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“Transformational LeadershipIn The New Age Of Real Estate”
Alabama Center for Real EstateThe University of Alabama
Birmingham, AlabamaFebruary 1, 2013
Presented by Christopher Lee
CEL & Associates, Inc.
TODAY’S PRESENTATION
Future Headlines
Real Estate Industry’s Megashifts
The Psychology of Real Estate
Real Estate Cycles
Transformational Leadership
Predictions
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FUTURE HEADLINES
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Tuesday, July 10, 2015 Daily $1.75
Today's
Highlights
NYC Office
eBay Becomes The #1 Source For Selling Real Estate
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Congress Passes National Building Codes Standards Making It Unlawful To Sell A
Building That Is Non-Compliant!
Monday, February 18, 2015 Daily $1.50
Today's
Highlights
NYC Office
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Tuesday, July 10, 2018 Daily $1.75
Today's
Highlights
Multifamily
First Apartment BuildingLeased Up Using Social Media
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Monday, February 18, 2016 Daily $2.50
Today's
Highlights
Office
Facebook Creates First Virtual Office
“Y Generation Declares Office Space Obsolete.”
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First High Rise Farm Announced “12 Stories Equal To 600 Acres”
Monday, February 18, 2015 Daily 1.25¢
Today's
Highlights
NYC Office
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REAL ESTATE INDUSTRY’SMEGASHIFTS
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REAL ESTATE INDUSTRY’S
MEGASHIFTS
Category Historical
1970 –1979 Geography Local
Competition Many Competitors
Business Strategy Focus On
Location
Goals Market-Driven
Market Dynamics Fighting Over
Sites
Operational Focus
Collecting
Reputation
Leadership Personality-Based
Organization Few Teams
Brokerage A Representative
Founder An Entrepreneur
Growth Strategy
Growth From Market Dynamics
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REAL ESTATE INDUSTRY’S
MEGASHIFTS
Category Historical
1970 –1979 1980 – 1989 Geography Local Regional
Competition Many Competitors Some Competitors
Business Strategy Focus On
Location
Focus On
Design
Goals Market-Driven Capital-Driven
Market Dynamics Fighting Over
Sites
Fighting Over
Money
Operational Focus
Collecting
Reputation
Collecting
Assets
Leadership Personality-Based Functionally-Based
Organization Few Teams Appearance
Teams
Brokerage A Representative A Broker
Founder An Entrepreneur An Executive
Growth Strategy Growth From Market
Dynamics
Growth From Abundance Of
Capital & Financial Engineering
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REAL ESTATE INDUSTRY’S
MEGASHIFTS
CEL & Associates, Inc.
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Category Historical
1970 –1979 1980 – 1989 1990 – 1999 Geography Local Regional National
Competition Many Competitors Some Competitors Few Competitors
Business Strategy Focus On
Location
Focus On
Design
Focus On
Operations
Goals Market-Driven Capital-Driven Performance-Driven
Market Dynamics Fighting Over
Sites
Fighting Over
Money
Fighting Over
Market-Share
Operational Focus
Collecting
Reputation
Collecting
Assets
Collecting
Competitors
Leadership Personality-Based Functionally-Based Service-Based
Organization Few Teams Appearance
Teams Necessity Teams
Brokerage A Representative A Broker A Specialist
Founder An Entrepreneur An Executive A Leader
Growth Strategy Growth From Market
Dynamics
Growth From Abundance Of
Capital & Financial Engineering
Growth From Consolidation,
Specialization & Digital Economy
REAL ESTATE INDUSTRY’S
MEGASHIFTS
CEL & Associates, Inc.
