Student housing in a college town

When I think of college living, the first thing that comes to mind is the dilapidated four-bedroom townhouse I lived in during my junior year at the University of Colorado Boulder. A yellow unit on the end, complete with a bright red door peeling paint, the house had the character (faux-wood paneling and a wood-burning stove) and challenges (broken pipes, a fly infestation in the August heat) of a beat-to-death, but centrally located property in Boulder, Colo.

In the mere two years since then, I’ve watched as the student housing market has evolved from the older townhouses and individual investor-owned five- and six-bedroom mansions from the 1900s, or single-family homes that students have claimed as their own throughout the Hill, Goss-Grove, and South Boulder neighborhoods, into 21st century contemporary, student-oriented offerings.

Since 1972, Boulder has maintained a building height ordinance to preserve the million-dollar view of the Flatirons, and natural and historic landscape. This is a unique situation for potential student housing developers, who have a limited area in which to build potential housing options for CU’s swelling student population.

In early January, The Canyon Creek Apartments, a nine-building complex built in the 1960s and 1970s and catering to college students, was sold to local investors for $20 million, according to the Boulder County Business Report. The new owners, a limited liability company named Canyon Creek Apartments II, comprising unnamed local investors, may make plans to renovate the complex but don’t intend to completely remodel it.

The Boulder County Business Report notes plans for three new developments near Canyon Creek Apartments, at 900, 910 and 950 28th St.

The student housing revival in Boulder seemed to gain moment back in 2009, when the New Hill Company LLC proposed a massive redevelopment of “the Hill”, Boulder’s student-oriented neighborhood. After acquiring the site of Jones General Store, a longtime Hill business, Forum Real Estate Group implemented two student housing projects: Lofts on the Hill and Lofts on College, while Brinkman Construction’s Plaza on Broadway, a 98,208-square-foot redevelopment project directly across from CU’s University Memorial Center, is currently under way. These new properties feature three- and four-bedroom units with community-building amenities, such as study areas, courtyards and, in the case of Lofts on the Hill, an attached restaurant.

Reviewing the websites for these new developments, I see that options for off-campus student housing at CU are changing. I can’t help but think that future students will miss out on the joys of frost lining the inside of their bedroom windows, or the steep, nearly vertical, ice-covered pathway to campus up 17th Street.


Sara Kassabian is a reporter at Institutional Real Estate, Inc.

Kicking off the conference season

The INREV Winter Seminar in London always marks the beginning of the conference/meeting circuit in Europe. With the previous year done and in the books, it’s a time when institutional unlisted fund managers can come together to rehash the past year and make predictions for the current one — as well as mingle, network, meet and greet. It’s a lot like the first day of school — there’s a feeling of excitement and optimism for what is to come, and even if you aren’t feeling all that optimistic, you at least have your besties around for a good time.

The vibe at the event this past week was upbeat. Everyone was pretty much in agreement that not a lot of new things were happening — but that was seen as a good thing as real estate investors like stability. Despite some continuing thrashing around in the euro zone, economies in the major western countries are beginning to find their footing, and industry participants are beginning to feel cautiously optimistic that the worst is behind and now is the time for opportunity (though when speaking on the seminar panel, Ben Sanderson, director of international investment at Hermes Real Estate Investment Management, noted, “Caution was rewarded in 2012. I think it will be again in 2013.”)

Although the networking opportunity is the real main attraction to the Winter Seminar, INREV also uses this time to release the results of its annual Investment Intentions survey. As always, the results were a bit skewed based on response levels. Finnish, Dutch and German investors seem to have an almost obsessive compulsion to fill out surveys; French and U.K. investors not so much. Of the 65 institutional investors who responded to the survey, 55 percent were from the top three countries. Thirty-seven percent was made up of investors from the United Kingdom, Denmark, France, Sweden, South Korea, Japan and the United States, while the final 8 percent was classified as “Other.” Seventeen funds of funds and 72 managers also participated.

Given the bias of investors to invest in their own domestic markets, and given that the preponderance of respondents came from Finland, the Netherlands and Germany, it’s no surprise that the top countries or regions for investment are the Nordics and Germany. The Dutch would probably also prefer their own domestic market if it were larger.

Although there were few to no surprises in the survey (see “stable market” reference up above), there were some interesting tidbits. One item that popped up was how far apart investors and managers still are when it comes to how they view their relationships. When asked to identify the number one obstacle to investing in unlisted funds, nearly 60 percent of investors chose “alignment of interest with fund managers.” Only 29 percent of the managers felt this was a problem. The second most important obstacle for investors was the costs associated with investing in funds, with around 36 percent seeing this as a problem. Only 12 percent of managers felt costs were problematic.

