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Utah Business

This month, during our monthly roundtable event we discussed the current state of commercial real estate with some of the industry's biggest leaders.

A conversation with commercial real estate leaders

This month, Utah Business partnered with Holland & Hart to host a roundtable event featuring Utah real estate leaders to discuss the Inland Port, air quality, and outlooks for the 2020 market. Moderated by Lindsay Cleverly, executive director at NAIOP, here are a few highlights from the event.

How did Utah’s commercial real estate sector fair in 2019? What does this year look like?

Jeremy Jensen | EVP, Partner | IPG Commercial Real Estate

From an industrial real estate perspective, 2019 was extremely strong with a very low vacancy rate. New construction is tending to adequately meet demand. Rents have been increasing for landlords, and land prices have been rising.

2020 has started out very strong with demand for space, keeping pace with what’s being built. Developers are kicking off several projects, but that seems to be meeting market demand adequately.

Peter Corroon | President, Real Estate Division | Sentry Financial

On the retail front, we’ve seen that the retail sector has been gravitating towards the lifestyle centers. And now with the coronavirus, it seems like we’re going to see that sector hurt again because people will likely avoid retail centers.

Eli Mills | SVP, Institutional Properties | CBRE

From an investment standpoint, Utah is more desired than ever. In 2019, we saw Starwood enter our marketplace. We saw bids from groups such as Blackstone. There are a number of others that are trying to get in and Utah is looked at more and more by institutional investors than ever before.

In 2020, we won’t see anything different. Short of the coronavirus and what’s going on economically, when that settles back out, we won’t see anything different than what was there before.

Kip Paul | Vice Chairman, Investment Sales | Cushman & Wakefield

I think the question of the moment might be what are we seeing right now due to the events in the world. We see some buyers’ enthusiasm for real estate is enhanced given the gyrations in the stock market. And many of those transactions continue to close as scheduled and as planned. On the other end of the spectrum, we’ve seen some buyers, particularly in the larger-sized projects, that are feeling uncertainty, who view making a very sizable purchase as a risky venture. And so they’ve kind of hit the pause button on some of those projects.

For the most part, most sellers are saying, “let’s just take it slow here.” Get our marketing materials ready. Wait for the dust to settle with all the events occurring and then we’ll see about the proper time to go to market.

Two bills negotiating the Inland Port cleared. What does this mean going forward? Where does the Inland Port stand as far as getting off the ground and becoming a reality?

Jeremy Jensen | EVP, Partner | IPG Commercial Real Estate

The Inland Port is a good idea for Utah. We’re relieving some pressure on the crowded seaport and moving some product inland, where the land is less expensive, less scarce, and more available. The Inland Port helps to allow for more flow of goods with food shipping containers via the rail lines so we can clear customs and things here in Utah.

Monica Rafferty, CCIM | Agent | InterNet Properties

The Inland Port itself puts Salt Lake in a stronger position to have a consolidated effort. With our location being really equidistant from southern seaports in the southwest, we are the ideal location for a backup plan for anybody. If there’s a strike in Long Beach, you can switch to San Francisco and still have facilities so that your materials arrive in Utah at the same time from either of those two ports. 

Peter Corroon | President, Real Estate Division | Sentry Financial

The whole I-80 corridor is going to become an industrial corridor. And we’re going to see Tooele become part of that. The Romney Group is planning a large industrial depot in Tooele, and there’s also the existing industrial depot that was part of the old Tooele Army Base. 

It seems the tech sector is becoming more and more interested in downtown Salt Lake City. What does that mean for the tech present and Lehi Point of the Mountain area?

Eli Mills | SVP, Institutional Properties | CBRE

It’s not surprising to see some tech going downtown because of the proximity to the airport. But there is so much momentum in the tech sector from Sandy to Lehi, and also so much more room for growth. It would take an awful lot to actually switch momentum and to swing [away] from Lehi. I don’t think that the Silicon Slopes and the Sandy to Lehi area is in danger of having it all shift to downtown anytime soon. 

