Tech firms may be embracing remote work in a big way since the pandemic, but they’re still buying up office buildings too.

Google is still placing big bets in the office sector. The company just announced it’s purchasing an office building in New York City for $2.1 billion, the priciest sale of a single U.S. office building since the start of the pandemic and one of the most expensive in U.S. history, according to Real Capital Analytics.

“Fears of the office building’s demise look overblown,” The Wall Street Journal reports. Even as the COVID-19 delta variant spreads, companies are showing renewed interest in returning to the office one day. They’re making plans for their return, too.

They’re being drawn to lower office rents and higher vacancy rates. In Manhattan, office asking rents have dropped to 2017 levels. That’s prompted August leasing activity to more than double when compared to the previous month in Midtown, The Wall Street Journal reports.

The higher demand for office buildings comes at a time when many companies have embraced remote work. Google has allowed its employees to work from home since the spring of 2020. The company has recently delayed its return to the office until January 2022.

“But the Manhattan office purchase underscores how the company views office space as an important part of its long-term strategy,” The Wall Street Journal reports. Google’s $2.1 billion purchase is for a 1.3 million-square-foot property on the waterfront of Manhattan’s West Side.

Google, Facebook Inc., Apple Inc., Amazon, and other tech companies have become some of the largest renters and buyers of office space across the country. They’re taking advantage of lower office building prices.

“Even if they have 20% of their workforce working remotely, business is just growing so fast that the other 80% still needs a place to go,” Brian Kingston, chief executive of Brookfield Property Partners, told The Wall Street Journal.

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Reprinted with permission

How will commercial real estate needs change in the next five to 10 years? How has the COVID-19 pandemic accelerated the change? And what’s the implication for cities? Those questions were top of mind as the National Association of REALTORS®’ inaugural C5 Summit(link is external), a commercial real estate conference, kicked off Monday in New York.

Cities have a bright future, said Greg Lindsay, a senior fellow and director of applied research at the New Cities Foundation(link is external) and Monday’s opening speaker, but the way residents live and work will undergo a radical transformation.

People take for granted that in the not-too-distant future, we’ll all be accepting deliveries from and riding around in autonomous vehicles. But what about autonomous buildings, which are essentially machines where goods, services, and amenities automatically come to you? That’s the future that Lindsay asked C5 attendees to think about. Research shows “Americans are ready for extreme automation,” Lindsay said.

To meet the demand, planners and developers are deconstructing spaces and rethinking them to combine housing, retail, industrial, office, and recreation. The vision for autonomous buildings includes these ideas:

• Food can be dispatched from nearby centralized kitchens.
• Retail and grocery delivery can deploy from micro-warehouses.
• Residents can eliminate their daily commute through companies’ adoption of cloud solutions, flexible workspaces, and coworking.

Retailers and developers are already putting such ideas into action, Lindsay said. He pointed to Hub 121(link is external) in fast-growing McKinney, Texas, as a development that turns traditional city planning on its head. Rather than restaurants and amenities springing up to serve area office workers, the developers started with multiple outdoor beer gardens and restaurants, surrounding them with flexible workspaces, Lindsay said.

Buildings that can integrate technology and adapt to consumers’ and companies’ changing needs will succeed. “He who controls the app and the delivery controls the experience,” Lindsay said.

Amazon Fresh, for example, opened its first grocery store in Woodland Hills, Calif., and quickly began using delivery data to change the store layout in real time. Lindsay said the company is bringing to life the concept of the “15-minute neighborhood”—a term coined by University of Paris Professor Carlos Moreno to indicate areas where residents can mostly bike, walk, work, and meet all their needs within a 15-minute radius. Moreno, who serves as a special envoy for smart cities to Paris Mayor Anne Hidalgo, envisioned the concept as a way of reducing cities’ carbon footprint while improving residents’ quality of life. He has said he draws inspiration from the work of Jane Jacobs, author of 1961 classic “The Death and Life of Great American Cities.” Jacobs famously fought urban planning efforts of the 1950s and ’60s that facilitated the growth of car-dependent, suburban living.

