Breaking Ground

Do African Americans have a solid stake in Atlanta’s commercial real estate future?

http://www.atlantatribune.com/

by Keith Laing, Atlanta Tribune: The Magazine

May 2008

It’s hard not to notice that metro Atlanta is officially undergoing a commercial development facelift. The signature lofty living quarters of Peachtree Street corridor are now being crowded out by barricades veiling the latest in mixed-use, all-inclusive development. The signs plastered along the makeshift covered walkways boast of unconventional ways that bring living, working and playing within walking distance of each other. On the outskirts of the city, greenery that once hugged the interstates has been replaced with sprawling shopping centers, making the need for once compulsory trips into the city for shopping and leisure, few and far between. And even as the residential real estate market is experiencing the equivalent of an economic lag, its high-end counterpart — commercial real estate — is showing less signs of slowing.

To be sure, expansive lots are still being cleared, leveled and surveyed, and billion dollar deals are being brokered for ownership of a piece of the Atlanta skyline – one that, unbeknownst to many, has been carefully molded and crafted by African Americans. In fact, African Americans have managed to play an integral role in some of Atlanta’s most recognizable landmarks, including the Georgia Dome, Centennial Olympic Park, Turner Stadium, Philips Arena, the Coca-Cola headquarters, the Lakewood Amphitheater and Hartsfield-Jackson Atlanta International Airport. The Atlanta that tourists see — and remember when they leave — was largely envisioned and executed by African-American pioneers who have reached the top levels of commercial real estate as investors, who provide initial capital for development deals; developers, who plan construction; and brokers, who facilitate agreements between the two.

However, despite the numerous points of entry into the trillion-dollar commercial real estate industry, it has been dubbed one of the least diverse in the country. According to a recent study released by the Certified Commercial Investment Member Institute, less than one percent of all practicing commercial real estate brokers are minorities. In Atlanta, though a few standout companies have accomplished a significant track record, the list of top black developers, investors and brokers is meager, at best. There is money and land is plentiful, but the playing field still needs leveling.

“Atlanta is a very interesting market,” says Cynthia Alexander, president of Comstar Real Estate Services, a minority-owned commercial real estate firm that provides services in leasing, developing and consulting. “There is a lot of opportunity here, but it’s a misconception to say that if you come up with an idea and arrive in Atlanta, you are going to be immediately successful.”

The reason centers on the barriers to entry and promotion that are unique to commercial real estate, adds Alexander, herself a 20-year local veteran of the business.”Real estate is a very closed industry, it’s not just [about] skill. You have to have the relationships and financial wherewithal to make it. All those variables can make it difficult, even in Atlanta.”

The handicaps are even more pronounced when it involves minorities. “Many individuals, especially people who are not [minorities], are second and third generations [in the field], so they have generations of contacts and wealth that they come into [the industry] with,” explains Alexander. “In that sense, it’s difficult [for minorities] to compete. You have to come in with a strong network.”

Carl Powell, president and COO of Integral Urban Investments, the investment management division of the Integral Group LLC, agrees that the lack of diversity in all aspects of commercial real estate, simply put, is due to the relationship factor. Yet, Powell understands that the nature of the industry calls for individuals with an extensive track record (even if by proxy), and developing that record requires financial resources.

Operating at the helm of the asset management component of commercial real estate for his firm, he entered the industry through a chasm of the perfect formula – the fusion of development expertise and access to capital. Integral’s investment management division handles the money of large institutions and pension funds for venture into commercial real projects.

“If commercial real estate [in general] doesn’t have much diversity, the money management side of it has even less,” he says. “And the reason for that limitation is that there is a very severe screening you must pass to be a money manager for the pension funds. You have to think in terms of these financial institutions trusting [the asset managing] entity with pension funds for the retirees that need to have money for the next 20 years to retire on.”

Estimates show that pension funds world-wide hold more than $20 trillion in assets, the largest for any category of investor ahead of mutual funds, insurance companies, currency reserves, sovereign-wealth funds, hedge funds or private equity.

In most cases, new managers need the approval of the consultants that work for the pension plans, Powell explains. “Consultants are paid to make the best recommendation for those institutions and government bodies as tow ho will most likely perform well and build on their capital. If you lose the money, the pension funds would be asking the consultants why they recommended a new manager to them. If you do well, no one’s going to pat you on the back because you were supposed to do well.”

