ARES Urbanexus Update #148
Beginning with issue #148, this selection of real estate and community development news and information is sponsored and distributed by the American Real Estate Society (ARES). As an association of real estate educators, researchers, and thought leaders, the Society is dedicated to producing and disseminating knowledge related to real estate decision-making and the functioning of real estate markets. Urbanexus Update founder and ARES Member H. Pike Oliver continues as curator, and the publication remains free of charge.
Please note that some items may be behind a paywall.
Real estate investment
RCLCO sentiment index hits new low
RCLCO’s Sentiment Survey has tracked real estate market conditions in the U.S. for over ten years. Events of the last three years have generated unprecedented volatility in the index – with significant swings in sentiment (both positive and negative) with the advent of COVID-19, the recovery, and now recent Fed action to tamp down persistent inflationary pressures that stemmed from the pandemic.
The RCLCO current sentiment index experienced its largest decline recorded in the first half of 2020 as the pandemic shuttered large swaths of the economy and affected everyday routines, dropping from 64.9 to a then-new low of 9.2. One year later, the index swung back dramatically to 89.1 by Mid-2021, near the all-time peak, as the economy recovered rapidly and the nation returned to some semblance of new normal.
After a more optimistic 2021, the index declined significantly in 2022 to 8.3 by Year End, hitting a new low. A combination of geopolitical uncertainty, persistently high levels of inflation, and rising interest rates have pushed the economy into a recessionary zone.
Learn more here.
Mixed-use
Plans for a $3.5 billion project in Cleveland
A partnership between Detroit-based developer Bedrock and the City of Cleveland has unveiled plans for the Cuyahoga Riverfront, featuring 3.5 million square feet of new development and adaptive reuse projects across 35 acres of publicly and privately owned waterfront land.
Preliminary plans for the site call for adding approximately 2,000 residential units, 850,000 square feet of office space, 12 acres of open public space, and hospitality, retail, and restaurant uses. The development team is targeting a 15- to 20-year timeline for full buildout and transformation of the site.
The development team — which includes master architect David Adjaye, local firm Osborn Engineering and urban planning firm MKSK — views the site as a natural connective bridge between the Cuyahoga River and downtown Cleveland. Adjaye spent the last several months in Cleveland cultivating a plan to realize that vision.
Learn more here.
Industrial
$28 Bn expansion of Arizona semiconductor plant
Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) has announced plans to build a second plant in North Phoenix. The move will increase the company’s investment at the Arizona manufacturing site from $12 billion to $40 billion and create 4,500 permanent jobs in addition to 10,000 construction jobs.
The expansion represents the largest foreign direct investment in Arizona's history and one of the largest foreign direct investments in the United States, according to TSMC. Semiconductors, or computer chips, are essential for numerous devices, including electric vehicles, phones, tablets, TVs, home appliances, solar panels, and gaming consoles.
The company is also in the planning stages for an onsite water reclamation plant that, when finished, will allow the TSMC Arizona site to achieve near-zero liquid discharge.
Learn more here.
Residential
The U.S. needs a lot more housing
The problem largely, if not exclusively, results from the country not permitting enough homes where people want them. Although some communities in the country's interior, especially in the South, have allowed housing construction to keep up with rapid population growth, the Northeast and West Coast superstar metro areas have not. “The reason California has the affordability problems we have now is because we did not build,” said DanielGarcia, of the Terner Center for Housing Innovation at U.C. Berkeley. “In the 1960s, 1970s, even into the 1980s, we built between 200,000 and 300,000 homes per year (in California alone). In our most recent economic boom, we were building 100,000 a year.” He added: “That is the start and the end of the story when it comes to California.”
This article by Annie Lowrey was posted by The Atlantic Magazine and may be found here.
Millennials and the housing market
Millennials bought homes at record rates during the pandemic. But rising prices, decreasing inventory, and high mortgage rates shut out younger buyers in 2022. See the charts below and learn more here.
Retail
Malls are becoming places to live as well as shop
In Orange County, the San Fernando Valley of Southern California, and suburbs throughout America, the mall was a gathering spot where there were few other places to hang out. It was where kids stocked up on the latest fashions and roamed in packs after school, spawning the term “mall rat.”
The 1980s cult classic “Fast Times at Ridgemont High” began and ended at the mall where the teens worked. In the 1995 film “Clueless,” a Beverly Hills teen retreated to the mall, which she described as a “sanctuary,” after failing to persuade a teacher to boost her grade. Now, teenagers text their friends and make TikTok videos. Their parents are more likely to shop online than at a brick-and-mortar store.
At the same time, Orange County is desperate for housing, with rents and home prices escalating and state laws requiring cities to zone for new construction. In a region with little undeveloped land and neighbors are likely to push back at new housing, some see declining malls as ideal places to build.
Learn more about what’s happening with this here.
Master-planned communities
Top-selling master-planned communities of 2022
Every year since 1994, RCLCO has conducted a national survey identifying the top-selling master-planned communities (MPCs) through a rigorous search of high-performing communities in each state. This initiative is a way to commend the most thriving communities in the country and a tool for monitoring the overall health of the for-sale housing industry and highlighting the trends affecting communities large and small. In the report for 2022, RCLCO surveyed MPCs throughout the country to update the rankings.
Office
America’s office apocalypse
The office apocalypse: Buildings gutted by work-from-home will cost cities $453 billion — leading to fewer jobs, dirtier streets, and higher crime.
