REIT CEOs Highlight Silver Linings at NYU Schack Conference


During a panel titled “The Long-Term Impact of COVID” at the 25th Annual REIT Symposium hosted by the NYU School of Professional Studies Schack Institute of Real Estate, REIT executives discussed their operational gains and losses as a result of the global pandemic and the calls for social justice that have shaped the past 12 months.

Boston Properties CEO Owen Thomas said his company’s office buildings have stayed occupied from a leasing standpoint while only 8 to 10 percent of workers have returned to the office.

Meanwhile, the company has been collecting 99 percent of rents, and they completed 3 million square feet of new leasing this year—60 percent of normal but the market is 40 percent of normal.

“And these were not just short-term, kick-the-can renewals,” Thomas said. “The weighted average lease term of all those deals is over 8 years.”


READ ALSO: Global CRE Industry Optimistic About the Future: SIOR


Thomas added that his company has felt the impact of the pandemic mostly in its variable income streams—parking, retail and one hotel, resulting in the company’s run-rate FFO per share to be down 15 percent. But, while their stock price is also down due to work-from-home concerns, they have maintained their dividend.

Boston Properties also completed a $1.25 billion unsecured bond deal early in the pandemic and an $800 billion green bond deal about a month ago.

Fellow panelist Edward K. Aldag, chairman of Medical Properties Trust, said his firm also collected “all of their rents” and “truly had a fantastic year,” managing to acquire $3.5 billion dollars of properties—mostly before the pandemic and late in 2020. This year, the company made a large behavioral health acquisition in the U.K., and that will continue to be a bigger focus for the company.

Public Storage Chair Ron Havner said his company saw a surge in demand first quarter 2020 as students moved out of colleges, followed by a dramatic drop in demand and moveouts in the second quarter. During the third quarter, they saw a pickup in demand that continued during the fourth quarter and first quarter of 2021.

“While move-in volume is down 5 to 8 percent, move-out volume is down 10 percent and customers are staying much longer,” he said.

 

Clockwise: Boston Properties CEO Owen Thomas; Medical Properties Trust Chairman Edward K. Aldag; Public Storage Chairman Ronald Havner, Goldman Sachs Real Estate Investment Banking Global Co-Head Mike Graziano, and REIT Board Director Mary Hogan Preusse,

Changes That’ll Stick

COVID-19 and other disruptions have certainly changed how these companies operate—in some ways permanently.

“Before the pandemic, we’d been experimenting with some greater technology in the operation of our business and piloting a thing called e-Rental, where you can do all of your leasing online,” Havner said. “When the pandemic hit, that got rolled out right away.”

Today, 46 percent of Public Storage’s customers are searching locations, signing leases, and vacating spaces online. Customers are also paying online, which has put a dent in the company’s revenues from late fees. Meanwhile, Public Storage’s two call centers of 200 to 300 people have gone remote. “That’s not coming back.” Havner said.  


READ ALSO: What the Future of WFH Means for Office Space


Ed Aldag said the biggest change is the way the industry now gathers and communicates. While the company was happy to have virtual offices when they needed them, he finds traveling critical to forming new relationships and is anxious to see that return. And the company will definitely be expanding its physical office presence in key markets.   

“I believe you do business with people and not with corporations, and it is hard to do business this way,” said Aldag. “It is OK if you have a long-term relationship with someone, but trying to form a new relationship over Teams or Zoom or teleconference just isn’t the same thing as being across the table from someone.”

Thomas agreed that not being able to be in person can be frustrating but, he said, COVID-19 has highlighted the importance of communication, and virtual meetings offer an immediacy that was previously not possible.  

“I think there have been some positives that come out of this whole virtual Zoom environment that have helped us come together and coordinate more across all of our (six) regions,” he said.

Other changes at Boston Properties that are likely…



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