3500 Trammell Crow Center
Trammell Crow Company, the largest real estate company in the world, built its reputation by developing properties. In the early 1990s, however, the company began specializing in real estate services such as property and asset management, construction management, marketing, and investment advisement. Through the inspiration of its founder, Trammell Crow, the company has developed over 3000 projects comprising over 300 million square feet of commercial space. In addition, the company managed over 240 million square feet of commercial space in 1993, more than any other organization in the world.
Born in Dallas in 1914, Crow was influenced by a highly religious and disciplined household. He and his parents, along with his six brothers and sisters, struggled through the Great Depression. Despite hardship, Crow emerged from his youth with great self-confidence and what some of his colleagues called a transparent sincerity and optimism. One of Crow's favorite aphorisms was that people can't do much about the hand that they are dealt in life, but there are a lot of different ways they can play their cards. For instance, despite little formal education, he was an avid reader and was constantly acquiring knowledge, eventually receiving three honorary doctorates.
Crow gained valuable experience in the Navy where he managed a material procurement program during World War II. It was here that he learned accounting and financial skills that would serve him later as a business man. He left the Navy in 1946 and served a short stint as a grain dealer. It was during this time that he got a taste of development by building a grain elevator. Crow began developing real estate full-time until 1948, at the age of 33.
Crow's first significant deal was the development of warehouse space for the Ray-O-Vac company. This opportunity launched him into a successful industrial real estate development business that flourished in the fast-paced, post-war economy. While Crow continued to develop warehouse space, he started branching out into retail and office developments in the 1950s. The Hartford Insurance Building was among Crow's first office developments.
As the real estate development environment remained lucrative throughout the 1950s and 1960s, Crow also began to branch out regionally. His alliances with Frank Carter and Ewell Pope, both of Georgia, helped him to expand his warehouse development activity in Atlanta. Crow eventually became active in retail projects in Atlanta including the Peachtree Center, which transformed the downtown area. From Atlanta, Crow progressed into other southern states and also began experimenting with developments in some western states.
Although Crow built a reputation for high quality development deals and projects, one of the greatest reasons for the success of the company was his innovative approach to personnel management. Crow believed that his associates should be his partners, not his employees. In fact, Crow considered himself a partner working with the other employees of his organization. Crow envisioned himself and his associates working together, sharing the risks and rewards of the enterprise. In appraising job applicants, Crow would try to determine if the candidate was the kind of person that he would like to see walk into a room, or have a beer with. Next, Crow would determine whether or not the applicant was smart and would work hard.
Part of the partnership arrangement consisted of compensation based mostly on performance. Partners basically functioned as independent developers working under the Trammell Crow umbrella. They received a negligible base salary, but received part ownership in the projects that they developed. The organization was less of a company than it was a network of individuals. This approach, however, allowed both Crow and his partners to reap huge rewards. Many of Crow's employees became millionaires.
By the late 1960s, the Trammell Crow Company had 7 national offices employing a few dozen people and representing about 100 partnership arrangements. The company was beginning to establish a significant portfolio of real estate holdings, which was another factor that distinguished Trammell Crow from many other developers. Rather than develop a property and sell it, as many other companies in the industry normally did, Trammell Crow retained ownership of many of the projects in which he was involved, enabling him to lease the development. This meant that Crow and his partners were continually increasing their revenue base and their assets.
Although most of his projects were in the Dallas area, by 1970 Crow had developed properties throughout many parts of the United States. He had also ventured, with considerable success, into residential development. At this time, however, he began looking to other parts of the world, particularly Europe, for new opportunities. Crow participated in several projects in Switzerland, Spain, Germany, Brussels, Italy, and France in the 1970s. Despite some success, the construction and development atmosphere in Europe proved too restrictive for Crow and his associates. Crow also built projects in parts of Asia, the Middle East, and Australia. As in Europe, these projects lacked the profitability available in the U.S. market. In addition to the questionable viability of foreign real estate markets, Crow began facing financial problems at home in the mid-1970s. As a result, Crow eventually abandoned most of his activities abroad so that he could concentrate on his U.S. operations.
As the development market continued to boom during much of the late 1960s and early 1970s, the Trammell Crow organization blossomed into a huge network of partnerships which developed and operated commercial real estate projects throughout much of the United States. In fact, by the mid-1970s Crow had nearly 200 employees in 15 offices representing about 600 partnership arrangements, approximately 150 of which were "in-house" partners.
