Boston- Threatening skies and an early morning kickoff did not thin the ranks of attendees at this Thursday’s 2011 New England Real Estate Conference sponsored by Saul Ewing LLP, a newcomer to the Hub’s legal scene who trumped any deterrents by providing a stable of top talent and industry icons for the inaugural day-long program. Seasoned specialists offered free-flowing insights and frank predictions on a range of prescient issues, analyzing the promising academic and healthcare CRE sectors, and giving a dedicated drill-down on the volatile debt arena by Colliers International financing expert David M. Douvadjian and NAIOP Massachusetts 2011 President Brian H. Kavoogian.
The kickoff session in the Westin Waterfront Hotel conference center was a diverse, lively and sobering discussion moderated by Saul Ewing attorney Sally E. Michael and featuring ageless Boston investor Harold Brown and Jay Cornforth, regional head of Prologis, the largest industrial space purveyor after joining forces with competitor AMB Corp. Cornforth gave an international perspective that labeled China and India as so bureaucratic and corrupt as to make even the globesavvy Prologis that spans four continents tread carefully in the former country and pull out of the latter entirely.
“It has been a slog,” he says of traveling the pitted BRIC road that has also established footholds in Brazil and Russia. Prologis used a joint venture to enter Brazil in 2005, and while he said the unpredictable South American country does present challenges, a lack of competition has enabled Prologis to roam free in delivering new millennium industrial product scarce in the world’s seventh largest economy. “Our global customers want to be in modern distribution facilities,” Conforth told the packed audience, and taking on virgin markets such as Brazil offer a mix of risk and rewards. Nearly everything constructed there is quickly pre-leased, he noted.
Skills honed in terra-firma bereft Beijing and Japan may soon be applied domestically, added Cornforth, specifically construction of multi-level industrial product. “We’re not there yet, but it is coming,” he relayed, with Los Angeles and New Jersey potential venues as the combined AMB/Prologis juggernaut recovers from a“scary” plunge financially in 2008 brought on by the harsh recession. “We are very focused on our balance sheet,” stressed Cornforth, whose San Francisco-based firm is established throughout the Northeast and in several New England markets.
| Also treading carefully through the recovery has been Intercontinental Real Estate Corp., a homegrown firm celebrating 50 years in business but doing so “playing defense,” according to CEO and panelist Peter Palandjian. A specialist of coreplus and value-add investments, Intercontinental has retreated to safer alternatives such as medical office and multifamily, explained Palandjian, whose firm is a registered SEC investment advisor. “We’ve been terrified of core-plus over the last three years,” said Palandjian. “We just don’t have the confidence you can fill it.” Over the past 24 months, Intercontinental has done just four deals. “That is slow for us,” Palandjian said, who quipped that the panel’s title of “How Deals Are Getting Done in 2011” should have been “Why Aren’t Deals Getting Done?”
In chasing safer bets, Intercontinental has had less success breaking into the popular multifamily sphere but has two promising healthcare-related projects, one a medical office building on Long Island and a $260 million joint venture in New Jersey retrofitting a 700,000-sf office building on behalf of a pharmaceutical company. Intercontinental sidled into that opportunity by offering more aggressive terms to a local operator seeking a capital infusion. “That’s one way we are able to find things,” says Palandjian, who estimates every third or fourth deal his firm is doing today will feature a joint venture partner arrangement.
For all his concerns, Palandjian outlined a hope that better times lie ahead, with his firm having garnered success in such locations nationally as Santa Barbara, CA, and Oak Brook IL, while the long-range outlook is promising closer to home for a mixed-use property acquired in Cambridge’s Central Square. Audience members were also given a vintage Armenian saying by Palandjian that observes “real estate can get sick but it never dies.”
Octogenarian Harold Brown delivered a similar mantra of perseverance, but his Allston-based Hamilton Co. that he has been operating since 1954 is embracing the here-and-now from an investment perspective. Brown produced a chart that predicts a steady rebound all the way through 2024, but he advised the best time to take advantage is when the recovery first takes hold. Brown maintains the surge in Greater Boston is about 20 percent through, and his firm is aggressively scooping up product right now to position for greater upside, he said, having spent $200 million in the last two years, a quarter of that in 2011 on such investments as a Lexington apartment complex and 135 units in Allston, while the firm this past week secured a Malden shopping center that he declared “the best commercial property I have ever seen in my life.”
A familiarity with the anchor tenant gave Hamilton the confidence to chase that property, Brown told the crowd. The
veteran developer who noted he has survived five of the 12 real estate downturns felt in New England during the past 150 years also gave some basic advice on what to key in on when valuing a deal—those being taxes and operating expenses. Combined with local knowledge and talented personnel such as Hamilton President Carl Valeri has enabled the firm to make solid choices that Brown relayed have benefitted from the firm’s prudent management and understanding of market dynamics. One example was the 429-unit Dexter Park luxury apartment building in Brookline that Hamilton bought for an eye-popping $129 million in 2009, beating out 18 bidders. The firm chased that property
so hard because it was deemed “irreplaceable” product in a desirable area, Brown conveyed, but also a belief that the management was being “loosey-goosey” on rent concessions, and was inefficient in operating expenses. Almost immediately, Hamilton was able to cut operating costs per unit from $9,500 to $8,500. “We didn’t mind paying for it,” he says of Dexter Park.
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The fourth panelist is perhaps one of the few locally keeping pace with Hamilton on the acquisition front, and David Greaney also expressed confidence in his firm’s “laser-focused” pursuit of Class B office product focused on Boston and markets such as Cambridge and Quincy on either side that are interconnected by rapid transit. “We love Boston,” says the Irish national who has assembled a 1.7 million sf portfolio in just five years. “We absolutely believe in this market medium term and long term.”
Similar to Hamilton, Greaney says the key is understanding a property through proper underwriting, an element he embraces as a former accountant at Pricewaterhousecoopers. That has enabled his firm to follow through when ultimately committing to a deal. “We’re not punting, and I think people appreciate that, especially in an environment like this,” said Greaney. Certainly his firm has completed a number of significant acquisitions to date in 2011, having just acquired a vacant 100,000-sf office building on Melcher Street in Boston’s Seaport District. More stabilized product was purchased this summer in North Quincy, and Synergy is rumored to be negotiating additional investments as the 2011 campaign winds down.