Ryan Simmons | Partner | The Boyer Company

We, as a developer, can develop good buildings down in Lehi, Draper, Sandy for a rental cost to the tenant that’s maybe 30 percent lower than downtown. And so there will always be tenants who would prefer the South market both from a cost standpoint and from an employment standpoint because the [housing is also cheaper out there.] 

Kip Paul | Vice Chairman, Investment Sales | Cushman & Wakefield

What we’re hearing from a lot of the leasing people is that these tech tenants are coming predominantly from more urban cities. And we think we’re going to see a big explosion in the Granary area of tech tenants that want to be closer to the core of downtown because of the hipness, the grunginess, the edginess of that area.

John Dahlstrom | EVP, General Counsel | Wasatch Commercial Management, Inc.

What we’re seeing is that [Silicon Slopes is] the catalyst that’s now moved Utah into a target for a lot of investment, but also for a lot more tech to see Utah as a place to move. With all of the transportation and housing and other benefits that we’re seeing in Salt Lake City means that we are going to see more companies. And that’ll just enhance the momentum that we’ve already gained in the Northern Utah County, Southern Salt Lake County area with our downtown.

What are developers actively doing to address and hopefully improve Utah’s air quality?

Tanner Bowman | VP of Real Estate Operations | Kensington Investment Company

It all starts with building sustainably. We start with the architects to identify the goals of the development. And that begins with how we are designing systems. That’s especially important here in Salt Lake Valley, as well as Utah, because we do have an issue with air quality and we want to be part of the solution. We’re growing as a state and a city that, as we’re making these larger developments, we as developers are conscious about helping solve the problem.

Jeremy Jensen | EVP, Partner | IPG Commercial Real Estate

One of the biggest impacts that we can make as a real estate community would be with HVAC units. I know heat pumps have become a discussion point with the developers that we’re working with, as well as some of the current occupiers in place, in reducing the emissions from building heating and cooling systems.

Kip Paul | Vice Chairman, Investment Sales | Cushman & Wakefield

We’ve certainly seen a lot of the apartment developers being a little more progressive and experimental with some of the new HVAC systems. And I think it would be great for the office developers in the market to embrace that and try to go along with that mindset as well. We have to start thinking differently. We need to start designing buildings that are going to last 100, 200 years.

Ryan Simmons | Partner | The Boyer Company

We’ve been trying to build office buildings near Traxx or FrontRunner stops. And what we’re finding is that the last mile of transportation is still difficult for people. As a landlord, we’ve tried to make up that gap, and we’ve provided shuttle service to and from projects that are within a half a mile, or a mile, or three miles, funded by the office buildings.

UTA is recognizing that the last mile is maybe the most important mile. And they’ve started a service called VIA, where if a FrontRunner pass holder gets off of the train, they can use this app much like Uber, but it’s free if they have their pass. Transit is going to be a big way of reducing our air quality problems. And it’s going to be a partnership between the employees, the workforce, the landlords, and UTA.

Taking into consideration what’s going on right now with COVID-19, what are your thoughts on a possible downturn? 

Kate Carlisle-Kesling | Of Counsel | Holland & Hart

A really critical piece is that we try to encourage our county recorders to stay open for business and accept, where possible, electronic plans. Whatever we can do to get our recorders to stay open for business would be really helpful.

Phil Brierley | Regional Manager | Marcus & Millichap

As of this morning, there was a moratorium on evictions. I think there’s going to be a lot more news like that coming down the pipe. And no matter what happens, it just adds to people’s general unease of being a real estate owner, particularly in the private client space on the West Coast. And that, from a capital market’s perspective, is good for Utah. We have a good business climate, we have a good job climate, and we’re still open for business. All of that helps us.

Peter Corroon | President, Real Estate Division | Sentry Financial

As the owner of a small retail center, which now has six businesses that are closed, we’re hoping that the effects of the coronavirus are short-lived. But we already have tenants who are asking for assistance with their rents. We’re seeing that they’re laying off staff and so their workers are not going to have funds to pay their bills, and these are people who probably live paycheck to paycheck.

