Culture Club

To some, a rectangular stamp with the words "Same Day Service" inside may not mean much. But to Penny Priebe, the property manager at Hunter's Glen, a Laramar Group property in Aurora, Ill., it was very important. When Dave Woodward, managing partner and CEO of Chicago-based Laramar stopped by Hunter's Glen for a visit, Priebe wanted to make sure she showed him the property's new stamp to demonstrate just how responsive her maintenance team–and by extension, her office–was to residents' needs. Before Woodward slipped out, Priebe caught him and proudly punched an invoice with the new stamp.

Why was she so excited about such a seemingly mundane item? Because, over the past four years, Woodward has built a culture within Laramar that encourages property-level people to propose and implement ideas that improve customer satisfaction, increase revenue, and cut costs. If the ideas don't work, they're usually chalked up to experience. But if they succeed, property managers are praised companywide, with their ideas presented as best practices for all Laramar properties to consider. "All of the ideas are appreciated and thought about in terms of how they benefit the company's future," says Marie Hamilton, a regional manager for the company.

Laramar Group CEO Dave Woodward relies on his property-level staff, like this group at the Hunter's Glen Apartments in Aurora, Ill., to make key pricing and concession decisions for his company.

This openness to new ideas represents just one example of how the company, which owns or manages about 15,000 units, empowers its employees. Laramar encourages them to push both the pricing and concessions envelopes in their market and allows them to manage their own budgets. "It's almost like we're a franchise," Woodward says.

But the company doesn't let it go too far. Around these pockets of property-level empowerment stands a framework of systems and corporate oversight that maintains consistency and control across the portfolio.

Meeting of the Minds Like many entrepreneurs, Jeff Elowe, Laramar's president, started building his company (then called Elkor Realty Group) slowly. He bought his first property–a two-unit building in Chicago–in 1989, when he was just 26. Working with an old college buddy, Brad Korzen, who is no longer at the company, Elowe started buying small properties around Chicago. When someone suggested the two look at Florida, Elowe and Korzen went to Fort Lauderdale, where they'd spent their college spring breaks, and bought a property there.

Then they started buying buildings around the country, whether in Florida, Chicago, Texas, or Boise, Idaho. "Our strategy was purely opportunistic," Elowe says. "If we found a deal, we did it." The two built an 18,000-unit portfolio that included multifamily, retail, office, and hotels. But operating these properties was a distant second to buying them. "We didn't pay attention to operations at all," Elowe says.

That changed around 2000, when both partners realized they needed to focus more on operations. "The industry was riding a wave then, but we knew there would be a downturn," Elowe says. "We knew that having experienced people in operations would provide a cushion."

Enter Dave Woodward, then a senior vice president for Archstone-Smith in Englewood, Colo. Woodward started with Archstone's predecessor, Security Capital, and moved through the ranks, demonstrating his skills in operations. "Early on, he focused on management and operations," says Connie Moore, president and COO at BRE Properties Inc. in San Francisco, who was co-chairman at Archstone when Woodward was there. "That's what he loves and what he's good at."

From afar, the match between Woodward's operations skills and Elowe's deal-making acumen looked perfect. But Woodward, who was happy at Archstone, wasn't interested. A Chicago headhunter finally persuaded him to meet with Elowe and other Laramar leaders. After the meeting, Woodward saw things he wanted in a company–a small organization where he could leave his imprint–and he made the move in 2000.

While Woodward saw operational challenges when he arrived, he also saw potential. "When I first came, my goal was to get Laramar behind the REITs [in terms of operations]," the CEO says. "I wanted to let them cut the path and we would follow behind."

He has worked for this by taking a cumulative approach that relies on lots of little things adding up to increased revenue and efficiency. The backbone of the system consists of technology, people, and experimentation. For example, instead of settling for the conventional wisdom, Woodward wants his people to probe their markets and see what they can get as far as lease terms, rents, and concessions, within corporate reason.

Stone Cliffs Heights in Aurora, Colo., was partially leased when the Laramar Group bought it in 2002. The company does more repositions and renovations than lease-ups.

