Amazon Adding New Hubs

Amazon is back in the industrial real estate expansion game one year after pulling back from the sector, but the e-commerce giant has new items on its shopping list.

Amazon plans on doubling its amount of centers geared towards same-day delivery, The Information reported. The facilities, which are smaller and closer to customers than traditional fulfillment centers, appear to be a more targeted opportunity to continue growth after the company placed millions of square feet of warehouse space on the sublet market.

The company offers same-day delivery on select items in 90 markets across the country. The timeline of the strategy to add to its footprint is unclear.

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Yellow going out of biz, was a great run

ellow Corp., a 99-year-old trucking company that was once a dominant player in its field, halted operations Sunday and will lay off all 30,000 of its workers.

The unionized company has been in a battle with the Teamsters union, which represents about 22,000 drivers and dock workers at the company. Just a week ago the union canceled a threatened strike that had been prompted by the company failing to contribute to its pension and health insurance plans. The union granted the company an extra month to make the required payments.

But by midweek last week, the company had stopped picking up freight from its customers and was making deliveries only of freight already in its system, according to both the union and Satish Jindel, a trucking industry consultant.

While the union agreed not to go on strike against Yellow, it could not reach an agreement on a new contract with the trucking company, according to a memo sent to local unions Thursday by the Teamsters’ negotiating committee. The union said early Monday that it had been notified of the shutdown.

“Today’s news is unfortunate but not surprising. Yellow has historically proven that it could not manage itself despite billions of dollars in worker concessions and hundreds of millions in bailout funding from the federal government. This is a sad day for workers and the American freight industry,” said Teamsters President Sean O’Brien in a statement.

Company officials did not respond to numerous requests for comment Sunday and Monday.

While the company is based in Nashville, Tennessee, it is a national company with terminals and employees spread between more than 300 terminals nationwide. Experts in the field said it was primarily an unaffordable amount of debt, more than the cost of the union contract, that did in Yellow.

“The Teamsters had made a series of painful concessions that brought them close to wage parity with nonunion carriers,” said Tom Nightingale, CEO of AFS Logistics, a third-party logistics firm that places about $11 billion worth of freight annually with different trucking companies on behalf of shippers. He said the company began taking on significant amount of debt 20 years ago in order to acquire other trucking companies.

“Now their debt service is just enormous,” he said, pointing to $1.5 billion in debt on its books.

There are two other national competitors in Yellow’s segment of the trucking market which are also unionized, ABF Freight and TForce. Both were far more profitable in recent years than Yellow, which posted only a narrow operating profit in 2021 and 2022 and a $9.3 million operating loss in the first quarter.

There were reports last week that a bankruptcy filing would come by July 31, although the company said last week only that it continued to be in talks with the Teamsters and that it was considering all of its options. The Teamsters said Monday the company is filing for bankruptcy.

US taxpayers to take a hit
The closing is bad news not only for its employees and its customers, who generally used Yellow because it offered some of the cheapest rates in the trucking sector, but also for US taxpayers. The company received a $700 million loan from the federal government in 2020, a loan that resulted in taxpayers holding 30% of its outstanding stock. And the company still owed the Treasury department more than $700 million according to its most recently quarterly report, nearly half of the long-term debt on its books.

Yellow’s stock lost 82% of its value between the time of that loan and Thursday close after reports of the bankruptcy plans, closing at only 57 cents a share. It bumped up 14 cents a share on Friday, but still remained a so-called penny stock.

The company had received that loan during the pandemic, despite the fact that at the time it was facing charges of defrauding the government by overbilling on shipments of items for the US military. The company eventually settled the dispute without admitting wrongdoing but was forced to pay a $6.85 million fine.

YRC Freightliner Tractor pulls a set of white “pup” trailers. May 7th, 2017 Rock Springs, Wyoming, USA
The Trump administration just lent $700 million to a trucking company sued for ripping off taxpayers
Yellow handles pallet-sized shipments of freight, moving shipments from numerous customers in the same truck, a segment of the trucking industry known as less-than-truckload, or LTL. The company had been claiming as recently as June that it was the nation’s third largest LTL carrier.

But the company handled only about 7% of the nation’s 720,000 daily LTL shipments last year, said Jindel. He said there is about 8% to 10% excess capacity in the LTL sector right now, so the closure of Yellow shouldn’t cause a significant disruption in supply chains. But he said it will cause higher rates for shippers who depend on LTL carriers, since it was the excess capacity that sent prices lower.

