Ones to Watch
Every November MHN spotlights industry players who warrant attention in the year to come. These influential executives are employing strategies to overcome the challenges presented by the economy so that the multifamily sector can emerge stronger than ever.
Every November MHN spotlights industry players who warrant attention in the year to come. The editorial team compiled the 2012 list with creativity and resilience in mind. These influential executives are employing strategies to overcome the challenges presented by the economy so that the multifamily sector can emerge stronger than ever.
Ones to Watch
David Baker, FAIA, LEED AP, founder, David Baker + Partners
(transforming the affordable housing experience)
David Baker believes that affordable housing can, in fact, be easier to design than market-rate housing. “The clients are more driven by a desire to have a really great project,” he explains, and because they take a longer-term approach, they are less inclined to direct him to design something that is marketed solely for the here and now, he adds.
Founded in 1982, San Francisco-based David Baker + Partners has received more than 150 architectural design awards with Baker at the helm. Having recently received the AIA California Council’s 2012 Distinguished Practice Award, as well as the Hearthstone Builder Humanitarian Award in 2010, Baker has much to be proud of, yet he remains humble, crediting his 15-person team and the local redevelopment agency with much of the firm’s success and ability to create something both beautiful and affordable.
Baker takes great pride in working with an award-winning landscape architect, as well as using a lighting designer and purchasing locally sourced furniture for his communities. All of these combine to create what he calls “a much nicer” community for the same cost as a conventional community.
Baker often includes public-private open spaces that become something of a decompression zone. In many of his buildings, his designs include a public courtyard space prior to the unit entries, which, he explains, is not only more secure but also more emotionally inviting. Baker also often features green stairs—an open or outdoor stair—in his work, providing residents a pleasant alternative to the elevator.
“You need a flower budget,” he says. “You have to have 5 percent to spend on beauty or commodity or delight. If you have nothing to spend on that, [the building is] not going to be very good, and over time you’ll lose money because a building that isn’t wonderful isn’t maintained, isn’t as valuable and can’t make as much money over its lifetime.”
While Baker sees designing affordable housing as a business strategy—one that’s worked well because the sector remains strong even when market-rate housing does not—these communities also raise the value of the neighborhood around them.
And speaking of neighborhoods, Baker and his firm are looking at larger projects and districts for the future. “We know a lot about the buildings,” points out Baker. But “we tend to like to think outside the property line.”
Richard Campo, chairman and CEO, Camden Property Trust
(investing in employees to bring big returns)
In addition to facilitating the acquisition of about $600 million in properties this past year, Ric Campo has yet again moved Camden up the ladder on Fortune’s 100 Best Companies to Work For. Camden is currently ranked seventh, no small feat considering Google is number four. Campo prides himself on Camden’s culture of trust and has worked to strengthen it even during the downturn.
“We decided that we had to cut costs, and we cut the top people’s salaries the most,” he says. “Our staff could see that the ones who could afford it contributed the most, and they loved it.”
The policy has long-term growth in its best interest, a result of Campo’s foresight—after all, he “had been to this movie before and knew what to do.” When Campo and Keith Ogden founded Camden’s predecessor (a division of Century Development) in 1982, the overbuilt Houston market took a tumble with falling oil prices. Those “oil glut” years taught Campo how to survive in the business, and maintaining teamwork was paramount.
In 1993 Campo and Ogden put together an IPO for their company, which was rebranded Camden, a combination of their names. The new, secure access to capital let management acutely focus on “building a culture of respect and trust with employees, so they know that we are not going to downsize every three to five years,” an environment where employees could “have a career path that allows them to grow with the company and prove their ability to add value.”
And how Camden has grown. Campo’s firm acquired three companies, around a $4 billion value, during the multifamily REIT consolidation phase that began in the mid-1990s. The company has also developed 20,000 apartments, valued in excess of $2.5 billion, over the last 15 years.
Campo still has growth on his mind. Camden has $570 million in apartments under construction today, and current plans call for the start of approximately $400 million next year. The company also looks to match the 6,000 units acquired in 2011 next year. But Campo is not losing sight of Camden’s existing portfolio, something he considers to be one of the most important lessons in multifamily.
“The reason I have spent so much time focused on our culture,” he says, “is because if we don’t have the right people in the field focused on selling the value of a property day to day—to both residents and prospects—then we would be in trouble.”
