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Diversifying During the Downturn

With the office and industrial sectors mired in a slump, real estate executive Larry Pobuda has advice for owners and developers: diversify your portfolios. Pobuda, a senior vice president at Minneapolis-based United Properties LLC, will lead a panel on alternative real estate opportunities at the annual National Association of Industrial and Office Properties (NAIOP) conference scheduled for Oct. 15 through 17 in Boston and co-sponsored by National Real Estate Investor.

“This is a time for developers to think creatively, and to ensure their longevity by broadening their expertise and looking for new opportunities,” says Pobuda. “They shouldn't be sitting and waiting for an office or industrial rebound, which could be many years away.”

The office sector is experiencing its highest vacancy rates since the early 1990s and demand also is soft in the industrial sector. Worse yet, many real estate experts don't think the office and industrial markets have hit bottom.

Nationwide office vacancies in non-CBD markets have soared well over 20% — from 19.4% in the second quarter of 2002 to 21.3% in the second quarter of this year, according to New York-based Cushman & Wakefield. In the industrial sector, national vacancy rates rose from 9.1% in the second quarter of 2002 to 10.1% in the second quarter of this year. Given the glut of available space, it's no surprise that rental rates are on the decline.

With those disappointing numbers as a backdrop, Pobuda will moderate a panel on Oct. 16 called “Evolving into the Next Cycle: Commercial Real Estate Opportunities,” which will discuss ways that companies can break out of survival mode and achieve growth. Panelists will discuss development opportunities at infill locations, brownfield sites and closed military bases. Atlantic Station, a $2 billion mixed-use project under construction on a brownfield site in Midtown Atlanta, will be one of the case studies.

Diversification Is Key

United Properties is a prime example of how expanding into new property sectors and service areas can help boost revenues. The company already was a Midwest powerhouse as an owner/developer of office, industrial and retail properties in the early 1990s when it branched into third-party real estate services such as brokerage and property management.

In the past five years, the company also has become an aggressive developer of health care properties. Health care is an increasingly attractive niche for developers, Pobuda says, and there is no shortage of health care owners seeking to expand and modernize their facilities. United Properties is developing a 100,000 sq. ft. orthopedic center for Park Nicollet Health Services in Minneapolis. The company also provides a broad range of real estate services — including property development, facilities management and transaction services — for Chicago-based Blue Cross/Blue Shield.

The bottom line: diversification provides additional revenue for the company at a time when development opportunities in the office and industrial sectors are at a minimum. The company's volume of health care transactions has increased dramatically in the past five years. This year, it expects to close 70 transactions, projects and assignments valued at more than $220 million, up from a handful of health care transactions in 1998.

“From our company's perspective, this wasn't really an option,” says Pobuda. “This is something we needed to do.” The strategy has helped the company achieve consistent revenue growth since 1995.

Networking Opportunities Abound

Nearly 1,000 developers, owners, investors and other real estate executives are expected to attend the conference, which will offer panels, roundtable discussions and the Deal City marketplace, where attendees have the chance to meet new business partners and possibly negotiate property acquisitions.

The conference, which will take place at the Boston Marriott Copley Place, will be capped off with the Developer of the Year Award. This year's recipient is Colonial Properties Trust. The Birmingham, Ala.-based real estate investment trust owns 21 million sq. ft. of office and retail space, and more than 20,000 apartment units.

For more information on the NAIOP annual conference, visit and scroll down to the conference menu item.

At A Glance

WHAT: NAIOP Annual Conference

WHERE: Boston Marriott Copley Place

WHEN: Oct. 15-17

WHO: Approximately 1,000 developers, owners, investors and other real estate executives are expected to attend.

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