Whether Through Clients, Referrals, Mentorships or Income, First CRE Deal Has A lot of Stickiness in a Career
There is a story behind every commercial real estate
deal and a lesson learned. But usually they’re not the headline-grabbing details that make it into the daily recounting of the biggest deals and trends.
Nonetheless, they are stories and lessons worth sharing; and for that reason we sought out CRE professionals to take us behind the scenes on their first deal, the one that in many cases set them on their career path. In telling their stories, some of which go back some 45 years ago, it was enlightening to learn that there is not much distance between that first deal and today. That first deal established friendships, mentorships, ownerships and clients that remain active today and may still be generating income for those involved.
As our first story teller put it: “If your first deal did not stick with you, it probably stuck with your bank!”
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Here are some of those stories and the lessons learned that still apply to today’s market.
Bought Vacant Building Before I Bought a Car
Andrew J. Segal is Chairman and CEO of Boxer Property in Houston. Segal founded Boxer Property in 1992. The company revitalizes properties by transforming them into performing, stable assets and by focusing on opportunity investments and catering to under-serviced markets and tenant types.
My first deal was a vacant 100,000-square-foot office building
on Stemmons Freeway in Dallas I purchased in 1992. Mobil Oil occupied the building from 1980 to 1985, and it sat vacant for seven years after that.
Like a low mileage car, it was actually in pretty good shape. I was one month out of law school and living in a Motel 6 in North Dallas at the time.
My next acquisition was spending $275 to buy a car with a leaking gas tank (a 1976 Ford LTD station wagon, like the one in the movie, “Vacation.”)
Though the building I bought was configured for a single tenant, the first tenant I signed was month-to-month and all of 500 square feet. They took advantage of the giant billboard I had covered with a tarp outside that read “$4.90 per SF/Full Service” That was the rental rate per square foot, per year.
Once I opened the building, I was spending about $1,000 per day to run it and making about $6.70 per day in rent. I was in the business! Fortunately, the building filled up quickly and I raised the price as fast as I could.
Today I still own the building, but it represents less than 1% of my portfolio.
The building will always be important to me. I named my cat “Stemmons” in the building’s honor 22 years ago.
Cinderella before the Fairy Godmother
Chuck Warren is an appraiser and CRE consultant in San Francisco.
Proposition 13 is a sort of ‘bête noir’ for California politicians, and may be unmentionable elsewhere. In the 1970s assessors were mandated to assess market value. Inflation happened and property taxes skyrocketed. There was a grass-roots effort to address this.
Jarvis-Gann authored an initiative, Prop 13. It limited assessments to a 1979 basis, purchase price, or, if less, market value. It also limited tax rates to 1% of value.
I started in an assessor’s office. In the day, the challenge was annual reassessment at market value. I probably saw off the last such project in California in 2006.
What’s amazing is how few unintended consequences have come from Prop 13, which did away with equalization for property tax purposes. It achieved its principle objectives, keeping old folks from being taxed out of their homes, and had some beneficial unintended consequences. Imagine a properly assessed market value roll over 2008-2011. Unless rates had been raised substantially, revenues would have been in free fall.
My early CRE career was not without its share of big boo-boos. Back in Oakland, CA, there was a guy, Al Goldhagen, who was possibly the most awesome salesman/developer I’ve met in my career. If the overall vacancy rate for office space
was upwards of 33%, his buildings were only 5% vacant.
At the time he owned the Cathedral Building. So, I was given the (nearby) Central Building to appraise. I ascribed the low vacancy in Al’s buildings to their charm and blithely “stabilized” the vacancy in the Central Building, another building with “potential” to match. WRONG!
Al added value, but it was Al-value, not property value. He would probably been happy to buy the Central for a song and then wave his magic wand, but he would never have “paid retail.”
Back in the day, Al was one of the few buyers with any interest in downtown Oakland. I haven’t been in the Central for a very long time, but as far as I know, it’s still Cinderella before the Fairy Godmother.
The Desk Can Be Your Enemy
Dan Colton is Principal and Designated Broker of Colton Commercial in Tempe, AZ. Colton was raised in a family-owned construction company that built more than 1,000 commercial/industrial projects in Arizona.
Shortly after graduating from Arizona State University in 1985, I was hired as a 100% commission salesperson by local developer who knew my father. They didn’t have any desks, so I had to work out of my car.
I asked about a key to the building. The general manager said the key would be available after lunch. After lunch, I noticed a box with note “Bob” at the front door. When I entered, the general manager handed me the key, apparently just retrieved from the now-former agent. So began my career in the “Den of Wolves.”
