Change or Die, A short game, long game, or no game manifesto from home building guru George Casey.

by George Casey, CEO of Stockbridge Associates, LLC

“Depend upon it, sir, when a man knows he is to be hanged in a fortnight, it concentrates his mind wonderfully.”

Samuel Johnson

“Ticking away the moments that make up a dull day You fritter and waste the hours in an offhand way Kicking around on a piece of ground in your home town Waiting for someone or something to show you the way Tired of lying in the sunshine staying home to watch the rain You are young and life is long and there is time to kill today And then one day you find ten years have got behind you No one told you when to run, you missed the starting gun”

Pink Floyd — “Time”

Okay. So where is this going? A mid-eighteenth century English titan of letters and a late-20th century iconic rock band contemplating past actions (or inactions) and the now-apparent future inevitable consequences of those choices.

What does that have to do with home building today? Let’s see.

It has been nearly six months since I wrote two “By George!” pieces “The Elephant in the Room” and “The Elephant in the Room 2.0”.

My observations at the time were that, in the trajectory of the recovery of the US housing industry, it was becoming obvious that multiple factors on both the supply and demand side of housing were pointing toward the need for a full rethink of the whole topography of the industry, the players, and the business models that historically have been used to create housing for the country.

I am even more convinced that we are at a true inflection point in the journey between the old and the probable future.

Driven by a lack of sufficient trade labor willing to come into the current structure of the industry, we are finding ourselves more and more supply constrained. In a demand environment that indicates that there is a current demand for probably between 1.6 and 2.0 million housing starts per year, we seem tapped out in the 1.2-to-1.3 million range.

Furthermore, the current methods of building housing are inadequate and costly, meaning that the more affordable segments of the demand cannot be serviced profitably on a national basis.

The waste and inefficiency of the current model were brought into full relief in a February 2017 white paper by the McKinsey Global Institute on construction productivity worldwide entitled “Reinventing Construction: A Route to Higher Productivity”.

The study, in looking at construction productivity in the US noted that, since 1945, productivity in retail, manufacturing, agriculture and other major segments of the US economy had grown 1500% in that period. However, the US construction industry has had ZERO productivity growth in that period and since 1960 has gone BACKWARD.

It even gets even worse when the industry is segmented. The larger construction companies (Turner, Bechtel, etc.) have had some productivity increase in the period, but it gets pulled back by what goes on in the world of specialty trade contractors and smaller construction companies.

It finally notes that there is an opportunity to improve productivity by 5 to 10 times if we moved from the current model of construction to factory built manufacturing environments instead.

These models exist in Japan, Thailand, Ireland, England, Sweden, Germany and other countries for detached residential homes and commercial projects, such as apartments and hotels.

In the past six months, we have observed Japanese builders familiar with this industrial model purchase US home builders. We have watched some of the manufactured housing giants like Clayton Homes begin to dip their toes in the water of more “standard” home building by purchasing several homebuilders. We are seeing Silicon Valley interest in “disrupting” the current housing ecosystem and new players beginning to gain traction and raise significant capital on new ideas of how to restructure the industry.

For existing home builders, this is the pending hanging moment that should focus the mind of Boards and C-Suite executives, for it is becoming evident that unless there is acknowledgement of the threat to the enterprise no action can be contemplated or taken in time to have meaningful effect.

In many ways, the starting gun has already been missed and there is a major strategic hole that has already been dug. The margins and unleveraged returns on assets of the major builders have been slowly declining over the past several decades, despite the consolidation in the industry. Reinvestment in a new business model from existing players is becoming more difficult.

It is easier for new players to spin a de-novo story and access capital and talent than existing players to convince the market that the same people, processes, and business model will produce a markedly different result than the organization, strategy, and business model have been producing.

Credibility around significant change of this magnitude is in short supply.

And it is no surprise that we are here.

Organizations tend to do the things they are organized to do.

The people, titles and portfolios of responsibility that are highlighted to the public tell an interesting story of what an enterprise thinks to be important. Annual reports, organization charts, and titles are a window into the thoughts and priorities of a company and highlight their true DNA.

Look at most of the builders and you will see CEOs, COOs, CMOs, CFOs, CIOs, Division Presidents, HR executives, and sometimes someone charged with sustainability, investor relations, or governmental relations.

Nearly universally, there is no one highlighted as responsible for strategy, research and development, or technology development.

Yet go to almost every major manufacturing company or service provider, particularly those who are driving innovation and new forms of business, and you will find very senior people with these portfolios and responsibilities. Check out: Adobe, Apple, Boeing, Ford, Home Depot, IBM, Intel, John Deere, Johnson & Johnson, Masco, and Salesforce.com.

If no one is responsible for looking over the horizon at the future and where there are opportunities and threats, organizational stasis becomes the default.

