By Martin Sinderman
Photographs by Evan Kafka

Bruce Duncan and Douglas Crocker

As real estate continues to evolve in the public sector, how have the skills and responsibilities of the industry’s new wave of chief executives changed?

Whether merely a coincidence or a reflection of the growth of the industry, the publicly traded real estate industry has seen its share of upper-level management turnover in the past 18 months. Timothy Callahan, Dick Michaux, Bruce Flatt, Douglas Crocker and Milton Cooper are just a sampling of the high-profile executives that have either stepped down or are in the process of handing over the reigns to some of the real estate industry’s largest companies.

As companies look to fill existing vacancies or map out future succession plans, it is becoming clear that the role of a public real estate company chief executive has dramatically changed. Over the past decade, many REITs have gone from being private, largely entrepreneurial or family owned organizations to full-fledged public companies. As a result, the kind of person they look to for leadership has also changed, according to Tony Lo Pinto, managing director of New York-based Equinox Partners LLC, an executive search firm serving the real estate industry.

“REITs have gone through a very natural evolution from being bastions of private-side entrepreneurs to much more management-intensive, public-focused organizations,” LoPinto says. And that evolution has been accompanied by changes in the required experience, skills and talents of the individuals that run them.

“The CEO of a private company may only have to answer to a very select group of individuals, but once you enter the public-company arena you step into the limelight.”

“The REIT executives that originally took their companies public were quite sophisticated, well proven in their ability to ‘work real estate’ and grow their private-side companies,” Lo Pinto says. “But the problem is that, frankly, not a lot of these executives had the experience of working in the public arena.”

Therein lies the challenge of selecting the right person to head up today’s publicly traded real estate company. “The challenge is to find a person with the necessary corporate finance and public markets experience,” LoPinto says, “while taking into account the fact that a REIT is very much a business that requires real estate knowledge.”

Private vs. Public Skill Sets

There’s a big difference in what a CEO needs to run a public versus a private real estate organization, according to Jeffrey Kelter, president and CEO of Keystone Property Trust, a Pennsylvania-based REIT that specializes in “big-box” industrial properties.

“The skill set involved in running a public company successfully as a CEO is very different from that needed to be a successful real estate entrepreneur,” says Kelter, who was previously the head of a private real estate development/management/leasing company before entering the public sector.

In making the transition from entrepreneur to public executive, Kelter found that the real estate operations skills he had gained through experience at his former company remained useful in his new position. “We were a large, reasonably diversified organization, and the real estate skills were readily transferable,” he says.

But as CEO of a public REIT like Keystone, “You spend an awful lot more time on the public side of things, as opposed to the real estate side,” Kelter says. “You’re constantly in meetings with institutions, analysts and potential investors, which not only takes up a lot of your time, but also subjects what you do to a lot of scrutiny–something that many successful real estate entrepreneurs have a hard time getting used to.” Kelter adds that you have to be very up front about disclosing what you are doing, and then be available to further discuss what it is that you have disclosed.

Unlike their private-company counterparts, public REIT executives must have, or quickly develop, the ability to handle this type of scrutiny, notes Matt Slepin, a partner with executive search firm Heidrick & Struggles International Inc.

“The CEO of a private company may only have to answer to a very select group of individuals, but once you enter the public-company arena you step into the limelight,” Slepin says. “The eyes of the analysts, the public and investors are all on you when it comes to your company’s performance.” Making sure that pertinent company information keeps flowing steadily to these constituencies is an important part of being a public CEO, he notes, which means that an executive has to be comfortable talking about the business.

Having It All

However, there are many advantages to being a public company, including the ability to finance projects on a much more efficient basis, that make so many entrepreneurs willing to subject themselves to the public spotlight. “Most of the entrepreneurial real estate players who took their companies public have, to their credit, adapted themselves quite well to the demands of the public markets,” says David Stockert, president and chief operating officer of Atlanta-based Post Properties Inc.

At press time, Post announced that Stockert would succeed company founder John Williams as CEO effective July 1, 2002. Williams, who founded Post some 32 years ago and took it public in 1993, will stay on as company chairman.

This move was part of a succession plan in which Post was looking for an individual that could be “mentored” under Williams, according to Stockert. Combining Williams’ real estate development know-how with Stockert’s background in real estate finance, which included stints as an investment banker and as chief financial officer with Weeks Corp. (which merged with Duke Realty Corp. in 1999), is important to a company like Post because today’s REIT CEO has to ultimately have knowledge of both real estate and the world of public finance, according to Stockert.

		The Next Generation A Sampling of Executive Changes from January 2001 Through May 2002.

“To be successful, [a CEO] has to have it all, particularly with a company like ours, which has always been a development company and always will be,” Stockert says. And to be a successful developer, “You can’t just be financially oriented—you’ve also got to understand real estate markets. That’s something I expect to develop more fully as time goes on, and I expect to take full advantage of the opportunity to learn from John Williams.”

The demands of the marketplace make this kind of CEO succession planning increasingly important for public REITs. “The current economic climate has caused REITs to rethink their succession plans in order to incorporate individuals that can think creatively about how to finance and grow their businesses,” says Steven Littman, managing partner of the Rhodes Associates executive recruitment/management consulting firm. But while some larger companies have adopted fairly sophisticated, well-structured succession plans, adds LoPinto, “in the end, this is a process that is still evolving.”

