As markets pick up, leaders apply lessons learned during Great Recession
- March 20, 2012
Diversity across the board — in equity, investments and business lines — offers protection during an economic downturn. And sometimes the best opportunities can be found in a company’s own backyard.
Those were some of the lessons shared by a panel of real estate executives Tuesday who discussed how their companies not only survived, but in some cases thrived, during the Great Recession of late 2007 and 2008. While it was tough going, representatives from four companies, Norfolk-based Harbor Group International LLC, Cushman & Wakefield | Thalhimer, Union First Market Bank and Eagle Construction, all located in Richmond, said those experiences are shaping the way their companies are responding to the market’s slow, but steady recovery.
About 200 people turned out for the forum sponsored by the Greater Richmond Association of Commercial Real Estate at the Country Club of Virginia in Richmond. Lee Warfield III, president of Cushman & Wakefield | Thalhimer, told how his company’s property management and construction lines actually grew during the downturn, while brokerage was hardest hit. “Those lines kept us going for sure,” he said. Then, Thalhimer seized the opportunity to expand its regional footprint by buying other brokerages in states like North and South Carolina. “We could get into new markets at a discount. You could get great deals on talent,” noted Warfield as well-known, well established brokerages agreed to be acquired by Thalhimer. Today, the Richmond-based company has 10 offices in Virginia, North Carolina and South Carolina.
Harbor Group International also took advantage of pricing opportunities, buying office buildings in markets like downtown Atlanta and New York. “We had enough diverse pools of equity who agreed with us that there were opportunities for buying,” said President Richard Litton. Not all the buys, though, panned out well. “We bet on the downtown Atlanta office market,” said Litton, “and we got clobbered. Vacancies are way up, rents are way down. It’s been a tough issue for us.”
The company, which owns and operates an investment portfolio of $3.5 billion, did better in downtown Cleveland. “We own one of the top two buildings in Cleveland. The best buildings tend to stay full,” Litton said.
Panel moderator David Downs, director of the Kornblau Institute at Virginia Commonwealth University, noted that J. P. Morgan Chase recently loaned Harbor Group $127 million to refinance an existing CMBS (commercial mortgage backed security) loan on the 45-story, 1.3 million, Class A building at 200 Public Square in Cleveland.
Closer to home, Litton said Harbor Group has purchased many apartment projects in Hampton Roads, a sector that performs well in that region, primarily because of its large military population. In fact, the multifamily housing sector has been a shining star nationally for commercial real estate because investors have been able to get attractive financing from government sponsored entities such as Fannie Mae and Freddie Mac. “We’re actually a little concerned that that market is getting overheated,” said Litton. As those assets become pricier, there’s pressure to keep raising rents and that’s hard to do unless there’s employment growth, Litton said in an interview with Virginia Business.
Another company that went out of state looking for new business was Eagle Construction. Yet, in the end, President Robert “Bud” Ohly Jr. said he learned that he could drum up more business in his local market, where the company was known, than with hedge fund managers from New York. “Once we picked the right partners,” he said, referring to Markel-Eagle Partners LLC, “things began to work.”
Markel-Eagle, a Richmond-based real estate asset management firm that specializes in distressed properties, has invested in several projects, including West Broad Village, a mixed-use project in Henrico County that nearly went belly up before it got a local infusion of funds that allowed it to complete construction.
On the banking side, David Fairchild, president of Union First Market Bank, said his company — formed by the merger of First Market Bank and Union Bank & Trust in 2010 —has spent the last several years focusing on distressed properties. Rather than liquidate properties in a bad market, the bank has done some joint ventures and structural deals to keep these assets off the market, he said.
Looking ahead to the future, Fairchild expects to see more consolidations in the community banking space and more capital available for loans on good, well-located projects. “Banks can pop their heads up and say “We’ve got a lid on the distressed assets. Now we can put our money to work.”
With banks in a better capital position, the executives look for activity to pick up as projects have greater access to financing. In the Richmond market, Warfield said retail is picking up. Over the next three years, he expects more grocery-store anchored shopping centers.