Principle Valued Approach outlined by Keith Knutsson


Successful real estate investment requires an enormous amount of commitment, sometime requiring more hours than the typical 40-hour work week. But, this comes easily when you are incredibly passionate. Investment management professionals must balance on the entrepreneurial tight rope, sticking to their niche market, seeking off market deals, and leveraging the full capacity of your team. Naturally, tension arises and there is a need to change gears, which requires patience.

Some of the most successful centi-millionaire family offices steward their money effectively because the approach is concise, with efficient means of implementation, and strategic. While some deals go smoothly and others feel like roller coasters, being able to maintain composure and patience while enduring the short-term calamity is key for focusing on the end-goal.

In contrast, those who fail to occupy enough valuable land, don’t envision the long-term, don’t add value, don’t optimize their operations, and are impatient. As specified by Keith Knutsson of Integrale Advisors, “the key is to identify a niche and commit, regardless of distractions.” A niche offers credibility as well as an ease of communication with a common goal in time. Intrinsically investing in your company is important because it is ultimately the driving force that sells others and convinces others that they feel comfortable putting their money with you.

Keith Knutsson evaluates Blockchain and the Commercial Real Estate Industry


“Blockchain will have a significant impact on he Commercial Real Esate Industry” states Keith Knutsson of Integrale Advisors.

A blockchain is a type of decentralized database that supports and provides a constantly expanding inventory of records, termed blocks, which are fortified against alteration and adjustment. Each block possesses a timestamp and a link to a previously created block. As a blockchain runs, it effectively serves as a log for all transactions. Every user is able to link up to the network, post new transactions and authenticate transactions. Blockchain has seen tremendous growth in the past couple of years. In fact, some of the world’s largest banks, central banks, governments, universities and technology companies are working with blockchain, with implications soon to be seen in the commercial real estate market.

If the commercial real estate industry utilizes blockchain, the impact would be huge. The blockchain could provide information regarding all buyers, sellers, title work, reporting, lease comps and vendor work on any individual commercial property. Having this information at your fingertips could cut out paperwork, enhance market transparency and shorten the speed to competing a transaction from days/weeks/months to minutes or seconds.

Blockchain has the potential to:

  • Enable a commercial property to have a digital signature containing building reports, performance, and legal information. This information could be easily accessed online by authorized users.
  • Allow for commercial real estate deals to be concluded in a matter of seconds.
  • Better administer the commercial property sales or lease payment process.

Real estate transactions will start to resemble the buying and selling of commodities. With blockchain, properties in popular areas could change owners many times a year, month, or even week. The system aims to make property purchases quicker, cheaper and more secure by storing all title information digitally and enabling virtual transactions to take place. This is the future of the real estate market.

Tight supply of homes on the market, buyer demand remains strong


U.S. new-home sales increased in June, depicting the gradual recovery in a segment of the market that has been seriously impacted by supply constraints. Purchases of newly built single family homes rose 0.8% to a seasonally adjusted annual rate of 610,000 in June, the Commerce Department said. The average total of new home sales was up 14.1% year to date and represented the largest increase since June 2008.

Combined with a 1.8% slide in existing home sales reported by the National Association of Realtors, the latest data suggests the lack of supply kept a lid on activity in the crucial spring selling season despite steady housing demand. Longer-term trends indicate the market is continuing to recover, however in a slower manner than what was predicated. This is in part due to a shortage of new homes.

Keith Knutsson of Integrale Advisors exclaimed “one of the reasons for why new home sales aren’t recovering as fast is that builders are focusing on higher-end, more luxurious construction.”

New construction continues to lag behind the broader recovery, resulting from a lack of desirable building space and labor shortages. The size of the construction workforce in the U.S. decreased to 10.4 million in 2015 from 10.6 million in 2010, according to U.S. consensus data.

In addition, a boom in home renovation development also hit a record level of $316 billion this year, but may be hindering demand for new homes as buyers choose to stay where they are rather than pay a large premium for a brand new home.

