Lesson 1: Commercial Real Estate (Part 1) and (part 2)

Terms in this set (84)

were first created by the Rouse Company with opening of Faneuil Hall Marketplace in Boston. A limited number of festival centers were built in the 1970s and 1980s and because of their significant dependence on tourist visitors, their success was confined to large markets such as Boston, New York, Baltimore, and San Francisco. By and large they are forerunners to urban entertainment centers, and some of their characteristics have been incorporated into this newer form of shopping center. As its name suggest, this type of shopping center was intended to create a special, festive experience, with a high percentage of festival center GLA devoted to specialty restaurants and food vendors. Food vendors typically are concentrated like they are in typical food courts, but with much greater emphasis placed on ethnic authenticity and distinctive offerings. Retail goods at a festival center tend to be impulse and specialty items including artwork, collectibles, jewelry, pottery, leather goods and unique home furnishings. Festival centers also include a strong entertainment component with regular informal events featuring street mimes, jugglers, dancers, strolling musicians, and other "oddities". The trade area for festival centers must be large, since a significant portion of its business activity is generated by tourists as well as conventions, professional meetings and commercial travelers. As such, most festival centers are categorized as being regional due to their scale of the market and then as festival centers since they do not include department store anchors. Typical of the festival center are their unique architecture and relationship to other significant land uses, as well as to waterfronts, historic areas and the like.
professionally managed office buildings in an excellent location with superior access that are occupied by prestigious corporate and professional tenants. Increasingly, Class A buildings are characterized by environmentally sensitive or "green" building materials and operational systems that save on energy and water costs, while providing a more healthy work environment for workers. Most, but not all, Class A buildings are under ten to twenty years old or they have been extensively renovated to bring them up to current market standards. Building materials and amenities are high quality, and the property communicates a high-status image for its tenants. In essence, Class A space is the best available space in a local market in that it is the best building available at the time in the best location. It is a relatively new building with modern architecture that projects an image of success with a large open entrance, often with a dramatic eye catching atrium. Class A buildings also have amenities such as shops or restaurants, health clubs, child care facilities, a cafeteria, package delivery stores and the like. Security will be obvious and the building will be exceptionally well maintained. Tenants in Class A buildings are typically paying the highest rents in the local market and thus for the prestigious image that the building projects. Tenants are making a statement to their customers and want to impress their clients and their competitors. Companies typically locating in Class A space include law firms, office of Fortune 500 companies, corporate office of banks and insurance companies, stock brokerage firms, and large advertising, public relations and lobbying firms
once Class A buildings that have good locations, are professionally managed, are of high quality construction, and have an impressive tenant mix. Although they are not new, these properties usually show very little deterioration, but may lack state of the art HVAC, lighting, or mechanical systems. Generally, they suffer from modest functional obsolescence that can be feasibly cured within current market rent levels. In essence, Class B buildings are the "tired" Class A buildings which time has not entirely treated fairly. In one way or another, every Class A building becomes a victim of the passage of time and thus subject to the intrusion of functional obsolescence which reflects changes in market needs and preferences as well as the march of new and ever-changing technology which renders some building systems inefficient and marginally useful. Since Class B rents in many local markets are not significantly lower than Class A rents, insufficient HVAC systems, for example, could very well produce higher monthly utility charges and thus result in total occupancy costs comparable to Class A buildings. Many Class B buildings can be restored to Class A status by reducing their effective age and introducing strategic improvements that represent money well spent on efficiency and tenant occupancy cost reductions. Class B buildings cater to corporate and professional businesses that need to impress clients and customers and that require locations in good relative proximity to the concentrations of Class A building tenants in the same market. In many cases Class B buildings are able to accommodate the needs of those in the medical professions as well as consolidated concentrations of local, state or federal government agencies.
the oldest and most functionally obsolete structures within a local market's office space inventory. They also suffer from locational obsolescence and usually are found in portions of urban areas and cities that have as they say, "seen better days". They tend to be isolated from cores of primary business activity along aging commercial corridors desperately in need of a major facelift. Many very old Class C buildings (i.e. 50+ years) are sometimes architecturally attractive and even historically significant. This is particularly true in the traditional cores of many older cities and major metropolitan areas. Having passed their prime as office buildings and being too functionally obsolete to feasibly be brought up to current market standards, many Class C buildings have become (and continue to be) prime candidates for adaptive reuse. This process preserves the architectural and historic significance of the building's exterior and possibly being rewarded for doing so with federal and state preservation tax credits, while repurposing the interior space for new uses such as apartments or hotel rooms. In many cases, adaptive re-use strategies have also taken advantage of Low Income Housing Tax Credits (LIHTC's) by including a mix of various affordable housing products in the development plan. Class C buildings can also be modestly refurbished to make them more appealing to tenants who are not so much interested in an image as they are in a cost-efficient place to do business. This could very well include new business startups graduating from the spare bedroom in the home as well as those who typically do not meet with client/customers at their place of business. This would include, but not necessarily be limited to back-office support operations of larger corporate enterprises, bank processing centers, telemarketing companies and sales offices of manufacture representatives, brokers and the like.
are becoming even more essential in Class A office buildings. Tenants are attracted to buildings with design features that reduce water and electricity use that lower utility bills that are typically passed through to them and that foster a healthy workplace for their employees. Indoor air quality, temperature and noise controls, and the use of non- toxic building materials have become, in some cases, more important than dramatically designed lobbies. New buildings are being developed and built to satisfy one of several Leadership in Energy and Environmental Design (LEED) ratings. These ratings require specific design attention to site planning that maximizes natural light, installing windows that actually open, using recycled carpet and incorporating under floor heating and air conditions systems. Focusing on securing LEED certification requires close attention to evaluating anticipated benefits (i.e. energy savings, possible tax credits, etc.) against the somewhat higher initial cost incorporating LEED design features and products. Existing buildings where possible, are being retrofitted with conservation and even LEED certification in mind. Doing so also requires close evaluation of the benefits versus the cost, but in some cases can help move an older building up from say Class C to Class B and thus make it more competitive within the local market. Improvements would include, but not necessarily be limited to using non-toxic paint, replacing traditional lighting with low energy-use fixtures, installing better controls for HVAC and interior lighting systems and possibly changing windows and roofing materials to reduce energy consumption. Some research has shown that making such improvements enhance worker productivity and reduce illness- related absenteeism.
Before answering this question, it is probably important to address what community development finance is not. Most fundamentally, it is not a mechanism, tool or strategy for making a poor, fundamentally flawed project a good one. All the community development finance enhancements or incentives available cannot fix a faulty business model; a dismal location; or a concept with low to no possible market support. In short, community development finance cannot fix a project with an unreasonably high risk profile. This is called "putting lipstick on the pig" and hoping nobody notices it is not a beauty queen. The market generally punishes these kinds of attempts and does significant damage to the community that may take many years from which to recover. The damage can be financial, in that, the community may be saddled with non-performing assets or financial obligations that create a serious drain on its operating resources. More importantly, manipulating conditions to ignore stark market realities creates credibility gaps for community leaders. This erodes public trust and confidence; impedes future efforts as potential financial partners steer clear; and fosters a sense of frustration and hopelessness. In essence, forcing a poor or ill-conceived project through a community development process is a "no-win" proposition. The goal of community development finance is to take those fundamentally sound projects that almost but not quite work and make them a "win-win" proposition for the financial stakeholders and the community at large.