A real estate website is predicting that home prices in the Portland-South Portland market will increase at the second-fastest rate in the nation in 2023, bucking the recent trend of slowing increases.
The metro area would see a 10.3% increase in the median price for existing homes, according to the 2023 Housing Forecast released Wednesday by Realtor.com. That predicted growth is second behind that for Worcester, Massachusetts, among the country’s 100 largest metro areas. Nationally, the report projects a 5.4% increase.
But despite its high ranking, the projected increase in metro Portland would be a far cry from the staggering increases at the start of the pandemic. In fact, the more modest estimate reinforces a cooling in the market that real estate professionals have seen for months.
“After being overwhelmed in the housing frenzy of the recent past, homeowners, sellers, buyers, and renters may be underwhelmed in 2023,” the report says.
The number of Maine home sales has been slowing as prices continue to increase while inventory is in short supply. Recent mortgage rate surges have forced sellers to lower their expectations as they face buyers with limited buying power and greater hesitation about the market.
“The 2023 housing market could become a ‘nobody’s market,’ not friendly to buyers nor sellers,” the report said.
Tom Landry, owner of Benchmark Real Estate in Portland, sees a similar trend ahead. There’s almost a standoff between buyers and sellers right now, he said.
The Realtor.com report also anticipates fewer home sales in 2023 – possibly the least in a decade as the still-high prices and mortgage rates keep some would-be buyers and sellers at bay.
The Portland-South Portland area is expected to see a 6.4% decrease in home sales next year. The report did not include specific estimates of sales volume and prices. The findings are based on a variety of economic data and information from the website’s millions of home sale listings, using a proprietary forecast model, Realtor.com said.
Of the three metro areas where home prices are expected to grow 10% or more, Portland is the only one predicted to experience a decrease in sales volume.
Worcester, the metro area with the highest projected price increase at 10.6%, is forecasted to see a 2.5% increase in sales. The third-spot holder, Grand Rapids, Michigan, is expected to see a 10% price increase and a 1.6% growth in sales.
Last year, the report placed the Portland-South Portland metro area at the top of the list with a 10% increase and a more modest 0.2% sales decrease. It was the only metro area expected to see a double-digit price increase.
Home sales data for all of Cumberland County released by the Maine Association of Realtors in November shows that the median home price for the three months ending in October increased 11.5% over the same period in 2021. The number of units sold during the same three months declined 19.7 percent from 2021.
The Realtor.com report predicts an almost 23% national increase in inventory over 2022, but some Maine real estate agents say that’s unlikely to happen in Maine and could continue to limit sales.
“I don’t see where (the inventory) would come from,” said Holly Mitchell, founder of the ABODE Real Estate Group in Portland.
Many larger markets have developers building entire neighborhoods, offering incentives for buyers, but that’s not happening in Maine, she said.
Landry agreed. Developers are more hesitant and unwilling to build “on spec” because they’re worried buyers won’t be able to buy, he said.
Landry also expects to see fewer people moving next year. With such high interest rates, even downsizing could result in a higher mortgage payment.
“If I’m a seller … boy, I am going to think long and hard before I sell my house,” Landry said. That limited inventory also will serve to drive the prices up.
Landry said the market’s future really depends on the Federal Reserve. If interest rates continue to climb, sales will only slow further. If rates drop, the market could have a strong spring.
The report speculates that interest rates will be 7.4% through 2023, lowering to 7.1% by the end of the year.
According to the report, the monthly cost of financing the typical for-sale home will average more than $2,430 next year, a nearly 28% increase over the average mortgage payment in 2022 and roughly double the typical payment for buyers in 2021.
However, Michael Sosnowski, co-owner of Maine Home Connection in Portland, disagrees, and points to mortgage rates that are already on their way down.
Sosnowski also doesn’t buy into the projected 10% price increase for next year.
“There’s nothing to suggest that that’s going to happen based on recent sales,” he said. “Pricing has been steady to trending downwards. The rate of acceleration is decelerating.” He expects prices to more closely mirror the national trend, somewhere around 4% to 5%.
Last month’s sales figures from the Maine Association of Realtors seem to back up Sosnowski’s predictions. The statewide median sales price for homes sold last month was $332,000, a 7.8% increase from October 2021, and a slight increase from the September median of $330,000.
While he doesn’t expect a 22% increase in inventory, there are positive signs that things may be improving, he said, pointing to several larger housing developments in the works in the Greater Portland area.
Portland also continues to be a desirable location, with many people escaping cities and relocating to Maine during the pandemic, increasing demand and competition but so far having little effect on inventory.
Cross-market shopping – shopping for a home in a different location – soared this year. Even though many remote workers are returning to the office, home prices may be driving people to look outside of their current markets, especially those in the Northeast and the Northwest.
According to the report, more than seven in 10 cross-market shoppers from the Northeast and Northwest were looking at homes in areas at least 10% cheaper than their current location.
Landry, Mitchell and Sosnowski all said they’ve seen this trend, but that it’s frequently people seeking more affordable prices within the state and moving from the Portland area to somewhere like Bath or Biddeford.
The trend could spur home price growth in such secondary markets as well, the report said.
Experts say the demand for commercial construction has gone up, fueled in part by companies deciding to onshore more products.
PHOENIX — Commercial construction in the Valley is facing increased costs, higher demand and labor shortages, industry analysts said.
And that labor shortage may trickle down to you – and the way companies are trying to fix supply chain problems.
According to an analysis by commercial builder Mortenson, the demand for commercial construction has gone up, fueled in part by companies deciding to onshore more of their products. Onshoring means producing products closer to the customer base to decrease shipping time and costs.
“Our core market has been the distribution warehouse market,” Rusty Martin with Graycor construction said. “We only got busier over the last couple years.”
