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Convene Launches New Product to Design, Build Flexible Workspaces for Class-A Office Landlords

October 1, 2018

 

 

Convene Launches New Product to Design, Build Flexible Workspaces for Class-A Office Landlords

 

Convene, a workplace solutions provider, is branching out from its traditional model to meet the growing demand of office owners looking for flexible workspaces while maintaining their company brands. Convene CEO and co-founder Ryan Simonetti told Bisnow that the company is launching a new turnkey solution Monday for Class-A office landlords and building owners that allows Convene to help them design, build and/or manage flexible work and amenity spaces. Simonetti described the company’s managed workplace and amenity solution as a product that delivers not just flexible workspace but also amenities and services on behalf of building owners and does it in a way that is co-branded. “This is endorsed and powered by us but it can be independently branded by the business owner,” he said. Traditionally, Convene leases office space from building owners and builds and designs its own coworking, meeting or other type of workspace with amenities and experiences. That model remains in place, but Convene's new offering gives the company another service to offer building owners and landlords. “We can sign a lease and build a ” Simonetti said. “Or we can partner with you with our managed workplace offering and it can actually be branded to you in the building." Under the leasing model, Convene collects rent from tenants who use the space, but the new offering would allow most of the profits to go to the building owner. Simonetti said the benefit of that is “you have more control over the space, the design, the branding. You can control how much space we take or don’t take and we’ll do that in partnership with you and you get to control the bulk of the economics in that deal.” Simonetti said this product can be rapidly deployed and scaled through a landlord’s portfolio. The new service allows Convene more business opportunities with other Class-A landlords and owners than its traditional approach. Convene’s announcement comes as the company continues to grow its workplace solutions empire at a rapid pace. Last month, the company raised a $152M Series D round led by Arrowmark. RXR Realty, Revolution Growth and The Durst Organization were among several investors that are investing in the company. In May, Convene purchased Boston-based data and analytics company Beco, which tracks workplace activity. Earlier this year, Convene opened its newest locations at Brookfield’s Wells Fargo Center and 777 Tower in downtown Los Angeles. It was the company’s first foray on the West Coast. Convene's partnership with Brookfield means the company will eventually design, operate and program space in buildings across Brookfield's portfolio. The company has plans to continue to expand beyond its current 20 locations and with this new service offering, provide more workplace solutions. Within the past five years or so there has been a groundswell of building owners wanting to build flexible workplaces or amenity-rich buildings to retain and attract the new generation of office tenants and workers. At a recent Bisnow event, commercial real estate office experts said more building owners are providing amenities, including fitness centers, lounges, courtyards and concierge services. Buildings with flexible workspace account for less than 5% of office inventory worldwide, JLL reports. But this trend could rise to 30% “due to insatiable levels of tenant demand for flexible-term spaces,” according to a 2017 JLL report. “As tenants across industries grapple with managing an increasingly fluid workforce — consisting of telecommuters, freelancers and contract employees — accommodating digital talent is taking on heightened importance,” the report states. “Companies both large and small have begun to realize the potential of leveraging flexible space arrangements to better manage their liquid workforce.” Simonetti said Convene came up with this product because many of its partner landlords wanted more control beyond the normal Convene space and wanted to jump on the growing trend so they could begin building their company brand. “We’re giving the power back to the building owner and to the landlord so they continue to maintain the strategic relationships with their tenants and enterprise customers,” Simonetti said. “We are just a catalyst and conduit for that.” (Bisnow)

 

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Fed Raises Rates, Sees at Least Three More Years of Economic Growth

The Federal Reserve raised interest rates on Wednesday, as expected, and forecast three more years of economic growth as the U.S. central bank left its policy for steady rate rises in place. In a statement that marked the end of the era of “accommodative” monetary policy, Fed policymakers lifted the benchmark overnight lending rate by a quarter of a percentage point to a range of 2.00 percent to 2.25 percent. The Fed still foresees another rate hike in December, three more next year, and one increase in 2020. That would put the benchmark overnight lending rate at 3.4 percent, roughly half a percentage point above the Fed’s estimated “neutral” rate of interest, at which rates neither stimulate nor restrict the economy. “The thing that folks were watching for, which they went ahead and did, was remove the word ‘accommodative’ in regard to their monetary policy,” said Michael Arone, chief investment strategist at State Street Global Advisors. “It does seem to potentially indicate they believe monetary policy is becoming less accommodative and getting more toward that neutral rate.” That tight policy stance is projected to stay level through 2021, the time frame of the Fed’s latest economic projections. The dollar lost ground against the euro after the release of the policy statement, the U.S. Treasury yield curve flattened and stocks rose. The Fed sees the economy growing at a faster-than-expected 3.1 percent this year and continuing to expand moderately for at least three more years, amid sustained low unemployment and stable inflation near its 2 percent target. “The labor market has continued to strengthen ... economic activity has been rising at a strong rate,” the Fed said in its statement, which removed its longstanding reference to the fact that monetary policy remained “accommodative.” It inserted no substitute language for the phrase, which had been a staple of its guidance for financial markets and households for much of the past decade. The wording had become less and less accurate since the central bank began increasing rates in late 2015 from a near-zero level, and its removal means the Fed now considers rates near neutral. The rate hike was the third this year and the seventh in the last eight quarters. Ahead of Wednesday’s statement, traders put the chance of a rate increase at 95 percent, according to CME Group. Fed Chairman Jerome Powell, who took over as head of the central bank earlier this year, is scheduled to hold a press conference at 2:30 p.m. EDT (1830 GMT) to elaborate on the policy statement and the Fed’s latest two-day meeting. The Fed’s latest projections show the economy continuing at a steady pace through 2019, with gross domestic product growth seen at 2.5 percent next year before slowing to 2.0 percent in 2020 and to 1.8 percent in 2021, as the impact of the recent tax cuts and government spending fade. Inflation was forecast to hover near 2 percent over the next three years, while the unemployment rate is expected to fall to 3.5 percent next year and remain there through 2020 before rising slightly in 2021. The jobless rate is currently 3.9 percent. With risks described as roughly balanced, the statement left the Fed on a steady course for the next year. Risks to the current run of economic growth, such as the threat of a damaging round of global tariffs increases, were largely set aside. There were no dissents in the Fed’s policy statement. (Reuters)

