Real Estate Industry News

The word "realtor" describes only one aspect of working in the real estate industry. Professionals who own their companies must have a firm grasp on every element that impacts operations - whether the commodity is land, housing or commercial property. The sections that follow span a broad spectrum of subjects key to growing a healthy business.

• Inside Airbnb's Plan to Partner With the Real Estate Industry

  By Kia Kokalitcheva

  A common story: An apartment tenant has a few short trips coming up, and decides to list their abode on home-sharing service Airbnb to turns those few days away into a few extra bucks. Meanwhile, the tenant’s landlord has no idea when and how this is happening, and has no real way to keep tabs on the short-term rental activity. Frustration abounds.

  Airbnb likely hears stories like this all the time. So it’s not surprising that the company has been working on a new program to bring in owners and landlords of multifamily buildings into its home-sharing world. Dubbed the Airbnb Friendly Building Program, the new initiative unveiled on Tuesday will let building owners sign up to work with Airbnb and tenants on allowing home-sharing on their properties per with whatever rules they’re comfortable. And of course, they’ll be able to share in the revenue their tenants get through Airbnb.

  Jaja Jackson, Airbnb’s director of global multifamily housing partnerships at Airbnb and who joined the San Francisco company in early 2015, is leading the effort.

  The program works like this: Building owners—provided they operate in a jurisdiction where short-term rental laws are clear, meaning that there’s no ambiguity nor potential for a regulatory mess—apply for the program. Once accepted, the owner then decides the terms (which units, for how long, revenue division, etc.) under which tenants can rent out their homes and submits them to Airbnb as well as amends its tenants’ leases. Eligible tenants in that can then sign up for their building’s program through Airbnb, and become part of the regular reports the company sends to the landlord.

  What’s more, Airbnb also handles paying out both the hosts and their landlords, as well as collecting and remitting taxes where applicable. According to Airbnb, building owners typical take between 5% and 15% of their tenants’ earnings through the program.

  For Airbnb, finding a way to involve building owners and landlord is critical. While the company regularly touts stories from hosts whose extra income from renting out their homes has allowed them to afford their rent or a much deserved vacation, it’s no secret that landlords have not been the biggest fans of the practice. According to Airbnb, this animosity largely stems from their lack of control over the activity as tenants are ones usually listing and renting out the homes. Airbnb’s solution: Involving them in the process and giving them control along with a financial gain.

  The company began piloting this program in April, and to date, somewhere between 1,100 and 1,500 units are either participating or scheduled to soon join, according to Airbnb. The company declined to reveal much details about the building owners it’s been working with, though it did say they’re in U.S. cities including San Jose, Calif., Philadelphia, and Nashville, Tenn., among others. They also widely vary in size and type, from small “‘mom and pop”‘-owned properties, to large companies that manage 50,000 units.

  To balance providing transparency to the landlord about the tenants’ home-sharing activity and the hosts’s privacy, Airbnb tells Fortune exclusively that its reports will include financial transactions from hosts who haven’t agreed to be part of the building’s official home-sharing program, but will not disclose specifics about those hosts, including their names and exact apartment unit. This follows Airbnb’s long history of erring on the side of not sharing data, even with increasingly frustrated city officials who want to better enforce their laws.

  One interesting aspect of the Airbnb Friendly Buildings program is the role of design. Last month, Airbnb unveiled Samara, a new division within that company led by co-founder Joe Gebbia focused on design and architecture. Its first project is Yoshino Cedar House, a home designed in collaboration with Japanese architect Go Hasegawa that will be rentable via Airbnb.

  At least one member of this design team is working with the Airbnb Friendly Buildings program to help owners and developers implement home-sharing friendly elements.

  "Airbnb sees (and articulates) that incorporating home sharing elements into the design process adds significant value to a product offering". Kevin Choquette, a real estate developer in San Diego, Calif., wrote in a blog post last summer after attending a local industry luncheon featuring Jackson as a guest speaker. Some of these elements include smart locks with temporary passwords, movable walls, and extra storage for guests’ luggage.

