Leaders in Commercial Real Estate
Global Squeeze: The Financial Crisis Knows No Borders
Plus: Legislative Outlook BAEs Tackle Economic Challenges Enter the New Age of Benchmarking
January/February 2009 Volume 5, No. 1
Commercial Real Estate Woes Legislative Outlook Karen W. Penafiel, CAE Go Global Stephanie J. Oppenheimer, APR
The screeching halt of real estate investment is being heard around the world.
For advertising rates and information, contact Paul Hagen at Stamats Business Media 319-364-6167. Call for Nominations: Vice Chair, Secretary/Treasurer and Executive Committee Members BOMA International’s Nominating Committee is seeking candidates for the position of vice chair and secretary/ treasurer and for five members of the Executive Committee to the Board of Governors. For further information, please contact Bob Denney, chair, BOMA International Nominating Committee, c/o Ann Coslett, BOMA International, 1101 15th St., NW, Suite 800, Washington, D.C. 20005, telephone (202) 326-6325; fax (202) 4082699; e-mail firstname.lastname@example.org. Volume 5, No.1 The BOMA Magazine January/February 2009, (ISSN 1532-4346), Copyright 2009. The BOMA Magazine is published bimonthly in January/February; March/April; May/June; July/August; September/October; and November/December by the Building Owners and Managers Association (BOMA) International, 1101 15th St., NW, Suite 800, Washington, D.C. 20005; Telephone 202-326-6300; Fax 202-326-6377; www. boma.org. Periodicals Postage paid at Washington, D.C. and additional mailing offices. POSTMASTER: Send address changes to: The BOMA Magazine, Attn: List Department, 1101 15th St., NW, Suite 800, Washington, D.C. 20005. Undeliverable U.S. copies should be sent to The BOMA Magazine, Attn: List Department, 1101 15th St., NW, Suite 800, Washington, D.C. 20005. Return undeliverable Canadian addresses to: PO Box 875, STN A, Windsor, ON N9A 6P2.
Commercial real estate will work with a larger democratic majority in ’09.
BAEs Confront Economic Challenges Lindsay Tiffany
Learn about the solutions that came out of the BOMA Association Executive Leadership Conference.
DEPARTMENTS 6 8
Message from the Chair BOMA’s value proposition.
Legislative Update A look back at 2008—from the TRIA extension to the passage of critical tax extenders.
State & Local Update
Codes & Standards Update
Phoenix Mayor Phil Gordon gives a thumbs up to the 7-Point Challenge.
ASHRAE restarts development of Standard 189.1 for green commercial buildings.
Leading the Way Lowe Enterprises’ Joe Markling discusses strategies for driving efficiencies and his quest to make California more business friendly.
Around the Industry BOMA and Clinton Climate Initiative roll out Energy Performance Contracting Model, AlliedBarton honored, BOMA/ Spokane garners 7-Point Challenge press coverage.
Sector Watch Main Street, USA is reclaimed through mixed-use.
Trends Tracker Construction industry looks to opportunities in the face of grim forecast.
34 Green Scene
Green Survey: Greening buildings a priority despite economy.
36 Research Corner
The new age of benchmarking is here— go online with the EER.
40 Eye on Education Danny Prosky
Are MOBs just what the doctor ordered or should we seek a second opinion?
Buyers’ Guide The latest industry products and services.
Fareed Zakaria to headline Monday general session at the BOMA International Conference in June, five reasons why you keep coming back. 5
Message from the Chair
BOMA’s Value Proposition As the new administration takes office and the 111th Congress gets to work on what looks to be an aggressive first 100 days, the priority of every BOMA member is to continue to remind our leaders of the value of commercial real estate, both to small business communities and to the economy as a whole. Let’s remind them that the best way to climb out of a recession and jumpstart the economy is to create incentives to help business owners, such as keeping capital gains taxes low; let’s remind them that real estate is a critical economic engine that pays 70 percent of local tax revenue and employs nine million Americans; and let’s remind them that the success of commercial real estate resonates well beyond our industry’s boundaries—from tenants to vendors, the impact is felt throughout Main Street. Here are three ways you can help BOMA remind our newly elected President Barack Obama and legislators of commercial real estate’s critical role in a strong economy: 1. Start by taking your message straight to state and local lawmakers. As the Obama campaign showed us, success begins at the grassroots level. A groundswell starts at the bottom and works its way up to the top. 2. Support BOMAPAC. It’s simple; if we want to keep legislators who understand and fight for commercial real estate’s issues in office, we have to work hard to help re-elect them. 3. Attend the National Issues Conference (NIC) in Washington, D.C., March 23-24. Join us on Capitol Hill and talk one-on-one with your senator or representative about how commercial real estate is the backbone of a thriving economy. But the value of our industry extends beyond the strength of our advocacy platform—it begins and ends with the competency and success of each of you.
Having the tools and resources to not just stay afloat but thrive in a down economy is paramount. Bringing you those tools is priority No. 1 for BOMA International and BOMA local associations across the country. This year’s BOMA International Conference and The Office Building Show will be our industry’s most important gathering in years, as we come together to share ideas and identify the solutions that will help us grow during challenging times. Join us in Philadelphia on June 28-30 as we rebuild together. To do that, we have developed our most comprehensive educational programming ever, each session concentrated to help you enhance value in your buildings and across your portfolios. Knowing that budgets are tight, we will not be raising conference prices this year. It’s a small investment, but the returns are immeasurable. Value may be the most sought after commodity in today’s market. At a time when nearly every asset class seems to be losing value, BOMA’s promise is to help you retain the value in your buildings and stay ahead of the competition. Thank you for advancing our great industry.
Richard D. Purtell, RPA Chair and Chief Elected Officer
6 BOMA January/February 2009
Publisher: Lisa M. Prats, CAE Editor: Laura Horsley Associate Editor: Lindsay Tiffany Contributing Editors: Karen W. Penafiel, CAE, Ronald Burton, James Cox, Lorie Damon, Ph.D., Noel Popwell Designer: Amy Belice Published by: Building Owners and Managers Association (BOMA) International
BOMA International Officers Chair and Chief Elected Officer Richard D. Purtell, RPA Grubb & Ellis Management Services, Inc. Cincinnati, Ohio Chair-Elect James A. Peck, RPA, FMA CB Richard Ellis Albuquerque, N.M. Vice Chair Ray H. Mackey, Jr., RPA, CPM, CCIM Stream Realty Partners, LP Dallas, Texas Secretary/ Treasurer David M. Stucky City of San Diego San Diego, Calif. President and Chief Operating Officer Henry H. Chamberlain, CAE, APR BOMA International Washington, D.C.
The cost for The BOMA Magazine is $75 a year for subscribers and $50 a year for BOMA International members. Publication of advertising should not be deemed as endorsement by BOMA International. The publisher reserves the right in its sole and absolute discretion to reject any advertisement at any time submitted by any party. Material contained herein does not necessarily reflect the opinion of BOMA International, its members or its staff.
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110th Congress Adjourns with Victories for Commercial Real Estate Amid all of the election excitement (where the world saw voters choose Barack Obama to be our next president), and against the backdrop of worsening global financial chaos, the 110th Session of Congress quietly adjourned. But before they did, they passed the Emergency Economic Stabilization Act of 2008, which included the controversial financial rescue plan or “bailout” and a package of tax extenders, three of which were top priorities for BOMA International members and the commercial real estate industry. That victory crowned the two-year session (2007-2008) that also saw passage of an extension of the federal terrorism insurance backstop program, among other things. Following is a recap of action on BOMA’s key issues during the 110th Session of Congress. (For a look ahead at what we expect to see in 2009 in the first year of the Obama Administration, see “Legislative Outlook” on page 24.)
Leasehold Depreciation On Oct. 3, 2008, President Bush signed into law the Emergency Economic Stabilization Act of 2008, which included a provision to retroactively extend the 15-year depreciation timeline for leasehold or tenant improvements for an additional two years (Jan. 1, 2008-Dec. 31, 2009). Leasehold improvements, also known as tenant improvements, include changes to walls, floors, ceilings, lighting and plumbing to meet the needs of a new or existing tenant. In the commercial real estate marketplace, with
8 BOMA January/February 2009
the average lease running from five to 10 years, such reconfigurations are commonplace. Prior to 2004, tenant or leasehold improvements were depreciated at a rate of 1/39th per year until the improvement went “out of service.” In 2004, legislation was passed to reduce the depreciation timeline to 15 years, which more accurately reflected marketplace realities. This had expired on Dec. 31, 2007, and its extension represents a tremendous win for BOMA and the commercial real estate industry. According to the Congressional Budget Office, this legislative victory represents a savings to the commercial real estate industry of $500 million over two years.
Brownfields Remediation Tax Incentive On Oct. 3, 2008, President Bush signed into law the Emergency Economic Stabilization Act of 2008, which included a provision to retroactively extend the brownfields remediation deduction (expensing) for an additional two years (Jan. 1, 2008-Dec. 31, 2009). Brownfields are real property, the expansion, redevelopment or reuse of which may be complicated by the presence or potential presence of a hazardous substance, pollutant or contaminant. Tax incentives designed to encourage the redevelopment of brownfields sites expired on Dec. 31, 2007. The twoyear extension of the deduction is a win for the commercial real estate industry and for the environment. According to the Congressional Budget Office, this
legislative victory represents a savings to the commercial real estate industry of $600 million over two years.
Energy-Efficient Commercial Buildings On Aug. 8, 2005, President Bush signed the Energy Policy Act of 2005 into law. BOMA International scored a huge victory for the real estate industry when Congress agreed to include a tax deduction for energy-efficient upgrades to commercial buildings in the new law. This law was extended in legislation passed in 2008 and now applies to energy-efficiency upgrades placed in service from Jan. 1, 2006-Dec. 31, 2013, in both new and existing buildings (including offices, retail, warehouses, rental housing of four stories or more and municipal buildings). Specifically, the bill provides for an accelerated deduction of up to $1.80 per square foot for energy-efficient upgrades that achieve a 50-percent reduction in annual energy cost to the user, compared to a base building defined by the ASHRAE/IESNA 90.1-2001 Standard. Partial credit of up to $0.60 per square foot is also available for upgrades to each of the three energy-using subsystems of the building—the lighting; the heating, cooling, ventilation and water heating systems; and the building envelope. According to the Joint Committee on Taxation, this legislative victory represents a savings to the commercial real estate industry of $887 million over five years.
Terrorism Risk Insurance Act (TRIA) Following the 9/11 terrorist attack, many owners of commercial properties were advised that their policies would not be renewed or that their new policies would exclude terror/war risks. Without adequate insurance, it is difficult, if not impossible, to operate or acquire properties, refinance loans and to sell commercial-backed securities. Since 9/11, BOMA and our coalition partners in the Coalition to Insure Against Terrorism (CIAT) have worked tirelessly to promote and implement a federal backstop program. We scored huge victories when Congress passed the Terrorism Risk Insurance Act of 2002, and again, in late 2005, when Congress voted to extend TRIA for an additional two years. On Dec. 26, 2007, just days before the Act was once again set to expire, President Bush signed H.R. 2761 into law to extend the program for an additional seven years through the end of 2014. In addition to extending the federal program, the Terrorism Risk Insurance Program Reauthorization Act of 2007 (TRIPRA) expands the definition of “act of terrorism” to allow the certification of acts of “domestic terrorism,” clarifies the operation of the $100 billion annual program cap and changes the manner in which the mandatory portion of postevent policyholder surcharges would be collected. It also requires the U.S. Government Accountability Office (GAO) to conduct a study of the availability and affordability of insurance coverage for nuclear, biological, chemical and radiological (NBCR) acts of terrorism.