Higher prices will hit Yellow customers, Jindel said.

“The reason they were using Yellow was because they were cheap,” he said. “They’re finding out that price was below the cost of supporting a good operation.”

While the US economy has remained strong, spending by consumers has been shifting in recent years from the goods they were buying in 2020 and early 2021 when they were still stuck close to home due to the pandemic, to services, such as plane tickets and other experiences that don’t need to move by truck. Nightingale said industrywide LTL shipments fell 17% between 2021 and 2022, and another 5% in the first quarter compared to the first quarter a year earlier.

He said that while Yellow could be profitable when demand for trucking was strong, it couldn’t get by in the face of the slowdown in freight, and the drop in trucking rates that went with it. Shippers worried about Yellow’s future started shifting to other carriers, as its shipments fell 13% in the first quarter compared a year earlier.

“It’s what Warren Buffett says, when the tide goes out you discover who’s been swimming naked,” Nightingale said.

End of an era in trucking
When the trucking industry was deregulated nearly 40 years ago, the segment of the industry that handled full trailers of cargo, known as truckload, soon was dominated by non-union trucking companies. The only thing low-cost competitors needed to enter that segment of the industry was a truck.

But the LTL segment requires a network of terminals to sort incoming and outgoing freight. That limited, but did not prevent, the entry of low-cost competitors. So unionized carriers such as Yellow continued to be major players, even as non-union rivals grew.

Eventually non-union carriers came to dominate the LTL segment as well. By early in this century, many of the remaining unionized LTL carriers, including Yellow and rivals such as Roadway Express, New Penn and Holland, merged to survive.

Yellow, Roadway and a third company known as CF or Consolidated Freightways had once been known as the Big Three of the trucking industry. CF went out of business in 2002. And with Yellow Corp. closing, the final two parts of the Big Three are now out of business as well.


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Hottest Market Stays Hot~!

DALLAS, July 26, 2023 /PRNewswire/ — Dalfen Industrial has acquired a two-building, 182,800 square foot industrial park in Orange County, CA – one of the nation’s top performing industrial markets.

The Mart is Dalfen’s first acquisition in Orange County and is situated near the convergence of I-5, CA-22 and CA-57, providing unrivaled access in all directions, including connectivity to John Wayne International Airport within 35 minutes and the twin ports of Long Beach and Los Angeles, which handle approximately 40% of US imports, within an hour.

The Mart, Anaheim, CA
The Mart, Anaheim, CA
“We are very excited to enter the Orange County market via the acquisition of such a high-quality in-fill asset. Southern California is a key strategic focus for Dalfen given the high barriers to entry, strong fundamentals and demographics, which are some of the best in the nation,” said Rich Weiss, Head of Dalfen’s West Region.

“The acquisition of The Mart provides another strategic last mile location for Dalfen in Southern California, one of the hottest industrial markets in the nation,” said John Endres, Dalfen’s Market Lead for Orange County. “The property was fully-leased at closing with significantly below market rents, providing cash flow in the immediate term and meaningful upside as leases mature.”

With this acquisition, Dalfen Industrial has 7.6 million square feet of industrial space owned and under development in the Western U.S.

About Us

Dalfen Industrial LLC, headquartered in Dallas, is one of the largest privately owned industrial real estate firms in the United States and is a leader in the last-mile property sector. Their investment focus is on strategically located urban infill warehouses and distribution buildings. Dalfen currently owns and operates millions of square feet of premier industrial properties throughout the United States.

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New Freehold Lease, 15k

Ohio-based Hy-Tek Material Handling has taken 14,792 square feet of flex unit space in the Fairfield Corporate Park on Route 33 in Freehold, Sheldon Gross Realty announced Tuesday.

The deal was brokered by Sheldon Gross Realty’s Jonathan Glick and Matt Leonelli, who said the ability to be creative was key.

“In a real estate market with such significant supply restrictions, it’s essential to be creative in addressing a customer’s space needs,” Leonelli said. “That’s particularly true for a company like Hy-Tek, which had an unorthodox requirement that about 60% of its space be for offices.

“We were able to address this need by combining two separate units within the park. Also, Hy-Tek was already operating in central New Jersey, so this new location in Fairfield Corporate Park enabled the company to retain current employees by remaining in the area.”

