The First Facility Management Blog

On Wednesday, June 24, 2009, executives at the Sears Tower announced plans for the most significant sustainable modernization projects of an existing building ever undertaken. The project will result in energy savings and reduced CO2 emissions to the tallest building in the Western Hemisphere, cutting base building electricity use by up to 80% (by way of a combination of energy savings and cogeneration). The energy savings will equal 68 million kilowatt hours annually or 150,000 barrels of oil every year.

The sustainability plans also intend to drive economic development in the West Loop, creating more than 3,600 jobs. This is all part of a broader initiative to transform the global icon.

“Sears Tower (pictured, left, with new new Skydeck on the 103rd floor), an iconic structure that defines the city’s skyline, will undergo a groundbreaking transformation that creates economic growth with positive impact on our environment, leaving a lasting legacy for future generations,” said John Huston of American Landmark Properties, representing the partnership that owns Sears Tower. “The changes made and benefits realized through the bold sustainable initiatives at the tower serve as an example that a sustainable future is more than a concept, it is within our reach.”

The building, which already meets Leadership in Energy and Environmental Design (LEED) criteria, will undertake sustainability initiatives above and beyond those used by the United Stated Green Building Council to rate a green building. Modernization strategies, designed by Chicago-based Adrian Smith + Gordon Gill Architecture (AS+GG), include:

• Efficiency improvements to the building’s exterior envelope and windows. The tower has 16,000 single pane windows. Sustainability plans for the building call for a window replacement and glazing program. Strategies to achieve a thermal break of the curtainwall are also being investigated. These upgrades would achieve savings of up to 60% of heating energy.
• Mechanical system upgrades in the form of new gas boilers that use fuel cell technologies, which generate electricity, heating, and cooling at as much as 90% efficiency. Mechanical upgrades will also include new high-efficiency chillers and upgrades to the distribution system.
• The tower’s 104 high speed elevators and 15 escalators that will be modernized with the latest technology to achieve 40% reduction in their energy consumption.
• Water savings that will be realized with conservation initiatives through upgrades to restroom fixtures, condensation recovery systems, and water efficient landscaping, which will reduce water usage by 40% and save 24 million gallons of water each year.
• Lighting that will be upgraded through advanced lighting control systems and daylight harvesting, an advanced lighting control system that automatically dims lights in tenant spaces based on the amount of sunlight entering through the windows. Combined, these upgrades will save up to 40% of lighting energy consumption.
• Renewable energy like wind and solar, and technologies like green roofs that will be tested. Wind turbines will be tested to take advantage of the tower’s height and unique set-back roof areas. Solar hot-water panels will help heat water for the building. Green roofs that can sustain high-altitude conditions, and that will be among the tallest in the world, will be tested to reduce storm water runoff, improve insulation, help mitigate the urban heat island effect, and provide pleasant vistas for tenants overlooking the areas.

“Buildings are the world’s largest contributor to carbon emissions; therefore, the biggest opportunity to address climate change is to retrofit existing structures,” said Adrian Smith, partner, AS+GG. “Our goal in the Sears Tower greening project is to create a holistic approach that integrates high-performance building technologies and design strategies for maximum energy efficiency. In the process, we hope to set a benchmark for how high-rise buildings throughout the world can limit their impact on the environment.”

“Sustainable architecture in new buildings is important but not enough to address the climate and energy crises facing our world,” added Gordon Gill, partner, AS+GG. “We have to apply what we’ve learned to our existing stock of commercial buildings—especially iconic structures such as Sears Tower, which we hope will inspire similar initiatives around the globe. These will serve as great examples for building owners and facility managers and can reposition existing building stock to be as competitive as most new buildings or even better.”

As an important part of the modernization program, Sears Tower’s plazas and retail spaces will also undergo changes. A new park at Wacker Drive and Adams Street will be an inviting public space with landscaping and seating. The Adams Street granite wall will be replaced with an interactive digital display, glass storefronts, and trees, which will be planted to form a landscaped terrace that will add a natural filter for carbon dioxide.

In addition to the most significant energy efficiency renovations ever undertaken on an existing building, another aspect of the transformation is a proposed new, privately funded hotel for the site at Jackson Boulevard and Wacker Drive. The hotel will be designed for a LEED Gold rating and will become one of the most sustainable hotels in Chicago. The hotel will fill a critical need in the West Loop and provide a much welcomed facility for existing building tenants.

The reduction in energy use and CO2 emissions realized through the sustainability and modernization plans for the tower also brings economic opportunities by creating more than 3,600 jobs. Extending its impact beyond the site itself, the project will feature a dynamic Sustainable Technology Learning Center that is designed to help building visitors and Chicago tourists learn about ways to save energy and money, as Sears Tower serves as a laboratory that demonstrates to the office building industry how a sustainability program can be accomplished.

