2008 Liberty Property Trust
Building the Extraordinary Work Environment

[ By Ron Derven ]

Liberty earned an initial yield of 11.3 percent on development costs for The Plaza at PPL Center in Allentown, Pa. Building green cost was about $104 per rentable square foot for core and shell, a 1.5 percent premium over traditional construction. Photo courtesy of Peter Aaron/Esto.

Malvern, Pennsylvania-based Liberty Property Trust's mission of "enhancing people's lives through extraordinary work environments" has helped propel it to the forefront of the green building movement in the U.S., positioned it for long-term growth and created a model to achieve high-tenant satisfaction. In honor of Liberty's innovative approach and success in the business, it was named Developer of the Year for 2008 by NAIOP.

Liberty Property Trust is a publicly traded REIT (NYSE:LRY) with a market cap of approximately $6 billion, whose operations generated $699 million in 2007. It was founded by Willard G. (Bill) Rouse III as Rouse & Associates in 1972. "Bill Rouse is a well-known figure in real estate," said CEO William P. Hankowsky. "He came to Philadelphia in the early 1970s and began the company by constructing an industrial building in south Jersey."

The firm flourished under Rouse's leadership, developing an expertise in both office and industrial properties and expanding into other geographic markets. It grew through the 1970s, 1980s and into the 1990s and then in 1994, it went public as a real estate investment trust (REIT).

This office building is located in the Great Valley Corporate Center, a 650-acre low-rise suburban office park in Malvern, Pa. More than 20,000 people work in the 80 office and R&D buildings that comprise the park's five million square feet.

"Today, we are in 12 states, the District of Columbia and the United Kingdom," explained Hankowsky. "We have 488 employees in 20 local offices with a decentralized management operation and 74 million square feet of existing space composed of office, industrial and flex space. We are a full-service firm --we do it all--develop real estate, operate the portfolio, perform leasing, buy and sell as appropriate and, as a REIT, handle the capital side."

Product and Market Diversity Spurs Growth
Liberty's growth over the past 36 years from an industrial building developer to a full-service multi-billion-dollar company was due in part to critical early decisions that were made by Rouse, according to its current CEO. One of those decisions was to become a multi-market, multi-product company to smooth out some of the bumps in the road caused by market cycles and market demand.

A big piece of the Liberty model is what it calls its City Manager structure. Hankowsky explained that the firm's philosophy is to have an industry leader in every market where it is active. These leaders are Liberty in that market--Liberty is not some distant operator to local customers. That leader has on his or her team each of the core disciplines that the company provides.

The Charities Aid Foundation build-to-suit is located in Liberty's 650-acre, master-planned, mixed-use Kings Hill development in Kent County, United Kingdom.

Hankowsky stressed, however, that there is daily interaction between the local offices and the headquarters office--it is not a set of 20 distinct units. "We frame our operation every year with an annual business plan," he continued. "People come into headquarters when they are going to make a development decision or when we are going to make investment decisions."

The Power of Partnerships
According to Liberty, its success as a major real estate developer is supported by its conservative approach to the business, its strong balance sheet and its considerable access to capital. "That old model of having a 90 percent mortgage on all assets is not ours. We are, as a company, only 45 percent leveraged. We do not mortgage our assets; we finance off of the balance sheet, just like any other public company would in corporate America. We think that the access to capital that this provides is a great tool and gives us the capacity to operate very quickly if there is an opportunity to buy or build. It gives us greater flexibility in the field," said Hankowsky.

This 123,340-square-foot, LEED Gold-certified Class A office building in Scottsdale, Ariz., achieves optimization of energy performance by using 20 percent less fossil fuels with a reflective roof and shading from overhangs and fins.

Another tool for growth has been Liberty's ability to attract partners seeking to invest in real estate. An example of this is the recently formed joint venture with New York State Common Retirement Fund for growth in the Washington, D.C. and northern Virginia markets. Initially capitalized at $900 million, the fund has a mandate to grow the platform to $2.2 billion through both acquisition and development. "Today, we have six major joint ventures with pension funds and foreign capital that allows us to take advantage of our financial model. We partner with folks who are interested in investing in real estate but do not have the operating capabilities to do that," explained Hankowsky. "It allows us to leverage our capital even further and to grow more quickly and take on opportunities more rapidly. The REIT model coupled with partnerships with institutional capital is a great format."

Liberty Property Trust handles these partnership projects with the utmost care to protect everyone involved: "The way we do our partnerships is to take a single asset class in a single market with a single institutional player and form a relationship," the CEO stressed. "We think this helps us from day one because there are no potential conflicts of interest. You will never have a Liberty building next to a joint venture building. The strategy is to have 100 percent alignment with the interest of our shareholders and our capital partners. Our partners know that they do not have the operational capabilities themselves, which is why they want to do a joint venture with us."

