Transwestern CEO Makes Case For 2013 Expansion

Larry P. Heard, now in his 32nd year in commercial real estate and well into his second decade as chief executive and president of Transwestern, has helped steer the company through a few real estate cycles since the early 1980s.

Since Chairman Robert Duncan founded Transwestern as a small Texas development company in 1978 and Heard joined four years later, the Houston-based firm has grown into a national CRE services firm with 33 U.S. cities and over 1,873 employees. The firm's growth accelerated after Heard became CEO in 2002. Even in the face of a severe recession, the work force has grown 32% since late 2008.

In 2011, Transwestern expanded into the Northeast U.S. for the first time with the opening of its New York office. Also that year, the company launched Transwestern MENA, a global joint venture based in Riyadh, Saudi Arabia, to bring services to the Middle East and North Africa. Last March, Transwestern extended its reach through an alliance with Paris-based BNP Paribas Real Estate, a network supporting occupier clients in 150 offices in 36 countries.

Most recently earlier this month, the Houston-based firm again doubled down on global and U.S. growth, expanding its leadership team and announcing a planned joint venture with a Latin America-based CRE firm to provide direct services south of the border.

This week the Transwestern CEO took time recently to discuss Transwestern’s strategy, growth goals and the changing landscape for U.S. commercial real estate services firms.

CoStar: Can you add some color and detail regarding Transwestern’s specific strategies and goals in executing the leadership expansion?

Larry Heard: We’ve enjoyed significant growth, especially since 2008, in almost every metric we measure, including the number of cities we’re in and the number of clients we have, transaction volume, the number of team members across the country and most recently, international linkage. We needed to make certain our organizational capacity is keeping pace with our company’s aspirations, what we have yet to achieve. Our agenda is full and aggressive, and we want to make sure our organization is constructed in a way that will fuel additional growth. We’re frankly not content sitting where we are -- we believe there are significant growth opportunities beyond what we’ve achieved to date.

Why is it important for Transwestern to continue to expand at this point in the cycle?

We’re a large firm, and when you achieve our scale and do a number of things well, it makes sense to export that expertise to existing and new clients around the world. The only issue regarding timing is whether you’re in a position to deliver the goods, to distinguish yourself from the competition in the services areas where you have the highest and best expertise. Expansion for its own sake rarely works. Our expansion is driven less by competitive issues than by our own timing. We’re now positioned well to serve a broader geography and client base, and we’re gearing up to do so.

What factors prompted Transwestern’s reorganizing the leadership of its U.S. offices?

We’ve had some office consolidation for efficiency’s sake, but our leadership team is very collaborative and collegial. As a team, we’re always knocking down barriers to growth, expansion and excellence. We’re going to do anything we can to preserve that approach and serve clients. For instance, we consolidated our Central Texas, Mountain and Gulf Coast regions into the new Southwest area, which Kevin Roberts will oversee. We’re still maintaining a very strong local presence in each of the cities in those areas. But many of them have similar dynamics, such that consistent leadership under Kevin will be a definite value add.

Are there U.S. markets that Transwestern seeks to enter, or expand within?

We’re largely where we want to be in the U.S. geographically. Further expansion into Seattle and the West is our priority, and we’ll probably enter Boston when we find the right opportunity. Beyond that, growing our existing U.S. cities and markets is our top priority. We’ve made significant commitments to all the cities where Transwestern team members are located today. By definition, if you’re successful, you’re going to grow your head count and geography. That’s been our experience over the last 5 to 10 years. We focus on achievement and know the growth will continue as long as we’re developing very strong client relationships and adding value at each step. Growth and expansion typically takes care of itself and follows the top performers.

Which services does Transwestern see the strongest need to grow?

We’re a firm that has benefited over the years by pursuing an evergreen strategy. It’s a big undertaking to truly become excellent at property and facility management services, agency leasing, tenant advisory, capital markets, development and research. But our goals are to continue to build an enterprise that excels in each of those.

We’re a remarkably balanced company. Our property management, agency leasing, tenant rep, and investment sales are all within about 5-10% of each other in terms of top-line gross revenues. Development, which was relatively dormant from 2007 to 2010, is beginning to emerge again, and historically, that has been a very large part of our business. It’s a growing business in first-recovery markets and we’ll continue to see development capture a larger share of the gross revenue pie within the firm.

Now that Transwestern is expanding services in Latin America, will the company eventually offer direct services in other global regions?

We enjoy our global alliance with BNP Paribas Real Estate, but we will continue to seek direct ownership opportunities where it makes sense. We will remain nimble and flexible, but always with our mission and core values in mind. Latin America is a priority and we have advanced discussions under way there. Beyond that, I feel we have excellent coverage around the globe with our BNP alliance, and I anticipate that will continue to grow and expand. I view global expansion as being somewhat opportunistic. We’re a growth company, but the growth has to add to our reputation and stature.

A number of other mid-size firms, including Colliers, Avison Young, Newmark Grubb, and Cassidy Turley, are also moving aggressively to expand market share.

What's your take on the efforts of those companies and others to compete on the national and global stage?

CRE firms are following the lead of corporate America, and clearly business is global today. Many of the clients we serve have global reach. Much of the expansion by these firms has been fueled by following clients around the globe and continuing to provide services. In some cases, relationships that began domestically have now expanded to become global. It’s a dynamic that going to continue because it’s where business is going.

That said, there are some large global providers that will do very well, and there will be some that will not. I would say the same about national and local firms. There are some very good local firms around the country that will ultimately give way and be absorbed into bigger companies, and there are some independents that will stay independent and do very well. If they’re the very best at what they do in each of those sectors, business will continue to go very well.

As a private company with global reach that’s owned by senior management, we feel we have a unique culture, one that offers a particularly unique model for creating relationships. We love our positioning and feel the growth and expansion over the last five years will continue. We have executed a number of acquisitions of regional firms and consolidated those into the Transwestern network. We continue to look for M&A activity as well as organic growth.

So you think there will ultimately be some additional consolidation among the firms that are fighting it out in the middle market?

Some of the firms are pretty transparent and have confirmed they’re trying to roll up so they can sell out. That has never been the Transwestern model. We have a very active investment business, a strong global services business and a re-emerging development business.

The combination of investment and services is something we believe is an evergreen quality that will allow us to pursue our vision, mission and goals for years to come. We’re not a company that tries to get press ahead of the results, and we do tend to lie low, under the radar. We like to have our clients bragging about us.