Monthly Archives: April 2012

Your CEO is interested in profit AND happy employees.

By Ken Ashley

April 30th, 2012 (San Diego)

Now, CRE is in process of truly elevating to the strategic level in the corporate enterprise.

CoreNet Global’s new research initiative is being rolled out here at the 2012 San Diego Summit. The report, entitled Corporate Real Estate 2020, has solidified the notion of

Blue Skies Ahead!

work areas as support envelopes for employees. An underlying theme of the results CRE is all about leadership and how CRE executives can become true partners with the C-Suite.

According to Richard Kadzis of CoreNet Global, the new corporate real estate model is now a critical part of the overall business model. Work/life support is a term the C-suite is increasingly becoming focused on in this very competitive, and recovering economy.

Corporate senior management is interested in both profitable and happy employees. Anymore, work isn’t so much about bricks and mortar as the experience of working there (wherever there is).  Increasingly, commercial real estate is about creating a series of places where employees can work, be challenged, innovate and communicate.

Clearly, the ROI for corporate real estate executives is no longer about cost cutting.  Now the subject of discussion at CoreNet Global is about driving business profitability more than tactical CRE detail (portfolio management, property management etc.).

Going Back to Cali(fornia)

By Ken Ashley

April 29th, 2012 (Up In The Air)

As I head to San Diego for the Spring 2012 CoreNet Global real estate summit, I reflect on the past 5 years of the roller coaster ride in commercial real estate. As JLL’s Ed Noha points out in a recent blog, cost saving have been

San Diego City Skyline

the charge to CRE officials in the crisis of the past cycle. With real estate being typically the second largest cost this is no great surprise. However, as the old management saw says you can’t cut your way to prosperity.

I’m excited about the Summit. CoreNet has appropriately entitled the event Reorient, Reignite, Reinvent. They even have a mobile app  – available for the first time – to help participants orient around the Summit functions.

It will be interesting to poll the leaders in commercial real estate and see where they are headed. I always want to know the trends and the latest direction of our industry. There is no better place to get a gage on things than a CoreNet conference.

I’ll be posting a series of shorter “cupcake” blogs with snipits of information. If you are in San Diego I welcome your debate on what I hear and say in this space. Heck, if you are at the South Pole you can debate me on the trends I report.

One thing I know for sure, real estate leaders can’t continue to report to the CFO that we are cutting costs. The pressure to reduce expenditures will never go away, but most CRE professionals know that the market is recovering quickly and therefore we must shift to controlling escalation of real estate cost in the next couple of years.

Most of all, we need to focus on reinventing commercial real estate portfolios to support talent in ways previously not imagined. I bet that the coming war for high-end talent will stretch real estate directors and service providers like never before.

Lets face it, in a down economy its easy to look like the hero on the cost cutting front. Now, we’ve got to get creative and add value in new ways during the recovery.

So, I have my pen and paper (or iPad) at the ready. Bring it, CoreNet!

I’m Gonna Miss Her – Deploy That Capital!

By Ken Ashley

April 16th, 2012 (ATLANTA)

Brad Paisley was a student at Belmont University in Nashville in the early 1990’s, and he was wracking his brain. He sang in church, sang in his small hometown, but now he was selected to sing in a student concert at Belmont. You see, Brad’s music wasn’t funny. In fact, he sang mostly ballads, which the old folks and his hometown preacher loved. But this was different; there would be girls there, and he was on a mission to make them laugh and of course, compel the females to like him.

So, Brad asked his pal and fellow student Frank Rogers to help.* Frank (who would later become Brad’s record producer) and Brad worked up a little ditty called “I’m Gonna Miss Her (The Fishin’ Song).” They must have had a great time

Nice Socks Bud

writing the irreverent ditty. The song centers on a disturbingly common issue in the South: a male who is hassled by his girlfriend for fishing all the time. When she threatens to leave if he doesn’t come home from his current fishing trip, the man pauses for a moment and considers his options. Then he resolutely says “I’m Gonna Miss Her.”

Brad was worried that women would be offended by his masterpiece, but he took a risk and performed the song at the student concert. He was rewarded with a huge laugh after the punch line in the first verse and got positive reviews from the whole audience – including the girls. He was the big man on campus. Soon, he would become the big man in country music too.

