Commercial Property Executive January 2013

8/14/2019 Commercial Property Executive January 2013

1/46

CPE-FPL Special Report:

Hiring & Compensation 22

Finance Forecast 2013:

Capital Sources 40

CPE Ranks the Top

Development Firms 11

CPExecutive.com JANUARY 2013

When Disaster StrikesLessons Learned

from Hurricane Sandy:

New Approaches to

Development, Operations

and Data Recovery 26


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CPExecutive.com | January 2013 3

Contents

25thAnniversary

Formerly Commercial Property News JANUARY 2013

SIGN UP FOR YOUR FREE SUBSCRIPTIONGo online for new subscriptions, renewals, or address changes @ www.cpexecutive.com/manage-subscriptions/

CPE Commercial Property Executive (ISSN 1042-1675; USPS 003-611) Vol. 27, No. 1, January 2013Commercial Property Executive is published 12 times annually by Yardi Systems,Inc., 370 Lexington Ave. No. 2100, New York, NY 10017. One-year digital edition subscriptions, newsletter subscriptions, change of address and other customer inquiries can becompleted at www.cpexecutive.com

CUSTOMER SERVICE INQUIRIES: For single print edition back-issue copy sales ($15 per issue, payable in advance), please write to CPE, PO Box 3100, Santa Barbara, CA 93105 orcall Steven Wayner, 805-679-7643 or fax 805-682-0200. Copyright 2013 by Yardi Systems, Inc. All rights reserved. Commercial Property Executive editorial and advertising ofces:370 Lexington Ave. No. 2100, New York, NY 10017.

ADVERTISING/EDITORIAL REPRINTS & PERMISSIONS: Reprints of editorial or ads can be used as effective marketing tools. Permission for one-time use of our content, as a full article,excerpt or chart may be available upon written request. For details, contact [email protected]

4 From the Editor:Kicking the Can?

6 Data & Analysis: Economic/demographicand industry data, plus Gregory Fisher on

the growing majority-minority population.

11Top Development Firms: CPEand MHNoffer a new index to the leading

U.S. developers.

12News Briefs: Hudson Yards breaksground, plus other top news.

13Briefs:Management moves and nance,

sales/development and leasing/manage-ment transactions.

16CPExecutive.com:The latest posts fromelsewhere on CPExecutive.com, including

CPE TV, CPE Radio, From the Inside and

our social networking pages.

17 TrendTalk:The growing demand formedical ofces, plus George Ratiu on the

new economic reality and Rick Chichester

on single-tenant retails popularity.

SPECIAL REPORT

Executive DemandFPL provides new perspective on whos

being hired and for how much in 2013.

37Sustainability: Green Measures

A new global benchmark is attractingattention with its widespread following

and aim to prove correlations between

sustainability and nancial performance.

40Finance & Investment:Finance Forecast 2013With lenders still cautious, where will

capital come from?

43Law & Policy: After the ElectionWhat four more years means forcommercial real estate.

DEPARTMENTS

COVER FOCUS

When Disaster Strikes

26 After the Storm

Hurricane Sandy is changing thedevelopment playbook. As building

owners repair their properties, propos-

als to revamp building codes, harden

infrastructure and implement innova-

tive measures to protect vulnerable

areas are already emerging.

31 Facing the TestWhile owners, managers, contractors

and city agencies responded with asense of urgency and cooperation,

they also learned some code and

procedural changes could reduce

damage during the next emergency.

34 Data RevisitedLosing key databases can handicap

both buildings and businesses.

How to ensure data is protected

and restored.

HIRING & COMPENSATION REPORT

37

22

On the Cover: Across the Hudson River from Manhattan, Hoboken, N.J., was hard hit by Hurricane Sandy.

Rising waters stranded residents in their homes for several days, and the PATH rail terminal remains closed.


4/464 January 2013 | Commercial Property Executive

Formerly Commercial Property News

TM

CPE EDITORIAL ADVISORY BOARD

Steven Bandolik

Director, Deloitte Financial

Advisory Services L.L.P.

Peter Boritz

Principal, Real Data Management

Jay Epstien

Partner & Co-Chair of the Global Real

Estate Practice Group, DLA Piper

Doug Frye

CEO, Colliers International

Mel Gamzon

President, Senior Housing

Investment Advisors

Todd Lillibridge

Chairman & CEO, Lillibridge

Paul McDowell

Chairman & CEO, CapLease

Eduardo Padilla

CEO, NorthMarq Capital

Kieran Quinn

Managing Director,

Guggenheim Partners

EDITORIAL DIRECTOR

Suzann D. Silverman

[email protected]

212-977-0041 ext. 3410

PUBLISHER

Dan Waldman

[email protected]

REPRINTS

Anastasia Minichino, The YGS Group

717-505-9701 ext. 168

[email protected]

CIRCULATION

For circulation inquiries,

please send email to

[email protected]

LIST RENTALS

Brahm Schenkman

Info Renery

800-529-9020 ext. 29

[email protected]

SENIOR EDITOR

Paul Rosta

[email protected]

212-977-0041 ext. 3411

NEWS EDITOR

Anna Spiewak

[email protected]

212-977-0041 ext. 3425

FINANCE EDITOR

Keat Foong

[email protected]

212-977-0041 ext. 3408

ASSOCIATE EDITOR

Mike Ratliff

[email protected]

212-977-0041 ext. 3407

SALES REPRESENTATIVES

Marisa Boles (West)

[email protected]

212-977-0041 ext. 1434

Jason Lam (East)

[email protected]

212-977-0041 ext. 1488

ART DIRECTORMichelle Matteson

[email protected]

GRAPHIC DESIGNER

Catriona Yung

RESEARCH EDITOR

Jack Kern

25thAnniversary

From the Editor

A Fiscal Kick the Can?Kicking the can down the road: In real estate nance cir-

cles, its become a common phrase for the delaying tactic

employed by banks that are unable to renance mortgag-

es in the face of recession and tight lending practices. In

the nal days of 2012, kicking the can threatened to be-

come national policy as the White House and Congress

tried to strike a decit reduction deal before spending cuts

and tax hikes specied in the Budget Control Act of 2011

took effect, possibly sending the United States off the so-called scal cliff.

Quite a challenge for the nal days of President

Obamas rst term, but nothing new in the partisan cli-

mate that has marked the past four years in Washington. Will that rift continue over the next

four? Voters opted for divided government again in November, an outcome that suggests

continued stalemate. Still, some observers believe that dire circumstances will nally force

a shift, as Michael Ratliff reports in this months Legislative Outlook, After the Election.

(George Ratiu offers additional inaugural thoughts in his Economists View.)

Change, however, will require concerted effort on both sides of the partisan divide wellbeyond Jan. 21. Genuine cooperation is a prerequisite for solving long-term problems. An

underperforming job market, the Social Security Trust Fund shortfall, the nancial woes of

Amtrak and the U.S. Postal Service, and the foundering healthcare safety net are among

the issues that will continue to dog the countrys nancial health if they remain neglected.

The need for consensus was further underscored when Hurricane Sandy turned inland

on Oct. 29 and slammed wide swaths of the nations most densely populated region.

As the New Jersey Coast and the New York City metropolitan area struggled to recover,

President Obama asked Congress for $60.4 billion in emergency aid. That request was

expected to be only the rst in a series of appeals; the governors of New York and New

Jersey estimated a far higher cost of recovery, and as of mid-December, New York City

and the regions transit agencies had yet to make their own requests for assistance.

