If Leonard Wood had left Trammell Crow to start an ice cream stand, Donna Hawkins says she would've followed him. And Wood's longtime executive assistant obviously isn't alone. When Wood resigned from Trammell Crow in 1998 to launch Wood Partners, roughly 60 Trammell Crow employees, including senior leaders Jerry Durkin and Jim Simpson, went with the mild-mannered executive.
While it's not unusual for a senior executive's team to follow him to a new venture, the loyalty Hawkins and other Wood Partners employees have to their leader seems extraordinary. The reasons for their devotion: a successful track record of profitable deals, a high standard of ethics, and a belief in giving employees freedom. "Leonard is very smart and he's very likeable," says Ron Terwilliger, chairman, CEO, and Wood's former boss at Trammell Crow Residential. "He's wonderful guy. He added that trait to being very smart. Then he got very experienced in multifamily with us over 15 years."
In just six short years, Wood built a company that last May landed on Multifamily Executive's Top 50 list, ranking as the sixth largest multifamily builder in the country with 3,632 units started in 2003. Wood Partners, one might say, has taken root. It has accomplished that just like a tree might, by turning over new leaves, extending new branches, and bending–not breaking–in the wind.
These qualities appear in many ways throughout the organization. Wood Partners gives its local offices the opportunity to listen to their market and pursue new deals that make sense–not just add to company's traditional portfolio of garden-style properties. If the market wants high-rises, condos, affordable housing, student apartments, or senior units, the company can build it. The company will add markets–moving out of its original Southeastern base into Washington and the Southwest. Local executives (with oversight from senior partners) can alter financing for individual projects to correlate to the risk of each property type. All in all, these characteristics have brought Wood Partners success. "They have seen opportunities to expand into other types of products, which I think they've been extremely successful at," says Brent Farnham, a senior vice president in Bank of America's Atlanta office, which lends to Wood Partners.
Southeast Spinoff Trammell Crow has a long history of spinning off companies, from Gables Residential in Boca Raton, Fla., to AvalonBay Communities in Alexandria, Va. But there are some differences between those two spin-offs and Wood Partners. While the departures of these companies (and their personnel) from the Trammell Crow family was expected, Wood's decision wasn't. But perhaps it should have been. As Trammell Crow divested itself of Gables and other Southeastern assets that Wood oversaw, Wood, the group managing partner, decided it was time to move on. "It got to where I had a pretty small operation [at Trammell Crow] and I was in a financial position to go on my own," Wood says.
First, he needed to talk with Terwilliger. Wood had to tell his longtime boss not only that he was leaving, but that he wanted to take Trammell Crow colleagues Jerry Durkin and Jim Simpson with him. Terwilliger was surprised by his longtime colleague's decision. "I thought with the money he had made, he would retire," he says.
Terwilliger made a pitch to keep Durkin and Simpson, but they chose the new venture. Eventually, their teams did the same, resulting in a transfer of roughly 60 employees from Trammell Crow to the new Wood Partners. The new leaders tried their best to handle the potentially delicate situation appropriately. "We were careful not to talk to anyone before we talked to Ron," Jim Simpson stresses. "We didn't have the whole thing lined up at the beginning."
The other key to the transition was the construction pipeline. Wood, Simpson, and Durkin had seven projects in progress when they left, which Wood wanted to make sure were handled properly. His solution: Wood Partners would finish the jobs under construction for Trammell Crow. After these jobs were completed, some construction employees decided to join the new company as well.
Learning Experience While the decision to let Trammell Crow maintain its construction pipeline kept the peace, it meant Wood also needed to get some projects of his own–and quickly. But it didn't take him long to get things up and running, building nearly 1,000 units over the first couple of years. Their product of choice? Garden-style communities, which Wood and his group had mastered at Trammell Crow. But the new company's leaders didn't want to restrict themselves to what they already knew. Their goal was to listen to the market and build what it dictated.
In 1999, Wood looked to his own backyard–Atlanta–which he suspected was ready for a mid-rise condo property. So, he decided to test his theory with The Dakota, a 160-unit building that ranged from four to six stories in Midtown Atlanta. Like many companies moving out of garden-style apartments, Wood Partners didn't know quite what it was doing. The company planned the building as it did its garden units, hiring an architect to draw up the plans without guidance or assistance from other members of the construction team. As a result, the architect, who also was new to mid-rise, made mistakes that cost the company dearly as the project progressed. "It was terribly inefficient to build," Wood remembers. "Every turn had a hidden cost. Everything cost more than we budgeted."
