Stephen Prozinski, CEO & COO, Hunneman
Stephen Prozinski, CEO & COO of independent commercial real estate company Hunneman, talked to Invest about the challenges that rising insurance costs and real estate taxes pose for the real estate market in Greater Boston. He also underlined how the distressed market for real estate is bound to start kicking at some point as loans start coming back now that interest rates have stabilized.
What was a significant milestone for Hunneman in the past year?
The most significant milestone is that we were ranked the third-largest property management company in Boston. We now manage a portfolio of over 22 million square feet, which is a significant increase from 10 years ago when we were at 3 million square feet in our portfolio.
What trends are you observing in property management and how is Hunneman adapting to enhance value for its clients?
There are a lot more groups out there with equity. We want to be involved with those that are smaller and do not have a lot of resources or back office. Our strength is in supporting their needs for management and accounting, assisting in due diligence to help them with deals, so they can focus on buying and bringing in deals. Additionally, there are a lot of people who are peeling off from the larger companies to start their own thing, which is great. Having those relationships keeps us busy.
The other trend in property management is the crazy increase in insurance costs. To stay on top of that, and with real estate taxes, it is important to understand the lease to make sure that you can bill back as much as you can, be an advocate for your owner, and ensure that you are doing your best to collect money. Accounts receivable is still incredibly high as people do not care as much as they used to about paying their bills on time, which is probably a bit of a pandemic hangover.
What innovations will shape the commercial real estate market in the region over the next few years?
It will be interesting to see what is done with all the malls in the region. The brick-and-mortar retail stores are having a harder time, so it will be interesting to see how they transform those. There is a lot of lab space available in the market that has been built out, so it will be interesting to see how a pivot away from that happens at some point once they notice that lab is not going to work.
There is also a ton of vacant office spaces. Everyone is rushing to turn that into residential, which just does not work. Only around 3% of the buildings in Boston can be turned over in any real way to residential. It will be interesting to see what they do with those bigger, older buildings that lack the amenities that new buildings have.
What is Hunneman’s strategy to address the challenges and opportunities presented by today’s commercial real estate market?
We have evolved over time. In the last decade, we have changed our view of Hunneman in the marketplace as well as how we go about our business. We have evolved to be more mainstream with our larger competitors, which has helped us to become a bigger player in that market. We have also done a lot of marketing and advertising. Our internal support of research and graphics and our marketing team do unbelievable work so that we match up better than anyone in this city in that area.
We have evolved through change of culture and of business approach. We have been driving Hunneman to a successful place. People want to work here because they see us in a good light, which is really satisfying.
How do you expect the stabilization of interest rates and their potential decrease to affect capital markets?
There is still a huge gap between cap rates and interest rates, but the pricing has still not gone down, except in certain instances. The distressed market for real estate is going to start kicking in at some point. The loans are going to come back and special services will be back in play. In 2023, 3% of investment sales were distress sales. By comparison in 2010, following the 2008 crash, 15% of sales were distress sales. We are going to see a lot of that.
Hunneman is uniquely prepared for that wave thanks to our history of who we deal with and how we have done that in other down markets. Nevertheless, we are still plugging away with unique opportunities to sell. It is just not as plentiful as it was. You can see 100 offer memorandums being set, but only one or two sales actually transact as prices are still too high. There is a ton of equity out there, so it is all about finding the right fit.
What are the strongest sectors in Hunneman’s portfolio for the Greater Boston area?
There has not been much change since last year. Industrial has been flat, but still OK. It is not as good as it once was. Good industrial is going to go quickly and tough industrial is going to wait around a little as tenants take time to make decisions. Hospitality is also kicking up a little as it gets a bit of steam. Similarly, we have not seen much of an influx in the office market, but it is getting a little bit better. On the other hand, residential is well positioned and doing really well.
What piece of advice would you give to businesses looking to navigate the commercial real estate market in New England?
To hire Hunneman. Aside from that, they should be conscious of time as everything takes longer these days. They should plan their timing and work with professionals to ensure that they do things the right way. Whether it is a broker, a project manager, or legal, it makes sense to plan that.
What are your top priorities and goals for Hunneman for the next two to three years?
A lot of people say 2024 is going to be a tough year. “Survive till 25” is the motto. In our case, our motto is, “We are going to crush it in ’24.” We are starting to see our advertising and marketing coming full circle. We have become more entrenched with organizations like MassEcon, which is getting us some good deals. Our strategy is not to panic, not to close down, and not to take away services.
A lot of the larger firms are cutting $400 or $500 million worth of expenses. On the other hand, we are adding to the infrastructure to provide more tools for our brokers so that they can transact. We will continue going with that strategy. Moreover, it is all about the personal touch and the relationships. Our brokers need to talk to people and be diligent.