There are large commercial warehouses and factories being built in the far East and West Valley. But Martin said while the demand is there, those projects are taking more time to complete because of material and labor shortages.
“Our subcontracts, out trade partners are just not able to keep the same production rates they had in the past,” Martin said.
Mortenson compiled a market analysis of the Phoenix area, taking into account the availability of labor, cost of the projects and materials cost.
According to Mortenson, commercial construction has increased dramatically since 2019. As expected, materials have increased in price along with inflation. Currently the most expensive product is PVC pipe, owing to the petroleum content of PVC. Mortenson also looked at the construction labor market year over year. Analysts found the labor market shrank from 2021 and is essentially flat.
But the projects continue to go up.
Taiwan Semiconductor Manufacturing Company is building a massive microchip plant in the North Valley by I-17 and Carefree Highway.
“A mid-rise hotel is nothing in comparison to that larger project,” Mortenson analyst Ty Bohlender said.
Bohlender said a project as large as the TSMC plant attracts a large amount of labor from Arizona, but also attracts labor from other states, contributing to a shortage of available workers. And because projects are offering more pay or more benefits to attract those workers, that raises the cost of labor.
“We’re drawing those thousands of skilled workers that have to be on those projects, that raises the rate or raise incentives for the entire construction industry,” Bohlender said.
The Great Resignation did hit the building trades, Bohlender said, but fewer people are also deciding to go into those trades to begin with.
Bohlender said the forecast for the commercial construction market is slow and cautiously optimistic, and with a lot of job opportunities.
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While leasing and sales volumes slowed in 2022, many significant transactions were completed. Here’s a sample of captivating deals with insights from the dealmakers.
It’s not the purchase prices or square footages that make these deals standouts for CPE. Rather, these transactions show ingenuity, passion, and grit, in light of changing market dynamics, on the part of the brokers who arranged them. Enjoy these snapshots and read more about these deals in our online feature
From a nonprofit assisting at-risk children with complex medical difficulties relocating to a Midtown Manhattan office tower to the leasing of a 3-million-square-foot industrial park in Phoenix designed for the city’s emerging chip fabrication plants, the sector has had no shortage of stand-out deals. At a time when commercial real estate experiences both deep success and challenges that show no sign of disappearing, it is important to recognize the people behind the numbers and headlines. Here are ten deals that stand out in such a way and insights from those that made them happen.
JLL Arranges New HQ Lease for Non-Profit
New Alternatives for Children, a non-profit that provides medical and mental health care for medically at-risk children, leased 60,000 square feet at 852 Seventh Ave., a 196,616-square-foot mixed-use office building in Midtown Manhattan. A significant upgrade from their previous headquarters, NAC will lease the 5th, 6th and 9th floors for 30 years.
- JLL represented NAC in the transaction, led by Vice Chairman Matthew Astrachan, Executive Vice President Ellen Herman and Vice President Hale King.
- Avison Young Principal John Ryan alongside Vice President Edward Riguardi of Vornado Realty Trust acted on behalf of the building’s owner, Edward J. Minskoff Associates.
Astrachan told Commercial Property Executive that he has known NAC founder & Executive Director Arlene Goldsmith since his childhood. He encountered her in a restaurant at the height of the pandemic and she told him that NAC’s current headquarters was in a dilapidated, dangerous space with a landlord “who didn’t get it.” Though NAC had been working with JLL prior to Astrachan partaking in the transaction, they had struggled to find favorable leasing terms. The new lease protects NAC, allowing it to know what the expenses will be throughout the entirety of its lease, and gives the organization a dedicated front-door entrance. “[This is] a better and more productive environment for all the people that they serve,” Astrachan concluded.
Perry Homes Relocates to Greenway Plaza
Houston-based housing construction and development firm Perry Homes has relocated its corporate headquarters to 60,000 square feet of Greenway Plaza’s Phoenix Tower, a 629,054-square-foot Class A office building located at 3200 Southwest Freeway in Houston. Transwestern assisted Perry Homes, one of the largest privately-held woman-owned companies in the nation, in the consulting, site selection and leasing process, as the firm moved its base of operations across the city. Additionally, Transwestern will provide Perry Homes with construction management services for its renovations of the space.
- The Transwestern team representing Perry Homes was led by Vice President Katy Gragg, Executive Managing Directors Eric Anderson and Larry Serota, Managing Director Chase Bourdelaise and Leasing Agent John Heard.
- Building owner Parkway Properties was represented by Directors Amanda Nebel and Rima Soroka.
The transaction provided many opportunities and challenges for those involved in it. The negotiations of the move was taking place as a new COVID variant was surging. As Anderson described in the transaction process to CPE, Perry Homes had considered several factors across numerous dimensions of their decision-making process, including asking questions of “when, where and how employees work in the current office environment” have so much more dimension, according to Bourdelaise. Of note was the company’s use of data analytics for understanding the most optimal uses of their new space; “Insights from data, people and location analytics, and executive visioning are more important than ever and ultimately guided Perry Homes through this process where their decision was to relocate to Greenway Plaza,” Bourdelaise added.
Brookwood Financial Inks 17 Leases Totaling 225KSF Across 10 Buildings
Commercial property manager Brookwood Financial Partners closed on 10 leases totaling 225,000 square feet of office, life science and commercial space in its space in the Iron Run Corporate Center, a 10-building, 650,000-square-foot business park located at 7535 Windsor Dr. in Allentown, Pa. A team from Avison Young represented Brookwood in its leasing efforts. The leases follow Brookwood’s investment of more than $1 million for the construction of new office suites and amenity spaces, including a full renovation of the lobby of the park’s flagship building.
- The Avison Young team acting on the part of Brookwood was led by Vice President David Smith and Principal Paul French
Smith noted the leases are reflective of the “flight to quality space” throughout the office sector. At the same time, having an effective, flexible and easy to work with team is equally important. “We try to be as flexible as we can to get deals done,” Smith said. “We have the nicest product with an institutional-sized landlord and on-site property management helps drive those things home.”