National Real Estate Organizations Address Treasury on Credit Crisis In response to growing concern for the health of the commercial real estate industry in light of recent estimates that more than $400 billion of debt will mature by the end of 2009, 12 national real estate associations, including BOMA International, sent a joint letter to Treasury Secretary Henry Paulson and other key leaders detailing the urgency of the credit crisis and lack of confidence in the financial markets. The letter also recommends the Treasury Department and Federal Reserve take several actions to stem the crisis, including the extension of the Term Asset-Backed Securities Loan Facility (TALF) to guarantee, finance or purchase highly rated, assetbacked securities collateralized by newly or recently originated commercial real estate mortgages. The letter garnered national media attention, with stories published in The Wall Street Journal, The Washington Post, CNN and several other national and trade media outlets. BOMA is helping coordinate media coverage, and the Real Estate Roundtable held a press conference call on Dec. 22, 2008, to provide further information to the media. During the press conference, Real Estate Roundtable President and CEO Jeffrey D. DeBoer stressed that the industry isn’t asking Treasury to ensure financing for every mortgage coming due for refinancing, but just the safest securities, which, in turn, will create leverage in the market. “We’ve talked to major players at the Treasury and the Federal Reserve,” said DeBoer. “It’s very complicated, but
“The two-year extension of the brownfields remediation tax deduction represents a savings to the commercial real estate industry of $600 million over two years.”
policymakers understand it and we are encountering a positive reaction. This is about preventing a bailout so creditworthy borrowers can access the credit market.” Added DeBoer, “It is critical for policymakers to announce their intention to make sure credit markets function so debt coming due will be able to be refinanced. We’re trying to prevent a catastrophe for the financial system and state and local governments.” The letter was sent to Secretary Paulson on Nov. 26, 2008. Proposed solutions are expected to take at least a few months to introduce as part of a comprehensive plan. The topic will be discussed in full at the Winter Business Meeting, Jan. 16-19, 2009, in Indian Wells, Calif., where BOMA will be discussing formal policies on an economic recovery plan. To read the letter to Secretary Paulson, visit BOMA International at www. boma.org. To read the 5-Point Plan to restore credit capacity for commercial real estate, visit the Real Estate Roundtable at www.rer.org.
The 2009 BOMA International National Issues Conference During the 111th Session of Congress that gets under way in January, we expect to see even more legislative challenges than during the 2007-08 session. With Democrats in control of the White House and increased majority in both the House of Representatives and the Senate, legislation can be expected to move much faster than in recent years (see “Legislative Outlook” on page 24). This means that BOMA’s grassroots will need to be stronger and more proactive than ever. We need you! The 2009 BOMA International National Issues Conference (NIC) is set for March 23-24, 2009, at the Hyatt Regency on Capitol Hill in Washington, D.C. The NIC provides a unique opportunity for BOMA members to personally take commercial real estate’s message to legislators in our nation’s capital. Newly elected legislators and long-time representatives alike are seeking input from commercial real estate professionals, and this is your chance to speak out and make a difference. Registration for the 2009 NIC is now open at www.boma.org. See you in D.C.!
January/February 2009 BOMA 9
state & local update National Conference of State Legislatures
National Conference of State Legislatures
State Legislative Party Control Pre-Election 2008
State Legislatures Post-Election 2008
Economic Issues to Top State and Local Agendas in 2009 The 2008 Elections proved to be a â€œblueâ€? year, as democrats took both the White House, Congress and achieved gains at the state level. According to the National Conference of State Legislatures, the results signaled a solidifying of regional power and a decline in partisan parity across the nation. Democrats now control both chambers in 27 states and have strengthened their hold on the legislatures in the Northeast (except for the
Pennsylvania Senate). Republicans fared better in the South and took control of the Oklahoma and Tennessee legislatures for the first time. The party gained seats in the region despite a nationwide net loss of legislative seats. Newly elected lawmakers face trying times in 2009, as the collapse of the U.S. subprime mortgage market continues to reverberate far beyond Wall Street to the nationâ€™s cities and states. As a result,
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states faced a loss of income from capital gains, dividends and stock that greatly impacted government budgets. Many states, including California, called special sessions to shore up budget deficits. According to Ray Scheppach, executive director of the National Governors Association, state budget shortfalls could reach $80 billion in FY 2010. State and local lawmakers will turn to higher taxes to offset these budget shortfalls, which will likely have an impact on the commercial real estate industry.
BOMA/Houston Launches Partnership with USGBC Building on its commitment to sustainability and energy efficiency, BOMA/ Houston launched a partnership and industry collaboration with the Houston Chapter of the U.S. Green Building Council (USGBC). Both organizations have agreed to partner on education, training and the sharing of best practices.
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Citing the need to increase awareness of green practices and promote the education of industry professionals, BOMA/ Houston President John Kelley (of Thomas Properties Group) comments, “This is indeed a win/win partnership for both organizations. The USGBC is recognized nationwide as the expert in promoting LEED® and developing green building practices. BOMA/Houston and its members have been strong proponents of the EPA ‘s ENERGY STAR® program and feel strongly in advocating green practices for commercial buildings.” Earlier this year, BOMA/Houston announced its support of BOMA International’s 7-Point Challenge, an industry-wide effort to reduce energy consumption in commercial buildings by 30 percent by 2012. “USGBC is committed to reaching as large a support base as possible. This means it is critical for us to be able to build solid collaborations with other likeminded organizations,” says Lora-Marie Bernard, executive director of USGBCHouston. “BOMA/Houston is clearly
one of the most important examples of this relationship, on both the local and national levels. The organization’s commitment to sustainable practices and its membership base makes it a unique fit that we hope to nurture over the coming years.”
Phoenix Mayor Endorses BOMA International’s 7-Point Challenge Phoenix Mayor Phil Gordon recently endorsed BOMA International’s 7-Point Challenge in recognition of commercial real estate’s and BOMA/Greater Phoenix’s commitment to sustainability. BOMA/Greater Phoenix has been at the forefront of advocating CRE’s efforts to decrease energy consumption in the state, and it was one of the first BOMA local associations to endorse the 7-Point Challenge. “As a pioneer in energy, water and natural resource conservation, Phoenix
is dedicated to the spirit of the BOMA 7-Point Challenge,” says Mayor Gordon. “We encourage our private-sector partners to join us in this effort to create a better Phoenix and to meet the 7-Point Challenge.” Phoenix has been a leader in energy efficiency since the late 1970s. It adopted a goal of achieving 15 percent of the energy used by public buildings from renewable energy sources by 2025. The City has an aggressive facility energy conservation program and regular building systems training for operations and maintenance staff—its staff is currently completing a greenhouse gas inventory of City operations and expects to set a reduction goal later this year. Commenting on the Mayor’s endorsement, Sue Hughes, president of BOMA/ Greater Phoenix and a property manager with Wells Fargo Corporate Properties Group, says, “BOMA/Greater Phoenix is very excited to have Mayor Gordon endorse BOMA’s 7-Point Challenge. This means a great deal for our industry and our association as a whole.”
January/February 2009 BOMA 11
codes & standards update
ASHRAE Restarts Development of Standard 189.1 for Green Commercial Buildings
ASHRAE and its partners, the U.S. Green Building Council (USGBC) and the Illuminating Engineering Society of North America (IESNA), have announced they will reconstitute the project committee for the development of Standard 189.1, “Standard for the Design of High-Performance Green Buildings Except Low-Rise Residential Buildings.” According to ASHRAE, this move has been made to “…ensure that directly and materially affected parties have all appropriate opportunities to participate in the development of this standard.” A new project chair will also be appointed to guide the development effort going forward. Throughout the two years the original project committee has been in place, BOMA International and several other groups have criticized the lack of representation by a host of directly impacted groups, such as building owners, while applications for committee membership by BOMA and others representing key decision-makers have consistently been rebuffed. The move also follows the publication of two separate public review drafts and receipt of several hundred comments on each draft by BOMA and dozens of other affected groups and individuals. BOMA submitted multiple comments on both public review drafts, including in each a call for the ASHRAE leadership to reconstitute the project committee to include those representing the most materially and directly impacted individuals and groups. BOMA’s comments specifically suggested adding representatives of the building owners and managers who would be responsible for the additional costs to implement
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the requirements in the standard, as well as builders and construction professionals who would be tasked with providing the required equipment, controls and systems called for in the standard. A call for members was issued in November, and ASHRAE hopes to announce the reconstituted committee in December. BOMA has submitted its application for a voting seat, as have a number of other individuals and groups representing interests heretofore not included on the committee. The new committee will review the work done by the previous committee and issue a third public review draft for comment as soon as possible. Depending on subsequent drafts and public comments, BOMA estimates that the project could produce a final standard in late 2009 or sometime in 2010.
BOMA International Reaccredited as an American National Standards Developer BOMA recently received notice of reaccreditation by the American
National Standards Institute as an ANSI standards developer. BOMA currently develops standards for the measurement of office and industrial buildings and has launched efforts to develop floor measurement standards for gross building area, retail and multi-residential buildings. The Gross Building Area standard was released in late 2008, and revised editions of the office and industrial standards, as well as the initial editions of the retail and multi-residential standards, are due to be rolled out in 2009.
President Bush Signs ADA Amendments Act of 2008 The ADA Amendments Act of 2008 was passed by Congress and signed into law by President Bush on Sept. 25, 2008. The stated purpose of the legislation is to provide a clear and comprehensive mandate for the elimination of discrimination in the disability area, and was a bi-partisan effort in both the House and Senate to roll back several Supreme Court decisions making it difficult for many employees to qualify for disability
protection. The Act broadens the definition of “disability” and became effective on Jan. 1, 2009. The new law does not require employers to make changes in hiring procedures nor does it change the accommodations required by the ADA pursuant to the ADA Accessibility Guidelines. It does, however, expand the number of people potentially covered by the ADA by expanding the meaning of “major life activity” in the current ADA definition of disability as “one involving a physical or mental impairment that substantially limits one or more major life activities.” The Act states that, in addition to activities previously defined in the ADA, “major life activity” includes the operation of a major bodily function such as the immune system, normal cell growth, digestive, bowel, bladder, neurological, brain, respiratory, circulatory, endocrine and reproductive functions. Such afflictions as epilepsy and diabetes would now specifically be covered by this Act.
January/February 2009 BOMA 13
leading the way
Industry Perspectives from Joe Markling Senior Vice President, Lowe Enterprises
Joe Markling is senior vice president at Lowe Enterprises, where he is responsible for the Lowe California Community Fund and is the national director of asset management. He is extremely active with BOMA California and BOMA/ Greater Los Angles (GLA) and, as current chairman of the board, Markling spearheaded BOMA/GLA’s new strategic direction and is helping align BOMA at the local and state level. He was recently appointed to the Executive Committee of BOMA International as well.
How is Lowe Enterprises dealing with the current economic downturn? Lowe Enterprises has a deep background in working out distressed assets and portfolios—it was that experience that led the firm to expand into valueadded real estate investing back in the early ’90s, as the strategies and skills required are so similar. We expect to see opportunities where that expertise will be highly beneficial. We also expect to see some excellent opportunities on the investment side as this cycle continues. While no one wants to see this type of
downturn in the national economy, the Lowe organization has a history of prospering during trying economic times. We’ve also taken this opportunity to roll out national platforms for our Asset Management, Property Operations and Acquisitions activities, replacing our prior regional structure. This structure will leverage our best people, align skills to the activity without regard to geography, enhance knowledge sharing and allow for greater consistency in key business processes across our platform. This platform will be more efficient by staffing for peak loads on a national basis. Our second initiative is the implementation of a shared accounting services platform. We have combined our property accounting, client reporting and corporate accounting groups into a single shared services environment. This provides greater efficiency and consistency and eliminates redundancies and duplication of work.
What is BOMA/GLA doing to create value for CRE professionals during this time?
In all areas, we are trying to break the mold of ‘doing it the way we have always done it’—‘business as usual’ is not how it’s being done anymore.
14 BOMA January/February 2009
At the commercial real estate (CRE) executive level, we are reinforcing the business proposition for BOMA, and the new part of that strategy is heavily weighted toward advocacy. That is the reason I am involved, and where I believe BOMA membership is accretive to my company and our investors. At the property manager level, the focus is on education. Growing in knowledge not only makes managers more valuable to their existing owner, but it keeps their careers moving up. We are also targeting vendor/associate members. We have invested a lot of time reaching out to those members, thanking them for support and finding new ways for them to get their name and proposed services in front of our members. In all areas, we are trying to break the mold of “doing it the way we have always done it”— “business as usual” is not how it’s being done anymore.
