Teddy Roosevelt called the office of the President the “Bully Pulpit”. I’m no Teddy Roosevelt, but for the last few years, I’ve sent a message out to my industry friends every January. I’ve been doing this for so long, I might have some observations and insights you find helpful, or perhaps amusing.
LOOKING BACK Our industry experienced tremendous activity last year. The torrid pace of 2017 continued, with absorption, rents, development and investment activity at incredible levels. To say the brokerage community did well would be a massive understatement. Industrial continued as “The New Retail”, with on-line shopping fueling the need for logistics space. That said, Bricks and Mortar retail did NOT collapse. Instead, it continues morphing into something different: Entertainment and lifestyle have absorbed much of the vacancy caused by internet shopping and the demise of traditional full line retailers: The locally owned clothing store is now a Yoga Studio, the consumer electronics store is now a Gym, the vacant “Big Box” is being reconfigured and re-purposed as a food hall or entertainment venue. Multi-Family growth and rental rates are very strong (although there are pricing and financing pressures), and mixed use is now much more than a concept. Even historically lackluster segments such as office took off.
As to our little company, during one of our most productive years ever, we maintained high ethical standards, served our clients faithfully, and grew even closer as friends and co-workers. I am so lucky to work with such great people!
John Dohm continued his public work: National Director for NAR, Director of the Miami Association of Realtors, Director of the Florida Realtors Association, Florida SIOR and the Miami-Dade CCIM District. He’s on the Florida Freight Advisory Committee of the State DOT, the Freight Transportation Advisory Committee (FTAC) of the Miami-Dade Transportation Planning Organization, the FTAC of the Broward County Municipal Planning Organization, and is the real estate consultant to the Ft. Lauderdale-Hollywood International Airport Master Plan, the Port Miami Tunnel Evaluation Study, the Miami River Freight Improvement Plan, as well as the Town of Medley, Miami Gardens and Hialeah Freight Improvement Plans. He works with the Beacon Council and the perishables and cargo committees of Miami-Dade and Broward Counties. John recently participated in cargo expos in Lima Peru and Houston Texas and engineering and autonomous vehicle summits in Boston and Orlando. Somehow, he found the time to also knock it out of the box on tenant representation in between committee meetings… There’s only one John Dohm.
Sherri Beregovoy had her best year EVER. Sherri closed a huge number of deals with the cold chain industry, as well as 3PL, industrial and office tenants. She continued her work with Airglades International Airport on the development of the first publicly funded, privately owned, cargo airport in the Continental United States, and the surrounding industrial and service uses that will be necessary to serve it. By the 4th quarter of this year, final FAA approvals should be in place. Her son, Andrew, closed multiple transactions and continues to work with Sherri on the tenant representation side. They have also continued their landlord representation of Corporate Park of Doral and other significant office and industrial listings as well as tenant/buyer representations across South Florida. These two have been BUSY!
I had a great year: Multiple sale and lease transactions across Industrial, office, development land and retail. For the second year in a row, SIOR recognized me for being one of the Top 100 Office Brokers, internationally. Not bad for an old industrial guy! I continue as a board member of the SIOR Florida Chapter and transitioned from chairing Scholarship and Education to Admissions Chair, while continuing to serve on the scholarship and education committee under Christopher Thompson, who is doing a great job. I also continued my position on the board of trustees of the SIOR Foundation, and was named Vice Chair, SIOR Foundation Grants & Scholarship. Kind of proud of myself…
Jane Konigsberg, my wife, continues her business and financial analysis activities. Mergers and Acquisitions for Rexall Sundown and Ernst and Young, Director of Norwegian Cruise Lines, systems integrations and M & A independent consulting for Fortune 500 companies…. These are just SOME of her past accomplishments. This year, she vetted a number of acquisition opportunities for our clients, providing metrics and analysis that proved invaluable to the decision makers. Jane is a lot smarter than the rest of us… I still can’t figure out what she sees in me!
Maria Cuevas is our administrative and research associate (and my left leg and right arm). The newest member of the team, Maria worked for many years on defaults and mortgage modifications at a well-known law firm. She’s a valued member of our team, and our client’s love her! This year, she obtained her real estate license to better serve our clients and support the Brokers.
LOOKING FORWARD This cannot continue. If there’s one thing I’ve learned over the years, it’s that our industry is cyclical, like waves on the ocean. We are right at the top, and it is inevitable that we’ll slide into a trough. Prices of existing and often functionally obsolete product is now at parity or above prices for new development in many US markets. As I write this, our economic growth numbers have been very good, and the tax burden on profits has been very low…We are at full employment. BUT our government is in the midst of the longest shutdown, ever. Our new tax structure created a “sugar high” for corporate America. The main intention behind lowering corporate tax rates was to spur investment and repatriation of profits held internationally. Instead, many public companies increased stock buy-backs to raise their share prices, which artificially inflated US equity markets. And the effects of the government shutdown will definitely impact GDP and corporate profits.
