Across the Atlantic Ocean, Europe’s debt crisis wasn’t lost on the U.S. commercial real estate market, where it added to the persistent uncertainty that made sponsors and issuers cautious just as the sector’s fundamentals were improving. Commercial real estate is poised for an economic expansion, but ripples such as Europe’s fiscal woes can make markets more cautious and directly impact occupancy and the overall commercial real estate outlook. In cases such as these, there is a fine line between stagnation and opportunity. If the former happens, recent gains in responsible land use could slow.

The debt crisis and related recession overseas revealed the key structural weakness of the European Union, which has little fiscal control over its member nations. True, some relief came through the decision by the European Central Bank to lend €600 billion at low rates to European banks. In addition, the U.S. Federal Reserve freed up liquidity by easing credit for European banks.

But the problem now is Europe’s recession and its effects on its countries’ debt burdens. Liquidity could eventually find its way into the European economy, but countries will need to sell about $1 trillion in debt in 2012. Any reluctance by investors could trigger more market unease — and trample the blossoming U.S. commercial real estate market just as it is ready for a comeback.

According to the National Association of Realtors, 2011 saw positive demand across all property types for the first time since the financial meltdown four years ago. U.S. banks increased their commercial property lending in the fourth quarter of 2011 for the first time in almost two years. While the sector still lags business investment, the commercial real estate market’s mood can be described as cautious but positive.

The biggest opportunities remain Tier One cities, with major markets seeing an improvement and remaining attractive to European capital. Even so, despite the cash that banks have, the cost of capital is higher because of the strengthening of banks’ balance sheets. Today commercial real estate borrowers are being asked to clear additional hurdles, and lenders are seeking ancillary business – from treasury management to investment banking – to bolster their returns.

Given this environment, a long European recession could hurt commercial real estate lending in the U.S. As recent history has shown, any period of global uncertainty and higher capital costs makes lenders more cautious. Consider that a European recession affects demand for U.S. goods in that market along with the risk of pullback in financing by domestic U.S. banks.

Such a recession also could present opportunities, such as REITs and opportunity funds acquiring assets outside the U.S., including in Europe. But the risk to the U.S. commercial real estate market is real, and both borrowers and lenders must monitor the situation closely to ensure projects not only remain on track but maintain the appropriate controls for responsible land use.

This article was provided by Bank of America Merrill Lynch, a Platinum level sponsor for ULI Charlotte, written by Stephen Windell, Mid-South Senior Credit Products Officer for Commercial Real Estate Banking.

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Hosted by ULI South Carolina

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Other high-profile highway projects under way in Charlotte: 

• The final section of Interstate 485 in northeast Charlotte should be finished in the fall of 2014. When finished, motorists will be able to drive all the way around the city without stopping – a project that’s been more than 25 years in the making.
   
• The DOT is currently widening I-85 in Cabarrus County to eight lanes total. That project, which will end at N.C. 73, will be finished in the fall of 2013.
   
• The state is planning to widen the first section of the outerbelt in south Charlotte.
   
  Starting in August, the DOT plans to add two lanes each way from Interstate 77 to Johnston Road and then an additional lane to Rea Road. That section of the outerbelt is the state’s most congested highway, with 120,000 cars a day on only two lanes of traffic one way.
   
• The N.C. Turnpike Authority had planned to begin construction later this year on the 20-mile Monroe Connector/Bypass, the region’s first toll road.
   
  But a federal appellate court in May ruled that the state didn’t do required environmental impact studies correctly, putting the project in limbo. The state has asked the 4th Circuit Court of Appeals to review the case, but it could have to rework its environmental impact studies, which could take months or years. Steve Harrison

By: Steve Harrison, Charlotte Observer

Panelists:
Lee Cochran, CFO, Levine Properties
Walter Fisher, Partner, K&L Gates
Forde Britt, Broker, The Nichols Company

Moderator: Charles Teal, CEO, Saussy Burbank

The focus of the discussion at the ULI Charlotte Spring Members Only Breakfast was to provide individual perspectives on the 2012 ULI Spring Meeting that was hosted in Charlotte May 8th – 10th, 2012. In addition to summaries provided on various sessions attended by the panelists, each panelist spoke of their individual encounters with attendees that were visiting Charlotte for the event.