What are some of the key legislative issues/battles in California? Some have called California an “ungovernable state” because it’s hard to keep everybody happy. Business, and commercial real estate in particular, has not traditionally had a voice in policy development. I am convinced we need to proactively take a “seat at the table,” and preferably provide the resources and leadership to earn a place at the head
table. Otherwise, we will be subject to decisions and changes that will inevitably increase the cost of doing business and changes the value proposition we bring to our tenants and owners compared to competitive locations. That will not be good for California. I’m encouraging other BOMA members to become active in our advocacy efforts, not just by writing a check, but by participating in meetings and having their voice heard. Energy costs and consumption is clearly a huge issue. A few years ago, BOMA California commissioned a study that was used primarily to fight rate
increases targeted at commercial buildings. In addition, there was discussion in the Legislature to require commercial buildings to reduce energy consumption significantly over the next few years. With this study, we were able to prove that office buildings had decreased energy usage by a significant amount over the last several years and entirely through voluntary means. Most buildings have embraced new technology and reduced consumption because it makes good business sense. Our message is: “Don’t penalize us for the responsible actions we’ve already taken.”
Recruiting and retaining talent continues to be a priority for our industry. How do we get on top of this issue and what are you doing at BOMA/ GLA? When you talk to non-broker CRE professionals, including me, you will find that many of us “fell” into the profession. Today’s college grads want to be developers and brokers because those are more visible and perhaps “glamorous” positions. I’m big on encouraging them to look at property management as a tremendous learning opportunity that can be a stepping-stone to asset management and other opportunities in commercial real estate. Understanding the basics of property operations provides great credentials to move on to many other roles in this industry; a good property manager can become an asset manager, then turn around and transition to a broker or developer. BOMA/ GLA started an internship program for undergraduates at USC, and many of the students have been directly hired from their internship positions after graduation. Right now, we are identifying other colleges and universities that have dedicated real estate programs, so we can expand this valuable program.
The BOMA International Conference and The Office Building Show is coming to greater Los Angeles in 2010. What can attendees expect? Greater Los Angeles is a fascinating place, but it often suffers from negative perceptions and gets a bad rap. I’m looking forward to showing folks how diverse, complex and exciting this city is and giving them a flavor of LA from the business perspective. We are the gateway to the Pacific Rim with a wonderful blend of business and leisure assets, multiple skylines, downtowns and business markets. And, of course, we have the best climate in the world!
January/February 2009 BOMA 15
Around the industry • The template documents are easily edited to incorporate specific goals and objectives. • An industry-vetted model means high confidence in project implementation without having to be an expert in performance guarantees or energy efficiency. • The potential for commercial real estate firms to self-finance is available, using the energy savings produced by the retrofit to reduce operating costs even after amortizing the cost of the improvement.
BOMA and CCI Develop Energy Performance Contracting Model BOMA International and the Clinton Climate Initiative (CCI) have developed the BOMA Energy Performance Contracting (BEPC) model, a pioneering model contract and supporting documents that allow building owners and operators to execute sophisticated energy-efficiency retrofits to existing buildings. BOMA and CCI, in collaboration with major real estate companies and energy service companies (ESCOs), identified the historical barriers to energy-efficiency investment in the commercial real estate sector and developed a standardized, user-friendly contracting model that allows building owners and operators to successfully execute larger, more sophisticated retrofits and bring greater operational improvements in investment real estate. The new BEPC model revolutionizes the process by allowing capital investments that improve buildings’ financial and environmental performance to be paid for out of the energy and operational savings created by those improvements. The savings are financially guaranteed by the ESCO performing the work, reducing risk and enabling deeper potential investment. While energy performance contracting has been offered by ESCOs for more than two decades as a selffinancing mechanism to pay for energyefficiency retrofits and capital improvements, the complexity of the contracts and long timelines have impeded their widespread use in private commercial buildings. Another deterrent was that lenders historically required a lien/personal guarantee from the owner. In creating BEPC, BOMA and CCI have
16 BOMA January/February 2009
eliminated many of the common barriers to energy-efficiency retrofits. The new contract model and CCI’s partnerships that provide lower project costs and funding sources create an opportunity to reduce the time it takes to complete these types of retrofits, from 18 to 36 months to 12 months or less. Furthermore, since the contracts are standardized, real estate professionals need not become experts in performance contracting or energy performance guarantee provisions. The benefits of BEPC are significant compared to energy performance contracting previously offered: • The financing model is structured so there is no upfront capital outlay, no lien on the building and no personal guarantees required. • The owner controls the process and specifies all project criteria, streamlining project development. • The standardized model minimizes costs, including up-front legal costs, man-hours, project management and component costs. BOMA Immediate Past Chair Brenna Walraven (second from right) and Arah Schuur (far right) with the Clinton Climate Initiative take questions from reporters during a press conference last June announcing the collaboration on the BOMA Energy Performance Contracting (BEPC) model.
• Building performance is assured through a performance guarantee by the energy service company, guaranteeing performance throughout the life of the agreement. As building owners and operators adopt the contracting model and implement energy-efficiency retrofits, BOMA will be the unbiased resource and solutions provider to facilitate voluntary, business case-driven market transformation of the built environment. CCI will serve as a liaison between ESCOs, owners, operators and financial partners to ensure continuity and to focus on the mission and long-term program performance. At the operator or owner’s request, CCI will serve in a consultative role, advising on best practices, introducing suppliers and other providers and supporting the project development where needed. BOMA International is proud of our collaboration not only with the Clinton Climate Initiative, but also with major service provider partners, real estate organizations and other leaders, and formally thanks Trane, Siemens, Johnson Controls, Honeywell and also Jonathan Furr, senior counsel at Holland & Knight, who provided independent legal and EPC contracting expertise to the development of this program (all contact information for these and other partners can be found at www.boma.org). The BEPC and supporting documents feature a variety of information, including advice on best practices in project development and execution, a series of model documents that can be used to streamline the project development process and a number of additional resources that can be accessed for assistance in executing an energy-efficiency project. The BEPC and supporting documents are available at www.boma.org.
BOMA Recognized as One of Green Elite Popular D.C. news publisher Bisnow on Business awarded BOMA the 2008 Green Leadership Award in recognition of BOMA’s commitment to energy efficiency and sustainable initiatives that have helped member organizations lower energy consumption, reduce greenhouse gas emissions and save on energy costs. BOMA was recognized for several initiatives, including: the BOMA Energy Efficiency Program (BEEP); the 7-Point Challenge to achieve market transformation; the industry’s first green lease guide, the Guide to Writing a Commercial Real Estate Lease, including Green Lease Language; the Sustainable Operations Series (SOS) program, a new education program which builds on BEEP and includes additional practical ways to green building operations; a collaboration with the Clinton Climate Initiative to develop a groundbreaking energy performance contract model to help building owners perform major energy retrofits to the existing building marketplace; and a partnership with the Department of Energy in the newly established Commercial Real Estate Energy Alliance (CREEA), which will pursue energy-efficiency technologies that will transform energy use in the commercial building market.
Green Seal Partnership Takes Facilities Maintenance to a New Level Green Seal, the major eco-labeling organization in the United States, has developed the Green Facilities Partnership, a program designed to recognize and provide assistance to organizations working to implement environmentally friendly operations and maintenance practices. Green Seal works with an organization to design a Green Facilities Action Plan and provides support and analysis as the facility implements the plan. The Green Facilities Partnership has three tiers of recognition—Green Facilities Partner, Green Facilities Leader and Green Facilities Champion—that a facility can achieve. Recognition is based on how well an organization implements a plan based on its particular opportunities and challenges; the Partnership is not a standard-based certification program. For more information, visit www.greenseal.org.
Give Your Tenants ENERGY STAR @ Work The Environmental Protection Agency recently launched ENERGY STAR @ Work, an online tool to promote energy efficiency and green practices in the workplace. The site features an animated virtual office with links and tips on improving energy performance. Click on the animated window to learn how to harvest daylight or click on the water cooler to learn how to make it more energy efficient. This is a great energy-saving tool to pass along to tenants. For more information, visit www.energystar.gov.
BOMA/Spokane Garners Great 7-Point Challenge Press Coverage BOMA/Spokane received outstanding press coverage as a result of its adoption of the 7-Point Challenge. Gordon Hester, director of commercial management, Kiemle & Hagood Co., BOMA/Spokane, recently discussed the Challenge at the Spokane Mayor’s Forum on Sustainable Business, a televised forum that highlighted the industry’s efforts to go green. Hester was also interviewed by the local public radio station on Spokane’s adoption of the Challenge and how the industry is voluntarily leading the way on operational efficiency and sustainability. For more information on BOMA International’s 7-Point Challenge, visit www.boma.org/AboutBOMA 7pointchallenge.
BOMA Writes Prescription for Maximizing Value in a Down Economy Recognizing that it is more critical than ever for property professionals to stay on top of their game, BOMA has created “Rx—The Resource Exchange,” a one-stop shop for everything you need to stay competitive. The new Web-based menu of resources lists numerous publications, interactive tools and educational programming on everything from building operations and tenant relations to sustainability and budgeting. There are also extensive professional development resources to help you differentiate yourself in a tight market, including information on networking, sharpening skills and career building. Find your prescription for maximizing value in today’s down economy at www.boma.org/AboutBOMA/Rx. Continued on page 18
January/February 2009 BOMA 17
Around the industry
Industry Economists Discuss Recession Survival Strategies Raymond Torto, Ph.D., global chief economist with CB Richard Ellis (CBRE), joined a panel of economists recently for a GlobeSt.com Webinar on surviving the real estate credit crisis. The panelists discussed strategies for weathering the crisis and made predictions on future job losses and when we can expect a turnaround. Torto predicted that the current office vacancy rate of 13.4 percent (CBRE statistics) could jump to 16.2 percent by the end of 2009, and, when factoring in negative absorption, that number could climb to more than 19 percent. Torto described the current recession as the “classic liquidity trap,” in which there is a lot of capital but no traction, and said strong policy and fiscal stimulus is imperative to turning things around. Torto is the Opening Luncheon keynote speaker at BOMA International’s 2009 Winter Business Meeting in Indian Wells. Calif., January 16-19. Other panelists at the GlobeSt.com Webinar included Ed Friedman, senior economist with Moody’s Economy.com; Hessam Nadji, managing director, research services with Marcus & Millichap Real Estate Investment Services; and Howard Roth, global and Americas real estate leader with Ernst & Young.
Tammy Betancourt Appointed Chair of Texas State Board of Plumbing Examiners Texas Governor Rick Perry recently named Tammy Betancourt, executive vice president of BOMA/Houston, as chair of the State Board of Plumbing Examiners. Betancourt is one of two public members of the board and will serve through 2013. “It is an honor and a privilege to serve the citizens of the great State of Texas and the commercial real estate industry,” said Betancourt on her appointment. The board enforces plumbing regulations and oversees examinations and licensing of plumbers and plumbing inspectors in the state.
FEMA and Code Council Sign MOU The International Code Council and the Department of Homeland Security Federal Emergency Management Agency (FEMA) are teaming up to reduce the loss of life and property caused by natural disasters. A memorandum of understanding calls for FEMA and the Code Council to support the maintenance, adoption, outreach, training and enforcement of disaster-resistant building safety codes to reduce human and economic losses resulting from natural hazards including hurricanes, earthquakes, tornados and flooding. Under the agreement, the Code Council will provide direct assistance to FEMA on a range of programs designed to reduce losses during natural disasters. FEMA will participate in the Council’s code development process, using its data to help develop future codes that increase public safety. The organizations also will jointly develop a strategy to promote code adoption to enhance disaster resistance in the built environment. Learn more at www.iccsafe.org.
AlliedBarton Security Services Recognized for Training Programs AlliedBarton Security Services, the industry’s premier provider of highly trained security personnel, has earned national recognition for its training programs for the fourth consecutive year on Training magazine’s Top 125 list. The annual Training Top 125 ranks companies based on their employer-sponsored training and development programs. The ranking for the 125 leading organizations will be revealed during an awards gala held February 9th at the Training 2009 Conference & Expo in Atlanta, Ga.
