An Owner’s Mentality

The Laramar Group’s David Woodward shares smart fee management strategies for the down cycle

With corporate headquarters in Chicago and property management headquarters in Denver, Laramar Group is a fully integrated real estate investment and management company with 15 regional and operating offices and over 900 employees across the United States. Since 1989, Laramar and its predecessor have invested in transactions throughout the United States representing total value in excess of approximately $3 billion.

Laramar targets investment opportunities for multifamily and mixed-use properties, which they then enhance through redevelopment/renovation, management and repositioning. This process has allowed Laramar to establish an impressive track record and build its portfolio to $1 billion in the first 10 years. David Woodward, managing partner and CEO, recently visited with MHN Editor-in-Chief Diana Mosher, sharing insights on a range of topics from the decision to work with institutional investors to Laramar’s commitment to social network marketing.

Laramar celebrated its 20th anniversary in 2009. How has the company changed since its inception?

When my partner, Jeff Elowe, started the company, he was originally buying small apartment properties in the Chicago area. Later, in the Resolution Trust Corp. (RTC ) days, he acquired all over the country. For most of our history, Laramar has been an owner/manager. When I came on board 10 years ago (I had been with Archstone seven years prior), Laramar owned 15,000 units.

Since then we’ve sold a lot of our older properties, and seven years ago we started a fee management business. Today we manage over 30,000 units in 20 major markets and 75 percent of that is fee and 25 percent is owned. We went from being an owner/ manager to primarily a third-party fee manager. But we still maintain an owner’s mentality in the way we approach things.

Does fee management require a different skill set?

When we got into fee management seven or eight years ago, we realized this is a really tough business. It’s demanding. The margins are super-thin. The only way we wanted to do it—and this strategy has worked out pretty well for us—is by having institutional clients. All are market-rate properties; some are bond-financed. Our clients include Prudential, Henderson, Colony, Intercontinental, UBS, Starwood, Jones Lang LaSalle, CWCapital, LNR, Midland, Wood Partners and others. We won’t manage for the local guy who owns one or two properties. We just won’t do it. Institutions typically have expectations like we do as investors, so it fits in with our culture much better.

Over the past seven years we’ve built up our fee management business. We’ve also continued being investors. Three years ago we raised a $350 million value-add equity fund with Credit Suisse to raise the value of our C-apartments. That fund is fully invested now. We’ll be raising another fund, probably in 2010. In the meantime, it’s fee management that has become a focus and that’s keeping us very busy.

How is Laramar faring during the downturn? Have there been any unexpected opportunities?

The big story at Laramar has been our growth in property management and with special servicers. When individual properties default and are foreclosed on, the special servicers take title and they have three to four years to dispose of the asset. They can also ask for a three-year extension. Unlike the bank foreclosures in the RTC days, where the goal was to liquidate the properties as quickly as possible and get them off the books, the job of the special servicers is to maximize the value of these properties. So why sell today if you don’t have to? They will hold these properties for a period of time until they can clean them up and get the best price for them. So, from a management assignment perspective, it’s better than a bank-owned foreclosure property because a bank is going to turn around and auction off the property. Special servicers will take some time to improve the property and its performance. That’s where Laramar comes in.

In April 2009 we were hired by the Swiss bank UBS to manage a portfolio they had foreclosed on in San Francisco. Then other lenders and special servicers took back properties from this same borrower and we were hired as receiver and manager for some of these additional portfolios. What started for Laramar as a San Francisco opportunity has turned into a much larger opportunity. We’ve started picking up fee management assignments from special servicers all over the country.
Since April, we have grown by approximately 8,000 units. We’re one of the companies actually benefiting from the current cycle. As properties are foreclosed on, they’re almost always looking for new management and we’re getting hired on a pretty regular basis. Usually these have been neglected properties—not well-maintained and the bills have not been paid. We have an in-house construction group because of our history of doing property
renovations. That’s one of the things these clients like about us.

The property assignments we have received so far have included a lot of C-minus properties. The lower-level properties are going first. We think there will be better quality assets foreclosed on and becoming available over time.

Tell us more about the value-add business.

Laramar can come in and look at ways of improving the property by adding better kitchens or a nice clubhouse like the one down the street. We know what they’re charging and so we can devise ways to come up with an offering on the same level. That worked for years and it was a good program. But, in today’s economy, people aren’t willing to pay more for the new kitchen and the new bath. Everyone is so price-conscious that the value-add business is basically dead today. In a few exceptions, in a few markets, you can still do it, but generally across the country people don’t care if they have a brand-new kitchen and bathroom as long as it’s clean and it’s in good shape. They’d rather save $200 or $300 a month in rent, so that business is gone for now.