We, as a community, have much to be proud of when it comes to our city. The encounters were overwhelmingly positive as the visitors were excited to be in Charlotte and pleased with what our city has to offer. Specifically, the visitors were very complimentary as to the success of Charlotte’s public/private partnerships that have been the foundation of Charlotte’s ability to provide residents with a variety of amenities both cultural and recreational. With over 3,200 attendees at the 2012 ULI Spring Meeting, our city was definitely on display as attendees participated in various mobile workshops, special interest tours, and other events that were hosted within the greater Charlotte area.

Lee Cochran, CFO of Levine Properties kicked the morning discussion off with comments related to sessions he attended that spoke about various multi-family and office developments. Lee was interested in the analysis that was shown in the multi-family development presentation in that the sample markets used in the presentation had many similarities to Charlotte and the types of multi-family developments that are currently being developed in our community. This presentation focused on the importance of LEED certified developments as these energy efficient projects have proven to be much more attractive to today’s investors. The energy efficient concept also reached the presentation on office developments, as Lee highlighted the changes in office design to a more open, collaborative and integrated work environment.

Walter Fisher, a partner at K&L Gates, spoke highly of the general session presentation given by Erskine Bowles, former co-chair of President Obama’s National Commission on Fiscal Responsibility and Reform. Walter commented that the presentation was very much a ‘call to action’ for all professionals in that it is imperative for us to take actions that will influence lawmakers to start making the tough decisions. Walter also discussed another general session that was led by Amory B. Lovins, Co-founder, chairman, and chief scientist at the Rocky Mountain Institute. Walter indicated he found the presentation to be ‘extraordinarily stimulating’ in that Lovins gave many real life instances of the use of sustainable practice and the substantial difference that these practices made. The focus on ‘green’ is argued by some to be a fad, however, Lovins discussion on environmental standards gave the audience food for thought in the way of real opportunities to recover costs and the importance of sustainability in driving value.

Forde Britt, a broker at The Nichols Company, spoke about his experience at the 2012 ULI Spring Meeting, not just as an attendee, but also as a volunteer and a participant in the Young Leaders Roundtable, which had an overall theme of the role of regulation in our society. The discussion focused on ways to collaborate and share resources, keeping in mind that everything isn’t project specific and often we should be thinking on a more macro level. The Young Leaders Roundtable also discussed the topic of social media and its current day impact on the business world.

The last speaker of the day was Peter Pappas, President/Managing Partner of Pappas Properties, who chaired the ULI Local Arrangements Committee, and was an integral part of bringing the 2012 ULI Spring Meeting to Charlotte. Peter stated he had three goals for the event: great attendance, great programs, and sponsorship – raising money for the local ULI District Council. Based on the feedback that has been received on the 2012 ULI Spring Meeting, it is clear that these goals were achieved. Peter indicated his appreciation for the opportunity to be involved in the event and to all of those that assisted in making the Spring Meeting a success.

By Lauren Spegal, an audit manager with Grant Thornton.  She has been with GT since her start in public accounting eight years ago. Spegal’s focus is in the Construction, Real Estate, and Hospitality industry group.

On April 12, the UrbanPlan Volunteer Class of 2012 completed a day long training.  Congratulations to our class for studying, preparing, and participating in UrbanPlan.  We are excited to have these 11 individuals join other ULI members dedicated to participating in our high school and university program.

