Ray Marano

Sunday, 29 June 2003 20:00

Hoddy Hanna's big move

Hoddy Hanna zips past behind the wheel of a green Cadillac, the car the same hue as the dominant corporate color of Howard Hanna Real Estate Services, and extends his arm in a wave.

After a couple of hours of chatting with him in his office, the question arises: Is he bidding farewell to the last transaction or greeting the next one? He may be doing both.

A little earlier, Hanna, president of Howard Hanna Real Estate Services, dined on a takeout lunch from a white foam container and talked about the real estate industry, the agency his parents founded and where his company is headed. The discussion also revealed that the company had a big deal in the works.

"We're working on a pretty good-sized deal," Hanna said at the time.

Hanna hadn't exaggerated. Three weeks later, the story led on the local business pages.

Last month, Howard Hanna Real Estate Services acquired Cleveland-based Smythe, Cramer Co., a close peer in terms of size, to form the ninth largest full-service real estate organization in the United States, with combined real estate sales of nearly $5 billion. The unified organization has 105 offices and more than 3,000 sales associates and employees.

Hanna will remain as president and CEO.

Under holding company Hanna Holdings are a dozen operating units, including a land development company that developed 600 lots last year, and Hawthorne Homes, a residential construction company. To round out its effort to be a one-stop shop, it operates a title company, an appraisal company and a division that coordinates services like cable TV hookups, carpet and flooring installation, and relocation and moving services.

Howard Hanna Real Estate Services has opened new offices and acquired others, expanding its footprint into Western Pennsylvania and the Erie and Harrisburg areas, West Virginia, Ohio and Southwestern New York. It placed 24th in 2002 on Real Trends magazine's list of the largest real estate brokers in the United States, which also ranked Howard Hanna Insurance the 11th largest owned by a real estate company.

Hanna has the assistance of several family members in running the growing company. Sister Helen Hanna Casey runs the residential division, while sister Annie Hanna Cestra handles the demands of the administrative side of the business.

Hoddy's son, Howard IV, is an executive vice president who will move to Cleveland to play a key role in the day-to-day operations of the Smythe, Cramer acquisition.

No mortgages, no sales, no deals

The Howard Hanna Real Estate Services story has been one of growth and diversification -- and deals. Hanna's father, Howard Hanna Jr., today the company's chairman, started his real estate business in Squirrel Hill in 1957 with his wife, Anne, with about $75. By the early 1970s, Howard Hanna had expanded into the growing North Hills communities, as well as east and west of the city, and he was on his way to building a multiservice real estate company.

At one point in the early 1980s, Howard Hanna Real Estate was having a tough time getting mortgages approved for about a dozen potential buyers. The bank it was using at the time, the former West Penn Federal in Wilkinsburg, didn't have enough equity to lend for the mortgages.

No mortgages, no sales, no deals. Hanna credits his father for coming up with a creative solution.

Hanna's father scraped up most of the cash he had and placed it in an account at the bank to be used to fund the mortgages, with the stipulation that he could draw on the cash as the bank improved its equity position.

The bank granted the mortgages, improved its equity position and Hanna was able to withdraw the money, ultimately using it to launch a mortgage company. Today, it is one of the largest mortgage lenders in the United States and the second-largest in Allegheny County.

Is there a bubble?

Howard Hanna's merger with Smythe, Cramer comes as the real estate industry finds itself in an unusual position, facing the lowest interest rates in four decades and a strong residential market for both resale and new construction that shows few signs of abating, but phlegmatic movement in commercial development.

"If you look at most real estate slowdowns, commercial, residential, homebuilding, they all sort of go together, but this is a little unique," Hanna says.

It's little wonder that the real estate industry is in confusion. The economy is in what some analysts characterize as a "jobless recovery," in which economic indicators improve but few jobs are created as a result.

With low interest rates, a tentative stock market, corporate accounting scandals, little employment expansion, international tensions and the threat of terrorism, the economy almost looks like it's headed for a "perfect storm," as one local CFO describes it.

But Hanna sees stability locally. Traditionally, the Pittsburgh market hasn't experienced the spikes up or down in home values that have characterized some other markets.

"We've had, if you track the last seven or eight years, somewhere between 2 and 3 percent appreciation in almost every community," says Hanna. "It's hard for that to hurt you."

Cool commercial market

Even as consumers have scooped up new and existing homes in large numbers despite a sluggish economy, the commercial market has been in the doldrums.

"Today, the commercial market is lousy," says Hanna. "If we would have all of our eggs in commercial, we would have a tough time right now."

As an example, Hanna says a 50,000-square-foot office building his company developed in Franklin Park, a popular and growing suburb north of Pittsburgh, was a struggle to fill.

"We've got great tenants, but it was slow in coming," says Hanna.

Hanna says a stagnant economy, corporate mergers, technology gains and the resulting increased productivity have shrunk the space that companies need to do a fixed quantity of work. At the Franklin Park site, for instance, two large tenants combined operations from multiple locations in less space at their new offices.

It could be worse. Low interest rates, while not propelling the commercial sector, might nevertheless be buoying it when it otherwise might be faring worse than it is, says Hanna.

