The Grubb & Ellis Saga-How Did it Happen?

I have done numerous deals over the years with the brokers at G&E , starting back in in the 80′s when I was slightly younger and the brokers at G&E were and are have always been top notch pro’s on every level. So this story I found riveting. All of us who are in the brokerage field are working ( no kidding) in a new world, and the G&E story is a chapter by itself.

There’s an old saying in real estate development that the “raised nail gets hammered” and perhaps that saying also applies to commercial real estate service firms.

This week that became apparent with the bankruptcy filing of the once iconic Grubb & Ellis (GRBE) brand. At one time the Santa Ana-based commercial real estate service firm towered above all of the other leading commercial real estate brands and today the global giant has been reduced to a debtor in possession worth a mere $30 million.

The once dominant brand was considered the McDonald’s of commercial real estate services (with a similar highly visible yellow and black logo) and the globally recognized leader grew over five decades into a stalwart transactional service firm.

Founded in 1958 by Bill Grubb and Hal A. Ellis, Jr., the Oakland brokers establish an innovative, growth-oriented company with a penchant for providing clients with best-in-class service. Throughout the 1960’s and 1970’s the company grew into a full-scale firm providing services including brokerage, property management, development, and insurance.

During the 1980’s it grew ten-fold by acquiring nationwide offices with a goal of integrating and consolidating services. In 1983 Grubb & Ellis listed on the New York Stock Exchange and in 1984 the company acquired Henry S. Miller Companies, a firm that was at that time the largest real estate company in Texas.

After that acquisition, Grubb & Ellis became the third largest commercial real estate firm in the U.S.

It was during the 1990’s that Grubb & Ellis grew to global supremacy.  This worldwide expansion resulted in strategically located offices in England, France, Germany, Italy, The Netherlands, Spain and Mexico.

Of course the four decades of growth also resulted in heavy borrowing and extraordinary risk. At the peak in 1997, Grubb & Ellis was trading for around $17 a share and the largest individual shareholder, Michael Kojaian, was on the way up. The Bloomfield Hills real estate investor had made his first investment in 1996 and he continued filling up his holdings for more than fifteen years.

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That fifteen year journey was a wild ride for Kojaian (and ownership by his family and affiliated companies) as his GRBE holdings have expanded from 2.5 million shares to 22.9 million, now representing roughly 30 percent ownership in Grubb & Ellis. During that period Kojaian has taken various management positions (chairman 2002-2007 and chairman 2009-last week).

In the Jim Collins book, How the Mighty Falls, the author writes:

“Every institution, no matter how great, is vulnerable to decline. Anyone can fall, and most eventually do. But decline, it turns out, is largely self-inflicted, and the path to recovery lies largely within our own hands. We are not imprisoned by our circumstances, our history, or even our staggering defeats along the way. As long as we never get entirely knocked out of the game, hope always remains. The mighty can fall, but they can often rise again.”

On December 10, 2007, Grubb & Ellis announced that it had completed a merger with NNN Realty Advisors and that the combined companies would be “better positioned to more effectively compete in an increasingly global commercial real estate industry.”

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Former Grubb & Ellis President and CEO Scott Peters said “This merger combines two complimentary firms to create a new company that is greater than the sum of its parts.”

NNN Realty Advisors purchased the iconic brand (via a reverse merger) utilizing a $725 million stock-only transaction. Many of the tenant-in-common assets managed by NNN’s illiquid partnerships were highly leveraged and the fees that NNN had generated were not sustainable. The end result of the “self-inflicted” merger was the precise opposite of what Peters described as a model with “sums greater than the parts.”

Instead, the combination of the iconic global service firm and the highly-leveraged tenant-in-common king resulted in an unaligned investor option with very little alignment–and mounting debt.

The last recession created a wave of bankruptcies with most tenant-in-common partnerships disappearing or dissolving. And of course the huge fees that were once generated by selling the securities related to these partnerships vanished. In addition, the management fee income also decreased considerably and many of the brokers moved on to greener pastures (stable firms).

The last straw for Grubb & Ellis was the loss of substantial management contract (valued at around $40 million) that resulted in around $10 million in direct losses in 2011.

Of course, as Jim Collins wrote, “the mighty can fall, but they can often rise again.”  This week BGC Partners (BGCP) signed an agreement to purchase the remaining assets of Grubb & Ellis for $30 million (plus $4.8 million in bankruptcy financing).

BGC Partners, an affiliate company of Howard Lutnick’s Cantor Fitzgerald, is a well-regarded global financial intermediary and his company recently acquired (October 2011) another strategically-aligned company, Newmark Knight Frank. The combined company should bring considerable scale and resources and perhaps bring the vintage yellow and black brand to its namesake prominence.

Of course, risk is inescapable and success and failure are directly correlated to good or bad judgment. Jim Rohn, famous for his motivated writing and speaking has said, “Failure is not a single, cataclysmic event. You don’t fail overnight. Instead, failure is a few errors in judgment, repeated every day.”

Hopefully Grubb & Ellis will survive five more decades (making the company 100 years old) and the new owners will remember the carpenter’s words: “the raised nail gets hammered.” (credit brad thomas, forbes)

YouTube Goes Old School Industrial In Los Angeles

Move over, Spruce Goose. Here comes YouTube.Internet video site YouTube and marketing agency Earthbound Media Group have agreed to be the first tenants at the Hercules Campus, an office park being created by Los Angeles developer Wayne Ratkovich from buildings in Playa Vista that were once the hub of aerospace giant Hughes Aircraft Co.

YouTube will take over a 41,000-square-foot warehouse and office. Earthbound Media will move its headquarters from Orange County to a 15,000-square-foot building where technicians assembled the cockpit for the legendary Hughes H-4 Hercules seaplane, commonly known as the Spruce Goose.

The former Hughes campus is already home to Raleigh Studios, which operates soundstages in the former hangar where the Spruce Goose was built. Paramount is filming parts of the next“Star Trek” movie there, Ratkovich said.

“The legacy of Howard Hughes really does influence people,” Ratkovich said. “People love to rub shoulders with him.”

YouTube and Earthbound plan to move in this year, Ratkovich said. Earthbound agreed to a 10-year lease, and YouTube is committed for 11 years. Ratkovich did not reveal financial terms of the deals but said he has been asking for nearly $3 per square foot per month.

“It truly is inspiring to be surrounded by a property with such great historical innovative significance,” said Blaine Behringer, managing partner of Earthbound Media.

Purchased byGoogle Inc.in 2006 for $1.65 billion in stock, YouTube is trying to turn itself into a broadcaster of premium, original content.

YouTube said it would make the Playa Vista location an extension of its Next Lab facility in New York. The Lab, as it will be called, will focus on boosting the careers of YouTube’s most popular content creators, offering them the chance to collaborate with industry experts and one another while using equipment provided by YouTube.

