It's a whole new ball game for PM Realty Group, the full-service real estate company that manages, leases, maintains, consults and supervises properties across the United States.
In less than a year, the firm that parlayed a services contract for one building into a management portfolio now estimated at more than $6 billion has re-invented itself. Over the past several months, the Houston-based company has strengthened its management roster with a number of seasoned players from well-established companies, has increased its management portfolio over the past 12 months by 25% to more than 100 million sq. ft. and has embarked on an impressive expansion into the lucrative world of leasing.
"We're changing," says head coach Michael T. Lutton -- more formally known as the company's vice chairman and CEO in a bit of understatement. "PM Realty Group has an all-star team of real estate professionals. All of our new players are from a similar age group, all are successful professionals with a proven track record, and all are suited up to meet the challenges we anticipate in the years ahead. Not only that, but we have added more business and have identified the new areas that we want to concentrate on. PM Realty Group is not the same company it was 18 months ago."
Lutton himself is a first-round draft choice of Walter M. Ross, the chairman of PM Realty Group, whose transcontinental journeys in the pursuit of satisfying customers and garnering new business are legend. The affable Scot met Lutton when PM Realty began managing the Irvine Co.'s Newport Center, a massive retail and commercial development in Newport Beach, Calif.
"I had known Mike for a number of years," says Ross. "He was a very astute player in the Southern California real estate field. He knew what he wanted for his company and how to get it. I was very impressed with him and the results he generated."
At the time, Lutton was serving as president of the Irvine Co.'s office and industrial subsidiaries and had responsibilities for Bren Investments' San Diego and Los Angeles portfolios -- Bren as in Donald, the Southern California billionaire real estate mogul. While at the Irvine Co., Lutton helped to develop in excess of 2.5 million sq. ft. including Jamboree Center, MacArthur Court, AT&T Tower, Western Digital World Headquarters and others. He was responsible for leasing over 1 million sq. ft. of Class-A office space per year for six consecutive years.
"I was ready for a new challenge," recalls Lutton. "I joined PM Realty Group in 1993 and we began the restructuring in 1994. We are now seeing the results of that re-inventing of the corporation."
Upon joining PM Realty Group, Lutton took an ownership interest and plans to double that percentage in the years ahead.
Founded more than four decades ago, PM Realty Group's operations extend to more than 20 states and encompass 3,200 employees. Rather than direct company operations from their offices, the company's executives maintain an active schedule of personal property inspections and client visitations. It is through repeated client contacts, the PM Realty mantra states, credibility and trust are created and maintained.
"One of our strengths is that early on we understood that real estate is a local business, the strength comes from getting the business and sustaining it," says Ross. "We set the business up so it can be run autonomously. We are decentralized. The major decisions are not made in Houston, but out in the field. That is one of the things that our clients find very appealing."
David Senior, senior vice president of Texas Commerce Bank, agrees. "We've been a client of PM Realty for 13 years, and each year we've given them more and more responsibilities," he explains. "Right now, they manage more than 3 million sq. ft. for us. Before PM Realty came on the scene, the bank had its own people doing the work. But they have done a much better job, handling everything from our 800,000 sq. ft. headquarters to a 4,000 sq. ft. branch bank."
PM Realty Group has always had a well-deserved reputation for reducing expenses. Some 18 months ago, the company was asked to lease the two-building, 400,000 square foot Northridge Pointe in Atlanta's highly competitive north central market, where too many companies were chasing too few tenants. PM Realty's team swooped into the city, made a host of recommendations and -- after receiving the necessary approvals -- implemented their plan quickly. The result? Occupancy increased to 100% in the smaller building and 91% in the other. Not only that, but PM Realty also negotiated decreases in service contracts as well as an 11% reduction in operating expenses -- about 65 cents per sq. ft.
"We've proven time and again, for companies looking to improve their position, PM Realty is the company to call," says Lutton. "No one can touch our technological advances nor our operating systems. They are the result of 40 years of fine-tuning."
PM Realty Group was founded in 1954 by Fletcher Emerson, who happened to work in an office building that was built by two different owners. Emerson correctly forecast the owners would need an impartial third party to manage their property; within months the Fletcher Emerson Co. was launched. The fledgling firm placed heavy emphasis on service as well as scrutinizing -- and ultimately reducing -- expenses. In the process, it provided a high-quality product for clients that continues to this day.