If no one is figuring out radically new ways of looking at the business and how it meshes with the anticipated future, new technologies and business models are never created, tested, and perfected.

Sears in a world of Amazon.

If current builders want to have a chance to avoid the hanging in the fortnight, very quickly both a short game and a long game must be developed and executed simultaneously.

In the short game, much more attention must be spent getting more out of the existing business model. A much different relationship with existing trade contractors should be formulated, focusing on collaboration, waste reduction and meaningful cycle time reduction in the creation of the home.

I am not sure whether this imperative and laser-beam executive focus is currently important for many of the larger builders, both public and private.

In the long game, organizations must re-calibrate to give greater focus to strategy and technical innovation, particularly in the form of automation and modular solutions. Whether it is developing solutions in-house or partnering with others who are already up to speed in this space, either way this change of business model for production must be embraced.

If both are not done, there will be no game left for the current crop of builders.

Acceptance of reality by those who govern and drive the enterprise is the first step in the journey ahead. I am still waiting for the speech by my mythical CEO in the “Elephant in the Room” to be given, for it will be the first tangible sign that there is a will to live and prosper in the new world.

“We recognize that this industry cannot operate any more like it has historically. The days of abundant and qualified sub-contract labor seem to be coming to an end.

We cannot afford to embrace a business model that thinks it is okay to deliver homes in 6-12 months and where we have little control over who builds our homes each day.

We have looked at other industries and see that on our current track we are destined to extinction in the face of a surging demand that our current business model does not permit us to meet at levels of margin and capital return that are acceptable and industry leading.

We, instead have chosen to take a different path that will involve some short-term pain, but will position us as a leader in the new housing economy.

We are going to take a meaningful portion of our cashflow and, rather than reinvest it back in land or stock buy-backs, instead will be investing in new methods of producing our homes, using a high degree of automation, new materials, and a dedicated workforce that are full-time team-members of our company.

We will use the best people and ideas from other manufacturers and homebuilders from around the world to help drive this innovation. Our belief is that we can deliver homes in under 60 days from the day the customer signs a contract with us and at net margins and returns on assets that our over twice what we have currently.

Even more, we are choosing to reorganize our company to continue to invest in the research and development needed to drive the continuous innovation and improvement that we see will be needed to keep us at the top of the competitive heap.

We will be innovative in our use of technology, materials, business systems, and people in this drive.

We know that, if we do not make these fundamental changes, we have a high risk of extinction and we will not ignore that fact.”

I do know that others are attacking the opening left by the inaction of the current crop of industry players with gusto, relish, and intensity each day and that they have not missed the starting gun.

So, to the owners, investors, boards and senior management of our building companies: what are you doing about it?

Originally published in Builder Online on May 2, 2017 and can be found at http://www.builderonline.com/builder-100/strategy/change-or-die_o?utm_source=newsletter&utm_content=Article&utm_medium=email&utm_campaign=BP_050217%20(1)&he=acb26dfc22037f8627bb26d072d9871f0bba5969

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Portland Question 1. Big bureaucracy that’s bad for affordable housing.

Say NO to Rent Control

Say No to 1

Portland Question 1 – the rent control proposal –  is on the ballot for Portland voters’ consideration on November 7. MEREDA believes that if passed, the initiative could have significant and unintended negative impacts on the city of Portland and its rental market.

We made the decision to oppose the referendum based on our commitment to support safe, affordable housing and responsible property ownership and management in Portland.  MEREDA is in the business of promoting the fair and responsible development and ownership of real estate throughout the State of Maine – whether that be a single-family home, a multi-unit apartment building, low income housing or other commercial real estate. We know how vital the housing and rental market is to the fabric of a community. Our community and the availability of affordable housing are very important to us. While we acknowledge that the availability of affordable housing is a concern in Portland, this referendum is not the solution the problem.  In fact, this ordinance would create many unintended negative impacts.

Portland Question 1 discourages affordable housing development, builds a massive new bureaucracy, and creates a rental market that is less safe. It’s bad for affordable housing. It’s wrong for Portland. If you care about affordable housing, make your voice heard. Say no to rent control. Vote no on Question 1. As Dana Totman, the President and CEO of Avesta Housing recently said, “One might think that Question 1 is going to help with housing affordability. We don’t think so. Therefore, we oppose question 1.”

First, there is no provision in the ordinance that would guarantee that low-income tenants would even get a rent-controlled apartment. In fact, this wouldl make it harder for low-income tenants to obtain housing, as landlords would be much more particular in selecting their tenants, and would reasonably look for tenants with higher credit scores and incomes. This would limit access to affordable housing for the very people who need it most.

