Bentall Capital Focusing on a Triple Bottom Line

[ By Ron Derven ]

The Summit, Bellevue, Washington, will total 850,000 square feet of Class A office space. It will provide more than 2,500 underground parking stalls on seven levels.

Toronto-based Bentall Capital takes its commitment to service seriously, so much so that it has, in effect, a triple bottom line. In addition to analyzing all-important net dollars, the company evaluates its environmental stewardship - because its aim is to lessen the footprint of its buildings on the surroundings - as well as the level of its commitment to the communities in which it works.

In acknowledgement of the quality of its products and services, financial consistency and stability, ability to adapt to market conditions, social consciousness, leadership in the real estate and general business community and commitment to and involvement in the National Association of Industrial and Office Properties (NAIOP), both locally and nationally, NAIOP has selected Bentall Capital and its president and CEO, Gary Whitelaw, Developer of the Year for 2006. This award is presented to only one company in North America annually. [See list of previous winners at www.naiop.org.]

CEO Whitelaw and senior vice president Tony Astles said that Bentall Capital has roots dating back to 1911, when Charles Bentall was hired by Dominion Construction of Vancouver. Under his management and eventual ownership of the firm, it designed and constructed real estate projects through much of the last century. It spread across Canada and, in the mid 1980s, entered the U.S. market (See details in box at right).

Established in 1911: Private to Public to Private While Bentall dates back to 1911 when Charles Bentall was hired by Dominion Construction of Vancouver, it was not until 1988 that Bentall Corporation was formed to hold the ownership of the major revenue-producing properties. In 1997, it went public. That year the firm acquired Penreal Capital (now Bentall Investment Management) and Pioneer Equities (now Bentall Retail Services). Major holdings were purchased in downtown and suburban Seattle. It remained a public company until 2001, when it was acquired by SITQ Vancouver Inc. a subsidiary of the Caisse de depot et placement du Quebec, a major Canadian pension fund. The re-privatization of Bentall was coincident with the formation of Bentall Capital Limited Partnership (LP). In 2002, Bentall acquired Beutel Goodman Real Estate Group, bringing assets under management to over 42 million square feet, with a value of $6 billion. In 2004, it took over Sun Life Financial's property management and leasing business in Canada, adding a further 13 million square feet to its managed portfolio. At the same time, it opened a new office in Montreal, acquiring the staff and managed properties of Services Immobiliers Valor Inc. Today, Bentall Capital and its affiliates are jointly owned by members of Bentall Capital's senior management (46 percent) and by SITQ (54 percent).

Fiduciary Mindset/Entrepreneurial Zeal
In addition to delivering outstanding service to all of its many stakeholders, the company's success is due to its unique ability to combine a fiduciary mindset with entrepreneurial zeal, according to Whitelaw.

"We have two groups: our services group and our asset management group," Astles explained. "The services group is given the day-to-day opportunity to respond to interesting market dynamics and change; the investment management group is more directly aligned with the capital where the fiduciary mindset tends to be first and foremost. So there is a natural tension between them, which is encouraged in the company."

Whitelaw added: "The only way to avoid serious mistakes in the investment management business is if people feel free to take a devil's advocate position and talk something through thoroughly before the decision is made."

This natural tension and the intense discussions that sometimes take place have resulted in decisions that have allowed the company to make good strategic moves. Here are two recent deals.

Building in Calgary
Canada sits on a vast, viscous deposit of "oil sands" that was only a potential resource until oil prices hit $30 a barrel and then skyrocketed past $60. Now, it is the happy owner of the world's second largest deposits of oil. Only Saudi Arabia has more. Calgary, which hadn't seen a new office building constructed for well over a decade or two, emerged as the epicenter of this industry.

Bentall naturally wanted to supply some of the new buildings that would be needed by companies exploiting this oil wealth, but there was a problem: if it waited until pre-leasing was done before beginning construction, it would be one of probably 10 projects competing for tenants; if it started construction before pre-leasing, it would have the market to itself, but increased risk as well. Bentall moved ahead with its Livingston Place project before pre-leasing.

"The result was that the first building was fully leased before we got out of the ground," Whitelaw remarked. "We launched Phase II and the two 400,000-square-foot buildings were fully leased before we reached the third floor."

The Calgary project obviously involved a certain risk; Bentall came to just the opposite conclusion for a new Vancouver project. The company wanted to construct a 600,000-square-foot building called Bentall 5, part of a large downtown Vancouver project that the firm had been constructing over a number of years. The problem was, when Bentall 5 was readied for construction, the market tanked. The project would have thrown about 600,000 square feet of space on the market. Not only would it have been hard to rent, but it could well have impacted other projects and Bentall stakeholders in a negative way. At the same time, the project could not be scaled back. Bentall once again came up with an innovative solution: it would "vertically phase" the high-rise office building. In researching this idea, Bentall discovered that hospitals often vertically phase construction and sought out the most outstanding examples of this work. Bentall designed a building in which 600,000 square feet could be constructed at once if market conditions changed, or it could be capped off after 320,000 square feet.

