ULI San Antonio News

TAKEAWAYS FROM THE ULI 2018 FALL MEETING IN LOS ANGELES

Weren’t able to attend the ULI Fall Meeting in Los Angeles last October? The ULI delegation who did go compiled some notes for you to review. Thanks to Madison Smith and Emily Bowe with Overland Partners for putting this summary together:

Autonomous Vehicles (AV’s) are almost here and “their impact will be like a meteor hitting earth”:

  • AV vehicle technology is very close to ready for introduction to the market.
  • Cities are not nearly ready for implementation and needing public policy to implement wide spread AV.  Without right implementation strategy and policy, AV’s may exacerbate sprawl rather than encouraging urban density.
  • Clear that AV’s are coming. Not clear how smooth or chaotic their introduction will be.
  • Huge quantities of urban and suburban real estate now used for storing cars (30% of developed city land avg.; 60% in Houston) will be available for repurposing.

Technology will increasingly disrupt design and construction and drive their integration:

  • AEC industry IT spending is low compared to other industries
  • Current contracting and delivery of design and construction services is fragmented and inhibits cost efficiency
  • Technology pressure to integrate design disciplines and construction
  • Integration artificially inhibited by habit, regulatory and unions
  • Modular, off site assembly technologies will dramatically alter construction delivery reducing construction schedules and labor force; increasing quality control.
  • Value created and lost in real estate will dwarf that of changes to auto industry.
  • We are moving to a market that is about accessing assets instead of ownership

Richard Florida: What he missed seeing when writing “The Rise of the Creatives Class” 20 years ago:

  • Velocity and ferocity of re-urbanization has been way stronger than anticipated
  • Re-urbanization has created a new urban divide: 1/3 have benefitted, 2/3 have not.
  • New national urban crisis: Geographic inequality between the few Creative and Tech concentrated “winner” cities and all other cities.
  • Local geographic disparity within cities: Urban Cores are winners; Suburbs are losers.
  • Making the suburbs vibrant and healthy is and will be a much bigger challenge than revitalizing the urban core.

Technology and freedom with time is changing retail trends.

  • New retail projects, at least anything of scale, will include residential components moving forward as well as office in many cases.
  • Retail consumers want opportunities to engage, connect and to gather. The spaces dedicated to such opportunities will in many times be developed as a loss leader. For example, Santana Row actually spends money to put on the Farmer’s Market. The reason is it brings so many consumers to the retail area and the landlord benefits through the percentage rent leases with their customers.
  • One interesting technology advance was the owner of Chelsea Market in NYC, Jamestown, actually tracks smartphones of customers in their project and if those customers subsequently order online from the retailer, they include those purchases in percentage rent. Of course, that simply shows how much power a landlord might have in a rare circumstance. That landlord also curates their food and beverage tenants so substantially that they even require landlord approvals for menu changes.
  • Health and wellness will continue to be a big driver in retail projects as will food and beverage “Eat Out Work Out” is the new mantra. Look forward to more “mash ups” between food and hard goods…check out “Provisional” at the Montage Hotel in San Diego.
  • Streets like our very own Broadway will outperform malls. Examples include Abbot Kinney in Venice or Washington Boulevard in Culver City.
  • Imagine the not-so-distant future when we’re getting work done on our smartphones while relaxing in the back of an autonomous vehicle. Assuming that we can start getting minutes and even hours back in our daily routines because of these efficiencies, what will we then do with our newly found “free” time? And what are the real estate implications? Do we need more gyms and places to exercise? How about more bars, restaurants, and lounges to entertain ourselves? Or will we spend more time at home and maybe need bigger living rooms or kitchens to accommodate our new hobbies?

Frank Gehry’s Keynote Address: Architects need to partner with clients more to take more risk in their work.

  • Gehry was hard on his fellow architects…imploring them to partner with their customers more and take more risk and responsibility. He wasn’t talking about co-investing, rather that architects seem to be avoiding responsibility for their work more and more.
  • He criticized the ubiquity of new projects in downtown LA noting, “I look at what’s going on downtown and it looks like every other city in the world.”

The rise in entrepreneurship and work preferences of younger generations is having material impacts on office and “work” related real estate.

  • ULI Europe and EY completed a study that revealed that consumer demand for co-working space will triple in the coming years. The conference focused on this in a panel on “The Future of Business Districts.”
  • The office market will continue to shift with shorter leases and more flexible terms with WeWork just the beginning. There are 57M people now in the “gig economy” or new term “freelance economy” and those folks will office in very different ways than traditional leasing.
  • The design of future workspace will be driven, in large part, by the preferences of the generations entering the workforce, which recognize the pitfalls of both open offices and collections of private offices. Instead, there will be a coming mix of non-traditional office with some return to designing for privacy and personal space.
  • Notable examples discussed during the conference were Microsoft’s Redmond, Washington headquarters with “treehouse offices” and WeWork’s “telephone booth” spaces

Creativity in using rooftops and sides of buildings can yield unique uses and income sources.