SanFran Medical Office Building Purchased by Tenants
Pan-Med Enterprises has completed its $44.5 million purchase of the Pacific Professional Building, a five-story, 132,000-square-foot medical office building located at 2100 Webster St. in San Francisco. A CBRE Capital Markets team represented the buyer, a group doctors whose practices occupy the building. CBRE secured a 10-year, fixed-rate, non-recourse loan for the financing of the acquisition, provided by Silicon Valley Bank, according to CommercialEdge data.
The CBRE team acting on behalf of Pan-Med was spearheaded by Executive Vice Presidents Michael Taquino and Kyle Kovac, Vice President Giancarlo Sangiacomo and Senior Associate Alec Haley.
The deal presented a considerable opportunity for the buyer. San Francisco’s life science and medical office market is booming, and there is a dearth of available space. Meanwhile, the property benefits from its close proximity to several full-service hospitals and therapeutic centers. “It’s common for doctors to buy assets,” said a member of the CBRE team. “This was an opportunity for them to invest into their practice.” Still, there were challenges in completing the deal. Historic interest rate increases led to volatility in the capital markets, and lenders became wary of financing office space. Fortunately, the team succeeded in locking up its interest rate well before the completion of the purchase.
Colliers Arranges Defense Company’s New Digs
Virginia-based defense and shipbuilding giant HII leased 36,809 square feet of office space at National Landing, a mixed-use office, retail and residential development located at 2451 Crystal Dr. in Arlington, Va. JBG Smith, the development’s owner, arranged the lease, which gives HII another presence in close proximity to its most prominent customer, the U.S. Navy. HII will lease the space for 11.5 years, joining a list of U.S. Government agencies and clients leasing space in the complex. HII will move into the space in 2023. JBG Smith had secured over 1.4 million square feet of new leases in National Landing, one of the fastest growing developments in the D.C. metro.
- JBG Smith was represented in-house by Senior Vice President Andrea Murray and Associate Connor Stewart.
- A Colliers International brokerage team led by Executive Vice Presidents Adam Schindler and Persifor Frazer acted on behalf of HII.
Highlighting the appeal of office space at National Landing to companies such as HII, Murray explained to CPE that in addition to the location, it is the development’s attraction of massive public and private investment that has “transformed [it] into a global hub for innovation.” Murray detailed JBG Smith’s partnership with AT&T for the construction of 5G networks over the entire development. For its part, Arlington had been selected as the site for Amazon’s second corporate headquarters, in addition to a new Innovation Campus from Virginia Tech. Consequently, the area has unfettered access to top engineering and tech talent, which in part motivated the move to the new office.
Newmark Brokers Sale of Amazon-Leased Portfolio
South Korea-based Mirae Asset Global Investments purchased an eight-building industrial portfolio totaling 1.16 million square feet for $520 million from Greenlaw Partners and Gardner Batt. Newmark represented both parties in the off-market transaction. Based in metros of Utah and California, the portfolio is triple-net leased in its entirety to Amazon, which uses the properties for last-mile distribution around Midwestern and West Coast transit hubs and population centers.
- Newmark Vice Chairman David Milestone and Senior Managing Director Brett Green acted on behalf of Mirae.
- Newmark’s Co-Head of U.S. Capital Markets Kevin Shannon, Vice Chairman Alex Foshay, Executive Managing Directors Ken White, Andrew Briner, Bret Hardy, Jim Linn and Greg Galusha represented the seller.
The deal was noteworthy for more than just its size, Shannon said. Nearly half of the portfolio is centered around Salt Lake City, the buyer was a selective foreign entity, and the economy was shifting as the deal was being negotiated. Still, Newmark pulled through. “Our team also completed the debt execution for the buyer Mirae Asset on this portfolio sale, which got very complicated as rates moved,” said Shannon. “[We] ended up structuring a combination of floating-rate and fixed debt in a clubbed lender execution to best meet Mirae Asset’s needs.”
Historic Brooklyn Property Trades for $40 Million
Tankhouse LLC acquired a 142,500-square foot development site located at 450 Union St. in Brooklyn, N.Y., situated along the Gowanus Canal. Ariel Property Advisors represented the seller, Pilot Real Estate Group, with the sale including a Mandatory Inclusionary Housing Requirement. The property was built as in 1920 and was originally used as an industrial space that hosted a granite cutting mill and icehouse. The property, which is part of an 82-block rezoning plan, was transformed into a commercial space in 2008.
The Ariel team acting on behalf of the seller was led by Partner Sean R. Kelly and Director of Investment Sales Stephen Vorvolakos.
“[Pilot] purchased this in 2014, at a time when there wasn’t a lot of talk about the Gowanus rezoning, but they had tenants in place that allowed them to carry it, producing a positive cash flow,” said Kelly. “They purchased it for $12.3 million and sold it for $40.6 million.”
For the buyer, the property’s historic roots and unique location on the west side of the canal presented a lucrative opportunity. “It’s really low-density zoning, [with] minimal opportunities for larger scale development.”
Rakuten Renews Salt Lake Office Lease
Tech giant Rakuten completed a five-year lease renewal of its floor and a half of offices at Union Park Center III, a Class A office complex located at 6985 Union Park Center in Cottonwood Heights, Utah. A Cushman & Wakefield team acted on behalf of the building’s owner, Stanton Road Capital, in extending the lease, which took place during a large-scale improvement project at the building.
The Cushman & Wakefield team representing Stanton Road Capital was led by Executive Managing Directors Dana Baird and Mike Richmond and Vice President Amanda Lawson.
