Statement on the loss of board member Joseph Trustey

Commercial Defeasance and QuietStream Financial mourn the loss of board member Joe Trustey. He was a valued advisor and good friend. Our hearts are breaking for his wife and colleagues, and our thoughts and prayers are with them.

Is your portfolio prepared for drive-thru grocery stores?

The retail grocery industry — a crucial commercial tenant — is facing a new disruptive force: Amazon.

The e-commerce giant has plans for a drive-thru grocery store in Sunnyvale, California, according to a report in the Silicon Valley Business Journal. If expanded, the concept could bring new turmoil to a retail grocery business already in upheaval from consolidation and changing consumer habits.

The Silicon Valley Business Journal reports a real estate developer there has submitted plans for a new 11,600-square-foot building and grocery pickup area. Amazon isn’t specifically named in building documents. However, the Silicon Valley Business Journal cites real estate sources who say Amazon is behind the project and plans a rollout of the concept that could eventually encompass multiple sites in Silicon Valley.

For several years, many companies, including Amazon’s AmazonFresh, have attempted to deliver groceries on a same-day or next-day schedule, to varying degrees of success. A common problem has been delivering fresh food to a doorstep and leaving it in a non-climate-controlled and unsecured environment.

Amazon’s drive-thru concept would be a step beyond its AmazonFresh grocery delivery service. With a drive-thru grocery location, customers could order online and pick-up in-person at a scheduled time. The concept could potentially bridge the convenience of grocery shopping online and the need to pick up food and keep it fresh.

“We are seeing the emergence of the next generation of the food distribution system,” says Bill Bishop, chief architect at Brick Meets Click, a retail and e-commerce consultancy, according to the SVBJ.

The exclusive report cites planning documents that include details of the proposed drive-thru grocery store. They include the following:

  • The concept would include both an online shopping platform and traditional brick-and-mortar retail.
  • Customers will pre-order grocery and other items, then choose a 15-minute to two-hour pickup window.
  • The building would be constructed as a warehouse and include loading stalls for eight cars.
  • Shoppers could also arrive on foot or via bicycle and shop inside the store.

Grocery stalwarts such as Wal-Mart and Safeway, among others, have been piloting and expanding curbside pickup for groceries ordered online. However, Amazon’s expertise in e-commerce and automated order-filling could seriously challenge those offerings.

If an Amazon drive-thru service proved successful and the company decides to embark on a major expansion, it could create numerous opportunities for commercial real estate developers and investors.  Of course, a successful neighborhood Amazon grocery drive-thru could also dent the profitability of traditional supermarkets and give their landlords and investors heartburn.

“It would put more competition on (traditional grocers) because now we have a new format,” Kirthi Kalyanam, director of the Retail Management Institute at Santa Clara University’s Leavey School of Business, told the Silicon Valley Business Journal. “Where the rubber is going to hit the road is: Can these new locations be more convenient to customers than a Safeway? If the answer is yes, There will be some restructuring in the grocery industry.”


Adam O'DanielBy Adam O’Daniel | Editor | QuietStream Financial Insights

 

4 Intriguing Ways Drones Will Remodel Commercial Real Estate

Aerial drones are replacing boots on the ground with technology in the air. Will commercial real estate see the same transformation?

The trend of accomplishing more and more with unmanned aerial vehicles presents both challenges and opportunities for owners and investors in commercial real estate.

While military applications have led the way so far, the drone explosion has prompted both large corporations and startups to venture into the private drone business. The use of drones for commercial purposes is expected to expand at a 19 percent compounded annual growth rate between now and 2020. Meanwhile, the Federal Aviation Administration is sorting through a host of issues sure to arise.

A drone flies near an office property.

A drone flies near an office property.

Already, drones have begun to change how commercial real estate owners and investors make decisions. Whether you’re an early adopter or fast follower, now is the time to understand what’s taking off. Here are four areas to watch:

Marketing: Interactive photo galleries and 360-degree virtual tours are old hat. The next trend in marketing properties is to hire a commercial drone to showcase from above. The idea is already catching on in Southern California, where high-end residential Realtors have used drone video to market estates. Expect striking commercial properties to be marketed in similar fashion.