Lawrence H. Curtis, managing partner and president, WinnDevelopment
(an actionable approach to green)
Whether he’s addressing property managers at the National Apartment Association’s annual conference or owners/investors at GreenBuild, Larry Curtis offers a seductively pragmatic approach to green: just get started now—there’s no good reason to delay. At Boston-based WinnDevelopment, strategies for reducing energy consumption are viewed as a pyramid. At the foundation are low-tech solutions with proven paybacks that are readily available: insulation, lighting and water efficiency upgrades. The payback tends to be between six months to three years. At the top of the pyramid are solutions like solar panels—one of the more expensive energy upgrades, especially as retrofits. WinnDevelopment is looking at “solar-ready” opportunities that can be built into new construction and later switched on if the decision is made to incorporate solar into the energy mix.
“The cost while the building is under construction, and all the walls are opened up, is significantly less than the cost to do it at some later time,” says Curtis. “For a minimal investment now, you open up more opportunities in the future,” he adds. “The competitiveness and the supply chain is bringing down the price of the products, so in that regard it almost makes sense to hold off and see how the market evolves.”
Curtis’ team differentiates between benchmarking and baselining. The former can isolate which properties in a portfolio are the best candidates for upgrades. Baselining can, within a given property, compare a typical year’s worth of usage within a specific time frame to another time frame after a certain efficiency upgrade has been undertaken.
Through historic preservation and adaptive reuse (another WinnDevelopment core competency), Curtis and his team have helped municipalities increase community connectivity and offer new life to businesses and services without consuming land that is either unavailable or inappropriate for development.
However, even with federal and state tax incentives and a community that’s predisposed to the development, the task is never easy. “We’ve found some great buildings for reuse, but they are in weak markets that just won’t work,” says Curtis. “It’s a typical real estate consideration that’s not unique, but it’s more acute with adaptive reuse. You don’t have a choice where to locate the building.”
—Diana Mosher with reporting by Erika Schnitzer
Jamie Gorski, senior vice president-corporate marketing, The Bozzuto Group
(creating award-winning marketing programs)
As the head of marketing at Bozzuto, Jamie Gorski provides strategic marketing direction for each of Bozzuto’s six companies. For each division, her team determines a best approach, particularly because Bozzuto has both B2B and B2C companies and each has to be marketed differently, she says.
For any new management project, explains Gorski, the company first looks at trends and determines the target customer. Combining this information with the vision of the architect, landscape architect and interior designer provides a cohesive approach.
Gorski notes that the vehicles by which the message is promoted are key. Public relations and event marketing, in particular, is something multifamily often forgets about but can generate a lot of community buzz.
At The Residences on the Avenue in Washington, D.C., for example, Bozzuto worked with an event planner to bring in Candace Bushnell for a book signing, while Georgetown Cupcakes handed out treats; meanwhile, Neiman Marcus accessorized the model apartment’s closets to resemble Carrie Bradshaw’s. The project is setting all-time records for Washington, D.C., reports Gorski, with an absorption pace of about 47 units per month, with rents at $4.50 per square foot.
With 12 direct reports, Gorski stays on her game by keying in to industry trends as well as what younger generations—future renters—are doing.
As for the future, Bozzuto and Gorski are focused on enhancing the company’s green marketing strategy, as well as embracing rating sites. A more balanced review or rating is certainly beneficial, so Bozzuto is asking its customers to actively participate in the discussion. “It’s a reputation program,” says Gorski, “but I’m really excited about it because I think reviews and ratings [will] grow stronger, and I think we have to pay attention to this.”
Gorski’s goals for 2012 are, according to her, simplistic. “We have to be innovative, but we also have to implement well. For us it’s making sure that we implement well, we train well and we measure.”
Finally, communication is key. “We are moving so fast in marketing that [it’s important] to communicate to the sites or the management team that there’s something new,” she notes.
Rosemary Carucci Goss, Ph.D., residential property management advisory board professor, Virginia Tech University
(student mentor for three decades)
Where does Kettler turn when it needs to infuse new talent into its leasing offices? How does Winn Management ensure its interns are serious about learning the ropes? These two companies, and many others across the country, rely on Virginia Tech in Blacksburg, Va. Graduates of its Residential Property Management program, which was approved by the university in May 1985, come fully equipped with the skills and education needed to hit the ground running.