The company prospered until 1974, when Houston became a victim of the energy crunch and was soon home to numerous empty buildings. That year, Emerson sold the profitable operations to Century Corp., which was started by developer Kenneth Schnitzer and headed by Ross, who rechristened the company Property Management Systems.
The company continued to pioneer techniques and systems that economically benefit building owners; its operation savvy received increased notice from owners of other projects around the nation. Aided by the national building boom of the 1970s and 1980s, PM Realty Group's predecessor more than quadrupled its real estate portfolio and added a number of national firms to its client roster.
The 1980s brought dramatic change to the national real estate industry and also to Property Management Systems. Increasing numbers of pension funds and insurance companies that had funded construction of office towers suddenly found themselves reluctant owners. Many real estate developers who weren't constructing any new buildings entered the property management field as a means of survival. Although the competition increased, the company prospered because developers who were merely biding their time until the next building boom occurred had a hard time training their construction staffs to manage properties.
But within a few short years, PMS became an innocent victim of the savings and loan debacle. In 1987 developer Schnitzer placed the firm under the control of Banc Plus Savings, a Houston thrift that had also invested heavily in raw land in the Houston area. That decision eventually came back to haunt the thrift when, two years later, Banc Plus was taken over by the FSLIC and ultimately the Resolution Trust Corp. PMS, which had only the standard 30-day management contracts with clients it had served for years, was in a precarious position. Just when Ross didn't think the situation could turn worse, he was proven wrong.
While the uncertainty about the company's future had clients on edge, a move by PMS president Joe M. Hudec shook the company. Hudec abruptly left the firm to form a property management company backed by The Prudential, with the ultimate goal of taking over management of all the insurance giant's real estate investments -- including 21 million sq. ft. under 30-day contract to PMS. Such a loss of business could have been fatal.
Ross acted quickly. He determined that the RTC had no interest in keeping PMS and would sell it to the highest bidder. He then led a management buyout of the firm together with the late Jerry Wexler, Ed Ross (no relation to Walter) and Don Smith, who were principals of Chicagobased Jupiter industries. (Today, the Chicago investors hold 60% of the company, with Ross and 14 company executives holding the remainder.)
"The RTC owned PM Realty and they didn't really understand the business, nor did they want to keep the company," notes Lutton. "Walter held PM Realty together, meeting with clients. It's a tribute to his efforts that the company pulled through."
Free of the RTC, executives had to contend with the loss of the 21 million sq. ft. owned by Pru. They hunkered down, scoured the country for new business -- and got it. In retrospect, Ross says the loss of the Prudential space actually aided the company. "We entered new cities and got new business. From then on we weren't dependent on any one client for more than 10% of our business."
A year later the company was renamed, not only because some employees objected to the moniker "PMS" but also because the focus of the firm was changing from merely managing properties to other fields. Although PM Realty Group does look after apartment and retail properties, the bulk of its portfolio remains in office space that ranges from a one-stroy structure to more than 50 floors. Typically, in-house leasing specialists are assigned to single or multiple properties, depending on their size and their amount of available space. The firm also provides construction management services including build-to-suit development.
Free from ownership distractions and conflicts, the company focuses solely on client requirements. It has never ventured into development or ownership of real estate. "The big advantage of PM Realty is that we are autonomous," says Lutton. "There are no conflicts of interest to take tenants into buildings where we or a parent company may have an ownership interest. We do what is in the best interest of our clients."
Those clients include some of the bluechip concerns of American commerce: Chase Manhattan, Chemical, Citibank, NationsBank Texas Commerce, Aetna, MassMutual, MONY, New York Life, Prudential, CIGNA, American General, Eastdil Realty, GE Capital, Greystone, TIAA-CREF, The Irvine Co., Goldman Sachs & Co. TCW Realty Advisors and Hillman Properties.