At the time of the signing, Baird said, Rakuten still had a sizeable portion of its employees working from home and could very well have reduced its space. Still, the lease was renewed in its entirety at market rate as part of a concerted effort to get employees back to the office. “Tenants want to have space that their employees want to come back to,” Baird explained, “Rakuten committed to this space because it has all the things that employees want to come back to–a suburban location in an amenity-rich area.”
Cincinnati Office Portfolio Changes Hands
Shelbourne Capital acquired the Summit Woods office portfolio, a two-building complex located at 100-300 E Business Way in Sharonville, Ohio totaling 214,570 for $22 million, subject to a $19.8 million loan provided by First Financial Bank. Marcus & Millichap represented Shelbourne in the transaction, and also acted on behalf of the seller. The assets were purchased with a high degree of confidence in the Cincinnati suburb’s office market on part of the buyer, in addition to the property’s potential future income streams. Still, the process had its challenges.
The Marcus & Millichap team was led by Senior Managing Director Joseph Di Salvo, Senior Associate David Pierce and First Vice President Alexander Nulf.
“The sale was a great indication of confidence in the office market in this submarket of Cincinnati,” said DiSalvo. “There were a lot of challenges in the rent roll of the property at the sale, but the deal was priced and structured such that the buyer paid for income on dark tenants. They were confident they would backfill the spaces before the exisiting leases rolled.”
Vintage Chicago Building Sells for $19 Million
Intersection Realty Group purchased 65 E Wacker Place, a 222,728-square-foot historic Chicago office tower for $19.3 million. Intersection is planning to convert a portion of the property into apartments, keeping the ground-floor retail space. The building, built in 1928, is listed on the National Register of Historic Places. A JLL Capital Markets team represented the undisclosed seller and procured Intersection as the buyer.
The JLL team was led by Senior Directors Sam Di Francesca and Patrick Shields, as well as Managing Directors Jaime Fink and Bruce Miller.
Read the December 2022 issue of CPE.
You can also read our other Top Development Firms rankings.
|Rank||Company||SF Completed 2019-2021||SF Under Construction*||Property Sectors|
|1||Trammell Crow Co.||48,090,817||73,032,349||O, I, H, He, X|
|2||Lincoln Property Co.||36,800,000||18,500,000||O, I, R, H, He, X|
|3||Tishman Speyer||14,000,000||22,100,000||O, X|
|4||Hines||20,239,533||31,715,987||O, I, R, H, X|
|5||Stream Realty Partners||9,305,105||15,462,734||O, I, R, X|
|6||The Related Cos.||8,364,241||13,792,480||O, R, H|
|7||Sansone Group||6,917,062||7,221,785||I, R, X|
|8||Flaherty & Collins Properties||3,095,123||1,557,335||R, He, X|
|9||Transwestern Investment Group||2,101,939||1,688,865||I|
|10||First Industrial Realty Trust||7,244,971||5,818,757||I|
|11||KDC Real Estate Development & Investments||5,836,514||2,204,108||O|
|12||Crescent Communities||2,256,868||1,533,009||O, I, X|
|13||WS Development||3,500,000||2,600,000||O, R, H, He, X|
|14||Greystar||–||3,737,982||O, I, H, X|
|15||McCraney Property Co.||5,430,000||6,750,000||I|
|16||Ashley Capital LLC||6,860,000||2,802,000||I|
|18||HSA Commercial Real Estate||3,733,950||4,343,095||I, He|
|19||Transwestern Development Co.||7,874,904||235,650||I|
|20||Hunt Cos.||1,478,153||717,511||O, I, R, H, He, X|
|21||Billingsley Co.||1,075,964||1,751,770||O, I, R|
|22||The Inland Real Estate Group of Cos.||500,000||150,000||I, R, H, He|
|23||Holt Lunsford Commercial||3,000,000||850,000||I|
* As of June 30, 2022
Key: O=Office; I=Industrial; R=Retail; H=Hospitality; He=Health care; X=Other
Though we make every effort to include all major commercial developers, several notable firms (among them SL Green, Bridge Industrial and Prologis) did not participate this year.
To be included in upcoming surveys, email Agota Felhazi at [email protected].
Industrial Project Dominates Activity
The last several years have brought unique challenges for commercial real estate developers. In addition to coping with rising costs, they have had to rebalance inventories to match shifting demand brought on by the pandemic.
Among all sectors, industrial remains a hot commodity, with new supply unable to keep pace with demand. As a result, developers continue to focus heavily on this property type. According to a recent CommercialEdge report, 703 million square feet of industrial space are under construction, with another 650.3 million square feet in the planning stages.
Office deliveries have slowed compared to pre-pandemic volume, and the new-supply pipeline may not produce construction starts at former levels anytime soon. Still, the amount of new office space in 2022 is on track to match 2021’s 62.2 million square feet, according to CommercialEdge data. Office construction starts, however, have not dropped as much as expected. That is a good sign for a sector with an outlook clouded by the rise of remote and hybrid work models.
In this year’s Top Commercial Developers ranking, Trammell Crow Co. holds the top spot with more than 73 million square feet under construction as of June 30, 2022, and over 48 million square feet delivered between 2019 and 2021. Lincoln Property Co. is in second place, with 36.8 million square feet completed during the same period. Rounding out the top three is Tishman Speyer, with 22.1 million square feet of commercial space underway.
Combined, our top developers had more than 220 million square feet under construction across all property sectors at the end of June. Unsurprisingly, many reported a large portion of their commercial portfolios developed between 2019 to 2021 were in the industrial sector.
—Claire Spodoni, Senior Research Analyst, Yardi Matrix
The 2022 CPE Top Commercial Development Firms ranking utilized self-reported data for all companies. Our rankings utilize weighted formulas based on a variety of factors (only a few of which are specified here), including current and future plans, market value of projects completed and under construction, and geographic and property diversification. The ranking represents what we feel is a logical balance between firm growth and market share.
