Ron Terwilliger was a big-time CEO. In his 35-year career, he built an estimated 250,000 units of housing in the United States. He owned a professional basketball team—the WNBA’s Atlanta Shock. And he made headline-grabbing, multimillion-dollar donations to both Habitat for Humanity and the Urban Land Institute.
Charlie Brindell isn’t that kind of CEO. It’s not that he isn’t as capable a leader or as caring as Terwilliger. Or that he shies away from industry leadership roles—he’s incoming chairman for the National Association of Home Builders (NAHB). It’s just that while Terwilliger likes the spotlight; Brindell doesn’t mind it. And while Terwilliger was an investment committee of one, Brindell prefers a team approach.
And in this economy, that’s a good thing. To emerge from the Great Recession, it will take an entire team to guide the once-formidable Dallas-based Trammell Crow Residential (TCR), a merchant builder that, from 2006 to 2008, built 27,167 multifamily units and was consistently ranked as the country’s No. 1 builder on Multifamily Executive’s annual Top 50 Builders list. Like many of its peers during the boom years, Trammell Crow took on too many deals, built too many apartments, and bought too much land. Unlike many of those companies, it’s still around.
“The big mistake I made was letting my partners and Trammell Crow Residential close on a bunch of land,” says Terwilliger, who retired in December 2009, though he continues to maintain an advisory role with the company. “We never closed without a financial partner, but as it turned out, some of these financial partners just walked away. Even if they put up a lot of money, they just walked away. I didn’t anticipate that, and I hadn’t seen that before.”
Now TCR is holding those apartments—and that land—for a lot longer than it originally expected. It can no longer sell buildings as they are completed, and so it’s not building many new projects. When you’ve made your living building and selling apartments, such a drastic shift requires changes. But if anyone is up for that challenge, it’s Brindell, who stepped into the role of president and CEO in October 2008. Here are four ways TCR’s new chieftain plans to re-engineer the stalwart, yet vulnerable, builder.
1) Establish a formal Asset Management practice.
When times were good, builders like TCR cranked out development after development. “The merchant builder could make money on the quick sell because the market was so hot,” says Doug Bibby, president of the Washington, D.C.-based National Multi Housing Council.
Then the credit markets froze. Buyers suddenly couldn’t buy—or didn’t want to buy—at past prices. The result? TCR, which usually has no more than about 15,000 units in its holdings, is now a long-term apartment owner. By the end of the first quarter of 2010, it will have 20,000 units on its books; by the end of the first quarter of 2011, that number is expected to balloon to 30,000. “It’s the most assets we’ve ever ended up with,” says Ken Valach, executive managing director in charge of asset/portfolio management for TCR.
Fortunately, TCR has been able to hold on to these properties. In 2008, the firm closely evaluated its entire portfolio and chose to abandon many land options. In addition, the conservative company and its investors (the investors contribute a larger slice of equity than TCR) generally put 25 percent to 30 percent equity into its deals and have been able to push the maturities due on its construction loans into 2011 and beyond. And thankfully, TCR’s banks are on board with extending its deals.
“We have to be prepared to hold these assets longer,” Brindell says. “We intend to have an asset management platform that will allow us to take a more highly-coordinated approach to portfolio-level management of the assets that we own and control. People in our asset management group will work with our local partners to drive performance of our properties.”
To lead that effort, Brindell is reshuffling TCR’s seasoned, Terwilliger-groomed management crew—almost all of whom have spent more than 20 years at the firm—away from its historically decentralized operations. In the past, the company’s senior partners were responsible for all aspects of business in a specific region, including asset management.
Now, TCR aims to build a base that’s comparable to the REITs by creating a more direct asset management structure to manage maturities, dispositions, and third-party property managers. “It’s a clearer focus on asset management than we’ve had in the past,” says Bill MacDonald, executive managing director in charge of TCR’s Eastern region.
The initiative will be spearheaded by Valach but also leaves room for the possibility of providing asset management services for other apartment owners. Asset managers in the field will report to Valach. “That’s a big change for us,” Brindell says. “Traditionally, those asset managers were locally- and regionally-based. We’ll have a set of standards and metrics in asset management that we will apply consistently across the entire organization.”
2) Put an emphasis on Acquisitions.
Terwilliger is a developer at heart. Brindell is a developer, too, but he’s also an investment man. He came to Trammell Crow as a managing partner in the Memphis division of Trammell Crow Co. and as regional partner for the firm’s mid-South and Southeast regions. In 1991, he became president and CEO of Trammell Crow Southeast and, in 1997, managing director of Crow Holdings (the investment arm of the Trammell Crow family). There, he was responsible for all rental and for-sale housing and land investments and was a member of the company’s core investment committee.