Due Diligence: Inspecting a piece of property curbside gives investors one perspective. Viewing an asset from 100 feet in the sky is another. An investor conducting due diligence on a property hundreds of miles away can now hire a drone to survey the area. Could drone-conducted due diligence someday replace traditional site tours?

“Look at what Google Maps did to help people understand the location of a property. Drones present another clever new tool for analyzing real estate,” QuietStream Financial Chief Executive Robert Finlay says. “However, nothing replaces boots on the ground for due diligence. I’d much rather walk the property than see a drone video.”

Security: Drone surveillance? Not in my backyard. As drones proliferate, security will become a greater issue for commercial real estate operators — on both sides of the issue. Many large office properties use private security officers and video surveillance to monitor a property on the ground. In the future, it may prove cost effective to also secure an asset with an aerial presence. Likewise, property owners are sure to invest in systems designed to keep outsiders from peeping. If property lines are vertical, some owners will do their best to enforce those lines into the air.

Logistics: Amazon founder Jeff Bezos raised eyebrows when he claimed plans to one day deliver packages with drones. Today, the idea is nearing reality as small providers are already experimenting with drone deliveries. Commercial property developers and operators will need to consider how to accommodate commercial drones arriving with packages. Could we one day soon see commercial properties with reserved space for drone landings and drop-offs?

QuietStream Financial and FullCapitalStack featured on NBC Charlotte

QuietStream Financial portfolio company FullCapitalStack was recently featured on NBC Charlotte’s 6 p.m. newscast.

NBC_CharlotteNBC Charlotte’s anchor and reporter Dianne Gallagher visited the QuietStream Financial headquarters in Charlotte to learn how QSF and its portfolio companies Investor Management Services and FullCapitalStack are helping clients raise capital for real estate projects using online investor management platforms.

The segment which aired Friday, July 17 concentrated on the SouthPark City Homes offering, which is raising $1.7 million in preferred equity for developer Saratoga Asset Management.

Enjoy the video:

Are you paying a ‘Liquidity Premium’?

Two investments with the same credit risk profile, potential for upside performance, tax treatment and expected investment period should have the same expected return.

Right?

Not in the real world. We know two very similar investment profiles can be priced very different. Why is that? For many deals, it boils down to liquidity.

Pricing differences in two seemingly similar investment options are often due to the investor’s ability to easily buy and sell the investment — the measure of how “liquid” it is.

Liquidity has been a hot topic lately.  Investors typically pay a significant premium to be in liquid investments such as blue chip stocks and U.S. Treasurys. Is it worth it?

Sure, investors can easily sell a liquid investment. However, on days when the market plummets, many investors lack the stomach to sell. Others sell in fear, regretting their quick exit later. On those days, the premium paid for a liquid investment may not feel like it paid off.

A recent article pointed out that sovereign wealth funds and other large institutional pools focused on long-term wealth creation have seen their allocations to illiquid alternative assets perform better over the long-term investment horizon, compared to more liquid holdings, according to research by Patrick Thomson, global head of Sovereigns at JPMorgan Asset Management.

Thompson says investing with a long-term view of alternative assets can help investors exploit tactical opportunities created by short-term investors forced to liquidate holdings, benefit from mispricing and valuation errors, and take advantage of their capacity to absorb additional risk.

“These advantages have rarely mattered more than now in a capital market environment of low yields, mounting volatility, unexciting global economic growth and subpar investment returns — nor have they contrasted more sharply with the prevailing transaction-oriented mentality,” Thompson writes in FTSE Global Markets.

“Yet today, as much as ever, long-term investors can (and should) access the full range of long-term non-public assets — value-added real estate, infrastructure, private equity and private debt — to diversify their holdings, mute the volatility of the public markets and earn steady and favorable risk-adjusted returns.”

The emergence of real estate investment offerings via online investment platforms makes this method of investing more accessible than ever. The average accredited investor can now follow similar strategies as those sovereign wealth funds.

On days when the public markets are fluctuating (or halting altogether), that a feels like good place to be.


Nikki Baldonieri

By Nikki Vasco | Chief Investment Officer | FullCapitalStack

FullCapitalStack Launches Groundbreaking $1.7 Million Offering for Charlotte Townhomes

FullCapitalStack, a QuietStream Financial portfolio company, has launched a $1.7 million preferred equity offering for the construction of 27 luxury townhomes in Charlotte’s upscale SouthPark neighborhood.

