Top Markets for Expected Rent Growth in 2017

Written by Apartment Management Magazine on . Posted in Blog

Shared Post from Multifamily Executive | By

rentgrowth2

California once again dominates the list of rent-growth leaders for the coming year, with more than half of the top markets, but it may come as a slight surprise to some.

Oakland tops the list, with San Francisco and San Jose still in the top 10. Oakland’s rent-growth pace has slowed significantly recently, and San Francisco and San Jose are both experiencing rent cuts. There’s been a lot of fear about oversupply in these markets, which could be contributing to the current situation. The Bay Area economy has experienced a notable decline recently, but its job-addition volumes are substantial.

“[Apartment operators] will pretty quickly realize that the [Bay Area] market hasn’t gone off the edge of the cliff, regaining some confidence on pricing power,” says Greg Willett of MPF Research.

The continued above-average growth in these California markets is good news for business, but it’s squeezing renters more than ever. A one-bedroom unit in San Francisco in October rented for $3,373, on average, which is slightly more than half the area median income monthly paycheck after taxes, according to real estate listing site Rent Jungle.

Las Vegas is the second rent-growth leader for next year, at 6.1%, just behind Oakland. The metro was hit hard by the recession but has experienced improved growth in the past 18 months that makes it a great market going forward. Seattle; Dallas; Nashville, Tenn.; and West Palm Beach, Fla., are the other markets defined as rent-growth leaders for the coming year.

Absent from 2016 are Portland, Ore.; Fort Worth, Texas; Atlanta; and Phoenix, which all are expected to come in just under the cutoff of 4%.

Forecast Rent Growth Leaders in 2017

Rank (MetroForecast Rent Growth)

Oakland                                                     1 (6.5%)

Las Vegas                                                  2 (6.1%)

San Francisco                                           3 (5.7%)

Sacramento                                               4 (5.6%)

Seattle                                                         5 (5.4%)

San Jose                                                     6 (4.9%)

Riverside – San Bernardino                      7 (4.5%)

Dallas                                                          8 (4.4%)

Nashville                                                    8 (4.4%)

West Palm Beach                                       8 (4.4%)

Los Angeles                                              11 (4.3%)

San Diego                                                  11 (4.3%)

Fort Lauderdale                                       13 (4.2%)

Kayla Devon

Kayla Devon is an associate editor for Hanley Wood’s residential construction group. She covers business, products, and technology for both Builder and Multifamily Executive magazines. Find her on Twitter: @KaylaDevon_HW

4 KEY CHALLENGES IN COMMERCIAL REAL ESTATE FOR 2017

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Shared post from IREM | Saraf Ahmed, Bisnow

cre-2017

As 2016 rapidly comes to a close, Bisnow takes a look at the concerns and priorities for real estate firms in the year ahead. Bisnow sought out IREM president Michael T. Lanning, whose background includes SVP and market leader at Cushman & Wakefield in Kansas City, MO. The following are his four biggest challenges for the industry to tackle in 2017.

Talent Growth

To keep up the momentum, management teams must focus on hiring and securing new young talent to the field—particularly with those seeking to establish their careers in the real estate industry over the long term. Brokerages and real estate businesses can do their part by supporting young professionals and mentoring them through internships and in the early stages of their careers. One surefire way to ensure the nurturing of young talent is to reach out to students who may not have considered real estate as a possible career path; IREM’s university outreach program, for instance, seeks out students before they graduate college. Planting the seed early is key; real estate is a tough industry, and those hoping to enter it must come prepared.

Sustainability

As we slowly begin preparing for the challenges and rewards of 2017, more scrutiny is being placed on the reporting and results stemming from each real estate project. Helping project owners and developers outline and reach their sustainability goals may play an important role for a multitude of real estate firms, but should begin to take precedence.

Keeping Up With Tech Advancements

Most people rely on some form of smart tool as their primary form of communication, whether that’s a smartphone, tablet or laptop. Email, instant messaging, video conferencing and social media are now the primary avenues of immediate contact, and real estate firms need to recognize that—and readily adapt to it. “Real estate managers today have to be adaptable to changes in the workplace and in the properties they manage,” Michael says. “And that includes adopting new technologies, software and apps.” Whether it’s lease renewals, remote meeting capabilities, virtual building tours or online banking, real estate managers need to pay attention and adapt as more professionals begin incorporating these tools into their careers.