For the last couple of months, I’ve been taking this space to talk about results from Deloitte’s 2023 commercial real estate outlook survey. While there are certainly compelling insights to be found in that survey, I’m going to pivot to what I think is going to happen next year in commercial real estate with respect to technology-related efforts and investments. I’m more optimistic than ever about transformation taking hold, about blockchain-related innovation, and about our physical assets getting smarter.
Earlier in the year I thought we’d see a slowing of the technology and digital transformation that we’ve (finally) been seeing in the industry. But that hasn’t happened, for three reasons.
First, some of these transformations aren’t optional. For example, some projects need to happen so that the companies in question have viable technology platforms. In these cases, the companies have so woefully underinvested in their systems for so long (a decade or two) that those systems are no longer supported and must be replaced or updated.
Second, initiatives that are about transforming operations—fundamentally, how work happens—have ROI associated with them. Those initiatives focus on either efficiency (reducing the number of people it takes to keep operations running), effectiveness (gaining insights that produce earlier and better decisions) or both. Since mid-summer 2021, the great resignation and reshuffle have starved operations in real estate of the people required to do the work, which in turn has triggered many digital transformation initiatives. For some, it’s now about sticking with it to realize a competitive advantage.
I didn’t understand the third reason before the Global Financial Crisis of the late 2000’s. One lesson learned from that period is that transformation is WAY easier when transaction volumes are down. Don’t kill the messenger, but transaction volumes are certainly down in the second half of 2022, and that’s likely to extend into 2023 as commercial properties re-price and availability and cost of debt continue to be a challenge. After the dust settles from an often manic period of growth, some companies will use this coming period the market to invest in transformation. Their people will have more time, fewer distractions and the ability to focus on the process of change.
Additionally, next year I’m expecting blockchain-related advances in real estate to take hold. Our clients are expressing more interest in smart contracts and other innovations that are made possible or practical through applied blockchain solutions. If the number of conversations we’re having and our survey results are any indication, this is the year I’m right in predicting the rise of blockchain.
Lastly, an increase in smart buildings seems like an easy prediction. At Deloitte, we’ve seen a spike in both conversations and projects that I expect to accelerate in 2023 as both owners and occupants come to terms with sustainability challenges. As companies drive toward carbon neutrality goals and disclosure requirements, they quickly realize that the buildings we occupy contribute 40 percent to 50 percent to greenhouse gas emissions. Improving the way buildings consume resources and produce waste represents a great opportunity to achieve carbon neutrality goals.
And smart building technologies, combined with more efficient core building systems, promise a triple benefit: reducing consumption and waste, offering compelling ROI, and making the building more comfortable for those who use it. Couple that with the tax incentives contained in the Inflation Reduction Act, and I find it hard to bet against continued strong momentum for smart building technologies in 2023 and beyond. However the year ahead plays out, I continue to be optimistic about technology innovation and transformation in our industry.
John D’Angelo is a managing director with Deloitte and is the firm’s real estate solutions leader, designing solutions to address client challenges and push the industry forward. With over 33 years of experience as a management consultant to the global real estate industry, John has helped some of the biggest names in real estate leverage technology and use data to optimize and transform their operations.
William McChesney Martin, the longest-serving chair of the Federal Reserve Board (1951 – 1970), famously described the Fed’s role as “taking away the punch bowl just as the party is getting going.” There is general agreement, in late 2022, that this time the Fed left the punch bowl around a bit too long, and we are now dealing with inflation as the hangover effect of that delay.
There have been 13 U.S. recessions since the end of World War II, and with few exceptions the Fed has signaled an intention to navigate the economy to a “soft landing.” You can count on one hand, with a finger or two left over, the number of times that intention was successfully executed. A ‘soft landing,’ meaning tightening monetary policy but avoiding an economic contraction, requires not only adroit management by the Fed but a confluence of favorable factors far beyond the Fed’s control. Current Chair Jerome Powell appears to realize this and knows that reliance on traditional economic tools is running afoul of the complexity of an economy challenged by a still-not-concluded pandemic and by drawn-out hostilities in Ukraine. We should be buckling up for a rough ride as we turn into 2023.
The Double Whammy
A few words about those twin challenges. Although pandemic fatigue is a feature of contemporary American society, COVID-19 is hardly in the rearview mirror as 2023 begins. Globally, there have been 631 million cases of the Coronavirus (as of Nov. 1, 2022) with 6.59 million deaths, according to the World Health Organization. Approximately 350,000 new cases are being reported daily, with more than 1,500 reported deaths each day. With the virus continually mutating, the public health emergency remains a potent economic factor both here and abroad.
Since Russia’s invasion of Ukraine in February 2022, military hostilities have been layered onto the economy as a negative disrupting factor. From energy to food to global supply chains, the impact of war is acting as a drag on the global economy and on the U.S. as the world’s largest market. Our challenges mirror those of other nations around the world. We are no better (or worse) than “middle of the pack” when it comes to the outlook for real GDP growth and price inflation–not keeping up with the G20 averages but not so much at risk as Russia, Germany, and the United Kingdom–according to recent analyses by the IMF and OECD.
It is one thing to note such complexities but another and deeper question to consider if the forecasting many depend upon to do business planning is adequate to face up to the challenges. After all, Alan Greenspan himself noted that the array of distinguished economists at the Fed, at the World Bank, on Wall Street, and in academia needed to join him in his confession about the Global Financial Crisis (2008-2011): “Never saw it coming.”
Planning for the Worst
The standard models for forecasting depend upon a dynamic theory of fluctuation around equilibrium. But perhaps what we are experiencing more closely resembles the nearly-impossible-to predict phenomenon of geologic shifts. Pressure builds up below the surface and is suddenly and powerfully released in an earthquake. And then we go through a period of shocks and aftershocks before finding some stability once again.
