Short-term rentals. The view on short-term rental activity on site is strongly reflective of resident age, with younger renters expressing more interest. Nationally, nearly 60% of respondents said that having short-term rentals would either positively impact their perception of a community or have no effect at all; conversely, 16% said they would not rent at a community that allowed short-term rentals.

Coworking. While 42% of survey respondents said they telecommuted at least part of the time, just 15% said they either had or would use a coworking space, while 55% said they were interested in an on-site business center.

Coliving. Despite a lot of investment in coliving start-ups, nationally, apartment residents remain skeptical about the trend—at least for now—with 69% saying they definitely would not be interested in this type of living arrangement.

Voice-activated technology. 43% of respondents said they were interested in or would not rent without voice-activated virtual assistants like Amazon's Alexa or Google Home. More than a third said they already owned such devices.

Pet amenities. More than one-third of respondents were pet owners, with the majority having dogs. Dog owners, in turn, said they expected to pay between $28 and $34 more per feature per month for perks like a community dog park, pet-washing station or on-site pet services.—Erika Morphy

SECTOR VIEW: 2019 Will See More Store Closures Than the Previous Record Year

The narrative about the retail market has changed. This year, more investors and industry experts are talking about the revival of retail, the strong yield-producing opportunities and how owners and retailers have evolved to new consumer demands. However, the latest stats do not back up those claims. According to the most recent retail report from Ten-X Commercial, retail store closures this year are on track to surpass the previous record in 2017. J.C. Penney, Bed Bath & Beyond, CVS and Forever 21 are all closing several store locations.

"When you look at the store closing stats and that we are on pace for more store closings in 2019 than in 2017, it speaks to a situation that hasn't improved yet," according to Peter Muoio, chief economist at Ten-X Commercial. "Both 2017 and 2019 were strong years for the economy, and even as you look at the macro economy today, all of the data from the consumer sector shows that it is still strong. So, for this to be happening while consumers are spending, certainly points to something that hasn't stabilized yet at this point in time."

The possibility of a downturn is putting more pressure on the situation. Predictions of a recession hitting next year have increased, and with retail suffering during an up cycle, it could mean more storms ahead for the market. "If the overall economy were to down cycle, what will that mean? Have we gotten all of the store closures out of the way, or will a downturn exacerbate the situation even further? I think that it is going to hurt it. It is going to hurt e-retail too," says Muoio. "If overall consumer spending went down, it would hurt all of the different venues, but it is certainly going to hurt brick-and-mortar stores and put more pressure on them than they have today with the strong tide."

As for the headlines, it is true that retail is evolving, but that evolution has not offset the quick dominance of e-commerce. "There is a degree to which retail is doing well, like e-commerce retailers opening brick-and-mortar, and that is all true, but the reality is that the percentage of retail sales that is going through the e-retail channels is going to increase at the expense of brick-and-mortar," says Muoio.

In fact, as brick-and-mortar evolves, e-commerce has been close behind. "It started with commodity items, but it then shifted toward clothes with easy returns and sizing algorithms," says Muoio. Now there is online grocery shopping and banking. There is no real part of retail spending now that isn't under assault from competitor pressures from e-retail."—Kelsi Maree Borland

TECHNOLOGY WATCH: 5G Will Open Up CRE Investment Opportunities

The new technologies we read about only a few years ago are here. The internet of things, streaming and 5G, artificial intelligence, autonomous vehicles and e-commerce services are all coming in fast and furious. And they promise to touch the lives of many Americans.

With the development of autonomous vehicles, internet of things devices and high-resolution content for artificial intelligence and augmented reality, Pacer ETF analysts predict that total global internet traffic is expected to reach 2.3 zettabytes of data by 2020, which is nearly doubled from 1.2 zettabytes in 2016.