“The plans for the building bring new activity to the West Loop and make it even more attractive to current and future tenants who are looking for more sustainable office solutions,” said Robert A. Wislow, chairman and CEO of U.S. Equities Asset Management, the management and leasing agent for the tower. “Today, tenants want the buildings they inhabit to be environmentally friendly and more healthy for their employees. They demand sustainable workplaces. They are doing this because it is the right thing to do, has a positive effect on the environment, helps make their employees more productive, and is becoming more and more important to their employees.”

The cost of construction for the Sears Tower project is estimated at $350 million. A number of private and public financing and funding options are being explored. The majority of the energy savings will be realized in approximately five years and work will start immediately.

“The Illinois Environmental Council supports private and public investments in projects that spur job creation and economic development here in Illinois, while helping to meet the challenge of global climate change,” said Charles Jackson, IEC executive director. “The Sears Tower energy sustainability and environmental education project presents a tremendous opportunity for inspiring building owners and the public to aspire to the highest standards of energy-efficiency.”

Sears Tower’s commitment to energy efficiency is well established. Since 1989, the building has reduced its annual electricity consumption by 34%. Since 1984, its energy efficiency improvements have resulted in a reduction of 51 million pounds of carbon emissions annually, or the equivalent of removing more than 4,400 cars from the road each year.

Sears Tower offers more than 4.5 million square feet of office and retail space. Located in Chicago’s West Loop at 233 S. Wacker Drive, the skyscraper stands 1,450 feet and 110 stories tall. Originally opened in September 1973, it is home to more than 100 different companies and boasts spectacular views that can reach nearly 50 miles on a clear day. Sears Tower also boasts a tremendous infrastructure system, which includes enormous telecommunications capacity and unsurpassed electrical capacity and reliability. The Sears Tower Skydeck on the 103rd floor attracts more than 1.3 million visitors per year.

On May 19, 2009, the Clinton Climate Initiative (CCI), a project of the William J. Clinton Foundation, announced a global program developed in collaboration with the U.S. Green Building Council (USGBC), called the Climate Positive Development Program. The program will support the development of large-scale urban projects that demonstrate cities can grow in ways that are “climate positive.” Climate Positive real estate developments will strive to reduce the amount of on-site CO2 emissions to below zero.
 
Sixteen founding projects on six continents, supported by local governments and property developers, will demonstrate Climate Positive strategies, setting a compelling environmental and economic example for cities to follow.
 
Rapid urban growth and climate change are putting the world’s cities in a vise grip of escalating infrastructure, energy, and health and human services costs that will be magnified by the pressure of climatic adaptation. How cities change and grow is therefore a critical component to tackling the climate crisis.
 
“As the Earth’s population increases and our cities grow, we need to ensure we have the models in place to sustain our way of life in an increasingly urbanized world,” President Clinton said. “The Climate Positive Development Program will set a new global standard for developments that will minimize environmental impacts and benefit economies as we build and rebuild homes, schools, and businesses.”
 
To reduce the net greenhouse gas emissions of these projects to below zero, property developers and local governments will agree to work in partnership on specific areas of activity. This includes implementing economically viable innovations in building, the generation of clean energy, waste management, water management, transportation, and outdoor lighting systems.
 
When the initial 16 projects are completed, nearly one million people will live and work in Climate Positive communities. These communities will be located in:  Melbourne, Australia; Palhoça, Brazil; Toronto, Canada; Victoria, Canada; Ahmedabad, India; Jaipur, India; outside Panama City, Panama; Pretoria, South Africa; Johannesburg, South Africa; Seoul, South Korea; Stockholm, Sweden; London, UK; San Francisco, USA and Destiny Florida, USA.
 
“We know that when it comes to combating the threat of climate change, cities are acting in many ways,” said Toronto Mayor David Miller, Chair of the C40 Group of large cities leading on climate change. “Climate Positive is yet another way cities will be able to continue to lead this important fight. This initiative is particularly important as the world becomes more urbanized and I want to thank CCI for making it a reality.”
 
“I am sure our effort to fight global warming will be a successful one if initiatives like the Climate Positive Development Program continue to be widely accepted around the world,” said Oh Se-hoon, Mayor of Seoul. 

The Ohio Council of Local Sections of the American Society of Civil Engineers (ASCE) released its 2009 Ohio Infrastructure Report Card that gives Ohio’s infrastructure a grade of C-. The report graded the current condition of 10 infrastructure areas that are essential to the state’s economic prosperity and quality of life. Areas graded are aviation, bridges, dams, drinking water, electricity, parks and recreation, railroads, roads, schools, and wastewater. The ASCE Ohio Council estimates that an investment in infrastructure renewal of more than $46 billion is needed over the next five years to address the state’s crumbling infrastructure.