I think it will be a few years before it comes back. People are going to hunker down even when the economy starts to improve. Now distressed properties are getting investors excited. Two or three years ago, it was some physical aspect that investors focused on—we’re going to buy this apartment and improve it, fix it up, clean it, make it look nice. Now it’s all about the condition of the financing.

Distress is what everyone is talking about. Institutional investors are looking for sponsors like Laramar to bring them distressed transactions. That’s where the focus is. There’s distress out there for sure, but not as much as people are thinking. Now the problem is that the special servicers are taking back CMBS properties. They don’t have to sell. They can wait a few years to sell. And there’s a lot of capital from institutional investors and private equity firms waiting on the sidelines for great deals. That will present a challenge. They can hire a manager for the property; they can fix it up.

What about Laramar’s green accomplishments? You were named a winner of MHN’s Green Initiative Awards in 2008. What have you been up to since then?

For many years we’ve been performing lighting and water retrofits on all our properties. You make money back, along with energy savings. Thirty thousand units across the country now have more efficient toilets, showerheads, sinks, irrigations systems and lighting. From this effort we formed the Laramar Green Team. We solicit ideas from all levels of the organization and brainstorm every quarter.

We’re also excited about Fillmore Center, a large property in San Francisco where we’ve done a ton of energy efficiency things. Fillmore Center is a 1,100-unit high-rise with 100,000 sq. ft. of retail—a massive project. We’re just a few months away from LEED certification. This will be a major accomplishment because it’s much more challenging to get existing construction certified. Usually we see new construction achieve LEED.

In addition to water and electricity retrofits, which we did years ago, Fillmore Center now has elevator motors with variable frequency drives that slow down motors when they’re not in use. We’ve also taken lighting to the next level with motion sensors in common areas. Stairwells have an interesting light fixture that combines a motion detector with a five-watt safety light that stays on at all times. When the door is opened, the motion detector kicks in. Water and lighting have a quick payback financially, of course. But we’ve done hundreds of other things as well—from launching a farmer’s market to subsidizing mass transit costs for employees. Some of these ideas are related to LEED and others have come from employees through the Laramar Green Team.

What’s your view on resident amenities? What’s hot right now?

The Internet cafe is the biggie. It’s really important—more important than I ever thought. You can also make the whole building wireless, but the Internet café is the place to hang out, work, study and socialize. I’ve heard a lot of people in the industry saying, “Oh, but everyone has a computer already.” That’s not the point. Many of these residents are also looking for a social place. We provide desktop computers, but some residents also come down with their laptops. It’s like a mini Starbucks. The Internet cafe has become the most important amenity for sure. Demographics don’t matter. Even a C property needs an Internet café.

I recall during a recent property visit, observing a resident, a lady who was around 75-80 years old, in the Internet café and another resident, a 25-year-old man, was helping her out on the computer. This amenity crosses all age groups and all profiles. It’s more important than the fitness center.

The other one that has been really popular lately is the dog park. People are crazy for their pets. Like the café, this has a social aspect to it. You fence off an area, put a picnic bench up. It can be pretty inexpensive as long as you have a vacant area. We do dog parks wherever we can. These things really do help build a community. If you walk your dog every day—and you look forward to having your 10 dog friends—it’s one more anchor to keep you there when the lease comes up for renewal.

What do you think about social media marketing? Is it worth all the effort? Does it work?

Absolutely. It’s totally working. Laramar is all over Facebook, Twitter, Craigslist. All of our properties are trained on social media. Facebook we use more as a retention tool. Every property has its own page. It’s great for coordinating resident activities. For example, we’ll host a “Dog Day” and provide dog treats and a mobile grooming truck.

For prospecting, Twitter is a better tool. It’s an open environment and you can do a search for keywords to find Tweets about “Atlanta apartment” or “new place to live.” Up come 20 tweets in the last two hours. Then we can Tweet: “You should check out Laramar: here’s a link.” The key here is that you’re speaking your customers’ language. We need to communicate the way they do, in real time. I’m not sure how many turn into leases, but we’re really communicating with someone who’s looking for an apartment in Atlanta and in real time. That’s pretty cool. That’s targeted marketing.

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