But the company learned from its mistakes. It now asks contractors and mechanical and structural engineers to estimate costs and validate the pricing of the architect's plans. "They [the engineers] need to set the framework for the building," Wood says. "They need to map out the kind of building that you can build and have it be affordable."
Despite the problems with The Dakota, Wood Partners made a nice profit. This convinced the company it could move into the mid- and high-rise game if it let the subcontractors take an earlier role in the planning process. "The Dakota crystallized our thinking about moving into new arenas," Wood says. "We realized that if we could control the cost side, it would be a great opportunity."
Building Higher Not only did The Dakota help Wood Partners become comfortable with high rises, it also helped ease the Atlanta-based company's transition into condos. "It's been a boom time for homeownership," Wood says. "It's a trend that the government supports. Demographics have supported it. And, the financial markets have supported it with wonderful mortgages."
Still, the company likes to keep its options open as it builds, designating a project as for-sale or for-rent based on as current market conditions as possible. That's what it did with The Metropolis, two towers in Atlanta's Midtown neighborhood. The 498-unit project was originally financed as a for-rent deal, but the soft rental market changed that. "As we were nearing the renting or selling point, we knew the housing market was strong and rental wasn't," Wood says. "We did some test marketing and got 100 reservations [on the condos]."
With this response, Wood decided to sell the first tower and rent the second. But the first tower sold so quickly, he ended up selling the second one too. Given that the entire Metropolis project sold out in just under 11 months, that was a very good decision. To Jim Griffin, CEO of R.J. Griffin Co., a builder for Wood Partners, such decisions–and results–demonstrate Wood Partners' flexibility. "They're very nimble," he says. "They know there is a need for affordable well-located, for-sale units with interest rates where they are."
To be nimble, Wood always wants the numbers to pencil out so that a property can be apartments if the condo market goes sour. For properties that can be condos, Wood supplies higher ceilings, bigger windows and more windows in each unit, upgraded appliances, granite countertops, and upgraded swimming pools and clubrooms. But the company won't break the bank. "We have designed products with amenities, floor plans, and a cost structure that works as an apartment," Wood says. "If you set out to build condos, you may build too much product to get an acceptable return [on apartments]."
There are other things to remember when building a project that could become either condos or apartments. Because of construction defect liability and litigation risks, contractors are sometimes reluctant to work on a project that could go condo. While this isn't an issue for Wood Partners on its garden-style units (it builds those itself), it does rely on third parties to construct its high-rises.
It handles these concerns by focus on problem areas. "We are trying to use better consultants and focus intently on the areas where litigation seems to arise in connection with condos," says Mark Randall, a director at Wood Partners. "This would include waterproofing, soundproofing, and general misrepresentation of the offering. Additionally, we need to focus on delivering quality and creating a customer service delivery process that creates good will."
Affordable Needs While interest rates and government policies spawned Wood Partners' interest in condos, demographics drive the company's other moves. Wood himself studies demographics trends, a pursuit that has left him convinced of the opportunities in affordable housing. "Affordable housing is needed everywhere," says Wood, whose company has completed three affordable housing projects with three more in the pipeline.
To enter the affordable arena with strength, Wood Partners turned to Bernard Felder, luring him from Bank of America's community development group to handle affordable housing finance at Wood. "We had guys doing the architecture, engineering, construction, and entitlements in the local markets, but we didn't understand affordable housing finance," Jerry Durkin, a Wood Parners director, says.
Affordable housing, with its need for tax credits and its layered financing structures, is very different from Wood's market-rate and condo developments. So Felder works with states, cities, and counties on affordable projects and develops a pipeline of equity investors. "The traditional equity investor is often not involved in providing equity for tax credits," says Felder, a director at Wood Partners. "So the obvious first move was to expand our equity investor pool."
So far, the company has won over AIG SunAmerica, PNC Financial, Southtrust Community Development Corp., and Prudential as investors. "The partnership agreements and negotiations necessary for tax credit agreements are as close to brain damage as you can get," Felder says. "Going through that brain damage with three to five core investors that have an appetite for your product can make the overall planning a lot less stressful than it already is."
Since Wood holds affordable properties much longer than it usually keeps market rate apartments, the property management decision becomes even more critical. The company's choice? The Lane Co. in Atlanta, which handles many of Wood's affordable properties. "We aim to partner with those management companies that have a strong experience in mixed-income and 100 percent affordable housing communities," Felder says.
