He got rich on cheap leases Landlord: Young, smart and aggressive, Andrew Segal has revolutionized the office leasing business in southern cities. And now he's brought his style to Baltimore.

September 20, 1998|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

THERE ARE plenty of reasons to resent Andrew Segal. He's successful, the owner of one of the fastest-growing private commercial real estate companies in the nation.

He's getting rich: Segal's Boxer Property rakes in $40 million a year in rents.

He is largely self-made, having parlayed, in just six years, a single Dallas office building into a portfolio of more than 60 projects in four states.

He's just 31 years old. He is charming and persuasive, too.

Segal is also a newlywed, as of yesterday. He and his bride -- a free-lance television commercial producer from Houston he met on a blind date -- are preparing to honeymoon in the Caribbean, where he got a good deal because of hurricane season.

And he's smart. While most commercial property negotiations are lengthy ordeals, the New York University law school grad has streamlined the office leasing process, whittling weeks off the time a business typically requires to secure space.

"That was one of my main goals, to take the mystery out of the leasing process," Segal said. "People say to me that things aren't done the way we do them, and I respond that, yes they are, 'cause we're doing it."

Soon, Baltimore landlords are likely to resent Segal, too, because, if his record of buying older, mostly vacant buildings and renting them dirt cheap holds, local property owners will have to slash rents and tighten their belts to compete.

On Thursday, Segal completed a downtown buying spree that began in early August when Boxer completed an $8 million purchase of five Class B buildings -- projects so named because of their advanced age and lack of modern amenities such as parking.

Boxer owns eight downtown Baltimore buildings containing nearly 377,000 square feet, making the Houston-based company one of the city's largest holders of older commercial properties.

That size will allow Boxer to execute the same discount rental rate program in Baltimore that has wrecked the status quo in cities such as Dallas, Tulsa and Houston.

"He's not a fun guy to have in the market," said Craig Nemec, president of Pearson Capital Management Inc., a Dallas company that owns seven office buildings and has competed against Boxer. "He forces the rest of the players to work harder to bring their costs in line."

"Andrew will do wonderful things, but he's going to make a lot of landlords mad in the process," Nemec said. "He's a hell of an asset to a market; it just won't seem that way for the first six months to a year."

Boxer has succeeded by breaking all the rules of office building ownership, tearing pages from the apartment owner's playbook by offering speed and flexibility.

Do you need short-term, even month-to-month leases? Sure. Want to rent as little as 500 square feet with options to expand or contract? Go ahead. Tight on cash? Not an issue. Don't want to deal with lease documents crammed with legal contingencies? No problem: Boxer's standard lease is two pages. Can't wait for an architect to render drawings? Boxer will design your space on a computer while you wait.

"We let the tenants set the terms," Segal says. "Sometimes it's a bit of a shock to a market to have someone so aggressive come in, because it's not within the protocol of the old boys' network. But the reason I was able to get started was because all the old boys were out of business."

Segal entered the real estate business in Dallas in 1992, a day after finishing his law school exams. In a hurry to grab deals -- even for buildings he was told were obsolete -- he never bothered with commencement exercises.

Borrowed 'every penny'

To finance his venture, Segal borrowed "every penny," as he recalls, of his mother's $1 million divorce settlement. Six years later, he hasn't paid back the loan, although he did set up a foundation to benefit his mother and siblings, Leanor Segal said.

"Texas was wiped out at the time," Segal said. "It was like a neutron bomb had hit, killing all the people but leaving the buildings standing."

The buildings were barely standing, though. In most cases, values had plummeted by 90 percent.

Even so, Segal's first deal, for a vacant 110,000-square-foot building, was nearly his last.

The six-story project, which Segal bought from Aetna Life Insurance Co., had been empty for seven years. It required $1,000 a day to keep the lights on and maintain it.

So, without capital or hands-on experience, Segal focused on marketing, erecting a 30-foot-high black and yellow sign that has since become synonymous with Boxer. The sign advertised -- an anomaly in the real estate business -- that space in the building could be rented for a bargain $4.99 per square foot. Competing landlords were leasing offices for nearly twice that figure.

"We rearranged the entire market before the paint was dry on the sign," Segal said.

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