Those difficulties are among the reasons so few blacks have risen to the highest levels of commercial development. “You just don’t have a lot of minorities with significant commercial development experience,” Powell contends. “There aren’t many people who can go and make the argument ‘give me money because I’ve been doing this for a long period of time.”

However, there is potential for a shift in perception as executives on both sides of the industry better understand the process and the benefits of inclusion. In Alexander’s view, diversity is becoming more of a priority in the world of corporate real estate. Blacks in the business already have been able to identify areas that would be conducive to black patronage, such as the Camp Creek area in South Fulton County. If it were not for corporate commercial real estate diversity, the need for Camp Creek Parkway and the ripe real estate in the southwest quadrant of the perimeter would have possibly never been explored. “In the last five to seven years, there has been more of an emergence of minorities entering the profession. We are seeing better numbers starting in entry-level positions and moving up to mid-management, but we are not seeing minorities at the senior levels in large numbers,” says Alexander.

In the meantime, to make their way closer to the top, many minorities are now constructing their own inroads to the upper echelons of the profession.
Corporate developer-turned-entrepreneur Michael Tabb chose to make his own way. In 2001, Tabb left a position at global business giant Coca-Cola, where he served as director of real estate asset services. Now, seven years later, he is managing principal of his own firm, Red Rock Global, which focuses on investors in underserved urban markets. He was previously responsible for all of Coca-Cola’s worldwide real estate activities, but still felt the need to go outside the corporate environment to achieve success.
“It was just time,” recalls Tabb. “I was a corporate guy doing real estate. I was learning, but I wasn’t high on the [Coca-Cola] totem pole.”

Since branching out of his own, Tabb’s company has generated $200 million in new, fee- based development opportunities, and $5 million in potential transaction fees on various projects including some with Atlanta Public Schools. The company facilitated the sale of the former school system headquarters, as well as the sale of several school buildings including Ben Hill Elementary, Whittaker Elementary, and lease of several others. His company was also commissioned to create a redevelopment plan for the urban core of Cincinnati, OH, an area called Over the Rhine. From Tabb’s perspective, being in Atlanta facilitated that success.

Because potential investing partners may initially lack faith in the abilities of minority commercial real estate executives, Tabb and other seasoned executives suggest that budding professionals gain expertise in a comparable industry.

“If you want to get on the track that is going to put you on the senior level, you have to develop expertise at the senior level,” he says. “Go work as a senior program manager at Goldman Sachs for six years and then transition into commercial development. If you go and credential yourself in an industry that’s related to real estate, you give yourself a leg up.”

“Unequivocally, more [blacks are] starting firms rather than staying in the corporate setting,” observes Alexander. “Whether or not that’s a function of a glass ceiling or an entrepreneurial spirit, we are growing [in the field].”

A Piece of the City

With that growth comes growing pains. The lack of minorities in the field is particularly troubling because there is so much money to be made, according to Tennyson Williams, founder and president of Southpointe Partners, one of the handful of African-American-owned commercial real estate brokering firms in Atlanta.

Functioning as the liason between the developer and investors, Williams’ company negotiated multi-million deals that lead to the development of the Stonewall Manor Community, a 200 acre high end residential neighborhood in South Fulton County, as well as the pending Old National Towne Center, which is a 300,000 square foot retail property located at the intersection of Old National Highway and Flat Shoals Road that will be anchored by Wal-Mart. Southpointe Partners also negotiated the terms for the development of Wyncreek Estates, a $3.65 million transaction located at the intersection of Enon Road and Camp Creek Parkway. The company is also currently shopping a portfolio of proposed in-town shopping centers that will be anchored by Publix grocery stores, Williams said. When completed, the developments are projected to be worth $100 million.

A project that size would net Southpointe approximately $5 million, Williams figures. But attaining the resources is not easy, he cautions, explaining that a skill at negotiating is imperative to gaining a foothold on the competition.
“Capital drives the deal,” asserts Williams. “Without capital, the deal doesn’t go anywhere. It all starts there. You have to marry capital with vision and analysis. In this business, you have to be knowledgeable about so many things.”

