Uber, Driverless Cars Already Making their Mark on Real Estate Industry

It’s no secret that the sharing economy is having a major impact on the real estate industry. Co-work spaces like WeWork have created new demand for flexible office layouts, and Airbnb has eaten into the hotel industry’s profits. Now ride-sharing services are leaving their mark on the real estate sector.

Just this past week, the Wall Street Journal featured a story about how real estate developers are partnering with companies like Uber and Lyft. Unlike Airbnb’s adversarial relationship with the hotel industry, real estate developers see the value ride-sharing companies bring to their projects. Dave Bragg, an analyst for the real-estate research firm Green Street Advisors, went as far as calling Uber and Lyft the “single biggest game-changer for real estate” over the coming years.

This is particularly true in urban areas, where land costs continue to climb and building on-site parking becomes that much more cost-prohibitive. What’s more, people are driving less nowadays, so building excess parking seems like just that—an unnecessary excess.

So real estate developers are intentionally partnering up with Uber to offer tenants incentives to use ride-sharing services instead of keeping a personal vehicle on site. The earliest example of this partnership was in San Francisco: Real estate developer Parkmerced, whose portfolio includes more than 3,000 Bay Area rental apartments, started offering all new tenants a $100 transportation credit that could be spent on Uber and/or public transit. As part of the deal, Uber agreed to cap all UberPool rides between Parkmerced and the nearest BART or MUNI station to just $5.

“This is a building block for broader, smarter cities,” said Wayne Ting, Uber's Bay Area general manager earlier this year when the partnership first launched. “Our hope is that this is the first of many deals with real estate developers.”

Developers around the country have followed suit. Here in LA, the owners of the 41-unit Eleanor Apartments also offer tenants a $100 Uber credit each month. They had tried implementing a ZipCar strategy a few years back, but that didn’t work out. So then they began leasing spaces at a nearby medical office complex for tenants to use, but when the lease expired it wasn’t renewed. The owners were searching for an alternative way to mitigate the property’s lack of parking, and the $100 Uber credit seems to be doing the trick.

For renters like Taylor Fisher, a 33-year-old who recently moved into the Eleanor, the $100/month in Uber credit meant that the building’s lack of parking “wasn’t a deal breaker” anymore.

When partnerships like these allow developers to scale back – or eliminate – parking, it makes the units more affordable for renters. A single parking space can add upwards of $25,000 to a unit’s cost; and twice that if the developer has to build structured or underground parking.

The Wall Street Journal also noted that Uber isn’t the only thing real estate developers are paying close attention to. Savvy developers are also starting to think about how driverless vehicles might impact real estate development.

In Somerville, Massachusetts, developers Federal Realty Investment Trust (FRIT) have teamed up with Audi to explore how self-driving cars might be implemented into FRIT’s new 2+ million sq. ft. mixed-use development project known as Assembly Row. With driverless cars expected to be on the road by 2030, and with the understanding that FRIT’s new development will be around for decade to come, the team is working to design a parking garage that will accommodate the rise in driverless vehicles. Because driverless cars will need less room to park (you don’t need to worry about opening doors, for instance), Audi estimates that the developers could cut parking space by 62% and save the developers upwards of $100 million over the project’s lifetime.

And because land is scare in urban areas (especially in communities like Somerville, the 7th most densely populated city in the U.S.), the space that would have previously been used for parking can be freed up for other uses.

“We can transform those floors into residential, hotel, office and retail uses,” says Amy Korte, a principal designer with Boston-based architectural firm Arrowstreet. “There are a number of uses that will make our cities better.”

Alain Kornhauser, a researcher from Princeton University, echoed that sentiment. The biggest impact of autonomous cars, he says, will be on parking. “We aren’t going to need it, definitely not in the places we have now,” he told Curbed earlier this year. “Having parking wedded or close to where people spend time, that’s going to be a thing of the past. If I go to a football game, my car doesn’t need to stay with me. If I’m at the office, it doesn’t need to be there. The current shopping center with the sea of parking around it, that’s dead.”

As technology advances, we can expect the impact on real estate development to grow. It is important for developers to monitor these trends closely. Planning for the future now will be more cost effective than trying to retrofit properties in the future, particularly given the “future” isn’t all that far away.

MWest and Polaris PM Walk to Make a Change in LA's Homelessness

Our goal at MWest Holdings has always been to offer quality office and living spaces, create thriving communities, and provide our residential tenants with a place to call Home. Paradoxically, we’re located in Los Angeles – a city with the unfortunate distinction of being the nation’s “homeless capital.” This is a painful for reality for us at MWest. We’re a business, but we’re a business comprised of people who live in Los Angeles and who love their city. Every day we see our fellow Los Angelenos living on the streets. Many of them are military veterans who lack the critical care they desperately need and deserve. Others are chronically homeless and have abandoned all hope of finding resources to improve their situations.

