Ann Arbor Business Monthly October 2015 : Page 1

BUSINESS MONTHLY • ann arbor • chelsea • dexter • manchester • milan • saline • whitmore lake • ypsilanti ann arbor area Volume 11, No. 8 October 2015 $2.00 Growing By Leaps And Bounds By David Baker and Margaret Baker In June, one of the largest commercial real estate transactions on record in Ann Arbor was completed in what many have called the “deal of the year.” In a $103M deal, Oxford Companies led a group of investors in the acquisition of a portfolio from McMullen Realty Co. For a comparison, U-M bought the P fi zer property for $108M. The deal is remarkable for many reasons: it is large, (22 buildings and 704,000 square feet), it is well-occupied (high 90’s in percent occupancy), and it gives Oxford Companies the largest share of Ann Arbor’s of fi ce space market (15%). But perhaps the most remarkable facet of this deal is that it is a local transaction. Jeff Hauptman founded Oxford in 1998 and has continued to maintain an Ann Arbor focus. Hauptman’s story is an inspiration for aspiring entrepreneurs. He attended U-M in 1988 intending to study pre-med. Although he was comfortable with math and science, he began to understand that it just wasn’t his passion. And because he had worked in some capacity since he was 10 years old, he found that he wasn’t as motivated by going to school as he was about getting out there and actually working. INSIDE: Business Budget Can Be Powerful Planning Tool – Page 4 VA Ann Arbor Focuses On Improving Accessibility, Healthcare For Veterans – Page 6 Legal Matters: Different Courts & Causes – Page 8 The 3Cs: Your Key Essentials For Healthy, Productive Workplace Fun – Page 9 Small Business & The Internet By Mike Gould – Page 11 Business Briefs – Pages 12-15 November BUSINESS MONTHLY Non-Pro fi t Businesses Deadline: October 23 December BUSINESS MONTHLY Real Estate-Buy or Sell? Deadline: November 21 Jeff Hauptman, who founded the Oxford Companies back in the late 90’s, shown above in the lobby of his company in downtown Ann Arbor. “The country was in a recession at the time,” says Hauptman, “and I began to see ‘For Rent’ signs popping up around Ann Arbor. My curiosity got the better of me about why this was happening and I became interested in real estate. I just felt that I could do something with it.” So, at 20 years old he got a job in real estate, and at 21, he was already doing brokerage. In 1992, when he was just 22 years old, he formed a small construction company and soon was working with Swisher Realty. His company later became Oxford Company. It started off as a holding company, then later expanded to include property management, construction, brokerage, and ownership of a portfolio of entities. Over the 17 years from 1998 to 2015, Oxford has experienced steady growth, with several key milestone deals that stand out: • KMS Building : 126,000 SF • Burlington Of fi ce Center : 3 buildings, 200,000 SF • Oxford Equity Fund : $5.5M raised for 220,000 SF • Ann Arbor Opportunity Fund : $8M raised to acquire 180,000 SF • Northeast Corporate Oxford (Continued Page 3) ann arbor area BUSINESS MONTHLY P. O. Box 460 Hamburg, MI 48139-0460 PRSRT STD US POSTAGE PAID ST JOSEPH MI PERMIT #335

Growing By Leaps And Bounds

David Baker

In June, one of the largest commercial real estate transactions on record in Ann Arbor was completed in what many have called the “deal of the year.” In a $103M deal, Oxford Companies led a group of investors in the acquisition of a portfolio from McMullen Realty Co. For a comparison, UM bought the Pfizer property for $108M.

The deal is remarkable for many reasons: it is large, (22 buildings and 704,000 square feet), it is well-occupied (high 90’s in percent occupancy), and it gives Oxford Companies the largest share of Ann Arbor’s office space market (15%).

But perhaps the most remarkable facet of this deal is that it is a local transaction. Jeff Hauptman founded Oxford in 1998 and has continued to maintain an Ann Arbor focus.

Hauptman’s story is an inspiration for aspiring entrepreneurs. He attended U-M in 1988 intending to study pre-med. Although he was comfortable with math and science, he began to understand that it just wasn’t his passion. And because he had worked in some capacity since he was 10 years old, he found that he wasn’t as motivated by going to school as he was about getting out there and actually working.

“The country was in a recession at the time,” says Hauptman, “and I began to see ‘For Rent’ signs popping up around Ann Arbor. My curiosity got the better of me about why this was happening and I became interested in real estate. I just felt that I could do something with it.”

So, at 20 years old he got a job in real estate, and at 21, he was already doing brokerage. In 1992, when he was just 22 years old, he formed a small construction company and soon was working with Swisher Realty. His company later became Oxford Company. It started off as a holding company, then later expanded to include property management, construction, brokerage, and ownership of a portfolio of entities.

