban suburbs: a booming business district with hair salons, cafes, shops, galleries, restaurants, and banks. Other national examples of larger suburbs with a more urban atmosphere include Grandview Heights, OH and Mountain View, CA. 

 

Younger Americans Prioritize Convenience and Amenities

Younger Americans Prioritize Convenience and Amenities

Urban suburbs are particularly attractive to younger American families who do not want to compromise on the convenience and amenities of urban living. They allow families to invest in their stable housing markets, reputable school districts, and enjoy access to business centers and easy transportation to metropolitan areas. Both renting and buying in these markets is attractive, as debt-ridden millennials who are parents may want easy transportation to their city jobs and favor renting in these areas for their school districts. For instance, almost 30% of residents in Mount Lebanon choose to rent, with the median rent coming to $861. 

 

With the numerous websites and mobile apps geared towards renting and buying property, these desirable characteristics are easier to search for than ever. For instance, real-estate websites such as Zillow offer school ratings, commute times, walk scores, and transit scores under each property listing. With 81% of older millennials using mobile apps to find their homes, urban suburbs with high walk, transit, and school scores are coming out on top. 

 

Going Forward

The rise of urban suburbs offer many takeaways. Suburban neighborhoods who are struggling to attract new home buyers can consider ways of increasing access to transportation to a nearby city. Trends show that urban suburbs offer many opportunities for both residential and commercial real-estate. Government agencies may benefit from defining suburbs and sub-types of suburban neighborhoods to better study trends. In the meantime, the rise of urban suburbs are a respite for those who are looking to rent or purchase property in a good school district but do not want to compromise on urban amenities and public transportation

Commercial Real Estate and US Economic Trends Going into 2020

Commercial Real Estate and US Economic Trends Going into 2020

As with most investor markets and economic issues, commercial real estate is an ever-changing reality. What might look like a safe bet today could lead to huge losses tomorrow. Government regulations, environmental factors, and a looming recession are just a few of the ways that the commercial real estate landscape can change at any moment. Yet seasoned real estate veterans understand that these changes are just a surface disruption of CRE wisdom which generally holds true over time. 

 

With all of this in mind, here is a brief report on the current realities of commercial real estate in the US as well as some insights into the near future.

 

2019 Commercial Real Estate by the Numbers

2019 Commercial Real Estate by the Numbers

The commercial real estate market is currently valued in the ballpark of $1.1 trillion. To put that in perspective, if a trillion dollars represented $10,000, a billion dollars would be $10. Needless to say, there are massive amounts of revenue being generated in the CRE market in 2019. Here are a few other statistics to give a clearer picture of the current state of CRE:

 

  • The commercial real estate industry experienced an estimated growth of 2.2 percent in 2019. This is down from an average of ~4 percent annual growth in the CRE industry over the past five years.
  • Commercial real estate growth has outpaced overall real estate growth, rental rate growth, and leasing growth in 2019. 
  • Seasonalized annual construction values from Q2 2019 are down by about five (5) percent compared to similar estimates from 2018. Newly constructed commercial structures saw the largest value losses over this time period. 
  • Commercial property valuations are on a steady rise beginning with the recovery period in 2009-2010. During this time period, prices have risen the most in the Western United States with the Midwest lagging behind.
  • Rental rates have flattened to a relatively low 1.4 percent year over year growth from 2018 to 2019. This trend is expected to continue with many market indicators pointing towards a stagnant apartment market overall.

 

The State of the US Economy Looking to 2020 and Beyond

A recession is all but unavoidable in the next few years

Before we stare into the proverbial crystal ball, we should first state the obvious: nothing is guaranteed. That being said, here are some likely events in the US economy over the next several years.

 

A recession is all but unavoidable in the next few years

As of the writing of this article, the latest news is that doom and gloom predictions about the next US recession may have been exaggerated. Despite this sudden onset of optimism, the plain truth is that recessions are a part of modern free markets. The most optimistic, realistic view of the situation is that our next recession may not take place in 2020 but in the years to come. Whether the next economic downturn occurs in 2020, 2021, or beyond, it will almost certainly have a material impact on commercial real estate just as it did during the Great Recession of 2008.

