Tishman Speyer Properties, Inc.

Q When Tishman Speyer Properties, Inc. was founded in 1978, it was a U.S. development firm. Today, the company has an international development presence. In retrospect, what has been your most rewarding accomplishment in this business?

A Developing a team that works well together and has mutual respect for the disciplines that each individual brings to the company. On balance, the organization is probably unique in the industry because of its diversity and specialties all under one roof.

Q Let's talk about the U.S. commercial real estate marketplace. With the industry in a down cycle, what pockets of development opportunities do you see for TSP in coming years?

A If you're talking about the U.S., very few [development opportunities exist]. Here and there will be selective opportunities to build specialty buildings, either commercial, residential, or R&D-cum-industrial.

The major opportunities will be in the acquisition of existing, well-located properties, either in the outer ring of major cities or in central business districts (CBDs).

Q Does 1301 Avenue of the Americas (the former JC Penney Building acquired at auction for $353 million in May 1988 through a joint venture of Tishman Speyer Properties and Trammell Crow Company) exemplify the type of acquisition/redevelopment opportunities you're suggesting?

A Yes. Certainly, it is our goal to improve the properties that we acquire rather than develop because we like to think that we bring more than just capital to a situation. ... [N]ot everybody can bring expertise in construction, leasing, and management -- to say nothing of financing -- to a project.

Q How many different divisions make up the whole of TSP?

A We have five fundamental disciplines: development, construction (including design), leasing and marketing, management, and financing.

Q When people in the real estate business talk about the current recession and New York City, the conversation almost always returns to the recession of the mid-1970s, remembered by some as the worst of times for this town. How does today's recession compare to that of the mid-'70s, and what are the implications to the commercial real estate industry?

A You've heard people say that you have to "walk before you run;" well, I'd say 1974 was the walk before running in 1991. This year is a quantum leap more serious than 1974. To begin with, there's much more product available on the market; secondly, there's a liquidity crisis; and, thirdly, there's been a reduction in the workforce. People have been replaced by efficiency and/or machines.

Q So how does this affect strategy for real estate players such as TSP?

A The strategy for a company like ours is to wait and see how long and how deep this recession is going to be. It's clear that everybody is hoping to do some bottom-fishing. It's also clear that those who thought they were doing very cheap deals last year turned out to be doing deals that are much more costly, within today's framework, than they would have hoped for.

Secondly, we can bring the required level of expertise to fix or overcome a situation. While real estate skills are transportable from one region to another, part of the skill is being able to adapt to local requirements. Imagine trying to rent space in Los Angeles on a per square foot per year basis, rather than by the monthly per square foot basis which is typical. In the end, the net rent would be identical, but the difficulty the market would have in accepting an annual rent instead of a monthly rent would probably interfere with any marketing program.

Q The building boom of the 1980s -- referred to by some as the glory days of real estate -- defied the economic principle of supply and demand: Construction and lending continued through the latter part of the decade at an unprecedented pace. What were the biggest factors that buried the commercial real estate business during the latter part of the '80s?

A Incompetence and avarice. That's the knock-out punch -- a combination of those two things. People began to believe their own press.

Q Today, however, many players in the real estate industry are focusing on survival. As we approach the mid-1990s, what will be the most outstanding change in the way commercial real estate business is conducted?

A Let's take two examples: One is the physical side, and the other is the financial side, of office buildings. The typical office tower in the CBD will have a much smaller floorplate in the future, while the requirements for efficiency will be much greater than in the past. The demography of the typical office floor in a CBD will be considerably different as well. Companies will have more senior executives in a CBD and less staff.

The financial side will change considerably, too. The leveraging techniques of the '80s will take a back seat to good old-fashioned American equity, and the percentage of equity versus debt will be greater. I suppose this is healthy because anything that eliminates the uncertainty of debt is a good thing.

[In the 1980s,] the climb was so fast -- and the recovery so rapid -- that it carried everybody with it. This time the recovery is more gradual and you need to be a skilled player to get yourself out. The times aren't going to be the factor that bails people out today; [rather,] it's their skill and ability to understand the market and function in it by raising the necessary capital, in the form of debt or equity, in a difficult market in order to survive and grow. That's going to be the difference: You have to rely on your wits to get you through it.

I remind myself that Rockefeller Center was begun during the heart of the depression. Perhaps the finest thing to ever be built in New York City was built because someboey had the courage in the worst times to believe that there'd be good times.

Q Some experts in the industry suggest that our nation's urban centers are decaying, threatening to make them less viable locations for commercial real estate investment. What cities are in peril of becoming undesirable choices for investment? What problems of urban life will continue to plague cities, ultimately affecting real estate opportunities?

A I have a strong view about this. Setting aside social problems which are of an entirely different dimension and will determine how cities survive, the fundamental problem that exists in some cities is the lack of public transportation. As the country becomes more aware of environmental problems and has greater trouble moving people from one place to another, public transportation will become a much larger issue. Cities that don't provide for public transportation -- and by that I don't mean an occasional bus -- are going to have serious problems surviving in the future.

Public transportation is part of the assessment that we do when considering whether or not we will make an investment in a particular city. If you follow this to its logical conclusion and ask yourself where Tishman Speyer's major holdings are -- San Francisco, Chicago, New York (probably the best underground and surface transportation in the U.S.), Miami -- it's [grounded in this belief] about public transportation. We're about to make an investment in Washington, D.C., which has good public transportation.

