Development Done Right
How people interact with retail and office real estate is changing, but one firm is banking on creative, sustainable solutions to win the future.
Whether it’s increasing outdoor dining or reducing density in offices, high-traffic areas that are a part of everyday life will permanently change due to the pandemic. This isn’t inherently a positive or negative — commercial real estate professionals will play a significant role in determining the ultimate value of these alterations.
To discuss what the office and retail sectors may face in the near future, we spoke to Matt Bronfman, principal and CEO of Jamestown, a global real estate investment and management company that has completed major downtown projects like Chelsea Market in New York, Ponce City Market in Atlanta, and San Francisco’s Ghirardelli Square. He details the firm’s ability to thrive in difficult times, the need to support tenants during COVID-19, and strategies for approaching the retail space from a unique perspective.
Listen to the full podcast episode.
CIRE: You are proud of escaping the Great Recession relatively unscathed. What was the primary reason Jamestown has been able to thrive despite difficult markets?
Matt Bronfman: We were one of the largest sellers in the U.S., a little over $5 billion in the 18-month period leading up to the Great Recession. As a company, we viewed the markets as overvalued. Now, to be clear, we took our lumps as well, but we had diversity in assets across markets and property type — that helped us a lot. We also have a strong internal value-add team. We have people who do leasing, who were in marketing, and who were in development construction.
I am a believer that there’s a difference between what I call allocators of capital in real estate space, who tend to sit on the sidelines and cross their fingers and hope things go well, and operators of real estate, who roll up their sleeves and dig in the dirt, so to speak. We’re in that latter category. We’re roll-up-our-sleeves types. We’re in the real estate business; we’re not money managers. We’re not tech guys by nature. We’re a real estate company, with all our internal skills vertically integrated.
It’s easy when the wind is at your back and things are going well. But when you’ve had to fight and create your own momentum, I actually think the Great Recession made us a much better team today. It made us resilient. It made us more creative.
CIRE: COVID-19 has been an entirely different crisis. How has Jamestown’s business strategy held up in the last 18 months?
Bronfman: It’s a cliché, but from crisis can come opportunity. The Great Recession led to opportunities for us to be a better real estate company and define some great buying opportunities. The COVID-19 crisis has presented unique challenges, and I think having a vertically integrated, hands-on team has helped us a lot.
This has been unlike anything we’ve seen in the past, but we learned to be very creative. We came up with a $50 million fund to help our small business tenants, our local retailers, restaurants, and the like survive the pandemic. That took some creativity. It took a lot of capital, but we were committed to keeping our tenants in business. So yeah, I think we learned the importance of being creative in 2008.
CIRE: You mentioned the $50 million fund for tenants. How was this resource implemented? How did your clients benefit?
Bronfman: We provided loans for small businesses until they could access PPP loans. These loans could also go to a restaurant that needed to redo its kitchen or create outdoor seating. We also set up a tenant portal, so they had a resource to find best practices — like how to apply for loans, how to improve your app, and how to increase to-go offerings, for example.
One of the things that good retail does today is it becomes part of the community. One of my go-to stories is about bookstores — we have bookstores at a few of our projects. These may not be the highest-paying tenants, but if you’re going to see your project as a Main and Main, I think you need to have a bookstore. It’s all wrapped up together. Whether it’s having local tenants or national ones, having a bookstore for the area, offering a tenant portal, setting up loans for tenants — it’s all about being part of the community and helping to foster that feeling.
CIRE: Speaking of being a strong corporate citizen, when it comes to ESG, Jamestown announced it is committing to net-zero carbon emissions at Levi’s Plaza in San Francisco by 2025. What does ESG mean to you? And what was the story behind making this commitment now with this particular property?
Bronfman: Sustainability has been a part of our business plan that our asset managers and developers focus on. In other words, it’s part of the acquisition plan. When we buy an asset, our team examines if they are making the right decision from a sustainability perspective. Number one, it’s simply the right thing to do. Beyond that, I will tell you that I think it’s the right thing to do economically and financially as well. It’s good for prospective tenants because we think they really embrace and support these initiatives.
We work with a lot of creative and tech companies, and they want to see a building that is focused on sustainability. It’s also important to our investors, to current investors in our funds — things like that. Finally, I think it’s important from a capital markets perspective. In other words, in 10 years from now, when you go and sell a building, the pool of people who are interested in actually buying from you is going to be broader. You will engage more potential buyers when you have an environmentally responsible story to tell.
CIRE: What are some other trends you are seeing emerging from the pandemic, especially since Jamestown is in the office and retail sectors? What does the future of these asset classes look like in your opinion?
We work with a lot of creative and tech companies, and they want to see a building that is focused on sustainability. It’s also important to our investors, to current investors in our funds.
Bronfman: That’s a great question — and one that everyone is focused on now. First, we still believe in the office environment. I believe that collaboration, mentorship, and spontaneous encounters in the lunchroom are all important things. Work from home worked, particularly at the beginning of the pandemic when, candidly, everyone was super scared and worried about the virus, worried about losing their job, worried about everything really. But as we’ve gotten further along, it’s become more and more apparent to more companies that getting people back in the office is necessary. The more you see people in the office — when you hit an inflection point, say 50 or 60 percent of people — those who are not in the office will be unintentionally marginalized. We see it at Jamestown. When we have a meeting on Zoom, those two or three people in the office will continue talking at lunch or back at their desks. Those not in the office end up marginalized and feel a need to come in the next day.
We think there will be a growing need for office space. I also think densities will decrease. We went from a period about 20 years ago where we were giving 250 square feet per person to 80 or 90 square feet per person before COVID-19. But that doesn’t work when you’re worried about germs. It also doesn’t work because it was never effective to have eight people in a lunchroom and calling that an office. I think you’ll see a reverse in this trend coming out of the pandemic as people think about their future needs. The end result is, yes, there will be some office spaces that are obsolete, but demand will remain.
Whether you’re talking about office or retail, you have to create a space that’s dynamic and engaging enough to get somebody out of their pajamas. It’s easy in 2021 for someone to stay in their pajamas while they shop and, to some degree, work. We want to create engaging environments where people will want to linger longer. A good office or retail environment creates almost a second space for you outside of your home. It’s a place where you feel comfortable, where you’re around interesting people. You just have to build these spaces with health and safety in mind.
CIRE: With the migration of people amid COVID-19, given that employees can work remotely, are there any MSAs of particular interest you are looking at? What are you looking for?
Bronfman: It all starts with demographics. I would never invest in markets without good demographics where I think young, educated people are moving. Secondly, I’m looking for job growth in industries that are tech-focused and creative. Atlanta has a lot of that along with other cities in the Sun Belt.
I also look for supply-constrained markets where it’s not easy to put up a new office building or a retail project. I prefer locations that are more predictable, where the zoning is clear. Some markets in the country allow you to put up anything on any street corner and that makes it more difficult to drive rents. New York is a great example of a supply-constrained market. Zoning is very difficult. The neighborhoods are primarily built out, so there aren’t a lot of parking lots or empty spaces waiting for development. In the end, it really starts out with strong demographics and solid job growth.
Editor's note: This article is an adapted excerpt from a full-length Commercial Investment Real Estate podcast. Visit www.cirepodcast.com to listen to the full episode or stream wherever you listen to your favorite podcasts.