We may be forgiven for considering the path into 2023 as “impossible to predict”—or strongly uncertain–and subject to intense pressure build-up. But executives cannot take this as justification to avoid planning for such an environment or for avoiding decisions in the face of disruption.
So, what is key in these uncertain and stressful times? The first element is to focus on liquidity. The ability to remain flexible as shocks occur depends upon having financial liquidity, and this means managing toward a “cushion,” whether that means de-levering if one is holding the equity piece of the capital stack or insisting on widening the spread against Treasuries if one is a lender. This is not a time for opportunistic or even value-add strategies that depend upon rising values for success.
The second element is quality in the underlying asset. That means focus on core properties and core markets. In times of enhanced risk, concentration on exit strategy cannot be minimized. When and if the time comes to sell, those who depend upon a reliable cadre of deep-pocket buyers with a bias toward long-duration investing fare the best. Don’t be in the pack of distressed sellers when the “grave dancers” come to town.
The third element requires self-knowledge. Those most prone to loss in difficult times are those who are either impatient or overconfident. The former feel the fight-or-flight syndrome acutely, making decisions more to relieve themselves of the psychological burden of uncertainty than to work toward long-range success. The latter turn a blind eye to serious risk, feeling it will attack others who are not (like themselves) “smarter than the average bear.”
Economies ebb and flow. Real estate professionals understand this and do not panic, even when disruption and shock are the order of the day. Maturity of judgment is all the more critical in times of uncertainty and stress. There is no avoiding risk. The key, at any economic moment, is to be appropriately paid for the risk one is taking.
BOSTON – On a commercial flight from London Heathrow into Boston, passengers got a glimpse of the Prince and Princess of Wales in first class Wednesday.
“Surprising … you assume they’d have a private jet,” said passenger Jo Atkins.
However, Prince William and Princess Catherine took a commercial flight to the Earthshot Prize Awards. The flight crew described the couple as “utterly delightful.”
“Well look, they’re coming for Earthshot. It’s an environmental thing, right, so being on a commercial flight makes sense,” passenger Luke Howard said.
While the royal couple and their entourage took up most of first class, word quickly spread in the cabin about who was on board.
“As soon as people saw them get on you could tell there was a buzz on the airplane,” said passenger Jonathan Wood.
Brent Suttles sat just two rows behind Prince William and was able to snap a few photos from his seat.
“It was certainly a surprise. You do a double take to see if you really see who you think you see,” Suttles said.
“He’s a lot slimmer… can I say that? He’s very slight. She’s beautiful, obviously, as one would expect.. I didn’t expect that getting on the plane,” Atkins said.
Others said they didn’t notice they were sharing the seven-plus hour flight with royalty until the plane and they were greeted by a dozen state police cruisers. Passengers had to wait while the prince and princess left the plane.
“It was a wild experience, but it was great,” Wood said.
Passengers said the royal couple was low-key and pleasant, talking to some of the passengers in first class about why they were in Boston.
WASHINGTON — Staffers at Bread for the City, a venerable charity in the nation’s capital, thought they were prepared for this year’s annual pre-Thanksgiving Holiday Helpers food giveaway. The pandemic had faded, but inflation was high, so they budgeted to give out 12,000 meals, 20% higher than normal pre-pandemic levels.
But they were quickly overwhelmed, with long lines of clients waiting hours to receive a free turkey and a $50 debit card for groceries. They were forced to shut down three days early after helping 16,000 people, many more than anticipated.
“We don’t want to retraumatize our community by having them wait outside four hours for a turkey,” said Ashley Domm, the charity’s chief development officer. “We are not set up to have hundreds of people lined up on a city street.”
Bread for the City’s experience reflects a larger dynamic playing out across the country. What many Americans hoped would be the first normal holiday season in three years has instead been thrown into a heightened hunger crisis once again, with Christmas on the horizon.
A September report by the Urban Institute estimated that about 1 in 5 adults experienced household food insecurity last summer, about the same as during the first year of the pandemic but a sharp increase from the spring of 2021. Black and Hispanic adults reported higher rates of food insecurity than their white counterparts, according to the report.
“In the pandemic, nobody had jobs and nobody had money,” said Nancy Murphy, a 45-year old caregiver picking up a frozen turkey and groceries last week from a giveaway at the Redeemed Christian Church of God New Wine Assembly church in northeast Washington. “Now they’re back at their jobs but the money isn’t going far enough. It’s still hard.”
The government estimates food prices will be up 9.5% to 10.5% this year. And that’s squeezing the budgets of many Americans and the food banks that have helped them, especially with the expiration of the massive flow of pandemic relief aid.
“ Inflation has been the story of the year,” said Michael Altfest, director of community engagement at the Alameda County Food Bank in Oakland, California.
Altfest said the level of community need remains 50% to 70% higher than pre-pandemic levels, and about 30% of calls to the food bank’s emergency helpline are from first-time callers.
In multiple cases, charities and food banks had prepared for increased numbers due to inflation, only to find the level of need had far exceeded their projections.
The Capital Area Food Bank in Washington originally projected it would need to distribute about 43 million meals during the July 2022-June 2023 budget year. Now four months into that fiscal year, it already is 22% ahead of those predictions.
“That was an educated prediction with a good four or five months of information,” said the food bank’s CEO, Radha Muthiah. “We are always thinking about Thanksgiving and Christmas right when everybody’s heading to the beach in summer.”
In Illinois, Jim Conwell of the Greater Chicago Food bank says the need remains elevated. “So we’re purchasing more and we’re spending more on what we do purchase,” he said.
His organization’s network served about 30% more households in August 2022, compared to the previous August.
“Families that were just getting their feet back underneath them are experiencing a whole new challenge or even if they have employment, or have several jobs or sources of income, it’s just not going as far as it was two years ago,” he said.
