Cracks Emerging in U.S. Office Sector Lending; More Pain Ahead?
According to Trepp, the commercial mortgage–backed securities (CMBS) delinquency rate for office properties jumped 55 basis points (bps) in February to an average of 2.38 percent, up from 1.83 percent in January and 1.67 percent a year ago. Likewise, the special servicing rate for office CMBS loans also climbed to 4.43 percent, up roughly 60 bps since December. The expectation is that those numbers will continue to climb in the coming year.
3 Surprises Impacting the Return to the Office
This time, when we asked over 2,000 respondents to choose their top five most important reasons to come into the office, there was a sudden shift in the role of the office. The new top reason was to “focus on my work.” When we look at the top five or six important reasons, we see that people ranked access to technology, specific spaces, materials, and resources high, as well as scheduled in-person meetings with their team and sitting with their team.
The road to autonomous driving is winding
Is this a down-the-road reality or will real-world challenges block the path to wide-scale autonomous-vehicle (AV) adoption? Despite setbacks that have pushed out timelines for AV launches and delayed customer adoption, autonomous driving has the potential to transform transportation, consumer behavior, and society at large. By 2035, autonomous driving could create $300 billion to $400 billion in revenue, say Johannes Deichmann, Kersten Heineke, Dr. Ruth Heuss, and co-authors in a recent report.
Why the humble city bus is the key to improving US public transit
Today, there’s renewed interest in improving bus service in the U.S., inspired by innovations around the globe. The Brazilian city of Curitiba, which is well known for its innovations in urban planning, set a model in the 1970s when it adopted bus rapid transit – buses that run in dedicated lanes, with streamlined boarding systems and priority at traffic signals. Curitiba helped popularize bi-articulated buses, which are extra-long with flexible connectors that let the buses bend around corners. These buses, which can carry large numbers of passengers, now are in wide use in Europe, Latin America and Asia. A green bus with several segments connected by flexible panels. Cities across the globe, led by London, have also aggressively expanded contactless payment systems, which speed up the boarding process. Advanced bus systems and new technologies like these flourish in regions where politicians strongly support transit as a public service.
Denver’s e-bike program produced more new riders, less car trips: report
Over nine months, 4,734 residents became electric bike owners through Denver’s e-bike incentive program, with 71% of survey respondents reporting they used gas-powered vehicles less often after purchasing an e-bike, according to a new report by the city and county and several environmental and biking organizations. – Last year, Denver joined California and Oregon; Atlanta; Nashville, Tennessee; and Washington, D.C., in pushing for e-bike rebate programs to decarbonize its transportation sector. The city aims to reduce greenhouse gas emissions by 65% by 2030 from a 2019 baseline using money from its Climate Protection Fund, which voters passed in 2020, raising local sales and use taxes.
REAL ESTATE AND MOBILITY
Commentary: For Denver’s Next Mayor, a Legacy Project on a Silver Platter
Redevelopment being planned or already underway in and around the triangle created by the intersections of Federal Boulevard, Colfax Avenue and Speer Boulevard — 237 acres of land in aggregate, nearly the size of the Central Business District — will increase density dramatically. This area, currently one of the more car-centric parts of Denver, includes the planned River Mile development, the Ball Arena redevelopment, Auraria Campus Master Planning effort, the Burnham Yards redevelopment, Sun Valley redevelopment, Stadium District Master Planning effort, and the development opportunities made possible by redesign of the Colfax and Federal cloverleaf interchange.
One-way streets downtown: are they really a revitalization dead end?
Among transportation planners, it is almost universally acknowledged that two-way streets are healthier for downtown vitality than one-way streets. Storefronts on two-way streets tend to command higher lease rates, indicating that demand among prospective tenants is greater than a similar storefront that fronts a one-way street. It’s not because one-way streets get less traffic; in fact, directional flow has no relation to the traffic volume a road can expect to carry. But two-way streets’ impact on the visibility of the streetscape is so great that many mayors and Public Works Departments have been converting former one-way streets back to two-way in their downtowns. A certain Indiana ex-mayor (now cabinet member) elevated his profile by doing precisely this, helping attract businesses to long-vacant downtown storefronts. The reasoning isn’t profound: two-way streets allow motorists to approach a road from either direction, thereby doubling the opportunity that they might make a turn and then drive past a business for which they opt to make an impulse buy.
Denver RTD 16th Steet Mall renovations to feature improved pavers for transitway and walkways
The Denver Regional Transportation District (RTD) renovations on its 16th Street Mall– one of the most successful pedestrian/transit malls in the United States – will feature a new granite paver system that honors the mall’s iconic original design by I.M. Pei and Olin. The work, managed by Denver’s Department of Transportation and Infrastructure (DOTI), will remove curbs and move transit lanes to the center of each block, add more trees and create wider pedestrian walkways and new amenity zones for leisure, commerce, entertainment and tourism. – Renovation of the 16th Street Mall is expected to wrap up at the end of 2024. RTD’s Free MallRide shuttle will continue to detour around the work onto 15th and 17th streets to ensure the agency can maintain service to the area.
As wealth inequality spirals out of control, many Americans can no longer afford to drive
“This study demonstrates that travel in the United States can be vastly different based on income,” Renne told Salon by email. Among the poorest Americans who cannot afford cars, nearly half of all their trips occur without any form of motorized transportation, while more than a quarter will occur using transit. If households earn less than $25,000 per year, each individual within that household will only travel for roughly 15.6 miles (adjusted) per day, as opposed to the national average of 22.9 miles (adjusted) per day per person. “These findings are supported by other research that shows that the poorest are cut off from job opportunities, schools, and other services especially in places where transit service quality is poor and walking and bicycling are unsafe,” Renne explained.
