Landauer celebrates its 50th anniversary this year, but instead of resting on its laurels, it is embarking on an aggressive new growth strategy.
Client needs. Synergy. One-stop shopping. You hear those words often when talking to the executive culture at Landauer Associates. But instead of the usual pie-in-the-sky feeling one might have about such words, you get the sense that this is different. It's more than lip service.
Landauer began life in 1946 as a transaction consulting firm, and is now owned by the U.S. division of Aegon, a huge Dutch insurance fund, which also owns Quantra Corp. and Teleres.
It's taken Landauer 50 years to build one of the highest-regarded names in real estate valuation and research. But in just the last year or so, the company has embarked on a dramatic restructuring, creating separate divisions and profit centers to increase its client services capabilities.
The change starts at the top, with new president and CEO Steve Kaplan. From his ninth-floor office overlooking North, Kaplan can survey much of what went right and wrong with American real estate in the last 10-15 years. The bottom line is that the market landscape has changed dramatically, and if a company is to grow and prosper for another 50 years, it must be flexible enough to change with the markets.
"I took an inventory of the assets of the company when I got involved in an operations position. First and foremost you look at the strength of the personnel. Right behind the personnel is the research capability. And third, which can't be understated, is the goodwill attached to the name of Landauer, the reputation of the firm. Those were my core assets. What we did was acknowledge the marketplace has changed and focus on where were the demands in the marketplace," says Kaplan.
In any given year, Landauer values some $60 billion to $80 billion worth of real estate. That's a lot of property and it's a pretty steady business, but the valuation business is also low-margin, and pure valuation services are, more and more, being supplanted by a more full-service counseling and advisory approach.
What Kaplan has done is form six separate divisions for valuation services, hospitality, transactions, attorney support, research and capital markets. Each is headed by a professional manager, who's mission in life is to grow the division, but not alone out in a field. Teamwork and synergy are now the order of the day. Clients can be grown through the basket of expanded services.
"It might be over a period of years. It comes back to that buzzword of `relationships.' We really mean it at Landauer," says Kaplan. "There's no one person who has all of the answers. That says a lot about the company. It defines the company. That we have the interaction and the involvement of a broad base of people. And that's what we're really trying to cultivate, an openness, a break-down of structure, the concept of you've got to move out of your box, you've got to think outside of that box, because that's where the industry is headed. Where we're at today, we could not have possibly imagined being five years ago. So where are we going to be five years from now? If your job is so structured, and you're in this little box, you might be comfortable but you might not be serving your client five years from now. So the drive is this concept of flexibility, of innovation and getting outside the box. That's going to be a cornerstone for this company."
Historical research strength
In talking to Landauer's division heads, the words research, valuation and Hugh Kelly keep coming up, and with good reason. Kelly is senior vice president and director of economic research and strategic studies, and has been one of Landauer's cornerstones for the last 17 years, and his work in producing the annual Landauer market forecast has made him a sort of industry legend.
One of the things Kelly has learned over the years is how important the link is between the U.S. economy and its real estate markets.
"Real estate is a good window on the economy. By observing the way real estate functions as a factor in production, you begin to understand where the strengths and weaknesses in the economy are. When real estate fails to serve in an effective way it's got to go down," says Kelly. "What's the contribution of the real estate to business profits? That really is a very key factor to watch."
One major assignment Kelly recalls is Landauer's close work with General Motors in the siting of the new Saturn car production plant outside Spring Hill, Tenn., and how the firm conducted an extensive evaluation of dozens of potential cities.
Kelly thinks that research shouldn't operate in a vacuum, so years ago he learned how to combine actual field work with the laborious chore of analysis.
"Research has to be sensitive to this tendency toward abstraction. There's an important dynamic between taking a look at the economic variables and the macro trends that impact and push real estate, and the detail that you learn when you're dealing with individual properties. It's one of the reasons for a long time during my career at Landauer I've tried to keep a foot in both camps, where I would spend a good bit of the year actually going out and valuing individual properties or portfolios of properties and doing all of this legwork involved in that, then coming back to work on the Landauer forecast with projections and macro economic analysis. The analysis gave me the framework and the insight that other valuers, appraisers and consultants didn't necessarily have when they looked at the individual properties to see something beyond the typical `let's take something and grow it 4% or 6%."'
These days, Kelly has backed off on the field work to concentrate on redefining the role of the research services group within the organization. "Four or five years ago it became impossible to do both. The firm has 150 or so people out there in the field and gathers a tremendous amount of information valuing $60 billion to $80 billion of real estate a year. My job has turned to how we're monitoring the markets."