I knew nothing about cold calling or sales. Another recently hired agent named Jeff and I decided to walk down the roughest industrial street in town -- “Buckeye Road.” The street was lined with junk dealers, truckers not to mention street people.
A gate was open and we walked in and met owner, “Ferrell Dana.” He gave us the leasing assignment: a 1,500-square-foot office on an acre. Jeff and I found what turned out to be national landscape company to lease the property.
Mr. Dana would only sign a “month to month” lease and our listing stated “half month rent” for commission. The commission amounted to whopping $225 each, but we felt good!
Fast forward about 20 years and Mr. Dana somehow called me one day. I said “Mr. Dana remember me? I leased your building back in ‘85.”
“Yes, and that tenant you found has paid on time every month!” Mr. Dana responded. Real Estate 101: Remember you to go back and check on past clients!
Over the last 27 years, the job of leasing and sales agent has remained similar. You make money by being in front of someone, not at the desk.
The evolution of technology and requirements for a successful agent has changed. You’re on 24/7/365. Being able to multi task is paramount. The requirement of knowledge about your market is only the beginning. You need to know local zoning laws, construction cost, timelines, financing, tax laws not to mention people at the cities, architects, key players in your market and that can only happen over time.
The more things change the more they stay the same.
When I start to feel sorry for myself I get out and cold call those buildings and within short time I am back with a lead or assignment. That is the thrill of the business. 700 deals and counting!
Disposing of NPLs and REOs 15 Years Ago
David Hale is president of ECI Enterprises, Ltd. in Danbury, CT, a company he launched in September 2010. ECI is an advisory shop specializing in asset management and secondary market brokerage of distressed debt and properties.
My first commercial deal was in 1998 as an asset manager for Crossland Federal Savings Bank. The S&L had taken back more than $2.5 billion in nonperforming loans and REO. Our team of real estate brokers hired by the bank was charged with reducing the “bad bank” portfolio.
One of these REO properties was an unfinished condo development on Queens Boulevard in Forest Hills called the Embassy (later re-named The Pinnacle.) It contained about 200 condos as well as a retail, professional office, garage and adjacent land.
We retailed the condo units through a combination of two auctions and conventional sales. The retail component was leased to Merrill Lynch so the resulting cash flow could be sold. The professional component was sold to doctors and the garage to Leonard Weiss, the garage operating magnate.
But before any of that was done, the very first sale was of the vacant land, which had had all its air rights used by the developer who defaulted on loan.
The remaining parcel, which could accommodate no more than 10,000 square feet of improvement, was a quandary. Fortunately, I had a relationship with Ethan Allen Interiors, the furniture designer and manufacturer. A quick call to their vice president of real estate established that they did not have a store in Queens and would be interested in entertaining the purchase of this parcel.
The sale was completed, if memory serves, for a price well below seven figures. Crossland was happy to sell the most difficult component of the condo project and Ethan Allen got a great spot for a retail location.
Some years later, Ethan Allen decided to re-position all of its New York City stores, including the Forest Hills location and turned to me to help market and sell the property, which now included an Ethan Allen store.
I very happily took on the assignment and, after a few starts and stops with buyers who could not perform, sold the property to a child care operator, for a purchase price just north of $6 million.
Not only have I not forgotten my first commercial deal, it truly became a gift that kept on giving.
You Don’t Start Out as a Rock Star
George Hicker is President and Founder of Cardinal Industrial in Sherman Oaks, CA. A graduate of Syracuse University, Hicker - nicknamed ‘The Blond Bomber’ - was a star on the university's basketball team who was drafted by the Atlanta Hawks professional basketball team, worked with NBC television and co-managed music performers the Chamber Brothers and Rick James.
I graduated from Syracuse in 1968, was cut by the Atlanta Hawks later that year and, after a brief stint playing basketball in Europe, landed in New York City and got a menial job at NBC. That led to rock concert promotion and managing positions with the Chambers Brothers and then, in Los Angeles in 1970-‘71, with Rick James.
The lifestyle was such that I quit and started in real estate in 1972 with Grubb & Ellis (where I worked from 1972 to 1985). My first transaction was a lease in 1972 on Washington Boulevard in Culver City, CA, and the tenant was Home Silk Shop.
The salesman’s portion on the commission was $4,320. I remember I had about 30 past due bills at the time.
In 1985 I opened Cardinal Industrial, and continue to be president. Cardinal had warehouse and distribution holdings of about 15 million square feet valued at approximately $750 million as of mid-2012. A disposition program reduced the square foot to just under 5 million square feet valued at approximately $215 million as of February, 2014.
Some of the differences now compared to 30 or 40 years ago is the plethora of environmental language in leases and, most particularly, purchase agreements, the increased need for attorneys in transactions because of the expanded language in contracts, and the general overall M.O. of deals away from the “handshake.”
