Why Carl Dranoff Continues to Lead Markets
- Mar 28, 2019
Finding a formula that works early on, Dranoff Properties has stayed successful in a changing environment. Having sold its trophy apartment building portfolio to national REIT Aimco last year, it begins its third decade with exciting projects in the pipeline. The Philadelphia-based company was founded in 1998 by Carl Dranoff, who prides himself on being a contrarian. He “zigs” when everyone else “zags,” going into cities and neighborhoods before they’re popular to develop a large anchor project. This often includes partnering with a nonprofit with the same goals: creating a game-changing breakthrough development that will revitalize a neighborhood or a region. MHN recently caught up with Dranoff to talk about the value of core competency, why he sold his Philadelphia trophy assets to Aimco and his greatest concerns.
You made headlines when you sold off your trophy assets in Philadelphia to Denver-based REIT Aimco. Did you retain any of the apartments in your portfolio? Are you now focusing primarily on condos?
The sale allows me to focus more on the future. We had built up a tremendous portfolio of rental properties. Each one was carefully curated and built, owned and managed by me. They were all trophy assets, but it was time to let go because it was a win-win for both companies. Aimco was enabled to expand their portfolio in the Philadelphia region to become the largest institutional owner of apartments here. And we were able to facilitate the sale, which gives us more capital. That, combined with our brand and talent, lets us really focus on the future and deliver, I would say, a fresh new generation of transformative projects to Philadelphia and beyond.
For me, personally, it allows me to put more of my energy and enthusiasm and vision into what lies ahead as we start our third decade. We were founded in 1998. That’s when I started the company, and the sale to Aimco occurred in May of 2018. So it was 20 years on the nose. As we start our third decade, we have a great organization and great talent. It’s a family company. My daughter Julia is COO, and we have a staff that’s much younger than me. The projects in our pipeline are very exciting. So the sale to Aimco was a win-win for everyone. And we did retain two fairly significant rental properties: One is The Victor in Camden, N.J., and the other one is One Theater Square in Newark, N.J.
Your company is known for its long-term investment strategy and the desire to stay close to the Philadelphia area. What are you working on now?
Up next is the biggest project we’ve ever done—a 47-story building and a real game changer for Philadelphia. It will be the tallest residential project ever built in Pennsylvania. It’s a slim tower designed by the world-renowned architectural firm of Kohn Pedersen Fox. Our project is going up across from the Kimmel Center, which is the Philadelphia equivalent to Lincoln Center in New York. It’s our major performing arts center and a regional draw. We’re right across the street from that, so it’s an opportunity to leverage the arts and culture with residential living. We’ll have features in (our property) that are not seen anyplace in this region and maybe in the country. It’s very exciting. It’s a condo project, but we’re sticking to our roots of what we do well, which is large-scale residential-oriented projects. Some are mixed use, some are rentals, some are condo—but our strategy from the beginning has been to stick to our knitting and stay in our wheelhouse, and that’s what we’re doing. Our projects have changed over the 21 years. We’ve been nimble, but we’re still sticking to our core competency. This project is currently unnamed. The name will be announced in the spring, when we hold a major press conference and groundbreaking.
One Theater Square in Newark has been a critical component of the resurgence of Newark. Tell us about this long-term public-private partnership and how it speaks to your strategy.
One Theater Square in Newark was a partnership with the New Jersey Performing Arts Center (NJPAC), a brand-spanking-new performing arts center built in 1997 intended to reinvigorate downtown Newark. The New Jersey state government enabled them to have the land surrounding the performing arts center to enhance their ability to create more income-producing opportunities and to have compatible surrounding development. In 2007, they went out to the public with an RFP to attract a developer for the site that’s directly across the street. We heard about it, and we answered the call.
