Smart Investing

When Opportunity Knocks | A Spotlight on Spear Street Capital's Acquisition of BlackBerry's Portfolio

Spear Street Capital's success is built on preparation.

by Sheila Mickool

Thomas Jefferson once noted: “Good fortune often happens when opportunity meets with preparation.” Take, for example, the recent acquisition of smartphone maker BlackBerry’s multimillion-dollar portfolio by Spear Street Capital LLC, a San Francisco–based commercial real estate investment firm.

Headquartered in Waterloo, Ontario, BlackBerry was once one of the leading companies in the global wireless wars for business clients. Since its entry into the wildly competitive consumer marketplace, however, the company found itself dealing with declines in revenue growth and profitability. To address these issues, the company has shifted market focus back to business and professional clients—its area of strength—and is restructuring the organization, including eliminating 40 percent of the workforce, leaving it with more high quality real estate than it needed: 19 buildings and 3 million square feet more real estate, to be exact.

Spear Street FeatureThe square footage was spread throughout highly desirable locations in three Ontario cities: Waterloo, Mississauga and Ottawa. Typically, the process of selling a portfolio of this size would entail working with multiple bidders, negotiating numerous contracts and dealing with a very complex sales situation. A transaction of this magnitude takes time—lots of time.

With Spear Street Capital, it took only six weeks.

“Spear Street Capital acquired the entire portfolio for $305 million,” says Karl Innanen, CCM, managing director, Colliers International, Kitchener, Ontario, whose team worked closely with BlackBerry and Spear Street Capital throughout the process.

“Spear Street was willing to buy the entire portfolio. Few others would do this; most potential buyers only wanted a few of the buildings, but not all of them. In addition, Spear Street acted quickly and they paid cash,” Innanen says. Approximately 1.3 million square feet was leased back to BlackBerry, and the remainder is now available.

“The actual deal may have only taken six weeks,” says John Grassi, president of Spear Street Capital LLC, “but we were focused on this opportunity six to eight months before it hit the market.”

Advanced preparation is one of the hallmark virtues of the Spear Street team, a firm that specializes in helping fast-moving, mostly high-tech companies right-size—both for growth and downturns. Spear Street has been especially helpful to companies such as Starbucks and Dell in off-loading Class A properties when business requirements changed. Spear Street buys the assets, incorporates improvements and upgrades as necessary, executes new leases (often to startups poised for growth), and ultimately sells the assets to real estate funds and investors.

“We strive to be less reactionary to situations, preferring to focus on being aware of potential opportunities well in advance,” Grassi says. 

For example, Spear Street anticipated that BlackBerry would likely decide to sell a significant portion of its real estate portfolio and tried to get in touch with the company months before the final decision was made to sell. “We do our homework, market analyses and opportunity assessments long before a deal hits the street and the offers begin pouring in,” says Grassi.

When the Spear Street team shows up in the process, says Grassi, “We are ready to go. In fact, we are better prepared than most. We differentiate ourselves with complete preparation. When the market is up, there is lots of money available—sometimes there is more money at the table than expertise or preparation. When we show up, when we commit, it’s not that we think it’s the right opportunity. We’ve done the work in advance, so we know it’s the right opportunity; we are fully prepared to execute and we will do it right.”

Spear Street - TahoeSpear Street Capital was established in 2001 to address the opportunities and unmet real estate needs of the technology sector. Some people questioned this decision at the time. The “tech wreck” was in full swing, with stock prices plummeting and once high-flying startups disappearing from the radar. “Most people were running away from technology, but we saw it as an opportunity,” says Grassi. “Long term, high tech will be driving office demand; it’s the next great moment in American industry. It’s like autos in the '50s, radio in the '20s  or railroads at the turn of the century. This is where the growth and jobs are, where wealth generation occurs.”

“Back then (2001), people generally thought of technology as being a factor in only a few places like Silicon Valley and Boston,” Grassi says. But Grassi believed that it was going to be much broader and that demand would begin to show up all over North America, as high-tech companies began to add new offices in areas with large pools of well-educated workers, highly desirable lifestyle amenities and universities. “People think of Google as being a Silicon Valley company, but now they are also in cities like Pittsburgh, Waterloo and Seattle,” Grassi says.

Although Spear Street Capital works with companies outside of the tech industry on occasion, “Our specialty is high-tech office buildings,” Grassi says. “We don’t do hotels, multifamily, golf courses or shopping centers.”