Look For It: BOMA•Kingsley REPORT on Benchmarking in the March/April Issue
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NEXT ISSUE: Benchmarking
18 BOMA January/February 2009
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January/February 2009 BOMA 19
Commercial Real Estate Woes Go Global By Stephanie J. Oppenheimer, APR Anyone looking for evidence that the U.S. commercial real estate industry has taken a hit from the financial crisis gripping the globe need look no further than the level of foreign investment in U.S. real estate: According to Real Capital Analytics (RCA), 2008 foreign investment figures from January through July 2008 came in at $7 billion, compared to a total of $52 billion invested in the United States in 2007. “This is obviously a dramatic slowdown, and, if we continue at the rate we’re going today with foreign investment, we’ll be down to ’03 levels, which finished the year at about $10 billion,”
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says James Fetgatter, CEO of the Association of Foreign Investors in Real Estate (AFIRE). “Granted, 2007 was perhaps inflated due to a couple huge investments out there [specifically, separate investments by an Australian firm and a French firm at approximately $9 billion each], but even 2005 and 2006 each boasted investments of about $25 billion. The drop-off is particularly noticeable with some of our most dependable investors, such as Australians. They’ve been one of our top investors for five years and, in 2007, accounted for 26 percent of all foreign investment in the United States. [In 2008], they’re investing only 0.4 percent of that amount. Germans, while still active, were at 22 percent of their previous year’s totals through July 2008. Really, no matter how you look at it, transactions in the United States are way down.” Of course, investment in American real estate is hardly a barometer by which to gauge the entire industry, particularly an industry that can be viewed from two main perspectives: the leasing side and the investment side.
Leasing: The Calm Before the Big Storm? At first glance, leasing fundamentals are clearly slowing, but many asset types still appear to be holding fairly steady for now, mainly because this real estate downturn is primarily a result of debt markets rather than by oversupply and an over-stuffed pipeline. As a result, many markets are approaching supply/ demand equilibrium with relatively low vacancy rates and rents that haven’t yet dropped dramatically. But, because commercial real estate tends to lag the rest of the economy by six to 12 months, it is widely expected that the ultimate consequence of today’s economic environment will be the industry’s worst year since the 1991-1992 downturn. At press time in late 2008, Reis, Inc. reported negative net absorption of more than 19 million square feet of space, the highest it’s been since late 2001 and early 2002, when reverberations from the 9/11 attacks were felt in the real estate industry. Without a doubt, 2008 losses of more than one million U.S. jobs has had an impact, and it’s likely to worsen
as commercial real estate fully catches up with the rest of the economy. “Many other asset classes adjust all at once, but with real estate it always feels a little like getting sent to the principal’s office when you’re a kid,” explains Geoffrey Dohrman, CEO of Institutional Real Estate, Inc. (IREI). “You know you’re in trouble and will have to pay up, but for now you’re just sitting there, waiting for it to happen. You don’t know exactly when he’s going to call you back to his office or what he’s going to do … and it’s the sitting and waiting that’s just so horrible.”
The Investor Blues Meanwhile, the mysteries of the when and how are on full display on the investment side of the business—where the effect of the credit crunch and global financial crisis is currently being felt the most strongly. And the picture, unfortunately, is a decidedly gloomy one. Throughout the Americas, RCA reported that third-quarter ’08 sales volume was at just $30 billion, compared to $131 billion during the same time period in 2007. In the Asia Pacific region, third-quarter Continued on page 22
January/February 2009 BOMA 21
volume dropped from $66 billion the year before to $18 billion; and in Europe, the Middle East and Africa (EMEA), volume came in at $54 billion, down from $84 billion during third-quarter 2007. All told, RCA was expecting commercial real estate sales in 2008 to be less than half of last year’s $514 billion level. Investors are also backing out of transactions at a fast clip; according to Cassidy & Pinkard Colliers, more than $14.5 billion in deals have been scrapped in the United States this year alone.“The numbers just dropped off a cliff as we moved into 2008,” says Ray Torto, global chief economist for CBRE Torto Wheaton Research. “The reason is simple: Real estate is expensive—it’s not like buying a $100 share of stock. It’s millions of dollars we’re talking about, and most investors need to finance those kinds of capital expenditures. The credit crunch—which stemmed from the collapse of the subprime home mortgage market in 2007 and worsened with each foreclosure and failure of major financial institutions— essentially caused banks to tighten up and stop lending. And with that, it became a very simple matter. Without financing, investing in real estate dried up dramatically. “Adding to the industry’s woes is that nobody—nobody—wants to buy something at the wrong price in this market,” Torto adds. “A buyer recently said to me, ‘I could buy today, but tomorrow’s prices will be cheaper,’ and I can’t blame him for that attitude. Call them bargain hunters, trend observers or market participants … but nobody wants to buy and then have the market drop further, so people are sitting on their hands. It’s really a crisis of confidence in which banks aren’t confident and investors aren’t confident, and it won’t change until buyers and sellers feel they’ve found price equilibrium in today’s world. It’s not good for the economy or the brokerage firms, but it’s reality … and it’s being replicated all over the
22 BOMA January/February 2009
globe. Some markets, like the UK, are a little ahead of us in that they’ve come down faster, while others, like Hong Kong and Shanghai, are behind us and haven’t come down as much. But, overall, most countries are experiencing what we are here in the United States.” Debt capital is severely impacting the health of the industry, as well: “A year ago, investors could have gotten a loanto-value ratio of up to 90 percent or even more, or interest-only loans,” Dohrman says. “You simply didn’t need much equity. Today, you need at least 40-percent equity and a 60-percent loan. If you do the math, assuming the same cash flow as you had before, you’re looking at two-percent yields, and no one wants that. So, the result is that no one is moving forward on investments because the deals just aren’t advantageous.” In their Emerging Trends report, the Urban Land Institute (ULI) and PricewaterhouseCoopers also indicated that total expected returns on private equity real estate investment in 2009 will likely register in negative territory for the first
time in nearly two decades. Meanwhile, people who have owned commercial real estate as independent investors are feeling the pinch in other areas of their finances, and it’s having a domino effect on their real estate investments. In December 2007, there was an estimated $42 billion in underinvestment; 10 months later, that had completely flipped. “Real estate values haven’t gone down that much yet, but there’s no money to do additional investments,” Dohrman adds, “and when you consider that Americans have lost up to $1 trillion in the value of their stocks and bonds, it’s understandable that they just don’t have very much left over to allocate to real estate.” Another factor to consider is where investors are holding their funds; if a foreign investor is keeping funds in a New York bank waiting for an opportunity in New York, not much has changed. But, if they’re in London with all their funds in pounds, as of November 2008, they had seen a 15-percent reduction in purchasing power over the previous 30 days.
Will Stimulation Packages Thaw the Deep Freeze? Not surprisingly, global crises like these get global attention, and countries throughout the world have put forth fiscal recovery plans much like the U.S. $700 billion Emergency Economic Stabilization Act of 2008 in order to help financial institutions and investors alike. And, while the majority of real estate experts do believe they’ll help, most view the recovery plans not as a longterm solution but as a fix that will help settle financial markets and increase investors’ confidence that markets are stabilizing.
“The idea behind these kinds of bills is to thaw lending, but it’s going to take a while for the benefits to really work into the system,” says Glenn Mueller, real estate investment strategist for the Dividend Capital Group and professor in the FL Burns School of Real Estate and Construction Management at the University of Denver. “The bigger question is how long will it take? A month, a quarter, a year? I think six months to a year is most likely.” “They’ll help for sure,” Dohrman agrees, “but it’s a bit like the triage process on a battlefield. It will determine who survives, who doesn’t and who can wait. Like first aid, though, it’s not a solution to the root cause of the problem, which has more to do with regulatory flaws and the underwriting process in lending. These measures will stop the bleeding, give us the time to fix the underlying causes and enforce discipline.” Looking forward, blue skies are not impossible to find. According to Fetgatter, there is plenty of optimism that more money may be poised to come back into the United States because of the inherent advantages the U.S. market offers. “We may not be able to offer enormous market stability in the short term,” Fetgatter says, “but transparency and stability are certainly U.S. hallmarks over the long term. That makes international investors feel that they can get better returns from established American real estate, unlike emerging markets, where there simply aren’t sufficient rewards right now to counterbalance the risks.” But regardless of when we’ll start seeing capital pouring back into commercial real estate, there are some strategies to help weather the storm. Dohrman advises property managers to focus first and foremost on operations. “Keep your tenants happy in your buildings and focus on operations management,” he says. “Extend leases as quickly as you can, and remember that now is not the
time to nickel and dime your best tenants. We’re in the eye of the hurricane, and things are going to get crazier, so think about strategy now, when you have the time to think. It’s probably too late to pay down your debt and de-lever, but find whatever equity you can, be realistic about valuation and don’t wait for events to force you into something. Take control while you still can.” Mueller urges patience, noting, “It’ll come back, but remember everything is relative. The longest recession, which lasted five quarters, was in the early 1970s. In 2003, the recession lasted only 2.5 quarters. I’m guessing this recession will be someplace in between … particularly with so much money being pumped into the economic system through stimulation packages. I’m anticipating that the employment declines that started in the beginning of 2008 may extend through the second quarter of 2009, but then we’ll start back on the upward swing.” As for the mythical crystal ball that everyone at some point wishes they had? Torto points out that it may very well be right under your nose. “I view commercial real estate as ‘the economy in a box.’ What goes on in the economy is reflected in our buildings—whether it’s job growth or unemployment, retail expansion or retraction. As a result, most of us have a better grip on the economy than we give ourselves credit for.” Lastly, keep it all in perspective. As Dohrman notes, “We had a long party, and everyone knows that the longer the party, the longer it takes to clean up.”
About the Author: Stephanie J. Oppenheimer, APR, formerly the assistant vice president of communications for BOMA International, is principal of Skylite Communications, a freelance writing and editing company based in Falls Church, Va.
January/February 2009 BOMA 23
Legislative Outlook Commercial Real Estate to Work with Larger Democratic Majority in ’09 By Karen W. Penafiel, CAE
n November 4th, voters not only elected a democrat to the White House, but they also elected a greatly changed Congress. Throughout the 110th Session of Congress (2007-08), the democrats enjoyed a majority in both houses of Congress; however, the numbers were close enough in the Senate to ensure that nothing passed without at least some cooperation from republicans. If Senate democrats tried to pass legislation strictly along party lines, republicans could filibuster, or debate the legislation indefinitely, and 60 votes are needed to end a filibuster and call a vote. When the 111th Congress takes office in 2009, the commercial real estate industry will find it working with an almost filibuster-proof majority in the Senate. At press time, the Senate democrats had picked up at least seven seats, bringing their total to 58 (including independents), with 41 seats safely in republican control and one race still undecided in Minnesota. Even if the republicans prevail in Minnesota, assuming no seats change party due to political appointments, the democrats would need only two republicans to cross party lines on any given issue to reach the magic number of 60 and thus end any potential filibuster. In the House, the democrats increased their majority by 19 to control 255 seats to 175 republican seats, with a number of races yet to be determined. In working with the new Congress and President, BOMA International will face new challenges, especially in the area of taxes, environment, energy and unionization. BOMA International will work to educate the new Congress and Obama Administration on these and other issues that impact the commercial real estate industry. So what can we expect to see when the 111th Congress kicks off this month? Though newly elected President Obama’s past positions on legislative issues and his election platform may suggest he leans pretty far left, Congress-watchers are predicting he will reach to the middle moderates for guidance on many important issues, especially the ongoing problems with the economy and capital markets. The sentiment of members of Congress, however, appears to be more along the lines of “now we will finally be able to get things done,” suggesting that legislation—good and bad—may move much quicker than before. Here’s a look at BOMA’s key issues and what we may expect to see in the new Congress. (For an overview of legislative actions on BOMA’s priority issues during the 110th Congress, see “Legislative Update” on pages 8-9.)
24 BOMA January/February 2009
Tax Issues Throughout most of 2008, when the economic downturn seemed to be primarily contained to the residential real estate markets, it was widely assumed that an increased democratic majority in Congress, in combination with Barack Obama in the White House, would potentially lead to significant increases in a number of tax areas affecting the commercial real estate industry. With the widespread downturn in the economy affecting such a large number of industries, wildly swinging stock markets and a devastated global economy, however, experts anticipate a more moderate approach. Upper-income earners will definitely not be off the hook, and this tax change will likely happen very quickly. BOMA will continue to state the case that the commercial real estate industry should be included in any economic stimulus package. BOMA’s key tax issues continue to be capital gains, leasehold depreciation and carried interest. The new Administration had been expected to increase the maximum rate on capital gains and qualified dividends, from the current 15 percent to possibly as high as 25 percent, but it may hold off on this in 2009 due to the state of the economy. The current 15-percent rate expires at the end of 2010, however, and, absent Congressional action, it will revert to 20 percent. Small businesses and start ups, on the other hand, may see their capital gains tax rate cut to zero.
