Of all of New York’s iconic destinations, the observation deck of the Empire State Building is at the top of the list. From movies and marriage proposals to tourists and tenants, millions of people take in the panoramic view of Manhattan from the building’s 86th or 102nd floor. And, as a result, Empire State Realty Trust, the company that owns the skyscraper, takes in millions of dollars in revenue each year—more than $130 million last year in fact.
But the unusual nature of this building requires special talents—even on the board. So Empire State Realty Trust embarked on a unique mission: find a consumer branding and marketing expert who has digital and social media background too. “They wanted someone who could connect with the 18- to 34-year-old demographic across cultures to strengthen the brand,” says Anthony LoPinto, global sector leader for Korn Ferry’s Real Estate practice, who led the search for Empire State Realty Trust.
Real estate investment trusts, better known as REITs, are undergoing a seismic shift in how they operate, creating a need for a new kind of board with an entirely new mandate. Historically, REITs stocked their boards with real estate executives, financial professionals, and friends and family of the CEO—or, put another way, a lot of affluent white males. But as REITs transition from private, family-owned operations to public, multibillion-dollar companies, they are facing the same pressure from investors, regulators, and even tenants for more diversity among the board and management.
“Skills, background, independence, and diversity are more important than ever,” says Walter Rakowich, the former CEO of Prologis and current board member of several REITs.
That wasn’t always the case. For years, says Nori Gerardo Lietz, a senior lecturer of business administration at Harvard Business School, there was no pressure on REITs to change. “Now there is a real impetus to bring in directors with different points of view or specialized knowledge to address the issues and opportunities they face,” says Gerardo Lietz, who was recruited to the board of Mack-Cali Realty Corp. last year. Once the lone woman on Mack-Cali’s board, for instance, Gerardo Lietz is now one of five female directors at the REIT. To be sure, their election reflects the changing dynamics of the industry, owed in part to a proxy battle waged by the investment firm Bow Street LLC against Mack-Cali last year.
While REIT boards are still among the most male-dominated across industries, they are making progress with gender diversity. Data shows that women accounted for the majority of new director appointments at REITs over the last two years. Moreover, Yoel Kranz, a partner in the law firm Goodwin Procter’s REIT Capital Markets practice, says the tendency to look at REITs as one monolithic industry makes it seem less diverse than it actually is. He says that REITs in the S&P 500, for instance, have similar board composition and diversity as other companies in the index, while those in the Russell 300 tend to be less diverse, primarily because they are still founder or family run.
At the same time, the real estate business is no longer just about buying and developing properties. Technology and sustainability are changing how properties are built, tenants want more services, and investors expect better financial returns. That means REITs have a real need for new directors with experience in a wide range of areas that suddenly have a direct impact on their business. As LoPinto says, diversity is a significant trend, not only as it pertains to gender, race, or age but also in terms of skills and expertise.
Take SITE Centers, a REIT that owns 270 shopping centers throughout the United States that typically feature supermarkets as anchor tenants, as an example. The REIT’s most recent board additions include Dawn Sweeney, a female who is the former CEO of the National Restaurant Association. SITE Centers’ executive vice president and general counsel Aaron Kitlowski says Sweeney’s “background and deep understanding of the food service industry is critical to the board’s refinement of the company’s go-forward strategy and optimal tenant mix.” Put another way, given the fact that supermarkets are increasingly building out food centers and prepared food offerings, Sweeney’s knowledge and connections can provide SITE Centers with insight into emerging new food trends, as well as potentially make connections to new restaurants that might make attractive complementary tenants for its properties.
“It’s all about improving the performance of existing portfolios,” says LoPinto of the rationale behind the new wave of REIT directors like Sweeney.