He's led the Columbia-based company through two recessions and overseen its growth into a nationally known developer with $5 billion in assets and a specialty in high-security buildings for defense agency and defense contractor tenants.
In March, Randall M. Griffin will retire from Corporate Office Properties Trust after nearly 14 years, both as president and chief operating offer and as CEO for the last six years. COPT builds, owns and manages suburban office complexes and specializes in defense agency and contractor tenants. The real estate investment trust has made some high profile acquisitions over the years, such as the 474,000-square-foot Canton Crossing office tower in Baltimore, and now owns 266 office properties. The company has won accolades from tenants, and for five years in a row was named "Best in Industry" among large owners in a national survey of tenant satisfaction.
Griffin, 66, will be succeeded on April 1 by Roger A. Waesche Jr., COPT's president and chief operating officer. Before COPT, Griffin had served as president of former Baltimore Gas and Electric Co. subsidiary Constellation Real Estate Group Inc., which was acquired by COPT in 1998. In a recent interview with The Baltimore Sun, Griffin talked about leading the company and about the future of commercial real estate.
What do you consider your greatest accomplishments during your years heading COPT?
Over those 13 years we were able to … grow the company from a local, unknown company … to one that's nationally known and has done very well. Along the way we became the No. 1 office REIT [real estate investment trust] in shareholder return, No. 1 in dividend increase over 13 years, No. 1 in customer service among the largest owners, as rated by CEL & Associates. And we are the largest company in terms of green buildings. But what I'm most proud of is we've built a team that has a very strong culture, and that culture is built upon giving back to the community.
What has been the biggest driver of the company's growth during your years as CEO and COO?
You could say it was somewhat lucky or well-planned by our predecessor [company]. The initial lease with the U.S. government occurred 19 years ago, and today we have 79 leases with the government, and that's been a major driver. The special agencies and the defense contractors serving them make up 60 percent of the revenues. You don't get into that situation without having been very ethical and trustworthy, and establishing excellent relationships with the government and being technologically sophisticated. These are expensive and complex buildings, and we've gotten good at building them. We are now the largest owner of secured buildings in the country.
What are some of the changes you've seen over the past few decades in the commercial real estate and development industry?
Buildings have gotten much more sophisticated and more environmentally friendly. They have had to adapt to higher parking densities, higher ceilings, much more flexible floor plans. It's become much more expensive to build those buildings. And we've watched the [economic] cycles. The nation has gone through a number of recessions, but this is by far the most severe. In 1986, it was overbuilding … in 2000, the tech bubble and oversupply. This one is lack of demand, not oversupply. At the peak in the 1980s, we were developing 180 million square feet of product and new office buildings a year. It's a fairly radical change in demand; some comes from reduced square footage per person. And the nature of demand has changed as nationally we've seen [an increase] in telecommuting.
This current generation is much more comfortable with a laptop and sitting at a conference table with eight or 10 people, and there's not as much of a requirement for individual offices. It's a much more collaborative, tech-friendly environment. The [office] environment has become healthier, with more light, improved air quality and the use of recycled material for furniture. For government contractors, you're dealing with classified information, so there is not as much telecommuting. But there are much more technically sophisticated building requirements.
What have been some of the biggest challenges leading a commercial real estate company through the recession?
It's a recession that is the most severe since World War II, and it has really created so much uncertainty among tenants and customers. It's very hard to predict what kind of square footage you should be bringing on for new buildings. It will probably be another five years of recovery. You might have dynamic local tenants … that have maxed out their space and are hiring, but they're being restrained by [their] national [office] saying they don't have the margins there. If a company is not doing well nationally, there is a top-down effect. In talking to business leaders, the No. 1 reason for lack of job growth is in fact the … uncertainty Congress has created and companies not feeling comfortable spending capital and hiring people.
How do you expect the looming congressional budget cuts to affect future demand for space by defense agencies and contractors? What effect are the budget cuts likely to have on COPT's portfolio and future growth?
The problem is one of uncertainty. There will be some cuts in defense, but it will not be that impactful for the intelligence community. But the uncertainty of no budget and the threat of the supercommittee [cutting back] to 2007 levels, that uncertainty creates a difficult environment for signing leases. The government can sign existing leases but not any new leases until the budget is approved. That will shut down millions of square feet of leasing. We don't think it will affect [COPT] long term with demand because our niche [cybersecurity and intelligence] will grow and is among the highest priorities of the defense budget.
A lot are first trying to use existing spaces more efficiently, or they might go to a short-term lease extension. Over the last year, as people renewed, there was a reduction in space and renewals — we've seen that taper off and stop, but we still see cautiousness. Firms are very slow to make decisions. In the past, you would have a number of defense contractors bidding [for a project], and several would commit to space, thinking they could sublease [if necessary]. Now they will typically not take the space until they have received the contract.
What is your outlook for new office development in the coming months and years? How will demand from federal base realignment, or BRAC, affect future development?
Nationally, development in 2012 will pick up, but realistically the government part of BRAC is finished. But contractors have been slow to move in [because] they don't have to be in until their lease is up elsewhere. It has had the impact of spreading out demand. There is very meager demand, and I don't think you'll see very much office development.
Do you have any advice for recent college grads who want to work in commercial real estate and development?
They should understand that real estate is such a broad field. If you like graphic design, you could go into real estate. If you like property management or people, of if you're strong in accounting, you have a future in real estate. If you're an attorney and you don't want the grind of a law firm, you can go into real estate. Almost any walk of life has a future in real estate. Real estate touches everything in life. What you want to do is have a passion, find what you're good at and what you love to do.
What are your plans after stepping down as CEO in March?
I haven't had the time to think a lot about it. I do expect to be on some boards and to continue on COPT's board and to continue to be involved with charities. I love to travel. My parents are elderly, and I would add taking care of them as a first and foremost in responsibilities. [For now,] it's a run to the finish line, and making sure [the company] is well-transitioned.