By Paul Rosta, Senior Editor

These days, Matt Khourie is finally getting a breather from a task that has taken up a hefty portion of his three years as CEO of CBRE Global Investors: assembling a gigantic jigsaw puzzle. In this case, the pieces extended across three continents—components of one of the industry’s biggest recent mergers. In late 2010, CBRE Group Inc. agreed to pay $940 million for ING Real Estate Investment Management’s European and Asian operations, as well as ING Clarion Real Estate Securities. The acquisition added some $60 billion worth of assets to CBRE Investors’ management portfolio, thereby strengthening its elite position among real estate investment managers. By the end of last year, its assets under management totaled $92 billion. To emphasize its newly expanded geographic reach, the firm added “Global” to its corporate handle.

After the deal’s final phase closed in October 2011, Khourie spent much of the first half of 2012 overseeing the integration of the legacy ING REIM elements into his own shop. His initial assessment of the complex process: So far, so good. “You never know precisely how it’s going to work out, and I’m very pleased that it worked out so well,” he reported.

Executing the ING REIM deal has bolstered Khourie’s reputation for attending to both the big picture and the details. “He’s very professional, transparent; he listens; and most important, he follows up,” elaborated Eric Lang, managing director of real assets at the Teacher Retirement System of Texas, for which CBRE Global Investors manages a sizeable portfolio of real estate assets. The example set by Khourie filters down to the responsiveness and professionalism of his team, Lang said.

Looking back, Khourie speculates that the choice to pursue the merger at an unhurried pace has contributed to a smooth transition. “It was doable, because we felt our chances were good to buy ING REIM back in late 2010,” Khourie explained. “We had a lot of time to put the pieces together.” In July 2011, CB Richard Ellis wrapped up the purchase of ING Clarion Securities and renamed the company CBRE Clarion Securities. Next to close, on Oct. 3, was the deal for ING Real Estate Investment Management’s Asian region. The newly rebranded CBRE Group Inc. wrapped up the acquisition of the European segment on Oct. 31. A notable challenge of the acquisition was the time-consuming process of navigating Europe’s complex regulatory and approval structures.

Khourie said the merger is justifying his confidence in the cultural fit between the companies. “(The ING REIM professionals) were very eager to work for a real estate company,” he explained. “There’s a lot of investment managers in our business that are owned by non-real estate companies”—a category of buyers not preferred by the ING REIM team. Under the auspices of a real estate company, the ING alumni feel they can be nimbler and more customer-focused than ever before, he added.

The ING merger marked the latest milestone for a company that has evolved continually during its four-decade history. CBRE Global Investors’ roots extend back to 1972, when it was launched as the investment management arm of Coldwell, Banker & Co. It expanded in 1995 with CB Commercial’s acquisition of Westmark Realty Advisors. Following the CB Commercial-Richard Ellis International Ltd. merger three years later, the affiliate was renamed CB Richard Ellis Investors. In 2000, the firm launched the first in a series of value-added Strategic Partners investment funds. Those vehicles are still overseen by their founder, Vance Maddocks, who did double duty as CBRE Investors’ CEO from 2007 until he was succeeded by Khourie in 2010.
Today, the company offers more than 70 direct investment separate accounts and nearly 60 direct funds. Programs encompass all major property categories and range in focus from core and core-plus to value-add and opportunistic vehicles. The company’s real estate securities unit manages upwards of $23 billion in assets. Rounding out the portfolio, CBRE Global Investors’ global multi-manager team—acquired in 2006 as Oxford Property Consultants—handles investments valued at $12 billion.

As the latest in this series of major corporate moves, the ING REIM merger has had far-reaching implications. The acquisition added $29.5 billion worth of assets in Europe, $5.1 billion in Asia, $19.4 billion worth of listed securities and $5.8 billion in a global fund of funds. The acquisition has reshaped CBRE Global Investors’ portfolio on multiple fronts. “In Europe, our legacy business had very little exposure in shopping centers, but the ING REIM team is one of the leaders in this sector in Europe,” Khourie explained. “We are now able to offer our investor clients a product type in Europe that we weren’t able to offer effectively before.” By the end of 2012, the value of the firm’s European holdings stood at $35.5 billion, more than twice the size of its North American assets (at $16.7 billion).

In Europe, CBRE Global Investors is particularly bullish on London, Scandinavia, Germany and select markets in Central Europe. Last year, it ramped up its U.K. investments to 106 deals and 980 million pounds (nearly $1.5 billion) from 77 transactions valued at 332 million pounds in 2011. So far in 2013, its U.K. acquisitions include retail and mixed-use properties in Brighton and Brixton, and office and mixed-use properties in Central London. Elsewhere in Europe, Chambers Street Properties, a non-traded REIT sponsored by CBRE Global Investors, bought a new 1.1 million-square-foot distribution center in Koblenz, Germany, last September.
Another recent milestone was the December 2012 closing of the latest fund sponsored by CBRE Strategic Partners. Exceeding its initial target by about 25 percent, the fund raised almost $1.1 billion from 22 institutional investors in the United States and Europe. The fund’s managers expect to leverage that equity into $2.7 billion worth of buying power for acquiring institutional-caliber assets in major U.S. markets that offer healthy upside potential.

Winds of Change
As he surveys the landscape, Khourie detects a growing preference for separate accounts. “Most institutional investors are moving toward investment vehicles where they can exert more control,” he observed. Particular interest is coming from midsize players like pension funds and foreign life insurance companies. Their accounts typically range from $150 million to $500 million in equity.

After an up-and-down year for commercial real estate investment in 2012, Khourie is upbeat about the market’s prospects. One factor in his positive outlook is a more stable financial and economic climate in the company’s key markets. A strong comeback for securitization, coupled with a largely disciplined approach to debt, is promoting investor optimism. “In the U.S., there’s a lot of good opportunity this year. We believe it’s a great time to sell core assets,” he observed. “We’re actively selling the product that we were able to stabilize and can now bring to market.”

That trend is driven by a demand for assets in gateway cities that produce steady income. In February, CBRE Global Investors began testing the waters by putting several multi-market office portfolios on the block. One encompasses five buildings totaling 2.9 million square feet in Downtown Chicago and the metropolitan Dallas and Atlanta markets. The firm is also shopping a 2 million-square-foot group of six properties in submarkets of Los Angeles, Houston, Dallas and Washington, D.C., along with West Palm Beach, Fla.

On the buy side, CBRE Global Investors’ recent U.S. acquisitions include 400 S. Hope St., a 701,535-square-foot Downtown Los Angeles office tower that was acquired last July. In a bid to capitalize on Seattle’s burgeoning office market, the company is making a value-added play with a vintage office tower. Last year, CBRE Global Investors’ debt investment platform, CBRE Capital Partners, bought Smith Tower, a 42-story Downtown tower in Seattle’s Pioneer Square district. Completed in 1914, the property was the tallest building west of the Mississippi River until 1931. As part of the transaction, CBRE Capital Partners also acquired the adjacent Florence Building, a century-old, 7,700-square-foot mixed-use property. CBRE Capital Partners bought the buildings in a foreclosure sale after acquiring non-performing loans on the assets in the fall of 2011.
In the multi-family sector, last year’s highlights include the acquisition of two upscale apartment complexes totaling 430 units near Baltimore in Towson, Md., and a 350-unit property in the Denver suburb of Littleton, Colo. Recent major additions to CBRE Global Investors’ industrial assets included a 1.4 million-square-foot distribution center in the Chicago suburb of University Park, Ill., acquired last April. The buyer was CB Richard Ellis Realty Trust, a non-listed REIT sponsored by CBRE Global Investors and since renamed Chambers Street Properties.

While Europe’s economies have plenty of challenges ahead, the European Union’s steps to shore up weaker partners have calmed investors’ fears. As a result, Khourie said, Europe is increasingly commanding

attention on the other side of the Atlantic. “More U.S. capital is kicking the tires,” Khourie reported. “Now that the uncertainty has lifted a bit, you’ll see increased U.S. activity there.”

In Asia, CBRE Global Investors’ recent moves include its acquisition last October of the Hewlett Packard Korea Building, a 462,848-square-foot Class A property in Seoul. HP will lease back about half the space in the building, which is also known as HP Korea House, for the next five years. Regarding another closely watched Asian economy, Khourie said, “We are also optimistic about China and believe that it won’t be a hard landing.”
A lifelong real estate professional, Khourie made his first foray into the business in the 1970s as an undergraduate at the University of California, Davis. Between his junior and senior years, he teamed up with a classmate to open a small shop at the Cannery, part of the Fisherman’s Wharf retail complex in San Francisco. Khourie’s experience there helped fuel his interest in retail and in real estate; for the next seven years, he managed to balance store ownership with college, graduate school and other obligations.

After earning his MBA at Stanford in 1980, Khourie started his long run at Trammell Crow as a Houston-based retail leasing agent. He spent the next decade rising through the ranks, earning promotions to division partner for Houston retail in 1983 and to head of the Houston office the following year. When the development market began softening in the mid-1980s, he turned his focus to asset management.

In 1987, Khourie added the company’s retail practice in the Northeast to his responsibilities. Two years later, he was made area partner for Houston. Next came promotions to senior managing director in 1997 and to president of development and investment for the Central United States in 2004.

In 2008, two years after the merger with CB Richard Ellis, Khourie was appointed president of development and investment for Trammell Crow’s Southeast region. The following July, he completed 29 years of service with Trammell Crow and moved over to CBRE Investors. Taking the title of president, he supervised the company’s day-to-day operations. Then, in April 2010, Khourie stepped into the CEO’s chair as Maddocks shifted to full-time focus on the company’s Strategic Partners funds.

As he oversees an enterprise that extends across three continents, Khourie maintains his personal touch. Not long ago, he formed a mentoring bond with a young member of the Texas Teachers’ real estate investment team after discovering that she had taken the same management and leadership course at the University of Texas in which his own daughter was then enrolled. Khourie followed up their conversation with an email sharing some of the leadership principles that he considers most meaningful.

In so doing, Khourie showed his own drive to keep honing his leadership skills, Lang noted. Equally revealing were his generosity and mentoring instincts. “We deal with some of the most successful and powerful executives out there,” Lang noted. “It’s always nice when they try to go above and beyond and build a relationship with my team—and not just me.”

During his three decades in the business, it is fair to say, Matt Khourie has made the practice of going above and beyond a personal trademark.

