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Welcome to 2025 and Feroce Real Estate Advisors inaugural newsletter. Thank you for reading and if you have any questions or comments, reach out!
Welcome to 2010 err 2025.
Right about now, the commercial real estate market feels a lot like it did in 2010.
We are watching the recovery phase play out with the early movers providing green shoots, while the rest of the market is mired in the muck of bottoming out.
- CMBS market showcases both sides of the coin. November 2024 brought the largest ever single asset CMBS loan for Rockefeller Center. And 2024 ended with a new high for CMBS delinquency rates.
- Churning through the obsolete office backlog. Year end 2024 saw the sale of an obsolete office building to be replaced by a new trophy office building supported by a partial pre-lease to a law firm in DC. This transaction illustrates the pain of the seller furnishing the opportunity to the buyer. It also brings trophy office construction back into competition with residential and hospitality for conversions of obsolete office space.
So, for those of us who have been to this rodeo, what is different from last time? How can we prepare for and create value from those differences?
- Asset class allocation competition. For the institutional investor’s portfolio diversification pie, within the alternatives slice of the pie, real estate now competes against infrastructure for capital flows. Understand your clients’ investment strategies, their appetite for real estate, and learn about the competition.
- Homeshoring for everyone. While the US will continue to be the top destination for global investors to place money, there is less global capital to go around given political pressures to keep money within borders. Prepare your team and portfolio for in-depth conversations with global investors about how your investments meet their needs, including regulatory and reporting requirements.
- Workforce cliff paired with re-skilling needs. In the US, we have fewer available workers to do the jobs we need to power the economy AND there is a need for new skills across the workforce (think energy transition, AI prompting). Within your own organization, address this risk head on by building resiliency through hiring, skills development, and retention programs. Since understanding population demographics is a fundamental investment tool, dig even deeper into the specifics of the local economies of your investments.
- Political economic uncertainty. The newly inaugurated US President’s agendas create uncertainty for critical issues where the CRE market is craving certainty - interest rates, supply chains, and workforce availability. Scenario planning is how we build resiliency and preparedness, ramp up the if-then meetings.
- Sustainability and decarbonization as part of business operations. The reporting requirements of global investors and regulators that use environmental, social, and governance frameworks to evaluate risk already exist and are here to stay. Yes, the reporting costs real money and real time. The next step is for organizations to move past the act of reporting and move to the action of identifying opportunities and creating value while addressing risks.
- AI. Beneath the mounds of hype, there is a core of meaningful impact from AI tools that will reshape our economy and the real estate industry. The learning curve for our industry is as steep as the hockey stick growth slope. Get your house in order - build a project plan, identify the expertise you need on your team, and catalogue where you have data and where you do not - so that you can build the foundation to use AI within your organization. If this sounds familiar (like a real estate development project plan?), you are on the right track.
- Extreme weather events. We are coming off of two years of record numbers of billion dollar weather disasters and watching in real time the horrific destruction from the Los Angeles wildfires. Resiliency is the path forward and today is the day to identify and implement the resiliency needs for your assets. And, yes, the insurance market has already asked and answered the resiliency question for your asset.
This is why I love real estate investment. No recovery is the same and this time around, operational excellence is the name of the game.
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What we are sharing
Living in the real estate investment management world, I am quite used to measuring time in quarters.
So, it resonates with me to measure a day by quarters.
Try looking at your day as four quarters: Morning, Midday, Afternoon, and Evening.
If you get to lunchtime and it feels like you are 'behind,' rather than thinking that you have lost that whole day, look at the next quarter of the day and use that part of the day to achieve your priorities. #growthmindset
The current snowstorm is providing me with the opportunity to put this into action. #snowday
PSA alert: If you have not yet been certified (or re-certified) in First Aid and CPR, consider putting it on your list for 2025.
As a young adult, I remember going through the training for something related to travelling long distances by bus and small plane to play high school sports in remote areas across Alaska.
As an adult, I came back to it after my colleagues in Seattle collectively experienced an earthquake while in a high rise tower downtown. I was in the air on my way to see some real estate in Phoenix when the earthquake hit, so I watched the footage of the collapse of the bridge that I crossed everyday at the airport when I landed. Our company enthusiastically said yes when asked if we could bring in a trainer for us to learn First Aid and CPR.
✨For earthquakes: Drop, Cover, and Hold On✨
[Sidebar: For my fellow Gen X Alaskans, remember practicing this same drill at school for earthquakes and nuclear bombs?]
During the blur of conference season this fall, good news spread quickly of a fellow #NexusCon attendee who had performed the Heimlich maneuver for someone that was choking. It was a pointed reminder for me to complete my re-certification.
Updating my First Aid and CPR training is important to be because being prepared, helping others, and having a plan are core drivers for me. #frontiermentality
Bess = Battery Energy Storage System (noun)
1. a type of energy storage system that uses batteries to store and distribute energy in the form of electricity
2. a diminutive of Elizabeth
If you are a fellow EV driver, you are already familiar with BESS in your vehicle. ⚡
As battery storage comes up more regularly in discussions across the CRE industry the topics range from capacity to availability to safety. With safety and availability being the gating issues.
In a recent podcast (see comments), two guests share how organizations are working to use data and analytics to detect the early stages of lithium ion battery failure in order to prevent fires before they start. 🧯 🔥
Takeaways
🛟 Batteries are a safe energy storage technology compared to the other high energy storage systems (gas turbines, diesel storage tanks). ➡️ Focus on finding solutions for the 1% of failures that are destructive and make headlines.
🛟 Data that can be used to detect early safety issues are already available as part of the battery OS. ➡️ Use the primary data for early detection and prevention.
🛟 Fire suppression tools, training, and technology for battery storage are not moving fast enough. Neither are codes or industry standards. ➡️ Prioritize advancing codes, standards, and fire suppression solutions to catch up with the battery technology.
Wood Mackenzie, How the energy industry is solving issues with battery safety – Part 2
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Where We Can Catch Up
✨ Public Buildings Reform Board public meeting, 28 Jan 2025
✨ ULI Washington Future Forum: From Crisis to Prosperity – Creating the Region’s Playbook, 5 Feb 2025
✨ Save the date: Feroce webinar, 26 Feb 2025 (more details coming soon)
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About Feroce Real Estate Advisors
Feroce Real Estate Advisors works with forward-thinking real estate companies to leverage change and build value at the intersection of real estate investment, sustainability, and technology. We guide clients through complex challenges, positioning their real estate and teams for success in a rapidly changing world.
Our work usually falls into one of these categories:
- Fractional executive roles serving as head of asset management or portfolio management for growing real estate investment management companies.
- Provide high value strategic advisory services with a focus on delivering investment performance measured by risk-adjusted returns and organizational priorities.
- Advisory board roles with proptech organizations focused on high ROI solutions in renewables, decarbonization, cleantech, and operational improvement.
Please reach out to connect:
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All the best,
Mandi
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