 

Climate change will continue to be a major player for the economy and for CRE

Recent scientific studies have predicted that extreme weather events in the United States will rise by approximately 50% by the end of the 21st century. This continues the already observable trend of extreme weather patterns like more frequent and stronger tornadoes, hurricanes, floods, and other natural disasters. This will impact both the overall economy and commercial real estate industries for obvious reasons. Building codes are likely to be updated, insurance costs will rise, and other incidental expenses will almost certainly take a hit. Economists warn that climate change will likely cost the US economy 100’s of billions of dollars by the year 2090.

 

Young adults will continue to struggle financially

Young adults will continue to struggle financially

Last but not least, the population of adults who should be representing the largest buyers in the US economy will continue to be hit by crippling debt, healthcare costs, and stagnant wages. Barring an unlikely dramatic shift in the political and/or economic landscape, the US Debt Crisis will be a huge factor in the economy for the foreseeable future. This has already played a role in lagging rental rates, home ownership, and spending habits. It is difficult to predict how this situation will play out, but younger generations have proven that they are willing to cut costs, something that is not a great sign for economic health.

 

Going Forward

The commercial real estate sector has been reliably strong for nearly 10 years now. After a two year dip in 2008-09, investors have enjoyed solid returns and steady growth. While it is reasonable to expect another downturn at some point in the next few years, it is also reasonable to believe that the US economy will bounce back and investments will continue to pay dividends. It will continue to be important for investors to keep up with the latest CRE trends such as co-working, energy construction projects, infrastructure construction, and much more. The commercial real estate world’s evolution is ongoing, and the only certainty moving forward is change.

Private Equity Real Estate Funds are Slowing

Private Equity Real Estate Funds are Slowing

For the commercial real estate investor, private equity funds have historically been safe bets which can be used to invest in a volatile real estate market over the long term. Private equity real estate funds are typically purchased by high net worth individuals, trusts, and/or pension funds to build portfolio value. In recent years, as commercial and residential real estate markets have inflated to the tipping point of true value, real estate funds have lost their luster to some investors. 

 

Today, we will review how private equity real estate funds function and why they are lagging behind when it comes to both performance and participation.

 

Real Estate Equity Funds 101

Real Estate Equity Funds 101

Private equity real estate is a type of asset which pools private and public funds into the real estate market. Similar to how mutual fund ownership entails privately owning a number of stocks, bonds, money market funds, and other mutual funds, private equity real estate funds entail owning multiple properties through a type of pooled vehicle. While the concept of private equity real estate has been around for since the post WWII era, private equity real estate funds truly took off during the boom or bust economy of the mid 90’s.

 

Also like mutual funds, private equity funds are a long term investment. There may be penalties for early withdrawals, funds are tied up in the funds, and investors must understand that most private equity funds come with a lock-up period where assets are unredeemable. Due to the nature of real estate equity funds, there is typically a substantial minimum investment both up-front and potentially over time. As we mentioned in the introduction, private equity funds are typically reserved for wealthy individuals, pension plans, or other long-term wealth building strategies.

 

CRE Equity Funds by the Numbers

CRE Equity Funds by the Numbers

Commercial real estate plays a huge role in private equity real estate funds, but it is not the only player. Let’s take a look at private equity numbers to get an insight into industry trends:

 

  • 2018 saw an overall fundraising downturn of approximately 10.6 percent compared to 2017. Total 2018 investments totalled approximately $118 billion. This is the lowest annual figure since 2013.
  • During that same 2013-2018 time period, commercial real estate has enjoyed a steady growth rate both in terms of average valuations and total commercial real estate investments. 
  • The 10 largest private equity real estate funds make up over 35 percent of the total investment monies raises in 2018. This top heavy trend is likely to continue as the more well-established funds are better positioned to weather the upcoming bear market.
  • The amount of “dry powder” holdings has also gone up approximately 15 percent year over year. This could signal that investors are losing confidence while also accounting for a lack of fundraising overall. 
  • Despite all of this, there are still large sums of money tied up in the private equity market. Recent figures put the total valuation of the industry at approximately $244 billion spread of 670 private equity real estate funds

