On the Rise

Giving a tour of Realty Management Services Inc.'s corporate headquarters, Beth Ross proudly points out the tell-tale signs of expansion – crooked hallways formed from adding office space over the years and the separate entrance into the human resources department, even though it is on the same floor. It's as if each imperfection marks a stepping stone for this vibrant property management company, which Ross started in 1988 with three employees operating out of her basement.

Today, Realty Management sports more than 350 employees, and Ross runs the company out of its corporate headquarters in Bethesda, Md. But Ross hasn't lost the personal style that she employed in the beginning. As she travels the halls, the president says hello to nearly everyone. She is close enough to her employees to ask one getting over a cold how he is feeling, parents about their children, and associates dressed in new outfits about their latest shopping sprees.

Beth Ross, President, Realty Management Services Inc.

This personal touch carries through to the company's highly successful customer relations and property management programs. And it's a big reason for the success of the company, which has quickly risen to No. 4 on the 2002 ranking of the most apartment units managed in the Washington metropolitan area conducted by Delta Associates, a real estate research and consulting firm based in Alexandria, Va.

The company's versatility has aided its growth as well. With its first management project – Sutton Walk and Lenox Court, two communities managed together in New Carrollton, Md. – Realty Management earned a reputation for being able to manage any type of community.

Prior to Realty Management's takeover, these properties were blighted. The county had issued 18 pages of code violations. Drugs were being sold out of a first-floor window, Ross recalls.

"We needed to make sure the county wouldn't close down the communities before we took over," explains Ross. "It was a challenge working with [county officials] and getting them to agree to a work out plan based on the existing rehab budget." However, Ross saw the buildings' potential despite their problems; they were very close to mass transit, including a subway station.

"We were able to show the county that most of the violations were [covered by] the rehab budget," recalls Ross, whose plan was impressive enough that the county didn't require all the work be done in 30 days. Instead, the work was done in stages – starting with life safety issues. The communities went through an extensive $20,000-per-unit rehab.

It helped that Ross was not new to the area, even though the property management company was. Her previous work in Maryland allowed her to build a network of contacts, including a key relationship with Sutton Walk's and Lenox Court's new owner, Ross Development & Investment, which is owned by her husband Scott Ross.

"The county knew what Scott had done at his other communities," explains Ross. "That's where relationships come in. There was a level of trust." The county knew Realty Management and Ross Development were not companies that would hurt the neighborhood.

In the first year, Realty Management evicted 25 percent of the residents for not paying rent. It remarketed and remerchandized the communities, turning them into high-end properties. Neighbors realized the renovations would eliminate the existing blight and create a community that would care about the neighborhood, she adds. The communities are now luxury buildings, offering residents everything from intrusion alarms to in-unit washers and dryers. Occupancy is at 97 percent.

Realty Management was formed to manage the assets acquired by Ross Development, which was founded in 1983. "We were what you might call a captive management," says Ross. "Scott felt the needs of the communities and the needs of the ownership would be best served by my involvement."

She had been in real estate since 1973. "I understood the markets, marketing, sales, project management, construction management, and value creation," Ross explains. "That's why the property management company was started."

Ross was very content managing Ross Development's assets. But the company was slowly gaining a region-wide reputation for its remarketing and remerchandising efforts.

While most in the real estate market saw business decline in the early 1990s, Realty Management continued to grow. Owners evaluating their property management companies during this time turned to Ross' firm. The timing was perfect because the acquisition business was soft. She realized third-party management was a key to growth.

Realty Management Services took over the management of Cole Spring Plaza, a 265-unit community in Silver Spring, Md., in March 1998. In an effort to reposition the community, Realty Management renovated all common areas. Amenities include landscaped grounds and a courtyard, a swimming pool, and a fitness center. Fine dining, shopping, and entertainment are a short distance away.

"Because of the reputation we had acquired, we were being asked to look at communities, make assessments, and make some recommendations," explains Ross. One of those owners was Federal Realty Income Trust, the owner of Rollingwood Apartments, in Silver Spring, Md.

Federal Realty Income Trust, a shopping center real estate investment trust (REIT), decided that it wasn't in its best interest to continue managing a single multifamily asset – which had a 15 percent vacancy rate in the fall of 1992.

Getting the deal was similar to the story of David vs. Goliath, recalls Ross. "We were a small property management company competing against two giants in the Washington area." The company won the contract because it knew what needed to be done and offered a tremendous amount of detail in its management proposal. "In six months we had a waiting list," she recalls.

Realty Management brings a tremendous level of detail to the table because it works so closely with Ross Development and RR Rehab and Construction, another affiliate company owned by Scott Ross and his partner John Rutt. RR Rehab does large-scale capital improvements, not apartment turnovers. Though independently owned, Ross Development and RR Rehab work only with Realty Management.

For owners considering hiring Realty Management, the rehab company's services are offered as an option. "Owners see the benefit of having all of the expertise and integration that we offer. [It makes more sense] than hiring a general contractor to come in and do the work," explains Ross.

"I won't do a deal unless [Realty Management] is involved," says Scott Ross. "Our ownership success for ourselves and the third parties is based on how we manage, how we control cost, and how we implement rehabs. I won't do the deal where someone comes in and says it has to be another property management company."

While Scott Ross doesn't own or work for the property management business, he can provide the owner's perspective on third-party management deals when the real owner is not actively involved. "I don't manage the administrative staff, and I never tell on-site people what to do," he says. "I'm an owner, and I review good and bad things with the regional managers." Ross Development owns about half of the 13,000 units Realty Management manages.