In Philadelphia, we developed a site that was a block away from the Kimmel Center called Symphony House on the Avenue of the Arts (also known as Broad Street) in Philadelphia. We had ads to the effect of “Make Beethoven and Brahms Your Neighbors” because you could walk a few steps to a 3,000-seat performing arts hall. The people that bought into Symphony House were very oriented toward arts and culture, which NJPAC observed. They selected me, and we designed a building that would be similar to and very compatible with the New Jersey Performing Arts Center. We felt that a rental property would be the best approach. We designed a 41-story building that would have been the tallest residential building in New Jersey. But the recession hit in 2008. We were not able to get traction on that project to get the financing, because we were going to be the first new ground-up apartment building in Newark in 50 years.
And then the fog began to clear in 2014/2015 as the recession ebbed. And we were finally in 2015 able to secure the necessary financing to build One Theater Square. During that six- or seven-year period of waiting, we never stopped going on the project. And in fact we changed the design of the building from a 41-story building to a 23-story building. We felt that it would be more in line with what the market was. Our project was perhaps too big to be the pioneer that we were, and we pared it down to 243 apartments and a large parking garage and retail on the ground floor. The long and the short of it is we were successful in securing the financing. We broke ground in 2016 and we finished it in 2018. We had our grand opening in October of 2018. Again, the first brand-new, ground-up apartment building in Newark in more than 50 years.
It took us 11 years, from 2007 to 2018, but we were an overnight sensation because people were skeptical that we could do what we did—and we did it. The building is absolutely gorgeous and a real breakthrough building for Newark. We’re already 60 percent leased after only six months, and we’ll be fully leased by spring of this year. So all in all, it was a game changer for Newark. We can measure that by what comes behind us and after us. There are four more apartment buildings that are in the pipeline and under construction to follow us. So we started it, it gave others confidence, it made the city more bankable, and now there’s tangible evidence that we have started a domino effect.
One Ardmore Place in Ardmore, Pa., is also viewed as a transformative project. What have been some of the issues you’ve tackled there?
One Ardmore Place was another public-private partnership, and funny that the RFP was the same year: 2007. Ardmore is a suburb of Philadelphia and it had a fading downtown with a very popular train station, but no one lived there. The township came up with a new zoning classification that enabled them to do transit-oriented development. We were the first (developer) under that zoning classification. We were selected in 2008 as the developer, and the reason it took 11 years to finish is because we were hit with a litigation to hold up the project. It took us four or five years to meander through the courts and finally get to the Supreme Court in Pennsylvania, which gave us the green light. So the project didn’t start construction until 2017. In April, we’ll have the grand opening for what is now called One Ardmore Place.
The project consists of 120 apartments that sit on top of a 180-car parking garage with separate parking underground for the residents of the apartment building and about 10,000 square feet of retail space on the ground floor. So it’s a true high-quality, high-end mixed-use project, very close to the train station, highly walkable, highly pedestrian friendly. It checks every box of smart growth. And it’s been such a shot in the arm for Ardmore that I’m going to say a dozen restaurants have opened within three blocks of our building in the last year. There are several projects that are going on behind us.
We were the big anchor project in an area that had been, I would say, stagnating over the years. We delivered this breakthrough project, and that goes to our company strategy, which is that we’re contrarians. We basically go into areas and neighborhoods that are not popular, that are underserved but that have great intrinsic qualities like a transportation hub or a performing arts center across the street. There’s great shopping nearby, but no one lives there. You have to have the ingredients and the location, but you don’t necessarily have to have everything in place. We can be that big anchor project that changes people’s perceptions of the neighborhood.
If you weren’t in real estate, what other profession would have put your talents to use?
I think that what I’m great at is organizing other people and pulling them in the same direction. I think if I weren’t developing buildings, I would probably be a motion picture producer because to make a movie you have to surround yourself with talent, you have to hire the right director, you have to get funding, you have to get the actors and signed contracts and be part artistic and part business and have a lot of tenacity and vision and perseverance to push it through. I might also be an orchestra leader, because I think you need the same talent.
