Innovation districts tend to be most successful when they are recognized as a hub of entrepreneurial activity and creativity throughout a city or region at large, and serve as a point of connectivity for people working on and offsite.
IREM’s Real Estate Asset Management Initiative explores the points of connectivity between the property management and the asset management professions, as well as ways to help individuals working in both fields collaborate more effectively. This exploration draws upon ongoing contributions from practitioners representing real estate investment and service firms in the United States.
Many organizations, large and small, are now interested in occupying space in dynamic mixed-use settings that are specifically designed to promote collaboration and the exchange of ideas among those who live, work and play onsite. Real estate developers are responding to the demand by producing so-called innovation districts intended to provide such an environment. And while the characteristics of these projects and the public-private partnerships frequently formed to bring them to fruition have received a significant amount of attention in trade literature, relatively little has been written about operational issues and oversight. Thus, there is a need to consider the roles real estate asset managers and property managers play in generating investment strategies that involve this unique real estate product type. By examining the ways these real estate professionals can potentially encourage innovation and knowledge diffusion at the property level, this article compliments existing studies that focus on city-scale benefits that often emerge from the agglomeration of highly-skilled people and technology-driven enterprises.
USING PROGRAMMING TO PROMOTE COLLABORATION
An emerging body of research suggests real estate developments including a combination of attractive common areas, compelling retail amenities and shared-use research and development facilities can bring together highly-skilled people from different organizations. In some instances, informal interactions among these individuals may lead to tacit knowledge exchange and relationship building that accommodates future collaboration. Innovation district developers tout the possibility of these outcomes as a fundamental part of the value proposition. However, individuals familiar with this type of development are often quick to point out that formalized programming is simultaneously necessary to achieve such ends. For example, it is not uncommon for the management team of an innovation district to sponsor CEO roundtables, new product showcases, training programs and structured networking events that are all designed to foster community building among a targeted group of professionals and the organizations for whom they work. Asset managers and property managers are therefore left to assess how and when they should participate in the delivery of such programming to enhance the tenant experience. Making these decisions requires a strong understanding of the organizations represented onsite and the industries in which they compete.
ENGAGING THE BROADER BUSINESS COMMUNITY
Asset managers and property managers must also use the resources at their disposal to build awareness of the aforementioned programming in the broader business community. This is important because innovation districts tend to be most successful when they are recognized as a hub of entrepreneurial activity and creativity throughout a city or region at large and serve as a point of connectivity for people working on and offsite. By effectively using programming to lure external parties to a real estate project, asset managers and property managers can help create durable competitive advantage and a brand identity for a property that differentiates it from its peers in the marketplace. The end result may be higher rents and lower vacancy stemming from widespread market recognition of the property’s positive attributes among a subset of prospective tenants that it is particularly well-positioned to serve. Building such a reputation takes a substantial amount of time, and it can only be accomplished when the members of the real estate management team demonstrate a commitment to an innovation-oriented business plan.
OPTIMIZING THE TENANT MIX AND INCREASING INNOVATION CAPACITY
Creating, maintaining and nurturing a synergistic tenant mix is another challenge that can be particularly pronounced in the context of innovation districts. These projects are often home to a combination of multinational corporations, start-ups, universities, nonprofit organizations, small business incubators and accelerators, government agencies and capital providers who can all contribute to the commercialization of new ideas in different ways. The propensity for these parties to work together may, however, be predicated in large part on shared values, an awareness of common interests and the existence of a sense of trust serving as a foundation for collaborative endeavors. Asset managers and property managers cannot control all of these variables, but they can act as information brokers, bringing parties together when they are abreast of the activities and initiatives various tenants have underway. They can also communicate formal and informal rules of conduct to tenants that influence how these parties interact with each other and the manner in which they access shared resources. Since these functions are outside the scope of the typical asset manager or property manager’s responsibilities, individuals working in these capacities must reorient themselves as an important part of an innovation ecosystem to do their jobs well.
MAKING COMPLEX CAPITAL BUDGETING DECISIONS
Asset managers and property managers must additionally make difficult capital budgeting decisions to ensure the physical features of an innovation district help maximize the value of the diverse tenant mix. Common area improvements must not only cater to prevailing tenant demands, but also encourage the employees of these organizations to interact. Furthermore, reinvestments must continually be made in a project to provide public spaces and amenities that are interesting or useful enough to bring outsiders in and connect them to the onsite workforce. The complexity of these decisions requires asset managers and property managers to have an intimate understanding of how internal and external parties currently engage with the built environment, while remaining mindful of how behaviors may change over time in response to emerging market trends and disruptive technologies, among other things. This is by no means an easy task in light of the dynamic nature of the organizations that innovation districts typically serve and the rapidly evolving preferences of the highly-skilled individuals they tend to employ.
MEASURING COLLABORATION AND ENTREPRENEURSHIP
A final way in which asset managers and property managers can add value to innovation districts is by developing substantive measures of any collaboration and entrepreneurial activity taking place onsite. As an increasing number of real estate projects are marketed as innovation districts, prospective tenants are likely to become more leery of the benefits associated with locating in such environments and more demanding of evidence that they are in fact different from traditional office parks. It may therefore prove necessary for management teams to be able to provide information about patents or venture capital funding obtained by entrepreneurial firms already operating in the project, new business startups and innovative joint venture partnerships, just to name a few examples. By routinely collecting information about these types of activities, members of the real estate management team may be better equipped to convey the value proposition of an innovation district to companies considering it as a home.
By: Dustin Read, PhD, JD and Andrew R. Sanderford, PhD (JPM)
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