Thursday, March 23, 2017
By Ronan Pigott (Vancouver)
I recently felt compelled to write this post due to the fact that, on a very regular basis, I find myself explaining to people outside of the commercial real estate circle exactly what my colleagues and I do for our clients.
One of the most common misunderstandings is the comprehensiveness and value of a quality tenant- representation service. Fundamentally, tenant representation is based on attaining the optimum result for a tenant’s office lease. To do this, a tenant must have access to the most up-to-date market information, while also having the ability to leverage the right skill set to negotiate with the modern-day landlord.
In Metro Vancouver, as in most large North American cities, office buildings are owned and/or managed by large sophisticated private entities or institutional groups such as real estate investment trusts (REITs), insurance companies, or pension funds. Whether dealing with an existing tenant’s renewal or with a new tenant during a lease transaction, the landlord’s goal is always to maximize shareholder return.
To do this, prudent landlords will arm themselves with the tools required by way of expert representation and extensive market research. The obvious question: If a professional landlord is taking these necessary steps, why wouldn’t a tenant do the same?
What does comprehensive tenant representation include? Although site identification is fundamental, with the amount of information offered online through a multitude of websites, it doesn’t take a high level of skill or professionalism to prepare a list of potential locations. Exploring the market with the sole parameters being size and location rarely renders the optimum locations. Two of the most common considerations that are often overlooked are ownership structure and the building’s tenant profile.
The modern landlord community consists of many different ownership types. What type of ownership is the right fit for you, the tenant? Let’s explore a hypothetical scenario. You identify an opportunity in an office building owned by a local investor with few commercial holdings. Although this particular landlord is one of the most diligent and reasonable landlords in the market, it doesn’t necessarily mean that this ownership type will be the best fit for you.
This is a big move for your organization and it is intended to be a long-term commitment. In order to make this premises work for your organization, extensive improvements and customizations must be made within the interior of the space at a considerable cost. It is often the case that this type of landlord, as opposed to a larger or institutional landlord, will be reluctant to contribute financially to a tenant’s specific build-out.
It is not necessarily the case of local investors being unreasonable – these landlords may simply not have the necessary access to capital. Should you wish to have a significant portion of your office improvements financed by a tenant improvement allowance, you may need to focus on an alternative building set where the overall deal structure will be a better fit for your specific situation.
Flexibility is, arguably, the most important factor when considering a long-term lease commitment. Growth and contraction plans are typically at the forefront of most progressive organizations’ business planning. At face value, one would think that the larger the building or complex, the greater the level of scalability, which offers the required flexibility. But it often soon becomes clear that it is not always the case.
The tenant profile within a building will dictate the flexibility of an incoming tenant’s tenancy. Many prospective tenants assume that a large building will automatically accommodate their expansion plans due to its size and many moving parts. Often overlooked are the many pre-negotiated rights that are likely scattered throughout the building by a number of existing tenants. These rights can dramatically change the perceived future flexibility available to incoming tenants. You may have the ability to negotiate terms on future expansion plans but, more importantly, where do you fit in the tenant lineup?
Comprehensive due diligence on the existing rights of all tenants within a building is essential – but often overlooked. Whether overlooked or not fully understood, the effects can be severe.
Looking at the tenant representation service on the surface, it is a three-step process in the order of strategy development, site identification and lease negotiations. A comprehensive service requires detailed analysis of each of these three steps. I gain the most amount of satisfaction watching the process unfold and our clients discover and understand the value of tenant representation – not only the value-added benefits from a financial standpoint, but the often tough-to-quantify value of time savings and stress mitigation.
This value enables our clients to do what they do best: Focus on their core business.
(Ronan Pigott is a Vice-President in the Vancouver office of Avison Young, specializing in office leasing. This blog post originally appeared as an article in the October 2016 edition of Western Investor, a Vancouver-based commercial real estate newspaper.)
Posted by Blog Administrator at 6:05 PM
Friday, March 10, 2017
By Mark E. Rose (Toronto)
After competing against some of the nation’s top firms in all business sectors, we are thrilled to announce that Avison Young has been named one of Canada’s Best Managed Companies for the sixth consecutive year, and attained Gold Standard status for excellence in business performance for the third straight year.
This award is a testament to the success of our Principal-led ownership model and the dedication of our entire talented workforce. Ultimately, this award shows that our success is not only about high sales and transaction volumes, but also about treating people fairly, respecting the importance of their properties and goals, and giving back to the community.
This award also demonstrates that our company’s values, collaborative culture, client-centric approach, and dedication to sustainability are resonating not only in our industry but all business sectors. Although we have achieved widespread growth, we are still using a model that speaks to clients and top talent, and we are differentiating ourselves from all other commercial real estate service providers. We are grateful for this recognition and salute all new and repeat winners.
Deloitte/CIBC have officially announced the winners in MacLean’s magazine and Canadian Business www.canadianbusiness.com/bestmanaged
Canada’s Best Managed Companies is one of the country’s leading business awards programs recognizing Canadian-owned and managed companies for innovative, world-class business practices. Applicants are evaluated by an independent judging panel made up of judges from Deloitte, CIBC, Canadian Business, Smith School of Business and MacKay CEO Forums. www.bestmanagedcompanies.ca
We couldn’t be more proud to have the opportunity to celebrate this award with our clients, partners and employees who help us grow every day.
