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Five Takeaways from Day Three of the Urban Land Institute’s Fall 2018 Meeting

On the third day of sessions at ULI’s fall meeting, speakers discussed the impact of rising interest rates, secondary markets and technological innovations in commercial real estate.

The sessions have wrapped up at the Urban Land Institute’s (ULI) annual fall meeting in Boston, where on Thursday speakers discussed why secondary cities continue to catch investors’ interest, where technology is headed for the real estate industry and more. Here are some highlights from the third day of sessions.

  1. Interest rates are rising, but it’s nothing to fear. The Federal Reserve continues to raise its benchmark rates. But in the U.S., the 10-year Treasury is in the low 3-percent range, and similar measures around the globe remain low. “So you still have pretty accretive debt,” said Gayle Starr, senior vice president of capital markets at industrial space provider Prologis, who spoke on a panel that delved into ULI’s new Emerging Trends in Real Estate There is also a lot of liquidity in the market still, leaving players like Prologis not too worried about interest rates, she said. There are other positive factors that have yet to ripple through the economy—namely, the passage of tax reform, said Hessam Nadji, president and CEO of brokerage firm Marcus & Millichap, who was also a panelist. “We’re just now really starting to see corporate investment pick up,” he said. With rising inflation, it also makes sense that the Fed is hiking up rates to maintain balance in the economy, Nadji added. “Markets … are having to grapple with that adjustment,” he said.
  2. Investors are eyeing non-gateway markets, but for how long? ULI’s Emerging Trends report lists two gateway markets among the top 10 metros with the most real estate promise next year: Brooklyn, N.Y. and Boston. The rest are in growing cities predominantly in the South. Nadji noted that there is interest in emerging markets—those with great job growth and affordable cost of living. However, markets like California, New York and other primary markets “are going to capture capital,” he added. Another trend Nadji said he has seen is an expansion outward from larger metros where people are still close to their jobs in the city. “I think we’re going to see a lot more of that push out [of] major markets that people are comfortable with but can’t find opportunities,” he said. For panelist Owen Thomas, CEO of office REIT Boston Properties, the question becomes about time. For long-term real estate investors, there are many factors to account for in picking location, including growth and barriers to entry. “There is a duration element to the answer to that question,” he said.
  3. Consumers are driving where warehouses go. Before, warehouse location was not that significant of a factor, Starr said. But that’s changed. Consumer demand for fast delivery is dictating where warehouses go and is a key factor in the decision-making process, Starr said, who added that 20 percent of Prologis’ new leasing is with e-commerce companies.
  4. Partnerships between the real estate and tech world will spur innovation—not a disruption. A new technology could disrupt some parts of the real estate industry, but it would not disrupt the entire industry overnight—the capital markets are too well-regulated and the industry is too well-run for that to happen, said Brad Greiwe, co-founder and managing partner of Fifth Wall Ventures, a venture capital firm that focuses on real estate tech, during a fireside chat about technological disruption in the industry. “You have to partner. … You are the gatekeepers of innovation within our industry,” he said.
  5. There aren’t automated valuation models (AVM) just yet—but there could be. In response to an audience question, Greiwe noted that unlike in the residential sector, a true AVM is not here yet for commercial real estate. But it’s something that could come in the future, should the industry overcome data-related hurdles (There are a few third-party data providers and firms often have internal databases on top of that). “We’re going to get there,” he said.
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