KBS CEO Marc DeLuca Holds Court

Marc DeLuca is the CEO and Eastern regional president for KBS, a commercial real estate investment firm with $6 billion in assets under management that was the largest holder of office assets in the U.S. prior to COVID-19. DeLuca manages 72 employees, three offices across the U.S., a non-traded real estate investment trust, and a listed REIT in Singapore with 13 U.S assets. Since joining KBS in 2012, he has helped direct $45.5 billion in total transaction volume.

DeLuca sat down with Commercial Observer to discuss the origins of his executive career, how he navigated $1.3 billion in debt maturities during the pandemic, what the Dutch taught him about environmental sustainability in office properties, and how his daughter’s swim careers inspired his leadership style. 

This conversation has been edited for length and clarity.   

Commercial Observer: How did you first get involved with commercial real estate? 

Marc DeLuca: Building was in my family history. My grandfather on my dad’s side came over from Italy at a very young age, was married at 15, and along with his brothers was a stonemason and carpenter. So when I grew up, I basically worked for them in the summers and always found it pretty intriguing learning how to build stuff, just to see your creation at the end of the day. Then in college, I was introduced to folks that actually owned apartment units in Washington, D.C., and who would rehab those into affordable housing projects. And so it really intrigued me because I used to help build those or renovate those projects, and so that’s how I got into the investment management side. And then I had an uncle who was a developer, here in Northern Virginia, and just seeing that intrigued me to go into commercial real estate. 

How did you join KBS and work your way up to the role of CEO? 

Originally I was with a Dutch-owned company called SFRE, which was owned by a Dutch gentlemen named Julien Redley, and he came over from the Netherlands, and his father had one of the larger cocoa exporting companies, chocolate companies, in Dordrecht, and he ended up marrying [a kin to the Mars candy empire], and he didn’t want to be in the chocolate business anymore. He wanted to be in the real estate business, so he started a real estate advisory firm for all these Dutch pension funds, and I started working for him in 1996. One of our largest clients was a company called ING. ING bought a company called Clarion Partners. I worked there for 18 years, and was looking for something different, something where I can be more focused on what I enjoy doing, which is setting up deals, cultivating deals, and doing development as well. KBS was looking to hire somebody to be the regional president for the East Coast, and that basically blossomed into an opportunity that [co-founders] Chuck Schreiber and Peter Bren gave me to come work for the firm and run that position about 14 years ago. 

How is KBS structured? What separates you from other firms? 

At one point in time, we were the largest owner of office assets in the United States. But for the last 30 years, we actually have always dabbled in the big four food groups: office, multifamily, industrial and retail. As part of that, we also got into the non-traded REIT business, where we went away from advising separate accounts and funds to going into the non-traded REITs. 

And we started a non-traded REIT specifically for multifamily, and then one specifically for office. And we kept a very small list of separate accounts that we maintained for the last 30 years that we continue to invest in. We were set up as not only a small advisory firm for two very large pension funds, but we were also in the non-traded REIT space for a very long period of time. And what’s interesting about KBS is it’s structured in such a manner where the regional presidents are myself and a gentleman named Gio Cordoves. Gio and I are responsible for our regions as a whole, but we also collaborate together to make sure we can deliver to what our clients’ needs and wants are. And so it’s very entrepreneurial, which is great, and allows us to really capitalize on our team that we have, which is spread out throughout the United States. 

You guys were at one time the largest office owner in the United States. When did you start to unwind your positions? 

When owning real estate, you want to pride yourself on not just growing your basis and your AUM, but you have to be liquid, you have to be fluid, you have to be able to sell assets at the right time. So we sold a large amount of office assets in the United States the three years prior to COVID. And what we do is we analyze each individual asset to make sure that we don’t have any lease expirations, capital markets issues, market issues, submarket issues, or product issues that may impact the value of the asset, and then we go ahead and sell it. The way we look at it is really to understand all the nuances of an investment and get out of it. Obviously, COVID did catch everybody. The good news is that the majority of our assets that we had going into COVID and coming out of COVID, our total occupancy is maintained in about the 85 percent to 86 percent range, even coming out of COVID as a whole. Now, obviously, you have some of our flagship assets in Arlington, or the Accenture Tower in Chicago, that maintained that mid-90s, high occupancy throughout COVID, but then you’re coupled with some stuff in the Minneapolis or San Francisco markets, which were hit with 50 percent or 60 percent occupancy. But the weighted average was that high in our portfolio, and that really bodes well for us because they were assets that are located in what I would call it 24/7 environments. 

How do you see the asset class of office evolving over the next five to 10 years?