In late 2008, Congress voted to retroactively extend for two years the 15-year leasehold depreciation timeline and immediate expensing of brownfields clean-up costs. Both will now expire at the end of 2009 and it is unclear what action, if any, the new Administration and Congress will take. Last year, several democrats in Congress actively supported increasing the tax rate on carried interest from the capital gains tax rate of 15 percent to be taxed as ordinary income in order to offset revenue losses from other popular proposed tax cuts. This is an issue that BOMA will continue to watch.
Climate Change Newly elected President Obama supports the implementation of an economy-wide cap-and-trade system as part of any climate change legislation. His plan would require 100 percent of pollution credits to be auctioned to ensure that all industries pay for every ton of emissions they release, rather than giving valuable emission rights away to companies on the basis of their past pollution. In the last session, more than a dozen climate change bills were introduced in the House and the Senate, one of which passed the Senate Committee on Energy and the Environment before falling victim to a Senate filibuster. This is definitely an important issue to both newly elected President Obama and Congress; however, it is unclear if this will fall into his “first-tier” issues or get tabled while the Administration tries to resolve the economic crisis.
Card Check/ Unionization
BOMA International has aggressively worked with Congress for the past several years to work on voluntary, incentive-based programs to improve the energy efficiency of both new and existing buildings. We have vigorously, and to date successfully, fought against the imposition of any mandates without a return on investment. In the last session of Congress, we were successful in removing language that would have set arbitrary targets to greatly ratchet up the energy-efficiency requirements of the ASHRAE 90.1 Standard. We fully expect to see this proposal resurface in any “moving” legislative vehicle. Newly elected President Obama has stated that he supports the goal to make all new buildings carbon neutral by 2030, as well as a national goal to improve new building efficiency by 50 percent and existing building efficiency by 25 percent over the next decade to meet the 2030 goal. For all new federal buildings, Obama supports the goal of a 40-percent increase in efficiency within five years and zero emissions by 2025. For existing federal buildings, he would like to see investment in cost-effective retrofits to achieve a 25-percent increase in efficiency within five years. Overall, he would like to see appropriate resources dedicated to achieve a 15-percent reduction in federal energy consumption by 2015 and phase out traditional incandescent light bulbs by 2014.
During the last session of Congress, Senate republicans were able to prevent the passage of “card check” legislation. With the new makeup of Congress, this will likely be one of BOMA’s first legislative battlegrounds. The proposed legislation would eliminate secret ballot elections from the unionization process. For the first contract, if parties are unable to reach agreement within 120 days, then the dispute will be sent to arbitration, the results of which would be binding for a minimum of two years. Workers would be unable to vote on the contract, as is the case currently.
We Need Your Help! BOMA has a huge job ahead of us to protect your interests on Capitol Hill, but we cannot do it alone. We need every BOMA member to do his or her part to assist us in communicating real estate’s message to our elected leaders. Here’s how you can help … • Respond to “Calls to Action” by calling or writing to your members of Congress via BOMA’s Legislative Action Center, http://capwiz.com/ boma/home. • Support BOMAPAC, BOMA International’s political action committee, www.boma.org/Advocacy/ BOMAPAC. • Attend the National Issues Conference in Washington, D.C., on March 23-24, 2009, to meet with your legislators (see related article on page 9). • Communicate with your advocacy staff on issues confronting you and your business. By working together, real estate’s voice will be heard on Capitol Hill.
For more information on legislative issues, contact Karen Penafiel at firstname.lastname@example.org or (202) 326-6323.
January/February 2009 BOMA 25
BAEs Develop Solutions in Face of New Economic Challenges BOMA Association Executive Leadership Conference Advances Local Initiatives By Lindsay Tiffany
The economy was at the top of the agenda at the 17
annual BOMA Association Executive (BAE) Leadership Conference, as BAEs gathered in Washington, D.C, to discuss how to take local programs and initiatives to new levels. The meeting, held Oct. 16-18, 2008, provided local executives an opportunity to network and share information in the face of an increasingly bleak economic forecast. Strategies for attracting and retaining membership were at the core of the discussion, along with strategic planning training and briefings on new BOMA initiatives, such as the accredited building program, the new and enhanced Experience Exchange Report (EER) and a panel discussion on the Foundations of Real Estate Management program. Membership challenges were at the forefront of the dialogue. With many companies facing major layoffs and air-tight budgets, BAEs expressed concern over membership retention and growth. Together, they brainstormed th
ABOVE, Nancy Ferrara, BAE of BOMA/Dayton, lends her perspective during one of the interactive discussions. ABOVE RIGHT, Joe Marchant shares insights from his experience as long-time BAE of BOMA/Dallas.
26 BOMA January/February 2009
niche areas to target for new membership. Many suggested ramping up efforts to increase membership and outreach areas, such as engineers, corporate facilities, mixed-use, students and architects. Several BAEs also mentioned success in creating special interest groups in specialty areas, including medical office buildings and energy managers. While all acknowledged that there are serious challenges, the situation also provides a unique opportunity for BOMA local associations to offer timely support and resources for their members. Many noted that it is now, when times are tough, that their membership will look to BOMA for support— for new education courses, networking and career development. Several BAEs shared their ideas for new programming based on the challenges property owners and managers are facing in a down economy; topics included dealing with tenant bankruptcy, dealing with a tenant audit of an escalation bill and addressing universal budget constrictions. BOMA/Atlanta’s Gabriel Eckert spoke to his peers about the success his local
Marc Intermaggio, BAE with BOMA San Francisco, takes the floor, as BOMA International Chair Dick Purtell and BOMA International President Henry Chamberlain listen.
Jeanie Merideth with BOMA/Tucson helps keep spirits light.
association was seeing with the Foundations of Real Estate Management course. “Companies find it more comprehensive and cost effective to train their employees through the course than to institute their own training programs,” said Eckert, who also sees potential in creating a course on human resources management aimed at property managers who, through a promotion or new position, find themselves managing people without any management background. Many agreed that, while it may be a challenging time, the strength of local associations is in adapting to provide members with timely solutions. A panel discussion expanded on the implementation of the Foundations of Real Estate Management course and was moderated by BOMA International’s Senior Vice President Pat Areno. Janice Parham, BOMA/Cleveland; Jeanne Clark of AOBA (Apartment and Office Buildings Association of Washington, D.C.); and Pat Schwarze, BOMA/Greater Chicago,
spoke on the specifics of the program and answered questions on the structure of the course, hiring instructors and the building tours that are a part of the course. The lively forum concluded that the program was a major asset to local associations and member companies. Kingsley Associates’ Vice President Phil Mobley joined BOMA International’s Vice President of Education and Research Lorie Damon to brief BAEs on the new, exclusively online Experience Exchange Report, BOMA’s trademark publication with benchmarking income and expense data. They unveiled the new user interface and demonstrated the ease with which users will be able to query and analyze the data. “Everything will be dynamic, searchable and customizable,” added Mobley. “And the timing couldn’t be better—people need to know how they are doing compared to their peers in these market conditions.” They also enlisted the BAEs to help increase member participation in submitting the
data and making the information even more precise and useful for members. The program also included sessions on strategic planning, trademark and copyright law and other association best practices. Robert C. Harris, CAE, Harris Management Group, a renowned facilitator of association leadership training, drilled into the fundamentals of successful strategic planning. Harris stressed that developing and implementing a cohesive, up-to-date vision and mission statement is critical to taking an organization into the future. Patrick Jennings, senior associate at the law firm Pillsbury Winthrop Shaw Pittman, LLP, gave a refresher course on the basics of copyright and trademark dos and don’ts. The program concluded with a reception at BOMA International’s new “green” office.
January/February 2009 BOMA 27
Town centers have made a comeback in recent years, such as Easton Town Center, which is located outside of Columbus, Ohio.
Mixed Use: The New Main Street, USA By Laura Horsley With its ubiquitous suburbs lined with malls, retail strips and office parks, some say America has become a nation of sprawl and crawl where the daily functions of our lives—work, errands, entertainment—are compartmentalized, each requiring a separate car ride, a full tank of gas and an SUV-sized load of patience. Things are beginning to change, though, as more and more Main Streets and town centers are popping up; the only catch is that they are nowhere near an actual Main Street or town center. They are the mixed-use urban hubs (that are mostly located in the suburbs) that are slowly but steadily changing our nation’s landscape and bringing the all-in-one, livework-play environment back to America’s towns and communities. But how did we lose our Main Street
identity in the first place? It’s been a steady progression over the past 50-plus years, aided by post War World II zoning regulations and a population that grew from approximately 200 million to 300 million in that time. We became a land of malls and parking lots as single-use retail establishments replaced the town centers that once defined America. “After the War we lost our compass,” explains Yaromir Steiner, a keynote speaker at the Mixed-Use Development Conference in Chicago this past November and CEO of Steiner + Associates, Inc., a mixed-use development company. “We forgot about urban planning and we used zoning as the sole way of designing our cities.” Steiner and his team have been bringing town centers back for the past several years with developments like Easton
Town Center outside of Columbus, Ohio, and Zona Rosa in Kansas City. Dealing with zoning hang-ups and garnering community buy-in were among the initial barriers, but those headaches are dissipating for Steiner and other developers as city officials and planners are recognizing the benefits of mixed-use. At a project under development in Hampton, Va., Steiner was pleased to find that the city was well ahead of the curve. “There was an existing mall there and the city of Hampton projected the regional mall would be converted into a mixed-use town center. It was even in the master plan of the business district.” While city planners are not always that far-sighted, more are seeing the business sense of mixed-use. Roy Higgs with Development Design Group, who Continued on page 30
28 BOMA January/February 2009
BOMA’s Sustainable Operations Series Webinar Series Making Sense of Sustainable Operations Available on demand
Strategies for Reducing and Reusing Building Resources Available on demand
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tUnderstand and evaluate opportunities for implementing green strategies, including various certification options tIdentify “best bets” for greening buildings without major capital expenditures
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To register or learn more, visit www.buildings.com/webinars/sos/ January/February 2009 BOMA 29
sector watch worked with Steiner on Easton Town Center and other projects, has also noticed the change. “We’re seeing a lot more public officials pitching up and getting excited about these projects. They’re saying ‘I need that in my community, too.’ ” Higgs believes retailers have been an influential part of this trend. “We’ve watched retailers very carefully to see what they’re up to and what they’re
looking for,” explains Higgs. “It used to be that they wanted the shop in front in a certain location and 300 cars outside the front door, but those formulas have fallen away. You measure retail success by the volume of business you do per square foot and they’re managed to do higher volumes of business in those kinds of locations [town centers] at arguably lower costs.” Office is often an essential part of the
mix in these developments as retail and office tend to have a synergistic relationship. The office component provides the captive audience retail loves (especially during a weak economy) and the retail component offers valuable amenities—be it restaurants, coffee shops, fitness centers, dry cleaners, etc.—that companies would not be able to offer their employees in a traditional suburban office park. The office component is very popular at Fairfax Corner in Fairfax, Va., a development that Higgs’ team designed. Says Higgs, “It used to be that no one wanted to build offices above shops because you didn’t have an office address, but that has all changed. Office and retail are very complementary construction, and there’s a very low premium to do it compared to residential. It’s a whole sea change we’re seeing.”
Mixed-Use Fast Facts
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30 BOMA January/February 2009
• According to the International Council of Shopping Centers, a regional enclosed mall has not been built since 2006. • While mixed-use seems to be everywhere and is growing, it is still less than 3% of the overall market. • The latest trend in mixeduse is recreational and sports amenities—think live theaters, comedy clubs, BMX, ice rinks and even surfing. • The trend extends beyond U.S. shores: 40% of Development Design Group’s business is international.
TAke Note Read an expanded version of this article at www.boma.org.