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Category Historical
1970 –1979 1980 – 1989 1990 – 1999 2000 – 2009 Geography Local Regional National Global
Competition Many Competitors Some Competitors Few Competitors Strategic
Competitors
Business Strategy Focus On
Location
Focus On
Design
Focus On
Operations
Focus On
Customers
Goals Market-Driven Capital-Driven Performance-Driven Relationship-Driven
Market Dynamics Fighting Over
Sites
Fighting Over
Money
Fighting Over
Market-Share
Fighting Over
Talent
Operational Focus
Collecting
Reputation
Collecting
Assets
Collecting
Competitors
Collecting
Clients
Leadership Personality-Based Functionally-Based Service-Based Solutions-Based
Organization Few Teams Appearance
Teams Necessity Teams Reoccurring Teams
Brokerage A Representative A Broker A Specialist An Advisor
Founder An Entrepreneur An Executive A Leader A Coach
Growth Strategy Growth From Market
Dynamics
Growth From Abundance Of
Capital & Financial Engineering
Growth From Consolidation,
Specialization & Digital Economy
Growth From Customer
Connectivity, Talent & Capital Shifts
REAL ESTATE INDUSTRY’S
MEGASHIFTS
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Category Historical Forecast
1970 –1979 1980 – 1989 1990 – 1999 2000 – 2009 2010 – 2019 Geography Local Regional National Global Without Boundaries
Competition Many Competitors Some Competitors Few Competitors Strategic
Competitors New Competitors
Business Strategy Focus On
Location
Focus On
Design
Focus On
Operations
Focus On
Customers
Focus On Customers of
Customers
Goals Market-Driven Capital-Driven Performance-Driven Relationship-Driven Knowledge-Driven
Market Dynamics Fighting Over
Sites
Fighting Over
Money
Fighting Over
Market-Share
Fighting Over
Talent
Fighting Over
Customer-Share
Operational Focus
Collecting
Reputation
Collecting
Assets
Collecting
Competitors
Collecting
Clients
Collecting
Relationships
Leadership Personality-Based Functionally-Based Service-Based Solutions-Based Strategy-Based
Organization Few Teams Appearance
Teams Necessity Teams Reoccurring Teams Virtual Teams
Brokerage A Representative A Broker A Specialist An Advisor A Confidant
Founder An Entrepreneur An Executive A Leader A Coach A Collaborator
Growth Strategy Growth From Market
Dynamics
Growth From Abundance Of
Capital & Financial Engineering
Growth From Consolidation,
Specialization & Digital Economy
Growth From Customer
Connectivity, Talent & Capital Shifts
Growth From Globalization,
Generational Shifts, & Greening
THE PSYCHOLOGY OF
REAL ESTATE
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ATTITUDES IMPACT BEHAVIOR
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32% of Americans now say that they are in the lower class. (Pew Research 9/10/12)
53% of Americans have 3 months or less of savings. (Yahoo Finance 8/29/12)
Only 38% of Americans say that they are better off than a year ago. (Gallup 10/25/12)
54% of Americans expect a recession in 2013. (Rasmussen 12/27/12)
53% of Americans think the economy is getting worse. (Gallup 1/15/13)
50% of Americans believe the best years in America are in the past. (Gallup 1/2/13)
Only 5% of U.S. voters think Congress is doing a good or excellent job. (Rasmussen 12/30/12)
When Attitudes Impact Behavior
What Words Describe The U.S. Consumer?
Uncertain
Hesitant
Worried
Stressed
Unsure
Cautious
Insecure
Dubious
Unsettled
Wavering
Unpredictable
Careful
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CONSUMER CONFIDENCE CONTINUES TO WAVER
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THE REAL ESTATE INDUSTRY IS DRIVEN BY
HUMAN BEHAVIOR / NEEDS
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RobustEconomy
RecessionaryEconomy
RecoveringEconomy
RevitalizedEconomy
Hierarchy of Economic Vitality
Source: CEL & Associates, Inc.
THE REAL ESTATE INDUSTRY IS DRIVEN BY
HUMAN BEHAVIOR / NEEDS
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DiscretionaryReal Estate
Basic/NecessityReal Estate
ProductiveReal Estate
NicheReal Estate
Hierarchy of Real Estate Solutions
RobustEconomy
RecessionaryEconomy
RecoveringEconomy
RevitalizedEconomy
Hierarchy of Economic Vitality
Source: CEL & Associates, Inc.
THE REAL ESTATE INDUSTRY IS DRIVEN BY
HUMAN BEHAVIOR / NEEDS
CEL & Associates, Inc.
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Malls, Hospitality,Entertainment, Restaurants, Recreational, Lifestyle Retail
Apartments, Grocery, Pharmacy, Healthcare
Office, Industrial, Government, Education
Big Box Retail, Specialized Housing, Single Family,
Corporate BTS
Specific Real EstateOpportunities
DiscretionaryReal Estate
Basic/NecessityReal Estate
ProductiveReal Estate
NicheReal Estate
Hierarchy of Real Estate Solutions
RobustEconomy
RecessionaryEconomy
RecoveringEconomy
RevitalizedEconomy
Hierarchy of Economic Vitality
Source: CEL & Associates, Inc.