At the current pace of sales, there was a five-month supply of new homes on the market at the end of June. There were 272,000 new homes available for sale, the highest level in eight years. The median sale price for a new home sold in June was $310,800.


The Benchmark Developments on the East Coast


All around the United States, particularly in big cities, there is rampant construction as capital flows into large urban areas. Q1 and Q2 2017 have revealed construction of 40 million square feet of office development. At this pace, new office space will, for this fiscal year, will be more than this past year’s construction of 76 million square feet and already more new space than all of 2015. Keith Knutsson of Integrale Advisors claims, “current market indicators point to commercial real estate remaining on a strong path for investors in 2017.” On the East coast, Washington D.C., New York City and Boston all have significant high-rise developments in large downtown markets.

In Washington, DC, developer Hoffman-Madison is overhauling 24 acres of waterfront land along the Potomac River. The Wharf project, once completed will bring 3.2 million square feet of new space to the area. A unique component of the development is an entertainment street named Jazz Alley, containing a concert hall, boardwalk and pier, rum distillery and one of Hilton’s popular Canopy hotels. In addition there will be two waterfront luxury condos, as well as the prior announcement from the American Psychiatric Association to occupy 63,000 square feet of office space, the first tenant for The Wharf.

New York, New York continues to find new plots to develop. Most recently, the Hudson Yards and West Manhattan are being developed. The Related Cos. $20 billion development is speculated as the most expensive development currently in the world. This investment is a composed of EB-5 investors that will fund the new mega development. EB-5 investors consist of foreign investors that reap benefits from the United States government, such as expedited citizenship for family members, while helping out with domestic jobs and capital flow into the United States. Related along with Oxford Properties Group have already raised $600 million in EB-5 funds. U.K. based Children’s Investment Fund agreed to a $1.2 billion construction loan to both developers in order to commence construction. The development is leasing up quickly with tenants, most notably Time Warner along with several of its subsidiaries.

In West Manhattan, Brookfield properties is leading the development of 1.5 acres of mixed-use space consisting of a 60,000 square foot Whole Foods, and is being viewed as a “major culinary anchor” to the area. Notable tenants are the National hockey League and the Skadden Arps law firm, who will occupy some of the 2.1 million square feet of space in the emerging 67-story One Manhattan West tower, making it one of the tallest buildings in the city.

Finally, the Seaport project by WS Development is underway in Boston. Located on the waterfront and only minutes from Logan International Airport, the aim is to convert 23 acres into one of Boston’s most vibrant mixed-use communities. The development is composed of 2.8 million square feet of office and research space and 3.2 million square feet of residential space. This will be blended into the landscape containing 8.8 acres of green space and four new hotels.

Real Estate Investment Trusts Real in profits


In the post-crises era, REITs (Real Estate Investment Trusts) profits are driven by low-cost debt capital and high commercial real-estate values. Within REIT segments, office and retail commercial real estate values have seen slower growth in construction compared to warehouse and residential.

“Real-estate investment trusts efforts to develop large projects have maintained a supply of commercial real estate in check, feeding into the sector’s recovery” said Keith Knutsson of Integrale Advisors.

During 2008, excessive development activity weakened REITs’ credit profiles, but have since been steady, with growth in total development activity leveling off in the recent years. Throughout the post crisis period of the business cycle, REITs have demonstrated exceptional performance, given the sector has historically low-cost debt capital and record high commercial real-estate value environment.

Development volumes from office REITs have slowed due to a lack of employment growth in businesses that take up office leases as well as the shift of traditional cubical space to shrinking desk space in an effort to promote collaboration in the workplace.

The U.S. still faces an oversupply of retail real estate, therefore the focus is set on reassessing existing buildings rather than new construction. In addition, there has been more development activity in the multifamily and industrial real-estate sectors. In the residential segment, analysts have pointed out that the overwhelmingly increasing supply will exceed demand in certain parts of the country, potentially hindering rent growth.


