Category Archives: Real Estate Construction Costs

iCampus

By Ken Ashley

March 12th, 2012 (ATLANTA)

In an incredible announcement over the weekend, Apple has gone public with its plans to create a $304 million dollar campus for more than 3,600 people in Austin, Texas. This is on the heels of their $500 million dollar Cupertino, CA campus that is now under construction. Wow, hope they sell a gazillion iPad 3s.

The Cupertino building famously looks like a space ship. It will be interesting to see if Austin gets in on the “space” program as well. (Has the Eagle landed in Austin?).

Dan Whisenhunt, Apple’s Director of Real Estate and Facilities, must be the busiest real estate professional in America.  I imagine Dan in his weekly meeting telling his staff, “Ok, we’re going to keep the existing global portfolio growing, build this building in

Austin, We Have A Problem - Too Many People!

Cupertino on time and on budget. Oh, by the way, we’re also going to build another campus in Austin at the same time.”  “Hey, let’s FOCUS people.” “Pass me another protein bar and a Mountain Dew, please.”

The combined $800 million in construction projects makes Apple the most active company in the world in the construction of new real estate facilities. Dan is indeed the man in corporate real estate these days. At least he can look at the plans in amazing clarity on his new iPad.

It’s Not Just Apple

Our team is currently representing two clients in the creation of three ground up construction opportunities.  The insurer Primerica is building a 345,000 square foot campus just outside of

Term Headquarters

Atlanta. They were able to create huge efficiencies by going from 10 separate buildings to one campus.  This facility will deliver in the Spring of 2013 and among other fabulous features, will have a state of the art facility for Primerica sales people to learn about the culture of the company and its products.

Porsche Cars North America is creating an approximately 175,000 s.f. corporate headquarters, training facility, and customer experience center adjacent to the world’s busiest airport in Atlanta. Customers will be able to come from all over the world and experience a little “every day magic” on the Porsche handling

Come to work and ZOOM!

circuit. This project will deliver at the end of 2013 and be a huge boost for Atlanta’s international reputation.

In addition to the Atlanta facility, Porsche announced at the 2011 Los Angeles Auto Show that it will break ground in the spring of 2012 on a second US Porsche Experience Center in Carson, California. The centerpiece track  (like Atlanta) will include encounters with rain and man-made snow, as well as an off-road course.

If tooling around a winding track in Southern California in a seventh-generation Porsche 911 isn’t your idea of ecstasy, there will also be a “Porsche Human Performance

Paging Jerry Seinfeld

Center,” with a sports-science laboratory to “maximize personal fitness, wellness and athletic performance.” As my Southern Grandmother would say, “oh my, that’s better than a blueberry pie.”

But There is so Much Vacancy….

Why would anyone build now? How can senior leadership justify spending capital on creating new product when the national office vacancy rate is at nearly 17%?  Ahhh, no matter the real estate cycle, projects like these can and will happen.

Here are 8 reasons why major user might consider “campus consumption” as a way to solve their real estate challenges in 2012.

1)            Talent Cost and Availability

Yes, I know that the headlines still consistently discuss the masses of unemployed Americans. The reality is many companies are struggling with retaining talent in top executive positions and highly technical positions. Apple is creating talent diversity in its expansion to Austin. The labor market for techies is tough in Austin, but nothing compared to Cupertino and the Silicon Valley.

2)            Cash or Credit

With the spring thaw in real estate finance in motion, more corporations can get funds, if needed, to build campuses. Both lenders and equity investors have a growing appetite to do deals again (finally!). The reality is that many companies have huge troves of cash and some of them will invest this cash in dirt and buildings. Besides, you can always get the cash back out vis-a-vis a sales leaseback, should that become necessary.

3)            Space Efficiencies

In the recent great recession, companies would do anything to cut cost. Real estate is usually the second largest item in the budget after payroll, so “densification” of employees became a major initiative for many real estate departments. What many large users are finding now is that expansion is difficult to accommodate. In addition, rethinking the architectural program can yield significant space efficiencies. Also, like Primerica, some users find themselves in multiple buildings with the requisite inefficiencies.