Once just a clearinghouse for amateur videos, YouTube in recent years began cultivating semiprofessional videographers, seeking to harness their grass-roots star power and helping them grow their audiences. Through its Partner Program, the San Bruno, Calif., company has invited more than 30,000 budding filmmakers to share in the revenue it collects from displaying ads alongside their videos.

Because videos produced by YouTube “partners” are generally higher quality and less likely to contain objectionable content, they also command higher advertising rates — seen as key to helping YouTube to reach its goal of becoming profitable. Mountain View, Calif.-based Google has not said whether the video giant is in the black.

Playa Vista is among the Westside locations now attracting businesses in creative fields such as electronic media, entertainment, technology and advertising, said real estate broker Jeff Pion of CBRE Group Inc.

“I think people want to be in an environment that stimulates creativity,” Pion said.

Ratkovich, who expects to spend about $80 million buying, restoring and improving the old Hughes property, has renovated some of the region’s best-known historic buildings, including the Oviatt and Fine Arts buildings and the Wiltern theater in Los Angeles and the Alex Theatre in Glendale.

He’s still a bit surprised at the enthusiasm some show for time-worn properties like the once-neglected Hughes campus.

“It is just amazing,” he said, “how companies prefer these industrial buildings to squeaky-clean, brand-new structures.”  (credit toRoger Vincent and Alex Pham, Los Angeles Times)

Why “Made In America” Makes Good Business Sense

• The federal government has partnered with U.S. states, regions, and cities in welcoming business investment to America through SelectUSA. (credit to Richard Thompson JLL)

• Other countries can offer lower labor costs and less regulation, but the U.S. is still the number one place to make sophisticated, high-cost goods.

• Its large internal market, highly educated workers, and strategic infrastructure are steering foreign investors to the United States

Other countries can offer lower labor costs and less regulation, but the U.S. is still the number one place to make sophisticated, high-cost goods.

First Person: The Si The global recession stripped away some of the luster from the great American industrial machine. General Motors toppled into bankruptcy, while other lesser-known manufacturers quietly fell by the wayside. The economic downturn didn’t trigger the decline. America’s industrial prowess has been shrinking for decades. But the global downturn made it more apparent.Now, Americans can’t switch on the TV or surf the Internet without coming across another news story documenting manufacturing’s painful demise. Many now believe that in the not-too-distant future everything Americans buy, every coffee mug, solar panel, T-shirt, brake pad, and battery will be made overseas. And the popular tagline “Made in America” will apply only to Americans themselves, not an actual product. After all, many U.S. manufacturers have already left in search of cheaper labor costs to developing countries like China, India, Mexico, and Vietnam.Yes, it’s true that the number of U.S. manufacturing jobs has steadily declined over the past four decades. Manufacturing employment, as a percentage of total payrolls, has decreased from 25 percent in 1970 to just 8 percent today. One in six U.S. factory jobs has disappeared since the start of 2000. Yet, those figures don’t tell the whole story.Contrary to popular opinion, the U.S. remains a manufacturing juggernaut, producing 21 percent of all global goods in 2009, a bigger share than the Japanese, Germans, British, and Italians combined. It also offers an attractive environment for international companies to set up shop.Notable Attributes Despite notable economic gains by other countries, the United States remains the world’s largest economy with an educated and ambitious work force. Plus, the country boasts the world’s largest stock exchange and deepest gold reserves, and is home to 40 percent of the world’s billionaires and 139 of the world’s 500 largest companies — twice that of any rival nation.And even though manufacturing employment may have dipped, productivity is at an all-time peak. Output, as measured per employee, has grown 70 percent since 1977. Basically, 184 U.S. workers can now do what 1,000 workers did in 1960, according to William Strauss, a senior economist at the Federal Reserve Bank of Chicago. Such attributes should not be ignored, especially by investors looking to build a portfolio of U.S. industrial facilities. Foreign investors, in particular, have an edge because of the dollar’s weakness compared to some currencies like the Euro. And — let’s not forget that the timing may be right.Property values fell amid the recession and are now climbing again as the manufacturing sector is making some strong gains, thanks in part to President Obama’s emphasis on industrial job creation. The White House has said publicly that the nation can’t buy its way out of the recession. The country’s long-term economic recovery hinges on America’s ability to make and sell quality goods in the global marketplace, just as it has done in previous decades. Most clothing, shoes, toys and low-cost electronics are made in China or another emerging nation, mostly because the lower labor cost provides an undeniable advantage in producing low-value, labor-intensive products. But an abundance of sophisticated goods like automobiles, aircrafts, pharmaceuticals, and semiconductors are still made in America. “I want to see more products…stamped with three proud words: ‘Made in America,’” President Obama said recently. “We can be the ones to build everything from fuel-efficient cars to advanced bio-fuels to semiconductors that we sell all over the world. That’s how America can be No. 1 again.” Cost Gap Narrowing Political rhetoric aside, observers say this is not a far-fetched idea. Going forward, U.S. manufacturing could benefit from several global developments, including the rising cost of labor in emerging nations such as China, where total manufacturing wages jumped 70 percent from 2002 to 2006. As the economies of more up-and-coming countries improve, those countries’ wages will rise too, and the low labor costs that lured U.S. and other firms to these places in the first place may not seem as attractive. In 2005, Chinese-produced goods arrived at U.S. destination ports an average of 22 percent cheaper than comparable goods made in the United States, according to the consulting firm AlixPartners. But fast-forward to the end of 2008 and that average price gap had narrowed to just 5.5 percent. Globally, the cost of transportation is growing, too. Freight costs are increasingly offsetting, and in some cases eclipsing, any savings from cheaper labor as oil prices trend higher. When oil is less than $70 per barrel, placing a manufacturing facility in India or China might make sense. But when the price spikes above $100, the decision becomes harder to justify. The United States still has a long way to go before it can claim domestic manufacturing has fully recovered but there are signs of a small resurgence. For instance, a new $1 billion Volkswagen plant opened this year not in China, Mexico, or even Germany, but in Chattanooga, Tennessee. The popular German automaker said its decision was based in part on the facility’s proximity to a large U.S. consumer base, a weaker dollar compared to the Euro, supply chain and logistics advantages, and a strong work force. The state-of-the-art manufacturing plant, a producer of the all-new 2012 Passat sedan, will eventually employ up to 2,000 American workers. Appliance maker Whirlpool Corp. also chose to stay at home. The company’s manufacturing complex in Cleveland, Tennessee, was more than a century old and in need of major upgrades. Instead of moving to Mexico — an option the company considered — Whirlpool spent $120 million to build a new plant last year in Tennessee, it’s first new U.S. factory since the mid-1990s. Although labor is cheaper in Mexico, Whirlpool decided to save on freight costs since most of the plant’s products are sold to U.S. consumers. In a similar move, U.S. elevator manufacturer Otis Elevator Co. recently announced that it is moving production back to the United States from Nogales, Mexico. It will build a plant in Florence, South Carolina, with around 360 jobs in a bid to be closer to its customer base, which is primarily on the U.S. Eastern Seaboard. It also wanted easy access to its skilled U.S. labor force of designers and engineers. The company cited the need to rationalize the supply chain by keeping operations in one place and decreasing its freight and logistics costs. A recent survey by consulting firm Accenture shows that other companies may follow the lead of Otis, Volkswagen, and Whirlpool. More than 60 percent of U.S. manufacturing executives said they were considering relocating factories back to the United States or Mexico from lower-wage-rate Asian countries due to rising transportation costs, according to the study. EDITORS PICKS First Person: The Site Selection Process Behind VW’s First U.S. Manufacturing Facility Other Concerns Executives also raised concerns over other issues like inconsistent application of intellectual property laws, human rights issues, product quality-control deficiencies, and the lack of environmental regulation in developing countries, particularly China. “Now that oil and transportation prices have gone up, productivity gains are not as big as they were, and there are issues around risk in supply chains; companies are starting to go where the customers are,” Accenture Managing Director Matt Riley says. Illinois has benefited from this trend. The state added more than 20,000 manufacturing jobs since January 2010, according to the U.S. Bureau of Labor Statistics .Of course, major challenges still lie ahead. The World Bank says the U.S. has one of the top 10 infrastructures in the world — economic rivals like China, India, and Brazil didn’t crack the top 25. Bolstering America’s case is ocean accessibility on three sides, many large and expanding seaports, interior lakes, navigable rivers, and an extensive rail and highway network.It’s true that the country’s supply chain infrastructure needs updating, if the United States is to retain its competitive advantage. With that in mind, President Obama has proposed creating an infrastructure bank in his 2012 budget as a centerpiece of a 10-year, $640 billion plan for upgrading and rebuilding 150,000 miles of roads, bridges, transit systems; reconstructing 150 miles of runways; and constructing and maintaining 4,000 miles of rail lines.There is talk of private investment, too. The BNSF, one of the largest U.S. railroads, plans to invest $3.5 billion this year in infrastructure improvements including network upgrades and locomotives. U.S. ports are also contemplating improvements in anticipation of the Panama Canal expansion, which is expected to be completed in 2014.The expanded canal will accommodate mega-container ships capable of carrying up to 12,600 twenty-foot equivalent unit (TEU) containers — approximately 50 percent more capacity than the typical container ship of today. This will increase economies of scale in reaching the East Coast of the United States — where two-thirds of the population lives.The proposed investment shows the federal government and private industry understand how important manufacturing will be to the U.S. economy in the 21st century. The Number-One Place To Be Other countries can offer lower labor costs and less regulation, but the United States is still the number one place to make sophisticated, high-cost goods. Though the U.S. dollar is relatively weak, American currency has a long, stable track record, and — if anything — the dollar’s present off-peak status creates more incentive for foreign investment dollars. What’s more, investing in the United States is a safer alternative to investing in developing countries, with their potential political and human rights problems and challenges to protecting products and information due to lack of regulation and inconsistent application of intellectual property laws. China, for example, has been the origin for as much as 80 percent of counterfeit and pirated products seized by U.S. Customs, with confiscated goods valued at $158 billion. Given the significant investments that companies make in research and development and manufacturing techniques to gain competitive advantage, nobody wants to lose their “secret sauce” to theft or reverse engineering. And while its stringent environmental and safety regulations may occasionally irk manufacturers, these help prevent the serious brand damage and potential liability generated by hazardous products from countries with less stringent laws. As with any thoughtful business decision, there are many factors to weigh and trade-offs to consider. When evaluating manufacturing/sourcing site selection decisions, supply chain/operations executives must rely on an objective, fact-based approach to ensure they arrive at the most optimal and profitable, long-term solution. Taking all factors into consideration, it is clear that the United States stacks up well from a manufacturing standpoint. With its skilled labor pool, stable political environment, supply chain infrastructure, business incentives, real estate values, and large consumer base, the United States will continue to look more attractive for foreign companies looking to make their products on U.S. soil. “Made in America” simply makes good business sense.