Economic Uncertainty

Although real estate is cyclical, every player in the industry from the small-town broker to the CEO of Cushman & Wakefield must be prepared to weather every storm. While it is impossible to predict and micromanage every aspect of the market and its effect on one’s business, it is essential to develop evolving tactics and strategies to protect it. This necessitates a wide range of skills, particularly in effectively managing. The only thing real estate brokers and managers can be inflexible on is flexibility, and they should expect to adjust their management focus on a yearly, monthly and even daily basis to satisfy clients, developers and owners.

Read more at: https://www.bisnow.com

New Earthquake Retrofit Standards Proposed for Santa Monica

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building-safety

The Building and Safety Department of Santa Monica has made recommendations to Update the Technical Standards of the City’s Seismic (Earthquake) Retrofit Provisions of the Municipal Code. The recommendations were presented to and approved by the Building and Fire Life Safety Commission and have been forwarded to the City Council. The Council has agendized this item for discussion on December 6, 2016. Sources in the City estimate that a formal ordinance will go to the Council in February, 2017. Happy New Year?

In the months prior to developing the new standards City Staff drove by and looked at all multi-family residential and commercial buildings in town and reviewed building records in order to compile an inventory of Potentially Seismically Vulnerable structures. In so doing they identified 2,813 Vulnerable Buildings. Of this total, 582 were considered retrofitted and will not require further work while 2,231 properties are either not retrofitted or will require further analysis. The inventory list is in draft form pending verification against building records. It is expected that the list will be eventually available on line for owners and others to consult.

The recommended standards for 2-story buildings are the same as the City of Los Angeles 2015 standards. However, 2-story buildings with a moment frame and a final permit will be deemed already complete. 3 and 4- Story, Soft Story Buildings with previous approved retrofit work will have to analyze the entire story above the weak story for lateral load behavior.

The recommendations do not deal with the question of the possible pass-thru of costs to tenants as this is a matter to be determined by the Rent Control Board following passage of the ordinance.

The new updated law will contain administrative provisions for compliance and verification of retrofit projects.
There will be time limits to complete requirements. The final time limits are in discussion. The general milestones for time limit compliance are propose to be:

  • Notification by the City of Santa Monica to the building owner;
  • City of Santa Monica to record notice with the County of Los Angeles Registrar/Recorder
  • Submission of a structural analysis of the building reporting either compliance or recommendation for retrofit;
  • Provide the City with confirmation that the “Tenant and Occupant Advisory” notice to the tenants has been provided to each tenant;
  • Application for a building permit and submission of retrofit plans;
  • Obtain a building permit;
  • Start of construction;
  • First building inspection;
  • Final building inspection and approval;
  • Release of recorded notice

Any notification to a building owner of a Potentially Seismically Vulnerable Building is appealable within 60 days from the date of the notice. Appeals will be heard by the Building and Fire Life Safety Commission. Appeals must be of a technical nature and cannot be related to financial hardship or non-technical matters.

It is expected that a City webpage will be available for more information.

Get your checkbook ready!

NEW RENT BOARD STORIES PART 1: THE WEST HOLLYWOOD TURTLE FOUNTAIN DECISION

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landlord-law_2

The type of rent control action which annoys property owners the most are rent decrease decisions. The Santa Monica Rent Board rendered approximately 4,890 of these decisions since April 1979 and West Hollywood issued approximately 4100 of them since June 1985.  The West Hollywood is actually worse because they began issuing decisions more than six years after Santa Monica did and because it has far fewer controlled rental units. West Hollywood Commissars love rent decrease decisions almost as much as they love Halloween, (which has actually been declared a holiday in that crazy city).

Santa Monica rent decrease decisions have been much less oppressive since the published decision was issued in Santa Monica Properties v. Santa Monica Rent Control Board (2012) 203 Cal.App.4th 751. In that case the Santa Monica Rent Board went too far by attempting to regulate the timers and the heat of the Jacuzzi and sauna at a luxury apartment building.  The Court of Appeal reversed the Board’s decision with an opinion which found that, “. . . the minimal reduction of adult recreational services of a type commonly found only in luxury housing does not justify decreasing rents without evidence that the rent thereby became excessive or the landlord thereby realized an unjust or unreasonable return on the investment in the property.”