For managers, market conditions still reign supreme as the number one obstacle to investing in funds, with more than half the managers selecting this option. A little over 30 percent of investors agree that market conditions are a factor.

When discussing the investors’ concern with alignment of interests, John Gellatly, head of real estate multi-manager at Aviva Investors Real Estate Multi Manager, spoke for the investors when he said unaligned interests sometimes come to the forefront and are highlighted when the contracted fund-ending date is approaching. Managers might want to extend the end date because they haven’t realized the returns they projected. Investors might want their capital back to redeploy in other strategies. Failing to return investor capital on the agreed-upon date “really cheeses me off,” he said.

We see this divergent perception in how well manager-investor relations are working at each of our Editorial Advisory Board meetings when we ask questions regarding the investor-manager relationship. Invariably, the investors’ responses indicate rockier partnerships than the manager responses do. Investors believe they are talking, but managers aren’t hearing. It seems that when it comes to viewing relationships, managers really are from Mars and investors are from Venus. Makes for interesting times on Earth.

Other quick snippets from the survey:

  • Although core funds are still preferred by 50 percent of investors, 42.9 percent prefer value-added funds compared with 21.9 percent in the previous year. It will be interesting to see if this preference really translates into action, or if it is only a desire for higher returns without the will to take on higher risk.
  • The survey results also show that a majority — 55.9 percent — of investors expect to increase the share of real estate in their overall multi-asset portfolio. European joint ventures and club deals in particular will play an important role in achieving that, especially for large investors.
  • The situation for traditional non-listed funds is different. Since 2011 the percentage of investors expecting to increase their allocations to non-listed real estate funds has steadily fallen. In line with this, the percentage of investors expecting to decrease their allocations to non-listed funds has risen.

Sheila Hopkins is managing director – Europe and infrastructure with Institutional Real Estate, Inc.

Scaling tall buildings in a single bound

Burj Khalifa towerWe like our downtown real estate tall, slim and handsome. Just take a look at high-rises that stud urban cores the world over. Property in downtowns is expensive, so we maximize the value of our footprint by building vertically to add square footage into the heavens.

If you think downtown real estate in big cities is expensive now, imagine what it would cost if not for the continuous technological innovation of one particular necessity of any tall building: the elevator (or, as the Brits prefer to call it, the “lift”). And now elevators are hitting new heights. Otis, one of the world’s largest elevator manufacturers, has just debuted what it considers the most advanced elevator system in the world, carrying people to the top of world’s tallest building, the 124-story Burj Khalifa complex in Dubai, using 57 speedy double-deck elevators that sweep riders skyward at several thousand feet per minute.

High-rises wouldn’t even exist if not for the elevator, says elevator historian Lee Gray, associate dean of the College of Arts and Architecture at the University of North Carolina at Charlotte. Without a vertical transportation system, it wouldn’t be practical to build anything taller than four or five stories.

We’ve come a long way since the first passenger elevators went into widespread use in the late 1860s and early 1870s. Elevators have become progressively more powerful. What used to scale just 20 stories can now scale six times that elevation. Lee says elevators such as the ones found in Taipei 101 in Taiwan travel about 3,300 feet per minute — so fast the elevator car must be slightly pressurized (like an airline fuselage) to keep riders ears from popping or aching.

The Otis elevators at Burj Khalifa take directions from a central “brain” capable of predicting human behavior. Engineers have developed an algorithm that controls the flow of people through a building.

Legg Mason, the Baltimore-based asset management firm, also has an advanced elevator system that uses an LCD screen in the lobby to tell employees which elevator to use. The elevator knows of each employee’s presence, their location and which floor they’re headed to because employees swipe ID cards when entering the facility.

Elevators are obviously getting more intelligent, but they’re not going to climb any higher using the current cable-driven technology, Gray says. That system has pretty much maxed-out at about 125 stories.

But the sky’s the limit if the right next-generation technology is invented, according to Gray. He put it this way during an interview with National Public Radio: “If we have an elevator that does not require any cables, then … that mile-high skyscraper that Frank Lloyd Wright proposed in the 1950s could well become a possibility.”


