by Mike Fickes

Since Brandywine Realty Trust spun off from the Linpro Company (now L-Cor) in 1994, Gerard H. Sweeney, the company's president and chief executive officer, has focused the company almost exclusively on the Philadelphia metropolitan area. Sweeney's concentration on a single region in lieu of broader expansion has produced dramatic growth. Based in Newtown Square, PA, Brandywine started with four office properties worth $10 million in 1994. Today, the company owns 277 office and industrial properties, manages 42 properties, and participates in seven joint ventures with a total market capitalization of $1.9 billion. Recently, Sweeney spoke to Portfolio about the benefits of focus—in life and in real estate.

Portfolio: How did you get into the real estate industry?

Sweeney: I graduated from Westchester University in southeastern Pennsylvania in 1978 with a degree in business administration and a concentration in economics. Within a couple of years I moved into real estate. I'm very focused on relationships, and real estate gives you the ability to deal with both relationships and transactions.

Portfolio: You seem to have taken the axiom that real estate is a local business to a logical extreme.

Sweeney: We believe real estate is very much a local business. Experience has taught me that venturing outside core markets can lead to mistakes. If you look at the highest pricing on a per-square-foot basis in suburban office markets around the country, I would suggest that those prices have traditionally been paid by outside companies. By the time an outside company finds a local deal, local buyers have already passed. So the only way into a market you don't know is to pay more than what the local structure will pay. That's a mistake we've never made.

Portfolio: What makes the Philadelphia market special, and why have you chosen that as your focus?

Sweeney: Philadelphia is the fifth-largest metropolitan area in the country. It has a diverse economy, product mix and tenant base, along with a large suburban office market. We know the history of the market and how it evolved. We know all the key players in the tenant base and in local politics. We know the subdivision guidelines. We understand the region's fractionalized political landscape, infrastructure constraints, zoning limitations and barriers to entry.

Portfolio: Do you have a personal interest in the Philadelphia region, also?

Sweeney: Yes. I coach little league baseball and soccer. I love it. I'm on the board of several local charities and arts institutions. I also think Brandywine as a company believes there is an obligation to be active in the community. We sponsor walks for multiple sclerosis. We work with Habitat for Humanity, and we sponsor the People's Emergency Center shelter.

We also give tenants opportunities to participate in community affairs. When you create a real estate project, you bring people into work. Work is a big part of people's lives, and one of our goals is to create the right type of environment. Part of that involves helping to connect tenants to the community.

Portfolio: How has Brandywine performed during the economic slowdown?

Sweeney: In a slow-growth economy, our operating platform should do well. A slowdown makes it more difficult to establish a growth pattern. But we have a long-standing pattern, as a secondary-credit and customer-service business.

Portfolio: Secondary credit?

Sweeney: When we lease space, we essentially underwrite a tenant's ability to pay rent. We work to marry the benefits of geographic concentration with credit diversity. We serve more than 1,400 different tenants in this market. We own or manage more than 300 office buildings. Overall, we control about 23 percent of the suburban office market in Philadelphia, southern New Jersey and Delaware.

Portfolio: Real estate companies often talk about establishing a brand. A 23 percent market share implies Brandywine has achieved that recognizable brand name.

Sweeney: We would like to be viewed that way, and I think we have the ingredients in place. We offer tenants more alternatives than our competitors because we have more inventory and more land. Our geographic concentration gives us tremendous leverage with tenants. We can deliver more manpower in terms of property management and maintenance, at lower marginal costs than competitors. We've also developed a technology platform that provides a variety of services, at no charge. For example, we offer a web portal called E-Tenants— a web site with more than 60 different vendors offering office furniture, phone systems, travel planning, movie and theater tickets.

Portfolio: What does all this mean to financial performance?

Sweeney: We believe a company with significant market share and a full-service tenant development program earns the highest margin business–tenant retention. When you retain tenants, there is no downtime and limited capital expense. Our retention rate is 79 percent. I don't know the industry average, but most of the retention rates I see in the market are between 60 percent and 70 percent. Tenant retention is the sweet spot, and we focus on it.