The Safety Third Culture


Frequently in the work place we are bombarded with the redundant safety protocols and procedures to ensure injury prevention. Safety Third is a concept that Mike Rowe of Discovery Channels, ‘Dirty Jobs’ came up with after filming several seasons in uniquely dangerous situations. The underlying idea behind it is to promote safety for yourself first, then others around you, and finally what the company would like you to be safe about. However, for good reasons, companies invest significant resources into reducing exposure to risks for their tenants, employees, and customers.

Frequently we look at these sometimes-ridiculous regulations and restrictions as inhibitors to what we really want to do. But what cannot be debated is the positive effect of health and safety legislation over time. Namely, since the introduction of the Health and Safety at Work Act passed in 1974 in the United Kingdom, there has been an 85% decline in the number of work place fatalities.

A firm’s brand success is defined by the service excellence and the provision of encouraging safe places to work, shop and live. Serious damage can be done to a firm’s name in the event of an unexpected incident. At Cushman & Wakefield, they promote a Health, Safety, Security, and Environment (HSSE) in their company culture. They conduct this in way that blends into every aspect of their working lives through partnerships with employees and security in the environment, based on continuous improvement.

To incorporate this philosophy effectively three components must be implemented: Leadership, systems, and culture. By endorsing strong leadership involvement in safety programs, this benefits employers and employees alike. If there is an area of concern an employee becomes aware of, they can give feedback to their line management to seek implementation of new safety procedure. Keith Knutsson of Integrale Advisors speaks on means of implementation claiming, “systems offer streamlined and integrated implementation of new safety protocols.” This open dialogue of HSSE allows for better management of risk and encourages innovation and improvement in services and products that would not otherwise come about.

Eurozone Industrial Output is shining


Output at the eurozone’s mines, factories, and utilities rose at the fastest annual pace in more than five years in May, a clear indication that the area’s economic recovery is picking up.

The eurozone economy grew at the fastest rate in over two years during the first three months of 2017, outcompeting the U.S., U.K. and Japan. The European Union’s official statistics agency released output numbers, indicating Eurozone output was up 1.3% from April, and 4% from May 2016. The annual rate of increase was the fastest since August 2011, exceeding expectations.

Industrials, accounting for one fifth of total economic activity in the eurozone, contributed to 0.2% of growth. There were signs in April and May that the second quarter has seen more normal levels of output from the utilities, with energy production up in both quarters.

The positive results in industrial output was supported by a large increase in the production of capital goods, serving as a sign of increased investment by eurozone and international businesses. Among the zone’s largest members, France led the way with a 1.9% increase on the month.

According BNP Paribas, the eurozone economy grew by 0.7% in the past three months, marking an acceleration from the 0.6% rate of quarter-to-quarter growth recorded in the past

“Such improvements will force the European Central Bank to revise some of its policies moving forward in order to adjust to growth projections” said Keith Knutsson of Integrale Advisors.

ECB’s economists have raised their growth forecasts twice in the past year, now predicting growth to continue at 2% a year. In response to the strength of the recovery in the first half of the year, the European Central Bank has indicated it may soon withdraw some aspects of it’s current stimulus package. On the other hand, there are a few indications that inflation is to rise and stay at the central bank’s target.

Will it Work?


“The Future of Work.” The bold statement printed across the front of the website homepage of WeWork, an American company gone global with the mission to revolutionize the way people work. WeWork targets entrepreneurs, smalls business, freelancers and startups by creating custom workspaces that are designed to offer more than standard cubicles.

Common features in their buildings include natural lighting, spacious common areas, free refreshments, onsite WeWork staff, and lighting fast internet. However, the innovation of the company is really in how they’ve changed the function of office space by creating a space for networking opportunities to link creatives and business professionals across multiple industries all under one roof. A variety of leasing terms are available whether you need an individual desk a few times a month, or a private office housing 100 employees for the next year.