A Business Executive First

Like Keystone’s Kelter, Bryce Blair, chairman, CEO and president of AvalonBay Communities Inc., finds that his non-real-estate-specific skills are the ones he uses most in running this Virginia-based apartment REIT.

“The demands on my time and skills are in the areas of strategic planning, organizational design, capital allocation, public markets and corporate governance. In many cases, things which have little to do with real estate and more with general management,” Blair says.

That’s part and parcel of being a public company these days—a fact that many in the REIT industry took a while to realize.

Many of the private real estate companies that became public REITs in the early 1990s were “public companies” in name only, notes Blair. “The transaction [going public] happened, but many of these companies retained the private-company mindset in their philosophies and their way of doing business—operating like private entrepreneurial companies with access to the public capital markets,” he says.

That mindset has changed over the years, according to Blair, as REIT industry players have adapted to the public marketplace.

“From the AvalonBay perspective, we are a public company that just happens to be in the real estate business, as opposed to a real estate business with access to the public capital markets,” Blair says. And as CEO of such a company, “I’m a business executive first. Today, a REIT CEO could come from anywhere in corporate America.”

Going Outside the Box

While some may disagree that successful real estate executives can come from outside the industry, others feel that this is the wave of the future, at least for the larger companies.

“I think that one of these days, the bigger REITs will be going outside the industry [to recruit CEOs],” says Douglas Crocker, CEO of Chicago-based Equity Residential. Equity Residential recently named Bruce Duncan, formerly chairman, president and CEO of Cadillac Fairview Corporation, as Crocker’s successor, part of a previously announced succession plan that will include Crocker’s transition to vice chairman at the end of 2002. However, prior to running Cadillac Fairview, Duncan spent 16 years with JMB Property Management Company.

The CEO of a company “is first and foremost, a leader that can lead, whether the company is McDonald’s or Equity Residential, and secondarily a visionary,” Crocker says, adding that these skills are transferable to any type of company.

“Look at [recently retired IBM CEO and current company chairman] Lou Gerstner,” Crocker says. “He came out of the financial world and barely knew how to turn on a computer—much less how one worked—when he took over at IBM, which at the time [1993] was as close to becoming a dinosaur as you can get. But utilizing his skills as a manager and a visionary, he completely revitalized that company.”

Crocker notes that his views are probably not shared, “and I think rightfully so,” by those running smaller ($500 million to $1 billion market cap) real estate companies. “I would agree that in cases like that, the real estate skill set is much more important than anything else,” he says.

But the larger companies need leaders and visionaries first. “The larger the company, the less the real estate skills matter. You can always hire other people for those,” Crocker says.

However, many REITs have been well served by hiring a CEO from within their organizations. “You really want to find someone from within the company if at all possible,” Slepin says. Hiring from outside an organization or its particular property sector can be a risky proposition due to steeper “learning curves” on the part of the new executive, Slepin says. However, he agrees with Crocker that the bigger the company, the more apropos it can be to cross company and/or industry lines in the search process.

Mid-America Apartment Communities, Inc. went the internal route, to find its successor to CEO George Gates, promoting president and COO H. Eric Bolton, Jr. in October 2001. Bolton says knowing the company made the transition easier.

“It goes a very long way toward ensuring stability of the organization during the transition,” Bolton says. “That’s not to say that strategy and culture are not eventually modified or refined by a new CEO, but the transition phase is made much easier for the organizations constituents and the management team with 'one of their own.' "

Managing Challenges

The biggest challenge today for the CEO of any company, regardless of size is dealing with employees, Crocker says.

“You want to keep your customers, and also keep your eye on the expense piece of the puzzle—but first and foremost, the biggest challenge now is keeping your employees engaged,” Crocker says. “In difficult economic times like we are now going through, people get depressed, you’re asking them to work harder for less money,” notes Crocker. “And if you are public, your stock is probably not doing as well as last year—although that’s not the case for a lot of REITs these days.”

Duncan agrees, adding that companies must work harder to build employee loyalty. “This is especially true in that we have had the wind at our back for the last nine years, and most employees have never experienced a real slowdown in the economy,” Duncan says. “In order to attract and retain smart, hardworking teammates, you have to have a fun work environment where people throughout the organization share in the company’s success and vision.”

Widespread healthy stock prices notwithstanding, one major challenge facing today’s REITs is the lack of women and minorities in executive positions.

“Unfortunately, this is an industry that does not have a large population of women and minorities in its senior management ranks,” LoPinto says. While not surprising if you look at the real estate industry as a whole, he notes, “this is something that will have to change.” Demands from the public arena will help bring change about in this regard, “But change doesn’t happen overnight—it’s going to take time.”

For now, though, the group of individuals leading the industry is comprised largely of what LoPinto calls “powerful men that have formed and grown companies.” With the passage of time, though, that group should become more diverse, as the pool of potential candidates available to address the unique challenges of running a public real estate company increases.

“The public real estate industry is still relatively new, so there isn’t a lot of ‘bench strength’ when it comes to people ready to run REITs, particularly the huge companies,” Slepin says. “Ten years from now, that may well not be the case.”