Helping Rationalize Real Estate Portfolios

Article

Date December 2016

As CEO, Real Estate for Gordon Brothers' real estate team (previously DJM Real Estate), a Boston-based global advisory, lending and investment firm, Mark Dufton has presided over some of the industry’s highest-profile commercial restructuring deals. The 20-plus-year veteran helped RadioShack sell off its commercial leases as the company navigated bankruptcy, and currently he advises Toys ‘R’ Us on lease restructuring. SCT spoke with Dufton about his management approaches and practices as well as his view on the state of the industry.

How did you get started, and what keeps you in the business?

I was in the Army for five years. When I got out, I went to work for a firm that was owned by a fellow West Point graduate. They did some real estate consulting work, and I found that I just really liked it. Over the years I’ve done development, construction management, property management, leasing and some asset management. I honestly just love looking at properties and seeing the possibilities. I like it on both the commercial and residential sides. I’ve done some house-flipping with my wife. She owns a construction management and staging business for homeowners. So real estate has kind of been my life.

Tell us more about your house-flipping hobby. How extensive is that?

My wife and I go to open houses all the time. We’ve been married 27 years, and I think we’ve lived in 18 to 20 different places. We like change. We go in, and we renovate places, and then we don’t stay very long.

Being an executive, you have probably interviewed your share of job applicants. Do you have a preferred interview approach or a favorite set of questions?

I’m not one for those ‘gotcha’ kind of questions. I don’t ask much about the nitty-gritty details of someone’s experience. I really like to get a feel for their personality, their integrity, their work ethic and how they work as a team. Obviously, you want stuff on the résumé that’s pertinent and germane, but I think the cultural fit is just so important.

You are often called upon to comment about the condition of the national retail real estate industry. What is your take on it currently?

I’d have to say I’m pretty bearish overall. I think we are going to see a continued trend of discount retailers being the most prominent players taking new space. I don’t think you are going to see much rent growth at all, and I think you are going to see increasing vacancies. Just look at Sports Authority: How many of those boxes are out there in the market right now that are trying to be backfilled? … As this type of real estate is getting retenanted, it’s taking longer, and the rents are less than what they were. You’re dealing with sort of mediocre tenant credit quality too. The restaurant industry isn’t faring much better. There have been some strong headwinds facing that business too. I think their troubles are going to continue, especially if we start seeing the food prices go back up. The industry is facing increased health care costs and labor costs; combine that with the fact that fewer people are dining out, and, well, it’s not a great mix.

Can you point to any positive signs or trends emerging in this changing field? 

Well, I think it [the downturn] is making retailers much more efficient in their selection of space and how they allocate and manage their occupancy dollars. For example, when a lease renewal comes up, instead of just checking a box and renewing it, [owners are] really diving in and seeing where that lease stands in relation to the market, and whether they really want to be there, and if they do, what changes they want to make. We’ve been doing a lot of lease-renewal-type work for retailers who want to manage their occupancy.

Seven years ago you co-founded a real estate investment and development firm with a unique name: Dinosaur Capital Partners. Can you tell us the genesis behind that?

When we started the firm, my partner [Scott Oran] and I concocted this whole story around [the name], which wasn’t necessarily true but sounds good from a real estate perspective. Dinosaurs had been around for millions of years, longer even than humans; they were pretty savvy and adaptable. When you’re a real estate investment and development company, it’s not a bad name to have. But the real story is that my partner, when he was younger, had a friend who owned some apartments. The friend was going to Australia and asked my partner to manage his apartments while he was away. He told him, though: “You have to form a company; I can’t just write you a [personal] check.” My partner looked around. His daughter was playing with toy dinosaurs at the time, so he said: “Why not dinosaurs?” He’s had the name ever since, and we’ve just continued to use it.