Urban Plan Volunteer Class of 2012:

Chuck Graham, Newton Graham Consultants; Elizabeth McMillan, Crescent Resources, LLC; Charlie Rulick, TDS / Well Fargo; Dennis Richter, National Renewable Energy Corporation; Chip Stanley, Beacon Partners; Jennifer Stanton, JMS Advisory Services; Dean Smith, Apartment Realty Advisors; Mark Miller, Lat Purser & Associates; Carter Siegle, Wood Partners; Nancy Crown, Bank of America Merrill Lynch; Darlene Heater, Charlotte Center City Partners

Click here for the full press release

Click here for the ULI Real Estate Consensus Forecast

The theme of the day was innovation and collaboration. The first presentation was facilitated by Mitchell Silver, Chief Planning and Economic Development Officer for the city of Raleigh.

Mr. Silver laid the foundation for the resilient communities discussion as he walked the audience through the history of urbanization. He discussed the importance of people and communities across regions working together in order to grow together. He focused on what attributes make a community resilient, specifically how a community plans for trends, emerging issues and challenges. He indicated that sustainability has a “shelf life” and the importance of long-term planning as it relates to urbanization and our current environment. Examples were provided through a list of emerging trends. While these were presented as future trends that would impact our community, different trends have cycled through communities in different forms throughout history and have proved their impact urbanization.

The first trend discussed relates to the aging population as current day life expectancy is increasing and therefore the number of Americans who are 65 and older has grown. Other trends included changes in lifestyles of individuals, such as the rise in unwed mothers, the increase in the average age that individuals are getting married and moving into single family households and a decline in population of rural counties in the United States as younger generations continue to move to more “urban” areas.

Mr. Silver discussed the importance of planning for the “implications” that these emerging trends will have on our communities. For example, as the population continues to age, more and more seniors will be looking to relocate to areas where public transportation is available and communities that allow these individuals to live off of a fixed income. Changes in household composition imply that there will be a lower demand in the future for large homes in suburban areas. The younger generation is focused on smaller homes and urban lifestyle in areas that provide mixed use space. Mr. Silver cited planning for these trends as key to maintaining a resilient community in that strategic planning adds value to the community as it allows for the community to prepare for these emerging trends and challenges.

Mr. Silver’s presentation was followed by a panel discussion that included the following participants:

· Clay Grubb, Grubb Properties
· David Howard, City of Charlotte
· Professor Deb Ryan, UNCC
· Terry Shook, Shook Kelley
· Nathan Taft, Jonathan Rose Companies

After introductions, the panelists were posed with several questions related to emerging trends and the impact of these trends and other challenges on communities.

Professor Deb Ryan discussed the implications of aging and public health on community design and resiliency. David Howard addressed his views on the Charlotte community and its ability to “know what is urgent before it is urgent,” in other words, plan for the emerging trends and challenges that will affect our community. Mr. Howard indicated the challenges that Charlotte faces in this regard, as do other communities, in that many individuals that represent younger generations promote development and are interested in having choices when it comes to places to live, yet these individuals are not voting and thus not driving many of the decisions that are made in the community.

Clay Grubb commented on his experience with being faced with “No’s” and how to turn a “No” into “Yes.” He cited his experience with running into “No’s” as it relates to the Glenn Lennox development in Chapel Hill. He indicated that it comes down to educating the community so that individuals can achieve a mentality that it is about the community as a whole and not about buildings. Terry Shook was then asked to provide feedback on how zoning and other codes give the impression that building options in a community are limited or restricted. He indicated that these codes can provide just the opposite in that communities where urban developers work with property developers in zoning and other regulatory discussions, often times, property owners and developers are able to incorporate investment strategies and generate a higher return on their investment. Nathan Taft was asked to comment on the criteria for a sustainable investment. He indicated that there is a “sweet spot” when revitalization of cities can come together from an environmental, economic, and social perspective. Mr. Taft discussed the importance of thinking on a more macro scale and not just on a community level.

