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This Morning with John Kilroy

Since entering the Bay Area during the the recession in 2009, Kilroy has risen to the top. CEO John Kilroy told the 500-attendees this morning at the Marriott Marquis how--and why--he did it at Bisnow's 4th Annual San Francisco State of the Market.

John (snapped in the lobby with Allen Matkins' Tony Natsis) says it was actually his CFO that gave him the words that would become the basis for his business: "If you see a parade, you can get run over or get in front and lead." That's how he views Millennials: the driving force in commercial real estate. He's constantly asking titan tenants like LinkedIn and Salesforce what they want inside buildings (he also gets Millennial intel from his six kids). As a result, Kilroy spends a good amount on architecture to make sure workspace is interesting and exciting.

Being around growing companies is what attracted him to the Bay Area, where there's "no greater cradle of entrepreneurialism" in the world. John always wanted to be here, he explained. "We just couldn't figure out how to invest or buy properties to develop." In 2009, most of his competitors in the public arena were licking their wounds (no one likes to see their stock tank). It was when those companies were "napping" that he made his first Bay Area buy at 303 Second, above.

In 2010, naysayers thought he paid too much for the property. Now, rents have more than doubled and it's "worth a lot more," John says. During his chat John called TMG Partners CEO Michael Covarrubias a "great competitor and no slouch." John says he was told to emulate Michael on the development side when he was a Bay Area newbie. John attributes his success to a few areas: a great balance sheet, access to capital and no partners (Hunter Storm at its Redwood City project is an exception). He's about to get started on Mission Bay's $450M Block 40 project, which he rebranded to Exchange on 16th to not be confused with a "prison REIT."

Tony calls John and his keen ability to negotiate sales a "secret real estate weapon." He breaks down Kilroy's score card: Back in 2009, Kilroy was 100% in SoCal; now it's 50-50 between SoCal and NorCal/Washington state; its office footprint has expanded from 9M to 13.5M SF, and its 80% occupancy rate is now 94%. What Tony considers an amazing stat: Kilroy's 39% debt in 2009 has shrunk to 29% (usually when companies have a big run-up in real estate, they carry a lot of debt). John explains "most of what we do is in cash." Sustainability also is a priority, and all its projects are LEED Gold or Platinum. And when Kilroy develops, it's a long-term owner.

But Kilroy's picky about product. If a building can't be fixed up, he doesn't touch it. He backed out of a contract on a S.F. building because the elevators couldn't handle desired density (at times, Kilroy builds for 10 to 13 employees per 1,000 SF). He promises to keep the Flower Mart on Kilroy's purchased land "forever" and he's spending $80M to keep them put. It's not the $20M deals that excite John; it's the $100M or several hundred million dollar ones he's after. Hear more this week from all our other panelists and hot topics like Prop M. The city's John Rahaim, who holds the strings on entitlements, disclosed some hot tidbits about the city's future public transit system.

Related Topics: John Kilroy Jr., Kilroy, John Rahaim