Despite continued success through 1973, the petals began to fade as the American economy had begun to falter and the Crow organization became unwieldy. The energy crisis, combined with stagflation, caused a depression in the development industry. Crow's massive decentralized network of partnerships proved inadequate to deal with the new business environment.
Oblivious to the economic problems, the Crow partners continued to borrow heavily and build as long as capital existed to develop new properties. In 1973 Crow initiated $400 million worth of projects. The Crow family fortune grew to over $110 million and Trammell Crow Company assets exceeded $1.5 billion. To finance the highly leveraged operations, Crow himself signed notes totalling more than $500 million for his approximately 650 individual companies. Crow was also expanding into other ventures, including farming. Part of the reason for the apparent mismanagement was that partners in the company were unaware of what the other partners were doing, or of the overall financial condition of the organization.
By 1974 Crow, at age 60, was facing serious financial duress and negative company cash flow. In 1975 Crow had to ask his senior partners to liquidate some of their assets to help relieve some of the massive debt that was burdening the company. Financial problems, which persisted in 1975 and 1976 and nearly caused the demise of the company, prompted Crow to begin a reorganization of the company. He relied on Don Williams, his up-and-coming protégé, to assist in the formulation of a new plan that would make the Trammell Crow enterprise more like a company. The plan called for a centralized management structure to handle strategy, financial reporting, and leadership for the partners.
Though the company struggled to survive through 1976, the following year saw a rebirth of the Trammell Crow organization. The new company was separated into Trammell Crow Residential Companies (TCRC) and Trammell Crow Company (TCC), which represented commercial development. Also in 1977 Williams was named president and CEO. In the meantime Crow began to again concentrate on new developments and completed one of his premier properties in 1978, The Anatole Hotel in Dallas. This project was unique for Crow because of his immersion in the project and participation in the details of its design and construction.
Despite a severe recession in the late 1970s and early 1980s the new Crow organization emerged unscathed. While stagflation and unemployment battered most sectors of the U.S. economy, Trammell Crow interests grew. In 1976 Crow interests held assets totaling about $1 billion. By 1982, near the end of the recession, the figure had ballooned to about $3 billion.
Contrary to the early 1980s, the middle part of the decade offered one of the most lucrative and fast-paced real estate environments in U.S. history. Deregulation of lending institutions, an influx of foreign investment dollars, and new tax laws all combined to generate a massive injection of capital into the real estate industry. Despite only moderate increases in demand for new space, development of new commercial properties boomed from less than 700 million square feet in 1982 to a peak of over 1.3 billion in 1985. In that year Crow interests initiated development of over $2.2 billion worth of new properties. The organization's assets skyrocketed to over $13 billion, and by 1986 the company had 90 offices with over 3,500 employees.
While the Crow organization enjoyed massive profits and growth during the mid-1980s, it was also trying to prepare itself for an inevitable industry slowdown like the one that almost crushed the company in the 1970s. Crow hired scores of highly-educated people during the 1980s that had the skills necessary to efficiently manage the company's assets in periods of slower growth. TCC's centralized management also developed a program of identifying and selling certain properties from its portfolio in order to increase liquidity and address changing markets.
Despite efforts to prepare for a development deceleration, the company found itself ill-equipped to deal with an industry depression of a magnitude that few had anticipated. As demand for new properties plummeted in 1988, investment capital also dried up. Massively over-built markets resulted, causing the value of the Trammell Crow Companies' assets to fall as well. The value of new Crow developments fell from $2.2 billion in 1985 to less than $100 million in 1991, as the real estate industry plunged into a protracted depression. In addition, a recessed economy was causing a rise in vacancies which diminished revenues available from Crow's existing projects. For instance, office vacancy rates in Phoenix and Dallas, two of Crow's most active regions, leapt to nearly 30 percent by the early 1990s. Trammell Crow's personal net worth fell over 50 percent from its peak of $1 billion. Furthermore, the company's equity dropped from $1.7 billion in 1986 to $1.3 billion in 1988, while its liabilities rose from $5.9 billion to $7.7 billion.
