Lee Partners of New England

[byline: Bruce Lee; above: 101 Main St Cambridge (Photo by Rofo.com)]

On March 29th I attended the celebration of The Indus Entrepreneurs (TiE) Boston’s move to the heart of Kendall Square for the inauguration of the new TiE-Boston Cambridge office. This was an outstanding networking event featuring a TiE Boston Charter Member and renowned speaker – Venkat Krishnamurthy – also a serial entrepreneur and Oscar Award Winner. Prat Moghe, President, kicked off the meeting explaining that the TiE-Boston chapter was started in 1997 and it consists of 150 members and 27 new members since the beginning of last year. The overall TiE organization has 57 worldwide chapters and 12,000 members.

The new President explained that the organization will focus on three areas for
2012. First is to focus on new entrepreneurs in the Cambridge area – students and bright people. Using social media and hands-on mentoring from existing TiE-Boston members, they want to work where “we can really help” take start-up entrepreneurs and their organizations to “real company” status. Second, TiE-Boston will recruit new members. Third, they want to expand the TiE network – and the new location provides accessibility to the Boston-Cambridge neighborhoods so chapter members do not have to drive to the suburbs for meetings etc.

The by-words for this year are to “Focus, Expand, and Engage”. In addition to the entrepreneur presentation by Venkat Krishnamurthy, Jit Saxina (former founder of Applix and Netezza) provided additional support for the move of the TiE office from the suburbs to Cambridge – and gave an impassioned speech on the value of successful entrepreneurs for the benefits they provide all societies – locally and throughout the
world. Vanita Shastri, Executive Director, explained how the new office was working out for the staff and praised everyone for making a smooth transition into the new office.

Venkat Krishnamurthy then spoke of his successful experiences becoming a serial entrepreneur – starting out while at Stanford University and earning an Oscar for his pioneering work with 3D scanning software in the movie Star Wars – to other various successful start-up ventures. This was quite a night with much helpful advice and ample networking accomplished by all.For Lee Partners, it was especially rewarding to hear the positive comments relating to the Cambridge move – since we represented TiE Boston throughout the extended search and negotiation process that resulted in securing their headquarters office space at 101 Main Street, Cambridge. It was a real pleasure to work with Vanita and Prat throughout the process.

CoreNet Global, the pre-eminent commercial real estate research organization, has produced its latest “State of the Industry” report (link to summary).

One of their major statements is that office workers will continue to prefer office environments over alternatives. I think this is certainly obvious, but they decline to explore the growing trends away from straight offices. Actually, they explain the rise of “Alternative Workplace Strategies” (AWS) where firms are exploring new ways of managing space in order to use less total space for their employees, but do not note the readily available alternatives.

The rise of serviced offices and coworking spaces demonstrates the need for a wider array of options for real estate professionals. Although traditional demand for CRE is “extending tendrils” of an economic recovery, companies are continuing to prioritize cost-cutting and that includes tightening the belt on office space. Many organizations are realizing that anywherefrom 40-60% of their offices are not used at any given time (according to a CoreNet-Steelcase study). Team spaces and collaborative locations are going to continue to take up more of the CRE footprint as the nature of work changes.

It is an exciting time to be following these trends and solving problems for clients as they look to achieve real value from their real estate expenditures.

Tishman Speyer hosted a reception at their 101 Federal St property with NAIOP – the premier organization for real estate developers and associated industries (certainly including brokers). The title was “Lifting Boston’s Low-Rise Space” and focused on the difference between upper level office space and how lower floors are harder to lease up. The program started on the 7th floor where they had recently installed windows around the entire space. It had originally been a check processing center with no window, which nowadays downtown is just not a viable.

It was a great crowd and an excellent group of speakers. Dave Martel, Exec. Director of Transition Services and Cushman & Wakefield led off with some great observations. The financial district is 12% vacant but below the 20th floor, it is 23% vacant! He noted that tenants don’t have a lot of imagination: if it doesn’t show well at first, you’re dead. Upper floors are really in good shape. In 2010 we saw an historical shift of best, highest rates, going to Back Bay for the first time. What will be next? He is sure big deals are coming to the CBD as this is where the value for money is.

Brian Chaisson is the Regional Director for Boston at Tishman Speyer and he went over the history of the building and the renovations. Does anyone know a user of 55,000sf floor plates? Esp. in this one, with lifestyle amenities – people do spend a lot of time in their office buildings. Users are looking for operational efficiencies and lifestyle efficiencies – thus the sport club, conference facilities, retail inside the building, and esp. the roof deck. Sam Schaeffer, the senior director of leasing at Tishman, also chimed in and I actually spoke with him for a while later on – great guy!