 

Six Takeaways from the Urban Land Institute’s Real Estate Economic Forecast

As U.S. economic growth begins to moderate following a long period of expansion, commercial real estate should continue to hold its own. This was one overarching theme in the Urban Land Institute’s (ULI) Real Estate Economic Forecast, a semi-annual survey of economists and analysts on the state of the real estate industry, which was released Wednesday during a webinar presentation. Still, even though the industry should still see positive returns and overall price growth, that growth will likely slow from the levels seen in recent years as the economy will begin to lose steam. Here are some highlights from the report and the presentation.

1. Investment sales volume will drop. Continuing a trend from previous years, investment sales volume is expected to come in at around $475 billion this year, down from $490 billion in 2017. This is off the peak years of $582 billion in 2007 and $569 billion in 2015. Sales volume will likely continue to slide for the next two years as well—to $450 billion in 2019 and $415 billion in 2010, according to the survey. These figures are above the 17-year average of $313 billion. Meanwhile, CMBS issuance is forecast to remain roughly the same for 2018 and 2019, then slide in 2020.

2. Total annual returns—and pricing—will also fall. The Real Capital Analytics CPPI saw 7.7 percent growth in 2017, and ULI survey respondents expect to see this growth fall to 6.0 percent in 2018 and continue to drop one percentage point in both 2019 and 2020. The 17-year average for the index is 4.4 percent in annual increases. The CPPI tracked by Green Street Advisors, a real estate research firm, has remained at roughly the same level for the past couple of years. The firm has previously said it expects commercial property prices to remain stable for the next six to 12 months. NCREIF total annual returns are expected to drop to 6.5 percent this year from 7.0 percent in 2017 and to continue sliding over the next two years.

3. Cap rates will rise. The NCREIF cap rate is expected to stay at 5.0 percent this year, then rise to 5.1 percent next year and 5.3 percent in 2020, as the 10-year Treasury rate is projected to rise, according to ULI’s forecast. Green Street has also already seen cap rates rise in most sectors.

4. Industrial returns will be strong, but lower than they have been. The popular industrial sector saw 13.1 percent total annual returns, according to NCREIF, almost three percentage points above the 10.4 percent 20-year average. For 2018 and beyond, returns will still be positive, but not as strong, according to ULI. This year returns are expected to come in at 11.4 percent, followed by 9.0 percent in 2019 and 7.2 percent in 2020.

5. Apartment, retail and office investors can expect a somewhat similar range of returns. The ULI forecast projects that these three sectors will see NCREIF total annual returns in the 4.0 to 6.0 range, with retail at the lower end of the range and the apartment sector at the higher end. All three segments will see returns slide this year and the two years after. “I was shocked, honestly, that there was very little difference between apartment, office, retail,” says Melissa Reagan, managing director and head of Americas real estate research at TH Real Estate, who was one of the panelists featured during the webinar.

6. The economy will keep expanding for the next three years. The analysts and economists surveyed forecast continued economic expansion in 2018 and 2019, but the growth is expected to slow in 2020. GDP is expected to grow 3.0 percent in 2018, then drop to growth of 2.5 percent the following year and to 1.7 percent in 2020. Unemployment is anticipated to stay in the 3.8 percent to 4.0 percent range for these three years. One wild card in the future of the economy are trade disputes, which could cause inflation to soar, says Tim Wang, managing director and head of investment research at Clarion Partners, who was also a panelist. But for the next two years, growth should be strong thanks to tax reform and increases in government spending, he notes. “The question is, what’s going beyond that? Our firm’s view is slower for longer. So, we’re pretty much in the camp that this cycle could last a lot longer than people had anticipated,” he said. “The question is, can we continue to grow without overheating?” (National Real Estate Investor/Mary Diduch)

 

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CURRENT

1 MONTH PRIOR

1 YEAR PRIOR

FED TARGET RATE

2.25

2.00

1.25

3 MONTH LIBOR

2.38

2.31

1.33

PRIME RATE

5.25

5.00

4.25

10 YEAR TREASURY

3.05

2.88

2.32

30 YEAR TREASURY

3.19

3.02

2.87