“No one was doing anything, I mean no one was even talking about starting a new project. Sure I was scared, we paid too much for the building during the worst real estate market in my lifetime. However, we needed to play offense, someone had to make the first move, and it was us. That got a lot of attention, and we were able to get the building 90% leased before we started renovation, that’s just unheard of, and it worked to our benefit.”
The quotation above does a superb job in summing up the career, strategy, and philosophy of Boyd Stofer, president and CEO of the Marquette Real Estate Group. Over the past 32 years, Mr. Stofer has helped United Properties (Now part of the Marquette Group) grow into one of the most successful and profitable real estate development companies in the country. Attending a lecture from Mr. Stofer is somewhat like listening to a Harvard (one of his Ivy degrees) Economics professor give a semesters worth of lectures fast forwarded to a speed that condenses the information into one hour. During his talk it appeared as if he continued to talk as he inhaled, and didn’t miss a beat or misstate a figure as he outlined the micro and macro forces that are effecting the national commercial real estate market. His charisma stems directly from his incredible intelligence and ability to conceptualize and connect the vast set of variables that made up the contents of his talk, ending with the weaving of details to present the Marquette Group’s current standing and plans for the future. It’s no wonder that the Pohlad Family entrusts Mr. Stofer with a significant share of their fortune, as very few individuals can impart their razor sharp intellect and cunning in such a succinct and complete manor. It is highly unlikely that anyone in the room (full of real estate professionals, academics, and students) walked out questioning Mr. Stofer’s understanding of the real estate market, actually, it highly unlikely that anyone who meets him ever has doubtful thoughts.
Mr. Stofer’s educational credentials mimics his career as nothing short of top tier. In 1971 he graduated from the Cornell School of Engineering, and followed it up with an MBA with Honors from Harvard. Immediately following his MBA program, Mr. Stofer was hired by Hines Interests, a national real estate development group based in Houston. After three years in Houston Mr. Stofer left and came to Minneapolis to join United Properties, then owned by the Hamm family. Since his hire, Mr. Stofer has led the companies development initiatives, and has amassed an amazing portfolio of work. In 1996 he was named president and CEO, since that time Mr. Stofer has grown and merged United Properties into what is now the Marquette Group. Today, the combined entities of the Marquette group employ over 1,000 people, has assets around $750M and services more than $40B worth of real estate loans. The current operational structure of the Marquette Group is the culmination of Mr. Stofer’s vision for a vertically integrated property firm that is unique in the services that it can provide. The vast array of real estate products that Marquette Group is far from novel, in fact it is probably the firms best financial hedge, in that the organization is prepared and capable of earning revenues in any market and any economic climate.
The Marquette Companies Structure |
The individual companies that make up the Marquette Group are, on their own, extremely successful in their respective industry. However, as Mr. Stofer points out, and is quite obvious from their success, the real strength is the synergy and complementary strengths of all of the businesses together. It is truly a case of 1+1+1=5…
United Properties | The investing, ownership, and development arm of Marquette, with 7M sq/ft under direct ownership making it one of the largest privately held real estate investment companies in the world. When only focusing on the size of their balance sheet United Properties pales in comparison to the humongous behemoths in the industry, large banks and public REIT’s, however what they lack in size they make up for in flexibility and talent. Over the last thirty years United Properties have developed over 200 commercial properties with a construction value topping $1B. These developments span every major industry and you cannot look out your airplane window when landing at Minneapolis St. Paul International Airport without seeing several buildings that United developed. The other side of the business, the real estate investment group owns over 60 commercial properties throughout the greater twin cities. Due to the significant amount of capital in United Properties owner’s coffers, very few opportunities are beyond their reach.
NorthMarq | NorthMarq is the real estate services branch of Marquette, offering a remarkable assortment of real estate related services. The firm is divided into two divisions, NorthMarq Capital provides real estate investment banking, managing the relationships between all parties, and developing financial solutions for commercial real estate projects. One of NorthMarq Capital’s specialities includes DUS (delegated underwriting and services) for the government mortgage giants Fannie Mae and Freddie Mac. The other side of the business, NorthMarq Real Estate Services offers brokerage, property and facility management, real estate advisory services, and project management. With 25M sq/ft under management in Minnesota, 50M sq/ft nationwide, NorthMarq Real Estate is Minnesota’s largest landlord. Their mortgage division works with properties in the $5-$125M+ range, and they have averaged $7B in new loans per year. Just to get an idea of the kind of revenue $40B worth of mortgages brings into the firm, suppose the loans have a 15 year lifetime and are locked in at 5% apr compounded annually, would yield interest income of $160M in the first year. This massive portfolio is the 10th largest in the country, with the other nine including the nations largest banks and public REIT’s.
RJM Construction | The third branch of the Marquette Companies RJM has the resources and experience to provide the final phases of development, the actual constructing of the real estate. Like its counterparts, RJM has experience and expertise in a variety of construction businesses including health care, commercial, and high density residential. Having the physical arm of the development process in house provides many advantages by aligning the interests of all parties, as opposed to a traditional job site where it can appear as if it’s everyman for himself.