  One common criticism of Airbnb is that it enables landlords to turn their properties into hotels, taking precious housing units away from long-term tenants. In San Francisco, for example, Airbnb is often accused of exacerbating the city’s housing crisis. Cities like San Francisco have long attempted to convince Airbnb to fork over data about its hosts so they can enforce laws against those illegal hotels. Last year, Airbnb defeated a ballot measure that would have imposed stricter short-term rental rules, but it’s now suing the city over a recent regulation aimed at enforcing its existing laws.

  For that reason, Airbnb is careful to make clear that it intends its building owner program to be for landlords with long-term tenants, and not for those who wish to operate short-term rental-only units. While some real estate developers could in theory set aside a few units solely for short-term renting, if their local laws allow it, Airbnb says that at least one prominent real estate development trust has told the company that is has no interest in getting into that business.

  Airbnb is also restricting the program to market-rate units, at least for now. According to the company, it wants to be sensitive to the fact that some may view it as unfair if tenants in rent-controlled or otherwise subsidized housing start to profit from their housing. Airbnb says it’s still researching how it could extend the program to such buildings someday, but for now, it wants to keep it simple.

  Airbnb’s ambition to partner with real estate developers and landlords is not surprising given its fight to get home-sharing as widely accepted and understood, especially in the political arena (the real estate industry can have quite a powerful voice). But it also fits nicely into the narrative of the so-called sharing economy, whose proponents believe that full-time ownership and use of things like homes and cars will be replaced with home-sharing and ride-sharing.

  Source: Fortune, September 13, 2016 (http://fortune.com)

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• Home Sellers Are Bullying Real Estate Agents Into Commission Cuts

  Bloomberg Report

  (Bloomberg) — You just sold your home for $400,000. Good going, nice job, congratulations. Kudos are also due to the real estate agents who helped you close the deal. If you live in a part of the country where the standard commission is 6 percent, you probably just paid them $24,000. Or maybe not.

  Real estate commissions are set by custom, not written in stone, and a new survey suggests Americans are haggling.

  Sixty percent of people who sold a home in the U.S. over the last year got a discount from their agent, with average savings of 41 percent off the standard commission, according to real estate brokerage Redfin. These aren’t trivial amounts: If you’re selling a $400,000 house and manage to cut your agent’s commission to 5 percent, you just saved $4,000. If you got the 41 percent discount that Redfin’s survey identified as the average, you saved just under $10,000.

  Why are sellers cutting better deals? One explanation is that low inventory in some markets means a lot of agents are fighting over a small number of listings.

  In May, the number of U.S. homes listed for sale was down 4.2 percent from the previous year, according to data published by Realtor.com. The shortage of homes for sale has been the dominant theme in such markets as San Francisco and Dallas, driving up prices and forcing buyers to make snap decisions and waive contingencies. Lately, those conditions have been migrating to smaller, less likely cities, including Omaha, Neb., and Buffalo, N.Y. Not only do tight markets create more competition between agents, they also tend to increase sales prices and decrease the amount of time it takes to sell a home—two factors that are probably making it easier for an agent to accept a lower fee.

  An additional theory, advanced by Redfin in a blog post accompanying the survey results, is that agents agreeing to accept discounted fees are responding to pressure from real estate tech startups. That cohort includes Redfin, a Seattle-based brokerage that charges sellers 1.5 percent to list a home, so it might pay to consider the source. Still, it’s plausible that online real estate companies are driving down commissions by charging lower fees, helping sellers list homes without agents, or forcing traditional agents to compete for new leads.

  “It used to be that I would go to a listing appointment and the sellers were already completely sold on hiring me,” said Elizabeth Weintraub, who leads a team of agents at Lyon Real Estate in Sacramento, Calif. “Now it seems like I’m having to spend most of the appointment explaining why I’m worth the commission.”

