THURSDAY, JULY 16, 2009
by Karl HeitmanChicagoThis year will be one to remember. It has been a year of change, and a year to reassess values. We are being challenged by a major economic recession, greater than most of us have ever experienced. We are seeing the impact that the current economic recession has on business real estate needs and are seeing the catastrophic effect of diminishing commercial property values. Investors have been forced to withdraw from real estate until stability is reached in the market values.
The global manufacturing sectors are predicting a 27-year low in production demand this year. New facility projects that were underway the third and fourth quarters of 2008 have been put on hold indefinitely. We're seeing the collapse of the "Big Three" automotive companies and that has had a drastic ripple effect on the massive second, third and fourth tier manufacturer supply chains that serve them. This is reducing work forces, and leaving once productive facilities, vacant.
We're experiencing growing social uncertainty due to political policy change. There is widening debate on socially funded "Stimulus" incentives, and social entitlement programs. Consensus is building, however, around the global environmental challenges, and the need for renewable energy sources. These challenges have become mainstream. We are reminded daily of the limitations of our natural resources, and of our dependence on foreign oil markets. Fluctuating fuel and energy costs, developing renewable energy, water conservation, and waste recycling are a constant focus in the media.
Functional, flexible, and efficient real estate assets are imperative in today's recession. Businesses are lowering costs by reducing lease holdings and by reducing operating expenses. Understanding how to accommodate these consolidations will be the key to survival for the real estate service industry, and we are seeing a need to return to the basic fundamentals of facility planning.
Repositioning real estate for economic recoveryReal estate opportunities will be centered on economic recovery and on improved utilization. Corporations are looking for ways to do it "better, faster, and cheaper". There is a real urgency for fundamental property assessments and strategic property reposition planning.
Property assessments, facility as-built documentation, and facility inventories will be required to better understand corporate lease holdings. Emerging technologies utilizing high definition laser scanning will be helpful in documenting large property portfolios where proper records do not exist, or have not been kept current.
Converting that existing facility data into BIM (Building Information Model) files will provide a means to inventory spaces, catalogue equipment, and enhance facility management by serving the building's extended lifecycle needs. Data reflecting maintenance schedules, replacement schedules can be embedded into the BIM facility document.
BIM documentation can also be utilized for energy assessments. A heat gain / heat loss analysis can be generated with BIM modeling software. Building envelope performance can be simulated and options for layering insulation, low 'E' glass types, light reflectance, shading coefficients, and building orientation can be modeled. Daylight harvesting studies can also be evaluated. The building's energy performance can be measured and retrofit options for energy optimization can be determined.
ROI can be calculated for energy saving improvements such as replacing inefficient lighting, upgrading mechanical systems, adding insulation, replacing windows, and sealing air leaks in exterior walls.
Vacancy challenges that building owners and many real estate lenders are now facing with underperforming assets will need to be addressed. While a significant number of distressed properties suffer due to location, outmoded use, or structural obsolescence; many of these properties can be repositioned back into useful life yielding sound financial returns.
Revitalization studies and adaptive reuse planning may be required to improve financial returns. In terms of "green" building design, repositioning an existing property is the most effective way of preserving the environment. There are massive amounts of "embodied energy" in the materials, the labor, and the supporting infrastructure for an existing building. It would take a 75-year payback for a new LEED Platinum rated building to replace the "embodied energy" lost in a tear-down.
There is a need to return to the basic fundamentals of creative facility planning. Strategic reposition planning will require applying industry standard commercial design practices. Flexibility and strong, solid planning principles will be relied upon. Aerial / satellite photography, and BIM concept studies will be used to study and create facility redevelopment options. New, 3D Virtual Model technology is very interactive and enables team collaboration. It is visual and can often involve virtual animated walk-through tours. Project quantities and construction budgets can be tracked with the data-driven BIM software. The results can be immediate and reliable.
Back to basicsThe current economic recession has had a direct impact on the real estate service industry. Viable projects as we knew them in years past simply do not exist today. Corporate tenants are seeking ways to consolidate and save money. It is all about doing it better, faster, and cheaper. New opportunities are emerging in the real estate service sector to document existing lease holdings, to plan for corporate consolidations, to reposition existing underperforming properties, and to create efficiencies in terms of lowering energy costs. A move back to basics is underway. It is a sobering return to sound economics; and it is aligned with building "green".
Karl Heitman is the president and founder of Heitman Architects Inc., Itasca.
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