Real Estate Development with a Twist of Economic Uncertainty

11/15/2022 11:08 AM | Deleted user

The Southern California Development Forum (SCDF) is an organization that brings together a community of real estate leaders on the latest trends, strategies and projects, while also providing networking opportunities. The organization hosted a panel discussion on Nov. 7, 2022, to discuss the impact that current and forecasted economic fundamentals are having on real estate development. 

Patrick Rhodes, Vice President of Development at Brookfield Properties, served as the moderator for panelists Alex Valente, Senior Vice President of Trammell Crow Company; Matt Howell, Senior Vice President of Lincoln Property Company; and Jim Andersen, Chief Development Officer of Chelsea Investment Corporation.

Underwriting and New Development Opportunities

The moderator opened the discussion by acknowledging the very real effects of COVID on capital market conditions. “There are plenty of things to be concerned about, but real estate developers remain highly optimistic,” said Rhodes.

In Los Angeles specifically, Alex Valente is confident in the market’s recovery. “We feel confident with the great sites, great market, great demographics and dynamics. Hopefully, we can overcome the challenges we’re facing now in terms of how we underwrite deals for new development,” he said.

Valente also spoke to the power of rent growth in the market during turbulent times. “There will still be rent growth, perhaps not as much as there has been year over year. As a result, everyone’s working to underwrite great growth to help companies, as well as make the deals make sense for us financially.”

The Future of Office

Howell spoke about the existing use and future development opportunities in the office market.

“We expected many tenants to slow down their operations, but many of them have reconfigured their businesses and how they will use their office space,” he said. Howell also explained that many companies are also focused on reducing their carbon footprint and subsequently, their square-footage while not terminating their leases outright.

“In terms of future builds, we’re looking at builds that accommodate online sciences, other R&D-type stations and content creation,” he said. “We’re witnessing the evolution of what the office is going to look like and how we will use it moving forward. I think there’s going to be a tremendous demand for this tenant group.”

Affordable Housing

Jim Andersen spoke to how the business surrounding affordable housing is changing given the current economic climate.

“Probably 60 to 70% of renters in Los Angeles County that are on the edge of not being able to afford the place we live. These are people we see every day in our offices and our daily lives,” Andersen said. He went on to explain that most California cities had an adequate supply of housing, the longtime pressure of high rents has allowed only the “highest possible cohort” to occupy this housing while excluding a significant number of people from access to safe and affordable housing. “Presently, the crisis is such that it was declared an emergency in Sacramento,” he said.

“Money is currently being steered towards the goal of alleviating homelessness. [Chelsea Investment Corporation] is currently building a project in Skid Row that will be 286 units. It’s taken seven years to get off the ground and we’re a year and a half into the project.”

In conclusion, though there has been some uncertainty in real estate development due to ongoing economic and structural changes, leaders believe that with strategy and resiliency, the market will rebound.

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