That’s why we’ve made it a priority to help eradicate homelessness in LA by supporting the United Way of Greater Los Angeles. UWGLA’s goal is to raise people out of poverty, and, through their Home For Good initiative, they’ve identified eradicating homelessness as being critical to that goal. Their focus is on permanent housing, and support services – two elements which have proven invaluable in helping people to escape poverty.

For the past four years, MWest has chosen to support UWGLA by participating in their annual fundraising event, HomeWalk. HomeWalk is a 5K run/walk. This year’s event was held on November 19th and it marked HomeWalk’s 10th anniversary. More than 15,000 people took to the streets of Downtown Los Angeles and raised over one million dollars to help combat homelessness. The MWest team included our employees and their families, and together, with the help of our incredible supporters, we surpassed our fundraising goal of $35,000 and raised an amazing $56,400. This made us the second-highest fundraising team of the year. MWest president, Karl Slovin, raised $37,840 of that, and for the fourth year running was one of HomeWalk’s top individual fundraisers. There are few causes closer to our hearts than this one, and we will continue to partner with UWGLA’s Home For Good until every one of our fellow Angelenos finds a home – for good.

We encourage all of our local friends and partners to join us next year for this amazing event. You can find more information about HomeWalk, and UWGLA’s Home For Good, here: http://homewalk.unitedwayla.org/

Class A vs. Class B: Which Provides Greater Long-Term Returns?

What a difference a few years makes. The quick and steep rise of real estate prices in cities like Boston, New York and LA has priced out many investors, who are now chasing higher yields in secondary markets like Philadelphia, Seattle and Minneapolis.

Not only are secondary markets more affordable, but they also offer an opportunity for smaller-scale investors to buy Class A buildings for a fraction of the cost of Class B properties in primary markets.

But in their pursuit for higher yields, are these investors just chasing their tails?

Simply, do Class A properties in secondary markets really provide greater risk-adjusted returns than Class B buildings in primary markets?

Research out of MIT’s Center for Real Estate Development decided to investigate the question further. Students began by using CoStar data to classify a property as either a Class A or Class B asset. Although there’s no universally-accepted definition of Class A and Class B properties, most in the industry consider Class A buildings to be newer with higher quality finishes, amenities and accessibility. Class A properties tend to be located in the urban core, and oftentimes have their own brand or lifestyle associated with them.

Class B properties, on the other hand, tend to be older in age and function. Finishes tend to be in “fair” or “good” condition, and according to CoStar’s definition, offer “more utilitarian space”. They tend to lack any remarkable amenities, and typically command lower rents than their Class A counterparts. As a result, most Class B landlords tend to skew toward locally-based investors versus those with national or international portfolios.

For the purposes of the study, researchers defined “major” or “primary” markets to include New York, Los Angeles, Chicago, San Francisco, Boston and Washington, D.C. “Secondary” markets included Atlanta, Miami, Dallas, Houston, Phoenix, Denver, San Diego, Seattle, Minneapolis and Philadelphia.

The research team then used historical performance data from the National Council of Real Estate Investment Fiduciaries (NCREIF) to evaluate a property’s typical return. Returns were calculated assuming 100% equity and no debt financing, which allowed for an apples-to-apples comparison regardless of financial structure. NCREIF data was collected and analyzed for the years 2005 through 2013, which captures both the peaks and valleys of the most recent real estate cycle. Sharpe ratios were used to assess a risk ratio to each property analyzed.

After analyzing hundreds of properties across asset classes and markets, researchers concluded that both Class B office and multifamily properties in primary markets outperformed Class A office and multifamily properties in secondary markets during the period of 2005 and 2013.

Of note, Class B office buildings in primary markets were hit harder during the recession than Class A office buildings in secondary markets (likely a result of the capital crunch and oversupply in core markets); but Class B buildings in primary markets rebounded much more quickly than Class A properties in secondary markets.

A few other noteworthy findings:

  • During the “growth period” of 2005 to 2007, Class A multifamily properties in secondary markets experienced an average total return of 17.5%; Class B buildings in primary markets produced an average return of nearly 24.5%.
  • During the “trough period” of 2008 to 2010, Class A multifamily buildings in secondary markets had an average total return of 1.35%, compared to an average -2.20% return for Class B multifamily properties in primary markets. This suggests that multifamily housing in primary markets is more susceptible to downturns in the economy.
  • During the “recovery phase” of 2011 to 2013, Class A multifamily buildings in secondary markets resulted in an average total return of 14.17%, versus an average 13.11% return for Class B multifamily properties in primary markets.

    These results came as somewhat of a surprise to researchers; the findings indicate that multifamily housing in secondary markets is faster to recover than housing in primary markets. This may be because secondary markets require less up-front investment and attract a broader range of investors versus institutional investors that focus on core markets, but who are more cautious when re-entering a market after a downturn.
  • Although Class A multifamily properties in secondary markets outperformed Class B properties in core markets for the majority of the study period, the returns produced during the growth phase outweighed slower growth in the other years.