Probing the market boosts revenue and value at Laramar. Jennifer Steans, president of Financial Investments Corp., an investor in about 80 Laramar deals, estimates that her firm received a 25 percent return on 40 deals that Laramar sold. "You see their management operations translate very clearly to the bottom line," she says. Woodward estimates the combination of flexibility within a framework brings the company 3 to 5 percent more revenue than it might earn otherwise.

Word is starting to get out. After hearing about Laramar from a former company employee, Maria Hauser of Heathrow, Fla.-based Florida Capital checked out Laramar properties for herself, visiting several. The vice president of multifamily assets left impressed. "They have every system in place that you need," says Hauser, who now is ready to assign approximately 1,000 units to Laramar for management.

The key to this program: revenue management. Instead of having his property managers raise rents at prescribed times (such as once a year), Woodward wants them to let the laws of supply and demand dictate pricing decisions. If all but two one-bedroom units in a property are full and the leasing office has a weekend with lots of prospective renters, the office has the leeway to raise rents by $25 a month on those units. If the price boost takes, Laramar just gained $50 in revenue a month for the next year. "Revenue management is all about testing," Woodward says. "We tell people that it's fine to raise prices $20. If it doesn't stick, pull it back on Monday."

Technology helps the Laramar Group run the Fillmore Center Apartments in San Francisco more efficiently. Software tells trash companies when to pick up, and a soft-start motor saves money in powering elevators.

The system also controls concessions. Instead of concessions of one or two months' rent, Woodward likes dollar amounts. For instance, a Laramar resident may get a $1,000 concession instead of one month of free rent. This makes concessions scalable, meaning a property manager can change a "$1,000 off" promotion to $750 and easily test the market. When concessions are valued in months, managers can only go from one month's free rent to a half-month, which is less flexible.

Lease expirations also give property managers opportunity for creative thinking. Instead of automatically offering 12-month leases, Woodward wants his people to track when units are hitting the market. If too many apartments expire at one time, especially in slow months like December and January, he wants Laramar properties to offer different, sometimes unconventional lease terms (such as 10 or 14 months) to entice renters to take leases ending in slower months. "The concept is that you only want the number of leases that you can handle expiring on a given month," he says.

Technology qualifies as another key element of Woodward's system. To him, it's a multifaceted tool that makes property managers more efficient and controls excess use of resources in all sorts of places.

Take trash. Instead of paying trucks to empty trash bins on a twice-weekly basis at the Fillmore Center Apartments in San Francisco, Woodward had software installed that alerts the trash company when a bin is full. This limits trash companies' visits to only necessary trips. The software, which cost about $5,000, saves the company an estimated $10,000 annually, according to Woodward.

The company also uses technology to improve the efficiency and professionalism of its e-mail responses to leasing inquiries. "This was an internal idea," Woodward says. "It's streamlined so that we have a professionally written response without having to create a new letter each time we get an inquiry." Now the computer system sends an automatically generated e-mail letter with property information and links back to each person who asks about a Laramar property through e-mail.

In operations, people skills are a must for success. Go to Hunter's Glen with Woodward and you'll see those on display. At the suburban Chicago community, maintenance worker Clintt Riggs greets Woodward as an old friend, not the company CEO.

"[Dave] is very approachable, which I think is important," says Moore, who worked with Woodward at Archstone. "In this business, we have all levels. We go from maids to divisional vice presidents. They have very different skills sets and very different goals and objectives for their own lives. Understanding that and motivating them is a key, and Dave can do that."

Woodward motivates them by handing out responsibilities. Other companies don't entrust their managers with tasks like lease expiration and revenue management, says regional manager Hamilton, who came to Laramar after 20 years at Equity Residential. Woodward gives property-level people leeway in other areas as well, allowing them to manage their budgets and shift expenses where appropriate, such as from marketing to landscaping. The only catch: Their year-to-date expenses must meet the budget. "Dave allows us to manage a property like we are managing our own checkbook," says Priebe, the property manager at Hunter's Glen.

Woodward also encourages his people to look for places they can get extra revenue every month. One innovative property manager established reserved parking, earning an extra $400 a month for her property. "That's an extra $4,800 a year for that property," Woodward says. "At a 7 percent capitalization rate, that just creates $50,000 or $60,000 worth of value at that property for our investors."