"Low interest rates are probably keeping a lot of deals above water," says Hanna.

Residential on the rise

The residential market, on the other hand, has enjoyed a boom so long and sustained nationally that some analysts have suggested there might be a housing bubble on the horizon poised to burst. Hanna doesn't think so, not in Pittsburgh, at least.

"I don't see a bubble in the marketplace around here," says Hanna.

Hotbed growth area like the West Coast, New England, Atlanta and Dallas, says Hanna, have experienced much faster growth, to the point where prices were driven up by high demand for housing and constraints on development by local municipalities attempting to curb sprawl.

The Western Pennsylvania market hasn't experienced that kind of expansion or constraints on development.

"I know this market so well, this tri-state market. I just don't see bubbles being created," says Hanna.

Demand for housing appears likely to remain strong. First-quarter 2003 home sales in the six-county Pittsburgh region increased 6.4 percent over the same period in 2002, according to West Penn Multilist, a cooperative listing organization.

Research by Fannie Mae, the financial giant that provides funds to mortgage lenders, indicates that 31 percent of baby boomers, 42 percent of African-Americans, and 37 percent of Hispanics, three key groups in the home-buying market, are "likely" or "fairly likely" to buy a home in the next three years. Fannie Mae also anticipates that mortgage lending will increase in 2003.

The residential plan

Hanna is looking to the Route 28 corridor to be the focus of perhaps the next big wave of development. The state highway offers access to southeast Butler and to Westmoreland and Armstrong counties, all with large tracts of developable land and lower tax structures than Allegheny County.

The inclusion of Armstrong County last month in the Pittsburgh Metropolitan Statistical Area by the White House Office of Management and Budget means the 71,000-population county that Route 28 cuts through will be on the radar screen for corporations that use MSA data to select potential sites for locating operations.

For a hint at where the residential construction market is headed, a visit to Berkeley Square in Monroeville, a 17-acre planned community designed with an unplanned look, might offer a peek into the future of new housing. A gazebo stands near the entrance of the development, where only a few buildings now stand.

With a variety of exterior treatments on the homes, Berkeley Square strives for a look that suggests neighborhoods where potential buyers can imagine the homes as being where their grandparents or great-grandparents might have lived. Some structures have flagstone facades; others feature clapboard siding or scalloped shingles. Garages have what appear to be old-style carriage house doors, although they open like modern overhead units.

Electric street lamps mimic gaslights.

Residents will have access to a swimming pool and a putting green. The development includes single-family dwellings, town homes and double homes, a combination that Hanna says modern buyers are seeking -- an old-fashioned neighborhood with modern amenities and proximity to shopping and recreational opportunities.

"We haven't seen that many planned communities in the region, and we really think that's the way to go," says Hanna. "We think people living in suburbia today really want that."

The decision to focus on narrow niches seems to be a sound one. While some segments will do well, the entire market isn't expected to grow. Commercial, for instance, while expected to turn around this year, isn't expected to show big gains in 2003.

"Firms that are looking to grow during the next two to three years will need to focus on narrow sectors of the market rather than expecting a rising tide effect," says Jeff Burd, president of Pittsburgh Construction News, an industry publication that analyzes the local construction market.

In a business where the deal is everything, Hanna doesn't take any transaction for granted. He says he recalls a time when he knew virtually every deal that the company had in the works. At his company's current size, it's impossible to have a hand in every one. But while Howard Hanna Real Estate Services closes thousands of transactions a year, Hanna says he has empathy for the customer who takes the step to buy a home, something they may do once or a few times at most during a lifetime.

"It's a very emotional thing," says Hanna, who tells of being with sellers with tears in their eyes at closings, even when they were moving on to a fancier house in a ritzier neighborhood. "That doesn't happen when somebodys trading in their car."

An experience last year provided Hanna with a reminder of what his customers encounter when they put in motion the process to buy a house. And it just might offer a glimmer of insight into the emotion that is wrapped up in every deal for Hanna and what propels him to keep going after them.

"I bought a house at the shore last year," Hanna says. "I was nervous until I got the mortgage." How to reach: Howard Hanna Real Estate Services, www.howardhanna.com; Fannie Mae, www.fanniemae.com; Pittsburgh Construction News, www.pittconnews.com

Monday, 30 June 2003 05:57

Network nuisance

The motives of computer network hackers are varied, but in any case, they can wreak havoc on your business operations.

Chris Deibler, senior security consultant with Vigilant Minds, a network security consultant, says the motives of hackers can range from financial gain or efforts to gain access to additional computing resources to revenge by a customer or former or current employee. Or, it might be the simple challenge of overcoming a network's security measures.

Special Agent Tom Grasso of the FBI's Pittsburgh field office says 70 percent of intrusions come through the Internet, while 30 percent come through an internal system.

Regardless of the motivations of a hacker, invasions can be costly. According to Grasso, 85 percent of respondents to a recent FBI survey reported some security breach of their computer networks in the previous year. Nearly two-thirds -- 64 percent -- lost money as a result of hackers breaking into their networks.

