Commercial prospects widening

Many real estate clients are demanding more global services

(WIQAN ANG/Globe Staff)

Two decades ago, Joe Fallon was one of a group of real estate executives who broke away from a larger firm and started an independent one, Fallon Hines & O'Connor. Last year, he and others started FHO Partners.

The global firm DTZ last year invested in FHO, and last week the two completed a licensing agreement. Fallon spoke with Thomas C. Palmer Jr. of the Globe staff.

Consolidation continues in the real estate services industry - locally, nationally, and globally. Can any independent firms survive? Yes, independent firms can survive. However, I really think in order to be independent you have to have one of two characteristics.

Number one, you need to be a smaller boutique firm that focuses on a particular niche, like selling local buildings.

Or, number two, be part of one of these global networks. We made a decision that we wanted to be part of a true global company.

Why? The reason is to service our customers. Many have said we not only need you to help us in Boston, we need you to help us across the country, and more importantly, in the last five years, around the world.

You offer leasing, investment sales, corporate tenant representation, and other services. How does being part of a global firm make your day-to-day job different? We are reporting to a publicly traded, London-based company. We don't talk on the phone every day, but I have a new boss, someone based in Los Angeles. Being part of a 12,000-person real estate firm, when you talk about customer satisfaction needs across the globe, with DTZ it's much easier to do than two years ago. They're in 45 countries and 200 cities. The world is moving too fast, and these people in corporate real estate do not want to deal with multiple service providers. One of our life sciences customers said, "I need to find a project manager in Lisbon, Portugal, for a 3,000-square-foot office deal. We called, and within 24 hours they say, 'You've got to call Bill.' " That's the beauty of being inside a global company.

Recently the Boston area went through a period of several years when office rents were low, vacancy high, and buildings weren't generating anywhere near their potential return - but all the time prices were skyrocketing and sales volume broke records. Explain that. The answer is because as people on a global basis look at investment capital, Boston has been for the last several years a top-five city to invest in. The reasons are, one, barrier to entry - finding land is much harder. Two, the diversity of our industries - we're not dependent on one or two. And three, the returns - when you buy a 50-percent-leased building there is money to be made.

Now we're in a different situation. Despite the nationwide recession and a depressed local residential market, office rents have bounced back and space is scarce. Is Boston just weird? The fundamentals of the office market in Boston are very balanced between supply and demand. You're seeing rental rate, which did increase in the last 12 months or so, flattening out. You don't have overbuilding; we have had good demand for space.

Have rents topped out for the moment, after rising from the doldrums to respectable levels over the last couple of years? I think rents have definitely leveled off. You read about cocktail-party circuit comments that rents have cracked $100 a square foot, but those are small, and many are renewals with companies in place that can afford it.

There have been no new towers opened in four years in Boston, and only a handful of new buildings are underway. Will the city's tenants need more and not find it in the 2010-2013 time frame? There's definitely going to be a gap period of time where large tenants are going to be challenged in terms of space needs. But there are always solutions out there. There are pockets that are available.

Investment sales, which roared for several years, collapsed after the subprime crisis of last summer affected the climate for loans even on the commercial side. When does your crystal ball tell you the buying and selling merry-go-round starts up again? We need to get the negative stuff behind us and start dealing in some positive trends. What I hope doesn't happen is we have to wait until we decide who the new president is going to be.