How the Early Bird Caught the Worm July 28, 2017 An interview with Ken Robertson How The Early Bird Caught The Worm: KBS Captures The New Downtowns Before The Millennials Go Marching In “When I was 20 years old, I would have gotten into my car and driven two hours in traffic for the right job,” says Ken Robertson. “This [Millennial] generation is smarter than that. Young people recognize that life is short and you would be a fool to trade your life away.” All these years later, as central regional president of KBS Realty Advisors and its affiliate, KBS Capital Advisors, Ken is witnessing — and participating in — an office space revolution that was almost unthinkable when his career began back in 1990. One of these shattering shifts, among many more: no more corporate groupthink that real estate is a necessary evil. “When I first got into business,” Ken says, “there was a big focus on real estate as a cost center. The problem that corporations wanted to solve back then was this: what would be the bare minimum real estate expense that we can get away with and still get the job done?” Those days are long over, especially if you’re a company interested in attracting the best talent and keeping competitive — and afloat. Of the new, closer, more careful search for office space, Ken says, “The thinking went from it being a cost-center priority to it being a better design/better solution – a focus on what will help tenants maximize success.” He traces this trend back to the tech wreck of 2001, when companies began to consider — or reconsider — how jobs could be marketed as products. “Jobs and workplaces shifted toward a form of boutique/specialty merchandising,” he says, “It involved a high-definition, a higher production quality, with a distinct look and a feel to it. It was more about design and storytelling, and product differentiation.” Ken was able to use his life as a Gen Xer to grasp and understand how the Millennials were driving the trend — and they weren’t about to sit in any traffic jam. “I look back to what I thought was a good meal in 1995, and compare that to what I know is a good meal today,” he says. “Restaurants have evolved and now offer much higher quality products — they have to. We also saw this evolution in the workplace — a much more advanced positioning of real estate, backed by more advanced storytelling and merchandising of lease space.” The shift deepened during the global financial crisis of 2008-2010, as the oppressive work space — and workforce — we once knew crested. Enter the Millennials, armed with their devices and their social media. Employers, with almost no warning, found that cubicles and suburban corporate centers were not going to hold the younger staff. “They’re thinking, ‘holy smokes, this is a major sea change,’” Ken says of the stunned, unprepared corporate elite. “They began to rethink how they should reorganize their company: what sort of workers do they want — and not want? What you really saw was a retooling of corporate America.” KBS got behind this trend early, realizing that the companies with the highest growth were targeting what we now call “knowledge workers” — the kind of employees who carry around their skills in their heads. These workers also want to live and play near where they work, which is a far cry from Ken’s early days, spending a good one-eighth of his day in his car. Immediately absorbed into the KBS portfolio: cool properties in happening places that appeal to innovative companies and their knowledge workers. Call them “The New Downtowns.” Ken’s team oversees many of these properties that answer the call of the new workforce: Preston Commons (Dallas), 500 West Madison (West Loop of Chicago), 515 Congress (Downtown, Austin), RBC Plaza (Downtown, Minneapolis) among others. “We realized really early on, coming out of the downturn, that we wanted to focus on places where employers of really high-end talent were going to find those employees,” he says. “That would be in the best cities in America — the cities that appeal to that younger generation. We were fortunate to identify that really early on, and that it was going to become a big growth area.” As real estate toggles between being a buyers’ and sellers’ market, the corporate game has now become — almost exclusively — an employees’ market. Now the staff is calling the shots regarding how and where they want to work, and the top brass is hopping to it. “The shift is that the companies really go to where the employees are,” Ken says. “These are places with great universities and nightlife, places that have good urban or urban-light environments, with live/work/play attributes, where young, educated workers want to go. That’s why these places are on fire: Denver, Austin, Portland, Seattle, Charlotte, Boston, uptown Dallas, the west side of LA, downtown San Francisco, Chicago’s West Loop. We offer the environment that young people want.” Of course, this takes more effort than the accounting department simply suggesting cost savings. “The evolution we’re seeing now — and we’re actually deep into it — is that businesses in our buildings no longer perceive real estate as a cost center,” Ken says. “They truly see it as a strategic tool. It’s part of their strategy for driving productivity. They consider a real estate location as a tool for communication, recruiting, retention, and collaboration — and equally as a cultural tool. They now see real estate as a pivotal part of what they are trying to accomplish. When they think about where they want to locate their business, they think about which environment is going to make for a better company. And this is a pretty big shift.” How KBS does it: to allow the tenant to feel a part of a custom shop, as part of a creative asset with a unique story to tell. By harnessing and embracing that mindset, the tenant will benefit from a non-commodity solution that serves the tenant and adds value for investors. The KBS Team tells Ken that they don’t want to sell the same building over and over. Each one should have its own story. “If we can get a tenant to be thinking that they will be more successful in a KBS building,” Ken says, “then it stops being about rent and starts being about what location is going to make the company more productive. That’s when we don’t have to fight with the building across the street over a buck or two. We can provide an elevated product, and a return for our investors.” How? By drilling down to the small details. “It’s really about product positioning,” he says. “It’s offering your customers a variety of products. It’s a way to position your product to capture as much audience as you can, with small nuances and pricing, features, benefits and amenities.” What’s next-gen? Ken sees tenants developing analytics that support how certain types of environments actually help drive productivity. “Companies are finding ways to actually measure performance based on environment, at the property level,” he says.” We realized early on that what we were doing at the property level would be especially valuable to people who really value their employees. You wouldn’t get your return on investment in your environment if that wasn’t the case.” With assets in Portland, for instance, KBS has all of its lucrative work space bases covered. The hard part: finding the next Portland. The punchline: Ken says that there actually are no new Portlands. “The next new Portland is a submarket in Portland,” he says. “The next opportunities are most likely tied into the submarkets we’re already tied into.” So the KBS team sticks to the tried-and-true method of offering a unique space in an appealing place. “When a prospective tenant walks into a KBS building, we want them to feel a little awestruck,” Ken says. “They look at our combination of amenities, customer service, location, and the way we build it out and help create a vision of how we will operate there. We want them to walk into one of our buildings and think, ‘we are going to be more successful in this building. Our people are going to want to be here. They are going to be charged up about coming to work.’” Sure beats sitting in traffic. A special thank you to blog writer Ron Sklar for conducting this interview. Ken Robertson oversees a team responsible for all acquisition, disposition, and asset management activities for his region on behalf of KBS REIT, pension fund and sovereign wealth fund clients. His portfolio consists of 32 assets containing 12M SF.