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2020 | Buch

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Rethinking Real Estate

A Roadmap to Technology’s Impact on the World’s Largest Asset Class

verfasst von: Dror Poleg

Verlag: Springer International Publishing

Enthalten in: Springer Professional "Wirtschaft+Technik" , Springer Professional "Technik" , Springer Professional "Wirtschaft"

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Über dieses Buch

Technology is revolutionizing the way real estate is designed, operated, and valued. It is democratizing access to capital and information, changing the way tenants use space, and eroding the power of regulation. Billions of dollars are funding these new real estate technologies and operating models. Value is shifting away from the assets themselves toward those who understand the needs of specific end-users and can use technology to deliver comprehensive, on-demand solutions. With all of these developments, there is an urgent need for a resource that helps industry practitioners think differently about their investment, customers, and competition.

Rethinking Real Estate answers that call. It explores the impact of technology on all asset types — from retail projects, through lodging and residential properties, to office buildings and industrial facilities. Based on the author’s two decades of experience working across four continents alongside the world’s leading real estate investors, as well as hundreds of conversations with start-up founders and venture capitalists, this book provides practitioners with key insights, methodologies, and practical strategies to identify risks, take advantage of emerging opportunities, evaluate new competitors, and transform their organization, project, venture, or career.

Whether you are an investor, developer, operator, broker, lender, facility manager, designer, planner, or technology entrepreneur, this book will help you navigate the exciting period ahead.

Inhaltsverzeichnis

Frontmatter

1. Introduction: Real Estate Value in a Changing World

Abstract

“I had never seen such ugly cows in all the land of Egypt,” said the Pharaoh. “The lean, ugly cows ate up the seven fat cows that came up first. But even after they ate them … they looked just as ugly as before. Then I woke up.”

Joseph listened intently and interpreted the dream as follows: the kingdom’s farmland was about to experience seven years of unprecedented yields, followed by seven years of drought. He told the Pharaoh that “the abundance in the land will not be remembered, because the famine that follows it will be so severe”. In order to prepare, Joseph advised the Pharaoh to “collect all the food of these good years that are coming … to be kept in the cities for food”.

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Retail

Frontmatter

2. Retail Properties in Context

Abstract

A lady walks into a store. It is different from any store she had ever seen. One could say it wasn’t exactly a store at all. Instead of stacked shelves and busy shopkeepers, the space is laid out like the living room of an expensive residence.

The store didn’t look like it was designed to sell, in the traditional sense of the word. Instead, it was designed to generate an emotional response; to entertain, to create an experience. Shopkeepers from earlier generations would have been perplexed by what an auditorium, a restaurant, an exhibition, and a roof garden were doing inside a store.

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3. How to Think About the Future of Physical Retail

Abstract

Describing where retail is headed, or even where it currently stands, is almost impossible. In perusing reports from some of the world’s leading consultancies, one is bombarded with descriptions of new technologies that will imminently change the way we shop: virtual reality, augmented reality, and mixed reality; smart mirrors, smart payments, smart shelves, and smart appliances that shop for their own replenishments; 3D body scanners and 3D printers; robotic salespeople and artificial intelligence (AI)-powered personal shoppers; and the list goes on. With so many different predictions, it’s hard to make sense of it all. Should we focus on the forest or the trees?

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4. Forces Reshaping Physical Retail

Abstract

Do transaction costs still matter? Looking through the lens of triangulation, transfer, and trust, it may seem that many of the challenges that shaped the retail platforms of the past have been conquered. We live in an age of abundance, where retailers offer “everything” on demand, consumers have access to real-time pricing and reviews, and seamless shopping experiences make it almost too easy to complete a transaction. Digitally powered abundance questions the necessity of physical retail. At the same time, they give rise to new forms of scarcity and friction that can make physical space more valuable than ever.

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5. The Challenges to Retail Landlord Innovation

Abstract

In 2017, Westfield Corporation, a large retail landlord, established OneMarket, a platform to facilitate the sharing of data and know-how between retailers, brands, venues, and other partners. Westfield’s main U.S. and U.K. portfolio has since merged into Unibail-Rodamco, forming Europe’s largest commercial real estate company and one of the world’s largest retail landlords. Following the merger, OneMarket was spun off as an independent company. As of July 2019, it seems to be burning cash quickly while not generating significant traction. The initiative seems to have fallen between the cracks during the change in ownership and management at its parent company.

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6. Landlords of the Future

Abstract

In March 2019, Stephen Ross, the Chairman of Related Properties formally opened The Shops & Restaurants at Hudson Yards, a one-million-square-foot mall on Manhattan’s West Side. New York City is not famous for its shopping malls. And retail projects are not the most popular investment of Q1 2019. It remains to be seen whether this mall will do well, but it is already clear that its developer is taking a different approach, one that points a possible way forward for other companies in the space.

