Motorola heads downtown

Vornado Realty Trust recently scored a major leasing coup: Motorola Mobility, which is owned by Google, is leasing 572,000 square feet at the Merchandise Martin downtown Chicago. The lease is set to start in early 2013.

The Merchandise Mart is one of the biggest commercial buildings in the world. It totals 3.5 million rentable square feet, of which more than 1.7 million square feet will be office space following the Motorola leasing. Wholesale showrooms take up about half of the building’s floor space.

The move from Motorola’s current location (Libertyville, Ill.) to downtown Chicago speaks to the vitality of urban cores and the desirability of CBD office space compared to suburban space.

“Today marks a homecoming for a company that was founded in Chicago over 80 years ago and continues to innovate to this day,” says Chicago Mayor Rahm Emanuel in a statement. “Motorola Mobility joins a growing group of industry-leading companies that see Chicago as a global leader of talent development and business growth, and the company will bring jobs and economic opportunity to our city.”

According to tech blog PandoDaily, Motorola will be moving more than 3,000 employees into the massive mixed-use building. That concentration of talent (about two-thirds of employees will be engineers) could help turn the Merchandise Mart into a tech hub in downtown Chicago.

As PandoDaily notes:

“Imagine founding a startup, and being able to find technical talent to hire only an elevator ride away. Call upstairs, and then have them meet you downstairs in the Starbucks. When you’re done talking, you’re both already back to work. Even in a technically-concentrated place like Silicon Valley where you can hit an engineer by throwing a stone in the air, this would still be nice.”

Loretta Clodfelter is a contributor to Institutional Real Estate, Inc.

Amazon gears up to go big on real estate

The word “virtual” is so associated with giant Internet retailer Amazon that one would think the company’s existence is strictly metaphysical, as though its products simply materialize out of thin air at shipping centers around the globe.

Not so, of course. Amazon owns and operates giant distribution warehouses in the United States and abroad. But its real estate presence has been a pretty light footprint for a company channeling $50 billion in sales through its logistical backbone.

That’s about to change, thanks to a tax battle Amazon has conceded it’s doomed to finally lose. The company had been refraining from building lots of warehouses because it was required to charge state sales tax when it had a physical presence in a state. With a tidal roar of political pressure rising to level the playing field between Amazon and traditional retailers, the Seattle-based seller of books and everything else under the sun has capitulated. Now that the collection of state sales tax is a forgone conclusion, there’s no downside to building more warehouses in more states.

That said, you can bet there’s no hand wringing among the corporate brass. Indeed, one can easily imagine the men and women of the company’s executive suite breaking into Don’t Cry for Me Argentina (Nor You, America).

Amazon, according to an investigative series in the Financial Times of London, is about to start building U.S. warehouses at a breakneck pace in locales that include California, New Jersey, Texas and Virginia. That’s more and more million-square-foot warehouses closer to big population centers, so Amazon can rush the delivery trucks to buyers’ homes and offices much faster.

According to the Financial Times, it’s all part of Amazon’s preparation to deliver a death blow to even more traditional retailers by offering same-day delivery, thus taking away one of the key advantages traditional retailers had over Amazon — instant gratification.

Once its greatly expanded warehouse network is constructed and activated, Amazon will start promoting an order-in-the-morning and have-it-in-your-hands-by-afternoon sales pitch.

Barney Jopson, U.S. retail correspondent for the Financial Times, spoke of Amazon’s coming surge of warehouse construction (as well as its other strategies for world domination) in his On Point radio talk-show interview with Tom Ashbrook.

No one outside of Jeff Bezos’ inner circle knows just how grandiose Amazon’s move into real estate moguldom will be, but there is plenty of circumstantial evidence that this is one virtual company that’s becoming very materialistic.

Mike Consol is editor of The Institutional Real Estate Letter – North America.

The caffeinated workplace

Walk into any Starbucks, look around, then do the math.

There are small clusters of businesspeople hunched over their coffees speaking in conspiratorial tones. There are telecommuters, low-overhead consultants and job seekers furiously clattering away on their laptops and yakking on their mobile phones.

Now multiply those numbers times Starbucks’ more than 12,000 U.S. coffeehouses. By this reporter’s estimation there are hundreds of thousands of business professionals using Starbucks as their unofficial office space every day. Quibble with my calculations, if you will, and the inescapable conclusion is still that the Seattle-based coffee giant has become one of America’s largest providers of “commercial” office space.

