COP26 Tackles Real Estate Access to Capital

December 5, 2021 • As we look forward to the new year, the real estate industry continues to grapple with the ramifications of COVID-19, the need to decarbonize and simultaneously become more resilient, and shifting demographics, economic realities and behavioral trends. Here’s a snapshot of what we’re seeing.

UN Climate Change Conference 2021 (COP26), Glasglow, Scotland

Climate Conference Tackles Access to Capital

While the recent UN Climate Conference (COP26) outcomes were disappointing in many respects, there were important breakthroughs that are likely to have a significant impact on the real estate industry. One of them, the Glasgow Financial Alliance for Net Zero, is an agreement by over 450 private sector firms across 45 countries, to commit $130 trillion of private sector capital to the transformation of the global economy to net zero by 2050. These firms, which include banks, insurers, pension funds, asset managers, credit rating agencies and audit firms, have pledged to use this capital to meet science-based emission reduction targets and report their progress annually. If it becomes more costly or difficult for real estate that is not being decarbonized to access this or other capital, that may well facilitate the transformation of the built environment to a lower carbon footprint. Learn more

Walmart’s Multi-Site Drone Delivery Program

Walmart’s newly launched drone delivery program, the first multi-site operation of this kind in the U.S., can deliver thousands of different items to customers’ homes in as little as 30 minutes. One site, located at a Walmart store in Farmington, AR, is already operational and two others are in the works. With more than 4,700 stores located within 10 miles of 90% of the U.S. population, Walmart is well positioned to ramp up drone deliveries with minimal infrastructure investment. While Walmart is not the only company to experiment with retail drone deliveries, Amazon and Google have also done so, it remains to be seen if there will be widespread acceptance by consumers, their neighbors and the Federal Aviation Administration. Learn more

Multifamily Rental Housing Goes Horizontal

A new multifamily housing product has emerged: horizontal multifamily developments consisting of 150 to 200 detached single-story, single-family homes for rent (HMFD). Most HMFD developments are located on the outskirts of sunbelt metro areas such as Phoenix, Dallas, Denver and Tampa and the homes within them range from 600 to 1,200 square feet. The popularity of HMFDs is strongly rooted in rental rates that are well below the monthly cost of purchasing a home in these areas. Institutional investors have made major commitments to this new asset class, including a $1B joint venture involving CalSTRS, which recently funded HMFDs in Atlanta, Jacksonville, Nashville and Raleigh. Learn more

Demand for Office Space Sputters

According to the VTS Office Demand Index, demand for office space in seven different markets throughout the country peaked in August 2021 and has declined by 30% since then. Office occupancy as of November 2021 also fell from 2021 Q3 levels by 2M square feet (SF), bringing the total loss in office occupancy nationally to 133M SF, according to the National Association of Realtors. The metro areas that have lost the greatest amount of office occupancy are core markets such as New York (31M SF), LA (11.5M SF), San Francisco (11M SF), Washington, DC (9.8M SF), and Chicago (9.5M SF). On the other hand, some smaller metro areas have enjoyed an increase, including Durham, San Antonio and Boise, each of which gained 1.4M SF of occupancy compared to pre-pandemic levels. Learn more

2021 ICSC Law Conference

In early November I traveled to San Francisco for the ICSC Law Conference. It was my first foray into in-person events and was reasonably well attended at about 50% of pre-pandemic levels. On a personal note, it was terrific to see friends and colleagues and share ideas and insights with people from all over the country. From a professional perspective, it was refreshing to present two workshops to in-person audiences. The first one focused on structuring retail solar projects and the second one developed into a lively conversation about retail leasing best practices for 2022 and beyond. Learn more