Surprisingly, only a minority of businesses that experience a hacking incident report it to law enforcement. According to Grasso, just 35 percent of those who experience a hacker attack on their network report it. And businesses, for the most part, aren't compelled to report hacking incidents unless there is an imminent threat to an individual or property, says Jim Singer, a lawyer with Pepper Hamilton in Pittsburgh.

Grasso says most don't report hacking incidents because they fear the investigation will disrupt their business, or that if the case reaches the courts, the company might be exposed to unfavorable publicity. They fear that servers or hard drives will be confiscated as evidence, says Grasso, but adds that the FBI will do everything it can to allow a business to function as normally as possible.

"If you're a victim of hacking, we'll work with you to make it as painless as possible," says Grasso.

Damon Hacker, a computer forensics expert with SS&G Technology Inc., says businesses victimized by hackers make several common mistakes. Often, they fail to involve experts in the process of prevention and in recovery of information after a hacking incident, and they don't move quickly enough after an incident and thus lose critical information.

Says Hacker: "A lot of this information goes away quickly." How to reach: Vigilant Minds, www.vigilantminds.com

Monday, 30 June 2003 05:45

Real estate planning

Hoddy Hanna zips past behind the wheel of a green Cadillac, the car the same hue as the dominant corporate color of Howard Hanna Real Estate Services, and extends his arm in a wave.

After a couple of hours of chatting with him in his office, the question arises: Is he bidding farewell to the last transaction or greeting the next one? He may be doing both.

A little earlier, Hanna, president of Howard Hanna Real Estate Services, dined on a takeout lunch from a white foam container and talked about the real estate industry, the agency his parents founded and where his company is headed. The discussion also revealed that the company had a big deal in the works.

"We're working on a pretty good-sized deal," Hanna said at the time.

Hanna hadn't exaggerated. Three weeks later, the story led on the local business pages.

Last month, Howard Hanna Real Estate Services acquired Cleveland-based Smythe, Cramer Co., a close peer in terms of size, to form the ninth largest full-service real estate organization in the United States, with combined real estate sales of nearly $5 billion. The unified organization has 105 offices and more than 3,000 sales associates and employees.

Hanna will remain as president and CEO.

Under holding company Hanna Holdings are a dozen operating units, including a land development company that developed 600 lots last year, and Hawthorne Homes, a residential construction company. To round out its effort to be a one-stop shop, it operates a title company, an appraisal company and a division that coordinates services like cable TV hookups, carpet and flooring installation, and relocation and moving services.

Howard Hanna Real Estate Services has opened new offices and acquired others, expanding its footprint into Western Pennsylvania and the Erie and Harrisburg areas, West Virginia, Ohio and Southwestern New York. It placed 24th in 2002 on Real Trends magazine's list of the largest real estate brokers in the United States, which also ranked Howard Hanna Insurance the 11th largest owned by a real estate company.

Hanna has the assistance of several family members in running the growing company. Sister Helen Hanna Casey runs the residential division, while sister Annie Hanna Cestra handles the demands of the administrative side of the business.

Hoddy's son, Howard IV, is an executive vice president who will move to Cleveland to play a key role in the day-to-day operations of the Smythe, Cramer acquisition.

No mortgages, no sales, no deals

The Howard Hanna Real Estate Services story has been one of growth and diversification -- and deals. Hanna's father, Howard Hanna Jr., today the company's chairman, started his real estate business in the Squirrel Hill area of Pittsburgh in 1957 with his wife, Anne, with about $75. By the early 1970s, Howard Hanna had expanded into the growing North Hills communities, as well as east and west of the city, and he was on his way to building a multiservice real estate company.

At one point in the early 1980s, Howard Hanna Real Estate was having a tough time getting mortgages approved for about a dozen potential buyers. The bank it was using at the time, the former West Penn Federal in Wilkinsburg, didn't have enough equity to lend for the mortgages.

No mortgages, no sales, no deals. Hanna credits his father for coming up with a creative solution.

Hanna's father scraped up most of the cash he had and placed it in an account at the bank to be used to fund the mortgages, with the stipulation that he could draw on the cash as the bank improved its equity position.

The bank granted the mortgages, improved its equity position and Hanna was able to withdraw the money, ultimately using it to launch a mortgage company. Today, it is one of the largest mortgage lenders in the United States.

Is there a bubble?

Howard Hanna's merger with Smythe, Cramer comes as the real estate industry finds itself in an unusual position, facing the lowest interest rates in four decades and a strong residential market for both resale and new construction that shows few signs of abating, but phlegmatic movement in commercial development.

"If you look at most real estate slowdowns, commercial, residential, homebuilding, they all sort of go together, but this is a little unique," Hanna says.

It's little wonder that the real estate industry is in confusion. The economy is in what some analysts characterize as a "jobless recovery," in which economic indicators improve but few jobs are created as a result.

With low interest rates, a tentative stock market, corporate accounting scandals, little employment expansion, international tensions and the threat of terrorism, the economy almost looks like it's headed for a "perfect storm," as one CFO describes it.

But Hanna sees stability, at least in the Pittsburgh market where his company is based.. Traditionally, that market hasn't experienced the spikes up or down in home values that have characterized some other markets.

