Leggat McCall Properties, which is undergoing significant management changes, is headquartered at 10/Ten Post Office Square in Boston’s Financial District. The property was purchased last year by Walton Street Capital for $108 million.

Leggat McCall Properties, one of Boston’s most established real estate entities, is undergoing a major overhaul of its management structure, company officials acknowledged last week.

LMP President J. Brad Griffith and Chairman J.H. Walton, who also serve as co-chief executive officers, will hand over day-to-day operations to executives Eric Sheffels and Mahmood Malihi as of May 1. Several other members of the senior management team, including Eric Bacon and Steven D. Fessler, will assume ownership positions in the 36-year-old concern.

“It just felt like an appropriate evolution of the business,” Griffith told Banker & Tradesman in explaining the decision. “It seemed like a natural progression.”

Griffith and Walton will remain as chairman and president, respectively, of Leggat McCall Properties Holdings LLC. That entity owns and controls the firm’s portfolio of office buildings along the eastern seaboard. Sheffels will take over as president, while Malihi will be named executive vice president.

“They are very capable of running the company,” Walton said. Interestingly, both Malihi and Sheffels joined the company in 1983, and each holds a master of science degree in construction from Stanford University. In recent years, they have performed various duties, with Malihi serving most recently as chief operating officer and Sheffels active in property development. In between, the two have delved into nearly all aspects of running a real estate company, including acquisitions, asset management, corporate finance and new business development.

Walton said Malihi and Sheffels were key to the company’s recovery following the recession of the early 1990s, a time when construction activity was almost non-existent and developers were scrambling to survive the downturn. LMP turned to property management, handling assignments on a third-party basis as well as their own assets. The company ultimately grew that piece of the business to nearly 15 million square feet.

Even though the formal change will occur next month, Walton said Sheffels and Malihi have essentially been overseeing most duties of the operating company for several years. In that regard, “this is not a big deal,” he said.

“The place is basically going to be run just the same,” he said. “We’re really just changing some titles.”

Industry veteran George J. Fantini Jr. expressed confidence that the incoming leadership will make for a successful transition. Fantini said he is especially familiar with Malihi, “a top quality person” who has demonstrated an ability to excel in the business.

“From my observations, the people they are leaving in charge have been well-prepared for the task,” Fantini said.

Pass the Torch
The management switch comes at a time of flux for LMP. In February, the company announced it was selling what is now a 4.5 million-square-foot property management division to Insignia/ESG, while the firm has also actively been shrinking its portfolio. During the past year, LMP has sold $550 million in property.

Among the more notable sales were 10/Ten Post Office Square in Boston. Located in the heart of Boston’s Financial District, and also home to LMP, 10/Ten was purchased last year by Walton Street Capital for $108 million. Other Hub sales included 855 Boylston St., a Back Bay office building developed by LMP and an equity partner in the mid-1980s. It traded for $47 million, while 40 Broad St., owned since 1982, was acquired in October by TMW for $63.8 million.

In some respects, the disposition of the buildings and the transfer of power appear related. After determining in early 2000 that the investment market was nearing its peak, LMP decided it was an optimal time to sell its properties. Normally, Walton said, the firm would take whatever profits it reaped and invest them into new deals, but the inability to find reasonably priced product made it harder to re-deploy capital. Even as it sold large portions of its portfolio last year, LMP did not make any acquisitions, for example.

“Brad and I sat down and looked at each other and said, ‘As we harvest profits, we have to make a choice of whether we want to re-up for the long term,'” said Walton. That introspection led them to determine that the better option was to “pass the torch” to an ownership group whom they felt could manage their remaining assets competently and also move LMP through potentially evolving markets.

“We thought this was a way to do it that keeps the company intact,” said Walton. “Its stewardship is very important to Brad and I, and we wouldn’t be doing this if we felt there was any chance it would put the company [in jeopardy] … We feel very comfortable with what we are doing.”

Griffith said the sale of the property management division was unrelated to the management switch. “That was always an option we were playing with,” he said. The chief reason, he said, was that margins were being squeezed by the arrival of large national players such as Insignia/ESG, a trend that also made it harder for LMP to win business.

Sheffels said he and Malihi will essentially switch their current roles, with the former taking over company operations and Malihi running the development division. But while Sheffels said there will be no “fundamental shift” in LMP’s management strategy, there will be a few tactical moves. One will be a renewed focus on Greater Boston after spreading out its dealings from Washington, D.C., to Massachusetts in recent years. LMP will also turn its attention to the pursuit of so-called “fee business,” aiding property owners in developing buildings versus doing so on their own.

“We just don’t see much speculative development, because the market conditions are not conducive to it,” Sheffels said. Third-party development activity has proven to be a solid direction for LMP to move in, with the firm already having done $300 million of such work in the past few years. LMP, for example, handled project management of Riverside Center in Newton, the new Class A office complex in Newton owned by Equity Office Properties. LMP is currently overseeing construction of a mixed-use project at Boston’s Battery Wharf on behalf of that ownership group.

While most observers expressed confidence in the new leadership, the moves nonetheless represent a major step in LMP’s evolution, not to mention the region’s real estate industry as a whole. Walton’s roots in the company date back to 1967, while Griffith has been there since 1975. A former president of the MetroWest Chamber of Commerce, Griffith said his proudest accomplishment was turning Framingham and Natick into one of the region’s leading office markets, helping assemble the 9/90 development site in Framingham, as well as the conversion of the Carling bottling brewery in Natick into a Class A office complex. At one point, LMP owned 3 million square feet of the 5 million-square-foot office market in those communities.

As for the immediate future, Griffith said he will remain active helping complete the sale of some properties, including 959 Concord St. in Framingham, as well as the stabilization of projects such as Four Penn Center in Philadelphia. Beyond that, Griffith said he will spend the summer deciding what to do once those responsibilities wind down. Walton, who will turn 61 on May 2, said he has mixed emotions, with his desire for more golf-time tempered by his enjoyment at running the company where he has spent his past three decades.

“We’ll miss them, and they’ll miss us – maybe,” he joked, adding that, “I suspect we’ll come back in 10 years and wish we had stayed.”