Higher prices are forcing people to make “sacrifices on their food,” Altfest said.
For example, he said, the price of chicken has more than doubled — from 78 cents per pound last year to $1.64 per pound this year. Estimates from the Farm Bureau set the cost of turkey as 21 percent higher than last year. And market researcher Datasembly estimates that a 16-ounce box of stuffing costs 14% more than last year, while a 5-pound bag of Russet potatoes averages 45.5% more.
Mike Manning, president of the Greater Baton Rouge Food Bank in Louisiana, draws a distinction between the increased hunger levels sparked by the pandemic and the current crisis. During the pandemic, millions of people’s jobs and incomes essentially disappeared, creating an immediate wave of need that he compared to the aftermath of a hurricane.
But the current crisis has been a slow and steady rise, starting in late February and still climbing. Manning said his food bank has seen a 10% to 15% rise in local food insecurity in just the past two months.
“You’re talking to people who are on lower incomes and they’re working multiple jobs — just think of the cost of them to get from one job to the other with the gas eating up whatever extra they’re trying to make,” he said. “What are they going to do? Do they give up gas so they can’t get to work or sacrifice on food and come back and ask us for help?”
And with no clear signs on when the long-term inflation wave might ease, “This almost feels like more of a marathon with no finish line in sight,” said Conwell of the Chicago food bank.
Domm recalls the lines at Bread for the City that “just stayed overwhelmingly long,” for weeks.
The fact that clients were willing to stand outside for hours for a turkey and a debit card speaks to “the intensity and depth of the need,” she said.
Domm also believes there’s a psychological element at play as well; after two consecutive holiday seasons warped by the pandemic, families are intensely eager to have something closer to normal.
“People have avoided their families for the last two years. So this year, there’s more pressure to really get groceries and have a group meal,” she said.
Associated Press reporters Anita Snow in Phoenix and Dee-Ann Durbin in Detroit contributed to this report.
New Jersey wants someone else to take charge of the troubled state-run veteran’s homes.
Gov. Phil Murphy on Wednesday ordered state Department of Military and Veterans Affairs to seek an outside vendor “who can manage systemic changes and provide qualified, administrative staff to help lead these initiatives.”
The move comes after the U.S. Centers for Medicare and Medicaid Services last week cut off federal funding for new admissions at the Veteran’s Memorial Home at Menlo Park, after major shortcomings in care and deficiencies in pandemic infection control led to a declaration that residents at the nursing home in Edison were in “immediate jeopardy.”
CMS said on Tuesday that the facility was “currently not in substantial compliance,” threatening fines and other penalties, and warned it could see permanent termination of all Medicaid and Medicare funding by March if the situation at Menlo Park is not corrected.
“Denial of payment for all new admissions began on Nov. 22, because the ongoing quality concerns have not been addressed,” said CMS spokesman Bruce Alexander.
Veterans Affairs officials say they are contesting the CMS findings.
In response to crackdown by federal regulators, the Murphy Administration last week deployed a so-called “Mission Critical Team” to Menlo Park, including a nurse consultant and an administrator with expertise in running long-term care facilities.
In the governor’s action late Wednesday afternoon, Murphy separately directed the Department of Military and Veterans Affairs, or DMAVA, to issue a request for proposals bring in a vendor who would be responsible for improving operations at all three of the state’s veteran’s home homes, including initiatives to train leadership, and to review current job descriptions, policies, and procedures to revise them as necessary.
Under that plan, the vendor will be required to provide a qualified team of administrative staff, including a chief executive officer and a chief nursing officer.
“Improving the care our veterans are receiving in each of the three state-run veterans homes remains a crucial priority of my administration,” said Murphy in a statement. “Sending a Mission Critical Team into Menlo Park to guide and advise facility staff was an important step in working towards this goal, but is certainly not the only step we must take.
He said by seeking experienced leadership to oversee systemic reforms and bring seasoned staff on board, “we will harness the expertise and impartiality of an outside vendor to ensure the implementation of thorough, long-lasting reforms in these homes.”
The vendor would immediately assume the role of interim CEO while working to find a replacement for the position. Changes will be made at Menlo Park before occurring at the other two veterans homes in Paramus and Vineland.
The Department of Military and Veterans Affairs is not only responsible for the veterans’ services, but also is in charge of the 8,400 members of Air and Army National Guard, as well as programs for military families and the Brigadier General William C. Doyle Veterans Memorial Cemetery.
State Sen. Joseph Vitale, D-Middlesex, who has long pushed for better care in the state’s nursing homes and has been sharp critic of the management of the veteran’s homes, applauded the governor’s move, calling it absolutely critical.
“Our veterans held up their end of the bargain, it’s our time to hold up ours,” he said.
Vitale noted that in 2020, Middlesex County — which owns two long-term care facilities in Old Bridge and Edison — hired Complete Care, a large chain, to operate those nursing homes.
“All around the quality of care has improved,” he said. They were a one-star facility, but now are a four-star facility, he said, referring to the CMS five-star rating system used to assess the quality of the nation’s nursing homes.
Vitale along with state Sen. Joseph Cryan, D-Union, had been pushing for the state to step back from its control of the veteran’s home.
“Our veterans deserve experts who understand all aspects of long-term care management and can bring that expertise into these homes to give New Jersey’s veterans the quality of care they deserve in honor of the sacrifices they have made on behalf of this nation,” Cryan said.
But Glenn Osborne, a longtime resident of Menlo Park and the president of the residents’ council there, expressed doubt that the move would work.
“The two groups that will suffer are the nursing staff — especially the good dedicated staff — and the most important people, the veterans,” Osborne told NJ Advance Media.
Brig. Gen. Lisa J. Hou, the Adjutant General of New Jersey and Commissioner of the New Jersey Department of Military and Veterans Affairs, said the department was “moving aggressively to ensure the highest standards of care for the veterans, veteran spouses, and Gold Star Families in our care.” and welcomes what she characterized as the “anticipated support.”
