Development: Koll’s winning ways appear to be continuing these days. Despite a downturn in the real estate business, the company rolls on at a breakneck pace.
The 16-acre wasteland in the heart of Anaheim’s downtown had become something of an embarrassment for civic leaders. The dusty vacant lots beckoned developers, yet more than a decade passed without solid prospects for a renewal project.
Now comes The Koll Co.
After scrutinizing the property for years, the Newport Beach-based development firm interested Pacific Bell in a new office tower on the Anaheim site. The Koll Co. announced last month that it hopes to construct a $200-million complex including a hotel, movie theater and other office buildings.
“We had to wait for the right pieces to fall into place,” explained Richard Ortwein, president of Koll’s Southern California division. “It was a win for everyone.”
Such successes appear to be coming easily these days for Koll. Despite a downturn in the real estate business, Koll continues to develop, build and lease its buildings at a breakneck pace.
“Their growth has been nothing short of phenomenal,” said Jim Kruse, senior vice president for Schneider Commercial Real Estate in Anaheim. “They are a top-drawer developer.”
The company, founded by Orange County contractor Donald M. Koll, has emerged as one of the largest commercial developers in the nation. The company’s construction subsidiary alone is ranked 16th nationwide.
Much of its success is tied to its strategy of putting the entire development process--site acquisition, construction and leasing--under one roof.
Another reason is that the firm’s prosperity was built from other people’s money. Instead of obtaining bank loans for projects, Koll finds pension funds, insurance companies or other entities to kick in the cash for a deal. Koll contributes the company’s building and development expertise.
When the building is completed and occupied, the joint-venture partner generally gets paid back first. Then Koll Co. and the partner split the profits.
The joint-venture arrangement allows Koll to become involved in larger projects than would normally be possible through bank borrowing. And unlike a bank, well-financed joint-venture partners do not demand a mortgage payment every month, so they can be more patient during periodic real estate market downturns.
The credit for these strategies generally goes to Koll, a low-key, dapper man in his 50s with a Donald Trump-like love of deal-making.
Unlike Trump, however, Koll disdains the limelight. Two years ago, after Forbes magazine listed him as one of the 400 richest people in America, he called up the magazine’s editors and convinced them he really wasn’t so wealthy.
“Make the company the story. I’m just a team player,” Koll implored a reporter during an interview for this article.
The Newport Beach developer is tackling projects as diverse--and potentially risky--as a shopping center in economically depressed Texas and beach resorts in Baja California. Swank office buildings are still being built at the $1-billion Koll Center Irvine, the company’s largest project.
In Los Angeles, Koll Co. is building an office tower on the site of the old Church of the Open Door that became known for its “Jesus Saves” neon sign.
Besides construction and development, Koll Co. is moving into the land business. Clinching the biggest deal in its 28-year history, the company announced plans last month to buy parcels in 19 states from Union Pacific Corp.
Union Pacific’s decision to unload 15,000 acres and 30 buildings to Koll for $532 million was viewed by analysts as a positive step toward consolidating the many diverse operations of the railroad-dominated company.
The transaction easily topped Koll’s previous biggest deal: the $300-million acquisition last July of industrial and office properties from Wells Fargo Mortgage & Equity Trust.
Despite the massiveness of Koll Co.’s recent undertakings, the firm’s record has proven so reliable that few industry observers question its ability to manage so many different projects.
“The most interesting thing that sets (Koll) apart from the rest of the pack is his uncanny ability to get through difficult times with a minimum of effort,” said Bill Russell, senior vice president for Aetna Realty Investors Inc. in Hartford, Conn., a longtime Koll joint-venture partner. “You hear about the big boys gasping for air. Koll gets through.”
For instance, Koll was the envy of Orange County developers in 1986 when a new, 11-story tower at its Irvine complex was 90% leased while competitors were struggling to lease half of their new buildings.
“The good buildings rent even in the bad times,” Koll said.
In the past five years, Koll Co. has doubled the amount of building space under its wing to 38.2 million square feet. The value of its property holdings has doubled to $4.3 billion.