By Paul Rosta, Senior Editor

In New Jersey, New York and Connecticut, train schedules are grad returning to normal, power has been restored to much of the area and most of the population is back at work and school. That appearance of normality is deceiving, however. When the massive storm known as Sandy touched down on the evening of Monday, Oct. 29, it launched the most destructive natural disaster in the region’s history, an event from which some areas will not completely recover for many years, if ever. It also ushered in a new era for coastal development in the nation’s most densely populated area. When Sandy damaged or destroyed thousands of structures, flooded transit tunnels and washed away roads, it provided a sobering reminder that the built environment functions all of a piece.

In the wake of the storm, observers immediately started speculating about the best ways to ward off events that take such a devastating human and economic toll. Generating large-scale change of any kind is always a difficult proposition, fraught with emotion, yet observers representing a broad cross-section of perspectives agree that Sandy was a game-changing event. “There’s no doubt that the real estate industry is really galvanized by this now,” contends Rosemary Scanlon, dean of the Schack Institute of Real Estate at New York University. A number of provocative ideas are in circulation, ranging from cultivating natural barriers to cushion the blow of storm-driven waves to installing vast gates to protect low-lying areas of New York City’s boroughs and tightening regulations for building along the New Jersey shoreline.

For teams overseeing the projects currently in the pipeline, Sandy provided a window into how they will perform during future events. In some cases, that unexpected test brought some welcome good news for even storm-battered areas. On Staten Island, N.Y., Triangle Equities is planning to renovate and repurpose five historic buildings for a new National Lighthouse Museum and 45,000 square feet of retail space. Elevation and other characteristics allowed the site to escape with no apparent long-term ill effects, reported Ben Wauford, principal & New York City office director of Cooper Carry, the project’s architect. Such was also the case for a riverfront site in Hoboken, N.J., where KMS Development Partners is planning a 200-key limited-service hotel on a parcel that is occupied by post office facilities dating from the 1920s. To accommodate the project, a two-story annex will be demolished and its mechanical systems will be relocated to the topmost floor of the post office building, which will share the site with the new hotel. Sandy will not necessarily alter the project’s design, which already accounts for flooding hazards: The first floor is 12 feet above sea level and one foot above the 100-year flood plain, as determined by Federal Emergency Management Agency guidelines.

Nevertheless, the flood offered some instructive results. “It provided a real-world assessment as to whether the FEMA guidelines were realistic or not,” Wauford explained. “It provided a great baseline of understanding and testing of FEMA’s 100-year flood elevation.” Unlike the post office building, much of Hoboken was inundated by the Hudson River.
As is typically the case after a big natural disaster, Sandy started a flurry of proposals from government officials. New York and New Jersey officials are lobbying for tens of billions of dollars in federal aid for the reconstruction effort. President Obama requested $50 billion from Congress in early December. New York City, which sustained heavy blows to properties near the shoreline and to its transit system, is establishing a blue-ribbon panel to study the effects of the storm. Mayor Michael Bloomberg and City Council Speaker Christine Quinn enlisted Urban Green, the New York City affiliate of the U.S. Green Building Council, to organize the project. By next summer, the panel will present recommendations for protecting buildings and infrastructure from future storms.

Whatever actions may eventually emerge from these agencies, a fundamental question still looms for some areas. In the first days after the storm, President Obama and New Jersey’s Gov. Chris Christie pledged to rebuild the state’s battered shore. Their promise was intended to show determination in the face of disaster, but the actual prospects for rebuilding seem far less certain. As Urban Land Institute senior fellow Ed McMahon observed, “The first principle of better development on any scale … is figuring out where you should not develop.”

For years, experts had warned that coastal areas of New York and New Jersey are vulnerable to violent hurricanes, despite the previous scarcity of recent examples. For decades, the popularity of coastal locations among homeowners continued to drive development, thanks in part to an excessively permissive attitude among elected officials and regulatory agencies, some critics charge. The image of homes in Seaside Park, N.J., half covered in mud, however, calls into question those laissez-faire development strategies for vulnerable areas. Broad guarantees that the National Flood Insurance Program will help rebuild communities an unlimited number of times may be in doubt. “People are going to start questioning whether we should continually rebuild,” McMahon said. “How many times should the public be on the hook?”

Sandy’s destruction throws such questions into high focus, but they are hardly new. McMahon cites Dauphin Island, which critics of the federal flood insurance program often point to as an example of wasteful government spending on construction in excessively risky locations. Situated among Alabama’s barrier islands, Dauphin has only about 400 homes but has received about $80 million in federal aid for rebuilding during the past 30 years, plus federal flood insurance payouts.

As McMahon was reminded after Hurricane Katrina, the most prudent decisions about building may not always be popular with citizens or elected officials. Asked by then-mayor Ray Nagin to draw up a redevelopment plan for New Orleans, a ULI panel presented a wide-ranging strategy whose main points were largely well received. Only a few findings got a thumbs-down—notably, the panel’s recommendation against rebuilding vulnerable East New Orleans.

Second Looks

Dozens of jurisdictions affected by the storm are likely to revisit their own regulations. “An examination of building codes is a good idea for the zone that FEMA calls the 100-year flood zone,” said Patricia Lancaster-Brown, a former commissioner of the New York City Department of Buildings and a professor at the NYU Schack Institute. Lancaster-Brown, a trained architect who has also worked in development, added that the storm begs the question of whether buildings should be designed to a standard other than the current 100-year flood. “If I were the buildings department, I would want to know how high a storm surge to design for,” she noted.
(For further discussion, read the Q&A with Lancaster-Brown and her NYU Schack Institute colleagues on cpexecutive.com.)

Five weeks after the storm, Bloomberg offered a framework for measures that may begin to address the concerns raised by his former buildings commissioner. “We are not going to leave the Rockaways or Coney Island or Staten Island’s South Shore,” Bloomberg declared at a Dec. 6 news conference. “But we can’t just rebuild what was there and hope for the best.” Noting that two-thirds of damaged homes are located outside FEMA’s 100-year flood zone map, the mayor pledged to tighten flood control standards in the city’s building codes. He also said that the city would propose raising the height limits for one- and two-story homes. That measure would allow homes to be built to higher elevations—a step that would presumably give more houses better odds of staying beyond the reach of floods.

Suggesting that he considers some of the ideas currently in circulation—like installing massive gates in New York Harbor—unrealistic, Bloomberg said that the city would launch a fast-track study of protective measures like natural vegetation that would slow rushing waters. Also on the mayor’s agenda is an assessment of ways to harden telecommunications, power, gas and transportation systems, all of which were affected by the storm to some extent. As a step in that direction, Con Ed, the private electric utility, will initially spend $250 million to harden its systems, Bloomberg announced. He further promised to create incentives for owners to invest in co-generation, distributed energy, micro-grids and smart grids. That technology will help more businesses and institutions continue to operate in the wake of a disaster.

Industry leaders, too, are floating ideas. Sources say that local professional organizations may ask New York City to modify building code provisions related to the tanks that supply fuel to buildings’ water pumps. Those tanks are typically located in a basement level because their contents are highly flammable. Allowing the equipment to be located on a higher level would prevent tanks from being disabled, as they were in scores of buildings. Proposals like those now being floated by Mayor Bloomberg and the industry suggest an approach to development that combines cautious optimism and realism. As Cooper Carry’s Wauford puts it: “These issues can be resolved. You’re going to continue to live with these events, but you don’t have to continue to have this kind of catastrophic loss of property.”
How and where to build commercial properties will understandably dominate the discussion among commercial real estate developers. It took little time for critics of specific projects in flood-prone areas to cite the storm as a reason to revisit or postpone projects. Soon after

he storm, for instance, opponents of a 700-unit, $257 million multi-family project in Brooklyn cited it as a reason for the project’s developer, The Lightstone Group, to scuttle the project. The neighborhood’s city council representative, Brad Lander, pointed out that the apartment complex is slated for a site that flooded during Sandy. Lightstone responded that it would continue to pursue the project. In a statement provided to the Village Voice, the company stated: “Based on the information that we have reviewed, we believe that had the Lightstone project been built and occupied during Hurricane Sandy, none of the residential or parking areas would have experienced flooding.” Lightstone added that it would continue to review the complex’s design and technology throughout development, as it would for any project.

Yet experts urge that development issues be considered in a broader context. The giant hotel and casino complexes that line the beach in Atlantic City, N.J., remained closed for several days after the storm but largely escaped major damage. That was good news for one of New Jersey’s major economic engines, which drew some 30 million visitors in 2011 and generated $3.3 billion in gambling revenue. Nevertheless, the storm flooded about 75 percent of the city, including many of its low-income neighborhoods.

Atlantic City officials received withering criticism in the days after the storm for failing to ensure that residents evacuated; however, one longtime student of New Jersey coastal development detects a more fundamental issue at work. “When you think about commercial property, you also have to think about the people who work in the commercial properties,” contends Ken Mitchell, a professor of geography at New Jersey’s Rutgers University. “If you do a good job in the commercial properties but don’t do a good job in the other parts, you may have problems.”

A telling example of how commercial and environmental considerations can clash is found in a July 2009 statement issued by the Greater Atlantic City Chamber. In its comments, the association backs a proposal to reduce the height of sand dunes that are taller than the famous Atlantic City boardwalk. “Storm-driven waves would level the dunes in no time and render them virtually useless,” the Chamber argues. “The real protection comes from the proper maintenance of the bulkheads: … specifically, making sure that sand does not pile up against them over time, thus forming a launching pad for waves.”

Then the chamber sums up its case in words that frame the conflict now facing elected officials, regulatory agencies and the public they serve. “Atlantic City is under intense competitive pressure from other tourist and gaming destinations. We can ill afford to squander one of our most precious natural resources and attractions by obscuring the view of the ocean from the boardwalk. It is fundamental to the boardwalk experience and an asset that Atlantic City needs to maximize.”

Bulkheads are indeed a recognized deterrent in Atlantic City. As long ago as 1996, the Corps of Engineers proposed a 1,600-foot-long bulkhead intended to prevent overflows from Absecon Inlet. Lack of funding and difficulty in obtaining easements stalled the project, which would have prevented or reduced flooding in much of the city. Plans for a 16-foot-tall, 1,100-foot-long bulkhead are now on the boards and funding is in place.
At the same time, dune restoration projects have also been credited with mitigating damage. In Atlantic City, an $18 million beach and dune replenishment project completed early in 2012 helped protect the city’s resorts, which reopened only days after the storm.

Elsewhere, the varying experiences of communities during Sandy appear to confirm the value of canny dune management. In 2007, three towns on the South Shore of Long Island—Atlantic Beach, Lido Beach and Point Lookout—all gave their blessing to the Corps of Engineers’ plan to build 15-foot-tall dunes. The nearby town of Long Beach said no, citing what it feared would be a detrimental effect on the beach’s appearance and on surfing. As the New York Times reported, Long Beach now has ample reason to wish it had followed its neighbors’ lead. While the three towns that supported the dune-building project weathered the storm with comparatively minor damage, Long Beach took a $200 million hit.