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January/February 2009 BOMA 31
Construction Industry Looks to Opportunities Despite Grim Forecast Executive Conference Focuses on Green Building and New Political Guard By Lindsay Tiffany Construction executives gathered in Washington, D.C., Oct. 22-23, 2008, for McGraw-Hill’s Outlook 2009 Executive Conference, a two-day conference focused on what 2009 will hold for the AEC (architecture, engineering and construction) industry. The program was packed with economists and construction experts who spoke about how the recent credit crisis and economic downturn will affect construction this year. Much of the news does not bode well for construction, but experts suggested that there are still several reasons to be optimistic. The Construction Outlook 2009 Report, presented by Robert Murray, vice president of economic affairs, McGraw-Hill Construction, suggested that total construction starts in 2009 will
Institutional buildings seem to be the brightest spot in construction right now, having been up 7% in 2008 and predicted to drop only 3% in 2009. be down seven percent, after a 12-percent decline in 2008, with declines projected in every sector, including single-family housing, multifamily housing, commercial buildings, institutional buildings, manufacturing buildings, public works and electric utilities. Institutional buildings seem to be the brightest spot in construction right now, having been up seven percent in 2008 and predicted to drop only three percent in 2009. Healthcare facilities have been unscathed in the past few years, and the market is predicted to soften minimally due to the lack of available credit. While the office sector has largely avoided the boom and bust cycle of other markets, construction starts for offices were down 10 percent in 2008 and will be down 12 percent in dollars and 15 percent in square feet this year. With vacancy rates just starting to creep up, the decline should be relatively mild compared to other sectors, the report predicts. Murray emphasized that executives should keep in mind the cyclical nature of the business and predicted that, even by modest estimations, conditions should improve considerably in 2010.
32 BOMA January/February 2009
Despite the grim numbers many markets are facing, there are a few key factors that indicate opportunities on the horizon. The growth of green construction despite the economic downturn was one. U.S. Green Building Council President Rick Fedrizzi gave a presentation on green construction trends for 2009, stressing that the green revolution will be a big part of the solution to the economic crisis. He estimated that nearly 40 million “green-collar” jobs will be created by 2030 as the result of the green movement. Fedrizzi concluded that “green buildings are here to stay,” and that the benefits of green buildings are substantial, not only in terms of financial success, but also in such occupant benefits as increased productivity in offices and manufacturing facilities, increased sales per square foot for retailers, faster healing in healthcare facilities and improved test scores in schools. The changing of the guard in Washington come January 20 is another reason for optimism, according to Michael J. Mandel, chief economist with BusinessWeek. Mandel explained that a new presidential administration and Congress will bring an increase in construction opportunities around the country, with infrastructure and industrial construction to experience the most demand. The Obama Administration is also expected to create an enormous fiscal stimulus, with increased spending in energy and the environment, education, manufacturing and public services and systems. Immigration is also expected to have a positive impact on the AEC industry. Recent statistics show that immigration will continue in high rates, which will help absorb much of the excess in the housing sector and create new need for institutional and commercial buildings and infrastructure. The message to attendees throughout the conference was that it will take time for the economy to recover, but better times are ahead. This year is about bracing for tough times and being well-positioned for the opportunities to come.
Welcome to a Bright, New Era of Performance Measurement Introducing the new Web-based Experience Exchange Report from BOMA and Kingsley Associates Share Data. Improve Performance. Achieve Excellence. The next generation of the industry’s best office building performance measurement tool is here. Building owners and managers have used the EER for income and expense analysis for nearly 90 years. In 2009, a revolutionary new online format will put all the data you need right at your fingertips. It’s so innovative that no other product on the market can hold a candle to it. The new EER makes it easier than ever to... � Build budgets � Evaluate operating performance � Identify areas for savings � Communicate performance metrics to owners and investors, tenants and prospective tenants.
Analyze your property’s performance with custom search tools... it’s faster, flexible and as easy as 1-2-click.
Buy only the market reports you need and save money! 300+ reports are available for the U.S. and Canada.
Chart performance graphically for any income or expense line and much more.
Survey opens mid-January at www.boma.org/2009EERsurvey. Brand new survey format makes entering data a snap.
Green Scene In Their Words—Survey Respondents Speak Out on Green Priorities Here are just a few of the hundreds of responses received from commercial real estate professionals who took part in the “2008 Green Survey: Existing Buildings.”
Q: Is Greening Your Portfolio a Priority for Your Company?
Greening Buildings a Priority Despite Economy Second Annual Survey Shows Green Funding on the Rise greening buildings is still a priority for commercial real estate professionals, although the plummeting economy may be squeezing bottom lines. That was among the findings of the “2008 Green Survey: Existing Buildings,” the second annual survey produced in collaboration with BOMA International, Incisive Media’s Real Estate Forum and GlobeSt.com and the U.S. Green Building Council (USGBC). The survey results, which were announced during a press conference in Boston at Greenbuild on Nov. 19, 2008, found that 80 percent of respondents allocated funds to green initiatives in 2008. During the press conference, BOMA International Chair Richard D. Purtell, RPA, portfolio manager with Grubb & Ellis, and Chair-Elect James A. Peck, RPA, FMA, senior director for CB Richard Ellis in Albuquerque, N.M., related the survey results to many of the green practices they are implementing across their respective company portfolios. Commenting on a survey question that found that a majority (52 percent) of respondents are using green clauses in their leases to some degree, Purtell noted, “Although green leases are a relatively new idea, respondents overwhelming indicated that they expect to do this soon or are in the planning stages.” BOMA recently released the industry’s first green lease guide to meet this growing demand. Other key survey findings include: Energy conservation is the most widely implemented green program in respondent properties, followed
34 BOMA January/February 2009
By Laura Horsley
by recycling, water conservation and ENERGY STAR® product programs. Sixty (60) percent of those polled offer educational programs to assist tenants in implementing green programs within their space, up from 49.4 percent last year. Almost 70 percent of survey participants have implemented some type of benchmarking system to monitor energy usage and efficiency, while 80 percent say that their efficiency efforts have helped defray rising energy costs. Almost 65 percent of respondents feel that their green investments have generated a positive ROI, up from 60.8 percent in 2007. The survey focused on the application of green methodologies and technologies in existing commercial buildings, and on the financial and marketing benefits of these efforts. To obtain a copy of the complete survey and results, visit www.boma.org/AboutBOMA/ TheGREEN/
“It makes great business sense regarding operating efficiency. We have reduced power consumption by 11 percent over the last four years.” “Although I am only lukewarm on the green building movement, I acknowledge that it has hit a tipping point, and you better get with the program or you will be passed by the herd.”
Q: Have You Allocated Funds for Green Measures/Programs in Your Current Fiscal Year? “Funding for greening new construction is now budgeted into every project. Funding for existing buildings was included in previous years’ budgets.” “Funds have been allocated for energy- and water-savings programs. Additionally, we have created financial incentives for property managers who deliver the greatest consumption savings.”
Q: Are You Adding Green Clauses in Your Leasing Documents? “We are in the beginning stage of revising our standard lease to incorporate green provisions.” “2009 will be the year of the green lease.”
Facility Managers are Taking an Aggressive Operational Approach to Energy Savings A recent energy-savings survey conducted by FMLink, BOMA International, USGBC and the Association for Facility Engineers (AFE) found that more and more facility managers are implementing re-commissioning and energy audits to measure and improve their buildings’ energy performance. Other survey findings show: 41% of building operating plans included a
professionally developed, energy-strategies staff education program. 59% of respondents have occupancy sensors in their general office space. Most energy savings successes were the result of aggressive low-cost operational strategies rather than major capital projects. For a full survey analysis, visit www.fmlink. com.
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The Office Building Show is produced by BOMA International and Buildings magazine.
January/February 2009 BOMA 7
When the Going gets Tough, the Tough get Benchmarking Enter the New Age of Benchmarking with the Online EER By Laura Horsley and Noel Popwell
It’s official: We’re in a recession. The business climate commercial real estate professionals are experiencing now, and probably will continue to experience for at least the next several months, could be the industry’s toughest since the 1990s. The industry mantra has changed from “buy and flip” to “hold and cherish,” as building owners and managers figure out how to squeeze every ounce of value out of their buildings to retain tenants and keep costs low. But, despite the gloom and doom headlines fueling the media every day, there are real opportunities for property professionals who follow the new mantra and make their buildings stand out in the crowd.
36 BOMA January/February 2009
Benchmarking building performance is one of the keys to not just surviving but thriving in a recession. Richie Faulkenberry, senior vice president, director of property management for Lincoln Harris, a full-service real estate company headquartered in Charlotte, N.C., uses the Experience Exchange Report (EER), the industry’s premier income and expense reporting source, to benchmark several buildings in the Charlotte region. “These market conditions make it that much more imperative for every building owner and manager to gauge asset value in their respective market,” explains Faulkenberry. “With vacancies increasing, EER data provides an organization with a barometer where they can
instantly know how they’re financially positioned in the market.” For third-party management companies like Lincoln Harris, benchmarking is one way to help ensure job security and fuel business growth. Faulkenberry notes, “At Lincoln, we are better positioned if we run a more financially fit and managed asset for an owner because there’s a greater likelihood that an owner will choose Lincoln Harris as its service provider for other assets.” From the owner’s perspective, benchmarking data can flag trends and diagnose competition in different markets. Perry Schonfeld, MBA, CPA, principal for LBA Realty LLC, finds the EER has enhanced LBA’s operating business
knowledge across the board. “As LBA has ventured into other real estate markets, the EER has been extremely valuable to benchmark local operating costs and provide a guide to not only underwriting but toward designing future operating budgets,” says Schonfeld. “In a tightening market, this is critical given that, today, landlords are competing for tenants in a declining market rent environment, so the only way to maintain margins is to attack the cost side of the equation.”
Submitting has Never Been More Critical, or Easy Last year, the EER represented more than 5,000 buildings or roughly one billion square feet of office space. In 2009, the EER will move entirely online—in both data collection and data reporting—making it a much more flexible and nimble resource, allowing end-users to pinpoint and extract exactly the information they need. This ease-of-use is also reflected in a new streamlined submission process that makes it easier to enter data for multiple buildings. Faulkenberry strongly encourages Lincoln Harris property managers in the Charlotte region to submit their income and expense data to the EER because it ultimately leads to a better end product, and also because it allows Lincoln Harris property managers to truly know their financial data. Says Faulkenberry, “It’s one thing to go through the budget process and pull your numbers together, but when you examine all the components of data that go into the financial fitness of a building—your capitalization threshold, your parking stalls, your parking ratios, etc.—it really gets them to look at the big picture of the asset and gets them more involved actively managing their building.” In fact, Faulkenberry makes it mandatory for his property managers to benchmark at least one building they manage. The EER is completely voluntary and open to any commercial office building in the industry—regardless of whether it’s owned or managed by a BOMA member. All submissions are kept confidential and data is reported on an aggregate basis—this year, for 300 U.S. and
Canadian cities, as well as special studies for specific types of assets (including Medical Office Buildings). For Schonfeld, the reasoning for participating is simple; companies should participate in the survey to help guarantee the best possible end product, one that will ultimately help them understand their competitive position. “Knowing your competitive position in a market is paramount to how you compete and what operating adjustments you may need to make.” Schonfeld believes the online EER will be a dynamic product that will be an asset to LBA Realty in several ways. “The access to information will be eased across our portfolio by all locations and managers, and all disciplines will utilize the information more than ever given
the efficient manner in which the information is made available. Acquisition personnel will be able to easily sense a building’s historical competitive position, as well as how to position the asset prospectively. The fact that the information is online also allows the leasing discipline to utilize the product on the landlord side for service and scope assessments.” The new online EER will not only allow customized searching features, but will also allow users to download information to PDF or Excel formats, and it will include a variety of graphic representations of the data, which can be directly imported into budgets, presentations and other forms where building performance must be presented. Continued on page 38
8 Great Reasons to Participate in the 2009 Online EER Survey • Smarter than your average benchmarking tool. No need to worry about those easy-to-make input errors. If you make a mistake, the system will spot it and prompt you to fix it. • Flexibility factor. Fill out the survey at your own pace. If you can’t fill out the form in one sitting, not to worry; the online version let’s you save and come back later. • Great free stuff. For participating, you’ll receive the Expense Performance Comparison Report, which shows data from your building compared to three other buildings. • Be a part of history. There’s a reason the EER has been around for almost 90 years—it’s the best benchmarking tool in the industry. Help us make history again as we take the EER online. • Budget better. More benchmarking data means more accurate budgeting, trending and planning. And, it saves you time by eliminating the need to collect the information from your peers at neighboring buildings. • It’s green. The survey and the final report are online this year. Somewhere, a little patch of rainforest thanks you. • Save some green. Submitters will be the first to know that the reports are available online. And, though the new online EER will allow purchasers to purchase only the data they need at sharply lower prices than BOMA used to offer for the book or CD, submitters will receive discounts beyond that. • And the best reason of all … you’ll be a part of something really important. The more participants, the more reliable the data, the better the end product.
