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Partner Engineering and Science, Inc. is a national firm offering full-service engineering, environmental, and energy consulting and design services. Drawing on 90 years of experience, our multi-disciplinary approach allows us to serve clients at all stages from initial due diligence and design to development and construction, as well as throughout the ongoing maintenance and optimization of the asset.
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Partner Valuation Advisors
Agency lenders are preparing to implement the new radon testing standards for Fannie Mae and Freddie Mac multifamily loans. The updated policy applies to loan applications received on or after June 30, 2023. Read the Federal Housing Finance Agency’s (FHFA) January announcement regarding the increased sampling requirements here.
There are five main changes in the FHFAs updated radon testing policy:
Note that the updated policy continues to allow an environmental professional to manage the radon testing process.
In addition to the updated standards issued by FHFA, state regulations and license requirements apply. Tracking and applying the various state regulations adds complexity to the testing process. Lenders should verify that their due diligence provider has a complete understanding of federal and state radon regulations, as well as EPA’s ANSI/AARST standards for all building types. In addition to appropriately experienced and licensed technicians, qualified due diligence providers should also be experienced with reporting templates and standards for Freddie Mac and Fannie Mae.
On June 8, Partner Engineering and Science, Inc., is hosting a webinar entitled “New Radon Sampling Regulations for Fannie & Freddie” featuring a panel of experts with extensive experience in radon testing and due diligence requirements for Fannie Mae and Freddie Mac loans. To learn more about the new radon requirements or ask a question of one of our experts, please register for the webinar here.
For more Partner Engineering and Science Thought Leadership coverage, click here.
Among the sectors hardest hit by the pandemic, the office sector continues to struggle as post-pandemic business norms evolve and companies maintain a cautious approach to space commitments. Facing a tough market for 2023 and beyond, office property owners and managers are challenged to preserve value through leasing efforts and must embrace resourceful, creative asset management and repositioning strategies.
The “return-to-work” path looks different for every employer, as companies balance employee expectations with the requirements of doing business. Will employees work remotely, in office, or will they adopt a hybrid working model? Employee schedules remain in flux, so space requirements are hard to define. Companies are waiting to make space decisions until they are forced to do so by looming lease expirations or renewal options that they must exercise or decline.
The softening job market may help to boost office demand. With less competition for employees, employers have more leverage to get workers back into the office. Time will tell if this makes a material difference in office occupancy.
Certain markets are more competitive in terms of office demand, such as Dallas, Miami, Raleigh, and Nashville. There are numerous reasons for this, but one main factor is that these cities are viewed as “company friendly” markets, offering aggressive incentive packages for companies to operate there and are more favorable tax climates.
Overall, we have not yet seen a material change in tenant demand for office space. It is a tenants’ market, and landlords are being very accommodating to get deals done. They are holding face rental rates as much as possible, but tenant improvement allowances and rent abatements are not subsiding.
Some property owners used the window of low occupancy during the COVID shutdown as an opportunity to upgrade their properties with refreshed lobbies, destination-direct elevators, and new amenities. While we did not see the recovery we expected in 2022, these properties will be in a more competitive position when the market begins to recover.
While occupancy remains low and transaction volumes are down, office owners may continue to focus on asset management. Now is the time to catch up on deferred maintenance and address outstanding regulatory or compliance issues to protect asset value. Investing in building efficiency can reduce operating expenses and increase asset value. Exploring alternative revenue sources, such as rooftop solar or technology tenants, may reveal options to increase operating income and asset value.
Seeking creative strategies to bolster value, some owners and managers of office portfolios are looking to convert struggling properties to more profitable uses, such as multifamily, hotel, student housing or self-storage.
Cost is the primary barrier to successful conversions. The proposed new use must offer sufficient income/value potential to offset the construction costs required to convert the property. Given current capitalization rates for multifamily–even considering increases due to rising interest rates—multifamily is the top conversion candidate.
Municipalities are beginning to see the value in repurposing vacant office buildings. Empty office buildings result in lower real estate tax revenue. They also hurt optics; that is, current and prospective companies doing business within the municipality may see low occupancy office buildings as an eyesore. Converting these buildings to other uses is an opportunity to breathe new life into an area. As a result, a municipality may subsidize conversion projects with tax credits, tax increment financing, or tax abatement (either full or partial abatement). These development tools are not necessary in every case, but they can often help bridge the gap in real estate returns to make a conversion financially feasible.
Far from a simple solution, converting an office building is a costly endeavor with challenges ranging from market factors, engineering obstacles, zoning and permitting hurdles, and construction risk. We have valued a number of converted office properties. Some of these conversions have been more successful than others. The reasons for less-than-successful outcomes have included poor design for the new use, cost overruns, and construction delays causing the project to miss its prime leasing season, i.e. a student housing project missing housing application deadlines, or multifamily coming online in the winter months in a midwestern or northern city.
A qualified consultant can help mitigate some of the challenges to successful office conversions through well-scoped due diligence.
Despite bracing headwinds over the short- to mid-term future, owners and managers of office properties have options to maintain and even increase the value of their portfolios. By staying abreast of market conditions and leveraging the support of valuation, engineering and construction consultants, savvy office investors can stay competitive in this challenging market.
Kansas City Convention Center
Kansas City, MO
June 24 - 27,2023
June 25 - 26,2023
Expo Produced by BOMA International and BUILDINGS
1101 15th Street NW, Suite 800
Washington, DC 20005