Over 1,100 real estate professionals gathered in Laguna Beach, CA to discuss the latest trends in commercial real estate at IMN’s 16th annual conference, Winter Forum On Real Estate Opportunity & Private Fund Investing.
Whether you’re an asset manager, developer, fund manager, or limited partner, IMN always has an interesting session to learn from. While this year was no exception, two questions dominated the discussion across sessions:
- How will the looming threat of a recession impact the commercial real estate market?
- Apart from real estate itself, where else should real estate firms be focusing their attention in 2019?
The Juniper Square team was at the conference in full force. We were able to attend many of the sessions and participate in several panels. Here are our key takeaways from this year’s forum.
Consensus: CRE asset values will continue to rise in 2019.
In this year’s opening keynote, the panelists gave their views on how the current administration’s policies have impacted commercial real estate. The two economists on the panel, Brian Bailey from the Federal Reserve Bank of Atlanta, and Peter Muoio, Chief Economist and Head of Research from Ten-X, agreed that while the recent tax reform stimulated the economy in 2018, its effect is starting to fade. However, the panel consensus was that because commercial real estate lags the greater economy, the real estate industry should still expect growth in 2019.
But performance will vary by sector.
Of course, performance won’t be the same for every sector. The panelists gave their forecasts on specific sectors:
The multi-family sector remains strong in most markets and is expected to provide consistent returns. Affordable housing is still in high demand and the luxury market has right-sized as more millennials move out of their parents’ homes to blaze their own trail. Despite the strong growth, the panelists reminded the audience to make sure growth indicators are still present, such as positive population growth and job availability, in their specific markets.
The outlook for office was less optimistic, although panelists pointed out there are diamonds in the rough, with certain markets still growing. The sector was described as a “tale of two cities”. On one hand, gateway markets (cities with central business districts, strong innovation hubs, highly diversified economies, and networked with significant physical and digital infrastructure) continue to grow apace. On the other hand, commodity markets (cities built around older industries such as industrial or automotive) are viewed to be less resilient and less able to adjust to economic headwinds. Nationwide in 2018, rent growth for office properties did not match inflation, which led to some concern around the durability of the sector in the event of a market correction.
Retail continues to have a consensus negative outlook, although some traditional brick and mortar retailers are seeing some success in focusing on in-store experiences and services. Not surprisingly, e-commerce and the growth in direct-to-consumer businesses represent the biggest headwinds for the sector. Many in the room agreed that for the savvy investment manager, opportunity lies in repurposing big-box retail into mixed-use or industrial to optimize for last-mile delivery of goods.
Industrial properties continue to have a positive outlook despite some skittishness from recent trade disputes and the resulting investor uncertainty. Industrial properties are proving to be resilient as a late-cycle product due to the fact that they are less capital intensive. Last-mile industrial, while sometimes difficult to convert from retail due to zoning restrictions, is a particularly hot sub-sector within the industrial space.
Investing in human capital will pay dividends in 2019 and beyond.
In addition to the real estate itself, there was considerable interest in how real estate firms should invest in their own employees. With historically low unemployment rates and many new investment firms entering the market post-GFC, attendees agreed that the battle for talent is fiercer than ever before. Juniper Square’s own VP of Sales, Brandon Sedloff, a panelist on a session discussing this topic, noted that many professionals coming from private equity real estate are moving to tech companies like Juniper Square. They are excited not only by the technology movement within the industry, but also by potential growth opportunities and cultural appeal of working at a startup.
But what investments should you make to attract today’s top talent? A new office build out? Start offering a yoga classes? Promote your employees every six months? Choosing where to invest can be overwhelming. While not a comprehensive list by any means, the panelists shared what’s worked for them in attracting and retaining top talent.
Workplace flexibility was a top suggestion by many of the panelists. First, flexible schedules – allowing employees to set their own schedule and work outside of the office (within reason, of course) – is important to today’s workforce. Both Mark Maduras from Angelo, Gordon & Co. and Robert Sistek from Westcore Properties mentioned this was a big factor in keeping their employees happy. In addition to schedule flexibility, several of the panelist’s firms invested in physical changes to the workplace that offered a choice of work spaces suited to their employees’ needs, that supported their health, was reflective of their values, and was powered by modern technology. These changes were well-received by their employees, and they concluded that providing flexibility, whether with their schedule or with the physical work space, is ultimately a show of trust in your people to do their best work, when and where they want.
A Clear Path for Growth
Providing clear paths for growth keeps employees motivated and incentivizes them to go above and beyond. Working in tech for a few years, Sedloff observed that today’s workers thrive by being purpose-driven and goal-oriented. They want to know the company’s mission is something worth working on, and that their individual work is making a valuable contribution to that mission. The panel encouraged managers to regularly meet with their employees to establish goals they can strive towards. This alignment helps them know where they are going and what it takes to get there, which is crucial to keeping your people motivated and engaged.
Technology and Tools
Lastly, while it isn’t feasible for all real estate companies to offer “Google-like” perks and benefits, one essential action is to provide the right technology and tools that contribute to a frictionless work environment. Today’s knowledge workers are most productive when they have the right tools and information at their fingertips to get the job done. Many of Juniper Square’s customers love that the software completes certain tasks in minutes instead of hours, freeing up valuable time to focus on the actual real estate, and building relationships with investors.
Despite the potential for a waning economy, the mood among attendees was optimistic about the real estate sector for the year ahead. However, 2020 may be a different story, so making smart investments today is crucial.
Juniper Square was honored to participate in this year’s IMN Winter Forum, and we look forward to connecting with more real estate professionals throughout the year.