January/February 2009 BOMA 37
Share Data. Improve Performance. Achieve Excellence. That’s what the Experience Exchange Report is all about. For 89 years, commercial office building owners and managers have shared their income and expense data. The 2008 EER encompassed more than 5,000 buildings and one billion square feet of space in more than 300 cities across the U.S. and Canada. Become an EER ambassador and plan now to submit your portfolio in 2009. For more information about the EER, please visit www. boma.org/Research/. Watch your e-mail box and your mailbox for an announcement of the 2009 survey’s opening.
The Kingsley Connection
Innovation and real progress are almost always the result of great partnerships, and the new online EER is no exception. For nearly 90 years, BOMA has produced the EER and, in that time, the EER has become widely recognized as the industry’s benchmarking standard. To transition the EER to an online format, BOMA turned to Kingsley Associates to help revolutionize the way property professionals benchmark building performance and manage assets. As an industry leader in research and consulting services, Kingsley Associates brings exceptional knowledge of the inner workings of commercial real estate. “Kingsley brings a lot to the table,” remarks Faulkenberry. “Collaborating with Kingsley adds even more validity because they have such a terrific reputation. Their tenant survey model will bring an even greater level of acceptance to owner and management companies. It’s also nice to leverage their name and
technical know-how, meaning there will be less trial and error and more chance for a homerun right off the bat.” Benchmarking building performance may not allow an organization to recession-proof its portfolio, but it can give an organization the knowledge to know exactly what it needs to improve in order to stay competitive. With the EER’s detailed analysis of each major income and expense category in most buildings’ budget, it can be an extraordinary tool for evaluating operational performance, identifying areas for improvement, renegotiating service contracts and highlighting cost savings that both tenants and owners will care about. And, in today’s economy, knowledge means more than power—it might just mean survival. The 2009 EER survey will open in January 2009 and can be accessed at: www.boma.org/2009EERsurvey. The deadline to submit building information for the 2009 EER is March 20, 2009. Look for BOMA postcards and e-mail reminders to announce that the survey is available.
MARK YOUR CALENDARS
RPA/FMA/SMA/SMT ACCELERATED COURSES Design, Operation & Maintenance, Part I March 4, 2009 Budgeting & Accounting March 25, 2009 Fundamentals of Facilities Management April 22, 2009 Design, Operation & Maintenance, Part II May 13, 2009 Real Estate Investment & Finance June 3, 2009 Law & Risk Management July 29, 2009 Electrical Systems & Illumination Aug. 19, 2009 Leasing & Marketing Sept. 23, 2009 Facilities Planning & Project Management Oct. 7, 2009 Environmental Health & Safety Issues Nov. 4, 2009
38 BOMA January/February 2009
Attend the BOMA International Conference and The Office Building Show at the Pennsylvania Convention Center in Philadelphia, June 28-30, 2009. For conference program and registration details, visit www. bomaconvention.org
Turn to page 46 of this issue for a preview of this year’s highlights.
BOMA Green Lease Guide
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Eye on Education
MOBs: Just What the Doctor Ordered? Here’s a Second Opinion By Danny Prosky Healthcare real estate is now widely viewed—in industry publications and even the general media (see for example, National Real Estate Investor and The New York Times)—as a likely panacea for investors looking to improve their flagging returns. After all, the logic goes, people get sick in difficult economic times as well as good ones— healthcare is “recession proof” because the demand or need never goes away. Historically, that logic may have held, and certainly many developers, real estate firms and healthcare REITs have grown healthy businesses through market ups and downs. Most of them contribute their success to understanding not only the nuances of real estate, but, more importantly, to knowing the complex and oftentimes complicated drivers of healthcare business. Those people— those who have spent their careers developing, financing, underwriting, leasing
40 BOMA January/February 2009
and managing medical office buildings and healthcare facilities—aren’t feeling quite as sanguine about the prognosis for this sector in the near future. A closer examination of the healthcare industry itself reveals some troubling financial trends—trends that could spell trouble for even medical office development. While it’s certainly true that demand for healthcare is immune to market conditions, access to healthcare is not. The record job losses will certainly contribute to already historically unmatched numbers of uninsured and underinsured people who may seek healthcare, but will increasingly be unable to pay for it. While not-forprofit healthcare systems that wish to receive reimbursement from Medicare and Medicaid are required by law to provide at least 30 percent of their services to “charity care,” they can ill afford for that percentage to exceed that threshold.
And, physicians who provide care to Medicare and Medicaid patients have not seen their reimbursements from the federal and state governments keep pace with their costs, which directly impacts their ability to pay rent. “We have seen a significant jump in physician rent receivables following a delay in reimbursements earlier in 2008,” notes Scott Kuklish, executive vice president, PM Realty Group, which specializes in healthcare real estate. While the new incoming presidential administration and Congress have indicated that they want to make healthcare reform a priority, it’s not clear yet what shape that reform will take—or how it will impact healthcare providers, physicians or patients. Moreover, hospitals and healthcare systems are not immune to the current credit crunch. Through the recent building boom, hospitals have relied on the bond markets and auction rate securities to finance many of their capital projects, but both the bond and securities markets have been badly battered in the recent roiling of the capital markets. Even financially healthy hospital systems are finding it difficult to get deals done. “It’s likely that construction projects that are already under way will be completed, though some have already been stopped. I don’t expect that we’ll see many new projects being started in the coming year,” notes Neil Carolan, chief physician development officer, Carondelet Health Network. Instead, hospitals will have to find ways to use existing facilities to meet growing demand. Many industry experts expect to see hospitals revisiting monetization—the sale of their medical office buildings to a third party, often to a real estate company. “Monetization may be an appealing strategy by those who chose previously not to pursue it. Monetization can provide a significant capital influx to hospital systems that seek to raise cash or improve their financial ratios,” explains Gordon Soderlund, senior vice president, Strategic Relationships, The DASCO Companies, a medical office developer and acquirer. But monetization requires that real estate companies can line up financing. Even when they can, the nature of deals has changed— from tighter underwriting standards requiring stiffer loan to value (LTV ) ratios (currently up to 60 percent) to alternate sources of financing. (Nowadays, financing may be local or regional,
and it may involve more than one lender in a deal.) Many industry experts expect that we’ll see a wave of smaller transactions, perhaps monetizations that occur one campus at a time. Like most in the industry, those who specialize in healthcare real estate are bracing for challenging times ahead and a longer-than-desired recovery. Carolan expects that, as healthcare systems struggle to meet the pressures of increasing demands and controlling costs, they will increasingly look to medical office buildings, clinics and other non-acutecare venues as more cost-effective sites for delivering healthcare, and that may well spell opportunity for real estate firms. But, he’s also quick to note that, with so much at stake, hospitals will look for firms that understand the business of healthcare, who have a track record in healthcare real estate. In other words, they’ll seek a specialist.
About the Author: Danny Prosky is executive vice president, healthcare properties with Grubb & Ellis Realty Investors and 2009 co-chair of BOMA’s Medical Office Buildings and Healthcare Facilities Committee.
Register Today! The financial health of healthcare systems and the opportunities and risks for healthcare real estate will be center stage at BOMA’s annual Medical Office and Healthcare Real Estate Conference, June 25-26, 2009, at the Marriott Philadelphia Downtown. Developed and hosted by BOMA’s Medical Office Buildings and Healthcare Facilities Committee, this conference brings together a wide cross-section of those involved with healthcare real estate—hospital and health system executives, developers, investors, lenders, property and facility managers, brokers, architects and even physicians—to discuss the issues that drive the business of healthcare and healthcare real estate.
Education and Events Calendar January 14: SOS Course 4: How Green Is My Building? Tools for Measuring the Total ROI of Sustainability, Webinar, 2:00pm ET, contact firstname.lastname@example.org January 16-19: Winter Business
Meeting and Leadership Conference, Renaissance Esmeralda Resorts & Spa Indian Wells, Calif., www.boma. org/Events/wbm
January 30, February 6, 13, 20, 27: Foundations of Real Estate Man-
agement, offered through BOMA/ Dallas, www.bomadallas.org/, call to register: (214) 744-9020. February 18: Preparing for and
Managing Tenant Bankruptcy, Webinar, 2:00pm ET, contact email@example.com
March 10-13: Emerging Leaders
in Real Estate, Harvard University, Cambridge, Mass., contact firstname.lastname@example.org March 18: SOS Course 1: Making
Sense of Sustainable Operations, Webinar, 2:00pm ET, contact email@example.com April 2-5: BOMA Southwest Con-
ference, Houston, Texas, www. houstonboma.org (click on “events”), contact: Tammy Betancourt, firstname.lastname@example.org April 8: BEEP Seminar 4: No- and
Low-Cost Operational Adjustments to Improve Energy Performance, Webinar, 2:00-4:00pm ET, contact: email@example.com April 23-26: BOMA Southern Region Conference, Norfolk, Va., www.bomavirginia.org, contact: Ann Coley, firstname.lastname@example.org Continued on page 42
Peak Fall Protection Designed Safety Solutions
Authorized Dealers Nationwide
For more information and to register, visit www.boma.org/ TrainingAndEducation/ MedicalOfficeBuildings/
January/February 2009 BOMA 41
Eye on Education Calendar (continued) May 13: SOS Course 2: Strategies for Reducing and Reusing Building Resources, Webinar, 2:00pm ET, contact email@example.com June 10: BEEP Seminar 5:
Valuing Energy Enhancement Projects and Financial Returns, Webinar, 2:00-4:00pm ET, contact firstname.lastname@example.org Jun 25-26: Medical Office Buildings and Healthcare Facilities Conference, Marriott Philadelphia Downtown, Philadelphia, Pa., www. boma.org/TrainingAndEducation/ MedicalOfficeBuildings
June 28-30: BOMA International
Conference and The Office Building Show, Pennsylvania Convention Center, Philadelphia, Pa., www.bomaconvention.org
Always Available e-Seminars Preparing Buildings for Sheltering in Place (In Partnership with BOMI) Property Conditions Assessments (In Partnership with BOMI) Mold in Commercial Buildings (In Partnership with Healthy Buildings International USA and Intellum) For detailed information on BOMA educational offerings, visit www.boma.org/ TrainingAndEducation
For detailed information on upcoming industry events, visit www.boma.org/Events
42â€ƒ BOMAâ€ƒ January/February 2009
Purchase Direct and Save Purchase
Direct and Save
DO THE RIGHT THING!
Landed Price Quotes
Ceramic, Ceramic, Porcelain, and Porcelain, Natural Stone Tile Enormous Inventory ReadyStone to Ship and Natural
Wide Selection including ADA approved products
Enormous Inventory to Free Estimating, Speciﬁcation, and Ready Design Service Ship Anywhere in the USA
Delivery Anywhere Landed Price Quotesin the USA
Email or call with your project requirements
Ceramic, Porcelain, and Natural Stone Tile Wide Selection Including
Tile & Stone WORKS Wide Selection including ADA approved products Enormous Inventory Ready toProducts Ship ADA Approved
FALLS with FALL GUARD®® SKYLIGHT SCREENS OSHA 29 CFR 1926.501 Considers Skylights to Be “HOLES” in Roofs.