"All of the new technologies and services like 5G internet speeds and connectivity, increased streaming service capabilities, internet of things, ecommerce and artificial intelligence use up massive amounts of computing power and eat up space on servers," says Sean O'Hara, president of Pacer ETF. "In order for these technologies to become even more mainstream, we need a significant build up in the amount of computing power available. Most of this will come in the form of cloud computing, and cloud computing relies on large data centers to house server farms, which is what a company like Equinix builds."

The future of 5G depends on a data and technology providers' ability to offer the necessary infrastructure to enable this growth. For this to happen, the real estate industry must step up. For instance, industrial REITs that are integrated into e-commerce distribution, logistic networks and self-storage facilities will play key roles in the success of data expansion.

"There will be a growing demand for specialty real estate warehouses and data centers to house larger server centers," O'Hara says. "Many of this space will be required by the big tech companies like Amazon and Microsoft as they continue to expand, however they are only a part of the ecosystem that relies on high-end computing power. These cloud service computers will need to connect and communicate with other computers."

It is common for commercial buildings to experience cellular connectivity issues with 4G LTE. This may worsen with 5G. "Unfortunately, this dilemma will only deepen as people begin to depend on the higher frequencies utilized by 5G," O'Hara says. "5G requires a lot more antennas and boosters to maximize its capabilities. This will have to be addressed on a property-by-property basis and it is something for real estate owners to keep in mind with both old and future properties."

Already, REITs and c-corps are updating their infrastructure to accommodate this flow of data, according to Pacer. O'Hara expects higher-density areas to have an even larger build out for 5G due to the population and number of devices that will be connected.

"5G and the build out of server farms for increased computing and processing power is already underway across the United States," O'Hara says. "The infrastructure build out is happening as we speak in order to accommodate this next wave of technology and advancement."—Les Shaver  

BEHIND THE DEAL: Get Ready for Opportunity Zones Lawsuits

Mike Krueger, counsel with Newmeyer Dillion, represents investors, developers, fund managers and nationwide brokerage firms in Opportunity Zone projects. While he sees a lot of potential in the program, his crystal ball says there could also be some legal issues ahead.

"We, as attorneys, are anticipating a substantial number of lawsuits down the road from 'fund managers' who don't do this properly," Krueger says.

"I think a lot of people are assuming that they can just put money in their own bank account," Krueger says. "That has to be a completely separate entity."

If investors keep money in their own account, Krueger says they will face legal risks. That said, each individual investor can set up their own fund, which is a separate entity. They don't need to invest in another big fund.

"I think that's one thing that is being missed by a lot of investors, especially people who otherwise would be very savvy investors that understand capital gains," Krueger says. "The reason they've incurred capital gains is because they either sold a bunch of stock or maybe they sold a real estate development project. That person or that entity can set up their own new LLC or corporation, put those funds in and integrate their own fund."

Problems, according to Krueger, don't just occur when investors neglect to set up a fund. They can also happen when they've commingled the assets into a giant fund and they haven't done the proper paperwork. He sees a lot of lawsuits coming on the Qualified Opportunity Zone Businesses (QOZB) level. Whoever owns the building or plot of land in an Opportunity Zone will be a QOZB.

"It's where either the promoter or the developer or the startup company is saying, 'Hey, we're a Qualified Opportunity Zone Business where your qualified opportunity fund can invest and receive these benefits," Krueger says. "Those on the QOZB level will qualify for opportunities on a  business level. That's where they really need to have a professional advising them on how to draft their funding documents, because each of these has to be either a corporation or a partnership. A partnership can be an LLC, but they have to set that up. In the conversations that I'm having with investors, they seem to just be glossing over that point."

QOZBs need to be careful when drafting proposal documents for investors to contribute their Qualified Opportunity Zone Funds [QOZF].

"It is important for all of those reps and warranties to be accurate," Krueger says. "They're relying on that, not just for their investment, but also for tax purposes to qualify. That is why it is so important to have this nexus with the QOZB and QOZF. If either of those is out of compliance, not only will you not get the benefit of growing tax free and deferring your taxes, but your capital gains tax that you anticipated deferring until 2026 could potentially come immediately due."