Young to Elderly Wood Partners also had its eye on demographics when it decided to enter senior and student housing. "More kids are pushing into university systems," Wood says of the company's rationale for adding student to its diverse product mix. "University budgets are stressed, and housing is a low priority."
It is a challenge for the private sector as well. Student housing requires multiple-bed apartments, single-bed leases, lots of community space, plenty of parking, and sometimes even resident transportation to campus. To handle these needs, the company partners with Jim Shaffner, one of Simpson's former colleagues and an experienced manager of student housing who now is a partner at University Housing Group in Charlotte. But the company is still testing the student market, not even hiring a full-time employee to head it up. "Student housing can be very successful, but it needs to be in the right place," Wood says. "To us, it's not something we do everywhere, but we do it where we find a select opportunity."
At the other end of the generation spectrum, baby boomers are driving the company's interest in senior housing. But the unit mix for this product differs from what the company usually builds. "There are more are people living alone," Wood says. "You can have a shuttle service. And, you will have larger common areas where people can gather for a seminar or to play cards."
As with senior housing, the company went outside for expertise, hiring a consultant, Kimberly Solbakk, and a senior manager, Steven D. Bell and Co. in Greensboro, N.C., to support these properties. So far, Wood Partners has one project under construction and two more on the way. Yet it won't push too far beyond construction and ownership. "Our entry into that business is on the front end," Durkin says. "We are doing Class A garden apartments focused on the over-55 crowd that needs extra services."
Growth Factors While adding staff or enlisting consultants and partners helps the company reach from market to market, Wood Partners also relies on other factors to grow the company.
One of these is financing. The company usually relies on institutions for equity, asking them to provide about 90 percent of the equity with a return of 8 percent to 9 percent. (Wood contributes the remaining 10 percent equity as needed.) This equity covers anywhere from 20 percent to 30 percent of the deal, with the rest being financed by companies like Real Estate Capital Partners, AIG, Prudential, and Tuckerman.
But the company's investors often vary by product type. Pension funds may not want to build risky infill high-rises, but they might like garden-style apartments. For high-rises, Wood Partners may go to European syndicators, who are used to high-density projects. If the company moves into a new product type, it generally puts more money down. For instance, it normally won't contribute more than 25 percent to safer garden-style apartments, but will put up as much as 35 percent into riskier high-rises. "We are trying to have financial structures that are safe," Wood says.
Wood's local employees, many of whom came from Trammell Crow, also give the company a strong network of roots that supports the company's growth. Their knowledge of their markets, including available land, the entitlement climate, and product needs, can help Wood Partners move from niche to niche. It uses consultants, partners, or specialized employees to fill in the gaps. "The guys in the local offices know their markets, and that gives us a lot of inside information on those markets," Simpson says.
Much of their success stems from their familiarity with each other. "A lot of them were part of the team already," says Paul J. Doocy, chief investment officer for Real Estate Capital Partners, a capital source for Wood Partners. "They are people who are used to working together."
Seeding Leaders One of the things Leonard Wood, director of Wood Partners in Atlanta, learned at Trammell Crow was to give decision-making responsibilities to partners in local Wood offices. "We operate locally with local partners who can keep their fingers on the pulse of the local market and know when things are changing, what the trends are, and where we want to be," Wood says. For example, partners are given a fair amount of opportunity to evaluate and acquire land. Proposals are discussed informally with Wood, Jim Simpson or Jerry Durkin, but local partners are generally the ones finding and presenting sites to the leadership.
Giving partners autonomy and financial rewards ensures that everyone shares the same principles, according to Wood. "The partners' financial rewards are only limited by their ability to do profitable business," Wood says. "It is a great reward system that keeps partners focused and our interests aligned."
It also helps groom partners for the day Wood and senior leaders Jim Simpson and Jerry Durkin leave. "Many of our partners today, in effect, run their own business and operate as entrepreneurs so they will be in a position to move up over time," Wood says.
As a result, in the five or so years when Wood Partners' founders begin to step down, the company will reap the benefits of such a culture. "We believe we are a lasting organization," Wood says. "The senior partners are actively working on succession planning. We work hard to identify and bring along new leadership."
Wood Partners at a Glance
- What: Owner and builder of multifamily and commercial real estate
- Founder: Leonard Wood
- 2004 Revenue: $218 million (projected)
- 2004 Starts: 4,000 (projected)
- Headquarters: Atlanta
- Founded: 1998
- Employees: 152
- Units Built: 18,252 apartments and condos in the Southeast and Southwest, including Atlanta, Washington, D.C., and Phoenix