But there's always a supervisor watching, in case someone goes too far. One well-intentioned employee wanted to charge an extra $5 monthly for her property's gym. Since the exercise room is an amenity the company sells as part of its lifestyle–unlike reserved parking–the regional manager quickly intervened.

In addition, Woodward trains his accountants to raise a red flag when they see a problem in the financial reports. "There's oversight," he says. "We have our finger on the pulse of everything. We have regional managers and corporate people inspecting the sites regularly."

But Laramar's embrace of technology and employee empowerment can create Catch-22s. After teaching and encouraging his employees to make pricing decisions, Woodward expects one day to move Laramar to a computerized pricing system, which would limit or eliminate many of the unit-specific revenue management decisions his property managers currently enjoy making. But the CEO says these employees will get new opportunities to practice their property management skills. "If we go to these systems, we can empower them to do other things," he says. "They can focus on customer service or think creatively about generating revenue."

The other challenge may be even bigger. Taking advantage of the extraordinarily hot market for multifamily transactions, Laramar was a net seller of properties in the past year, a trend it expects to continue for at least the next 12 months. While selling properties at low cap rates pays off handsomely for Woodward, Elowe, and their investors, it presents a thorny issue when dealing with employees who have embraced the Laramar system. "We built a rock-solid foundation that will be around for a while, but how do you communicate that when the reality is we are going to sell some assets and people will lose their jobs?" Woodward asks. "It's absolutely the right thing to do, but that doesn't always translate to the service technician, who I have to sit in front of to tell that we're selling his property and that he may be losing his job."

To address such issues, Laramar often aims to get the best of both worlds for the company and its employees by trying to convince the property purchaser to keep Laramar on as a fee property manager. The company, which expects to become a property buyer again once acquisition costs cool off, also may try to stash key employees in special jobs temporarily if their property is sold, keeping them and their expertise with Laramar.

But as Laramar pushes forward, Woodward remains confident that he has built the systems and workforce to handle a drop or jump in units. "The underlying systems and process are there whether you have 15,000 units or 50,000 units," he says. "We are fully scalable. It wouldn't be easy, but we could double in size in the next six months."

While operations may be the Laramar Group's forte, it's not the Chicago-based company's only strength. Laramar has developed quite a reputation for being able to execute complicated deals that other companies can't handle.

"We love complicated financing structures or an undermanaged asset," says Dave Woodward, Laramar's managing partner and CEO. "We have done enough bond deals that we're familiar with the rating agencies and reporting requirements."

Laramar can also handle costly rehabs. Exhibit A may be Whitehall Manor in the Chicago suburb of Mundelein. The class D, garden-style property was an eyesore in the otherwise upper-middle-class neighborhood. Poorly maintained, the property had many basement units that were uninhabitable because of flood damage.

The Laramar Group bought Whitehall Manor in 2003, renovated it inside and out, and moved it from Class D to a B plus.

The renter profile was even worse: Whitehall Manor had become a haven for local gangs. While others saw decay, Woodward saw potential. After a year of negotiations, Laramar bought the 522-unit property in 2003, which is now being gutted and rebuilt at a cost of about $25,000 per unit. When the first rebuilt units opened their doors in June, it was a B property aimed at the middle class. Once the units and clubhouse are complete in the fourth quarter of this year, the property will be renamed The Park Butterfield.

For Jennifer Steans, president of Chicago-based Financial Investments Corp., partnering with Laramar on such deals is a no-brainer. "They can handle incredibly complex transactions," she says. "They can take a complex set of issues and distill it to the key strategy they need to implement to make that property successful. They can get very focused on that strategy and execute against it very, very well."

Even when things get chancy, "I don't mind taking risks with them," Steans says. "There's a huge value-added play, and we can get huge returns if they execute."

• Founded: 1989
• Headquarters: Chicago
• Apartment Units: 15,000 (25 percent are fee-managed)
• Apartment Units in the Pipeline: 2,000 units
• Geographic Coverage: Arizona, California, Colorado, Florida, Illinois, Kansas, Minnesota, Missouri, New Jersey, Pennsylvania, Texas, Washington
• Employees: 400