Financial aid is not the only question that must be addressed as the region rebuilds. Like

Hurricane Katrina, the terrorist attacks of Sept. 11, 2001, and other disasters, Sandys

aftereffects are forcing discussion about the changes needed to withstand similar events

in the future. With extreme weather expected to become more common, these conversa-

tions range from new coastal development strategies to alterations in property operations,

emergency response and business continuity efforts, among other issues.CPE

examinesthe most compelling ideas and best practices in a Special Report beginning on page 26.

Meanwhile, FPL Advisorys annual Hiring and Compensation Report evaluates the

impact of economic recovery on commercial real estate employmentand what could

happen if scal unity is not achieved. Are your own hiring and compensation practices in

line with industry standards and expectations? Compare them and see.

CONTRIBUTING WRITERS

Jeremy I. Banoff

Brad BertonRick Chichester

William Ferguson

Gregory Fisher

Gail KalinoskiGeorge Ratiu

Dees Stribling


5/46

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6/466 January 2013 | Commercial Property Executive

The Growing Majority-Minority PopulationBy Gregory Fisher

Data & AnalysisFor the latest data and more, visit our Research Center.

Headlines continue to chronicle the nations demographic growth ofits minority populations. So it should come as no surprise that eachnew data release from government agencies shows the trend grow-ing in momentum. For example, in 2012 the U.S. Census Bureau re-ported that, for the rst time in U.S. history, more minority babies wereborn than white, non-Hispanic (non-minority) babies. Projections sug-gest that the United States as a whole will become majority-minoritysometime in the 2040s.

As the nations demographic landscape continues to transform, it is

interesting to look at this national trend and see how it plays out on amore local level. America is geographically a large country. And to thatextent, minority populations still remain fairly concentrated. For exam-ple, 27.3 percent of all minorities can be found in just 15 U.S. counties.

The above map offers a snapshot of U.S. counties that are currentlyestimated to be majority-minority, according to recent data from TheNielsen Co. In 2000, 8.4 percent (265) of U.S. counties were majority-minority. Today, it is estimated that those numbers have climbed to11.4 percent (358) of U.S. counties. Over the past 12 years, Texashas led the way with an additional 28 counties that are now majority-

minority. Other top county contributors were California (10), Georgia(seven) and Virginia (six).

Some counties bucked the national trend. For example, there weresix U.S. counties that were majority-minority in 2000 and are now ma-jority-majority (Webster, Ga.; Colfax, N.M.; W. Feliciana, La.; Calhoun,S.C.; Surry, Va.; and Terrell, Texas).

Interestingly, of the nations top 15 minority population counties,only one is not a majority-minority county: Maricopa, Ariz., located inthe Phoenix metropolitan area. Looking to the future, we see the nextbig counties that will likely have made the shift to majority-minority by2020s Census. The following counties all have total populations over

500,000 and minority populations that have at least doubled since 2000: Collin County: Dallas Metro Area Denton County: Dallas Metro Area Lee County: Cape Coral, Fla., Metro Area Utah County: Provo, Utah, Metro Area Macomb County: Detroit Metro Area Johnson County: Kansas City, Mo./Ks., Metro Area Will County: Chicago Metro Area Snohomish County: Seattle Metro Area Wake County: Raleigh, N.C., Metro Area

Gregory Fisher is a senior data product manager for The Nielsen Co.

Minority Population > 50%

MInority Population < 50%

Source: The Nielsen Co.
http://www.cpexecutive.com/research-center/http://www.cpexecutive.com/research-center/


7/46 CPExecutive.com | January 2013 7

0 50,000 100,000 150,000 200,000

Unemployed October 2011Employed October 2011

Employed October 2012 Unemployed October 2012

7.58.53.84.43.64.7

3.94.1

9.1

9.97.28.47.08.2

7.38.6

10.111.7

10.914.5

12.614.2

6.27.29.09.9

8.79.6

9.310.2

Management, professional and related occupations

Management, business and nancial occupations

Professional and related occupations

Service occupations

Sales and ofce occupations

Sales and related occupations

Ofce and administrative support occupations

Natural resources, construction and maintenance

Farming, shing and forestry occupations

Construction and extraction occupations

Installation, maintenance and repair occupations

Production, transportation and material moving

Production occupations

Transportation occupations

Total, 16years and over 1

1

Job Search(employed and unemployed persons by occupation; not seasonally

adjusted; numbers in thousands)

1Unemployed total includes a small number of persons whose last job was in the Armed Forces.

Source: Bureau of Labor Statistics

-10

0

1020

30

40

50

60

70

80

National NortheastMidwest

10Q3 11Q3 12Q3 13Q3(F)

South West

NetA

bsorption(MSF)

10Q3 11Q3 12Q3 13Q3(F)

VacancyRate(%)

0

2

4

6

8

10%

Source: CoStar Group Inc. *Monthly chart cycles among ofce, industrial and retail

Positive Future

(U.S. retail market conditions*)

Industry Oct. 12p Sep. 12r Aug. 12 Oct. 11

All manufacturing industries1 485,893 478,659 468,249 462,050

Durable goods industries1 222,389 222,765 203,388 210,041

Primary metals 28,576 26,577 28,172 26,514

Fabricated metal products 28,003 27,372 28,888 27,510Machinery 32,235 29,408 26,921 33,983

Computers and 19,311 24,060 19,140 21,758electronic products1

Electrical equipment, 10,144 9,646 10,221 10,106appliances and components

Transportation equipment 68,965 71,645 55,134 56,931

Furniture and related products 5,457 5,526 5,296 5,207

Nondurable goods industries 263,504 255,894 264,861 252,009

Source: U.S. Census Bureau. 1Excludes Semiconductors. pPreliminary. rRevised data due to

late receipts and concurrent seasonal adjustment.

Buying New(value of manufacturers new orders; not seasonally adjusted; $ in millions)Space Creation

(change in U.S. commercial real estate under construction)

Source: CoStar Group Inc.

0

20

40

60

80

100

12011/09

11/10

Industrial Ofce Retail

11/11

11/12

UnderConstruction(MSF)

40.6%LatestY-O-Y Change 15.3% 4.7%


8/46

8 January 2013 | Commercial Property Executive

Paying the Bills(CMBS delinquencies by property type; $ in billions)

LODGING RETAIL OFFICE INDUSTRIALMULTI-FAMILY

Dec. 11

Oct. 11 Mar. 12

Jun. 12

Sep. 12

Oct. 12

0

3

6

9

12

$15

Source: Standard & Poors, www.standardandpoors.com, Larry Kay, 212-438-2504

Young Leaders(CEO tenure by years*)

*Based on responses to a CPE-MHNsurvey.

Source: CPE-MHNBest Practices Index, which appeared in the December 2012 issue

of Commercial Property Executive.

Data & Analysis

24%21%

12%

10%7%

26%

6 to 10 years

0 to 5 years

11 to 15 years

21 to 25 years

16 to 20 years

26 plus years

Spotlight Still on CMBS

(delinquent loans by lender type)

0

.20

0

.40

.60

.80

1.0%

09Q3

08Q3

07Q3

06Q3

05Q3

04Q3

03Q3

02Q3

01Q3

00Q3

10Q3

11Q3

12Q3

09Q3

08Q3

07Q3

06Q3

05Q3

04Q3

03Q3

02Q3

01Q3

00Q3

10Q3

11Q3

12Q3

09Q3

08Q3

07Q3

06Q3

05Q3

04Q3

03Q3

02Q3

01Q3

00Q3

10Q3

11Q3

12Q3

09Q3

08Q3

07Q3

06Q3

05Q3

04Q3

03Q3

02Q3

01Q3

00Q3

10Q3

11Q3

12Q3

CMBS (30+ Days and REO) Fannie Mae & Freddie Mac (60+ Days)

Fannie Mae

Freddie Mac

Banks & Thrifts (90+ Days) Life Companies (60+ Days)

0

2

4

6

8

10%

0

1

2

3

4

5%

0

.10

.20

.30

.40

.50%

Delinquency rates shown are NOT comparable between investor groups. These rates show how performance of loans for each investor group has varied over time, but cannot be used

to compare one investor group to another.

Sources: MBA, Wells Fargo Securities L.L.C., Intex Solutions Inc., American Council of Life Insurers, Fannie Mae, Freddie Mac, OFHEO and Federal Deposit Insurance Corp.


9/46


Top Dollar(spread between IPD all-property local yield and 10-year national bond yield, second quarter 2012)

Spread 10-Year Bond Yield IPD Yield

JP US US US US US USUS US US US US US US US USUS CA CA CA CA NL NLUK UK UK UK AU AU AU AUNZ NZ IE0

1

2

3

4

5

6

7

8

9

1011%

Tokyo

NewYork

Houston

SanDiego

Washington,

D.C.

Boston

Portland

SanFrancisco

Denver

LosAngeles

Seattle

Miami

Vancouver

Dallas

Chicago

Toronto

Amsterdam

Montreal

Atlanta

Calgary

London

Minneapolis

Rotterdam

Philadelphia

Edinburgh

Sydney

Melbourne

Brisbane

Auckland

Manchester

Birmingham

Perth

Wellington

Dublin

All property yields shown here follow local market conventions and practices and may not necessarily be consistent across all markets.

Sources: IPD and the Organization for Economic Cooperation and Development

Where the Money Goes(investment sales for past 12 months ending Oct. 31, 2012)

Total Sales:

$247.4 billion

Hotel9%

Mall & Other,Strip20%

Garden

19%

Ofce - CBD14%

Ofce - Sub14%

Mid/Highrise

11%

Flex,Warehouse

13%

Based on independent reports of properties and portfolios $2.5 million and greater.

Data believed to be accurate but not guaranteed.

Source: Real Capital Analytics Inc., www.rcanalytics.com, 866-732-5328

Paying Dividends

(REIT dividend yield by sector)

As of Nov. 30, 2012

Source: SNL Financial, 434-977-1600, www.snl.com.real_estate

0

1

2

3

4

5%

Multi-Family

Diversied/Other

10-YearTNote

Ofce

Industrial

ManufacturedHo

mes

RetailShoppingCenters

Healthcare

Self-Storage

RetailEnclosedM

alls

AllEquityREITs

Hotels


10/46


Data & Analysis

New York City Spotlight: Bad in Brooklyn

(commercial lis pendens by borough)

Manhattan Bronx Brooklyn Queens Staten Island

0

50

100

150

200

Nov11 Dec11 Jan12 Feb12 Mar12 Apr12 May12 Jun12 Jul12 Aug12 Sep12 Oct12 Nov12

Source: PropertyShark, a division of Yardi Systems Inc.

Recognizing the top technology product and service providers.

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11/46


To be included in upcoming surveys, contact Michael Ratliff at

[email protected].

*As of July 1, 2012.

Tune in to CPE Radioor visit ourResearch Centerto hear Jack Kern and

Michael Ratliff dissect the current state of development.

Podcast: Behind the Scenes

Indexes & Rankings

Value Developed KSF Under Total Assets Rank Company Since Jan. 10 ($M) Development* in Pipeline

1 Hines - 10,696 93

2 Trammell Crow Co. $1,299 4,366 28

3 Wood Partners 1,350 5,000 39

4 StonebridgeCarras L.L.C. 500 1,350 5

5 Duke Realty Corp. - 4,600 17

6 Related California 1,337 1,410 22

7 Liberty Property Trust 550 3,300 13

8 The Rockefeller Group - 2,265 26

9 American Campus 1,650 2,092 14

Communities Inc.

10 UDR Inc. 1,200 2,267 units 10

11 IDI 400 5,647 7

12 Camden Property Trust 200 1,800 8

13 SARES-REGIS Group 86 2,037 16

14 Community Investment 120 501 6

Strategies Inc.

15 EastGroup Properties Inc. 48 591 8

16 Colonial Properties Trust 295 111/2,018 units 14

17 Highwoods Properties Inc. 148 246 3

18 First Potomac Realty Trust 5 135 2

19 Mack-Cali Realty Corp. 48 203 1

20 Excel Trust Inc. 58 - 1

21 Edward Rose Building Enterprise - 1,600 units 13

Ramping Up for 2013By Michael Ratliff and Jack Kern

In this months CPE-MHN Development Firms survey results, we were happy

to see that new construction made a strong statement throughout 2012.

Lets face it: New ground-up development is difcult to achieve. Between the

risk prole and rising labor and material costs, lenders have become much

more selective and deal terms harder to comply with for construction and

permanent loans. While ground costs may be more reasonable, municipali-

ties are taking a harder look at land use to determine infrastructure and

community impacts. The set of entitlements, typically daunting to start with,

now includes certain envi-

ronmental, waste, energy

utilization and trafc-owconsiderations that are

more restrictive than ever

before. Fortunately, the

balance of great design and

fullling community needs

has allowed experienced

and well-funded develop-

ment rms to move ahead

with many projects.

Multi-family develop-

ment led the level of activ-

ity in our survey with 37

percent of all assets under development; ofce and industrial trailed with 23

percent and 18 percent of activity, respectively. Regionally, the South, East

Coast and West Coast metros showed marked gains in new construction,

while the Midwest trailed behind.

Development typically shows a condence level in certain primary

and even secondary investment markets where demand is strong for all

property types and the local economy demonstrates some future promise.

We were impressed by the range of new construction, with almost half of

the responses indicating even more development in the next 18 months

than in the last 18. This increased level of activity does show that strong

development activity will be in practice across the nation for much of theforeseeable future.

Methodology

Developers are very focused on the selection, management and operating

characteristics of new properties. We asked questions about current and

future plans, levels of investment in each proposed project, preferences in

location, property type and anticipated result. The rankings demonstrate

these are all great companies. The strongest rms in our

CPE-MHN Survey of Best U.S. Development Firms have a large national

presence, variability in investment sectors and aggressive plans

for the future. Our rankings reect our belief in each rms capacity toperform as we enter a new year.

Multi-Family (37%)

Ofce (23%)

Industrial (18%)

Retail (10%)

Student Housing(5%)

Healthcare(3%)

Mixed-Use(2%)

Other(2%)

Percent of Properties Under Development

2013 Top Development Firms

Indexes/RankingsReal Estate Research Indexes/RankingsReal Estate Research

FROM COMMERCIAL PROPERTY EXECUTIVEAND MULTI-HOUSING NEWS
http://www.cpexecutive.com/category/multimedia/cperadio/http://www.cpexecutive.com/research-center/http://www.cpexecutive.com/category/multimedia/cperadio/http://www.cpexecutive.com/category/multimedia/cperadio/


12/46


Surviving the recession and a change in joint

venture partnerships, one of the most ambi-

tious mixed-use developments in the coun-

try is nally beginning to rise along New YorkCitys West Side.

Over the next 12 years, a joint venture of

The Related Cos. and Oxford Properties

Group will transform a 26-acre site into Hud-

son Yards, a 13 million-square-foot complex

that will eventually change the citys skyline.