This assessment of Ohio’s infrastructure follows the January 28, 2009 national release by ASCE of its fourth Report Card for America’s Infrastructure, The 2009 Report Card for America’s Infrastructure. This report card, like its predecessors, was designed to provide a grade for the current condition of components of America’s crumbling infrastructure, raise public awareness, stimulate debate, and propose, highlight, and promote solutions. ASCE graded the nation’s overall infrastructure condition as a D, and estimated the projected cost for repairing the nation’s infrastructure as $2.2 trillion over the next five years. ASCE has called for a renewed partnership between citizens; local, state, and the federal governments; and the private sector to work together to define the most critical projects and get the support needed for immediate action.

Ohio’s infrastructure grades ranged from a high of B- for bridges to a low of D for roads. The areas of drinking water and wastewater also had low grades of D+. There are reasons for concern and need for investment in all the areas evaluated in the report.

Aviation infrastructure in Ohio received a grade of C-. Ohio ranks third in the nation with 124 paved and lighted general aviation airports. Only 58% of runways, 57% of taxiways, and 62% of aprons (the area where aircraft are parked, loaded, and unloaded) meet the satisfactory condition index. These percentages are below Ohio Department of Transportation (ODOT) Office of Aviation established goals. Ohio’s commercial service airports are meeting capacity requirements. ODOT has estimated that $9.8 million a year is needed to maintain airports at their existing condition and an additional $117 million is required to provide improvements to meet the state systems goal that 85% of runways, 80% of taxiways, and 75% of aprons have a satisfactory rating.

Bridges in Ohio received a grade of B-. Bridges in Ohio are crucial components of one of the largest transportation systems in the United States. Many bridges in Ohio have reached their expected service life and are in need of rehabilitation or replacement. The council estimates that it would cost $3.6 billion to replace all the structurally deficient bridges and rehabilitate two-thirds of the functionally obsolete bridges in Ohio. This estimate does not include any design, roadway, nor land acquisition costs associated with these projects.

Dams in Ohio received a grade of C. There are more than 2,600 dams in the state of Ohio. Nearly 70% of dams are privately owned. There were 1,597 state-regulated dams in Ohio in 2007. Of the state-regulated dams, 33% are rated as being deficient. It is estimated that $309 million is required to make repairs to the 524 deficient dams in the state. As of 2007, 43% of Ohio’s high hazard dams had Emergency Action Plans (EAP), a key measure in reducing the risk to the public. An EAP is a formal document that identifies potential emergency conditions at a dam and specifies pre-planned actions to be followed to minimize property damage or loss of life in the event of a dam failure.

Drinking water infrastructure in Ohio received a grade of D+. Approximately 90% of Ohioans receive water for daily needs from one of the more than 6,000 public water supply systems in the state. An estimated 99% of the burden for funding public water supply is borne by the local government agency. ASCE estimates that Ohio has $9.68 billion in drinking water infrastructure needs. The Ohio EPA Division of Drinking and Ground Water estimates that drinking water stimulus project funds will total approximately $58.5 million under the American Recovery and Reinvestment Act. As of April, 2009, the Ohio EPA had received project funding requests for more than 1,400 projects for a total of $3 billion.

Electricity infrastructure in Ohio received a grade of C+. Electric generation, transmission, and distribution systems in Ohio are satisfactory, reliability problems are relatively few, and those that exist are being addressed by system improvements. However, mandates related to alternative energy and environmental protection pose problems for Ohio’s electric utilities in the future. In 2008, the Ohio legislature passed a bill that requires that 12.5% of energy come from alternative energy sources (including renewable, conservation, and clean thermal) by 2024. Furthermore, federal regulations may have a great impact on Ohio’s electric generating capacity, as approximately two thirds of our electricity is provided by coal. There is a strong possibility that coal-fired generation will be required to drastically reduce CO2 emissions in the future which could impose large financial burdens on our current system.

Parks and recreation infrastructure in Ohio received a grade of C-. Park systems in Ohio provide a crucial economic element in terms of jobs and financial impact. An additional $26.5 million is needed each year to properly operate the state parks and other divisions, and an additional $29.9 million is needed annually to eliminate the maintenance backlog over the next 10 to 20 years. These same needs are also being felt at the local levels as well. Facilities at many urban recreation centers are past their expected service life and are in need of repairs or at risk of being closed for health and safety reasons. A study by the Ohio State University in 2004 stated that people visiting Ohio’s state parks alone contribute an estimated $1.1 billion to the state’s economy annually.