Second, once tenants get into rent-controlled units they tend to stay for long periods of time, which further exacerbates the housing supply problem.  In a healthy rental market, people move up from the lower rents to the higher rents as their incomes and families grow.  The issue is really a supply and demand one, and not one of out-of-control rents. The solution is to add affordable and market rate rentals in the community, which would ease the supply problem, rather than controlling rates on the existing rental housing stock.  If Question 1 passes, we can reasonably expect a much slower rate of growth in rental housing in Portland, which is the opposite of what is needed.

Third, with limits on the return landlords can earn on their investments, they would have little incentive to improve or maintain their properties, which could lead to a decline in housing and neighborhood quality, and an increase in tax burden on all Portland homeowners.

Fourth, under this proposal, landlords would be unable to evict problem tenants. The suggested requirement that landlords place five police calls before evicting a problem tenant could be dangerous for neighboring tenants, and would be burdensome on the police department. Neighbors of problem tenants would have to live beside them for an untold amount of time before a landlord could successfully remove them.

Finally, the proposal will require the formation of a new city department, created to monitor the 18,000-plus rental units in Portland. At this point, voters don’t have any idea what the costs associated with this additional bureaucratic entity would be, but it is important to note that in the similarly-sized markets of Berkeley CA, Santa Rosa, CA, and Cambridge, MA, the costs to administer rent control are several million dollars annually. A proposed landlord board would be comprised of four tenants and one landlord, which is nowhere near a fair representation.  In essence, the city would cede its authority and responsibility, and tenants would be deciding what rental property owners would be allowed to do with their investments.

If passed, Portland ballot Question 1 would create unfair hurdles for the creation of new affordable housing and for landlords.  This dangerous policy cannot be changed for five years!  We agree that safe, affordable housing in Portland is necessary, but this proposal is not the way to achieve it.  The negative consequences and impacts Question 1 would have on the rental market in Portland would be extreme, and exactly the opposite of what the proponents of this policy hope to achieve.  It is bad policy, bad for Portland’s renters and rental property owners, and bad for the Portland community.

For these reasons, we oppose Portland Question 1 and strongly urge city residents to VOTE NO on Question 1, as well as VOTE NO on Question 2 (described in last week’s issue) on November 7.

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MEREDA OPPOSES PORTLAND BALLOT QUESTION 2

no on 2A dangerous ballot initiative will be voted upon on November 7 in the City of Portland.  Question 2 asks whether voters support a change to the City Code to give veto power to a small minority of registered voters, in fact, only 25% of the residents living within 500 feet of a proposed zoning change or zoning map amendment can sign and submit a petition and stop the zoning change.  This can happen no matter how supportive the majority of the community might be for the change, and it can happen with no public process.

Portland ballot question 2 is bad policy, bad for Portland and bad for Maine.  MEREDA does not want this policy to become adopted in Portland or to spread to any other municipality.  The reasons for this strong opposition are several.

First, handing veto power to a minority of registered voters who just have to sign a piece of paper that can be circulated in secret is not how democracy works.  This is an affront to our system and a dangerous precedent to be set.

Second, while the language of Question 2 claims to allow resident participation, it actually limits participation to a self-selected few. If Question 2 passes, a small group of residents would be able to block new housing and economic development with no public notice, no public meetings, and no opportunity for any vote.

Third, due to the City Charter, if this passes we will be powerless to change or amend this dangerous ordinance for five years.

Question 2 would cost significant job growth.  For example, it would apply retroactively to this past May.  That means it could undo the zoning changes approved for the cold storage facility on Portland’s waterfront and other significant projects in the city.  The loss of the cold storage facility would result, immediately, in the loss of nearly 1,000 new jobs and a $171 million economic boost on Portland’s working waterfront and would inevitably lead to the loss of many more in the months and years to come.

This will cause an insurmountable chilling effect on investment in Portland.  Indeed, investments will dry up – in new business, in key infrastructure and housing including affordable housing, market rate apartments and single-family homes.

MEREDA is actively participating in OnePortland, the campaign to defeat this dangerous initiative.  We urge you to encourage any voters in Portland to VOTE NO on Question 2 on the Portland City ballot.

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Maine Real Estate & Development Association (MEREDA) Announces Gary D. Vogel as Vice President

The Maine Real Estate & Development Association (MEREDA) is pleased to announce that longtime member, Gary Vogel of Drummond Woodsum, has been elected Vice President.

Gary Vogel Sept 2017Currently, Gary also serves as chair of MEREDA’s Public Policy Committee, and is a generous leader of MEREDA’s legislative agenda.  His institutional knowledge and experience with MEREDA’s legislative history, combined with his knowledge of development challenges in Maine from his own law practice, provides MEREDA with a breadth and depth of knowledge that benefits all MEREDA members.

Gary has served on the MEREDA board of directors since 2004, acting as chair of the Public Policy Committee for more than 12 years.   During Gary’s tenure as chair of the legislative committee, MEREDA has realized many legislative accomplishments benefiting Maine and real estate development in Maine.