Handshake Deal. Record Rainfall.
Jack Schultz is CEO of Agracel, Inc., a firm in Effingham, IL, that specializes in industrial developments in rural markets. Schultz is also author of a book on the experiences and follow-on research on small towns around the country, BoomtownUSA: The 7 ½ Keys to Big Success in Small Towns. Within the very narrow niche of rural economic development, it became a best seller, selling 30,000 copies in seven printings. He adds that if you’re ever in Effingham, have dinner at Firefly Grill, which is nationally renowned; something that people find hard to believe is sitting in tiny Effingham.
Four words come to mind with my first real estate deal in 1993: Handshake Deal, Record Rainfall.
Due to a very tight timeline, we started construction on a 72,000-square-foot manufacturing plant to make bicycles in Effingham, IL, my hometown, on May 2, 1993, with a Sept. 1st deadline and a $10,000/day fine if we didn’t make it. Legal work on the lease didn’t happen as fast as the dirt had to fly, but eventually caught up.
If you remember 1993, that was the year of the historic Mississippi River floods. In the 115 days we had to build the new plant, we got 50 days of rain, which totaled 10 inches. But our contractors persevered and equipment was moved into the plant on Aug. 15, five days ahead of schedule. Full operation began on Sept. 2nd. No penalty!
Since then, we’ve completed more than 100 projects in a number of states. Today, we own 7 million square feet of space in 60 buildings in 16 states. We’ve gone from a three person operation in 1993 to a 20 person one today with offices in North Carolina and Mississippi and plans for additional ones in the next year.
I don’t see huge differences in industrial development from when we started in 1993. It is still a people-to-people business with our integrity and reputation of upmost importance.
Being able to under-promise and over-deliver on our projects is a key to maintaining that reputation and to our long-term success. Manufacturing firms want to be able to build their product, not worry about their buildings.
Going, Going, Gone but Not Forgotten
Michael A. Fine, CCIM, CAI, AARE, is Principal - Managing Broker of Fine and Co. LLC in Deerfield, IL. Fine has personally participated in real estate auction programs for a wide array of companies including Pritzker Realty, Hartz Mountain Industries, Alcoa and financial institutions including The Northern Trust Co., Wells Fargo, Citicorp, Bank of America-LaSalle, and many others.
I entered the commercial real estate brokerage industry in 1987. My first deal was to sell a 5,000-square-foot retail building on Irving Park Road in Chicago, which had been converted into office and warehouse.
The sale took a lot of the handholding and guidance that I have learned is typical in the brokerage business. At the closing, the buyer’s broker took me aside and gave me a gift, a Montblanc fountain pen, and thanked me for making the deal happen. The buyer’s broker had no idea that it was my first sale and what a nice memory that I still have in my desk today.
At the time, I was with a commercial brokerage company in Chicago, which was pioneering the use of real estate auctions for non-distressed real estate. I quickly became the head of operations for the firm. I sold my interest in that firm after 20 years. I was the CEO of a national start-up - Hilco Real Estate Auctions, and now principal of my own company.
The first building that I sold at auction and really take credit for on my own was in Kansas City, MO, called the Mainmark Building. It's a very ornate building about 10 stories tall and illuminated at night. My first auction and it was most successful in selling the building to a real estate investor in New York.
The area surrounding that building has changed so much over the years. It was pretty much an island coming from downtown at that time. I smile when I am in KC and drive by and see my first auction lit up like a trophy.
Seller Financing Then and Now
Michael S. Lawrence, Sr. is President - Realtor of Miami Pan American Realty Inc. in Medley, FL. He has been with the company for 15 years. He works with a residential builder looking for land and commercial property.
My first “deal” was in 1973. At the time, about the only way to sell real estate was if the owners took back a mortgage because the interest rates were so high. A purchase made no economic sense.
I finally talked my father in law into investing in some income property; so he bought a small shopping center. The seller took back a mortgage, (he did not have to, it was not a distressed sale or anything like that) but it gave him income for 10 years and he did not have to manage the center any more.
The people who had it listed and I are still friends today.
Today, sellers are looking for cash for the most part; few are willing to hold a mortgage. Interest rates are too low, and they feel that they can get better use of their money elsewhere, and be more liquid in a short amount of time should the economy fall apart.
No Longer Just a Man’s World
Peggy Gallagher, CCIM, is Owner of PG Commercial Real Estate, the Philadelphia affiliate of ITRA Global, (International Tenant Representative) in Springhouse, PA.
My first transaction was an office lease on West Chester Pike, in Delaware County PA, in the 1980s. I worked for a CRE brokerage firm located in Paoli, PA, (there were less than six associates including me) and was on a draw. The firm no longer exists.