In the coming months, Sandy will generate a vigorous debate about development as the region searches for the way forward. The question is whether the action that follows will be adequate for the challenges posed by future weather events. Considering the typically short attention spans of the public and elected officials, it is likely that development professionals from all corners will bear much responsibility for keeping these issues front and center. As Rutgers’ Mitchell put it: “There is a window of opportunity to do something better the next time around, but it doesn’t stay open very long.”

By Paul Rosta, Senior Editor

When Paul Ellis launched CNL Commercial Real Estate five years ago, he had an unusually short move from the old shop to the new. Glancing out the window at the CNL Center complex on South Orange Avenue in Orlando, he can still see the office from which he once ran Trammell Crow Co.’s North Florida operation. But though Ellis’ move has had little impact on his commute time, he and CNL Commercial Real Estate have traveled an eventful path since signing it on as an affiliate of CNL Financial Group, the alternative investment management firm and non-traded REIT sponsor.

Five years after its launch by a dozen Trammell Crow alumni, CNL Commercial Real Estate has evolved into one of the service sector’s Great Recession success stories. From its start in Orlando, the firm opened a Dallas office in 2010, expanded to Charlotte, N.C., in 2011, and hung out its shingle in California that same year. During that time, the firm has grown nearly tenfold, to more than 100 people.

Though still small compared to its giant competitors, CNL Commercial has established a foothold in an eclectic group of services, ranging from leasing and investment sales to development and asset management. Current assignments include managing a 123,000-square-foot expansion and consolidation for the Golf Channel’s headquarters in Orlando; leasing an upscale 455,000-square-foot retail center in Charlotte, N.C.; marketing a 2,500-seat performing arts complex in Anaheim, Calif.; and managing four century-old office buildings at the former Parkland Hospital campus in Dallas. It has also established a reputation in the unusual and often overlooked specialty of church-affiliated buildings. It recently sold a church property in Eau Claire, Wis.

Clients and former colleagues cite Ellis’ professionalism, industry knowledge and strategic acumen as cornerstones of CNL Commercial’s success—qualities they say he infuses in the company. “He brings a very calm demeanor into any situation and is able to approach each challenge … with a very thoughtful and a very measured approach that really helps take the emotion out of any decision and makes for much better decisions,” said Pryse Elam, senior vice president & Southeastern regional manager for New Boston Fund, who formerly worked with Ellis as a Trammell Crow principal in Florida.

For Ellis, the launch of CNL Commercial in 2007 marked a rare event: only the second time he had switched companies during his 22 years in the business. In October 2006, he was running Trammell Crow’s Northern Florida operation and overseeing three offices and a 200-member team when news came that CB Richard Ellis Group Inc. planned to acquire Trammell Crow in a blockbuster $2.2 billion transaction.

After weighing their options, Ellis and a core group of his colleagues decided to pass on joining the global giant in favor of taking a riskier path. “Our decision was nothing against CB at all,” he emphasized. Instead, they concluded, the merger presented a rare opportunity to create something new.

Ironically, Trammell Crow’s Orlando office had had no direct ties to CNL Financial Services when the search began for a prospective partner. But through his church, Ellis had struck up an acquaintance with a fellow parishioner named Andy Hyltin, who is now president of CNL’s fund management group. Ellis approached Hyltin about bringing over a team as the nucleus of a new CNL real estate services affiliate.

Hyltin responded enthusiastically to the idea, agreeing that the new unit would offer CNL the opportunity to broaden its real estate service business beyond its customary core market of investors. For their part, Ellis and his team felt a kindship with CNL’s spirit of entrepreneurship and relationship-building, which were also principles of Trammell Crow’s culture. “We saw this as a unique opportunity to get back to building a business and get excited about it and passionate about it,” Ellis recalled.

CNL Commercial Real Estate made its formal debut in February 2007, only a year and a half before the financial meltdown that triggered the recession. Economic conditions ramped up the challenges for a fledgling firm, yet Ellis sticks to the adage that the best time to start a business is either right before or right after a recession. “What we found is that the disruption in the marketplace creates as many opportunities as it creates difficulties,” he noted. While some legacy platforms were hamstrung by overhanging debt, Ellis and his colleagues enjoyed the advantage of starting a new enterprise free of such burdens. Moreover, the troubled time yielded a bumper crop of seasoned professionals in search of a new situation.

In any event, he understood that starting a new real estate service and development business from scratch would be no cinch, even in the best of times. “It wasn’t like we expected to triple the business in the first two years anyway,” he said. Early on, CNL Commercial Real Estate endured a painful personal and professional loss: in December 2010, Chip Lilley, a founding partner who had mentored Ellis at Trammell Crow, died of colon cancer at age 52.

In CNL, Ellis had found a sponsor that had a knack for thriving in hard times. CNL’s executive chairman, James Seneff, and its vice chairman, Robert Bourne, were valuable sources of business wisdom and encouragement who kept faith in their new affiliate through the hard times. Reflecting on the challenges of the Great Recession, Ellis says, “The thing that hit me was, as a leader I am nothing without our partners and associates. A lot of people talk about trust and relationships … but they don’t really mean anything until they get tested.”

While cultivating business through CNL Commercial’s offices in Orlando, Tampa and Jacksonville, Ellis hunted for growth opportunities beyond Florida’s borders. In early 2010, that search resulted in the acquisition of Drexel Realty Partners, a Dallas-based service firm led by Jimmy Grisham. Ellis and Grisham had first crossed paths some 20 years earlier; from 1988 to 1993, Grisham oversaw the successful effort to build Trammell Crow’s service business in Florida. Another Trammell Crow veteran, Jim Wells, was brought on board as a principal in the new office. More recently a CBRE senior managing director specializing in corporate services, he had worked with Ellis at Trammell Crow during the 1990s.
In June 2011, the firm established a beachhead in Charlotte, N.C., when it brought in a 16-member team from Crosland L.L.C. Led by Susan McGuire, CNL Crosland Commercial Real Estate offers transaction and management services for such properties as Blakeney, a 455,000-square-foot retail center in South Charlotte.
Added Values

The value of relationship-building skills and professionalism championed by Ellis has repeatedly emerged in situations like the turnaround of an office portfolio in Orlando. In 2010, New Boston Fund Inc. tasked the company with leasing Maitland Green I and II, a pair of Class A office buildings comprising 194,000 square feet and located near Interstate 4, the city’s main north-south artery. Another service firm was assigned to represent a third Orlando office building acquired that May. All three properties had sustained severe blows in the recession; by the time New Boston Fund stepped in to recapitalize the distressed assets, occupancy at Maitland Green had slipped to 45 percent.

CNL Commercial’s team worked tirelessly to stabilize the properties, and two years later, occupancy is nearing 90 percent. In May, Alex Rosario, a vice president at the firm, secured leases totaling 14,438 square feet with BookIt.com, New York Deli and the American Diabetes Association. Those transactions followed a 12,000-square-foot lease at Maitland Green I in December 2011 to Avectra, which provides business software products to non-profit organizations. “They almost willed it to happen,” said New Boston Fund’s Elam of the CNL Commercial Real Estate team. “They were completely honest with us, even when they were delivering a message we didn’t want to hear.”

Meanwhile, however, leasing lagged at New Boston Fund’s third recent office acquisition. Though CNL Commercial Real Estate did not have that assignment, the team did what they could to help the struggling property. “Most people would have been highly competitive, and they were supportive,” Elam related. The episode offers a reminder of the value of putting the client’s interests first. “It’s a long-term perspective,” he noted. “You may not have the assignment today, but you’ll have the relationship.” In the end, CNL Commercial Real Estate’s effectiveness earned it the assignment to handle the third building, where occupancy has since improved to 55 percent.

Ellis’ journey in the business started during his college years at the University of Florida, where he majored in real estate and urban analysis. Upon graduation, he signed on as an appraiser with Southern Appraisal Network, a boutique real estate firm based in Orlando. The position provided a solid career foundation on several fronts. To begin with, he explained, “I really got my hand into the nuts and bolts of real estate.” Starting out in a smaller shop also exposed Ellis to an entrepreneurial atmosphere that served him well in the years to come, he added.

During his three years as an appraiser, Ellis came to realize that his interests lay elsewhere. He heard through the grapevine that Trammell Crow’s local office was looking for an analyst. Ellis knew that he did not fit the profile of the Orlando office’s new hires at the time: They tended to hold MBAs or had a successful track record in the business.

Undeterred, he started cold-calling Woody Coley and Chip Lilley, the office’s senior principals. After four and a half months, his persistence paid off, and he was finally brought on board. Ellis’ tongue-in-cheek explanation: “They hired me so I’d quit calling them.”

Ellis joined Trammell Crow at an opportune time for an energetic young real estate professional. By the early 1990s, an economic slump was forcing the venerable developer to retool and expand its model. “I got to learn the entire industry,” he recalled. “When you’re growing a platform, you have to have people who are constantly ready to step into leadership roles.” That situation offered him the opportunity to work in a variety of business areas, including brokerage, property management and development.

Lilley continually challenged Ellis to stretch his abilities, even at the risk of the occasional misstep. “I’m going to give you enough rope to make mistakes, but not hang yourself,” his mentor would say. No less educational, Ellis recalls, was the up-close view of how seasoned professionals successfully bounce back from their own errors.

As he navigates the company toward fresh opportunities at a time when improvement in the market is often fitful at best, Ellis brings a perspective that others say informs the company culture. “I’m grateful that we have customers to see,” he said, “grateful for CNL’s support and sponsorship.” It is a perspective that brings humility in success, offers encouragement when the chips are down and fosters fellowship. “If we lose that gratitude, that would be a real loss for us,” he noted. “A team that is inspired by gratefulness is an unstoppable team.”

As Ellis navigates the challenges of a competitive business, that team’s success is looking more and more like a good bet.

For someone who once seemed to be headed for a career as a petroleum engineer, Bob Faith has enjoyed a journey that may be as improbable as any real estate CEO’s today. Sidetracked from his planned profession by a recession three decades ago, Faith went on to found the nation’s most prolific multi-family management firm and contribute greatly to the sophistication of the sector and the participation of institutional players.

Along the way, he has also developed office and industrial buildings; co-founded one of the nation’s most powerful diversified investment management companies; and even spent four years as a South Carolina cabinet secretary—a tour of duty he pulled off while keeping his day job as a real estate CEO.