“We owe Gary a debt of gratitude for his dedication to his voluntary leadership role with MEREDA’s Public Policy Committee, and are excited to have him participate now in this new leadership role as Vice President”, says Shelly R. Clark, Vice President of Operations for MEREDA.

A shareholder (partner) at the law firm of Drummond Woodsum, Gary’s practice is concentrated in real estate, real estate development, financing transactions, commercial transactions, mergers and acquisitions and corporate and commercial law.  His practice often involves developments utilizing the Federal Low-Income Housing Tax Credit, Federal and State Historic Tax Credits and New Market Tax Credits.  He has been practicing law in Portland for over 30 years and resides in Yarmouth.

For further information, please contact MEREDA’s Vice President of Operations, Shelly R. Clark at 207-874-0801 or visit www.mereda.org.

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MEREDA’s Morning Menu Breakfast Event “Introduction to the Portland 2030 District”

2030 LogoA program of the Greater Portland Council of Governments (GPCOG), the Portland 2030 District is a collaborative, nationally recognized, but local community of high performance buildings in downtown Portland that aims to dramatically reduce energy and water consumption and reduce emissions from transportation, while increasing competitiveness in the business environment and owners’ returns on investment.

Join the Maine Real Estate & Development Association (MEREDA) for breakfast on November 7 from 7:30 AM – 9:00 AM at the Holiday Inn By the Bay  for an overview on the accomplishments and current efforts of the District.  This will be followed by a case study on cost savings and insights into how to get started on reducing energy consumption in your commercial buildings.

What is the Portland 2030 District? How will it reach of its goal of reducing energy & water consumption and transportation emissions 50% by 2030 in commercial and multi-family buildings in downtown Portland? How can building owners get started on reducing energy consumption in commercial buildings? Join us for an update on the Portland 2030 District and learn more about the current efforts and accomplishments of the founding members, and how they are obtaining utility data for benchmarking, financing, decision making, and working with the appraiser community. Attendees will learn more about accessing on-line tools & local cooperative purchasing, as well as specific strategies and case studies for cost savings.

About the Event:

November 7, 2017 – 7:30AM to 9:00AM

Holiday Inn By the Bay

88 Spring Street
Portland, ME

Breakfast: 7:30 AM
Program: 8:00 – 9:00 AM

About the Panel:

Drew Swenson has developed and financed numerous real estate projects and overseen property asset management and financial advisory services for clients throughout Maine and New England. He has served with distinction as a President and CFO for affordable housing, commercial development and operating companies.  In addition, he has been a CPA for 32+ years with KPMG, Berry Dunn and now with FTS US. Inc., a New York City based CPA firm specializing in alternative investments such as real estate, hedge and private equity funds.  Drew specializes in strategic and real estate business advisory services, real estate and hotel syndication, development, financing, tax planning, bankruptcy and turnaround consulting.

Drew holds a BA English, Magna Cum Laude and BA Political Science, Magna Cum Laude from the University of Maine. He also holds a JD from the University of Maine School of Law, an MA in Tax Laws, LL.M.Tax, Cum Laude from the Boston University School of Law and a CPA Certification in the State of Maine. Drew is a member of the Maine Society of CPAs and American Institute of CPAs.

He was a founder and former treasurer, president and director of the Maine Real Estate & Development Association and is and has been a trustee, director, officer and otherwise active in numerous other civic and charitable activities.

Fred Horch is a small business owner and passionate advocate for Maine’s people and environment. His company, Spark Applied Efficiency, helps businesses find smarter ways to save energy.  He is known in Brunswick for F.W. Horch Sustainable Goods & Supplies, a store he founded and operated for several years prior to launching Spark. Fred has a BA in political science and computer science from Swarthmore College, and a law degree from UC Berkeley. Before moving to Maine with his wife and children, Fred worked as legal counsel for TriNet Services, an Internet consulting practice in North Carolina, as a legal editor for Nolo Press in Berkeley, California, and as a summer legal clerk for Pacific Gas & Electric, a major California utility.

Michael Pulaski leads Thornton Tomasetti’s Portland, Maine, office. He has more than 10 years of experience in sustainability consulting, providing sustainability strategies and engineering, energy and environmental analysis, and certification management. His clients range from building owners to design teams and contractors for new construction and existing structures. He is well versed in all LEED rating systems, and in Living Building Challenge certification and Passive House standards. Michael has a PhD in Architectural Engineering from Pennsylvania State University.

Registering for this Event:

MEREDA Member: $45 each  | Non – Member: $55 each

Register After October 31, 2017:  Member: $55 each  |  Non-Member $65 each

Your RSVP is requested by October 31, 2017. Payment is expected at the time of registration. No refunds will be granted to anyone who registers, but fails to attend or who cancels after October 31, 2017.

