2016 akerman realestate sector report

2016 Akerman
U.S. Real Estate
Sector Report

Contents
“R” is for Reset 6
Megatrends 22
Forecasts of the Future 28
Survey Methodology 32

3|Akerman
The Akerman U.S. Real Estate Sector Report provides insights on the
economic conditions affecting the U.S. commercial real estate market.
Akerman clients and other top real estate executives across the United
States contributed through one-on-one interviews as part of an annual
Akerman Survey. Since 2010, the Akerman Survey has captured the
perspectives of industry executives to provide a view from the C-suite,
highlighting a number of market indicators including capital availability,
investor trends, and key drivers of growth.
Akerman is a leading transactions and trial law firm serving clients across
the United States and Latin America. Recognized as a national tier-one
law firm for real estate and construction law by U.S. News – Best Lawyers
(2016), the firm offers substantial industry experience and local market
insights. Akerman’s professionals manage the legal aspects of large
land deals and major construction projects, assist developers in meeting
environmental regulations and green building standards, conceptualize
and obtain development incentives, advise on all aspects of transactional
work, including leasing, acquisitions, sales, and financings, and represent
clients in litigation matters.
With more than 600 lawyers and government affairs professionals, and
a network of 20 offices, Akerman is ranked among the top 100 law firms
in the United States by The American Lawyer (2016) and is known for its
core strengths in middle market M&A, within the financial services and real
estate industries, and for a diverse Latin America practice.

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“Any time you have
extended growth
periods, ultimately
there needs to be a
reset – a rebalance of
supply and demand.”
The State of the U.S. Commercial
Real Estate Market
In economic forecasts as of late, there has been a fairly brisk trade in
metaphors of telemetry – and the tendency for things that have been
soaring upwards to come back down again. Indeed, after a six-year run
of recovery there is a measured tone of cyclic expectancy – that markets
inevitably rebalance themselves – and a gathering sense that a slowdown
is inevitable. Even under a conservative lens, the economic evidence
suggests that the United States is cycling toward a gradual and orderly
period of diminished expectations.1
Even now, many are anticipating the next “up-cycle.” “Any time you have
extended growth periods,” notes Stephen Owens, president of Swire
Properties, “ultimately there needs to be a reset – a rebalance of supply
and demand – and these moments in economic cycles are actually very
strategic for us.” Owens, a thirty-year veteran at Swire, who has presided
over the development of the transformational Brickell City Centre mixed-
use project in downtown Miami and whose work has encompassed some
$3 billion in projects in Florida, Hawaii, Texas, and Hong Kong, is used to
taking the long view of markets and doesn’t see anything alarming in the
recent indicators. “Any time there’s a reset in the market,” says Owens,
“that’s an opportunity.”
If there is to be a “softening” or a “slipping” of economic fundamentals,
the good news seems to be it won’t manifest itself into another recession.
All signs point to a gradual decline of property fundamentals, with a
reset telemetry that seems, by all accounts, controlled and orderly – but
nonetheless contingent on further global disruption that has yet to play out.
If the International Monetary Fund and the World Bank, for example,
have projected a 3.2 percent global economic expansion for 2016, it’s a
forecast that is “more disappointing than worrisome,” according to one
observer.2
And if the IMF has downgraded its forecast for U.S. economic
growth by 0.2 percent, to 1.9 percent (from 2.1 percent), that lowering of
expectations is still fairly sunny compared to the rest of the world.3
“R” is for Reset

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31%No change
30%
Marginally less optimistic
than 2015
6%
Significantly more
optimistic than 2015
2%
Significantly less
optimistic than 2015
32%Marginally more optimistic than 2015
Which best describes your
sentiments for the U.S. real
estate market throughout 2016?

