Sometimes it’s not the advice you follow, but that which you reject that can offer the keys to success.
HSA Commercial Real Estate has followed its entrepreneurial spirit for 30 years to build a portfolio that stands today in excess of $1 billion. Now, as it continues to establish new services and business lines, its principals envision an even brighter future.
“It’s a good thing that we didn’t listen to a lot of people,” says Jack Shaffer, founder and chairman of the firm.
In the past, as HSA began to grow, Shaffer would often receive the advice to specialize in a specific area of practice. It was generally a perceived notion that a private firm offering a plethora of real estate services would suffer in competition against more targeted companies or bigger, corporate entities. Shaffer rejected the notion. Although he admits that he is a developer at heart, he and Robert Smietana, vice chairman and CEO of HSA, have always believed that a diversified approach to commercial real estate would best serve the firm in the long run.
The recent economic climate has proved them right.
Shaffer has watched what has happened to firms that label themselves as pure development or brokerage houses.
“If you peel back the economics of many of those firms, they are not very profitable,” he says. “We always felt strongly about maintaining balance.”
HSA made its name in the industrial sector as a developer and owner. That product type and its services still accounts for the largest portion of the firm’s business, but HSA also offers an abundance of other product lines. It offers third party brokerage services for office, industrial and retail, property and corporate facility management, as well as
financial and real estate consulting services.
Over the years HSA has branched out even more, often proving to be very prescient in its choices. The firm added a health care services group, HSA PrimeCare, 10 years ago, well ahead of the current trend of healthcare development. Now, as many firms scramble to get a piece of the healthcare market, HSA currently has three new developments underway.
If diversification has long been a staple of HSA’s strategy, recruiting entrepreneurial-minded leaders to serve as division heads has proven to be just as important, says Smietana.
The tactic coincides with another of Shaffer’s core philosophies.
“Don’t be afraid to higher strong, smart people,” says Shaffer. “The world is full of people who just say yes.”
The firm has done this by establishing a strong core of division leaders to oversee the firm’s daily activities and develop future business. The executives look to bring on professionals who could “essentially be CEOs of their own companies” and highly incentivize them to be deal makers.
Division heads become equity partners in the deals and developments that they initiate. Their equity stake is not tied to their employment at HSA and they could essentially walk away with all of their investments still in place. Smietana says that some have openly questioned why HSA does not secure its talent with golden handcuffs, but employee retention has not been a problem.
“Thirty percent of our staff has been here for more than 10 years,” says Smietana. “People can leave, but they tend not to.”
Division heads tend to stay even longer. Melissa Pielet, executive vice president and principal, and Christine Muszynski, executive vice president, principal and director of management operations, have each been with the firm for 25 years.
Timothy Blum, executive vice president and managing director of HSA’s Retail Brokerage Division, says that the reason he stays is because it would be tough to match his current opportunities elsewhere.
“Senior management provides an environment that gives us enormous latitude to essentially run our own business,” says Blum. “Most companies this large are highly structured. For us (division leaders) to go somewhere else it would be very difficult to achieve the maximum financial opportunities that we have here.”
Recession
When the recession hit, HSA’s diversification helped it absorb the blows. Development in industrial and office product was non-existent, but PrimeCare offered construction opportunities. The firm was also able to enhance its property management and brokerage services, while adding new services such as receiverships.
“During the recession, we really branched out our services,” says Daniel Miranda, president of HSA Commercial Real Estate. “People here didn’t take long lunches and improve their golf games.”
Property management
HSA now manages 16 million square feet of property with 40 professionals across multiple asset classes. The majority is in industrial, but the firm has recently made headway into medical office facilities and the non-profit sector.
Muszynski says that non-profit facility management was a dramatically underserved sector and it has allowed HSA to grow its practice in otherwise challenging times. The firm has clients such as University of Chicago, Gateway Foundation, McCormick Theological Seminary, United Way of Metropolitan Chicago, and St. James Commons.
“This has been a wonderful opportunity,” says Muszynski. “In many cases, these organizations were worried about paying the property management fees. We were able to identify waste and cost savings that justified our fee and went back to their bottom lines.”
PrimeCare
The real growth catalyst recently has been the PrimeCare division. Healthcare is vibrant market, but with limited opportunities it is difficult to land assignments. That is not the case for HSA.
John Wilson, president President, Corporate Real Estate Services and PrimeCare, says that the firm was able to build the relationships for the current practice a decade ago, before the industry drew much attention .
“We spent the first five years just laying the groundwork for the platform,” he says. “We have really started to grow in the last five years.”
The firm devotes 80 percent of its practice to working directly with hospitals and health care providers. Forging those relationships is not an easy task, but the group’s previous work has paid off. It currently is developing three projects in the Chicago area: a two-story, 22,500-square-foot outpatient cancer treatment center for Silver Cross Hospital in New Lenox; a 9,800-square-foot medical office building at the southeast corner of North Avenue and Ashland Avenue in River Forest, Ill. for Loyola University Health System’s Gottlieb Memorial Hospital; and a 19,593-square-foot cancer treatment center on the hospital’s outpatient campus in Michigan City, Ind., for Franciscan St. Anthony Health.
Wilson says that the firm plans to build on more existing relationships and initiate more developments throughout the Midwest.
Retail
Retail has not been the strongest market in the downturn, but HSA has found opportunities to not only complete deals, but develop new sites. The firm specializes in taking obsolete or older facilities in high-traffic locations and redeveloping them for retail use.
It’s most recent project is in the Milwaukee suburb of Wauwatosa, where HSA is redeveloping a former Roundy’s distribution center to house 250,000 square feet of retail.
HSA’s Blum says that the project is scheduled to break ground in the spring of 2012 with several “best-in-class” retailers that will be new to the Milwaukee market.
Industrial
Tim Thompson, executive vice president, managing director of Industrial Brokerage Division, says that the industrial market is “spotty,” but that a lot of big deals are being done. HSA has benefited from a few of these deals in the past six months.
In the biggest, Thompson negotiated deals for Midwest Warehouse & Distribution System for the entire 404,052-square-foot building at 555 St. James Gate, Bolingbrook, Ill. and a 174,178-square-foot lease renewal at 500 Country Club Drive, Bensenville, Ill.
The investment sale market has come back in a significant way for well-leased, quality properties. HSA recently took advantage of this and sold six distribution centers located in the I-88 and I-55 corridors to Industrial Income Trust Inc, a Denver-based REIT, for $80.5 million. The firm retained management contracts for all of the facilities.
Miranda says that HSA is now in the process of recycling some of the equity from the deal and has identified $50 million worth of new properties it hopes to acquire.
Future
The future of HSA may look like more of the same, steady expansion through acquisitions and the growth of service lines. For most firms, that would be a good thing.
Shaffer says that he would like to target the built-to-suit market more in the future for the development side. He sees the healthcare and medical office markets driving the firm’s future expansion.
Yet while HSA fitted the bill in the past by investing mostly its own equity in projects, Shaffer says that the firm is currently seeking equity partners to take on larger opportunities in the future.
In that vein, Smietana and Miranda have recently been canvassing the country and presenting the firm’s platform to a variety of institutional investment groups.
“As long as the economy is stable, there will be growth,” says Smietana. “We see the future as very bright.”