Parking reform is snowballing
The graph of cities ending parking mandates across the board shows a dramatic acceleration since 2020—higher even in the first quarter of 2023 than in all of 2022. Moreover, a growing number of states are addressing the issue, especially on the West Coast. California and Oregon adopted statewide reform in the second half of 2022, and a handful other states are considering similar legislation—some in other parts of the US. The reforms in California and Oregon are tied to metrics such as distance to frequent transit.
Forging New Paths
Included in the 2021 Infrastructure Investment and Jobs Act, the Reconnecting Communities program provides $1 billion over five years for communities to explore whether and how to remove or restructure underused, outdated or decaying highway segments and thereby allow for surrounding neighborhoods to revive and redevelop. The U.S. Department of Transportation website calls it “the first-ever Federal program dedicated to reconnecting communities that were previously cut off from economic opportunities by transportation infrastructure.” Grants under the program can go to local governments and community- or business-led organizations for planning and design work, or to transportation agencies for capital improvements. Plans that become ripe for action down the road could be eligible for construction funding from several other pots of federal transportation dollars. When USDOT began accepting applications in September 2021, “it was as though the flood gates opened,” says Ben Crowther, advocacy manager at America Walks, a national nonprofit that is tracking response to the program. “I attended one DOT informational webinar that had about 5,000 participants.”
Reimagining Car-Centric Properties
As millennials and Generation Z entered the workforce, their preferences for less automobile dependency and proximity to work, entertainment and retail has led to newer employment centers and office buildings being developed as part of mixed-use centers. Unlike the office buildings of the 1980s and 1990s that were largely standalone structures with ample parking, many of the newer employment centers were built around public amenities such as multiuse paths, transit stops or live/work communities that attract younger professionals. The developments include additional interior amenities for the tenants such as robust fitness facilities, collaboration areas or lounges, and onsite food and beverage. This change has placed aging office stock at a competitive disadvantage. In reaction to emerging trends such as increased live/work environments, flexible working conditions and a departure from automobile dependency, developers and municipalities are adapting in order to keep pace. One way has been to leverage the reduced demand for parking by activating underutilized surface parking areas to create mixed-use environments.
As Market Rate Multifamily Starts Near Record Highs, Affordable Housing Community is Assessing Effects on LIHTC-Financed Properties
Based on Census Bureau seasonally adjusted annualized figures from December 2022, last year there were 483,000 multifamily starts (for properties with five or more units), on the heels of 553,000 such starts in 2021. Those are the two highest single-year totals since 1986. Note, the high volume wasn’t purely due to pandemic-related delays. Looking back two years, the 2019 total of 511,000 was the highest total since 1986 until it was surpassed by 2021 and 2022. – LIHTC properties appear well-situated for the market conditions, given their rent levels compared to market rates. Even in a recession with the expected imbalance between housing production and household formations, LIHTC properties in the aggregate should perform well.
Can converting offices to apartments solve shortfall?
“While many employers have embraced hybrid work policies, commercial offices are unlikely to return fully to the way they were prepandemic. The city believes there is an opportunity here to help create a more complete neighborhood downtown with more housing options by focusing on vacant commercial and office space,” said Laura Swartz, communications director for Denver’s Community Planning and Development. Denver is spending $75,000 for a feasibility study to look at reusing up to 30 buildings downtown, primarily underperforming office buildings. The study will look at floor plate sizes, mechanical systems and proximity to transit, to determine whether a residential conversion is practical or not, she said.
Cities want to make office-to-apartment conversions feasible
National Observer reports San Francisco lawmakers are the latest to introduce legislation to tackle the cost-benefit gap for developers considering office-to-residential redevelopments in the city, reports Laura Waxmann of the San Francisco Business Times. While the redevelopment of vacant or underused office buildings into housing has been much talked about, in reality such projects are difficult to make work economically. The new legislation in San Francisco adds flexibility in how properties with certain zoning designations can be used in an attempt to cut some of the uncertainty out of the process, among other changes. San Francisco isn’t the only city trying to encourage such conversions. Portland, Oregon, has also adopted code changes to make the projects more feasible. In Chicago, three downtown buildings have been selected for conversion by the municipal Department of Planning and Development.
Modular Construction Offers Solution to Affordable Housing Crisis
Grady says modular construction is an ideal way to build any project because it offers a repeatable and scalable approach. “With modular or factory-built housing, we are able to compress the construction schedule by doing concurrent activities,” he explains. “In other words, at the same time, the site is being developed—i.e. site grading, sewer, and utility connections for water, power, and gas. The building modules are being built in an environmentally (controlled), clean, and orderly factory setting. Most of the time the building modules are completed and ready for delivery before the site is completed.” The cost savings for modular projects are also significant. When the Solis Care First Village project was built four years ago, for example, the average cost per unit was around $245,000 compared to the average cost then of around $535,000 per unit in California, according to Grady.
Too big? Too small? No, these office buildings are just right for housing
But while most are either too big, too new, too crowded, or too technically complicated to convert to homes, there’s a Goldilocks zone of office buildings that are just right for turning residential: Typically, they’re mid-rise, modestly sized structures built before World War II, with at least two sides fronting open areas or streets in neighborhoods near, but not directly in, the city’s dense financial center. – “Office buildings are sometimes hard to convert to residential because the floor plate’s big or they’re wedged between other buildings and don’t have enough street exposure,” Bloszies explains. Having two or more entire sides of a building facing the open space along a street allows light and air to penetrate more easily than one shadowed and suffocated by neighboring structures.