A PSYCHOLOGICAL PROOF POINT MULTIFAMILY
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U.S. HOMEOWNERSHIP TO DROP
TO LOW 60s BY 2020
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HOMEOWNERSHIP RATEAll homeowners & those past
due or in foreclosure
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Source: Census Bureau, Mortgage Bankers Association and A. Gary Shilling & Co.
Last Points 1Q 2012: total 65.4%; ex past due 60.4%.
HOMEOWNERS WHO MAY BECOME RENTERS
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U.S. PERCENTAGE LIVING AT PARENTS’ HOME
vs. HOMEOWNERSHIP RATE
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Source: Census Bureau and A. Gary Shilling & Co.
Last Points 2011: at parents’ 14.2%; homeowners 37.8%.
MULTIFAMILY CONSTRUCTION – U.S.
2008 – 2017
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APARTMENT FORECASTU.S. SUPPLY / DEMAND &
VACANCY
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Source: CBRE-EA and RREEF Real Estate.As of March 2012.
REAL ESTATE CYCLES
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REAL ESTATE CYCLE PHASES
Transition Phase
Growth Phase
Plateau Phase
Crisis Phase
Transition Phase
10 Years12.5 Years
4 Years
Source: CEL & Associates, Inc. CEL & Associates, Inc.
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REAL ESTATE CYCLES . . .
Generally last 10 years.
Growth period starts on the number “3.”
Cycle generally ends on the number “8.”
Can be altered by government intervention.
Are not geographically uniform.
Are not consistent with property types.
All real estate cycles have names.Source: CEL & Associates, Inc. CEL & Associates, Inc.
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REAL ESTATE CYCLES HAVE NAMES
Time Period Cycle
1983 - 1988 Age of Awakening Boomers & Entrepreneurism
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REAL ESTATE CYCLES HAVE NAMES
Time Period Cycle
1983 - 1988 Age of Awakening Boomers & Entrepreneurism
1993 - 1998 Age of Technology & Start-Ups
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REAL ESTATE CYCLES HAVE NAMES
Time Period Cycle
1983 - 1988 Age of Awakening Boomers & Entrepreneurism
1993 - 1998 Age of Technology & Start-Ups
2003 - 2008 Age of Exuberance & Debt
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REAL ESTATE CYCLES HAVE NAMES
Time Period Cycle
1983 - 1988 Age of Awakening Boomers & Entrepreneurism
1993 - 1998 Age of Technology & Start-Ups
2003 - 2008 Age of Exuberance & Debt
2013 - 2018 Age of Consequence & Restructuring
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REAL ESTATE CYCLES HAVE NAMES
Time Period Cycle
1983 - 1988 Age of Awakening Boomers & Entrepreneurism
1993 - 1998 Age of Technology & Start-Ups
2003 - 2008 Age of Exuberance & Debt
2013 - 2018 Age of Consequence & Restructuring
2023 - 2028 Age of Globalization & Knowledge
Source: CEL & Associates., Inc.
CEL & Associates, Inc.
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THE GROWTH PHASE
PERIOD OF OPPORTUNITY
Transition Phase
GrowthPhase
PlateauPhase
CrisisPhase
Transition Phase
10 Years12.5 Years
Period Of Opportunity
Rising Occupancy Levels
Rising Rents
Growing NOIs
Increasing Asset Values
Accelerated Development
Activity
Readily Available Capital
New Competitors/Firms
Emerge
Source: CEL & Associates, Inc. CEL & Associates, Inc.
37
THE PLATEAU PHASE
PERIOD OF DECISIONS
Transition Phase
GrowthPhase
PlateauPhase
CrisisPhase
Transition Phase
10 Years12.5 Years
Period Of Decisions
Supply/Demand
Imbalance
Optimistic Underwriting
Generous TIs/Rent
Concessions
Unrealistic Asset Values
Protracted Negotiations
Blind Entrepreneurism
High Investment Sales
Activity
Source: CEL & Associates, Inc. CEL & Associates, Inc.
