BPM Real Estate Insights
Can you speak to the trend we
have been seeing for the last
several years of employees
working from home? Is that
trend continuing?
There has been some pull back here. We believe there is more
value to a team working physically together than the benefit(s)
that may be gained by having employees work from home.
We believe this pull back will continue at some level. There is,
of course, a correlation on the type of tenant improvements
that companies are requiring today. There continues to be a
request for more open space (collaboration areas) with some
private meeting room space. There is a desire to keep the
window line open with any offices then on the interior of
the floor. One might think that with less private offices the
tenant improvement cost would go down. However, just the
opposite is true. The cost of these open space buildouts has
actually increased the cost of tenant improvements. And, in
general, the cost of the tenant build out has probably doubled
in the last 3 years. Adding to that is the increased cost due to
the Title 24 requirements.
What concerns do you have for
real estate in the Bay Area over
the next 12-18 months?
While it is true interest rates have been rising, and spreads
have narrowed, we do not see a significant impact on the real
estate industry in the short-term. In fact, the lending market
has strengthened.
One area of real concern in the Bay Area is the affordability
factor, both in construction pricing as well as in purchasing.
This applies to all asset types. You just can’t build 100%
affordable housing. The project doesn’t pencil from an
owner’s standpoint. This is a real community issue.
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Do you have any other
observations today about where
we are headed?
First, there is a lot of liquidity out there both on the debt and
equity sides waiting for a hiccup in the real estate market. If
the hiccup happens, we will see 20 different firms lining up
to take advantage of the opportunity.
Second, we are also seeing real estate companies in a rush to
get bigger… to scale-up. There will be advantages to those
companies who can scale-up in a controlled fashion to enable
them to compete on a broader basis.
Overall, we are opportunistically optimistic on the future of
Bay Area real estate. n
Greg Dresdow is a real estate tax advisor at BPM. Contact Greg at
[email protected] or call 925-296-1088.