We’re looking at how we can cut our expenses, which may affect those companies that do work for us, like cutting lawns, or picking up trash, or recycling. So we’re going to see a trickle-down effect that will mostly hurt lower-income workers. But if it’s short-lived, a lot of these small business owners have resources to last two weeks to a month. But if it goes beyond that, we’re going to see some significant negative effects.

Lee Dial | COO/CFO | Cowboy Partners

The first industry to be hit by this will be the small retailers, followed very quickly by multi-family, as those workers are either let go or are unable to come in to work. They’re not getting their wages, nor are they getting their tips. And as multi-family owners, we’re looking at it and saying, okay is there something that we can do to help out in the short-term, whether that’s a deferral or forgiveness of their rent?

If this can be overcome in the short run, then we’ll probably come out of it okay. But if it’s longer-lasting, then that becomes a much more challenging problem to solve. And then of course once it moves on, past retail and multi-family, then it starts affecting other industries through the trickle-down effect.

Bryce Blanchard | Executive Managing Director, Investment Properties | Newmark Knight Frank

We’re going to see a massive pivot this year in the marketplace, and it’s going to be highlighted by tenant defaults, lots of late payers. We’re going to see a lack of business spending, a freeze on hiring, and subleases hit the market, which are going to curtail asking rents. We’re going to see CAP rates move up, even though interest rates have gone down just based on a risk premium. We’re going to see transaction volume go down. We’re seeing all the shares of anybody that’s associated with the real estate industry go down, because when markets pivot and there’s a major shift in the momentum of bear and bull markets, what happens is transaction volumes grind to a halt. Everybody can think about 2009.

What are tenants looking for? Has this changed over the past 10 years?

Garrett Blomquist | Retail/Investment Specialist | Mountain West Commercial Real Estate

For retail, it’s the purchase, purchase, purchase. People want a smaller size. They want to buy their land. They want to buy their building. They want to own it. We’re seeing fewer ground leases and everybody for retail shopping centers wants that visibility and exposure.

Jonathan Ruga | CEO | Sentry Financial

In the last 10 years, office users have been taking less space because they’ve opened their office environment, which allows for a higher density of use in office space. That’s going to continue. But it’s about the experience and the things that tenants are looking for are ways to keep their employment base happy. And adding daycare facilities and other amenities that make life easier for a lot of the employees are the things that are making a difference for them.

Eli Mills | SVP, Institutional Properties | CBRE

The multi-family experience has changed dramatically. In general, multi-family has moved from a cookie-cutter, really standard type property, to properties with a much nicer experience. Whether it’s as high-end as 4th West or just more amenities and just a much more pleasant experience for the tenants or multiple families, depending upon the type of projects and works located to where some are walkable, which makes a big difference. And then having [public transit] makes a big difference.

Lee Dial | COO/CFO | Cowboy Partners

They also want connectivity in all the definitions. They want to have smart units where they can control things with their phone, whether that be a door lock or perhaps a camera doorbell that they can use their phone to look through, or a thermostat. But they also want connectivity with each other so that it adds to that amenity space where they can hang out and get to know other people that live in maybe the building or even invite friends over and enjoy that amenity space. They like to be at places where it’s walkable so they don’t have to get in a car and drive somewhere and instead they can walk to work.

Nate Ballad | President | The Boyer Company

From a municipality standpoint, we’re starting to see some change of opinion on mixed-use projects and having multi-family integrated with office, retail, and other uses. Ten years ago, there were several municipalities in our market that really frowned on those types of mixed-use developments and saw everything as large, retail court orders. So it’s nice to see that most municipalities are starting to recognize that this is what people want, this is what’s effective right now and that, as large box retail becomes smaller and more obsolete, it needs to be mixed in with different uses.

Lindsay Bicknell is the project coordinator for Utah Business magazine. A native of Cincinnati, Ohio, she graduated from Miami University of Oxford with a degree in communications. She has a background in television, print, and web media, as well as public relations and event planning. As a transplant to Salt Lake City, she can't get enough of the mountains and loves snowboarding.