From Eastdil Secured, Jim McCaffrey noted that owners need the $45/sf rate since transactions costs are from $25-$40/sf.  He is confident that the Financial District will continue to be a good place for business. The quantitive easing going on in the global economy means there is loads of capital sloshing around looking for safe assets in low-risk markets like Boston. Investment sales may be ahead of leasing right now, but it will come back and we will see rents of $50-55 throughout the city. Also driving this attractiveness of downtown space is the new generation of workers who want urban 24h cities. No one is going to 495 he declared.

Fred Kramer at ADD Inc, a design firm, chimed in to say how new workers are a generation about intersection: of work/life, of commerce/recreation, of technology/authenticity. They want to be where the action is. They like coworking environments. Dave Martel picked it up – let’s brand this area for young urban workers. Small firms can’t hire, can’t retain young workers in the burbs. Innovative businesses need to be in the city for the talent. And that Seaport District is still a seaport – there is no where to eat over there. The Financial District is the real Innovation District in Boston.

We went up to the roof deck for some serious appetizers and a couple of drinks. I joined Dave for a conversation and we talked about flexible office space, how can the city work with the innovation branding. One of his colleagues, unfortunately I can’t remember his name, was asking where all the young techie workers are going to come from (where are they going to live: the new condos going up are $2000 for a 1BR). Dave thinks the market will take care of that.

I met a bunch of good people and will hope to stay in touch with these good NAIOP folks. Some of them will be able to help Lee Partners with some leasing deals for innovative agile small businesses. Thank you to Elisif the photographer at NAIOP who took these great shots – did you see me in the first pic – rightmost seat in the fourth row? I hope I can visit that roofdeck again!

A trio of dutch real estate finance economists have recently published a paper confirming higher returns for REITs that invest in buildings with energy standards and other green screening tools. I just found a great quick article on it at FS Insight (sharing what matters in finance and sustainability).

Maastricht University academics produced a great report that should support asset analysts and investment decision makes who are looking for a leg-up on competition. “We document that the greenness of REITs is positively related to three measures of operating performance – return on assets, return on equity and the ratio of funds from operations to total revenue,” say Piet Eichholtz, Nils Kok, and Erkan Yonder, has numerous scientific conclusions supporting green REIT preferences.

They continue from previous research that determined: “The general evidence indeed shows positive financial effects associated with better environmental performance. For example, commercial buildings with energy efficiency ratings command significantly higher rents, higher and more stable occupancy rates, and higher prices than otherwise comparable conventional buildings (Eichholtz, Kok, Quigley, 2010; Fuerst, McAllister, 2011). On the other hand, lower levels of energy efficiency and sustainability have been associated with an increased risk of obsolescence (Kok, Jennen, 2011).”

Although the paper is a couple of months old, I thought it would still be very useful for folks to review. I always enjoy a good academic article supporting the intuitions I have from my gut!

Reit.com recently posted this quick (4 mins)  interview with the GSA’s Federal Director, Kevin Kampshroer.

In Summary:

GSA is committed to sustainability. The real estate industry has turned the corner: 20-30% of firms have embraced the concepts. It is no longer an early-adopter phase. Total adoption is on the way.

Corporations that embrace sustainability discover side benefits:

• Costs reductions (20% less than market in the case of the GSA)
• Integrate disciplines to drive waste out of the system and create a better product
• The younger generation in the workforce wants to work in buildings that are simply “doing the right thing”

GSA is a leader in the effort to use property more effectively. 50% of office space is empty at any given time. Sustainability is a framework for driving costs out of the portfolio.

It is great to hear such a bona-fide entity, the GSA, championing the cause. It really does make sense.

We were recently contacted by an interesting firm. Helpmovingoffice.com are an up-and-coming firm based in the UK who help tenants with all aspects of moving their office. If you are considering making a move, for any reason, you should check out their website. You will be able to download some very useful checklists outlining all the issues you might face. The can refer you to the variety of vendors who can assist you in a move, including:

• Movers
• Designers
• IT consultants
• Tenant representation
• and Legal support

Other guidance, as checklist templates, help you map out the budget and timeline of your planned move. There’s also a “7 Deadly Sins of Relocating” that you can download. To get the checklists, you do need to enter your contact information (nothing valuable is really for free) and you may be contacted by some representatives of the vendors, who are ready to help you.

The site is a good way to link space users, who are needing solutions and guidance in moving, to professionals who can help that process be more efficient, productive, and valuable for the tenant organization. www.helpmovingoffice.com – check ’em out!

It was a dark and stormy…day, in Boston’s Seaport District. Also known as the Innovation District.