Despite the tough market for new buildings, Koll has leased nearly 80% of one new high-rise in Koll Center Irvine and more than half of a second tower, according to Ray Wirta, president of Koll’s leasing and property management.
The Koll Construction Co. subsidiary has doubled its volume over the same five-year period to an estimated $725 million in 1990. Now, it has set a goal of $1 billion within five years, which its managers say they hope to achieve by courting more business outside of the Koll Co.
Koll could have hardly ever dreamed of such a company back when he first arrived in Orange County in the late 1950s after a stint as an Air Force pilot. He worked in a cousin’s house-building business for a while, then started his company as a general contractor in 1962. Soon, he hit upon the idea of small, multi-tenant industrial buildings set in landscaped, campus-like settings.
“I knew there was a market for a little guy,” he explained. One of Koll’s first moves was getting himself known to Orange County’s “big guy,” The Irvine Co., which sat on the lion’s share of developable land.
“The dress in this town used to be Topsiders and blue denim and Hawaiian shirts, believe it or not. Even the bankers wore that,” Koll said. “And all of a sudden the Irvine Co. brought all these guys in three-piece suits and black shoes . . . and the locals were frankly scared. “I said to myself, ‘I don’t know anybody. Maybe I ought to work with these guys.’ ”
It was the Irvine Co. that sold Koll 100 acres in the shadow of John Wayne Airport, where he built the Airport Business Park, his firm’s first big development success.
In 1972, the company obtained another 125 acres on the east side of the airport for construction of Koll Center Newport. The project marked the realization of a prediction that Koll has reportedly voiced long before: that MacArthur Boulevard would become the Wilshire Boulevard of Orange County. The story stuck around largely because no one at the time believed the builder-turned-prophet.
“I had difficulty sharing the vision,” acknowledges Tim Strader, an early Koll partner who went on to form his own real estate-development concern.
Sure enough, the boulevard, from the San Diego Freeway past John Wayne Airport, has become a thicket of mid-rise office buildings and hotels cloaked by parking lots and trees. If it lacked the glitter and urban grit of L.A.’s Wilshire District, it was a reasonable Orange County approximation.
Koll plays down his role as a prognosticator. It was a simple matter of deduction, he said. The Irvine Co. had planned for the business hub of the area to be closer to the beach, but a planned freeway to the site never was built. That left the airport area, which was close to the San Diego Freeway and a natural for office development, he said.
The Koll Center Newport was a hit with investors.
“Koll Center Newport is one of the original developments in what now looks like one of the great meccas of California real estate. . . . It’s been an enormously successful project,” Aetna’s Russell said.
Meantime, Koll’s company was expanding. He did not just hire his top executives, he took them on as partners. With a slice of the profits, he made many of them wealthy. Some are now retired; others started their own companies, often in the image of Koll Co.
“It was fun and it was tiring. It was absolutely exhilarating,” said Strader, a Koll Co. partner and legal counsel from 1972 to 1984.
Koll has prospered, but don’t try to ask him just how much.
A buddy of billionaire Irvine Co. owner Donald L. Bren, Koll was listed by Forbes Magazine in 1987 as being worth an estimated $300 million, placing him 277th on the list of the 400 richest people in the nation.
By 1988, when Koll Co. reported the value of its holdings had risen by $600 million over the previous year, Koll disappeared from the Forbes list. He said he talked to the list’s compilers in New York and tried to explain that he is not as rich as he might appear.
“I talked to the guy the next year (1988). I said, ‘Look, if you buy a house for $100,000, does that mean you are worth $100,000?’ I own a smaller share of it,” Koll said.
Koll, in fact, seems to drip with modesty. “We should put all these guys’ names on the door instead of mine. I just happened to have been the first one here,” he said. But others, both inside and outside the company, describe Koll as “a legitimate Wunderkind” with “an uncanny ability to read markets,” as real estate executive Kruse puts it.
Today, Koll Co. remains very much a decentralized organization. Its branch-development offices are run as largely independent operations. Koll said it is in keeping with his belief that real estate must be conducted at the local level by representatives who know the area.