No less impressive than that balancing act, Faith has risen to the top of the multi-family sector while embodying that most coveted of qualities: the ability to inspire excellence and loyalty through unflagging high spirits, good humor and genuine consideration for his team. “He’s just one of the most likable guys in the industry,” said Tony Dona, co-founder & principal of Thackeray Partners, a Dallas-based investment management company that partners regularly with Greystar. “People love working for Bob and are loyal to him because he likes his people and he’s loyal to them.”

Since founding Greystar in 1993, Faith has built the company on a three-legged stool of property management services, acquisitions and development. For the second year in a row, Greystar’s management portfolio of more than 190,000 residential units—90 percent of them operated for third-party clients—made the company the top manager in the multi-family business, according to the National Multi Housing Council’s annual ranking. Last year, Greystar closed a $600 million acquisition fund—the firm’s seventh—and its national development pipeline exceeds 40 projects. “The synergy of all three (business lines) is as good as, or better than, any in the industry,” Dona contends.

The Great Recession vindicated Faith’s belief that diversification offers maximum flexibility through market ups and downs. “No matter where we are in the cycle, there’s a time to buy, there’s a time to build and there’s a time to hunker down and manage,” he said. Even if the investment market suffers a downturn in a given area, Greystar has the option of disposing of its assets there while maintaining its property management business. “What that allows us to do is to keep our team together,” he explained. “That way, I can recruit the best people.” As Greystar’s local eyes and ears, the ground-level property management team provides market intelligence that serves as the basis for future investment and development decisions, Faith added.

“He really understands the capital markets and the operating business in a way that most people don’t,” said Robert Whitman, who first got to know Faith in the 1980s, while serving as CFO of Trammell Crow Co. “I think it’s an unusual thing to be able to balance both,” added Whitman, currently the CEO of Franklin Covey.

Although management may be an ancillary service for some multi-family investors, Faith has always considered it an essential building block. “Bob’s (vision) was to build a truly outstanding service platform,” Dona observed. Greystar’s management business serves 105 markets through 20 local offices that stretch from Boston to Seattle.

During the the past few years, Greystar has grown its management portfolio at a stepped-up pace. The company doubled the number of its multi-family properties in the Northeast and Middle Atlantic states to 46 during the first three quarters of 2011. In the process, it increased its scope from slightly fewer than 6,000 units to nearly 16,500. That robust expansion came on the heels of Greystar’s selection by Archon Group L.P. in 2010 to manage a 27-property, 7,600-unit portfolio in Virginia, Florida, Texas, Arizona, Nevada and California.

A turning point came with the 2008 acquisition of JPI Management Services, an affiliate of Irving, Texas-based JPI Multifamily Partners L.L.C. In a single stroke, Greystar’s property management arm became a truly national business for the first time. The acquisition created economies of scale and expanded Greystar’s footprint in California, the Midwest and the Northeast. In all, the deal added about 41,000 units to the company’s management portfolio. That acquisition was made possible in large part by a capital infusion from Goldman, Sachs & Co., which bought a 20 percent stake in Greystar five years ago.

Greystar has steadily expanded its property management portfolio in the four years since the JPI acquisition. The deal also gave it an entrée into the burgeoning student housing niche through an affiliate that was rebranded Greystar Student Living. Recent assignments include Circle West Campus, a 477-bed project near the University of Texas’ campus in Austin.

A Time to Build
While continuing to expand its third-party services, Greystar is carrying out an aggressive development strategy. “The best opportunities are always happening at these inflection points as markets move,” he explained. Faith targets vibrant, transit-oriented, pedestrian-friendly urban settings that tend to attract young urban professionals.

In July, Greystar kicked off construction of Elan Uptown, a 591-unit mid-rise property in Downtown Minneapolis. The two-phase development process is scheduled for completion in 2014. Also in the pipeline is Elan Town Center, a 134-unit apartment community scheduled for completion next year in the Seattle suburb of Redmond, Wash., and Elan Midtown, a 200-unit project underway in Greystar’s home city of Charleston. Elsewhere, Greystar’s development pipeline includes Lakewood Apartments, a 435-unit complex in suburban Dallas, and the Ascent, a 404-unit, 26-story project in Tysons Corner, Va.

To capitalize the projects, Greystar regularly teams up with institutional investors. Prudential Real Estate Investors is the capital partner for Elan Midtown and the Ascent. For Elan Uptown in Minneapolis, Greystar recruited Multi-Employer Property Trust, which manages real estate investments for some 360 public and private retirement funds. And Greystar brought the Carlyle Group on board for a 288-unit high-end property scheduled for completion next year in Woodbridge, Va., a Washington, D.C., suburb.

A connecting thread among these diverse projects is a balance between quality and affordability. Greystar typically tailors its projects to younger, active professionals who tend to spend much of their time outside of home. For these residents, a big apartment tends to be less important than a location convenient to work, transportation and cultural amenities. A relatively compact floor plan allows Greystar to strike a balance between attractive amenities and affordable rental prices. At Elan Town Square in Redmond, Wash., the 134 units will average 872 square feet in size.

Detour to Success
Faith’s path to real estate began as something of a detour. He had every intention of taking up his father’s profession and pursuing a career in the oil business. But by the time he received his engineering degree from the University of Oklahoma in the early 1980s, a recession had thrown a monkey wrench into the job market. So Faith came up with a Plan B and applied to graduate programs. “I couldn’t get a job as a petroleum engineer,” he recalled, “but I did get into Harvard Business School, so I guess that’s a pretty good fallback.”

Upon earning his MBA from Harvard, Faith joined Trammell Crow Co., which liked to hire newly minted MBAs from the nation’s top business schools and quickly give them challenging assignments, explained Whitman. Then a prolific developer, Trammell Crow was in the midst of sorting out deals that had run aground in the wake of the savings-and-loan crisis. For his first assignment, Faith was posted to Oklahoma and asked to find workouts and exit strategies for troubled projects. Even then, colleagues say, he demonstrated a knack for untying difficult knots with not only a penetrating intellect but also high spirits and good humor that raised the morale of everyone around him. “He could make things seem like, ‘Hey, this isn’t so bad,’” Whitman explained.

After impressing higher-ups by completing a series of difficult assignments, Faith was sent next to Charlotte, N.C. His challenge was to re-energize a team shaken up by the departure of senior partners. Along with his partner, Bill Maddux—now Greystar’s COO—Faith earned trust and loyalty in a difficult situation. He also got his first taste of development, overseeing a series of office and warehouse projects.

By 1990, the savings-and-loan crisis had taken a heavy toll on Trammell Crow’s development pipeline, and Faith moved on. In 1991, he joined forces with fellow rising star Barry Sternlicht, an acquaintance from Harvard Business School, to co-found Starwood Capital L.L.C. Faith started Greystar two years later, initially managing 9,000 apartment units in Houston.

In building the company, Faith drew on the practices he learned during his time at Trammell Crow, starting with an emphasis on local knowledge. “There’s no replacement for living there,” Faith asserts. “People that live in these markets know them better than someone who’s flying in from the outside.” Further, he took to heart the Trammell Crow emphasis on creating a culture of partnership, a principle embodied by Faith’s own upbeat, outgoing personality.

Like Crow himself, Faith made a practice of recruiting talented, energetic young people and quickly giving them significant responsibility for operations and execution. While trusting his team with a high degree of autonomy, he chose a more centralized policy for capital allocation than he had encountered at Trammell Crow. Faith also understood the opportunity for professionalization in an industry that was often viewed as a mom-and-pop business.

By the end of the 1990s, Greystar’s management footprint extended across much of the Sunbelt. At the same time, Greystar was bringing an institutional approach to acquisition. A milestone arrived in 2000, when it established a $300 million fund with the Oregon Public Employees Retirement System. By the time the company closed its seventh and latest fund in 2011, Greystar’s pool of investors extended to Europe.

While the company was headquartered in Houston, Faith made regular visits to family in Charleston, and took a liking to the city’s setting and vibrant atmosphere. In 1998, he relocated both his home and Greystar’s corporate headquarters there. Today, Charleston houses the holding company and corporate-level operations, and offices in Houston, Dallas, Tampa and Phoenix handle back-office functions.

A different kind of opportunity arose in 2002, when Faith served as a volunteer fundraiser for the successful gubernatorial campaign of his friend Mark Sanford. The governor-elect asked Faith to bring his business acumen and enthusiasm to the cabinet as secretary of commerce, the state’s top economic development official.

For a token salary of $1 per year, Faith crisscrossed the state, met with business leaders and was instrumental in securing some big wins for the state (see “Double Duty” ). “It really did stretch me to run the company and be secretary of commerce,” Faith said. After four years of well-regarded service, he stepped down at the end of Sanford’s first term. Although he has yet to return to public service, Faith continues to keep his hand in politics, periodically volunteering for campaigns.

In reflecting on Faith’s varied accomplishments, colleagues remark on the deceptively simple balancing act that he has pulled off in a scrappy, volatile business. “Bob’s style is to be very likeable and very nice, but at the same time, he’s obviously very driven,” observed Dona.

As Faith’s smart, spirited leadership has earned the respect of his peers, it brings to mind the caustic comment made famous by baseball’s Leo Durocher. “Nice guys finish last,” the combative Hall of Fame manager and player once declared. Clearly, Durocher never met Bob Faith.

From left: Bruce A. Beal, Jeff T.Blau and Stephen M. Ross, of Related Cos.

By Barbra Murray, Contributing Editor

Stephen M. Ross, founder of Related Cos., has stepped out of his CEO shoes and into the role of executive chairman, and with the move, which comes 40 years after Ross established the global real estate company, other big changes at the top have followed.

Ross rather casually and unexpectedly announced his plans last week at his alma mater, the University of Michigan at Ann Arbor. According to the school’s paper, The Michigan Daily, during an event at the university’s Stephen M. Ross School of Business, Ross said he would step down from the position and Jeff T. Blau, president and 22-year veteran at the company, would become the new CEO. Ross and Blau have a connection that goes beyond business; Blau is also a U of M alum of note.

Ross’s status as a guiding force at Related will not change. He will continue to spearhead global business strategy and he’ll remain in charge of bringing to fruition the company’s multi-billion Hudson Yards mixed-use endeavor in New York City.

When it comes to the company’s strategic direction, Blau is now at the reins. He will juggle the tasks of managing the company, pursuing new development opportunities and overseeing corporate acquisitions and financing activities. It’s a big job but he will, of course, have help.

