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Technology, demographics influence real estate decisions

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Successful real estate projects are including ever-evolving technological features to meet changing demographics and promote collaborative, creative and community-oriented spaces.

These were among the themes from speakers and panelists at the University of San Diego Burnham-Moores Center for Real Estate’s 19th annual real estate conference Thursday morning at the Manchester Grand Hyatt San Diego.

Keynote speaker John Kilroy Jr., chairman, president and CEO of Kilroy Realty Corp. (NYSE: KRC), said companies across the board — specifically Los Angeles’ entertainment companies — are re-thinking traditional boxy buildings and adding amenities to new or redeveloped projects to attract and retain talented workers.

“They want to consolidate a lot of their divisions, they want to get efficient, and they want creative, dynamic, vibrant workplaces to cause people to be creative,” Kilroy said.

The portfolio of Kilroy Realty — the developer behind One Paseo, the mixed-use project recently approved for Carmel Valley — includes about 10.6 million square feet in Southern California, 5.5 million square feet in San Francisco and 2.9 million square feet around Seattle. All projects are funded through cash and don’t have loans, Kilroy said.

Six projects totaling 1.7 million square feet are under construction, with the space already 82 percent leased, representing about a $1 billion investment. Five additional projects are expected to get underway soon.

One of those is One Paseo, after years of meetings and controversy. “Some places allow you to get your entitlement within a certain time frame,” Kilroy said.

The $750 million investment in Carmel Valley would be an “urbanesque,” amenity-rich, mixed-use community with 1.4 million square feet of office, retail and 608 residential units. He called the city’s smart-growth designation — the “city of villages” zoning — to be right on the mark.

“Thanks for everyone here that supported us — it made a huge difference,” Kilroy said.

The company’s investment thesis is based on locations with transit, housing, retail and amenities; physicality in terms of densification, flexibility and infrastructure; and yields and timing, including return on cost, price per square foot and the investment cycle.

“If you’re building, you can fix a lot of things in building, but if it doesn’t have superior floor-to-floor height, if it doesn’t have the right amount of glass on the exterior, if it doesn’t have the other things that allow densification, you have an asset that’s going to be obsolete,” Kilroy said.

Instead, Kilroy’s company focuses on projects with innovative open-space office design, along with top-tier residential units and experiential retail components.

“We’re very focused on these kinds of assets and assets that have a long life,” Kilroy said.

Real estate is moving toward a human focus, driven by the changing demands of baby boomers and millennials, speakers said.

Qualcomm Inc. (Nasdaq: QCOM) competes with other technology companies in hiring the top 10 percent of employers, but the company ideally wants to hire the top 2 percent. Top talent can go anywhere, so Qualcomm is determined to build appropriate spaces to attract the best.

"We’re trying to utilize the entire space of the facilities to provide the best amenities for employees,” said Ed Capozzoli, vice president of real estate and facilities at Qualcomm. A new campus offers natural light for all 1,200 employees, windows open automatically to allow fresh air into the building and an organic garden fills the grounds.

Kilroy said professionals from human resources departments often come to look at buildings now. There’s less talk of price per square foot and more about amenities.

The Exchange on 16th, which is in San Francisco’s development pipeline, is expected to be completed in 2017 and is a vastly different project from a design standpoint than what was put forth by the previous owner, who entitled the project, Kilroy said. Entrance plazas, open lobbies, vibrant spaces and terraces attract employers, employees and the community, as do two rooftop decks that could host 1,000 people.

Mike Mahoney, senior vice president of development for ConAm Management Corp., advised developers not to fixate on statements proclaiming millennials want to live where they work. They may want to be close to work but not that close; he suggested exploring where people get coffee or jog on Saturday mornings. Building and creating in those spaces may lead to a successful location decision.

Mahoney also said unit sizes are decreasing overall as millennials prefer to spend time outside their residences, such as in complexes that offer resort lifestyles.

While human use is becoming central in development decisions, how technology improves someone’s experience with a building — or even a trash can and stoplight — is on the rise, thanks to the Internet of Things.

For example, Qualcomm helped take out 10,000 pay phones in New York City, and will be replace the single-purpose devices with communication kiosks that offer free Wi-Fi, free phone calls, emergency services, city services and digital advertising, said Aidoo Osei, staff manager of the company’s business development and new market development division.

“This re-imagining of public infrastructure not only impacts the municipal sector, but I believe it also impacts the commercial sector as well,” Osei said.

Home management systems and transportation are other areas where technology is having grand impacts. Osei said he looks forward to seeing commercial mixed-use properties partnering with entrepreneurial companies and bundling membership with vehicle-sharing programs and using technology to manage fleets.

“This is one of the trends we think can deliver a really sleek, urban solution for urban dwellers, so they won’t have to necessarily own a car,” Osei said.

Gordon Feller, director of the office of the executive vice president at Cisco Systems Inc. (Nasdaq: CSCO), said that we’re at a place where things are now intelligently connected, they allow a process to change, and they relay actionable insights through invisible analytical tools.

“The user doesn’t want to know how the insight arrived from all the big data streaming off a building to the action that needs to be taken, they just want to know 'what’s my action?'” Feller said.

“Cut it short — 'What do I need to do?' 'How do I reduce the costs in my building?' 'How do I increase the energy efficiency?' 'How do I make it a livable working environment?' What we’re all doing is essentially creating a marriage between the digital and physical world.”

Deb Tatum, account director of transmission and distribution of GE Digital Energy said for best global results the company’s software is designed to work with other technology companies, as is the company itself.

“What happens when 50 billion machines get connected?” Tatum said. “We’re talking about connecting across a huge scope and how that happens. If you can make that happen, analytics become predictive, you can monitor and understand the maintenance that has to go on in a building, machines can become self-healing and automated, and you’ll increase your business productivity.”

* Related content: John Kilroy Jr. speaks about current real estate market

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Kilroy Realty Corp.

Company Website

3611 Valley Centre Dr. Ste., 550
San Diego, CA 92130

Kilroy Realty Corp. Executive(s):

Steve Scott

  • Senior Vice President

Brian Galligan

  • Regional Asset Manager

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