The Santa Monica Properties decision reduced the severity of rent decrease decisions in Santa Monica, but unfortunately, West Hollywood Rent Stabilization Commissars refuses to recognize any adverse rent control decision unless their name is on it. Therefore, on April 26, 2016 they rendered the infamous “Turtle Fountain Decision” which they awarded monthly rent decreases for all tenants in a 36-unit apartment building based on the following; (1) reduced accent lighting in plant containers ($3 per unit); (2) vines on pool fence removed while painting the building ($8 per unit); (3) reduction of tables and chairs in the pool area ($6.50 per unit); (4) removal of hallway carpets areas ($20); and (5) non‑functioning turtle fountain by the pool ($3 per unit).

The most outrageous of the rent reduction above was the rent reduction granted for the removal of the turtle fountain. This was based on the following testimony;  “[Tenant] testified that there was a working turtle fountain at the  mid­ point of the pool, between the pool and fence. [Supporting witness] testified that the fountain, on the pool deck, made an arc of water into the pool.  Now, the turtle fountain is still connected, but it is rusted and not working, [Tenant] added.”  The rent decrease decision did not even attempt to say the rent reduction was based upon a “substantial reduction in housing services.”  Instead, it states that the reduction was based upon “a substantial decrease in the turtle fountain.”

The decision was quickly appealed to court and the judge issued a stay order was to prevent the tenants from reducing their rents based on the reduction of “housing services” described above.  And if you don’t believe it, go to West Hollywood Rent Stabilization Department and ask to read Rent Board Story D-4078. But don’t go there on Halloween because every City office is closed that day. That’s a good thing.

L. Jacobson  October 2016

LANDLORDS SUE RENT CONTROL BOARD FOR VIOLATION OF VACANCY DECONTROL LAW

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rent-control

On May 16 ACTION Apartment Association, a non-profit association of landlords, sued the Santa Monica Rent Control Board for a judicial decision as to whether the RCB’s prohibition of passing on actual water billings to tenants violates the Costa Hawkins Vacancy Decontrol Law.  The complaint alleges that the vast majority of apartment buildings in Santa Monica are master metered for water meaning that the Water Division bills the landlord for the water used by the tenants.  New buildings must be designed to allow separate metering and direct billing from the Water Division to the tenants but older buildings were not designed or constructed to allow this.  Despite this situation, the RCB has insisted that landlords must absorb the cost of water used by the tenants rather than allowing a sharing arrangement whereby each tenant pays an agreed share of the water bill.

The complaint alleges that the State vacancy decontrol law allows landlords to establish the initial rental rate by agreement with new tenants and that as part of the rental agreement the parties can agree that the tenant pay an agreed share of the water bill.  Prohibiting landlords to establish a water-pass-through agreement places landlords of these buildings at a competitive disadvantage with owners of newer buildings with separate metering and fosters excessive use of water by tenants.  This latter situation creates a special hardship for landlords because the water rates in Santa Monica are scheduled to increase by over 41% from 2014 to 2020 and the City has placed criminal and civil penalties on landlords if their tenants’ use of water causes the landlords’ buildings to exceed the mandatory curtailment requirements.

To accomplish its purpose, the RCB has created its own definition of “rent” to include water.  The lawsuit alleges that the term “rent” has an ancient and well recognized meaning.  Absent special circumstances, it is the cost of housing.  It includes the water pipes but not the water.  All other utilities, such as, gas, electric, telephone, and internet services, are separately billed and paid by tenants and not considered part of the rent; but in Santa Monica the water utility is treated differently for these older buildings.  This is yet another example of extreme rent control as practiced in Santa Monica.

A ruling in favor of the landlords in Santa Monica would be a binding precedent for all landlords in the State as the basis of the lawsuit is that the State enacted Costa Hawkins Act preempts any inconsistent municipal ordinances.