  Weintraub’s argument is that 40 years in the business have given her a keen sense of when a buyer is likely to be turned down for a loan, or when there’s room to coax a prospect into making a higher offer. Others have argued that a seller who insists on paying a lower commission runs the risk of limiting the number of would-be buyers who look at the home. That’s because agents representing buyers are usually paid out of the sellers’ commission, and reduced fees have a way of trickling down. Another favorite thesis is that an agent who can’t defend his or her commission is likely to fold when negotiating the actual sale—although if you believe that, you should double your agents’ commission on the theory that the service you get in return will be twice as good.

  A more plausible argument is that not all sellers look the same to real estate agents. Homes that sell for higher amounts generate larger commissions—and probably create some additional wiggle room for agents to cut fees. Likewise, a seller who plans to use the same agent to sell their old home and buy a new one probably has extra leverage in bargaining.

  The Redfin survey indicates that even sellers with more modest properties and no plans to buy a new home should inquire about reducing their fee. As any good negotiator would tell you, it doesn’t hurt to ask.

  Source: Crain’s Chicago Business, Chicago Real Estate Daily, August 10, 2016 (http://www.chicagobusiness.com/realestate)

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• WeWork Eyes Corporate Clients with New Broker Program

  By Christian Brazil Bautista 

  As office landlords explore ways to compete with co-working spaces, WeWork is going the opposite direction. The shared office provider is going the traditional route, enlisting the help of real estate brokers to grow its tenant headcount.

  The company has just revamped its relationship with real estate brokers, offering more compensation and more involvement through its new broker partnership program. According to Francis Lobo, WeWork’s chief revenue officer, his company is looking to expand its appeal beyond larval stage start-ups.

  “There’s a whole group of customers that are represented by brokers,” he said. “But more importantly than that, we have a lot of people out there who think we have small start-up companies. That’s not the case. We have many large, enterprise customers already. Take for example Dell, GE, KPMG, Aflac and Visa. There are so many customers that are already with us. They have large offices, multiple offices, multiple buildings in multiple cities.”

  To tap into the stream of real estate deals involving large corporations, WeWork is offering would-be go-betweens a richer bounty. Under the company’s previous referral program, ten percent broker commissions were capped at twelve months, with no compensation for expansion or renewals. Now, the company is giving brokers their twelve month commissions up front, with extra payments kicking in for leases that go beyond a year. Commissions are at two percent for up to 36 months. The payment structure is the same for lease expansions. Meanwhile, renewals are at two percent for up to 36 months.

  The changes go beyond pay-outs. Brokers will take the lead in closing deals. WeWork also pledged to never directly contact clients with the permission of their emissaries.

  “The fundamental key difference is, brokers are going to be involved throughout the process. When a broker comes to our new website and registers or gives us a lease, they are involved throughout the process. They can see what we do with the member. They can see whether we’ve signed the deed, whether we’ve sent the paperwork, whether we’ve signed the contract, so on and so forth,” Lobo said.

  The program has gained the blessing of the city’s largest real estate firms. “Cushman & Wakefield are delighted to collaborate with WeWork in building new communities with culture and energy for the sharing economy,” said Bruce Mosler, Cushman & Wakefield’s chairman of global services.

  The new program comes as the company, recently valued at $16 billion, grapples with weak financial prospects. According to a Bloomberg report earlier this month, the company reduced its 2016 profit forecast by 78 percent and its revenue estimate by 14 percent. The projections were based on delayed building openings and higher construction costs.

  Source: Real Estate Weekly, July 29, 2016 (http://rew-online.com)

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• If Commercial Real Estate Was Easy, Everyone Would Do It

  By Allen Buchanan

  I want to discuss a collection of deal challenges that currently clog my consciousness. If your commercial real estate professional makes the transaction process look easy, rest assured, it’s not!

  Beating the foreclosure deadline: A lender Notice of Default is the kiss of death. The drum beat of foreclosure echoes, the offering is tainted, and we must disclose the status.

