Thankfully 2020 is almost in the rearview mirror, and 2021 is rising from its ashes. Yet for those of this in the commercial real estate industry, uncertainty abounds. While most predict the impacts of COVID-19 will start to diminish correlating with the rise of vaccination, the impacts to commercial real estate will continue to resonate in the months, and years to come. Some of our predictions for 2021 for local the local development community are spelled out here.
The change to at home shopping will continue to impact the industrial landscape for those involved in e-commerce. More last-mile services and regional centers will continue to be needed since consumers have come to expect arrival of goods within a day. The concern about over reliance on China may increase need for supplies to be more readily available in the United States. And of course, the impacts of the election have yet to be charted. Industrial will continue to be a top-performer locally and nationally, with areas of interest being near highways and the airport
Data points to employees wanting to return to the office, according to a Cushman & Wakefield study that we stumbled across, finding that fewer than 10% of employees want to permanently work from home. Based on this, for companies in existing leases, we predict not much will change if they have weathered the economic storm other than pressure on landlords for HVAC system upgrades. For companies facing renewal and relocation changes, we think the shift that was already taking place away from open workspaces will continue to expand. We predict more configurable space and shift to private, albeit perhaps smaller offices.
Predicted impacts to multifamily will vary with location and product type offerings. The pandemic has made our home experience a priority for those who have been spending more time there than ever. Comfortable in-unit amenities and spaces that can be a separate work or study space will continue to be sought after as people have become accustomed to working from home. The space afforded by well-planned suburban communities will also be desirable. Additional square feet and access to greenspace in the suburbs will demand consideration by those previously attracted to higher density areas. Our region continues to offer easy access to home ownership when compared to other areas, so multifamily interest may wane as some pivot to the security in home ownership.
With the losses suffered in 2020 as the result of the pandemic, operators and investors have a long way to go before being able to confidently bring new projects to market. We were disappointed, (but not surprised) to see some projects, such as Priam Enterprises Delaware Avenue boutique hotel shift to apartments. As the world becomes vaccinated, pent up travel demand may be unleashed, bringing much needed relief to those operators and communities that rely on tourism. Our prediction will be that 2023 will be the year we start to see an increase in hospitality development again.
Retail was unfortunately already in a free fall before the pandemic. A drive down Buffalo’s Elmwood Avenue revealed this last January. The retail that will succeed moving out of 2020 will offer consumers the following:
- Shopping will be entertainment and savvy retailers will need to capture consumer interests far beyond need. The consumer will need to want to go there.
- Multi-channel. Small retailers can no longer rely on having a Web site as all that is required of them. Their consumers must have the same experience in store and online and be able to get their item with the convenience they can obtain with a larger retailer. They also want to browse through social media and feel connected with their seller online and instore.
- In a competitive landscape, consumers have price information at their fingertips. Wise retailers must think of ways for customers to feel that they are getting something extra. Same day delivery, gift wrapping, curated offerings that change frequently should be considerations.
Landlords will have to become stronger partners with their retail tenants, participating in planned shopping districts or blocks and working with communities to build on events that draw shoppers.
If we return to the predictions for 2020, our efforts at forecasting could be considered an ill-fated effort. Yet in the world of commercial real estate, predictions are paramount, and to move forward we must try to normalize our efforts.
NAIOP Upstate would like to alert members to our current advocacy efforts around the 485-A tax benefits program, so critical to local development efforts. The New York State Assembly and Senate have passed legislation to curtail its application by limiting qualifying uses, increasing oversight and clawback provisions. The legislation is due to be forwarded to Governor Cuomo for signature and would be enacted beginning January 1, 2021.
Transformation of older single-use commercial and industrial sites into mixed-use projects involves significantly more work and costs more than the typical redevelopment of sites for commercial or industrial uses, because of the residential build component. Transforming contaminated sites that include a residential component require remediation of the property and structures to more stringent standards, which also substantially increases costs. The program and abatement assist with overcoming a portion of these additional costs and affords developers the time to get the property fully operational and stabilized after it is completed. 485-a is available to any party undertaking a mixed-use project across New York State in the communities that have adopted the program. It is one of many tools the City of Buffalo has made available which has had its desired effect toward with the redevelopment of numerous of properties in many different neighborhoods, improving the appearance of the city, increasing the tax base, creating thousands of jobs and improved civic pride.
The narrative that the 485-a program is taking dollards from tax-payer dollars is false. In fact it is one of the superior tools that lead to future increases of tax revenue.