Ties That Bind
Hankowsky joined Liberty in 2001 as chief investment officer after serving 11 years as president of the Philadelphia Industrial Development Corporation. In 2002, he was named president and in 2003 CEO, which presented him with one of the greatest challenges of his career--the death of Bill Rouse.

The recently completed Bull Ridge Distribution Center in North Carolina has several sustainable features including a 75 percent reduction in construction waste and 56 percent recycled content.

"Bill was the entrepreneurial founder," recalled Hankowsky. "In addition to being the successful business person who put it together, Bill was an industry leader and a truly beloved figure within the company. Bill created the business and culture side of Liberty, so losing him was a big blow to us. Clearly, from my own perspective, taking over from Bill was my biggest challenge."

Numerous market cycles have been a challenge as well. "Market cycles have been challenging but obviously, we got through them because here we are," said Hankowsky. "All of the cycles have been different and clearly have affected the business and affected Liberty."

The S&L crisis and the market down cycle of the late 1980s and early 1990s affected Liberty but, as Hankowsky said, "It really did lead to the opportunity for us to go public in 1994."

The last big market downturn for Liberty was 2001: "We looked at the market downturn and thought it would be a long one so we dramatically curtailed development. We aggressively pursued occupancy and that strategy served us well during that cycle." The veteran developer cautioned: "Each market cycle has its own unique characteristics. In this business, you've got to use your experience but at the same time you cannot get locked into just doing what you did the last time, because it might not work this time." Besides handling market cycles, another key to Liberty's ongoing success has been its ability to adapt to changing market conditions. For example, its Great Valley Corporate Center in Malvern, one of the country's earliest examples of a large-scale business park with 650 acres, was originally designed by the firm to include nearly 50 percent industrial space. As the market in suburban Philadelphia continued to expand westward, the company successfully amended the design to emphasize more office use. Now fully developed, it is nearly 90 percent office use and it is considered one of the premier office parks in the country. In 2005, it won the International TOBY (The Office Building of the Year) Award for "Suburban Office Park Low Rise" for its unique tenant amenities and extraordinary customer service.

Developing High-Performance Buildings

The LEED Gold-certified JohnsonDiversey distribution center is a 552,000-square-foot green warehouse expandable to over 800,000 square feet using 40 percent less energy and 50 percent less water than a typical warehouse its size.

In adapting to changing markets, one of Liberty's most celebrated accomplishments has been its early and successful efforts to build green, or in Liberty's terminology, to build high-performance buildings. To date, Liberty has developed or has under construction 37 LEED (Leadership in Energy and Environmental Design) or BREEAM (Building Research Establishment Environmental Assessment Method) certified buildings, more than any other REIT in the U.S., according to the company, which encompasses 5.5 million square feet in 17 cities and represents $1.2 billion in investment.

"It really emanates from the philosophy of the company," Hankowsky said. "Our motto is 'enhancing people's lives through extraordinary work environments.' It is not just a motto to us, it is how we think about the business. We are always asking ourselves, Is there a better way to do it? Is there a different way to do it that would be both beneficial to our customers and beneficial to us?"

Several Recent Examples of a Better Way to Do it from Liberty:
Comcast Center, Philadelphia -- Designed by Robert A.M. Stern Architects, Comcast Center is a 58-story, 975-foot high office tower encompassing approximately 1.2 million square feet of rentable space, including 23,000 square feet of restaurant and retail space, multiple three-story stacked atria; a one-half acre landscaped public park; a new entrance to Philadelphia's main suburban commuter station via a dramatic 120-foot-high glass enclosed winter garden; a 500-seat concourse-level dining court and a 120 private-space underground parking garage. It incorporates a sustainable design approach based on LEED principles, making it the tallest green office building in the U.S.

One Crescent Boulevard is part of Liberty's Class A office development in the 1200-acre Philadelphia Navy Yard redevelopment project. The speculative office building earned LEED Platinum certification in 2006.

JohnsonDiversey Distribution Center, Sturtevant, Wisconsin -- A global leader in environmentally responsible cleaning products, JohnsonDiversey partnered with Liberty to develop a high-performance, 552,000-square-foot warehouse that achieved LEED Gold certification--the largest LEED certified building in the country--and was awarded NAIOP's Green Development Award for the project in 2007.