You can see the hulking roof of the Boston Convention Center on theleft, the towers of International Place and theFederal Reserve on the right. The foreboding figure in the center is an exhaust structure from the Ted Williams Tunnel. And surrounding, the many parking lots. All this will be re-developed in the coming years. More to be seen to the right of the photo – the Fallon Company’s Seaport Square project. More on that in another post.

Real Estate BisNow put together a great show about apartment complexes this morning. Many players in the multifamily development industry came together. There were two panels: one on developers and one on owners. Developers included WinnDevelopment’s Larry Curtis who mentioned how they build the $2/sf/mo rental for regular people, not the $4/sf/mo like Avalon Bay and Equity Residential (both represented). Simon Butler of CBRE noted it costs $400/sf to build institutional (pension fund and REIT) quality apartment complexes, and that is getting hard to do in the Boston area. The speakers agreed that the constrained development market is good but the extremely low cap rates, 4% these days, are too low to handle long-term management/cap improvement needs. Some projects are going to be built as inventory for other owners in the future, said Larry Curtis.

The Owner panel included Bobby Zucker of Chestnut Hill Realty, Bill McLaughlin of Avalon Bay, Bruce Percelay of the Mount Vernon Company and the legendary Harold Brown at the Hamilton Companies. Home ownership is at a 66% rate now, over the historical 64%, and Bill McLaughlin believes that will decrease and decrease. Millennials want urban living, and many people are realizing renting is not bad – plenty in Europe do this for generations. Harold Brown wanted everyone to be careful – three years ago he said it was time to invest in multifamily, and now it’s getting pretty hot if you’re not already there. As the business cycle comes back, cap rates will increase, and developers will lose buildings. Bruce Percelay noted that Boston is a hot market benefiting from wholesale cheap money, a raging bull market in a sluggish national economy that keeps the rates low. Bobby Zucker mentioned that because there are so many demand drivers, it is still a good market to put money into, those drivers aren’t going away soon. He also mentioned there are a lot of technical improvements in property management and leasing that improve his organization’s profitability.

Bruce Percelay described how the new product they are putting onto the market is superior to so much of the stock in Boston – you just can’t improve a lot of old buildings to today’s demand. Harold Brown mentioned they don’t use “OPM” – Other People’s Money – so they have more room to be creative, but cautiously. When Bruce suggested his projects will have unique features tenants want, Harold quipped “views?” and Bruce quickly responded: “Ours will actually have windows” – to which the crowd had a tremendous chuckle considering the reputation the Hamilton Co. has for low-grade apartments. “Well said” retorted the still-quick at 84 Brown.

All in all it was a great meeting, and I learned a lot. I caught a few people to talk about green leasing and some were interested, some still trying to resist, claiming it costs more. I explained the benefits outweigh the costs if you look at the whole picture of aligning your space with your brand, if you’re trying to attract and retain the best talent, and if you are serious about saving operating costs. I made some good connections and had my daily portion of fruit from the buffet! I’ll keep you posted about my next excursion into Boston’s Real Estate world with BisNow. Let me know if you plan to attend one and we can meet up!

The first week of the New Year started off with three separate space planning sessions – all for different suites of office space. A critical component in the leasing process is to conceptualize and then to finalize the office space requirements – such as how many offices, conference rooms, open cubicle areas, storage space, kitchenette considerations, server room size and needs for special HVAC, reception area, specialty rooms, adjacencies for operations, and other critical unique needs.

This process is helped tremendously by having a space planner and / or architect assist in this effort. A “first pass” interview and “bubble plan” is usually part of the process. After this plan is reviewed and refined a second version is circulated to the interested tenant senior management for further refinement and edits.

Once a final plan is agreed upon it can be submitted by the Landlord to a general contractor for pricing. Upon receipt of contractor pricing the Landlord can calculate a lease rate that can make the numbers work for a lease – including any concessions that may be needed to “make the deal.”

You can see how important the space planning process step is in the leasing process – and starting off the year with three planning sessions with both Landlord and Tenant bodes well for increased leasing activity at the start of 2012.

Usually it is pretty quiet the last week of the year – but not 2011!

We had a terrific meeting on Tuesday to review a build-to-suit site in along Rt. 128. Here we are working  with a national franchise operator and a local future franchisee that needs about one acre to meet their new building requirement. We met with a colleague of ours with whom we have previously worked on construction projects for Eastman Kodak (90,000 sq ft) at the former Wang Towers in Lowell, Eastman Software (107,000 sq ft) on Concord Road in Billerica, and PhotonEx (150,000 sq ft.) in Maynard, MA. They are a pro outfit and this meeting could lead to another build-to-suit project.