 

Why Private Equity Real Estate Funds are Losing Steam

There are a number of reasons why private equity real estate funds are slowing down. According to the latest reports, here are some of the biggest sticking points facing private equity investors looking ahead to 2020:

 

A crowded marketplace. Mark Twain once said, “Buy land, they ain’t making any more of it”. In today’s market, this fact of life has been highlighted by population growth, corporate buy-ups, and maturing urban markets. When it comes to private equity firms, prime real estate is going quickly as well. This is yet another reason why firms like Blackstone are dominating the market with multi-billion dollar funds focusing on the highest-value properties.

Real estate market uncertainty and likely recession.

Real estate market uncertainty and likely recession. If you’ve been reading/watching the news lately, you are likely aware of some of the more grim predictions regarding a nearing recession and real estate market downturn. This has led many investors to turn to debt investments and abandon mid to long range real estate investments until the market settles.

 

Other investment opportunities have taken attention away from PERE. Private equity real estate funds are in a strange middle ground of being well established over decades of solid returns but without the pedigree of mutual funds or the investor excitement of new programs like opportunity zones

 

Slow payouts for private equity real estate. Many real estate funds have a problem: they have too much cash. This can result in a number of hiccups, including investor payouts being delayed. This is almost a situation where the success of PEREs has led to a bogged down payout process.

 

Going Forward

Most industry experts agree that private equity real estate funds will continue a modest slide moving into 2020. With economic uncertainty and an already waterlogged investment environment, PEREs will likely take a few years to bounce back. Of course, it is impossible to know how economic performance, consumer spending, CRE, and other outside factors will fall into place over the coming years. Despite all of these huge question marks, private equity real estate funds meet a need for many individuals and organizations looking to buy into potentially high yield, long term investments.

The Devaluation of Traditional Real Estate Capitals

The Devaluation of Traditional Real Estate Capitals

In decades past, the most valuable real estate in the United States was not hard to identify. Commercial real estate in traditional real estate capitals such as Washington, D.C., New York City, San Francisco and other powerhouse markets dominated the landscape. In many ways, this remains true. However, savvy investors are frequently turning to less oversaturated, less expensive markets to make their mark. This has led to a vicious cycle where many traditional real estate capitals have depreciated relative to the overall market. 

 

To better understand why major markets have become less valuable in recent years, today we will discuss stronger markets in non-traditional areas including the Sun Belt and why the largest real estate markets in the U.S. have suffered.

 

Suburban Sprawl and the Rise of the Sun Belt

Suburban Sprawl and the Rise of the Sun Belt

The Sun Belt can be considered any land in the southern third of the United States. It should be noted that the Sun Belt absolutely contains powerhouse real estate markets including Los Angeles, Atlanta, and San Francisco. Yet the largest commercial real estate growth is expected to continue in less traditional markets such as Nashville, Austin, Raleigh, Phoenix, and many others. There are a multitude of reasons for these trends, including:

 

  • Domestic migration favors Sun Belt states. Texas, Florida, North Carolina, and Arizona are the top states for domestic migration over the past ten years. New York, California (a SunBelt state which is an exception to the rule), Illinois, New Jersey, and Ohio are at the bottom of that list.
  • Construction costs and living expenses are lower in many Sun Belt and other non-traditional markets. There is a reason why the largest companies on earth like Apple are choosing to build headquarters in Austin, TX instead of Silicon Valley. Costs are lower and employees are able to live more comfortably.
  • Many Sun Belt states (again excluding California) have less business and real estate regulation. Fewer regulations make for easier, cheaper CRE construction projects in addition to greater flexibility for businesses. 

