By Neil Weilheimer
In October 1998, Criimi Mae Inc. filed for bankruptcy protection. Six years later, after a $344 million recapitalization, installation of new managers and some stabilization among its assets, the firm has not only emerged from the red but is pining to grow beyond its traditional business.
Today, the Maryland REIT, which historically pursued the B-piece portion of CMBS, is building a mortgage origination platform that could lend as much as $3 billion annually, according to company officials.
Criimi's current strategy is largely attributable to company chairman & CEO Barry Blattman, also the managing partner of Brascan Real Estate Financial Partners, the group that made the initial investment leading to the financial makeover.
Blattman believes Criimi could have continued to buy small, risky pieces of debt. But because of an overcrowded B-piece buyer market and eroding credit standards, the company will garner a greater payoff if it manufactures its own sliver.
"Criimi could buy that exposure from Wall Street firms, but alternatively, we could go directly to borrowers, make loans and finance them using CMBS," Blattman said. "It will offer a compelling alternative to borrowers, one in which we could be more like traditional lenders."
Criimi's tweaked plan, which allows it to function as a REIT that lends, is impressing industry observers.
"For a company that was in Chapter 11 and was contending with an investor group that had a controlling ownership stake, executives came up with a new business plan, and they're trying to implement it for the future," said John Kriz, a managing director at Moody's Investors Service. "They repainted it, revamped it, reengineered it--a big shift in business plan."
Vision Quest
As Criimi chiefs prepare to make their moves, they are also showing how vital it is for today's top managers to recognize, and position their firms to stay ahead of, tomorrow's big issues.
"Industry visionaries are the people that see the trends and are able to execute, as opposed to just dreaming," said Stan Ross, chairman of the Lusk Center for Real Estate at the University of Southern California. "They have long-term vision with the ability to implement strategies on a short-term basis. We have a lot of visionaries that just don't get to execute."
The leaders of great firms "are pushing their enterprises to constantly reinvent themselves as it relates to core strategy," added Ray Milnes, national director of real estate at KPMG L.L.P.
Criimi is not alone in positioning itself for the future. According to several analysts and consultants, the well-established Rob Maguire, chairman & co-CEO of Maguire Properties Inc., is another leading-edge player to watch. Though the Los Angeles developer has captivated the industry for four decades, his latest endeavors--a $722 million IPO as a REIT and several buys of trophy properties in the city's Downtown--demonstrate that he has a hunch for where the market is headed, say industry watchers.
The brazen landlord has spent the past two years implementing a new corporate team, a revamped financial structure, as well as buying trophy buildings outright to create more balance sheet transparency for Wall Street. Maguire also expanded his holdings into Orange and San Diego counties. In late July, he bought Park Place, in Irvine, Calif., for $215 million.
And thanks to a rise in office leasing and continued low cost of capital, the properties Maguire already owns--and those he plans to acquire--will be well positioned going forward, noted Ross. That focus, along with last summer's IPO, "are going to be viewed as ahead of the curve and smart," he said.
"Maguire is the consummate dealmaker, an extraordinary negotiator," added Jim Sullivan, a senior analyst at Green Street Advisors.
Maguire may be among the frontiersmen in the office segment, but analysts point to another trailblazer in the retail sector. According to Wall Street watchers, Developers Diversified Realty Corp. has a business plan that is well in front of the competitive pack.
The retail REIT has a diverse tenant mix, but it has cemented its position by focusing on big-box users--Wal-Mart and Target--thanks in large part to the vision of its chairman & CEO, Scott Wolstein. In recent months, Wolstein has helped the company execute some aggressive growth plans. In May, Developers Diversified bought 53 assets from Benderson Development Co. for $1.3 billion. Before that, it formed an alliance with Australia's Macquarie Bank Ltd. to expand its access to foreign capital.
"What Scott Wolstein is doing with retail is cutting-edge," said Dale Anne Reiss, global industry leader of the real estate practice at Ernst & Young L.L.P. "He understands the dynamics and the impact of the big players, like Wal-Mart, better than anyone I've seen."
Niche Frontier
While observers are taking note of a few players in the larger arenas, they also point to pioneers working in industry niches. Take the case of Public Storage Inc. The storage giant's vice chairman & CEO, Ronald Havner Jr., has better aligned the company's strategy with long-term trends since getting promoted to the chief's position 18 months ago.
According to Sullivan, the firm had ventured into a related business--the pickup and delivery of goods--but that was a financial flop. Havner adjusted the strategy so that the company can capitalize on its sizable operations, which includes managing more than 800,000 storage spaces in 80 U.S. cities. In recent months, Public Storage overhauled employee training, added product standardization and improved customer service, Sullivan noted. "A lot of the success of the company is attributable to the platform, but the pieces had been scattered about," he said. "Ron has done a good job of putting these valuable pieces back together to make the company more valuable."
Public Storage has crafted a strategy that is hard to replicate and will pay off in the coming years, explained Sullivan. "It's a good business model because demand for the product continues to escalate due to the American consumer's insatiable appetite for buying stuff they don't need and not having a place to put it."
Also reshaping its corporate approach is AmeriVest Properties Inc., a REIT that caters to tenants in need of 2,000 to 4,000 square feet of office space. The larger operators are ignoring the small-tenant market, observed David Loeb, a managing director of real estate research at Friedman, Billings, Ramsey Group Inc. AmeriVest's direction, led by chairman & CEO William Atkins, includes widespread use of the short-form lease (about a dozen pages), standard finishes for space and lower tenant improvement costs. Loeb believes the company is poised for rapid growth because the smaller businesses tend to create jobs first and will likely make up the bulk of the upswing in leasing activity.