The final speaker of the morning was Tom Murphy, ULI Chair for Urban Development. Mr. Murphy’s presentation was entitled “What’s Next in Real Estate in the New Economy?” Mr. Murphy discussed “game changers” as it relates to the future of real estate, including concepts such as globalization, technology, and demographics. From a globalization perspective, he spoke specifically of access to the Panama Canal traffic, as an example to demonstrate how America continues to focus on the big picture and how this focus can impact a single community. He discussed advances in technology and a move from historical trends of commerce that were focused on location in that local communities can now have a competitive advantage when they foster communities that have the intellectual ability to succeed. Specifically, he indicated the importance of education and research facilities in a community, as communities with higher educated individuals drive a better educated workforce and will provide these communities the opportunity to enhance urban growth.

Finally, he discussed demographics and the changes in the real estate market that are driven by demographics. In our current economy, fewer consumers are looking to purchase homes as these purchases are considered to be a riskier investment. Mr. Murphy’s presentation highlighted the opportunities that communities have to work together and invest in education, research, and innovation to create an environment that serves to enhance the overall marketability of the region.

Note: “What’s Next: Real Estate in the New Economy” is a special publication celebrating ULI’s 75th birthday celebration. Copies of this book are available here.

By Lauren Spegal, an audit manager with Grant Thornton.  She has been with GT since her start in public accounting eight years ago. Spegal’s focus is in the Construction, Real Estate, and Hospitality industry group.

The Garrison Institute’s mission is to apply the transformative power of contemplation to today’s pressing social and environmental concerns, helping build a more compassionate, resilient future. Specifically, the presentation discussed how human behavior and patterns impact energy consumption both in commercial and residential settings and how a community can drive change in energy use by developing an approach to raise awareness among individuals as to daily energy consumption.

The presentation started by discussing how energy is a very “invisible” commodity that drives significant waste of resources as many people do not consider the impact of energy that is used daily. Dr. Erhardt- Martinez took a poll of the audience to determine how many people were aware of their energy consumption in their own homes on a monthly basis. The results were expected as only two members of an audience of approximately 30 people were able to identify how much energy their households use on a monthly basis, while almost everyone in the room could identify the dollar amount of their monthly power bill. The discussion continued onto the implications on a more macro level, for example the energy consumption of an entire community or an office building.

One common misconception that was discussed related to the rise in energy efficient appliances and the presumption that using this new technology results in overall energy savings. In practice, more energy is often consumed as the efficiencies gained lower costs, allowing consumers to have more appliances or run them longer.

Dr. Ehrhardt-Martinez believes the focus should not be on technology alone but on people to create an “energy revolution” and thus reduce energy consumption. She provided information on studies that had been performed comparing different locations, one with newer energy efficient technology and the other with an older infrastructure. The results of these studies prove that it is not just the building that drives lower energy consumption as building occupants play a significant role in this initiative as well. With this fact pattern clearly presented, the focus shifted to opportunities that could be provided to motivate individuals to change their behavior when it comes to energy consumption.

Dr. Ehrhardt-Martinez walked the audience through steps to make energy consumption reduction programs as effective as possible within a community, both residential and commercial. These programs can be directed to a single family neighborhood or tenants in a commercial building that use the space for offices. Dr. Ehrhardt-Martinez discussed the TIME Model which is defined as Targeting, Informing, Motivating, Empowering and Enabling.

Targeting was described as creating people-centered initiatives. What group of people is your program looking to target? The next step in the TIME model is Informing. This entails providing individuals or businesses with an understanding of the upside, for example the savings that could be generated by engaging in an energy consumption reduction program Dr. Ehrhardt-Martinez stated that without the proper information, individuals may not be aware of the issue or motivated to change.

Motivation follows Informing in the TIME model. Motivating should move past just financial incentives and focus on social norms, competition or individual goals. For example, providing a homeowner with a bill that notes the energy consumption on average of others in the community as well as the energy consumption of the neighborhood’s most energy efficient individuals could be a good motivator to change one’s behavior when it comes to making a conscious effort to turn off lights and other appliances when they are not in use.