The vast majority of PM Realty's clients are so satisfied with the service they receive that they continue to give PM Realty increased responsibilities. "Teachers Insurance and Annuity Association just assigned us more than 2 million sq. ft. of office properties nationwide including major developments in Chicago and Florida," says James Gorman, vice president national sales and marketing, who worked at A.T. Kearney before joining Lutton's All Stars. "Chemical Bank has assigned us 1.7 million sq. ft. of facilities management in Suffolk and Nassau counties, while Greystone Realty and Exxon Exploration [assigned us] nearly 1 million sq. ft. in Houston."
Lutton adds that PM Realty has also been contracted to oversee UBS' 400,000 sq. ft. in Chicago, more than 3 million sq. ft. in Newport Beach for the Irvine Co., Hillman Properties' 5 million sq. ft. of office, industrial and retail properties in the Pacific Northwest, management services for Meijiseimei Realty of America's 1.2 million sq. ft. 444 S. Flower Building in Los Angeles and management services for the commercial office space at ABC Entertainment Center in Century City, Calif.
"PM Realty group has added over 20 million sq. ft. to our management portfolio last year," Gorman continues. "We represent the industry's most respected institutions and are optimistic about the [real estate industry's] future growth and continued prosperity in 1995."
One way PM Realty Group intends to prosper is by adding new staff. On Jan. 1, Dr. George Watts joined as executive vice president, administration and human resources, reporting directly to Lutton. Prior to joining PM Realty, Watts was president of Executive Visions, a San Antonio consulting firm. Watts has 19 years of experience in building high-performing corporations. In addition:
* J. Lamar Haggard, a 10-year veteran of the company, was been named PM Realty Group executive vice president, responsible for management and leasing services nationwide. His current responsibilities include the management of more than 70 million sq. ft.; he oversees all of the managing directors for PM Realty Group, including its joint venture company, McCoy/PM Realty Group. A 22-year veteran of the real estate industry, Haggard has successfully completed numerous consulting assignments, feasibility analyses and absorption studies for clients such as Chase Manhattan, Irish Life Assurance Co., Aetna Realty, Goldman Sachs, Travelers and Maxxam Corp.
* Steven R. Baron, managing director, Midwest division, was tapped to oversee the 250 PM Realty Group employees in Chicago, Detroit and St. Louis. Baron's division provides management and leasing services for over 12 million sq. ft. of office properties, retail centers, industrial developments, condominiums and apartments. Baron began his career with Metropolitan Structures, leasing more than 3 million sq. ft. before joining Stein & Co. In 1988 he joined The Prime Group to market a 1 million sq. ft. office tower and signed one of the largest law firms in Chicago, Keck, Mahin & Cates.
* Jack R. Koon is now responsible for the facilities division of PM Realty Group that provides management, leasing, investment brokerage and construction services to corporate clients who occupy their own real estate. Koon has guided PM Realty's growth to its current portfolio of more than 400 properties in over 20 states including commercial office, retail, industrial and multifamily projects. He joined the company in 1970 and was named COO and president in 1991.
* Richard Brisbois, formerly of Eastdil Realty, became the company's Texas managing director. Howard L. Ecker was brought in as president and COO of PM Realty/Ecker. David G. Ford was promoted to Northwest region vice president, and K. Scott Davis, multifamily director and vice president. Donald Rankin was selected as Facilities Maintenance Services president, replacing Robert L. Means, who retired last year after more than three decades with the company. Merit Integrated Solutions, PM Realty's software concern, is overseen by president Al Diaz.
Rounding out PM Realty's roster is Martin Morgenstern, formerly head of investments with CB Commercial, who is president of PM Realty Group's investment properties division. Ross says this strategy will give PM Realty more control when the properties it manages are bought and sold.
"Chris Smith is a former major league baseball player and will help us tap the Asian openings and Pacific Rim," says Lutton. "Stan Yoshihara, who was vice president of operations for Cushman & Wakefield, is starring for us in Los Angeles."
One of the company's hiring coups has been bringing Watts aboard to assist with PM Realty's training and aid with marketing efforts. "A lot of companies say they are into the training but aren't versed in business techniques," says Lutton. "We spend a lot of time training our people."
What's not changing is PM Realty's main focus: looking out for its clients. "We go in and look at an asset. We want to know, 'What are the objectives?'" says Lutton. "Is it a five-to seven-year hold? Will it be unloaded in six months? We're not just running a building. We need to know where the value is and what the strategy is. No one buys real estate without an exit strategy. Our job is to get all the tools we need and then do the job we were hired to do."