Approximately a 70-minute drive both from midtown Manhattan and Metro Philadelphia, the space is near Garden State Parkway exit 37, as well as Route 9 and Interstate 195.

Sheldon Gross Realty has been Fairfield Industrial Park LLC’s exclusive representative for more than five years, signing in excess of 30 office and warehouse leases at the park.

Hy-Tek Material Handling’s said the new warehouse space will be utilized for product and component testing.

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Leasing Market on Fire!!!!!!

U.S. industrial property is so in demand that real estate developers and brokers say it’s often best to leave a building vacant and hold out on signing a lease because rents are skyrocketing so much and so fast.

“What’s fundamentally changed is actually now vacancy is not necessarily a bad thing,” said Jason Tolliver, executive managing director of logistics and industrial services for Cushman & Wakefield.

That was one of the takeaways from several panels on Thursday at NAIOP I.CON East, the nation’s largest gathering of industrial real estate professionals. The conference is being held this week in Jersey City, New Jersey, after an 18-month hiatus because of the pandemic.

The event, which continues on Friday, has drawn over 1,000 attendees, NAIOP President and CEO Thomas Bisacquino said. The trade group delayed the conference from its usual date in May, according to Bisacquino, who said the group had been concerned about the potential turnout. But it exceeded expectations, topping 2019’s attendance of about 900 people.

The brokers, landlords and other real estate professionals involved in the logistics market had good reason to gather, trade war stories and even celebrate: The industrial sector keeps busting records in terms of low vacancy rates and rising rents, driven by e-commerce’s need for space.

During Thursday’s panels, there was also discussion about the headwinds the logistics market faces, such as the impact of supply-chain bottlenecks, the soaring costs of building materials and land, and the impact of rising inflation. But despite those challenges, the consensus was that demand in the sector still wasn’t going to cool down anytime soon.

The industrial market in North Jersey has been particularly strong, with record-low vacancy rates. These properties are in Bridgewater. (Cushman & Wakefield)
The topic of vacancies came up at several of the sessions, with panelists saying something that seems counterintuitive: For speculative properties, built without having a tenant lined up, it makes sense in today’s market to wait until the last possible moment for a landlord to get a lease signed, to have a building remain “unencumbered” by an agreement. In fact, they said a vacant logistics building in some cases may be more valuable than one leased at below-market rates.

Landlords Shun Long Leases
Any landlords or developers signing leases with tenants for distribution centers that are under construction and won’t be completed until a year later, for example, may miss out on charging the sometimes double-digit increases in rents that have occurred during that time, according to brokers. With demand in some industrial markets so strong, sometimes exceeding supply, a landlord can wait to close a deal without much risk, according to several panelists.

“A vacant building today in most markets is better than a leased building,” said Peter Schultz, executive vice president at First Industrial Realty Trust.

With industrial rents rising as much as 20% in a quarter in some markets, and some vacancy rates at 2%, some feel it’s best not to lock down a tenant too early, according to John Morris, CBRE’s Americas leader for industrial, logistics and retail.

That’s led some landlords to say, “I’m just going to wait until I’ve painted [the newly built warehouse], and I’ll take calls” then from prospective tenants, Morris said, sometimes waiting until just three to five months out on a project’s completion.

“I think that’s pretty new in some of the bigger markets,” Morris said.

Echoing the CBRE executive’s comments, Nick Pell, president and chief investment officer for Link Logistics, the industrial real estate arm of investment giant Blackstone Group, said when it comes to preleasing, it pays to wait things out every month.

Speculative industrial projects used to raise concerns from investors about their low occupancy, according to both Schultz and Devin Barnwell, senior vice president and global head of portfolio management for logistics real estate at Brookfield Asset Management.

Investment Surge
Now, investors are clamoring for more speculative development, and Schultz said his real estate investment trust has almost doubled down on that kind of investment across the country.

“We’ve really put our foot down on the pedal,” he said.

The demand for Class A industrial properties in North Jersey is so strong that the vacancy rate is 1% or less, according to Jeffrey Milanaik, a partner for the Northeast region of Bridge Development. In that kind of environment, coupled with rising rents, he lamented a lease he did with a tenant for one of his big projects.

“I made a huge mistake,” Milanaik said. “I signed a 10-year lease.”

