Serious About Service : Trammell Is Focusing on More Than Development

Imagine the New York Yankees saying, “We’re not just a baseball team. We play football too, you know.”

The Bronx Bombers might have a tough time convincing people of their passion for pigskin, even if they fielded an NFL team.

Steve Belcher faces a similar skepticism when he tells people that longtime developer Trammell Crow Co. is now focusing on real estate services, a catchall phrase that includes everything from negotiating complicated leases for clients to property management that ranges from making sure their carpets get vacuumed to operating entire buildings for them.

“We are a real estate services company,” declares the 39-year-old Belcher, president of Trammell Crow’s Southern California operations in Commerce, who is out to convince the local commercial real estate world that 50-year-old Trammell Crow is serious about the service side of the business.

Belcher might encounter skepticism anywhere in the country because Trammell Crow spent decades building a national reputation as a developer of industrial parks, office towers and shopping centers.

But the skepticism runs deeper in Southern California, where the company has been known almost exclusively as a developer of industrial properties.

In March, however, Trammell Crow made it clear that it’s interested in more than industrial development, when it announced its $23.25-million purchase of Los Angeles-based Tooley & Co., one of the leading managers of office buildings in Southern California.

Belcher said the Tooley acquisition was a necessary strategic move in Trammell Crow’s efforts to remake itself, both in fact and in image.

“Tooley has a reputation for office management and leasing as well as development, while we have a reputation in the same area for industrial,” he said.

Trammell Crow’s Southern California strategy is part of a national growth plan the company embarked on in the wake of the early ‘90s real estate crash.

Founded in 1948 by namesake Trammell Crow, the company concentrated on developing and managing industrial, office and retail projects through the 1980s. By 1989, it had grown into the largest commercial real estate developer in the United States, with industrial, office and retail projects valued at more than $11 billion.

When the recession struck, the Dallas-based giant fared better than many of that era’s developers because it survived the crash. But the company decided it needed to restructure in order to adapt to the new world order in real estate.

In 1991, it split into two parts, separating the ownership and operation of its assets from the services portion of its business. The service side became Trammell Crow Co., and ownership of the assets was divided among a number of other entities. Trammell Crow Co. went public in November and trades on the New York Stock Exchange under the symbol TCW.

The company’s strategy is to grow by providing an array of services for corporations and property owners who traditionally have either done it themselves or bought the services from a variety of sources.

The services run the gamut from mundane chores to specialized and sophisticated consulting--everything from making sure clients’ air conditioners work and their lawns get mowed to negotiating their leases and developing new office buildings, industrial properties and retail stores for them.

In August, the company expanded its capabilities in serving retail chains by acquiring Cleveland-based Doppelt & Co., which supplements and in some cases replaces the real estate departments of large national retailers such as OfficeMax, HomePlace and General Nutrition Centers. Last week, Trammell Crow expanded its presence in the Northwest when it acquired the operations of Norman Co., a Seattle-based real estate services company.

“Our goal is to be the go-to vendor for any and all needs any company has in terms of real estate,” Belcher said.

Which is akin to the Yankees saying, “We not only play football, we plan to win the Super Bowl.”

Competition is fierce in the real estate services league, and Trammell Crow, by its own admission, faces tough opponents in the likes of LaSalle Partners Inc., Grubb & Ellis, CB Commercial/Koll Management Services, Insignia Financial Group and Cushman & Wakefield Inc.

That competition has squeezed profit margins in the service side of the business, prompting many in the real estate industry to question how lucrative those services will be in coming years.

“Competition has really been pounding down the fees,” said Kathy Schloessman, a former senior vice president of corporate services for CB Commercial Real Estate Group Inc., who left that post in October to become president of the Los Angeles Sports & Entertainment Commission.

The trend in recent years has been for companies such as Trammell Crow and its competitors to sign contracts with large corporations to provide an array of services. The dollar amounts of the contracts are huge, Schloessman said, but the corporations really put the squeeze on the real estate service providers, in return for giving them so much business.

“They’re glamour assignments more so than profitable assignments,” she said. “There’s a point where having the business might not make financial sense, even though you have a big, prestigious corporation as your client.”

Trammell Crow’s SEC documents, filed in connection with its initial public offering, mention the tough competition and cite another trend that could work against service companies: the increase in the number of real estate investment trusts that manage their own assets.

Whether REITs should manage their own properties or call on the Trammell Crows of the world “is discussed in our industry on a daily basis,” according to Belcher, who said the company already manages properties for some REITs and hopes to win more of their business.

“We contend that we can provide a better service by focusing on the management of their real estate while they focus on the ownership aspects,” he said.

Trammell Crow already derives the bulk of its revenue from services not related to development. Brokerage, in fact, brought in the biggest chunk of the company’s revenue in 1997, according to its financial report for the year ended Dec. 31.

The report said brokerage accounted for $91 million of the company’s $313 million in revenue, or 29%. Property management accounted for the next biggest portion, 28%, or $88 million.

Despite the noteworthy contribution of its traditional property management revenue, Trammell Crow believes a big part of its future lies in “infrastructure management,” a segment of the services business that overlaps property management but extends beyond routine chores.

Acting as an infrastructure manager, Trammell Crow might operate dozens of buildings on behalf of a client. It might pay mortgages on behalf of the corporation and might also take over any other services connected with the properties--from managing the mail rooms to coordinating moves within the building, setting up computer networks and running the employee cafeteria.

Belcher said another difference between property management and infrastructure management is that property management usually means managing a building for an owner who has many tenants, while infrastructure management means working for a corporation that owns and occupies an entire building.

Although infrastructure management remains a smaller portion of Trammell Crow’s business than property management, it has been growing quickly, while property management revenue has been declining both in total dollar volume and as a percentage of Trammell Crow’s business. Infrastructure management brought in 22% of the company’s revenue in 1997, or $68 million, up from $50 million in 1996. Belcher said it has become one of the fastest-growing segments of Trammell Crow’s business because many corporations now choose to outsource their real estate functions than operate their own real estate departments.

Brokerage is another arena in which the company has expanded, both nationally and in Southern California. Nationally, the company’s brokerage revenue grew by nearly $20 million last year.

One reason for the growth is that Trammell Crow now represents corporate tenants in lease negotiations, a move that gives some people pause because of the fierce competition in so-called tenant representation.

“Historically, they have handled leasing on their own buildings, but now they’re handling transactions where they’re representing tenants outside of their own properties,” said Chuck Campbell, a senior vice president of Lee & Associates in Commerce. “The question in a lot of brokers’ minds is going to be, ‘If I bring you a tenant, are you then going to develop a relationship with the tenant so you can get the next transaction with them and ace me out?’ That hasn’t happened to anyone I know of, but there is always a concern on the art of brokers that it might happen.”

According to Belcher, the answer is for Trammell Crow to remain clear about the role it is playing in any transaction.

“We sometimes compete with other brokers and sometimes work with them, depending on the set of circumstances. We believe we can do that, as long as we maintain a very high level of integrity and keep the level of commitments we make to them,” Belcher said.

Lest anyone mistakenly conclude that Trammell Crow has abandoned development, Belcher points out that the company still manages development projects, including a few of its own.

But the vast majority of developments it now manages are on behalf of its clients, he said, because the company’s focus is clearly on service.