Office Developers Shy Away from Spec Developments

Office-development experts agreed that in-place assets are preferable to speculative development.

May 19, 2011
By Allison Landa, News Editor

Courtesy Flickr Creative Commons user archie4oz

PHOENIX – Don’t call Ryan Whitaker a gambler. As the director of Western U.S. equity investments for National Real Estate Advisors, Whitaker is in a constant process of deciding which deals are significant and which are spurious.

And in discussing speculative development, he places it firmly in the latter category.

“We have some land here (in Phoenix) and I’d love to build something on it for somebody, but it’s not going to happen unless we get a user,” he said during a panel at the Urban Land Institute’s spring meeting. “There’s no tolerance for us to do spec.”

Whitaker spoke as part of a panel entitled “Office Development: Who, What and Where?” During the discussion, he and fellow panelist Alex Rose, senior vice president of Continental Development Corp., as well as moderator Robert Kline, CEO & principal of R.W. Kline Cos., often agreed that development is far more palatable with a user already in place.

“Where we put money into spec office markets around the country has got to be very select,” Kline said.

Rose expanded on that sentiment, asserting that properties already in existence are preferable to those yet to be built.

“For us, development in the future really represents much more reuse of those existing assets, keeping the other ones that are smaller, multi-tenant ones full, up to speed, state-of-the-art, cost-efficient to operate, competitive in rent, while trying to figure out what the right story is for those old legacy assets,” he said.

He added that as a developer, his preference is to put money into an existing asset that is well located and has “good bones … not only a (history), but an achievable universe of users.”

Panelists noted that of all sectors, office development is most dependent on the job market. Rose noted that if there are jobs needing to be filled, it can impact the feasibility of a project.

More important, however, is the feasibility of speculative construction versus in-place product.

“If you can buy an office asset in a decent market in a decent location for $50 a square foot, why would you (build new)?” Whitaker said. “I would never even consider building a spec office.”