BentleyForbes Q&A

GlobeSt.com: What were the reasons for creating the COO's position?

Cobb: We have grown the company rapidly in the past four years. Once you reach a certain growth point, you really need to bring in some extra senior management to execute the game plan. The roles that are now directly reporting to Bert were reporting to me.

GlobeSt.com: Atlanta, Chicago and Dallas are among the top markets on your list of potential places for expansion. What is it that you like about those markets?

Dezzutti: We like Atlanta and Dallas because they are high job-growth markets. If you take a look the market research on those cities, you can see from the statistics that both Atlanta and Dallas have increasing office worker employment in the coming years. In addition to that, we really like the real estate that we own in all of these markets. In Atlanta, we own Bank of America Plaza, which we believe to be the premier office asset in the market. The same is true in Dallas, with Preston Commons and Sterling Plaza. In Chicago we own the premier asset in the East Loop submarket, Prudential Plaza.

GlobeSt.com: What are your redevelopment or repositioning plans for existing assets?

[IMGCAP(2)]Dezzutti: We are in the process of repositioning and redeveloping the Watergate Office Building in Washington with two significant capital programs, one for the 200,000-sf office building and one for the retail component, which is approximately 60,000 sf. We are expending significant capital to upgrade the building systems, cosmetic upgrades, you name it, to obtain better velocity and lease-up and a more competitive product. We are well under way with a repositioning of a building at our Preston Commons [a three-building, 418,604-sf office complex] in the Preston Center submarket of Dallas. The capital program is a complete renovation and repositioning of an asset that is 25 to 30 years old.

Cobb: We are also undergoing a major renovation at our Four Seasons Hotel & Resort in suburban Dallas, which is a 400-acre development. We have spent about $12 million on the two golf courses there and are doing about a $15 million property improvement to the lobby, the rooms and the common areas. Also, as we speak, we are building 34 new hotel luxury rooms and hope to get city approval to build 68 brand-new luxury condos on the property, which has never before had any condos for sale.

GlobeSt.com: Do you have any other hotel acquisitions in sight?

Cobb: We are a very select hotel buyer. We only want to buy hotels that are the very cream of the crop, the very best in their location, are unique or have locations that cannot be duplicated.

GlobeSt.com: How about future office acquisitions?

Cobb: Purely speaking, our focus will continue to be class A office multi-tenant and some single-tenant. Given that, our most likely places for near-term growth would be in markets where we have a pretty good penetration. Having said that, we do look around the country in the Top 20 MSAs for acquisition opportunities and are always trying to evaluate the opportunities in terms of the likely return in one market compared with another. At the time we bought the assets in the markets we're in, we contrasted them with much lower cap rates in certain markets like Los Angeles, San Francisco, Boston and New York so we are always trying to evaluate expected returns in one market versus another.

GlobeSt.com: Do you have a sweet spot in terms of the size of deal you like to do?

Cobb: It depends on whether it is a single-tenant or a multi-tenant building. In the single-tenant world, our deals are about $20 million to $100 million and in multi-tenant, which is where most of our activity has been in the past four years, it's about $75 million to $250 million.

GlobeSt.com: Do you plan anything on the disposition side?Cobb: We are on the market right now with the Watergate as a sale or joint venture. We feel that since we are in one of the best markets in the country with a famous name and a good property and assumable fixed-rate debt in place, we could either bring in a partner or sell the property and harvest some gains, which we would redeploy into other assets. On that one property we would either sell or joint venture. We also have another property that we have placed on the market recently in Fort Lauderdale, but in that case we are looking only for a joint venture recapitalization partner.

GlobeSt.com: How do you plan to maximize the returns from your existing properties this year and in future years?

Dezzutti: We're going to have an enhanced focus on driving revenue through our leasing and marketing programs. That is really what is going to have the largest impact on our performance this year and going forward, especially with markets that are a little less stable in some cases. In this kind of a market, it is all going to be about leasing and revenue maximization. For us, that means finding the right balance between velocity of leasing and rental growth and then maximizing our control over expenses.

GlobeSt.com: What are you doing to reduce expenses that are passed through to your tenants?

Cobb: If you look at our expenses at the property level, the largest expense typically is real estate taxes and obviously every real estate tax assessor in the country is trying to increase the property valuations because we've had a bull market for so long. That means that every owner of commercial real estate in America is dealing with greatly increased real estate tax assessments. It's up to us to push back and keep those valuations down because that is a huge factor that is affecting operating expenses. We basically appeal every assessment.

GlobeSt.com: Do you have any specific goals in terms of how much capital you want to deploy and over what period of time?

Cobb: In today's environment, considering the credit markets dislocation, it's really difficult to forecast the next six months of activity, let alone anything further out. We don't have an annual goal in terms of how much we want to invest. We try to react in an entrepreneurial way to opportunities in the market. In general, however, we are trying to build our company from roughly $2.5 billion of assets to around $5 billion over a five-year period.