The reasons are obvious. It provides the two most important things white-collar workers need to get the job done: caffeine and unlimited Internet access.

Starbucks is all too happy to administer the caffeine to people’s bloodstreams, at a handsome profit margin. Internet access might be another matter, though. Every day, legions of professionals refuel at the world’s No. 1 dispenser of made-to-order caffeine beverages, then tap into free wi-fi networks.

It’s not a bad proposition for businesspeople who buy one cup of joe, then take up physical space and Internet bandwidth for hours in many cases. With natural light pouring through the always-generous square footage of glass, and with the latest music mixes playing through the sound system, Starbucks puts most traditional commercial office space to shame.

All this at a total cost of just two to four bucks.

The situation has caused at least some consternation in Starbucks’ executive suite. One blog devoted to gossip about the coffee company let out a hue and cry in the middle of last year about electrical outlets at some New York City stores being covered with metal plates, presumably to prevent long-term Internet use by patrons.

Another blog operating under the Biz Bitch moniker accused Starbucks of “systematically” reducing the number of electrical outlets and seats available at some stores, and even charging for wi-fi use in two-hour increments.

“I can’t say that I blame them,” Biz Bitch wrote, “but it’s interesting to note that it is 180 from Starbucks’ original branding, which was to recreate an Italian bistro that encouraged people to meet their friends and stay as long as they liked (thus the comfy sofas and conversation corners).”

If so, Starbucks has apparently rediscovered its soul. Or perhaps the stores’ sales numbers are showing that all those businesspeople are forking out a lot more cash than originally imagined.

When we inquired about the company’s policy on such matters, its written response not only eschewed all ambivalence about the white-collar invasion, it proudly promoted its prowess as America’s new business center.

“Starbucks offers free, one-click, unlimited wi-fi at all company-owned stores in the U.S.,” wrote one of the company’s media relations reps. “Customers with wi-fi-enabled laptops, tablets and mobile phones have unlimited Internet access to surf the Web, connect with social networks, search for jobs or work at their neighborhood Starbucks. Starbucks offers an unparalleled environment in our stores — more than 65 percent of our customers say they prefer using wi-fi at Starbucks over other public wi-fi hotspots because they feel it’s a ‘safe and creative environment.’ Strengthening the connection we have with our customers and bringing relevant innovation are fundamental to the transformation of Starbucks business.”

In other words, the Starbucks is open for business.

With its 12,000 domestic stores averaging about 1,250 square feet apiece, that’s roughly 15 million square feet of working and meeting space.

And you can’t beat the rent.

Mike Consol is editor of The Institutional Real Estate Letter – North America.

REIT power

On May 15, Power REIT, an infrastructure-focused real estate investment trust, secured a shelf offering, which will allow it to “issue any combination of common equity or common equity–linked securities (warrants, options or units) in any amounts up to an aggregate of $100 million.” The West Babylon, N.Y.–based REIT plans to use the proceeds for new acquisitions.

“Management has been working over the past 12 months to position the company and set the foundation for growth through acquisitions of infrastructure real estate,” says David Lesser, Power REIT’s chairman and CEO. “We are considering a number of infrastructure investment opportunities to grow our business.”

Power REIT is targeting real estate related to energy and transportation infrastructure such as wind and solar assets, electric and gas transmission, railroads, ports and roads. Power REIT owns the Pittsburgh & West Virginia Railroad.

For those interested to learn more about how one type of infrastructure REIT works, Power REIT has a shareholder presentation posted on its website, including a discussion of its business model.

The growth of a public REIT market could help the infrastructure investment market become a more desirable opportunity for pension investors — a deep publicly traded market would offer another avenue to exit investments, something some pension plans say they want before committing capital to the market.

For more background on infrastructure REITs, here are a two videos from the National Association of Real Estate Investment Trust’s website The videos cover Electric Infrastructure Alliance of America and Gas Infrastructure Alliance of America, REITs launched in November 2010.

Additional resources:

Corridor Infrastructure Trust

Deloitte: REITs and Infrastructure Projects: The Next Investment Frontier?

Prospects for Infrastructure REITs in the United Kingdom

Drew Campbell is senior editor of Institutional Investment in Infrastructure.