Viewpoints

A&E 2017 Meeting Report: In Search of “Beginner’s Mind”

Posted on January 10, 2018 in Viewpoints by admin

_04A8459-HDR“ Dare to be naive.” – Buckminster Fuller

(For a print version, click here)

The more experienced someone becomes, the more difficult it is to look at something with an open mind, to question why, or to resist explaining it away with the assumption that everything is the same as it was before. It takes a kind of courage to ask questions without knowing the answer.

And yet, in a changing world, to ever assume that, “I’ve got this, this is a no-brainer.”, might be far more dangerous than being naïve. Especially when we talk about the engineering, sustainability, and design of the buildings where millions of people live, work, and play. Structural failure, environmental hazards, and system reliability can never be taken lightly. Real estate professionals’ ability to question every detail and clearly understand the big picture without bias is essential not only for the success of investors’ portfolios, but also for the safety and well-being of everyone in and around the built environment.

Fortunately, the attendees of NAREIM’s Architectural & Engineering meeting in October dared to be naïve. Here are just three of the questions they considered during their discussion:

What is happening to the street  – and how does that impact our buildings?

_L2A2180With a change to autonomous vehicles a very real possibility, fundamental aspects about how people get to and from buildings may be about to change – and our buildings may have to change to accommodate that. Not since we gave up horses for automobiles have we had to face such a fundamental disruptor to the built environment. Brent Mather, the Design Principal for Gensler in Denver, outlined some of the best thinking on how self-driving car could fundamentally change the value of location, of parking, and of the streets themselves.

“There are over 260 million vehicles in the United States right now that are fueled by diesel or gasoline. The metrics we see already suggest that by the year 2030, virtually all of these will be obsolete…this points to a future that is quite a bit different from today. Within ten to fifteen years, it appears likely that everyday people like us will be using ride share programs of autonomous vehicles in lieu of personal vehicle ownership.”

The various efforts of significant companies advancing the implementation of autonomous vehicles overwhelmingly supports Mr. Bather’s assertion. Over 40 companies are directly involved in developing the technology, and all expect to be mass producing these vehicles in the next ten years. NuTonomy, spun out of MIT launched a fleet of self-driving taxis in Singapore and is working with Lyft to launch a pilot in Boston over the next few months. Uber has over 100 self-driving cars on the road in Pittsburgh. Tesla’s cars on the road today already have limited self-driving capability. Meanwhile, established car maker makers such as Honda, Toyota, Hyundai, Mercedes, BMW, Volkswagen, Renault, Nissan, GM, Ford, and Volvo are testing driver-less vehicles on the road.

The potential impact of this on commercial and industrial real estate could be an acceleration of real estate obsolescence: Some real estate that immediately stands out includes, “Gas stations, of course, ripe for adaptive reuse or redevelopment, since autonomous vehicles are electric powered.” At the same time, “If most cars are shared rather than owned, car dealerships will largely become superfluous.” Perhaps the most immediate and ubiquitous impact will be parking, “There are 500 million parking spaces in the US…now we’re talking about a future that can change that. By designing convertible high-grade parking structures, we can better prepare for the obsolescence.” There are several potential approaches to parking that some developers are taking already in anticipation of a change – allowing for easier adaptation of parking floors to office or retail uses. There’s no way to tell exactly how much or how little parking will be required in the next 10 to 20 years, but the buildings that are most able to adapt to changing demand will likely have a significant financial advantage.

There’s more to this than individual transit. “Within a span of 5 years, the first adopters of autonomous vehicles will likely be delivery vehicles. When this happens, there will be less demand for warehouses in general, and a swing towards more warehouses in rural vs. urban areas. Faster shipping times for online retailers will further put pressure on profitability for bricks-and-mortar retailers.” But this also has a significant negative impact on some sectors of employment, “There are over 6 million people who work as drivers, the majority of those jobs will be lost.”

The impact on the quality of life for a city could be significant. “As we start to look at the possibility of less traffic, less congestion, any community can aspire to being a top pedestrian city. In a shared autonomous transportation environment, more people could commute by walking, by taking bikes, and by various forms of public transportation.” If predictions are correct, the need for road surface in a city could be drastically reduced. Fewer spaces for on-street parking, fewer driveways to parking, and less room needed by each driver-less car to safely travel – as autonomous cars are able to travel much more closely to other cars. This suggests that cities will be able to re-think and re-claim at least a part of the 40% to 50% of land mass currently devoted to cars. More parks, more space for casual retail, entertainment, and natural environments are all a possibility in this transformed environment. “We’re getting back to an environment that is about people rather than the automobile.”

People vs. Technology: Is there conflict or simply a misunderstood relationship?

_L2A2585When talking about technology, it’s common to focus on the future – but sometimes, the future already happened – and we need to catch up. Thomas Bayer of HOK pointed out that BIM (Building Information Modeling) has the potential to transform our industry much more than it already has. “Most of us know it as an enhanced drafting tool, but it has since become a collaboration and coordination tool, stretching to various points along the timeline of a project. The prototyping of a building is the most visible advantage coming directly from the digital data.” But its impact goes well beyond that. Brennan Engel of Whiting-Turner described how BIM, “helps to manage our trade contractors, advancing our abilities to improve scheduling, and eliminate over 90% of re-work in the field.” Matt Greenberg of Hines agreed, “As a developer, BIM allows us to take a deep dive info coordination which in turn has a direct correlation to cost; pay now or pay later, we’d rather make an upfront investment in BIM knowing that we won’t be paying for problems down the road.” If all building design and construction information is kept in a single model, everyone can be clear on what is expected, what is getting done or not getting done. It’s possible to better insure that the design is what is actually built – and that the design is something that should be built.

