CRE Innovator Interview: Jackson Prentice, Carr Properties
We sat down with Jackson Prentice, Carr Properties’s SVP Portfolio Management, for a candid conversation about commercial real estate, AI, and – yes – COVID. Read on to learn about Mr Prentice’s thoughts on WFH, tech-readiness in the CRE industry and more. This is the first of a series of interviews we’ve had with top managers at Carr Properties.
Carr Properties, an Okapi AI customer, is a leading real estate investment trust which owns a portfolio of 14 commercial office properties totaling approximately 4.4 million square feet in Washington, D.C, and Boston, Massachusetts. The company is known for its innovation and unique approach to hospitality and flexibility oriented workplaces. They have recently won the 2020 “Digie” awards for best use of automation in commercial real estate.
How has your role changed since and throughout the pandemic?
Carr is a well capitalized, very stable company. Our portfolio is over 95% occupied and leased and our customer rent roll is very strong, which has been proven out since COVID. We went from focusing on new growth and value creation within the portfolio to fortification in anticipation of what covid is going to do. In the Early days, March and April, there was a mountain of information that was seemingly changing everyday. To absorb all that was a tall order, and our teams did a fantastic job doing so, getting our buildings ahead of COVID procedures – we were one of the leaders being ahead and making our buildings safe. We’ve created a lot of good will with customers in terms of our transparency, what we’ve done for our buildings and communications – communication is key always, but certainly now.
Now we’re just monitoring our buildings for safety, if there’s COVID exposure – doing all the things you need to do in terms of addressing the community, cleaning the building. We’re focused on our rent collection efforts which have been strong to date, and then the last thing is obviously our retail operators, who are in distress due to COVID shutdowns. Our retail portfolio is small related to our office portfolio but they’re vital to the success and the environments that we’re creating in our buildings, so we’re trying to be as thoughtful as we can, helping them navigate through. On the high level, the role has changed from playing offense to playing defense, making sure we are in the best position as a portfolio and as a company to get to the other side of COVID.
What are the key elements or characteristics you believe people in portfolio management should possess and are they different now?
This is one of the areas where Carr was very well-positioned coming into this. We’re genuine, sincere and committed to a very high level of hospitality for our portfolio as that relates to our customers and our buildings. We aim to be humble and we aim to be good partners to our customers and be in service to them, because at the end of the day, we only succeed if they succeed. We had this approach well before COVID, it’s always been part of our DNA from before and it serves us well within COVID. We’ve been very tempered in our response, yet firm, because we are fiduciaries to our capital. We try to find the balance between holding everybody to their obligations, their leases or otherwise, but having empathy while we all navigate this together. Over the last months our asset managers in collaboration with our operations and leasing teams have done outreach to every single customer out of our hundreds – if not thousands – of customers. That takes a lot of effort and you’ve got to care and be committed, and it perpetuates who we are as a company.
With COVID, I think you got to be able to engage and really discern the truth from the panic – because in the early days there were a lot of knee jerk reactions, a lot of distress with leases and everything else, so really paying attention to details, understanding the business model in terms of where we’re trying to get, preserving our portfolio and cash flow but being empathetic was a big emphasis. And then for the leasing side of things – both the new leases and existing customers – markets everywhere have obviously been incredibly disrupted and basically frozen for leasing activity. We have nonetheless had pretty good success: We’ve done some decent leasing through COVID, we’ve done major renewals, extensions and expansions with existing customers. Our leasing team stays very engaged both in the market and what’s happening and understanding the trends that will come out of this as it relates to sustainability and wellness, which will be key points of emphasis moving forward, which will bode well for our portfolio. While markets are pretty quiet, our teams are busy and doing a good job staying tuned to what’s happening in the market and staying close to our customers.
Tell us about your experience with Okapi and what makes it meaningful to your role
At the end of the day, my focus is on 2 things:
1. how our teams can be perfectly integrated with each other so that there is little overlap in how we’re communicating to our customers, there’s a lot of connectivity understanding the sequence on how we are meeting the demands of our customers, and so the teams are busy but need to be very integrated – especially operations, leasing, asset management and construction management, To have a platform that’s the single source of truth is very important.
2. We want to be proactive and anticipatory. If we’re reacting to something when we could have been ahead of it – that’s not the position we want to be in. We want to understand how customers are using the buildings, what is important to them, be ahead of it and anticipate their needs and give them great service. There are several ways Okapi can help us with that.
We’re in the business of making our best educated decisions on deal making and customer actions etc. To have an enhanced platform where we can have a very robust perspective on our customers – whether existing or new – is meaningful.
What are the biggest issues that portfolio execs in CRE are facing? Are they ready to trust technology?
The biggest issues right now all revolve around COVID and what that means not only for our industry but the world. I think when it comes to our industry, there’s an incredible amount of uncertainty right now, and uncertainty is the evil of deal flow – both from an acquisitions/dispositions perspective and in leasing activity. There are going to be opportunities coming out of this but really to answer this, there are two parts: 1. We have to instill the confidence in our cities that they are safe to come back and that’s exogenous to us at the high level, and we can only do our part, if you will. That means making sure that our buildings are safe, using the best technology especially as it relates to sustainability and wellness – that’s our HVAC systems, our building systems and our offerings both indoors and outdoors spaces.