Then you can talk about the more obvious things like education, healthcare, crime, etc. I would put all of that under the rubric of social issues.

Q If a city has these things working against it -- widespread social problems and a lack of public transportation -- would that preclude TSP from making an investment there?

A It certainly is a strong negative.

Q What three factors will contribute to the domestic success of U.S. real estate players such as Tishman Speyer in the next two to three years?

A One, capital; two, tenant relationships; and, three, patience.

Q In today's marketplace, survival can be dictated by the availability of money. Despite the nation's much talked about credit crunch, lenders seem to look favorably on TSP. Why?

A Our track record, and the way we conduct our [business]. We deal with our financial institutions and partners in a disarmingly frank and open way. A lot of borrowers aren't as candid as we are. We consider financial institutions our partners because, in the end, a developer's lifeblood is his financial capability, which is inextricably tied to his ability to borrow and raise capital.

Q So Tishman Speyer's ability to raise capital in order to pursue ventures helps explain your firm's success while others struggle to stay afloat during this period?

A That's one of the issues. Then you [ask] yourself. 'What are the criteria that financial institutions review?' I think that goes to questions of skill, capability, [and] depth of management. The thing that distinguishes this company from almost every other company in the real estate business is that we have in-depth management -- it's not a one-man show. If Bob Tishman and I disappeared tomorrow, the company would go on. This is a significant difference, probably one of the major distinguishing characteristics this company offers its partners and financial institutions.

Q For the players that demonstrate skill, experience, and a good track record, is money available for real estate ventures?

A To be clear, there is always capital available for the right transaction.

Q If you had to pick a project that best symbolizes the style or strategy behind the Tishman Speyer touch, which project would it be?

A Cityfront Center, a 50-acre complex on the river in Chicago; the Equitable Center in New York; and the MesseTurm in Frankfurt. Those would have to be among my favorite projects.

Each one of these projects is a favorite for a different reason. The Chicago project was a real challenge because there was about 50 acres of unimproved and vacant land in the heart of a major downtown American city, and our homework was to estabish a master plan for its development. Seeing what's happening there today is probably the greatest pleasure that any developer could have in watching the execution of something that you've created.

The Equitable Center, a 3 million square foot undertaking, included finding the solutions to virtually every kind of problem a developer could face. First, there was the renovation and rahabilitation of Equitable's former headquarters, which today houses the Paine Webber headquarters, one of New York's finest law firms, and one of the biggest advertising agencies in the country. In addition, we created the new buildings on Seventh Avenue, the first new building opened on the street. This complex is probably the best example of what private enterprise can do on its own in creating what in the '80s would have been called a "Temple of Commerce." It's a spectacular building, in part because of the architect's design; the way the interior design was handled by Kohn, Pederson, Fox & Conway; and the developer. It was the first time there was a linkage of any major significance between art and real estate. We convinced The Equitable to consider using art as a way of enhancing the environment.

A German reporter asked me in an interview at the completion of the [the MesseTurm], 'How do you feel about having the company with which you're involved build a building of this size and importance in the city your father was born in?' I said, 'It's a monument to my father.' The guy was kind of taken aback, but i really think the opportunity to build in foreign countries is a different kind of challenge than building in the U.S. It's a great opportunity.

Q What led Tishman Speyer Properties to explore overseas markets?

A It was looking to do something that was unique, different, and would enhance the chanllenges [of the business].

Q As an international developer, TSP has garnered attention for its European development activities. When did TSP enter Europe?

A We looked at Europe for about one year before we broke ground on our first project, the MesseTurm, in July 1988. We concentrated on Germany, France, England -- a logical extension being an American company.

Prior to this, we had become involved in a major undertaking in Beijing, which was our first step out of the U.S -- oddly enough, into the People's Republic of China. This proposed project, a joint venture of Tishman Speyer Properties, American Express, and a Chinese national corporation in the software business, is on the shelf. It was a great piece of [apartment] property in the Embassy section of Beijing. The idea was to attract people working in Beijing for two to three years who wanted the safety and comfort of an American-type complex.

As the downturn in real estate began to look like a serious problem back in 1986, we made a fundamental decision to divest outside the U.S. The divestiture of capital was oriented toward real estate development in Europe cities of a certain size. Frankfurt was the cut-off point; [it] was then, and remains today, a major financial capital in Europe. We did the same in France, England, [and] Spain.

Q What are some dramatic differences between development overseas versus domestically?

A Height, size. It's all difficult. The process is different, but in the end you're dealing with government officials there like you are here.

Q What are five European cities in which TSP will continue to pursue opportunities.

A London, Paris, Milan, Berlin, and Frankfurt. Madrid and Russia, also. We have joint ventures in Kiev and St. Petersburg.

Q Any interest in Hungary, Czechoslovakia, or other Eastern European markets?

A No, too small. They're very romantic, but not of the size that's compatible with our investment criteria. [However,] I think business opportunities are fantastic.

Q People usually just want to talk about their successes in business. Let's talk about one of your failures: If you could do anything differently as the head of Tishman Speyer Properties, what would it be?

A What you don't do is second guess your decisions because they're based upon the facts as you knew them at the time. The best thing is to just keep looking and moving forward. Everybody has 20/20 vision in hindsight. We're all pretty good as Monday morning quarterbacks.