Other panelists are choosing not to enter into long-term leases so they don’t miss out on big rent increases a market may be seeing during the term of those agreements.

“In some markets, we’re not going to sign long-term leases,” Schultz said.

Milanaik is a long-term veteran of the industrial market who has marveled at the explosion in demand it’s seen.

“Personally, I had to wait about 28 years for it to happen. … Fast forward to today, the market is on fire,” he said.

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By Randyl Drummer
CoStar News

October 25, 2021 | 9:51 P.M.
The holiday season is fast approaching, and the nation’s available warehouse space keeps shrinking.

The tight supply of space weeks before the busiest time of year for retailers is resulting in projected industrial rent increases of as much as 25% this year. It’s also prompting landlords to step up construction and even buy office parks to convert to industrial buildings in some markets.

That demand has further solidified the prime spot industrial real estate holds for investors, who have seen the sector become the strongest performer of the four major property types that also include office, retail and multifamily. A third-quarter industrial market report from Cushman & Wakefield found 340 million square feet had been leased and taken out of available inventory so far this year, and a CoStar analysis found that supply disruptions are now driving record demand.

As a result, a number of industrial landlords, including Prologis, the world’s largest warehouse owner with its portfolio of nearly 1 billion square feet across the globe, reported better-than-expected third-quarter earnings, fueled by record rent growth and near-complete occupancy as businesses race to lease a diminishing supply of warehouse space amid a global supply chain bottleneck.

“Space in our markets is effectively sold out,” Prologis CFO Thomas Olinger told analysts during the company’s recent earnings call. “In the last 90 days, supply chain dislocations have become even more pronounced, with customers acting with a sense of urgency to secure the space they need.”

A variety of factors, including spikes in e-commerce demand during the pandemic, production problems overseas and a shortage of truck drivers serving the nation’s ports, have caused cargoes to languish on ships and docks. The result has been shortages of products ranging from consumer electronics to automobiles several weeks before the holiday shopping season kicks off the day after Thanksgiving.

The disruptions have caused logistics companies and other tenants to grab space as soon as it becomes available, especially near the nation’s largest seaports, driving national warehouse leasing and rent growth to all-time highs, according to CoStar.

Prologis, a real estate investment trust based in San Francisco, reported that its portfolio was 98% leased in the third quarter and projected that rents in the United States would increase 19% for the year, after jumping 7% in the third quarter alone. The company said its net income more than doubled in the quarter ended Sept. 30 to $722 million from $298.7 million for the same time a year earlier.

The situation is expected to change at some point. Tangled supply chains that can follow global disruptions such as wars have eventually smoothed out in the past, while the addition of warehouse space now underway will increase that supply and could lead to more space than needed in the next strong economic downturn.

Demand at Ports
Even so, for now logistics demand is surging, driving warehouse vacancy to below 1% near the ports of Los Angeles and Long Beach, the nation’s largest port complex, points to continued strength in the coming year for Rexford Industrial Realty Inc., which owns 280 Southern California properties totaling 35 million square feet.

Rexford’s porfolio was 96.6% leased and logged 24% year-over-year rent growth in the third quarter, co-CEO Michael Frankel told analysts during the real estate investment trust’s third-quarter earnings call.

“There’s a dearth of any space, let alone quality space,” said Howard Schwimmer, co-CEO for the Los Angeles-based landlord. “It’s really just an all-on fight on the tenant side to get occupancy on anything that’s available.”

The industrial land shortage in Southern California, paired with soft demand for older offices as more people work at home during the pandemic, has prompted Rexford, Prologis and other industrial developers to come up with creative solutions.

Rexford recently paid $70 million for Volt Corporate Park, a four-building Orange County, California, low-rise office complex on 12.5 acres built in 1984, with plans to convert the property to industrial space when current leases expire.

This type of conversion underscores the rising value of industrial buildings near neighborhoods that can serve as logistics hubs for the final mile of delivery to online shoppers. Large industrial users such as Amazon have also looked to convert obsolete shopping malls and even golf courses to fulfillment centers.

All the while, rents are on the rise.

First Industrial Realty Trust Inc., a Chicago-based REIT, said nearly one-third of its tenants with leases up for renewal in 2022 have already extended their contracts at rental rates averaging 23% higher than current rates.

