Jim Lindsey, a great running back in the ’60s and ’70s, had more than his share of Hall of Fame mentors. He played for the legendary Frank Broyles at The University of Arkansas. And in the NFL, he toiled under Norm Van Brocklin and Bud Grant with the Minnesota Vikings. But if you ask the 65-year-old who laid the foundation for his real estate success, Lindsey doesn’t credit any gridiron great. Instead, the conversation turns immediately to a high school math teacher in tiny Forrest City, Ark.
Yes, the seeds for Lindsey Management Co.—a company that broke ground on 2,180 units in 2009, landing it the No. 1 spot on the 2010 MFE Top 50 Builders list—were planted in a tiny classroom in Forrest City, Ark. Lindsey used the basic math equations he learned from Bratton to understand the dynamics behind making development deals and running apartments as efficiently as possible. “He believed that in math, you start with the basics, the most simple elements, and move up from there,” Lindsey says.
Later on, Lindsey would apply that simplicity to his real estate deals—looking at how small components of a big lot can yield golf courses, amenities, and multiple phases of apartments. But like his mentor Bratton, who stayed in tiny Forrest City, Lindsey didn’t stray too far from his roots—building around 2,000 garden units per year in overlooked markets in Arkansas and neighboring states.
While other major builders have slashed their groundbreaking pipelines from thousands and thousands of starts a few years ago to zero new units in 2009, Lindsey Management has remained remarkably consistent. After starting 2,604 units in 2007 and 1,684 in 2008, it leapt to 2,180 in 2009—more than even the largest national companies. And most amazing? It built those units without help from the FHA’s Sec. 221(d)(4) program, which many in the industry insist is the only path to new development in the current economy. Not for Lindsey. Here’s how this quiet regional firm—and its steady, broad-shouldered CEO—keeps on building.
1) Your Markets Don’t Have to be on the Coasts. You Just Need to Know Them Well.
Lindsey knew math and knew farmland (which he called “the most basic unit of real estate”) from growing up on a farm in Forrest City, and he knew Fayetteville, Ark., because he went to college there. So it’s not surprising that the town, located in Northwest Arkansas, would be where the math major and pro-runningback made his first jaunt into the real estate business.
At 21, Lindsey bought a plot of land in Fayetteville across from what became the mall. Three years later, he sold it for a “multiple” of what he paid for the land. After Lindsey finished playing football in 1972, he turned his full focus to real estate, dealing primarily in commercial assets.
In the ’80s, he converted some of that success in other sectors to multifamily, building small apartment complexes in nearby Rogers and Springdale, Ark. The company started branching out—entering Oklahoma, Arkansas, Alabama, Kansas, Mississippi, Missouri, Nebraska, and Tennessee. Even then, the firm stayed focused on smaller, tertiary markets and college towns.
“He doesn’t have any intention to go into downtown Dallas or Atlanta or Chicago and try to compete,” says Brian Carlton, director at Dallas-based HFF, one of Lindsey’s permanent lenders. “That’s not his deal. For the markets he’s building in, you have renters who have never lived in a Class A, four-story wrap with structured parking.”
These may not be the coastal, high-barrier-to-entry markets that the institutions seek out. But for Lindsey, they work well. By having a regional focus, Lindsey can use real-time, on-the-ground information to know whether a market can absorb more supply (though he admits that high occupancy levels have occasionally lured him to overbuild in some of these markets).
Take for instance the 312-unit property it’s looking to build in Pearl, Miss., a town of more than 20,000 people. “We did a deal in Madison, Miss., which is not far from Pearl, and it’s been a tremendous success for us,” Lindsey says. “The economics of Pearl look similar to Madison.” Who would have known that? A math major who still employs his skills on a daily basis. “He is a mathematician by degree, so everything is a math equation to him,” says Jim Taylor, president of the Northwest Arkansas division of Fayetteville-based First Security Bank. “He does math equations faster in his mind than most people can do them with calculators. You can be sitting there in a conversation with him, going over different scenarios, and before you start to crunch the numbers and work through some of those different scenarios, he already has it worked out in his mind and is telling you the answer.”
And Lindsey possesses additional insights and pieces of local intelligence. For instance, in many ways, Lindsey’s growth mirrored that of fellow Fayetteville corporate resident Wal-Mart. (Lindsey is actually in The Sam M. Walton College of Business at the University of Arkansas, along with former college teammate and Dallas Cowboys owner Jerry Jones.)
“What’s helped is he’s been down there and has all of those ties,” says Robert Ryan, a managing director at New York-based M&T Realty Capital Corp., which is one of Lindsey’s permanent lenders. “He’s been very close to the Walton family. It’s funny how some of his properties are across the street.”
2) Know What’s Going on Inside Your Company. And Make Sure Your People Know, Too.
Walk inside Lindsey’s office and you’ll see the usual decor—pictures, stacks of paper, and a couch, but one very important thing is missing. There’s no desk. Lindsey says the couch is more comfortable and informal. But don’t take that as a sign that Lindsey is asleep at the wheel. In fact, nothing could be further from the truth.
