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What Is The Outlook For Construction Post Pandemic?



Laborers working on modern constraction site works in Dubai. Fast urban development consept

Over the past few weeks, thanks to the very successful vaccine rollout in countries such as the US, the UK, and Israel, we have glimpsed the end of the road in terms of the COVID-19 pandemic. We are also starting to see the beginnings of the much-longed-for post-crisis acceleration in demand for construction activity. Alongside this, there has been a massive surge in construction technologies in recent times, driven by strong investment figures into the sector. According to London-based proptech and tech investor Concrete VC, “venture capital investment growth in construction tech has far outpaced the overall VC space.” With this in mind, I had a chat with Autodesk Senior VP and General Manager Jim Lynch, who broke down the main findings of the design and construction software company’s 2021 Construction Outlook report and shared his view on what we can expect for the future.

The report uses U.S. Census data, construction starts data, Dodge Data & Analytics data, and aggregated bidding data from  Autodesk Construction Cloud’s BuildingConnected, where over a million owners, general contractors, construction managers, and subcontractors answer or request bids. It is worth noting that this data is very much U.S.-centric and excludes small market players, across a variety of asset classes.

As Lynch puts it, “the big takeaway is that the market is back”. Commercial real estate bidding activity has surpassed pre-pandemic levels, and the BuildingConnected data reflects that real-time bidding has bounced back to pre-pandemic levels and reached an all-time high of 36% year on year in January. Canceled and delayed projects are coming back online, and what is most interesting is that 80% of bids are being turned around in seven days, indicating that the industry is turning to technology to drive greater efficiencies.

By 2050, the global population will have grown by two billion people, and it is a fact that the construction industry will not be able to serve their needs unless it innovates, drastically. The report highlights a series of key concerns that need to be addressed with great urgency so as not to stunt future growth. Of these, the most pressing are around labor market limitations, construction costs, and the design process.

Put simply, the question around the labor market is “how do we fix it”. Lynch shared that it is a global issue for customers, as everybody is concerned about not having sufficient labor to fulfill contracts. According to the report, the hardest positions to fill are laborers, carpenters, and heavy equipment operators as far as crafts are concerned, whilst project managers and construction supervisors are the hardest to find for full-time positions. Lynch reckons that the industry needs to do a much better job at engaging with universities, unions, and labor groups to ensure new entrants into the workforce gain the skills they require. Autodesk makes sure that graduates are proficient in its tech by providing its software for free to universities, partnering with them to ensure that their curriculums include learning to use it.

Lynch shared that they are also very committed to engendering diversity in construction, stating that, “A year ago we did a project with the Associated General Contractors of America to provide PPE [personal protection equipment] for women in construction. Building out diversity in the workforce is a huge opportunity for the industry and we want to play a part.” These are small steps in the right direction – over 90% of the construction industry is male, and it is imperative that this change, especially in light of ever-growing labor shortages. The good news is that the deployment of tech on-site is bringing opportunities to diversify the workforce, as the industry is becoming less and less manual labor-intensive. According to Lynch, “Robotics is coming to the worksite, and they will not take jobs away, they will make the workforce on the site more efficient and make their jobs safer. What happens on-site is changing, but not fast enough!”

Anybody who is involved with construction will by now be aware of how rising raw material costs (especially those of steel and lumber) are squeezing construction firms’ already slim margins. In many cases, these costs are putting a halt on production, as prices quoted at the end of 2020 are no longer viable. I asked Lynch what the solution might be for this price fluctuation issue in the long run, and he told me that, “The answer is to target greater efficiency during the planning and design cycle. We need to look at different ways to build to cut waste. At Autodesk, we believe a good way to drive efficiency is to look at what other industries are doing – we should manufacture offsite, rather than build on-site. Prefabrication reduces waste significantly and creates more predictability in the process since a factory environment is a controlled environment. Tech isn’t the savior for everything but plays a huge role. For example, Autodesk Takeoff allows for more accurate quantities in preconstruction. After all, a lot of the industry over-purchases, so tech that drives more accurate quantities is important to limit the effects of rising raw materials costs. The next steps revolve around the efficiency of the movement of materials, which we aren’t yet involved in, but work with partners engaged in that aspect.”

