Concentrates on Returns : Ex-Frogman in the Swim of Syndication
Fred Schmidt looks more like an accountant than a former Olympic gold medalist and Navy frogman who fished Apollo astronauts out of the Atlantic.
The 41-year-old businessman won the gold medal in 1964 when he represented the United States in swimming. Later he was a member of the Navy’s underwater demolition team and served as officer in charge of the Apollo 14 and 15 recovery missions. For the past six years, though, he has been working as a real estate syndicator.
A real estate syndicator? Isn’t that a comedown?
Syndicators have been suffering from a slightly tarnished image, Schmidt admits. Many were considered detrimental to a healthy real estate market. These were the folks who paid big bucks for properties purchased primarily for tax write-offs and potential appreciation. The inflated prices they paid helped put the overall market out of whack.
Schmidt and the Doerring Group, which he heads, have avoided this approach. So, as a syndicator, he holds his head high.
Measured in Dollars
“We are concerned with a return in dollars, not in an after-tax scenario,” he said. “A tax deduction is not a dollar . . . You can’t make a bad investment a good one with a tax shelter. Our track record is not measured in tax savings.”
It is measured in dollars--250 million of them in assets at last count.
It is measured in reinvestment rate--88% at last estimated.
It is measured in diversification.
San Diego-based Doerring is involved in operations in California, Arizona, Texas and Colorado and--unlike many syndicators who concentrate entirely on apartment investment--Doerring is a full-service real estate investment, management and development company with interests in nearly every kind of real estate, from research-and-development industrial to single-family housing.
“Until five years ago, we bought buildings,” Schmidt recalled, “but then we started buying land.”
Today the 13-year-old firm is developing more than 2 million square feet of commercial office and retail space in Austin, Phoenix and San Diego. And this month, Doerring Land & Development Co., a subsidiary, expects to break ground on a 2,765-acre, $800-million-plus Colorado resort on behalf of Westfork Investments Ltd., a Doerring-sponsored partnership.
Known as Wolf Creek Valley, the project will include commercial, retail and residential development. It will have 2,900 housing units, 600,000 square feet of commercial and retail space, a 300- to 400-unit resort hotel, two golf courses, equestrian facilities, fishing, hunting, hiking and a major destination downhill skiing facility, which is expected to operate even into July.
“In four years, I think Wolf Creek will be the leading all-year resort in the country,” Schmidt predicted. It is one of the few large resort properties owned by one entity. “We own it, and we intend to build it all, to pace the development and to keep the quality high,” he said.
When Doerring bought the land near Pagosa Springs, Colo., for $10 million 2 1/2 years ago, it was what Schmidt termed “the last real estate deal ever in southwestern Colorado.”
Later, Doerring spent another $1 million to buy land around the local airport, so the airport could be upgraded for commuter flights from Durango, which has a major airport 60 miles away.
“One good thing about being a syndicator is that we have access to large amounts of capital,” Schmidt said.
The $11-million investment is already paying off, he said, “because we changed the land use from ranch to multipurpose and, as a result, the property is worth a lot more now. When you can build condos instead of cattle sheds, you increase value.” The previous owner ran cattle for 22 years.
“Now we’re just missing a ski permit, which we should have this winter, and that should change the property value by another increment,” he added.
Wolf Creek has what Schmidt described as “tremendous powder (snow).” He has already skied there at a small day facility.
“Wolf Creek gets 450 inches of snow a year, more than Alta (in Utah), I think,” he said.
It has a ski hill that descends from an elevation of 10,700 feet. “But we might have one that goes to 13,000 feet,” he added.
It has four lakes (Doerring plans to build 11 more) and 4 1/2 miles of white-water rapids. “There are five miles of premier river, and some neighbors plan to dedicate several more miles to catch-and-release (fishing),” Schmidt explained.
‘Picnic, Walk the River’
To Schmidt, it’s the thrill of the catch that is important in fishing. “I’ll spend six hours, and if I catch three or four fish and then release them, that’s fine,” he said. “I just like to take a picnic and walk the river.”
The San Juan River flows through the valley, and Schmidt claims that he has caught trout there weighing four or five pounds.
Wolf Creek also has miles of land for horseback riding, which Schmidt says he loves, and it has acres of timber. The property is surrounded by national forest.
“We have aspen and blue spruce, and we’ll tell people where they can build and what trees can or can’t be torn down,” he said.
Doerring spent $3 million on environmental studies. The firm hired 40 consultants. “We have one guy who counts elk, another who counts wildflowers,” he said.
Doerring moved its chairman of the board, Harvey W. Doerring, to the site, where--as Schmidt put it--the firm is “literally building a city.”
Wolf Creek is a 20-year project. “It’s Harvey’s life. The local newspaper calls it Harvey’s ranch,” Schmidt said. “He’ll be there for 20 years.”
Earlier this month, Schmidt even moved his family--including four children aged 2 through 10--to Wolf Creek, where he commutes from San Diego on weekends.
Doerring wants to keep a hands-on approach at Wolf Creek as well as at its other developments.
The approach allows the company to design its projects with some sensitivity, Schmidt said, adding, “This is different from a major conglomerate.”
Doerring is not a tiny company. It has about 80 employees, including specialists in tax, financial planning, all phases of real estate and law. A 1965 graduate of Indiana University with a law degree from Northwestern University, Schmidt is a member of the bar in California and Illinois as well as a registered general securities principal and a California real estate broker.
Schmidt also is president of the Doerring Group, which has several affiliates. With the help of these affiliates, the company has sponsored 180 partnerships. Even so, it is not considered large in terms of personnel. It is privately held by seven shareholders, including three major ones of whom Schmidt is one.
Schmidt considers Doerring a “fairly good-sized developer” in terms of numbers and values of projects. However, he added, “few people know it.”
This is probably due in part to the fact that syndicators are not generally thought of as developers but--like Doerring--syndicators are increasingly doing other things in real estate besides buying buildings.
This is a possible result of tax-law changes, according to Schmidt, because--as he put it--"Now syndicators must change to create value other than through taxes.”