A. TECHNOLOGY BACKLASH IN REAL ESTATE
Commercial real estate is getting hit with a technology backlash that is not
widely acknowledged, and with an impact that is yet to be determined. One
area involves the failure of many of the building centric telecommunication
providers (BLECs) and the issues surrounding the ownership of their
equipment and wiring within buildings. A great number of all types of REIT
properties, primarily office buildings, were wired as quickly as possible
over the last couple of years to provide broadband service to tenants.
Although multiple firms often wired the buildings at no cost to the
landlord, they frequently clogged up the riser space in high-rise
buildings. With many of these BLECs out of business or in default, multiple
issues arise.
First, in many situations it appears the wiring and equipment does not
revert to the landlord. Instead, the creditors may have the right to access
the building to strip out whatever may be valuable. This can cause some
disruption in building operations, but more importantly, it may deem the
remaining wiring inoperative, still create crowded risers and incur expenses
to the landlord to remove the wiring or make it workable again. Second,
since the installation of the wiring was often not completed by BLECs but by
independent contractors, many of whom were not paid, some of these
contractors are filing mechanical liens against the buildings or the
tenants. Depending upon the terms of the contracts and the leases, not only
may additional costs be incurred by landlords, tenants, or both, but it may
temporarily prevent a building from being sold or refinanced. Obviously this
can also place some strain upon tenant landlord relationships and require
more legal and administrative costs to owners.
Another technology backlash with bricks and mortar involves improvements in
wireless telecommunications and the Right to Access laws. Rather than
building owners having a captive audience where they can automatically place
themselves in a position to benefit from additional services that tenants
may require such as telecommunications, some tenants are finding ways to
circumvent landlord services. Right to Access laws may increase the options
for tenants while improvements in telecommunications may make it easier for
tenants to avoid the need to utilize the wiring installed in many buildings.
Possibly the most recognized impact upon REITs and other real estate firms
may be the write downs and losses involved in some of their investments and
partnerships in technology ventures. Since regulations limit a REITs
investment in such areas, however, these misfortunes are not expected to
have any substantial affect upon any REIT.
Although many REITs jumped on the bandwagon to create smart buildings, some
of their actions no longer look very smart. Instead of technology allowing
REITs and building owners an opportunity for additional revenue sources, it
may create more expenses - at least in the immediate future. It may also
make REITs much more cautious in considering opportunities that do not
directly involve real estate, even though they are now allowed to invest a
limited amount of their assets in taxable operations under the REIT
Modernization Act of 1999. Top
Comc'l, Resd'l, Both
Constr., Developers,
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