38
THE CRISIS PHASE
Transition Phase
GrowthPhase
PlateauPhase
CrisisPhase
Transition Phase
10 Years12.5 Years
Period Of Change
Declining
Rents/Occupancies
Declining Asset Values
Little/No Development
Activity
Workouts/Restructuring
Limited Access To
Credit
Entity Downsizing
De-Leveraging
PERIOD OF CHANGE
Source: CEL & Associates, Inc. CEL & Associates, Inc.
39
THE TRANSITION PHASE
PERIOD OF REINVENTION
Transition Phase
GrowthPhase
PlateauPhase
CrisisPhase
Transition Phase
10 Years12.5 Years
Period Of Reinvention
New Business Models
Emerge
Recapitalization/Cash Is
King
Diversification Of Risk
Focus On Fundamentals
Next Generation
Leaders Emerge
Renewed Customer
Focus
Consolidation
Accelerates
Source: CEL & Associates, Inc. CEL & Associates, Inc.
40
Cycle Growth Period Primary Drivers Of The Real Estate Cycle
1983-1988 Growth from an abundance of capital, financial engineering and tax incentives.
1993-1998 Growth from industry consolidation, securitization, and the digital economy.
2003-2008 Growth from an abundance of inexpensive debt, unprecedented consumer spending and a “bull” stock market.
2013-2018 Growth from recapitalization, generational shifts, global restructuring, “green” technologies, education, public infrastructure, knowledge-centered industries, energy, data storage, healthcare and rental-based society.
2023-2028 Growth from life sciences, bio-technology, Gen Y shifts, globalization of artificial intelligence, alternative energy, robotics, research, micro-farming and water reclamation.
Source: CEL & Associates, Inc.
CEL & Associates, Inc.
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REAL ESTATE CYCLESPAST, PRESENT & FUTURE
Industries Serving Seniors Food Distribution Logistics Software Development Waste Management Healthcare Emerging Technologies Life Sciences/Biotech Colleges/Universities/Education Technology Legal/Accounting Government/Government Related Science Defense/Security Green Industries/Clean Tech Communications Pharmaceutical Trade/Logistics F.I.R.E. Data Centers Entertainment Research & Development Energy & Alternative Energy Full Service Grocery Internet-Based Entities Personnel Management Food Service/Agricultural Consulting Computer Programming Electronic Media Nonprofits Wireless Technology Medical Devices Nanotechnology Network Security
GROWING INDUSTRY SECTORS
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REAL ESTATE INVESTMENT MATRIX
2012 - 2016
Source: CEL & Associates, Inc.CEL & Associates, Inc.
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Low Risk
· High Street Retail
· BTS Office
· Necessity Retail
· Self-Storage
· Multifamily - Urban
· Industrial
· Investment Sales
· Performing Loans
· “B” Value Add Acq.
· Property Management
· Core Acq.
· Affordable Housing
· Warehouse
· Office - Core
· Medical Office
· Mortgage Brokerage
· BTS Warehouse
· Multifamily - Suburban
· Spec Development
· Distressed Debt
· Lodging
· Entertainment
· Recreation
· “A” Value Add Acq.
· Lifestyle Retail
· Land Development
· Mixed Use – Urban
· Timber Land
· New Single Family Dev.
· 2nd Homes
· Construction Management
· Regional Malls
· General Brokerage
· Auctions
· Senior Housing
· Student Housing
· Office – Suburban / Non-Core
High
Hig
hR
etu
rns
Low
REAL ESTATE CYCLE
PROOF POINTS
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SALES VOLUME – COMBINED2001 - 2012
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SALES VOLUME – OFFICE2001 - 2012
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SALES VOLUME – INDUSTRIAL2001 - 2012
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SALES VOLUME – RETAIL2001 - 2012
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SALES VOLUME – APARTMENTS2001 - 2012
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TOTAL CONSTRUCTION ACTIVITY IN THE U.S.
IS EXPECTED TO GROW
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COMMERCIAL / MULTIFAMILY LOAN ORIGINATIONS INDEX
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So…What Core Strategy Do You Need To Embrace
To Capitalize On The Emerging Opportunities?
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TRANSFORMATIONAL
LEADERSHIP !
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The Real Estate Industry Is…
Shifting from a Founder- to a Successor-based industry.
60% of today’s CEOs will be gone by 2020.
Consolidating.
By 2020 there will be 30% fewer firms than in 2000.
Becoming very specialized.
Only 20% of Building Owners consider their service provider to be Best-In-Class.