Kenneth P. Wong

Bruce A. Beal Jr., former executive vice president, has been pushed up the ladder to the position of president, a role that puts him in charge of Related’s day-to-day development process for projects running the gamut. Additionally, Kenneth P. Wong moves from vice chairman to chief operating officer and director of international development. Wong will not only manage day-to-day administrative, corporate and business functions, he will also oversee expansion activities in the United States as well as internationally.

“Related’s vertical integration, talented team of executives and employees and access to capital offers nearly unlimited potential for growth and with the strength of this management team, we will be able to further optimize our competitive capabilities, continue to grow the platform and expeditiously capitalize on new opportunities,” Ross said.

By Paul Rosta, Senior Editor

Among the ranks of commercial real estate executives, Robert Merck is something of a throwback. In an era when the notion of dedicating a career to a single company seems as old-fashioned as the Nash Rambler, Merck is marking his 30th anniversary this year with Metropolitan Life Insurance Co.’s real estate division. For almost a third of that time, he has headed MetLife’s real estate debt and equity businesses. The affable Georgia native, who frequently exhibits a dry sense of humor, theorizes that his loyalty is genetic. “When I started in ’82, I didn’t know I was going to be here for 30 years,” he noted. Merck’s father, too, spent three decades with a single firm, prompting the son to comment, “I guess it runs in the family.”

MetLife’s real estate portfolio performance under Merck’s stewardship makes a powerful case for durability. Merck oversees a $60 billion portfolio that includes real estate debt valued at $41 billion, $8.5 billion in equity investments and $12.8 billion worth of agricultural mortgages. Last year alone, its real estate originations reached $11 billion, a new company record. That production made MetLife the insurance industry’s most prolific real estate lender and the second biggest overall, after Wells Fargo, according to the Mortgage Bankers Association. Merck courteously sidesteps a request to project a tally for 2012, except to say that he expects another robust year.

True to its reputation as an institutional lender, MetLife favors a conservative strategy for mortgage lending and equity investment: reliably income-producing properties in strong markets, all held on its balance sheet. The mix has stayed fairly consistent in recent years. High-quality office properties dominate the lending portfolio, accounting for 45 percent of MetLife’s current loans. Recent financings for trophy office properties include a $300 million, 10-year loan on the Bank of America Center, the 1.8 million-square-foot asset that encompasses 555 California St., 315 Montgomery St. and 345 Montgomery St. in San Francisco. The loan, obtained by MetLife client Vornado Realty Trust, is part of a $600 million mortgage divided equally between MetLife and Pacific Life Insurance Co. Another 2011 highlight was a $250 million mortgage on Washington Square, a 12-story, 1 million-square-foot Class A office building at 1050 Connecticut Ave., N.W., in Washington, D.C. Jointly owned by Lerner Enterprises and the Tower Cos. of Rockville, Md., the property recently underwent a $14 million renovation.

After office, the retail sector is MetLife’s second-largest client, accounting for 24 percent of its real estate loans. Rounding out the mortgage portfolio are multi-family (10.5 percent), industrial (7.9 percent), hotel (7.7 percent) and miscellaneous other assets (5.2 percent). Merck is bullish on multi-family and has worked to increase MetLife’s exposure in the category, despite frequently challenging conditions. “We’d like to grow it more, but it’s difficult sometimes to compete,” he said. That competition comes particularly from Fannie Mae and Freddie Mac, which are tough for even a powerful player like MetLife to beat.

Merck was first drawn to real estate some 30 years ago, while majoring in finance at Emory University in Atlanta. He enrolled in the sole course on real estate that the school then offered, which he credits with inspiring his interest in real estate finance. By way of saying thanks, Merck sits on the advisory board of the Emory Goizueta Business School and notes proudly that Emory’s real estate program has evolved into one of the most respected in the country. After earning his degree  with highest honors, he went to work for a savings and loan in Atlanta and took evening classes toward an M.B.A. at Georgia State University.

As Merck was finishing up his graduate degree, he learned that MetLife’s real estate department was recruiting and got an interview that led to a job offer. Ironically, the salary offered by MetLife was not the highest he received, but Merck realized the job would give him entree into the real estate finance business and took it anyway.
Merck describes the mid-’80s as “an opportune time to start a career.” He began by analyzing equity investments for the firm, and the robust market of the day gave him plenty of early exposure to investment and development. In 1988, he was asked to relocate to Charlotte and launch an office for the company there. It was the first in a series of assignments that would keep him on the move for the next dozen years. Merck ran the Charlotte office until 1992, when MetLife assigned him to shore up the company’s shaky office in Tampa. Once that mission was accomplished in 1996, he was appointed head of the company’s equity real estate investments in the Southeast and Southwest. The promotion took him back to Atlanta for the next three years.

After nearly two decades at MetLife, Merck assumed a national role in 2001 when he was asked to run its real estate equity platform for the entire country. The opportunity also required him to leave his home state behind once again; he relocated to the company’s office in Morristown, N.J., a New York City suburb located a train ride away from the parent company’s headquarters in Midtown Manhattan. In 2003, Merck was promoted to his current position as head of the real estate debt and equity platforms. A year later, he was put in charge of agricultural investments, as well.
Upon taking over MetLife’s commercial real estate unit, Merck was tasked with expanding a mortgage portfolio then valued at $20 billion. He assessed the lending business and realized that he would have to fix a serious image problem: MetLife was saddled with a reputation as a sluggish decision-maker. “In ’03 and ’04, borrowers would say, ‘You’re so hard to work with,’” he recalled.

Merck ordered an overhaul that streamlined underwriting procedures and created a more user-friendly approach to customer service. When clients would greet news of the improvements with skepticism, he would respond, “Let’s get you in the door, and then we’ll see what you think.’”
Since Merck recharged his unit’s best practices, annual loan production has quadrupled, from $2.5 billion to more than $10 billion. Merck cites another telling statistic: Eighty percent of MetLife’s origination business by value comes from repeat customers.

MetLife’s commercial real estate business got through the Great Recession virtually unscathed, thanks to the foresight of Merck and his brain trust. “We started having concerns about the way values in the market were going up,” he said. “We didn’t think it was sustainable.”

The Contrarian 

Loan-to-value ratios of 90 percent, years of interest-only payments and skyrocketing property prices were all red flags. He met the go-go years with a contrarian mindset. While other lenders scrambled for business by offering excessively generous terms, Merck tightened underwriting. MetLife lowered its typical loan-to-value ratio to 65 percent—a requirement even stricter than the relatively conservative LTVs of 70 to 75 percent then offered by other life companies.

Merck’s decisions paid off handsomely. Since 2008, the company has tallied only minimal mortgage-related charge-offs. That helped MetLife get back in the game in 2009—much earlier than most other shops. “There wasn’t a lot of lending going on in the market, so we were able to do some very conservative deals at very attractive spreads,” he recalled.
Merck likewise showed a knack for timing on the equity side. As prices rose to dizzying heights, he saw a rare opportunity to test the market. What resulted were several of the biggest commercial real estate transactions in history.

In early 2005, MetLife sold One Madison Avenue, a 1.4 million-square-foot, two-building complex that takes up the block between 23rd and 24th streets in Manhattan. A century ago, MetLife commissioned the older of the two buildings, the 113-year-old Clock Tower, for its headquarters. SL Green Realty Corp. paid $918 million for the complex.

In May of that year, Tishman Speyer Properties paid $1.7 billion for the MetLife Building, the 2.8 million-square-foot office tower adjacent to the Grand Central rail hub at 200 Park Ave. The price tag was touted as the highest ever commanded by a single property in New York City, if not the nation. As part of the transaction, MetLife arranged for the property to keep its longtime name.

Formidable as they were, MetLife’s sales of One Madison and 200 Park Ave. in 2005 proved to be a prologue. The following year, it put yet another Manhattan trophy asset on the block: the multi-family complex collectively known as Stuyvesant Town and Peter Cooper Village. Located on First Avenue between 14th and 23rd streets, the developments collectively encompass 11,232 units in more than 100 buildings. MetLife had built the complex in response to the post-World War II housing shortage.

Merck purposely set a tight two-month window for bidding “because we didn’t know how long the strong market would continue,” he explained. He then put most of his other duties on temporary hold in order to work on the sale full time. The scale of the properties and the pace of the deal required an all-hands-on-deck approach that brought together sales, government relations, legal and other specialties. Looking back six years later, Merck regards the episode as the professional experience of a lifetime. “What I find the most interesting and fulfilling is that we put together a very strong team, both inside Met and outside Met,” he said.

Setting a new U.S. record, the Stuyvesant Town-Peter Cooper complex commanded $5.4 million from a joint venture of Tishman Speyer Properties and BlackRock Realty. In the years since, the transaction has come to symbolize the peaks and valleys of the past decade. By November 2009, the properties had been turned over to special servicing. After defaulting on a $3 billion first mortgage, in January 2010 Tishman Speyer and BlackRock handed the keys to the first-mortgage holder, CWCapital Asset Management. MetLife itself did not escape entirely untouched from the controversy that inevitably follows a high-profile deal of unprecedented scale. The company found itself among multiple defendents that were named in a 2007 complaint by several thousand residents of the complex, who alleged that they had been improperly charged market-rate rent prices between 2003 and 2006. Early this year, MetLife resolved its part of the litigation when it settled with the plaintiffs. For all the complexities that may have accompanied the Stuyvesant Town/Peter Cooper transaction and others of the era, the billions of dollars in proceeds MetLife realized stood it in good stead, both during and after the recession.

Today, Merck continues to stress prudence on the equity as well as the debt side. High-quality, income-producing assets in core markets account for upwards of 80 percent of MetLife’s investments. The company is an equity partner in such projects as 12th & Midtown, the 1 million-square-foot master-planned development in Midtown Atlanta. To diversify the portfolio, it also selectively considers high-caliber properties that present a strong potential upside. “We do look for opportunistic transactions where we feel like we can use our size and our expertise to get a higher return,” Merck explained.