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

Smaug versus smog: China’s airpocalypse

In J.R.R. Tolkien’s The Hobbit, a fire-breathing dragon named Smaug “came hurtling from the North, licking the mountain-sides with flame, beating his great wings with a noise like a roaring wind. His hot breath shriveled the grass.”

This month in China, citizens have been living in fear of the outdoors and of being choked out by the air they breathe, not due to Smaug, a creature invented by an author’s vivid imagination, but due to man-made hazardous smog, which has sent thousands — especially children — to the hospital with respiratory conditions in what has come to be known in Beijing as the “airpocalypse,” according to NPR.

Much like with Smaug, severe choking smog, which can come and go with the wind, will rarely descend upon a multitude of cities. But the public outrage of Chinese citizens, staunchly open media attention and swift promises by the Chinese government to cut air pollution indicate that China can’t continue its blistering economic and construction growth pace without negative consequences to its own people — and to the world’s environment — even as the rest of the world still looks in large part to China to keep fueling the global economy.

By 2021, China’s is projected to contribute 35.5 percent of overall global real estate growth, more than any other country in the world and more than twice the projected property value growth for the United States, according to research from Emerging Trends in Real Estate: Asia Pacific 2013, released in late November 2012 by the Urban Land Institute and PricewaterhouseCoopers.

But to get to such a point a decade from now means that true livability in China, including the air that is breathed, will need to take high priority. After all, what value can any city’s property truly hold if it becomes too toxic to live there? Will the needed environmental regulations and standards in China actually take place, or will the zeal for growth continue to outweigh the costs? What role can and should institutional investors play in all of this?


Jennifer Molloy is editor of The Institutional Real Estate Letter – Asia Pacific.

The best bets for infrastructure investment

In December, London-based “built asset consultancy” EC Harris published its Global Infrastructure Investment Index: Move from Risk to Reward, a report that ranks infrastructure investment markets.

“Investors and asset owners need to be wary of the differing risks and potential opportunities each market presents them with,” the report notes. “Our Global Infrastructure Investment Index report analyzes and ranks 40 countries according to their attractiveness as infrastructure investment locations, and can be used to evaluate the potential opportunities and risks associated with each country.”

The index ranks countries on the following criteria: quality of existing infrastructure, economic environment, ease of doing business, political/social environment and availability of finance/financial environment. EC Harris primarily used data from the World Bank, the World Economic Forum and the Heritage Foundation as well as other global sources.

EC Harris used a four-quadrant matrix to determine the best places to invest:

  1. Cash rich, asset poor (Qatar, Brazil and Russia)
    Where infrastructure is the enabler for new and growing economies to develop, these types of countries have historically been viewed as higher-risk countries to invest into. A good example is Qatar, which has a very high GDP per capita but assets are currently under development.
  2. Cash poor, asset rich (Germany and the United Kingdom)
    These countries are typically suffering from aging infrastructure that needs replacing, but due to economic constraints, there are limited government funds available to do so. A good example is Greece, which has a poor economic outlook and limited government funding to help restore and invest into its current infrastructure.
  3. Cash rich, asset rich (Singapore, Canada and China)
    There is much less risk involved when investing into countries that have good infrastructure, available cash flow and the outlook is deemed safe because of predictable income streams. A good example is Singapore; the current infrastructure is advanced, and the future economic outlook remains positive.
  4. Cash poor, asset poor (India and Pakistan)
    Countries suffering from the burden of both poor infrastructure and poor economic outlook are often viewed as a higher-risk investment. A good example is Pakistan, where investing in current infrastructure would be viewed as a high risk, in part influenced by its poor economic outlook, but also by its low levels of government transparency and lack of investor protection within the legal system.


Drew Campbell is senior editor of Institutional Investing in Infrastructure.

New year, new tax

What do you mean my paycheck is smaller in 2013? That seems to be one of the main topics on many American workers’ minds and lips in the New Year.

According to The Wall Street Journal, a temporary cut in Social Security withholdings gave Americans hundreds of extra dollars to spend over the past two years, but that ended this year. Congress allowed that nice tax break to expire during the fiscal cliff dilemma, meaning that Social Security taxes have increased to 6.2 percent of salary from the temporary 4.2 percent.

Even with the increase in spending in December 2012 — 0.5 percent in December according to the Washington Post — this tax increase may have consumers spending less, which may possibly leave retailers taking a hit.

