Highwoods CEO Says Construction Costs Remain on Upward Trajectory

Ed Fritsch, president and CEO of Highwoods Properties, Inc. (NYSE: HIW), participated in a video interview at Nareit’s REITworld: 2018 Annual Conference in San Francisco.

Development is a core part of Highwoods’ business, as the company was founded as a developer 40 years ago, Fritsch said. The current development pipeline is $658 million, or 1.8 million square feet, and is 96 percent pre-leased. “It’s just a matter of time before that cash flow comes through the door,” he said.

Construction costs, meanwhile, continue to rise, according to Fritsch.

“We continue to see about half a percent of escalation per month … it means that your prospect pool is more narrow because the cost of the rent is going to be higher,” Fritsch said. However, he added that Highwoods continues to attract businesses due to its “advantageous” geographic footprint.

In terms of divesting non-core assets, Highwoods has sold off $2.6 billion since 2005. Fritsch said the REIT is now a “much better company from a portfolio perspective.”

Fritsch also commented on the importance of building a “fortress-like” balance sheet. He noted that the company gains flexibility from its low leverage, allowing it to execute on the development side “almost regardless of where the equity price is.”