4)             Point of Friction

Sometimes companies simply get too big to fit into existing product. While many major metro areas still have large holes and lots of space, mega requirement of 250,000 square feet and greater have a difficult time making existing buildings work. The “friction” that results can hatch a new campus.

5)            Incentives

Communities in the Southeast and Southwest United States are getting increasingly aggressive with inducements. The electorate is telling politicians with one voice – we want jobs! The politicians are tossing around cash, free land, tax breaks and all manner of incentives to land the next big one. Economic development organizations in many communities are becoming very sophisticated in their marketing efforts, and as a result, they are scoring some big wins for constituents.

6)            Building Cost

Commodity prices seem to be fluctuating all over the place, but the cost of construction is still a bargain principally because of labor cost. General contractors are reporting increased activity, but the sub trades are still willing to make great deals to get work. So are architects, environments experts and many other consultants.

7)            Taxes

It’s not new news that taxes are high in the gateway cities of San Francisco, LA and New York. These areas are simply very expensive places to do business. When companies layer in the significantly reduced tax burden in other places, the campus concept can get a major boost.

8)            Branding

As we experienced ourselves with Porsche and Primerica, iconic brands sometimes need iconic campus environments in order to market themselves both internally and externally. I’m sure Apple is creating great excitement internally for their employees. The Apple marketing guys are going to have a field day when Cupertino and Austin deliver. They will get millions of dollars in “free” PR for their company through the announcement and completion of these facilities. Sometimes the real estate math is just one small part of the evaluation model.

Build it and they will Brand

Campuses don’t work for many. Heck, they don’t work for most. I once had a senior telecom executive tell me that their industry changes too fast to even consider the campus option. He pointed out that there are many former telecom campuses around the United States. He’s certainly correct that the ultimate “exit” out of a campus can be difficult. Long after the ribbon cutting, selling or repositioning campus facilities can be a tremendous challenge.

However, as the economy improves, you will see more announcements of big, shiny new campus projects. Apple may be the biggest in this game, but they are certainly not the only player. As the economy two-steps into a recovery – Austin and elsewhere, more and more companies will evaluate campus solutions. If you check the right boxes and carefully analyze the alternatives, you might be surprised what a brand statement wrapped in real estate can do for your company.

Let The Store Come to the People — iMilk?

By Ken Ashley

The following blog originally appeared in the Atlanta Business Chronicle on November 28th, 2011.

CoreNet Global held its semi-annual summit in Atlanta recently.

Thousands of corporate real estate executives, service providers and economic developers traveled to our city to learn the latest trends in corporate real estate. While normally a confab to learn and discuss ideas in the office world, the event also featured an interesting retail story in one of the keynote talks.

Realcomm CEO Jim Young told an amazing story about a South Korean grocery store operator that significantly increased sales without adding one square foot of additional space (sorry, retail developers). UK based grocery giant Tesco – which later changed its name in the local market to HomePlus – now allows the store to truly come to the people in South Korea.

The marketing team created virtual stores that replicate their product on subway walls with sharp and lifelike pictures. The advertising team leased entire vertical spaces on the train platform. Now those spaces show pictures of food products that appear exactly as they would in the store. Busy, hardworking, and bored consumers can now shop by scanning the pictures with their smart phones. One can point the phone at a picture of milk, bread or hundreds of products. When you click, the product is added to the shoppers’ virtual basket. The the online purchase is completed and is delivered to consumers’ homes. Wouldn’t it be great if the staples showed up at your house in a similar fashion?

The shopping experience is sort of like Amazon.com on a public wall. By overcoming an apparent handicap of fewer stores than the leading competitor, HomePlus became the second best selling grocery store in the entire country. I’m impressed by their innovation and even more so by the results. The whole idea is profiled in a YouTube video the company cheerily produced to show off its success

What are the uses of this kind of technology for busy consumers in the United States? Where could you message your customers or employees when they have wait-time or downtime? I bet the walls at Hartsfield Jackson International Airport and MARTA will look very different in the coming years.

