World of Alternatives No Problem for MIT Global Real Estate Forum

BOSTON—If one thing can be gleaned from the MIT Center for Real Estate’s Global Forum last Friday, it is that the region’s commercial real estate community is not easily distracted. On a stunning April day with clear skies and temperatures in the 70’s, and the 100th Anniversary celebration of Fenway Park and Red Sox/Yankees game just down the street, 300-plus attendees made their way to the Federal Reserve Bank to hear from some of the best and brightest CRE thinkers and doers the industry has to offer. Alumni Association of the Center for Real Estate (AACRE) officials who organized the event were most assuredly pleased by the turnout, which caused relocation to a larger venue downstairs for the afternoon sessions.

“To be able to attract so many attendees is testament that real estate development and finance is on a comeback,” says one of the organizers, Mike Lam (Class of ’09). “It was an absolute honor to play host to both industry leading professionals along with some of the top graduate schools that participated and placed in this year’s CASE Finals (a special competition held as part of the annual event).”

In keeping with MIT’s focus on cutting-edge practices, opening program “Innovations in Real Estate Product Design and Delivery” presented one overview of high performance construction and another on evolving office space concepts. Forest City Ratner Cos. Senior VP Susi Yu detailed a case study on modular construction in the 22-acre Atlantic Yards complex in Brooklyn, a project zoned for eight million square feet of apartments, offices, retail and modern arena for the New Jersey Nets. The $4.9 billion development will produce 6,400 apartments, 30 percent for low- to middle-income families. To make the numbers, Forest City implemented an advanced modular construction process for the residential portion. The developer is able to install eight fully functional apartments per day while reducing labor costs, improving job safety, reducing community impact and still maintaining high quality—all while keeping costs in the $250 to $300 per sf range. Modular “results in 20 to 25 percent cost savings over conventional construction,” Yu estimates, adding, “And in a residential project, every nickel counts.”

Boston Properties VP Kevin Sheehan made an impassioned case for high performance workspace, relaying that savvy business owners in a knowledge-based market like Boston recognize attracting top young talent is the single most important ingredient for success; that the office environment is a key component to achieve that aim; and property owners not on board need to radically alter their thinking. “We see the commercial office industry as the proverbial frog in the boiling pot,” said Sheehan. “If the commercial buildings and the owners of the buildings do not adapt, they will face tremendous devaluation.”

Sheehan cited “Revolution in the Workplace,” a three-year studying detailing the evolution of office space from the industrial age to the “knowledge age.” Spearheaded by BP Regional Manager Bryan Koop, the tome uses BP’s Prudential Center as an example of the shift from the assembly line of insurance invoices underlying the original tenancy to a creative workforce now occupying the landmark tower. “When we talk to our customers, they are absolutely focused on culture, talent, collaboration and sustainability,” Sheehan told the audience. Of the final factor, sustainability, he submitted, “We think it is laughable that there is still some debate in the real estate industry (on the importance of sustainability).” Sheehan incorporated a Google case study outlining the effect of workspace design demonstrating marked increases in productivity and worker satisfaction stemming from their alternative approach. One of the primary components of the changing environment emphasizes a “We” workspace (fewer walls) over an “I” workspace (cubicles),” he conveyed.

A panel of investors fueled by foreign capital was moderated by Real Capital Analytics Executive Managing Director Steven Williams, with speakers including Matt Bronfman, CEO of Jamestown Properties; and Boston-based professionals David Drubner, Executive Director at the Baupost Group hedge fund, and David Greaney, CEO of Synergy Investments. Williams detailed some of the trends in global real estate (“you’d be amazed at how much Arab Emirates money is being invested”), and international interest in the United States—particularly Northeast retail.

Drubner stated that the U.S. has been the beneficiary of foreign investors “not knowing where to put their capital,” because they feel more secure investing in the US. “We feel that there is more political and economic uncertainty outside of the US,” said Drubner. “The banks in the US are much healthier than European banks, because they’ve been able to borrow from the government at 0 percent interest and lend it at 5 percent.”

Synergy’s Greaney outlined how his firm has been targeting Class B office assets, acquiring nine properties in the last 18 months throughout metropolitan Boston, with “three more under agreement.” Greaney credits his ability to acquire those assets with “having good foreign and global equity partners” and also shared that those partners enable Synergy to make smarter acquisitions because “they are able to show more discretion when you’re removed from the market.”

Bronfman of Jamestown (which funds most of their acquisitions via German investors) talked about the firm’s $226 million purchase of the Newbury Street portfolio last summer, a 28-building package whose trade by Eastdil Secured on behalf of Taurus Investments and UrbanMeritage rocked the New England investment scene. “When we looked at Newbury, although the price was high, we think that long term there is the opportunity to grow rents,” Bronfman explained. “And when we looked at rents relative to the operating costs that these tenants pay, we believe we can drive income substantially in the next five- to seven years.”

The afternoon session opened with a “Legal Lightning Round” reviewing three cases that could potentially have major impact on development deals. Moderated by Tod McGrath, President at advisoRE LLC, and faculty member at MIT Center for Real Estate, one case focused on: Brownfields Revitalization and Environmental Restoration Act (Ashley II of Charleston, LLC v. PC Nitrogen,Inc., et al.,) with Peter Alpert of Ropes and Gray and Hamilton Hackney of Greenberg Traurig weighing in on that issue. The next matter covered two decisions on non-recourse stipulations involving CMBS loans from Michigan (Cherryland and Chesterfield cases) with commentary by William B. Forbush III, DLA Piper, and Nutter McClennen & Fish partner Marianne Ajemian. The third case involved provisions in joint venture partnerships, with Barbara Trachtenberg, DLA Piper, and Marc D. Lazar of Ropes and Gray offering their opinions.

A panel of composed of Qian Wang, CEO of Bosun Development in Shanghai; Sameer Nayar, CEO of Cap City in Delhi; Emre Camlibel, CEO, Soyak Holdings in Istanbul and Peter Lewis, head of real estate research for Towers Watson Americas discussed the investment environment in Turkey, China, as well as around the globe. Moderated by Dr. Jacques Gordon, Global Strategist for LaSalle Investment Management, the panel addressed the global financial crisis from their individual country’s perspective, and how they’ve coped to date (all three economies are rebounding more quickly than the U.S.).

The day’s most highly anticipated event was presentation of the coveted Bronze Beaver to the winner of The CASE, the graduate student competition started three years ago by Lam and Mike Tilford (Class of 2009), who also helped organize the event. York University of Toronto took home the trophy for their analysis of a complex real world development site, this year an undeveloped parcel of land owned by the San Francisco Port Authority just south of the Giants Stadium. Columbia University took home second prize and Dartmouth College took third.

The impressive panel included Heather Hohenthal, a partner at TA Associates Realty; Mats Johansson, president, Skanska USA Commercial Development; Don Briggs, Senior VP of Development, Federal Realty Investment Trust; Hans Nordby, Managing Director, CoStar PPR; and to show that this was no mere academic exercise, Jack Bair, Senior VP and general counsel of the San Francisco Giants, and Phil Williamson, Port of San Francisco were flown out to Boston to help judge the competition.