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“Discipline is paramount
for market participants
at a time of record-high
asset prices. Smart
dealmakers have
already shored up their
balance sheets and
become a lot more
diligent and strategic
when it comes to
capital expenditures.”
“Nattering Nabobs of Negativism”
Strong Fundamentals Continue
Against the backdrop of an economic reset-in-the-making, we are seeing
a split-screen forecast for the U.S. real estate marketplace. The “nattering
nabobs of negativism” are out in full force again in the financial world.
Headlines portray a deep pessimism about the direction of the economy.
But seasoned real estate executives who have seen the hills and valleys of
multiple cycles have a stoic attitude about the market and feel the slowdown
is a sign of a healthy market correction.
As we come off an almost-record year of U.S. commercial real estate
transaction volumes, an overwhelming 92 percent of real estate executives
had little or no change in their optimism compared to last year, according to
the 2016 Akerman U.S. Real Estate Sector Survey.
One Akerman Survey respondent said, “The talk about a recession [from
financial pundits] is more based on the extended run of the economy since
the last recession, rather than any real strong market indicators that would
point heavily in that direction.”
Indeed, strong fundamentals have contributed to continuing positive
movement in 2016. Low interest rates (37 percent) and continuing
improvement in the U.S. economy (28 percent) are two primary factors
instilling investor confidence, according to the Akerman Survey. The gross
domestic product (GDP) is poised to grow by 2.5 to 2.8 percent by the
end of 2016, which is expected to generate new U.S. jobs and steadily
improve worker wages.4
Nearly half of respondents (48 percent) believe the
unemployment rate will remain steady, keeping money in consumers’ pockets
through the end of the year. Distressed properties are less common, there is a
significant amount of equity capital investment available, and tighter vacancies
are leading to higher rents. A large majority of respondents (87%) felt that
the 10-year U.S. Treasury yield would stay within 2-3 percent by January 1,
2017, but further global disruption has helped fuel the dramatic drop over
the course of 2016.
As we get deeper into the cycle, investor focus will shift from yield motivation
to capital preservation.5
They will be less willing to take real estate risks.
Many will start to prune their portfolios and pursue longer-term investments
to prepare for what may come when the cycle ends. But the slowdown
we’re already starting to see isn’t a reaction to fear; rather, it is evidence of
disciplined and responsible growth at work.
“As we enter a new phase of the economic cycle, discipline is paramount for
market participants at a time of record-high asset prices,” notes Akerman’s

7|Akerman
Which of the following is your primary reason for confidence
in the U.S. real estate market?
Which of the following is your primary reason for any lack of
confidence in the U.S. real estate market?
37%
Low interest rates
28%
Continuing improvement of
the U.S. economy
21%
Availability of equity capital
investments
8%
Loosening of credit requirements
for financing
6%
Increased investment in
secondary and tertiary markets
47%
11% 10% 9%
Uncertainty
in economic
conditions
Federal gridlock
and uncertainty
of government
policy
Potential for
real estate
defaults from
maturing loans
Interest rate
uncertainty
Pace of
recovery for
fundamentals
in core sectors
23%

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Richard Bezold. “Smart dealmakers have already shored up their balance
sheets and become a lot more diligent and strategic when it comes to capital
expenditures, and so have many in the investment community.”
In last year’s Akerman Report we stressed that the real estate sector
continues to demonstrate lessons learned from the 2008 downturn. More
discipline in the way capital is chasing opportunity indicates the market is on
sounder footing than it was before the last cycle.
Steering Through the Turbulence
Expectations and Market Realities
With the next phase of the real estate cycle coming into view, investors
will have more questions and difficult decisions as they steer through
uncertainties in the capital markets and an uneven global economy.
An investment analyst at Investing Daily says, “The investment road from
here requires vigilance, not undue fear. As long as the economy continues
to exhibit momentum, you can still find reasonably valued opportunities with
plenty of upside left. In the meantime, you need to brace yourself for any
bumps along the way.”6
Cascading world events like Brexit, China’s economic slowdown, turmoil
in the Middle East, low oil prices, and volatility in the stock market are top
of mind for sector executives. Forty-seven percent of Akerman Survey
respondents cited uncertain economic conditions as the most pressing issues
affecting the real estate sector in 2016.
“There is a lot of uncertainty in global markets, particularly developing
markets,” says one Akerman Survey respondent. “We have seen significant
devaluation in a lot of commodity currencies in Latin America, China, and
Russia, and how that may impact the U.S. economy if there is a contagion
effect. That is a principal concern.”
Even amid these global concerns, one Akerman Survey respondent notes,
“I don’t see this issue with the domestic outlook. The U.S. economy is fairly
settled and growing at a slow, steady pace, but all of this other uncertainty
is being injected into it.” President and chief executive officer of Florida
East Coast Industries, Vincent Signorello adds, “even with slowed growth,
the United States still has the best property system in the world and our
commercial real estate holds the top spot across global capital markets.”
The lack of systemic leadership or policy in Washington, D.C., may also
cause certain investors to keep their powder dry in 2016. More than a quarter
“The United States is
still the best property
system in the world
and U.S. commercial
real estate is very
much at the top of
the pile for the world’s
capital markets.”

