Interview ...
Steve Kaplan - Chief Operating Officer
Grubb & Ellis

On August 2, 1999, Grubb & Ellis announced that it had acquired the assets of Landauer Associates, Inc., where Kaplan had been CEO. Landauer has described itself as the "industry's problem-solver, appraiser, analyst and transaction counselor." Kaplan responded to four e-mailed interview questions on September 23, 1999.

Pike: Do you expect the Internet to impact the value of office, industrial and retail properties?

Kaplan: The revolution in information technology should be expected to have a material effect on commercial real estate values, but in a manner that may be different from the conventional expectations of the futurists. Much has been made of the proposition that "cyberspace will replace physical space as the place where business will be conducted." However, look at the huge growth of employment in technologically related industries to gain a sense of how cybernauts create demand for workplaces, mostly in buildings with fairly traditional space.

Silicon Valley's office vacancy rate is in the low single digits. Silicon Alley in Manhattan saw rents grow over 20% the past year or two. Amazon.com can't build its warehouses fast enough. The Bureau of Labor Statistics, just a few weeks ago, released projections for the fastest growing job sectors in the economy. Database administrators, computer support positions, computer engineers, and systems analysts are all expected to double in numbers over the 1996 - 2006 timeframe. BLS estimates that these four occupations alone will add one million jobs to the economy by the middle of the next decade. There is also a substantial positive contribution to economic demand for commercial real estate being created by the expansionary effects of technology on efficiency and productivity in other industries, through the multiplier effect.

The risks to real estate value from the technology revolution are real, but not exactly those so often cited. The greatest risk is in the potential bursting of a high-tech "bubble," if we see a collapse of "dot-com" companies' stock prices and subsequent significant employee layoffs. Such a possibility cannot be dismissed out of hand, and indeed may be the precursor to the first recession of the 21st century. The second risk comes from the real estate cycle itself. We are already seeing an acceleration of construction activity based upon the extrapolation of the demand trends of the late Nineties, when real GDP growth has averaged above 3% per annum. A slowdown in growth would make evident to the country as a whole what many real estate professionals already know to be occurring -- building volumes in some markets exceeding the current rate of net absorption. Thus, office and industrial vacancies are already beginning to nudge upward for the first time since the early 1990s.

Pike: How will the integration of Landauer's information services and G&E's transaction skills affect the delivery of real estate services?

Kaplan: The integration of the two companies will allow us to expand our position as a leader in the utilization of information systems for transactional activities. Both companies have been pursuing parallel but highly complimentary strategies regarding their information services. Grubb & Ellis has focused on supporting the transaction professionals with the development of its internal systems, most notably G2, which significantly impacts how our transaction professionals are using Internet technology in the area of detail level market research information. Landauer has been focusing on the higher-level executive analysis and reporting tool with R-E-Search at www.r-e-search.com. The integration of these two systems will provide a complete vertical Web-based information "tool-set" that is substantially more complete than what is being offered by any of our competitors. This tool-set will allow our professionals much quicker and more convenient access to the decision support information they need to provide to our clients, whether this is detailed level, as is specific lease comparables, or executive level, as in market-by-market trend comparison. This type of access to information will continue to drive our professionals further up the productivity / professionalism / value-added food chain in providing services to our clients.

Pike: What are G&E's plans for the sale of e-research?

Kaplan: The Grubb & Ellis/Landauer e-presence will be firmly grounded in research and value-driven client services. Our customers will have access to unmatched market knowledge and interpretation, including market reports and analysis tools. In-depth market and industry research and analysis will also be commercially available online via R-E-Search.

Pike: Will G&E offer its management and advisory clients access to reports and performance data over the web?

Kaplan: Grubb & Ellis Management Services has taken a very active approach in applying technology to the many aspects of our business from work order management and benchmarking to energy management and idea sharing through the many tools available through the G&E enet.

Our on-line management and information provides powerful property and market information to our clients via the Internet. Information available to our clients consists of data specific to their properties, Grubb & Ellis/Landauer research data, library information, as well as the ability to process a work order or simply ask us a question. This Internet interaction allows our clients to efficiently and effectively manage their assets or monitor their real estate.

--Peter