You can’t think of efficiency without taking sustainability into account. With real estate and construction producing a third of CO2 emissions, ad a significant chunk of global waste, everybody in the value chain must strive to do better. Barron’s ranked Autodesk fourth in its top 100 most sustainable companies in 2021 and Lynch shared that they are committed to using technology to help their customers become ever more sustainable. For example, Autodesk recently announced a partnership with MultiGreen, a tech-enabled real estate development and operating company, to help power Workforce Plus, its new plan to build 40,000 economically and environmentally sustainable tech-enabled housing units by 2030 across ten states in the U.S.

Last but not least, the report highlights the importance of improving the design process to reverse project margin erosion. According to it, projects with more than 6% of construction value in change orders showed margin erosions. Lynch shared that, after years of making progress to drive efficiency on the design side with its REVIT and BIM products, Autodesk is now working to do the same for construction with its Construction Cloud. He stated that “We have created a common data environment on our single data platform (Autodesk Forge) which all of our tools sit on and push data in and out of. Third parties can also work on that platform. There is a lot of great tech on the market, but the difference in our approach is that, while there are a lot of point solutions out there, we think there is the most value for our customers if we can connect processes and share data. We want to make sure design changes are quickly reflected so we can reduce waste, and we provide a common data environment and change management capabilities. The problem we are working to solve is that of how we collect feedback on issues from the job site and get it back to the design office so these can be quickly addressed.”

There is a lot to unpack in this report, but for me, the key takeaway is this: there is a golden opportunity for the construction industry not just to bounce back from the COVID-driven crisis, but to use this moment to take an innovative leap forward and tackle the structural issues that have historically held it back in terms of growth, productivity, and profit margins.  Let’s not waste it.

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Real Estate

How To Determine Your Investment Strategy For Apartment Buildings



Rows of keys

Eric is a Real Estate investor, founder of MartelTurnkey, and author of Stop Trading Your Time for Money.

Apartment buildings are widely considered to be a good investment, but are they right for you?

To answer this, let’s first differentiate between two investment strategies when it comes to apartment buildings: buying turnkey properties versus value-add properties.

Turnkey Properties

Buying turnkey apartment buildings offers a way to build wealth without having to renovate anything or build from the ground up. You simply collect the rent from tenants each month. If you’re thinking long-term, this is a great way to build equity and a solid investment. As a passive investment, the returns are not as high as a value-add strategy, but this may work better for investors who don’t wish to spend a lot of time managing their properties.

So why would someone buy a turnkey apartment building? For those who don’t have time to manage construction projects, turnkey investments are great because they are tenanted and have cash flowing from day one. Turnkey apartment buildings are a great way to build multi-generational wealth with steady appreciation.

Leverage is one of the key strengths of real estate. To buy an apartment building, you would apply for a commercial loan. These loans have significant advantages over your typical residential mortgage. Banks don’t look at your W-2 when underwriting commercial loans, but rather look at the intrinsic Net Operating Income (NOI) of the building, which can open up more opportunities than if you were trying to purchase a single-family home. Some of these commercial loans are accessible with a non-recourse clause, which protects you in the event that something happens to the building that impacts your ability to pay the mortgage. The bank cannot claim the debt from you personally, making this a great option for protecting your personal assets.

Turnkey apartment buildings are not completely devoid of opportunities for value add. You can slightly increase rent, provide additional services (e.g., WiFi), tweak building expenses and pursue various other renovations and strategies to increase the building’s net operating income, and therefore its value.

