The Impact of Technology on Real Estate – Integrating the ... Docs/Public... · Social Users 7.593 BILLION 4.021 BILLION 3.196 BILLION 5.135 BILLION 2.958 BILLION Urbanization:

National Conference on Public Employee Retirement SystemsNational Conference on Public Employee Retirement Systems

The Impact of Technology on Real Estate –Integrating the Future Into Your Investment Strategy

NCPERS 2019 Public Safety Conference October 30New Orleans, LA


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Once a new technology rolls over you, if you’re not part

of the steamroller, you’re part of the road.

- Stewart Brand


• First Industrial Revolution - 1760 – 1840

• Second Industrial Revolution - 1860- 1920• Sewage• Running Water• Electricity• Motors

• Third Industrial Revolution – Post War Tech Boom

• Fourth Industrial Revolution - Now

• Trolley • Automobile / Airplane• Elevator • Air Conditioning

• Mason Jar • Refrigerator• Sewing Machine• Washing Machine

Technology Has Disrupted The World Throughout History

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TotalPopulation

Internet Users

Active SocialMedia Users

UniqueMobile Users

Active MobileSocial Users

7.593BILLION

4.021BILLION

3.196BILLION

5.135BILLION

2.958BILLION

Urbanization:

55%Penetration:

53%Penetration:

42%Penetration:

68%Penetration:

39%

Technology Penetration Worldwide In 2019


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1940 2019Change Happens Quicker Than You Think


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Change Happens Quicker Than You Think

1940 2019


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Consumer Transportation Is Changing

Electric

Autonomous

Shared

These factors are changing the landscape

for motor vehicles and the transportation industry

and the utilization of real estate

Change Agents


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260 millionTraditional cars, motorcycles and buses in the U.S. -- many may be obsolete by

2030

95% Average car in the U.S. is not utilized

17.6 million Cars and trucks were purchased in 2016

PARKING SPACES

500 million – 1 billionParking spaces in the U.S.

30 spacesPer resident in Houston alone

3,590 square milesParking lots in the U.S. covers an area larger than Delaware and Rhode Island

combined

Challenges For Automobile Owners


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The Electric Vehicle Is Disruptive

Electric Motor – 5X More Energy Efficient

• It costs $15,000 to fill up a gas Jeep Liberty over five years

• An electric Jeep Liberty would cost $1,565 in electricity

• So . . . why do we need gas stations?

Energy Efficiency


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• Driverless cars will be programmed to recharge on their own at central locations

• 125,000 Gas stations / convenience stores will be suitable for redevelopment

• Fleet ownership and maintenance will be the rule and private vehicle dealerships and repair facilities may require repurposing

• Potential parking revenues loss in development proformas

• 10% of office building developer revenue comes from parking

Availability of Prime Real Estate

Impacts Of AV On Real Estate Utilization


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Parking

• The way to densify suburban sites was to build parking structures

• AV’s and on-demand fleets of AV’s could reduce parking needs by 70-90%

• Design parking garages to be repurposed for other uses

How Will Rideshare And AV Impact Development?


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Urban Design

• Less need for parking and auto related services

• Repurpose downtown areas to be non-car/walkable

• “Live-Work-Play” concept

• Enhanced demand for commute mass transit

How Will Rideshare And AV Impact Development?


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1990s 2000s 2020s2010s

THE WAY WE WERE THE WAY WE ARE THE WAY WE COULD BE

Private Office Cubicles Open Plan Active Based Working Coworking

Neighborhood Choice

Environment

Mobile Occupants

Immersive Environments

Hierarchical, Status-Driven

• Perimeter offices

• Assigned seating

Equitable, Accessible

• High panels, limited daylighting and views to the outdoors

• Assigned seating

Efficient, Collaborative

• Lowered panels and greater access to natural light

• Assigned seating or hoteling

Effective, Variety and Choice

• Access to wider range of amenity spaces, focus booths and enclaves

• Unassigned, free-addresses seating

Community/ Space as a

service

• Access to communal resources, amenities and other companies

• Hotelling and suites

Team-Based, Sense of

Belonging

• Wide variety of task-based settings for highly mobile teams

• Assigned for groups, unassigned for individuals

“Garagification,” Agile and Adaptable

• Access to others, scrum spaces for creative and innovator teams

• Communal space within zones

Tailored, Curated Solutions

• Access to local amenities

• Function-driven, human centric space

• Assigned and unassigned seating

1980s

Sound Investing Must Reflect Employee “Needs/Desires”

Office Workplace Evolution


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Office Workplace Evolution • As employees needs and desires changes, so do our office spaces