Brad went on to win three Grammys (so far) and chart 25 singles on the Billboard Country 100, with 16 songs reaching number one. He’s sold millions of albums

Who You Missing Now?

and is one of the most successful country artists of all time. Not bad for some college boys trying to make college girls laugh.

By the way, he married Kimberly Williams who appeared as the forlorn girlfriend in the video. Apparently, he can fish and get the girl after all.

Lets Go Fishing

In the business world I know we should still be worried about the “girl,” I mean, the economy. There continues to be hand wringing over Europe, North Korea’s dud missiles, the Fed, and any number of concerns that could pull us back into the recession like a bad argument with a girlfriend.

But I’m ready to hit the water and wet a hook. I think a few folks might just want to come along with me and cast off the recession blues. We can tell this recession (all together now: “I’m gonna miss her”). Its my belief that even if you wanted the cycle to stay in recession that this downturn has run its course. Sorry bears, the bulls are back.

Commercial Real Estate Recovery

This positive attitude is beginning to pervade the commercial real estate markets. As this article in National Real Estate Investor indicates, “Real estate investment performance continues to display favorable conditions,…. very limited new supply and rising demand is buoying real estate fundamentals for most property types.”

In the office world, optimism among landlords is becoming a common as a bad romance in a country music song. A few reasons for this ownership gusto:

  • Historically low interest rates
    • Debt fuels commercial real estate. When lenders are willing to lend in both corporate and real estate arenas, we can all tap the investment accelerator.
  • Incredibly healthy companies
    • This article in the Wall Street Journal (WSJ) points out that “big U.S. companies have emerged from the deepest recession since World War II more productive, more profitable, flush with cash and less burdened by debt.” “”U.S. companies became leaner, meaner and hungrier, said Sung Won Sohn, a former chief economist at Wells Fargo.”
  • Modest inflation outlook
    • Despite many hand-wringing economist’s predictions, inflation is moderate. Therefore, true economic growth is eminently more achievable.
  • Lack of New Construction
    • A recent CoStar article highlights the effect that the dearth of construction is having on markets. It’s simply a macro economics question, and with no new supply of significance in over 3 years, a fuller, quicker market recovery will occur.

As we’ve written here before, US companies have been the recipients of a wonderful real estate sale over the past few years. This is clearly about to end because asset managers read the same papers you and I do.

On a nationwide basis, there is still a high vacancy rate in the office market, however companies are beginning to grow. Evidence of this: large tenants in many markets are already reaching the point of friction and have to split up their occupancy into multiple buildings or even build their own buildings.

Gateways cities of New York, San Francisco, San Jose, and Boston are all experiencing significant improvement in their markets. A REIS report released April 5th suggests that a surge in demand from technology and energy industry tenants led the U.S. office market to its fifth straight quarterly gain in net occupancy. Landlords had absorption of leased space of almost 6 million square feet in the three months through March, compared with 6.1 million square feet a year earlier. The US vacancy rate dropped to 17.2 from 17.6 percent in the first quarter of 2011 according to REIS.

What’s In It For The Good Guys?

Tenants are the guys that pay the rent and (at least in my view) make this whole real estate party possible.  Sure, developers take entrepreneurial risk, but without a well paying tenant, no one wins.  Alas, tenants are about to be on the wrong side of the real estate cycle. Most have done what they can to lock in obligations and prepare for the market shift.

So what do the users need in the coming real estate market recovery? New product. Even 6 months ago you could get cussed out in several languages for suggesting that it was time to build. But times they are a-changing – and fast.

So we say to asset managers, private equity kings, and insurance money bags: now is the time to deploy your capital in more and more cities in the US. As businesses grow and our economy recovers, large tenants (especially) will need a home, and you can help.

So go fishing for that next building deal and you have a much better chance of

Nice Work! Brad would be proud!

setting the hook in 2012 than anytime in the past five years. Heck, look what a little fishing ditty did for Brad Paisley’s career. Take well researched risk and I bet you you can “get the girl too.” And she’ll let you go fishing anytime you want.

*Roberts, M. B. (2004-11-23). “Story behind the song: “I’m Gonna Miss Her (The Fishin’ Song)””. Country Weekly