Kellogg Home
Jan 23, 2018
Categories

Posted on
Dec 15 2015


On October 14, 2015, Richard Monopoli ’02, VP and Head of Development for the New York region at Boston Properties (BXP), joined Kellogg students for the academic year’s first Executive Speaker Series lunch to discuss his career progression, BXP’s investment strategy, and BXP’s latest development with WeWork in the Brooklyn Navy Yard.

Mr. Monopoli first became interested in the built environment at age 11 when he received a book on Frank Lloyd Wright and Philip Johnson, thinking to himself “I want to do that!” Following through on this desire, Mr. Monopoli graduated from Carnegie Mellon with an undergraduate degree in structural engineering and started his career at a forensic engineering firm in Boston, learning about how buildings stay together. From here, Mr. Monopoli came to Kellogg, where he became interested in real estate as an asset class in mixed portfolios, having conducted research with former Kellogg Professor Joseph Pagliari on public-private real estate. After Kellogg, Mr. Monopoli joined LaSalle Investment Management, gaining experience with the buying and selling of real assets. Then, in an effort to become closer to the development side of real estate, he moved to Boston Properties, where he has been for the past ten years.

Mr. Monopoli has thoroughly enjoyed his tenure at BXP, which is a Boston-based REIT that went public in 1997. BXP operates in four carefully-selected geographic markets in the U.S. – Boston, New York, San Francisco and Washington, D.C. – which are 24/7 knowledge centers where BXP can defend its rents and barriers to entry are high. BXP experienced significant asset growth in the 1980s and 1990s having had the foresight to focus on coastal markets and gaining the ability to weather downturns well. As Mr. Monopoli said, BXP has a “track record of knowing when to put on the breaks.” When the economy dips, owning trophy assets becomes lucrative, as there is a flight to quality, which means that occupancy in any BXP property rarely dips below 90%. Today, BXP owns, manages and develops Class A office properties that include icon landmarks like the Prudential Center in Boston, 767 Fifth Avenue (GM Building) and 601 Lexington (Citicorp Building) in New York, the Embarcadero Center in San Francisco, and Fountain Square in Reston, Virginia. BXP often employs a buy-and-hold strategy, exemplified by the Embarcadero Center which BXP acquired in 1998. This approach has allowed BXP to become a landlord of choice for many corporations, evidenced by the long-standing, multi-asset relationship the REIT enjoys with Biogen.

Earlier this year, Mr. Monopoli moved from Boston to New York to lead development in the latter region. One of the most exciting projects underway in the region is Dock72 at the Brooklyn Navy Yard, which BXP is developing in a joint collaboration with Rudin Management, WeWork and the Brooklyn Navy Yard Development Corporation. Dock72 will be a 16-story, 675,000 square foot building sitting on a 60,000-square-foot strip of land jutting out into the East River, offering sweeping views of the Manhattan skyline and becoming one of the largest commercial buildings built in an outer borough. This project presents a new opportunity for BXP as it recognizes and responds to the changing dynamics of employment as the previous recession and current technology untethers people, and consequently BXP, from the traditional office model.

Prior to the lunch, Mr. Monopoli asked that the students attending the lunch to think about what a partnership with WeWork means for a REIT like BXP. A lively discussion ensued, focusing around whether or not WeWork is a risky tenant, given its high valuation and short-term sub-leasing model. In Mr. Monopoli’s opinion, WeWork will be a great tenant, as it draws talent and other businesses as well as serves as a credit aggregator for the space it leases. Additionally, per BXP’s landlord strategy, this partnership gives BXP an opportunity to eventually serve as a future landlord to businesses that grow and graduate from the WeWork space. Lastly, by 2020 it is expected that 40% of the workforce will be contract-based and mobile, and, as seen in the previous recession, this trend will likely be accentuated during subsequent downturns. Of course, there are potential downsides, such as significant tenant improvement costs and the limited flexibility of the workspace if WeWork were to not renew its lease.

Mr. Monopoli reflected on the challenges that BXP faces, especially given its corporate structure as a REIT. As BXP needs to answer to the Street with high earnings, it is harder to redevelop properties, as this would mean temporarily foregoing income in an effort to create a more valuable product. Additionally, there are more constraints to underwriting than experienced by private players. That said, Mr. Monopoli reiterated his passion for BXP, an admiration of its investment strategy, and a deep respect for its people. With that last point in mind, Mr. Monopoli concluded with a lasting tip: “Look at people you know who are several years ahead of you at different companies, and ask yourself if you want to be that person.” For Mr. Monopoli, it seems like at BXP the answer has always been yes.

About the Author

This article was written by Colin Sullivan '17.