Bustling Times Square, where the C5 conference is being held through Wednesday, served as the perfect backdrop for Lindsay’s C5 Summit remarks.

While the pandemic proved that office workers aren’t place-dependent, “superstar cities have retained their vitality,” Lindsay told C5 attendees. “Urban cores are stronger than ever, even if the real estate types within them are changing.”

To thrive, he said, cities need to rethink the public realm, focusing on how to beautify it, activate it, and turn it into something that’s more useful. “We can no longer think of cities as places where we stack people.

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If commercial real estate lags behind residential in adoption of technology, it’s not for lack of investment in the sector. In the first half of 2021, equity and debt investment in U.S. proptech totaled $8.5 billion(link is external), surpassing the total amount of capital invested in 2020, according to GCA, an adviser in the proptech market.

“The biggest challenge we face is [lack of] data sharing,” said Deena Zimmerman, vice president at SVN Chicago Commercial, during a proptech panel at the National Association of REALTORS® C5 Summit(link is external) Monday. “In this business, people still keep information close to the vest. Landlords will say to me, please don’t tell CoStar what we leased this space for. People need to realize, when we share data, it helps all of us.”

Zimmerman is not only a sharer but a zealous advocate for technology. While her company subscribes to CoStar, she said she’s also a fan of Crexi(link is external), a commercial listing platform that offers a discount to NAR members, and REALTORS® Property Resource(link is external), where commercial practitioners can research properties and market areas and find deep data on more than 1 million active commercial listings and 55 million off-market properties. There’s no cost for NAR members to use RPR. It’s a benefit of membership. She also uses ArcGIS from ESRI and SitesUSA to help tenants do site selection.

Having access to such tools routinely help Zimmerman beat out larger real estate companies in her tenant rep business, she told the C5 Summit audience. In one instance, adding an RPR trade market report to a proposal led to an hour-long discussion with a potential client. No other broker had offered near that depth of information, she said. She won the business and earned a sizeable commission.

Other panelists echoed Zimmerman’s comments and offered reassurance to brokers nervous about taking the plunge into new, potentially disruptive technologies. “Brokers are here to stay, and brokers are essential to the transaction,” said moderator Ashkan Zandieh, entrepreneur-in-residence for NAR REACH(link is external) Commercial.

“New technology has leveled the playing field,” said Andrew Flint, co-founder of Occupier(link is external), a lease-management solution and 2020 REACH Commercial company. “I spent a lot of time at JLL, where we had access to platforms not available to smaller firms. Today, if you’re a five-person team, you can be up and running with this stuff within two weeks.”

Tyler Thompson, vice president of Second Century Ventures(link is external), said the pandemic has helped speed up the adoption of technologies. “The best brokerage teams out there are saying, ‘How can I leverage this stuff to boost my team?’” he said. But bringing transaction management to commercial real estate remains a challenge. “It’s a bigger problem to tackle in commercial [compared with residential] because every deal is different.” What every commercial broker should be thinking about is the customer experience they’re providing compared with experiences consumers have in other industries, Thompson said. “On the commercial side, there’s a lot of work to be done.”

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Reprinted with permission

The future of office real estate, post-pandemic, remains unknown. Office workers have proved they can be productive working remotely. Does it make sense for them to return to the office? And what will it take for them to do so?

“It won’t be the hub-and-spoke model, which companies didn’t do” in the past, said Doug Jamieson, corporate managing director for Savills North America, speaking Tuesday at the National Association of REALTORS® C5 Summit(link is external). Instead, it will likely be more like “hub and roam,” with companies purchasing co-working credits for employees working in the suburbs.

But companies will still need their hub, said Jamieson and his fellow panelists in a “future of office space” session talked about what that would mean for building owners and managers.