"We've had, if you track the last seven or eight years, somewhere between 2 and 3 percent appreciation in almost every community," says Hanna. "It's hard for that to hurt you." How to reach: Howard Hanna Real Estate Services, www.howardhanna.com; Fannie Mae, www.fanniemae.com; Pittsburgh Construction News, www.pittconnews.com

Friday, 30 May 2003 06:56

V-8s to Volvos

Karen Puchalsky, president and COO of Innovate E-Commerce, likes her Land Rover because it's almost boringly reliable.

Scott Morgan, executive vice president at advertising and PR agency BlattnerBrunner, on the other hand, says his Land Rover makes it into the repair shop every couple of months, yet he maintains his love for his upscale SUV.

"I think it is more about the brand than anything," says Morgan. "It's mystic as a rough and tumble 'rover' that can go just about anywhere from the Mojave Desert to the jungles of Africa."

But there's a practical side as well for Morgan: "I actually use it off-road and I ski frequently, so I'm often driving through snow storms."

The same vehicle, two different owners, two different reasons for their preference for it. It's hard to figure out what will turn the head and open the wallet of the luxury and specialty car buyer.

Bill Sorochman, service manager at Monroeville Chrysler Jeep, says he's turned on by Chrysler's Pacifica, a combination SUV, sport sedan and minivan that hit showrooms with its official kickoff last month. He's been associated for many years with Chrysler, a company that has introduced some of the most provocative models in recent years, including the Prowler, the PT Cruiser and the Ram pickup.

"It's the first vehicle that I'm excited about in a long time," says Sorochman.

I've seen a Pacifica on the road, and I can see why it gets Sorochman's blood pumping. I came of age lusting after muscle cars and have even owned a couple. But the car that really gets my wheels turning is the Volvo. I've had a passion for those metal boxes on wheels since the 1970s, when you could barely detect anything but a straight line in their clunky cubic designs.

No fancy names, not much in the way of gadgety options, just basic and reliable, the ultimate from-point-A-to-point-B personal transportation device with all the panache of a light rail vehicle. Yet, a Volvo to me is like a Van Gogh -- not beautiful in the classical sense, perhaps, but something I can look at for years and not grow tired of.

At the risk of sounding even more boring than I may already appear, my favorite Volvo has always been the station wagon, the ultimate in frumpiness to some folks. As you might suspect, I fell head over heels for the Volvo XC70 wagon when it was introduced as a 2002 model, especially in the Cross Country version.

The only thing that could supplant my passion for the wagon turned out to be the XC90, Volvo's first entry into the SUV market. In typical Volvo style, it has a low front chassis cross member, about the same height as the average sedan's bumper, to reduce the chance of excessive damage should the XC90 strike something smaller than a Lincoln Navigator.

The XC90 isn't cheap; the 2.5 model starts at $31,000, the T6 with a 2.9-liter inline six-cylinder lists at $39,975.

While the XC90's looks might not appeal to everyone, few could object to its ride, comfort and handling. The unusual inline five-cylinder engine packs lots of punch and the automatic transmission shifts as smoothly as glass. Like most of the higher-priced SUVs, the XC90 boasts a roll stability control system that corrects braking and acceleration automatically to compensate if the vehicle risks a tip-over by leaning too far to one side.

On the other hand, if you find yourself leaning toward the XC90 or any other vehicle, you don't have to resist the temptation to fall for it.

That's half the fun. How to reach: Volvo, www.volvocars.com

Tuesday, 29 April 2003 05:22

Don't quit

Pam Selker Rak maintains a positive outlook on business, even during times when things don't look like they're going so well.

Maybe it's because Rak, president of Communitech, a marketing communications firm that serves mostly technology related clients, is the latest in a line of women entrepreneurs who haven't allowed the distractions or disappointments of the present to get in the way of their vision for the future.

Rak's grandmother came from Sicily in the early part of the last century as a child, and at age 35, opened a grocery store during the Great Depression.

One day, when things weren't going so well, a customer gave Rak's grandmother a short poem whose message was simply, "Don't quit." She didn't, and she prospered, eventually opening a Dairy Queen franchise and a restaurant.

Rak's mother, another entrepreneur who refused to allow the gloom of her times to blunt her resolve, opened her own business in the days of stagflation of the 1970s. She kept the poem close by, both literally and figuratively, and passed it on to Rak.

Rak hasn't given up on her business, either. Her response to the most recent economic slump has been to increase, not decrease, her marketing efforts, even when it looked as though revenue might level off or even drop.

"It was painfully difficult; it wasn't easy," Rak says of pouring more into marketing efforts for her firm when the tech bubble was deflating and the economy appeared about to deep-six.

The strategy has worked, however, Rak claims, with first quarter revenue in 2003 up 88 percent over the same quarter last year. Not too shabby in a good economy, let alone in the midst of a shaky one.

There are two lessons here. First, hang in there, because conditions will improve, and when they do, you'll be there to take advantage of better times. Second, when you might feel inclined to back off the marketing throttle, that may very well be the time to rev it up.

After all, as Rak points out, if your competitors are pulling back, here's your chance to get in front of them without a lot of clutter to obscure and confuse your message.