The task for existing and proven technologies is pretty clear: builders need to better embrace them, better share them, and ultimately better use them. But what about technologies like autonomous cars that are around the corner? How and when should builders pay attention? To answer that, Andrea Chegut of the MIT Real Estate Innovation Lab shared how she and her team at MIT attacked this question head on. “We work to understand the difference between technologies and companies that actually innovate and use them. Technologies do not die; companies do. People change, people fail, companies fail. To that end: how do we identify the new real estate technologies that actually disrupt and how do we untangle the uncertainty around which companies will thrive from the impending change?”

RL2A2800Researching and mapping out every new real estate technology over time, the researchers identified several trends. Quite often, there is inflated expectations on certain technologies followed by a skeptical retreat, what Ms. Chegut refers to as “a peak of inflated expectations followed by a trough of disillusionment”. In almost every case, however, those technologies will come back in force as new companies pick them up and new customers adapt to them, “a slope of enlightenment followed by a plateau of productivity.” Over-hyped technology of the past can quietly become standard operating procedure of the present. According to Ms. Chegut, “In 2010, Green Buildings were sitting at the peak of expectations. However, as they failed to meet the level of expectations placed on them they fall into the troth of disillusionment while at the same time their need with our industry sustain them as more products that we weren’t paying attention to (such as autonomous cars) are made relevant and the productivity of green buildings increase.”

More important than any single technology, however, is the people that build, finance, and use it. According to Ms. Chegut, “We pay a lot of attention to changes in technology, but it’s easy to forget that there are actually people busy in the process of change. Everyone has to pay close attention to how tenants are transforming and changing their environment – and how tenants are driving technology.” Are real estate companies paying enough attention to their own tenants? Can owners better understand innovation and technology if they better understand the people and companies renting office, industrial, retail and multi-family space?

Building and our best intentions:  how do we best evaluate human error?

“Experience is simply the name we give our mistakes.” – Oscar Wilde

_L2A2341Christopher Wilson of LaSalle Investment Management pointed out that “innovation in architecture, engineering and building is a constantly dynamic and iterative process. [We] come up with new innovations and new systems, we try the out and sometimes they succeed immediately, sometimes they have to be tested and sometimes they fail.” And from from looking at our successes – and sometimes especially our failure – we learn and continue to advance.

Jerry Abendroth of Facilities Engineering Services reflected that when failure occurs, “things are messed up by good and decent general contractors and subcontractors. When you look at what went wrong, it’s generally something that with just a little bit of quality control could have been stopped.” Mr. Abendroth pointed to a couple of case studies of multifamily units that showed severe water damage as a result of improper use (or non-use) of Tyvek waterproofing, including instances where it was applied in ways to encourage water to collect inside the walls “I can’t tell you how often things like this happen; someone says “you can’t build something this ridiculous”…well, yes you can. All of this from a detail that we feel could have been caught easily with a better plan review system.”

_L2A2401The repercussions of the wrong applications of systems range from merely expensive to fix to tragic loss. Lizzy Miser of CODA Consulting Group discussed MCM (Metal Composite Material), a metal panel used for exterior curtain walls that is made up of two sheets of aluminum around a core of polyethylene. “Its advantages are that it’s versatile, light weight compared to stone or concrete, it’s available in various styles, it’s durable, and most of all it’s easy to install. Unfortunately, the drawbacks are that without fire retardant materials it is combustible, and can contain a hidden spread of fire spread behind the MCM paneling.” If the panels run vertically up several stories without a break, they can become a potential chimney for fire.

That’s why, “In the United States, we’ve been regulating the use of this material for over 40 years. Whereas in the United Kingdom, or other countries, they’re installing it per the manufacturers recommendations…” which are far more lenient. Around the world, there have been a number of frightening high-rise fires with this material. Most recently, the June 2017 24-story Grenfell Tower Fire in London where 71 people died is a horrific example of improper MCM installation done in 2012. “No vertical breaks in the MCM, no central fire sprinklers, one exit stairwell, and non-fire resistant exit doors; under United States codes this is not allowable construction.” Ms. Miser recommends that in order to assess any MCM liability issues with a building either in the US or elsewhere, there should be a review of all submittals and the installation process during the pre-construction review, as well was the construction close-out package in its entirety.

More and more construction problems like this seem to be emerging. Jim Bly of Alliant Construction Services Group in evaluating liability and solvency risk on subcontractors sees a direct correlation between the growing construction market and subcontractors defaults due to subcontractor over-extension. “As a result, they are unable to meet project schedules. Combine that with labor shortages trending towards an increase in non-union labor and subcontractors and the work always suffers.”

Building the ability to evaluate and predict common areas of human error in labor, liability and oversight is essential. Mr. Abendroth favors destructive testing and unannounced third-party reviews when evaluating a property. Mr. Bly recommended Subcontractor Default Insurance which specifically targets high risk subcontractors for evaluation and restores the claims management process back to a general contractor.
The risks of improper installation of materials and systems are significant, no matter when a building was built. The consensus of this group clearly is to build more oversight, more evaluation, and better informed execution of the work itself. Many leaders present at the meeting spoke through their current efforts to carefully assess their portfolios, and of special note after the Grenfell tragedy, to make sure they understand all installations of MCM systems, whether within US code or not.

Naiveté and beginners mind: today more than ever, real estate needs to ask questions and challenge assumptions.

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