In 1881, the year Chester Arthur became President of the United States, and Thomas Edison was beginning to use electricity to light commercial buildings, John F. Shea’s grandfather started J.F. Shea Co. as a manufacturer of plumbing fixtures. The company has managed to grow and evolve through world wars, depressions, global turmoil, rapid advances in technology, and profound social changes. It helped to build the Hoover and Grand Coulee dams, the Golden Gate Bridge, the San Francisco Bay Area Rapid Transit system and the Washington, D.C., subway system. Today J.F. Shea Co. is a Walnut, California-based builder of planned communities, a civil engineering and construction contractor, a commercial property investor, owner and operator, an electrical contractor, a manufacturer of concrete-placing equipment for civil engineering projects, a supplier of aggregate materials to contractors, and a venture capitalist. John F. Shea, 76, is chairman of J.F. Shea Co., which he manages with his cousins Peter and Edmund. Shea has learned the company from the bottom up. When he was in high school, he worked in a parts warehouse at one of the company’s construction sites.
Flexibility of private company
As one of the largest private companies in the U.S., “we’ve had the opportunity to diversify into multiple phases of real estate, which a public company wouldn’t always be able to do,” said Shea. The company has built apartment communities, office buildings, shopping centers, and industrial buildings as well as single-family homes, mainly in large master-planned developments. “These are all good businesses, but they are cyclical,” he observed. “Apartments, office buildings, and industrial are struggling right now. However, we are able to get through the down cycles because the homebuilding has been strong.”
In the 1990s, “our homebuilding business lost a lot of money, but our heavy construction business was doing really well, and our shopping centers and apartment buildings were carrying us,” he said. “There were times when we had to borrow every last nickel from the bank” That experience taught Shea and his partners to carefully watch the company’s cash position and debt-to-equity ratio. “In the 90s, a lot of companies were overleveraged, and they went under,” he said. “If we’re conservative in our financial management, it is easier to weather a downturn.”
Shea does not believe his company would have the same flexibility if it were public. “If you’re a public homebuilder, for example, the markets don’t want you owning apartments or shopping centers and taking depreciation, which provides tax benefits but doesn’t look good on your balance sheet. Some stockholders don’t understand depreciation.”
Homebuilding business
J.F. Shea Co. got into homebuilding in 1968 with the startup of Shea Homes. “This was not something we actively searched for,” Shea said. “It was just one of those fortuitous events that happened through a business relationship.” The company faced challenges – one of its projects was almost destroyed in the 1971 Sylmar earthquake. In 1978, the homebuilder got its first big opportunity: the development of 900 acres in Laguna Niguel. It has gone on to become a leading developer of master-planned communities in California and, more recently, Arizona and Colorado. Although many privately owned homebuilders have been absorbed by the large public builders, Shea Homes has managed to stay independent – and private. “We’re big enough that we have the advantages of getting attractive financing and other benefits,” Shea said.
Challenges of building in California
John Shea considers California one of the most difficult markets in which to build because of its entitlement process. “It’s so expensive to hold land and try to entitle it,” he said. “We have projects that have been on hold for 10 years because we can’t get entitlements,” he noted. He said public agencies should ease entitlement rules. “This wouldn’t completely solve the housing affordability problem,” he noted, “but it would help to reduce housing costs.” And would he ever consider relocating the company outside of California? “We do business in other states, but our roots are here,” he said. “It would be very difficult to move.”
Advice to graduates
What advice does he offer to graduates who are beginning careers in real estate? “Spend time in the field where the actual construction is going on. That experience will really help you when you move in to senior management,” he said. “When you’re sitting in a meeting with an architect or a soils guy or grading contractor, you’ll understand what they’re talking about. You’ll have a better perspective.”
Shea noted that there are many routes into the real estate and construction business. Finance is one. “A lot of employees come to us with backgrounds and experience in finance. That’s a great way to get into the business.”
Not surprisingly, Shea suggests that an academic background in civil engineering would give graduates a good start in real estate and construction. “The MRED program at USC is very beneficial.” Another option would be to earn an undergraduate degree in business and acquire some early experience in real estate.
Maintaining a healthy balance between work and family is important to Shea. He has eight children, and always has made time for family. His secret: hire good managers. “We have very competent people working for us. I’m not one to get involved in the nitty gritty of running the company. I empower certain people with a decent amount of authority, and that allows me to spend more time with my family.
In retrospect, he wishes he had taken up golf sooner. He played for the USC tennis team, and developed an interest in golf later. “I’m not a very good golfer, but I love it.”
And looking back on a long career in the real estate and construction business, what would he do differently? “I’ve made a lot of mistakes because I’ve been in business for over 50 years. Some have been big mistakes and very costly, others not so. But in general, I think we’ve been very lucky to maintain the business that my grandfather started in 1881. We’re delighted that we decided to branch into the real estate business.”
Considering that the company that began in plumbing and became a large and successful business that has outlived many other companies, it’s clear that Shea and his family’s company have learned from their mistakes. It’s an ability that has enabled the company to stay in business for more than a hundred years.