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“The cost of
compliance with
several new regulations
is going to filter
through investments
and cause some rate
shifts.”
of executives (27 percent) cited federal gridlock and uncertain government
policy as the second most significant factor affecting the real estate sector.
One Akerman Survey respondent quoted Richard Fisher, the former president
and CEO of the Federal Reserve Bank of Dallas, who said, “interest rates at
zero are not effective without an economic policy.”
Others echoed frustration with an anti-investment environment and the lack of
government guidance on regulations.
Many investors are watching the Highly Volatile Commercial Real Estate
(HVCRE) rules under Basel III. Non-traded REITs are also facing significant
regulatory hurdles under the new FINRA Rule 2340, while foreign buyers
must follow changes within the Foreign Account Tax Compliance Act (FATCA)
and the Foreign Investment in Real Property Tax Act (FIRPTA). The Financial
Accounting Standards Board (FASB) ASC 840 recently introduced changes
to accounting for lease agreements. Eyes are also on the EB-5 Regional
Center Program, which Congress extended until the end of September
2016.7
But the greatest regulatory uncertainty comes out of the Dodd-Frank
risk retention rule on the CMBS market, which is expected to have a ripple
effect on lending and pricing.
“You cannot regulate risk away,” says an Akerman Survey respondent. “The
industry cannot plan without knowing what is going to happen next.”
Akerman’s Jane Hinton cautions, “The cost of capital is rising, relative to
the new risk profile. Investors have benefited from a very low interest rate
environment, but the cost of compliance with several new regulations is going
to filter through those investments and cause some rate shifts.”

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Do you think U.S. job creation numbers at the end of 2016
will be:
48%About the same as in 201531%Marginally higher than in 2015
16%Marginally lower than in 2015
2%
Significantly higher than in 2015
3%
Significantly lower than in 2015

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Which of the following trends do you predict will
have the most significant impact on U.S. real
estate development over the next three years?
34%Aging population
15%Effect of technology
on real estate
14%
Changes in office
mobility, collaborative
spaces, and
next-generation
workplace design
29%Preference for city living
and more compact development
4%
Industry response to
environmental concerns
(including climate change
and sea level rise) on
development practices

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Top Investment Target
Expanding Capital and Funding Sources
The U.S. commercial real estate market is in a favorable position compared
to other investment alternatives. This asset class has the strongest
resistance to market volatility, attracting a deeper and wider pool of capital
and investors.
U.S. commercial real estate totaled a near-record $5.18 trillion last year,
including $3.54 trillion in debt-based investment properties and $2.64
trillion in equity-based institutional properties.8
According to sector data,
the number of unique buyers of U.S. commercial real estate is expected to
hit an all-time high for any single year. By the fourth quarter of 2015, they
projected the total to reach 18,800, breaking the record of 17,825 unique
buyers in 2014, which begs the question: Who are these new buyers?9
According to the Federal Reserve, banks held 49 percent of the total real
estate debt universe in 2015. Private equity investors led 43 percent of
the institutional equity market.10
Forty-two percent of Akerman Survey
respondents said private equity would continue to drive real estate financing
over the next year, followed by banks (37 percent).
Akerman’s Steven Polivy said, “We are seeing a return of the traditional
lender. Whereas a number of years ago you would have trouble securing
construction lending from a conventional consortium of banks or insurance
companies, now you’re seeing those lenders back in the market and back
in the most secure part of the capital stack. So if you need a construction
loan, the first 50-65 percent of your loan to value will have a number of
traditional lenders vying for that position. As you get to the balance of the
capital stack, that’s where you’re seeing either the hard money lenders, the
foreign investors, or the private equity funds filling the gaps.”
Foreign buyers were a significant source of capital acceleration in 2015,
investing in commercial real estate at prices and volumes never seen
before. From sovereign wealth funds and insurance groups, to ultra-high-
net-worth individuals, international capital sources spent a total of $91.1
billion on commercial real estate last year — more than double the amount
spent in the prior year.11
We saw a number of historic transactions, including
the $1.95 billion purchase of the Waldorf Astoria Hotel in New York City
“Within the first quarter
of 2016, overseas
buyers invested a
total of $19.1 billion
in commercial real
estate assets.”

13|Akerman
Which do you believe will fund the most commercial real
estate debt and/or equity throughout 2016?
Private Equity
Banks
REITs
Insurance Companies
Foreign Investors
Pension Funds
CMBS Market
Government Entities
Crowdfunding
2016
2015