Despite legal pitfalls, Krueger thinks Opportunity Zones still present a lot of promise.

"If you do this properly, it is an amazing program," he says. "This is a once in a lifetime program to take advantage of these tax savings. But, if you blink for a minute and you mess up [with how you set up your fund], there's no reset button three years down the road. There is no cure." —Les Shaver

Exec  WATCH

Cushman & Wakefield has appointed John Owendoff to managing director of its Washington DC metro region capital markets team. Previously, Owendoff served as managing director at HFF.

CAPITAL MARKETS WATCH: Lenders Race to Backfill Void Left by Housing Agencies

Ryan Haase

This fall, several events related to Fannie Mae and Freddie Mac occurred that cumulatively made them less competitive in multifamily lending and created uncertainty around the GSEs moving forward. Since then, banks, life insurance companies and conduit lenders are fighting tooth-and-nail to recapture multifamily financing market share in light of the resultant agency void.

Fannie Mae and Freddie Mac announced in late August that they had reached their target loan production allocations for 2019. As a result, agency loan production came to a screeching halt, with the few ongoing transactions being executed at far more conservative levels and on a much more selective basis. Quoted spreads widened approximately 70 basis points, leverage levels decreased and waivers were halted, effectively stalling production and making quotes much less attractive to commercial real estate borrowers.

In the following weeks, issuance of the US Treasury Department's long-awaited plan to end government conservatorship of the GSEs, as well as the announcement of the Federal Housing Finance Agency's new lending guidelines for the GSEs, further clouded the current and ongoing multifamily lending operations of the GSEs.

Over the past several years, the multifamily lending sector has been dominated by the agencies. Historically, the agencies have been able to outperform life companies, banks and conduit lenders, due to their low cost of capital and governmental guaranties. While they were created for the purpose of making housing affordable, they have slowly crept into the non-affordable housing space, winning class-A multifamily housing business that typically had gone to their competitors. As a result, the percentage of multifamily loans on the balance sheets of life companies and banks has decreased over the years.

Coinciding with the emergence of multifamily as a preferred asset class, non-agency lenders have fought hard to maintain their market position, but to little or no avail. The events this fall, however, have opened the window for non-agency lenders to scratch back and regain any multifamily market position that they can.

For example, banks, who typically never provide non-recourse loans for multifamily above 65% LTV, have done so up to 75%. Other ways banks have changed course to win deals include drastically reducing origination fees, agreeing to waive prepayment (opening loans at par for the full term), waiving depository requirements for first-time borrowers and agreeing to rely on older third-party reports at closing. Conduit lenders have stretched on leverage and interest-only periods (often full-term I/O) for multifamily product, while holding spreads even in the face of declining treasuries, often providing debt well below 4%, often 50-75 bps inside of the agencies. Life companies have been aggressive on interest rates as well and have been very creative on prepayment flexibility, winning long-term multifamily debt for borrowers wanting more prepayment flexibility than CMBS can provide.

While this perfect storm of events came together to give non-agency lenders a big opportunity this fall, I believe things have already begun to return to normalcy for the agencies. Over the past week or two, agency spreads have come back in 40-50 bps, making them competitive again. This moment of bliss for non-agency lenders may be short-lived, but in the long-term there is some hope. An eminent end of government conservatorship, as well as new lending guidelines, project a new direction for the agencies.

The loss of federal backing bodes well for the competitors of agencies, as losses won't be able to be as easily absorbed, bond pricing will likely widen, and agency cost of capital will likely increase. In addition, a move to more "mission driven" lending (minimum 37.5% of total production moving forward) likely signals more of a return to lending in the affordable housing sector, opening the door for life companies, banks and CMBS to compete for class-A properties. According to industry surveys, both life companies and banks expect to increase multifamily production in 2020, a signal that they also foresee a more balanced playing field moving forward.

Ryan Haase is a director of capital markets for Franklin Street.