As of now, WeWork has established seven locations in cities across Germany, France, UK and Netherlands. According to a recent Financial Times article, WeWork “agreed to lease 280,000 square feet in Two Southbank Place, close to Waterloo station, from property developers Almacantar, the latest step in a London push that has involved opening 14 locations in two and a half years.” This is the largest leasing agreement London has seen in 2017, and an illustration of the disruption flexible offices are having in European real estate.

“The World’s Broken Workplace,” an article by The Gallop World Poll, reported last month that “only 15% of the world’s one billion full-time workers are engaged at work. “It continues, “[millennials] place ˜my job’ equally or even ahead of ‘˜my family’ as their dream. So because their life is more focused on work, they need to draw more from their work environment. They have their best friends at work — including best friends who are customers. They want meaningful work and to stay with an organization that helps them grow and develop.”

WeWork’s goal is to create this type of work environment where professionals are more engaged and are excited to show up for work. However, developers, leasing agents, brokers and investors involved in office space should concern themselves with the changing tastes and requirements of the rising workforce to stay competitive. Fitch Ratings released an analysis that predicted a potential 25 percent decline in the overall valuation of London’s office market over the next 10 years as flexible offices draw workers away from the central business district.

The same Financial Times article goes on with, “[WeWork] made a play for the corporate market, housing departments of groups such as Microsoft, KPMG and Axa.” As major corporations begin to hop on the trend, not only does it validate the new emerging market, but it also draws in the interest of others hoping to place themselves nearer to these major businesses.

“Flexibility is the driving force today for choosing a dream workplace,” says Keith Knutsson of Integrale Advisors. The future of work is still being written. However, it is clear WeWork and other companies offering flexible office spaces are growing to be disruptors in this marketplace because they are keen to the consumers. Investors should see this trend not as a threat, but rather as an opportunity.

Euro Funds on the Rise


New statistics from PERE Research & Analytics revealed Europe-focused, closed-ended private real estate fundraising escalated to account for 39% of the roughly $48 billion total capital raised.  Q2 showed a huge increase in activity compared to the dormant Q1. Only 9% of the $19.57 billion raised during Q1 included European strategies. More recently, in Q2, multiple $1 billion plus fundraises in the region have accumulated to $18.71 billion.

The New York based Blackstone Real Estate Partners Europe V has played a record-breaking role in their European opportunistic offering, closing out last month with $8.87 billion. Additionally, Orion Capital Managers and Kildare Partners also held $1 billion-plus closes on European opportunistic strategies. Similarly, PGIM Real Estate’s sixth mezzanine real estate debt fund garnered $1.3 billion.

A major world player, Carlyle Group, is planning on re-entering private real estate capital markets after nearly a decade of being away. This will be the fourth opportunity fund for investments in Europe this year. The previous fund, Carlyle Europe Real Estate Partners III (CEREP III), had in Europe was in 2008, prior to the financial crisis, and raised 2.2 billion Euro in equity from institutional investors.

The group has undergone a rebranding to Carlyle Realty Europe. Additionally, significant personnel changes allow the vehicle’s identity to be more in line with its US counterparts. For their fourth fund, they will be setting their target to much lower to around 1 billion Euro. Senior Managing Director, Peter Stoll, who joined in 2015, mentioned “our dialogue with investors has now shifted to what’s next [and] what’s new.”

Nonetheless, the most popular strategy taking 49% share of the total continued to be a North-America focused fund. Cerberus Capital Management‘s latest instrument “ Cerberus Institutional Real Estate Partners IV“ has gathered $1.8 billion nearing their $2 billion target.

Global and Asia-Pacific (APAC) strategies accounted for 8 percent of the capital raised this year, compared to global funds taking 33% share, North America 32%, Europe 21%, and APAC with 13% first half (H1) year over year. Specifically, “[d]omestic demand in Europe is the driving force of recent economic growth” encouraging investors to take advantage of the profit opportunities stated Keith Knutsson of Integrale Advisors.