I think I worked there less than two or three months, and the lease commissions covered the draw they gave me.
I wanted to be affiliated with a larger firm to learn more. So I left as soon as the commissions came in and went to a more well established CRE firm in Philadelphia, Reed & Stambaugh, around August 1984.
One big difference today is that there are more women sales associates compared to the 1980s when there were few of us.
The biggest difference and change in the industry since the mid ‘80s when I got my start is access to information via mainly CoStar. In the 1980s all the firms would try to have a person dedicated to maintaining a company property database. It was hard to make it work because many sales associates did not want to share their information.
The High Road
Robert Deptula is Principal | Tenant Advisory for Transwestern in Dallas. Since 1988, Deptula has successfully completed more than 20 million square feet in transactions for such clients as Wells Fargo & Co., Energy Future Holdings (TXU), Highland Capital Management, NCR Corp., Lennox Industries Inc., Texas Independent Bankers Bank and Michaels Stores.
In 1989 I got my first real deal. My client was the president of a major hotel chain who left to start a consulting company. He needed 7,000 square feet, which to me was a huge deal, and he signed an exclusive agreement with my firm, The Fults Co.
He was a personal friend of Ken Hughes, who was the developer of the Quadrangle. Ken is still out there today doing deals and an active participant in the development world of mixed use projects, particularly along the DART lines.
The client called me to let me know that he and Ken had cut their deal and he wouldn’t be needing my services. I was devastated.
Jerry Fults suggested I call Ken and explain the situation. Ken was great, he said of course he would honor my exclusive and pay me, despite having only just solicited a proposal from him days before.
The moral of the story is that, 26 years later I still remember how gracious Ken Hughes was and that he took the high road. Thank you Ken. Integrity counts….and is always remembered….just as lack of integrity is never forgotten!
What the Heck is an IBM Selectric Typewriter? And other Technological Horror Stories
Victor B. Murray, CPM, is Senior Vice President at Cresa in Princeton, NJ. Murray has been a member of the real estate community for 35 years. Murray’s successful career began in project management on behalf of corporate clients IBM, Alcoa Properties and Prudential Insurance. He has been with Cresa for 10 years.
My first commercial office transaction was at a Prudential-owned mixed use complex in suburban Pittsburgh. With an agency for three office buildings, a small specialty retail center and restaurant, Manor Oaks was one of the first of its time, built by my father’s firm in the affluent Mt. Lebanon suburb. Almost every rookie leasing agent in our firm “cut their teeth” at Manor Oak before advancing to our newer agency properties.
Every imaginable issue of real estate transactions occurred here as some spaces were full service leases with major corporate field offices, modified gross leases with medical or professional sales and service or were retail / restaurant net lease scenarios. In those days, 600-square-foot to 1,500-square-foot leases were not uncommon.
Lease proposals, statement of qualifications, lease abstracts and closing documents were commonly typed on IBM Selectric typewriters with carbon paper copies (yes, that is what “cc:” meant for those before my generation) and computers and fax machines were cutting-edge technologies. Secretaries had to type or retype with Whiteout before the correcting typewriters appeared.
I also recall my first personal portable computer (Radio Shack TRS 80 weighing a mere 30+ lbs.) and carrying my first portable bag phone (standard handset plugged into a large battery powered transceiver) at my side.
After Manor Oak, and as is more commonly occurring today, real estate professionals developed a niche’ or generally accepted specialty with firms or properties focused on the life science, energy, financial services, etc..
The branding of one’s self or one’s company has become an acceptable practice today. Real estate professionals today have access to far greater computer computational resources and targeted market data, which allows each to develop their own notable reputation or by being extremely knowledgeable in a specific market, industry group or consulting skillset.
When I came to New Jersey to market Enerplex in Princeton Forrestal Center (another Prudential Insurance Co. investment adventure) the Oil Embargo Crisis of the late 1970s had focused attention on energy consumption and ways to reduce energy costs.
Not unlike today, but without the notable fanfare of “Going Green”, Enerplex employed geothermal, solar and even an ice pond in two state-of-the-art buildings. Stabilizing the 250,000-square-foot property in just nine months proved to be an exciting challenge, which is why I moved my family here to New Jersey in 1984.
The late 1970s the ‘80s were exciting times and those experiences served me well in a subsequent career representing tenants like GE Astro Space (220,000 square feet NERC) protecting the national power grid and today’s cyber security issues with over 80,000 square feet of transactions. For 14 years, The Victor Company of Princeton was my entrepreneurial adventure and I was then (as I am now) in keeping with the Spirit of New Jersey as a state where inventing and re-inventing one’s self is always possible.
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