 

The Largest Real Estate Markets in the U.S. Have Cooled Off

San Francisco is Experiencing High Office Vacancies

San Francisco is Experiencing High Office Vacancies

Perhaps the most notorious real estate market in the U.S., if not the world, San Francisco’s real estate booms and busts are well documented. The outrageous cost of living is driven by insanely high residential real estate values which make it virtually impossible for long time citizens to continue to rent or to purchase new homes. The commercial real estate industry is experiencing many of the same issues. Recent reports suggest that high labor costs, poor living conditions, and very high lease rates have led companies to steer clear of office space in the Bay Area

 

This has extended to store front businesses as well, where less foot traffic and higher rents mean less economically viability. Unfortunately, there does not seem to be an easy fix on the horizon. All markets have their tipping point, and San Francisco appears to be on the precipice. What remains to be seen is how the city will bounce back once the real estate market normalizes. 

 

Traditional Retail Locations in NYC are Struggling

New York is a tough market to pin down. The largest U.S. city could be considered both the healthiest or the most tumultuous real estate market in the country depending on your point of view. And NYC has always been prepared for the recent industry shift towards infrastructure and new construction mega-projects. In this way, the already densely packed city has continued to grow its already robust commercial real estate footprint.

 

However, the retail sector is struggling in a local economy where retail real estate is incredibly expensive and retail business models are needing to adapt to survive. Where some New York flagships survive on tourist money alone, many are closing their doors in the wake of new economic realities. This has led to many CRE properties losing their value in recent years.

 

Boston’s Struggling Multifamily Real Estate

Boston’s Struggling Multifamily Real Estate9

Although younger renters are willing to sacrifice other amenities for ideal locations, luxury multifamily complexes in high end Boston markets are struggling. With price points too high for many young adults and many businesses opting for non-centralized locations, downtown apartment living is becoming difficult for real estate investors. The silver lining of these trends in many expensive cities is that multifamily real estate in suburban areas is increasing in popularity and value. Savvy investors may want to look to different locations to fight against the devaluation of downtown apartment living.

 

Going Forward

Traditional real estate capitals continue to hold a high value when it comes to commercial and noncommercial real estate. That being said, their stranglehold on the most desirable properties has lessened in recent years, giving way for less centralized office buildings and CRE multifamily units. These trends will likely continue with the caveat that major markets like New York and San Francisco will remain extremely desirable to a certain population of businesses and individuals who value urban living.

Commercial Real Estate Lending Standards

Commercial Real Estate Lending Standards

According to the Office of the Comptroller of the Currency of the United States: “Commercial real estate (CRE) loans include loans secured by liens on condominiums, leaseholds, cooperatives, forest tracts, land sales contracts, construction project loans, and—in the states that consider them real property—oil and mineral rights. National banks may make, arrange, purchase, or sell loans or extensions of credit secured by liens on interests in real estate.” All of this essentially to say that commercial real estate loans are frequently borrowed against other commercial real estate assets.

 

When it comes to commercial real estate lending standards, there are federal and state-wide regulations of which any active CRE investor should be aware. Today we will review some of the high level lending standards for real estate investments in the U.S.

 

Establishing a CRE Loan Portfolio

Establishing a CRE Loan Portfolio

One of the most important aspects of securing a real estate loan for a commercial property or any other real estate purchase is building a loan portfolio. The onus to create these reports is on the insured depository institution, AKA any bank which is insured with the regulations of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. The federal government has strict guidelines which regulate what must be included in these reports, including but not limited to:

 

  • Identifying and declaring the terms and conditions of the loan.
  • Scouting locations in terms of properties and geographical areas for which the loan may be applied.
  • Establishing a policy of loan portfolio diversification including parameters for investments by real estate type (commercial vs. real estate, etc.) geographic location, and more.
  • Identify any lending staff including personal qualifications.
  • Complete a risk assessment to determine any undue concentrations of risk.
  • Identify zoning requirements.
  • Identify the underwriting standards which will be used for the loans.
  • Establish loan-to-value limits (more on this below).
  • Identify the loan administration protocols which will be followed throughout the life of the loan including disbursement, documentation, collection, collateral inspection, and loan review.