Industrial Real Estate Jumpstarts 2012

Credit To:   Jim Dieter, SIOR

Key market bellwethers – increased leasing velocity; the reemergence of speculative construction; and strong retail, manufacturing and transportation industry performance – signal the start of what very likely will be a positive year for industrial real estate in the United States.

The market clearly transitioned into recovery in 2011, after beginning to gain momentum during the second half of 2010. Leasing activity last year exceeded 417 million square feet. This was 20.5 percent higher than the 345.8 million square feet leased in 2010 and represented the highest level of activity since 2007. As a result, vacancy rates have stabilized in almost every market across the country. The current national average of 10.0 percent reflects a decrease of 80 basis points from year-end 2010.

Consider Southern California. As the world’s largest industrial hub, this market historically is the first to enter a down cycle yet also traditionally leads the way out. True to form, the Greater Los Angeles market topped the nation in leasing activity, with 36.7 million square feet in transactions. Its vacancy rate of 4.9 percent is the lowest in the country.

More surprisingly, Chicago came in as a close second for leasing volume, with 30.3 million square feet in lease transactions. While always a strong inland hub, the Windy City is not known as one of the country’s most exciting markets. Within this context, its impressive performance is a very good sign. Markets with the largest year-over-year gains included Central & Northern New Jersey (up 83.2 percent), Phoenix (up 76.1 percent), Miami (up 44.2 percent) and Dallas/Fort Worth (up 32.4 percent).

The industrial market continues to benefit from historically low construction levels, with only 29.6 million square feet added in 2011. Of that, only 4.4 million square feet was speculative development. For perspective, speculative building dominated the market in 2008, making up 78.5 percent of the 176 million square feet of new supply added that year.

Now, with demand outpacing supply in many key markets, we are beginning to see speculative development pop up, but still in a conservative manner. These projects, located exclusively in tight markets like eastern Pennsylvania, Southern California and Chicago, indicate growing optimism among industrial property owners.

Their enthusiasm is supported by positive trending in industries that directly impact industrial real estate performance. Retail sales in 2011 totaled a record $4.7 trillion, a gain of 7.9 percent over 2010 (the largest percentage increase since 1999).

Additionally, the manufacturing sector expanded in January for the 30th consecutive month and continues as one of the main growth drivers for the U.S. economy. As more product is created in the United States and delivered to consumers both domestically and abroad, the transportation industry is reaping the benefits. The rail, trucking and shipping sectors all experienced positive growth during 2011.

