Changes and Constants: Jim Shapiro Looks Back, With Plans for the Future

[ By Lisa Harbatkin ]

In 1971, Charles Rutenberg and Florida in December lured James J. Shapiro away from his job as chief editor of Professional Builder -- and Chicago in December -- to work at U.S. Home Corporation. In 1977, he moved into commercial real estate when he followed Rutenberg to the Rutenberg Corporation as president of its Investment Properties Division. Shapiro retired this Spring as vice chairman of Peter Lawrence Commercial Real Estate, Inc.

Along the way, he's been deeply involved in industry initiatives and in NAIOP. He has been on the National Board and a former president of the Tampa Bay chapter. As an editorial advisor on Development for over 10 years, he's had a lot to do with the magazine's look and content today, and with the image NAIOP and commercial real estate project on the business landscape.

Development spoke to Jim Shapiro about his real estate career and the changes he sees for the industry as he planned for the changes in his own future. Looking ahead, Shapiro told Development, "I want to continue to be associated with good people in a challenging environment, but also to get a better balance between personal and business activities."

DEVELOPMENT: That was a big change -- from writing about real estate to working in it, especially for someone like Charles Rutenberg. What do you learn working for a legend?
SHAPIRO: Many of us who worked for Mr. Rutenberg call ourselves "The Charlie Alumni Association." He taught us a great deal -- not just about real estate, but also about getting involved in our communities and giving back to them.

DEVELOPMENT: You took him up on that, didn't you?
SHAPIRO: I joined NAIOP in 1979. I was eager to participate in the best way I could, to give back. I had a journalism background, so it made sense to get involved with Development. About five years ago, Sheila (editor-in-chief Sheila K. Vertino) and Anne (director of information and research services Anne Simpson Prior) and those of us on the editorial board redesigned the graphics and content. We came up with a more professional magazine that represents the professional stature of NAIOP and our industry as they are today.

DEVELOPMENT: What are some of the key changes you've seen over your 30 years in commercial/industrial real estate?
SHAPIRO: Look at the people part now and at organizational structure. The industry overall and individual companies are far more professionally structured and managed. We've come a long way from the days of "here's some land, let's build on it." That's had an impact on every- thing else.

DEVELOPMENT: Such as what's being developed now, to meet current market needs?
SHAPIRO: Definitely. The cost of space is high, so savvy companies are thinking in cubic feet and not just horizontal height. Height is a minimum of 30 feet and going north from there. Today's equipment can do that. Sprinkler systems are part of the job, and truck courts are larger, with big turning radiuses.

Appearance is one of the major changes. You don't have big gloomy spaces anymore. NAIOP has championed that, with its publications, and with tours and other activities that show it can be done and that it adds appeal. But it's not just esthetics. We're building business parks now, not industrial parks. NAIOP helped coin that term. The difference is 75 cents a square foot. The concept has made a real difference in permitting and site approvals -- and it makes business sense to do multiple buildings.

DEVELOPMENT: The environment and hazardous waste have also become high-profile issues. What can you do to make sure you're in compliance with environmental requirements? What has Peter Lawrence done?
SHAPIRO: If your tenant says "huh?" when you ask for the Material Safety Data Sheets (MSDS), you have a problem. We even require office users to fill them out. We plan and think about preventive measures and preventive maintenance. One problem could negate all your best efforts in developing a property. Property owners didn't grasp the importance of the environment issue until government put it on the agenda. But there's been growing awareness and increased sensitivity to the needs. This is another area where NAIOP materials and conferences have helped to focus attention on needs and solutions.

DEVELOPMENT: More complications, higher costs, right? How do you make the numbers work in today's market?
SHAPIRO: You take advantage of the more flexible long- and short-term financing approaches now available to help companies keep pace with all the changes. You want to focus not only on interest rate and term, but also on mortgages and the issue of repayment and on the flexibility and what it lets you do.

DEVELOPMENT: What are some of the challenges you and Peter Lawrence faced in the changing commercial/industrial real estate landscape? How did you deal with them?
SHAPIRO: Most recently, three or four years ago, as this market began to increase dramatically in the absorption level of properties, I was still allowing fixed option renewals at the same rate for three to four years ahead. That didn't allow us to take advantage of improved markets. So two years ago I stopped allowing fixed rate renewals.

DEVELOPMENT: Can we look ahead, say, five years or so? What will be different, more important -- positives, negatives?
SHAPIRO: Well, first, remember I'm doing a certain amount of guesswork here -- it's just the way things look to me at this point. Construction costs are already a big worry. We're already experiencing the construction equivalent of gas pump shock. Costs are not going up the usual five to eight percent. They're starting to go up in geometric fashion -- 30-40-50 percent -- for basic commodities. You used to want to pre-lease and pre-sell. Now you don't because you don't know what the job will cost. We're facing a sea change, given the uncertainties in controlling product construction costs.

DEVELOPMENT: What about growth management issues over the next few years?
SHAPIRO: Certain high-growth jurisdictions are very sensitive to development impact. It takes longer now to get through the approval process. That raises your costs and increases uncertainties. Governments can't keep up with infrastructure needs, so they demand impact fees from the developer.

DEVELOPMENT: All this calls for more flexible approaches to product, right?
SHAPIRO: We're clearly going to see a far broader base of product and pressure to change the product. We're seeing more multi-use projects, and commercial developers might find they're involved in more joint ventures and strategic alliances in running and even managing some of these properties. NAIOP and other professional organizations can help in forming these networks.

DEVELOPMENT: What kinds of questions should people be asking themselves as all these shifts continue? What are you thinking about?
SHAPIRO: Are you building for sale? For lease? I think we'll see developers move into industrial condominiums. Also, as development costs increase and because of the ability to move quickly with acquisitions, there is a growing movement to acquiring properties and repositioning them. What you wind up using it for is not necessarily what it was. A lot of this goes back to growth management. It forces you to look inward, not outward.

DEVELOPMENT: What about the intangibles? Business climate? The competitive picture?
SHAPIRO: More people are entering the business. We're going to see dramatically more competition, not just for customers, but for land, money and employees. Yes, the strong will survive, but it will be an aggressive and possibly bumpy survival. I think that will be a constant, going forward.

DEVELOPMENT We've talked about change. What about constants?
SHAPIRO: We're in a cyclical business and the constant in this business is that there will be change. You have to be prepared for it. I've seen some bad dips -- the mid-'70s, early '90s. It's sweet now, but you have to prepare for the longer haul, build your team for the long haul. Provide equity participation, the right kind of corporate environment. That will keep you in better shape.

DEVELOPMENT: What's the team's focus?
SHAPIRO: DEFAD -- Drop Everything for a Deal. I first heard it from a speaker at a NAIOP conference, maybe 15 years ago. When somebody is ready to make a deal, you drop everything else and do it.

DEVELOPMENT: What about the industry environment and organizations?
SHAPIRO: NAIOP involvement has been a constant. It's the logical vehicle for maintaining company and industry professionalism. Architects and GCs grow buildings higher. NAIOP grows the people higher. It's contacts, contacts, contacts. You learn from conferences. You can build cross-country contacts to solve a problem or check on another market. NAIOP is also the logical arena for our business in dealing with political issues.

DEVELOPMENT: You mentioned some uncertainties. Are there a lot? How do you cope?
SHAPIRO: Yes and no. If you're on top of things, if you're aware of the issues and the problems, you can take some of the uncertainties out of your operations. When all is said and done, this is a risk business. The core word is prudent risk. We all try to use our best judgment to minimize the risk.