 

There are more loan portfolio requirements than we will list here, but this is a reasonable sample to give prospective investors an idea of what the federal government expects when clearing future commercial real estate loans.

 

FDIC Real Estate Lending Standards

FDIC Real Estate Lending Standards

The Federal Deposit Insurance Corporation, more often referred to as the FDIC, is an independent federal agency responsible for insuring against bank failures. The vast majority of major financial institutions in the United States are FDIC insured or FDIC supervised. This is important for commercial real estate lending standards, as FDIC regulations come into play for any such organization. With this in mind, here are some high level regulatory standards set forth by the FDIC:

 

  • “Each FDIC-supervised institution shall adopt and maintain written policies that establish appropriate limits and standards for extensions of credit that are secured by liens on or interests in real estate, or that are made for the purpose of financing permanent improvements to real estate.”
  • Real estate loans must be considered within the bounds of standard banking practices.
  • All written loan policies must undergo an annual review and approval process by an FDIC-supervised board of directors.
  • Commercial real estate lending procedures must include detailed underwriting protocols, loan-to-value limits, and portfolio diversification demands.
  • All loans must be monitored by an FDIC supervised institution to ensure that the current real estate landscape continues to support the terms of the loan.
  • All lending policies for real estate should adhere to the “Interagency Guidelines for Real Estate Lending Policies established by the Federal bank and thrift supervisory agencies.”

 

Supervisory Loan-to-Value Limits

Supervisory Loan-to-Value Limits

While there are certainly more details to cover when it comes to CRE lending standards, the last key concept we will hit upon today is loan-to-value limits. Loan-to-value limits or loan-to-value ratios are essentially the calculation reached by dividing the loan amount by the total market value of the investment including any additional collateral being used to secure the loan. It is vital to understand this metric not only to secure loans and adhere to lending standards, but also to gauge how viable a loan and/or real estate investment will be.

 

Different real estate categories carry different loan-to-value limit requirements. 

 

  • Raw land investments: 65 percent
  • Land development investments: 75 percent
  • New construction: situationally dependent
  • Commercial, multifamily, and other non-residential property investments: 80 percent
  • One to four family residential investments: 85 percent
  • Improved property investments : 85

 

Transactions Excluded from Loan-to-Value Limit Evaluations

It is important to note that many commercial real estate loans are exempt from loan-to-value evaluations. Examples of these types of loans include those which have been insured or guaranteed by the federal government, those which are backed by the full faith and credit of a state government, or those which are to be “sold promptly after origination, without recourse, to a financially responsible third party.” It is vital to understand precisely how transaction exemptions work before assuming that your loan will not undergo the scrutiny of a loan-to-value limit evaluation.

 

Going Forward

In most cases, it is not absolutely necessary for commercial real estate investors to understand the in’s and out’s of CRE lending standards. Yet knowledge of how the federal regulations work and what questions will be asked can allow investors and other CRE professionals to better prepare for loan applications. It is also important to understand that even federal regulations are not set in stone. There is no concrete reason to believe that these regulations will be significantly altered in the near future, but the possibility of change is always present.

Medical Office Buildings Remain a Safe Bet

Medical Office Buildings Remain a Safe Bet

Commercial real estate, like many investment-based industries, can experience major flux over time. Yet certain CRE investments are safer than others due to strong demand and profitable business models. Medical office buildings have been a strong choice for CRE owners and investors for many years. We believe that this trend will not only continue, but trend towards greater value for investors. Some investors are hesitant to enter into this space for fear of policy change and bureaucratic red tape making the future murky. While these are certainly relevant considerations, today we will be reviewing why the pros of medical office building investment outweigh the cons.