An artist's rendering of the SouthPark City Homes project.

An artist’s rendering of the SouthPark City Homes project.

The offering is one of the first Charlotte real estate projects to tap equity crowdfunding as part of its capital structure. FullCapitalStack’s online investment platform will make the offering accessible to all accredited investors in the U.S. Accredited investors are individuals with more than $200,000 in annual income or a net worth in excess of $1 million.

Charlotte-based developer Saratoga Asset Management (“Saratoga”) will sponsor the project, partnering with Charlotte-based homebuilder Alan Simonini Homes as the lead builder. Saratoga has contracts in place on four residential lots totaling 2.62 acres along Fairview Road in the SouthPark area. The upscale development, to be called SouthPark City Homes, will be constructed and sold over an estimated 28-month period concluding in late 2017.

“We are excited to launch this offering in our hometown to help local accredited investors access equity in a first-class Charlotte development,” FullCapitalStack Chief Investment Officer Nikki Baldonieri says. “Historically, real estate owners have been limited to raising equity capital from friends and existing contacts. Our online platform removes barriers and leverages technology so accredited investors can easily access, research and execute direct investments in real estate projects.”

The SouthPark City Homes development will consist of six separate buildings of either four or five units for a total of 27 luxury townhome units. Each three-story townhome will be approximately 2,761 square feet, with four bedrooms, 3.5 bathrooms, and a two-car garage. Amenities and features will include stainless steel appliances, hardwood and ceramic tile flooring, garden bathtubs, walk‐in closets, granite counter tops, fireplace, optional elevator and more.

“Working with FullCapitalStack allows us to broaden our relationships and present this project to the entire community of eligible investors, rather than just the partners in our existing circle,” Saratoga Asset Management Managing Partner Raymond Wetherington says. “This will be a development the SouthPark community can be proud of, and now it is a project neighbors can own a portion of as well.”

The SouthPark City Homes offering will begin accepting investments on July 15. Accredited investors can learn more, download complete investment details and read all disclosures at investments.fullcapitalstack.com.

About FullCapitalStack
FullCapitalStack, part of the QuietStream Financial portfolio, is an online investment portal for institutional and accredited investors seeking to invest in commercial real estate. FullCapitalStack provides investors unparalleled access to direct investments in office, multi-family, retail and other commercial real estate projects. In addition to its own exclusive listings, FullCapitalStack showcases investment offerings via partnership with Investor Management Services, a leading provider of online fundraising platforms for commercial real estate sponsors across the U.S. Visit FullCapitalStack at http://www.FullCapitalStack.com.

About QuietStream Financial
QuietStream Financial is an innovative portfolio of businesses serving commercial real estate owners, investors, borrowers and related professionals. Founded by CEO Robert J. Finlay, the company operates a portfolio of subsidiary businesses that provide a host of services, including investor management, fundraising, CMBS research and underwriting, defeasance, crowdfunding, marketing and other alternative asset management services. QuietStream Financial has more than $10 billion in assets under management and 100 employees. The firm is based in Charlotte, N.C. To learn more visit https://www.quietstreamfinancial.com.

Interest rates: How many increases are on the way?

Yes, investors, interest rates will go up this year.

Here’s the question we really want answered: Will two rate hikes happen before Christmas?

Historically, multiple successive rate hikes have followed a period of prolonged low interest rates. This was the case at the conclusion of the low-rate periods of the early 1990s and mid 2000’s.

“When rates go up, they usually keep going up,” says Nikki Vasco, chief investment officer at FullCapitalStack. “There’s a good chance that the Fed could raise rates this fall, and then again before the end of the year.”


source: tradingeconomics.com

Of course, this most recent period of low interest rates has set new historical standards. With federal funds rates at or near zero since 2009, the Fed is preparing to increase rates from unprecedented territory. Raising interest rates from this point forward will be new frontier.

In a speech in Chicago on Friday, Federal Reserve Chairwoman Janet Yellen remained steadfast in her expectation that the central bank’s Federal Open Market Committee will enact the initial rate increase before the end of the year.

“Based on my outlook, I expect that it will be appropriate at some point later this year to take the first step to raise the federal funds rate and thus begin normalizing monetary policy,” Yellen told the audience at the Chicago City Club. “But I want to emphasize that the course of the economy and inflation remains highly uncertain, and unanticipated developments could delay or accelerate this first step.”

