Market Intelligence

What’s The Point?

What’s The Point?

Shock and Awe—two words that best describe emotions exhibited by executives visiting Utah while driving the 20 mile stretch on I-15 from Sandy to Pleasant Grove. Why the strong emotions? The numerous construction cranes reaching skyward coupled with structural steel climbing as high as 11 stories powerfully demonstrates the stunning economic development and growth of this unique area.

Written By Brandon Fugal

The “Point of the Mountain” is colloquially used to refer to the area where the Salt Lake County and Utah County metropolitan areas converge, referencing the mountain pass used by the highways and rail arteries that connect the two most populous areas in the state.

In the commercial real estate business, we have had a unique front-row seat—orchestrating and witnessing the bold moves of the companies and developers that have created this area which has become the heart of “Silicon Slopes”.

Most companies that have gravitated toward this area have been driven by factors including the ability to effectively recruit and retain talent from both counties and locations providing new, innovative office product and build-to-suit potential. Decision making has transcended merely being in Lehi or Draper—it is about being at the center of the Wasatch Front.

I vividly remember conducting site tours with executives from Xactware and Ancestry.com, with both of those companies having outgrown their campus locations in Orem and Provo, respectively. While driving various sites, Jim Loveland (then CEO of Xactware), saw the potential to strengthen recruitment and take advantage of unobstructed panoramic views offering both mountain and lake backdrops. Ancestry.com observed the same advantages, with the opportunity to create a world-class campus setting that would enable them to stage their dynamic growth and provide onsite amenities for their employees.

This hasn’t happened overnight. It required years of planning between the initial site tours to final occupancy/completion of these world-class buildings. The process of commercial real estate development is not for the impatient or the faint of heart. The vision of those companies, coupled with the resources and efforts of a dynamic development team, launched one of the most impressive and expansive office campus locations in the Intermountain West. It is rewarding to reflect on the fact that just a few short years ago, Traverse Mountain was just a large vacant expanse of undeveloped property. Today, it is teeming with activity with new buildings breaking ground and restaurants and services opening regularly.

The same phenomenon has been witnessed in Draper on the other side of the Point of the Mountain at Vista Station. Vista Station is home to the FrontRunner commuter rail station, which serves as the mass transit hub for the south end of Salt Lake Valley nearest to the Point of the Mountain. I remember the primary rationale underpinning eBay establishing its $287 million campus and Tier IV data center was the Transit Oriented Development (“TOD”) location coupled with proximity to the neighboring Utah County workforce. Many companies have followed at a rapid pace, with the most recent entrant being Dell EMC’s new campus on 12 acres located next door within the project, also due to the TOD aspect.

The Pillars of the Point of the Mountain:
IM Flash – (over 3 million square feet on over 300 acres)
Adobe – (38-acre campus, currently hiring 1,200 additional employees)
eBay – (nearly $300 million campus and Tier IV data center)
NSA Data Center – (1 million square foot facility on 240 acres)

New Headquarters Under Construction:
Podium – new 5-story building under construction
Young Living Essential Oils – 263,000 square foot global headquarters on 27 acres
Nature’s Sunshine/Synergy WorldWide – new 5 story building under construction
Sorenson Media – part of new 150,000 square foot building under construction

Recently Completed:
Dell EMC – new 12-acre campus in Draper at Vista Station
Entrata – new headquarters above Adobe on Traverse Mountain
SolutionReach – new headquarters at Thanksgiving Point
NUVI – new headquarters at Thanksgiving Point

Fun Facts at The Point:

  • In 20 years Lehi’s population has grown from 12,583 to 64,000 – and is the 11th fastest growing city in the U.S.
  • The tallest building in the Point of the Mountain submarket is currently under construction – the new 11-story, 327,000 square foot Mountain America Credit Union Tower in Sandy next to Hale Center Theatre.
  • The Point of the Mountain is home to world famous hang gliding.
  • Over 700 acres will soon be available for development with the Utah State Prison relocating


Brandon Fugal is Chairman of Coldwell Banker Commercial Advisors. This column appeared in the October 2017 edition of Utah Business.

Head in the Cloud

Head in the Cloud

It’s been said that the only thing constant is change. Nowhere is that truer than in the world of technology. And when technology changes, it has a way of affecting pretty much everything else—including commercial real estate.