This MEREDA Morning Menu Breakfast Event is Sponsored by Norway Savings Bank. 

Visit www.mereda.org for more information and to register.

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Maine Real Estate & Development Association (MEREDA) Announces Membership & Marketing Committee Vice Chair

Josh Fifield OCT 2017The Maine Real Estate & Development Association (MEREDA) is pleased to announce that Portland resident, Josh Fifield, a Senior Account Executive in the Business Insurance Department of Clark Insurance will fill the role of Vice Chair of MEREDA’s Membership & Marketing Committee.

Since joining Clark Insurance, a 100 percent employee-owned independent agency, Josh has built a reputation for understanding the complexities of real estate development to help insure large affordable housing projects, commercial developments and industrial properties, including insurance solutions for state and federal historic & LIHTC tax credits.

A Maine native and graduate of the University of New Hampshire, Josh has been a volunteer on MEREDA’s Marketing and Membership Committee since January 2014 and was named by MEREDA in January as one of two Volunteers of the Year.  In May, Josh was also elected to the MEREDA Board of Directors.

“Josh has been an invaluable addition to our volunteer board and committee,” says Shelly R. Clark, Vice President of Operations for MEREDA, “Having Josh step into the Vice Chair role will only strengthen the committee and its important work.”

For further information, please contact MEREDA’s Vice President of Operations, Shelly R. Clark at 207-874-0801 or visit www.mereda.org.

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The Right Equation for Responsible Development: Spotlight on Meetinghouse Lofts Condominiums

In multi-part series, exclusive to the Maine Real Estate Insider, we’ll provide an up-close look at the most notable commercial development projects of the past year that are helping to fuel Maine’s economy in terms of investment and job creation.  MEREDA is proud to recognize responsible development based upon criteria including environmental sustainability, economic impact, energy efficiency, social impact and job creation.

Please join with us in celebrating Meetinghouse Lofts Condominiums.  A conversation with Ethan Boxer-Macomber, Anew Development.

MEREDA:  Describe the building and project.

Ethan Boxer-Macomber:   Meetinghouse Lofts is a 19-unit residential condominium project at 341 Pine Street in South Portland created through the adaptive reuse of the former Roosevelt School; a John Calvin Stevens designed schoolhouse built in 1926. Roosevelt School served generations of South Portland school children until it was decommissioned in 1983. Roosevelt was then operated as the private Sprurwink School until 2013.

In 2013, the City of South Portland solicited developers to redevelop the property and selected Anew Development. Anew’s plan called for gut rehabilitating the existing +/- 18,000 s.f building and adding a +/- 12,000 s.f., three-story addition. Anew’s comprehensive redevelopment plan included careful thought and attention to such considerations as, sustainability, historic preservation, economic development, smart growth, and quality architectural and urban design.

Units at Meetinghouse Lofts range from 950 s.f. one-bedroom to 1,150 two-bedroom units and feature such amenities as 12’ -14’ ceilings, quality, modern finishes, fixtures and equipment, storage units, balconies and patios, covered parking, and a commercial grade onsite fitness center.

MEREDA:  What was the impetus for this project?

Ethan Boxer-Macomber:  In 2014, the City of South Portland released a request for proposal for the acquisition and redevelopment of the former Roosevelt School on Pine Street. I had recently struck out on my own to start Anew Development and was, at the time, actively searching for a first project. The City’s RFP was serendipitous. The Roosevelt School opportunity hit all of my project criteria; a perfect smart growth/ infill location, historic preservation, strong market, interesting design challenges, and an appropriate size and scope.

MEREDA:  That sounds like quite a process.  How long were you in the planning stages before construction started?

Ethan Boxer-Macomber:   Taking the project from a concept to a construction start had many of the customary challenges and took the better part of two years. The first year was focused on responding to and ultimately winning the RFP, then taking the project though first a rezone and later the site plan and subdivision permitting process. The second year involved developing the marketing plan, raising private equity and securing other needed financing, developing final construction documents and putting the project out to bid.

We owe all of the project’s success to our superlative project team; PDT Architects, Carroll Associates Landscape Architects, Zachau Construction, Bangor Savings Bank, Nancy Field of Keller Williams Realty, the attorneys at Kelley, Remmel and Zimmerman, and accountants at Purdy Powers and Company.

MEREDA:  Tell us about the most challenging aspect of getting this project completed.

Ethan Boxer-Macomber:   We ordered the project appraisal in 2014 at a time when the only new construction condominium comps in South Portland were held over from the post-recession period. We were looking at a desirable location, a beautiful property / product and an optimistic sales outlook. In a nutshell, the appraiser was looking backward and we were looking forward. The low appraisal reduced the amount of construction loan financing we could secure and forced us to raise additional private equity which is obviously much higher cost money. In the end, the market was strong enough to support the additional project cost but this was certainly the largest hurdle we had to clear along the way.