1980’s – 1990’sEquitable, accessible with high panels, limited

daylight and outdoors views with assigned seating

2019Access to communal resources, amenities and

other companies


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Robotic Stacking In Logistics Centers• No human element

• Higher stacking capacity/densification

• Drone innovation being used for picking, inventory, tagging, and delivery• Autonomous delivery impacts use of trucks (which may be driverless) and

reorients need for “just-in-time” delivery industrial demand


Case Study – East Bay San Francisco LogisticsBEFORE

AFTER

Highly Sought After Industrial Assets

Adapting your investment strategy due to changes related to technology

• Projected surging demand for new state-of-the-art industrial assets in the Bay Area generated by e-commerce needs for “last-mile” distribution with a unique irreplaceable location proximate to key transportation hubs

• Existing lumber yard was redeveloped into a Class A LEED Silver certified distribution facility

• This asset was unique compared to surrounding older and smaller industrial facilities providing a competitive leasing advantage to attract high-quality tenants

• Fully leased to a leading global e-commerce company during construction

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Case Study – NYC Urban Logistics Center

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Highly Sought After Industrial Assets

Adapting your investment strategy due to changes related to technology

• NYC Urban Logistics Center is a 362,464 sf two-story industrial property located just 3.5 miles from Midtown Manhattan in Queens, NY. This precast concrete last-mile industrial building was developed in 2017

• Opportunity to capitalize on the confluence of trends such as the rise of e-commerce, expanding Millennial buying power, a 13% decline in industrial-zoned sites since 2003 in NYC, and last-mile distribution demand in the most densely populated city in the U.S.

• Fully leased to one of the 50 largest companies in the Fortune 500


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The Future Of Retail

Malls of the 1990’s and 2000’s Modern Lifestyle Center


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USCanada

Australia

UKJapan

NetherlandsFrance

Switzerland

SpainChina

ItalyTaiwan

Thailand

GermanySouth Korea

Russia

Indonesia

23.5

16.8

11.2

4.6

4.4

4.1

3.8

3.6

3.4

2.8

2.8

2.4

2.3

2.3

2.21.4

1.0

sq. ft. per person

The U.S. Is Retailed Compared To Other Countries


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2014 2015 2016 2017 (f) 2018 (f) 2019 (f) 2020 (f) 2021 (f) 2022 (f)

35.6%36.8%

37.9%38.5%

39.2%39.8% 40.4% 40.9% 41.3%

Pure PlayOnline Retailer

Omni-channel Retailer

Brick-&-Mortar Only

Percentage of Offline Sales That are Digitally Influenced

Omni Channel Retailing


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Recent Annualized E-commerce Sales In United States

OR

Who will be most disrupted?


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Retail In The World Of Whole Foods

504 stores and distribution

centers (including Whole

Foods 365)

183 million people within a 30-minute drive

(56% of U.S. population)


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One-Hour Delivery Of Most Retail Goods Is Inevitable

• Whole Foods: One-hour delivery currently Austin, Cincinnati, Dallas, and Virginia Beach

• Less than three years away all markets— not just groceries


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Stocking Inventory Control In Store• Smart Shelves -- robots can take inventory/sort• After-hour inspections/locate misplaced goods• Review tags and pricing• Target and Walmart have this already

Implications• More efficiency may mean less jobs• Automation requires less/more efficient use

of space• Virtual Grocery Shopping• May impact industrial as much as retail


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Beacons Are The New Shopclerk

• Proximity marketing

• Pick up cell phone signals –anonymous

• Tells where you came from, what you do, where you are going

• Personalization can be tied to customer loyalty program

• Gets you what you want . . . Or tells you what you want????


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• E-commerce growing 15-20% per year while brick-and-mortars growing 3% per year

• People still go to stores for value, convenience, experience

• E-commerce is convenience not experience • Millennials still go to stores but shop online first• Baby Boomers are still slow tech adopters but may

want e-tailing convenience as they age• 44% of Americans still go to a store at least once a

week• Mall concept will be repurposed as preferences

change

Technology’s Impact On Retail


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Leading To Engagement Spaces

Large regional centers, anchored by popular attractions, which draw from broad local, national, and some international audiencesDestination

Centers

Hyper-curated centers specializing in related retail businesses and services, reflecting the values and preferences of the surrounding community

ValuesCenters

Mixed-use, multiformat centers located where consumers live, work, and travelRetaildential

Space

Every “store” (and the center itself) is smart, active retail environment featuring the latest in high technologyInnovation

Centers


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What’s Coming Next? Actually It’s Already Here

