TSC 21: Equity Office Girds for Real Estate Renaissance

Equity Office Properties is a component of TheStreet.com 21, a new index of 21 components designed to be a leading indicator of the economy's direction for the rest of the year and beyond. Click here for an introduction, and here to view the entire chart of TheStreet.com 21 components, including the reasons for their inclusion.

For those who watch the commercial property markets, Equity Office Properties(EOP Quote) is a bellwether.

As the largest real estate investment trust dealing in office property, Equity Office controls space from coast to coast and provides a good read on both the overall health of the commercial property business and the vibrancy of individual markets. The company owns more than 700 properties with 126 million square feet and has a presence in most major cities. Started by Chicago real estate mogul Sam Zell and coming public in 1997, Equity Office has since completed mergers and acquisitions worth nearly $17 billion.

However, with an economy struggling to recover and a glut of office space in many of Equity Office's primary markets, the company is now focused internally: managing its property base and balance, carefully scrutinizing expenses and -- with a relatively new management team -- potentially becoming more aggressive in managing and optimizing its real estate portfolio.

"We think the addition of new CIO, Jeff Johnson, may signal a subtle shift in strategy for the company," said Bear Sterns REIT analyst Ross Smotrich after recently visiting with EOP's management team at the company's Chicago headquarters. "We expect a more aggressive portfolio management strategy, including more use of joint venture structures, to achieve the company's goal of higher concentrations in its major markets."

The company has never been shy about growing through acquisitions and new development. The $17 billion in transactions noted above resulted in the company growing from a base of 32.2 million square feet of office space in 1997 to over 125 million today. However, the company has been selling assets into a strong private property market in the past 18 months and appears ready to become more focused on its 10 top markets, a list not dissimilar to the top 10 commercial markets in the U.S.