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The Impact of Technology on Commercial Real Estate All production functions in commercial real estate are directly influenced by technology, which increases the efficiency of the factors of production. This is reflected in the application of technology to the construction and operation of real estate. Six key manifestations of technology in real estate have been highlighted - the development of new and improved consumer goods, transportation technology, construction technology, financial engineering, innovations in manufacturing systems and the growth of the internet. Technology will adversely impact second-tier malls and power centers but the overall level of penetration by e-commerce into the space-based retail market is predicted to be only a little over 5 percent by 2010. Commercial real estate will not experience a real decline in value and an absolute decline in demand for product as a result of technological developments.
Determinants of Commercial Mortgage Choice An analysis of the choice between conduit loans and traditional whole loans in commercial mortgages. The author compares conduit and whole loan programs, and discusses their differences and the effects of information technology on the mortgage choice problem. Conduit lending produces a more volatile source of funding in posted loan rates and more stability in terms of capital availability. The specific loan program characteristics associated with conduit lending are the greater ease of accessing loan program information, faster loan closing and broader selection. The longer-run implications are that higher quality borrowers will eventually disintermediate mortgage brokers due to improvements in information technology. This suggests that there will be fewer brokers working more efficiently with a larger number of borrowers. Consequently, deep as opposed to broad service provision is the inevitable result of advancing information technology and internet-based transactions.
Predicting Long-Term Trends and Market Cycles in Commercial Real Estate A major cause of volatility in American real estate market cycles is the lag between demand growth and supply response. Cycles can be separated into four distinct phases based upon the rates of change in both supply and demand. Data of demand, supply, vacancy and gross asking rates were used to determine rental growth from 54 office markets and 54 industrial markets. The data supports the theory that office and industrial rental growth rates will be above inflation when markets have occupancy levels above their long term occupancy average (LTOA) and below inflation when markets have occupancy levels below their LTOA. In the first decade in the new millennium most economists predict moderate but stable demand growth. The supply of space will be more restricted than in previous cycles. This real estate cycle is driven by declining demand, not oversupply. High profits may no longer become available as real estate markets become more efficient.
Should Commercial Real Estate Be Included in the S&P 500? In the 1980’s leading commercial operators found it unnecessary to access public equity markets in order to grow, but by 1993, owners needed equity and commercial real estate finance was integrated into the mainstream of global financial markets. Publicly traded real estate companies represent approximately one percent of the value of all US publicly traded companies. However, a glaring omission from the S&P 500 index today is commercial real estate. No commercial real estate company has been included in the S&P 500 since the late 1970’s. There is no substantive difference between REITs and "normal" corporations in the US investment landscape. Investors who use the S&P 500 as an important benchmark are being deprived of the benefits of commercial real estate investment. Failure to include these companies causes the S&P index to misrepresent the true pattern of common stock returns, particularly in view of their relatively low betas - 0.41 or less for the largest company.
Reversing Philadelphia’s Population Decline Philadelphia has lost 600,000 population since 1950, 70,000 in the last decade alone. The shift from rail to automobile transportation and the precarious fiscal situation of the city contributed to residential decentralization. Policy maker' efforts to reverse this trend have been unsuccessful. Today, fewer workers need to live in the city in order to be near their jobs, and each year, the competitive disadvantage of Philadelphia’s neighborhoods has become more pronounced. It is possible to reverse this trend. Vacant land can be used to build neighborhoods for middle- and upper-income families who would improve Philadelphia’s finances. Retired persons could live close to high-quality medical care and cultural attractions and young couples could remain longer in the city. A mixed-income new-town/in-town with 10,000 residential units would be funded through enhanced residential and commercial real estate values and job creation, and lead to other investment throughout the city.
Residential Street Pattern Design The design of street patterns appears to be divided between concern for the efficiencies of infrastructure and traffic and a consideration of aesthetics. There are distinct advantages to the two predominant suburban street pattern alternatives-- loop and cul-de-sac, and grid. Streets with loops and cul-de-sacs provide safety, sociability and efficiency. Grid patterns provide connectivity and easy orientation. A new, combined street layout is the Residential Quadrant. The Quadrant covers approximately 40 acres and uses looped and narrow residential streets and a modified grid. The Residential Quadrant concept was overlaid on an existing 1970s subdivision near Ottawa and is more efficient than other layouts. The Quadrant optimizes land consumption and minimizes infrastructure costs and scores highest on quality of life.
Design and Development Most new buildings in the US are developer-driven commercial developments but only a few of these projects are ever recognized in architectural awards programs. In the past, some of the most creative architecture was commissioned by and for real estate developers and architects designed buildings whose architectural intentions complemented the development goals of the buildings owners. In the last thirty years no new commercial projects have appeared in Architectural Record magazine’s top 15 significant works of architecture. Starting in the late 1960’s, non-commercial architectural clients have encouraged styles that run in the face of common taste, favoring aesthetics over function and architects themselves tended to ignore the marketplace.
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