Estimated to cost between $12 billion and

$15 billion, the project will result in a mix of

retail, residential and ofce space, includingmore than 6 million square feet of commer-

cial space. Eventually, the new neighborhood

that is being carved primarily out of the Hud-

son rail yards stretching between 10th and

12th avenues and W. 30th and 33rd streets

on Manhattans West Side will also include

about 5,000 residences, a new public school,

a luxury hotel, a cultural center, public parks

and plazas. The expectation is that more than40,000 people will work, shop or live in Hud-

son Yards, much of which will be built on plat-

forms atop the rail yards. It will be the largest

private development in New York City since

Rockefeller Center was built in 1939.

The ofcial groundbreaking for the proj-

ects rst phase was held on Dec. 4 at the

site of the South Tower, a 47-story ofce

building planned for the corner of 30th Street

and 10th Avenue that will be the international

headquarters of Coach Inc. when complet-

ed in 2015. The handbag and accessories

manufacturer and retailer is buying 740,000

square feet of space in the building. Relat-

ed reportedly has other tenants lined up for

the South Tower but has not yet announced

names other than Coach.The south and north ofce towers are both

designed by Kohn Pedersen Fox Associated,

At Last: Related, Oxford Properties

Break Ground on Hudson YardsBy Gail Kalinoski, Contributing Editor

News Briefs

which is also the master planner for the en-

tire project. The South Tower will have 1.7

million square feet of space, including retail.

The North Tower, which will be built between

2014 and 2016 at the southwest corner of

10th Avenue and 33rd Street, will be 70 sto-

ries tall and include 2.4 million square feet ofofce space.

The two towers will be linked by The Shops

& Restaurants at Hudson Yards, a ve-level,

750,000-square-foot complex being de-

signed by Elkus Manfredi Architects. Simi-

lar to The Shops at Columbus Circle, which

Related also developed, it will feature shops,

theaters, restaurants, bars and markets. Dan-

ny Meyers Union Square Events will be one

of the main tenants.

Executives from Related, Oxford and Coach

joined New York City ofcials and labor lead-

ers at the groundbreaking for the project,

which is expected to generate nearly 23,000

construction jobs and thousands more once

the buildings are completed.

Related and Oxfords massive and boldinvestment in this project and the commit-

ments from these tenants demonstrate the

condence in the citys future and the future

of the West Side, said New York City Mayor

Michael Bloomberg.

Manhattan Borough President Scott String-

er said the groundbreaking showed the

strength of New York Citys real estate market.

Through partnership and persever-ance, the city has taken a literal hole in the

ground and turned it into the future home of

New Yorks premier retail and ofce space,

Stringer added.

Redevelopment of the West Side rail yards

owned by the Metropolitan Transportation

Authority has been in the planning stages for

at least seven years. Back then, the Bloom-

berg administration proposed building a sta-

dium for the New York Jets that could also

be used as an Olympic venue if the city were

to win its bid for the 2012 Summer Olym-

pics. The city lost out to London for the 2012

games, but development plans for the rail

yards and neighboring areas continued. The

city, which had rezoned the eastern portion

of the rail yards for mixed-use development in2005, completed rezoning the western por-

tion in 2009.

The Related Cos. and Oxford Properties Group recently broke ground on Hudson Yards, depicted here in

an artist rendering by Visualhouse. The complex will rise on 26 acres on Manhattans West Side.

RenderingcourtesyofNYCMa

yorsOfce


13/46


American Campus

CommunitiesNames Talbot CIOAmerican Campus Communities has

promoted William Talbot to chief invest-

ment ofcer. He will be tasked with pro-

viding strategic direction and executive

oversight of the student

housing REITs invest-ment platform. This in-

cludes all acquisition

and development activ-

ity, as well as disposi-

tions and asset management.

Talbot has served American Cam-

pus Communities for more than 11

years, most recently as executive vice

president of investments. He joinedthe group as director of investments in

2001, when the companys total assets

were approximately $250 million. The

Houston-based company is now the

largest owner of student housing com-

munities in the United States, with $4.5

billion in gross assets.

Hines Promotes McCarthyTo Senior Managing Director

Sidor Joins Cassidy Turley

Darragh to Oversee CBRE GCSIn Canada, Latin America

Avison Young Opens Irvine Ofce

Behringer HarvardHires Watt as EVP

Prudential Promotes CollettTo President of Asset Resources

Soa OnboardWith C&W Retail Team

Briefs/People

Clarion Nabs 272 KSFOfce Building in HoustonClarion Partners, of New York, has acquired

Westchase Park, a six-story, 272,300-square-

foot Class A ofce building in Houstons West-

chase submarket.

American Campus Pays $863MFor Student Housing PortfolioAmerican Campus Communities Inc., ofAustin,

Texas, has closed on its $862.8 million purchase

of a 19-property, 12,049-bed student housing

portfolio from afliates of Kayne Anderson Capital

Advisors L.P., of Los Angeles and Armonk, N.Y.

Sulentic Becomes CBRE CEOCBRE Group Inc.s new president & CEO, Robert

Sulentic, is ofcially on the job. Sulentic moved

up the ladder from his previous job as president

and stepped into the shoes of former CEOBrett

White, who had announced his impending retire-

ment in May 2012.

Harbor Buys One South WackerFor $221M, Plans UpgradesAfliates of Harbor Group International, of Nor-

folk, Va., have acquired One South Wacker, a

40-story, 1,195,000-square-foot Class Aofce

building in Chicagos West Loop, for $221 million.

HGIs major investment partner in the property

is Clal Insurance Co., one of the largest insur-

ers in Israel.

More Top News

READ THE LATEST INDUSTRY NEWS

Read more @ cpexecutive.com

Related Cos. Hudson Yards Breaks

Ground on 26-Acre Manhattan Site

NYC Mayor Reveals Luxury Plans for Hud-son Yards Development

Prep Work Begins on Manhattans Hud-

son Yards

$1B Hudson Yards Latest Development

Hung Up by Rough Economy

In July 2007, the MTA issued requests for

proposals for the sale or long-term lease of

the air rights over the eastern and western

rail yards and related properties for develop-

ment. Three months later, the MTA received

proposals from ve real estate development

rms: The Related Cos., The Durst Organiza-

tion, Vornado Realty, Brookeld Properties

and Tishman Speyer Properties.

Tishman won the bidding battle in March

2008 when it increased its initial offer by $100

million to more than $1 billion. But that dealfell apart quickly, and in May 2008 the MTA

reached an agreement with Related and its

then joint venture partner, Goldman Sachs, to

develop the area. The nancial meltdown that

began in 2008 and resulting recession slowed

down the process, with the MTA agreeing in

February 2009 to give Related and Goldman

Sachs another year to nalize their contract.

In 2010, Goldman Sachs backed out ofthe joint venture; Related then partnered with

Oxford Properties, the real estate investment

and development arm of OMERS, one of

Canadas largest pension funds. In May 2010,

Related and Oxford signed a contract with the

MTA for development rights at the rail yards.

The 99-year lease with purchase options also

calls for the partnership to pay for $1 billion in

MTA capital projects.

Extension of the 7 subway line to 34th

Street and 11th Avenue from its current ter-

minus at Grand Central Terminal is a major

part of the West Side development plans. It is

expected to be completed in 2014.

We are delighted that the Hudson Yards

project is taking such a tangible step forward,

said MTA chairman & CEO Joseph Lhota.

This project and the extension of the 7 sub-

way will revolutionize the Far West Side andspur the creation of a new neighborhood.
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s/1b-hudson-yards-latest-development-hung-up-by-rough-economy/http://www.cpexecutive.com/business-specialties/development/preparatory-work-begins-on-manhattan%E2%80%99s-hudson-yards/http://www.cpexecutive.com/regions/northeast/nyc-mayor-reveals-luxury-plans-for-hudson-yards-development/http://www.cpexecutive.com/regions/mid-atlantic/related-cos-hudson-yards-breaks-ground-on-manhattans-26-acre-site/


14/46


Briefs/Sales & Development

Briefs/Leasing & Management

Hines, Boston Properties Acquire

San Francisco Development SiteHines has nalized a joint venture with Boston

Properties to acquire the Transbay Tower proj-

ect, a 1.4 million-square-foot, 61-story asset to

be built adjacent to the Transbay Transit Cen-

ter in San Francisco.