Still, the market remains vulnerable to a variety of geopolitical factors that could stall growth here and elsewhere. For that reason, our optimism remains somewhat guarded. But should conditions stay the course, users and investors will continue to shake off lingering doubts regarding the validity of the economic recovery. This positions the industrial market for continued progress in 2012

Three Key Trends CRE Planners Must Understand

Credit to Kevin Hughes: JLL

Three Key Trends CRE Planners Must Understand

Workplace mobility, collaboration, and global expansion trends are here to stay. Knowing the difference between an entrenched trend and a flash-in-the-pan idea can save a lot of time and effort, and produce better bottom-line results.

Ideas may come and go, but trends that stand the test of time are what make the strongest new ideas actionable and transformative to a corporation, a business unit, or a company’s real estate portfolio. By making an institutional commitment to emerging at the competitive forefront of trends such as work force mobility, productivity, and collaboration, CEOs and corporate site selectors can make the most of their current locations, and choose wisely as they select sites and design workplaces of the future.Trend #1 — The Stalwart: Technology-Empowered Work Force Mobility Mobility will be at the epicenter of real estate portfolio transformation in the years ahead. Globalization and demand for rapid results are requiring employees to work from client sites, geographically dispersed locations, and partner/collaborator offices around the world and down the street. The days of an employee reporting to a single location and working from 9 to 5 are a thing of the past. CEOs, together with their site selectors and corporate real estate teams, must rise to the challenge of developing mobile workplace solutions that enable the corporate culture to stay intact and keep employees engaged and productive, all while those very employees are likely geographically dispersed. Worker mobility, collaboration in the workplace, expansion and contraction are not new trends but they continue to evolve and over time have a major impact on the business world. Companies that understand and recognize this global trend represent a fundamental shift in the way businesses operate today and how they will continue to evolve, and thus harness the intelligent workers of tomorrow. In a recent research report, Jones Lang LaSalle’s Director of Occupier Research Lauren Picariello prescribed the treatment of this trend: “The commercial real estate industry should be prepared to…work closely with human resources and information technology teams to find solutions that will offer employees a sustainable environment that fosters productivity and engagement — while meeting business objectives.” The ROI of workplace efficiency is well documented on the balance sheet of astute corporations around the globe. At the recent CoreNet Global Summit in Atlanta, Jones Lang LaSalle shared the results of a “Workplace of the Future” survey, administered to approximately 30 leading U.S. companies and design firms by international office furniture designer and manufacturer Teknion. The report identified how workplace mobility will not only fundamentally impact corporate culture, but also how it will help CEOs achieve cost-savings goals. The report states, “Workplace mobility programs generate significant bottom-line occupancy savings for companies, often reducing annual occupancy expense by as much as 30 percent per year. These occupancy savings help organizations continue their investments in new and emerging technologies as help to attract and retain high-performing digital and creative talent.” When asked what the most important strategy is in attracting the new generation of knowledge workers, the top two responses from “Workplace of the Future” respondents were offering employees flexible workplace options (41 percent) and the most leading-edge technology (39 percent). Though the digital revolution is still gaining momentum, companies are enthusiastically adopting technological advancements that will soon become mainstream staples of the work environment. Not surprisingly, 88 percent of companies offer their work forces smart personal devices including smart phones, PDAs, and tablets. Desktop video conferencing is also gaining ground in light of a more mobile work force, with 62 percent of companies using the technology. The survey also revealed that nearly 90 percent plan to increase their investment in productivity-enabling technologies such as voice-activation and sophisticated video conferencing by 2015. Companies dedicating resources to “going digital” — or investing to support work force mobility — cited their expectations for the following outcomes: Enables business process transformation (25 percent) Enables greater distributed global work force collaboration (23 percent) Provides work/life balance and flexibility to work force (20 percent) Reduces operational costs and waste (14 percent) Supports environmental sustainability (10 percent) Reduces disparity between preferred generational work styles (8 percent) The reasons to responsibly invest in these solutions are plentiful. Workplace mobility is a trend here to stay as more companies learn that merging technology with real estate strategy equals improved business performance. Trend #2 — The One to Watch: Increasing Workplace Productivity and Collaboration If creating mobile workplaces is a key trend in how companies are working, it’s important to look deeper, exploring why it’s so important that employees be empowered to work from anywhere. Globalization is perhaps the most obvious reason, which will be explored in the next section on expanding and contracting markets. But regardless of location, mobility also contributes to increasing productivity and collaboration, two goals that are inextricably intertwined and equally essential to competing in today’s innovation-centric business world. While productivity can mean different things in different contexts, there is a shared necessity to ensure that the employees are in a working environment conducive to the task at-hand, one that supports a balance between independent focus and team collaboration. Regardless of whether it is increasing sales-per-hour in a retail setting, expanding distribution center shipping output, or ensuring innovative results from team-based management, corporations will be taking a long, hard look at how real estate can contribute to efficiency and productivity. With the stock market tepid, executives are looking for other ways to increase shareholder value — and making real estate changes to support productivity will be high on that list. Real estate changes in office environments many times mean transforming the way a group looks at the use of its space. The trend toward productivity in the office will focus on making workers the most productive both when they are mobile — and when they come into the office to collaborate and work together with others. The “Workplace of the Future” survey cites several factors that articulate this trend toward productivity, and will distinguish the future workplace from traditional offices, factories, and other facilities including: Space assigned by function, not hierarchy Focus on collaboration Higher degree of customization More flexibility and agility Less focus on corporate data storage and computing More focus on enabling mobility and other forms of workplace flexibility This trend carries good news for cost-conscious executives: productivity pays off. For those companies that invest in workplace strategies focused on mobility, productivity, and collaboration, the standard of square feet allocated per employee is predicted to drop from 200 square feet per person to estimates ranging from 50 to 100 square feet per person dependent upon the industry sector. Workplace utilization factors are expected to increase to 85 percent versus the 35 to 50 percent levels of today. That means that the C-suite can likely opt to reduce the total size of the corporation’s real estate portfolio, its carrying costs, and its operating expenses. To increase space utilization, companies are employing several strategies including: More open, collaborative workspaces with less individual offices (77 percent) Denser individual workspaces within the corporate office (62 percent) Reduced square footage footprint through disposition (54 percent) More employees working remotely from home, satellite, or client sites (46 percent) Mobile working that includes desk-sharing, hoteling, and co-working (31 percent) Trend #3 — The Early Emerger: Market Expansion Overseas, Portfolio Contraction in North America There is no denying that market forces drive where corporate locations are needed. Traditionally, more jobs equals more need for real estate. However, given today’s mobile workplace, combined with widespread oversupply of commercial real estate throughout North America, the locations that are adding jobs may — or may not — be in need of new buildings, or even more space within existing buildings. As a result, corporate occupier trends specifically are becoming somewhat different from market trends overall. That said, economic growth in certain markets will continue to drive the need for locations there — if not always new construction. Following the global economic growth patterns under way, significant corporate expansion is planned for markets throughout Asia, but specifically in China and India. Conversely, North American markets may see a need for more renovations for the changing use of existing real estate, but overall portfolios here are not expected to grow in the near future. A silver lining to the slower-than-expected recovery has been that corporate occupiers have been able to extend the window of time to evaluate and take full advantage of the real estate market, but that will narrow in time. As the economy continues to recover, companies will consider commercial real estate investments as an integral part of corporate portfolio strategy in 2012. Market dynamics also indicate that in 2012, companies will move away from investing in new construction and toward retrofitting existing assets. Updating offices based on sustainability has become critical — from a business perspective, a regulatory standpoint, and also for employee recruitment. Location will likely drive retrofit investment dollars, and buildings in central, transit-oriented areas will present the greatest opportunities. Significant users of corporate real estate are already adjusting their real estate investment strategies and that is impacting real estate fundamentals, as noted in a recent Corporate Occupier research report from Jones Lang LaSalle. Findings include: Total investment transaction volume to increase by 15 to 20 percent to $190 billion in 2012 — a slower increase than the last two years Global uncertainty, slow employment growth, and changes in space use to cause office space demand to slow (Commodity — and technology-rich markets, such as Texas, Denver, and Northern California will lead demand growth.) Distribution hubs and ports to lead the industrial recovery in 2012 Geographic trends will continue to be driven by macro-economic trends, albeit taking into consideration existing space and an ever-increasing focus on sustainability, which can also lead to choices to renovate and to co-locate with transportation hubs. Bottom Line: Making Trends Relevant to the C-Suite Understanding trends, implementing related strategies, and contributing ideas will increase the value a company gleans from using them, and is essential to the creation of game-changing corporate real estate, technology, and workplace programs. Meaningful workplace and location selection programs that are truly relevant to C-suite goals will relate to evergreen trends — not just today’s fads. While commercial real estate hasn’t always been the quickest adapter to changing dynamics, the industry is evolving. Now is the time to strategically invest in staying ahead of tomorrow’s reality.