One of the biggest tech trends of the past few years has been the move to “the cloud.” The cloud is a complicated concept, but at its most basic it means organizations are outsourcing a lot of their computing and data storage needs to technology companies, which operate massive data centers serving dozens, hundreds or even thousands of clients.

Using the cloud has a lot of advantages, including the potential for big financial savings, says Jarrod Hunt, senior vice president of industrial services for CBC Advisors.

For new and quickly growing companies, being able to house data in the cloud means they don’t need to guess at what their computing needs will be in the future and then build out expensive server infrastructure based on those predictions. Instead, they can outsource their data needs to external servers run by tech companies and quickly adjust their data subscriptions as their needs grow or shrink, Hunt says.

Using the cloud can also free you from trying to keep up with the increasingly complex needs of running a data center, as web and subscription-based applications become more pervasive in the business world. The cloud also offers the promise of zero downtime—something few small companies can guarantee for themselves.

“Many advantages have prompted organizations to convert IT infrastructure to cloud-based models,” says Vince Martinez, Chief Technology Officer of CBC Advisors. “These conversions range from financial controls to asset management systems and much more.”

CBC Advisors is one of the many businesses that have made that change in recent years, and the move has paid big dividends. The company grew quickly over the course of a few years, and the technology they had been using was no longer sufficient. “We turned to a solution that offered extreme scalability, no downtime and a complete transition away from the traditional server room,” Martinez says.

So what does this mass exodus toward the cloud mean for commercial real estate?

Disappearing Server Rooms

If you’ve ever held a laptop on your lap for a long time, you know that computers generate heat. And when you fill a room with racks and racks of servers, all running at once, the heat builds up quickly. Without proper cooling, you get malfunctioning computers and even the threat of fire. Keeping a server room air-conditioned takes a lot of power and can require specific building infrastructure accommodations, such as additional vents.

Simply put: server rooms have specific requirements to function properly—and those requirements can get expensive.

The good news for businesses is that as they move to the cloud, their expensive, space-eating server rooms are becoming obsolete. Hunt says many companies have simply converted their formerly state-of-the-art server rooms into more office space. Other companies decided to get rid of the unneeded space to save money.

 

Shrinking Retail Warehouses

Advancements in computing have had a particularly large impact on the real estate needs of retail companies, Hunt says. Big data allows retailers to better track inventories and predict which products they’ll need to have in stock and at which stores. This means they waste less space stocking the wrong products and are able to get the right products to the places they need to go.

Electronics retailer Best Buy has introduced a smaller format storefront, Hunt says. They found that, for many of their customers, the store acts as kind of a showroom for their products—they check products out in person, get their questions answered by in-store personnel, then go home and order them from the company’s website. This means there’s less need to fill their store with extra inventory.

Meanwhile, Walmart has also introduced a smaller store concept, about half or a third as large as their usual locations. They’ve realized that they don’t need to keep as much inventory onsite because a significant portion of their business is now done online.

Both of these companies are now benefitting from the cost advantages of having more of their inventory in inexpensive warehouses and fulfillment centers than expensive storefront locations.

“We’ll continue to evolve over time as people’s shopping patterns change and their habits change along with technology,” Hunt says.

Data Centers as Real Estate

Of course, data centers themselves have real estate requirements. On the West Coast, the San Francisco region is the most active data center market due to its proximity to Silicon Valley. The Pacific Northwest is another hot spot because energy is relatively inexpensive there. But as demand grows for new infrastructure, developers are taking a more strategic approach to site selection.

Big data centers have big power needs to run their servers and the air conditioning it takes to keep them cool. That means data centers are usually located in places where power is cheap and abundant. Another factor? The likelihood of a natural disaster.

One of the reasons companies entrust their data to the cloud is for peace of mind: If your data is housed off-site, you don’t have to worry about outages or even catastrophic info loss due to fires, floods, tornadoes, break-ins or other incidents in your own data center. That means those off-site data centers have to be incredibly secure.

Those two prerequisites—inexpensive power and inherent safety—have made the Intermountain region a new hot spot for data center location. “In the Intermountain region we don’t have tornados and we don’t have hurricanes. We don’t have a lot of ice storms,” Hunt says. “That has created a natural market here in the Rocky Mountain states for data centers.”

