June 17, 2010

Todays class discussion was mainly over sustainability and how this will affect future markets. The main topics were

1. Commercial Office Buildings

2. LEED Certification

In each of these topics we jumped around, looking at different viewpoints and possible influences that can change the dynamics of the commercial real estate market.

We first talked about how office buildings are becoming more sustainable. Before we went any farther we discussed what "sustainability" actual means. Sustainability can be looked at from three angles; Efficiency, Effectiveness, and Equality. Efficiency can be seen as doing more with less. This can be seen where companies lessen their resource consumption or utilization while producing more products at the same or higher quality. Effectiveness is whether you are accomplishing the goal at hand. Please do note that you can be efficient and still not be effective or vice versus. Equality is synonymous with fairness, whether your target audience of customers or the environment are getting what they should be getting out of it without any bias towards a certain group within the target audience. Each of the three characteristics allow us to measure the value of sustainability or should at least point you in the right direction.

Now that we have an understanding of sustainability lets take a look at how some businesses are implementing this course of action. At www.wbdg.org/design/office.php, its talks about some of the advantages of becoming more green. These types of buildings allow owners and users increased worker satisfaction and productivity, improved health, and greater flexibility. Worker satisfaction and productivity and improved health can be seen by large and small improvements. From having better ventilation to large windows for natural light can be effective just as more comfortable chairs. There is some scrutiny that is involved in this idea. The main reasoning being how can you know for sure that the improvements to the building do actually improve productivity and by how much. As I said, better ventilation and more comfortable chairs can both help but can you really quantify the results. Probably not. Flexibility is as simple as having raised floor so that you can rewire the building to fit your needs all the way to be able to construct something different out of the building to create a new use out of it. Of course, many business at this point are only implementing the raised floor ideal but the latter is not too far away.

Our next major topic of discussion was over LEED certification. In my last post I already hit on what LEED is so if you need an update just take a look up top. One of our discussion was on whether companies are becoming LEED certified because they truly care about the environment or because it is a great marketing ploy. At this stage in the game I would say that most companies are doing this because of the marketing ploy. Though LEED is gaining steam, it is not yet the norm where it would be a must. In my opinion I do think that when LEED does become more prevalent in the market you will see companies switching from the marketing ploy to actually caring due to seeing other companies making a difference to the environment and more importantly their bottom line.

Another main issue we discussed is cost of LEED and how they will lower due to technological advances. As stated in my previous post, there are four levels of the LEED certified. There is certified, silver, gold, and platinum. As you become more environmental friendly, efficient, etc. you receive more points and thus a higher rating. The only draw back that we are seeing today is that the incremental cost to receive the next highest rating does justify itself because the cost savings from the next highest rating are not proportionate to the expense it takes to get there. Because of this it is the higher capital companies that have the resources to become gold and platinum certified. Along with this, the bar for what is considered to be silver or gold is being raised perpetually. With these two factors it would seem that smaller or less capital intensive companies are SOL or are going to have to switch their business model to be able to stay close to their competitors. Fortunately, LEED's governing board has taken on this problem by working in tandem with the growth of technology. As newer technology becomes available and reduces the costs to become more efficient, the board will then raise the bar for the related area that the technology helped. By doing this there will be minimal players that will not be able to keep up and thus a more level playing field will be created.

We also looked at LEED in other countries, specifically China. China has become a major advocate of LEED, and thank god. You don't have physically go their to see the smog and pollution that engulfs their major cities. In fact when the summer olympics came to Beijing the city had to shut down their factories for several weeks before the games the make the air meet breathable olympic standards. The health problems associated with the air pollution is a major concern for them right now. China does have things going for them. They are the world leader in production of solar panels as well as other green materials. With their movement to become LEED certified as well as their own production of green products, a quality environment is on the horizon.

Another topic we discussed was how the economy downturn has affected our consumer habits and what kind of impact this will have on retail space. After finally coming out of one of the worser recessions we have seen in while, people have definitely change the way they spend their money. I think it is easy to say for now that the days where the average earner spends top dollar for accessories or clothing are over. It will be up to the "recession proof" people to keep the luxury market alive. But what about the averaged priced retail market; has this seen the same decline in sales? More than likely yes. After the eye of the storm passed many consumers started to look at their spending habits and cutting them down to what is a necessity, something we have not seen the consumer do over the past decade. Because of this, you would have to think that many companies are scaling back on the amount of same stores they operate as well as looking into lower rent locations. If this starts to happen in an abundance many commercial realtors are going to be hurting for a few years at the minimum. It is going to take a while for all aspects of the economy to stabilize and could never peak at over 14000 points again. It looks very bleak for retailers and those that rent space to them because consumer spending might not reach that high of a level as it did through the mid 2000's.

June 10, 2010

Today we covered a number of different topics related to current issues in real estate.

We covered

1. New underground construction called SubTropolis

2. LEED Certification

3. Adaptive Reuse

4. Online Education and its expansion

5. Job placement and Experience

The SubTropolis is located in Kansas City, Missouri and is the world's largest underground business complex. Having never heard of this kind of complex, I was amazed by what it has to offer. The structure was built in a old quarry that had been mined out in the 1940's. Someone had the great idea of turning this obsolete area into a gold mine by turing it into a storage/business building. The complex will allow for businesses to lower their carbon footprint as well as enjoy reduced costs from rent to utilities bills. This type of infrastructure is 30-50% less expensive to rent and will allow from 50 to 70% savings in utility bills. As I said earlier many companies have rented out space to use as their storage facility. Inside this complex the temperature and humidity levels will stay the same throughout the year to ensure that the company's products will be safe in between transportation to their customers. Also, regardless of the weather outside the loading and unloading process will take place in an ideal environment every day.