Facing $1.7 trillion in loan maturities during the period 2012 – 2016.
29% are considered underwater.
Facing a talent shortage.
There could be a shortage of 15,000 or more professionals by 2015.
Compensation and succession are becoming top priorities.
TRANSFORMATIONAL TRENDS
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77%
74%
70%
65%
63%
60%
54%
47%
43%
40%
2013 TRANSFORMATIONAL LEADERS PRIORITIES
Source: CEL & Associates, Inc.
Human Capital
Customer Relationships
Brand Management
Business Model Innovation
Growth Strategy Execution
Capital Access/Formation
Controlling Costs
Managing Corp. G & A
Successor Planning
Greening
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TRANSFORMATIONAL STRATEGIES FOR SUCCESS Set Your Vision & Reset Your Priorities.
CEL & Associates, Inc.
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Set Your Vision & Reset Your Priorities.
Implement A Collaborative Business Model.
CEL & Associates, Inc.
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TRANSFORMATIONAL STRATEGIES FOR SUCCESS
Set Your Vision & Reset Your Priorities.
Implement A Collaborative Business Model.
Strengthen Your Brand & Differentiating Story.
CEL & Associates, Inc.
58
TRANSFORMATIONAL STRATEGIES FOR SUCCESS
Set Your Vision & Reset Your Priorities.
Implement A Collaborative Business Model.
Strengthen Your Brand & Differentiating Story.
Become Customer-Centric & Knowledge-Driven.
CEL & Associates, Inc.
59
TRANSFORMATIONAL STRATEGIES FOR SUCCESS
Set Your Vision & Reset Your Priorities.
Implement A Collaborative Business Model.
Strengthen Your Brand & Differentiating Story.
Become Customer-Centric & Knowledge-Driven.
Improve Internal Systems & Processes.
CEL & Associates, Inc.
60
TRANSFORMATIONAL STRATEGIES FOR SUCCESS
Set Your Vision & Reset Your Priorities.
Implement A Collaborative Business Model.
Strengthen Your Brand & Differentiating Story.
Become Customer-Centric & Knowledge-Driven.
Improve Internal Systems & Processes.
Take Advantage Of Competitor Difficulties.
CEL & Associates, Inc.
61
TRANSFORMATIONAL STRATEGIES FOR SUCCESS
Set Your Vision & Reset Your Priorities.
Implement A Collaborative Business Model.
Strengthen Your Brand & Differentiating Story.
Become Customer-Centric & Knowledge-Driven.
Improve Internal Systems & Processes.
Take Advantage Of Competitor Difficulties.
Recognize Opportunities & Pursue Them Aggressively.
CEL & Associates, Inc.
62
TRANSFORMATIONAL STRATEGIES FOR SUCCESS
Set Your Vision & Reset Your Priorities.
Implement A Collaborative Business Model.
Strengthen Your Brand & Differentiating Story.
Become Customer-Centric & Knowledge-Driven.
Improve Internal Systems & Processes.
Take Advantage Of Competitor Difficulties.
Recognize Opportunities & Pursue Them Aggressively.
Expand Your Service Lines & Product Specialization.
CEL & Associates, Inc.
63
TRANSFORMATIONAL STRATEGIES FOR SUCCESS
Set Your Vision & Reset Your Priorities.
Implement A Collaborative Business Model.
Strengthen Your Brand & Differentiating Story.
Become Customer-Centric & Knowledge-Driven.
Improve Internal Systems & Processes.
Take Advantage Of Competitor Difficulties.
Recognize Opportunities & Pursue Them Aggressively.
Expand Your Service Lines & Product Specialization.
Strengthen Your Capital Base.
CEL & Associates, Inc.
64
TRANSFORMATIONAL STRATEGIES FOR SUCCESS
Set Your Vision & Reset Your Priorities.
Implement A Collaborative Business Model.
Strengthen Your Brand & Differentiating Story.
Become Customer-Centric & Knowledge-Driven.
Improve Internal Systems & Processes.
Take Advantage Of Competitor Difficulties.
Recognize Opportunities & Pursue Them Aggressively.
Expand Your Service Lines & Product Specialization.
Strengthen Your Capital Base.
Protect Your Most Valuable Asset…Your People.
CEL & Associates, Inc.