Even if they're not buying today, they will be eventually. And when they do, you'll be more likely top of mind with them. All because you didn't quit.

Tuesday, 29 April 2003 05:17

Jeremy Garvey

Jeremy Garvey was working hard on a deal and found himself on the phone with his client several consecutive weekends. By about the fourth Sunday, his wife was asking if he was going to make what seemed to have become a regularly scheduled call.

For Garvey, a Buchanan Ingersoll attorney who handles M&As, strategic partnerships and IPOs, wearing several hats and working at odd hours isn't uncommon when it comes to helping clients through the intricacies of such deals.

"Where a company lacks resources sometimes, you help them with both feet and both hands to try to plug those holes to get the deal done," says Garvey.

That kind of can-do, will-do approach has been a key factor in Garvey's track record of spearheading key deals, including the Dick's Sporting Goods initial public offering last year, a success even while the prospects for IPOs were bleak and the market was in the doldrums.

Garvey was a member of a legal team that represented biotherapeutics company Anthrogenesis Corp. in its acquisition this year by Celgene Corp., both of New Jersey, in a deal valued at nearly $60 million.

His latest coup is a strategic development and marketing agreement struck between BodyMedia Inc., a Pittsburgh company that has developed wearable continuous body-monitoring equipment and software for management of conditions like diabetes and heart disease, and Roche Diagnostics, a division of Roche, the 57,000-employee Swiss pharmaceuticals and diagnostics products company.

Smart Business talked with Garvey about the BodyMedia deal, the Dick's Sporting Goods IPO and what it's like to be a deal-making attorney. What has your relationship been with BodyMedia?

BodyMedia is a great story. I met Astro Teller and John Stivoric (BodyMedia CEO and CTO, respectively) at Chesapeake Bagel when this was just an idea, so I've gone from helping them incorporate to raising rounds of financing.

We've gone through the venture financing, the bank credit agreement, a strategic investment with UPMC. Those guys have done a lot when you look at the life of that company. It's very exciting because it's very meaningful to those folks -- not that it isn't meaningful to a large institution.

What happens when you hit a bump in the road?

I think you try to understand what the bump is. One thing we as a profession and I could always do better is listen. If there's a bump in the road, it's either the deal isn't working for one or two or sometimes three guys. Is it that or just a personality issue? And sometimes those are more challenging.

Part of it is understanding that the client's first, the deal's second and everything else sort of wags behind. If there are personality issues, then you try to work through those. The deal supplants any personality issue.

It's trying to listen to folks and determine whether it's a real deal issue, it's a personality issue or it's something else, and sometimes it is something else. Sometimes someone isn't being square, or there are other reasons to slow down, speed up, move left.

Why does this practice appeal to you?

It's got to be the people, entrepreneurial folks who try to run their business and put everything at risk, and are willing to figure out the challenges. When they call you and say, 'Hey, what do you think I should do?' (and) it's not necessarily a legal issue, it's a judgment issue; you've spent so much time with those folks and you want it to work out as badly as anyone else.

What do you like about working with life sciences companies?

They tend to attract very high-energy, very intense, very interesting people to be around that tend to say, 'What do you mean you can't do it?' They are people who drive to get it done and don't let go, very tenacious.

Can you describe what it's like to handle a deal like the one between BodyMedia and Roche?

Every deal is different, obviously, but it tends to be on the life sciences side (that) with the younger emerging growth companies, one of the issues beyond the technical issues is the lack of leverage, the David versus Goliath, as well as the lack of resources.

So it tends to be that entrepreneurial companies look to their service providers to do all sorts of things, to sort of rank objectives. You always want to give your client the best service possible and protect your client, but very close behind that is to try to get the deal done.

In a great measure, you're working to drive the deal on all fronts, and it's sort of putting your fingers in the dike over here and having something come out over there. The methodology is to first sit back and listen, to hear what people think the objectives are, make sure you agree and understand and to get a game plan to go forward and try to meet those objectives.

I think our job is to weave together that path to try to reach those objectives and missing the major landmines, or at least identify those issues as you flow through. It's a lot of fun with folks who are in that very important stage of growth.

It's very satisfying to help them get to an exit strategy or get a big relationship together.

Talk about the Dick's Sporting Goods IPO.

That deal had a lot of folks around it, but to be involved in something like that, it's great.

In the end, it's sort of a public recognition of the process. It's not much different than any other deal, although it tends to be very accretive; everyone's driving the same thing, and it tends not be a contentious deal because the economics are generally within a range and everyone wants the company to go public, so everyone's rowing in the same direction. Sometimes in an M&A deal, it's a little different.

Is this a good time to be involved in biotech companies?

I think it is. The market's obviously shifted a bit, but I think it's always been hard.

There was a point in time when things were more robust, but I do think that when you look back before the tech bubble, it's akin to those times. It is a good time, particularly in Pittsburgh. There's a great tradition in Pittsburgh of emerging growth companies.

The life sciences tend to have longer times to market; they're also more complex, to some extent. Early stage funding sources find it hard to understand sometimes.

With that said, it's very exciting, and it is a bit of which company you're with. There are some solid companies blazing the trail. I just think it's going to take a long time, so there's a patience factor.