One Crescent Boulevard, The Navy Yard, Philadelphia -- Designed by Robert A.M. Stern Architects, One Crescent was the first speculative office building in the world to achieve LEED Platinum certification with features that reduce energy use by 50 percent and water use by 30 percent over typical office buildings of its size. This project is part of the 1,200-acre Philadelphia Navy Yard and is one of urban America's most exciting redevelopment projects, and an example of how private real estate companies can create value for the public in partnership with local public initiatives. Bull Ridge, Greensboro, North Carolina -- Recently, Liberty Property Trust received LEED-CS (Core and Shell) Silver certification for its Bull Ridge Distribution Center in North Carolina. Bull Ridge is a 341,000-square-foot building with numerous "green" features that distinguish it from its conventional counterparts.

Supporting the Industry Through NAIOP
A key to understanding Liberty's success over the years has been its close interaction with others in the business. Liberty Property Trust -- and Rouse & Associates before it -- has been a strong supporter of NAIOP for many years. Liberty's founder Bill Rouse was one of the initial speakers at the NAIOP Office Development course in the 1980s, featuring his development case study of Liberty Place in Philadelphia. Today, 35 Liberty professionals are active NAIOP members in multiple markets across the country including the mid-Atlantic; Phoenix, Ariz.; Chicago, Ill.; Houston, Texas; Milwaukee, Wis.; Minnesota; and several Florida cities. Many of Liberty's top executives have served or are serving in both local and national leadership positions within NAIOP.

"Our firm and NAIOP go back many years in terms of being active," according to Hankowsky. "We view NAIOP as being one of the premier industry organizations. We feel it is important that we all think as an industry and encourage our people to be involved in NAIOP. One of our team who has been very involved in NAIOP is Dave Jellison, former Chairman of the association. Dave has made contacts in many markets through NAIOP and this has enabled us to connect with various people in the business. NAIOP continues to be a great source of peer-to-peer interaction and contact for us."

Several Liberty executives were instrumental in helping to get NAIOP chapters going around the country as well: Joe Trinkle helped get the Michigan Chapter going, and John Divall was active in getting the Wisconsin Chapter up and running. "From our perspective," stressed Hankowsky, "we don't just want to be NAIOP members; we want to be leaders in the NAIOP chapters and markets where we are. "Industry Leadership Embraces Sustainability Liberty's leadership in the industry and general business community is probably most apparent because it was one of the first real estate companies to embrace sustainability in real estate development and management. Liberty's senior managers have collectively developed and managed over 35 million square feet of real estate in the past 35 years. They have been with Liberty for an average of 12 years and are active leaders in NAIOP and other real estate associations as well as in local business organizations and chambers of commerce. Hankowsky emphasized that although Liberty's platform is significant, the company has never sought to lead through dominant market positions. Liberty views real estate as a creative and collaborative exercise, in which owner and tenant can come together to achieve financial and operational success for both parties.

Looking to the Future
As a long-time veteran of the industry, Hankowsky has seen real estate market cycles come and go. "Over the last couple of years, we have made a big effort to reconfigure our geographic focus," he said. "Right now we feel good about how we are structured. We could grow the company by another 50 percent over the next couple of years off the platforms we have. We will take advantage of where we are, making the most of our market knowledge, presence and tenant base." Being in three product types across 20 markets with 2,100 tenants provides great stability for the firm. "No one factor can adversely impact the company--we like that model," said Hankowsky. "We have the capacity for further relationships with institutional capital, so there could be more joint ventures in our future. We are well positioned right now--the current economic conditions notwithstanding."

Giving Back to the Community Bill Rouse had a passion for helping others and gave back to the industry and the community. After his death in 2003, Liberty employees wanted a way to keep his memory alive. To honor Rouse, on his birthday each year employees perform community service. It was the beginning of what the company called its annual "Bill Rouse Day of Caring." On the Friday nearest his birthday--June 19th--all Liberty offices in the U.S. and UK are closed. Instead of working in the office, all employees spend the day doing two things that Bill loved the most: serving the community and coming together to celebrate. At each "Bill Rouse Day of Caring," every Liberty employee wears the same colorful T-shirt with a caricature of Bill Rouse on the back. In the past four years, Liberty has donated an average of 4,000 hours on that day helping organizations like Habitat for Humanity, Opportunity Partners in Minnesota, the Leybourne Grange Riding Centre for the Disabled in England, the Central Virginia Food Bank in Richmond and countless others throughout the country. Liberty Property Trust does not assist its local communities just one day a year. Each office is encouraged to contribute to its community in many other ways including donating blood, participating in food and clothing drives, donating to major charities and sports competitions. Liberty contributes over $350,000 to various charities locally and nationally.

The Developer of the Year Award has been presented annually since 1979. Visit the Developer of the Year page to see the list of previous award winners.