“A lot of the tenants who need imported products are having a hard time getting product and they cannot ascertain the availability nor the timing, so the net effect is that they order more inventory,” First Industrial Chief Investment Officer Johannson Yap told analysts during the company’s earnings call. “We now have less space than at the start of the year and rents have been rising because of that.”

While he hopes for the sake of customers that rents will level off next year, he sees the conditions leading to the shortage continuing, and therefore, worsening space availability: “The reality is that I don’t think it will level off. It looks like the supply chain issues will continue and the rent pressure will continue because of the lack of space and increased demand.”

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I have access to every active listing in NJ for warehouse, office, and retail. Also some off-market deals. Call me, 917-750-9787

I have access to every active listing in NJ for warehouse, office, and retail. Also some off-market deals. Call me, 917-750-9787

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Moving from NYC to NJ???

Come In, New York, Come In: COVID Has Companies Thinking Satellite Offices
Some firms have already relocated to the suburbs from NYC, but most are awaiting how the pandemic plays out
A man sitting at a desk with a dog next to him, and the man has a satellite dish around his head.CREDIT: KEVIN FALES
When Mayor Bill de Blasio issued a state of emergency in mid-March in anticipation of a deadly contagion’s spread, some business leaders began to consider whether staying in New York was worth it.

SEE ALSO: Baltimore-Area Office Campus Adds Anne Arundel County Health Department
In the weeks that followed, office towers shuttered as companies prepared workers to work from home indefinitely. Subway ridership plummeted 92 percent while commutes on the Long Island Rail Road and Metro North bottomed out to almost nothing.

Those who ventured into Midtown and Lower Manhattan resembled a Cameron Crowe film shoot with restaurants and theaters padlocking their doors and retail stores encasing their shops with hurricane-strength plywood.

The dire scene led hundreds of thousands of residents to decamp for second homes, crash with relatives, or score temporary suburban rentals for the summer and fall.

Suddenly the leafy lawns, car-dependent thoroughfares, and languorous nightlife seemed appealing for New Yorkers freaked out by the pandemic and burned out by the city’s cost of living. By May, stories about an urban exodus to the suburbs in the tri-state area and beyond began appearing with a trove of “Why I left New York” essays as well as the inevitable backlash essays from those who love New York and remained.

But speculation that the suburban migration was more than temporary began to rise along with housing prices in New Jersey, Westchester County and Connecticut. A spate of stories contemplated that companies would soon follow their workers and open sparkling satellite offices or new headquarters outside of the city.

One of COVID-19’s lasting effects could be companies with massive office footprints in Manhattan’s pricier business districts downsizing to cheaper locations elsewhere, a Moody’s analysis contemplated in May.

“Will the COVID-19 crisis and the quarantine experience represent a shock that will be relatively transitory, forgotten quickly once the economy reopens?” Moody’s asked. “Or will the effect be longer lasting, perhaps representing a permanent negative shock to demand for office space?”

Either way, it was the end of business as usual. New York’s agglomeration economy, in which top firms in technology, finance, law, accounting, health care, media and the arts cluster and create additional opportunities for a highly educated workforce, seemed at risk of dilution.

But few companies so far have made the move to leave the city.

“People are doing a lot of looking around and seeing what’s available but there has been very little momentum and decision-making,” Nicole LaRusso, director of research and analysis for CBRE tri-state, told CO. “We’ve been watching closely to see if this trend is materializing, and so far it has not. It’s an evolving situation.”

Instead, employers found that having its workforce log on remotely over the last few months has been more successful than anticipated. That has allowed many firms to decelerate making plans for the future until uncertainty over COVID-19 and its effects on the economy dissipates.

“There are many questions about work from home over the long horizon but the question of whether it works over a shorter horizon has been answered,” Gabe Marans, a senior managing director at brokerage Savills, said. “Most industries, including tech, publishing and finance have maintained a wait-and-see approach.”

The proof is in the numbers and the relative dearth of deals. Suburban office space in the New York area remains up for grabs. Leasing in Fairfield County fell to a record low of 136,591 square feet in the second quarter of 2020, for instance, a 50 percent drop from the first quarter and a 56 percent tumble from the second quarter of 2019, according to a CBRE report. The lack of demand led to a 25 percent increase in availability for commercial space in the second quarter of 2020 despite an average asking rent of $34.35 per square foot that is roughly half of the average asking rent in downtown Manhattan, the report said.