The Real Estate industry has been a slow mover and adapter of technology – I don’t think there’s a huge difference between the way buildings are run now as opposed to 20 years ago – that’s going to change, and it’s going to change quickly. COVID has accelerated that. Is everybody ready to trust technology? I don’t know the answer to that, but does everybody need to trust and adapt to it? Yeah, because it’s going to be the haves vs the have nots. It’s going to be building technology that enhances the experience and really has top-notch sustainability, and smart buildings that can adjust to people’s behaviors in those buildings for energy use, for example.
2. On the owner side, technology that allows us to have good data, anticipate trends, anticipate use, create and tailor better experiences for our customers, because at the end of the day if we’re making their jobs and their lives easier every day then we succeed, and technology already is and certainly is going to forever more be part and parcel of succeeding in that measure.
When predicting risk and opportunity – what are the biggest gaps that data can fill?
For us there’s macro and micro. We are a pretty robust developer from the ground up and so being able to anticipate trends from a market standpoint and where people are migrating towards is critical, and that’s why we chose to build spec because we believe what’s going to happen there. From a micro level, the opportunity for us is to anticipate what customers need and to have real-time knowledge on things that aren’t working in our buildings so we can address them on a real-time basis rather than hearing from customers or other stakeholders and being reactive. Before COVID, especially in Washington and we were seeing this in other markets as well, there was an amenities race. Some would just check the box and some were for the wow factor, but we had to track the data to see whether beyond that, customers found those amenities useful.
The other place I think data will help us greatly is our wave office platform, our elevated experience out of co-working. These are really flexible spec suites surrounded by well-appointed amenities dedicated to wave office customers. Understanding how they use their spaces and the amenities, and what they need is vital. We think, going out of COVID, wave offices would certainly offer the kind of flexibility a lot of companies are going to be looking for. We’re evolving that platform, hoping to scale it and data will be able to better inform how we move forward and better that platform.
With any deal there’s always risk and you try to hedge your risk and make the best informed decisions you possibly can. We’ve been impressed with what Okapi can do with that. We have our traditional ways of underwriting a deal and understanding the risk with a customer. The more holistic the picture we can get, with both data related to the customer, their industry and trends, that’s a benefit to us because those informed decisions are pretty vital – especially in offices. If you commit to a customer, especially a larger one, the amount of capital upfront it takes to effectuate the deal is significant, and so you’re making a bet that you would then get the cash flow from the rent after you get them in place, and if that gets disrupted, especially in the near term, that’s a major hit to value and something we obviously love to avoid. We’ve had good success but the world is getting more and more dynamic, the lifespan of companies has greatly diminished so companies are ever changing and evolving. So understanding who your customer is, structuring deals around them so they succeed and then try to figure out this flexibility for them, where we can grow with them, incubate them in our portfolio – this has always been important but it’s going to be incredibly important going out of COVID.
From your vast experience in Real Estate, what do you think will the impact of this period be on office usage?
This is the million dollar question, and the honest answer is – who really knows? However, I believe (and so does Carr in general) that urban centers, gateway cities, innovation hubs – while they’ve been greatly impacted by COVID – are here to stay and they will come back. The work from home phenomenon does have its benefits. What happened across 6 months is that people have embraced it, people saw the productivity that comes with it, but it’s starting to erode. At the end of the day, humans are social beings, who need to collaborate. What makes a company successful and special is the culture and DNA it has, and you can really only in large part only manifest that and sustain it and harvest it while being together, and not just virtually. We’re starting to see companies coming back. On the one hand we have Twitter saying they are never coming back – which I have a hard time believing, on the other hand JP Morgan are mandating their traders come back next week. I think we’re going to see this spectrum play out. I think people will have to go back to the office, they have to do it when it’s safe0 Long term, there’s going to be a real element of WFH that will erode some of the office demand, but people will need offices to hub and whether they come to the office 3 days, 4 days a week, you still need space to come in to. And then I think the WFH impact will be offset by the de-densitification impact, where over the last decade the densities were pretty incredible, driven by co-working. That will turn on its head and that’s not coming back anytime soon. The spacial need per customer will grow on headcount per square foot and so there’s probably a minor net negative to neutral on office demand and we remain cautiously optimistic about where the markets are going.
2 trends that are going to come out of this – Buildings that are newer or significantly renovated and have good, clean air, indoor-outdoor space, and smart amenities will win. Buildings with older systems without adequate airflow are going to struggle. There will be some implementation of the spoke and hub model, there will be touchdown points in vibrant suburban markets. For instance, Bethesda here, which was always a good market but it will become more vibrant because people will want to stay closer to home so having a touchdown point with a flexible office there but still having the homebase if you will in the core CBD of cities. It’s going to be a gradual process, it’s going to play out over the next 12-18 months. Hopefully it will continue to turn the right way with COVId and we’ll have a vaccine, cure or at least learn to live with the virus in an effective way to mitigate the downside. I believe people will come back to some sense of normalcy, I’ve seen some estimates that this time next year we’re probably 60-70% of pre-COVID occupancy and then I think at some point we’ll wake up and it will feel very similar to what it was before the crisis. I do think in some countries we’re already seeing that – cities back to almost normal, occupancies and densities upticking up to 60%. I think portfolios like Carr’s will be favored and do well, and then you have to be very thoughtful on new investments and where they’re located, the demographics around them and make sure they’re good buildings with great amenities.
Thank you, Jackson, for this thought provoking interview. We are looking forward to keep following your journey and learning from your leadership.