Executive Spotlight: Martin Caverly, Resource Real Estate
- Aug 23, 2016
What does the future of office space look like? Resource Real Estate Inc., a global real estate firm sponsoring alternative investments through a series of REITs, is betting it is more creative and less structured than the offices of today. It encourages spontaneous co-worker engagement, is located in an urban environment with proximity to public transportation, and can easily be turned over from tenant to tenant.
Martin Caverly is leading this effort as chief investment officer of Resource Innovation Office REIT. We talked to Caverly, who oversaw the restructuring of Evoq Properties out of the Meruelo Maddux Properties bankruptcy in 2011, about his views on creative office.
CPE: Where did this revisioning of office space come from?
Caverly: One of the things we did at Evoq that turned out to be valuable was converting some of our old warehouse buildings. Our biggest trophy asset was Alameda Square, which is Arts District adjacent in downtown LA. We took one of these big old buildings—a former storage-and-manufacturing space with high floor-to-ceilings, really cool window lines and mushroom columns—and turned that into an 83,000-square-foot office. It quickly leased to a major fashion/apparel company. We had stumbled upon this idea of creative office.
CPE: What does the phrase “creative office” really mean?
Caverly: It is about authenticity of place, location, working collaboratively and using space efficiently. These are open-plan spaces, without many individual offices or assigned seating. They allow businesses to function more efficiently, compete for top talent and have flexibility within their workspace.
CPE: Why office space, and why now?
Caverly: The macro view has been that office has been the laggard in this economic recovery period. There has not been as much new development, because banks are still tight when it comes to office, unlike some other types of product. But the nature of how we use offices is changing, and even major companies are moving out of the suburbs and back toward the urban core. Millennials do not want to commute to the suburbs. Companies are realizing that you have to change how you use office space to get your people to come in. You want them to be in the office happily and voluntarily. It requires a new way of thinking about how you use your space.
CPE: How will the Resource Innovation Office REIT manage these assets?
Caverly: We want to hold assets for 10 years at a time—we are not looking for a three-year hold-and-sell cycle. Once someone else has taken the risk of converting and repositioning the building, we will buy it and hold it, and aggressively asset manage it.
CPE: Who is the target tenant?
Caverly: Tech and media are the obvious sectors, but others would be law, financial services, energy, manufacturing and everything in between. Just about every industry is looking for smarter ways to utilize office space.
CPE: Where will you look for properties to purchase?
Caverly: We have 12 target markets where we have observed companies relocating to a downtown-proximate location from the suburbs, as well as a large Millennial workforce. Asset identifiers include redeveloped warehouses, traditional older buildings with good bones that have been reskinned and amenitized. Those markets include San Diego, Portland, Denver, Minneapolis, Chicago and Nashville.
CPE: Any concerns about purchasing in a strong market?
Caverly: We feel we will be buying at 10 to 15 percent below what I think the peak was, which was October to December of 2015. If you can buy lower, that is always good, but our advantage is we are going to buy buildings that we think have a competitive re-leasing advantage in the future. So they’ll have higher rents, higher occupancy and hopefully higher values. We think the timing is great.