  In general terms, a lender files an NOD when the borrower is delinquent on mortgage payments. The borrower has 90 days to cure the default by paying the past due amounts. If the borrower fails to bring the loan current, the lender can file a Notice of Trustee Sale and sell the building.

  We are racing to get the building sold. As you can appreciate, the market smells blood, which makes our task more difficult.

  An occupant driving too hard a bargain. We represent an occupant in their quest for space. The occupant has benefited from past down markets. We have moved them twice in the previous six years. In both instances, owner concessions abounded and our folks got a great deal.

  Now the landscape is different. The market is heavily tilted in the owner’s favor. Concessions such as free rent, reductions in the asking rates, abundant improvement work rolled into the lease, and bonus broker fees are a distant memory – except to our client – who is stuck in 2012.

  Renewing a lease early - with a rent above market. Our client signed a lease before the market correction of 2009. Renewal time is approaching, but our client is stuck with above market rent for a period of time.

  The client wants the certainty of knowing he can remain in the building at the conclusion of his lease. He realizes he is paying (and has paid) an above-market rent for several years. He is willing to renew early but wants some reset of his rent.

  The owner is unwilling to reduce the rent today in return for a longer term. The owner believes the market is trending higher and is willing to wait.

  An ownership squabble. We represent an ownership entity with two owners. One wants to lease, the other wants to sell. Each has very compelling reasons why their deal structure benefits their objectives. Marketing an availability with warring factions in the wings causes confusion. Fortunately, we have the benefit of time and no lender with an out-stretched palm.

  So what is the takeaway, here? A rising tide lifts all boats. With time, any problem can be solved, ownership issue resolved, and the “right deal” located. Just make sure you manage the expectations.

  Allen Buchanan is a principal and commercial real estate broker at Lee & Associates, Orange.

  Source: The Orange County Register, July 16, 2016 (http://www.ocregister.com)

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• Technology Challenges Traditional Real Estate

  By John Stater

  For Southern Nevada’s industrial market, the Great Recession is over and a new era is beginning. The area has added 23,000 industrial jobs, expanded occupancy by more than 13 million square feet and seen vacancy fall to 5.8 percent from a high of 14.3 percent.

  The office and retail markets, on the other hand, are still struggling. Both have seen recovery, but not to the extent, and not at the rate, of the industrial market. Since 2010, the office market has added more than 16,000 jobs and has seen vacancy lower from 22 percent to 17.9 percent, still far above the pre-recession average of less than 10 percent. Retail has added about as many jobs as the office market, but vacancy has dropped by less than a percentage point. Why?

  Since electronic computing’s introduction in the 1950s, it has been changing the way people do business, making employees more productive and allowing businesses to do more with less. The greatest impact from a real estate perspective has been on office space.

  Office real estate is not facing extinction, of course, but it does face many challenges due to technology. Computers and the internet make people more productive, so businesses require fewer employees. They also make workspace more efficient, replacing large filing cabinets and multiple machines with smaller desktop or laptop computers and printers. Cloud computing allows businesses to use somebody else’s servers kept in less expensive industrial space.

  All of these pressures allow businesses to reduce their office footprint, and therefore reduce their rent expenses. The Burnham-Moores Center for Real Estate at the University of San Diego has estimated that the 250 square feet per employee we assumed in the early 2000s has probably turned into 200 square feet now, and is heading toward 180 square feet or less in the next five years.

  If the office market is feeling a light crunch, retail might be suffering even more. E-commerce is growing year by year, and it affects retail real estate by permitting retailers to reach wider markets with smaller retail footprints, shifting their real estate needs away from more expensive retail showroom space to less expensive warehouse space, and away from multiple locations to a single location with an internet presence. Warehouse buildings in Southern Nevada have seen occupied square footage increase by more than 6 million square feet over the past three years. Retail occupancy, by comparison, has expanded by only about 1 million square feet.

  The trend to reduce costs will continue to be pushed as far as possible, as the aim of businesses is to reduce costs. Minimizing one’s real estate footprint, or shifting to less expensive real estate, achieves that goal. Technology is the means by which real estate users will do this, and landlords are going to have to find a way to get ahead of the trend.