People who know what they’re talking about don’t need PowerPoint

From The Late Great Steve Jobs:

 ”People who know what they’re talking about don’t need PowerPoint”

“I wanted them to engage…”
Even when I first started working at Apple in 2001, I overheard someone in my department say that you should never show up to a meeting with Steve Jobs with a deck of slides. Jobs’s aversion to people using slides in meetings was well known inside Apple. “I hate the way people use slide presentations instead of thinking,” Jobs told biographer Walter Isaacson when describing meetings upon his return to Apple in 1997. “People would confront a problem by creating a presentation. I wanted them to engage, to hash things out at the table, rather than show a bunch of slides. People who know what they’re talking about don’t need PowerPoint.” Jobs preferred to use the whiteboard to explain his ideas and hash out things with people. Former Senior Vice President of the iPod Division at Apple Tony Fadell confirmed Jobs’s disdain of slides. “Steve preferred to be in the moment, talking things through,” Fadell says in Isaacson’s book. “He once told me, ‘If you need slides, it shows you don’t know what you’re talking about.’”

There is a difference between a keynote and ballroom style presentations  and a meeting around a conference table. Most productive meetings are a time for discussion and working things out, not simply going through a bunch of slides. Each case is different, of course, but in general consider saving the multimedia for the larger presentations, and never resort to using slideware and other forms of computer-generated visuals simply out of habit.

Thinking Outside The Box

For years now, the U.S. economy has seen an ongoing struggle between traditional retail stores and their nimbler, lower-overhead online counterparts. Last year, retail property giant Simon Properties (NYSE: SPG) made news by suing the state of Indiana over a dispute with its rivals—or, more accurately, it’s tenants’ rivals–Amazon.com (NASDAQ: AMZN). SPG is seeking, as they put it, greater fairness to taxpayers (in particular, the offline retailers who do pay taxes to the state.)

It is certainly unfair that Amazon, which does millions of dollars of business in the state of Indiana, is avoiding the taxes that Simon Properties and its retail tenants must pay. This legal move will likely prove another important chapter in the ongoing debate over how or if to tax an Internet retailer, which has become a pretty sticky issue. Typically, whether or not to tax is determined by an online retailer’s physical presence in a particular state.

I’m curious about SPG’s strategy in all this. Though the levy of taxes on Amazon’s business in Indiana may help the sales of brick-and-mortar retail stores a tiny bit, I’m doubtful an added tax on online goods will significantly boost the sales or value of  SPG’s numerous malls and shopping centers. The lawsuit, while warranted, seems more of a symbolic move—a gesture of solidarity toward the REIT’s many retail tenants. This lawsuit notwithstanding, it’s tough to fight a retail trend that looks like this:

This graph only goes through 2009, but you get the idea.

Oftentimes, the market rewards creativity. If SPG and other such investors are interested in growing the value of their commercial real estate, the best strategy is to attract businesses that simply can’t be outsourced to cyberspace,As the Wall Street Journal reported many shopping centers and malls, including those owned by SPG and Jones Lang LaSalle (NYSE: JLL) are filling big-box and other retail vacancies with unconventional tenants, including a shooting range, an aquarium, go-kart tracks, fencing academies, and kid-friendly recreation centers.

While it seems a little optimistic to suggest a go-kart track could replace a Best Buy as the anchor of a shopping center, the fact remains that such properties must offer shoppers something that Amazon and its ilk cannot. Their value and their survival depend on it.

If this trend is any indication, then, the offline retail market has gone full circle, moving away from big-box homogeneity. So what will help save offline retail–and the commercial real estate firms that invest in and finance them? Surprise, surprise: small business. (credit to eric hawthorn)

The West Most Improved As Office & Apartment Properties Record Strong Pricing Recovery

As Distress Eases Most Property Types Swing Upward In 2011, Despite Seasonal End-Of-The-Year Price Softening

Powered by continuing gains in apartments and growing momentum in the office sector, the CoStar Commercial Repeat Sale Indices (CCRSI) National Composite Index ended 2011 significantly above its cyclical low last March, despite a relatively flat fourth quarter for pricing.CRE sale prices stalled a bit in December as heavy year-end trading kept pricing stable in the fourth quarter, a trend CoStar has observed in each of the past two years, according to this month’s release of the CCRSI, which tracks sale pair transaction data through Dec. 31. The National Composite Index ended 2011 up a flat 0.2% from year-ago levels, but 5.5% above its low point in March 2011, thanks to a mid-year surge.The Investment Grade and the General Commercial indices of the CCRSI both followed a similar trajectory in 2011, with prices declining in the first quarter, rallying at midyear and coasting during the flat final quarter. Highlighting the investor flight to safety to major markets and core assets, the Investment Grade Index finished December up a cumulative 14.6% from its March 2011 trough, while the recovering General Commercial Index ended the year up 3.5% from March. 