Over the 17 years from 1998 to 2015, Oxford has experienced steady growth, with several key milestone deals that stand out:

• KMS Building: 126,000 SF
• Burlington Office Center: 3 buildings, 200,000 SF
• Oxford Equity Fund: $5.5M raised for 220,000 SF
• Ann Arbor Opportunity Fund: $8M raised to acquire 180,000 SF
• Northeast Corporate Center: 3 buildings, 220,000 SF
• McMullen Properties: 22 buildings, 704,000 SF

McMullen Properties Deal
With all of Oxford’s successes, the McMullen Realty acquisition was far and away the largest milestone. The purchase involved 70 tenants, 6 employees transitioning to Oxford, 60 investors, $81M in debt, and $22M in private equity from investors.

While the size of the deal is eye opening, the real story is the local market flavor that plays a great deal into how the transaction was completed.

“I had been friends with Tom McMullen for 10 years,” says Hauptman, “and we had talked many times about Oxford someday acquiring his portfolio. When he decided to sell it last year, we were first to his door. We came to agreement on price and terms, and he was really good to work with in terms of giving us the time we needed to raise the funds to complete the acquisition.”

The deal took some time to structure and complete. It was complicated and had multiple portfolios and multiple loan structures. In addition, Hauptman had to raise much more capital than he had in the past. The end result was one of the largest investment real estate transactions in the history of Ann Arbor.

Such a large deal would obviously be of interest to other real estate investment firms, so how is it that Hauptman was able to win out? Hauptman credits a good relationship with McMullen and an in-depth understanding of the Ann Arbor area market.

“We saw things that other people didn’t see,” says Hauptman. “We understood the market better than the institutional investors. There weren’t a lot of local contenders for a deal of this size, and the local contenders that were interested were busy with other projects.

“For us, it was more of a real focus. From a national standpoint, institutional buyers with large scale are still operating with the mindset that pricing is still depressed. They really didn’t understand that the Ann Arbor market had already come back.”

The large national firms didn’t fully understand the project and the market opportunity. This gave Hauptman an advantage to see and understand where the value could be created. In fact, Hauptman’s assessment of the market seems to be panning out and Oxford is seeing results already.

“We’re already seeing value creation from this acquisition,” says Hauptman. “From an occupancy standpoint, the portfolio is hovering in the high- 90- percent range and we believe it will continue to be there for the next several years. It’s a sustainable occupancy.”

The Oxford Culture of Service
With Oxford’s track record of growth and high occupancy rates, the natural question is what makes Oxford different from other companies. Hauptman attributes the success to the Oxford culture of service.

“We have been historically several points above market average for occupancy,” says Hauptman. “I think there are a few reasons for this performance. Luck certainly plays into it to some degree, but at the core we have some very hard working people in our company trying to deliver great service to our tenants.

“But our view is that while the old real estate adage is ‘location, location, location,’ much more important to office users is ‘service, service, service.’ Our goal at Oxford is to enable our tenants to focus on their business and not on the real estate. Any company, regardless of the products and services that they offer, really doesn’t want to deal with a leaky roof or a plugged toilet. They want to be able to do their business and not even have to think of those things.

“It’s our job to try to stay ahead and make sure that those roofs aren’t going to leak because we’re replacing them in a timely manner, or to make sure the heating and cooling is functioning well because it receives timely preventative maintenance. It’s also our job to make sure that if something happens, one of our uniformed, trained, Oxford maintenance techs—our ‘ambassadors’—is at their door within minutes of them calling, saying ‘How can I help you.’ So it’s really all service, service, service. I’m not saying, by any means, that it’s perfect yet. We’re still working on it. But that’s the goal, to really perfect the service element.”

Hauptman believes that there is still room for acquisition locally. He expects to start seeing new construction for office space proposed in the coming years in Ann Arbor as the market gets much tighter. A key factor that allows for new construction is increasing rents, and lately Ann Arbor has begun to see some modest rent increases. Hauptman notes that rent has not yet risen to levels that warrant new construction, but he expects it to happen in the coming years.

The Influence of Zingerman’s
In pondering what has led to success for Oxford Companies, Hauptman offered two key thoughts on the influence that the Zingerman’s model has had on his thinking.

“I’ve spent time with Ari Weinzweig over at Zingerman’s. He’s been a great influence. Some of what we’re modeling is trying to have a people-oriented culture where people really want to be there. If the people at our company are taken care of and are happy, that is going to lead to great service for our tenants. And if our tenants are really happy, that is going to lead to good returns for our investors. So we actually put our people first and make sure that they’re well trained, well taken care of, and well respected.

“The other piece of the Zingerman’s influence is that we see a family of companies related to bricks and mortar. We have the ability to take someone from the day that they call our brokerage team and take them right on through the construction process and then right on to having a long-term relationship with them. When our brokers are working with people looking for office space, we’re not treating it as a single transaction to just get the commission and get out; they know that they are developing a long-term relationship because they are part of this company that is going to manage that space for the next 5, 10, 20 years. We approach everything with a longterm perspective.”

With his passion for people, real estate, and Ann Arbor, we have every reason to expect Oxford Companies will be an important part of our local community for the long term as well.

Read the full article at http://digitaleditions.walsworthprintgroup.com/article/Growing+By+Leaps+And+Bounds/2283657/274816/article.html.

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