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Bill McCall
President and co-founder, McCall & Almy
Age: 85
Industry experience: 60 years
Bill McCall likes to joke that he’s accurately predicted eight of the last four recessions in Massachusetts. His glass-half-empty perspective is influenced by his brokerage firm’s tenant advisory specialty in helping companies drive the best bargain with landlords. Unlike previous downturns, the latest economic shock arrived with little warning as commercial properties emptied out in March after quarantines were imposed to limit COVID-19 transmission.
Since then, deal activity has ground to a halt amid widespread uncertainty about the future of densely populated buildings. But McCall remains optimistic about Greater Boston’s long-term economic prospects. A former Navy pilot, McCall started out as an apartment broker in 1959 before co-founding Leggat, McCall and Werner, a Boston commercial brokerage, in 1965. In 1990, he and the late David Almy co–founded their new brokerage to provide tenant representation and advisory services to businesses and institutions.
Q: Are there any parallels to previous downturns that compare to the COVID-19 economic crisis and what it means for commercial real estate?
A: There’s always some parallels. The one important thing for Boston is that when we went into this, we were having the best real estate economy I’ve ever seen. We were sitting around 93 percent occupancy, which was wonderful and very unusual. Therefore, as we’re going through this turmoil right now, at this stage it’s not catastrophic like it was in past downturns. More often than not, we’d be sitting at 12 or 15 percent vacancy, and if you get a downturn [then] you’re in trouble. The landlords are all in pretty darn good shape, so the space that’s going on the market is sublease space. Companies are saying cash is king, and when you have a downturn, people are looking to generate cash by subletting space. It’s too early to tell, but my feeling is if the virus reoccurs in quantity this summer, then all bets are off.
Q: What advice do you give tenants as a starting point for discussions with landlords?
A: We are seeing rent deferrals, especially in retail. For the most part, people who are looking for help are getting deferrals, and for the most part it’s tacked on down the road. It’s not forgiveness. What we’re seeing is a lot of people asking brokers, “Do you think I can sublet X number of square feet and what would I get for it?” And the brokers’ standard answer, of course, is: There aren’t a lot of people looking to take more space right now. You can put it on the market if that makes you feel good, but we’re not going to bring people in tomorrow, that’s for sure.
Q: Are virtual building tours gaining momentum?
A: It’s better than nothing, but for the most part I’m not sure that’s going to close a deal. When people make a space commitment, they’re going to walk through. It’s like a test drive. If you’re taking space, you’re making a commitment for a few years.
Q: Will there be a shift to more flexible space commitments and shorter lease terms?
A: We all know that WeWork has a lot of problems, but one of the things WeWork’s brought to the table that’s going to be prevalent going forward: They’ve brought forward flexibility. The ability to get short-term leases, the ability to get a lot of the work done for you by the landlord, and the flexibility is a big thing for many companies out there today. If you look at the growth of our market, it’s been the tech and life science companies and especially at young companies, they don’t want to commit to 10 years. Their world changes every two years and they’ve got a hot product that either makes it or blows up. We’re seeing the big landlords like Boston Properties or Oxford Property Group, if they’ve got some vacancy in their towers, they’re taking a slug of that space and doing a WeWork-type deal.
Q: Do you expect a rebound in demand for suburban office space because it’s not as dependent upon employees taking public transit?
A: There’s a lot of talk and I guess you could make that case. I will say public transportation is really a problem for the big cities. I used to walk across Dewey Square and frequently had a meeting at 9 a.m. in the Federal Reserve and you could hardly get across the street because there were so many people coming out of South Station. You can’t do social distancing on a subway. In the short term, people are going to be working from home. Most companies we’ve talked to have been very happy with the work from home programs and employees to a degree seem to like it. Is it going to continue? I’m old school. I like to go in the office and have two or three guys and gals you can bounce ideas off of. You want to talk about the Celtics and Bruins and Red Sox and have the camaraderie. You add two and two and get five, talking to bright people in your business and you come up with good ideas.
Q: Will the uncertainty about on-campus programs pressure more colleges to monetize their real estate?
A: There’s a little of that, but a lot of the schools have been doing pretty damn well. There’s going to be schools looking to take advantage of some of the real estate. They’ve got to convert it to dollars. None of them know if they’re going to have a successful fall season. We’re hearing there are going to be a tremendous number of kids that are going to take a deferral for a year. Do I pay $70,000 to go to school online? They’re not going to do it.
Q: How is McCall & Almy assessing its own office space needs?
A: We moved from One Post Office Square to 100 Federal St. last summer. We liked One Post Office Square, but we didn’t want to live through the reconstruction. It’s almost too early to tell. The real estate business is a slow business. Companies take a year or two to make space decisions. Right now, there are no significant deals happening. The only tenants in the market are those that have a gun to their heads because they have a lease expiration, and maybe one or two that hit it big and might be looking. But for the most part, this is not a normal market. I always say the average lease is seven years, so 15 percent of the world transfers every year whether it’s good or bad times. You’re always going to have some degree of activity.
Q: How much will office rents decline in the near term?
A: That’s the question we’re all trying to figure out. What landlords try to do first is keep the face rent but offer free rent. Coming next January, they can start at a high base. The second thing is they’ll offer more tenant improvements. And the last thing they end up doing is cutting the rent.
Q: Will the big landlords hold the line on rents longer because they tend to be institutional owners without debt on these properties?
A: You’re right on. In Boston, we’ve got a lot of very substantial experienced landlords, and it’s not like you and I are owning a building and have a mortgage payment and say, “Oh boy, we’ve got to do something.” They’re not going to take a rental dive too quickly.
McCall’s Five Favorite New England Sports Teams
- Patriots
- Celtics
- Bruins
- Red Sox
- Revolution