How deep an understanding do you need to have of the science associated with these companies' products or services?

If they have to communicate this to the world, they still have to boil it down to some understandable level. I think coming at it with some basic understanding is helpful, but also being able to look at it and asking, "Are folks really going to understand what you're trying to do?' is helpful, not being so close to it that you're saying everyone's obviously going to understand the use of this product. It takes a little more time, and it can be challenging to get at it.

What's on the horizon for deals in IT and the life sciences?

The IPO market has sort of slowed -- stopped -- but from the standpoint of technology deals, I think people have innovative ideas, whether in IT or in the life sciences or whatever field. The way this country works, and the way the world is tending to work, those creative ideas will get funded, and inevitably, the best ones will work out. How to reach: Buchanan Ingersoll, www.bipc.com; BodyMedia, www.bodymedia.com; Roche, www.roche.com

Friday, 28 March 2003 10:59

Rent or buy?

Ken Rowles, a shareholder with accounting firm Schneider Downs & Co., jokes that he stepped out of a meeting for a moment and came back to discover that he had been handed the responsibility of overseeing the acquisition and renovation of the firm's new headquarters building.

That was almost 20 years ago, and Rowles still has his hands on the task of managing the renovation needs of the firm's headquarters. He insists that he enjoys the task, even though it amounts to a part-time job in addition to his shareholder and client responsibilities, but his anecdote highlights the difference between renting space in a building and owning a building lock, stock and barrel.

For a lot of businesses, there's not much choice. Real estate is an expensive capital investment, and for growing businesses, cash is sometimes in short supply and often better used for other purposes.

For Downtown accounting firm Schneider Downs, however, owning its headquarters building at 1133 Penn Ave. -- a choice the firm made in 1984 -- has made sense for a number of reasons, both logistical and financial.

"We're a believer in a Downtown base," says Ray Buehler, the firm's president.

Buehler says locating Downtown was critical because many of the firm's employees relied on public transportation to get to work when Schneider Downs moved from the Investment Building to its current location, which straddles Downtown and the Strip District a stone's throw from the expanding David L. Lawrence Convention Center.

Besides, there's a cachet to having a shingle hanging on a Downtown building that is hard to match at a suburban location, particularly for a professional services firm.

Buehler says Schneider Downs, which had about 80 employees at the time, envisioned substantial expansion and wanted enough flexibility to accommodate growth. When it acquired its building, it took about 8,000 square feet for its operations. There were two other partners in the building, and ultimately, the accounting firm bought out their interests.

When the current fifth floor renovation is complete, Schneider Downs, now with about 200 employees, will occupy the entire structure.

The financial side

For Buehler and Rowles, ownership means keeping a major portion of the firm's monthly expenses fixed. Since 1984, Schneider Downs hasn't had to absorb rent increases it would otherwise have encountered.

Meanwhile, the value of the building has increased substantially because of nearby development.

"When we moved up here, clearly it was on the edge of town," says Buehler.

About that time, the Vista International Hotel, now the Westin Convention Center Hotel, was built. The David L. Lawrence Convention Center is undergoing a major expansion, the Strip District has added a headquarters building for Seagate Technologies and the Heinz History Center, not to mention other businesses and entertainment venues, have opened nearby.

Schneider Downs has also benefited from an historical preservation tax credit. The firm bought the building for $600,000 and has been able to take a 20 percent tax credit, or $500,000, on $2.5 million in improvements.

As a professional corporation where the partners hold ownership, each partner's interest is purchased by the partnership when he or she leaves the firm, and as new partners are added, they acquire equity in the building.

Burdens of ownership

But owning a building is, after all, owning a building, and that means that there's no landlord to turn to when the heating system fails, the plumbing breaks down or the basement floods.

And owning an old building -- the former Byrnes & Kiefer Co. warehouse where Schneider Downs now resides was built in the late 19th century -- poses challenges when it comes to updating space for new heating, ventilation and air conditioning systems and information technology networks. Accommodating expansion requires careful planning to reconfigure floor plates and offices when you own the building. And retaining architectural elements like exposed brick archways and arched windows can be a task.

"It's a little more challenging with the exposed timbers, the high ceilings," says Steven Massaro, vice president of the Massaro Co., the construction contractor that has done all of the work in the building since 1989. "Standard office buildings with steel frames built in the '60s, '70s and '80s are a little easier to move around in."

Each project requires considerable construction management prowess to complete the work with minimal disruption for the work force. Most of the building's six, 7,000-square-foot floors have been remodeled since Schneider Downs moved in, and some of the first refurbished are now in need of a second facelift.

The fifth floor, vacated last fall by the Bernstein Law Firm, which moved into the Gulf Tower, is currently undergoing a complete overhaul, and there are plans to redo the first floor lobby to convert it to a reception area.

Schneider Downs has smoothed the renovation process in several ways.

Internally, it has put the projects in the hands of Rowles and office manager Mary Kay Harvey. Rowles interfaces with Schneider Downs' other 18 shareholders, and Harvey keeps the process on track by working closely with Massaro Co. and communicating with employees to keep them apprised of the projects as they progress, letting them know when work crews will be in their areas and what they might expect.