Mark Rose is Chair and CEO of Avison Young
Monday, February 27, 2017
By Amy Erixon, Toronto
In April 2016 I wrote a blog entitled “Implications of Rising Protectionism on the Real Estate Industry”. This post is a continuation of that discussion. Sweeping changes are being proposed to US tax, immigration and trade policies with a stated goal of invigorating the US job market. It is hard to say what programs and features will actually see the light of day when all is said and done, but we know for certain, there will be winners and losers, and that experiments have consequences.
The most dramatic aspects of the current plan include a significant shift in tax burden from income to consumption taxes via border tariffs; a 100% investment deduction up front on plant and building investments; and third the limiting of interest deductions (other than home mortgages) to the amount of interest income. All of these measures have considerable implications for US property markets whose equilibrium pricing has been shifted much higher thanks to central bank subsidized interest rates and the huge influx of foreign capital which reached $87.3 billion in 2015, up from less that $5 billion six years earlier. KPMG notes in their June 2016 report on the House Republican proposed tax reform that "In addition to WTO compliance concerns...a move from an income tax to a consumption tax effectively could void the current network of US treaties." This would obviously raise liquidity concerns. The investment deduction change could dramatically affect a tenant's inclination to own vs. rent, and will likely spawn a flurry of financial products to transfer the tax savings benefits between parties. We should not forget about the last time this was tried. Repeal of accelerated depreciation rules in 1986 triggered a 7 year real estate crash, (and caused the savings and loan crisis) as financially engineered property investments, whose primary goal was to provide tax shelter, imploded.
HOW TARIFFS WORK
The claim of tax neutrality hinges on the expectation that revenues lost would be replenished by border tariffs. For those of us who could use a refresher on tariffs: Tariffs are taxes on imported goods and services, imposed by governments at the border, traditionally for two reasons: 1) to protest violations of standing trade agreements, 2) to temporarily protect domestic industries unable or unwilling to compete with foreign competition. Tariffs restrict trade, and reduce overall economic activity by increasing price to consumers. This chart illustrates how it works: units sold is on the “Y” axis and price is shown on the “x” axis. Consumer behavior is shown in red, decreasing as prices rise. Light green and light blue areas show redistribution effects of the tariff. In this example, where consumer demand is tied to price, total economic activity is reduced by $50 million, domestic producers gain $50 million of sales, foreign producers lose $175 million, and the consumers pay $300 million in additional taxes to the government.
The asymmetry of results is one reason why tariffs are universally unpopular and considered a tool of last resort. For a more complete treatise on tariffs, follow this link to an article written by faculty at the University of Washington: https://faculty.washington.edu/danby/bls324/trade/tariff.html.
Taxes are a domestic affair, and the congress will decide who will pay more and who will pay less, and in the process create winners and losers, but trade and deportations are another matter (and much more in the hands of the President). In the past when mass deportation has been tried, the adverse effects have shown up most strongly in housing construction and agriculture, both of which industries are also highly reliant on interest deductions. Businesses reliant on foreign workers (or an integrated supply chain) are forced to pivot into other pursuits where automation can replace human labor, or goods may be substituted until the time new factories and/or supply chains can be built - for example growing nuts vs fruits, or selling software instead of smart phones. Most US businesses are affected by trade and tariffs will cause considerable dislocation both for these businesses and for their customers. In addition to depressing economic activity and hurting consumers, trade wars, whether via tariffs or deportation are not unilateral. They have a tendency to escalate into counterproductive parry and counter parry as relations between countries quickly deteriorate, and domestic security is undermined.
The US tax code is unnecessarily complex and is widely considered to be unfair, reforms are needed. And rethinking trade has gained considerable popularity in the most recent year, but consequences are far greater and less predictable. Let’s hope that there is deep study and reflection of unintended consequences prior to implementation of some of these proposals and an adequate phase-in period is provided to allow property investors, tenant companies, retailers and distributors time needed to re-tool their operations.
Amy Erixon is and Avison Young Principal and Managing Director Investments. Amy is based in the Toronto headquarters office.
Amy Erixon is and Avison Young Principal and Managing Director Investments. Amy is based in the Toronto headquarters office.
Tuesday, February 7, 2017
By Rand Stephens (Houston)What a difference a year makes! As 2016 got started with $28 oil, there were a lot of glum faces around town and the mood in Houston took on a feeling of pessimism. Houston’s optimism grew over the year as oil prices increased steadily, but even at mid-year the general mood was still gloomy. Prognosticators were already predicting a dire 2017 with no real improvement in the Houston economy until 2018.
However, oil prices have done nothing but rise since that ominous low point and the year turned out much better economically than anyone predicted...
2016In 2016, the housing, industrial and retail real estate markets have all remained strong. However, multi-family is oversupplied and vacancy rates have increased. Fundamentals also declined in the office market; particularly in west Houston where the drop in the price of oil has had its most damaging effects. Transaction volumes were down across all real estate sectors, which is to be expected, as cautiousness and conservatism has been the prevailing sentiment for the Houston economy as a whole. However, there is not a trend of distress in the real estate markets as acquisition and development have been responsibly underwritten and financed since 2009.