Railroads in Ohio received a grade of C-. Railroads provide critical services to industries important to Ohio’s economy, hauling raw materials, parts, and finished products. Railroads are also an important industry in Ohio, employing more than 8,000 workers and paying approximately $500 million in wages in the state. ODOT has estimated that the cost to improve the 30 worst railroad choke points in the state would cost $1.19 billion. There are nearly 16,000 railroad crossings within the state. Since 1990, motor vehicle/train crashes at grade crossings have declined 66% and the number of fatalities has dropped 77 percent. However, between 2005 and 2008 there were still 482 accidents, including 45 fatalities. Columbus is the second largest and Dayton the sixth largest city in the U.S. without passenger rail services.

Roads in Ohio received a grade of D. With over 125,000 miles of roads, Ohio has one of the largest and most utilized roadway networks in the United States. ASCE found that 43 percent of Ohio’s roads are in critical, poor, or fair condition. It is estimated that by the year 2014, Ohio will have a highway budget shortfall of more than $10 billion at the state government level alone. Congestion in the large urbanized areas in Ohio is getting worse. Each year, the Texas Transportation Institute publishes a ranking of highway congestion in the 50 largest urban areas throughout the U.S., as ranked by hours of delay per person. In 2002, Columbus was ranked 41st nationally and was the only Ohio city included. By 2005, Columbus’ ranking rose to 34th, and Cincinnati and Cleveland joined Columbus as Ohio cities included on the list (ranked 40th and 49th, respectively).

School infrastructure in Ohio received a grade of C. The quality of schools in Ohio is crucial to the state’s long-term viability and ability to compete in the global marketplace. The American Federation of Teachers estimated in 2008 that Ohio schools require $9.32 billion in infrastructure investment. This ranks Ohio 6th in the country for total funds needed. The Ohio School Facilities Commission (OSFC) was created in 1997 as a separate state agency to oversee the rebuilding of Ohio’s public schools in 614 school districts. During the 1998-2007 fiscal years, the OSFC managed yearly appropriations across all its programs totaling $5.92 billion, or approximately $592 million per year. In 2007, the OSFC reported that all facility needs in 123 school districts have been fully addressed.

Wastewater infrastructure in Ohio received a grade of D+. Aging systems discharge billions of gallons of untreated wastewater into U.S. surface waters each year. An estimated 95% of the burden for funding municipal wastewater treatment systems is borne by local government. It is estimated that Ohio has $11.16 billion in wastewater infrastructure needs. It is clear that operations, maintenance, and capital investments in wastewater treatment facilities are not keeping up with the decaying infrastructure and the increasing demand placed on these facilities. Older systems that mingle storm and wastewater collection systems are plagued by chronic overflows during major rainstorms and heavy snowmelt, which results in the discharge of raw sewage into surface waters. The U.S. EPA estimated that the volume of combined sewer overflows discharged nationwide is 850 billion gallons per year. According to the U.S. EPA, sanitary sewer overflows, caused by blocked or broken pipes, resulted in the release of as much as 10 billion gallons of raw sewage annually.

ASCE’s Board of Directors has been giving special attention to improving America’s infrastructure on several fronts, including championing the need for investments in infrastructure renewal with policy makers at the national, state and local level. As part of this effort, and to broaden the dialog on infrastructure renewal, ASCE has been encouraging its Sections and Branches to develop and promote Infrastructure Report Cards for their region, state, and city or county. Sections and Branches can localize the national Report Card by focusing on infrastructure that is relevant to their region, state, or local area.

On 5/27/09 IPD, the global real estate performance analysis and benchmarking specialist, published its first ever annual commercial real estate index and quarterly indicator for the U.S. backed by 10 years of historical data.

According to the IPD U.S. Annual Property Index, capital growth was -12.2% in 2008. For the 12 months to the end of December 2008, all property income return in the U.S. was 5.4%, contributing to an overall total return of -7.4%.

The Annual Index is born out of IPD’s core U.S. Portfolio Analysis Services, which has been measuring the relative performance of individual funds against peer group benchmarks since 2005. The U.S. IPD office has amassed data on $121 billion worth of U.S. commercial real estate portfolios for the first Annual Index, data which is expected to expand substantially in coming years.

The inaugural IPD U.S. Quarterly Indicator, which monitors quarterly movements in U.S. commercial real estate value trends and returns, revealed that capital growth was -10.5% for the quarter ending March 31, 2009. Over the same three month period, all property income return in the country was 1.4%, contributing to an overall total return of -9.2%.

Annual sector and regional returns
For the annual period, the Office sector fared the worst, with capital growth of -12.8%. For the same one year period, the Industrial and Retail sector capital growth was -11.7% and -11.4%, respectively.

At the regional level, Western states posted the largest decline with a capital growth of -13.0% for the 12 months ending with December 2008. Capital growth results were similarly negative for the East, South, and Midwest, at -12.3%, -11.1%, and 11.0%, respectively.