Less economic activity in urban cores and a lower tax base could mean fewer jobs and reduced government services, perpetuating a vicious cycle that further reduces foot traffic in downtowns, leading to more decline, more crime, and a lower quality of life. For residents of many downtowns, ghost downtowns will be a visible infliction, and throngs of people crowding into a bus on a Monday morning will be apparitions of a recent past.
The devastation of downtown commercial districts has been an unmistakable shift in America's largest cities. The landmark Salesforce tower and other buildings in San Francisco have remained mostly unoccupied as the tech industry has embraced remote and hybrid work. In New York, Meta recently terminated its lease agreement for three offices totaling 450,000 square feet in Hudson Yards and on Park Avenue, taking a significant financial hit. This tracks with trends: San Francisco has faced office-vacancy rates of 34% to 40% in some parts of the city, while in New York, about 50% of workers are back in the office.
Even in cities where more workers have returned, like Austin or Dallas, occupancy rates are still only 60% of what they were pre-pandemic. These shifts follow the unassailable stickiness of remote work; researchers for the National Bureau of Economic Research predicted that 30% of workdays would be worked from home by the end of this year, a huge jump from before the pandemic.
The increased cancellations of office leases have cratered the office real-estate market. A study led by Arpit Gupta, a professor of finance at New York University's Stern School of Business, characterized the value wipeout as an "apocalypse." It estimated that $453 billion in real-estate value would be lost across US cities, with a 17-percentage-point decline in lease revenue from January 2020 to May 2022. The shock to real-estate valuations has been sharp: One building in San Francisco that sold for $397 million in 2019 is on the market for about $155 million, a 60% decline.
Learn more here.
Hospitality
How the pandemic altered the restaurant industry forever
Pandemic restaurant-going was like a series of twists on the old Yogi Berra quip about how nobody goes there anymore because it’s too crowded. First, restaurants stood cavernously empty by mandate as we pined for them. Then we got scared to be cheek-to-jowl with fellow customers. As patrons surged back, a dearth of workers kept things off-balance. And as the worker shortage eased, inflation thwarted many diners from pre-pandemic patronage levels.
Restaurants still see 16 percent fewer people dining on-premises than before the pandemic. Off-premises dining, however, has picked up precisely that much, according to the National Restaurant Association. But how that breaks down is telling: Delivery is up more than 5 percent while carryout is down 3. The big winner? Drive-through, up 13 percent. Today, 39 percent of all restaurant traffic is bumper to bumper in a drive-through lane, said Hudson Riehle, an economist for the National Restaurant Association.
See the full article by Laura Reiley via the Washington Post here.
Parking
A brief parking garage history
When automobiles flooded urban America, builders, planners and designers faced a daunting challenge: where to put them. City after city, desperate to lure suburbanites downtown to work or shop, bulldozed prime real estate to build these structures. Building codes that mandated a certain number of parking spaces have kept new garages coming:
While mostly utilitarian designs, some parking structures emphasize aesthetics. Perhaps the most well-known example of the garage-as-urban artwork approach is the Museum Garage in Miami’s design district, which holds 927 vehicles. The building, completed in 2015, boasts five colorful facades created by different designers. On the bottom floor of the garage is 22,000 square feet of retail space.
Learn more here.
Construction
A 3D-printed house
Pushing the boundaries of traditional home-building methods, House Zero is a demonstration project that showcases the performance capabilities of 3D printing. Construction technology company ICON and Lake|Flato Architects collaborated to design and construct the home in Austin, Texas, which ultimately revealed new ways to create shelter by striving for more efficiency and fewer construction processes.
ICON's next-gen Vulcan construction system printed the 2,045-square-foot, midcentury modern ranch house with three bedrooms and two-and-a-half baths. Layer by layer, walls—composed of proprietary cementitious-based material Lavacrete, insulation, and steel for reinforcement—were printed to form the home’s envelope. The material delivers building forms with a unique stacked appearance and provides thermal mass that slows heat transfer into the home.
Learn more here.
Sustainability
Energy Star
n 1992, the ENERGY STAR program was launched with its first label for office products such as computers and monitors. Each product that earns the label is certified to deliver efficiency, performance, and savings to consumers. The ENERGY STAR® label has become synonymous with cost savings and energy efficiency in the USA: 90% of US households recognize ENERGY STAR ratings and/or certifications.
The program expanded in 1995 to certification for commercial buildings and new homes. The expanded ENERGY STAR program aims to help consumers—including businesses and homebuyers—easily identify energy-efficient buildings, homes, and products in the marketplace. Over time, as product requirements become more rigorous and standard practices become more efficient, EPA modifies ENERGY STAR specifications to ensure that the label continues to represent a meaningful improvement over non-certified items.
Learn more here.
What is GRESB?
Around the world, tenants’ and investors’ demand for a better look into buildings and portfolios has led to an explosion of acronym-named organizations that assess and contextualize commercial real estate performance. The GRESB assessment is a tool that helps commercial real estate investors make more informed decisions.
Founded in 2009, GRESB stands for Global Real Estate Sustainability Benchmark. The organization is for-profit and based in the Netherlands. It conducts assessments of real estate portfolios based on ESG, which stands for Environmental, Social, and Governance. These three factors are considered the pillars of a business committed to sustainability and ethical impact. Increasingly, GRESB is considered essential for portfolios committed to concerns outside of quarterly profit.
GRESB has evolved from a small European organization to a global force in the way that ethically- and risk-minded investors interact with real estate portfolios. Their focus on the interaction between these groups, as opposed to the more public-facing interactions targeted by competing rating systems, has allowed them to develop a strong reputation in the industry.
Learn more here.