Times like this are when brokers like Duncan Gratton are in demand. He helps run FHO Partners’ Asset Advisory Group, representing landlords in a time when owners are aggressively courting their existing tenants, and any vacancy is “extremely difficult” to fill. A recent victory was landing Constellation New Energy for 116 Huntington Ave. in Boston, the fourth quarter’s biggest Back Bay relocation.
Gratton has been through three downward cycles, and started his real estate career at the bottom of a fourth. Every one has been different, he said, with one exception: “They take a lot longer to come out of than you’d like to remember, in terms of positive absorption and rent growth.”
Duncan Gratton
Title: Partner and co-head, Asset Advisory Group
Firm: FHO Partners, Boston
Age: 51
Experience: 28 years
How does the market look these days?
There are lots of tenants whose leases are expiring who are out in the market looking for space, but there’s no positive growth, in the aggregate. Fewer companies are shrinking now. They are willing to renew their leases for more than a year or two now. It’s a sign of business confidence. It’s not a sign the world is going to go roaring back, and companies are hiring all over the place, but at least it’s a sign that it’s not getting worse.
How do you go about selling tenants on a move right now?
It varies by building and submarket. You need to sell them on some factor of the transaction that makes sense to them. Very often it’s efficiency. If we were designing our space today for our company, I’d bet we would have more open space, we’d have more informal meeting areas. Companies don’t have that, and they want to have that. And real estate is also a recruiting tool. If you can make the case your building has better amenities, has better access to public transportation, has better natural light and views – you really have to sell the positives.
Every tenant who asks us for a proposal is not a likely tenant to move. You can waste a lot of time on the tenants who are unlikely to move, and get your owners all fired up about deals they probably don’t have a good chance to make. You need to understand the tenant’s existing situation. I always try to get in and go see their space. You learn a lot walking around, seeing how things are set up.
You’re looking at the ground level, versus looking at them as a space requirement.
It’s a rifle approach instead of a shotgun approach. Every tenant is not the same. If you can really focus in on what their hot buttons are, then you can develop a strategy. In Cambridge, we’re the brokers for 1 Kendall Square. Many of the lab tenants we talk to are coming from perfectly good lab space in other parts of Cambridge, but they don’t have any of the amenities we have. We push the community there very hard, and the collaboration of scientists. These days we sell the owner strongly. We represent Shorenstein Properties at 399 Boylston. They have a great track record, they’re financially sound. We sell that hard because not every building has that.
How different is it this time around in that it’s the tenants focusing on the strength of the landlord?
It had never happened before, in my 28 years doing this. That’s a function of the fact that anybody who bought a building in the last five years probably overpaid, and certainly has too much debt on the property. Tenants are very concerned.
When a tenant comes to you with a concern, how do you address that?
Sometimes it’s as simple as the owner having a meeting with the tenant. We’ve seen a couple cases where the owner doesn’t have the credibility, and the landlord escrows the tenant improvement money and the leasing commissions. If you’ve got a high-profile property that’s in play in the market’s mind, then your job as a leasing agent gets much, much tougher. Because your competitors are all saying, ‘That property’s going down, that owner can’t perform.’ You have to be able to say, ‘Actually, in the last 90 days we’ve done these four deals, we’ve paid those four brokers.’ But there’s more distress in the market, it wouldn’t surprise me if it got worse before it gets better again.
How much of a stabilizing factor has it been that Equity Office owns half of downtown?
The downtown market is different in general, and it’s not just Equity. It’s Boston Properties, Tishman, Don Chiofaro, Beacon Capital. You don’t have as many second-tier type owners downtown as you do in the suburbs. Some of the other assets in the suburbs might have more distress. But absolutely, when I’m representing Equity Office at 28 State Street, when I’m representing Shorenstein in the Back Bay, or Beal and Rockwood Capital at 1 Kendall, I’m selling their strength. It’s something you have to address head-on as a landlord guy, and my colleagues who are on the tenant side have to do their homework.
The Top 5 Most Influential People In Gratton’s Life:
- Jim Gratton; Father. “Very big shoes to try and fill. I hope I can be half the father that he was.”
- Tom Walsh; President of The Codman Co. and Lynch Murphy Walsh & Partners. “A great early mentor. No better guy to work for.”
- Tom Bakke; Head of National Leasing for Equity Office. “A true leader. A Navy man.”
- Steve Lynch; Codman and Lynch Murphy. “The best landlord broker in Boston. Can sink putts in the clutch.”
- Christina; Daughter. “She sacrificed much of her social life in high school to pursue her dream of becoming a professional ballerina."