Simon Fairchild, managing director at IPD US, said, “A clear feature of these U.S. results is the apparent synchronization in the downside performance. Whatever manner in which we analyze the data—either across regions or sectors—market values have been written down at broadly the same rate.”

The IPD U.S. Property Index measures returns to direct investment in U.S. commercial property. It shows total return on capital employed in market standing investments (i.e., properties held from one monthly valuation to the next) but excludes any properties bought, sold, under development, or subject to major refurbishment in the course of the month.

Earlier this month (May 6, 2009), Environmental Data Resources, Inc. (EDR) announced that the City of Houston has deployed a customized EDR brownfield inventory system to make its efforts to remediate and redevelop environmentally contaminated properties more efficient.

Houston’s new environmental research platform streamlines formerly labor intensive tasks relating to site information retrieval and updates. The new system gives the city’s brownfields professionals the ability to access information about a property, including current government records and historical use records such as aerial photographs and Certified Sanborn fire insurance maps from EDR. The system also enables Houston’s brownfields team to research specific properties or screen an area for properties that might meet criteria to be included in the brownfields program.

“The platform that EDR created enables significant improvements in process,” said Houston’s Brownfields Manager, Shannon Teasley. “This tool is essential in our day-to-day operations and helps us make informed business decisions on which properties should and should not be included in our brownfields program. A single piece of information delivered at the right time can mean the difference between a smart brownfield investment and a poor one.”

The EDR system also monitors the environmental risks associated with neighboring sites that may impact a property. Environmental data is mapped and linked to complete detail about each piece of data. The user can select a street-map view, aerial-photo view, or hybrid view that combines the street-map information and visual detail from the aerial photography. Because the system is Web-based, it can be accessed easily from multiple locations and by multiple authorized users and departments. Additionally, project-related documents can be archived within the system.

“Brownfields redevelopment is an important part of the Obama administration’s agenda,” said EDR Managing Director Jon Walker. “Forward-looking cities such as Houston are redoubling their efforts to identify viable brownfields projects, create opportunities and revitalize neighborhoods.”

It is no surprise that the continuing economic uncertainty throughout world markets and the lingering impact of a global credit crunch are seen as the greatest risks faced by real estate companies.

“In this time of great economic uncertainty and lack of liquidity, many companies are proactively looking for ways to manage risk, streamline operations, and enhance their business relationships effectively so they can hit the ground running when markets begin to stabilize,” says Howard Roth, Global and Americas Real Estate Leader, Ernst & Young.

The 2009 Ernst & Young real estate business risk report, produced in conjunction with strategy consultancy Oxford Analytica, itemizes the 10 top business risks faced by the industry as ranked by leading sector analysts. The top 2009 risks in order are:

1. Continued uncertainty and impact of the credit crunch. Tighter credit is just one threat to real estate from the crunch; the economic downturn is affecting commercial vacancy rates as well as property valuations.
2. Global economic and market fluctuations. Due to capital flows and business expansion, the real estate industry has become a truly global industry and, as such, is increasingly susceptible to global market fluctuations.
3. Impact of aging or inadequate infrastructure. Particularly in the U.S., but also in other markets around the world, a lack of key transit and utility infrastructure is a threat to economic and real estate growth. (This is huge for the facilities profession!)
4. A global war for talent. Globalization of business has also created a worldwide talent pool with countries forced to compete for human capital.
5. Changing demographics. Aging and urbanizing populations are changing competitive dynamics and creating new markets in real estate.
6. Inability to find and exploit non-traditional global opportunities. With competition increasing worldwide from sovereign wealth funds and others, many global investors face a tough time sourcing new deals that will meet return expectations.
7. Pricing uncertainty. With few transactions taking place in the real estate market, valuations are a problem for existing owners as well as buyers and sellers.
8. Green revolution, sustainability, and climate change. Real estate is at the forefront of the green movement with pressures intensifying to build and operate in sustainable ways and minimize the carbon footprint throughout all types of real estate. (Another huge issue for facilities.)
9. Economic vulnerability and regulatory risks in developing markets. Developing markets are a key focus for global real estate firms but regulatory risk in these markets is constantly changing as authorities seek to jump start economies.
10. Increasing energy costs. Few analysts expect more than a temporary respite from high oil prices as new supply will be unable to meet renewed demand. (Probably one of the most relevant and tangible for fms right now.)

Given the risks outlined by analysts in the report, it is time for owners, investors, and users of real estate to use the time afforded by this lull in real estate activity to prepare their businesses for the next period of economic growth.