Valuation, valuation, valuation
Another of Landauer's core strengths in recent years has been its valuation and appraisal services, led by Jim Kafes, a 10-year Landauer veteran and managing director of national valuation and technical services.
Kafes' clients include money center banks, major life insurance companies, investment advisers, Fortune 500 corporations, along with a substantial foreign clientele of European institutions, including Dutch pension funds, and clients in the Pacific Rim.
Kafes' staff of 50 are spread over five offices in Los Angeles,, New York, Fort Lauderdale and Atlanta. Their task these days is to redefine the notion of what valuation and appraisal really are, and to add value to the newly expanded Landauer franchise.
After valuation was added to the firm's services in the 1960s, it grew to become some 80%-90% of the business in the late-1980s and early-1990s. For the 1996 business plan, valuation will account for about 40% of Landauer's business. "Now with Steve Kaplan, we really have a dynamic leader and we have the support of Aegon. Things are really in place," says Kafes.
"My business is not the most high-margin of business in real estate, so while it has helped to preserve the franchise intact, we really have to capitalize on Landauer's reputation and quality to get into other more profitable lines of business. That is the great business plan now," says Kafes.
"As a valuation firm, we have probably many more diverse talents than the usual MBAs who into an accounting firm or a Coldwell Banker. We have architects, engineers, a lot of intellectual, specialized people. You combine that diversity with the synergies that are rapidly developing between the litigation support people, a deeper transaction consulting group, a deeper hospitality group and a developing capital markets group. Our people can interact because they are integrated into our various offices and it's keeping everybody a little sharper."
Hot in hospitality
Riding the coattails of the hottest commercial real estate segment, hotels, Landauer has grown to become one of the largest hospitality advisory services in the country, thanks largely to the work of Ken Wilson, its national director of hospitality advisory services, who oversees a staff of 40.
Recently, Landauer became affiliated with Horwath International, a global network of offices specifically serving the hospitality industry.
"We saw great value in becoming part of the Horwath network," says Wilson. "Our role in the Horwath network is obviously to be the preeminent firm in the United States, and part of that is you have to have worldwide strength. Now we have the worldwide strength through that system, and we've worked on a consistent analytical tool for worldwide operations. We think we're on the leading edge of the movement in globalization. The world is getting much smaller, and technology will make it even smaller."
For hotel owners and operators, the role of research and keen analytical ability cannot be overstated.
"Research is Landauer's pedigree. Our history of our research and the future of our research is the foundation upon which the information for where the markets are going and how they are going is going to be derived. This is the direction we know the industry is going to have to head and we believe we're on the front end of the curve," says Wilson.
"We are trying to redefine the way our industry gets information, and how good that information is for making short-and long-range decisions. We're looking more at the global view of the industry. Generally our industry has taken a retrospective look, but we have the ability to provide macro to micro research and synthesis to do global planning."
Once again, the one-stop shopping, concept and the notion of teams to attack client opportunities is an important point of differentiation, says Wilson.
The newfound importance of real estate on the balance sheets of the nation's, and the world's, major corporations has led Landauer to create a corporate counseling unit.
"Corporate counseling is really an attempt to work with organizations that own property orin real estate," says Theddi Chappell, managing director of corporate counseling. "With corporate downsizing, that hasn't been a No. 1 priority. They're trying to figure out how to do their business."
Part of Chappell's job is to bring real estate awareness to clients. "A lot of the people we talk to say they don't really have any real estate interests. But if they acquire a company that owns a bank, they think they acquired the business, but that has real estate attached to it."
Chappell also is active in coordinating Landauer's new divisional team efforts and making the outside world understand what they offer. "It's trying to get across the fact that if you own real estate, we can help you. We're fine-tuning now, to see how the divisions will work together. We started as James Landauer as a counselor. Now the next 50 years we're beginning again with that as our focus. What it takes now to serve a client is so much different."
She has been heavily involved in international markets, particularly in Sydney, Australia, where she was instrumental in creating Landauer's joint venture with Grant Samuel, a major Australian real estate firm.
"We can use our knowledge of foreign cultures to grow the business. Our clients are global, pure and simple. You have to go in with an open mind. We're focusing more globally. I traveled back and forth to Australia for two years before we opened that office. It became very apparent once you're outside the United States how much more globally major corporations were. If you're really going to serve your clients, you have to focus on that."