A survey of the marketplace will show a lack of black dollars at the table for such undertakings. Despite the news that black buying power will reach $1.1 trillion mark by 2012, few African Americans who actually have their sights on wealth development consider commercial real estate an option.
Knowing, according to real estate insiders, is half the battle.

While Integral’s largest investors include the California Public Employee Retirement System, Bank of America and Wachovia, the company is further shoring itself amongst its competitors by investing its own money in Integral’s projects, and also marketing its ability to provide fund options for would-be investors as well.

“Think of Integral as being in a partnership,” Powell suggests. “We’re the individual owners of a large stake of all projects that we do. Instead of taking all of my wealth and putting it into the stock market – we re-up and put money into our projects. So, we’re always working to make sure there’s a good delivery of product and a good return.”

Powell believes in the options that his firm offers so much that he has, literally, taken his work home. “A very small portion of my wealth planning actually comes from my salary. The majority of my wealth planning comes from investing in the real estate projects that Integral does,” he admits.

Individuals who have money accessible should consider real estate equity funds and take advantage of strategists like him who can invest in the best projects on their behalf – making them limited partners. Most real estate equity funds have a minimum commitment amount that is required from the limited partners, which varies depending on the size of the fund. The object is to find the equity that fits your desired investment and then be willing to invest that money over a seven-year period before a profit is earned.

“That’s the thing about investing in the fund business, you invest up front to build a project, but it typically takes a five- to seven-year period to actually sell the project and get your money back,” Powell explains. “At the end of the day the fund is liquidated and all the limited partners get 80 percent of the profit, [while] the fund manager keeps 20 percent for handling the fund and finding the deals. [Limited partners] typically shoot for a 20 to 30 percent return.”

Savvy investors then take the return and re-invest either a portion or the entire sum. “It is the best-kept secret in real estate investing at this point,” Powell adds.

Notably situated as one of Atlanta’s best-known developers, Herman Jerome Russell, president of H.J. Russell & Co., used the investing strategy to build one of the most prestigious and well-established black-owned real estate companies in the country.

“Joint ventures typically benefit both parties,” contends Russell. “No one is going to [enter into a] joint venture with African Americans just to do it. There’s normally a need.”

He would know. Since starting his company more than 55 years ago, Russell’s real estate maneuverings are credited with re-shaping the Atlanta skyline by snagging high-profile construction contracts such as the Georgia Dome in 1992, Centennial Olympic Stadium/Turner Field in 1994, and Philips Arena in 1999.

“We provide services such as construction and development,” he says. “We make fees off those [aspects]. In some cases, we may [also] be the owner, and if we sell [the property] or there’s cash flow coming off [a project], we benefit also.”

The diversified roles that the company assumes are enables H.J. Russell &Co. to generate $400 million dollars annually. He adds that those dollars often come in handy, too.

“You have to be able to access capital,” he says. “We’ve been blessed. We’ve been around many years. We’ve developed and owned a lot of property that we’ve been able to tap into for both debt [equity] and capital.”

H.J. Russell & Co.’s next big move is a 16-acre mixed-use development near the Atlanta University Center. Valued at more than $80 million, the development will feature condos, town homes and retail outlets. The company is also looking at a potential development in Newark, NJ, reveals Russell.

According to Russell, the hardest deal for a high level developer to close is the first one. After that, the work speaks for itself. “Once you get one or two projects on your plate, the next ones become much easier.”

Another major presence in metro Atlanta’s steady reshaping, developer Egbert Perry, who is chairman and CEO of The Integral Group, agrees. With Perry’s direction, Integral Group has played a role in a laundry list of million-dollar deals, including $320 million in new residential, office and retail development in an eight-block area bordered by Edgewood Avenue, Courtland Street, Andrew Young International Boulevard and the Downtown Connector. The incremental undertaking is slated to begin in June, and includes a $20 million, 75,000-square-foot office building at the corner of Auburn and Piedmont avenues; and a $40 million mid-rise office building next to the Integral Group’s corporate office on Piedmont Avenue.
It may take millions to rebuild downtown Atlanta, but Perry says it does not take that much to claim ownership.