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7. Rethinking Physical Retail Properties

Abstract

The convergence of digital and physical channels means that the business of retail landlords is increasingly governed by the economics of tech. As we pointed out earlier, these economics entail significant upfront investments that (may) lead to dramatic reduction in the marginal cost of serving each new customer. In other words, the growing role of technology is intensifying returns to scale in the physical retail industry. As a result, being big and integrated is becoming an advantage in the battle to remain relevant. Small landlords will not be eliminated, but they will have to rely on third-party operators or find new ways to partner with companies that can contribute operations and marketing resources (including existing OpCo, but also companies that have not yet emerged).

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Office

Frontmatter

8. Offices in Context

Abstract

Jay Chiat has always been a maverick. His firm, Chiat/Day, created the famous 1984 television commercial for the first Macintosh computer and helped Steve Jobs convince or, more accurately, force Apple’s board to air it during the Super Bowl.

In the ad, a group of pale workers in bluish-gray uniform is marching inside a bluish-gray building and then sitting down to watch an authoritarian Big Brother give an emphatic speech about the future. Out of the blue, an athletic woman in a bright white shirt and orange shorts runs into the room and hurls a hammer at Big Brother’s digital image. The workers are liberated!

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9. Forces Reshaping Supply of Office Space

Abstract

The first are from the “About Us” page of three publicly listed real estate investment trusts (REITs), with a combined market capitalization of over $40 billion. These descriptions are fairly standardized across the industry; dozens of other major landlords use very similar terms. The fourth is from the introduction of the We Company, parent of WeWork, valued at $47 billion as of July 2019. The We Company doesn’t have an “About Us” page; its website links to a blog post written by its three founders.

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10. Forces Reshaping Demand for Office Space

Abstract

The growing popularity of flexible and alternative office locations is driven by dramatic changes in the nature of demand. Technology makes it harder to predict demand for office space. It makes it harder to pick good tenants. It makes it harder to determine what tenants want. And it makes it necessary to provide more specialized office solutions, very different from those offered by most traditional landlords.

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11. Office Landlords in the Twenty-First Century

Abstract

Office landlords are facing an unprecedented abundance of supply. This abundance is not the result of new construction. Rather, it is the result of individuals’ ability—and desire—to work from anywhere. Old office buildings, existing and repurposed shopping malls, hotel lobbies, restaurants, cafés, and homes are serving the “office” needs of some workers, some of the time. In addition, new operators use software and hardware to optimize the design of and access to existing office inventory—enabling customers to take less space. The inherent scarcity of the physical asset is no longer an adequate defense against new competitors.

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12. Rethinking Office Buildings

Abstract

Office buildings are the ultimate institutional real estate asset. Historically, investors have been attracted to their steady and predictable income streams, their no-frills value proposition, and the fungibility of their tenants and their operators.

Today, technology is changing the way office space is used and redefines how, where, and even why people go about their work.

The supply of space for work is no longer constrained by zoning or the pace of new construction. Technology makes it possible to make more intensive use of existing assets through densification and intensification. It enables older and smaller assets to compete for the best tenants using new distribution channels, through emphasis of non-traditional product dimensions, and by redefining accessibility and mobility. It frees up large spaces that were previously used for retail. It allows work to bleed into dedicated spaces in non-office buildings such as hotels and multifamily projects. And it allows hospitality spaces to double as office spaces during certain hours of the day, coordinated by software.

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Housing and Lodging

Frontmatter

13. Housing and Lodging in Context

Abstract

In 1904, William E.D. Stokes completed the construction of the Ansonia, one of the “largest, handsomest, and most complete apartment hotels in the world”. Stokes wanted to build a self-sustainable residential community and “put flexibility in the foreground”. Residents at the Ansonia could stay for a day or a year. Some stayed for decades. The management company provided furniture, fresh towels, linen, and kitchen utensils.

The Ansonia was designed as a luxury building, but the smaller apartments were relatively affordable, attracting teachers, writers, aspiring actors, and other young professionals. Some of the apartments had separate units that could be rented out to external tenants or guests. These guest units could be accessed from the main apartment or separately through a public corridor. This arrangement also made it easy for apartments to “grow” over time to accommodate new children or other life changes.

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14. Forces Reshaping Lodging

Abstract

It was an unprecedented victory. Barack Obama took on two powerful political brands—Clinton and McCain—to win the 2008 U.S. Presidential election. Obama’s victory was unprecedented in more than one way, including its use of technology.

For the first time ever, a majority of the adult population relied on online sources for information about candidates and policies. For the first time, a candidate chose not to participate in the public financing system for presidential campaigns—a system that would have granted Obama over $84 million in guaranteed funding but would have limited his ability to raise private donations. Instead, Obama relied on the distribution and fundraising power of new digital tools. His campaign even got an early endorsement from Marc Andreessen, perhaps the most influential venture capital investor in the world at the time.

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15. Forces Reshaping Housing

Abstract

In 2006, the living room of Chris Bledsoe became a makeshift bedroom. The guest, in this case, did not arrive through Airbnb. Andrew, Chris’s younger brother, just moved to the city and needed a place to stay. After a few weeks, the couch became uncomfortable and Chris encouraged Andrew to get an apartment of his own. A few additional weeks later, Chris provided the necessary guarantees for a lease on a one-bedroom apartment and Andrew moved out.