Opportunity Knocks

That strategy characterizes one of MetLife’s highest-profile acquisitions of the year: In early August, It closed on a deal for Reynolds Plantation, a 14,000-acre resort community in Georgia. Located about 70 miles east of Atlanta on Lake Oconee, the property is “a hidden jewel” that ranks among the premier assets of its kind in the Southeast, according to Merck. It encompasses a 251-key Ritz-Carlton Lodge, a luxury lakeside resort, six golf courses, four marinas, a tennis center, a wellness campus and a variety of outdoor recreational activities. For an institutional investor like MetLife that thinks long term, the potential offered by the property’s 5,000-plus undeveloped acres represents a particularly attractive feature.
In Reynolds Plantation, Merck said, “we saw a very high-quality asset with a very strong brand name and reputation, but one that had fallen on some hard times because of the recession.” In early 2011, the property’s development company, controlled by veteran investor Mercer Reynolds, was unable to meet lenders’ demand for a $45 million payment. That May, a consortium of lenders led by Bank of America took legal action to request a court-appointed receiver. By the time MetLife acquired the property, it had been in receivership for more than a year. MetLife is working with Ritz-Carlton to spruce up the hotel, and brought in Daniel Corp., a frequent collaborator, to oversee day-to-day operations at Reynolds Plantation.
As Merck looks toward future growth, he regularly turns his attention beyond U.S. shores. MetLife operates mortgage banking offices in London, Tokyo and Mexico City. When the debt crisis hit European banks, he explained, “we saw an opportunity to ramp up our first-mortgage lending.” That led to $800 million in originations through its London office in 2011. A $600 million year in Mexico and new loans in Japan valued at $453.5 million added up to a tidy record of production.
As the crow flies, about 7,000 miles separate MetLife Real Estate’s Tokyo and Mexico City offices, the two most distant points of Merck’s bailiwick. It is an imposing stretch of turf to keep an eye on, but even after 30 years in the business, his vision is as clear as ever.

Taking space in a state-of-the-art sustainable property may be a small, if worthy, gesture in the great scheme of things. Yet Rose’s comment hints at his larger mission. At a time of economic uncertainty and continued mergers in the service sector, Rose is attempting to steal a march on the competition and make his company a serious contender in the crowded, hyper-competitive U.S. service field. In the pursuit of this mission, he is constantly on the move. On one recent summer day, he flew from Toronto to New York City for a mid-afternoon meeting, then boarded a flight for Chicago, where he was scheduled to attend a working dinner. Rose is hardly unfamiliar with life at 35,000 feet; since joining Avison Young in 2008, he has divided his time between Toronto and Chicago, which he has called home for a decade.

In its quest to muscle in on the U.S. market, Avison Young is going head-to-head with more established firms in a variety of specialties: leasing, investment sales, property and asset management, capital markets, and other advisory and consulting specialties. “He had a vision of where he was going to take that company,” said Philip Gillin, senior vice president & head of Canadian real estate for SunLife Financial Inc., a longtime Avison Young client. “I think he’s been very successful in doing that.”

On Rose’s watch, Avison Young has expanded from an exclusively Canadian firm with 11 offices and slightly fewer than 500 professionals to 32 offices in the United States and Canada and more than 950 people. Since establishing its first office in the United States three years ago, Avison has opened 15 offices in gateway and strong secondary markets, six of them in the first half of 2012 alone. Additional new locations are waiting in the wings. To expand his team, Rose often draws on the ties he established during a dozen years as an executive at Jones Lang LaSalle Inc. and three years as CEO of Grubb & Ellis Co.

Avison Young’s annual revenues have more than tripled to a total that Rose describes as “significantly in excess” of $100 million.

Rose expects revenues to grow 40 to 50 percent annually for the next few years. And its property management portfolio—while still modest compared to those of larger competitors—has surpassed 50 million square feet, more than triple what it was four years ago. (Click here for a video interview with Rose.)

In a sense, Avison Young is pursuing a throwback to the closely held partnership model that dominated U.S. service companies until about 20 years ago. Rose contends that the company’s approach to delivering services and to compensation sets it apart. “We are paid on a fee and commission basis, but our unique partnership culture allows for the compensation of principals from each discipline,” he said. “The glue to all this is equity. We all share in the ultimate profitability of the client through distributions and equity appreciation, and it is based on the client’s success. Clients know that the principals and shareholders are the ultimate (beneficiaries) of client revenue, and this creates a team approach.” Rather than dividing commissions 50-50 with the firm, for example, brokers can effectiively raise their share to 56 percent or more through distributions, Rose explained. By contrast, he argued, Avison Young’s main competition typically rewards only top managers or stockholders, who have little commitment to company strategy.

Avison Young’s entry into the United States may appear to be unusually rapid, but it is the reflection of a strategy dating back four years. In January 2008, Rose, who had recently wrapped up three years as CEO of Grubb & Ellis Co., was invited by the leadership of Avison Young to deliver the keynote address at its national meeting in Edmonton.

It was a familiar assignment; Avison Young was a Grubb & Ellis affiliate, and Rose had spoken annually at the meeting as CEO. Braving temperatures that plummeted well below zero, he raised a challenge to the assembled executives and professionals: “There’s a place for a global company. You could be one of those.” By functioning as three allied but structurally separate businesses, Rose argued, Avison Young was missing out on the advantages of scale it could reap as a single company, such as the ability to raise capital. And being privately held, he added, Avison Young could offer a more nimble platform than its giant, publicly traded competitors. “I was passionate about their prospects,” he explained. “The strategy speech was meant to be helpful and point out where the provincial companies could excel if they merged and grew the platform.”

Rose reminded his hosts that he was not auditioning for an executive role. He recalls offering the disclaimer, “I didn’t come here for a job, and I don’t want to cheapen this advice.” Nevertheless, the speech persuaded the company’s leadership to consider unifying Avison Young’s three regions. Rose agreed to lead the transition and to serve as CEO if a merger succeeded.

In doing so, however, Rose was taking on an elusive task: At least one previous attempt at a merger had fallen short. Avison Young’s oldest ancestor was Graeme Young & Associates, an Alberta-based service firm founded in 1978. The other predecessor, Avison & Associates, was founded in Ontario 11 years later. A British Columbia-based affiliate of Avison made its debut in 1994 and operated independently. Graeme Young and the two Avison branches joined forces in 1996 to create the forerunner of today’s firm. But despite the united banner, the legacy Graeme Young affiliate and the two Avison branches operated as allied but separate entities.

After months of intense discussions, Rose and the principals hammered out a framework for a merger in July 2008. As part of the process, the parties formed an internal board of directors that included Rose and other senior executives. The merger drew an overwhelmingly favorable response. “Probably 80 percent truly believed,” Rose recalled. He described the response of the remaining 20 percent as, “we don’t know what’s going on here, but we want to be on board.”

Making Inroads
By the fall of 2008, the company’s shareholders had approved the plan to merge the companies, which rebranded as Avison Young (Canada) Inc. and claimed the title of biggest independent real estate services firm in the country. Once the deal was a wrap, the company set out to boost its market share in its home country while simultaneously making its entrée into the United States. An early milestone was the recruitment of Earl Webb, Rose’s former colleague at Jones Lang LaSalle Inc., to serve as president of the company’s fledgling U.S. operations. Prior to joining Avison Young, Webb had served as CEO of Jones Lang LaSalle’s capital markets group for seven years, following a stint as CEO of the Americas from 1999 to 2002.

In 2009, Avison Young picked Chicago for its first U.S. office, opened in January. During the intervening three years, it has opened up shop in essential U.S. markets as well as in selected secondary locations. In 2012, it has stepped up the pace considerably, launching six new offices from coast to coast—more than in any previous full year. Included have been three primary markets: New York City, San Francisco and Bethesda, Md., Avison Young’s third office in metropolitan Washington, D.C. This year, the company has also planted its flag in Reno, Nev.; Charleston, S.C.; and Pittsburgh. (For a closer look at Avison Young’s U.S. expansion strategy, click here.)

In the course of its growth spurt, Avison Young has planted its flag both through buying established companies and starting new offices, but Rose says he prefers acquisitions whenever possible. He acknowledges that the strategy often has a wrinkle. “You get more bang for your buck, but not everyone will fit,” he explained. Avison Young is willing to acquire an entire company for one-third of its people. The other two-thirds may bring a tidy book of business, but cultural fit trumps the numbers. “If you’re not solid of heart along with your incredible mind, you don’t get to come here,” he stated.

Rose started taking on big responsibilities at an unusually early stage of his career. After earning an accounting degree from Queens College in New York City in 1985, he joined the venerable certified public accounting firm of Eisner & Lubin L.L.C., where he initially specialized in taxation. A turning point came two years later. Peter Zappulla, a former Eisner & Lubin partner, recruited Rose to join him at Pan American Properties, a REIT affiliated with the British Coal Corp. pension funds.

One of Rose’s first tasks as CFO was taking the REIT fully public. An initial offering had been planned for October 1987—the month of the notorious “Black Monday” stock market crash. Pan American abruptly switched gears. Rose and Jim Boisi, Pan American’s then chairman, proposed to dispose of the company’s holdings, which were valued at nearly $1 billion. Pan American’s CEO wanted to take on debt instead, but when British Coal’s board of directors agreed with Rose and Boisi, the CEO left, and Rose replaced him. He oversaw the sale of a retail portfolio to the investor Jerry O’Connor and the acquisition of an industrial portfolio by an affiliate of Trammell Crow Co. Both deals fetched upwards of $400 million.

In the course of liquidating Pan American’s assets, Rose moved to Washington, D.C., to take charge of one of the portfolio’s most challenging assets: the Watergate complex. By the early 1990s, the complex needed a major capital infusion. The properties—including three residential complexes, a pair of office buildings and the hotel—were linked by cross easements and a utility plant.

Rose started by selling the hotel for $48 million to a joint venture of Nikko Securities Co. International Inc., the Japanese investment management company, and an affiliate of Trusthouse Forte, the London-based hospitality firm. Pan American also sold the leasehold on 600 New Hampshire Ave., a 300,000-square-foot office building, to John Hancock Mutual Life Insurance Co. Rose also oversaw the renovation of 2600 Virginia Ave., a 200,000-square-foot office building, which was subsequently acquired by JBG Cos. and its Dutch partner, Buvermo Properties Inc. The JBG/Buvermo joint venture also acquired 60,000 square feet of retail complex and the parcels under two co-op buildings. Residents of a third co-op bought the land beneath their building.

That mission accomplished, in 1993 Rose started Metropolitan Realty Advisors, an investment management and brokerage firm. Two years later, Jones Lang Wootton recruited Rose to run the firm’s struggling Washington office. He moved up steadily through the ranks, taking a leadership role in the 1999 merger that created Jones Lang LaSalle Inc. The following year, Rose was named chief innovation officer, then appointed CFO for the Americas in 2002, adding the title of COO the next year.

In March 2005, Rose began his tenure as Grubb & Ellis Co.’s CEO. In the run-up to his arrival, the firm had endured a failed attempt at reinvention as a consultancy, delisting by NASDAQ and a wave of departures. Stepping into a role that had been vacant for two years, Rose steered the company toward an integrated services approach. The company’s stock value rose from about $4 to $14 per share.

