Success Comes to Those in Front of the Inevitable

February 12, 2010 Posted In

By Kristen Tatti

It’s been a volatile year in commercial real estate, and Loveland-based McWhinney hasn’t been immune. The company found a new president in John Shaw, saw the financial markets land the Promenade Shops in foreclosure, and expanded its geographic footprint with a Denver office, but CEO Chad McWhinney said it’s really just business as usual. He sat down with the Business Report on Feb. 4 to discuss the company’s strategy:
NCBR: Is the unsolicited sale of Rangeview Two out of the ordinary?
McWhinney: Over the years, we’ve probably sold three or four properties through unsolicited offers. Generally, we hold our real estate for the long-term, but from time-to-time, we’ll sell strategic assets to reinvest in future opportunities.
NCBR: Is that linked to opening an office in Denver?
McWhinney: There is some exceptional talent that has become available as a direct result of the financial crisis. One of the gentlemen we brought on board, Marshall Burton, is very well respected in the greater Denver business community. By growing outside of Northern Colorado, it allows us to, over time, attract additional talent. That will not only add value to what we’ve got going on outside of Northern Colorado, but it will also allow us to add value to what’s happening here in Northern Colorado.
NCBR: Do you feel that the competition has been pretty tough here in the past decade? Or are customers drawn to the developments?
McWhinney: I think both. In terms of it being competitive up here, there’s a lot of land, it’s a growing area, a great place to live. I will say that there are some excellent competitors up here. Many of the people we compete with, our associates and us, we are personal friends with them. At the end of the day, there’s enough to go around for everyone.
A lot of people might perceive McWhinney as a development company, but we are a real estate company that focuses on development, management and investments. For the last 10-plus years, there have been lots of opportunities in development, and up until a couple of years ago, in our opinion, acquisitions didn’t make sense. We, in fact, sold a few assets in the ’05, ’06 and ’07 timeframe to position ourselves financially to really be able to play offense when the inevitable correction was coming.
NCBR: Do you envision doing any projects that are outside of the scope of what the company has already done?
McWhinney: No, I think we’ll continue doing what we’re doing and continue to get better at it. We’ll continue to focus on the markets that we want to do business in and that we believe in. For us, that’s the Front Range of Colorado – Denver to Fort Collins – and also Southern California. We may look at other areas outside of that, but we do not have ambitious growth plans. At McWhinney, we focus on taking care of our customers, providing fabled experiences, creating great places. But we’re not like a public company where we’re going to grow 30 percent per year for the next 30 years.
NCBR: The Grand Station development was put on hold. Now looking at the market, how do you feel about that project?
McWhinney: Well, I’m glad that all we did was spend some predevelopment dollars and didn’t break ground on anything. Anytime you move forward with a project, you’re going to put dollars at risk. McWhinney is very good about always protecting our downside. We tend to not build a lot of 100 percent spec development. We did a lot of predevelopment work and study on a product that, at the time, made sense. When the financial markets changed, it no longer made sense and we were able to put the project on hold. We’re still committed to a mixed-use village at Centerra, and when the market allows we will explore that opportunity. The vision behind a mixed-use center is walkability. That vision will not change, but how we execute, depending on when we move forward, will dictate what we do and when.
NCBR: Do you think the market will look different coming out of this downturn?
McWhinney: Real estate is a cyclical business. When I think about the real estate industry, clearly demand is slow right now, which is what is making acquisitions a great opportunity. We believe at McWhinney that success often comes to those that get out in front of the inevitable. The inevitable is that the U.S. population is going to substantially grow. Depending on which projections you want to read, basically over the next 20 to 30 years the U.S. is going to add 100-plus million people. That’s a lot of apartments. That’s a lot of homes. That’s a lot of real estate that’s needed. McWhinney assembled a lot of land in the early 1990s in part of the S&L crisis. That gave us a very low basis, and it allowed us to be patient. That’s one of the reasons we did not acquire a lot of land after the year 2000 – it was just too expensive.
NCBR: In the short-term, how has the recession impacted the company?
McWhinney: It’s allowed us to make some very good acquisitions. It’s allowed us to attract some very good talent. And it’s allowed us to work very closely with our public-private partnerships to continue attracting jobs, bringing in sales tax revenue and building regional improvements.
NCBR: Do changes in public sentiment and city councils have an impact on those partnerships?
McWhinney: Local politics can and will always affect how a public-private partnership is created. What we look for at all times is mutual gains. At McWhinney, we believe in collaborative negotiation where the whole is greater than the sum of the parts. We believe in synergy, and synergy is made up of energy and alignment. When we put those two together, we can accomplish so much more than we can do on our own.
NCBR: Do you think there have been misperceptions about the public-private partnership with Loveland?
McWhinney: I believe that lack of clarity equals fear. Our public-private partnership at Centerra, specifically, is complex. It’s just the way it is. Could we have done a better job in the past of making things more clear? Yes. Are we committed to doing that now? Yes. In anything you do, you’re always going to have naysayers out there, but at the end of the day it’s about results. We believe we are delivering, with Loveland, exceptional results to our community.
NCBR: Has the recession had an impact on the long-term vision for the company?
McWhinney: I think it does have an impact, and the impact is very positive. There’s a real opportunity right now to buy certain assets below replacement costs – in other words, buy them cheaper than you can build them for – and buy land at attractive prices. Like everything else, the market will correct – demand will exceed supply and prices will rise again. But success often comes to those who get in front of the inevitable.