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CoStar’s Multifamily Index continued to lead all property sectors, with prices rising by 6.8% in the fourth quarter and increasing a total of 15.3% in 2011. After several quarters of relative weakness, the West regional index recorded the largest overall gain in the country, helped by outsized growth in office and multifamily pricing. In total, the Northeast regional index has continued to see the largest cumulative pricing gains since the trough of the real estate cycle.
Lone among commercial property types, the Retail Index lost ground in the fourth quarter of 2011, falling to its lowest value since 2003.

The impact of distressed property transaction on pricing levels was blunted by a surge in non-distressed property trading in the fourth quarter, although the volume of distressed trades remains high.

CoStar this month also introduced new quarterly pricing indices for hospitality properties and commercial land in addition to office, industrial, multifamily and retail, the four major CRE properties types. Both hotels and land ended 2011 near cyclical lows.

Reflecting a disproportionate level of distress, the Hospitality Index remained 47.6% below its third-quarter 2007 peak — the widest gap among the six property types — despite improving occupancies and revenue per available room (RevPAR). As a percentage of the total sales pairs, the level of distressed hotel property transactions ranks at the top among all commercial property types and has not yet begun to decrease significantly, tamping down average hotel sale prices.

Likewise, the Land Index finished 2011 down a cumulative 41% from the peak of the last cycle, and has not shown any tangible recovery to date following three years of quarterly declines, although losses appear to be easing.

The multifamily index has now grown by a cumulative 21.6% since the bottom of the cycle, outperforming the second-ranked office sector by more than 400 basis points. Renter demand has eclipsed supply, causing vacancies to contract by 170 basis points over the past two years, prompting rental rate gains. Strong property level income growth expectations by investors appear to be baked into the heightened pricing of current transactions.

Investor interest in office property also rebounded in 2011, with the office property index increasing by 17.3% since the end of March 2011. Like the recovery of the broader economy, the office rally has proved to be volatile and uneven despite the significant firming up of prices.

“Pricing gains have proven to be more explosive in tech-centric markets than in the overall market,” according to the CoStar CCRSI report. “The office index will likely continue to vacillate between gains and losses until office demand growth becomes more evenly dispersed across markets.”

Industrial property pricing increased by just 4.4% since March 2011, and was down slightly in the fourth quarter compared to year-ago levels.

Retail is the notable exception to the recovery story to date. Shopping center fundamentals remain soft despite an improving economy and a burst of pent-up consumer spending that has pushed retail sales above the peak of the last cycle. Bucking the trend, power centers and super regional malls have seen gains in tenancy gains over the past year, which could signal a coming turnaround in retail pricing, according to the CoStar report.

Larger and higher-quality properties generally outperformed the market in timing and magnitude of prices improvement, mirroring the growth in CRE fundamentals over the past year. Prices for investment grade properties stabilized at the end of 2009, more than a year ahead of price stability in the general commercial properties. The Investment Grade Index gained 3.4% in 2011, compared with 0.2% for the General Commercial segment.

While the volume of distressed transactions in December remained well above the monthly average for the year, the percentage of distressed trades fell from 35.4% in March 2011 to 24.8% in December, helping push up the National Composite Index.

Hampering the market recovery is the continued softness in levels of real estate lending. Mortgage originations fell by 7% in the fourth quarter from the previous quarter, according to the quarterly survey by the Mortgage Bankers Association (MBA).

The Northeast Composite Index, powered by the exceptional rebound in multifamily and office pricing, gained 12.3% from the market bottom, ending 2011 only 14.3% below the peak of the last boom cycle, reflecting an investor preference for the best assets and densely populated coastal markets. Pricing in the South, Midwest, and West regions is recovering at a more moderate pace, with the indices for each region finishing December 2011 down between 34% and 39% from the market peak.

However, the West won as the most improved region of the country, with the composite index advancing by 5.8% in 2011, compared with a 4% gain in the Northeast, a 2.2% gain in the Midwest, and a 6.9% loss in the South.

“Barriers to supply in the West have improved the marketability of CRE assets in this region as investors branch out to seek opportunities beyond the core coastal Northeastern markets,” CoStar said in the report.

In other CCRSI regional results among specific property types:

• Apartments were the only index to record positive gains in 2011 across all regions, while office recorded the second-best growth rate in 2011, with regional gains ranging from 8% in the West to 11% in the Midwest and Northeast.

• The South, the only region to record a loss on the overall composite index in 2011, recorded a 4% pricing loss in office.

• Retail, universally the worst performer, experienced losses ranging from 1.2% in the West to 10.3% in the South in 2011 prices.

• Fourth-quarter results in the Top 10 Largest Metro indices reflected the investor preferences for the best properties in the top markets. The Office Top 10 Largest Metro Index gained 23.8% since the trough of the last cycle as of the fourth quarter, significantly outperforming the 17.3% of the National Office index.

• The Multifamily Top 10 Index recovered 25.6% from its trough, compared with 21.6% in the overall multifamily index.

• The industrial and retail Top 10 Largest Metro Indices, however, underperformed their national counterparts. The Industrial Top 10 index declined by 11% compared with a 2.9% decline in the national index, while the retail top 10 metros also proved to be drag on the National Retail Index, with quarterly and annual losses nearly double the national average. (credit to R, Drummer-Co-Star)

What We Can Learn From Woody Allen

(credit to j, altucher)

Allen puts out a new movie or two every year. None of them will compete with Star Wars or Harry Potter in terms of gross dollars. But it seems like his studio gives him $10 million, his movie will make $20 million, and everyone is happy and he gets to keep doing what he’s doing.

So he’s built up a substantial body of work that we can learn from. Why learn? Because clearly he is a genius, regardless of what other opinions anyone might have of him (and I only know him through his work. I don’t know his personal life at all). It is interesting to see how he, as an artist and creator, has evolved. To see how his idiosyncratic humor has changed,  how he twists reality further to stretch our imagination. He always stands out and stays ahead of the other innovators. And for other people who seek the same, he is worth observing.

Here’s some of the things I’ve learned from him:

1. Failure. Some of his movies are just awful. He admits it. In a 1976 interview in Rolling Stone he says, “I would like to fail a little for the public…What I want to do is go onto some areas that I’m insecure about and not so good at.”

He elaborates further. He admits he could be like the Marx Brothers and make the same comic film every year. But he didn’t want to do it. It was important for him to evolve. To risk failure. To risk failure in front of everyone. And his movies did that, going from the early slapstick humor of Sleeper to the darker Crimes and Misdemeanors and Match Point.