The $190 million acquisition is expectedto

close in the rst quarter of 2013. Hines and

Boston Properties each have a 50 percentinterest in the project. The building recently

received nal approval from the San Francis-

co Planning Commission. The ofce tower,

which is slated to be the tallest building on

the West Coast, is being designed by Pelli

Clarke Pelli Architects.

American Campus CommunitiesAnnounces $862.8M Buy

TCC, Clarion, Rosewood Begin1 MSF Industrial Complex

RLJ Lodging Enters BostonWith $64.5M Acquisition

Vornado Realty to SellGreen Acres Mall for $500M

Kennedy Wilson Spends $48MOn North Hollywood Ofce

Hyatt Announces Bangkok Hotel

Zeckendorf Breaks GroundOn $500M 50 UN Plaza

Simone Signs 39,200 SFAt Bronx Retail Center

Iron Mountain Relocates HQ

Cornish & Carey Sources75,000 SF for Elo Touch Solutions

SL Green Signs 103 KSF in Leases

FEMA Takes 200 KSF in Queens

Accordia Taps JLLFor N.J. Assignment

Getty Adds Triple-Net LeasesEncompassing 109 Properties

JLL Secures 811 KSFFor Calgary Imperial OilJones Lang LaSalle Inc. has secured an 811,000-square-foot lease in a project to be de-

veloped in the Quarry Park submarket of Calgary in Canada. Imperial Oil Ltd., an Exxon-

Mobil subsidiary, will move its headquarters from the citys central businessdistrict to

the new development in two phases beginning in 2014, with full occupancyslated for

2016. The deal was negotiated by Jones Lang LaSalles Houston ofce.

Canada-based Remington Development Corp. is building the campus, which will in-

clude ve ofce buildings on 19.5 acres of land when completed. The move enables

Imperial Oil to consolidate its operations at several downtown Calgary buildings, which

in turn will open up some space for tenants looking for large blocks in the citys central

business district.
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15/46


Briefs/Finance

Vornado Completes$950M RenancingThe Vornado Realty Trust-led partnership

that owns 1290 Avenue of the Americas inManhattan has completed a $950 million

renancing on the property. The 10-year,

interest-only loan bears interest at 3.34

percent. Net proceeds were approximately

$522 million after repaying the existing loan

and closing costs. Vornado owns a 70 per-

cent controlling interest in the partnership.

1290 Avenue of the Americas is a 2.1

million-square-foot asset located sevenblocks south of Central Park. Its high-prole

tenants include Axa Equitable, Cushman &

Wakeeld, Warner Music Group, Microsoft

and several law rms such as Bryan Cave

L.L.P. and Fitzpatrick, Cella, Harper & Scin-

to. Vornado is in the midst of a signicant

renovation of the property that is expected

to be completed in the rst quarter of 2013.

Joshua Green Corp. Invests $200MIn Urban Renaissance Group

SL Green Closes $1.6B Facility

U.S. Bank Closes $54MIn Construction Loans

HFF Arranges $45MFor San Diego M-F

Cassidy Turley Secures $181MFor Trophy D.C. Ofce

Sterling Capital Lands $70M Re

Hersha Closes $400M Facility

Also Featuring:

The CPE 100 Weighs inOn the Biggest ChangesTo Come 27

Timeline: 25 MilestonesOf the Past 25 Years 29

Todays Leaders and

The Road AheadCPE Celebrates Its Silver Anniversary with a

Look Toward Commercial Real Estates Future 20

Plus, the CPE-MHNLeading Commercial

Investors Power Index 11

CPExecutive.com June 2012

CPE_0612_cover2 indd 1 5/18/12 4:27 PM

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16/46


Now Showing on CPE TV

John McIlwain: The Housing Needs of the New Seniors

Rakesh Kishan: Inside the Corporate Mind

Steve Smith: Whats Fueling Ofce Leasing

and more!

CPE Poll

Be sure to vote in the next poll: How would you resolve thescal cliff?

Tune in to CPE Radio for:

PodcastEvolving Best Practices

Dees Striblings Economy Watch Weekly

Recent Posts on From the Inside:Brian Rapela: Record-Setting San Francisco

Ofce Trades Promise Continued

Market Strength

Dan Probst: Sustainability Beyond Buildings

Also blogging on From the Inside:

Peter Boritz on Technology

Diane Butleron Diversity

Robert Mandelbaumon Hospitality Trends

Richard Green on the Economy

J.C. Goldensteinon Internet and Other Topics

and more!

Research Center:Industry Research Reports:

JLL, P&G Reveal Five Rules of Successful Business Relationships

ULI: The New SeniorsNot So Senior Anymore

CPE-MHNRankings: 2012 Best Practices Index

Featured Guest Column:J. Kieran Jennings, Esq.: Tax Relief for Obsolete

Retail Space

Further Discussions on the Web:CPEon Twitter:

Loblaw deal signals plenty more spinoffs ahead http://goo.gl/IpnKw

HYiannis Andreou @YiannisAndreou

Congrats! RT @SparrowHawkre: Houston company buys two

Jeffersontown warehouses http://www.bizjournals.com/louisville/

news/2012/11/29/houston-company-buys-two-jeffersontown.

html?ana=twt via @BFLouisville #STNL

Daniel E. Herrold @DHerrold

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Linked In: Commercial Property Executive Forum

Facebook:Commercial Property Executive and CPE City PagesCREOpoint: CREOpoint.com/prole/CPE

Pinterest: pinterest.com/cpecitypages

TM

41%

No, I dont believein climate change.

We will not invest in coastal ood plains

due to future storm/ooding risks.

20%

20%

19%

Im concerned about climatechange, but not enough to impact my

companys investment strategy.

We are taking into accountthe backup and stability

measures at buildings wellconsider in high-risk areas.

Has the prospect of increasingly frequent extremeweather events impacted your investment strategy?

more @ cpexecutive.com
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17/46


Obamacare, Aging Americans and the

Growing Demand for Outpatient FacilitiesBy Anna Spiewak, News Editor

Economists View:

La Vie En Bleu:

The New Economic RealityBy George Ratiu

TrendTalk

(continued on page 20) (continued on page 21)

Alter+Care manages St. Bernards Health & Wellness Institute, a 55,000-square-foot healthcareproperty in Jonesboro, Ark., that just celebrated its one-year anniversary.

With the 2012 presidential elec-

tion behind us, one wonders at

the political machinerys capac-

ity for churning through billions

of dollars in spending, only to

come out looking like more of

the same. As the saying goes,

plus a change, plus cest la

mme chose.

For the most part, 2012

proved to be the year of wait and see. Con-

gress waited to see who won the White

House and how that would impact its legisla-tive direction. Businesses waited to see who

won the White House and how

that would change the political

tone and regulatory environ-

ment before deciding what to

do about their spending. And

consumers waited to see who

won the White House and how

companies would respond in

their hiring decisions.

The wait-and-see game

is over. For the White House, the next four

years will provide opportunities to implement

and expand programs enacted over the rstterm. For Congress,

At least one type of industry is sure to ben-

et from newly re-elected President Obamas

healthcare legislation, the Patient Protection

and Affordable Care Act: medical ofces andother healthcare property.