Working with the same contractor, says Rowles, eliminates much of the groundwork that would have to be done if Schneider Downs put each project out to bid. Massaro already knows the building, so it doesn't have to reinvent the wheel each time it does a job.

And Massaro uses many of the same subcontractors, in addition to its own employees, on projects at Schneider Downs. It can select the right architect to fit the job at hand. And with its knowledge of the building, the architect requires less of an on-site presence and, as a result, reduces construction management costs for each project.

Massaro says having someone like Harvey at the client end takes the wrinkles out of the process.

"Not everybody views it as fun," says Massaro. "They view it as dirty; they view it as a necessary evil."

Harvey says she enjoys the process, although she acknowledges that it is a lot of extra work on top of her regular duties.

"It can make you crazy sometimes," says Harvey.

Ultimately, Rowles and Buehler agree, owning beats renting not only because of the tax advantages, but because it offers the firm more freedom in designing space for its needs than it would have if it were merely a tenant. Key to making it work, says Rowles, is having a good working arrangement with a contractor, like Massaro, that sees a value in long-term relationships with its clients.

"It's the same as our business, building relationships," says Rowles.

"That's what makes it all work." How to reach: Schneider Downs & Co. Inc., www.sdcpa.com; Massaro Co., www.massarocompany.com

Friday, 28 March 2003 10:56

Steel vs. wood

The advocates of steel and wood as the primary material for residential framing cite the advantages of their respective products.

The debate will no doubt go on as long as steel producers and processors like Dietrich Metal Framing vie for a share of the market and the wood products industry tries to shield itself from competitors wedging their way into the building business.

In any case, both industries tout the relative merits of their products while pointing out the limitations of competing materials.

Here are some examples:

* Steel products makers point out that steel is 100 percent recyclable and that steel studs contain at least 25 percent recycled content, reducing dependence on wood and preserving the nation's forests. The wood products industry counters that reforestation efforts have increased the supply of trees in the United States to the point where forest growth exceeds harvest by 47 percent. Technological advancements, like computerized sawing and recycling techniques, they say, have increased the yield of usable lumber and wood products from logs.

* The steel in six scrapped automobiles can provide enough steel to build the typical house, the steel industry says, so it's more environmentally friendly than using lumber. Not so fast, the lumber industry counters. Producing steel releases pollutants into the air and requires a considerable amount of water in the manufacturing process.

* Steel industry advocates claim studs and joists, because they are stronger by weight than wood, can provide longer spans, allowing for fewer support beams in larger areas. The wood products industry points out that innovations such as the engineered wood I-beam allow similarly long spans because of their increased strength.

* Steel beams are impervious to termites, mold and rot, and are therefore superior to wood, says the steel products industry. Perhaps, claims the wood products industry, but such maladies are due to poor construction methods, not an inherent weakness in wood. Sources: Forest Landowners Association Inc.,www.forestlandowners.com; The Steel Framing Alliance, www.steelframingalliance.com; Engineered Wood Association, www.apawood.org

Thursday, 27 February 2003 09:06

Do the right thing

When the Dow Jones Industrial Average took a dizzying nosedive and lost 508 points on "Black Monday," Oct. 19, 1987, Parker/Hunter Inc.'s investment advisers had their hands full persuading clients not to sell in a panic.

"Our conclusion was that we didn't know exactly what was going on, but we didn't sense that the world was coming to an end," says Bob Kampmeinert, chairman and CEO of Parker/Hunter Inc., the 101-year-old investments and investment banking firm.

Instead, Parker/Hunter advised its clients to look at the glass as half full, not half empty.

"We counseled our clients to not panic, to view this as an opportunity to buy good stocks at unbelievably good prices," Kampmeinert says.

Clients heeded that advice, buying as much as a dozen times more in stocks as they sold on the day of the crash and over the following weeks. By the time the dust settled, Parker/Hunter had been vindicated. The Dow bounced back and gained, within a few days, more than half the loss from the crash. And by September 1989, it had recovered all it had given up on Black Monday.

"With the benefit of hindsight, we were right," says Kampmeinert.

It takes more than clear hindsight to navigate the complexities and vagaries of investing, given different kinds of investors and varying market conditions. For Parker/Hunter, the overriding smart strategy might be described as focusing on each client's needs, gathering information to ensure solid investment decisions and not overreacting to the fickle nature of the financial markets, which often is revealed by events like Black Monday or the technology bubble.

Still, keeping clients trained on picking good stocks and holding on to them for the long term has not been an easy task, given the market's sluggishness over the past three years.

"It's been a challenging time to keep people focused," Kampmeinert says.

Parker/Hunter traces its roots to two Pittsburgh companies, Kay, Richards & Co., a stock brokerage founded in 1902, and McKelvy & Co., an investment adviser. The two merged in 1969 to form Parker/Hunter.

Today, the company employs 310 people, 175 of them investment professionals, serving 40,000 clients in 21 offices in Pennsylvania, Ohio and West Virginia. Many of those offices are in small towns or suburbs of Pittsburgh, where the company has built a book of business out of referrals.