“Innovation will always come through collaboration, face-to-face meetings, white-boarding, hearing the tone in a person’s voice,” said Crystal Fisher, managing director of the commercial portfolio for Fisher Brothers, “but we’re together differently, probably more intentionally, probably using space differently, and with a digital component.”

“Some of these large corporate campuses are creating a Google-like environment for multi-tenant use,” Schultz said.

“Only a third of my team works in the same city anyway,” Jamieson said. “Events, company retreats, off-sites will become increasingly important. They have to be prioritized and planned.”

“On a personal note, I went back to the office last July,” said Scott Evans, chief digital officer for Related Companies and for New York’s mixed-use Hudson Yards development. “There are only so many Zoom calls a person can take. Interconnectivity helps people innovate. That’s tough to do unless you’re face-to-face.”

“I met a ton of people over the past 18 months,” said Jonathan Schultz, co-founder and managing principal of Onyx Equities. “But I don’t feel the same bond with that person until I get in a room with them. Most of my ideas were not my idea; they were from a conversation I had. I’m not saying you can’t work in collaboration with all these tools. They’re amazing. But they’re tools, and we’re why they were created.”

When moderator Kristin Beck, principal and vice president of  Project Management for Avison Young, asked about attracting workers back into the office, panelists said New York building owners and managers aren’t just paying attention to safety and hygiene protocols, which are the baseline. They’re building or adopting online amenity platforms, where tenants can participate in a range of services and activities.

“We’ve been leasing space throughout the pandemic,” said Fisher. “There’s a flight to quality. Everyone’s looking for more now. We were building amenities before the pandemic. Now we’re building lifestyle solutions. They’re not coming to a job that doesn’t offer a lifestyle solution, starting at the sidewalk and continuing throughout the office throughout the day.”

“At Hudson Yards, we look at whether we’re providing the right health, food, and other options that are compelling across the campus. There’s a whole digital component,” Evans said. “Apps are where the experience happens.”

“@Ease(link is external), our amenities solution, blends the physical and digital gap. It includes a conference center that’s a recruiting tool for tenants,” Fisher said. “They can use the spaces to recruit new talent looking for elevated amenities.”

“I think of myself more as a hotelier than as a building owner,” agreed Schultz. “It’s fun and it’s where everything has gone. We’re starting to see occupancy rates increase, and we don’t want to have any resistance to someone wanting to walk in that door.”

In a separate session on Monday, Tishman Speyer’s Thais Galli, managing director of innovation, shared information about her company’s own amenities platform, Zo(link is external). It gives tenants “exclusive access to clubs, dry cleaning, dog walking, car washing, and happy hours,” Galli said. “How can we innovate to offer what Google and others are doing so companies don’t have to think about that themselves?”

“Everything we do, we’re leaning into it,” said Fisher. “The buzzword is experiential.”

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Reprinted with permission

Friday marks the first day of the new fiscal year for the federal government, a consequential date for a raft of programs and government funding. With hours to spare Thursday evening, Congress sent President Joe Biden a nine-week government funding extension. The bill continues funding at current levels through Dec. 3 and includes a reauthorization of the National Flood Insurance Program.

On Friday, the Federal Emergency Management Agency’s new Risk Rating 2.0 went into effect for new policies issued through the NFIP. Existing policyholders eligible for renewal can also now take advantage if they qualify for lower rates. All remaining policies are scheduled to transfer to the new rates on April 1, 2022.

Meanwhile, Congress continues to deliberate on Biden’s Build Back Better plan, which includes two bills: a bipartisan “hard” infrastructure plan covering traditional items like roads and bridges and a “human” infrastructure plan covering items like education and health care.

House Democratic leaders delayed a planned vote on the bipartisan hard infrastructure bill Thursday night after some legislators first sought a deal on the human infrastructure bill. This delay resulted in a temporary lapse in certain surface transportation programs beginning today. The bipartisan hard infrastructure bill has already passed the Senate.