But the brothers had a plan. To help pay the rent, Andrew decided to bring in sub-tenants. He used a pressurized wall system to split the living room into two tiny but private rooms and posted a short ad on Craigslist. Within 48 hours, nearly 90 people responded to the ad.

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16. Rethinking Housing and Lodging

Abstract

The technological and demographic changes of our age correspond with those of the late nineteenth century, fueling demand for housing solutions that are shared, flexible, serviced, and urban. Today’s plain apartment buildings were once considered radical, opposed by social critics, and avoided by most “proper” people. The notion of sharing a hallway, a laundry room, an elevator, or a roof with other families was seen as a recipe for moral decline. Perhaps it was then, but we now consider it normal. In turn, many of today’s radical design, ownership, and operating models will seem mundane to our children (if we have any).

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Logistics and Industrial

Frontmatter

17. Logistics and Industrial in Context

Abstract

It was a rainy November afternoon in the city of Everett, in Washington state. A white Subaru sedan stopped in front of the Buxton residence. A man in a plaid shirt stepped out of the car. He opened the trunk, took out a brown cardboard box, and walked toward the front door. No one was home. He dropped the box on the mat and looked around. The street was empty. He took out his phone, clicked on an app, and looked around again. Seeing no one, he bent down and picked up a different, smaller box. Then, he turned around, walked back to his car, and drove away.

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18. Forces Affecting Supply and Demand for Industrial Real Estate

Abstract

In the Summer of 1919, a young Lieutenant Colonel named Dwight D. Eisenhower joined 23 other officers and 258 enlisted men on a journey to “test the mobility of the [U.S.] military during wartime conditions”. The test consisted of driving a convoy of military trucks from Washington, D.C., to San Francisco, a total distance of 3250 miles, in order to see how difficult it would be and how long it would take. The journey took 62 days. It involved dozens of accidents, malfunctions, and multiple injuries for the soldiers involved. Just from driving.

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19. Industrial Landlords in the Twenty-First Century

Abstract

The growth of online commerce makes the demand for industrial spaces higher than ever. At the same time, the value of each space is contingent on its ability to accommodate unique hardware systems and integrate with retailers’ unique distribution channels. And some of the largest tenants are not waiting for landlords to accommodate them—they are buying their own land and putting up their own custom structures. In other cases, landlords can cater to smaller clients through new on-demand marketplaces, but these mean that the physical spaces are becoming somewhat commoditized and the customer relationship belongs to the owner of the marketplace.

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20. The Liberation of Things, People, and Cities

Abstract

“Whoever’s is the soil, it is theirs all the way to Heaven and all the way to Hell.” The ancient legal principle of ad coelum et ad inferos states that the rights of a landowner extend indefinitely above and below the ground. The idea dates back to the Roman Empire and appears in English law since at least 1587. It survived in various forms well into the twentieth century, even in the U.S., until 1946. That year, the Supreme Court finally decided that the “doctrine has no place in the modern world”. As Justice William O. Douglas wrote, “common sense revolts at the idea” whose application in modern times would mean that every commercial flight would lead to “countless trespass suits”.

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21. Rethinking Logistics and Industrial Properties

Abstract

Industrial real estate is a key component of many of the world’s largest institutional portfolios. Historically, the category was the smaller and somewhat less glamorous sibling of office, retail, and multifamily properties. The growth of online commerce and consumer demand for increasingly fast delivery windows has brought industrial properties to the fore.

In recent years, investors have been acquiring fulfillment centers and sites at a rapid clip, pushing valuation multiples (cap rates) into territories that were heretofore reserved only for other commercial assets. Demand for storage and fulfillment space is expected to grow in line with e-commerce, which still constitutes only a sixth of all retail sales in the U.S. and a little over a third in China. New product categories, most notably groceries, are also starting to shift online.

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22. Conclusion: Property’s Unreal Future

Abstract

This is a book about the present and the future. But while writing it, we found ourselves constantly drawn to the past, particularly to the second half of the nineteenth century. The opening line of Charles Dickens’s A Tale of Two Cities, first published in 1859, encapsulates the spirit of our own time better than anything written since. Dickens wrote during the Industrial Revolution and about the French Revolution. He described a time of rapid change when both risk and opportunity were heightened to an unusual degree.

It was a time very much like ours. Retail spaces were becoming social and experiential. People were working out of coffee shops and lobbies. It was often difficult to distinguish between apartment buildings and hotels. Streets were bustling with new transportation devices. Consumers were more educated, better informed and, at the same time, more frivolous and seemingly irrational. New companies were emerging in new industries that reached unprecedented scale.

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Backmatter

Titel: Rethinking Real Estate
verfasst von: Dror Poleg
Verlag: Springer International Publishing
Electronic ISBN: 978-3-030-13446-4
Print ISBN: 978-3-030-13445-7
DOI: https://doi.org/10.1007/978-3-030-13446-4