Though commercial real estate is primarily male-dominated, women are building a solid presence in the industry. In an effort to determine to what extent this is happening, CREW Network is spearheading its 2020 benchmark study. Leadership of the international professional organization, which serves women in real estate, is encouraging men and women — CREW members and non-members — to participate in this research. The study questionnaire is available on CREW Network’s website; deadline for completion is March 31, 2020.
Results will provide information and insights on areas including compensation, career advancement and company structure. “A critical step in building a more diverse, equitable and inclusive industry is measuring it,” said Laura Lewis, CREW Network Chief Marketing Officer.
The seeds of the study were planted in 2004, when then-CREW president Deb Quok launched a research project to analyze how well women were doing in commercial real estate. “The first benchmark study was released in 2005, and laid the foundation for CREW Network to become the leading researcher on gender and diversity in our industry,” Lewis explained. The benchmark analysis is conducted every five years; the MIT Center for Real Estate is gathering the data for the current study, as it did in 2015.
Additionally, the 2020 questionnaire is being expanded to gather and analyze CRE diversity data. “The industry needs to start with a clear benchmark,” Lewis said, adding that the full study report will be released in September 2020.
The coronavirus — officially dubbed COVID-19 by the World Health Organization — is starting to impact the United States, with at least 15 cases reported. Amid much of the news and advice (which is not to panic), The National Multifamily Housing Council released its own set of suggestions and information to apartment owners and managers.
The advice, under the NMHC’s “Emergency Preparedness” subhead, focuses on the following.
Ensure management support. Any plan to mitigate and educate residents on potential exposure to the virus should have the support and involvement of leadership, along with people from human resources, legal, technology and operations.
Focus on communication. Ongoing communications with employees, residents, vendors and even the media is critical. Contact information should be disseminated to staff and residents.
Implement, and oversee, infection control. The usual steps to preventing spread of any kind of infection should include frequent washing of hands, proper cough etiquette and staying home when sick. Other steps, such as placing hand sanitizers in common areas and fitness centers and sanitizing commonly-touched elements, are also suggested.
Establish employee leave protocol. Under the category of “staying home when sick,” the NHMC noted that any kind of severe outbreak could see a spike in absenteeism. As such, leave policies should include telecommuting and staggered schedules, as well as cross-training staff.
Understand legal liability. Resident illnesses, employee exposure to ill residents and evictions should be understood. Apartment owners and managers should also determine whether to direct residents to third-party sources for information, rather than being the source of information.
Consider the aftermath. Apartment owners and managers should understand the human and financial impact of such an outbreak on the company. In the days following a disaster, experts suggest companies evaluate insurance coverage, revisit human resources policies concerning back-to-work issues and pay attention to government aid availability.
The NMHC indicated that a mass outbreak of COVID-19 isn’t certain. However, “to proceed without a plan is a risk your company should not take,” the organization said, adding that any firm should have a plan in place, and fine-tune it, as necessary.
The White House Opportunity and Revitalization Council publicly released its one-year report to President Donald Trump. The paper both highlighted achievements of the Opportunity Zones program, while calling for legislation that would better measure the impact of the legislation.
The council’s agencies proposed a total of 233 recommendations, geared toward encouraging public and private investments in urban and economically distressed areas. The recommendations also included assistance to help state, local and tribal governments to “better identify, use and administer federal resources in urban and economically distressed communities, including Opportunity Zones.” Of the recommendations made, the council has undertaken 180 actions.
The report, itself, described the formation of “work streams,” and specific action items related to those streams. Specifically:
The council indicated it would issue an Opportunity Zones “best practices” report in spring, 2020.
The group was formed in December 2018 to streamline and coordinate federal resources dedicated to the program. The group is comprised of 17 federal agencies and federal-state partnerships.
A recent report showed that federal tax incentives, such as the Opportunity Zones program, can be used to develop mixed-use projects that would, in turn, help support life-sciences and business growth. Entitled “Cultivating Chicago’s Innovation Environment,” the report was issued by the Illinois Medical District (IMD), and focused on attracting private capital through the O-zone program and “catalyze mixed-use development.” Much of the 31-acre IMD has been designated as a Qualified Opportunity Zone, and eligible for Qualified Opportunity Funds (QOF) proceeds.