Two years ago, people said, “You’re not gonna go back to San Francisco.” Well, AI turned that around, right? So, really, what we’re looking for are micro markets and the importance of those markets is really the ability to attract an educated workforce [to work there] that’s still No. 1. No. 2 is really having the ability to accommodate those employees who are in your properties. And I don’t just mean amenities. About eight years ago, we started going around wire-scoring all of our buildings nationally. If you’re going to look at one of our properties, you can see the power generation that can be put in there, and its requirements that are provided to that building, not only from a power standpoint, but also from a fiber optic cable standpoint. And so I think that as assets evolve, and continue to move forward, in the office market, it’s important to be able to have those amenities that tenants like, which employees enjoy, such as a rooftop, a fitness center, car chargers, bike rentals, and walkability to amenities, but from a business-owner standpoint, it’s really important to make sure that you have the ability to get the power you need, the fiber you need, the connectivity you need. 

How did you quarterback the $1.3 billion in debt maturity restructurings in recent years? 

Probably the biggest thing is what’s in the relationship. One of my favorite quotes ever growing up was from Ralph Waldo Emerson, who’s talked about what it means to leave the world a better place, whether by a healthy child, a garden patch, or a redeemed social condition, but it’s to know that one life has breathed easier because you have lived. That’s the definition of success, right? So when I went to these banks, I was like, “Listen, if there’s no I in team, there needs to be we.” And we were very upfront with them. We laid out each individual asset to say, “OK, here’s where we’re at. Here’s where it’s leased. Here’s what we think we can transact at. Give us three months on this asset. We’ll sell it, we’ll pay down some of this loan, but give us six months on this asset, or nine months or two years on this other asset.” 

And we gave them everything. We even told them, “Hey, here’s how much these tenants at Accenture Tower, here’s how many employees are coming each day to your building, that you provide a loan on in Chicago. It’s a 1.3 million-square-foot building. Here’s how our retail tenants are doing. Here’s what we’re doing to fix it. Yeah, we know we’re 92 percent leased, but we only have 40 percent of the employees coming. Everybody’s paying rent, but how are we going to continue to grow that and how much time do we need to be able to sell that asset, so everybody, not only the banks, are taken care of, but also our investors and shareholders?” 

And so it’s really having that in-depth conversation with them. And it took a long time. I’m not going to kid you, there was a lot of arguing going back and forth. But I will tell you, the large banks, the participating banks, the Wells Fargo, the U.S. Bank, Bank of America, PNC, they were just phenomenal to deal with. They understood it. And I think the reason we were able to get where we got with them was, again, we’d done business with these people for a very long time, but we were also very transparent. But again, they want it very relationship driven. 

What type of work does the KBS Green Team do? 

It goes back to my ING days and my understanding of the environment and the importance of the environment. I used to go to the Netherlands, and we had desks and computers that if you sat there too long, your computer would shut down and say you had to walk away from it. Every two hours, you had to be 10 to 15 minutes off your computer. So, here, we’re such a large owner of office assets, and I had developed one of the largest LEED-rated office parks for CalSTRS, California State Teachers Retirement System, when I was at Clarion. We were doing different variations of ESG at various buildings, but we didn’t have a uniform group. And so we started this group, Apollo Malloy runs it for us now, we brought her on specifically to do this. And [the KBS Green Team] does everything from having roofs that have beehives in them to having parking lots that have beehives in them. In one of our buildings, honey is produced on the roof and is served at the restaurant. We have green roofs that grow vegetables. We do bike tuneups in all of our office buildings, so every office building has a bike room, and it’s got a whole bike stand that has pumps, tools, jacks, inner tubes, et cetera, to promote green commuting. So it goes across the portfolio. 

You were named CEO of KBS in 2022. How did that change you personally?

I spend a lot more time on the road. Although now, I’m recently in an empty nester, so my wife probably enjoys that I’m not at home that often. [Laughs] But it’s a lot more time traveling, a lot more speaking, more interviews, but also a lot of interaction with employees. You know, you’re only as good as the people around you. But my management style has always been — and I say this and people laugh — I never want to be the lifeguard, but I want to have enough toes in the water to know it’s safe, right? Now, I use that because my daughters are swimmers. I was never going to jump in and show them anything, but I know that the water is going to be OK and they’re not going to drown. My management style is the same way. If you need a lifeline, I’m going to provide it to you, but I’d love to see people go out on their own, grow, come up with ideas, invoke intuition from themselves, not necessarily from management telling them, “You got to do this, you got to do that.” Let them come up with some ideas, come up with their work style, as long as it’s still with that mindset of what’s most important, which is the financial view of our shareholders and our investors. 

Brian Pascus can be reached at bpascus@commercialobserver.com.