Static advertising suddenly seems so 2010. Come to think of it we need more milk at the house. Rats.

Everywhere a Sign

By Ken Ashley

(ATLANTA) July 18th, 2011

It was a different time. In the early 1970’s the hippy movement was in full swing, and an unemployed 25 year old singer in a rock band in Ottawa, Canada sat down one day, mad at the world. The results of his youthful anger – the song “Signs” —

Oh wow - those pants rock, Dude!

would become a powerful anthem for those who were changing our culture from a strict para-military rules following people to a new generation of free expression.

The song debuted as the “B” side of  an unsuccessful single record in 1970, but without warning, Signs became a huge hit for The Five Man Electric Band. Lead singer and writer Les Emmerson, still living in Ottawa today, now makes a healthy living in large part from the 2006 hit “Don’t Let The Man Get You Down” by the hip-hop (later version of hippy?) artist Fat Boy Slim. Mr. Slim sampled Signs, and therefore Les gets good mailbox income. Maybe signs aren’t such a bad thing after all – if you sing about them.

What’s Your Sign?

Before you warm up  GarageBand on your Mac and start penning your own ode to the hippy generation, maybe you can become more successful by

Thanks Officer!

working on signs for your hip new offices.

One of the big reasons companies invest millions in their digs is to make an impression on customers and prospects.  Occasionally, businesses want to keep a lower profile because, for example, they are in industries related to defense or conduct research that is deemed secret. However, the vast majority of corporations are interested in getting their name out there.

Over the years, we’ve worked with a number of companies interested in maximizing their marketing dollar by obtaining prominent signage. We’ve encountered those who desire top-of-building exposure with relatively small office space requirements, all the way to big name companies  who look not only for building signage, but campus level branding. And of course, we’ve worked with those who have smaller office requirement but simply want to maximize their exposure package. We’ve seen many approaches to using someone else’s real estate as a billboard. There is no doubt about it, a major top of building deal can be worth millions in advertising dollars and can message consumers every day.

As you think about signage needs for your business units  – and they certainly don’t have to be just headquarters locations  – we advise you first consider the type of signage package you want.  Then determine how all the operational considerations will work to keep your really cool sign bright and beautiful.

Levels of Signage

Lobby and Suite  

– Signage in the lobby and on the premises. While this is fairly standard,

45 MPH, huh?

think about the use of your company logo on the entrance to your suite. Determine up front how the signage can be changed if your name changes, and determine in advance if you want Principles or Partners names to be posted on the sign in the lobby.

Exterior Monument – Confirm what position will you be on the monument, and get landlord agreement that you will have that level throughout the term and any renewals. Also, be aware that some properties have more than one monument at different street entrances. Make sure you have the same rights on all monuments.

On Building – Signage that is on the side of the building, but may not always be at the top. Some properties offer street level fascia signage that is very valuable, especially in dense urban settings. Of course, the ultimate physical location on the building is important.  You may not get exclusivity on the building. but you should be able to negotiate restrictions on competitors’ signage.

Top of Building  – Same considerations as On Building, but you have a much stronger case for exclusivity. In some jurisdictions, only one sign can be at the top

Please!

of the building (this helps the fire department, for sure), but confirm that you have the only top of building sign. In both On Building and Top of Building cases, you will want to put up your sign as soon as possible. You should take responsibility for its maintenance because the landlord is not in the sign business. You care about your sign more than anyone else, so take care of it.

Campus A campus package likely includes all of the above. As the major or dominant tenant, you can get other goodies, such as the right to name roads interior to the campus or display your product on the property, if applicable. Think Disney in the office environment.

Other Considerations

Exclusivity  – Mentioned earlier, but this is a major issue. For example, can others put signs up (including on the side of the parking deck) in the office park?

Who’s Tab?– Who pays to put the sign up and when can it be installed? Can the sign be paid for out of a tenant improvement allowance?

As far as maintenance, with the hot sun and hail damage, there will always be a need to baby your sign. Negotiate in advance for wide permission for your sign crews to change electronics or signage material. Make sure you have permission to get up on the roof in the event a major replacement is needed.