You’ve embraced the tagline “Excellence in Urban Living.” How do you define excellence as the leader of Dranoff Properties and also in your own life?
It’s pretty easy to measure excellence financially because you look at your rents versus the competition. You look at your prices and your occupancy. If our metrics are significantly above others, we know we’re doing a good job. If our rent per square foot is at the top end of the region that we’re in, we know that we’re setting new standards. If we’re maintaining high occupancy and realizing higher prices or if we’re selling out our condominium very quickly, we know that we have a great product. That’s how you measure it.
It’s a little bit harder on the qualitative end, but I think that if you can establish a brand and tie together all of your properties at the end of a period of time, you see you actually stand for something. It probably took us 10 years to establish our brand. We had a reputation; parents knew that if their kids moved into one of our buildings, it would be safe. It would be clean. It would have features and be a great place to live.
On a personal level, of course, it’s a lot harder to measure how you’ve been successful. What’s your stature in the community? How much have you given back, are you respected, what are people saying about you? Are you a leader? I guess I consider it a personal success that my daughter, who had many other choices, evolved into our company. We have a successful family enterprise and a transition plan. I think that speaks to the standing of our company and what we do. Our employees are proud of what we do. So that’s all part of it.
What keeps you up at night?
Getting the steel to show up on time and securing materials and a workforce and securing the financing is hard—but predictable. The hardest and least predictable part is the people part—and when I say the people part, that’s part of being a leader. You have to get a buy-in from people. You need to have everybody rowing in the same direction and have the employees be proud of what they’re working on and knowing that we stand for something.
Over 21 years, we’ve established a very good reputation and we’ve tried to do good work and give back to the community. If we didn’t have a good reputation, that would keep me up at night. If people were leaving our company or residents were unhappy, that would be alarming to me. So that’s what I work on: to make sure people are happy in our buildings, our workers like what they’re doing, our staff and our core competencies stay in place and that we are built to last for decades.
What’s your biggest challenge and your biggest reward?
The biggest challenge for me is to keep things moving along all the time: The product needs to be fresh, the projects completed on time and the right staffing in place. In other words, making sure we don’t have clogged arteries. I think that the most successful companies have leadership that is looking ahead and not coasting or taking things for granted. This can set in at a company after 10 or 20 years. So we always stay fresh and aware that our competitors are ready to eat our lunch and ready for us to hit a pothole. We have to be agile and ahead of the pack.
My reward is that when I build the building, there are three things that are going to happen. I’m going to have a groundbreaking, I’m going to have a topping off and I’m going to have a ribbon cutting. I take them seriously and I invite all of our employees to these events, and sometimes the public and sometimes government officials. It’s a time for everybody to be proud. When we have a ribbon cutting, we’re especially proud because now the project is completed and you’ve stimulated new investment. You’ve created something that wasn’t there before. That’s a proud moment.
Is there anything else that you’d like to add?
I’ve tried to lead—not follow—and that goes hand in hand with being a contrarian. We won’t go into an area that already has three nice apartment buildings and build a fourth one just because there might be a shortage of apartments because we’re not really adding that much to the equation. We’re not really changing much. We’re adding another building as opposed to being first going into a neighborhood and really putting a product in that doesn’t exist. When we went in and rehabbed The Victor, no one thought that we could be successful with a rental project in Camden, N.J. It was the second-poorest city in the country in 2002, when we started. We converted the RCA building into 342 apartments.
And we literally had to create a city because there weren’t any services. You had to drive more than a mile to go to a supermarket to get a loaf of bread or even a can of soda. So we had to put a little market in our building. We had to put two restaurants and a bank in our building. Today if you look at Camden, it’s a totally changed city. We were the first; we were the biggest—we still do have the biggest building on the Camden waterfront. We basically changed the equation. We did historic rehabs, when I started the company, for five or seven years. Then we went into new construction, then we went from mid-rise to high rise. Then we switched from rentals to condos. But you can see, even though we’re nimble, we’re sticking to our core competencies.