The issues at Menlo Park surfaced after state health evaluators conducted an inspection in August and September of the 312-bed nursing home, which cares for military veterans and their spouses. Those inspection reports outlined major charges of improper care and abuse.
In one incident, a registered nurse who apparently did not know how to remove a Foley catheter — a skill taught in nursing school — simply cut it with a scissor. The resident had to be taken to the emergency room to remove the rest of tube that had been placed in the bladder to drain urine, and then transported to a hospital to be treated for a urinary tract infection.
When a certified nursing aide with experience in the procedure was asked why she had not spoken up while watching the nurse cut the catheter, she was said to have replied: “She is an RN. She is supposed to know,” the inspectors said.
The RN was subsequently suspended and then terminated.
Another resident who repeatedly rang a call bell to get his medication was allegedly confronted by an angry nurse and an aide in what was described in the report as an emotionally and physically abusive episode.
And the facility reportedly failed to conduct contact tracing to contain what became a massive COVID-19 outbreak that began last Thanksgiving, inspectors charged. Menlo Park was cited for failing to “ensure that staff who were exposed were tested prior to working at the facility,” and failing to ensure that federal, state, and infection control guidelines were followed.
The state veteran’s homes had among the highest death rates in the country from the pandemic. COVID claimed the lives of more than 200 residents and staff in all three veteran’s homes, according to the state, although one attorney who represents dozens of families who sued the state suggests the number of fatalities may actually be more than 240.
The facilities went through earlier major changes following its well-publicized failures during the pandemic. Elizabeth Schiff-Heedles, the former CEO of Menlo Park, was fired in October 2020 as part of a wide-ranging shakeup by Murphy in response to the deaths there.
Jay Boxwell Jr., state commander for the Veterans of Foreign Wars of New Jersey, said he is glad Menlo Park is getting some sorely needed attention, but was leery of privatizing the operation. He pointed to the privatization that took place at the two county-owned nursing facilities in Middlesex County — which Vitale touts as a model worth emulating — saying that while the operation improved, but residents complain the operator takes the vast majority of their monthly income to support the facility. That shouldn’t be allowed at the veterans homes, which relies on far less of the residents’ income, he said.
Boxwell said the department of Military and Veterans Affairs must maintain a hand in the operation to ensure these facilities are “veteran-centric.”
“They must understand the unique needs of the veteran population, and you maintain the social comradery that is required for a veteran population,” he said. “We are a unique culture. We understand each other issues — that is what bonds us together. These were outstanding facilities before COVID.”
The VFW continues to meet with the Hou, the department commissioner, about its wish to redesign the rooms at Menlo Park so they are single-occupancy only and provide negative pressure ventilation, to curb the spread of airborne disease. He said left a meeting with Hou on Wednesday, encouraged that she said she supports the project.
In the past year, the Murphy Administration paid $68.8 million in settlements with the families of 190 deceased veterans home residents who had sued for gross negligence and incompetence by administrators during the height of the pandemic.
In August, Menlo Park employees filed suit against the state, saying the decision to penalize people for wearing masks and failing to prevent the spread of the coronavirus put their lives at risk.
Paul da Costa, who represented many of the families and now the employees, said he was heartened by the actions being taken by the state, “although it certainly was needed long ago.”
He added that the statements in the governor’s press release “contains some disturbing admissions, which my clients and I have been asserting for the last two years: that the administrators tasked with running these veterans’ homes were not qualified, not skilled and clearly incompetent.”
“He also questioned why the department of Military and Veterans Affairs will still oversee the outside contractor, “given its track record.”
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HARRISONBURG, Va. (WHSV) – Virginia U.S. Senators Mark Warner and Tim Kaine are calling for an update to the USDA’s standards for commercial dog breeding facilities. On the local level, a similar idea has been discussed in Rockingham County over the last few months.
On Tuesday Kaine and Warner joined 22 of their Senate colleagues in sending a letter to the U.S. Secretary of Agriculture Thomas Vilsack urging him to update the standards for commercial breeding facilities that are regulated under the Animal Welfare Act.
“Senator Warner and I were really involved in this long-standing tussle over the Envigo facility in Cumberland which eventually the FDA shutdown. But we were not happy with how long it took and how severe the abuses of animals were that were going on in that facility over such a long period of time,” said Senator Kaine.
The Senators are asking the USDA to update the standards that are regulated under the AWA to reflect the proposed Puppy Protection Act which would amend the AWA.
The proposed standards would go to greater lengths to ensure dogs in breeding facilities have adequate housing, caging, feeding and watering, socialization with humans and other dogs, as well as veterinary care.
“It’s time to look not only at the standards but also the degree of enforcement. Because you can have the best standards in the world but if you’re not doing the inspections or you’re doing them and letting people off with a slap on the wrist rather than meaningful improvements then you’re not really enforcing the provisions of the Animal Welfare Act,” said Kaine.
Kaine said that it was especially important for him to support the effort for stronger USDA standards after dealing with the Envigo facility in Cumberland County.
“We shouldn’t be tolerating facilities of the kind that we experienced in Cumberland County. It was appropriate that finally we shut that down, people were so incredibly generous in adopting the 4,000 beagles from that facility, and it was great to play a part in that. Let’s just make sure we don’t have another one of these,” said Kaine.
On the local level, Rockingham County Supervisors have also discussed adopting a dog kennel ordinance.
The proposed ordinance amendment to the County Code would include requirements for the location, size, and condition of kennels, the number of dogs they can have and breed, and the amount of exercise, training, and socialization each dog must receive.
Rockingham County Supervisors last discussed the ordinance in October when it was tabled. County Administrator Stephen King said it will likely not be voted on until sometime next year.
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