Treasury Secretary Janet Yellen this week also warned Congress that the debt ceiling must be lifted or the U.S. could suffer a default around Oct. 18. 

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Fannie Mae announced new measures in response to growing concerns about aging infrastructure that have followed since the deadly Champlain Towers South condo building collapse in Surfside, Fla. Fannie Mae issued temporary requirements that prevent the purchase of mortgages secured by condo and cooperative units with significant deferred maintenance. The new requirements take effect on Jan. 1, 2022.

Fannie Mae says it will continue to investigate the challenges surrounding aging condos and co-op infrastructures due to “significant deferred maintenance.” Fannie officials say they will continue to vet condo and co-op project reserves to ensure buildings are maintaining enough financial reserves to cover ongoing repairs. They also urged lenders and appraisers that appraisals on units in condo and co-op projects must document any special assessments or deferred maintenance that may impact the building.

“Condos and co-ops are an affordable homeownership option in many markets and a lifestyle choice for many buyers,” Jodi Horne, Fannie Mae’s director of single-family collateral risk management, writes in an Oct. 13 column.(link is external) “With a shortage of housing supply, it’s more important than ever for us to reaffirm our commitment to supporting sustainable homeownership in condo and co-op projects.”

Horne notes the challenges posed by aging buildings that were constructed or converted into rentals in the 1970s, 1980s, and 1990s. A Community Associations Institute report from 2020(link is external) noted that association homeowners and boards too often are focused on keeping regular assessments low and “too often … associations fail to recognize serious structural and system failures. When damage becomes so obvious that it cannot be ignored, the tendency is to make superficial or temporary repairs and postpone comprehensive, in-depth restoration.”

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A Miami condo collapse in June raised questions about the stability of home and condo foundations. Advise clients to heed these warnings.

Key Takeaways:

• Water is a foundation’s biggest menace.
• Hiring a home inspector is a first way to uncover problems.
• The age of a foundation is less significant than deferred maintenance.

When the 13-story Champlain Towers South building collapsed in the town of Surfside, Fla., earlier this year, municipalities in the area speeded up planned inspections, and owners of other coastal condominiums worried about whether their buildings were secure. But concerns didn’t stop there.

The tragic collapse and deaths brought questions from multifamily and even some single-family homeowners and buyers around the country. Delayed maintenance is speculated to have been the cause of the tragedy outside of Miami—a swimming pool leaked into a parking garage, which caused rebar to rust and concrete to crumble. However, people have questioned other culprits: Was it the waterfront setting, type of soil, salty air, increasing storm surges, construction method, materials, or structure’s age? Could location and climate present other problems?

“Water is by far the biggest menace, even for those who don’t live near [a body of] water,” says Steven Barckley, a water drainage expert with Exceptional Stone Products in Livingston, N.J. His strategy is to divert water from an exterior foundation, helping to keep it out of the interior.

However, major structural settlement can occur for other reasons, such as highly compressible soils, says Bill Coulbourne, whose eponymous company is based in Annapolis, Md. “The soil will settle differentially and may cause cracks in the foundation,” he says.

Besides the risk of injury, a damaged foundation can be an expensive fix. Before the collapse, Champlain’s owners faced costs totaling $15 million. An important lesson to share with clients is not to delay repairs. “Age is far less relevant than deferred maintenance,” says South Orange, N.J.–based home inspector Tom Dabb of Immaculate Home Inspections.

Understanding construction methods and materials is also critical. “Concrete is a porous material. Water, humidity, and salt in air affect it. If not maintained, it can cause a problem with a structural system,” says New York–based architect Victor Body-Lawson of Body Lawson Associates.

Bringing in an Expert

As a real estate professional, when you’re working with concerned owners or buyers, a smart first step is to recommend they hire a licensed home inspector. Ron Oster, with Coldwell Banker West in San Diego, says his company insists on this step for buyer clients. “If buyers tell me they do not want an inspection, I have to have them sign a waiver since we highly advise them to get an inspection,” he says.