Ross' husband isn't the only one impressed with her management services. Realty Management has worked with The Artery Group LLC since 2000, managing 2,500 affordable units for the company.

"They can get their arms around an asset no matter how unique or challenging it is," says Brain Grant, vice president of asset management for The Artery Group, a real estate company based in Bethesda. Forest Creek Apartments, a 930-unit community in Prince Georges County, Md., is a case in point. Before hiring Realty Management, the property had a tremendous delinquency problem, with maintenance and training issues to boot.

Realty Management reduced the delinquencies by 80 percent and came up with a systemized approach to turn the project around, says Scott Price, COO of The Artery Group. Instead of using third-party companies to handle maintenance issues, Realty Management hired a maintenance staff and began fixing and assessing problems on a global basis.

The company aggressively collected rent and implemented a more effective screening process for residents. "I had a feeling that someone was knocking on doors," says Grant. "They wouldn't let them stay and not pay."

"Beth told me that things would get worse before they got better. But [she said] when they were finished they would have residents that paid and could afford to pay the rent," says Hank Goldberg, chairman of the company. "There were no surprises to us, and they were honest." Now, the community averages 95 percent occupancy.

While Realty Management is good with challenging assets, it also has been successful at updating under-managed assets and leasing up new properties, explains Grant.

For instance, at one community owned by UBS Realty Investors LLC, a real estate investment advisor based in Hartford, Conn., Realty Management implemented several capital improvement projects that saved the owner money, says Robert Wilkins, director of asset management for UBS.

New showerheads and toilets, for instance, immediately reduced water bills. Insulation in the attic and new windows and sliding glass doors reduced utilities even further. At the same time, Realty Management aggressively raised rents to pay for the improvements, says Wilkins.

But no company is without faults. Realty Management has become a mid-sized company that still functions like a mom and pop. It doesn't have a Web site, making it difficult for the general public to find out about the properties it manages. By purchasing an ad in the Apartment Shoppers Guide, the company also receives an online ad on the Guide's Web page. However, through this online ad, prospective residents can only request additional information about a community. Its communities also have Web pages through Apartment.com ads, however, they are hard to find unless you know the names of the properties.

"Upgrading and integrating technology is a top priority for the company and is the most important factor for our future growth," says David J. Miskovich, CFO of Realty Management. "We need to make sure we have the systems that best fit this company."

Ross knows the company needs a Web site. But she doesn't want to post one until the company resolves some management issues that would affect how the Web site is done. "We'll muddle through [without it] a little bit longer," she says.

Realty Management is looking to centralize as many functions as possible. It wants to take away the paper headache from on-site people through the use of software applications, explains Miskovich. Remote access for key individuals of the organization also is on the to-do list, along with the automation of weekly account sheets and developing a corporate Intranet. The company is developing a laundry list of technology initiatives.

The wish list of changes isn't stopping Realty Management from taking advantage of its size. It recently purchased the opening gatefold ad of the local Apartment Shoppers Guide for the first time. And it took out a full-page ad in The Washington Post, listing many of its communities. "When you are dividing cost among 55 communities, it's much more affordable to do larger ads and spreads," she says. "It's exciting for us to get the names of the communities out in as many venues as possible."

Realty Management also is using its size to exert purchasing power for its communities, says James Kostyk, vice president residential management operations. It has centralized functions such as service contracts to reduce costs and gain better control. "This also allowed our field people to concentrate more on customer service," says Kostyk.

And, it makes perfect sense. Because at the end of the day it's all about serving the customer – the resident and owner. "We don't promise what we can't deliver, we're honest, and we consistently follow up," says Kostyk. "They pay the way for us to be in business and achieve our goals. And we need to do everything possible to meet their goals."

Beth Ross never thought twice about expanding her property management company – Realty Management Services Inc. – outside of the Washington metropolitan area. "By being local we have a niche in the marketplace," she says. "We are able to provide in-depth knowledge of the area and the nuances that makes owning an asset here different then somewhere else.

"Each marketplace really is different," she continues. "We feel by being able to drive to the communities within an hour to an hour and 15 minutes we have a good handle on what's going on."

Typically, when the company is approached about taking over management responsibilities at a new project, it is usually a neighbor to a community it's already managing. This understanding of the local market gives Realty Management an edge over the competition and helps the company determine the right mix of management techniques needed to rejuvenate the apartment community.

Plus, in a business that is all about relationships, it's much easier to build and support relationships when you have a local presence, which proved true during the request for proposal of the residential phase of Rockville Town Center – a 15-acre, mixed-use project in Rockville, Md.

While Realty Management is not a developer, it does all the property management for Ross Development and Investment, run by Scott Ross, her husband.

"During the Rockville process, the property management company sat there as a component of our presentation," explains Scott Ross. "Typically developers are in and out when it comes to new communities," he says. Montgomery County was impressed not only by the companies' track records, but by their knowledge of the local market.

"We are local citizens," he says. "One ingredient that helped us win the opportunity to develop the project." Ross Development will develop 700 apartments and condominiums with Danac Corp, a real estate developer based in Bethesda, Md. Realty Management will manage the apartments and possibly the condos.

• Year founded: 1988
• Location: Bethesda, Md.
• 2003 revenue: $131 million
• Number of units: 13,000
• Expected growth in units within five years: 7,000 units
• Geographic coverage: Washington metropolitan area
• Revenue streams: Third-party property management
• Number of employees: 350