Spotlight On: Steve Prozinski, CEO & COO, Hunneman
August 2023 — In an interview with Invest:, Steve Prozinski, CEO and COO of Hunneman, discussed the company’s remarkable growth over the past five years, its focus on strong relationships and his outlook on the Boston real estate market. Despite economic conditions, Prozinski remains optimistic about Boston’s future, foreseeing growth and success for Hunneman.
How has the company grown over the past five years?
I’ve been with the company for nine years, starting in 2014, and eventually becoming the CEO in 2018. Over this journey, we’ve achieved a significant transformation, making Hunneman the largest privately owned real estate firm in New England. Our focus on marketing, research and culture has set us apart from our competitors and being locally based in Boston has been advantageous.
On the property management side, we have experienced remarkable growth under my leadership, expanding from 3 million square feet to 20 million square feet. As a privately held firm, we value our entrepreneurial spirit, enabling quick decision-making without the constraints of a large corporate structure. Throughout the years, we’ve implemented various improvements, including renovating our workspace and enhancing our advertising and marketing efforts. As a result of our positive culture and growth, we are now considered one of the best places to work, which is a remarkable achievement compared to nine years ago.
What is the biggest challenge your clients are facing?
The current market trends are making it harder to get deals done, particularly due to higher interest rates causing people to pause on leases. Capital markets and investment sales have slowed down, leading to a quieter environment. Many are uncertain about the future, which has resulted in shorter-term leases and decreased leasing velocity. Financing has become increasingly challenging, with fewer banks providing quotes for deals. Despite these challenges, deals are still being completed, including a recent large portfolio sale in the South End and one of the largest office leases in the suburbs. However, the overall outlook remains uncertain until interest rates stabilize and decrease.
What is your take on office-to-residential conversions in Boston?
In my view, converting office buildings into residential spaces will likely have a minor impact in Boston due to the high costs of transformation. Only about 3% of the buildings have suitable foundations for residential conversion. This makes it challenging to create affordable housing, and investors may hesitate due to lower returns. However, a growing trend of people moving out and working from home emphasizes the need for good residential spaces Downtown. Tax incentives and other measures are being implemented to encourage conversions but striking a balance between affordable housing and rehabilitation expenses remains a challenge. Nonetheless, the transformation is happening and can benefit clients seeking a mix of home and office accessibility.
What are the strongest sectors in the firm’s portfolio in the Greater Boston area?
Across sectors in Boston, tenant preferences are shifting, affecting Downtown office space significantly, with high vacancy rates and unoccupied buildings. However, there are still ongoing leases, as some tenants are opting for higher-quality spaces and better overall building experiences.
The industrial sector experienced a hot streak in recent years, with surging demand and rising prices. Industrial property management saw substantial growth during this period. Amazon and other buyers were actively acquiring properties, driving rates up to $18 per square foot. However, the prices have now stabilized and settled around $13-14 per square foot.
The residential market remains strong but the costs are a concern, hindering some development projects due to their high expenses.
Life sciences is now experiencing stagnation. There were expectations of continuous growth and some office buildings were converted into labs but the process proved costly. Nevertheless, if well-funded owners and sponsors are involved, the demand for life science space can be met and the industry may regain momentum.
Surprisingly, suburban offices are holding up well. We recently completed a significant deal in Quincy for a law firm which has indicated stability in this sector.
In terms of property management, the firm’s success is attributed to a loyal client base. As its clients grow, so does the firm, ensuring a steady revenue stream and continuous progress. For some of our clients we act as an extension of their team which allows them to stay lean and scalable in terms of taking on new properties and clients.
Are companies fully committed to the hybrid work environment or is it more of a case-by-case approach?
I’m observing varied responses to the current economic conditions. Some are cutting expenses while others, like Hunneman, are more bullish. We’re supporting clients who need to be physically present at work. Larger companies, such as Fidelity, are adopting a sporadic approach to returning to the office. We have adapted our strategies by reviewing compensation to remain competitive, introducing work-from-home options and providing transportation for staff. Our company values its culture and employee satisfaction, as happy employees lead to satisfied clients.
How is Hunneman and the Boston area navigating the economic environment, considering the labor market and rising interest rates?
Overall, economic conditions have led to various responses in the real estate world. Many people are cutting expenses and larger companies are following mandates to reduce costs. In contrast, Hunneman has chosen to increase expenses. We invested more in advertising, marketing and research to enhance our name recognition in the marketplace. Despite the challenging environment, we strive to remain competitive and open to new ideas while making the best decisions possible.
What is your outlook on the Boston commercial real estate market, particularly in the next few years?
There are still numerous projects in the pipeline in Boston and surrounding areas, including a major one at South Station which I can see from my window. There is an ongoing, massive development with our client Hilco in South Boston. I expect things to remain relatively stable until after the upcoming election, with some minor fluctuations. However, after that, I anticipate an explosion of growth as people return to work. Boston’s strong fundamentals and the construction of impressive towers and life centers will continue to attract people to the city. We are very optimistic about the next few years and have invested accordingly. Boston’s rebound is already surpassing that of most other cities.
What is the local government’s focus on transit-oriented developments in Boston and how do you perceive their potential as opportunities or challenges?
Boston’s subway system is the oldest in the United States and needs significant improvement. They are doing everything they can to make it better but it’s a long process. Investing in transportation is crucial for the city’s growth and though it’s painful to get there at times, I believe they are making the best effort to address the problems.
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