One of my earliest memories is having a babysitter while my parents went to a movie. Then when they got home I asked them what they saw and they described a movie where a man falls asleep and wakes up in the future where a giant Nose ruled the world. Woody Allen has been there since the beginning for me. And just the other day I watched Midnight in Paris with Owen Wilson (who, despite looking very un-Woody Allen-esque, plays the virtual “Woody Allen” role very well. The movie explores the history of art and how no art form exists by itself but is always influenced by generation after generation of artists before it, dating back hundreds if not thousands of years.

Woody Allen has also failed spectacularly, in every way we can imagine – personally, professionally, etc. And yet he’s always pushed forward, trying to surprise us again and again, and largely succeeding rather than giving up.

2. Prophetic. In a Washington Post interview in 1977 he states, “We’re probably living at the end of an era. I think it’s only a matter of time until home viewing is as easy and economical as desirable.” In the past three days I’ve watched three Woody Allen movies on my ipad. I don’t know if this changed the way he made his movies. But it’s clear he never got himself stuck in one particular form or style that would eventually fail to cater to the tastes of the average audience.

3. Flexible. We admire the entrepreneurs who quickly recognize mistakes and then transition their business accordingly (the catch-phrase lately is that these entrepreneurs know how to “pivot”). Allen typically starts off with a broad outline, a sort of script, but it changes throughout the movie. Specifically he states, “To me a film grows organically. I write the script and then it changes organically.I see people come in and then I decide…it changes here. It changes if Keaton doesn’t want to do these lines and I don’t want to do these- we shift around. It changes for a million reasons.”

The entrepreneur, the entre-ployee. Relationships in general, all shift and change. You set out in life wanting certain things – the college degree, the house with the white fence, the promotions, the family – but things become different. You have to adapt and be flexible. To say only the lines you are comfortable with and evolve into.

4. Productivity. To put out a movie every year or so, plus plays, magazine stories, books. you would think Woody Allen works around the clock. From a 1980 interview, “If you work only three to five hours a day you become very productive. It’s the steadiness of it that counts. Getting to the typewriter every day is what makes productivity.”

He states later in the interview that when he was younger he liked to get things out in one impulsive burst but he learned that was a “bad habit” and that he likes to wake up early, do his work, and then set it aside for the next day.

Probably the most productive schedule is to wake up early – do your work before people stop showing up at your doorstep, on your phone, in your inbox, etc, and leave off at the point right when you are most excited to continue. Then you know it will be easy to start off the next day.

I read in a recent interview that it takes Allen a month to write a comedy and three months to write a drama. On three to five hours a day it shows me he writes every day, he’s consistent, and he doesn’t waste time with distractions (going to parties, staying out late, etc)

5. Avoid outside stimulus. Every day right now I make a huge mistake. I start off with the loop: email, twitter, facebook, my amazon rank, my blog stats, my blog comments. My wife  asks me: “did you finish the loop yet?” And I think it will only take a few seconds but it actually takes about twenty minutes. I probably do it ten times a day. That’s 200 minutes! 3 hours and 20 minutes! Ugh.

Here’s Allen’s description of when he won an Oscar for Annie Hall. First off, he didn’t go to the Oscars. Why get on a plane (8 hours door to door), and go to a party where he would feel uncomfortable, to win an award he probably didn’t care much about (although it magnified his prestige in Hollywood, the city that paid his bills):

In a 1982 interview with the Washington Post he states that he went to Michael’s Pub to do his weekly jazz clarinet playing although he says “I probably would not have watched anyway” just to see everyone he knows hunched down in the audience waiting for hours to see who would win. He states that he had “a very nice time” at Michael’s. So for him his pleasure came first. Rather than the anxious watching and waiting.

But then, when he got home, he didn’t even care. He went out the back way of Michael’s so he skipped all the photographers, went home by midnight, had “milk and cookies,”  went to sleep. And then he TOOK THE PHONE OFF THE HOOK. Who even does that now? In an age where we (or, I should say, “I”) literally sleep with my iPad and phone in the bed. He took the phone off the hook on Oscar’s night, went to sleep. In the morning made his coffee and toast. Got the NY Times, and then finally opened it up to the entertainment section where he saw he won the Oscar. It’s in this way that his productivity (compared with the lack of productivity many of us suffer now because of the constant influx of outstide social stimulants) was kept at a very high point.

6. Imperfection. Allen has stated many times that none of his films were exactly what he wanted. That they were constantly imperfect. It’s almost like he’s the imperfect perfectionist. He wants things just right and he tries very hard to get it that way. But he knows it will never happen.

That said, he doesn’t give up. He states in 1986, “we go out and shoot…again…and again…and again if necessary. And even at that rate, all the pictures come up imperfect. Even at that meticulous rate of shooting them over and over again, they still come out flawed. None of them is close to being perfect.” Ultimately, he says, all his movies prove to be “great disappointments”.

And yet, knowing that he will always experience the same thing, he goes out, stretches his boundaries of where he’s comfortable failing, and does it again. And again. Knowing nothing he will do will be the masterpiece he initially conceived.

Nothing comes out exactly how we want it. But we have to learn to roll with it and move to the next work.

7. Confidence. I watched Husbands & Wives the other day. It wasn’t a funny movie. It wasn’t a pretty movie. I watched it with my wife and by the end we were thinking, ugh, I hope that doesn’t happen to us in ten years. Meanwhile, the movie itself was jarring. Instead of being shot traditionally it was shot with a hand-held camera. It was edited with lots of jump-edits, where you’re looking at a character and suddenly she’s an inch over because some small piece of film was cut out. The editing itself became part of the jolting and jarring in the story. It was as if the story was not just being told with the acting and the writing but with the way it was shot and edited.

It reminded me of something Kurt Vonnegut once said. He’s usually considered an experimental author. But, he said, to be experimental, first you have to know how to use all the rules of grammar. You have to be an expert first in tradition. It also reminds me of Andy Warhol, who was a highly paid, very straightforward, commercial artist, before he went experimental and started the pop art phenomenon.

Allen says about Husbands and Wives in a 1994 interview (note: Husbands and Wives was his 20^th movie): “Confidence that comes with experience enables you to do many things that you wouldn’t have done in earlier films. You tend to become bolder…you let your instincts operate more freely and you don’t worry about the niceties.”

In other words: master the form you want to operate in, get experience, be willing to be imperfect, and then develop the confidence to play within that form, to develop your own style. You see this in Kurt Vonnegut too as he transformed from the more traditional “Player Piano” in the early 50s to “Slaughterhouse Five” a novel about World War II that includes aliens who can time travel.