Value-Add Properties

The second investment strategy is to seek an apartment building that requires significant renovations. Value-add apartment buildings are very time intensive. You have to be involved on a regular basis with contractors, property management and various other players who keep the building operational and manage the tenants during the construction. A lot of coordination is necessary; it doesn’t become a passive investment until the renovations are complete and the building is fully tenanted. It’s similar to the “buy, rehab, rent, refinance, repeat” (BRRRR) strategy, but on a much larger scale. A bridge loan would be used during the renovation. The building would be refinanced with a long-term commercial loan once the building is fully occupied and showing its highest value.

The value of a building is determined by its NOI and the cap rate for its neighborhood or comparable buildings in the area. For example, if the NOI of a building is $100,000, and the cap rate for the area is 10%, then the value of the building is $1,000,000. So, if you can increase the NOI — whether through renovations, increasing rents, reducing expenses or more — by $10,000, then you’ve added $100,000 total value for the building. As you can see, the cap rate is a strong multiplier on your investment. As long as the cap rate outpaces your renovation costs, you’ll enjoy a tremendous value add to your building. These types of returns are difficult to achieve with residential properties because their values are typically determined by comparable sales in the area without taking the rental revenue into consideration.

So should you consider investing in apartment buildings? The short answer is yes. Turnkey apartment buildings provide an opportunity for passive income and long-term wealth building. If you want a more active and time-intensive type of investment, a value-add apartment building will increase your equity. Obviously, investing in apartment buildings requires more money, including everything from the down payment to loan fees to maintenance. If you’ve never owned rental property, apartment buildings are probably not the right entry point for you. Instead, I’d recommend you start with turnkey single-family rentals.

It’s important to make sure you enjoy the responsibilities of being a landlord and working with tenants. It may not fit your personality! However, if you find you do enjoy it, you can then move your way up to more complex properties like apartment buildings.

Forbes Real Estate Council is an invitation-only community for executives in the real estate industry. Do I qualify?

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Real Estate

Three Things Buyers Should Know When Shopping For Their First Home



Male realtor shows a couple a beautiful home

Beatrice is the Consumer Trends Expert for Opendoor

Buying a home will likely be one of the biggest and most important purchases you make during your lifetime, and it’s still part of the American dream. Investing in a home can also be a smart way for younger generations to build wealth over time.

Over the last year, we’ve seen interest rates drop to historic lows, making it possible for many people across the country to buy a home earlier than planned. And while you might be willing to make big compromises to score a home you love in a hot real estate market, there are a few important things I wish all first-time home buyers knew while looking for their first property.

1. Home and termite inspections are critical, even in a hot market.

While you might win a bidding war or save money in the near term by skipping a home or termite inspection, having them done is a smart move that can save you from making an expensive mistake. Once your offer is officially accepted, schedule a general inspection and a termite inspection as soon as you can.

With the general inspection, an inspector will visit your property and spend a few hours looking at key areas of your home. These include the roof, foundation and even smaller items like cracked tile or leaky faucets. Your inspector may recommend a specialist if they see issues with something more specific, like a fireplace or the swimming pool system. 

Though sellers may reveal termite damage upfront, an inspection is the only way to know how extensive the issue may be. While significant termite damage can be terrifying and costly to fix, having an inspection done is typically inexpensive. In addition to reporting on the state of the home and any problems, your inspector can also share preventative treatments to keep termites away in the future.

2. Don’t panic when you receive your inspection reports.

Though it’s daunting to think about uncovering a list of items that need attention after making an offer on a home you love, first-time buyers should remember that all inspections turn up a long list of issues — and it’s important not to panic. 

The purpose of having a home inspection is to show you the condition of the home and eliminate any surprises before you’re the owner. Typically, most items are minor and aren’t costly to maintain. And some might not require immediate repair. For example, I often see inspectors recommend changing the A/C filter. This is incredibly easy to do yourself, and it only costs about $10 to buy a new filter. If there are bigger problems on your report, I suggest working with a professional who can help you understand what needs to be fixed and how much it will cost.