Donald Woods, Esq.

dwoods@donaldwoodslaw.com

Santa Monica Ordinance Prohibiting Short Term Rentals is being challenged in Court by Los Angeles Law Firm

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airbnb-lawsuit

The City of Santa Monica has enacted an ordinance that effectively prohibits AirBnb-type vacation rentals; this ordinance is being challenged as unconstitutional through a class action filed in the Central District of California (Los Angeles) by the Los Angeles law firm of Esensten Law on behalf of property owners in Santa Monica who have lost substantial income and potentially face imprisonment of up to six months as punishment for renting out their property as short-term vacation rentals.

The last few years have seen a massive growth in the market for online short-term vacation rentals utilizing websites such as AirBnb and HomeAway, which allow property owners to earn additional income by listing their properties for short-term rental while they are away on vacation or otherwise.  The rapid growth of the market for such rentals is a reflection of the benefits provided to both travelers and owners.  However, because such vacation rentals are typically at least 50% less expensive than hotels, the impact is felt by hotels in lower occupancy as well as by cities that obtain less revenue from taxes paid by hotels.

By its express terms, the Ordinance prohibits all persons from engaging in “vacation rentals,” whereby the owner does not simultaneously reside on the property with the renter.  The Ordinance also contains a partial ban on “home sharing,” where the owner simultaneously resides on the property.  To use the home sharing exception, the listing owner must obtain a City-issued business license, which is available only to property owners residing in their Santa Monica properties.  The advertising of any such vacation rentals or home sharing is also prohibited by the Ordinance.

The impact of the Santa Monica Ordinance is substantial and financially devastating to the thousands of owners in the City of Santa Monica who offer their otherwise vacant properties for short-term rental to earn additional income.

The City of Santa Monica has been vigorously enforcing the Ordinance, budgeting $410,000 to employ three inspectors to ensure enforcement of the Ordinance during the first year of enactment.  In enacting the Ordinance, the City of Santa Monica estimated that the complete ban on vacation rentals would slash Santa Monica Airbnb listings from 1,700 to 300.

The class action filed by Esensten Law seeking to invalidate the Ordinance is based on the violation of the dormant Commerce Clause of the Constitution of the United States, which prohibits legislation that discriminates against interstate commerce.  Based upon the constitutional violations, the class action seeks to have the Ordinance declared invalid and to prevent enforcement of the Ordinance by way of an injunction, which is a Court Order prohibiting the City from enforcing the ban on vacation rentals, as well as seeking a return of the fines the City has already collected and will collect until the case is tried before the Court.   The motion for an Injunction, the motion to certify the class of Santa Monica property owners effected by the Ordinance and a motion by the City of Santa Monica to have the litigation dismissed are pending before Judge Otis Wright.

LA LA LAND APARTMENT NEWS

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Industry News

Big Brother Wants to Peep at Your Papers

The Los Angeles City Council wants apartment owners to provide renters with a written disclosure of rights prior to signing any buyout agreement. They also want any completed agreements to be filed with the City. Agreements must provide a 30-day period in which the tenant can rescind for any reason. Failure of owners to provide the disclosure will make the contracts voidable at any time and subject the owner to a lawsuit by the tenant or prosecution by the City. The council instructed the City Attorney to draft and return with an implementing  ordinance. This is expected to become law in early 2016. Will City Attorney staff now wear referee uniforms and be issued whistles?

Airbnb Flirts with Apartment Industry

Airbnb has pulled off one of the biggest scams in the history of commerce. It has built a $38 billion dollar business by providing housing accommodations without paying one cent to apartment building owners when their tenants rent out apartments to tourists. It’s like having a free hotel and not paying anything for rent, taxes, insurance, employees, utilities, repairs or maintenance. Since many apartment building owners have resisted their scheme, Airbnb has developed a romance plan which it hopes will woo more owners to its lair. Dubbed the Friendly Building Program, Airbnb is offering 5-15% of the nightly rentals to participatimg owners. It is not clear at this time whether they are making this program available in Los Angeles.

Despite the fact that currently most Airbnb rentals in Los Angeles are illegal, the City has no qualms about collecting the Transient Occupancy Tax on them. They have cut a deal with Airbnb to collect the taxes despite most rentals being in violation of City laws. The City is trying to develop regulations to deal with short-term rental but the regulatory wheels don’t move as quickly as the tax wheels.