Interestingly, the only real estate asset class to outperform in the secondary markets for the aggregate study period was industrial. Class A industrial in secondary markets provided higher returns than Class B industrial space in core markets over the period of 2005 and 2013.

The authors conclude: “The overall empirical results of our study indicate that a savvy real estate investor, who is dedicated to maximizing his long run returns, would prefer to invest in office and multifamily properties in primary markets, and in industrial properties in secondary markets.”

As the old adage goes – location, location, location!

It’s the mantra we follow at MWest Holdings. Our portfolio consists of more than 2 million square feet of residential and commercial property across the U.S. We specialize in enhancing classic, core-plus and value-add opportunities. Occasionally we’ll pick up opportunistic investments, particularly those that have historic architecture. But regardless of the class and asset type, one thing remains the same: we almost always invest in primary markets. It’s a strategy that’s worked well for us to date, and if research is any indication, it’s a strategy that will help us preserve long-term value for our shareholders.

To download the full MIT study, visit: https://dspace.mit.edu/handle/1721.1/92606

Transformational Development - MWest Brings out The Heritage Collection

25 years as a leading real estate investment firm, MWest Holdings has always focused on creating lasting and tangible value. Today we specialize in value-add real estate, particularly apartments, with a special expertise in Los Angeles. Most recently, MWest has implemented a new and exciting strategic focus we call "transformational development". This strategy of growth is more than simply seeing returns, it involves acquiring larger, architecturally significant, historic, or iconic properties that are in need of attention to restore them to their legendary grandeur.

Serving the greater Los Angeles area has provided us with amazing and unique opportunities to showcase our talent for creating innovative development solutions which pay homage to history, instill a sense of neighborhood, and preserve community distinctiveness and culture. This strategy not only creates enormous value, but also builds communities and invigorates Los Angeles, something we are extremely passionate about. Everyone at MWest shares a deep commitment to preserving the special beauty and historical integrity of a structure while making the inside more attractive, efficient, and usable for today’s most discerning renters.

History, Architectural Relevance - Value.

We have four recent acquisitions that mark this new era for MWest and belong to our growing ‘Heritage Collection’: The Hollywood Tower, Wilshire Royale, South Park Lofts and Guardian Arms Apartments all 1920’s poured in place concrete buildings by significant architects.

Our most recent addition to the collection is The Hollywood Tower. Built in 1929 and placed in the National Register of Historic Places in 1988, the building is set on a hill in the heart of Hollywood, and topped by its famous art deco neon sign beloved by historians and Hollywood royalty alike. The Hollywood Tower’s three full-floor penthouse units feature large private balconies with a 360-degree sweeping skyline view of the city and Hollywood Hills. The property has served as a set location for numerous film and television shows and former residents include some of Hollywood’s most heralded stars: Humphrey Bogart, William Powell, Errol Flynn, and Marilyn Monroe. This tradition continues today, as the Hollywood Tower remains a popular home for entertainment industry luminaries.

Second, is the Wilshire Royale. This iconic building was constructed in 1927 and first opened as the upscale Arcady Apartment Hotel. The Wilshire Royale, with its classic rooftop neon signage, has retained much of its original 1920’s architecture and neoclassical elements, with a grand lobby featuring a sitting room, impressive columns, high ceilings, and a dramatic marble staircase. This building also caught our attention because it is perfectly situated in one of the most exciting and fast-growing communities in Los Angeles: Koreatown, a neighborhood brimming with restaurants, gastropubs, nightclubs, and businesses. The emergence of the live/work generation, and their desire for locations that feature walkability, easy access to the Metro Line, proximity to downtown LA and three major freeways, speaks directly to the promising future of this property.

Also nearby in east Hollywood is the Guardian Arms Apartments. Situated in an emerging area of the city, this classically designed late 1920’s building has been meticulously restored, with grand entryways, bachelor apartments and wonderful spacious open areas. Situated near Little Thai Town, and Los Feliz, this building is in the heart of the new Hollywood renaissance. Less than two blocks from the Western Blvd Metro station, the building has seen tremendous interest from individuals eager to enjoy the urban lifestyle, but want access to diverse communities.

The last property in our ‘Heritage Collection’ is the South Park Lofts, built in the mid 1920’s it was one of the first modern day parking garages. Situated in the heart of the downtown Los Angeles, South Park continues to have low vacancy rates and a loyal tenant base. The renovations to this building are bold and creative to appeal and attract the growing millennial renter population that is looking for modern loft living and an amenity package that rivals the best buildings in the area.

I plan on growing our ‘Heritage Collection’ in the upcoming months, further distinguishing MWest Holdings as more than just a real estate investment firm, but a company with a passion for great architecture, sense of place, and desire to seamlessly integrate history and culture into our local Los Angeles communities.

I look forward to serving our tenants and investors for the next 25 years.