IRVINE, CA—John Kilroy Jr. has learned a thing or two about real estate development in his 47 years in the business. Among them, the chairman, CEO and director of San Francisco-based development firm Kilroy Realty Corp. has learned to recognize how the business has changed, and he shared some of his insights at a recent IREM Orange County Signature Icon luncheon event here.
An overarching theme of Kilroy’s presentation was that people are more important than buildings in real estate. “Eighty percent of today’s companies’ cost structure is people.” he said. “The modern real estate executive and tech clusters view the workplace as, ‘Where do I have to be to attract and retain the best talent?’ ”
He also emphasized the importance of “surrounding yourself with a certain type of people: those who can figure out how to get things done. To win, you need an extraordinarily good team.” There’s no room for ego in such a team, he said—successful team members “reassess what they need to do better in order to win.”
And don’t keep “yes people” on your team, he added. “Surround yourself with diverse people, diverse opinions and ideas. Constructive criticism is good. Get around energetic, smart people.”
When assessing where to develop or buy office properties, his firm is focused on five dynamic urban Western markets that attract technology and media talent: San Francisco, the Bay Area, Los Angeles, San Diego and Seattle. These are markets, he said, where the most progressive companies have made a strategic decision to be located, where rents are high and companies are growing.
The firm also looks at three elements when deciding where to focus its energies: 1. location—next to public transportation that works, near appropriate housing and within an environment that has an urban “buzz”; 2. physicality—in buildings that appeal to Millennials, with high densities, lots of natural light, high ceilings and attractive built-in amenities; and 3. yield—can you make money?
The tastes, demands and desires of Millennials cannot be ignored if one wants to be successful in the office market, Kilroy emphasized. “Millennials will represent 70% of the workforce in the US before long. If you don’t think about what the Millennials want, you’re in trouble.”
Appealing to this group means understanding that office space per worker has declined from 600 square feet in the 1970s to 150 square feet by 2017. It also means considering sustainability and environmental consciousness, which is why his firm strives for LEED-Gold or -Platinum certification in all of its properties. Kilroy has a sustainability department that is now focusing on rewriting LEED Council rules so that net-zero buildings can be achieved in properties above two floors—an accomplishment previously unheard of in development circles. And the firm is looking at bicycle storage and maintenance as building amenities due to the popularity of biking to work among Millennial employees.
And speaking of amenities, Kilroy gave examples galore of how his firm has created these, from a video wall to inspire creativity at DirecTV‘s global headquarters in El Segundo, CA, to a rooftop deck with dance floors, landscaping and firepits at 360 Third St. in San Francisco. “It’s not just about buildings anymore,” he said. “Your building is the best tool for recruiting talent. It’s not your father’s office space anymore. It’s not about power buildings. The new successful companies are a meritocracy—if you have the best idea, they run with it.”
Even the role of the development firm has changed, Kilroy said. “We don’t see ourselves as a landlord; we see ourselves as a partner.” The philosophy seems to be paying off. As GlobeSt.com reported earlier this week, the firm has signed four new leases at its Sunset Media Center, located in the center of Hollywood, CA. Tax Credit Co., Inside Weddings, Wind Dancer Films and DHX Media are the companies to join the tenant roster at the 321,883-square-foot vertical creative office campus. In total, these businesses have leased 21,848 square feet of space with Tax Credit Co. leasing the largest space at 12,898 square feet.