Though this innovated structure has many advantages over other complexes there are some downside to be discussed. For one, can this be replicated across the country where the will be geological differences? One reason why the SubTropolis worked so well was that there is an abundance of limestone in the area that help build the complex. In fact, the type of limestone was three times the strength as concrete. It doesn't seem plausible this can be found everywhere. Another factor to look at is that they found an already mined out quarry to start with. They did not spend any money on the excavation of the land and the land was more than likely shovel ready. My point being that if the company has to mine out a hill side, mountain, etc. would the rent cost still be the same as the first SubTropolis or would the end user be paying for this in their monthly rent? More than likely the end user of the product is the one that takes on the burden of any additional cost not the seller.

On another note we looked into LEED Certification. This is a relatively new program where companies try to build new facilities that will reduce their carbon footprint. Whether companies are doing this to say they are green or that they truly believe in making the world a better place, who cares, it is good they are doing this. LEED Certification has three levels, Silver, Gold, and Platinum. The more innovative, cost efficient, and environmentally friendly the building is the more points will be awarded and thus a higher grade will be received. The benefits of having a LEED Certified building is that it gives an edge over the competition. This is something that will set one company apart from another company. By having been certified the price to rent can be raised higher while still keeping a competitive advantage from this cost being made back due to the high efficiency of the building.

I believe many companies will start the process, if they haven't already, of becoming LEED Certified. The world in general has taken huge steps over the past few years in an effort to make everyone environmentally conscious and they have succeeded. Whether it be driving electric powered cars or making an office building self sustaining, I do not see the innovation and progress ever slowing down in the future.

One topic that was discussed is the genius idea of adaptive reuse. Though this is not the easiest or most financially sound investment, if it can be done correctly the results are extremely lucrative. Adaptive reuse in laymen terms is taking an old or unused building that was meant for one reason and turing it around to be used for another. This can be seen from turing an old storage facility into classrooms or an old office building being turned into condominiums. The idea behind it is that it would be cheaper to put money into an already built structure rather than build the entire structure from the ground up. When this done correctly you will not need as much return on capital because of the lower cost. This allows the building owner to do one of two things. They could keep the price at the same level as their competitors and make a larger profit margin. Or, due to the lower cost, charge rent at a lower price than their competition which would increase their occupancy rates and thus market share.

When I see this idea on paper it makes absolutely no sense to ever build from scratch but there are some problems. This kind of construction takes a lot of vision and planning to be successful. In some instances the cost to renovate the building can add up too fast where the project becomes a bust. In my opinion the main problem is generating the idea or vision to see that a run down building has potential at something completely different than what it was build for. Like I said this is a genius idea and is usually done successfully by geniuses. Also, unless your rich it could be hard to find investors or a bank that would lend you money due to the risk of the building never being profitable. You would have to be very persuasive and passionate about it and be able to sell the vision extremely well.

Over the past few years many online universities have become more prevalent. As we become more technologically based will this online movement have an impact on colleges' and universities' decision to build new infrastructures? In my opinion, No, at least for my generation. I do agree with the fact that the youth today is much more involved in the online world than ever before. Just take a look at a how the websites such as Youtube and Facebook have become multimillion if not billion dollar companies. Though, there are still a few things that an online university cannot offer, the college experience, experienced professors, and credibility in the real world.

Regardless of how much a kid likes to play online they still look forward to the day they don't have to answer to their parents everyday, a place where they make their own decisions and deal with those consequences on their own. The responsibility learned alone is a major advantage over online universities. Even the social networking that goes along with college can not be replaced.

When attending a University or College you will be learning from experience professionals that have knowledge that textbooks will never be able to give a student. In my experience at TCU I was fortunate to have professors and doctors that were able to relay real life situations that we would encounter when we graduated. Instead of following the book they would put their own personal twist in the curriculum that would best aid us in being successful not just the classroom but in the business world as well. How is an online course going to give you anything close to that?

Finally, online universities do not hold the same clout as a four year degree from an accredited college. This is where I see its biggest obstacle. If you have the money or resources to attend school then why make yourself less attractive by getting a degree online. Until employers look at online degrees with the same respect as a degree from attending school the online universities will not play into the decision making for tangible universities on new or renovated infrastructure. The main demographic of online students is not the typical college students. Many of these online students are older in age and do not have the time or resources that is required out of a normal college setting. To come to think of it, will there be the same number of enrolled online students after the baby boomers have retired?

The last topic we discussed in class was job placement, experience, and skill set. Our goal in attending college is to acquire useful skills and knowledge in a particular field to be used in the real world. Over the course of four years you should have learned a set of skills that allows you to learn material fast and become efficient in your respected field. Coming into college I though for sure that after getting a degree I would be more than qualified to take on an entry position at any firm. Coming out of college I have learned this is not the case. What I have learned over the past year is that experience is the key to getting your foot in the door. But this can be a catch 22 when experience is required to gain experience, which I encounter everyday in the job hunt. So what does one do to get the experience to get experience? I wish I had the sole answer but perseverance can help.

Networking with career services or classmates can help. In todays world the phrase, "its not what you know, its who you know" has become a staple. Being able to have someone vouch for you at a particular company can land you a job very easily. When you don't have a direct lead which many people don't, asking to sit down with respected individuals of your respected field is way to get career advice. The worst that could happen is that you walk away with a little more information than what you had before or it could open the door to meeting other individuals that can give you helping hand.

In todays market job placement coming out of school has become extremely competitive. Instead of being sized up against other newly graduates there are now experienced and intelligent people that in the job market due to lay offs. In my experience I do not have the direct contact to a job or the suave resume that others have but I do have my perseverance and without that I would be pretty miserable by now. Just keep looking forward and don't get down on yourself, your not the only one with this problem.