Akerman|14
by Anbang Insurance Group in China, the highest price tag ever for a U.S.
hotel, according to Reuters.
Foreign investor commitment to the U.S. is expected to stay strong as they
continue to diversify their acquisition activity across property types and
into more secondary markets. Within the first quarter of 2016, overseas
buyers invested a total of $19.1 billion in commercial real estate assets.
Top New York City real estate executives also point out that New York City
and London have long competed for the same international real estate
investment dollars, and Brexit could direct more money to the United States
as investors seek out safety. Brexit has created uncertainty in this regard.12
Twenty-seven percent of industry executives believe foreign capital will
remain a main source of real estate financing throughout 2016. However,
with heightened regulations and other external forces affecting the real
estate market, we may see a change of characters. A third of industry
executives think REITs and insurance companies will be the top funding
sources this year. Some predict bank interest rates will become more
competitive in the lending environment, particularly as the CMBS market
practices greater caution with the Dodd-Frank risk retention requirements
going into effect later this year.
Non-traditional investment vehicles will also continue to expand at
significant rates. Pension funds, for example, are increasing their real estate
capital allocation. More non-regulated private equity money will likely enter
the U.S. real estate market as well.
Slow and Steady Growth
Sustained Sector Strength
While commercial real estate transaction volume has remained modest
in 2016, capital flows will continue across property types. More than half
of executives (59 percent) believe multifamily will continue to be the most
active real estate sector. At least 57 percent agree apartment development
will drive multifamily activity, compared to senior living facilities (23 percent),
affordable housing (11 percent), and condominiums (9 percent).
“More than half of
the Akerman Survey
respondents expect
China will be
the dominant source
of foreign capital
in four out of the
six core real estate
sectors.”

15|Akerman
Executives predict single family homebuilding will be the second most active
real estate sector (18 percent), followed by industrial (7 percent), office (6
percent), retail (6 percent), and hospitality (3 percent).
Four in 10 executives say multifamily will attract the most foreign investment,
with the majority of capital coming from Latin America. Despite currency
depreciation, Akerman Survey respondents believe investors from the
Latin America region will lead debt and equity funding in the single family
homebuilding sector as well. Nearly a third (31 percent) anticipate the greatest
increase in Latin American real estate investment in the United States will
come from Brazil (42 percent).
More than half of the Akerman Survey respondents expect China will be
the dominant source of foreign capital in four out of the six core real estate
sectors: industrial, hospitality, office, and retail. To a lesser extent, investment
in commercial real estate is also expected to come from Canada, Europe,
and the Middle East.

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How do you expect cap rates to perform for 2016 in
the following market segments?
No Change IncreaseDecrease
Hospitality
Industrial
Multifamily
Office
Retail
13%
13%
13%
11%
20%
39%
28%
43%
37%
38%
48%
59%
44%
52%
42%

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“Investors seem to
be willing to pay at a
premium…When cap
rates increase, cash
flows will change in
kind.”
Changing Destinations
By the fourth quarter of 2015, the pace of price increases slowed,
suggesting that values and prices will begin to level off this year.13
But with
unprecedented amounts of offshore investment dollars entering the U.S.
commercial real estate market, is it possible for prices to increase further in
this cycle?
At least 40-60 percent of Akerman Survey respondents say cap rates
will not change from current levels in each of the core real estate sectors.
Slightly fewer think rates will increase.
“There is so much money chasing core real estate assets and it has
driven prices upward,” said one Akerman Survey respondent. “As the
competitiveness for real estate assets continues to grow, investors will make
decisions to acquire property that are outside of economic fundamentals.”
“Cap rates are really aggressive,” another Akerman Survey respondent
noted. “Investors seem to be willing to pay at a premium. There is urgency
based on the low interest rate environment. When cap rates increase, cash
flows will change in kind.”
Trends indicate that U.S. investors are leaving trophy assets to their foreign
counterparts who are willing to take a much lower yield. As the market
matures, we see much greater appetite to invest in smaller markets than in
the past.
“We are seeing a number of significant investors waiting for the right off-
market deal,” says Akerman’s Eric Rapkin. “The greatest opportunities are
creative new segments in the secondary and tertiary markets.”
This idea of the “Great Reset” is then a necessary and beneficial process
that nurtures a well-balanced environment for commercial real estate.
Headwinds, yes, but there will also be huge pocket markets exploding
in burgeoning mega-zones and dynamic tier two cities, expansion and
innovation in many real estate sectors, and a marketplace that is thinking
ahead to the future of urban mobility and sustainability. Promise and major
trends are emerging in a period where agility and innovation thrive.

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Single-family Residential
Office
Multifamily
Hospitality
Retail
Industrial
Which of the following do you predict will be
the most active market sectors for foreign
investment in U.S. real estate?

19|Akerman
For each of the active market sectors mentioned, which of the
following will contribute to this activity?
Hospitality
Multifamily
Office
Single-family
Residential
Retail
Latin
China UAE America Europe Canada
Latin
America China UAE Europe Canada
Latin
China Europe UAE America Canada
Latin
China Europe America UAE Canada
Latin
America China Europe Canada UAE
Industrial
Latin
China UAE America Europe Canada

Akerman|20
31%Brazil
29%Mexico
16%Other Nations
13%
Argentina
11%
Venezuela
In 2016, from where will we
see the greatest increase in
Latin American real estate
investment into the U.S.?