Party Over – Who pays to take it down? When your lease is up, you will likely have a restorative obligation. Make sure to address the particulars of what you need to restore. If you are patching a few holes, that’s likely OK, but be careful that you don’t have to replace an entire roof or part of the building siding. Also, in the event that another tenant is going to install a replacement sign, perhaps you can mitigate your requirements to actual repairs after the new sign is installed.

Lighting– You paid all that money for your lease and the beautiful sign. Don’t give up 12 hours a day of exposure. Negotiate sign lighting in the lease agreement.

Civil Disobedience

Additional Considerations – What happens if you shrink? What happens if you sublease space? How long can you keep the sign? You’ll have the most leverage during the initial lease negotiations, so address flexibility upfront.

Also, who runs the traps on government approvals? You and the landlord should jointly discuss approvals with the municipality. Don’t be afraid to retain a good lawyer who is an expert in this area. It can make a huge difference in terms of your time and the ultimate approval of your project.

So, peace, love, happiness, flowers and children have been good to Les Emmerson. Get your dream sign installed correctly, and they’ll be writing songs about you. Dude.

Should I Stay or Should I Go?

By Ken Ashley

(ATLANTA) February 14th, 2011

No, we are not talking about your sweetheart on this Valentines day. Instead we are covering that other significant relationship in your life; your landlord. When tenants evaluated market opportunities over the past 18-24 months, most decided to remain in place. This behavior is described by real estate brokers and landlords as “blend and extend” because tenants usually have unexpired term

Huh?

that they fold into the new extended term. Landlords made blend and extends easy because they were terrified to lose paying customers. Tenants were complicit and all too happy to stay because they were scared to move and commit to long lease terms. Plus it was all so easy; just stay and play.

As the economy turns, the decision isn’t so easy anymore. We are working with a number of companies now that are positioning for growth and have a newfound confidence about the future.  The world is their oyster, and while they are cautious, that good old American cowboy optimism is beginning to return.

Should I Stay or Should I Go?

The benefits to taking a risk of a move can be substantial. You can improve morale with a new physical space, update your technology, and get that new carpet smell in one fell swoop. Executives use moves as the time to launch all types of new initiatives, both internal and external. Both employees and customers will see a reinvigorated company and its proud leadership in the new space.

Perhaps the biggest real estate opportunity is the ability to shuffle the deck in terms of how much space you take and where everyone sits (so called “adjacencies” by architects). We have seen many companies over the years make major reductions in their real estate obligation because they are able to “restack” and fit everyone into less space. Of course, many employees are now able to be mobile,  so eliminating their permanent office space is a logical step. Every 10×12 office eliminated saves nearly $4,300 a year (at an 18% loss factor and at a $30 full service rate). Reduce by 10-12 offices over a 5 year term and pretty soon we are talking real money.

But It’s Such a Hassle!

Yes, it is a pain to move. The best thing this real estate broker had to do was to move his own office. Experiencing the problems and uncertainty with even the best planned move is certainly important for someone in my business. But here’s the thing; this is a short term problem, and once the move is over, you really enjoy your new digs.

I’m not necessarily saying that moving is right in every case. Renewing is still a very viable option in most every market. And even though some landlords are starting to get more optimistic, it is still a best practice to hang on to your tenants at any reasonable cost.

Back to the Future

Fortunately, this doesn’t have to be a gut call by management. There are some tools that can help you evaluate the move vs. renew scenario. Start with a space planner who can count all the butts in all the chairs and generate a “program” of your space. As you evaluate other spaces, the space planner will perform a so-called test fit to see how your program works in a potential new space. This will validate how you can use the new footprint and confirm how much square footage you will need to take in a new location.

Then, ask your broker to perform a full side-by-side comparison of a move vs. a renew. Include the space, of course, on a full service basis, but also add in the cost of technology and furniture in both the new space AND in your existing space. Will you require any renovation of your current space if you stay? Will you buy a new phone system or computers? Everything needs to be in the model.

