Relationship builder Featured

12:03pm EDT October 28, 2005

If there’s one thing in the real estate world that matters more than location, it is the power of relationships.

John Kite, president and CEO of Kite Realty Group Trust, knows this well and relies on it to fuel his company’s growth.

“We have strong relationships with national retailers built on delivering what we say we’re going to deliver,” he says.

While that may sound like the usual empty rhetoric you hear every company spokesperson say, Kite’s words carry far more substance than style.

“Delivering means on budget and on time,” he says. “These are simple goals but difficult tasks. On budget, on time; you hear it all the time, but what does it really mean? It means you really do that despite things that occur during the process that you didn’t anticipate. And that separates quality development companies from others.

“Obviously, no company is perfect. But it’s how you deal with situations that occur, where it maybe would slow other people down or have them come back saying it would cost more to do the job, where we’re different,” Kite says. “Our efforts are focused on delivering on our initial promise, and we take that very seriously.”

Kite’s ability to identify these partnerships as a significant opportunity to grow the company — combined with his acumen in fostering these relationships — has helped him transform Kite Realty into a burgeoning real estate investment trust (REIT) with nearly $100 million a year in revenue and interest in 42 operating properties totaling 6 million square feet, with 14 more properties under development.

Although he makes it sound like the most natural thing for a businessman to do, Kite says that fostering relationships is more complex than ensuring his staff delivers development projects on time and on budget.

He cites two distinct groups that merit his focus — national retailers for whom the company develops property and relies on as tenants, and fellow developers with whom Kite partners to share development costs and tap into local market intelligence.

Strategic focus
It requires a significant investment in time and resources to communicate the importance of relationships through a real estate development company, where the focus in the field often is in meeting plan specs, building code requirements and battling to get the project completed on time and without cost overruns.

But Kite puts as much emphasis on internally communicating the importance of the relationships as he does externally working to build them.

“Our approach has always been a team one,” he says. “I’m just one of the team members, providing a global vision of the company. I never lose sight of that.”

Kite estimates he devotes a full one-third of his time to establishing and fostering client relationships through meetings, phone calls and constant travel.

“It’s a primary focus to engage in growth initiatives with customers,” he says.

But Kite Realty didn’t always have this type of laser focus. It began in earnest more than a decade ago, when the company that Kite’s father, Alvin, founded in 1960 as a construction firm, hadn’t yet decided what it wanted to be.

“You’ve got to go back to the origins of us becoming a retail development company in the early ‘90s and starting to focus on retail for our development efforts,” he says. “At that point in time, when we were a much smaller organization and trying to establish ourselves, we made it a primary objective to build relationships with national retailers.”

Anchoring national tenants in shopping plazas enhanced the stability and attractiveness of Kite Realty’s properties by driving customer traffic up. That trickled down to an increase in the performance of Kite’s nonanchor tenants and small shops.

The company’s client list provides the proof to back up his claims — its roster is replete with national retail clients that have multiple locations — Bed Bath & Beyond, Publix, Walgreens, Circuit City and Old Navy each have three locations in a Kite property; Indianapolis retailer Marsh’s Supermarkets and Dick’s Sporting Goods each have two. In all, clients with more than one location in a Kite property — retail and commercial — make up just more than 25 percent of the company’s annualized base rent, the single most important contributing factor to a REIT portfolio.

“That’s how we evolved from building single buildings for these guys to building 400,000- and 500,000-square-foot power centers, where we have multiple tenants instead of one,” Kite says. “Once you can deliver for one of these national retailers, word spreads that you are a quality company that delivers on their promise.”

And it wasn’t really until 1997, shortly after Kite was named CEO, that the company’s mission became clear. Kite says he recognized that in order to realize the company’s full potential, he needed to do more than just deliver for clients. He needed to make the company actual partners with them — making the relationship a two-way street that would provide an opportunity to leverage one success to reach the next.

Kite changed tactics, shifting from simply executing on a contracted project to engaging in detailed discussions with the national retailers for whom the company was working. He invested time to ask questions and learn the retailers’ plans for future expansion, as well as their strategies for choosing new locations.

“We started to understand what these companies were looking for and today know them well enough to anticipate their needs,” he says. “We can go out and buy land, whether that’s in Florida, Indiana, Texas or Washington. We have a good sense of where they want to be and have convinced them that we’re doing it with an expertise of knowing there’s future growth coming in a specific location or region.”

Kite relies on his team’s market knowledge, the company’s development experience and sophisticated software systems that crunch demographic information. And he’s not afraid to share his data with partners — and vice versa. In his mind, it’s all part of the relationship.

“We focus not just on what the market is doing today, but where it’s going to be in the next 10 years,” Kite says. “That’s important to a national — and a local — retailer in the sense that not only is it good for business today, and not even as good as it will be, but it will continue to pay dividends for growth in the future.”

Joint ventures
Last year, Kite took the company public as a REIT, raising nearly $240 million in the public offering. The cash infusion provided an instant war chest capable of financing a flurry of new properties.

Kite didn’t waste time putting the money to good use. From the company’s IPO in August 2004 through year’s end, he went on a shopping spree, acquiring eight properties for approximately $150 million. Then, two months ago, the company announced plans for an additional public offering of 8.5 million shares.

The 2004 IPO also provided further opportunities to partner with other developers in joint venture projects outside the company’s existing markets.

Kite says he looks for developers that mirror his company’s focus, drive and value system. One recent example is a deal Kite Realty entered into in August with Rossman & Associates to co-develop Beacon Hill Shopping Center in Northwest Indiana, about 50 miles south of Chicago.

The relationship will yield a 161,000-square-foot neighborhood shopping center in the first phase of development.

“In this case, we focused on credibility,” Kite says. “It’s very important with partnerships to ensure their passion and integrity is the same as ours. It’s not just as simple as XYZ Co. has a great piece of land. Our process [of vetting them] is more intensive to ensure we can work well together and achieve the same goals for our customers.”

As of the end of last year, Kite was involved in four operating joint ventures that represented 9 percent of the company’s total revenue. The company announced two new joint ventures this past summer.

“When dealing with markets outside our primary markets, it [a joint venture] provides us with local market intelligence,” Kite says. “It provides good contacts with municipalities that we need to work with. And, it also kind of spreads our wings a little more in terms of being able to be part of more projects at the same time.”

The joint ventures also help expand and enhance the company’s growing national reputation.

“We’re quickly becoming a company you can bring opportunities to in the development world,” he says. “This has let us see more opportunities. And, as we’re structured today, people are starting to see that we’re both a provider of financial capital and good, solid intellectual capital.”

But partnerships, no matter how beneficial, don’t last forever, Kite says. The reality is that some properties simply have run their course. Accordingly, one of Kite’s strategies is to constantly evaluate the company’s portfolio holdings and divest properties that are no longer as profitable as they had been or don’t provide growth potential for the company’s shareholders.

“Ultimately, we’re in the business to manage, own and grow our properties,” he says. “And that means growing our FFO (funds from operations) and the revenue stream. If a partner isn’t interested in long-term ownership, we can make that happen for them. On the other side, if they’re interested in maximizing their value on the front end of a deal, we can make that happen as well. By doing so, we can create shareholder value and continue to build that relationship with the developer for future projects.”

How to reach: Kite Realty Group Trust, (317) 577-5600 or www.kiterealty.com