The Crow organization had grown into a complex web of 1,500 partnerships, joint ventures, and corporations, causing the company to stagger under its heavy debt. Therefore, in 1989 the Trammell Crow Companies, under the increased influence of Williams, reacted to the changed environment. Anticipating a metamorphosis of the entire real estate industry, rather than a cyclical change, the company took drastic measures to avoid bankruptcy and ensure long-term profitability. After compromises with more than 150 of its lenders, Crow reorganized its partnerships. Its partners were no longer active in the building process, although they still held equity interests in some 6,500 projects valued at $9 billion, down from $11.2 billion in 1989. More than half of the 170 partners involved with the company in the late 1980s left. The company eliminated 8 of its 17 regional offices and reduced the number of employees to 2650 by the end of 1989. The company also began offering market rate salaries to its employees, abandoning its old compensation system. It was at this time that Crow, at 75 years of age, began to distance himself from the management of the company.
The shake-out at Crow resulted in several disputes over the ownership of the company assets. For instance, in 1991 TCC sued former Managing Partner Joel Peterson, who had previously been a close associate of both Crow and Williams. TCC claimed that Peterson had not absorbed his share of insolvent debts. Peterson filed a countersuit, accusing Crow and Williams of trying to grab control of TCC assets and the operating company for only pennies on the dollar.
Crow quickly abandoned real estate development as its primary activity and instead turned its attention to real estate management and services. The company sought to parlay its financial management talent, prominence in a large number of markets, and long experience in managing and marketing properties into a formidable service company. In addition to emphasizing the efficient management of the assets which it already controlled, Crow began offering various services to clients that owned and invested in real estate.
Williams organized the new Trammell Crow Company (TCC) into three entities--Regional operating companies that leased and managed Crow holdings; national services; and national operating companies, which included Trammell Crow Ventures, Trammell Crow Asset Services, and Trammell Crow Corporate Services. Fortune 500 corporate customers were offered a single point of contact by Trammell Crow Corporate Services for real estate management, construction, acquisition, and tenant representation services. Trammell Crow Ventures provided real estate financing, investment, and consulting services to institutions that were active in real estate. Trammell Crow Asset Services provided asset and portfolio management services for clients that managed real estate investment properties. In marketing its services to potential clients, TCC emphasized three competencies including property management, development services, and project leasing and marketing services.
As revenue from new construction remained flat in the early 1990s, income from services rose to help the organization's bottom line. In 1988 TCC's operating income from real estate services was negative $30 million, an insignificant sum in comparison to income from development activities at the time. By 1991, however, TCC had increased its income from services to over $15 million. Crow ceded its position as the largest developer in the United States, plummeting from first place in 1991 to 15th place by 1992. At the same time, however, Crow remained the largest property manager in the nation. In 1993, TCC managed over 240 million square feet of commercial space.
Part of TCC's new philosophy in the early 1990s was the concept of "seamless quality." This entailed establishing national standards of performance and offering the most comprehensive, state-of-the-art services available. As TCC began to emphasize its management operations, occupancy rates of its properties rose from 85 percent in 1989 to over 90 percent in 1990. During the same period the average industry occupancy rate fell from 80 percent to 74 percent.
Williams hoped to create an "evergreen" company which would profit in both good and bad economic times. The new company philosophy was reflected in the words of Gary Shafer, CEO of the TCC Texas region in 1991. "For 20 years, my job was to build enduring buildings," he said in Business Week, March 2, 1992. "For the next decade, I want to build enduring relationships locally and nationally."
In 1991 TCC was capitalized as a privately held corporation. In 1992, the Dallas-based company developed 2.8 million square feet of new space at a value of $209 million. Its 2,400 employees served 12,000 tenants from 70 offices in the United States, Mexico, Brazil, and the Far East. Furthermore, it managed assets covering all commercial product types, including suburban and high-rise offices, warehouses, service centers, research facilities, and retail centers.
In addition to TCC, in 1993 the Crow family owned interests in several companies that were originally affiliated with Trammell Crow Co. Some of these companies included Wyndham Hotels; Trammell Crow Residential, the nation's largest multi-family developer; and Trammell Crow International, with operations in eight foreign countries.
While TCC was relatively well positioned to compete for a significant piece of the real estate services and management pie, it was entering a highly competitive industry. Like TCC, many other former real estate developers began marketing themselves as service companies in the early 1990s. In addition to regional property management and brokerage firms, many financial institutions were also entering the market. One disadvantage that Crow faced was a conflict of interest with some potential clients. TCC had to convince other property owners to allow TCC to manage their buildings, despite the fact that Crow owned competing properties in the same city.
Principal Subsidiaries: Trammell Crow Asset Management, Trammell Crow Corporate Services.