A Yahoo! Finance article states that Roberton Williams, a tax economist and the Sol Price Fellow at the Tax Policy Center in Washington, said the expiration of the payroll-tax cut will leave the average American household with $18 or $20 less to spend each week, or $900 to $1,000 per year. Also, for the country’s consumers as a whole, Williams said that is a decline of $120 billion from the previous year. The total comes to approximately 0.8 percent of U.S. GDP and is nearly equivalent to the most recent full-year sales at P&G, J.C. Penney Co. and McDonald’s Corp. combined.

Williams continued to state that the impact on the economy now is hard to quantify because it isn’t clear how much of the money in consumers’ paychecks was spent and how much of it was saved.

The tax hit could affect companies such as consumer-goods makers, clothing retailers, department stores, food producers, grocery stores and restaurants. The Wall Street Journal reported many of these companies had better sales, profit growth and improved pricing trends going into the end of 2012, and some could see renewed sales pressure as consumers, particularly in lower-income households, curtail spending. Some companies said it is too soon to estimate the potential impact of the tax break expiration on their sales and profits, but it nevertheless has been a nagging concern.

Despite the increase, some consumers may not be savvy spenders or cut corners when it comes to buying name brand items. We’ll have to wait and see what the next few months report and hope for the best in retail.


Denise DeChaine is special projects editor of Institutional Real Estate, Inc.

Home sweet home

Institutional investment in single-family homes has been the hottest topic over the past week in Institutional Real Estate, Inc.’s LinkedIn discussion group. (Did you know IREI had a discussion group on LinkedIn? Check it out.)

Will single-family residential become an accepted asset class for institutional investment, just as multifamily property has evolved into one of the four main food groups? Or will it continue to stay on the fringes?

Some of the questions raised about the asset class:

  • How do you scale investment?
  • What do you use as a benchmark?
  • Where is the exit?
  • Are investors creating a run-up in housing prices?
  • How do you access product?
  • How do you underwrite appreciation?
  • How do you control operating costs?
  • Will public perception become a problem?

Only time will tell for sure. There’s certainly been no shortage of big names moving into the space, and if the likes of Colony and Blackstone can make it work, then we are likely to see the asset class on a more solid footing.

The recent Silver Bay IPO may be only the beginning.


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

The clue’s in the name

This invitation dropped into my inbox during the week. “You are invited to a major conference on Irish REITs in Dublin on 24 January.” Well, I wouldn’t want to go to a minor conference. I’ll be there, on your behalf.

It’s all to do with the announcement on 5 December 2012 by Michael Noonan, Ireland’s finance minister, in his 2013 budget speech to the Dail, that Ireland is considering setting up a REIT regime similar to that in place in the United Kingdom. Different countries have different reasons for going down the REIT path, but it is usually agreed that a REIT regime is good for property companies, good for property investors and good for governments trying to attract international capital. REITs are an internationally understood and accepted way of gaining property exposure and professionalism. Ireland already operates a favorable corporate tax regime. (Too favorable, mutter some other European Union member states; transfer-pricing accounting jiggery-pokery by multinational companies and associated tax loss are increasingly coming under the spotlight among Europe’s cash-strapped governments.)

A number of eminent speakers are lined up to talk to us on Irish REITs, including: Bill Nowlan, of WK Nowlan & Associates and chairman of the REITs Forum, the instigator of Irish REITs; John Moran, secretary general of the Department of Finance; John Mulcahy, head of asset management at NAMA, the National Asset Management Agency, Ireland’s “bad bank”; Marie Hunt, head of research for Ireland at CBRE; and Philip Charls, CEO of EPRA, the European Public Real Estate Association.

Among the countries of peripheral Europe that are at the kern of the euro zone sovereign debt crisis, Ireland is making the most progress. Its government has taken firm, even harsh, measures to restore fiscal discipline, including de facto nationalization of the country’s banks, and its people have stoutly accepted the pain as a necessary evil. Dealing with the distressed property issue will do much to help solve Ireland’s problems; the action on the banks and the establishment of NAMA were first steps and the framework for Irish REITs that is now being put together will be another. That would allow financially distressed but worked-out property assets from non-performing loan portfolios to be bundled together by the banks and NAMA, and to be put into a REIT structure that can then be floated off to all comers. A deleveraging, diversification and exit strategy that could just work.

It’s not quite the Blarney Stone — that’s Cork, not Dublin — but it may be as close as we’re going to get. The Irish may need a bit of gift-of-the-gab blarney — “flattery sweetened by humor and flavored by wit”, according to John O’Connor Power — to get the I-REITs away. It won’t be a repeat of Spain’s Bankia IPO fiasco, to be sure. Watch this space. Watch out for Irish REITs. No kissing, at least not until we know whether this strategy is going to work.