Parker/Hunter operates the largest investment research operation in Pittsburgh, with seven analysts researching and reporting on 90 companies and offering commentary on about 70 others. A comprehensive research department, says Kampmeinert, offers the firm's investment advisers information to help guide clients with their investment decisions.

To supplement resources for its clients, the firm also purchases research on other companies from Credit Suisse First Boston. To provide investors with more market intelligence, Parker/Hunter is planning to expand its analyst coverage to include additional regional companies.

"The last place"

Like a lot of transplants to Pittsburgh, Kampmeinert wouldn't have picked this as the city where he would spend most of his professional life.

"It's the last place I thought I'd end up," he says.

"It's definitely the last place my wife thought she'd end up," he adds.

If moving to Pittsburgh to build his career in financial services came as something of a surprise to New Jersey native Kampmeinert, his decision to follow a trail that led to working in the investment world was hardly an accident. His father was a financial officer at a large New York firm, and he says he himself had always harbored an interest in the stock market.

When it came time for college, Kampmeinert enrolled as an economics major at Lehigh University.

His path to Pittsburgh can be traced to his college days. While still an undergrad at Lehigh in the early 1960s, Kampmeinert and some of his fraternity buddies began to buy and sell stocks. In the process, they discovered they had a knack for trading.

When he finished his graduate work at Harvard, he went to work in 1968 for Kidder, Peabody & Co. in New York as an investment banker.

Some of his fraternity brothers, the same ones with whom he had dabbled in the stock market, landed at Parker/Hunter. The firm was seeking to leverage its research assets to launch an investment banking department, and one of Kampmeinert's chums at Parker/Hunter spent a couple of years trying to coax him to come to Pittsburgh to head the effort.

Although far from the go-go pace of the New York financial scene, Kampmeinert found Pittsburgh to be remarkably similar to what he experienced at Kidder, Peabody.

"I found Pittsburgh, culturally and people-wise, very much like Kidder; good people, honest, ethical, client-oriented, but I also felt Western Pennsylvania had a wealth of opportunity in terms of small and mid-sized companies," says Kampmeinert.

His instincts were correct. Parker/Hunter, in the years since Kampmeinert joined the firm, has led a number of successful initial public offerings for Pittsburgh companies that include medical device companies Respironics and Medrad; Tollgrade Communications, provider of hardware and software testing solutions to the telecommunications industry; and Matthews International, producer of memorial products and caskets for the funeral industry.

Growing smart

Parker/Hunter has an interest in expanding its reach across the state, but there are no immediate plans to move into new markets.

"We've got so much opportunity within the footprint that we've got right now," Kampmeinert says.

The firm relies heavily on referrals from current clients, so moving into new cities requires careful planning and consideration.

Kampmeinert says Parker/Hunter would ultimately like to have a presence in Erie and Harrisburg.

"I'm not sure the way we approach clients and the way we work with clients and do what we do is highly scalable, that you can just roll this out cookie cutter," he says.

"So much of our business comes via referral, particularly on the retail side, so it's difficult to start up in a new community where you don't have people as part of the community happy to refer to you," says Jay Yard, Parker/Hunter's senior vice president of marketing.

And in a vein that seems much like the advice Parker/Hunter might offer to its own clients, Kampmeinert describes his approach to the firm's expansion like this: "You don't want growth just for growth's sake, you want to do it right." How to reach: Parker/Hunter Inc., www.parkerhunter.com

Friday, 31 January 2003 06:38

For the fun of it

The grand opening of the new Route 19 office of Citizens National Bank of Evans City in Cranberry Township last fall wasn't your typical ribbon-cutting ceremony.

Not out of place, a harpist played softly to entertain guests, and there were lots of suits and cocktail dresses. Shrimp and croissant sandwiches graced the buffet. Guests received tasteful pewter coasters as a memento of the occasion.

But there were surprises, too. Bartenders in black ties served beverages from behind the teller windows. A magician amused visitors with card tricks and skillful sleight of hand that you wouldn't want to see at a bank during business hours.

A Big Boy statue left behind by the restaurant that once resided on the site proudly hoisted a giant double cheeseburger above its shiny black pompadour and stood in one alcove. Guests posed beside it for Polaroid photographs.

Some offices sported red chairs, a color not associated with great financial performance but downright striking against the bank's dominant blue and pale gray color scheme. Chairman Buzz Irvine gave a short address devoid of the usual pomp and gassiness often part and parcel of these kinds of events.

The red chairs, the Big Boy statue, the magician and the rest of what I really wouldn't have expected to see at a bank are symbols that probably say more about Citizens National than I can grasp or explain in this small space. I think a bit of what they say is that this is an enterprise where the owners take their business and their customers very seriously but take themselves a bit less so.

It's important to them that their customers and their employees feel relaxed and see that they have a sense of humor and, perhaps, some humanity. And that it isn't only about making money.

I believe in symbolism and its ability to communicate in subtle but powerful ways. The parking lots, receptionists, artwork and even the plants in businesses I visit often give me insight about them before I speak with the company owners.

I'd say it's worth the energy to figure out what your company's symbols are and what they're saying to your customers and employees. Maybe they say that you truly intend to serve the best hamburger in town.

On the other hand, you might be telling the world you're just another hot dog.