  John Stater is a research and Geographic Information Services manager at Colliers International – Las Vegas.

  Source: VegasInc.com, June 27, 2016 (http://vegasinc.com)

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• Technology is Changing the Role of the Real Estate Agent

  Success is more about service, and new innovations will only make responsiveness more important

  By Patrick Sisson

  It may be hard to conceptualize, especially for first-time home buyers or those yet to embark on buying their first home, but 15 years ago, the real estate market was a different beast, information wise. When records used to be buried in file folders, it put buyers in a much different place than they are today, able to access detailed property records on their smartphones within minutes.

  “Before, you spent a lot of time doing information gathering, and collecting, and response,” says Jeremy Wacksman, Chief Marketing Officer at Zillow. “The internet really opened the doors. Agents are freed up to help get the deals done. But now they have to be agent, negotiator, price setter, and a community resource.”

  Wacksman sees technology shifting the role of real estate agent from an information arbiter to a local market expert and service provider (“It’s not about the data; everyone has the data now”), while brokers need to better leverage technology to help their team become responsive, active experts for their clients. While there’s always been some frustration over the work of certain agents, demands have only become more pronounced when ever-present technology lets everyone do their own research. Many in the industry feel success is about reacting to evolving client expectations, and adapting as technology changes the buyer-agent relationship.

  “Clients today are much more knowledgeable,” says Tamir Poleg, CEO and founder of Real, an app that allows agents to ditch the conventional brokerage model. “They do online research, know what they’re looking for, and know the neighborhood. I understand the frustration people have working with agents who can’t provide the services they expect, then collect a hefty check. They key is for agents to be more responsive, understand better what the client wants, and justify the money that they’re getting.”

  The availability of data, an established market norm for years, requires agents to be on their best games, says Michael McGrew, treasurer at the National Association of Realtors (NAR) and CEO/Chairman of McGrew Real Estate on Lawrence Kansas. Consumer’s ability to educate themselves is a net positive, he says, but there’s still an important role for agents, especially when it’s time for financing.

  “It’s one thing to go online and get curious,” he says. “It’s another thing to look at financing options. People realize they can learn the alphabet and language, but they aren’t necessarily fluent.”

  87% of buyers purchased their home through a real estate agent or broker, a share that has steadily increased from 69 percent in 2001.

  While technology is disrupting numerous industries the idea of making a massive, infrequent, and consequential purchase such as buying a home without the help of a trained agent still scares many buyers, according to Wacksman. If recent stats showing the dearth of for sale by owners transactions is any indication—according to NAR stats, 87% of buyers purchased their home through a real estate agent or broker, a share that has steadily increased from 69 percent in 2001—it’ll be a long time before the human element is taken out of real estate. But that doesn’t mean technology isn’t changing how that relationship works.

  McGrew feels technological automation and standardization aren’t necessarily right for the real estate industry, when every property is unique, but feels there’s a lot of room to integrate new technology into the buying and selling process. According to McGrew, “all of us in this business have to be committed to making it work better.” The National Association of Realtors is a big investor in Second Century Ventures, a company that funds startups in the real estate industry.

  Wacksman believes new technologies, such as video and VR tours, as well as programs such as DotLoop (an e-signing service Zillow acquired for $105 million last year that takes much of the paperwork of real estate transactions online), will streamline the process even further.

  Poleg believes the as tech takes away barriers to information, the real issue is responsiveness and service. Technology will continue to provide more access to information, and agents and brokers need to continually be more responsive with clients. He envisions a time when bots become a tool to constantly respond to buyer request for updates and information.

  “It you look at 2000 compared to today, the percentage of people using real estate agents is increasing,” says Poleg. “If someone said a robot could do your surgery, would you do it? Technology can replace a lot of things in a lot of industries, but a real estate agent isn’t necessarily one of them.”

  Source: Curbed, June 3, 2016 (http://www.curbed.com)

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