Mum’s the word on corporate deals until they go public
- December 1, 2007
by Paula C. Squires and Donna C. Gregory
When Liz Povar got the call last February, the real estate executive on the other end of the line had intriguing news. “He said they were scouting a U.S. location for a brand-name company, and the search had been narrowed to eight locations.” Virginia was in the running, with the company eyeballing two sites in Fairfax and Loudoun counties.
“They wouldn’t tell us the industry’s name, the sector, the size of the company, nothing,” recalls Povar, director of business development for the Virginia Economic Development Partnership (VEDP). The executive also warned of the consequence of loose lips. “They made it clear upfront that any leaks or discussions with parties that they had not authorized would eliminate Virginia from consideration.”
Welcome to the secret side of real estate. Frequently corporate deals have the cloak-and-dagger drama of a James Bond movie. Company representatives speak in code, go by first names only and register for hotel rooms under fictitious names. What’s more, they keep their client under wraps for months.
Povar didn’t know the name of the mystery client for four months. Her main contact was The Staubach Co., a Texas-based real estate firm with offices in metropolitan Washington. (It was founded by Roger Staubach, the famous former quarterback of the NFL Dallas Cowboys.) She learned only one month before a public announcement that Virginia had landed the deal. That came in September when the U.S. subsidiary of the world’s fourth largest automaker, Volkswagen of America Inc., said it would invest more than $100 million and create 400 new jobs in relocating its U.S. corporate headquarters from Auburn Hills, Mich., to Fairfax County.
Company CEO Stefan Jacoby recognized Northern Virginia’s schools, work force and proximity to an international airport as attractive attributes. Yet Povar noted another factor in Virginia’s favor: “The per-capita concentration of people in the eight markets they looked at who drive Audis and Volkswagens was the highest in the Washington metropolitan area.” Throw in $6 million in possible incentive money from the state, and the deal was struck.
Strategically, secrecy is a shield that enables corporate clients to weigh their options — without public pressure. Corporate relocations from one state to another can be particularly sensitive. “One of the reasons the companies are hush-hush is they want to do the right thing for the communities they are leaving, and then, of course, they have employees they want to consider,” says Gerald Gordon, president and CEO of the Fairfax County Economic Development Authority.
In addition, secrecy guards against the competition getting wind of a new development. “If word gets out, land prices may go up, labor prices may go up,” says Povar.
Consequently, many deals play out like some covert game of cat-and-mouse. Two weeks after getting the initial call, Povar and economic development officials from Fairfax and Loudoun were summoned to Staubach’s Tysons Corner office. They fielded questions about real estate, transportation, housing prices and Northern Virginia’s work force. They were told that the possible deal was a headquarters, but that was it.
As a condition of employment, VEDP employees must sign an agreement saying they will not disclose confidential and/or proprietary information while assisting companies considering an expansion or location in Virginia. In this case, state employees from other agencies consulted during the data-gathering process were asked to sign a confidentiality form as well. “That’s how extraordinarily cautious they were being,” says Povar.
Parts of the Volkswagen deal are secret even now. “All of this is covered by confidentiality agreements, even after the fact,” says Gordon. Like Povar, he worked with Volkswagen for four months before he knew the company’s name. “We worked with intermediaries, and we also worked with some of their internal representatives by first name only,” says Gordon.
Veatch Commercial Real Estate in Reston was among several companies that helped identify potential property for the deal. The company showed a sublease listing in Herndon to representatives from Staubach. “They weren’t willing to give up anything, and that is unusual,” recalls Casey Veatch, the company’s principal.
In addition, the representatives were willing to have Staubach negotiate the initial lease, with a one-time right to assign the lease to the company later, adds Veatch — a fairly standard practice in top-secret deals.
Staubach officials declined to be interviewed about the company’s role as the central representative for the automotive company. Volkswagen, however, provided a statement that hints at the sensitive political aspects of relocation. “Any time a company decides to move its corporate headquarters, it has a great impact on our employees and on our business. Many things must be taken into consideration.”
Even with intense secrecy, not all corporate deals pan out. In the early 1990s, Warren Amason Jr., a senior vice president in the Vienna real estate office of Grubb & Ellis, worked with Walt Disney Co. when it was looking to build a $650 million theme park in Prince William County. It started with a phone call from an attorney in New York City. “We asked all kinds of questions and got no answers at all,” recalls Amason. “We worked with these guys for years. We really didn’t know it was Disney until a month before everyone else knew it was Disney.”
Disney was so conscientious about protecting its identity that representatives camouflaged the origins of their flights. “The guy that we interfaced with was coming up from Orlando, but he said he was coming from Phoenix,” says Amason. As part of the charade, Disney’s representative would time his arrival at the airport to correspond with incoming flights from Phoenix.
After years of secrecy, Disney finally revealed its identity in typical fairy-tale fashion. At a dinner for Disney and Grubb & Ellis executives, some real estate representatives here finally learned of the company’s identity when Disney officials opened a briefcase filled with play money sporting Mickey Mouse ears. The dinner was held the night before Disney publicly announced its plans. However, its dream of a new theme park fizzled. The company pulled the plug after an environmental group filed suit in court to stop the park, amid concerns over traffic and the historic nature of the land, near the site of the Civil War Battle of Manassas.
Amason also helped bring a Rolls-Royce division to Reston Town Center from Connecticut in the early 1990s. The division produces aircraft engines, not cars. On this deal, Amason knew the identity of the company but was pledged to secrecy. “You adhere to the old adage that the best way to keep a secret is to just not tell anyone,” he says.
Rolls-Royce was assigned “Pegasus” as a code name. “Nothing referred to Rolls-Royce,” recalls Amason. But one unexpected slip-up nearly blew the cover. Amason received a call from a developer one day, saying he wanted in on the Rolls-Royce deal. Amason replied that he didn’t know what the developer was talking about.
Later, he learned that two Rolls-Royce representatives had lunched at a deli in one of the developer’s buildings. The deli manager overheard them talking about relocating their company to Reston. Seeing a Rolls-Royce pin on one of the men’s lapels, the manager put two and two together and told the developer that he believed the company was looking to move to Reston.
Those are the kinds of blunders companies try to avoid. Mark Larsen, president of Larsen Commercial Real Estate Services in Reston, says it’s imperative for brokers to honor secrecy. “All of your paperwork, all of your e-mails, all of the files you create even on your own servers has that
Companies also take care with telephone communications. Often they will use an unidentifiable cell phone or dial a special code to block the caller ID function. “The call would never originate from [the company], and you’d never even have a dial-back number,” says Larsen. “When they come to town, they would frequently use a fictitious name at the hotel or, we as the brokerage firm, would book rooms for them.”
Real estate brokerages often advise company representatives to refrain from talking about what town they’re from, where they grew up or any personal details, for fear others will use the information to determine the company’s identity.
These ruses, though, don’t stop real estate brokers from trying to guess. In fact, they revel in it. Jay Kraft, vice president and city manager for Liberty Property Trust in Richmond, says brokers are on the lookout for hints. “The minute they come in, you’re listening for what their accent is, how they are dressed, looking for any clues to figure out what business they’re in.”
Realtors strain to hear side conversations, he adds. “You’re constantly trying to figure out who it is … At times I find it amusing when there are so many theories.”
Forget “whodunit.” Real estate sleuths care more about “who is it” and in closing the big deal.