Several themes that Mr. Stofer repeated throughout his lecture and description of his business were-
(1) If you have the capital resources, it is necessary to diversify your business to hedge against forces beyond your control. Mr. Stofer gave the example of the previous three years, an extremely difficult time for commercial real estate developers. In fact, before starting work on the Ford Center, Marquette had not started development of a site in years. However, due to their extremely successful services business, that relied on existing clients and is less elastic to macro economic forces. Due to this successful hedge, the Marquette Companies were able to generate positive cash flows during very difficult economic times.
(2) The key to Marquette’s service businesses, as well as all its operations, relies heavily on the talent and quality of Marquette’s employees. Each one of the 1,000+ employees working for Marquette represent the company and their actions have a drastic effect on the overall success or failure of Marquette’s ventures. Therefore, Mr. Stofer considers Marquette’s human capital it’s most valuable asset, and he is committed to finding, hiring, and retaining the best talent in the industry.
Eight Strategies for Success |
Like most successful CEO’s, Mr. Stofer has reflected on his career and is careful to learn from each of his victories and losses. The product of this reflection is eight strategies that Mr. Stofer uses when embarking on a new venture.
- Stay true to your values- Over the past few years the amount of financial scandals and greed on the part of already wealthy individuals creates a stain on the American economy that will take years, if not generations, to clean up. Although it can be very appealing to cut corners for short term gains, having a long-term view of life and your career will always prove more beneficial.
- Diversify your businesses- As discussed in the structure of his business, Mr. Stofer is adamant that a business should be as diversified as a stock portfolio, including safe investments that will allow the business to continue operation in difficult times.
- Balance your revenues- Similar to diversifying your business structure, a mix of rental, annuity, and transactional revenue streams will ensure consistent free cash flow, as well as providing the capital necessary to seize opportunities.
- Use a conservative approach to financing- During the real estate boom in the early part of the last decade, many of Mr. Stofer’s peers were pressuring him to indulge in the gluttony that way rampant in the industry. Firms were leveraging 90% debt to 10% capital to finance projects, and eventually suffered tremendously for their greed. Mr. Stofer maintains a target of 50/50 debt/equity financing as a target for all his transactions, allowing his firm to realize the higher returns of debt financing, while removing much of the interest burden that has overwhelmed many real estate developers recently.
- Be proactive in asset management- A forward thinking approach is vital in the real estate business, as well as any industry. Simply following the trends will never make a company great, therefore Mr. Stofer is constantly reflecting, analyzing, and planning ahead for future scenarios and possibilities.
- Be opportunistic- When an opportunity presents itself it is necessary to seize it.
- Nurture relationships- No individual can singlehandedly plan, design, finance, build, and sell commercial real estate. This is Mr. Stofer’s strategy regarding the golden rule, and his ability to earn the respect and admiration of all of the people he works with, for, or manages is a crucial piece of his success.
- Attract and retain top talent- One of the major themes that Mr. Stofer repeated frequently during his presentation, a business is only as good as is weakest employee, so it is in a managers vital interests to ensure his/her team is as talented as possible, has the resources necessary to complete their job, and most importantly, for each employee to feel they are an integral part of the business and their ideas and opinions are necessary for the ventures success
The Ford Center |
The quote that opened this article is in regard to Marquette’s latest development project. The Ford Center is an eleven story building located across the street from Target Field. The buildings history traces back to Minneapolis’s first automotive building plant, making Ford’s original Model T until Henry Ford devised the assembly line method of production and moved his operations to its current location, the Ford Automotive Plant in St. Paul. The building has special significance, in that it is the largest building neighboring Target Field, which is well regarded as the Pohlad Family’s most loved property. As construction began the Pohlad’s became interested in acquiring the Ford Center as part of the overall development of the area. Unfortunately, the market price was far above Mr. Stofer’s valuation of the intrinsic value of the building, but with some opportunistic tax breaks from the city, and at the request of his employers, he went ahead with the deal. Upon purchase, the building was not in great shape, in fact Mr. Stofer rated the space as a C-, which is far inferior to the normal assets, grade A, that Marquette usually deals with.
This encouraged Mr. Stofer to develop an ambitious renovation plan, which was made more complex by the building registration as a historic site. This meant that all attempts would need to be made to keep as much of the original structure as possible, and greatly increased the cost of the renovation. However, because of the tax benefits offered by the state for compliance, it was in Marquette’s interest to comply with, the sometimes absurd, requests by the state historical society. $40M dollars later, the project is almost complete, and because of Mr. Stofer’s strategies and opportunism, the building was pre-leased before renovations were completed. Considering the extra costs incurred, as well as the current economic conditions, including tons of available office space, this project looked like a recipe for disaster. In the end it wasn’t, Mr. Stofer was able to negotiate the required lease rate of $14 sq/ft that he calculated before seeking tenants.
Mr. Stofer’s career is an example of how consistent, excellent work while remaining true to his values translates into incredible successes. For those who try to imitate Mr. Stofer’s model for success, one thing must be understood, there is no chance that this will work by picking and choosing strategies that seem doable or a good fit. Rather, it is a combination of all of the forces Mr. Stofer’s wields that make him a true leader in the real estate industry, and what will continue to allow him the opportunity to create and manage profitable projects in the future.
The last presentation of the Executive Insight Series will occur on Tuesday, May 3rd, when St. Thomas welcomes Dennis Doyle, co-founder of the Welsh Company. For more information visit the Masters in Real Estate events page