“There will be a fundamental shift back to traditional real estate underwriting principles, including comprehensive cash flow analysis and prudent levels of debt and equity in consummating real estate transactions. This ‘back to basics’ movement will lead to the greater transparency necessary to restore confidence between buyers and sellers,” says Roth.

The real estate sector has felt the tightening conditions in credit markets perhaps more than any other sector due to its heavy reliance on capital. Financial conditions for real estate projects are undoubtedly worsening, and the current financial market landscape is expected to persist for the next couple of years.

According to Mark Costello, America’s Leader of Ernst & Young’s construction and real estate advisory services practice, “Real estate is typically the second highest cost item on an income statement after payroll and so provides excellent opportunities for companies to unlock hidden value, particularly through a back to basics approach.”

On the construction side of the industry, two out of three capital projects are currently over budget or behind schedule, according to Malcolm Bairstow, Ernst & Young’s Global Advisory Services Leader for the real estate and construction sectors, which he adds is a statistic exacerbated by the uncertainty surrounding the economy and the availability of financing. “Yet, deploying risk mitigation or accelerated delivery methods after careful assessment of a project can also reduce risk and cost and bring in projects on time and on budget,” Bairstow adds.

“The real estate industry as a whole is focused on simplicity, transparency, and quality deals. However, when things are going really well, it tends to mask organizational inefficiencies,” says Costello. “Companies which address those issues now and solidify their businesses will be in a much better position to address future risk threats.”

Battered by the U.S. economic recession, the commercial real estate market is struggling to maintain values across all property types and geographic areas, kicking a growing number of investors into survival mode as they painfully watch the value of their existing portfolios decline, according to investors and real estate professionals surveyed as part of the first quarter 2009 PricewaterhouseCoopers Korpacz Real Estate Investor Survey(R).

Real estate investors do not expect a rebound in any of the commercial real estate sectors until well into 2010, according to the survey. In the meantime, property owners are faced with limited financing options, declining tenant demand, rising overall capitalization rates, and deflated confidence. They are looking to protect the value of their existing properties in order to compete and survive in an increasingly challenging environment. To mitigate value loss, landlords are being more proactive about signing tenants to new leases, expansions, and renewal, in some cases offering leasing incentives and lower rental rates. In addition, some are attempting to cut property costs and better position assets in a rapidly growing tenants’ market.

“Tenants are in the driver’s seat, and landlords are in survival mode, trying to preserve revenue streams in one of the harshest ownership environments ever encountered,” said Tim Conlon, partner and U.S. real estate sector leader for PricewaterhouseCoopers. “It will be survival of the fittest going forward, with owners who are able to remain financially strong being better positioned to capitalize on the buying opportunities that are to come.”

Positioning For The Rebound
Although sales have been weak, investors surveyed by PricewaterhouseCoopers expect buying opportunities to emerge in the coming months as commercial loan defaults increase and the number of distressed assets on the market increases. In fact, some investors are preparing for potential acquisitions by boosting their liquidity through de-leveraging, joint venture partnerships and select dispositions of current holdings. However, the bid-ask pricing gap remains wide between buyers and sellers, pricing is opaque because of limited sales activity and financing remains scarce.

Also making acquisitions difficult is the fact that recession conditions in commercial real estate are not expected to ease until 2010 at the earliest for most major property types. One exception to this recovery is the U.S. apartment sector, where demand increased with the rise in foreclosures as many homeowners turned to rental properties as a housing option. As demand for multifamily housing catches up with supply, the apartment sector is expected to emerge from the recession phase of the value cycle ahead of the other sectors, according to the survey

“In recent months, even the most optimistic real estate investors have conceded how challenging today’s economy is for the industry. Their confidence has been battered and it could take years to regain it,” said Susan M. Smith, editor-in-chief of PricewaterhouseCoopers Korpacz Real Estate Investor Survey(R) and a director in the PricewaterhouseCoopers real estate sector services group. “The one certainty they can hold on to is that there will be a recovery, but, until then, they need to determine how to survive under some very tough conditions.”

First Quarter 2009 Sector Highlights
As investment risk has increased, the average overall capitalization rate increased on a quarterly basis for all surveyed markets with the exception of the Washington, DC and Houston office markets. The Pacific Northwest, San Diego and Denver office markets posted the largest quarterly overall cap rate increases in the office sector. Most of the real estate professionals surveyed as part of the Korpacz Real Estate Investor Survey(R) project overall cap rates to increase over the next six months.

