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August 2010 |
Miller, Rubenstein,
Hoffman & Hawkinson
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Business Leaders, Companies and Communities Will Drive Transit-Oriented Development
 Most often associated with commuter rail stops and stations,
transit-oriented development (TOD) is a commercial real estate term describing clusters of mixed-use property around mass transit centers. Naturally, TODs are a draw for commercial office tenants because they ease commutes for employees,
offer proximity to retail amenities and often include creatively-branded addresses.
The recession, and many longstanding federal funding factors, has hampered the growth of light rail development, so fewer TODs have been built. Thankfully, recently announced government efforts and success stories are generating a wave of
national support for more commercial projects centered on public transportation.
The Center for Transit-Oriented Development, a nonprofit focused on best practices and research for TODs, reported that for every federal dollar invested in mass transit, the public realizes $5 in savings from mobility benefits, reduced
congestion and increased surrounding property values. In Portland, OR, $1.9 billion in city property development can be attributed to its light rail system.
The Center went on to report that a region's general economic health and a supportive local government are also keys to realizing success. Thus, it takes a massive social and municipal effort to see TOD projects reach fruition. But in Salt
Lake City, they're making it happen.
Municipal leaders and private interests have created a two-county wide rally for the creation of miles of commuter rail track by encouraging public support for a $2.5 billion sales tax increase. Local businesses bought into the project
when the impact of increased congestion on their bottom lines was presented to them. Other cities around the country have invited Salt Lake City leaders to consult on generating similar local momentum for mass transit development.
Additionally, Reuters published new research generated by Joseph Minicozzi, a city planner in Asheville, NC, that shows cities collect more tax revenue from urban centers than from "big-box" developments, which also demand more
infrastructure investment. Minicozzi's findings have city leaders nationwide re-thinking pending development efforts.
The White House recently announced the Office of Sustainable Housing and Communities to pair federal housing and transportation budgets with localized efforts. Money has been targeted for streetcars in Tucson and bike trails in
Philadelphia. It is expected that funding from this wing of Washington will bolster support for larger scale, locally-based transportation projects.
Companies in search of office space in and around mass transit hubs should start to see light at the end of the tunnel. Market conditions are certainly preventing a lot of development from moving as fast as most hope. Nevertheless, it
appears that a new way of thinking about how we get to work and where we work is filtering into the business world.
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Party Line Aside, Landlords are Bullish on Lease Concessions
 Landlords are working hard to retain current commercial
office and industrial tenants and even harder to attract those that are in the open market for space. No doubt, the competition is becoming fierce, primarily because economic conditions have persuaded a lot of companies to sit tight. A
period of intense development prior to the recession is also to blame, which created millions of square feet of empty first generation property.
In Camarillo, CA, an auto-parts distribution company, Dynacorn International, was in the market for 60,000 square feet of industrial space as part of a warehouse consolidation effort. Even for the Los Angeles area, the company's need was
very high profile, putting into perspective the state of the national commercial real estate market.
Landlord Trilliad Development, Inc. made an offer aggressive enough for the company to afford to sign a lease for close to 100,000 square feet, 40,000 more than its original need. The lease included two years of reduced rent for a
seven-year term and a delayed rent start date, allowing the company the option of early occupancy without additional costs. It was the largest lease transaction this year in Ventura County.
In other markets around the country, landlords are holding firm publicly at least to the notion that today's conditions suggest a standard abated rent period of one month per year of the lease term. However, lease like Dynacorn's may begin
to change that outlook. Or at least it should.
Landlords marketing new space have to fight tooth-and-nail with a growing trend in "blend-and-extends," where tenants are signing new, longer-term leases years before expiration in their current space in exchange for rent reductions and
other incentives. Thus, tenants are able to seize market benefits without the added costs of relocation, making it more difficult for competing landlords to secure new tenants.
An analyst for CoStar, an industry Web site that tracks leasing activity, cited that property values in 54 key markets around the country should rebound by 25 percent five years from an expected late-2011 bottoming-out. That's more than
six years from now.
Landlords still have their building's value to protect so it's not surprising one month of abated rent per lease year has become the party line. However, in the end, the market's perspective of value is what really matters. And with recent
announcements from Wall Street and Washington that the "recovery" is slowing and jobs remain scarce, now may not be the best time for commercial landlords to be taking a stand.
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Parking with a Purpose
 Commercial real estate developers can only do so much to
make parking lots an appealing facet of a property. Far too many of our nation's parking lots remain vast fields of heat-blaring, wind-bolstering asphalt, pockmarked with potholes, lanky light posts and weed-covered medians.
But thanks to a company that makes solar panel blanketed carports, parking lots across the country could become a proverbial hotbed of alternative energy production.
Envision Solar, a publicly traded company, makes what it calls "solar groves" by attaching 1,000-square-foot solar arrays to the roofs of carports spread across an open office building parking lot or parking garage roof. The potential
applications from airport park-and-rides to sports stadiums are seemingly endless.
As tenants in commercial office buildings become more powerful drivers of the industry's approach to environmental stewardship, installation of a product like this could help a property owner compete for companies who embrace resource
conservation and sustainability. In short, office tenants make up a landlord's market and from today into the foreseeable future, they are in control.
Energy-producing parking lots can help further answer the question of how the commercial real estate industry is going to address its role as a power user of fossil fuels.
This technology can help property owners unable to renovate buildings introduce an energy-conservation effort that doesn't involve interior construction. Additionally, the carports can be fitted to fuel charging stations for electric cars,
introducing additional market force for their adoption.
While Envision Solar's product has not reached the level of plug-and-play installation, there are enough working case studies (already taking advantage of this technology are Dell Computers, Kyocera, the City of Napa and UC San Diego) to
make exploring their benefit a worthy investment.
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