The Kaufman, Hall & Associates market study indicated that the IMD, situated two miles west of Chicago’s loop area, is an ideal location to “support a large and thriving health innovation” district, one that could support both lab space and residential and commercial developments. The report, taking a page from the Brookings Institution, defined an innovation district as a “geographic area where leading-edge anchor institutions and companies cluster and connect with startups, business incubators and accelerators . . .” Such districts also offer plenty of transit, as well as mixed-use amenities. The study noted that the IMD is a good location for a potential life sciences innovation district, due to existing infrastructure and potential opportunity for development of other facilities.
The study also pointed out reasons why Chicago lags behind smaller cities when it comes to life sciences activities. These include a “lack of coherent mission and holistic plan of action across institutions,” along with the lack of an anchor institution that could provide support to development and community engagement.
The report concluded that, while the IMD has the tools necessary to support a “large and thriving health innovation district,” the fragmented market could end up being a problem. However, use of the Opportunity Zone situated within the IMD, could attract private capital, which could lead to a “live-work-learn-play” environment.
Pictured: Illinois Medical District
By Tiffany-Linn Vincent
PFAS is currently a hot topic in the environmental community, and with the help of a few high-profile corporate lawsuits and the film “Dark Waters,” has gained more widespread publicity. On December 2, 2019, the US House Committee on Energy and Commerce passed the PFAS Action Act of 2019 (H.R. 535), which, if approved by the Senate, would officially designate all PFAS compounds as pollutants under the Environmental Protection Agency’s Clean Air Act and as hazardous substances under the Clean Water Act, and therefore subject to all appropriate inquires during due diligence. What does all of this mean for you, your existing property or investment, and your environmental responsibility? Is it the end of the world if PFAS is found on your property?
If you own or are buying industrial sites, warehouses, or are investing or developing around military bases, you should be aware of this growing issue. The article below provides essential background information on PFAS, and the latest regulatory and technology updates.
What is PFAS?
Per- and polyfluoroalkyl substances (PFAS) are comprised of synthetic organic molecule “chains,” most notably Perfluorooctanoic acid (PFOA) and Perfluorooctanesulfonic acid (PFOS), among others. PFAS are ubiquitous in industrial and post-industrial societies around the world and have been found in air, soil, and water. PFAS is extremely useful for a wide range of manufacturing and industrial applications due to its resistance to heat, water and oil, and inability to biodegrade easily. It has been used in food packaging, household products (Teflon, Scotchgard and other stain repellants, cleaning products, etc.), industrial or production facilities, fire-fighting foams, and other general workplaces. Like other substances that have made life easier, we are now realizing that the disadvantages of PFAS outweigh the benefits. Disadvantages include evidence that certain PFAS can accumulate and persist in the human body and exposure to PFAS can lead to adverse health conditions.
Although PFAS is referred to as an ‘emerging contaminant,’ oversight of its use does have a history. An earlier form of PFAS known as “long-chain PFAS” was removed from use in the U.S. market in the early 2000s. In 2006, the EPA invited eight of the leading companies in the PFAS industry to join a global stewardship program. The intention was to reduce facility emissions by 2010. and work toward the elimination of the chemicals from emissions and products by 2015. These goals were met, and we seem to be on our way toward eliminating PFAS in the United States.
Regulatory Updates and Due Diligence
Ground and surface water contamination, as well as human exposure to PFAS, is currently a large concern throughout the U.S. In May of 2016, the EPA issued a lifetime health advisory of 70 parts per trillion for long-term exposure to PFOA and PFOS in drinking water, and in February of 2019, they published their PFAS Action Plan. The Action Plan outlines essential tools that the EPA is developing to assist states, tribes, and communities in addressing PFAS.
On a state-level, PFAS regulation is still a bit of a moving target—standards have not yet been legally enforced—however regulatory Case Managers are communicating that they are evaluating PFAS and they are requesting PFAS consideration with specific sites. Drinking water sampling is of high focus, but general groundwater investigation sampling is becoming increasingly more common. In states that have adopted Licensed Site Remediation Professional (or similar) programs, such as New Jersey, there is the expectation that PFAS is being considered and addressed, as appropriate. As of April 1, 2019, the NJDEP has proposed maximum contaminant levels of 14 parts per trillion for PFOA and 13 parts per trillion for PFOS.
