Commercial real estate companies face cyclical changes in supply and demand that may leave them with considerable excess real estate during the retrenchment phase that follows accelerated growth. Although the standard approach of many brokers to finding tenants — talking to other real estate brokers, sending out flyers, holding an open house — will work fine during a boom, trying times and idiosyncratic properties require a more sophisticated analysis to match landlords and tenants.
#b#Joseph Hamilton#/b#, senior vice president of client solutions at Cornish & Carey Commercial, a California-based commercial realty company, has used an analytic approach with great success. His company looks at a propertiy’s potential appeal to another party, then evaluate the demand component of the marketplace to find tenants. “It is a more analytic and targeted approach to doing transactions,” he says.
Hamilton will present “Strategies for Eliminating Leased Properties from the Portfolio,” on Tuesday, February 23, at 8:30 a.m. at Johnson & Johnson, 501 George Street, New Brunswick. Cost: $50. Visit www.corenetnj.org, or call 908-663-2708.
Hamilton offers three situations in which his approach has been successful:
#b#An atypical, customized headquarters campus#/b#. A number of years ago Hamilton was asked to dispose of an idiosyncratic campus that was built and customized for a single company. The campus had lots of open area, meeting space, and a large cafeteria. But it was not easily divisible for multiple tenants. The company that held a long-term lease on the property, says Hamilton, “thought it was a white elephant in a tough market and thought it wouldn’t fit anyone.”
Hamilton explains that the normal approach of talking to other brokers and inviting people to tour the facility would not have worked. “That’s a waste of time for something that has attributes and circumstance not typical in the market,” he says.
Rather than advertising the property widely to people who would not be interested, Hamilton isolated a few potential customers by researching regional companies he thought would fit into the campus’s existing environment. One of them was a young, not-yet-public company named Google. “Google was not out in the marketplace looking because they felt the only way they would have the kind of headquarters they wanted was to build it themselves,” says Hamilton.
After selling Google on the property Hamilton had to convince the building’s owner, a Goldman Sachs entity, that a long-term lease with Google would be good from a credit risk and portfolio perspective. The owner agreed to the complicated deal that Hamilton structured, and Google moved in with a long-term lease.
#b#Four buildings with a common courtyard#/b#. Hamilton represented a company that had a long-term lease on four buildings, a total of 250,000 square feet, around a common courtyard, but his client had downsized and was now occupying only two of the buildings.
“The prior broker was concentrating on the two empty buildings and talking mainly to smaller users in the market,” says Hamilton. “He was trying to get some deals done in a scattergun kind of approach — ‘We have a place; if you’re interested, we will give you a tour.’”
But after a year this approach, which had yielded few tours and no deals, the company asked Hamilton to take over. Hamilton focused on subleasing the four buildings as a mini-campus. The company leasing the buildings said it could move its staff quickly, and Hamilton calculated the demand for different sizes of real estate by reviewing the recent history of deals in the area.
The next step was to analyze the attributes of the campus as compared to others available in the same marketplace: benefits, rent, location, desirability, and operating costs. In terms of costs, he compared different options, such as the net cost of leasing the complex in its entirety versus doing it in segments. It was clear to him that segmenting these buildings would be costly because they did not possess common lobbies for easy exit and entry.
The costs for subletting to smaller entities, therefore, were likely to be high, since they would include both tenant improvement costs and loss of rentable space used to create common areas, exits, and entries.
Hamilton found that although few companies were looking for more than 60,000 square feet, the company’s mini-campus had more benefits than many other spaces of the same size. He advised his client: “It is valuable for you not to subdivide. You can compete effectively on a rental basis.” With the attractive setting, and a small cafeteria in one of the buildings, it made sense to offer the four buildings as a single campus.
To find prospects, Hamilton looked at companies that had recently experienced rapid growth and needed to spread into several buildings. He called about 20 prospects, positioning the buildings as a full campus, but did not find a single tenant for the entire space. Within three months, however, he had leased it to two tenants. The original corporation moved out within 60 days.
#b#Subleasing space in a high-rise building back to the landlord#/b#. A client had a long-term lease for 150,000 square feet in a 600,000-square-foot high-rise, but no longer needed that much space. The company tried to sublease the extra space but did not have much luck.
First of all, they lacked the skill set required to sublease. Secondly, they were competing with the landlord, who also had space on the market. “If you are in a situation where you are competing with you landlord as a corporation trying to get rid of space, you never will be as successful as the landlord,” says Hamilton.
Because this situation was in neither party’s interest, Hamilton engineered a deal in which the landlord agreed to sublease all of the space back from the company at the current fair market rent — which was less than the original deal. The advantage to the company was twofold: it handed over the subleasing to the landlord, who did this for a living; and it no longer had to do a quarterly analysis of its reserve costs on the project because its loss on the property lease was now locked in and no longer a market-driven, uncertain amount.
Landlords like to be in control because the amount of income a building produces defines its value, and they don’t want a tenant driving rents down through bargain-basement subleasing. Hamilton likens the situation to an auto dealer, with a person who had leased a bunch of cars standing next door and leasing them because he doesn’t need them anymore.
Hamilton grew up in New York City. His father spent most of his career in the banking business, and his mother was a businessperson on the accounting side.
After graduating from Fordham in 1973 with a bachelor’s in mathematics, Hamilton earned a master’s in applied mathematics and operations research from Columbia. He also has an MBA in finance from University of California-Berkeley.
His first job was in asset and liability management analysis for Citibank’s finance division in New York City. Then he moved to the West Coast to work at Crocker National Bank, where he worked in commercial lending and corporate finance, focused on technology companies.
After about 10 years he became CFO at San Francisco’s Grubb and Ellis Company and then became COO of Cunningham Communications.
After Cunningham was sold, Hamilton moved back into real estate as senior managing director at Liberty Greenfield, a boutique company that worked principally on very large headquarters and intensive, financially oriented real estate transactions. He opened the firm’s Silicon Valley office in 2003. His clients included Hewlett Packard, Blue Shield of California, and Gilead Sciences, among others.
In 2007 Hamilton joined Cornish and Carey, a large regional commercial real estate, with, 11 offices between San Jose to Sacramento and about 250 brokers.