He notes that being successful with one project typically leads PM Realty Group to others. "Our satisfied customers take us to different markets," he continues. "They may have a building in California, maybe apartment complexes in Connecticut and Detroit and Houston. We can provide the same level of services at each location. With our continued growth, we must be doing something right. We dominate each market we're in and we have a significant market share in our new markets; we are usually in the top three."
Philip R. DiGennaro, managing director of Teacher's, agrees. "Teachers has some $7 billion in real estate and we utilize third parties to manage it. PM Realty bid on one part of the portfolio, did well on their first assignment and continued to do work for us. I think the biggest asset they have is that they are very flexible -- they can handle any assignment -- and that they don't try to give you a lot of bull. They play it straight."
One of the company's strengths, Lutton notes, is that PM Realty has always been considered the best operator in the business. "We can still operate and manage a building like no other; we wrote the book on systems and procedures." While the company will continue to be the premier company in those areas, its emphasis will shift because PM Realty is now betting heavily on the brokerage field.
"Leasing hasn't been as strong as it should be in Houston," he concedes, adding that the situation is about to change. "With the arrival of Richard Brisbois, we are responding strongly to a very competitive market. We are a 40-year-old company that is well-known. We aren't changing any of our techniques. We are stressing leasing heavily in the future. You have to remember, PM Realty is a company that heavily emphasized the management side of the business. Now we want to give equal time to the leasing side. You might say we're fine-tuning our engine of growth to a turbo."
Partnership Meets Needs of Public Institutions Seeking Minority
Participation in Asset Management
Responding to the needs of public institutions like pension funds and endowments, which are increasingly seeking minority participation in managing real estate assets, PM Realty Group and RMC Group, a minority-owned corporate real estate firm, formed a partnership, McCoy/PM Realty Group, in 1993 to provide management and leasing services to institutional, corporate and government entities. During its first year in busienss, the New York-based partnership grew its management portfolio to more than 7 million sq. ft.
"This alliance offers an ideal solution for corporations interested in expanding minority opportunities within the professional services category," says Michael Lutton, vice chairman and CEO of PM Realty Group. "With McCoy/PM, an institution can meet its minority-business participation goals while also benefitting from the resources and unique capabilities of one of the country's largest real estate companies."
"There has been high demand for this partnership from the very beginning, because it blends the capabilities of a corporate real estate service organization, staffed with professionals averaging 16 years of industry experience, with the resources of a 40-year-old property management company," says Richmond S. McCoy, president and CEO of McCoy/PM Realty. "The result is a firm with an extraordinary focus and approach that benefits clients and increases the performance of their properties.
"We are a national, minority-owned firm that offers a range of services currently unavailable from any other minority-owned commercial real estate companies. With PM Realty's resources behind us, we can utilize the latest systems and techniques to improve property performance and maximize our clients' investment return," McCoy adds.
The McCoy/PM Realty partnership was nurtured by Teachers Insurance and Annuity Association-College Retirement Fund (TIAA-CREF), which, along with Jupiter Industries, awarded the firm its first management and leasing assignme nts in June 1993. The properties, located in Florida and Texas, totaled more than 1.5 million sq. ft. The TIAA-CREF portfolio managed by McCoy/PM Realty has now grown to more than 2 million sq. ft.
The formation of McCoy/PM Realty Group has attracted the attention of some of the nation's largest institutional property owners.
Chemical Bank has awarded McCoy/PM Realty a contract to manage its 1.6 million sq. ft. portfolio. The firm will provide facilities management services for 20 properties in Nassau and Suffolk counties and throughout Brooklyn, Queens and Staten Island, including Class-A office, middle-market and warehouse facilities.
The California Public Employees Retirement System (CalPERS) also recently awarded a significant management contract covering its East West Technological Center, a 276,000 sq. ft. office complex in Naperville, Ill.
In addition, McCoy/PM Realty is one of five property management firms selected by AT&T to provide training to its employees.
RMC Group owns 52% of the partnership, which has 120 professionals providing property and facilities management, leasing, brokerage, construction management, corporate real estate and due diligence services in 25 states and 40 cities nationwide.