Positioning to benefit from an economic upswing, Equity Office Properties Trust has shifted over the past two years from a "building-centric" investment strategy to a "portfolio-centric" approach, says Richard Kincaid, president and CEO. Equity Office — which owns $25 billion in assets — is the nation’s largest office owner other than the federal government.

"We’re going to a very different operating model for the first time in history," said Kincaid. "Our strategy is to maximize occupancy and effectively recycle capital."

Kincaid’s comments came during an investor meeting hosted by Fidelity Investments on Thursday. Kincaid and Sam Zell, Equity Office chairman, provided overviews of the real estate investment trust (REIT) industry and Equity Office (NYSE: EOP) during the 90-minute presentation.

Rather than focusing on each of its 706 buildings "as an island," the REIT plans to focus on economies of scale for its 124 million sq. ft. portfolio, Kincaid says. It’s reducing the number of management offices from 169 to 48, slimming its headcount by 13% to 15% and centralizing procurement vendor contracts from 950 to a mere 88. He estimates these steps will save the REIT an estimated $10 million annually in 2004 and beyond.

In addition, EOP is narrowing the focus of its capital allocation strategy. "We are exiting MSAs in which we don’t want to build concentration," Kincaid explains, "and you will see us expand in core markets, particularly those core markets that are contiguous."

Kincaid defined core markets as those where sustainable job growth can be found, such as San Francisco and Boston. EOP currently owns property in 30 MSAs around the United States.

Taking a broader perspective, Zell said the future is bright for EOP and the REIT industry. One main reason? He notes that currently a total of 23 million sq. ft. of commercial real estate is under construction in the U.S., compared with 100 million sq. ft. per quarter in 2000 and 2001. "Construction in most product lines is at minimal levels," he explains, "boding well for real estate recovery."