At the National Association of Industrial and Office Properties (NAIOP) national convention in Seattle, the Office Market Outlook forum yielded a number of nuggets of wisdom. The public/private debate was one of many hot topics.
Dwight Taylor, president of Columbia, Md.-based Corporate Development Services, a subsidiary of recently REITed Corporate Office Properties Trust, said the every-three-month earnings horizon can make life extremely difficult. "Every three months we have to start over again," Taylor said. "That's the downside. It's not impossible, but we are challenged."
Public/private joint ventures have also been a hot topic of late, and Doug Norberg, president of Seattle-based Wright Runstad & Co., said his private company has the best of both worlds in that regard. Wright Runstad manages Chicago-based Equity Office Properties' Northwestern portfolio and partners in a few joint ventures with the office giant.
The urban/suburban debate was also a point of interest.
"I do see a rebound on the part of the cities, but I don't see a reversal or slowdown in suburban development," Taylor said. "The ability to have your office close to tenants' residences is extremely important."
The panel also offered a few solutions on how to underwrite "credit challenged" high-tech clients:
* Some developers and landlords are requiring huge deposits that some emerging tech companies just do not have. Taylor's Corporate Development Services recently insured a high-tech tenant's lease for two years' rent. The tenant pays the premium, which is $.30 per sq. ft. per year.
* Another solution is to make the building more generic to limit risk and have the "credit challenged" pay for tenant improvements. With a more generic building, if the high-tech company tanks, the space should be easier to fill, Hillgren suggested.
Norberg clearly expects some emerging tech companies to tank and tighten credit enhancement for their more fortunate brethren. When that happens, he expects office owners and developers to demand returns similar to what venture capital companies get from their high-tech clients.