MEREDA:  Something unexpected you learned along the way was….

Ethan Boxer-Macomber:  My most valuable learning experience at Meetinghouse Lofts was in the area of buyer customization. In my eagerness to please all of my buyers I readily agreed to some pretty costly and disruptive buyer initiated change orders; e.g. custom appliance and lighting packages, reconfiguration of partition walls, flooring changes, paint colors, etc. Looking back, I underestimated the cumulative negative effect of all of this customization on design and construction coordination, duration, and cost. On subsequent projects, I’ve done a better job of setting clear parameters and drawing hard lines around what can be customized and what cannot.

MEREDA:  Now that it’s complete, what feature of the project do you think makes it the most notable? 

Ethan Boxer-Macomber:  The project met or exceeded all of its intended objectives in terms of rescuing an historic property in peril, enhancing the neighborhood, achieving smart growth and sustainability goals, generating significant local jobs and taxes, and providing quality new housing units in South Portland. In the end, however, I’d have to say the project’s most ‘notable feature’ is something we hadn’t full anticipated.

Meetinghouse Lofts is now home to 19 households and a truly delightful group 31 people of people who have come together to form a new community. As I’ve returned to Meetinghouse Lofts post-occupancy, I’ve been consistently delighted to see neighbors taking outings together and compassionately supporting one another with everything from pets and parcels to life changes and illness. The residents all express how grateful they are for Meetinghouse Lofts’ physical design and amenities. However, almost to a person, the comment I hear the most is how much they are enjoying being part of Meetinghouse Lofts’ welcoming, supportive, and cohesive new community.

In addition to receiving recognition from MEREDA, Meetinghouse Lofts is also recipient of 2016 Historic Preservation Awards from both Greater Portland Landmarks and Maine Preservation. 

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The Right Equation for Responsible Development: Spotlight on Ridgewood at Village Square

In multi-part series, exclusive to the Maine Real Estate Insider, we’ll provide an up-close look at the most notable commercial development projects of the past year that are helping to fuel Maine’s economy in terms of investment and job creation.  MEREDA is proud to recognize responsible development based upon criteria including environmental sustainability, economic impact, energy efficiency, social impact and job creation.

Please join with us in celebrating Ridgewood at Village Square.  A conversation with Dana Totman, Avesta Housing.

MEREDA:  Describe the building and project.

Dana Totman:  Ridgewood at Village Square is an affordable senior property with 24 one- and two-bedroom apartments targeted to households at or below 60% of the area median income. Located in Gorham, Ridgewood has assistance available through Rural Development for all 24 units – residents pay 30% of their adjusted gross monthly income towards rent. Because of the availability of this rental assistance, lower income senior households that could not afford regular tax credit affordable housing are able to afford to live at Ridgewood. The average annual income of Ridgewood residents is approximately $14,100.

Ridgewood was designed by Gawron Turgeon Architects of Scarborough and built by Great Falls Construction of Gorham.  Financing was provided by Gorham Savings, Northern New England Housing Investment Fund, MaineHousing, and Rural Development.

MEREDA:  What was the impetus for this project?

Dana Totman:  Avesta received a RD515 award for senior housing. We initially planned to build this development in Bridgton, but the residents there rejected it, despite their desperate need for affordable housing for seniors. So, we recognized a need for affordable housing for seniors in Gorham and found a town that was very welcoming of this important development for their senior residents. Gorham was particularly appealing since we had a site on our Village Square campus that was perfect for the building.

MEREDA:  That sounds like quite a process.  How long were you in the planning stages before construction started?

Dana Totman:  Planning for the development started in 2010 and the construction was completed in the first half of 2016.

Ridgewood II community room Ridgewood II photo for plaque

MEREDA:  Tell us about the most challenging aspect of getting this project completed.

Dana Totman:  One of the biggest challenges for the development was finding a site that fit the necessary criteria for Rural Development, MaineHousing, and Avesta. We were fortunate that the perfect site ended up being at our own Village Square campus.

MEREDA:  Something unexpected you learned along the way was….

Dana Totman:  We learned that Maine Housing and Rural Development are very patient when a developer encounters a difficult town and needs to transfer funds to a different town.

MEREDA:  Now that it’s complete, what feature of the project do you think makes it the most notable? 

Dana Totman:  I’d have to say there are two notable features at Ridgewood – the telehealth services and the sustainable construction. Ridgewood residents benefit from a revolutionary telehealth program resulting from a partnership between Avesta and MaineHealth. This innovative collaboration between the healthcare and affordable housing industries aims to move the needle forward in the area of low-income seniors’ health and well-being. Residents with complex healthcare needs who accept this assistance connect to physicians and nurse care managers using advanced telehealth technology. This expanded program builds on a previous nursing pilot program to provide more comprehensive care for patients identified as high risk.