Among the significant developments in select sectors during the past quarter:

• Regional malls flatline - Sale transactions have nearly come to a standstill in the national regional mall market, with investors wary of performance and having trouble pricing assets. The average initial-year market rent change assumption dipped to 1.71% this quarter, 92 basis points lower than a year ago and the lowest average ever reported for this market.
• Power centers struggle - With consumers curtailing spending, national power center property owners are struggling to maintain occupancy levels and rental rates. The overall cap rate increased by 41 basis points in the past quarter, to 7.98%, the second straight quarterly increase of at least 40 basis points.
• Office markets crumbling - Demand has weakened for office space, and many traditionally strong markets are seeing vacancy increase. As supply outpaces demand, the average initial-year market rent change rate remains on a downward trend in the office sector, dropping roughly 260 basis points over the past year in the surveyed office markets. Furthermore, property values are expected to drop as much as 30% nationally over the next year in the CBD and suburban office markets.

This quarter’s report also includes a review of the local market outlook for 18 major U.S. office markets including Atlanta, Boston, Charlotte, Chicago, Dallas, Denver, Houston, Los Angeles, Manhattan, Northern Virginia, Pacific Northwest, Philadelphia, Phoenix, San Diego, San Francisco, Southeast Florida, Suburban Maryland, and Washington, DC.

Late last year, formal announcements were made regarding the city of Destiny, FL. Proposed as America’s first Planned Environmental Development, the 65-square-mile city located one hour south of Orlando will be situated within a day’s drive of 30 million consumers and at the crossroads of the most highly trafficked tourist destination in the United States.

Destiny will be the largest “green”-planned development in the United States and will offer a healthful environment with ample open space, sustainable infrastructure, and thoughtful preservation. The hope is that the 41,300-acre, proposed self-contained green city, will be a life-long learning community where the educational components are modeled on international curriculum standards.

In the planning stages, Destiny is currently working with the state of Florida and Osceola County to secure entitlement. Approximately the size of the District of Columbia, Destiny is located at the heart of Florida’s Clean Tech Corridor. Cutting edge green technology, R&D, innovation, and education will be the focus for the economic development of Destiny.

Destiny is slated to feature NextGEN aviation, a multi-modal transportation system, and a master plan for sustainability by world renowned ARUP. Destiny is situated within Florida’s Clean Tech Corridor in the seventh largest mega-region in the United States. The city’s International Clean Technology Center will be a hub for businesses and researchers focused on developing clean technologies, renewable energy sources, and alternative fuels that will reduce reliance on fossil fuels, enabling and inspiring consumers worldwide to cultivate a sustainable lifestyle. Destiny will feature a 400-acre energy research park; NexGen Airport, with a mixed-use terminal; and Florida’s first E-Station, a 6,000-square-foot refueling station that will include electric automobile charging stations, along with a solar and geo-thermal “green-mart” convenience store.

Destiny will also provide housing in every price range, as well as rental properties to encourage diversity of age and socio-economic backgrounds.

(Photo: California Environmental Protection Agency)

Virtually every major city within the United States, today, is burdened by abandoned manufacturing facilities and industrial sites that are impacted by known or perceived environmental contamination known as Brownfields. Historically, the contamination of existing buildings and surrounding lands has spawned environmental concerns, discouraging many developers from taking on Brownfield redevelopment. The cleanup and development of contaminated lands is further complicated by costly and strict environmental oversight.

However, thanks to current economic development and regulatory incentives to support sustainable development, Brownfield redevelopment activity is helping reduce urban decay and reignite growth and investment in local communities throughout the United States. In addition, with a new Administration on the horizon, the environmental movement and a trend towards sustainable development practices could soon dominate community development strategies at both federal and state levels.

“Brownfield redevelopment will undoubtedly be a hot button issue in 2009, particularly with respect to government incentives for sustainable development endeavors,” said Robert Fabricant, Chair of Akerman’s Environment and Natural Resources practice group and former General Counsel for the U.S. Environmental Protection Agency. “This could be a win-win situation for both communities and developers in an otherwise challenging economic time.”

Federal agencies such as the U.S. Environmental Protection Agency (EPA) and Economic Development Administration (EDA) under the U.S. Department of Commerce have partnered in the mission to lead the federal economic development agenda by encouraging Brownfield redevelopment projects that enhance job creation and overall community revitalization. These collaborative efforts have led to innovative government incentives, including an environmental remediation tax incentive that was signed into law in October of this year and $1.5 million of funding for Brownfield Training, Research, and Technical Assistance Grants. The U.S. Green Building Council (USGBC) has also encouraged developers to utilize Brownfields in order to help achieve the coveted USGBC LEED certification.

Akerman was instrumental earlier this year in passing Florida legislation addressing Brownfield and voluntary cleanup tax credit issues that offer a range of economic, environmental, and public health benefits to communities in which Brownfields and contaminated sites are located.

“The new bill provides important incentives and tools to encourage the voluntary cleanup and restoration of Brownfields and contaminated sites throughout Florida and bring a range of added benefits to local communities,” said Jason Lichtstein, Akerman Shareholder and recently elected President-Elect of the Florida Brownfields Association. “We are very pleased about this legislation and excited about what these enhancements will do for Florida’s Brownfields program and growing the program in the future.”