Richard Fleming is editor of The Institutional Real Estate Letter – Europe.

Tortoises, molasses and DMV lines

When it comes to things that are slow moving, add the current U.S. office market recovery to the list. According to the latest research data, the office market vacancy rate remains stubbornly high, the product of a lackluster recovery in the job market.

Research firm Reis’s fourth quarter report notes that net absorption totaled 3.7 million square feet during the final three months of the year, down from 4.8 million in the third quarter. The national office vacancy rate inched down 10 basis points to 17.1 percent. Despite the fourth quarter’s ho-hum performance, the upside is that the market has experienced positive net absorption for eight consecutive quarters.

“Without a robust labor market recovery, there will be no robust office market recovery,” says Ryan Severino, senior economist for Reis.

Nonfarm payrolls posted a modest net increase of 155,000 jobs in December, and the unemployment rate held steady at 7.8 percent, according to the U.S. Labor Department. Again, while progress has been slow, the unemployment rate is down from the peak of 10 percent in October 2009.

For real estate investors, it’s discouraging the office market national vacancy rate has tightened only 50 basis points from the peak of 17.6 percent in fourth quarter 2010. And today’s rate is a far cry from the healthy 12.6 percent recorded in 2007 prior to the financial crisis.

However, according to a fourth quarter 2012 Office Outlook report from Jones Lang LaSalle (JLL), there are pockets of economic growth where office properties are outperforming the national averages.

“The vast majority of occupancy growth in 2012 was in energy-rich and technology-heavy markets in California, Texas and Colorado,” says John Sikaitis, director of office research at JLL. “Recently there’s been lease activity and growth in healthcare and housing-related industries, suggesting that strong office absorption in 2013 may extend to Arizona, Nevada, Florida, Georgia and the Carolinas, among other geographies. However, the U.S. office market outlook is still very segmented by sector and geography, with some urban and most suburban markets facing a long road to recovery.”

The JLL report notes that office fundamentals in tech markets such as San Francisco, Silicon Valley, Seattle, Austin and Portland, Ore., will continue to improve, as will conditions in energy hubs such as Houston, Denver, Dallas and Pittsburgh.

As for many of the country’s other office markets, expect continued slow and go, at least until the labor market shifts into higher gear.


Larry Gray is editorial director of Institutional Real Estate, Inc.

Malls are here to stay

In recent blog posts, retail and retail property bloggers are exclaiming how U.S. shopping malls are dying due to online shopping. It was reported the final November-December holiday shopping season retail e-commerce spending totals approximately $42.3 billion, marking a 14 percent increase from 2011.

One can jump to the conclusion that the United States faces the likely failure of many retail properties in the coming years due to the ongoing rise of online shopping and store closures.

If this is the case, why are malls still sprouting up and institutional investors still investing in retail properties? For example, this year the Paragon Outlet Mall, a 130-store outdoor mall, opened in Livermore, Calif. And it took more than 20 minutes to get into the parking lot and then stand in long lines between the ocean of people.

Someone is shopping out there.

The Wall Street Journal reported Thor Equities purchased the block-long retail space in the former Helmsley Carlton House on Madison Avenue for $277 million. And Taubman Centers increased its stake in two Florida retail developments for a combined $514.6 million. Also, a joint venture of Inland Diversified Real Estate Trust and Territory Inc. acquired the majority interest in six retail properties in Las Vegas for approximately $296.3 million.

There is still value investing in retail properties. CBRE Group forecasts U.S. retail real estate will have a steady recovery in 2013.

“The consumer rebound has emboldened retailers to resume expansion plans, but they remain cautious. With limited retail development under way, we have had five consecutive quarters of healthy, positive absorption,” Abigail Rosenbaum, economist at CBRE econometric advisors, said in a statement. “Absorption should stay on a positive trend over the next few years, bolstered by continued economic recovery.”

The fundamentals of shopping malls are changing. Malls are becoming more than just a place to shop. Malls are becoming entertainment destinations. For example, movies theaters and sit-in restaurant chains are becoming more tenants.

So-called “entertainment retail centers” are now the focus of REITs such as Entertainment Properties Trust, which has invested over $600 million in eight such centers.

The act of socializing will always keep malls around. Malls are not going anywhere.


Andrea Waitrovich is web content editor of Institutional Real Estate, Inc.