In alignment with Avesta’s core value of sustainability, Ridgewood generates 50% onsite renewable energy and has been certified with the following designations: LEED Platinum, LEED for Homes, Enterprise Green Communities, and Energy Star. The energy-producing photovoltaic solar panels on the roof were installed by Gorham-based GreenSun LLC.

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MEREDA’s Annual Fall Networking Social

Another great “meet-and-greet” opportunity, this time on Portland’s Waterfront, you are invited to the Maine Real Estate & Development Association’s (MEREDA’s) highly-anticipated Annual Fall Social on October 26th!

MEREDA’s networking events attract key players in Maine’s real estate industry and provide our members with excellent opportunities to interact with the experts.

Join us on Portland’s waterfront for hors d’oeuvres, spirits, and great conversation with colleagues, friends and other industry professionals for our Annual Networking Fall Social on October 26 from 5:00 – 7:00 PM.

Join us for a cocktail or two, and reconnect with colleagues and friends, both old and new!

Before the official “networking” gets underway, MEREDA will hold its Annual Meeting of the Members beginning at 4:45 PM – Members Only

About the Event:

MEREDA’s Annual Fall Networking Social

October 26, 2017 – 5:00PM to 7:00PM

Hilton Garden Inn, Portland Downtown Waterfront
65 Commercial Street
Portland, ME

Registering for this Event:

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Has E-commerce Plateaued? An Economist and a Millennial in Conversation

By Blueprint, presented by CBRE

Do millennials shop differently than older generations? Are brick and mortar shops fighting back against the rise of e-commerce? Must retailers move online to survive? Are consumers more likely to buy if they browse online? Does a brand need a physical presence to have a successful launch? Above all: Has e-commerce plateaued?

These and other questions are part of the wider debate about how technology is shaping how we shop.

In our latest conversation in an ongoing series with CBRE thought leaders, Richard Barkham, CBRE’s global chief economist, argues that technology and e-commerce have only just started to reshape how we shop, while Sahar Rezazadeh, a chartered surveyor on CBRE’s Central London retail team, argues that in certain sectors and countries, millennials’ shopping habits mean that there is plenty of life in brick and mortar yet.

Richard Barkham: Let’s start with the big picture. Clearly, technology is reshaping every sector it touches. In retail, for example, it is reshaping the key drivers of the modern logistics operation: supply chains, same-day fulfillment, and how we deal with returned goods. Most importantly, e-retail volumes continue to grow and grow.

We are also seeing e-commerce affecting large retail firms. For example, Michael Kors, a big U.S. retailer, recently recorded a decline in growth of sales, which they put down to the poor performance of U.S. malls. I’m sure that’s the result of technology and sales moving online. In short, e-commerce looks healthy. It’s having an impact.

So Sahar, why do you say that millennials are going to be responsible for the plateauing – or perhaps even decline – of e-commerce?

Sahar Rezazadeh: I think it’s not as straightforward as that, for three main reasons.

First, there’s a lot of variation going on under the surface of the macro picture, in different sectors. In the field of fashion and accessories, for example, people of my generation are just as keen to buy in person as they ever were. One recent CBRE report, Millennials: Myths and Realities found that apart from food, millennials do less than 10 percent of their non-food shopping online.

Second, if any brand wants to make its mark in retail, it has to have a physical presence. That’s always been the case, and it still is. Retailers, especially startups, are struggling to get the attention they need online because there’s so much information and consumers are so fickle. Retailers are increasingly finding that the way to make their brand stand out is to launch a store. It still gives you much more exposure than just having a website.

You mentioned Michael Kors, for example. They’re a U.S. retailer that have decided to enter the U.K. market. It’s notable that despite the opportunities online they’ve decided to roll out physical stores across the country. If they thought e-commerce was more profitable in the long run, why would they be opening stores in key locations like Regent Street in London, where they have upsized to a 16,000 sq.-ft. flagship store? We see a similar story in other key cities such as New York and Hong Kong. If you want to make your mark in retail, you need that physical presence. Certainly we’re seeing that online names are even starting to look to add physical stores to the mix.

Third, I think retailers are beginning to realize that moving online is a more expensive proposition than they thought it would be. It’s not just a question of building the site or the app. If they want to compete with the more established brands, new entrants have to invest to get the attention of the right consumers in the right way at the right time. That could mean SEO and other kinds of online promotion, it could mean publishing, it certainly means making sure that the app or site works seamlessly and stays up-to-date. The reality is that it’s a competitive market and smaller retailers or up-and-coming brands will struggle compared to the brands that have already made their mark.