Other states, like Massachusetts and Michigan, have instituted sampling guidance and advisor committees towards eventual enforceable standards by State regulatory agencies. California’s State Water Resources Control Board has announced plans to order owners and operators of more than a thousand facilities to conduct environmental investigations for PFAS.
As part of a standard transactional due diligence assessment, it might be in your best interest to ask your consultant to conduct research to assess if these ‘emerging contaminants’ may be present and affecting your property. Because of its long-time use in fire-retardant foams and military training exercises, properties near airports, military bases, and other known PFAS manufacturing facilities are particularly vulnerable to historical contamination. Additionally, industrial properties and warehouses may have processed PFAS-containing materials in high volume.
Should you already own a property impacted by PFAS, expect to include this consideration during any future environmental investigations or remediation liability. It’s worth noting that PFAS sampling is a newer technology and, due to its prevalence in many everyday items, it requires special consideration and particular field sampling protocols are necessary. Furthermore, reporting limits are 1,000 times more stringent than average groundwater contaminant reporting limits (parts per trillion versus parts per billion).
If you are looking at investing in or if you already have a property where PFAS contamination is present, there are options available for its remediation. Products like CETCO’s proprietary, NSF-certified FLUORO-SORB® adsorbent material effectively binds the entire spectrum of PFAS. It can be used in place of granular activated carbon (GAC) as a flow-through treatment for groundwater (much like a standard water filtration system), as an in-situ treatment, or even included in a geotextile mat for capping. Because of FLUORO-SORB®’s higher adsorption properties and density it requires fewer change-outs than GAC, resulting in a substantially reduced total cost of ownership with better adsorbent results than standard GAC.
Chemists are currently working on designing additional new non-clogging adsorbents that target and “swallow” PFAS, ion-exchange resins that filter out clean water while binding PFAS molecules to an organic backbone, and on treatment methods that can completely degrade the molecules into manageable pieces that can then be easily eradicated. Many of these methodologies are already being tested in the laboratory and could be implemented within the next decade.
PFAS has been widely used for decades, and we are now reckoning with the resulting consequences, along with increased scientific consensus. Five years ago, what may have seemed like an environmentally clean property may now require PFAS assessment. In the future, previously “cleared” sites may require retroactive cleanup or containment measures. There is never a better time than during your due diligence period to determine if this is something that will require future remediation. Even if you are not currently in a state on the crest of the PFAS wave, it is worth knowing that a national regulatory wave will eventually come.
PFAS is not something to be afraid of, but should be considered and planned for appropriately, like every other potential environmental liability. If you are looking at investing in, or if you already have a property where PFAS contamination is present, know that there are options.
Tiffany-Linn Vincent is a Senior Project Manager with Partner Engineering and Science, Inc.
Qualified Opportunity Funds have been set up to fund Qualified Opportunity Zones and Qualified Opportunity Zone Businesses. One such QOF, the LGS Opportunity Zone fund, focuses on development and maintenance of indoor vertical urban neighborhood farms, grown and distributed by Local Grown Salads. The “farms” are being developed older buildings, situated in Baltimore, MD Opportunity Zones. According to the company’s website, four properties have been identified, to date, with the farms set up in 15,000-square-foot increments.
The product coming out of these businesses are packaged salads consisting of lettuce, cucumbers, chard, kale and others, which are sold to local restaurants and the community.
In a recent interview with OpportunityDB’s Jimmy Atkinson, Local Grown Salads Founder Zale Tabakman explained that Opportunity Zones and indoor vertical farming are a good combination because these operations can be set up in “food deserts,” lower-income areas where people have to drive, or take a bus long distances to get food to eat. Additionally, they are environmentally sound because the food grown isn’t using pesticides or fungicide, and little runoff. Tabakman also cited a carbon footprint reduction, pointing out that the locally grown food has less distance to travel than, say, produce from California to the East Coast.
Finally, these farms are set up to create local jobs. Tabakman indicated that each farm can create 25 jobs, with pay averaging around $15 per hour. Additionally, the company is working with the bank to ensure financial literacy for employees.