The program has been shaped and nurtured since its inception 26 years ago by Rosemary Carucci Goss, Ph.D. “[At that time] I was teaching housing at Virginia Tech—topics like the government role and consumer aspects of buying, selling and renting,” recalls Goss. “I attended a housing conference in Richmond, Va. At the break, this big burly Irishman came up to me and said, ‘you teach housing at Virginia Tech? We need graduates!’”
Goss had just met Jim Kelly, head of the Multifamily Housing Division of the Virginia Housing Development Authority (VHDA). Kelly explained, “We have all these properties that we oversee, including Section 8 for seniors. We hire someone with a gerontologist degree to come manage the property, and in six months they’re gone because they don’t know anything about running a business. Or, we hire somebody who is out of business school, and in six months they’re gone because they don’t know how to deal with the elderly. We need somebody who can do all those things.”
Goss introduced Kelly to Dr. Savannah Day, who had just joined Virginia Tech from Florida State University. Day had been thinking about starting a property management program at Florida State, and she also had a passion for working with older adults. “That led to the formation of an advisory board of industry professionals initially from the Northern Virginia/Maryland/D.C. metro area,” adds Goss. “We built our curriculum around existing housing courses as well as business, psychology, pubic speaking, accounting, marketing and finance. Then we started developing and adding, one by one, our own property management courses.”
At Virginia Tech’s annual job fair, companies are now required to adhere to a Code of Conduct. “They used to literally fight over the students,” explains Goss. “They were offering jobs on the spot. The success rate for job placement has been phenomenal.”
Grace Huebscher, cofounder, president, CEO, Beech Street Capital LLC
(moving on and up in the financing world)
Beech Street Capital LLC has risen to prominence as a multifamily lender extremely quickly. It is today a full-fledged Fannie Mae, Freddie Mac and FHA lender completing over $1 billion in originations—less than two years after its founding. Grace Huebscher, co-founder, president, CEO, warrants interest regarding how she will mold her company to repeat the success.
In its first full year of operations, in 2010, Beech Street obtained Fannie Mae and Freddie Mac approvals and completed $1 billion in originations—a big chunk of it, says Huebscher, from traditional bank customers. This year, it obtained an FHA license. The company is on pace to more than double its volume of originations in 2011, says Huebscher.
Beech Street, which has 80 employees currently, will continue to hire across the country, but Huebscher stresses that growth will not come at the expense of credit quality. “We are in business to protect [the quality of] credit and customer service. It is very important to me.”
Hoping to establish itself on a three-year timeframe, Beech Street Capital was able to telescope its timetable to one year in part because it came into the market at an opportune time for hiring—2009-10, during the financial turmoil. No doubt, Beech Street’s connection with established mortgage broker Meridian Capital Group via Beech Street Chairman Alan Fishman, a former chairman of Meridian, in no small part helped its ascension to prominence. Beech Street obtained the Fannie Mae license via a transfer of ownership of the license from ICM Capital, which is part owned by Meridian. Meridian’s presence in the New York City market also helped Beech Street subsequently obtain a Freddie Mac Seller Servicer license.
Huebscher aspires to continue in the tradition of the “independent, privately owned, very entrepreneurial, incredibly customer-focused” mortgage bankers. Many of these privately owned players in recent years were absorbed by banks of the corporate world, and an observation of that trend is in part what led Huebscher to start the company, she says. “People wanted that environment, and that is what we offer. There are a lot of people we would love to add in the near future. We would want to make sure that they fit in the company culture to go above and beyond for clients.”
Stephen Lefkovits, executive producer of AIM, principal of Joshua Tree Internet Media LLC
(educating the industry)
Prior to his work with Joshua Tree Consulting, Stephen Lefkovits pioneered the NMHC Technology Forum while he was vice president for finance and technology. In more recent years, he purchased the Apartment Internet Marketing conference, which has evolved since his takeover in 2008, nearly doubling in attendance.
“When we started, people were striving for the one correct path,” he notes. “That’s no longer the case; there’s such a diversity of interest.”
Lefkovits recalls his 1998 epiphany, when he recognized that tech services didn’t always need to have a discrete ROI number. “It’s clear that technology, properly applied—especially to existing processes—creates value in a number of different ways,” he notes. “We attracted people initially [to AIM] by saying, ‘you are already doing this stuff, and it’s taking a lot of time and energy. Learn how to use the tools that are online to provide greater visibility into what you’re doing and maybe make your life better and make a little money doing it.’” Clearly, it was a message that resonated.