 

The Value of Medical Office Properties

In order for an investment to be a safe bet, it must first be determined that the asset has value. Medical office property values have skyrocketed in recent years. Here are just a few reasons why.

 

Supply and Demand Favors Property Owners

Supply and Demand Favors Property Owners

There is no question that medical office buildings are in high demand. As the nation ages and healthcare becomes an even larger industry, outpatient procedures continue to climb in both quantity and quality. That handles the demand part of the equation. As for supply, medical office buildings often require specific layouts and capabilities which must either be designed from the ground floor or retrofitted into older properties. Simply put, there aren’t enough office buildings to handle the current demand. This obviously puts a premium on those properties which do exist and even those which are good skeletons to be converted into medical offices down the road. 

 

The Medical Industry is Booming

Say what you will about our nation’s healthcare system, but there is more than enough money to go around. No matter if we continue with Obamacare and other current policies, roll back current policies, or go in the other direction and establish Medicare for All, money will continue to pour into our medical care infrastructure. The reason is simple: the medical industry is extremely strong and will likely remain so for many, many years. When you combine favorable supply and demand with a cash-rich industry, that equates to high value investments.

 

Flexible Medical Office Layouts Add Value

On a more specific note, the future of medical technology is moving to a format which enables physicians to perform a wider range of tests within their offices rather than sending patients to specialists. For this and many other reasons, flexible medical office structures offer a unique value to investors and to lessees by allowing for greater capability and flexibility of care.

 

Why Medical Office Buildings are a Wise Long-Term Investment

Why Medical Office Buildings are a Wise Long-Term Investment

There are many reasons to believe that medical office buildings have strong value in today’s marketplace, but how can we be so sure that they will be a wise long-term investment? Medical office properties offer a unique safety net for investors for the following reasons:

 

 

  • Customer convenience means location is becoming more and more important. Nobody likes going to the hospital. This is particularly true when medical offices are more convenient from a location and practical standpoint. 
  • The aging population will require more regular check-ups and routine health care over time. The U.S. population is aging. This is particularly true in areas like our own Western PA region where one in five residents will be 65 or older by 2025.
  • Outpatient procedures are outpacing hospital stays. Outpatient procedures are viewed as more favorable by patients, healthcare systems, and doctors alike in the majority of cases. Obviously some medical procedures absolutely must be performed in hospitals. For more minor procedures and checkups, the future is trending towards medical offices and away from hospitals. 

 

 

Pittsburgh’s Medical Industry and Aging Population = Strong Medical Office CRE Market

Pittsburgh’s Medical Industry and Aging Population = Strong Medical Office CRE Market

As we mentioned in the previous section, our region’s population is aging rapidly. An aging population leads to greater medical care demands. Pittsburgh is also well known for offering world class healthcare. What this means for investors is that the demand for office buildings in our area is expected to climb for decades to come. As this demand climbs, well-funded organizations such as UPMC will have more than enough desire and capability to either purchase or lease medical office buildings at a premium.

 

Given the Pittsburgh region’s population trends, there is perhaps no safer commercial real estate bet than medical office properties. There is every reason to believe that UPMC and other local medical research facilities will continue to attract the best medical professionals from around the globe to keep our local medical economy strong.

 

Going Forward

It is impossible to speculate on the future of real estate, no matter how many positive indicators exist. As far as safe bets go, medical office buildings are about as close as you can hope to get. Aging populations, a demand that outpaces supply, a medical industry flush with cash and resources, and the national trend of outpatient procedures overtaking hospital procedures all add value to medical office properties. Medical office buildings are a unique beast, and all investors are also encouraged to understand the intricacies of medical office layouts and realistic expectations before taking the plunge.