There's something to be said for providing a service that is in demand during both up and down real estate cycles. That's the case with Landauer's bankruptcy and forensic services division, headed by managing director Tom Millner.
Millner joined Landauer in June 1995, fresh from his position as national director of Kenneth Leventhal's litigation support services. And while Landauer has been providing litigation support services for many years, the formalization of those services into a distinct division should help to grow it as a profit center.
"I was really excited about Steve's (Kaplan) vision of Landauer and where he wanted the company to go," says Millner. "One of the things I enjoy doing is putting an organization together. So I was really intrigued by the opportunity."
As of this writing Millner has nine people under his employ, but that number will be changing almost daily as he staffs up the division. The plan is to grow to about 20 people by yearend 1996, with a division representative in each of Landauer's offices.
"My goal is to have about 40 people in the practice over the next serveral years," says Millner. "I'm more focused on the client needs and the area than size alone. The critical aspect of being successful in this business is an objective view and the ability to analyze and understand complicated matters and communicate them in a way that can be easily understood by anyone."
Why the growth track? "There is demand for experts in the real estate area who understand bankruptcy, restructuring and the litigation process. In the down cycle, companies are restructuring in order to survive. There are bankruptcy actions. And of course there's litigation. There is the demand for our business. In up cycles there's also a demand because companies are very interested in showing good returns and good yields to their investors. So there's quite a bit of competition for the investment dollar and companies are interested in ensuring that they're operating efficiently, so they look at the operations at their properties in order to ensure that they're in the proper position, so there's still a need for restructuring."
Landauer has shown a propensity to identify trends before they become so mainstream that everyone jumps on the bandwagon. One of these trends was seen in the early-1980s, when the Japanese were first becoming interested in investing in U.S. real estate.
In fact, Landauer often advised its Japanese clients against many of the heavy trophy-property investments that came back to haunt other Japanese investors generally in the late-1980s.
Today, despite the well-known problems in the Japanese banking and real estate industries, Landauer continues to see good business from the Pacific Rim.
"We are seeing quite a bit of success these days with Japanese business," says Jim Kojima, senior vice president. "During the early-'90s, other competitors just abandoned servicing the Japanese because there was no more money coming. But because we stayed with the clients, in good times and in bad times, we are seeing results today. We have a willingness to help the client. We have to be technically competent, but I think it's very important to meet the needs of the client at all times. They like the fact that coming to Landauer means one-stop shopping for a full range of services."
Kojima works with one partner based in Los Angeles. Most of their business is conducted with Japanese financial institutions, insurance companies, securities companies, developers,companies and entrepreneurial investors.
As mentioned earlier, James Landauer created the firm to be a transaction consultant. Today, Steve Kaplan is in charge of the transaction services division, which has grown smaller over the years but is seeing a renewed emphasis.
Kaplan is growing the division from small groups in Atlanta and New York. He is adding staff to offices in New York, Fort Lauderdale, Dallas, Los Angeles, and recently opened an office in Phoenix. The rationale is that new job growth will swing through the South to Dallas, then North through the Rockies, hence an inter-mountain region office in Phoenix.
And Kaplan intends to run the transaction business in the tried-and-true Landauer way. "You'll never see a Landauer for-sale sign. That's not what Landauer's about. We pride ourselves on maintaining the confidentiality of our clients, we pride ourselves on working on particularly complex transactions, deals with a weird wrinkle in them, that your traditional transaction group would steer away from because they want to get the deal done and move on. It's a marked point of distinction that separates Landauer from other firms," says Kaplan.
Landauer is moving so fast in its restructuring efforts that while this story was in progress, it created a capital markets division, headed by H.W. (Woody) McNabb, national director of capital markets. Again, Landauer is not a new player in the capital markets arena, but the creation of a division formalizes its involvement. Ultimately, the goal is to be more proactive.
"This brings these expertises together and ads the pieces we need to make it a totally cohesive group that can go out in the marketplace and cover a broader range of services in a more organized fashion (and grow it as a profit center)," says McNabb. Landauer also has formed a loan sale advisory group within the capital markets division, based in Boston.
"Landauer has historically played on all sides of the capital markets, whether it be mortgage placement, workout advice, due diligence, working with the rating agencies, working with underwriters, working with structures. Our client base is the lenders, the purchasers of real estate securities, the issuers of mortgages and securities, people who interrelate between the two. Landauer has probably performed over $10 billion in loan portfolio evaluations," says McNabb.