That doesn’t mean everyone has stayed put during the pandemic, though the number of leases isn’t all that large.

Hedge fund and private equity executives made some of the first moves to swap space in Manhattan for smaller offices in Greenwich, which happen to be both closer to where they live and less expensive. Prices for Class A office space in the tony Connecticut town were about $49.90 per square foot in Q2 2020 compared with the average asking rent in August of $82.98 in Midtown, according to Cushman & Wakefield.

“These firms are small boutique financial companies that usually don’t have a large corporate structure,” Bob Caruso, a CBRE senior managing director, said. “The head of the company decides he wants people in the office so he’ll go lease space as opposed to going through a long process of analysis and consensus building. They look at facts, they make a decision, and they execute.”

More than a half-dozen firms have already taken the plunge near the banks of the Long Island Sound. That includes iCapital Network, which leased 12,000 square feet at 2 Greenwich Plaza for 11 years and a firm connected to hedge fund titan David Stemerman, who once ran for governor in Connecticut. That firm finalized 3,500 square feet in Greenwich’s central business district, according to sources.

Several financial and insurance companies have begun exploring satellite offices in New Jersey, too, while a handful have temporarily relocated. AIG made the most significant move, taking 230,000 square feet at 30 Hudson in Jersey City, where prices hover at $45.83 per square foot—although AIG’s plan to consolidate its New Jersey operations there was underway before the coronavirus struck. A small reassurance company left Manhattan for a sublease in Woodbridge, N.J., and a financial company also took a short-term sublease in Short Hills, N.J., brokers with Cushman & Wakefield said.

Companies are waiting until next year to make any significant moves, Jason Price, Cushman & Wakefield’s tri-state suburban director, said.

“It depends on where the employees live, who needs to work from home, and how often,” Price said. “Some will be attracted to Jersey City because of the proximity to New York, and it’s a newer inventory overall compared with most of the state, while others will look to suburban parks. If you’re only going to have executives and management go to the office, then you wouldn’t need as much space.”

Companies serious about moving from the city are likelier to favor renovated offices in walkable downtowns near mass transit than the office park campuses that dotted the Northeast in the 1980s and 1990s, several brokers said. Those sites, like the former General Electric headquarters in Fairfield, have instead found new life as higher education campuses and medical offices.

The trend of a suburban office migration won’t be fully realized until the plentiful supply of Class A office towers in Stamford and Jersey City starts coming off the market, brokers said. Developers are preparing for an onslaught of inquiries anyway by ensuring these spaces are flexible for a multitude of uses and safe for in-person work.

“Landlords have upped their game when it comes to cleaning, air filtration and circulation within the building,” Tom Pajolek, a CBRE executive vice president, told CO. “It’s very important for the workforce to feel comfortable for corporations to bring people back. They want to come to a healthy, well-attended-to situation.”

Meanwhile, most New York City offices remain closed or operating at a significantly reduced capacity but some workers are starting to return. And those who temporarily left the city may find their landlords are open to renegotiating rental leases as housing prices fall. But business leaders caution that city officials must not be complacent about New York’s core industries—or it risks losing them to cheaper, more spacious suburbs.

“If New York City politicians want to keep companies from moving jobs out of the city, they can stop talking about raising taxes, they can stop opposing private efforts to create jobs, and they can reduce regulations and laws that make NYC a very expensive and difficult place to employ people and run a business,” Kathy Wylde, president and CEO of the Partnership for New York City, told CO. “Companies will only reduce their footprint in NYC if they see the political and business climate of the city become totally inhospitable.”

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Is your warehouse building healthy?

