An Interview With: Bill Collins
He’s been called a latter-day King Midas of the commercial real estate market in Washington: what he touches turns to gold. The Capital Markets Group, that he and his younger brother Paul head at Cassidy & Pinkard with a staff of 18, last year did $2.8 billion in sales, and over the last three years averaged $2.4 billion. Real Capital Analytics ranked Cassidy & Pinkard as the #1 Office Investment Sales Broker in the Mid-Atlantic region for 2003, 2004 and 2005. GWCAR in recent years has ranked the brothers #1 Top Regional Sales Agents; #1 Top Maryland Sales Agents; and #1 in Investment Sales volume in the Washington metropolitan area. Collins was raised in Bethesda, is a 1978 graduate of the University of Maryland, and came to Cassidy & Pinkard in 1983.
Bisnow: Given the amount of investment sales in the past few years and the number of possible buyers, has there been compression in the economic rewards to brokers?
The reality is that for all real estate services, there’s been pressure on fees. But there’s also been a corresponding dramatic increase in the value of the real estate, so the rewards have been very good. In other words, if the fees used to be three percent, the fees may have been cut in half. At the same time, the value of the real estate has tripled.
But you do you get pushback on fees?
You always get pushback on fees, right? The broker’s always the easy one to push.
Just for those who are not aficionados, are there some conventional basis point formulas for fees?
There really aren’t. It’s all over the board, but they’re far less than the leasing fees.
How do you make owners aware of the value proposition for the services you render?
What’s valuable to our clients is real time data about what’s going on in the market. Cassidy & Pinkard has been doing somewhere in the neighborhood of 30 to 40 office building sales transactions a year. So, on a real time basis we’re closing one almost every week-and-a-half. We’re able to give clients an in-depth and timely synopsis into what’s happening in the market. As there are changes occurring in the market, we’ve been able to guide sellers on almost a day-by-day basis. Our value proposition is experience as it relates to information.
Are there some buildings that you’ve sold more than once in the current cycle?
Yes, there have been a number of them. The one I always get a hard time about is 1325 G Street, which basically we’ve sold or recapitalized four times in the last six years.
Why is that? Do some buildings lend themselves to multiple sales?
In this case, the building went through a cyclical process. It was an older B building that was purchased and then sold, then renovated and stabilized, and then it was sold again as a stable core building. So, it went from almost a redevelopment to a Class A building to a core product. And it just so happened that it traded in between there a couple of times, too.
What other buildings leap to mind?
1275 K Street, NW, in DC. That sale was a combination of the things that I listed before, but it also had a somewhat different aspect in that part of it was a telecom building. Its value increased dramatically along the way because of what that space was trading for, for telecom purposes as opposed to straight office. Now it’s a stabilized core office building.
Hmm, how many addresses of buildings do you think you carry in your head?
Easily a hundred, a hundred and fifty.
What types of buyers do you see retreating from the market, and who’s replacing them? For example, are the Germans pulling back?
That’s the hot topic right now. You do have a retreat going on, and it’s been going on, quite honestly, for about a year and one-half. German investors for various reasons have been retreating, particularly on the retail syndication side of the business. That trend started about a year-and-a-half ago when it appeared that US real estate looked pretty expensive, and they couldn’t get the same returns as in the past. The result has been that the Germans became the top disposers of property as opposed to acquiring it. At the same time, we’ve witnessed more of the Asian investors coming back. It hasn’t been in a huge way — in other words we haven’t replaced on a one-to-one basis, the German interest — but the Japanese and Korean investors have been coming into the market. There’s also signs that the Chinese want to enter the market here. They’re looking into debt positions initially as opposed to actually owning the fee simple interest in properties. We’ve had a spurt of interest from Irish investors, and on a quiet basis, or just a less advertised basis, we do have Middle East investors who are quite active in the market.
What’s your source of information for all this? Just your ear to the ground, or systematic research?
We track the entire metropolitan area in terms of office buildings on a quarterly basis, both the ownership of buildings as well as the sales transactions. So we’re privy to who is buying and who is selling. In addition to that, when we’re out selling properties we receive offers from a variety of entities, some of whom come in and talk to us. We’re constantly mining that data. We also spend a fair amount of time as a company representing some of the foreign groups in terms of managing and leasing their properties.
Where are cap rates for investment quality buildings, and where do you see them trending?
That’s a pretty broad question. But let’s try to break it down into a couple of component parts. Let’s compare urban and suburban buildings, that is, DC and the suburbs. In DC, trophy buildings today are trading in the 5.5-6% cap rate range. And A minus to B minus buildings in DC may be trading at 6-7% cap rates. Out in the suburbs what you’re seeing is trophy buildings trading at a 6-6.5% cap rate range. And then the A minus to B minus suburban buildings are in the 6.5-7.5% cap rate range.
And why the difference between the suburbs and downtown?
Historically, there’s a perceived safety factor in the DC properties. Liquidity is a basic factor. And, you’ve got a larger universe of high profile equity players that have funds to buy urban downtown properties. Generally speaking, DC properties have longer-term leases in place, whereas the suburbs will have a combination of three to ten year leases. Downtown Washington probably averages seven to ten years in terms of the tenancies.