Amazon, Google, and Apple’s Impact on Commercial Real Estate Value

Amazon, Google, and Apple’s Impact on Commercial Real Estate Value

Amazon, Google, and Apple are three of the most important companies on earth in terms of total impact. This certainly extends to the realm of commercial real estate. In Pittsburgh, Amazon and Google alone are leasing or building about two million square feet of commercial space. It can be tempting to think of these companies as somewhat ethereal as most of us never have an in-person, real life interaction. The reality remains that all three of these companies require huge commercial real estate investments for office space, warehouse space, research and development, and much more. With this in mind, today we will review the impact that Amazon, Google, and Apple have on the US commercial real estate market.

 

Amazon Commercial Real Estate Footprint

Amazon Commercial Real Estate Footprint

A funny aspect of finding information about Amazon’s impact on the US CRE market is that most of the results are actually books, DVDs, and other materials about commercial real estate sold on the Amazon platform. Digging deeper, you will find that Amazon has perhaps the largest global real estate footprint in the world. In Seattle alone, the original headquarters of the e-commerce giant, their total square footage surpasses ~13 million. All of this before they announced plans to open a second, perhaps even larger American headquarters in Arlington, VA

 

The new headquarters is expected to create approximately 25,000 jobs in its first decade or so of operation. Construction alone has been estimated to employ some 50,000 workers with an estimated budget of $5 billion. These two mega-headquarters garner all the headlines when it comes to commercial real estate, but the footprint extends much farther. 

 

In Amazon’s own words: “More than 175 operating fulfillment centers and more than 150 million square feet of space where associate pick, pack, and ship millions of Amazon.com customer orders to the tune of millions of items per year. Specifically, in North America we currently have more than 110 operation facilities with a variety of employment opportunities.”

 

Google’s Impact on Commercial Real Estate

Google’s Impact on Commercial Real Estate

Google carries perhaps the smallest impact on commercial real estate of our three mega-corporations, but also impacts the industry in other ways. Google boasts over 70 office locations in 50+ countries around the globe including notable offices in Pittsburgh, San Francisco, and San Bruno, CA. Google employs over 100,000 employees both domestically and overseas. Where Amazon’s impact on CRE is relatively straightforward with massive warehouses and nearly 8 times the number of employees, Google’s impact can also be felt through their many data centers

 

Google has over 20 data centers around the globe in locations such as Douglas County, GA, Mayes County, OK, and Hamina, Finland. As one can imagine, the data storage needs for a company like Google are comical. These data centers and other non-traditional commercial real estate needs are likely to grow in the coming years. This, alongside more traditional office growth and warehouse needs, means that Google will continue to drive CRE value for many years to come.

 

Apple Locations Impact Local CRE Markets

Apple Locations Impact Local CRE Markets

To examine how Apple impact local commercial real estate, let’s take a look at Apple’s recent decision to plant their second headquarters in Austin, TX. The new tech campus will include a $1 billion construction budget to develop a property covering approximately 133 acres. Local citizens have expressed both excitement and concern for the future local economy boon and the likelihood that prices will likely skyrocket for local real estate resources.

 

There is no question that when a sudden influx of cash and employment opportunities hits a mid-major market, the ripple effect touches every aspect of not only real estate, but the local economy overall. Real estate investors and current owners of local real estate can look forward to their property values climbing dramatically. For individuals who are renting their homes or businesses who are renting commercial real estate, this can pose a very real threat.

 

Situations like Apple’s decision to move to Austin is similar to the recent Amazon bids put in by medium sized cities like Pittsburgh. Local citizens expressed consternation that already rising pricing for real estate and other commodities would become downright unaffordable. That is the balancing act that must be struck when considering massive CRE and construction bids from any of these three powerful corporations.

 

Going Forward

The complexities of how Amazon, Google, and Apple affect the American real estate market are too many to distill into a neat article. Rising costs of living in tech cities like San Fransisco create situations where the wealthy are moving in and the average citizens might be leaving for greener pastures. These injections of local economic growth can also revive cities with lagging economies. Commercial real estate has trended towards the energy sector, tech sector, and infrastructure in recent years. Major corporations will continue to drive significant changes in CRE market value in the foreseeable future.