In a typical year you will take two million breaths in your office. This, however, is not a typical year. The pandemic spawned by the novel coronavirus has forced a global reckoning with the awesome power of infectious diseases to grind economies to a halt. The forced lockdowns and retreat into home isolation has also given us a heightened awareness of the role our surroundings play in our health and wellbeing. COPYRIGHT © 2020 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED. 2 While no one could have predicted the exact nature of the outbreak that is now upending our lives, many of us working in public health have been urgently advocating for organizations to invest in healthier buildings for some time. History tells us that buildings play a central role in the spread of disease. From measles to SARS to influenza and the common cold, the scientific literature is full of examples. But, as much as buildings can spread disease, if operated smartly, they can also help us fight against it. Amidst the chaos, one thing is clear: We will all go back to work with new expectations about the buildings where we live, learn, work, and play. Buildings that Fight Disease and Promote Health For our book, Healthy Buildings: How Indoor Spaces Drive Performance and Productivity, the two of us have spent the last three years speaking to executives across the business spectrum who oversee real-estate portfolios that cover several billion square feet and contain millions of employees. We aimed to better understand how to drive healthy building science into practice. Locked in a global battle for talent, the business leaders we spoke with were eager to find new ways to attract, retain, and enhance the performance of their employees. Few of them realized that their buildings could play a vital role in the health of their business. In response to Covid-19, that’s rapidly changing. CEOs from companies large and small have come out of the woodwork to engage with us on how to design, operate, and manage better buildings. Calls are also coming in from groups that run medical offices and dental clinics, hotels, schools, airports, and theaters, as well as mid-size law firms and small businesses in both small towns and major metropolitan areas. The question on the mind of every business and organizational leader is this: When the time comes, how do I re-populate my buildings and restart my business? Re-Populating Your Buildings As you prepare for the return of your employees, remember that the scientific models on the spread and containment of SARS-CoV-2 indicate this is a problem we will be dealing with for at least 12 months. Likely approaches to controlling the spread and damage from the virus include a combination of widescale testing, and periodic isolation and quarantine. Some cities and regions will begin re-populating their buildings over the next few weeks, and some will likely be hit with repeated cycles of social distancing. In either case, as employees return to offices, there is a framework companies can deploy to keep people safe without crippling their businesses and our economy. First, we all have to understand — and communicate to employees — that there is no such thing as zero risk. The goal is to minimize risk, and we can get there using a layered defense approach by applying what is known in public health as the hierarchy of controls. COPYRIGHT © 2020 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED. 3 The hierarchy of controls is how the field of occupational health thinks about protecting workers from any hazard — biological, chemical, or otherwise. There are five types of controls, moving from the most e†ective at the bottom to least e†ective at the top