21|Akerman
* 35 percent of responses were comprised of other nations. Top responses included
Argentina, Panama, Colombia, and Venezuela.
32%Cuba
19%Mexico
Brazil
14%
In 2016, into which country do you expect to see
the greatest increase of U.S. investment into Latin
America real estate?

Akerman|22
The Short View
While many variables will determine the course of the U.S. real estate
market, there are three megatrends executives believe will have the most
impact on short-term real estate development.
Generation-Specific Housing
Thirty-four percent of Akerman Survey respondents believe the aging
population will have the greatest effect on real estate development. The
ranks of those age 65 and older are swelling by the thousands each day,
with the potential to reach 71 million by 2030. Developers have responded
with a significant increase in senior housing development. In 2015,
transaction volumes reached 514 deals totaling $18.7 billion, exceeding
2014 figures by nearly $1 billion.14
Although showing early signs of slowing activity, there are a number of senior
housing units under construction. Like other segments of the real estate
market, we are starting to see a healthy balance of supply and demand
trends. The ability to secure financing appears to be top of mind for these
developers, particularly in certain sub-sectors.
Last year we noted that because of the specialized nature of assisted
living and memory care, developers with a qualified track record will have
the greatest success in this housing boom. But the number of lenders
with experience in this space is fairly limited compared to other real estate
sectors, and those that have recently entered the space are challenged with
navigating layers of complex regulation.
According to sector data, healthcare REITs have expanded and diversified
in recent years but government policies are putting financial pressure on
specialized care facilities, such as skilled-nursing and post-acute care, which
has prompted the largest REITs to focus on private-pay facilities.15
Because
assisted living is tied to healthcare, this space remains an attractive option for
banks, which continue to exercise vigilance and tighter lending standards. In
addition, financing for senior housing from the U.S. Department of Housing
and Urban Development (HUD) continues to decrease. Loan volume dipped
53.4 percent since HUD’s record total in 2013.16
Megatrends

23|Akerman
Which of the following do you believe are the most significant
factors affecting the real estate industry right now?
Federal gridlock
and uncertainty of
government policy
Availability
of institutional
credit
Rise in purchase
prices or reduction
in cap rates
Interest rate
uncertainty
17%
9%16%34%
7%
Uncertainty in
economic conditions

Akerman|24
As a result, developers continue to look for creative avenues to finance
new construction. Alternative funding sources such as crowd-funding and
private placement may soon become commonplace. Others operating in
the space have found value in the bond market and the EB-5 Immigrant
Investor Visa Program.
Co-Urbanism
Twenty-nine percent of industry executives say changing lifestyle
preferences in a compact city center will have the most significant impact on
real estate development. Along the same lines, some believe office mobility
and collaborative workplace design are key trends shaping the next iteration
of buildings and spaces.
“Macro changes in our society are shifting the pace of real estate
development. Industrial is changing in tandem with population needs. Office
development is driven by co-working trends. Retail is changing as the
overall shopping experience is evolving,” says Akerman’s Cecelia Bonifay.
“In particular, the rise of omni-channel marketing means retailers must
combine all possible purchase channels for clients in one single solution at
the intersection of physical and digital spaces.”
From urban projects to suburban town centers, the next phase of the Live/
Work/Play life-stage trend is not really about baby boomers or millennials,
it’s about a societal shift to a sharing economy. Peer-to-peer companies like
travel-sharing EasyNest, car-sharing Bla Bla Car, or clothes-sharing Rent
The Runway, are creating this burgeoning new society.
Real estate will evolve to keep pace with these new norms and technology
will play a large part. Responses to the Akerman Survey indicate that
executives are seeing a shift. “Connectivity expectations are evolving,” says
one executive. “In financing, we already see peer-to-peer lending through
crowdfunding platforms,” says another.
In an economy where ‘ownership’ is a redefining concept, leasing
commercial space may need to pull a page out of the WeWorks-of-the-
world playbook. Tenants will demand more flexible space and short-
term accommodations, which will affect costs. They may require unique
arrangements for flex space to meet peak demands or special projects.
The sharing economy could also revolutionize the location and use of public
spaces, such as parks, as an access-point for car and bicycle sharing.
“Macro changes in our
society are shifting
the pace of real estate
development.”

