Financial institutions and foreign investors, among today's prominent new real estate developers, are not intimidated by high vacancy factors, according to one of the nation's top realty executives.
Arthur J. Mirante II, president and chief executive officer of Cushman & Wakefield, stressed that point in an interview:
"We continue to have a great deal of development, notwithstanding the vacancy factor (in commercial real estate)which is at a fairly high level nationally.
"The reason is a greater availability of cash and a much longer-term outlook today, unlike historical experiences by developers, because so many more of these developers are now institutions and foreign investors and they are not subject to the crises and pressures of individual entrepreneurs. In other words, the vacancy factor, for example, does not intimidate the institutions."
His interview followed the firm's annual forecast symposium last week at the Sheraton Grande.
High-tech growth, shifts in industrial and office leasing and the emergence of "smart" buildings--newest buzz word among developers--were topics covered by the symposium panel.
Prior to being appointed president and chief executive officer of the nationwide full-service real estate firm last August, Mirante served as general counsel, as national director of the agency buildings department and as executive vice president and regional director for Cushman & Wakefield. He succeeded Stephen B. Siegel, now chairman of the board.
In a low inflation and moderating economic growth climate, recovery continues to be felt and the economic signs point to favorable investment in real estate markets, Mirante said.
His firm's Forecast '85 focused strongly on office leasing and the industrial market trends because they are the most dramatic, Mirante said.
He referred to more sophisticated space users, in an increasingly greater competitive market, who as tenants are using their leverage to get participation in a building without buying it.
"That is, they may be signing a lease that's a little bit above market in exchange for 40% or 50% equity," he said. " This comes as a result of the higher vacancy rates; tenants are negotiating with this leverage in any one of a hundred ways."
He cited IBM, which negotiated with developer George Klein for a 50/50% ownership of a 500,000-square-foot New York property they lease and occupy. "And I am presuming IBM pays several dollars per square foot over market so that they can buy into a building, which the owner has financed, by spreading the cost over the term of their lease. Meanwhile, they also get tax credit, construction, depreciation and other residual benefits."
The small condominium concept, Mirante reported, is slowly gaining popularity on a national basis. On a tour of Nashville, he observed that what appeared to be small houses on the front lawn of an office complex bordering the highway, were individual condominiums sold to small law firms and other businesses.
In looking at other major trends, mixed-use projects are definitely in the lead. Mirante spoke of a project just completed in downtown Manhattan that offers 2,000 rental units of housing, the first built in the last 50 years, that are part of the Battery Park City office and residential development partially built on land-fill that reclaimed a portion of the Hudson River.
"The project has really sparked a renaissance for downtown New York. The same I believe is happening in Los Angeles with such urban development as the multi-use California Plaza on Bunker Hill. In urban development, the key is residential with a total supportive environment, cultural as well as commercial; in San Francisco this is also beginning to happen in the blighted area south of Market Place.
Restoration of existing properties continues also as a strong trend in real estate, Mirante noted.
"In many cities you now have a lot of landmark legislation ruling out demolition of certain structures. Developers have gone ahead and used the historic landmark concept as a powerful marketing tool.
"There has been a growing interest in restoration of older buildings and, in many cases, these older buildings from 1910 through the 1940s are well suited for the high-tech users of today, Mirante said.
"The ceilings are higher and the spaces more adaptable to electronic deployments. I would contrast this to many of the buildings that were built in the 1970s, primarily to be energy efficient."
The subject of "smart buildings" brought a quick reaction from Mirante.
"To say that smart buildings are much in vogue is just not the case at this time, but they are a definite trend." He defined the "smart" or "intelligent" building as one which has essentially every service controlled by a computer.
"To a large extent, developers use the 'smart' building concept as a marketing tool; there's a good deal of hype. What we have to concentrate on are the needs of the space users of today.