65
TRANSFORMATIONAL STRATEGIES FOR SUCCESS
REAL ESTATE
PREDICTIONS
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OFFICE PREDICTIONS 2020
“Will function more like Marriott and operate like Sabre.”
The amount of office space per worker could shrink to 50sf – 75sf, and 25% of workers will be “Club” employees.
Office buildings will shift from 8 to 6 to 24/7 activity centers.
“My Place” will replace “My Space” as workers seek opportunities to create virtual offices, connective portals and “swarming” venues.
Office space will be leased by units of consumption rather than square footage.
Future leasing decisions will be made by the Director of Human Resources to reduce growing generational conflicts and enhance worker productivity.
Moveable, “intelligent” walls will replace fixed offices. Windows will have electro-chromic glass which turn them into multi-touch screens.
“Pop-Up” workplace cubicles, exercise and/or ergonomic office furniture and pink noise systems will be commonplace.
CEL & Associates, Inc.
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INDUSTRIAL PREDICTIONS 2020
“Will look like Amazon.com and operate like FedEx.”
Greater use of RFID or Smart Tags. TSA and U.S. Customs will move to the point-of-origin instead of the point-of-destination.
Will employ more technology specialists than laborers. Improved robotics will continue to accelerate on-shoring. Manufacturing is back!
The 2014 completion for the widening of the Panama Canal will shift port activity away from the west coast.
Industrial buildings will be valued on building efficiency ratings or turnaround time.
Growth around airports and major transportation hubs will continue as new regional distribution centers populate growth markets.
CEL & Associates, Inc.
68
RETAIL PREDICTIONS 2020
“Will look more like Disneyland and feel more like eBay.”
Grocery stores will become a “community resource” for healthcare meetings, learning, banking, personal services and social interaction (e.g. the “Grocery Mall”).
U.S. consumers will shift and become digital or device shoppers. There will be a proliferation of “identity” products.
Retail design will feature smaller, adaptable and interactive elements to engage. An “Age Zone” of floor space will emerge.
Organic and “buy local” initiatives will abound. Lifestyle retail will spur an underground economy.
“Sharing” retailers will occupy many centers.
Amazon will become the #1 grocer in America. Will money be relevant?
CEL & Associates, Inc.
69
APARTMENT PREDICTIONS 2020
“Will look more like a home but feel like a village.”
Smaller units (400 square feet), common area amenities and green features will dominate design and development activities.
Custom options for interior finishes and features…“design-your-own” will be commonplace.
Cohabitation will increase by 35% - 45%.
Over 50% of apartments will be smoke-free, and 20% could be “celebrity branded.”
Over 35% of apartment buildings will be identified with a local charity or community service.
Watch for transferrable leases and pre-fab construction.
Watch for the acquisition of major national and/or regional apartment portfolios/companies by lodging enterprises.
Dedicated parking spaces for ZipCar-like providers and community bicycles for resident use. CEL & Associates, Inc.
70
REAL ESTATE SERVICE COMPANY
PREDICTIONS 2020“Will look more like NASA but feel more like a partnership.”
Real estate assets for sale will have Standard Underwriting packages prepared by Certified Underwriters.
Investment Sales activity will increase 12% - 14% per annum through 2018.
An abundance of capital will likely keep cap rates low through 2017.
Watch for the Federal government to enact “Greening” legislation requiring buyers of real estate assets to escrow monies for energy efficient improvements.
Emergence of an e-Bay or MLS-like listing service for commercial assets.
50% of the Brokers employed today will be replaced by collaborative Analysts and Advisors.
CEL & Associates, Inc.
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The number of public real estate firms will decline by 35% - 45%.
Of the regional/local real estate service firms which existed in 2012…30% will disappear by 2020. There will be 3 Global real estate providers.
Today’s functional titles will be replaced by contemporary monikers. The titles of “Property Manager” or “Facility Manager” will disappear.
Bilingual requirements will be mandatory among service providers.
Every service provider will have at least one Certification or approved Designation.
There will be a public market for individual asset investing.
CEL & Associates, Inc.
72
REAL ESTATE SERVICE COMPANY
PREDICTIONS 2020
“Transformational LeadershipIn The New Age Of Real Estate”
Alabama Center for Real EstateThe University of Alabama
Birmingham, AlabamaFebruary 1, 2013
Presented by Christopher Lee
CEL & Associates, Inc.
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