“There are papers everywhere, and he knows what’s on every one of those pieces of paper,” says Harvey Williams, president of the Northwest Arkansas division for Bank of the Ozarks, which is one of Lindsey’s longtime construction lenders. “When you ask him a question, he doesn’t have to call someone and ask what the number is. He already knows it.”
Leadership Lessons: Jim Lindsey
Title: CEO
Age: 65
First Professional Job: Pro football player with the Minnesota Vikings
Best Business Decision: Coming home to Northwest Arkansas when my professional football career was over
Favorite Quote: “Do unto others as you would have others do unto you.”
Greatest Business Challenge: How to rent a vacant apartment
People You Most Admire: Winston Churchill, Margaret Thatcher, Ronald Reagan
Best Advice Ever Received: Treat everyone with respect.
Last Book Read: The Life of George Washington by David Ramsay (1807)
Each morning, Lindsey gets a company-wide report that was conceived and developed by chief financial officer and president of corporate operations Scott Roggerson. It’s massive: three-quarter-of-an-inch thick, printed on legal-sized paper in size 8 font. The report provides property and portfolio data, including vacancies, the number of units under deposit, uncollected rents, and incomplete maintenance requests. “He’ll call managers if it doesn’t look good,” Roggerson says. “He knows that report better than anybody in this office.”
And he knows his property managers. And their spouses. Back in the late ’80s, Lindsey decided that his managers needed to live on-site to be most responsive to resident concerns. So, he set them up in 1,600- to 2,200-square-foot suites above his clubhouses. That way, if there’s an emergency at 3 a.m., they’re available. “He has really good managers, and he pays them well for the value that they’re giving to him,” Williams says. “His managers are incentivized to keep vacancies low. If they’re able to do that, then they’re rewarded.”
While the managers are tasked with dealing with on-site issues, regardless of the hour, key decisions, such as rents and purchasing, are made at the company’s Fayetteville headquarters. Those decision-makers have rich experience, though. Lindsey says that most of his core leadership team has been with him for at least 15 years. Unlike the culture at some other companies, these executives don’t leave after five years to compete with Lindsey.
“His executive management team can still answer our questions and are on top of their area of responsibility,” Williams says. “For us, as bankers, that gives us a lot of comfort because they know what they’re doing and what situation they’re in. They can give you that information when you need it.”
3) Develop and Stick to a Construction Template.
When you visit a Lindsey building, don’t expect to see him building gleaming, glass high-rises against urban skylines. That’s not what he does. But he does build bricked “stacked and backed” apartments with assembly-line consistency. And in this economy, that’s the kind of certainty that lenders are looking for.
Lindsey doesn’t really have a goal as to how many units he’d like to own, but he feels comfortable adding between 1,400 and 2,400 units per year. The firm has been building that much since 1995, and since then, the product hasn’t varied much.
The typical Lindsey product features a row of six units on either side of a chase (double studded) wall and insulation. The units are backed against each other with plumbing and electrical snaking down the middle of the structure, making them energy-efficient for the residents and the company in its construction process. “It’s been done many times,” Roggerson says. “If they don’t have the backed and stacked effect, I think you’re talking about a 20 percent difference in costs.”
The repeatable formula also works for the math fan in Lindsey. “My guess is that when he goes to build one, he’s less than 1 percent off what he thought the budget would be,” says Ryan of M&T Realty Capital. “He’s got that down pat.”
Even though Lindsey Management generally doesn’t go through the zoning process (he prefers land as close to finished as possible), the surrounding community will ask for changes. This has forced the company to upgrade architectural features and add more brick, change façades, or occasionally even add density. For instance, the city of Fayetteville asked the company to build up to four stories in its The Links at Fayetteville project. It was the first time Lindsey, which likes to stick to about 12 units an acre, has gone to four stories.
Lindsey’s efficiency extends to its building process. It handles everything from development and entitlement to architectural to construction. It charges its partnership less than the typical builder fee. “We give that back to the lender because we think it’s a basis to get good loans,” Lindsey says. “I feel like the banks have felt like they were getting as close to wholesale product as was possible to be delivered, and they trusted us with that.”
Lindsey Management usually chips in about 25 percent of the equity on its deals, providing even more cushion. “They don’t charge the partnership any ridiculous development, architectural, and general contractor fees,” HFF’s Carlton says. “He’s not charging himself. He’s paying his people but delivering a wholesale product.”
4) Give ’Em Something They Can’t Find Anywhere Else.
Jim Lindsey is the face of Lindsey Management. And as a former professional football player, local gridiron hero, and even one-time gubernatorial candidate in 1976 (at the time, he was rumored to be gunning for Blanche Lincoln’s Senate seat), he fits the bill perfectly. But dig a little deeper, and you’ll see Lindsey is actually run by two families—the Roggersons (Scott, Kevin, and Brett) and the Lindseys (Jim and Lindy). The families have a lot in common—work ethic, dedication to the company, and real estate acumen.
“They look after Lindsey’s assets as if they were their own,” Taylor of First Security Bank observed. “You can’t go out and hire that. It’s a culture that you build from within.”