By 2007, Grubb & Ellis was dicussing a merger with NNN Realty Advisors Inc.—against Rose’s better judgment. “I voted against the deal,” he said. “It was bread in the oven that was only half baked.” Grubb & Ellis was only 18 months into a five-year strategy—too soon for a merger, Rose believed. Moreover, he sensed that NNN Realty and Grubb & Ellis would be a poor fit. But the deal won the backing of Grubb & Ellis’ chairman, C. Michael Kojaian, who rallied the board behind him. Rose understood that his stance left him without a place in the combined firm, and he was gone by the time the merger closed in December 2007.

Five years later, the world has changed more than anyone involved in that ill-fated deal could have imagined. Last year, Grubb & Ellis vanished as an independent brand and became part of Newmark Grubb Knight Frank. Meanwhile, its erstwhile CEO has recruited dozens of former colleagues to his new home at Avison Young and is looking ahead to the next phase of his program: the world stage.

While continuing to expand Avison Young’s footprint in the United States and Canada, Rose is targeting 2013 to open the company’s first offices in Europe and Asia. Today’s economic uncertainty has the potential to forestall the best-laid plans of any real estate firm. But if Rose has anything to say about it, Avison Young will soon be giving its competitors a run for their money at home and abroad.

By Paul Rosta

The name has the ring of a white-shoe law firm: Newmark Grubb Knight Frank. More than just the latest iteration of an 83-year-old company, though, the new handle tells a dramatic story in only four words.

Over the past decade, the New York City-based company has become a national player through aggressive expansion and a series of watershed mergers. Those moves represent a throwing down of the gauntlet of sorts to its longtime competitors in the service sector, such as Jones Lang LaSalle Inc., Colliers International, Cushman & Wakefield Inc. and CB Richard Ellis Group Inc.

Teaming with BGC also gives the company the financial wherewithal to pursue additional acquisitions. The first of those closed in April, when Newmark Knight Frank wrapped up its acquisition of the troubled Grubb & Ellis Co. One of the first major service-sector consolidations to emerge since the Great Recession, the Newmark-Grubb & Ellis merger promises to have the impact of the past decade’s blockbusters, like Jones Lang LaSalle Inc.’s 2008 acquisition of The Staubach Co. and Trammell Crow Co.’s merger with CBRE Group Inc. in 2006. Acquiring Grubb & Ellis gives Newmark Knight Frank additional scale, doubling the number of offices to more than 100. It also adds about 100 million square feet to Newmark’s 200 million-square-foot corporate services portfolio.

In late May, BGC delivered an investor and analyst presentation projecting that second-quarter revenues from the real estate businesses would reach $110 million. Brokerage services are expected to yield about 65 percent of the total for the second quarter, with the remaining 35 percent from non-brokerage services like property management and facilities management. Combined with first-quarter revenues of $47.9 million, that would add up to about $158 million in revenues for the first half of 2012.

Broadly speaking, the new-look Newmark integrates business lines overseen by a trio of veterans with almost 75 years of tenure at the company among them, augmented by a 30-year veteran of the capital markets. Barry Gosin, who has served as CEO for 33 years, is responsible for day-to-day operations and oversees the leasing business. Newmark’s investment advisory service is under the supervision of company president James Kuhn, a 20-year company veteran. Heading global corporate services is Michael Ippolito, who started at Newmark as a tenant representation specialist in 1991. Rounding out the foursome is Michael Lehrman, head of BGC’s global real estate business and a former co-head of the real estate direct lending group at Credit Suisse.

Newmark Grubb Knight Frank’s current trajectory started about 2000, when the company successfully executed a program to expand beyond its stronghold in the New York City metropolitan region. By 2005, Newmark had established offices in Atlanta; Chicago; Dallas; Houston; Long Island, N.Y.; Los Angeles; Miami; Orange County, Calif.; San Diego; San Francisco; San Jose; and Washiington, D.C. In 2006, Newmark agreed to become the U.S. affiliate of the London-based services firm Knight Frank. That provided global reach and access to offices that now number about 340 in more than 40 countries.

Following that merger, Newmark Knight Frank further expanded its U.S. footprint. A 2009 alliance with Smith Mack made inroads into the Philadelphia metropolitan area, southern New Jersey and Delaware. In 2010, it became a force in Silicon Valley through a merger with Cornish & Carey Commercial.

The next watershed event unfolded last year with the October acquisition of Newmark Knight Frank’s U.S. business by BGC Partners Inc., the voice and electronic financial brokerage firm. BGC, which was spun off as a public company in 2004 from Cantor Fitzgerald L.P., views Newmark Grubb Knight Frank’s broad range of real estate services as a complement to its financial brokerage business and its proprietary technology platform. BGC, for its part, brings sophisticated technology tools that have applications for its real estate practices. It has invested $1.5 billion in its technology platform to date, and spends $120 million annually on developing software, noted Lehrman. “We grab the data, scrub it, analyze it,” he explained.

The Grubb & Ellis acquisition resolved a lengthy decline for the diversified service company, which had gone through multiple steps in an effort to survive in recent years. On Feb. 20, Grubb & Ellis filed for bankruptcy protection and simultaneously agreed to be acquired by BGC Partners. All told, BGC estimates that it will invest about $150 million in acquiring Newmark Knight Frank and Grubb & Ellis. Newmark’s leadership says that Grubb & Ellis’ protracted financial woes overshadowed the depth and breadth of its professionals’ talents. “Sometimes a few decisions by upper management may taint the other 95 percent of the company that does a great job at what they do,” observed Kuhn.

By the time Newmark arrived on the scene, Grubb’s brokers “were already at the end of their patience,” Gosin said. “We had to swoop in as quickly as possible to shore up the foundations and batten down the hatches.” In the three weeks after announcing the deal, company principals launched a whirlwind tour of Grubb & Ellis offices to meet the troops and discuss the merger. Newmark has inevitably encountered some bumps in the road during the process of integrating Grubb & Ellis’ professionals into a new platform. But Gosin reported that the leadership is pleased with retention levels. In June, for example, Cornish & Carey Commercial Newmark Knight Frank announced that it had added 28 former Grubb & Ellis brokers.

In addition to doubling its offices and increasing the size of its corporate services portfolio and increasing its corporate services portfolio, the legacy Grubb & Ellis team is enabling Newmark to tap into new opportunities. When Africa Israel USA Inc. recently decided to market a property in Los Angeles, Kuhn referred the investment management firm to Newmark’s brand-new L.A. team of Grubb & Ellis alumni. Grubb & Ellis also brings a deep bench in facilities management and project management to the mix that will expand its corporate services capabilities.

Another key addition is the Landauer Group, Grubb & Ellis’ legacy appraisal business. Last month, Robert Van Ancken, longtime head of the appraisal unit, was formally tapped to continue in that role. Summing up Newmark Grubb Knight Frank’s approach to integrating its new business lines, Kuhn commented, “I think you have to take your ego out of the equation and you have to embrace the parts of the company that may do things better than you do.”

Breaking Down Silos

In the two-and-a-half years before the Grubb & Ellis merger, Newmark Knight Frank realigned its own corporate services business. Business lines that had previously existed in multiple silos—strategic consulting, project management, facilities and property management—came together in a single multi-disciplinary group. “In a lot of companies, corporate services is a service line,” said Ippolito. “What we’ve done is to say, ‘This really is our platform.’”

The division overseen by Ippolito combines a full spectrum of transaction and consulting services in order to advise clients on meeting corporate needs. These days, Ippolito argues, corporate services means much more than merely helping clients “slash and burn; cut, cut and cut.” Instead, real estate is only part of the larger strategic picture. Newmark’s team starts by looking broadly at the client’s business operations to determine the strategies and best practices that will make the business operate most efficiently.

Recently, the company applied that approach to advising Elekta, which provides technology for cancer treatment, on its decision to locate its new headquarters. A team led by executive managing director Jeff Estep looked at the company’s long-term needs and recommended that Elekta move its North American headquarters to Atlanta. This year, Elekta is relocating into 70,000 square feet at The Terraces, a 1 million-square-foot complex in Atlanta’s Central Perimeter district.

Affiliation with BGC also adds to Newmark Grubb Knight Frank’s capacities, its principals contend. Lehrman said that the integrated specialties offer new potential for problem-solving. “If a tenant needs space, I want to understand the business,” he explained. Lehrman cited a hypothetical situation where a tenant has five years left on an above-market lease in a building that is in special servicing. The tenant’s first instinct might be to look for a lower-cost situation.

But a leasing broker who is also versed in the capital markets could recommend that the tenant and landlord agree to a new 10-year lease that reflects current market pricing, which is considerably lower than that when the lease was signed in 2007. Such a deal would benefit the tenant by lowering overhead costs. For the landlord, the lease would lock in a revenue stream for 10 years. That income, in turn, would contribute to refinancing the building’s debt—a prospect that the special servicer would view favorably.

Given Newmark’s relationship with BGC, expanding its real estate capital markets business is a top priority. BGC’s new real estate finance group will work closely with other business lines. Lehrman hired two Cantor Fitzgerald veterans in early June to take senior positions with the new group: Garett Stoffels signed on as senior managing director & head of equity capital markets, while Jonathan Falik was appointed senior managing director & head of hospitality capital markets.

Effectively devising client strategies calls for analyzing reports and figures from multiple databases that are unable to communicate with one another, Ippolito explained. BGC’s technology pulls information out of their respective silos and puts it in a format that allows consultants and clients to assess it effectively.
In BGC, then, Newmark Grubb Knight Frank clearly has a partner ready to invest in growth on multiple fronts. The company’s leadership demurs from discussing specific business lines and geographic areas of interest, but Gosin offers a hint of things to come.

“We’re not sitting on our laurels,” he said “We are going to continue to acquire.”

As a real estate expert and Harvard Business School management professor, Arthur Segel is in demand around the world as a guest lecturer. When he packed his bags last month to teach a land-valuation class inIndia, he brought along a favorite case that has become a staple of the real estate survey course he has taught at Harvard for many years. To develop the case, he enlisted a Harvard Business School graduate he met 25 years ago, while still an executive for Boston Properties Inc. Segel describes his co-author as thoughtful, intellectually curious, an excellent listener and genuinely humble—an uncommon and appealing combination among Harvard’s high-powered MBA candidates.

Although the case study is familiar to legions of Harvard Business School alumni, Segel’s collaborator has other claims to fame. As president & CEO of CBL & Associates Properties Inc., Stephen Lebovitz leads a retail REIT that owns an 86 million-square-foot, 26-state portfolio of 159 properties, including 85 regional malls and open-air centers. Since succeeding the firm’s founder—his father, Charles Lebovitz, who remains active as executive chairman—as CEO three years ago, Lebovitz has shepherded the Chattanooga, Tenn.-based firm through the aftermath of a difficult recession.

On his watch, the company has maintained solid leasing, started to reduce leverage and selectively pursued new developments. He has also built on the firm’s longtime strategy of staking out dominant positions in markets that are usually outside the nation’s biggest metropolitan areas. In many cases, its 85 regional malls and open-air centers are the only game in town.

Lebovitz’s associates say that he combines the best qualities of an earlier era with an up-to-the-minute corporate and capital markets knowhow. Like his father, they say, Lebovitz is a tough-minded but trustworthy dealmaker who considers a handshake agreement to be as binding as a written contract. “In an industry filled with a lot of personalities, I don’t think there’s anybody that doesn’t like Charles and Stephen,” said Michael Graziano, managing director & co-head of real estate investment banking at Goldman Sachs Group Inc., which has arranged financing for CBL and advises the firm on a continuing basis. Graziano calls Stephen Lebovitz “a trustworthy, ethical guy … an individual that everybody likes to work with.” And the younger Lebovitz brings a Wall Street background and elite business school training to the complex new realities of public real estate companies.

Those bona fi des have enabled Lebovitz to navigate a slow, uneven economic recovery. Last October, CBL sealed one of the year’s blockbuster joint ventures: a $1.1 billion alliance with TIAA-CREF. By transferring property-related debt to the institutional giant and applying cash proceeds from the transaction to reduce leverage by another $219 million, CBL trimmed its outstanding debt by $486 million. That accomplishment was also a milestone in an effort that has reduced the company’s debt by $1.2 billion since 2008.

The deal recapitalized four of CBL’s trophy mall properties: WestCountyCenter, a 1.3 million-square-foot super-regional mall in Des Peres,Mo., aSt. Louissuburb; Oak Park Mall, a 1.5 million-square-foot center inOverland Park,Kan.; and CoolSprings Galleria, a 1 million-square- foot super-regional mall in Franklin, Tenn., a suburb ofNashville. During last year’s second quarter, CBL extended and modified three secured-credit facilities valued at $1.2 billion. By basing interest on LIBOR plus 200 to 300 basis points—the rate will vary with CBL’s corporate leverage ratio—the new terms will trim borrowing costs by 200 basis points on average. Last year, same-store net operating income edged up 1.4 percent overall as portfolio occupancy reached 93.6 percent, a year-over-year uptick of 120 basis points. Funds from operations rose 14 cents per diluted share, to $2.22.

Reflecting the retail sector’s still-modest recovery, Lebovitz is also approving a select group of development projects. As consumers continue their quest for value, CBL, like other retail developers, is finding fertile ground in outlet centers. In January, CBL and Horizon Group Properties Inc. announced a 75-25 joint venture to develop a 370,000-square-foot outlet center, The Outlet Shoppes atAtlanta. Located inWoodstock, a northwesternAtlantasuburb, the project is scheduled for a summer 2013 opening.

That project follows last summer’s opening of the 350,000-square-foot Outlet Shoppes atOklahoma City. A joint venture of CBL and Horizon, the project is theSoonerState’s first such center, and—characteristically—the only property of its type within a 145-mile-wide radius. In the community-center category, the 127,000-square-foot Waynesville Commons, inWaynesville,N.C., is scheduled to come online this fall.

Even as CBL forges ahead with the first wave of post-recession development, it continues to focus on existing properties. Lebovitz and the company’s leadership team have earned a reputation for first-rate leasing, property management, tenant service and marketing. Last year, the company ranked 20th on the CPE-MHN index of best-run real estate companies and 18th among property managers. “They watch the details— they sweat the details,” said David Zoba, senior vice president & head of global real estate for Gap Inc., which leases about 285,000 square feet in CBL properties nationwide. “A lot of people that have properties in secondary markets don’t run them as well.” Keeping assets like CBL’s profitable demands especially sharp management, Zoba explained, because “in secondary markets, you’re not going to get the highest rents in the industry.”

As part of its stewardship, CBL selects a handful of regional malls every year for makeovers. Though many of the centers are already dominant in their markets, the strategy recognizes a fundamental truth of retail real estate: “In order to keep customers coming back, the properties have to be fresh and up to date,” Lebovitz said. This year’s list includes regional malls inTexas,MississippiandNorth Carolina. The 1 million-square-foot Cross Creek Mall inFayetteville,N.C., will get new entrances, interior décor and graphics, amenities and landscaping. Besides attending to curb appeal, CBL constantly reviews the tenant mix. “We’re very proactive in terms of moving stores around,” Lebovitz asserted. “We’re not waiting on the lease to expire to make those kinds of changes.”

Financial Report

Recent analyst reports regarding CBL offer a spectrum of impressions. In a February update, Green Street Advisors analyst Cedrik Lachance calls CBL “a good operator,” citing a 120-basis-point jump in occupancy last year and rent appreciation on new leases. For the past two years, the company has been a net asset seller and has allocated proceeds to retiring debt. And CBL’s 7.0 ratio of debt to EBITDA “is (a little lower than) the mall sector average,” Lachance wrote.

That said,Green Streetalso offers a few cautionary notes. CBL’s leverage, at 62 percent, is 10 percent higher than the sector for the mall sector as a whole, Lachance argued. In 2012 and 2013, almost 30 percent of CBL’s total pro rata debt obligations—$1.5 billion—will come due. Lachance calls CBL’s expectation that it can meet those needs through non-core asset sales, CMBS, bank lending and existing credit lines “a fair assumption”; nevertheless, he warns against expecting that both a vibrant transaction market and adequate CMBS financing will always be available at the same time.

A report by KeyBanc Capital Markets’ Todd Thomas offers a similarly nuanced view. The company’s conservative guidance and “a steady capital markets and leasing environment could lead to upside throughout the year.” Thomas also argued that CBL’s $1.1 billion revolving credit line is enough to meet $800 million in debt obligations this year, even if the real estate capital markets go through a downturn. The mixed picture in the retail market presents leasing challenges; although leasing velocity remains steady, about 45 percent of new leases during the fourth quarter of 2011 derived from short-term deals. A case in point—a 25-location deal with struggling Pacific Sunwear—speaks to the continuing softness in some quarters.

When Lebovitz stepped into the CEO role in 2010, he immediately had to contend with the fallout of the recession. Net operating income slipped 1.3 percent year over year in both 2009 and 2010—the first such declines since the company’s IPO in 1993. “What we tried to do was anticipate what was coming and make the difficult decisions early,” Lebovitz recalled. “Waiting and putting off tough decisions is not something that helps anyone.” Like most REITs, CBL had to reduce expenses by trimming staff, curtailing its development pipeline and postponing property renovations.

The company also moved swiftly to shore up its balance sheet, reaching out early to its lenders and restructuring lines of credit. CBL pulled off a feat that was unusual among REITs during the capital markets crisis. By working with its financiers and in some cases changing the mix of lenders, it extended its credit facilities without having to reduce their capacity. That same year, CBL also extended or refinanced nine mortgages and construction loans valued at $360 million. All told, the efforts gave it $1.6 billion in financial flexibility.

While some REITs felt compelled to shut down their pipelines completely in 2009 and 2010, “we divided projects into phases,” he explained. “That allowed us to move forward with what we had leased.” In October 2009, CBL and its partner, Forum Development Group L.L.C., opened The Promenade, a power center in D’Iberville,Miss., that was the biggest new retail project on the Gulf Coast of Mississippi since Hurricane Katrina. Although the center was planned for 700,000 square feet at full build-out, CBL opened only the 480,000-square-foot first phase, which was 96 percent pre-leased to a roster of tenants led by anchors Target, Best Buy, PetSmart, Dick’s Sporting Goods, Marshall’s and ULTA.

Other CBL openings during the recession include The Forum atGrandview, a community center inMadison,Miss., developed jointly with The MattiaceCo.The project’s 110,000-square-foot first phase opened fully leased in November 2010. And in March 2010, CBL and The Benchmark Group unveiled Phase I of The Pavilion atPort Orange, a 415,000-square-foot center in theCentral Floridacity ofPort Orange. With a roster of 30-plus tenants, the center opened 92 percent leased.

Fast Learner

Lebovitz gravitated toward a real estate career at an early age. Dinnertable discussions exposed him to the business, and his summer jobs were often in construction or real estate. After earning a degree in political science and human biology from Stanford in 1984, Lebovitz spent two years as a financial analyst in the real estate department of Goldman, Sachs & Co. That experience, he said, laid a vital foundation. “Goldman gave me a huge amount of financial experience and understanding— how to underwrite a piece of real estate, how to package it for sale,” he explained.

Following graduation fromHarvardBusinessSchoolin 1988, Lebovitz joined CBL & Associates Inc., the forerunner of today’s firm. At the time, CBL was eyeing growth opportunities with Wal-Mart and Home Depot, two regular clients in the company’s Southeast properties. A further priority was building ties to New England-based retailers like BJ’s Wholesale Club, TJ Maxx and Marshalls. Already planted in theBostonarea, Lebovitz got the assignment of opening an office there to serve as the base camp for the company’s Northeast expansion. The first project was a 120,000-square-foot community center inPortland,Me.But financing proved to be a tall order. In the depths of the savings-and-loan crisis, it was impossible to secure construction loans from potential lenders inNew England. Lebovitz’s search led him back toChattanooga, where a longtime CBL lender agreed to finance the project.

The experience was an early lesson in the value of building relationships. Lebovitz spent 1988 to 1999 rising steadily through the ranks. While still running the company’s Northeast activities in 1993, he put his capital markets expertise to work when CBL made its initial public offering. He was promoted to senior vice president of community-center development in 1996, moved up to executive vice president for development in 1997, and began overseeing acquisitions as well the next year. The appointment as company president came in 1999.

Not long afterward, CBL began work on a pivotal deal: the $1.2 billion purchase of 21 regional malls and two other centers from The Richard E. Jacobs Group. Completed in 2001, the acquisition put CBL on the course to its current footprint, increasing the number of regional malls from 30 to 51 and its portfolio to 162 properties.

CBL’s next blockbuster acquisition could well be some years away, as the company sticks to debt reduction, selective development and improving productivity at existing centers. For now, this approach is producing gains, but Lebovitz would be the first to tell you that there are no guarantees for even the most powerful, best-run firms. Still, Moses Lebovitz would surely be pleased to know that a third generation of able executives is dedicated to keeping the family business in such good repair.