Then review things with accounting on an after-tax basis. If you are publically traded, you will likely “straight-line” free rent and other concessions on an equal basis over the term of lease. Working with your CFO, determine success metrics such as impact on a earning per share basis.

The Holy Grail

As one of my sons would say, “so here’s the thing.” We are not doing all these real estate gyrations just to save a few sheckles on your rent. At the end of the day, the so called Holy Grail corporately is increased productivity. If you can reduce cost by 10%, congratulations. But I bet that pales in comparison to a 5% increase in productivity, or sales, or whatever “offensive” goal you have for the organization.

We contend that too many executives get caught up in saving money and forget the reason the real estate is there in the first place, which it to support the business enterprise.

Our advice is to take an honest assessment of all of the possibilities in a move vs. stay scenario and don’t forget the reason you pay rent every month. View your space as a competitive weapon as opposed to an expense and you will succeed every time.

High Carb – Low Protein

By Ken Ashley

ATLANTA (May 24, 2010)

Cushman & Wakefield recently released the US Office Overview from Q1 of 2010 and like many similar reports over the past 30 days it suggest “steadily improving economic conditions.” The report forecasts that leasing activity will build this year but that construction activity will fall due to the lack of speculative projects and the restrained financing environment. It also suggests that rental rates will continue their downward trend and reach a bottom in some market sometime in late 2010.

Yummy

As we have suggested in this blog since March, things are on the up and up. So what’s to worry about? Well, jobs of course.

Real estate activity is up precipitously by the tenant community but many of the deals are “blend and extends” that have tenants renewing at the same square footage. More likely, tenant’s are renewing or moving and giving back space. For example, Marsh has a large Atlanta lease that moved to a new location going from approximately 200,000 s.f. to 125,000 s.f. which is a nearly 40% reduction in size.

So, we believe in the recovery, and we can feel it coming like a train down the tracks. However, until we have true job growth and a preponderance of growing and expanding tenants, then we are effectively eating a high carb diet. And as any good doctor will tell you, that is not sustainable if you want a healthy life – or a health economic recovery.

Here’s to a protein rich diet – and a job rich economy!

Psst. It’s me, inflation.

By Ken Ashley

ATLANTA (May 12, 2010) –

A number of sources and our own experience are indicating that pricing of raw materials may be headed up.

Just Kidding on the Price From Last Week

According to this report in the Journal of Steel and Related Materials:

“Despite relatively low activity levels and poor final demand, flat product steel prices (in the EU in this particular case) are ascending rapidly. This trend is likely to continue into the third quarter as period two is virtually sold out at most European mills. Producers are justifying the increases on the grounds of their escalating raw material costs. However, the hikes are not supported by any substantial improvement in end-user consumption… Customers are forced to pay more because of limited availability”

And this cheery report in the Money Morning Blog related to lumber: ”

“Raw lumber prices have zoomed more than 25% this year, even though the home construction business – its main use – has been scrambling along at record lows. This is a rather stunning development. But there’s a solid explanation: Production has dropped in the face of weak demand – and dropped so much that prices have moved much higher.. there has been so little demand for lumber to build houses, timber companies have cut back on their harvesting and cutting. So now that home production is picking up a little – as was suggested in some earnings and economic reports last week – marginal new demand is pushing up the price of this surprisingly scarce commodity.”

In recent weeks, contractors have been complaining about increases in concrete prices of up to 20% in some cases. We think that the built environment is competing with other manufactures (think cars and cans) for raw materials. Also, 20% upticks are scary increases, but construction cost in the aggregate are down precipitously in the past 24 months. We are not necessarily sounding alarm bells here, but simply pointing out that costs are headed up from their recent lows.

Labor is the bright spot as it has remained fairly steady. There are lots of trades looking for work and lots of construction industry employers who simply want to keep crews busy. They will do what it takes to keep their employees working and paid.

The moral to the story is lock in costs now. And if you are thinking about making upgrades, improvements or facilities expansions, then now is an excellent time to get moving.