What factors drive the commercial real estate (CRE) industry? What keeps commercial property owners, developers and investors up at night, and can help provide reassurances of better days ahead?
For the past six years, we’ve hosted hundreds of commercial real estate professionals at our annual CRE conference, aiming to inform them of the trends affecting their organizations. What we’ve found is that, despite ever-evolving challenges, the industry is poised for many opportunities.
Harnessing the benefits of those trends requires complete understanding of economic, financial, tax, regulatory, sustainability, security and innovation changes. We covered each of these at the 2018 CRE Conference, to help provide a complete picture of the CRE industry to attendees.
The conference was opened by Jim Kelligrew, vice chairman at U.S. Bank, and included breakout sessions where attendees collaborated with their peers on common industry issues. A payment automation panel, where our conference sponsors, Nexus and Visa participated, closed the conference on the second day.
For those who couldn’t attend, here’s a recap of the event, as well as five key takeaways that can help guide your CRE business into the next year.
Even with the changes in federal administration, professionals shouldn’t expect major regulatory changes in the near future. John Stern, executive vice president and corporate treasurer at U.S. Bank, outlined that changes appear more evolutionary than revolutionary.
“Even now, the current regulatory environment is complex, with multiple new rules in the past decade creating new constraints,” Stern said. “Although many new leaders have taken over at the Federal Reserve and the Office of the Comptroller of the Currency, they’re more looking to ‘optimize’ current regulatory practices instead of overhaul them.”
One of the largest areas of change in the short term involves the transition from LIBOR for pricing loans and other financial instruments. Stern urges CRE professionals to stay current on news of this transition, as many loans will likely be based on SOFR as soon as next year.
As newer, younger workforces enter commercial industries, the need for a holistic sustainability program increases. Sustainability policies offer more than a business incentive or tax cut; they also increased brand awareness for an audience that increasingly seeks environmentally friendly organizations.
A sustainability panel, hosted by three prominent professionals in corporate design and client care, outlined why CRE organizations may want to have a complete sustainability plan in place. Here are some of the key points taken from the panel:
Organizations face a new army of security vulnerabilities every day, each with the potential to cause lasting economic and reputational damage. However, while the cybercrime landscape has grown more sophisticated, prevention efforts have also advanced.
Jason Witty, chief information security officer at U.S. Bank, noted that spending forecasts for cybersecurity prevention practices have increased among real estate clients. This coincides with an increased demand for internet connected devices, creating what research firm Gartner calls a fourth industrial revolution.
Increasing connectivity has resulted in increasing cyber threats. As a wakeup call for the real estate sector, the FBI issued a Public Service Announcement in June 2018 that pointed to the rise in business email compromise / email account compromise scams for the industry. CRE firms experienced a 1,100% increase in number of victims, and about a 2,200% rise in reported monetary loses between 2015 and 2017.
Witty also noted that the largest threats in the near future might involve physical safety, driven by advancements in 3D printing and weapons development.
“Technological advancements have not only made 3D printing more accessible than ever, but have revolutionized what can be created, including guns,” Witty said. “Combined with advancing technology that can distort reality – so called “deepfake videos” – it may become more difficult to trust what we see and hear.”
What can CRE professionals do to prepare for this future? Witty cited a recent Gartner study on security project recommendations, including the following:
The future of commercial real estate technology is closer than you think. Dominic Venturo, chief innovation officer at U.S. Bank, shared some recent advancements in innovative technology, driven by the belief that innovation enables the bank’s key priorities
“Innovation helps to assess emerging technologies and trends, understand the implications of our customers’ evolving behaviors, develop and test ideas and inform our business line product and feature roadmaps,” Venturo said.
For CRE professionals, Venturo referenced three key innovation trends:
Under the recently passed Tax Cut and Jobs Act of 2017, CRE professionals have seen changes in their tax and regulatory practices. Laurie Murphy, senior director of tax planning at U.S. Bank, highlighted some of the major changes for real estate professionals in the new law.
These changes, just a few highlighted from the massive tax reform law, carry major implications for organizations. However, some have already taken advantage of the law’s reduced rates.