Building value in a demanding real estate market
Kevin McCall worked in investment management at AEW Capital Management LP and was a partner at Spaulding & Slye before founding real estate firm Paradigm Properties of Boston 10 years ago, which now owns or manages almost 4 million square feet. McCall, 53, spoke this week with Globe reporter Thomas C. Palmer Jr. about Paradigm's focus on clients and the current state of the market.
Q Paradigm is a medium-sized real estate investment and development company at a time when real estate is more competitive than ever. How do you win over the bigger, better capitalized folks?
A We look for places where the capital pressure is not as intense. There's so much money in the market, so many bigger funds. The guys investing in $800 million or billion-dollar funds find it very inefficient to do $10 million to $20 million deals. The other thing is we're looking for things where we can roll up our sleeves and add street-level value -- properties with vacancy, the need to do repositioning or renovation -- that are not just bets on the market.
Q What part of the business do you like best?
A I really like the investment part of the business -- the new transactions, managing the process of adding value to the investments that we have.
Q With prices like they are today, do you worry that you're so close to the margins you can't add enough value to make it worthwhile?
A There's enough inefficiency in the market you can always find opportunities to add value. That said, I think we're clearly in a bubble, so it's definitely harder in certain parts of the market to convince yourself that you can add value or that the market's going to add value for you. The inefficiencies are harder to find than they used to be. It's still fun, but it's harder.
Q I hear you can be a tough customer and gave a neighboring development, 33 Arch St., such a hard time the city had to get involved. Are you unusually hard-nosed?
A Definitely not. I consider ourselves to be fair and reasoned negotiators.
Q What's changed in real estate most in the last 15 years?
A How real estate is capitalized. On the equity side, there's much more institutional money. The whole real estate investment advisory business started in the early '80s, [then] the CMBS [commercial mortgage-backed security] market, proliferation of the public REITs, evolution of the real estate private-equity funds. And on the debt side there's much more transparency and much better-evolved market information, so we have a much more efficient investment market than you used to have.
Q You say you have a tenant-centric business? But most firms try to serve their customers. How do you make clients happier?
A We named the company Paradigm because we wanted to effect a bit of a paradigm shift in the way we treated our building clients. In heavily multi tenanted buildings, we wanted to create more of a sense of community. If you get people talking to one another, it's good for the building. We have a building benefits program whereby we deliver purchasing discounts on various products and services. We do a response-time matrix that sets their expectations: We're going to change that light bulb within x amount of time.
Q You have a program, Building Impact, that encourages public service and giving by your companies, employees, and apartment residents. What are the benefits?
A It leverages this amazing untapped asset of community resources. It was built on the premise that a lot of people would like to be more engaged in their communities. If you make it easier for them and tear down those barriers, they'll get engaged. In 26 buildings in 2006, we generated $400,000 in community impact.
Our Community Connection programs evolved into a 501c3 [non profit organization] in 2004. Now Building Impact is in over 30 buildings, with different national owners. We wanted to increase the stickiness of tenants to buildings in ways others don't.
Q What does it cost you?
A The buildings pay a subscription fee to Building Impact, 3 cents a square foot. The subscription fees don't cover the full cost. But it delivers a very engaging community involvement program around four principal topics: community health, youth and education, hunger and housing, and workforce development.
Thomas C. Palmer Jr. can be reached at tpalmer@globe.com. 
