Case Study

Blue Cross Blue Shield of Massachusetts

Challenge

Colliers International’s relationship with Blue Cross Blue Shield of Massachusetts (BCBS), the state’s largest health insurance provider, began in 1995 when the company was in a cash crunch and operating "in the red". A new team of senior executives was hired to make the company profitable again, and Colliers was retained to evaluate its real estate needs as part of its overall corporate strategy.

BCBS owned and occupied its 600,000-square-foot, Class A condominium headquarters at 100 Summer Street in Boston’s Financial District and leased an additional one million square feet in the metropolitan market. In 1998, as a strategic measure, Colliers sold 100 Summer Street on BCBS’ behalf for market price. A three-year leaseback was negotiated with the new owners to give BCBS ample time to locate and build out a new headquarters. BCBS used the cash from the sale to strengthen its balance sheet and relocate to 525,000 square feet of less expensive office space at the newly renovated Landmark Center in the Fenway/Kenmore neighborhood. Colliers negotiated favorable lease terms for BCBS, which resulted in a lower occupancy cost than 100 Summer Street. Additionally, employee retention was 95% due to extensive in-house marketing plans launched to highlight commuting patterns and amenities associated with the new location.

Between 2001 and 2003, as its competitors faced financial crisis, BCBS experienced exponential growth. Under its best-in-class service model, both members and the number of associates to keep up with its growing customer base increased. During this time, Colliers acted as BCBS’ real estate advisor, helping the firm expand and open new offices, including a satellite office on the North Shore and others in Worcester County. The success of these transactions combined with Colliers’ past experience working with BCBS on the relocation of its Boston headquarters led the firm to retain Colliers to help accommodate the bulk of the company's growth on the South Shore.

BCBS housed much of its customer service operations in four buildings, totaling approximately 350,000 square feet, in both Quincy and Rockland. The company anticipated growth in this area and the leases were scheduled to expire in late 2004 and 2005. Colliers International was asked to serve as a key member on a team along with the company’s primary real estate executives, representatives from the legal, finance, human resource departments, and leaders in the company’s business units to map out a strategy that corresponded with company objectives, projections of growth, labor markets, and expense trends. We embarked on a process that affected over 2,000 of the company’s valued associates, studying commuting patterns, customer concentrations, business unit interactions, efficiency in operations, costs, site conditions, amenities and a host of other items to determine the best possible real estate solution.

Results

The team evaluated alternatives throughout the Route 3 South corridor from a lease and/or buy perspective. With its healthy financial position and its status as a non-profit, thus non-taxable, entity, BCBS decided that a purchase was its best course of action. This led to the decision to consolidate into two buildings in locations that were less than 20 miles apart.

In August of 2003, Colliers and BCBS’ real estate executives negotiated the acquisition of a 345,000-square-foot building at One Enterprise Drive in North Quincy from State Street and a 400,000-square-foot build-to-suit office building at One Commerce Way in Hingham from AW Perry. Colliers also negotiated a short-term extension of some of the company’s leases in Quincy to allow it time to make necessary renovations to the new facilities. The team also represented BCBS in the lease of an additional 167,457 square feet of office space at 108 Myrtle Street in Quincy.

The Colliers team continues to work with BCBS in the execution of its overall real estate strategy. Most recently, Colliers represented BCBS in a lease requirement for its headquarters space. After evaluating several options based on economics, access to public transportation, sustainability and space that promotes wellness among the insurer’s employees, BCBS opted to move its headquarters to 101 Huntington Avenue in the Back Bay after its current lease at Landmark Center expires in 2015. The new lease is for approximately 330,000 square feet.

"At a time when we’re doing all we can to keep our administrative costs as low as possible, 101 Huntington proved to be the most affordable option that will best meet the needs of our business and our valued associates," Blue Cross CEO Andrew Dreyfus said in announcing the deal.

"Colliers has done a tremendous job of supporting the real estate requirements of Blue Cross and Blue Shield of Massachusetts. In today's complex and ever-changing real estate market, we value the trusted partnership developed between Colliers and BCBSMa to ensure we meet our real estate needs."

Don DiPanfilo Vice President, Corporate Real Estate and Administrative Services, Blue Cross and Blue Shield of Massachusetts
Boston