Finally, the E in the TIME model represents Empowering and Enabling. This was defined by Dr. Ehrhardt-Martinez as removing the financial and structural barriers and providing individuals better choice sets or creating supportive communities that enable individuals to change their behavior as it relates to energy consumption.

By Lauren Spegal, an audit manager with Grant Thornton.  She has been with GT since her start in public accounting eight years ago. Spegal’s focus is in the Construction, Real Estate, and Hospitality industry group.

It might not look that exciting (we were hoping it would look more like the inside of HAL from 2001: A Space Odyssey), but facilities like this data center are leading the move to the cloud. They’re the fortresses of the modern age, with uninterruptible power, tough HVAC systems, and around-the-clock security and monitoring. They’re also leading real estate development in the Charlotte area. Apple is well known for its sprawling data center in southern Catawba County, but hometown data center specialist Peak 10 is another aggressive player. In late April, the company said it was building a 62k SF data center near UNC-Charlotte (in phases; the first will be about 15k SF). The property will be the company’s 23rd data center since its founding in 2000.

Peak 10 CEO David Jones (seen in this vidcap announcing the new data center at a Charlotte Chamber meeting) said that Charlotte’s airport hub is important to the company’s nationwide operations because an “executive presence is important in the markets we serve.” But as a location for a data center, Charlotte has some advantages, such as an available pool of employees. (The new data center will employ about 10 people initially.) Currently, the company has 35k SF of data space in south Charlotte, while the new facility will be on the other side of the metro area. Peak 10 will have invested about $50M in the Charlotte area once the new data center is fully built out.

During ULI’s Spring Meeting next week in Charlotte, one of the featured tours and a location for various council meetings is the Metropolitan at Midtown. It isn’t quite built out yet, but it’s an outstanding example of public-private cooperation in the 2000s to reinvent part of an urban area. Cooper Carry CEO Kevin Cantley spoke to us about the development’s impact on Charlotte.

The property was the outgrowth of a very deliberate public-private planning process, Kevin tells us. It dates from the late ’90s as part of the City Center Vision Plan for 2010 and was built on the site of a failed mall and cinema (they had to be careful not to disturb the ghost of Auntie Anne), with the goals of encouraging urban density, walkability, and transforming Little Sugar Creek into a linear park system. The city laid the groundwork for a mixed-use development on the site—the public part of the partnership—by improving the surrounding infrastructure and creating the Little Sugar Creek greenway. “Few cities undertake such specific planning for their downtown core,” Kevin says. Then it was up to private enterprise to make it work as a development, with the city stipulation that it include some workforce housing. Both aesthetically and financially, the property has succeeded, he says.

Developer Pappas Properties hired Cooper Carry to realize the design. “We worked with Peter Pappas to create a streetscape— and an architecture to support that streetscape—that’s 21st century, which also has elements that create a human scale,” Kevin says. So there’s a lot of metalwork and projecting cornices that cast interesting shadows and the idea of texture and color isn’t ignored by the precast concrete used in the structures. The project’s retail components are part of a new urban model with a focus on convenience and efficiency, and the results are unusual: A Target sits over an a Home Depot, while a Marshalls is stacked over a Best Buy. These retail pairings are served by a single parking ramp each to make the area more compact and walkable. (So you can read the Kindle you get at Best Buy as you walk to your car.) Office space is integrated in the eight floors over the two levels of street retail.

Apartments are also part of the mix (some of which have fine views of downtown Charlotte, as seen here).There’s one more undeveloped site at the end of Metropolitan Avenue, the property’s main street, and Kevin says that an apartment tower will go there. “We’ve been talking to developers about the design of that tower,” he tells us. “That’s just getting started, but the city has the desire to have apartments built on that site, so it’s going to happen.” The Metropolitan at Midtown will not be the last of the firm’s projects in greater Charlotte, however: It has master plans under development for at least four tracts from 50 to 100 acres. They’re still in the entitlement phase, so no details are available yet.