As a result of the “staying power” property owners have gained from responsible financing, investment sales activity will continue to be slow in 2017 until rental rates, particularly in the office and multi-family markets, recover to a point where buyers can rationalize asset values.
The industrial market has held up very well through this downturn with occupancy rates remaining well above 90% and industrial development will start up in 2017. Most of the big industrial developers in Houston are primed with sites and ready to start building; but even for the biggest and best, new development will likely require a lead tenant to kick things off.
The retail market is complicated because continued growth in online shopping has traditional retailers scratching their heads as to their “brick and mortar” needs. This industry trend that has generally put a damper on development while retailers continue to adapt to consumers use of technology to shop. Nonetheless, like the rest of the country, Houston has strong demand for dining, entertainment and lifestyle alternatives—despite the city’s economic downturn. Since these shopping needs generally can’t be satisfied online, 2017 will likely see growth in specialty retail (adaptive reuse, mixed-use), which thrives in and around Houston’s core. Traditional shopping center development will continue in the suburbs, but the days of vigorous big box retail expansion are over as traditional retailers adjust to the consumers new buying behaviors.
Houston will see improved job growth in 2017 as the upstream energy business has retrenched over the last two years and will slowly start growing again. This along with job growth in other sectors should mean the office market has bottomed-out and occupancy and rental rates will stabilize and possibly see improvement this year. So, with oil at $53 a barrel as we start 2017, and positive job growth since the beginning of the downturn in Q4 of 2014, Houston’s spirits are better, and the mood is now one of guarded optimism.
Tuesday, January 31, 2017
By Marissa Rose (Chicago), Amit Parekh (Los Angeles), Hilary Kellar-Parsons (Toronto) and Michael Ganz (Irvine, CA)
A current theme in retail real estate, as in many other industries, is disruption. Reoccurring throughout 2016, particularly at the 2016 ICSC NextGen Conference in Los Angeles, were key conversations on this trend. Some of Avison Young’s retail affinity group’s young professionals had the privilege of attending the conference and getting to hear speakers from several key companies driving the disruption of the retail industry.
Retail real estate is undergoing a transformative and dynamic shift, due in part to disruption from technology, integration with existing shopping centers and consumer experience. This disruption results in improved consumer shopping experiences, investors raising capital through crowdfunding in local communities and changes in the ways that retailers allocate product through seamless channels of distribution.
Attended by four Avison Young up-and-coming real estate professionals, the ICSC conference showcased various perspectives on how disruption is affecting the retail real estate industry across North America. Impressive panelists and presenters included senior members of the retail real estate community, including designers, in-house real estate executives, investors, and market experts who were able to give their opinions and thoughts about how disruption is affecting their businesses and the retail sector in general from a theoretical perspective. Next, bus tours allowed attendees to touch and feel the physical retail spaces discussed during the conference – one tour included various hot new Los Angeles retail destinations. This tour provided a great opportunity to see first-hand how new retail developments and retailers are adapting their retail platforms to embrace and capitalize on the disruption that the retail world is facing. A key lesson is that much of what is going on in the industry is driven by the desire of millennials to live-work-play in urban areas, and their concentration in city centres – specifically locations where they are near their offices and surrounded by retail properties where they can shop, eat, and socialize.
The biggest take-away that was evident at the conference was that disruption was never really about disruption, but instead about finding the gaps in customer offerings and filling those gaps through innovative and creative approaches to retailing. Many retailers embracing this trend have been dubbed as “disruptors” as a happy accident. When many of these retailers set out, their goal was to explore the gap, listen to what people wanted, and then create a retail experience curated specifically with customer desires in mind. In an industry where you must “adapt or die,” these companies found a way to take innovation a step further, and many are experiencing sizable growth as a result. A common trend is that these retailers have really embraced consumer preferences, which have shifted; consumers now desire value, authenticity, and/or meaning in their retail experiences. Companies like SoulCycle and ShakeShack have been able to fulfill these wishes. Because of this shift, the darlings of the retail industry, like Macy’s and Gap, have really struggled to withstand change. Macy’s and Gap have struggled to instill the brand loyalty seen in so many of today’s successful retailers.
Lion Capital’s Sherif Guirgis shared with the attendees an investor’s perspective on the changing retail landscape and about the changing ways in which retailers are valued in the current economy. He echoed many of the above sentiments about current retail trends and about the importance of customers’ experience to not only the brand as a whole, but the brand’s value in the financial world.
(Marissa Rose, Amit Parekh, Hilary Kellar-Parsons and Michael Ganz are up-and-coming Avison Young Associates who specialize in retail sales and leasing services. Rose is based in the firm’s downtown Chicago office while Parekh works out of downtown Los Angeles; Kellar-Parsons advises Toronto-area retailers and Ganz assists clients in Irvine, CA. Services that the four brokers provide include landlord and tenant representation, sale and lease negotiations, and market analysis.)
Posted by Avison Young Guest Blogger at 11:05 PM