Yellen’s comments were closely followed by U.S. investors, who thought her outlook might change in response to the turmoil in Greece. She mentioned Greece just once in her speech, saying, “Although the economic recovery in the euro area appears to have gained a firmer footing, the situation in Greece remains unresolved.”

The Fed chair said she expects the U.S. employment market to keep improving, with inflation moving closer to its 2 percent target rate. Those expectations are coloring her plans to increase interest rates. She also indicated the Federal Reserve will move slowly and gradually, shaping decisions based on economic realities.

“I currently anticipate that the appropriate pace of normalization will be gradual, and that monetary policy will need to be highly supportive of economic activity for quite some time,” she said. “But, again, both the course of the economy and inflation are uncertain. If progress toward our employment and inflation goals is more rapid than expected, it may be appropriate to remove monetary policy accommodation more quickly. However, if progress toward our goals is slower than anticipated, then the Committee may move more slowly in normalizing policy.”

Reading tealeaves, the fate of rate hikes — and whether or not they’ll happen consistently, or in fits and starts — appears to depend Yellen’s view of economic growth. If U.S. economic growth is believed to be choppy, the rate increase schedule could reflect that. And if growth is steady? There’s a strong chance interest rates will follow suit.

Massive tech disruption aims at commercial real estate

There can be no more excuses for falling behind the curve in adopting technology in commercial real estate. Ready or not, a major disruption is unfolding in our industry.

It’s no secret CRE professionals have been lukewarm to new technologies. Meanwhile, the rest of the world is accelerating adoption quickly, which is why CRE is now playing catch-up.

Tenants expect high-tech workspaces. Clients and prospects operate in a mobile-connected business environment. Even commercial real estate investors are being drawn to online investment portals and the insights provided by big data and analytics.

Now, new technology is enhancing how agents showcase yet-to-be-completed construction projects. A recent Wall Street Journal article explains how leasing agents for a Madison Avenue property are using virtual reality to showcase the end results of a $60 million renovation still underway.

“Agents for the 40-story office tower take visitors on a tour beneath custom-built canopies, where they can take in the lush greenery of trees and ornamental grasses and check out the outdoor conference area and wet bar. They can even peer over the glass-and-metal railing and catch a dizzying glimpse of the street below and a view of St. Patrick’s Cathedral across the way,” the article describes.

“Actually, the $6 million ‘Sky Lounge’ won’t be finished until next year, but Sage Realty Corp. isn’t letting construction hinder renting space in the 850,000-square-foot building. The leasing agents are simply giving virtual-reality tours: Each visitor sits in the marketing office, outfitted with headgear that is coupled with interactive 3-D modeling software.”

It’s one more example of customer desires to be ahead of the technology curve influencing a migration to new tools by real estate pros. It’s also opening the door wider for vendors to help solve the commercial real estate industry’s challenges. The technology referenced by the newspaper is offered by Floored Inc., a virtual-reality software and 3-D modeling firm.

“I think the truth is people recognize the speed of technological advancement is increasing,” David Eisenberg, chief executive and co-founder of Floored Inc., told the Journal. “A few years ago, if you only had 10 to 15 years left in your [real-estate] career you could ignore some of that stuff. Now people realize they are going to have to be practitioners of the technology.”

Disruption is already happening in several areas. Social media is changing how CRE firms market themselves. Cloud computing has helped numerous firms scale faster and become more efficient. Advanced analytics are making data more accessible and instructing professionals how to leverage it for growth.

“Inevitably, technology is going to change how we all do business,” QuietStream Financial CEO Robert Finlay says. “Virtual technology is just one more example of the disruption coming to commercial real estate.”

A 2015 study from Deloitte lists technology and automation among the most influential forces in the industry. Mobility, smart building technology, data and analytics and related technologies are all forcing major shifts.

Deloitte’s 2015 Commercial Real Estate Outlook polled 1,100 commercial real estate professionals and found 69 percent believe technology will transform their business this year or next.

“Adopting more advanced technology is rapidly becoming an imperative in CRE,” says the Deloitte study. “Ultimately, CRE companies need to be progressively aware of new advancements in technology, and anticipate and step up adoption on a regular basis.”