If the inspection turns up results you’re not happy with, or if you can no longer afford to pay for the home and its necessary repairs, you can choose to renegotiate your offer or walk away. Major red flags such as mold, structural problems or other expensive issues may indicate it’s a good idea to move on. You should also pay close attention to the real estate deal-breakers and anything that presents a risk to your health or safety.

3. Your lender will help you navigate the appraisal process.

Much like with home inspections, many first-time home buyers are unfamiliar with appraisals and how to navigate them. While mortgage lenders require an appraiser to visit the home, they’ll also work with you closely during that part of the process. Having a home appraised is a quick process. The appraiser will only spend a short amount of time inside the home. Following their visit, they’ll complete the appraisal by comparing similar homes in the neighborhood. 

Your appraiser may find that the home is worth exactly what you’ve offered, or even more than what you’ve offered. In these cases, nothing will change and you’ll be set to continue moving forward with your home purchase as planned. In the event that the home is appraised for less than you’ve offered, you’ll be asked to pay the difference between the appraised value and your offer price as a cash down payment to the seller at closing. 

If you can’t afford to pay the difference, you can choose to cancel your purchase. Alternatively, you can also try to work with the sellers to negotiate the price. Your third option is an appraisal rebuttal, or asking for a correction on value. It’s important to remember that appraisals are an art, rather than science, and the exact value of a home is difficult to define. I had my current home appraised by two different appraisers within a week, and they each came up with very different values. Consulting with your agent can help provide you with clarity on the best next step.

Buying your first home is a major purchase. Working closely with industry professionals — from your agent and lender to inspectors and appraisers — will help you avoid costly repairs and financial errors. This will not only save you unnecessary stress but also set you up for happiness in your new home later on.

Forbes Real Estate Council is an invitation-only community for executives in the real estate industry. Do I qualify?

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Real Estate

Where Apartment Rents Are Falling Fastest In The U.S. [Infographic]



Where Apartment Rents Are Falling Fastest In The U.S.

When it comes to renting, the U.S. has experienced a noticeable shift in patterns due to Covid-19. After the pandemic struck, many residents decided to pack up and leave expensive city centers in order to relocate to the suburbs or smaller and more affordable towns. The widespread adoption of remote working has made that possible in many cases and it is already resulting in a fall in rent prices in some of the country’s most notorious rental hotspots such as the Bay Area and New York City.

That’s according to ApartmentGuide’s most recent Rent Report which found that out of all major U.S. cities, San Francisco experienced the largest decrease in its average apartment rental price over the past year. Its position as America’s leading tech hub makes remote working a realistic option for many workers struggling to pay exorbitant rent and the average rental price for a one-bedroom apartment fell 45% between March 2020 and March 2021. Likewise, the average rent for a two-bedroom apartment also declined by 24%.

Chesapeake in Virginia, located in proximity to prominent naval installations, experienced the second largest decline in rent over the last year with a 29.4% fall. Ludicrous rental prices are nothing new in New York City and it posted the third highest decline in the analysis for a single bedroom apartment at 27.3%. Other notable cities experiencing some of the greatest falls include Long Beach (-27.0%), Seattle (-18.9%) and Los Angeles (-16.0%).

Rents are not decreasing everywhere, however, and some U.S. cities are experiencing a spike. With a 33.5% year-over-year increase in the average rental price for a one-bedroom apartment, Kansas City experienced the biggest rise in the country over the past year. Gilbert in Arizona posted growth of 26%, putting it second, while Las Vegas came third with 25.3%. Despite the recent downward trend, New York City still has the most expensive rental prices for a one-bedroom apartment in the country, averaging $3,117 as of March 2021. Los Angeles and Chicago come second and third with averages of $2,648 and $2,205, respectively.

*Click below to enlarge (charted by Statista)

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