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Largest Commercial Real Estate Developer To Overhaul

January 11, 1991

DALLAS (AP) _ The days when real estate developers could become wealthy from fees and a stake in their projects are ending.

Partners of the nation’s largest commercial developer, Dallas-based Trammell Crow Co., have decided to boost their $18,000 salaries and reduce the deal-making incentives that made many of them millionaires.

The 130 partners also decided to create a more traditional corporate structure and reduce the number of Crow operating units to six from 15.

The actions are part of a trend among developers to change the focus of their work from building new projects to managing property and other assets, analysts said Friday.

They are a major change for the 42-year-old company started by Dallas native Trammell Crow, still a partner at age 76. He built the firm by hiring aggressive partners at low salaries and promising a stake in the projects they developed.

The plan worked too well, encouraging development even when development became unprofitable. Changing will help Crow to survive the current real estate recession and grow new lines of business, partner Steve Laver said.

″For us it’s a natural evolution,″ he said. ″We’ve been changing our business over a number of years.″

Crow expects to start less than $500 million of new construction in 1991, about the same as last year. The company built twice as much in 1989 and four times as much in 1985, when real estate was still a deal-driven business with developers helped by tax incentives and plenty of easily obtained capital.

″There was a pay day when the deal got done,″ said Robert Frank, real estate analyst for Alex. Brown & Sons in Baltimore.

But with office vacancies high and retail space plentiful in most markets, there is little need for further commercial development, Frank said.

″The skills that are needed in the ’90s are more prosaic - leasing and management skills, acquisition skills,″ he said. ″This is the future.″

Said Laver: ″Doing a deal is often more exciting than managing a recurring fee business. Nonetheless, in today’s market the smart thing for our customers and for us is to focus on fee business.″

″It makes absolutely no sense to be building new real estate,″ said Richard Kateley, president of Real Estate Research Corp. in Chicago.

″It is unproductive use of capital at a time when there are plenty of practical uses for capital″ such as rebuilding infrastructure and education, he said.

The changes at Crow will not affect the separate operations of Trammell Crow Residential, based in Atlanta.

Crow has $11 billion in assets and interest in 8,000 projects around the country, from warehouses to skyscrapers.

Such diversity helped it survive a tough hit from the mid-’80s downturn of real estate in Texas. But like many major developers, problems in the national economy forced Crow to restructure debt the last two years.

One Crow lender, the Teacher Retirement System of Texas, last week foreclosed on a 20-story office building in a Dallas suburb. Crow Co. last fall lost a Minneapolis office complex to another pension fund lender.

Crow partners hope most of the debt restructuring, involving 15 percent to 20 percent of the projects, will be complete by the end of the first quarter.

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