But there’s one other common thread between the two families—golf. And, in a surprising way, the game of golf has helped keep their construction pipeline flowing. Lindsey’s son Lindy, the company’s president of golf operations and design, and Kevin Roggerson, the senior vice president of golf, both played college golf, and Lindy wanted to carry that passion into his career with his father’s company. He fulfilled that at the company’s Lost Springs development in 1992, which had a lake perfect for a course. “When we went to Lost Springs, I thought that this would be the perfect place to do apartments with a golf course,” says Lindy, who drew the courses, seeing them through construction and managing them. The property worked well, and Lindy followed with another at The Greens at Lakeside Village in Fayetteville, two years later. Now, the firm has 39 courses adjacent to its properties, with 14 being 18-hole courses and 25 other par-3 and nine-hole courses that are offered as a basic amenity to the residents. Though it’s a rarity, Lindsey lacks numbers to quantify this amenity. But the firm has enough antidotal information to make sure that the golf courses help, especially at communities near colleges, where residents often have disposable time.
“For the average medium-income person who lives in an apartment, it means a lot to live near a golf course,” Lindsey says. “They don’t want to pay for it, but if they can get it as an extra, it will keep you 100 percent occupied when someone else is 80 percent occupied.”
The 18-hole courses have a different dynamic, though. They have their own clubhouse and amenity structure because Lindsey can sell memberships. “Ones that have memberships can hold their own,” Kevin says. “Ones that don’t have memberships will be hard to make work.”
That work, as it often does, lies in the financing. Basically, the debt and land for the smaller courses is on the apartment buildings, while the company has to make the course work under the apartment loan. But, if the company can use the course to keep occupancy in the high- 90 percentiles—and get an extra $25 to $50 per month—the math works.
“It adds a little more prestige to the apartment complex, and it allows them to charge a little more rent because of that prestige,” says Williams of Bank of the Ozarks.
And that niche allows Lindsey to offer something unusual. “He’s able to find markets that are underserved and apply his formulas to those particular markets with a quality product at a price you’d expect for a product with no amenities at all,” says First Security’s Taylor. “Some have aquatic parks. There is a lot of green space with picnic areas, volleyball fields, and basketball courts. It has a country club feel for not a country club price.”
5) Do What You Say You Will. And Lenders Will Follow, Even in Bad Times.
Lindsey Management has a lot going for it—5 percent of its assets are unencumbered, and a number more will be fully owned in the next four years. And it’s put 25 percent equity in all of its deals. So even in the deals that aren’t paid off, it’s in good shape. Furthermore, Lindsey really knows its stock because with the exception of two properties, the firm built every unit from top to bottom. Additionally, with the exception of two Dallas-area deals Lindsey did with old football buddy Jerry Jones, the company doesn’t sell assets.
But Lindsey hasn’t been immune from the past two years. In fact, while markets such as Oklahoma remain strong, it’s getting hit hard in its backyard around the Fayetteville area, where vacancies are at 85 percent this year. And like everyone, the company has seen its values fall from the construction loan to extension time. But Lindsey isn’t handing the keys back to the bank.
Lindsey Management Co.
Headquarters: Fayetteville, Ark.
Year Founded: 1985
No. of Employees: 1,000-plus
Units Owned/Managed: 33,293
No. of Units Built in 2009: 2,180
Occupancy: 93 percent
Market Coverage: Arkansas, Alabama, Kansas, Mississippi, Missouri, Nebraska, Oklahoma, Tennessee
“When asked to step up, they have stepped up,” says Harry Justice, a senior relationship manager in real estate banking with Minneapolis-based U.S. Bank, one of Lindsey’s lenders. “They haven’t shirked their responsibilities. Not all builders have the ability or willingness to step in and right-size things if it requires that. They are able to do that and have the willingness to do that.”
Lindsey wouldn’t have it any other way. “Jim is probably the premier name in this neck of the woods,” says Scott Provost, a vice president for Birmingham, Ala.-based Regions Bank Capital Markets, one of Lindsey’s lenders. “He’s been doing this for a long, long time and has always performed as expected. People know when they lend to Jim Lindsey, they get paid back.”
The problem the past few years wasn’t their local construction lenders (who have, so far, weathered the storm), though. It was the secondary market. Like most builders, Lindsey relies on a number of institutional lenders, such as J.P. Morgan, Massachusetts Mutual, and the New York Teacher’s Retirement System, to take out those construction loans on long-term deals. After things blew up in the fall of 2008, Lindsey says the permanent loan “backed up” for him, which didn’t make him alone.
But the company was still able to get some projects off the ground and, after a six- to nine-month lull in the secondary markets after the financial collapse in 2008, Lindsey has seen things open back up. In what might be a small indicator of its stabilized fundamentals, Lindsey says that as of the last day of April, it had 518 more units rented than at the end of April 2009. And that bodes well for the future. The firm expects to start 1,250 to 1,750 units per year in 2011 and 2012. That will only add to what Ryan says has become an impressive yet distinct company—“an institutional-sized company that’s operated kind of like a family-run business.”
“He’s got a whale of an empire there that’s come through the worst time in market history, and he’s survived with very little nicks himself,” Ryan says. “He’s got only big upside.”