A growth in demand for medical outpatient

centers was already anticipated as the giant

Baby Boomer generation ages; the extension

of health insurance to 30 million uninsured

Americans under Obamacare is likely to re-

quire a further increase in space as well as

a faster pace of patient care that will set the

healthcare real estate market on re, accord-ing to some experts.

The goal of Obamacare is to lower the

price of healthcare, so the efciency of medi-

cal ofce space is going to have to increase

to provide the same amount of care with less

cost, said Garth Hogan, executive manag-

ing director of global healthcare services for

Newmark Grubb Knight Frank. Youre going

to see a need for large amounts of squarefootage leased by large groups and hospi-

tals; theyre going to see more patients than

theyve ever seen before and see them quick-

er. That will require different oor plans and

ofce models than have been typical to date,

he added. The small, individual physician

suites are going to be a thing of the past.

NGKFs healthcare services group has al-

ready seen an increase in transaction volume

for healthcare buildings. This year, it sold $500

million, with a good portion of its clients hos-

pitals that want to either own their buildings

or lease new ones. With medical ofces less

costly to build and operate than in-patient fa-

cilities, they are attracting increased attention

from both large medical groups and hospitals,

which are locating increasingly more servicesin these outpatient fa-

PhotobyEdLaCasse


18/46

DistinguishedAchievement

Awards

The CPEDistinguished Achievement Awards recognize the commercial real

estate industrys most noteworthy properties and transactions. The winners

will be selected by a panel of judges representing expertise across commercialreal estate disciplines.

Awards will be offered for:

Best Transactions (Lease, Sale and Financial Structure)

Best Development Projects

Best Repositioning/Redevelopment Plans

Best Property Management Programs

Finalists will be announced in May on CPExecutive.com, and winners will be

published in the July issue of Commercial Property Executive.

Visit CPExecutive.com to download entry forms and guidelines.

Entries must be electronically submitted or postmarked by March 29, 2013.

CPEs 2013 DistinguishedAchievement Awards

CA

LL

FO

RE

NT

RIES

Last Years First-Place Winners:

Best Development/Redevelopment:

Hess Tower, Houston, developed by

Trammell Crow Co. and Principal

Real Estate Investors

Best Lease:

Conde Nasts lease at One World Trade Center,

New York City, represented by CBRE Group Inc.

Best SaleSingle Asset:

Brookeld Ofce Properties sale of

1400 Smith St., Houston, to Chevron,

brokered by Holliday Fenoglio Fowler L.P.

Best SalePortfolio:

Washington Real Estate Investment Trusts

Washington, D.C.-area portfolio sale to

AREA Property Partners and Adler Group,

represented by Cassidy Turley

Best Financial Structure:

Lance Capital L.L.C. and CGA Capital Corp.s

tenant improvement nancing package for GFI

Development, Starwood Capital and The CarlyleGroup at 470 Vanderbilt Ave., Brooklyn, N.Y.

Most Creative Repositioning Plan:

Jones Lang LaSalle Inc.s new marketing and

leasing plan for One Front St., San Francisco


19/46


TrendTalk

Market View: Net Lease

Hungry Buyers, Single TenantsBy Rick Chichester

Buyers hungry for secure and

stable investment options have

driven signicant demand for tri-

ple-net-leased, single-tenant re-

tail properties this year, accord-ing to research compiled by Faris

Lee Investments. Data shows

that single-tenant properties with

credit tenants are in the high-

est demand, especially those

housing recession-resistant tenants such

as food use, automotive, pharmaceutical,

value-oriented and other necessity-based

retail categories.Generally speaking, triple-net assets offer

a solid value, as they tend to be well locat-

ed and occupied by a single, strong user.

Such properties provide high-net-worth

buyers with the passive yield they seek,

and offer a far superior return over the CD

market, where rates are now less than 1

percent, and even a more acceptable ratethan stocks and bonds, which have proven

to be such volatile invest-

ments. The commercial real

estate investment is set,

with annual returns as well

as planned rental increasesfor tenants in the majority of

lease structures.

The greatest challenge

now is that the supply of

top-tier single-tenant prop-

erties remains low. This has driven up val-

ues as quality assets are moving quickly or

being sold off market. Active buyers know

they need to be aggressive to win a deal intodays competitive market. As demand for

this product type elevates, cap rates con-

tinue to compress, with pricing at or above

asking prices, and bidding wars have be-

come frequent occurrences.

One case in point is the 25-property Ruby

Tuesday restaurant sale-leaseback assign-

ment that Faris Lee procured early in 2012.We have now sold nearly all the proper-

ties at record-breaking cap rates relative

to comparable assets, averaging 6.81 per-

cent. Six of the last transactions were either

at or above list price, all with multiple com-

peting offers.And several McDonalds-occupied prop-

erties in a number of locations have been

marketed by the rm and produced cap

rates in the low 4 percent range. A similar

cap rate is apparent with bank-occupied

product in core markets.

Many 1031 buyers that have either owned

other property types or never owned com-

mercial real estate are now actively acquiringretail property. In one recent deal, Faris Lees

Jeff Conover and Shaun Riley completed an

$11.1 million sale of a 46,000-square-foot,

single-tenant Sports Authority to a 1031 ex-

change buyer that purchased the property

with just six years remaining on the lease in

an off-market, all-cash transaction.

The rms brokers are also increasinglyworking with pension (continued on page 20)


20/46


TrendTalk

cilities. It costs more than $1,000 per square

foot to build a hospital, compared to $200 per

square foot for a medical ofce building. And

operating a medical ofce facility for only 12

hours a day is less costly than maintaining a

hospital 24/7.

Hospitals with the new healthcare legis-lation are looking for ways to be more cost

effective, provide more convenient services

and be closer to where people work and

live, so a combination of all of that increased

the demand for (medical ofce) space,

said Donna Jarmusz, senior vice president

of business development and strategic ini-

tiatives at Alter+Care, which develops and

manages more than a dozen medical build-ings nationwide. We see this as a trend, as

hospitals are contacting us or were speak-

ing with hospitals about future plans.

Unlike Hogan, Jarmusz sees little effect

from Obamacare on healthcare real estate.

Theyre predicting that 30 million Americans

who didnt have health insurance will now

have it, and statisticians are assuming that

this will create more people requiring health-

care services, but I am of the opinion that

those people are already getting healthcareservices through emergency departments or

going through other avenues to get them.

Nevertheless, Jarmusz does anticipate

greater demand for medical space due to the

increase in outpatient services. They are fore-

cast to grow by 30 percent during the next

decade, while in-patient hospital visits will

decline by 2 percent, Patricia Jones, general

manager of Lillibridge Healthcare ServicesInc., said during this falls Institute of Real Es-

tate Management conference.

Obamacare and Outpatient Facilities

(continued from page 17)

Market View

(continued from page 19)

funds and REITs that have capital sources

looking for strong performing retailers with

long-term leases. Such was the case in the

$20.8 million sale of an 81,619-square-foot

department store anchor occupied by For-

ever 21 within a regional mall. The all-cash

investor was a large core fund.

The rm also broke a national sales record

for the lowest cap rate and the highest cost

per square foot for a Wal-Mart Supercenter,

closing at $16.5 million, or $155 per foot of

the 106,801-square-foot property, with a

cash-on-cash return of 5 percent on an eq-

uity investment of $6.5 million. The rm ob-

tained multiple offers, ultimately producing

a buyer that assumed the existing loan and

could execute a 46 percent down payment.In turn, the buyer got a rare opportunity to

acquire a newly constructed property with a

20-year corporate triple-net lease.Looking ahead, we expect both interest and

cap rates to remain low. As the capital markets

continue to become more efcient and meet

demand for debt, we anticipate this favorable

situation to increase single-tenant transaction

volume, resulting in even more competition

for product that was already popular among

many investors that have paid cash over the

past several years to avoid nancing chal-

lenges. As this segment of the market con-

tinues to gain momentum, cap rates will likely

compress further and transaction velocity will

surely increase.