THE RETAIL EXPERIENCE

RB: I take your points. And although I said that the decline of growth in mid-market malls might point to the health of e-commerce, there could be other reasons for it too, such as particularly poor wage growth. Since the financial crisis, lower and middle income wages have been relatively stagnant. That’s probably another reason why many mid-market malls are stagnating.

I was interested in your point that there’s something distinct about millennials’ shopping habits which is checking the rise of e-commerce. What were you referring to?

SR: Well, of course we have to be wary of generalizing too much. And of course there are some products which millennials would purchase from an online retailer because it’s cheaper or easier.

But there are other categories which I wouldn’t dream of purchasing online. To buy a pair of shoes, for example, you need to go into the store, try them on, and walk around in them. If you need to refund them, it’s much easier to do in person. All of these things are possible to do online – some shops send you items to try on and you can send them back, for example – but we are not seeing consumer habits changing rapidly. Seventy percent of millennials’ shopping still takes place in-store; over half say they like to see the products before they buy them. Shopping online, it turns out, is just not as convenient for most millennials.

Brick and mortar also benefits the retailer. When I go into a store, my visit is more likely to be converted into a purchase, whereas online I might click on a few items, save them in my basket, leave the site, and perhaps come back to it later.

THE INTERNATIONAL PERSPECTIVE

RB: I take your points about experience, but the best e-retailers give a fantastic experience. Great choice, rapid delivery and returns service – sometimes better than shops. Although e-retail is better for ‘classic’ items like business shirts – more so than, say, new designs, colors and brands.

Another factor, of course, is the big picture in terms of economic growth. Today, we are seeing an increasingly powerful recovery in many developed countries. Consumer balance sheets are in good shape around the world and confidence is high, so you would expect overall volumes to be going up. Overall growth and increased market share will keep e-retail booming. I did think that maybe market share had plateaued in the U.K., but I am not sure that is true. Moreover, in most other countries, including the U.S., market share is low and heading up quickly.

SR: The sector-by-sector analysis is important here, too. If we look at the luxury market, very few people will spend thousands of pounds online at the push of a button. We want to go into the store, feel and experience the product. And research shows that we are increasingly interested in buying into the experience as opposed to merely the product.

Topshop, for example, is getting better at giving its customers an experience. They never used to have too much going on in store, but now some of their stores have hairdressers, treatments, a nail bar, style consultants, and more. It’s no longer just about going in, picking something up, and leaving.

Primark is an interesting example, because they have decided not to have e-commerce at all. You might think that an essentials brand which is cheap would want to go the e-commerce route. I suspect they know, though, that by keeping their commerce in store they’ll increase their dwell-time, which will lead to more sales and impulse purchases.

Any retailer which can develop a robust multichannel retail strategy that combines ‘clicks with bricks’ will succeed. Needless to say, the occupancy costs for a physical store need to stack up, and retailers will be mindful of the size and number of stores they will commit to. In the U.K. for example, we are yet to feel the impact of the business rates (property tax) increases in key retail destinations.

SPEED OF ADAPTATION

RB: The question of what determines the speed of adaptation to e-commerce is an interesting one. As an economist, I think prices, incomes, and the availability of technology are the main factors. In the U.S., for example, there is some evidence that online commerce correlates to the gas price: When petrol prices go up, people are more likely to buy online; when it goes down, they’re more likely to go back into physical stores.

And when I think about my own adaptation to e-commerce, I’ve come to the conclusion that I have similar shopping habits to millennials myself. I prefer to shop in shops, particularly when it comes to luxury items. I will go a long way to see new cool stuff. Perhaps, I’m a closet millennial … despite the trivial matter of age.

In any case, the battle of consumer engagement is super-fierce right now. ‘Bricks and clicks’ need to be right ‘on their game’ to succeed.

Sahar Rezazadeh is a chartered surveyor on the CBRE Central London retail team, offering advisory and transactions services to clients. She advises retailers on their store portfolios including new entrants to the U.K. and London market and specializes in fashion and lifestyle brands. She’s a former finalist of the Network of Aspiring Women Young Entrepreneurs, and in 2014/15 won the RICS Young Surveyor of the Year Award.

Richard Barkham is the global chief economist at CBRE. He is a former director of research for the Grosvenor Group, and a visiting professor in the Department of Construction and Project Management at University College London. He taught at the University of Reading between 1987 and 1998. He is the author of Real Estate and Globalisation, which explains the impact on real estate markets of the rise of emerging markets such as China and Brazil, as well as numerous academic and industry papers.

Article originally published on February 23, 2017 –  https://blueprint.cbre.com/has-e-commerce-plateaued-an-economist-and-a-millennial-in-conversation/ 

“Blueprint, presented by CBRE, is an online magazine dedicated to telling timely and insightful stories about the transformational role real estate plays in the world.”

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