Gentrification of Los Angeles Neighborhoods-Who’s at Fault?

Gentrification of neighborhoods is the latest sin that the left-leaning press and political agitators want to blame on apartment owners. Government policies for years have discouraged development, created a shortage of housing, causing dramatic rental inflation during a time of otherwise low inflation. Meanwhile, extreme rent control policies have not allowed rents on in-place tenants to keep pace with cost increases. So when newly vacated or developed units are only affordable to more affluent renters than those who previously resided in an area, apartment owners get the blame. And when apartment owners look for ways to escape the prison of below market rents that tenants have enjoyed for many years, sometimes for many decades, the accusatory finger is again wagged in our direction.

Erualdo Gonzales, an associate professor of Chicana and Chicano Studies at Cal State Fullerton, hardly an apartment industry apologist, was quoted in the LA Times with a brilliant observation of government’s role, “Change may be normal, in a general sense, but gentrification is not. Gentrification is often a process that involves private-public partnerships. In Santa Ana, this is the case. Change was engineered.”

At the heart of much gentrification are government policies to upgrade areas to increase city revenues from sales, property and transit occupancy taxes. And let’s not forget the role campaign contributions play in rewarding government decision makers who approve the deals with developers that fuel the demographic shifts.

Wes Wellman

Wellman Realty Company

310-829-7423/wes@wellmanproperties.com

BRE Lic. # 00467451

ACTION Apartment Association Teams up with Apartment Management Magazine of West LA

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santa-monica

We get it. Ours is an industry under siege. Housing providers are plagued by over-regulation, ever increasing taxes and fees, escalating costs, frivolous lawsuits, relentless press bias, partisan community organizing, politically motivated judges and anti-owner elected officials at every level.

Owners need an industry gladiator to help repel the forces massing against it. ACTION Apartment Association, Inc. is that warrior.

actionassociationWe have been in this fight since 1979 in Santa Monica. We formed to fill a vacuum left by the traditional industry organizations who were more interested in selling forms than fighting corruption. ACTION is the first word in our name and our first order of business. We are committed to litigation, advocacy and advice, in that order. Why litigation first? Because the courts, although not necessarily our friend, are the last line of defense against the relentless attacks by the politically motivated elected officials and the pesky, dark-money-funded public interest law firms.

We have filed a class-action lawsuit to get the legal right to have new tenants share the mounting cost of water in buildings without separate meters. As you know water costs are mushrooming and there is no incentive for tenants to conserve.  Owners have been saddled with the burden of fines and fees from the excessive water use by their renters. Attorney Don Woods, who represents us, has an article in this issue explaining our suit in more detail. Please see page X.

Although we started in Santa Monica, we seek to broaden our footprint. That is why we have partnered with Apartment Management Magazine to begin to communicate with and defend a wider apartment industry audience. In this issue you will begin to notice an editorial shift. We are committed to providing timely, relevant and interesting reporting that will be a valuable monthly resource for you. We are not fond of articles about dead bolt locks and estate planning. We are not fans of advertisements posing as news articles. We want to give you News You Can Use.

ACTION Apartment Association,  inc. is an open shop not an old boy clique. We welcome input from the owner community. We love volunteers who will lock arms and work with us. Our emails are below and we encourage your feedback. Enjoy, Learn and Fight.

Elaine Golden-Gealer | President: elaine@elaine360.com                                    

Wes Wellman | Founding Director: wes@wellmanpropperties.com

No Credit? No Problem: How to Minimize the Risk of Renting to Tenants with Less-than-Perfect Credit Scores

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Shared post by Appfolio

co-sign

What property manager doesn’t prefer to rent to tenants with excellent credit scores? These types of people have already demonstrated that they pay their bills on time, reducing the risk of future headaches when rent comes due. But the reality is that not all renters have near-perfect credit; according to recent reports, the average credit score in the U.S. falls in the 675-699 range and the fact that this is an average means that many Americans have credit scores below this number. Some property managers can’t afford to only accept applicants with fantastic credit if they want to keep their properties full, but there are things you can do to reduce the risk associated with renting to people with less than ideal credit scores.