Recent Akerman Brownfield work also includes a California project where Akerman attorneys assisted a national developer with its proposal to acquire and construct a regional shopping center on a portion of a formerly hazardous waste landfill. In Florida, Akerman assisted a client with the development of a hotel that now sits on a former Brownfield site. And in New York, Akerman is currently helping to redevelop a Brownfield, located along the Hudson River, as the site for a hotel and conference center that is expected to meet the standards for USGBC LEED Gold certification.

“Akerman has played an active role in Brownfield redevelopment projects throughout the country that have already injected hundreds of millions of dollars into local economies,” said Michael Goldstein, Akerman Shareholder and founding Chairman and President of the Florida Brownfields Association. “Brownfield redevelopment is an excellent vehicle for converting formerly unusable real estate into revenue generating property, creating opportunities for capital investment and job creation.”

Akerman’s Green and Sustainable Development attorneys are currently representing private and public sector clients, throughout the United States, on a range of green building matters, including Brownfield redevelopment projects. Clients include commercial and residential developers, real estate investment funds, and non-profit and governmental organizations.

Akerman’s Environment and Natural Resources team has been on the cutting edge of reuse and development of contaminated sites. Members of the team were responsible for drafting the Brownfields Revitalization Act of 2001, the only major revision to the Superfund liability standard in the last decade, as well as EPA’s development of the “All Appropriate Inquiry” standards. The firm’s attorneys have extensive experience evaluating and managing contaminated property portfolios, obtaining Brownfields designation for contaminated properties, and maximizing the associated liability protection benefits for a broad range of property types, including those sites formerly utilized for landfilling, industrial manufacturing, and gas and electricity generation. The team also has a proven track record of providing environmental due diligence services to its clients, recommending and working with the foremost environmental consultants, and providing both legal and business counseling regarding the use and availability of tax and other economic grants and incentives for the redevelopment of Brownfields and other environmentally-compromised properties.

Starting next Monday (1/12/09), New York City will officially open its newest attraction: its Marriage Bureau in City Hall. Second only to Las Vegas as a nuptial destination, the Big Apple is hoping to lure away romantics with its $12 million makeover.

“We want to be the wedding destination of the world,” said NYC First Deputy Mayor Patricia E. Harris.

Zach Patton of Governing.com posted this description of the old facility:

Couples sit on plastic chairs lining the walls in the hallway until their names are called; there is graffiti scratched into the walls; and, worst of all, there are no bathrooms nearby….

“I feel like I’m at the DMV,” said one man, who was at the clerk’s office to witness a friend’s wedding.

The bride-to-be agreed, saying, “It’s so institutionalized - not really what you picture your wedding day” to be.

 

Jamie Drake, designer to NYC Mayor Michael Bloomberg, Madonna, and other celebrities, headed up the renovation, which now includes two romantically themed chapels (one in peach tones, the other in purples), gleaming marble hallways, and expansive dressing rooms (in place of the old institutional toilet stalls that used to service the facility).

WNYC news reports:
The gleaming, 24,000 square-ft. space officially opens on Monday, and includes a sound system that allows couples to play their wedding processional music from their iPods.

Before a pack of reporters, a young marine and his blushing bride [pictured below] became the first couple to get married [on 1/7/09] in the city’s elegant new marriage bureau.

Carlos Sanchez, 27 and Jennifer Avila, 22, are the first to wed at Manhattan’s new Marriage Bureau. (Photo: Mary Altaffer/Associated Press)

Fernanda Santas of the New York Times writes:

But it is not simply an aesthetic upgrade. City officials are trying to overhaul the whole experience in the new space.

Gone are the metal detectors and security guards who used to greet couples at the entrance to the Municipal Building, bellowing, “Put your cellphones on the tray! Take your coins out of your pockets!”

The interminable lines — to apply for a marriage license, to pick up the license, to get on the chapel’s waiting list — will be condensed into one. A phone service will offer translations to 170 languages. And instead of written forms, couples can fill out computerized ones online or use the self-service kiosks right near the front door.

Also, for the first time, the marriage license, which costs $35, and the fee to have the wedding performed there, $25, can be paid for by credit card — putting an end to the need for about-to-be-wed couples to dash out to the closest A.T.M.

As for minuses, aside from the fact that the new bureau is a longer walk from the subway than the old one, they are hard to find.

The new Marriage Bureau is located on the ground floor of 141 Worth Street. In addition to marriage licenses, the bureau will offer floral bouquets, silver certificate holders and tissues. So much for romance. It’s all about making a buck after all, isn’t it?