It’s been a successful strategy for the firm. Today, Spear Street Capital LLC has offices in San Francisco and New York, and focuses on assets and portfolios greater than $25 million in total value. Typical deals average $100 million. The firm targets well-conceived and well-located properties that can succeed through creative leasing efforts, physical improvements, entitlement changes or realization of adaptive reuse strategies.

Spear Street Capital is now investing on behalf of its fourth partnership, which was formed in 2012. Previous funds were formed in 2002, 2004 and 2008. Over its history, the firm has invested in more than 40 assets in various markets in the United States and Canada, representing more than $4 billion in total value. The firm averages four to five deals per year and operates with approximately 23 full-time employees.

Innanen is beyond impressed with the firm’s business approach and management, and describes the entire Spear Street Capital team as experienced, knowledgeable, consummate professionals who know how to get things done. “One of the most extraordinary things about Spear Street Capital is that they run very lean,” he says. “If you compared their staffing with other companies with comparable portfolios and transactional activity, you’d find that those companies likely have 200 to 300 employees.”

Spear Street runs lean by design. The firm deals with cyclical, volatile markets.

“Technology is up and down; you have to be prepared to handle both cycles,” Grassi says. “Technology companies go through incredibly rapid change; they are adding or getting out of businesses all the time. They get out of some markets and choose to concentrate on others.”

In response to this level of volatility, Grassi wants to avoid establishing an entrenched bureaucracy with multiple layers. “No bodies in a silo,” he says. “If you have a head of development, he/she wants to develop, even if it’s not the right time. If you have a person in charge of the Southwest, they want to do deals in the Southwest, even if the best opportunities are in the Northeast.”

Spear Street - Ottawa Investment

Grassi remembers, and not fondly, the challenges of getting through the tough times from 2008 through 2010. Running lean helped the firm survive. “Some firms didn’t make it,” he says.

Grassi is the first to admit it’s a bit of a balancing act. He doesn’t want bureaucracy, but doesn’t want to run too lean, either. To compensate, the firm augments the considerable talents of its management team with professional services provided by other companies, such as Colliers International.

“We had many roles in the BlackBerry deal,” says Innanen, “including brokerage, research, valuation, tax consultation, property management and project management. As brokers, we introduced Spear Street Capital to the BlackBerry portfolio. Our research departments provided market intelligence for Waterloo, Mississauga and Ottawa to help value and put together a strategy to buy the portfolio. We helped with due diligence. We introduced our property management group to Spear Street Capital, and they now manage all the properties. Our tax consultants helped with property taxes. In Ottawa, our project management group, Colliers Project Leaders, is helping them with the proposed construction of a 270,000-square-foot office building. The Spear Street team is great to work with,” Innanen says. “They value our help and treat us as true partners.”

It’s exactly the kind of full-service deal and high-touch relationship that Innanen and his team like. More than that, “It’s an absolute win-win-win for everybody,” Innanen says. “BlackBerry sold their real estate to a strong buyer and operator, and put that money into their operating business. Spear Street Capital got a really good deal because they were willing to buy the entire portfolio and were in a position to make well-considered decisions quickly. They’ll make really good returns.”

And best of all, the community benefits as well, because there will be much more business diversity in the areas that were previously dominated by BlackBerry.

“BlackBerry will still have a major presence in the region. But now, so will others, says Innanen. “BlackBerry grew so quickly that they gobbled up space previously occupied by restaurants, gyms, coffee shops, specialty stores, services and bars. Spear Street Capital plans to bring those amenities back to create a more vibrant community. New tenants will now also have a chance to be in these great locations close to the University of Waterloo and Wilfrid Laurier University—the talent generators that BlackBerry tapped into.”

Innanen sees this as a tremendous opportunity for Waterloo to reinvent itself.

“BlackBerry had an incredible growth curve and left in its wake a unique and strong startup ecosystem with hundreds of entrepreneurs who are growing companies that will fill up the former BlackBerry buildings—and possibly create businesses with even stronger growth curves than BlackBerry had,” he says.

The BlackBerry deal closed in May 2014. Just four months later, the Spear Street Capital team turned their attention south to four Class A office buildings that were once home to telecom giant Nortel Network’s U.S. operations. Totaling 800,000 square feet, the campus is located in Galatyn Park in Richardson, Texas, a North Dallas suburb. And what was the key to that successful transaction? Not surprising, Grassi, says, “Preparation. We first looked at it in 2009. We’ve been waiting for just the right opportunity to get it.”

This article appears in Colliers International's Winter 2015 edition of Knowledge Leader Magazine.

View the full magazine.

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