Elimination of exposure. The first, and most e†ective control, is to minimize social interaction. Of course, you could keep everyone 100% safe by keeping them at home for the near future. But this will COPYRIGHT © 2020 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED. 4 come at a great cost to your company and the economy. In time, you will need to begin re-populating your building. This means you will be accepting some degree of risk. Substitution activities. This brings us to level two of the pyramid: “substitution.” Evaluate critical, core workers who need to be onsite and create work teams that can be physically isolated from one another. That way, if one employee gets sick and their close contacts need to self-quarantine, you can shut down that one group for two weeks without shutting down your entire company. Engineering controls and healthy building strategies. The next step is to boost your building’s defenses against disease. This means immediately enacting some key healthy building strategies. At the room level, consider using portable air purifiers and looking into new technologies like touchless entryways, elevators, sinks, and toilet flushes. In addition, having an enhanced disinfection protocol in place that clearly spells out the locations, timing, and frequency of cleaning is critical, as well as training cleaning sta† on these new procedures. Most importantly, at the building level, focus on improving these 9 Foundations of a Healthy Building: • Ventilation • Air quality • Thermal health • Moisture • Dusts & pests • Safety & Security • Water quality • Noise • Lighting and views These were distilled from 40 years of scientific evidence at Harvard’s Healthy Buildings lab, and improving them will serve as a long term preventative measure. While some of these you might have expected, like better acoustics and lighting, we suspect you haven’t been thinking about how humidity, temperature, furniture, carpeting, and even dust can impact employee health — and even beyond health, performance. But consider just a small smattering of the evidence: One study of young adults found that every 1°F deviation from an optimal indoor temperature came with a 2% decrease in output. In another study, researchers found that every time you double the rate of outdoor air delivered into an office, worker performance improves by 1.7% across four simulated office tasks: text typing, addition, proofreading, and creative thinking. It’s no surprise, then, that an analysis of sick leave data for more than 3,000 workers across 40 buildings found that 57% of all sick leave was attributable to poor ventilation. COPYRIGHT © 2020 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED. 5 Of course, it’s not just air quality that drives health and performance. A study of workers found that they reported more headaches and worked 6.5% more slowly on a typing test when they were in an office with a pollution source. The “pollution source” in question? A dirty carpet. The amount of indoor nature and views matter, too. Young adults in an office designed following biophilic design principles had lower blood pressure, lower heart rates, and better performance on short-term memory tests. Making sure each foundation is up to par with our current healthy building standards is key to both stopping the spread of infectious disease, and setting up a successful workforce. Administrative controls. Here, the big picture focus should be on de-densifying your buildings and maintaining social distancing (e.g., staying six feet apart). You can do this through both time and space. By limiting who comes to your office (substitution), you’ve already taken one step. You can do more by getting clever with your scheduling. Consider extending operating hours and asking employees to come in shifts. Running a two-shift operation — say, six a.m. to 12 p.m., and one p.m. to seven p.m. with an hour of deep cleaning in between, instantly cuts the occupant density by half. Not everyone needs to arrive right at the start of their shift. Staggering arrival and departure times, even by 10 minutes, can prevent traffic jams at the elevators and common areas. Another option is to alternate work-from-home and office days, using A/B days, so that only half your company is in the building on any one day. This tactic also mitigates exposure to rush hour crunches in public transportation. In addition, because one unfortunate fallout of the virus is an economic slowdown, layo†s may lead to higher vacancies in office space, retail stores, restaurants, hotels, and more. This means there is a lot of “unused” space in most commercial buildings, and now is a good time to repurpose it. Move desks into conference rooms and common areas to spread out your workforce. In terms of meetings, any gathering with more than 10 people should be virtual for the near term. For essential in-person meetings, you can slide your chairs back and keep to the edges of the room. If you’re at a conference table, leave a chair open between each person. Skip the handshakes, and wash your hands immediately before and after each meeting. Personal protective equipment (PPE). The last, and least e†ective control measure, is personal protective equipment. Employees should be wearing a mask on their way to and from work, and also as they enter the building and walk through common areas and take the elevators. Wearing a mask protects others and the wearer. Finally, remember that no one control strategy is sufficient. You have to think about this in terms of a layered defense, doing everything you can to minimize the risk. COPYRIGHT © 2020 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED. 6 How Can You Measure Success? If you wait for people metrics to show you success — like the number of sick or absent employees in a given time frame — you are acting too late. Like a doctor at the start of an exam, if you want to protect your workforce, you should be regularly checking the health of your building, not just your people. It’s common for organizations to measure the life of their workspaces in terms of years, when visible decay and wear and tear become noticeable. But buildings change on a much shorter timescale and the e†ects are not always visible. Every business tracks key performance indicators so they can keep tabs on their progress. But very few track what we’re calling Health Performance Indicators, or HPIs. At a fundamental level, health drives human performance. This means that building performance is a critical metric that every business should be tracking. HPIs can be used to measure indoor environmental quality, or what we call “the pulse” of your building. We have divided them into four quadrants: leading and lagging indicators, and direct and indirect indicators. Direct indicators measure people, while indirect indicators measure the building. Leading factors are those that can be measured — and caught — before an issues arises, whereas lagging ones can only be measured after the fact. For example, “commissioning” your building, which is akin to giving your car a tune-up, can help you identify problems with your ventilation system before anyone is actually in the space. As such, “commissioning” is leading factor and an indirect indicator.

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Mack Cali sells another building

Shedding another suburban office building, Mack-Cali Realty has sold a Florham Park, New Jersey, property to The Birch Group.

Mack-Cali, a Jersey City, New Jersey-based real estate investment trust, is in the process of selling office properties that are not on the Hudson River waterfront. Terms of its deal to divest 325 Columbia Turnpike, a 168,144-square-foot, three-story office property, to Birch Group weren’t disclosed.

The single Florham Park building attracted a lot of investor interest and tour activity because of its location and size, according to the broker on the sale, Cushman & Wakefield.

“Despite significant near-term rollover risk, we remained confident in our ability to implement a value-add strategy,” Mark Meisner, president of Nanuet, New York-headquartered Birch Group, said in a statement. “This is a great building in a location that is extremely convenient for its occupiers, evident by exceptional historical occupancy figures.”

Mack-Cali just closed on its roughly $160 million sale of 10 office buildings totaling 1.5 million square feet in Morris County, New Jersey, to Woodbridge, New Jersey-based Onyx Equities and its partners.

The Florham Park property is located on a 15-acre site and is 85% leased to 13 tenants. It has a renovated cafeteria, a sky-lit atrium lobby, on-site tenant storage units and executive covered parking.

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