We are in a trade war with China and the European Union. BMW recently announced they pay more for steel in the US than anywhere else in the World. Apple is hurting in China. Samsung, Micron, LG, Ford and others have revised their profit numbers for the next quarter WAY down. GM is closing a bunch of plants. Lenders are tightening their underwriting standards. Single family housing sales are slumping as market pricing and interest rates crimp affordability. The level of stock market volatility indicates investors are very nervous about the future. One of the most worrying things to me is that major facility starts are falling… Think about it. A Fortune 500 company planning a car/appliance/electronics manufacturing facility, must plan YEARS in advance. Some of the smartest people in the world run these companies, and they are increasingly unsure whether or not demand for the products they produce will be strong enough to support new capacity in 3 or 4 years….
Since the economy has been good for the last few years, it made sense for companies to invest in capital means of production to increase capacity. But note that wages have been stagnant, even as unemployment fell. Worrisome… This indicates our lack of investment in training and education is producing workers without the kind of new skills companies need, just as immigration has become more restrictive. We need to KEEP the Chinese, Indians, Pakistanis, Koreans and others studying computer science, math and engineering in the US here, and give them a path to citizenship (as we did for my parents), not send them home. It’s part of the virtuous cycle. As productivity increases, so does demand for goods and services. When you are operating at full capacity in a tight labor market, and you really can’t raise productivity through additional hiring or capital investment, you raise prices instead… Which is starting to happen while the Fed raises interest rates. Are you old enough to remember “stagflation”? Prices rise, productivity stagnates, interest rates go up at the same time. Investment and commercial real estate development grind to a halt.
There are also worrying trends in commercial real estate brokerage: Consolidation continues. Prologis is now the largest industrial landlord in the world… How do entrepreneurial investors and landlords compete with them? Costar/LoopNet is a virtual monopoly, so the local broker’s market knowledge is being commoditized. The big brokerage houses continue to erode the value of their market leaders by insisting on a team approach and are turning independent contractors into employees. Technology is both a threat and an opportunity. AI and information gathering services on the web are starting to have a real impact on the markets. There are now online listing services that do not require Brokerage participation: OffMarket, Auction.com, Brevitas, Ten-X, BizBuySell, etc. IPSX, a British company looking to set up a stock exchange for individual commercial real estate assets, just received regulatory approval from the British government. When the exchange launches, investors will be able to buy shares in companies that own individual buildings. Those shares can then be traded like shares in a company listed on a stock exchange. Note, there’s no room for listing Brokers.
So, how does an independent broker face these challenges, and what advice can we give our clients? I have no crystal ball, but it seems that we are somewhere between 6 and 18 months from a recession. To tenants and owner users, ask yourself if your business requirements take precedence over market timing. If you see demand for your products and services continuing, then you have to do what you have to do to support the business, even if that means buying at the top.
To our investment and development clients, keep your powder dry and your piggybank full. Now is not the time to come out of the ground, unless you have tenant commitments up front. Buy, build or invest at the bottom, not the top. Yeah, here I am talking my clients out of doing deals…. Do not build to obsolete standards. Millennials want to live where they work where they play, and regional malls have TONS of excess land for redevelopment. If my piggybank was full, that’s where I’d be looking for opportunities. Look around the bend to what is just ahead, if not already upon us. Consider the impact of lifestyle changes and new technology in your projects: Automated, connected, electric and shared vehicles and machinery, the IoT and IoE, TDM, 3D printing, and VR, just to name a few. Technology and innovation evolve and increase by orders of magnitude, while the real estate that houses them has been held back by financial and institutional immobility. Like the clock at a frat party, these advances are usually ignored in favor of keeping the party going at the lowest cost. (Damn the torpedoes. Full speed ahead!) As an example, we recently advised a client not to build a tilt ramp parking garage. What do you do with a structure like that when parking requirements will be falling in the future? Instead, they did structured parking with flat floors, a façade that could be re-purposed, and an external ramp. This structure can be re-purposed economically when necessary, and the additional incremental cost for the initial construction is just a few bucks. As my Mom would say, “Such a Deal!”
As to how we at Infinity Commercial Real Estate are facing these challenges, we are improving our technology platforms, and becoming more sophisticated in social media marketing. We have the same technology, research and marketing capabilities as the big brokerage houses, because we HAVE TO in order to remain relevant. Jane will be very busy, as underwriting and due diligence are critical during times of tightening credit and increasingly stringent underwriting by lenders. I suggest that the SIOR Independent Broker’s Group, CCIM and similar industry groups and professional designations will separate the “pros” from the employees and teams at the big names, which is why we are so involved with SIOR. I personally think SIOR has the best commercial property network in the World, and the highest level of professional capability. If you are an independent Broker reading this, I strongly suggest you pursue the SIOR designation. If you a buyer, seller or tenant, seek out an SIOR as your service provider. Go to SIOR.com to learn about the meaning of the designation.
We are also looking to add no more than one or two additional Brokers. Historically, we’ve done best during challenging market periods, when it takes creativity and hard work to get a deal done. Quantity does not equal quality. It’s important to add the right members to our family; Ethics, business sense and professional capability succeed in good markets and bad. Our team is what makes me want to go to work every day: We enjoy each other, trust each other, “punch way above our weight”, and are going to continue doing that!