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The Marriage Between CRE & Infrastructure

June 3, 2020

The Marriage Between CRE & Infrastructure on morrissegroup.com

A rocky road means a rocky relationship

It’s time to take a break from COVID-19—somewhat of a break, that is. When the lockdowns started in March, area roadways were mostly absent of traffic. This presented an opportunity to speed up several major infrastructure upgrades in the Miami area, including interstates 395 and 195, as well as the Dolphin Expressway. The lack of traffic translated into a lack of inconvenience for commuters during these projects, and the result is hoped to be an early finish.

At the same time, the virus took the spotlight off of Ft. Lauderdale’s own infrastructure issues—last year’s series of water main and sewage line breaks, including one that was the largest in South Florida history. The city became a good example of the overall issues that the U.S. has with old infrastructure.

Why infrastructure is important to CRE

In the simplest terms, infrastructure is all of those systems and structures that allow a country to function. From communication systems to the power grids, roadways to railways, and water delivery to sewage removal, all of these items allow people to live, work, play, and move. They are also instrumental in growing the economy and allowing it to function.

To that end, maintenance, improvements, and expansion of infrastructure are key ingredients to the success and strength of commercial real estate. The more reliable or efficient these systems are, the more competitive a specific area can be—and that adds up to a stronger economy, higher property values and rents, and an increase in occupancy. For example, one study indicates that rents for office space located near public transportation are nearly 80% higher than those farther away.

When infrastructure fails, CRE feels it

Every four years, the American Society of Civil Engineers (ASCE) publishes its Infrastructure Report Card. In its most recent 2017 report, the U.S. received a D+ (poor). Issues on the national level include a $90 billion backlog of transit maintenance, 6.9 billion hours lost in traffic, an abundance of power outages, and failing wastewater treatment plants. At best estimate, the country is 30 years behind many of its global counterparts.

Florida fared better but not much, receiving a C (mediocre). Of greatest concern, according to the report, is the state’s drinking water, roads, public transit, energy, wastewater management, stormwater impacts, and coastal vulnerability. And all of this is strained by a population that increases by one million people each year.

Whether it’s on the national or local level, the bottom line is that failing or poor infrastructure hurts CRE. According to JLL, these issues have a tremendously detrimental impact on business operating costs, construction and production delays, and job growth and business expansion. Therefore, they hurt the demand for commercial properties. 

The infrastructure solution

As with many things in life, it all comes down to money. And necessary infrastructure improvements—typically financed through public-private partnerships—would require the United States to invest more than $2 trillion over the next 25 years on repairs and upgrades. According to the ASCE, funding sources could come from infrastructure trust funds, raising the motor fuel tax for the Highway Trust Fund, and implementing rates and fees to maintain and upgrade various infrastructure systems.

This, however, is 2020. And all roads, crumbling and otherwise, lead to COVID-19. A year ago, the sum of $2 trillion over 25 years was an unheard-of amount of money. But now, the government has spent well over that amount in just a matter of months to offset the economic crisis.

But is there a silver lining to the pandemic?

Can post-COVID-19 realities drive infrastructure improvements?

According to the World Economic Forum, the pandemic’s economic fallout may be just what American infrastructure needs—an opportunity to initiate a “New Deal” for the Age of COVID. Despite the Federal Reserve having exhausted its options to combat the recession, fiscal policies, innovative projects, and federal action regarding infrastructure could help right the economy. Among the suggestions are:

  • To create an infrastructure agency at the federal level to centralize some of the decision-making, develop a long-term and cohesive vision, and to improve accountability.

  • To harness the power of data to prioritize projects and to make the process and results more efficient.

  • To better utilize innovation and the Fourth Industrial Revolution to improve and streamline construction technology.

Morris Southeast Group wants to build something better

Infrastructure is a funny thing. It’s always there, just under the surface, and no one ever really pays attention to it—unless something goes wrong. While our plates have been full for the past few months, we can’t afford to continue to ignore all of the facets—systems, services, and people—that make our communities function. And perhaps one of the lessons from COVID-19 is that we have to build something better.To learn more about what Morris Southeast Group can do for you now and in the future, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

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