We are stating loud and clear that during the present COVID-19 health pandemic and corresponding economic crisis that has especially damaged the real estate market, now is not the time to create a more restrictive and costly development environment. Please join us in asking Governor Cuomo to veto this legislation and support our industry’s efforts to revitalize our local communities. For more information or to get involved in our advocacy committee, contact Dan Leonard at [email protected]
The COVID-19 pandemic has changed how banks, borrowers, and their supporting professionals conduct commercial real estate transactions. As financial institutions are being considered an essential business service in most geographies, many lenders are continuing to process loan applications. However, challenges exist in completing services supporting commercial real estate transactions such as environmental assessments and appraisals which has required providers of these services to implement methods to complete services while complying with government mandates without significantly compromising the quality of the service provided, or the safety of their employees or the public.
Environmental Due Diligence - (provided by Gabrielle Krawiec, LaBella Associates)
Most financial institutions retain and rely on environmental consultants to evaluate the environmental risk related to commercial real estate prior to lending. Although there are various types of environmental site assessments (i.e. Phase I Environmental Site Assessment, Transaction Screen, Records Search with Risk Assessment, etc.), properly evaluating environmental risk often relies on the environmental consultant having free access to the property being evaluated to observe conditions at the property, various other sources of information such as government records, interviews with property owners/occupants, and historical records often maintained and housed in municipal buildings such as a public library. Successfully completing environmental due diligence tasks may be challenging for the environmental consultant due to lack of access or access denial to a property, government agencies and other agencies relevant to property records being closed to the public, or unavailability of interviewees due to illness or stay at home orders. While many government record sources can share documents electronically, a significant number of government offices were still operating prior to the Covid-19 pandemic through entirely non-electronic means or limited electronic means. However, some government record sources have made efforts in recent weeks to accommodate requests sharing records electronically. Many environmental professional have adjusted to obtain information from government sources, historical records, or interviews exclusively through electronic means if supported by the source, purchasing information from third party data providers, or evaluating alternative internet based information sources as a replacement. Completion of a thorough property inspection is arguably the most difficult environmental due diligence related task admits closures and stay at home directives. Specifically, interior areas of hospitals, long-term care facilities, assisted living facilities, nursing homes, or senior living communities are not open to the public, and cannot be observed during the property inspection. In addition, interior access of multi-family residential properties may be denied by property contacts, or access to interior spaces maybe unadvisable to protect the health of environmental consult and the public/property occupants. Specific measures such as requesting property contacts open all doors prior to entering the building, visiting a property when it is unoccupied (i.e. completing inspections during the evenings or weekends), obtaining photographs of inaccessible areas via property contacts, wearing proper personal protective equipment, and maintaining social distance have been put in place in an effort to ensure that as much information is being collected as is feasible while still operating in a socially responsible manner. In addition, if project schedule allows for such, some clients may want the environmental consultant to postpone property inspections until restrictions have been lifted. Communication between environmental consultants and their clients is key. If the scope of work is limited due to current conditions such must be relayed to the client, and adjustments made as appropriate. Although this is a challenging time to be conducting business, if the environmental consultant has made the appropriate adjustments, with good client communication, environmental due diligence can be completed without significantly compromising the quality of the service provided.
Real Estate Appraisal – (provided by Eric Lester owner/founder Lester Appraisal)
Today there are many, many issues in the real estate market which seem to be changing on a daily basis. During these uncertain times, real estate brokers are not showing properties and financial institutions are waiting on the sidelines, or are too busy deploying stimulus funds to chase new deals. Deals are however moving toward completion and are going to find a way to get done. They always have and they always will. Although brokers are discouraging direct contact between buyers and sellers, the upward trend is a reality occurring more and more in the local market place. Progressive lenders who have market awareness and experience understand this and are embracing it as a way of doing business. Those are the lending institution clients we are focused on working with during these uncertain times. Many appraisers are fearful that exterior only or desktop appraisals will be the end of the traditional appraisal as we know it. I however, love it and am choosing to embrace it. Exterior property inspections streamline efficiency on our end and we are able to pass that along to the client who is able to pass that along to the borrower in the form of a reduction in overall fees. Overall it is a win/win for the lender/borrower relationship, and the appraisal side too. This is a concept that that is becoming more and more of a reality moving forward. There is no internal reason why appraisal reports cannot be completed and delivered on our end and I am not going to consciously participate in standing on the sideline waiting for the uncertainty to be dismissed. Communication with our clients has become paramount as we find a way to help bring deals toward completion. This is a great time for business leaders to positively position themselves and key team members for market share within their industry. Investors have been losing sleep that have money stored in the stock market. Investors that have money stored in low risk strategic real estate investments in the local no bust/no boom market area have not seen any significant movement in value. We have been in a low interest rate environment for some time and protecting your assets in the form of a real estate investment has never looked safer for the time being. As we continue to venture further and further into unchartered territory we have remained focused on what is in our control and that is completing and delivering appraisal reports and evaluations to our lending customers so they can move deals towards completion. We are all about finding a way.