Tips to Minimize Risk when Renting to Tenants with Low Credit

There are some ways to protect your business and still approve renters who may not have great credit scores or even any credit history at all.

Require a guarantor or cosigner: A cosigner is a third party who will agree to pay the rent if the tenant doesn’t. Very often, rental properties that house a lot of young people, especially students, ask for a cosigner. Young adults may be fine tenants, but they haven’t had a chance to establish their own credit history yet. A parent or other family member may be happy to guarantee that the rent will get paid on time. This helps transfer the risk to a third party and allows people who have not established credit yet to get a good start.

Ask for a larger deposit: State laws may limit the amount of deposit that landlords can require, but there is usually some flexibility. If a tenant has good credit, a property manager may only ask for a one-month deposit, but if possible, it might be fair to ask for a larger deposit from a tenant who has poor credit. This extra deposit helps cover the risk that the tenant won’t make timely payments or even be able to pay at all.

Ask for rent in advance: Some people with poor credit may have access to funds to pay their rent. If it’s legal and possible, the property manager may ask poor-credit applicants if they can pay their rent a few months in advance. For example, instead of just requiring a deposit and the first month’s rent, the property manager might ask for the deposit and two month’s rent. In this case, the applicant would actually be paying ahead one month on each due date.

Require automatic payments: Rental managers might give tenants different options to pay their rent. But requiring automatic, online payments from tenants can help ensure timely payments.

Communicate early and often: It makes sense to have renters make online payments. It might also help to send online text or email messages to remind renters to pay the rent before rent day. It’s also sensible to follow up quickly if a rent due date has been missed because younger renters without established credit may require a bit more guidance.

These compromises may make it possible to approve more rental applications, but always remember to stay within the law and follow fair housing guidelines.  In order to offer a bit more flexibility, it’s important to come up with ways to transfer the risk and in some cases, provide a bit of guidance as the renter pool gets younger. Property managers are human too; some may be motivated to give certain applicants a second chance to rent a home and improve their credit.

BUILDINGS MAINTENANCE & MANAGEMENT EXPO OFFERS BIG DATA, TECHNOLOGY AND SUSTAINABLE SOLUTIONS IN ANAHEIM OCTOBER 25

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bld_siteheader_date2016_5

Irvine Company, So Cal Edison and So Cal Gas Host Smart Buildings Seminars, Exhibit Hall and Networking

The Buildings Maintenance & Management Expo (BMME) featuring educational seminars by Irvine Company and So Cal Edison, building management industry speakers, exhibitor showcase and networking opportunities will be held Tuesday, October 25 at Anaheim Convention Center. Admission is free.

“Sustainability initiatives, new technologies, policy mandates and funding incentives are shaping the future as public and private sector leaders explore, source and integrate smart building solutions,” said Scott Kitcher, conference co-sponsor and President & CEO of Sustain OC, formerly Clean Tech OC.

Buildings management, sustainability and operations seminars will be held on topics such as microgrids, energy storage, seismic retrofits, security, compliance and smart systems. The Orange County Sheriff Department will hold a special active shooter and crisis management clinic, and presentations by leading utility, energy and industry experts include:

* Rich Bluth, Irvine Company
  * Caroline McAndrews, Southern California Edison
  * Corey Lee Wilson, International Facility Management Association
  * Scott Kitcher, Sustain OC (formerly Clean Tech OC)
  * Mark Walter, Biix Smart Building Software
  * Heather Williams and Shane Millhollon, Orange County Sheriff Department
  * Stephen C. Duringer, Duringer Law Group
  * Andrea Marr, Regatta Solutions Energy Services
  * William Exeter, Exeter 1031 Exchange Services LLC

Facility managers, commercial real estate developers, architects, engineers and government officials are invited to access the latest products, services and clean tech equipment in the exhibit hall. This event is co-hosted by The Register, International Facility Management Association, Apartment Association of Orange County, Sustain OC and Buildings Maintenance & Management Magazine. Hours are 8:30 am to 4:00 p.m. For pre-registration and more information, please visit www.buildingsexpos.com.

Editors Note: For interviews or media credentials contact: David Kuff at davidjeffrey99@gmail.com

 

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