News
UNDERDEMOLISHED CITY
September 26, 2012
| One-fifth of Baltimore City's office vacancy will never get leased, Manekin's Owen Rouse told 150 attendees at our Bisnow Baltimore State of Office event at The Renaissance Baltimore Harborplace Friday. It's the real estate that has capital behind it that will be able to land new tenants and refinance. |
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| Owen (yellow tie, with PNC Real Estate's Patrick Tehan, Emory Properties' Clay Emory, and NorthMarq's Nancy Ferrell at a previous Bisnow event) says Baltimore is the "poster child for most underdemolished city on the East Coast." That 20% of forlorn office space is physically challenged, without amenities, inaccessible, or inefficient. (Wait, sorry—we were accidentally transcribing a political attack ad.) The rest of the city's vacant space doesn't have an easy job ahead of it, either. In a jump ball for a tenant, Owen says, it's the well-capped landlord that can design to the market's tastes to get the tenant, buy its way out of some rent rollovers, and use its dry powder to renew a loan. |
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| MacKenzie Commercial's Jim Grieves says Class-B office in the city is 35% vacant—a level not seen since the early '90s hit 30%. The only solution, he says, is converting to other uses. Even for buildings in which leases are happening, rents are flat. He's listing 20 S Charles, which rented at $20/SF when he started in CRE 28 years ago and has $17/SF asking rates now. (On top of flat rates, St. John Properties' Rick Williamson points out, operating costs have risen, cutting into margins.) Jim says tenants are looking, but relocation costs (IT alone is prohibitive) often motivate renewals, though for three to five years instead of seven to 10. These properties will need to be recapped, he says, as at Park Plaza. A fire there in late 2010 necessitated a renovation, but now it's 85% leased just six months after reopening. |
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| Walker & Dunlop's Sandor Biderman (second from right, with Federal Capital Partners' Lacy Rice, Prudential Mortgage Capital's Mike McRoberts, PNC's Michael Thomas, Morgan Stanley's Jim Chung, and Combined Properties' Debra Goldstein) says mixed-use, urban redevelopment for Gen Y-ers is what's required to regentrify the less popular submarkets. He also says double-digit returns from opportunistic buys in areas like Baltimore, South Florida, and Phoenix may be the story of the next few years as capital looks beyond New York and DC's low cap rates. Debt, though, is less tolerant of risk and still scared of those tenant rollovers. |
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| The problem with redevelopment, though, is entitlement risk, so Owen recommends choosing older buildings with by right zoning, finding a partner, and going to work on a building where you don't have to ask permission to do anything. (All this and more in his new book, Why Teenagers and Developers Want the Same Thing.)Rick (above) says when he started in CRE 19 years ago, Ed St. John used to walk into a zoning office with an application and a pen and come out with permission to build. Now, St. John Properties has a seven-person team working just on entitlements. |
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| WorkSpaces? Andrea Kent says younger workers are driving the new face of the office. The chicken coops are on their way out. Now the trend is mobile device-equipped, free-range employees that choose when, where, and how they work. That means bosses need to get over the ?How do I know my employee is really working if I don't see them at their workstation?? hang-up and start measuring by deliverables. Maximizing output by giving young employees environments in which they want to work is also changing sustainability practices so that manufacturers aren't thinking just of LEED plaques on the walls. Rather, sensitivity to all materials used in construction is becoming mandatory. |
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| Miles & Stockbridge's Mike Pappas, our moderator, didn't enjoy Andrea's prediction that videoconferencing will give way to Skype and Facetime (ways to connect that aren't part of the built environment). The main reason: He'll miss talking smack to the camera, a la reality show confessional booth, after everyone else leaves the conference. Mike's summary on Bisnow's State of Office event: Steve Carell is gone, and the show's in its last season. Hmmm, perhaps we should have clarified which Office we meant. |