Compared to the 127 funds that closed H1 2016, H1 2017 saw a significant decline with only 84 closing. Although, “the average fund size trended upwards from $504.21 million in H1 2016, to $545.32 million in the first half of this year” according to PERE. Despite the increase in average fund size the overall global real estate fundraising continues to decline. The combined number funds closed in 2016 was the lowest in eight years, and the combined capital raised was at a five-year low. A modest $120.97 billion was raised for 214 funds in 2016 compared to the tally of $143.85 billion raised for 253 funds in 2015.

Disruptions Through the Lens of Opportunity


Amid competing to be a top performer in macro real estate markets, there are certain traits that distinguish the good from the great. Many occupiers have been forced to adjust to market demands, specifically – new technology, the battle for talent, and slower economic growth – compelling investors to adjust to meet the needs of their tenants. Huge demand across global markets is the result.

Technology continues to influences our everyday lives more and more whether we are paying attention to it or not. Technology continues to mold the way in which we conduct business. Traditional businesses are having to adapt to the new methods to stay competitive. The ‘how?’, ‘why?’, and ‘where we work’ has been completely deconstructed taking on new meaning. In a recent McKinsey Global Survey, 71% of individuals believed that enhanced digital capabilities increased profitability. On the other hand companies resistant to change may face uncertain futures due to the magnitude of the digital disruption.

The work force has also seen a large disruption due to technology. In a survey of C-suite level executives 90% report that a retention among technology talent is a priority amongst the gamut of business challenges. To expound upon this, in the U.S.A.’s Council of Advisors on Science and Technology predicted by 2020 for there to be a shortage of 1 million technical professionals. Therefore, the battle for technical talent will continue to grow, according to statistics.

Recently, the International Monetary Fund (IMF) issued a global economic forecast called ‘Too slow for too long’. Although the IMF does not seem optimistic, there is always opportunity. Disruption through corporate response combined with slow economic growth is a breeding ground for ideas. On one side, stymied growth has forced businesses to become savvy in reducing operational costs and protecting margins. However, corporate confidence is low and acts as a brake on business investment. Many commentators are referring to this established reality as a ‘new normal’.

Global Cities are seeing increased levels of occupier mobility as disruptions continue and new geography of occupancy emerges. Foreign direct investment (FDI) has been steadily increasing since 2012 and provides strong evidence to support the globalization of occupier activity. As reported by, the Organization for Economic Co-operation and Development (OECD), global FDI flows were up 25% year-on-year in 2015 at around $1.7 trillion. Both financial and corporate restructuring contributed to this being the highest volume of flows since the beginnings of the financial crisis in 2006.

The traditional spatially fixed occupier is being questioned and redesigned to accommodate a nomadic type of worker. It is noted in Knight Frank, Global Cities, that “fragmentation of business processes ha[ve] led to the rapid rise of ‘shoring’. . . [and] relocated to locations that have clear labour or cost advantages.” Cities that have benefitted greatly from this are Bucharest, Manila, Shanghai, Warsaw and Bangalore. There is also anticipated growth in Trinidad & Tobago, Kenya and Peru.

Young vagabond workers are seeking a more flexible space in densely populated cities such as Berlin, Austin, London, Seoul, Tel Aviv, and San Francisco. These cities have prospered due to the strong digital demographic. An example of corporate leadership through future foresight can be observed in General Electric’s decision to relocate from Fairfield, Connecticut to Boston, Massachusetts. Their vitality as a company is contingent upon their success in the software innovation and finding tech talent. Another example is Amazon’s decision to move from Slough, in Berkshire to the Shoreditch tech cluster of London. Also noting this shift is Integrale Advisors’ Keith Knutsson, claiming “flexibility is the driving force today for choosing a dream workplace.”

Emerging in the background, there will continue to be an onset of robotics and Artificial Intelligence (AI) that will disrupt current market conditions and create new business processes. As these altering forces take root, new property and location choices will be essential. Dr. Lee Elliott, head of Commercial Research for Knight Frank, said it best, “as many age old businesses will testify, complacency never pays in a disruptive environment.”