Exclusive Q&A: Adler Properties CEO Talks Office Trends
What the future of the workplace looks like remains to be seen, but current trends should stick around for awhile, Adler Realty Investments CEO Michael Adler tells us. Michael is among the all-star panelists scheduled to speak at Bisnow's Los Angeles Annual Office Forum event April 6 at Hollywood 959.
Bisnow: How did you get started in the industry?
Michael Adler: I started my career as an MAI real estate appraiser specializing in commercial property valuation. During the downturn in the real estate market in the early 1990s, I realized rather than valuing property for other people, I should be buying property on my own account. Then invited other investors to participate with me as limited partners. I continued strategically acquiring, developing or adding value and selling properties, and building my portfolio ever since and making great returns on investments for both me and my investors.
Bisnow: How do you choose your projects?
Michael Adler: I acquire properties on a very opportunistic level. There has to be a reason for us to acquire the property. Whether it needs better management, or there was some distress. The property could be either in bankruptcy or foreclosure. It could be in need of renovation or repositioning of some kind. I buy properties that need problems fixed. In today's market, where there is little distress, I also look for stabilized properties that have the potential for rent growth over time.
Bisnow: What first attracted you to those types of properties?
Michael Adler: They’re generally the kinds of properties where I can achieve the highest return on my investment. Usually if it’s a property in perfect condition, it doesn’t require as much effort to operate, so a lot more investors are comfortable buying and are willing to pay a retail price for those types of investments and oftentimes the returns won’t be as great.
Bisnow: What do you identify as the current trends in office environments?
Michael Adler: Right now, there’s definitely a trend toward modernizing and upgrading your office buildings, making sure they can compete within the new realm of demand. There are several things that have happened. Businesses are packing more people into the same amount of space, so the older office buildings may not have enough parking to meet the current demands.
It used to be buildings were built with two parking spaces for every 1k SF up to maybe three spaces for every 1k SF, and today requirements can be five per 1k or six per 1k. Some of the older buildings don’t have enough parking, so that is something that has to be looked at. Users want more creative space. They don’t necessarily want the older, traditional types of offices. They’re looking at space that’s more open rather than carved up, and the tenant improvement costs are higher to convert space to what I would call the current norm. Tenants are also looking for buildings with better amenities and walkable locations. (That's Michael on a trip to China below.)
Bisnow: What do you think the future looks like for office space, and do you think those trends will continue?
Michael Adler: I think they’ll continue, but there is still demand for traditional office space as well. People like the open space feel, or they like the concept of it, and then a lot of the executives will say, I like it, but not for me. But I think the overall trend is for more open and creative office space.
Bisnow: How did you choose the location for your company?
Michael Adler: Since I am an owner of the office complex, my company took the worst space in the complex, so I could charge higher rent for everything else. Our office is functional, well-designed but not fancy. (That's Michael with some employees, below.)
Bisnow: Where do you think we are in the cycle?
Michael Adler: It seems to me we’re in the eighth inning if you’re looking at this as a baseball game. I think things have been going well for awhile now. We had a very bad prior recession where occupancies were very low, values went way down, but since then things have come back. Right now the occupancies in my portfolio are as high as they’ve been in 10 years. But at the same time, we’re starting to see a slowdown in growth. So I’m a little nervous about the future and am doing some strategic selling of properties this year. I don't think we are going to see a collapse in the near future, but the market is growing very slowly. So any major shock to the economy could pose a problem.
Bisnow: What do you like to do in your personal life outside of work?
Michael Adler: I like surfing and mountain biking and being with my (two) kids, wife and dog.
To hear more from Michael and our other panelists, join us at Bisnow's Los Angeles Annual Office Forum event starting at 7:30am April 6 at Hollywood 959 Seward St. Sign up here!