Experienced home inspectors will examine the outside and interior of a house or condo and, ideally, look at a condo building’s basement, since it can provide structural clues, says Cary Jozefiak, with HomeTeam Inspection Service of Chicago.

Real estate pros should encourage buyers to accompany an inspector as they look for potential problems. An expert eye can differentiate between a slight shift or settlement versus a severe pitch that causes greater concern, says Jason Chang with Jersey Inspections in Verona, N.J. The inspector’s job is to suggest which clues warrant a specialist, such as a structural engineer to investigate cracks or an arborist to see if a tree’s root system affects drainage. “The key,” says Madison, Conn.–based architect Duo Dickinson, “is to catch signs before structural inadequacies lead to potential disaster.”

Buyers are wise to choose experts who know local building codes and an area’s challenges, such as salt that corrodes, earthquake tremors that may liquify soil and loosen a foundation, or melting snow that may leak into a basement through foundation cracks. Topography presents challenges, too. “Homes on the side of a mountain are more susceptible to water damage because the water’s force is greater. Drainage is key,” Barckley says.

Often, a building’s infrastructure may be buried under another material, such as wood or concrete. Inspections are more difficult when surfaces have been covered for decorative purposes or repairs, says Jesse Keenan, associate professor of real estate at Tulane University. Outside, mulch may cover plants to control weeds and add curb appeal but might conceal a foundation, Jozefiak says.

You Don’t Need to Be a Foundation Pro to Become a Foundation Sleuth

Real estate pros, real estate attorneys, and condo buyers can request condo association board meeting minutes to learn what repairs are needed or if work has been done, says Mike Clarkson, president of Hilb Group of Florida, a national insurance brokerage firm that represents condo associations. Keenan suggests that buyers inquire about building reserves to learn if additional assessments may be levied. It also doesn’t hurt to ask for the reserves study, which is the building’s long-term capital budget planning, as well as future capital improvements that are slated and any insurance claims. The bottom line is to get as much information as possible in writing.

Clients purchasing a single-family home can ask to see sellers’ insurance claims and a list of repairs they have made. Buyers can also search for permits at the city’s building department to see whether work has been done, who did it, and whether the permit was closed, says Dickinson. And buyers can drive by the property on a rainy day to see how the site handles water, Keenan adds.

While there is no guarantee against foundation challenges, the good news is that almost all issues are repairable—and prevention works. “If your house is built atop a crawl space, you keep the area dry underneath, for example. Or you seal cracks in your slab to keep it from settling,” says practitioner Barb St. Amant of Atlanta Fine Homes, Sotheby’s International Realty in Atlanta. “You can’t maintain a great house on a weak foundation. Maintenance is key.”

Warning Signs

When it comes to drainage around foundations, water-drainage expert Steven Barckley suggests watching for these clues.

• Rotted or recently replaced wood on the base of exterior wooden door frames and windows
• Horizontal or diagonal cracks in a foundation or wall
• Sloping upper-level floors that aren’t part of normal settlement
• Soil erosion
• Wet or moist basement
• Efflorescence left on masonry surfaces, mainly on basement walls near foundation windows and corners where downspouts are located, usually identifiable by white minerals or stains
• Absence of gutters or downspouts
• Clogged gutters and downspouts
• Inadequately sized gutters and downspouts
• Downspouts dumping water too close to a foundation
• Overgrowth of vegetation close to a house, especially large trees
• A sloping site where water is not diverted from the foundation
• Patios or walkways pitched toward a home or toward its ground- level doors
• The presence of mold or mildew, especially on lower levels
• A smell of moisture or moldy conditions
• Cracks in a multifamily building’s lower levels, possibly accompanied by excessive moisture or water

©National Association of REALTORS®
Reprinted with permission