We are negotiating daily with a tenant considering office space at 1087 Beacon Street in Newton – and this one has an unusual twist – where the tenant will be building out the entire suite – in return for a somewhat lower than market lease rate. This potential transaction will benefit both parties in that the tenant will be able to control the construction process and the Landlord will be relieved of the responsibility to build-out the space. A meeting of the minds could result in a very long term lease commitment to the office space.

In other activity, a co-operating broker – PointLine, Inc. – out of Tampa Florida continues to work with us on one of their national clients – PSS – in S.E. Massachusetts. Another co-operating broker – Hunt Corporate Services is finishing up a lease deal with their client PNC Mortgage in Burlington. In both of these instances we are utilizing our national contacts to facilitate and support lease transactions in the Boston market area. Up in New Hampshire we continue to work this week with one of the most professional brokers in the business – Mike Monks of Monks, Inc. He is helping us locate and secure space for our long term client in Canton, MA. Our client is reviewing space plans, HVAC and electrical
specs, and maps at a site review meeting later today for a R&D and office leasing  requirement in the Hudson-Nashua market area.

Interest is also picking up at 209 Burlington Road, in Bedford. This is one of our long term listing commitments (sold building in the early 1990’s). A new tenant prospect is looking to lease up to 5,000 sq ft. of office space, and they have requested a floor plan design, incorporating their requirement into a new buildout office space layout.

We will be working on this with the Landlord’s support team over the next few days. In addition, a small CPA firm is confirmed for a tour of office space at this building for later today – as strong end of year leasing activity for our projects continues!

On Dec 20th, about 20 people participated in a tour of the Castle Square Deep Energy Retrofit project. Assembled by LISC (Local Initative Support Corporation)-Boston Program Officer, Elizabeth Glynn, the group came from a number of different housing agencies/organizations around eastern Massachusetts. Grey Lee, Sustainability Coordinator at Castle Square, co-facilitated the tour with Bruce Hampton (Elton+Hampton Architects), the lead architect on the project, and Tom O’Neil, from Pinck & Co, the CSTO (owner)’s rep in the construction project. Melissa Martinez from Pinck & Co also helped guide us and answer questions about the project. It was a great team of presenters and very cool to get access to “behind the scenes.” Below is Bruce and Tom explaining the energy savings – comparing the energy profile of “before” with “after” and describing all the different places (the segments on the bar chart) where energy savings came from. There was no silver bullet – the savings came from an integrated process coordinating technologies to provide incremental savings, adding up to the modeled 70% – amazing – savings.

We filed through one of the “hospitality suites” – one of the  units in the mid-rise (the buildings along Tremont Street) to see what it was like for the tenants. These suites are available for any resident to spend time in when any construction needs to happen in their unit, and they have nowhere else to spend the day. The tour participants were impressed by the quality of the general upgrade – the kitchens and bathrooms, the windows and various doors. The picture is looking onto the roof over the commercial space that CSTO rents out to small businesses along Tremont St. The workers are putting a hole through an insulation panel for the direct outside air intake vent – these enable a temperature-restricted flow of fresh air into the apartment while the ventilation system is gently pulling waste air out of each unit.

The group wanted to see what this big retrofit project was all about. Below is a picture of Tom O’Neil describing the three new natural gas furnaces in the rooftop mechanical room. Where everyone is standing was once a giant old oil-fired boiler. The white wall at the rear of the photo was open, through louvers, to the air. In winter, intake air was ambient temperature. Now, with the heat recovery system, building exhaust air from all the interior space passes through a heat exchanger (not seen here) on its way out, pre-heating the intake air for the system and enabling it to use less energy to bring everything up to the distribution temperature. Much more efficient. The red tank on the right is an expansion chamber for the solar-powered domestic hot water system, its storage tanks are larger out of frame to the right.

These three natural gas furnaces replaced a machine the size of a van in this room.

From the top, looking northwest, the towers of Boston’s Back Bay…Castle Square is in the heart of the city.

The tour group at the top of 484 Tremont St, CWC Construction workers getting the final exterior insulation panels fitted to the top of the mechanical house on the roof. In the foreground is a helmeted exhaust vent, part of the heat recovery system – the air coming out of the building, pulled by the fans of this unit, is heating intake air, thus it is cooler than directly vented interior waste air.

Here’s what we were looking at: The fabulous solar hot water arrays.

This is a shot looking up at the underside of the solar hot water system. I should have rotated it but either way, you can see the plumbing. 20% of the hot water will be heated through these panels. Maybe we can work on another grant to get more of these things upstairs!