Importer andService Wholesale Includes Distributor Turn-Key Free Estimating, Speciﬁcation, and Design Service 12876 23 Mile Road Free Estimating, Specification, Shelby Twp., MI 48315 Delivery Anywhere in the USA Tel: (586) (877) 884-8453 and254-1234, Design Service Email or call with your tollproject free requirements Fax: (586) 254-6883 Email: email@example.com
Tile & Stone WORKS Importer and Wholesale Distributor Importer12876 and Wholesale Distributor 23 Mile Road 12876Twp., 23 Mile Shelby MI Road 48315 Tel: (586) 254-1234, 884-8453 Shelby Twp.,MI(877) 48315 toll free s Fax: (586) 254-6883 firstname.lastname@example.org Email: email@example.com
800-231-6117 X307 Email: firstname.lastname@example.org Website: www.plasteco.com
ADVERTISING INDEX Company
American Anchor...............................7 Bartlett Tree Experts........................42 BICSI............................................C3 BOMA Atlanta................................ 38 BOMA International..............33, 35, 39 BOMA/Buildings SOS Webinar Series.29 Digital Services................................12 Dorlen Products..............................42 Duro-Last Roofing...........................30 Fujitech America Inc........................ C4 Fuller Phoenix Architectural Products...10 Healthy Buildings International............12 Jamestown Technologies.................... 13 JP Obelisk........................................11 Peak Fall Protection (formerly McClancy Access Systems)..............................41 Peterson Power Systems.....................4 Plasteco........................................ 43 Pro-Bel......................................C2-3 SenTech.........................................10 Shortridge Instruments Inc................. 13 Tile & Stone Works.......................... 43 U.S. Lawns..................................... 31 Universal Protection Service...............19 WB Manufacturing Company............. 43
January/February 2009 BOMA 43
Buyers’ Guide to Building Products and Services PRODUCT
DETAILS Kimberly-Clark’s Kleenex Naturals Tissues: Sustainability and Comfort Kimberly-Clark Professional has introduced Kleenex Naturals into its line of premier hygiene products, a facial tissue made with a blend of soft, virgin fiber and 20-percent post-consumer recycled fiber. The new product uses SoftBlend fiber to create a high-quality, soft facial tissue that also exceeds EPA minimum standards for post-consumer fiber content in facial tissue. Kleenex Naturals facial tissue is available in the brand’s flat and boutique boxes.
For more information, visit www.kcprofessional.com
McGraw-Hill Publication Covers A to Z of Building Green McGraw-Hill’s newly released publication, The Green Building Bottom Line: The Real Cost of Sustainable Building, explores what it takes to build green, providing detailed accounts of the true costs associated with sustainable buildings. Readers will get an insider’s perspective on the challenges and opportunities involved in sustainable development, on everything from attracting financing for development and working with architects and contractors to coordinating and marketing a green project and negotiating a green lease.
For more information, visit www.mhprofessional.com
McQuay Ups Efficiency with Templifier Water Heaters McQuay’s has developed Templifier™ water heaters, a unique line of scroll-compressor water heaters that reduce energy costs and increase efficiency by recovering waste heat and making it available for space heating and domestic hot water. Ideal for hotels, hospitals, healthcare centers, schools, athletic facilities and manufacturing plants, McQuay Templifier units with scroll compressors range from 500 to 3,000 MBh and can heat water up to 160 degrees F, compared to 140 degrees F in competitive units. Templifier water heaters can be more than five times more efficient than fossil-fuel boilers or electric-resistance heaters.
For more information, visit www.mcquay.com
Enhanced UGL Unicco GreenClean Program Addresses Sustainability UGL Unicco has expanded its GreenClean® initiative to encompass energy, water, operations and maintenance, as well as several other categories, to help customers achieve their sustainability goals. A forerunner on the green scene, UGL Unicco GreenClean was first launched in 2004 and fundamentally changed the way the company purchased equipment and supplies, managed worksites and measured performance. UGL Unicco GreenClean now addresses sustainability on more levels through a broader portfolio of services. For instance, the effects of cleaning operations on energy usage have resulted in new site-level policies and procedures to reduce energy usage on a case-bycase basis. Additionally, to meet the needs of customers in the United States and Canada, the list of approved cleaning supplies now includes not only Green Seal-certified products, but also products approved by Environmental Choice.
For more information, visit www.ugl-unicco.com
Watt Stopper/Legrand’s Power Packs Offer Greater Flexibility Watt Stopper/Legrand has developed the BZ-50 and BZ-150, two high output, universal-voltage, plenum-rated, RoHS-compliant power packs that provide customers with greater design flexibility and increased energy-savings potential. The BZ-150 is the first power pack that can be field configured for manual-on operation to support either a manual-on or bi-level automatic-on control strategy. Both high-performing power packs accept 120, 230 or 277V power at 50 or 60Hz and provide a 225mA output. By producing a universal-voltage power pack, Watt Stopper/Legrand has minimized the number of SKUs its distributors need to stock, and simplified the design and construction process for specifiers and contractors.
For more information, visit www.wattstopper.com
Skylight from Carlisle Enhances Energy Savings Carlisle SynTec’s DryLight® is a skylight with fully encapsulated glazing that’s designed to provide enhanced energy savings and extended warranty coverage when installed on commercial buildings. The durable bond between DryLight’s frame and its dome reduces the leakage typically associated with traditional skylights.
For more information, visit www.carlisle-syntec.com
44 BOMA January/February 2009
DETAILS Bosch Adds 9-22mm Varifocal Lens to FlexiDome Camera Series Bosch Security Systems, Inc., a full-line manufacturer of high-quality security solutions, has expanded its FlexiDome camera series with the introduction of a 9-22mm varifocal lens that adds 20 new models to the line. The 9-22mm varifocal lens is ideal for recognizing objects up close, providing wide area coverage up to 31.2 degrees horizontal and 22.8 degrees vertical (and telephoto coverage up to 12.8 degrees horizontal and 9.6 degrees vertical), and enables surveillance system operators to identify a person positioned up to 130 feet away from the camera. The lens, which is IR-corrected to keep FlexiDome Day/Night cameras in focus at all times, has enhanced sensitivity and faster reaction to light changes.
For more information, visit www.boschsecurity.us
TectaGreen Roofing System Features Installation Options Tecta America’s TectaGreen continuous green roof system is modular and can be pre-planted or installed and filled on-site in units. Known for environmental performance, flexibility in design and overall plant health, these modular systems include plants that are tolerant of the rooftop environment, and growing media blended and engineered for sustainable green roofs. The system is made of recycledutility, high-molecular-weight polyethylene.
For more information, visit www.greenroof.com
Jamestown’s Solid Solutions™ Offer Green, Convenient Water Treatments Jamestown Technologies has introduced SOLID SOLUTIONS, a series of solid-based, drum-free, leak-free, spill-free, green water treatments. The line includes corrosion inhibitors, dispersants and microbiocides for cooling, boiler and closed-loop water systems. The SOLID SOLUTIONS containers are inserted into an economical wall-mounted panel that dilutes the solid using normal pressure tap-water. The operating costs associated with the SOLID SOLUTIONS system are comparable to standard liquid treatments. The system also increases safety, is eligible for LEED credits and was a nominee for the EPA Presidential Green Chemistry Award.
For more information, visit www.jamestowntech.com
Measure Energy Consumption and Emissions with E-Mon’s Submeters E-Mon D-Mon® Green Class submeters are a cost-effective way to benchmark and monitor energy usage. Because they offer utility-grade metering accuracy, they are ideal for measuring and verifying energy-related initiatives for programs such as LEED, and compliance with the EPAct. Green Class submeters provide helpful information, such as kilowatt-hours in dollars, current demand load, power and net usage and much more.
For more information, visit www.emon.com
Technical Concepts’ Hands-Free Retrofit Adds Improved Hygiene The AutoDoor™ Opener from Technical Concepts is a cost-effective system that automates virtually any new or existing non-latching washroom door, allowing for a touch-free exit from public washrooms. The door opens when an exiting patron places a hand in front of the touch-free sensor. An optional second sensor makes entry into the washroom touch-free as well, further improving hygiene.
For more information, visit www.technicalconcepts.com
Trane’s IntelliPak™ II is Designed for Multiple-Story Building Applications The IntelliPak II packaged rooftop system, designed and manufactured by Trane for multi-story industrial/ commercial facilities, uses HFC refrigerant, which is environmentally friendly and non-ozone depleting, as well as required by the Clean Air Act. The system includes variable-air-volume boxes and integrated controls, and a fresh-air-measurement feature has been added to ensure proper ventilation levels.
For more information, visit www.trane.com
January/February 2009 BOMA 45
Five Reasons Why…
the BOMA International Conference and The Office Building Show is THE Most Important Industry Event in 2009
The BOMA International Conference
Value, Value, Value. The country is in a recession and commercial real estate is feeling the pinch. The BOMA International Conference has the experts, resources and educational tools to help you manage your buildings more effectively, retain tenants, motivate your team and stay competitive. The real-world solutions you walk away with will enhance the value of your property so you can do more than just survive this economy; you can thrive in it. 2 Questions Answered, Solutions Provided. Operational excellence is more important today than it has been in years. The solutions providers at the The Office Building Show will show you how to reduce operating costs, identify costsaving energy-efficiency solutions and enhance property value. But don’t expect the “hard-sell” environment of many trade shows. The Office Building Show is the ideal place to build cooperative relationships with the industry’s best product and service providers. 3 Plug-In. When times are tough, networking and sharing ideas with peers is more critical than ever. If two heads are better than one when it comes to solving problems, just imagine what a few thousand can accomplish. 4 A Break to Your Bottom Line. The rumors are true; we are not raising registration fees for 2009. We know that budgets are tight, so we are offering more flexible registration options to make this critical investment even more affordable. 5 Because You Love It. The industry’s best education, distinguished speakers, peer networking, cutting-edge strategies and solutions—there’s a reason you keep coming back. It’s the best conference around.
46 BOMA January/February 2009
The Office Building
June 28-30, 2009 Philadelphia, PA
Fareed Zakaria to Headline Monday General Session At a time when international relations, politics, the energy crisis and the constantly changing state of the global economy headline the news nearly every day, BOMA International is bringing one of the most renowned foreign policy experts to the BOMA International Conference, June 28-30 in Philadelphia, to help put the issues of the moment in context with the issues facing the commercial real estate industry. Dr. Fareed Zakaria, editor, at Newsweek International and CNN host, will share his insight on the politics and culture of the global economy, solutions to the energy crisis, global threats and U.S. foreign policy. Described by Esquire as “the most influential foreign policy adviser of his generation,” Dr. Zakaria is widely respected for his ability to spot economic and political trends around the world. He has interviewed a broad range of world leaders—Barack Obama, Henry Kissinger, Condoleeza Rice and Tony Blair, to name a few—on his weekly international news program Fareed Zakaria, GPS, on CNN Worldwide, and
he has written for several distinguished news publications, including The New York Times, The Wall Street Journal, The New Yorker and The New Republic. He is the author of the international bestseller, The Future of Freedom, a global analysis of how democracy has changed every aspect of our lives, from economics and technology to politics and social relations. His most recent book, The Post American World, is about the “rise of the rest”—the growth of China, India, Brazil and other countries. It was an instant New York Times best-seller when it was published in May 2008. Born in India and educated at Yale and Harvard, Dr. Zakaria has served as an analyst for ABC News, a roundtable member on This Week with George Stephanopoulos and host of Foreign Exchange on PBS. He has appeared on The Daily Show, Charlie Rose, The NewsHour and BBC World News. His honors include the Overseas Press Club Award and nominations for two National Magazine Awards.
For the conference program and registration details, visit www.bomaconvention.org
For Quality Assurance Through Education. “BICSI provides a higher level of learning. When you work with someone who has gone through BICSI training, you know the job is going to be done well, especially if that person is BICSI-certified.”
Angel Maisonet Telecommunications Manager Tampa International Airport
Educate Never Stop Learning
Stay informed and keep your skills fresh, visit www.mybicsi.org/70. January/February 2009 BOMA 7
Elevating Expectations in a Down Market. At Fujitec, we are committed to complete customer satisfaction. From instant cost-saving solutions to delivering uptime, safety and reliability, our service team of experts is “Elevating Expectations” in America’s busiest and most successful buildings every day. Fujitec offers the unique ability to provide value to customers through: the Strength of Fujitec’s culture of integrity; product Endurance via unmatched engineering quality; and Flexibility in service, maintenance and modernization.
It’s time you experienced the Service of Fujitec.
www.fujitecamerica.com | 1.877.FUJITEC
Order Our Exclusive Guide:
Top 10 Tips For Maximizing Elevator/Escalator Safety & Performance at www.fujitecamerica.com/10tips
Published on Feb 2, 2009