December 15, 2005
How Trammell Crow hit the real estate jackpot
By WILLIAM BRAGG EWALD JR.
Special to the Journal
It's quite possible that you've heard of Trammell Crow. Chances are this real estate developer has left his mark somewhere you have lived, worked, shopped, stayed or visited.
Crow's rags-to-riches story exemplifies the American dream. Born in 1914 in a tiny three-room frame house in Dallas which he shared with eight other family members he started out with next to nothing. Today, his legacy includes an astonishing array of warehouses, office towers, shopping centers, hotels and apartment buildings throughout the world. His well-known landmarks include the Peachtree Center in Atlanta, the Embarcadero Center in San Francisco and the Market Center in Dallas.
Since Crow started out with no connections, he had to rely on old-fashioned hard work to make a living. Before his first "real job" with the Mercantile Bank in 1934, he plucked chickens, cleaned old bricks for reuse in new houses, worked on a construction site for 15 cents an hour, clerked in grocery stores, and helped unload Clabber Girl baking power and Spreckles sugar from railroad boxcars.
First to speculate
But it wasn't merely his tireless work ethic that led to Crow's amazing success in real estate. His vision and willingness to take risks play a major role, too. His first deal, executed in 1949 in Dallas, actually changed the face of real estate development.
Here's what happened: Crow bought a parcel of land on Cole Street. He brought in his longtime friend Johnny McFadden and his partner Edgar Miller to put up a warehouse building. He meant to rent the building to the Ray-O-Vac Battery Co., which he knew needed more space. The building McFadden built to fill the Cole Street plot measured exactly 11,250 square feet. And in that measurement can be found another significant Trammell Crow feature speculation.
Ray-O-Vac needed only 6,750 square feet. That left 4,500. "Taking chances already," Crow said as he looked for a second tenant for the empty space and found Decca Records. Before the building was finished, Decca had signed up for the remaining 4,500 square feet, and Trammell Crow had become, in his own words, a "confirmed gambler, a speculative builder."
Crow was leaving behind an old world in which a developer found a tenant, built a warehouse to meet only his specifications, and gave him a 20-year lease, in that order. "Who ever heard of calling a Ford or a Buick a speculative car?" a big developer asked. But that's what they are: cars manufactured for Ford or GM that have no buyers signed up. Well, Trammell Crow invented the speculative warehouse a general-purpose building that he could offer to a prospective tenant not next month or next year, but now.
And it all began with those 4,500 square feet he leased to Decca.
Once the Ray-O-Vac/Decca deal was under way, Crow's business began to surge. Over the next several years he built more warehouses, along with factories, office buildings, industrial parks and parking garages. By the late 1950s, he was moving from flat, utilitarian structures to more aesthetically pleasing high-rises.
The Dallas Market Center was Crow's first grand monument. By 1979, it totaled more than 7 million square feet. It had a half-million visitors a year. It had become the world's largest single-site wholesale merchandise mart, with parking space for nearly 9,000 cars on 135 acres. Thanks to Crow, Dallas had replaced Chicago as the number one national market in the United States.
From there he went national. He and his partners branched out into St. Louis, Memphis, Tenn., Kansas City, San Francisco and Boston. Crow's influence and ideas spread into virtually every corner of the country, manifesting themselves in bricks, mortar, concrete and glass.
Next stop: the world. Trammell Crow's tireless hands (and mind) reached to Brussels, to Brazil, to France, to Taiwan, to the Middle East.
The success formula
Frankly, one could go on practically forever listing Crow's real estate achievements. But what most people find more compelling is how he built his empire. A good part of his success boiled down to this 11-step formula:
1. Borrow the money.
2. Buy the land.
3. Build on speculation, then go find tenants.
4. Lease the space, not for 15 years or more but for 10 or three or two.
5. Depreciate enough to wipe out your income tax liability.
6. At the end of the short lease, given inflation, lease again at a higher rate.
7. Pay off the debt out of income. Keep all rents in the property. Kept debt service greater than depreciation.
8. At the end of 15 years, own the property free and clear.
9. Refinance the first mortgage.
10. Put the yield into new deals.
11. Never sell. Keep your assets and live a long time.
Another reason for Crow's wild success? Openness a combination of trust, generosity, sharing and optimism permeated all of his activity. He stepped back and let his lenders, builders and brokers to do their jobs. He aggressively pursued tenants' problems rather than avoiding them as many landlords do. He hired partners and associates right out of school, shared his knowledge with them, and made many of them multi-millionaires.
People who have worked with Crow over the years know him as both an eccentric and a genius. Once, becoming too hot in the midst of his guests at an upscale restaurant, he removed his jacket and cut off his shirtsleeves. Yet, he could do economic feasibility studies in five minutes on the back of a place mat. And clearly, his multi-billion-dollar empire, now headed up by his son Hal, speaks for itself.
One might call Crow an American dreamer whose dreams actually came true. To be sure, his life story has its "downs" as well as its "ups" downs and ups more drastic than those of the rest of us. It therefore shows that action undertaken with unflagging energy and unyielding determination can produce larger-than-life successes, as well as larger-than-life downfalls. In times of trial or triumph, that's a good lesson for all of us to remember.
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