Some of you may have heard of him; his name is Trammell Crow. Trammell was a Texan, born in 1914. He put himself through night school at SMU and became the youngest CPA in Texas. Three years later, he joined the Navy. After WWII, he returned to the business world working for a moving company and in wholesale grain merchandising. That introduced him to the business of warehousing.
At the age of 33, he built his first warehouse for Ray-O-Vac. He used undeveloped land on the property to build a speculative warehouse and soon leased it to Decca Records. That extra land changed his life forever by giving birth to the idea of a “speculative-builder” in commercial real estate.
Before this light bulb moment, developers would only develop a building for a specific tenant. Crow saw the value in developing warehouse inventory pre-tenant and his company quickly became Dallas’ largest warehouse developer. You could say he “disrupted” the real estate industry, long before that word would be used.
In the ‘60s Crow got into parking garages, office buildings and multi-family. Trammell went on to build an empire and to become known as the preeminent CRE developer of the 20th century in the US with a network of regional partners scattered around the country.
In his biography, Trammell Crow- A Legacy of Real Estate Business Innovation, author William Ewald, Jr. offers:
He gave with great generosity, made his partners multimillionaires, working his 50/50 magic. “Over the years,” he later reflected, “I probably was more giving than I needed to be. But on the whole, I wouldn’t change.” He had built the greatest organization in this field in America by giving leadership to the local man on the site. The more you give, the more you get back-a conviction he calls “generous pragmatism.” Through “selfish generosity,” he believed his partners would make money and he would make money.
But, the life of a real estate developer is never smooth. We all have to interact with the real estate cycle in some way. In the late ‘80s, the network Trammell created went through its toughest crises in the Southwest. On average, one out of three office buildings in Dallas and Houston were empty. Other areas were hit even harder.
On the backside of the crash, Gary Shafer, the managing partner, circulated a memo to 19 of the regional partners. It asked a very basic question: what lessons did we learn going through this most brutal real estate crash?
The responses from the regional partners are real estate gold. If you’d like to read the entire 90-page report containing all the responses, click this link.
I recently re-read the memos with an eye towards advice they offered for the developer at “peak of the market” portion of the cycle from the perspective of the “bottom of the market.” Here are some of my favorites:
- Don’t believe that just because rents have gone up at 5% per year for five years, that they can’t or won’t drop 25% in one year.
- Stay lean even if you can afford to get fat. It is much easier to hire someone than it is to lay someone off. Postpone hiring someone until you absolutely must.
- Mistreating the brokerage community—you may win the battle, but you can lose the war.
- When the office, retail and industrial absorption softens, and rental rates decline, the land values decline at an even greater value.
- When the market is hot, sell some of your interest along the way up; when it starts heading down, there are no buyers. One way to stay financially healthy is to “sell too soon.”
- Don’t sell your best real estate as it holds its value and springs back faster.
- Without question, our perceived need to keep busy (working, deals, leases etc.) caused us to spend and commit unnecessarily. We would have been far better off to have played golf on some days rather than developing another building.
Living through multiple cycles, we at Shannon Waltchack have learned valuable lessons—sometimes the hard way. Because the real estate cycle takes such a long time to play out, we all need to remember these lessons to keep us safe. I hope you find in Trammell Crow’s history some nuggets of truth that inform your current business landscape.