Rick Chichester is president & COO of

Faris Lee Investments. Colleagues Jeff

Conover, Matthew Mousavi and

Don MacLellan contributed to this column.

IntroducingCPEs New

Twitter ChatLog on to Twitter/CPE

to converse with industry

leaders about todaystopics topics that

are important to you.

Interested in sposorships?Contact:

Marisa BolesSales Representative (West)212-977-0041 [email protected]

Jason LamSales Representative (East)212-977-0041 x1488

[email protected]


21/46


Economists View(continued from page 17)

the scal cliff will likely engender additional

opportunities for no-compromise haggling

and negotiations. For businesses, the exist-

ing regulatory environment will continue to

add costs and complexity. And for consum-

ers, a sluggish employment pace coupled

with higher prices will not add a lot of cheerto the new year.

The economic picture is more nuanced,

but not any rosier. Economic activity ad-

vanced over 2012, despite the mid-year sag.

Gross domestic product in the third quarter

turned out to have grown at a stronger clip

than initially estimated by the Commerce De-

partment, from an initial annual rate estimate

of 2 percent to 2.7 percent.

However, the gains came from large gov-

ernment spending outlays, principally on

defense and business inventory ramp-up.

Consumer spending was weaker than antici-

pated and overall business spending actually

declined 2.2 percent, following ve quarters

of solid growth. With the overhanging scal

cliff looming, companies continued to amass

large volumes of cash: As of the third quar-

ter, corporate prots reached a record $2

trillion, and cash reserves on balance sheetsexceeded $1.6 trillion. Little of the excess li-

quidity turned into investment spending.

Employment gures maintained their weak

growth pace during the year. As of Novem-

ber 2012, 1.6 million new jobs were added to

the economy, leading to a post-recession net

payroll jobs balance closing in on ve million.

However, given the more than eight million

jobs slashed during the recession, there is stilla sizeable gap left. Moreover, the unemploy-

ment rate decline from 8.3 percent in Janu-

ary to 7.9 percent in October resulted mostly

from young people re-entering school and

others dropping out of the labor force. Not

surprisingly, employment wages remained

stagnantand fell behind the eight ball when

accounting for consumer price ination.

The standard of living for a typical worker

has been decreasing, even as the economy

has been advancing. Mirroring this reality, No-

vembers retail salesincluding Black Friday

declined at most major stores, as consumers

sought deals and bargains. Cyber Monday, fol-

lowing the Thanksgiving holiday, returned bet-

ter gures, as shoppers found more of those

bargains online. But overall, the trends did not

portend a strong holiday shopping season.

So where does that leave us, as we look

ahead to a new 2013? In brief, with more ofthe same, there may be a reason econom-

ics is called the dismal science. But there is

a silver lining, which points to potential bright

spots. The residential housing market has sta-

bilized and has been showing signs of gather-

ing steam in several areas of the country. On

the back of historically low interest rates and

rising prices, sales of existing homes have

been growing. Inventories of existing residen-tial buildings have declined to an average six

months supply, leading to noticeable price

spikes in strong markets.

With advancing home prices, consumers

are more likely to boost residential invest-

ments. When combining gains in real estate

wealth with a stronger stock market perfor-

mance, we end up with a growing wealth

effect. With these slight tail winds, GDP is

projected to grow 2.5 percent in 2013, as

employers are expected to create two million

new jobs. While those gures are not likely to

make any economist call for a celebration,

their direction is encouraging.

George Ratiu is manager of

quantitative & commercial research for the

National Association of Realtors.


22/46


Executive DemandFPL Finds Growing Hiring Need, Continued Positive Trajectory for Compensation

Hiring: Still StrongBut Will ItFall Off the Fiscal Cliff?

By William Ferguson, Co-Chairman & Co-CEO,

FPL Advisory Group

As 2012 progressed, the real estate industry gained momentum, al-

beit on an incremental basis. Global investors continued to prefer theUnited States, given the perceived stability and (slow) growth. Inter-

estingly, hiring was more robust in Europe than might be the popular

perception, as investors prepared to pursue the disposition of troubled

assets. And while Asia experienced its own challenges, from slower

growth in China to the economic troubles experienced by Japan, in-

vestment managers continued to source strong pan-Asian leadership

to prudently deploy and manage institutional capital in the fastest-

growing part of the world.

Underwriting in the AmericasCanadas real estate economy continues to be strong, even though

there are some concerns about condominium development in Toronto.

For example, many U.S. retailers are trying to penetrate the Canadian

marketplace. Even if there is a slowdown, it will be modest on a relative

basis. Unlike the rest of the world, Canadians know how to underwrite

risk, and their banking system has never been fooled into the vortex of

overleverage. And Canadas pension funds, which are extraordinarily

well capitalized, are active investors on a global basis.

Latin America, and specically Brazil, has continued to attract equity

capital, replacing the traditional European investors with Asian, U.S.

and Canadian capital. Brazils growing middle class represents a won-

derful economic opportunity.

In the United States, those rms that are well capitalized are most

actively growing their businesses. This includes the real estate invest-

ment managers as well as the REITs. The global real estate investment

managers, which offer multiple product investment opportunities rang-

ing from REIT securities to debt investments and infrastructure, con-

tinue to be awarded fresh institutional capital. As investors go global,

REIT securities managers represent a viable alternative. The big invest-

ment managers are growing larger, and the boutiques are competing

in their respective niches, with those in the middle at risk (having pur-

chased aggressively in 2007, utilizing leverage and structure).

The functional demand among the REIMs is reasonably consistent.

Succession continues to be at the top of the list, and the next gen-

eration of leadership needs to embody outstanding strategic, investor

relations and investment capabilities. Client-facing executives, including

capital raising and portfolio management, have been in signicant de-mand. And there has been more demand lately for acquisitions people,

who can source off-market transactions versus buying assets at auc-

tion. The core/core-plus/value-add investors have been the recipients of

new capital allocations. The private equity rms, short of The Blackstone

Group and Lonestar Funds, have been challenged to raise new capital.

Among the REITs, there has been a tremendous amount of board

recruitment activity as the current generation of board members re-

tires. CEO succession has also been a priority, as leadership change,

especially among the founders, has been inevitable. Other leadershiproles continue to be in high demand, whether they be COOs, CFOs or

heads of investment.

From a commercial property perspective, demand has been most

signicant in multi-family and healthcare. Interestingly, development

professionals are being hired in the multi-family sector, despite talk

of an impending construction slowdown there. Demand in the other

property sectorsofce, industrial, retail and hospitalityis driven

either by location (with more demand on the coasts) or the capital

strength of the sponsor.

As it relates to other sectors, there is starting to be more activity in

the homebuilding space, especially at the leadership levels. A number

of private equity rms have also entered the single-family rental busi-

ness. Brokerage rms are adding to their investment sales and corpo-

rate real estate outsourcing ranks. And the debt space has picked up

some momentum, beyond the active lenders like banks and insurance

companies. For instance, there appears to be more demand for con-

duit lenders, given the current interest-rate environment.

On the other hand, demand for corporate real estate executives

continues to diminish as more companies, both public and private,



23/46


outsource their real estate activities. The construction and engineering

sector likewise continues to be reasonably slow, except for those rms

focused on global infrastructure projects.