25|Akerman
Which of the following market sectors do you predict will
be the most active for real estate transactions?
7%
3%
6%
6%
Multifamily
59%
Single-family
Residential
18%
Industrial
Retail
Office
Hospitality

Akerman|26
60
50
40
30
20
10
0
Multifamily Office Hospitality Retail Industrial Single-family
Residential
2015
2016
2014
Sector Activity Prediction Comparison
Within the multifamily sector, rank which of the
following areas you predict to be most active?
57%
Apartment Development
23%
Senior Living
9%
Condominium
11%
Affordable Housing

27|Akerman
Cyber Risk in Real Estate
The real estate sector has historically viewed itself outside the bubble
of cyber security. But with increasing automation of systems and linking
sources of information through the “Internet of Things,” the exposure to
cyber risk continues to accelerate for all sectors. Most insidious among
them are ransomeware attacks, in which malicious software freezes
computer files until a ransom is paid. Other attacks are designed to shut
down and manipulate systems, or seize valuable, sensitive information.
The string of interconnected data between tenants, service providers,
property owners, and their facilities can lead to significant losses and
liability, including the costs to replace a compromised system. This can
also quickly spiral into costly and reputation-damaging government
enforcement actions and litigation exposure. These are among the reasons
why industry executives (15 percent) ranked the effects of technology as
one of the most significant factors impacting real estate.
Real estate companies need to develop a security and privacy framework
as they embrace and adapt more technology. From smart grids to
intelligent office buildings and increasingly automated retail complexes,
developers and property owners also need to think about the safety of the
reams of data stored from customers, residents and tenants, and many
others. As part of their risk mitigation strategies, the security maturity of
a particular property, and potential for data loss, should also become a
bigger priority when it comes to due diligence and deal-making.

Akerman|28
The Longer View
What is the next interesting chapter? As global forces prompt investors
to increasingly take a longer-term view of real estate opportunities, this
section will attempt to envision the future market, making early predictions
that may manifest by the year 2020 or beyond.
Potential in Cuba
The Akerman Survey captured a historic first when it comes to U.S.
investment overseas. For the first time, the majority of industry executives
(32 percent) predict that Cuba’s burgeoning real estate market will present
the greatest opportunities for U.S. investment in Latin America. This
number is higher than the usual powerhouse markets, such as Mexico
(19 percent), Brazil (14 percent), Argentina (9 percent), and Venezuela
(2 percent).
The unprecedented response follows the gradual rapprochement
between the United States and the island nation, after the White House
announced plans to normalize relations in December 2014. Since then,
the Treasury and Commerce Departments have enacted four rounds of
regulatory openings for American businesses to enter the Cuban market.
The process also has included the country’s removal from the State
Department’s list of countries that sponsor terrorism, followed by the
reopening of respective embassies in Washington, D.C., and Havana.
Between those events and the 2016 presidential visit to Cuba, an uptick
of travel, investment, and commerce has made many real estate investors
eager to jump into the land rush.
But Americans are still banned by the U.S. embargo from buying or
selling property on the island, and the Cuban government generally does
not allow foreign ownership of land. Only in the last five years has the
government allowed an emergence of a real estate market by permitting
its local Cuban nationals to own up to two properties. While the real estate
market is closed to foreign investment, there are some exceptions. We
have seen joint venture cases in recent years to manage Cuban-owned
enterprises. Starwood, for example, was recently approved by the Office
of Foreign Assets Control to pursue a business transaction in Cuba,
making it the first U.S. hotel chain to have a presence on the island in
nearly 60 years. Marriott International also announced its intention to
develop a hospitality relationship with potential partners.
This is a situation where the market forces and interests are ahead of
Forecasts of the Future

29|Akerman
the law. Many foreign companies are circling around proposed sites and
building relationships with prospective partners. U.S. investors who want
to be first entrants in Cuba are also making headway now. If the Cubans
want to develop on an industrialized scale, they are going to have to build
a system that allows capital to protect its investment.
Post-Brexit
The Brexit victory is indeed unexpected, causing an initial shake up in the
investment world. While Brexit by itself may have a significant effect on the
U.K. economy, it is probably not going to have a direct impact on the United
States – but global economic conditions will. The geopolitical, economic,
and global financial market uncertainty resulting from Brexit may extenuate
some trends that were otherwise already affecting the U.S. economy and
real estate markets across the nation. These uncertain conditions should
result in an influx of European and British investors entering the U.S.
commercial real estate market, particularly in gateway cities like New York,
Miami, and Los Angeles, since these markets are in a favorable position and
maintain the strongest resistance to market volatility. Real estate executives
are already seeing a deeper and wider pool of foreign investors than ever
before, and this referendum will be a significant driver of capital acceleration
to the United States.
The good news is, as the bond market forces interest rates down further,
real estate markets generally will benefit. Some say U.S. equity REITs are
the power play for investors. According to the National Association of Real
Estate Investment Trusts, equity REITs are currently generating dividend
yields of 3.7 percent and 11 percent earnings growth on average. Reports
have noted that with the 10-year Treasury hovering below a surprising 1.5
percent, U.S. REITs may offer investors a stable haven to park their cash
and generate returns while they wait out the Brexit upheaval.17
The Green Rush
The early years of legal medical marijuana have revealed the opportunities
and challenges of this newest emerging commercial real estate market.
Twenty-five states, plus the District of Colombia, have legalized select
forms of marijuana, and Canada is trying to fast-track its recreational use.
As more states legalize marijuana, its impact on the real estate market will
continue to spread. For now, industry players and observers are focused
on consistent priorities.