Lefkovits’ goals for the year to come include finding clear, direct ways to help the industry “do a little better, make more money, be better educated and find better ways to use the tools that [they] have at hand.” And he is already headed there with the launch of two new conferences.
His new ARM (Apartment Revenue Management) conference, which launched in September, is meant to set the record straight about revenue management. “There’s an opportunity to help educate people about a whole field of thought that’s created billions of dollars of value in other industries,” he says. “Here is a business technique, backed by technology, that is widely misunderstood, and if we explain it to people, we think we can move businesses forward [and] move our industry forward.”
AIM 2.0, a partnership with NAA, meanwhile, will bring industry vendors together who want to learn how to use the Internet to better communicate and interact with their clients. “All the education in the industry targets owners,” points out Lefkovits. “The vendors are vital partners.”
In the year to come, Lefkovits hopes to find more commonalities in the service-provider world and explore additional opportunities for executive education throughout the industry.
Cathy Marcus, managing director, Prudential Real Estate Investors
(bellwether of investor sentiments)
At a time when new construction is cranking up again, Prudential Real Estate Investors (PREI) provides one prime example of a major equity partner for the apartment industry. One of PREI’s funds, PRISA has interests in three new apartment developments, and signs indicate that there are plenty more to come this year for this and other PREI funds.
As portfolio manager of PREI’s PRISA fund, Cathy Marcus is responsible for determining the strategy for the core-investment fund, making investment decisions and overseeing the day-to-day operations. PRISA is PREI’s open-ended core fund, which invests in top-of-the-class and lowest-risk real estate. Expected yields for PRISA are 7.5 percent to 9.5 percent over the full market cycle. With 280 global investors, PRISA has gross assets of $12 billion, and about 25 percent of that is allocated to the apartment sector.
Marcus’ apartment investment strategy may be an indication of where investors are at today. Under Marcus, the fund has listened to its investors, increased its apartment allocation and successfully pursued a lower volatility strategy. Fund investments are up: PRISA raised over $1 billion in the second half of 2010 and another $1 billion this year.
For now, the fund has a preference for a “build to core” strategy. Core investment assets are today very expensive to acquire, says Marcus. “We find it makes more sense to build our own, as opposed to bidding against everyone else.” PRISA prefers the higher yields it can obtain by participating in new construction, and moreover, it is merely using a competitive advantage of PREI that is unique among investors—its cultivated, long-standing relationships with locally expert development partners.
The company’s clients, says Marcus, are currently interested in being “as core as ever. They are seeking lower volatility and risk coming out of the downturn. They are seeking to dampen volatility every which way they can.” As a low-risk investor, PRISA considers infill locations the most insulated from market adversities. It is also predisposed to high-rise and sustainable multifamily. Apartments, with their relatively dependable cash flow and liquidity, notes Marcus, fit very well into PRISA’s focus on the lowest volatility investment profile.
Mitchell Morgan, president and CEO, Morgan Properties
(growing in leaps and bounds)
Morgan Properties has grown from a three-asset company to an up-and-coming multifamily mogul. Founder Mitchell Morgan sold shoes while studying accounting at Temple University. Today he is a major Temple trustee and Board Facilities Committee Chairman.
The rise of Morgan Properties started in 1985 with a 1,400-unit, three-property acquisition near Philadelphia that Morgan put together with the help of some tax-exempt financing. The contract called for the renovation of every single unit in 24 months, so Morgan “immediately got involved in the renovation business.”
He finished the deal and began acquiring new properties by putting 5 percent to 10 percent of equity into partnerships with high-net-worth individuals and institutional investors. Deal by deal, the company grew. In the fall of 2007, Morgan Properties doubled its holdings with a 16,000+-unit acquisition from the Kushner Cos. The deal, which was, by Morgan’s account, “the only deal that probably didn’t make sense,” ended working out in the long run thanks to his leadership strategy and close-knit partnerships.
“I have built a tremendous team of professionals in every aspect of multifamily,” Morgan says. “I don’t micro-manage. If you are sitting in my office, my phone doesn’t ring.”
Morgan and his staff were able to restructure the deal with equity partner AIG to keep the units from going to the banks, as was the fate of other large portfolios that changed hands that fall. In 2010, Morgan was able to buy a 100 percent interest on 10,000 of the 16,000 units in that portfolio. In January 2011, Morgan Properties announced that the company had bought out $1.5 billion of portfolio interest from its partners, meaning the firm had a 100 percent ownership interest in 22,000 of their 28,000 units.