How do you explain the disparity between some of the prices that people are paying for buildings and the amount of rent that the market will generate for those buildings?
That’s a little less clear. In other words, what some people are saying is that returns on the in place rents are very low. But there’s a school of thought out there that says that we’re ready for market rental rate spikes because the vacancy rates are continuing to compress. Therefore in order to make a return, you have to get higher rents. This is all a way of saying there’s an optimistic view of where the rental rates are going.
Are you seeing any softening in any market sectors, like raw land?
That’s a good question. I see continued interest in all of the product types out there right now. Meaning office, as we’ve talked about: People believe that we’re ready for a rent spike. I like for-rent multifamily: The vacancy rates are very low and we’re not building a lot of new product because of the cost. I still like retail, particularly in-fill. The only area that has got some softness — and I think it’s project specific — is condos. It’s a good market, however, we may be just a little ahead of ourselves on the supply side.
Is that all kinds of condos or a particular market segment?
Again, I’m a big believer in in-fill, particularly inside the Beltway near Metro stations. With traffic congestion and quality of life issues, that will continue to be a good market. I think as you get further and further out, where you don’t have those constraints or market factors, there could be exposure to overbuilding.
How did you get into this business?
I needed a job. Growing up here my family and my friends’ families were all involved in real estate. And I actually thought I wanted to be a residential builder. The one thing I’ve always liked is the development process. Looking at a piece of land and seeing what the potential is for that and then witnessing its development. But I realized I didn’t have the money to become a builder. So, the next best thing was getting involved with Cassidy & Pinkard, which had a big land business—particularly, at the time, urban inside-the-Beltway product. And, we assembled many of the development sites for builders like CarrAmerica, Hines, Akridge, Kaempfer, sort of the old guard. The whole land acquisition and development process is still one of my interests in real estate.
Do you have a favorite deal of all these years? Something that was the most interesting, rewarding, frustrating?
It was when Carr decided to undertake a land assemblage at 555 11th Street, NW known as Square 347. There were 20-plus parcels that we put together for them. It took about three years to do. It was just a mosaic of old Washington, DC. It included land that had been handed down for a couple of generations to people that lived around the world. There were old-line tenants in place like Whitlow’s Restaurant. And, immigrants who had moved here from overseas that were running small carry outs, who came here to the States and worked hard, bought a piece of real estate, and got a big bonanza payout when they sold. It was just a great story. Now having said that, the assemblage occurred during the real estate depression. The property actually ended up going back to, at the time, Maryland National Bank. Then we re-sold it for Maryland National Bank to the Lawrence Rubin Company, who eventually redeveloped it into a successful office complex.
How has the real estate scene changed here over the years since you’ve been part of it?
It’s changed with the institutionalization of the real estate as opposed to what I just described, which is real estate owned, operated, and developed by local companies, and in some cases national companies. To a large degree in the ‘80s, and into the early ‘90s, it was really Washington-based firms that you interacted with. Today the ownership has changed dramatically. The people making the decisions aren’t here in Washington. They’re in New York, Boston, LA, Hamburg, you name it. So you lose the hometown connection, which is a sad thing.
What’s your secret of success in a nutshell?
I think as a regional company in our growth, we had the agility to change far sooner than others. We recognized projects and the potential from our roots in terms of literally ground up grass roots.
You’re referring to Cassidy & Pinkard. But how about yourself and your brother? What’s been your secret?
Truly surrounding ourselves with great people. We changed to an institutional Wall Street model long before almost anybody else in real estate did from a capital market standpoint. We have associates, analysts, and brokers. Paul and I oversee what’s called the Capital Markets Group here. We’ve always viewed the business with a team approach. During the sales transaction process, almost everyone in our Capital Markets Group will participate in every transaction, whether it’s reading leases, developing market studies, processing due diligence materials, or developing pro formas.
You have 18 people on your team, and you mentioned their titles. But what do they do exactly?
Brokers are those people showing and selling the real estate. Associates are gathering the information and coordinating the packaging of the material, and the analysts are preparing financial models.
What’s it like working with a brother?
It’s the best experience that I’ve had in my professional life. I believe that having partners is a big key to anybody’s success. It’s very hard to be a lone ranger. But to have trust in your partner that goes back to childhood, obviously makes the experience that much more rewarding.
You worked overseas before Cassidy & Pinkard.
I worked for a Saudi company representing American and European companies and the sale of products into the Middle East. That was from ’78 to ’83.
What else don’t people know about you?
My first love is surfing.
You name it. Costa Rica, Baja, California, Hawaii.
This is like real surfing or wind surfing?
Real surfing. Old school surfing.
When did you pick up that?
We spent all of our summers growing up on the Maryland and Delaware shore.
Not very big waves.
Well, at some point early on you start to search them out in different places. So I did a lot of traveling when I was young and still like to.
So what’s your favorite?
By far Costa Rica. I love the Pacific Ocean. And Costa Rica is still ripe for an authentic surf vacation.
Okay, well don’t rest on your laurels. How would you say 2006 is looking?
Great. We continue to see a very active market here in Washington and we plan on participating in it the same way we’ve been participating.