Akerman|30
The interplay between federal and state laws continues to shift, and
property owners need to be keenly aware of the local laws that may restrict
the production or distribution of legal marijuana. The federal ban on the
substance also places owners at risk of losing their property. From core
production to ancillary businesses, it is still difficult to obtain commercial
loans and other funding, and most business transactions are done on
a cash basis, which raises security concerns. Whether in the retail or
industrial sector, the limited availability and increasing value of property are
additional risk factors influencing investor decision-making.
However, there is growing demand for extracted products in the form of
wax, oils, edibles, and creams – a trend that is driving retail sales, tourism
activity, and a movement of millennials to live and work in city centers
where marijuana is legal. This will likely lead to more development across all
asset classes and attract an uptick of real estate investors.
Generation Z
A lot of conversations regarding the demographic shift and Live/Work/
Play lifestyle trend in recent years has centered on the influence of aging
millennials and baby boomers on real estate development. In the not so
distant future, today’s teens, or Generation Z, will be entering the workforce
with a new set of interests and demands that will reshape the next wave
of development.
By 2019 it is estimated that more than 30 million of this post-millennial
generation will be employed.18
Those born in the early-2000s grew up
post-9/11 and during the Great Recession – a time of uncertainty and
vulnerability – setting the stage for a new set of attitudes and expectations
for life. Their media consumption habits differ from previous generations,
giving them a different sense of socialization and boundaries.
Amid a constant hum of pressing social and environmental issues, this
generation is also more aware of their role in the world as part of a larger
ecosystem and focused on ways to improve it. Many environmental issues
will affect real estate development in the near future, especially for trends that
are starting to gain more scrutiny, such as the impacts of global warming and
sea level rise. “There’s no question about global warming and seal level rise,
the science is clear,” says Akerman’s Neisen Kasdin. “You must have some
public leadership in all cities affected, like Miami Beach is showing, and it
must be across all of our government constituencies to be effective.”
As another important characteristic, these digital natives are the first cohorts
to grow-up entirely during the age of the Internet, smartphones, and social
media, building one of the most capable generations to achieve advanced
technology innovations and the entrepreneurial dream. Between 50 to 72
percent want to run their own start-up company instead of work for an
established business.19

31|Akerman
These traits illustrate that technology and green building will be key
considerations in this generation’s future home buying decisions. Travel,
office mobility, and global connectivity will be increasingly important in their
adulthood. Driving these consumers to a brick and mortar retailer will be
more challenging than ever but their desire for connection and meaningful
experiences means they will want to entertain themselves in diverse and
creative ways.
The Autonomous Vehicle
While technological, financial, and regulatory hurdles remain, the advent
of the autonomous vehicle is well within a long-range planning horizon. In
the next half century, self-driven vehicles will be a mainstay for most U.S.
households.20
The U.S. government promised to invest $4 billion over the
next 10 years “to accelerate the development and adoption of safe vehicle
automation through real-world pilot projects.”21
And 16 states and the
District of Colombia have either passed or introduced legislation related to
self-driving vehicles. California, Michigan, and Nevada are likely to set the
standards for this nascent regulatory framework. Chief among the priorities
for both the public and private sector is the need to adapt roadway systems
to driverless cars.
Indeed, the rollout of autonomous vehicles is anticipated this decade, and it
will have a significant influence on real estate and infrastructure development.
A modest 5 percent of real estate executives expressed the need for new
infrastructure as a top priority in 2016. One Akerman Survey respondent
says, “We have a critical transportation issue affecting real estate. The
population is increasing daily. Bridges and highways need to be replaced.
We cannot develop unless we have the infrastructure to support it.”
While autonomous vehicle developers are focusing on creating vehicles
that can exist within our current infrastructure, the rollout of new modes
of transportation will eventually force us to rethink the way we build and
organize our cities.
Densification, for example, can be encouraged by driverless cars, as there
would be less need for parking and more housing could be developed on
these existing spaces. Property values also will also be affected. People may
be willing to tolerate a longer commute from the suburbs if they are able to
be productive in a driverless car. They also have the potential to enhance
road safety, reduce traffic congestion, and improve the carbon footprint.
Right now we are witnessing a movement to a sharing economy, which is
about using fewer resources more efficiently to benefit the wider society.
This suggests that people may be more willing to share a driverless car or
utilize public transit in still yet to be discovered ways.22