From Tabakman’s point of view, LSG’s vertical farms tick off the many boxes of Opportunity Zone investments, being located in the federally-designated areas, and providing a positive impact to the community. “Indoor vertical farming, because it’s food, is great . . . but any other product being produced locally really makes sense in an Opportunity Zone . . . especially when you need to be close to your customers,” he told Atkinson.
A year ago, as we entered 2019, trade talks with China were tense, the Federal Reserve announced that it would increase interest rates three times before the end of the year, and the federal government was in the middle of a shutdown. That these factors had little impact on multifamily speaks to the strength and resilience of the sector.
As we enter 2020, the Federal government is operational, talks with China have improved, and the Fed is so far taking a hands-off stance on interest rates. As such, it’s time to look ahead, and determine how current trends will impact multifamily construction, rents and investments in the coming year.
According to Marcus & Millichap’s just-released “2020 Multifamily North American Investment Forecast,” it’s anticipated that fundamentals will continue to support this robust sector. Additional factors impacting the industry will include:
Certainly, other issues will affect the apartment sector over the next 12 to 18 months. However, the above will determine supply and affordability, two trends that are shaping the industry.
Household Formation, Unit Deliveries and Workforce Housing
Apartment demand comes from household formation, and there was a great deal of that in 2019. U.S. households increased by 1.35 million, thanks to continued job and wage expansion. Yet, only 1.17 million single-family and multifamily dwelling units were delivered.
Things aren’t likely to change in 2020, not with household formation growth forecast at 1.45 million, and approximately 1.25 million new dwelling units to be delivered. As tight as the market is now, demand will outstrip supply by another 200,000. Furthermore, most of that supply will consist of Class A product, while much of the demand is coming from middle-class to upper-lower-class households that can’t afford Class A rents. This will mean continued workforce housing scarcity.
We can talk about the social justice of workforce housing. But at the end of the day, it’s a math equation. The figures need to make sense. And right now, they don’t.
A primary reason is high development costs charged by municipalities. According to a National Multifamily Housing Council (NMHC) study, approximately 35% of development costs consist of so-called “soft costs,” the price tag attached to permitting, entitlements and zoning. This is in addition to rising material and labor costs. Developers need to recoup their investments, and absent tax breaks or subsidies, this means market-rate projects.
Additionally, not as many apartment-dwellers are moving into homeownership. First-time homebuyers are finding it difficult to qualify for home mortgages. Fewer starter homes are being built, due to limited capital availability. As a result, middle-income households remain renters, meaning lower vacancies and less available supply.
Rent Control Legislation
In 2018 and 2019, Oregon, California and New York passed laws to cap rents, with more states likely to do the same in 2020. Certainly, apartments can, and have performed well in such situations, but statewide rent legislation could mean more documentation and paperwork for operators and investors.
And, while rent-control legislation is thought to help reduce housing costs, the action actually exacerbates both affordability and deliveries. Because of the uncertainty inherent with rent control, developers will go elsewhere, to metros and states without rent caps. It is likely that fewer units will be built in states with rent-control legislation than if legislation did not exist, and the decrease in new supply will lead to rent increases.
Finally, increased housing costs can lead to higher costs of living, something corporations take into account when attracting and retaining talent. If employees can’t afford to live in certain locations, they’ll migrate elsewhere, with companies following them. The end result is that states with higher housing costs could end up with slower economic growth, as both housing developers and corporations choose other, more business-friendly areas in which to operate.
Capital Markets and Investments
The 2020 capital markets outlook is one of enhanced liquidity thanks, in part, to increased GSE lending caps. While capital will continue to be plentiful, underwriters are expected to apply conservative standards to the loans they make, depending on economic momentum and global issues. As such, developers and investors should expect to add more equity to any multifamily deal.
Basically, lenders are interested in financing smart investments. Equity or debt isn’t interested in the quality of granite countertops or the size of a swimming pool. The point here is that if a developer is building a product the market needs, and can achieve rents that will make the math work, the capital will be there.