In seeking to deliver extraordinary service to all of its stakeholders, Bentall Capital in turn has been rewarded with outstanding success. It is Canada's largest real estate investment and property manager and, together with its U.S. operations, it has achieved continental scale. It has responsibility for 75 million square feet of real estate, invested in more than 600 properties currently valued at $12 billion. The company's portfolio includes office, industrial, retail and residential properties. Its major clients include: SITQ, British Columbia Investment Management Corporation (bcIMC), CIBC, Great West Life, Deutsche Bank, Hydro Quebec, Bank of Montreal, Bank Nova Scotia, Investors Group, PanCanadian and ICBC. Since the formation of Bentall Capital in 2001, the company has completed over $280 million in merchant banking transactions and, including transactions from predecessor corporations, over $550 million in the last five years. The company completed more than 1,400 lease transactions totaling 11 million square feet in 2005. The company is currently developing or has developed a total of 8.6 million square feet of space in the past six years in Canada and in the U.S., with a value exceeding $1.6 billion. It has more than 1,200 employees in offices in Seattle, Irvine, Vancouver, Calgary, Edmonton, Toronto, Ottawa and Montreal.

Said Astles: "We launched the project and within months the market changed further, due to a citywide strike, the tech meltdown and 9/11. As a result, we were glad to have the defensive strategy built in. We brought leasing to 96 percent on Phase I and we capped it off.

"Much like Calgary, we noticed the winds of change early in Vancouver and got busy working on the logistics of Phase II," he said. "By the time we poured the second floor of Phase II, it was 96 percent leased." [Click here for other examples of Bentall's work.]

Environmental Stewardship
Bentall Capital has long been committed to constructing environmentally responsible buildings because it is part of the company culture and because Bentall clients and other stakeholders demand it. "The company has always stressed the use of quality materials, lifecycle costing and durability," said Whitelaw.

As an example of the type of work that Bentall has been performing, this year, to the delight of the whole company, it received a LEED Silver Standard on a building that was actually constructed before the standard was created. Bentall has been moving in the direction of the green building for many years.

"When we constructed that project, we were trying to lower energy costs and the emissions of greenhouse gases," said Astles. "That was driven by the tenants. They said they wanted to reduce their costs and did not want to have such an impact on the environment."

Another area of focus for Bentall is the interior of buildings--such things as the off-gasing of carpets and paint. "We want our tenants to feel that they are getting a healthier environment here than they would in another location. We want the air they breathe to make them feel better," said Astles.

Commitment to Community

Steeles Technology Campus, Toronto, was acquired under construction and completed by Bentall in June 2000.

The care that Bentall Capital exhibits toward the projects it develops and manages and the environment is a strong indication of its attitude toward social issues. One of the company's commitments is education across Canada. Both Whitelaw and Astles noted that protecting the long-term interests of their investors is best served by having a socially responsible attitude toward all stakeholders.

Bentall Capital makes a corporate commitment to give one percent of pretax profit to charity. Typically, one-third goes to major charities; one-third is distributed by regional employee committees and a final one-third goes to charities important to Bentall clients.

302 - 4th Avenue SW, Calgary, will be a 38-story office tower.

"We recently donated $150,000 to a library for the University of Toronto, the Mississauga Campus," said Whitelaw. "We have been extremely active in that community and felt it was important to contribute to the community."

In another example, the Bentall staff has been a strong supporter of the real estate programs at the Sauder School of Business, University of British Columbia. It has offered financial support for scholarships, bursaries and prizes. It regularly hires students in the co-op and internship programs.

"We support the concept of people working around the 9-5 rule and allow them to go coach soccer and help the Cub Scouts, for example," said Astles.

CEO Whitelaw said that there is also a strong business reason associated with its policies: "The retention and attraction of top quality people, who quite frankly have a choice about where they work, is a challenge for all of us in North America. If you take the long-term view, once people are meeting their immediate financial needs, other things like the role you and your company play in your community begin to matter more and more."

Bentall and NAIOP

The Royal Bank Complex, Mississauga, is situated on 25 acres of property.

Bentall has long been committed to NAIOP. It has participated in the creation of new NAIOP Chapters in Canada and its senior management team has a long history of participation as Chapter presidents and directors and national representatives. The company feels that its involvement with NAIOP, which goes back to 1988, has been mutually beneficial.

Said Whitelaw: "We have an articulate goal of trying to be an employer of choice in each of the major markets in which we operate. Part of that is to be visible in the community and to interact with others within the industry. NAIOP provides a tremendous opportunity to meet exceptional people."

Astles said that the company has a position of leadership in its community and a responsibility to share its time with others; to help others learn and understand from what Bentall has done. "In the Vancouver Chapter, we always try to have at least one or two senior managers involved in NAIOP," he said. "We have had five presidents here. One of our presidents was awarded a lifetime achievement award a couple of years ago. Through Vancouver, we helped get the Calgary Chapter started. Down in Seattle, we are very active. Right across the country we are active participants in NAIOP."

Bentall a Decade from Now
Over the next decade, Whitelaw sees Bentall becoming a truly North American company, rather than a Canadian company. But as it grows, he does not want the firm to lose its commitment to service or its dedication to all of its stakeholders.that national names and big box retailers "may or may not be interested, but often what makes a place interesting are the locals."

Ron Derven is co-editor of Development.