Akerman|32
Survey Methodology
Top real estate executives from across the U.S. were interviewed by telephone on their
perceptions of the health of the commercial U.S. real estate market. 189 interviews were
completed between February 15 – April 10, 2016.
• Question No. 6 was calculated by using the mean rank (score). Selections were
ranked 1-7 and then 1 = 7 points, 2 = 6 points, 3 = 5 points, 4 = 4 points, 5 = 3
points, 6 = 2 points, 7 = 1 point.
• Question No. 9 was calculated by using the raw numbers (score) as multiple
responses were accepted.
• Question No. 10 was calculated using the raw numbers (score) as multiples
responses were accepted. Respondents must have chosen the industry sector in
question 9 to respond to question 10 for the sector.
• Due to rounding, all percentages used in all questions may not add up to 100 percent.
Akerman Report Contributors
Richard M. Bezold
U.S. Real Estate Sector
Cecelia Bonifay
Sustainable Development
Jane Hinton
Real Estate Financing
Neisen Kasdin
Urban Redevelopment
Steven P. Polivy
International Financing
Eric D. Rapkin
Real Estate Transactions
External Contributors
Stephen Owens
Swire Properties President
Vincent Signorello
Florida East Coast Industries President & CEO
Akerman Report Staff
Kasi MacFarland
Project Manager
Christine Eschenauer
Nick Facchin
Krista Kellogg
Marlisa Serrano
Diana Striker
Learn more at akerman.com.

33|Akerman
Endnotes
1
“U.S. Real Estate Economists Growing More Cautious,” Urban Land Institute, April 5, 2016,
http://on.uli.org/1MS7ssD
2
“Lower Growth Prospects Cloud World Finance Chiefs’ Forum,” New York Times, April, 13,
2016, http://nyti.ms/1WqTkc4
3
“Lower Growth Expectations Cloud World Finance Leaders’ Forum,” New York Times, April 12,
2016, http://nyti.ms/1WqTkc4
4
“Navigating Through the Crosscurrents,” Deloitte and National Association of Realtors, January
2016
5
“Commercial Real Estate Look Ahead,” The Deal, May 24, 2016, http://tinyurl.com/jfr9ueh
6
“How to Spot a Dying Bull,” The Street, May 22, 2016, http://tinyurl.com/j57kjm7
7
2016
8
2016
9
“Chart of the Weekend: More Commercial Real Estate Buyers than Ever Before,” Auction.com,
January 22, 2016, http://tinyurl.com/javb7g5
10
2016
11
“Foreign Buyers of U.S. Assets Show No Signs of Slowing Down,” National Real Estate Investor,
March 16, 2016 http://tinyurl.com/hq3awcv
12
“Real estate execs cheer Brexit as New York properties will become safe haven for foreign
money,” Crain’s New York Business, June 24, 2016 http://bit.ly/290q3oD
13
2016
14
“5 Tips for Securing Your Senior Housing Development,” Commercial Property Executive, June
1, 2016, http://tinyurl.com/zkcdvod
15
“Health Care REITs Outperform Despite a Murky Horizon,” ULI, May 16, 2016, http://urbanland.
uli.org/news/health-care-reits-outperform-despite-murky-horizon/
16
“Top 5 Senior Housing HUD Lenders,” Senior Housing News, October 22, 2015, http://
seniorhousingnews.com/2015/10/22/top-5-senior-housing-hud-lenders/
17
“Why U.S. Equity REITs Don’t Mind The Brexit Upheaval,” The Street, June 20, 2016, http://
tinyurl.com/h69qd2a
18
“Generation Z: Why HR Must Be Prepared for Its Arrival,” SHRM, October 3, 2013, http://tinyurl.
com/jte4dso
19
“Generation Z: Born in the digital age,” AFP, February 11, 2015, http://tinyurl.com/jpjfwlx
20
“Ten ways autonomous driving could redefine the automotive world,” McKinsey Company,
June 2015, http://tinyurl.com/z5k95nj
21
“The Federal Government Must Act to Ensure that the AV Revolution Takes Place in the U.S.,”
January 17, 2016, http://tinyurl.com/jg2mar3
22
“Automated Vehicles: The coming of the next disruptive technology,” 2015, http://www.cavcoe.
com/articles/AV_rpt_2015-01.pdf

©2016 Akerman LLP. This publication is provided as general information rather than legal advice.
The content of this publication may be considered advertising under the regulations of various jurisdictions.

2016 akerman realestate sector report

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