8. Showing up. As Allen famously stated: 80% of success is “showing up”. Nothing more really needs to be added there except it might be changed to “99% of success for the entrepreneur is showing up”. What do you have to show up for: you have to find the investors, you have to manage development, you have to find the first customers, You have to find the buyers. They don’t show up at your door. You show up at their door. Otherwise your business will just not work out. Let’s take Microsoft as one example among many: Bill Gates tracked down the guy in New Mexico to build BASIC. Bill Gates put himself in the middle when IBM wanted to license an operating system. He just kept showing up while everyone else was skiing. 

9. The medium becomes the message. I mentioned this in the point above but it deserves further elaboration. The jump-cutting, the hand-held camera, every aspect of the film became woven in with the story. Allen states: “I wanted it to be more dissonant, because the internal emotional and mental states of the characters are more dissonant. I wanted the audience to feel there was a jagged and nervous feeling.” In this he shows not only his own evolution as a filmmaker but what he’s borrowed from the artists before him – not only Godard and Bergman who did their own experimentations, but musicians like Profokiev where the dissonance itself is so tightly wound with the music it becomes a part of the music, as opposed to just the notes being played. This is underlined in his latest movie, Midnight in Paris, very highly where Owen Wilson, the main character, pinpoints the roots of his own art by going back further and further in time.

My takeaway – study the history of the form you want to master. Study every nuance. If you want to write – read not only all of your contemporaries, but the influences of those contemporaries, and their influences. Additionally, draw inspiration from other art forms. From music, art, and again, go back to the influences of your inspirations, and go back to their influences, and so on.

The facets that resonate with time, even if it’s hundreds of years old, will resonate with your work as well. It’s like a law of the universe.

In today’s day and age, we want to transform decades of work into years or even months. Allen built up his career over five decades and kept at it persistently, even when scandal, or a bad movie, or a bad article, would cast gloom over his entire career. But he shrugged it off.

So what can we learn from Woody Allen?

• Wake up early
• Avoid distractions
• Work three to five hours a day and then enjoy the rest of the day
• Be as perfectionist as you can, knowing that imperfection will still rule
• Have the confidence to be magical and stretch the boundaries of your medium.
• Combine the tools of the medium itself with the message you want to convey
• Don’t get stuck in the same rut – move forward, experiment, but with the confidence built up over experience.

The same can be said for successful entrepreneurs. Or for people who are successful in any aspect of life. Is Woody Allen a happy man? Who knows? But he’s done what he set out to do. He’s made movies. He’s told stories. He’s lived his dream, even when at times it bordered on nightmare. It’s not all going to be perfect, but go for what you want. (credit to j, altucher)

Industrial REITs Lead Real Estate Wave

Low interest rates and an improving jobs picture have given real estate investment trusts a boost that makes them an attractive alternative to stocks and bonds.

Commonly called REITs, the trusts have underperformed stocks this year just slightly but face strong prospects going forward as the two critical factors propelling the commercial real estate market continue to take hold.

REITs invest across a broad array of sectors, from office buildings to shopping malls and hotels. There also are health care, timber and infrastructure REITs. They are required to distribute 90 percent of their taxable income to investors through dividends.

“That really is a perfect storm that’s very good for REITs,” says Rick Romano, co-manager of the Prudential Global Real Estate Fund in Newark, N.J. “It will mean the economy isn’t growing fast enough to add new supply and for rates to increase, but we have enough jobs growth so vacancies are starting to push rents.”

Ironically, it is the tepid but steady pace of job growth — less than 150,000 per month — that creates a Goldilocks environment where the jobs picture is not too hot so as to drive home-buying but just hot enough to propel rents higher.

“If we can stay around 100,000 to 200,000 (new jobs) a month, we think that’s kind of a good backdrop for REITs and real estate,” Romano says.

The MSCI REIT Index has gained about 6.5 percent in 2012 after rising 8.7 percent the previous year.

Industrial REITs have done best, gaining 15.5 percent, while hotels are up 11.4 percent and shopping centers about 11 percent, according to the National Association of Real Estate Investment Trusts.

That compares to stocks, where the Standard & Poor’s 500[.SPX  1343.23    -7.27  (-0.54%)   ] has gained 7.4 percent, and Treasurys, which have lost about 2 percent.

But the $200 billion U.S. REIT market doesn’t face quite the same challenges as stocks and bonds, and offers an attractive dividend at about 3.6 percent industrywide.

The real estate sector, struggling thought it may be, boasts strong support from government policy makers — the Federal Reserve  has pledged to keep rates low — and faces less danger from headwinds such as the sovereign debt crisis in Europe.

S&P on Wednesday reiterated its “stable” outlook on REITs and said they should do better than home builders this year. Making that view even more positive is that sentiment as registered by the National Association of Home Builders has hit its highest level since May 2007, according to data released Wednesday.

“The commercial real estate sector is in the midst of a gradual recovery that, in many markets, rests more on limited new supply than on tenant demand, which remains subdued,” said Standard & Poor’s credit analyst Lisa Sarajian.

“However, our current stable outlook for REITs anticipates that they will keep outperforming the broader commercial real estate market and their private competitors — and their manageable funding needs and access to diverse sources of capital position them well for growth,” she added in an analysis.

For investors, a number of publicly traded companies offer attractive opportunities.

American Tower [AMT  63.55    -0.83  (-1.29%)   ] briefly hit an all-time high Wednesday and has gained more than 14 percent over the past year, even though the REIT trades at more than seven times book value

The popular Vornado Realty Trust [VNO  83.81   0.07  (+0.08%)   ] and the industrial real estate conglomerate Prologis[PLD  33.26    -0.13  (-0.39%)  ] also are attractive, says Scott Collier, CEO and chief investment officer at Advisors Asset Management in Monument, Colo.

“It’s probably one of your best trades this year,” Collier says of the REIT space. “Real estate to us is the ultimate hard asset, the ultimate guard against inflation. What the Fed is doing is actually very supportive of the real estate market and probably will be for quite some time. Low rates and rising demand is a pretty good combination for the real estate market.”

Indeed, the timing seems to be right as a number of economists believe real estate at least has reached a plateau if not a decided turn higher.

“We think that growing investment demand will prompt homebuilders to increase significantly construction of multi-family units in 2012,” Paul Diggle, property economist at Capital Economics in London, said in a research note. “But in a turnaround from last year’s performance, we also expect single-family starts to increase this year.”

Residential REITs have underperformed so far, making them one area investors may want to look for future gains should housing pick up. Apartment REITs have returned just 1.72 percent, though manufactured homes are up nearly 4 percent, according to NAREIT.

“All the well-known real estate tycoons were waiting for potential armageddon in commercial real estate, but it didn’t happen,” Collier says. “You’re buying real estate at the right time in the cycle, when there’s a tailwind behind it and it should do well for many years to come.” (credit, jeff cox, cnbc)