• Voice activated ordering/Alexa and robotic logistical fulfillment

• Drone delivery to residences• Cashless shopping / Retinal eye scanners• Beacon technologies – knowing what you

want before you ask• Internet and social media targeted ads

BUT . . . ALL OF THIS COULD COME WITH A BIG LOSS OF

PRIVACY


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Major Markets Are Expected to Benefit from Technology

Property Type NPI Markets Major Markets % of NPI

Market

PerformanceRelativeto NPI

Apartment 43 27 63% +93 bpsOffice 36 20 57% +110 bps

Industrial 45 23 50% +10 bpsRetail 47 25 53% +19 bps

Overall 67 34 unique markets 51% +58 bps avg.

outperformance

Property Type NPI Markets

High Performance

Potential Markets

% of NPI Market

PerformanceRelativeto NPI

Apartment 43 16 37% +112 bpsOffice 36 14 40% +176 bps

Industrial 45 9 22% +78 bpsRetail 47 13 32% +69 bps

Overall 67 20 unique markets 30% +109 bps avg.

outperformance

Major Markets High Performance Potential Markets

Washington, D.C.San Francisco Bay

Area

Seattle

Los Angeles

Orange County

San Diego

Inland Empire

DenverChicago

Houston

Dallas

South Florida

Jacksonville

Atlanta

Raleigh

Boston

New York

Philadelphia

Minneapolis

Austin

Portland

Baltimore

Data as of June 30, 2019. Major Markets are based on American Realty Advisors (“ARA”) Target Markets, and High Performance Potential Markets are based on ARA Conviction Markets. The comparisons utilize 2Q19 property type weightings and five yearsof NPI return data however the positive relationship shown in the analysis between Major Markets and NPI holds over the ten-year (+43 bps overall) and twenty-year (+57 bps overall) horizons as well. Relative performance methodology treats each market andproperty type equally. NPI is the NCREIF Property Index, an unmanaged index published by National Council of Real Estate Investment Fiduciaries (“NCREIF”). Please refer to the Disclosures at the end of the presentation.


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Conclusions• Technological advantages will reshape the way real estate is utilized

• Urban design will move toward moving people rather than moving automobiles

• Office design will be more customized to specific user needs

• Industrial demand will move to efficient . . . faster . . . closer

• Retailing will become more targeted – with necessity shopping doing better than discretionary shopping

• Technology will allow buildings and their owners to know more about you than you know about them

• As with everything, this can be good or bad

• All investment strategies need to consider how technology will change our use of real estate


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Disclosures

Disclaimer: The information in this presentation is as of October 2019 unless specified otherwise and is for your informational and educational purposes only, is not intended to be relied on to make anyinvestment decisions, and is neither an offer to sell nor a solicitation of an offer to buy any securities or financial instruments in any jurisdiction. This presentation expresses the views of the author as of thedate indicated and such views are subject to change without notice. The information in this presentation has been obtained or derived from sources believed by ARA to be reliable but ARA does notrepresent that this information is accurate or complete and has not independently verified the accuracy or completeness of such information or assumptions on which such information is based. Modelsused in any analysis may be proprietary, making the results difficult for any third party to reproduce. Past performance of any kind referenced in the information above in connection with any particularstrategy should not be taken as an indicator of future results of such strategies. It is important to understand that investments of the type referenced in the information above pose the potential for loss ofcapital over any time period. This presentation is proprietary to ARA and may not be copied, reproduced, republished, or posted in whole or in part, in any form and may not be circulated or redelivered toany person without the prior written consent of ARA.

Performance Disclaimer: It is important to understand that real estate investments pose the potential for loss of capital over any time period. Many factors affect performance, including changes in marketconditions and interest rates in response to other economic, political, or financial developments. Investment returns, and the principal value of any investment, will fluctuate, so that, when an investment issold, the amount received could be less than what was originally invested or that estimated at the time the investment was made. Use of leverage may create additional risks.

Forward-Looking Statement: This presentation contains forward-looking statements within the meaning of federal securities laws. Forward-looking statements are statements that do not represent historicalfacts and are based on our beliefs, assumptions made by us, and information currently available to us. Forward-looking statements in this presentation are based on our current expectations as of the dateof this presentation, which could change or not materialize as expected. Actual results may differ materially due to a variety of uncertainties and risk factors. Except as required by law, ARA assumes noobligation to update any such forward-looking statements.


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The Impact of Technology on Real Estate – Integrating the ... Docs/Public... · Social Users 7.593 BILLION 4.021 BILLION 3.196 BILLION 5.135 BILLION 2.958 BILLION Urbanization: