Upside: Chauncey Mayfield Takes a Hands-On Approach to Adding Value
- Apr 04, 2011
“I just get completely reinvigorated when I get out at a construction site,” says Chauncey Mayfield, CEO of MayfieldGentry Realty Advisors L.L.C.
Yet the leader of the Detroit-based investment management firm recalls that it was not always so. As a high school student growing up in Savannah, Ga., Mayfield had a less-than-agreeable first encounter with the real estate business. He got his introduction courtesy of his late father, B. Clarence Mayfield, an attorney who invested in real estate as a sideline. The senior Mayfield saw to it that his son had a summer job working on his projects. Not surprisingly, young Chauncey took a hearty dislike to toiling all day in the humid, 100-degree Georgia heat. One day, in an effort to help the young man see the value in his strenuous labors, a contractor took him aside. “Your dad wants you to have a work ethic,” the contractor said. Rather than resenting the grueling work, the man advised him, “you should embrace it.”
Mayfield got the message, seizing the opportunity to learn about construction from the ground up. In time, he also came to embrace the real estate business itself, building a varied career highlighted by service as a residential developer, big-city development official and institutional investment advisor.
Today, funds controlled by the company he founded in 2003 own $1 billion worth of assets that encompass more than 4.5 million square feet of office, retail, industrial and multi-family in seven states and Washington, D.C. The company’s Portfolio Property Management L.L.C. unit serves as on-site manager for the properties. In both the private and public sectors, Mayfield has established a record of finding potential in situations that are usually overlooked by others.
MayfieldGentry has earned a reputation as a canny investment manager, yet the lessons learned decades ago on those Savannah construction sites ingrained the value of a hands-on approach. It is a view that Mayfield has instilled throughout the company: “Our strength, our big success factor, is that we consider ourselves to be real-estate operators, not allocators,” he explained. The mindset has turned out to be a major factor in MayfieldGentry’s ability to ride out the recession. “The fact that we were so (clearly tuned in) to operations allowed us to respond very quickly.”
Another factor in surviving the recession, Mayfield believes, has been the company’s relatively low leverage. Since starting the company seven years ago, he has taken a cautious tack, preferring loan-to-value ratios that top out at about 65 percent. That practice stems in large part from lessons of the savings-and-loan crisis a generation ago, and it paid off handsomely when the capital markets ran dry in 2008 and 2009.
During the past couple of years, a principal vehicle for Mayfield’s value-added strategy has been MayfieldGentry Genesis Value Fund L.P., which raised more than $100 million from pension funds and other institutional investors from 2006 through 2008. MGRA Value’s stated mission was to identify properties valued in the $15 million to $20 million range, primarily in East Coast markets that offer a combination of high demand and constrained supply, such as Washington, D.C., and North Carolina. A common thread is finding properties that can benefit from MayfieldGentry’s ability to create upside through improved management and repositioning.
The fund raised capital mostly from institutional investors, such as the Los Angeles City Employees’ Retirement System, which put in $10 million three years ago. Major acquisitions are Crossroads Corporate Park in Cary, N.C., a 175,000-square-foot property bought in 2008, and Glenwood Plaza, a 131,572-square-foot building in Raleigh, a 2007 purchase. In Charlotte, MayfieldGentry acquired adjacent office properties at 200 and 201 S. Tryon St. that encompass about 400,000 square feet between them.
In 2008, MayfieldGentry established a beachhead in Washington, D.C., when it bought an 81,000-square-foot office building at 1522 K St., N.W. That acquisition also embodies the company’s value-added approach. The 47-year-old Class B property is undergoing renovation in preparation for repositioning. Scheduled for completion later this year, the project will enable 1522 K St. to be marketed as a dozen office condos, including 10 units of 8,500 square feet each and two at 2,500 square feet.
Mayfield’s latest project is reaching the formidable goal of raising a $400 million fund by the end of 2011. Formally known as MG Genesis Fund II, it will target Class A-minus and B office assets with a strong potential upside. The fund is targeting a broader pool of investors than the previous one: family trusts, high-income individuals and sovereign wealth funds, for example. And Mayfield is open to leveraging the fund’s equity as high as 60 percent, which would potentially provide $1 billion in capital.
By next year, Mayfield plans to start making investments in the markets he has short-listed. Boston, he noted, is a compact, vibrant market that offers 600,000 people and significant barriers to entry. Perhaps not coincidentally, New England’s biggest city is also familiar turf for Mayfield, who spent about 15 years there as a graduate student, real estate executive and public official. Jacksonville, Fla., offers a burgeoning opportunity stemming in part from its potential as a port. Mayfield identified the potential of Charlotte, N.C., several years before other players, and that market will draw due consideration. He would also like to expand the company’s holdings in Washington, which sported 3.8 million square feet of positive absorption last year.
As an investment manager, Mayfield has the ear of some of the nation’s most powerful bankers, who cite the company’s reliable performance and Mayfield’s practice of straight talk. “He is very good at keeping his bankers up to speed,” noted Hugh Allen, division manager for the Mid-Atlantic region of Wells Fargo’s middle-market real estate group. “Bankers, by nature, just don’t like surprises.” Some clients hide issues from their lenders, betting that they will somehow fix any problems before the banker finds out. “As soon as Chauncey knows about something that’s going to be an issue for the bank, he lets us know about it,” Allen added.
MayfieldGentry’s ties to Wells Fargo extend back about a half-dozen years, when a mutual friend introduced Mayfield and Allen. Mayfield was seeking financing for a multi-family portfolio transaction involving about a half-dozen stabilized, performing assets and valued in the $75 million range. Allen, then with Wachovia, learned that another major lender appeared to be giving Mayfield the runaround. Allen liked what he was hearing about MayfieldGentry’s value-added strategy and the transaction itself, and so, he recalled, “we jumped all over it.” Within 60 days, Allen and his team had arranged financing and wrapped up the deal. The relationship has continued through Wachovia’s acquisition by Wells Fargo in 2008 and has included varying transactions totaling several hundred million dollars.
Mayfield likes to describe the company as nimble and hands-on enough to compete with much larger companies, despite its small size. A case in point is the 2007 selection of PPM to manage One Detroit Center, the company’s single-largest property management assignment to date. At 613 feet tall, the 1.6 million-square-foot Downtown tower is Michigan’s tallest office building and second tallest of any property type. In 2008 and 2009, PPM led a $700,000 upgrade of systems and controls. The measures clipped the building’s outlays for power and water by 24 percent, and last year One Detroit received an EnergyStar designation from the U.S. Environmental Protection Agency. The local chapter of the Building Owners and Managers Association has named One Detroit the office building of the year in its size category for the past three years running.
Even those accolades have not spared the trophy tower from the impact of the tempestuous economy or decisions in corporate boardrooms, however. As part of a national strategy that included moving its headquarters from Detroit to Dallas, the building’s anchor tenant, Comerica Inc., announced in December 2009 that it would depart its 245,000-square-foot space when its lease expires in 2012. The financial services company will move about 700 employees from the building to another Detroit location that currently houses 500 employees. Comerica’s impending departure clearly makes Detroit’s already tough office market an even steeper hill to climb, yet MayfieldGentry is making up ground. In a significant win for the property, last fall the U.S. General Services Administration took 81,000 square feet at the property for the Internal Revenue Service. The IRS will transfer functions that are now housed at the Patrick V. McNamara Federal Building on Michigan Avenue.
Although investment managers regularly hire third-party consultants to handle property management, taking a hands-on approach is a Mayfield mantra. The company got into the property management business in earnest in 2005, when Mayfield determined that third-party services typically came up short in several key areas, including construction services, engineering maintenance and financial management. As he sees it, an investment manager is frequently in the position of making a $100 million investment in a property, only to turn over its operation to a third-party manager whose expertise may or may not be the right fit. Self-management also offers a way to guarantee consistent performance. Mayfield compares the idea to travelers’ expectations of first-rate service when they visit a hotel flagged with a global brand, whether that property is located in Washington, D.C., or in Budapest.
To promote high standards, PPM gives all new recruits six weeks of intensive training in topics ranging from customer service and finance to energy management. “We want to make sure our managers are being responsive to customer needs,” Mayfield explained. Among other things, new property managers are informed that senior managers are liable to conduct surprise visits at any time. But Mayfield pointed out that the purpose of the unannounced spot checks is not to play “Gotcha!” but to promote high standards. “We want to make sure that we keep our tenants happy,” he said.
Mayfield takes the same hands-on approach to building his staff, personally interviewing every candidate, from senior executive to parkinglot attendant. That practice is a reminder that everyone on the payroll is responsible for representing the company. A parking lot attendant, he noted, “can lose business for you as quickly as an executive.”
Mayfield also makes it plain that everyone is expected to check their ego at the door upon arrival, a house rule that applies to the CEO himself. Mayfield regularly lets others take the lead on a transaction while providing support and advice in a secondary role. “We pack all the resumes until someone asks us to roll them out and be impressive,” he said. That said, Mayfield has earned a reputation as a top spotter of talent. “He’s done a great job and surrounded himself with excellent people,” reported Randy Book, a senior vice president in the tenant advisory group for Grubb & Ellis Co. and a member of the leasing team for One Detroit Center.
Recently, Mayfield has brought in several experienced people with eclectic backgrounds to serve in senior positions. In January, he disclosed that he had recruited Carmen Ortiz-McGhee as the company’s vice president of investor relations and business development. Previously, Ortiz-McGhee served as president of the Marathon Club, a national business organization that promotes networking and career development for minority entrepreneurs and equity market executives. That move followed Mayfield’s hiring last summer of veteran attorney A. Kay Stanfield Spinks as director of portfolio development, a newly created position. A specialist in real estate law and arbitration, Stanfield Spinks brought more than 30 years’ experience in public and private legal positions to her new role. She had previously been a name partner in several law firms, served as a special assistant attorney general for Michigan and spent 23 years as a part-time magistrate for Oakland County, where she was the first female African-American jurist.
Mayfield maintains high expectations for his team, and business acquaintances are impressed by his drive and determination. “When he wants something done, he gets it done,” Book noted. Yet even as he sets the example at the company with his own work ethic, Mayfield encourages his team to keep their jobs in perspective. “I want to make sure that my employees have their priorities straight,” he explained. A sick child or a big soccer game sometimes has to come first, and when that happens, Mayfield said, “we’ll work it out.”
That concern is also expressed through mentoring of young people who have set their sights on commercial real estate careers. Mayfield strives to be accessible in other ways, too, speaking frequently on panel discussions around the country as part of a heavy travel schedule. Allen said that Mayfield spends so much time in Charlotte that some people in the market are convinced he lives there.
Involvement in industry associations provides another means to build ties for the emerging organization: In joining the National Association of Real Estate Investment Managers in the past year, noted organization president Stephen Renna, “Chauncey was very proactive in seeking me out.” Other industry commitments include African American Real Estate Professionals, a 16-year-old organization founded in Washington, D.C., and also located in six other East Coast cities.
Mayfield’s path to his entrepreneurial career began several years after he graduated from Tuskegee University in 1978 with honors in political science. While working as a production supervisor for Polaroid Corp., he took real estate courses and sold single-family homes in his spare time, although he quickly realized that a career as a residential real estate agent was not for him. To continue his formal business education, Mayfield applied to graduate programs and was accepted by Harvard Business School, enrolling there in the fall of 1982. The following summer, he got his first formal taste of commercial real estate finance, working as an analyst in Aetna’s real estate investment management business. “I started to see how major real estate transactions were put together,” he recalled.
In 1984, Mayfield received his M.B.A. from Harvard with a special focus on real estate and finance. He joined Davenport Associates L.L.C., a Boston-based developer specializing in high-end single-family homes. As the company’s director of real estate development, he worked on about $100 million worth of projects. But in the late 1990s, as the national and New England economies both tanked, the bottom dropped out of the single-family home market. That experience led to several years of soul-searching that strongly influenced Mayfield’s future approach to real estate finance and entrepreneurial efforts.
Following his stint at Davenport, Mayfield took his knowledge of real estate finance to the public sector, serving as director of the Boston Industrial Development Financing Authority. Before he went to work there, the agency had managed to issue only $13 million worth of bonds; on Mayfield’s watch, the total grew to $1 billion.
Next he served as the city’s deputy director of economic development, overseeing the development and management of three industrial parks, which encompassed 200 acres and 3 million square feet of industrial and office space valued at $300 million. At the outset of his tenure, occupancy in some properties hovered at 10 to 15 percent. Mayfield launched a marketing program that included tax incentives and reduced rent for those hiring a certain amount of Boston residents. In some cases, the measures raised occupancy to 90 percent in buildings that had formerly been nearly vacant.
Mayfield says his time in civil service provided him with valuable insights. He contends that government should be regarded as more than a mere hindrance. The key, he explained, is grasping the nuances of an agency’s inner workings as well as its agenda of attracting new business and expanding the tax base.
“It is important to make government your partner,” he explained. “There are people in government who really want to get things done.”
MayfieldGentry’s first project in Washington, D.C., the upgrade of its 81,000-square-foot office building at 1522 K St., N.W., demonstrates the potential for a government role in spurring investment and getting projects off the ground. The linchpin of the renovation is funding provided by Recovery Zone Facility Bonds. Authorized by Congress in 2009 as part of the American Recovery and Reinvestment Act, the program provided about $15 billion worth of low-cost financing nationwide for projects located in communities deemed to be experiencing economic distress. In 1997, Mayfield returned to the private sector as president & CEO of ShoreBank Development, a Detroit-based affiliate of ShoreBank Corp. At the time, ShoreBank was one of the few lenders willing to finance affordable housing. Under Mayfield’s leadership, the company developed nearly 700 residential units valued at $69 million. On the commercial side, the company delivered a 44 percent return on investment.
By 2000, Mayfield had finally reconciled himself with his frustrating experience in the late 1980s. “It took me 10 years to come to the conclusion that as an entrepreneur, there wasn’t anything I had done wrong,” he recalled. He left ShoreBank and launched an investment consulting practice that eventually grew into MayfieldGentry Realty Advisors. He embraced as a guiding principle the importance of taking a hands-on approach. “We concluded that as institutional investors we were safer by doing direct investment … than investing with a third party,” he explained. He also resolved to be financially conservative, running a lean operation and using leverage carefully.
During the past several years, Mayfield has set his sights beyond U.S. borders. In 2008, he began the long-term process of establishing relationships in China, an effort aimed at eventually tapping into the country’s abundant capital. The initiative began when he and several other MayfieldGentry executives joined a delegation of visiting U.S. executives organized by the Committee of 100, a national association of Chinese- American leaders that promotes cultural and business ties between the two countries.
For an up-and-coming company to seek financing in China is “a bold step,” said Renna. U.S.-based firms courting capital there tend to be large global players, and the intricacies of conducting business leave little room for error. Yet Chauncey Mayfield has made a career out of creating opportunity in unexpected places. Whatever destinations turn up on his itinerary, odds are that he will find a way to go the distance.