“It was a big 18-month period where we bought our partners out, but the good news is that they all still like us,” he says. “I wish I could tell you that in 1985 I thought this was the strategy. It is hard to make a great plan when the world changes. You have to be in the position to make decisions on the spot.”
And Morgan’s next move? His company filed an S11 in August, and when the market settles down, he “intends to go public and become the next Home Properties or bigger.”
John Orehek, president and CEO, Security Properties Inc.
(building communities that service neighborhoods)
Seattle-based Security Properties is quickly becoming known for crafting urban infill communities that are as unique as the neighborhoods in which they are built. John Orehek, who joined the 42-year-old company in 1982, has commissioned local artists to showcase their talents at each new property since 2004. It all started with the award-winning Epicenter, a 128-unit mixed-use project in Seattle’s Freemont neighborhood. The eclectic neighborhood was (and still is) a haven for artists, though at the time it wasn’t too welcome to redevelopment in the semi-industrialized, artist co-op-heavy surroundings. Orehek met with the community board and art council and agreed to a hefty commission of artwork in metal, glass and concrete that was to be built into the community in order to move things forward.
“I know now that it has paid back in spades,” Orehek says. “Not only did we get a better building and a building that people know and can relate to, but we became good friends with these artists, and they have worked on a number of additional buildings.”
Orehek’s knack for working with communities to deliver a neighborhood-improving product will certainly be put to the test with what will be Security’s largest project to date. The company has a 1980s-built affordable asset in Chicago’s quickly-gentrifying North Loop neighborhood. Security plans to redevelop the under-utilized site into a four-tower, mixed-use and transit-oriented community with 1,600 units, at least 300 of which will continue to be affordable. Orehek recently began the “quite elaborate” process of engaging the community.
“This is, in effect, a game of dominos. We have to figure out who to talk with first, and second, and third, and then keep going back when [we] learn something new. We work with the neighborhood to understand their concerns so that we can modify our plans.”
So far, the planned redevelopment will bring a niche grocery store and preschool to the neighborhood. Although it is too early for specifics on the art, Orehek is “sure the Chicago building will be no different” than the rest.
“I think it just distinguishes us, but also provides value, both financially and in many ways spiritually,” Orehek says. “And I am not trying to get spiritual; I am just proud to have our buildings look the way they do.”
David Smith, chairman and founder, Recap Real Estate Advisors
(leading light in affordable housing finance)
The name of the company David Smith founded—Recap Real Estate Advisors—appears frequently in a range of venues, from Congress to HUD to the Millennial Housing Commission, as an expert consultant. Now, Smith appears determined to keep an eye on the future. What he does is likely at the forefront of thought in the field of affordable housing finance.
“Too many people assume that the future will be a smooth continuation of the past. At Recap, we anticipate disruption, and we plan to move fast and smart after, during and before disruption,” says Smith.
Formed 22 years ago, Recap has earned a place in the ranks of the nation’s foremost affordable housing specialists. Smith has personally completed more than 80 transactions, including workouts, resyndications and recapitalizations for the preservation, prepayment or renewed affordability, of over 10,000 apartments with a value of more than $400 million. Smith has also helped to develop new affordable housing tools for the public benefit, and has long been seen as an industry leading light. In 1996, for example, he was among those selected by the Senate to develop Mark-to-Market legislation.
The keys to Recap’s success? Focus and vision, says Smith—“focus in that we provide advisory services for multifamily residential, especially existing property, especially affordable. We have never strayed from that asset class.” As far as vision: “Lots of people can analyze what is wrong. Many people can articulate what they want in a solution. Few can actually solve the problem by designing a customized financial answer that satisfies everybody—and then executing to that design,” says Smith.
Smart market participants watch for where Recap Advisors is heading next. In partnership with the Enterprise Foundation, it has pioneered green capital needs assessments standards. It is bidding to help develop energy conservation lending, and working with the Housing Partnership Network to solve the challenge of managing small-property rentals. Other ideas include exploring new hybrid forms of housing tenure involving both renting and ownership. Housing is “inherently valuable to America as a nation,” says Smith. “Housing is what makes cities, and affordable housing is what makes cities economically competitive and environmentally green.”