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Having WeWork in your building could help land a large corporate lease

The amount of co-working space across the U.S. has grown 50 percent in the past year. Yet despite commentary it could be a threat to the traditional office operating model, the NAREIM Acquisition & Dispositions meeting heard that having flexible space providers in your building could help landlords secure large, long-term lease agreements with corporations. Attendees at the meeting, which took place this week, heard key statistics on co-working, including:
  • 62% increase in co-working space between 2017 and 2018
  • Markets with the lowest office vacancy rates had the highest proportion of flexible space
However, one attendee also described negotiations with a large enterprise to lease 80 percent of an office project. The potential tenant would only take the space if a flexible space provider, such as WeWork, took the remaining 20 percent. The key driver was the large corporation’s future ability to utilize the co-working space for its own transitional needs. Co-working was one of many topics covered during the group discussions at Acquisitions & Dispositions. Key takeaways also included:
A deep dive into Investment Committee perspectives and the acquisition process revealed a need for senior executives to “kill or nurture a deal early” by being actively involved in pipeline calls and deal reviews.
  • Organizational education around evolving risk appetite and investment committee perspectives on commercial real estate outlook should be ‚Äúconstant‚Äù. ‚ÄúThe risks we took two months ago, may not be the same risks we take today.‚Äù
  • Group discussions also highlighted collaboration between investment officers, asset managers, research and operations professionals in the acquisition and deal underwriting process, and how early everyone is brought to the table.

There are expected to be distinct winners and losers when it comes to real estate property types, with some highlighting multifamily as a potential winner. One attendee caveated though there was now “no room for error” in apartments.
Opportunity zone funds are likely to become an alternative to 1031s – and could mean increased competition for real estate investment managers owing to their cheaper cost of capital.
  • Regulations surrounding opportunity zone funds still need clarification, but the structure is expected to be a ‚Äúflexible wrapper‚Äù for new and creative investments in real estate and businesses across the U.S ‚Äì with the opportunity expected to attract an¬†estimated $100bn of capital. Questions remain about potential exits and despite 8,700 opportunity zones being identified, a majority of investment is expected to target traditional real estate markets, not least gateway and key secondary markets, that were already undergoing gentrification.

To see the presentations from the NAREIM Acquisitions & Dispositions meeting, go to the NAREIM Member Portal. For more information on NAREIM meetings, please visit the NAREIM website. Upcoming meetings include: NAREIM Innovation Summit, April 3-4, in Chicago Sustainability & Investment Management, April 30, Chicago Data Strategy, May 15, Chicago Asset & Portfolio Management, June 12, New York
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