“As long as you have access to small pool of capital, you’ll have the ability to buy something and hold onto it [until] it can produce a decent return,” he says. “You can get in pretty well with a couple hundred thousand dollars and good credit.”

Perry, a frequent named dropped in the commercial real estate circles, says that at the high end and entry levels, urban areas are the best places to develop right now.

“We are seeing more and more demand for product coming back into the city with access to amenities,” he says. “People are trying to spend less time trapped on the interstate and more time enjoying life.”

A byproduct of that trend, he adds, is a focus on mixed-use developments, like Atlantic Station in midtown.

“The idea is being able to live, work, play and worship in one area,” he says. “It’s something that logical and long overdue.”

Perry does, however, stress that would-be investors know what they don’t know and lean on those who do.

“Brokers can show you 20 projects to look at if you have some money,” he says. “That gets you in the game and gets you some understanding. Pretty soon you’re in the business.”

Success By Association

While closing deals earns you a seat at the larger table, the question for real estate professionals who want to be the next H.J. Russell or Egbert Perry is what to do once you sit down.

Expertise is what makes the relationships that are so vital to success in commercial development worth having, says Trenna Ross, vice president of brokerage for Ackerman & Co., one of the Southeast’s leading real estate firms that is headquartered in Atlanta. Ross specializes in landlord and tenant representation in retail and office properties.

“On the commercial side, real estate is very close knit,” says Ross. “Because we have such small numbers, you can meet someone here in Atlanta and work on a deal, and six months later meet someone in [Washington,] D.C. or Chicago who knows the same person. People talk to each other. If you’re successful and they have a particular need or opening, people will seek you out. You have to establish a reputation and a track record.”

With that type of networking in mind, Ross partnered with broker Lynn Smith of Cushman and Wakefield to create the Global Diversity Summit. Now going into its third year, the summit provides participants – investors, brokers, consultants, developers and community stakeholders – the opportunity to exchange ideas about business practices and contact information that could prove useful in later deals.

More importantly, it provides minorities in commercial development an avenue for networking and it gives companies looking for diversity a place to find it in large numbers.

“It provides a win-win to the industry,” Ross says of the GDS. “[We can] exchange ideas, talk about things going on in Atlanta and nationally and provide education and information to each other. It brings together mid- and high-level executives, and it gives leaders in majority organizations an opportunity to see that more talent is available to them.”

For her part, Smith explains that going to other trade meetings inspired her to start the GDS.

“I’m a member of many organizations in this industry,” says Smith, who counts the Atlanta Commercial Board of Realtors, the Urban Land Institute, the Commercial Real Estate Women and Atlanta Commercial Real Estate Network among her memberships. “When I began working [at Cushman & Wakefield], I started looking around and I was the only black female. So when I would go to the meetings, I saw a need for something new in this industry.”

“I’m not shy about asking what I want to know,” Smith continues. “One of the questions I asked [at the meetings] was ‘are there any other minorities?’ The purpose of the Global Diversity Summit is to bring to light people who are doing this successfully and say this is who’s out there.”

“You want to master relationships with people,” she says. “There are so many ways you can do it. It’s up to you how successful you are. If you do a good job, people compliment you and tell their friends. You can go along way if you play the game right.”

Professional associations are particularly important in an industry as small as commercial development, adds James Pitts, a senior vice president with Grubb & Ellis. Pitts is the current president of AcreNet, which co-sponsors the GDS.

“We are comprised of African-American real estate professionals from all of the major service firms, developers and corporate users,” he says of the organization. “We have programs designed to introduce people to the industry, network with our peers and advance our careers.”

The small number of minorities in the field makes organizations like AcreNet even more crucial, as the environment the deals are being made is undergoing a renovation.

In navigating the industry, African Americans at all levels of commercial real estate must be mindful that they will be hard-pressed to find partnerships based solely on, what has been termed, the “affirmative action aspect” of commercial development.

“I think you’ve got to become an expert,” Tabb suggests. “One of the biggest mistakes we make is not understanding that people seek expertise. You have to be patient and develop an expertise that other people recognize.

It may be easy for outsiders to look at the small number of minorities excelling in the field as a black and white issue, but insiders say the only color that matters to them is green. 

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