Diversifying Real Estate Investment into New Markets

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Peter Gottlieb
President and CEO, Hobbs Brook Real Estate
Age: 42
Industry experience: 20 years 

Under its new CEO Peter Gottlieb, Hobbs Brook Real Estate is diversifying the geography and asset mix of its real estate portfolio. The Waltham-based developer traditionally has focused on suburban office park development along Route 128, including 225 Wyman, a new 507,000-square-foot office-lab building in Waltham that’s 96 percent leased to ElevateBio BaseCamp, Seqirus, Pegasystems and TIAA. Now it’s broadening its investment criteria to include other asset categories and markets across the U.S. Before joining Hobbs Brook, Gottlieb was a senior vice president and regional director at Rubenstein Partners, overseeing its investments in New England and the Chicago market. 

Q: How is Hobbs Brook Real Estate changing its investment focus?
A: Hobbs Brook historically has been significantly concentrated in the Boston market and even more in Waltham. As Hobbs Brook has moved from managing both the corporate real estate of [mutual commercial property insurance company] FM Global as well as their real estate investments, now Hobbs Brook is solely directing the real estate investments of FM Global. FM Global’s corporate real estate is now being managed in-house. Our concept is to grow the portfolio outside of Boston and to grow it into different assets outside of office and life science, where we have significant concentrations now. We are developing a research thesis that addresses what we want to assess in new markets, whether it’s partnering with joint ventures and local operators. That’s an exciting exercise we’re going into now. Between Waltham and Lexington in our core assets, we have about 2.6 million square feet at approximately 20 buildings. 

Q: As you evaluate expansion into new markets, what characteristics do you look for?
A: The sky is the limit. We’re in an exciting position to be able to address any market, including gateway markets such New York and San Francisco, and continue to invest in Boston, but we also have a lot of experience and interest to dive into secondary and tertiary markets as well. It’s really portfolio optimization on the real estate portfolio side. There’s been a shift from managing FM Global’s corporate real estate and investments to focusing solely on the investment properties, and diversification is going to be important. I have a track record in a number of different markets outside Boston, and we want to leverage that. We’ll be looking at ground-up and redevelopments of assets. I still see a lot of upside in the industrial sector. We’ll be assessing multifamily, hospitality and retail. To the extent there’s a good opportunity, we’re going to take a look at it. We have the flexibility to create a more diverse portfolio. 

Q: What’s your outlook for the office sector?
A: It does seem to change on a week-to-week basis. We are triangulating around a likely hybrid workforce going forward. What we don’t see changing is a flight to quality and putting in best-in-class amenity packages, and a real focus on environmental sustainability. I’m keeping a close eye on what brings people back to the office, and one of the major concerns about the return to work is the commute. We are very careful about locations and commute times for suburban populations. For investors in 2021 and 2022, it’s been a little bit of a wait-and-see. Some leases are smaller and the lease terms are shorter. They are kicking the can down the road. Where tenants can only make 24-month time horizons, we are accommodating that. 

Q: How does uncertainty about MBTA service levels and reliability factor into the outlook for the viability of downtown Boston properties?
A: I don’t think downtown as an office destination is going anywhere. Groups need to offer flexibility to their employees, and we’re seeing more groups assess a hub-and-spoke with a downtown location and a suburban outpost. Whatever is working in the suburbs as far as a flight to quality, we’re seeing downtown. To the extent people are commuting, you have to have ample parking and access to mass transit, and a solid amenity package in your building. 

Q: Now that 225 Wyman is completed and substantially leased, what’s Hobbs Brook’s next major development project?
A: We’re particularly excited about Ledgemont Technology Center in Lexington. It’s currently 1960s-era-built life science space. We’ll likely replace some buildings and create three new sites to accommodate an additional 270,000 square feet of life science in Lexington, and will be resubmitting the site plan review in a few weeks for a total square-footage of 460,000 square feet for the campus upon completion. We’re also doing an assessment of higher and best uses across our existing portfolio. We have significant class B assets: Is it best used as office, life science or another concept that we have to consider long-term? 

Q: Does inflation affect your investment strategy and the desirability of new development as opposed to acquisitions?
A: We’ve seen 1 [percent] to 2 percent monthly increases in costs over the last three months. As we price out, we’re going directly to subcontractors rather than relying on general contractors, both for labor and materials, to assess the best selections but leveraging their understanding of timing and supply chain to make the right decisions as we build out space. The timing for delivery is going to be paramount in our selection of the materials and how best to fit out spaces.  

 Five Favorite Vintage Cars Gottlieb Will Never Buy: 

  1. 1994 Land Rover Defender 90 
  2. 1977 Ford Bronco 
  3. 1966 Shelby Cobra 427 
  4. 1978 Porsche 911 SC 
  5. 1957 BMW 507