We believe job creation and household formation will continue driving demand for housing, especially rental housing. We’re also anticipating an uptick in secondary market multifamily investments and developments, due to population migration. And overall, apartment demand should continue to be fueled by a slower move to homeownership.
Wild cards are in play with this forecast, however, and include:
To conclude, multifamily investors and developers will face many unknowns in the coming year. However, we believe that the continued strength of employment, combined with positive demographic drivers, will reinforce apartment demand and will favor multifamily real estate.
To learn more about our 2020 multifamily sector forecast, please click on this link.
The U.S. multifamily sector closed out 2019 with steady rent growth, boosted by a “healthy job market and low unemployment,” according to the December 2019 Yardi Matrix’s Multifamily National Report.
“With year-over-year rent growth moving between 3.0% and 3.3% for much of the year, 2019 will go down as a year without much drama in the multifamily sector,” Yardi Matrix’s analysts said, “but market players would take a few more years like it.”
Even with 300,000 units delivered over the year, the November 2019 occupancy rate stood at 94.9%, representing a drop of 10 basis points, from the year before. Yardi Matrix’s analysts pointed out that a healthy job market with low unemployment “helped produce steady absorption.” Meanwhile, as year-over-year rent growth softened — it was “at its lowest level since May 2018, when it reached 2.9%,” the analysts said — steady demand continued.
Still, some metros showed signs of weakness, such as the following:
The Yardi Matrix report indicated that the Bay Area’s weakness was due to “concern over growth in startup technology firms, the feeble IPO market and the lack of affordable housing . . .” Other metros, in the meantime, have been absorbing a great deal of supply. Deliveries in Denver, for example, added 4.4% to its already-existing supply, which was “among the highest rates of new supply nationwide,” the report said.
The Yardi Matrix analysts said that, as these metros have a strong economic base, it’s likely growth will rebound in the coming year. Additionally, given there are “no red flags on the immediate horizon”, and despite some pockets of concern, “2020 should be a healthy year,” the report concluded.
Though there have been positive and negative viewpoints concerning the Opportunity Zones program, not much feedback has been garnered from leadership in cities and towns with federally-designated areas. The 2019 Menino Survey of Mayors added nationwide city and town mayors to the O-zone discussion. The result was that, while most U.S. mayors acknowledged having “favorable impressions” of the Opportunity Zones program, there tended to be a “broad divergence” on some of the aspects of the program.
Three-quarters of the cities in the survey sample contained eligible census tracts, with two-thirds having at least one designated Opportunity Zone. As a group, the mayors felt that the two largest influences on their governors’ Opportunity Zone decisions were 1) a desire for even geographic distribution, and 2) the mayors’ own input.
The survey indicated that:
The 2019 Menino Survey of Mayors was conducted by the Initiative on Cities at Boston University. The sample size consisted of 119 mayors of cities with populations above 75,000.
The U.S. economy, in recent months, has been marked by low unemployment and slowing job growth, partly due to more jobs than people available to fill them. The rental housing sector has not been immune from this issue, with apartment owners and managers focused on finding the right employees, and retaining them.
According to a recent article in the National Apartment Association’s Units magazine, apartment operators report that “a tight job market is forcing them to constantly renew their compensation package against competitors . . .,” as well as turning to technology and outsourcing to ensure smooth-running operations. Additionally, the current employment market is providing ownership the ability to “differentiate with first-class, in-house customer service, and what’s better left to automation . . .” the article said.
For example, Bozzuto Management Group eschews call centers. When prospective and current residents call in, they talk to an in-house employee each time. The reason is because the company views each call as an opportunity to differentiate its brand, and to stand out in the field. In this scenario, third-party outsourcing is better with back-end and administrative tasks.
Bell Partners also turns to third-party outsourcing, but only for its revenue-management processes, as well as when it comes to turning apartments. In that scenario, “we outsource painting because our turnovers are done in bulk, and we can’t hire enough people to get that done internally,” said the company’s Cindy Clare.
The article’s focus was that apartment owners and operators will need to continue strategizing in an economy in which, at this point, there are more positions available than bodies to fill them. “This is the new normal, at least for now,” said Bozzuto Management’s Kristen Magni. “As an industry, we’re in a tight spot, and there are going to continue to be positions that are very challenging to recruit for.”