Since Koll owns his own construction company, it is easier for the development staff to work with the builders. “It is a tremendous advantage to be able to walk three doors down and talk to the guys who are going to build your building,” said Rick Stephens, president of Koll’s Los Angeles division.
Koll points to the development, construction and leasing combination in his company as one of its strongest assets.
“You control it all,” Koll said. “You control the cost of construction and we control the cost of property management, and we actively manage our properties instead of just collecting the rent and hoping somebody’s going to be there.”
The construction end of the Koll Co. has become increasingly important as the real estate market has tightened. While Koll said that development activity is off by about 25%, the company has the construction company as an added buffer against bad times.
Having already tackled tasks ranging from constructing 35-story office buildings to the Independence Hall replica at Knott’s Berry Farm, the firm wants to expand its market by building hospitals and other health-care buildings, said Vic Laidlaw, senior vice president of Koll Construction.
The development arm, too, is headed in new directions.
For the first time, the company is trying to develop more medium-sized shopping centers built around one or more low-overhead, high-volume discount centers, such as a K mart or a Circuit City Superstore, Koll said. Called “power centers,” they are planned or under development by Koll in Rancho Santa Margarita, San Jose, Ft. Worth, and Bellingham, Wash.
The Koll Co. has also undertaken downtown redevelopment projects, such as the recently announced Anaheim project, which is already winning kudos from the city planning staff.
“I think Koll is one of the best developers we’ve worked with,” said Anaheim Community Development Director Elisa Stipkovitch. “They don’t have an overly burdensome, decision-making process. They try to make everyone a winner in the deal and that’s positive.”
Besides making inroads as far east as Texas, Koll Co. is also looking south of the border to Mexico. Already, the firm has built what it hopes will become a successful industrial park for companies doing business in the United States that want to take advantage of plentiful--and low-cost-- Mexican labor.
In Cabo San Lucas in southern Baja California, Koll has plans to develop the Hotel Palmilla into a world-class resort with 200 rooms and two championship golf courses. He also has another 3,000 hotel rooms in mind for another resort on 2,000 acres of oceanfront property.
“I just like Mexico a lot,” Koll said. “I’ve been flying down there for years and I like the place and it seems so logical to have a resort there.”
While he continues to branch out, Koll said, there are limits. He said he plans to continue to follow the market, switching the company’s strategies to fit.
“We don’t want to be the biggest company in the world. We don’t want to be nationwide. We just want to provide quality work,” he said.
THE KOLL CO. -- A DECADE OF SUCCESS
INCOME PROPERTY VALUES SOAR The value of the Koll Company’s income property has more than doubled since 1986, reaching an estimated $4.3 billion in 1990. In billions of dollars: 1981: $0.8 1986: $2.1 1990 (Estimate): $4.3
A GROWING SLIVER OR RETAIL More than half of Koll’s income property is industrial, but the company is looking to retail development for its future. Office: 44% Multi-tenant industrial: 33% Single-tenant industrial: 22% Retail: 1%
FOCUSING ON THE WEST Koll has concentrated its income property and “profit enters” in four Western states, although the firm has projects under way as far east as Texas and as far south as Cabo San Lucas, Mexico. Washington: 11% Oregon: 8% Northern California: 23% Southern California: 48% Arizona: 10%
Source: the Koll Co.
KOLL CONSTRUCTION CO. -- BUILDING AN EMPIRE
ANNUAL CONSTRUCTION VOLUME Koll Construction Co. expects to more than double its business volume in the five years form 1986 to 1990. 1986: $365 1987: $383 1988: $450 1989: $650 1990 (estimate): $725
BREAKDOWN OF KOLL PROJECTS Koll Construction Co. has built everything form a replica of Independance Hall at Knott’s Berry Farm to 35-story office towers. The firm is looking to expand into building hospitals and other health care facilities, while maintaining its solid base of commercial office and industrial projects. Commercial Offices: 45% Other Projects: 26% Research and Development Facilities: 13% Multi-tenant Light Industrial: 13% Tenant improvement: 3%
Source: the Koll Co.
