What Is Your Real Estate For?

At Collaborative Real Estate, we recognize that while it shouldn’t be the sole purpose of real estate (especially innovative real estate), the financial aspect does play a vital role. That’s why we’ve partnered with The University Financing Foundation (TUFF), a 501(c)(3) foundation that uses below-market financing and generous lease agreements to develop facilities for education and research institutions, for several of our real estate development, management, and activation projects.

As a non-profit organization, TUFF’s mission is – and always has been – to help institutions of education and research obtain facilities “at below-market cost.” And it’s clear all our university clients have certainly enjoyed the bargain capital costs we can offer. However, even beyond a lower price, we are committed to giving our clients a better real estate experience. We provide more than they could ever receive from a traditional, commercial landlord owned building or even in buildings they might own themselves. 

We believe real estate ownership can and should be approached as an artform, and our 40+ years of owning and leasing research-centric real properties with top institutions has made us skilled experts in performing the role of owner. 

But what do we actually mean when we use terms like “better” and “artform” and “the role of owner” when it comes to buildings? To answer that, we need to revisit some of the most basic concepts of buildings and occupancy and consider how, in recent times, the lineage of two very distinct forms of real estate property have come together in the marketplace. 

COMMERCIAL REAL ESTATE

For centuries, buildings were built primarily to house enterprise functions of the builder itself, be that factories, office uses, storage, etc. As economies matured, urban areas developed, and industries evolved, an increasing share of buildings were developed by professional owners, i.e. landlords, to provide space to third parties for set periods of time in exchange for rent. This evolution of commercial real estate has now produced a market where only an estimated ten percent of properties are occupied by owners, and landlords offer trillions of dollars’ worth of properties to tenants in the U.S. alone. In that sense, commercial real estate is predominantly a form of financial investment –  a means for rent-collecting landlords to generate periodic cash flow and, with that, value and returns. To investors, real estate is its own asset class on par with stocks and bonds.

INSTITUTIONAL REAL ESTATE

Universities have also long been involved in real estate improvements, and they historically owned and occupied virtually all their facilities. University buildings were developed to provide venues for instruction, faculty offices, laboratories, and libraries, as well as dormitories and dining halls to accommodate their students/customers. Thus, unlike modern commercial real estate, the primary purpose of these examples of institutional real estate was not to generate high rents and operating margins. Universities built and operated real estate properties solely in furtherance of their educational mission, while commercial landlords refined their skills at leasing, operating, and financial engineering to make their properties more profitable.

CHANGE ON THE HORIZON

But then, a few decades ago, something else started to happen. First, economic development types figured they might use the lure of universities to entice corporations to place offices and jobs in close proximity to them. Names like Research Triangle, Route 133, and Sand Hill Road started popping up. Many of these initial developments hosted companies building out their own facilities (institutional) nearby to the talents of university faculty and students. Professional landlords took note, and soon enough for-lease facilities were also developed within these areas. Space for rent with on-time availability was also a benefit for universities with their own, not always predictable, space needs. As a result, academic and corporate scientists and technologists enjoyed increasing opportunities to interact, and all concerned could see the benefits of enhanced intellectual cross-pollination. 

PRESENT DAY

With academia and industry enjoying the synergies of co-location, a virtuous cycle of increasing development and increasing university presence helped to establish a state of affairs where a university having its own vibrant research park became a hallmark of success, dynamism, and prestige. As more research and lab development continued to occur, increasingly public and social spaces, e.g. cafes and restaurants, were added to create more opportunities for “collisions” and connecting. Further still, the desire to extend the hours of vitality in parks, where people had previously only worked, brought the introduction of residential real estate, which enhanced the health of retail and accelerated the virtuous development cycle. And so, research parks have evolved over several decades from a collection in the early days of suburban company-owned-and-occupied buildings surrounded by parking lots and adorned with names like Bell Labs or IBM, to a modern state of mixed-use properties as fully integrated and sophisticatedly structured as any contemporary “market” developments. Combine the popularity of the research park genre with financial performances that, like virtually all real estate, have been uninterruptedly good in the 11+ years since the depths of the Great Recession, and neither universities nor private developers can see much wrong with the current state of research parks.

However, at Collaborative Real Estate, we are not satisfied with things simply being “just okay.” Nor do we accept that a building’s financial performance is the only thing that matters. That is strictly a commercial landlord’s perspective and, while superficially seductive, it does not lead to the levels of excellence that are yet to be attained in research buildings’ true purpose. 

Rather, Collaborative Real Estate takes the approach that the primary “value” (or “utility” in economics’ terms) for a research building goes beyond HVAC systems and rent collections. It is valuable for what happens in the hallways, and not just in the landlord’s bank account. As a consequence, our philosophies of ownership and operations are driven by a focus on purpose and occupant success – a very institutional throw back – and not ROI. Our approach manifests itself in a multitude of ways.

For more information, contact us today.