BD+C: What is your gut telling you about the real estate market?
Michael J. Alter: My hope is that things are bottoming out, but things aren’t going to be good until unemployment drops, rents start firming up, and there’s some absorption in the markets. Capital markets are beginning to return, for high-quality apartment deals and CBD office buildings in major cities like New York, Chicago, and Washington. Nationwide, the value of trophy properties is only at about 17% below their peak. In Chicago, two major office towers recently sold at record prices, so clearly there’s a hunt for institutional-grade assets with credit tenants.
BD+C: Then why aren’t more projects getting financed?
MJA: There’s a tremendous amount of liquidity on the sidelines. Commercial real estate companies and funds raised $13.2 billion in November alone, while the pension funds and foreign capital have also raised their allocations. For investors, there are not a lot of great places to put your money. It’s a risk/reward calculation, although investors worldwide still look at the U.S. as the highest-quality market to be in.
In talking to our clients, we think there’s a significant pent-up demand, projects that they want to do and haven’t pulled the trigger on, but they’re getting ready. Corporations are sitting on $2 trillion of capital. We’re going to start to see them moving ahead on real estate in 2011—not a dramatic burst of activity, but a steady increase. All that gives me cause for optimism.
BD+C: In accepting the NAIOP award on behalf of your company, you noted that “30 million people will join our population in the next decade alone.” What does that mean for the real estate industry?
MJA: Well, first, a lot of that growth will take place in urban centers. By 2050, there will something like 300 million people in U.S. cities, about 75% of our economic output, so there will be a great need for high-tech office buildings that support knowledge work. Then there’s the aging population—about 40 million senior citizens—which creates opportunities in how we house and care for elderly people. There’s going to be tremendous demand for healthcare, particularly in the outpatient arena, due to this increase and also because of the 30 million new people who will be covered under healthcare reform.
In just the last six months, our healthcare division, Alter+Care, has been reporting that every medical provider is rethinking its business model and strategy. Healthcare reform has urged that hospitals move toward an accountable care model, which means co-locating the entire continuum of medical services, from wellness to outpatient services to acute care. They’re jockeying for position in this new paradigm, and they’re thinking about their space needs as a piece of that puzzle.
Hospitals are also buying physician groups, with a new emphasis on primary care. This physician-employed model gives hospitals more control, which will increase the demand for locating medical office space right on hospital campuses. The resolution of all this is going to have a significant impact on the real estate industry.
BD+C: What do your clients say about sustainability?
MJA: We do hear about it from clients, particularly the Fortune 500 companies. It’s an important criterion for them, and they mention it in all RFPs. It’s taken a bit of back seat because of the economy, and it’s not quite as high a priority as it was two years ago, but that is temporary. The case for green can be made in many ways. Consider that energy prices have quadrupled since the 1990s. As a long-time building owner, we had a vested interest in controlling the operating expenses of those buildings, and one way to accomplish that has always related to energy costs. “Green” is only going to continue, and we’re all getting better at bringing the costs down without paying a premium.
I think the capital markets will also start placing a small premium on green buildings, and that will make the cost situation even more favorable.
BD+C: How can architects, construction firms, and engineers work better with a major developer like the Alter Group?
MJA: We have a very small in-house operation for the number of projects we do, and we use a lot of outside service providers. We’re looking for team players, collaborators, people who can work together in a positive way. Some people want to be in charge and tell everyone what to do, and are incapable of the give and take that leads to a successful project. Once we find the right people who are team players and understand the value proposition, then we keep going back to them.
BD+C: From a professional standpoint, what’s your biggest worry?
MJA: A double-dip recession caused by the government stimulus not being replaced by private-sector demand. In the long term, we have to confront our $14 trillion national debt; not doing so will impair our ability to borrow to fund our growth. We have more than $1 trillion worth of commercial real estate loans expected to mature between 2010 and 2013, and that’s a concern. I think properties with cash flow won’t have a problem refinancing, although there may be additional equity requirements on those loans.
Personally, I don’t think we’ll have a double dip, but that doesn’t mean I don’t worry about it.
Comments? Send them to: rcassidy@sgcmail.com.
Related Stories
Laboratories | May 24, 2024
The Department of Energy breaks ground on the Princeton Plasma Innovation Center
In Princeton, N.J., the U.S. Department of Energy’s Princeton Plasma Physics Laboratory (PPPL) has broken ground on the Princeton Plasma Innovation Center (PPIC), a state-of-the-art office and laboratory building. Designed and constructed by SmithGroup, the $109.7 million facility will provide space for research supporting PPPL’s expanded mission into microelectronics, quantum sensors and devices, and sustainability sciences.
MFPRO+ News | May 24, 2024
Austin, Texas, outlaws windowless bedrooms
Austin, Texas will no longer allow developers to build windowless bedrooms. For at least two decades, the city had permitted developers to build thousands of windowless bedrooms.
Resiliency | May 24, 2024
As temperatures underground rise, so do risks to commercial buildings
Heat created by underground structures is increasing the risk of damage to buildings, recent studies have found. Basements, train tunnels, sewers, and other underground systems are making the ground around them warmer, which causes soil, sand, clay and silt to shift, settle, contract, and expand.
Sports and Recreational Facilities | May 23, 2024
The Cincinnati Open will undergo a campus-wide renovation ahead of the expanded 2025 tournament
One of the longest-running tennis tournaments in the country, the Cincinnati Open will add a 2,000-seat stadium, new courts and player center, and more greenspace to create a park-like atmosphere.
Mass Timber | May 22, 2024
3 mass timber architecture innovations
As mass timber construction evolves from the first decade of projects, we're finding an increasing variety of mass timber solutions. Here are three primary examples.
MFPRO+ News | May 21, 2024
Massachusetts governor launches advocacy group to push for more housing
Massachusetts’ Gov. Maura Healey and Lt. Gov. Kim Driscoll have taken the unusual step of setting up a nonprofit to advocate for pro-housing efforts at the local level. One Commonwealth Inc., will work to provide political and financial support for local housing initiatives, a key pillar of the governor’s agenda.
Building Tech | May 21, 2024
In a world first, load-bearing concrete walls built with a 3D printer
A Germany-based construction engineering company says it has constructed the world’s first load-bearing concrete walls built with a 3D printer. Züblin built a new warehouse from a single 3D print for Strabag Baumaschinentechnik International in Stuttgart, Germany using a Putzmeister 3D printer.
MFPRO+ News | May 21, 2024
Baker Barrios Architects announces new leadership roles for multifamily, healthcare design
Baker Barrios Architects announced two new additions to its leadership: Chris Powers, RA, AIA, NCARB, EDAC, as Associate Principal and Director (Healthcare); and Mark Kluemper, AIA, NCARB, as Associate Principal and Technical Director (Multifamily).
MFPRO+ News | May 20, 2024
Florida condo market roiled by structural safety standards law
A Florida law enacted after the Surfside condo tower collapse is causing turmoil in the condominium market. The law, which requires buildings to meet certain structural safety standards, is forcing condo associations to assess hefty fees to make repairs on older properties. In some cases, the cost per unit runs into six figures.
Office Buildings | May 20, 2024
10 spaces that are no longer optional to create a great workplace
Amenities are no longer optional. The new role of the office is not only a place to get work done, but to provide a mix of work experiences for employees.