One of the most striking examples is a $1.5 billion, one-million-square-foot data center the National Security Administration completed near Bluffdale, Utah, in 2014. If the federal government agency that is dedicated to security chooses to build its data center in the desert of Utah, you can take it as a sign that it’s a good place for a data center, Hunt says. Several other companies have followed suit.

For example, Facebook recently evaluated Utah as a site for its newest data center but ultimately selected New Mexico, another Intermountain state. The data center will represent a massive, $1.8 billion construction project just south of Albuquerque. Facebook cited access to renewable energy sources as a major reason it was evaluating both Utah and New Mexico for the center.

Tech companies, like Facebook, are clearly big users of data center server space. But a wide range of industries have large data needs—banking and finance, for example, handles increasingly colossal amounts of data, particularly as more people do their banking online. The fact is that cloud computing will continue to have major, if somewhat invisible, impacts on businesses of every strip—especially on their future real estate needs.

Is It a Good Time to Buy or Sell Your Building?

Is It a Good Time to Buy or Sell Your Building?

Owning your own building can be a solid strategy for many businesses. Your payments don’t change, you build equity, you can write off the cost of the property and you maintain control.

But owning your own building comes with a lot of questions. When is the right time to buy? How much will you need for a down payment? What if your business changes and you need to sell?

Like most major decisions, the answer is often that it depends. Deciding between owning and renting is much like deciding whether to purchase a house — you need to compare the pros and cons.

Usually, when I show the chart above I get some surprised responses quickly followed by the following questions:

Q: 
How can I sell my building without having to move out? 

A: You can do what is called a sale/lease-back, which means that an investor buys your building and then you pay rent to them and stay in the building. Many companies have tapped into this resource.

Q: What if I don’t want to pay taxes on the equity when I sell my building? 

A: The current tax code allows you to transfer your building to a different real estate investment and defer those taxes to a future date.

Q: What happens when I retire? 

A: This could be the best situation of all. You can sell your business and have the new owner lease your building from you, providing a stream of income for your retirement.

Q: What if I need all my cash for my business? 

A: There are excellent properties for lease that allow you to put down a security deposit rather than a down payment.

Q: What if I am growing or shrinking and don’t know how much space I will need? 

A: It might be that leasing is a better option. If you decide to purchase, find a building that can be modified for more than one tenant so you can grow or shrink and lease out the remainder.

Q: I thought an SBA loan took a year — how can I buy in 60 to 90 days? 

A: SBA loans are complex, so you need to carefully choose your lender. Those who focus on SBA loans can let you know very quickly whether you are approved and what the timeline is, but 90 days is typically more than sufficient. A qualified commercial real estate agent can introduce you to several lenders who have proven track records.

Q: How can I borrow money for a lease? 

A: The SBA has a variety of business loan options available. Your qualified SBA lender can assist you with evaluating these options. Also, some landlords are willing to loan money on top of their standard allowance to help you pay for customizing a space for your business.

Q: I want to focus on my business. If I buy a building, won’t that make me a property manager? 

A: Since this is your business investment, you can write off the cost of a property manager in the same way you write off your utilities and property taxes. When there is a problem, you call your property manager just like you would call your landlord.

Q: How does my cost decrease if I own my building? 

A: Your cost is not your entire loan payment. It is the interest portion. And just like on your house or car loan, the interest decreases each month — putting more money toward the equity in your building.

Q: When is the best time to buy or sell? 

A: There are lots of factors that go into making either decision. You should discuss this with a qualified commercial real estate agent and your accountant.

Q: How can I tell if it is cheaper to lease than to purchase for my personal situation? 

A: A qualified commercial real estate agent can help you and your accountant to analyze your personal financial situation to make that decision.

Q: How do I know I am working with a qualified commercial real estate agent? 

A: There are a number of factors to consider. You can ask your agent what percentage of their personal business is commercial sales and commercial leasing as opposed to residential. You should also ask what percentage of their brokerage business is commercial to make sure they have the specific data and resources to get you the right service. Finally, there are added levels of education that can further qualify some agents. For example, a CCIM is a certified commercial investment member who has gone through extensive education in commercial real estate financial analysis. Someone who has worked for a number of years and completed a number of commercial transactions can also provide the same educational level as any certification.

Monica Rafferty is Vice President of Commercial Leasing and Sales at CBC Advisors