Europes Improving SentimentIn Europe, the general market sentiment has certainly improved

in the last 12 months, even if fundamentals are still giving cause

for concern. Hiring for growth rather than purely for replacement is

back on the agenda for the rst time in ve years, and a cautious

improvement in overall remuneration is the general trend for most

real estate businesses.

The clear trend is centered around debt, incorporating distressed

loan/asset acquisitions; provision of debt by alternative lenders such

as insurance companies, mezzanine players or senior debt funds; and

the creation or expansion of loan servicing platforms. The United King-

dom, Germany and France are the most active markets, in that order,

with a number of sovereign wealth funds, high-net-worth individuals

and international pension plans looking for transparency and low-risk

returns during the continued volatility of the Euro crisis.As banks recapitalize and start to unload assets and portfolios in in-

creasing volume, a number of new entrants have arrived in Europe, in-

cluding KKR, TPG, Brookeld (which has strengthened its investment

management business), PIMCO and Baupost. The hiring climate for

Adding Executives (percent of rms hiring senior executives)

Business Type Property Type

Source: FPL Advisory Group hiring surveys. Senior executives dened as those with compensation packages totaling $150,000 or more per year.

2013 is one of conservative optimism, with an anticipated net increase

of approximately 5 percent across the industry.

Recruiting in AsiaIn Asia, there has been a pick-up in recruitment activity at two lev-

els. First, there has been a change of leadership at the platform level,

driven by either succession planning or a need for a different skill

set to lead and guide the platform in a new direction. This does not

apply only to CEOs; companies have also been focused on bringing

in senior fund-raising executives to help access investors at a more

regional level.

Second, companies are upgrading opportunistically at more junior

levels as platforms continue to rightsize. Hiring continues to be strate-

gic rather than growth oriented, with only a handful of rms in growth

mode as a result of a niche strategy and track record that has pro-

duced a successful fund raise (the exception rather than the norm).

The clear trend is centered around the redirection of capital into the

more stable, transparent markets for income-producing assets, with

only a handful of players able to stay active across the capital structurein the opportunistic space.

The hiring sentiment for 2013 is one of cautious optimism, with the

gap between the winners and losers continuing to drive consolidation

in the real estate space.

030201 04 05 06 07 08 09 10 11 12*

Commercial Brokerage Services Construction/Engineering

Investment Management Commercial Mortgage FinancePrivate Equity Real Estate Investment Banking

5

10

15

20

25

3035

40

45%

030201 04 05 06 07 08 09 10 11 12*

Hospitality Multi-Family

Ofce/Industrial Retail

Healthcare

5

10

15

20

25

30

35

40

45%


24/46


to increase year-over-year versus those that anticipate declines. It is

worth noting that while public rms generally expect increases over last

years all-time payouts, the increases expected in the private real es-

tate sector are off of average levels seen in the past few years. Pending

a rms asset focus, market presence, scalability and ultimately per-

formance, compensation payouts may increase or decrease at levels

greater than those mentioned herein.

Public entities remain under scrutiny in terms of compensation prac-

tices in light of Say-on-Pay, which marked its second year in existence

in the United States. Three REITs failed their Say-on-Pay vote (just over

50 public companies out of several thousand failed in 2012), meaning

more than 50 percent of their shareholders voted against their execu-

tive compensation program (in a generic sense). One of the rms has

been involved in a public lawsuit, defending its compensation prac-

tices, while another is one of only a handful of companies that failed

Say-on-Pay in both 2011 and 2012. Proxy advisory rms such as Insti-

tutional Shareholder Services (ISS) and Glass Lewis continue to exert

pressure and encourage rms to conform to best practices, though

Compensation: The Positive

Direction ContinuesBy Jeremy I. Banoff, Senior Managing Director,

FPL Associates L.P.

The real estate industry, in particular the public marketplace, has fared

quite well compared to other asset classes, despite macroeconom-

ic indicators and broader economic challenges. As of Dec. 1, public

REITs were on pace to set a third consecutive year of record capital

raising, which among other things has allowed companies to access

(cheap) capital, bolster balance sheets and deliver double-digit total

returns for the third time in four years.

Further, 2012 continues the now fourth year of positive trajectory

since the nancial crisis and is still outpacing performance across all

other broader market indices. Of course, certain sectors within real

estate have fared better than others, but overall, many have charac-

terized the access to capital by public companies as unprecedented.

Private real estate rms have ridden their public brethrens coattails,but in a much more fragmented sense. Real estate investment manag-

ers and core products have been in demand, whereas aside from a

handful of private equity rms up the risk spectrum, most have faced

challenges in capital raising and successful placement of capital.

This sets the stage for compensation trends reecting 2012 perfor-

mance. Last year, we witnessed all-time-high payouts in the public

REIT marketplace, which not only took into account performance year

2011s gains and relative outperformance but perhaps moreover the

culmination of three straight years of success and relative outperfor-mance. Rather surprisingly, salaries among real estate executives in-

creased by 10 percent, on average, between 2011 and 2012, which

will certainly have an impact on going-forward compensation oppor-

tunities (actual payouts year to year will of course still be largely predi-

cated on performance).

FPLs exclusive Year-End Real Estate Executive Compensation

Trends Pulse Survey, conducted in November and reective of more

than 100 leading public and private real estate rms, suggests that sal-

ary increases will be much more aligned with broader market trends of

approximately 3 percent with respect to 2013. On the public side, we

expect that bonuses, both cash and equity, will generally be above

target levels and reect increases of 5 to 10 percent, on average (off

of last years all-time-high payouts), given the previously mentioned

performance, though lower-performing companies can expect to see

double-digit declines in compensation year over year. Interestingly

enough, 83 percent of participants state that scal year 2012 reects

better performance compared to scal year 2011 (of which nearly 10

percent indicate that scal year 2012 is the companys best year ever).

Nearly twice as many private real estate companies expect bonuses03 04 05 06 07 08 09 1110-40

-30

-20

-10

0

10

20

30

40

50%

TSR (Median) % Change in TotalRemuneration (Median)

0 20 40 60 80 100%

40%

38%

ProjectingDecrease

ProjectingIncrease

No Change

21%41%

42% 18%

Public Cos.

Private Cos.


Total Shareholder Return vs. Changein Top Three Titles Total Remuneration

2012 Year-End Bonus Projections

C ti C t i d


25/46


due to REITs longer-term business model, many have already imple-

mented longer-term pay-for-performance programs, which are now

considered best practices.

That said, we have assisted many companies, much more so than

usual, with redesigning the structure of their pay programs in light of

market forces but also to account for strategic endeavors resulting from

todays evolving marketplace and to ensure alignment with longer-termgoals specic to a companys strategic plan. The most contentious com-

pensation-related items, as viewed by proxy advisory rms and the me-

dia alike, are often found in the structuring of employment agreements or

termination-based pay in broader severance-based arrangements.

Private rms, which are somewhat immune to the public scrutiny

and Say-on-Pay, have also revamped their programs, since previously

granted awards may not fund (pending when such awards were grant-

ed). As competition for the top 5 to 10 percent of executives heats up,

retention plays an increasingly important role. Succession planning,

particularly in the private universe, has also impacted compensation

0

.5

1

1.5

2

2.5

$3MCEO COO CFO

10 11 12* 10 11 12* 10 11 12*

LTI Value Annual Incentive Base Salar y

0

.5

1

1.5

2

2.5

$3M

Managing General

Partner

Sr. Managing

Director/Advisor

Managing Director/

Partner

10 11 12* 10 11 12* 10

Documents

Commercial Property Executive January 2013