4 min read January 2024 — In an interview with Invest:, John Kane, CEO of Kane Realty Corporation, discussed recent project highlights for the company in the local commercial real estate industry, including Downtown and North Hills developments, amid capital market challenges and rising interest rates. Kane also shared insights into the growth dynamics of the Raleigh-Durham region.
What are the recent project highlights for Kane Realty Corporation?
We have two projects going Downtown, and we are about to start another one. We also have five underway in North Hills, with more coming there. Our Downtown S project needs to be underway within the fourth quarter or first quarter of next year. It will include a 3,500 indoor capacity entertainment venue, which will be great for the Raleigh market since we don’t have anything like that today. We’re also including multifamily, retail and restaurants. We’re excited about getting that project going.
What’s your take on the current local commercial real estate industry?
Despite challenges in the capital market, we’ve managed to stay busy. Different areas face varying levels of difficulty, with the industrial sector performing the best. We’re primarily in mixed use with retail, which is holding up well. Our residential rental business is also doing fine, although rents have decreased slightly in the last quarter. The real challenge lies in the office sector, as is the case in many other places.
What other challenges are you facing?
The major challenge I face is the increase in interest rates and the capital markets being somewhat disarrayed, which makes debt more expensive with less leverage. Interest rates have gone from historically low levels to where they are now. This has had a significant impact on all real estate. Although we’re not directly involved in home sales, it has indirectly benefited the rental market because more people can’t afford mortgages, so they’re opting to rent instead. However, we’re hoping to see interest rates decrease so that more people can afford to buy homes again. For those who already own homes with lower-rate mortgages, selling is not a viable option, as they would have to borrow at much higher rates today. Overall, the rise in interest rates has negatively affected everyone and the capital markets remain unstable. I believe this instability will persist until there’s more predictability in the market. Additionally, equity is demanding higher returns due to market conditions, which is squeezing development projects and making them very difficult to pursue.
How has the significant growth in the Raleigh-Durham region in recent years specifically impacted your industry and your business?
I would say we’re doing better than most. Raleigh and Durham are two distinct markets and while they’re connected by a great airport, they have their differences. Raleigh has experienced incredible growth, especially in Wake County. Durham has also done well but the RTP area faces challenges due to fewer people residing there. Office spaces in more vibrant areas like North Hills are around 90% occupied, not just in terms of people in the building. So, vibrant areas have higher office occupancy compared to more secluded areas.
Have you observed a rise in demand for your services and in which specific services?
We provide development and construction management services and property management while also handling leasing for offices, residential and retail properties. We handle these services in-house. We also manage properties for third-party clients. While most of our work is for our own accounts, we are actively pursuing third-party management contracts. This has been a successful venture for us.
Have you encountered any labor issues in your company and how have you been addressing them?
In our industry, we don’t experience this issue as frequently as some others but when it does arise, it becomes challenging to locate skilled employees who are genuinely motivated to work diligently. Unfortunately, there appears to be a prevalent negative attitude toward work, which is concerning. I sincerely hope that this outlook changes because it’s essential that people actively engage in work. While we haven’t encountered the same level of difficulties as many others, such as our construction partners, who have undoubtedly faced more significant challenges in this regard, it is undoubtedly a significant problem.
Our company has a strong family-friendly culture, offering flexibility regarding office presence, especially during the COVID-19 pandemic. We never mandated in-office work but about 90% of our employees have returned voluntarily. We prioritize family needs, understanding that employees may have family-related responsibilities. However, we also expect everyone to fulfill their work duties while managing their time effectively.
How has technology, especially emerging innovations, impacted your operations and the industry in the past year?
Artificial intelligence (AI) is a significant focus these days and we’re all grappling with how to leverage it as an asset while also safeguarding against intrusive and harmful elements in the space. Like everyone else, we’re constantly implementing new systems and enhancing existing ones to improve efficiency across all sectors. We believe we’ve made good progress but there’s room for improvement. The challenge of AI impacts everything and we’re striving to stay ahead of it, although it’s a daunting task.
What do you believe gives Kane Realty Corporation its competitive edge in the region?
I believe we stand out from other developers because most of them tend to specialize in one discipline, such as office, residential, hotel or retail. However, we are involved in all four of these disciplines. This sets us apart. We see ourselves as place creators rather than just developers. While we do undertake individual projects, our focus is on multiphase projects that aim to revitalize and rejuvenate areas of town in need of renewal. That’s really our calling.
Are there specific federal or state-level regulations on your radar that could potentially affect your industry or your own operations?
I definitely consider the impact of federal, state and local factors on our operations. Recently, the state legislature passed a budget that lowered tax rates in North Carolina, which has improved our competitiveness for economic development. City and county matters have a more significant impact on us compared to state and federal issues. We frequently collaborate with the city on various aspects like permits, approvals and entitlements, so our relationship with the city and county is crucial.
What are the infrastructure priorities for the area as it continues to grow?
We’re a bit behind on infrastructure, like many other communities. We have bus rapid transit coming to Wake County and they’re making progress on that. Hopefully, it will be a train-like experience with Wi-Fi and easy access to desired destinations. The planned commuter rail is currently on hold due to a lack of federal funding, which is a setback. We’ll keep working on it and, hopefully, the BRT will be well-received in the market.
Where do you foresee Kane Realty Corporation heading in the next two to three years?
I believe we will remain competitive. Our focus is exclusively on the Raleigh-Durham region and we have no plans to expand elsewhere. This local market offers us plenty of opportunities, so there’s no need to venture into other markets. Having a strong local market is a blessing for us. I anticipate that our growth and success will persist. With the capital markets expected to recover next year and in the years to come, I see a promising future ahead for us.
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