  • “Spending time at several rooftop locations in LA made me appreciate the use of rooftops for social gathering places. San Antonio hasn’t yet caught up to the national trend that folks want to hang out in a semi-secluded place that overlooks parks, downtowns or even just streets. Paramour is our best local example (also if you’ve ever been invited to the rooftop of ArtPace) where you don’t even have to be too high to have amazing sweeping views of our downtown. Surprisingly, the 73rd floor rooftop bar above the Hotel Intercontinental was too high to be comfortable – it was super windy, views were challenging with lots of protective glass, and it was cumbersome to ride multiple elevators to get there.”
  • “The inspiration struck me during a bus tour of downtown LA (DTLA for those in the know) when the guide mentioned that a video ad located on a building façade near the Convention Center sells for $100,000 per month. The idea of having an area in downtown San Antonio where we can leverage our buildings as platforms for advertising or art could be pretty cool. Of course the future is to do this digitally and it could leverage our reputation as an artistic/cultural city.”

Adaptive reuse of older structures is showing long-term value that previously hadn’t been part of the pro forma, but that can have a material impact on use and enjoyment of space.

  • The best-performing real estate asset class over the next two years will continue to be industrial warehouses, due to strong demand from startup and e-commerce tenants and a lack of new supply.
  • 40 percent of U.S. retail malls and sububan shopping strips will become obsolete, with the only development hope for the properties being getting converted creatively to another asset type.
  • Things that complicate conversion of older buildings are outdated zoning and building codes, inflexible parking minimums, and a dearth of financing opportunities for newer, smaller developers. This report from the National Trust for Historic Preservation details many of these issues and case studies for progress. Municipal adaptive reuse ordinances are part of the solution, with the 1999 Los Angeles ordinance being highlighted as having helped spur development for vacant property.

Planning for transportation for large-scale, long-term private developments and public investments will need to think carefully about future-proofing parking.

  • Largely due to a projected increase in self-driving cars, garages should be built with repurposing in mind (into office, residential, last mile distribution , industrial, etc.) by using flat floors and taller ceilings to allow for conversion in future years.
  • Zipcar co-founder Robin Chase received the 2017 ULI J.C. Nichols Prize for Visionaries in Urban Development and mentioned her thoughts about using the Zipcar model to think about creatively using parking garage and building lobbies when non typically in use.

Housing and homelessness continue to be big issues for the future, with no “silver bullet” solutions in sight. Creative models and case studies allow for individual projects to learn from others and build new models.

  • “Housing and homelessness continue to be on the minds of people, with no real solutions in sight. I was intrigued by the re-introduction of fully furnished flexible lease apartments. Corporate rentals from 30 day minimums, to nightly Air BNB style are picking up steam. Again, this is an opportunity to service an increasingly mobile workforce. While it continues to present regulatory challenges, it will continue to evolve.”
  • Many panelists and speakers noted the link between a lack of affordable and workforce housing being a direct contributing factor to the increasing issue of homelessness in American cities.
  • Jonathan F.P. Rose, president of development and investment firm Jonathan Rose Cos., remarked that “the costs of construction or acquisition of affordable housing today [makes it so it] simply can’t be done without subsidies.” But “we also have to think of completely non-governmental solutions.”

 

Equity is an important consideration and factor in how our cities are developing and growing.

  • Cities are investing in historically underinvested-in neighborhoods through the adaptive reuse of historic spaces, new construction, and a focus on urban design and public space. The consequence in most places when this happens in that the lower-income people in those communities are left out of the “rising tide.” This was a big focus of the conference, with specific attention in the panel driven by Calvin Gladney of Mosaic Urban Partners.
  • Jonatan F.P. Rose advocated for the need for cities and communities to think of new solutions than can address income inequality locally and help build social cohesion. “These are the key links of getting us to the future,” Rose said.

Disruptions in Real Estate: LA Case Studies

L.A. Prep

One tour offered was an innovative place known as LA Prep, described by the developer as WeWork for commercial kitchens. The 150,000-square-foot property has 50 commercial kitchens of varying sizes, with shared common areas for dry storage, shipping/receiving and dishwashing stations. The 50 tenant food companies varied from caterers to food truckers to small business selling to restaurants to farmers markets. The leases were all one year and vacancy between turnover after a tenant moves out averages 16 days. Long waiting lists prompted the developer to find a new spot and commence buildout on a similar property in South Los Angeles. When asked if they invest in start-ups much like an incubator, his answer was “No…not on purpose.” One business also located there as an anchor tenant of sorts was LA Kitchen, a social enterprise business providing food to various non-profits much like Meals on Wheels.

Podshare

“One of the most interesting sessions that I went to was the Trends in Hospitality that talked about Podshare (Pods). It’s the concept of hostels in the sense that it’s shared sleeping space, but different in that it’s more upscale (comfy beds, Netflix, WiFi, kitchen, attractive spaces, etc.) and that you pay by day, week or month. They compared it to ride sharing such as Uber because of the social aspect, and so It’s interesting enough to wonder if San Antonio will ever consider something like this.”

Google Spruce Goose Hangar

The ULI Young Leaders group was able to tour Playa Vista, one of the largest developments in modern Los Angeles, with high profile tenants including Google, Facebook, and YouTube. Four master developers – Brookfield Residential, Lincoln Property Commercial, Tishman Speyer, and the Ratkovich Company – have turned 1,000 acres that once was home to Howard Hughes and his aircraft enterprise. One old hangar within the property has been turned into an office for Google and the San Antonio Young Leaders attendees that toured the property were raving.

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