Tom D’Arcy knew Grubb & Ellis Co. even before he came on board in November 2009. Then again, who wouldn’t? It’s hard not to be familiar with one of the giants of commercial real estate — especially after you’ve been in the industry 28 years.
“The biggest challenge has just been getting my arms around the company itself,” says D’Arcy, the new president, CEO and director. “I understand the industry, but getting to understand our company — its culture, the information flow, the nuances of the company itself — I’m not there yet.”
When the board approached D’Arcy, he began a prudent due diligence of the company, which involved meeting with key employees, clients and investors to learn what he was getting into.
“What I found was what I expected to find: a strong brand, a broad platform — we have 120 offices spread around the country, 6,000 employees — multiple lines of business, diversity of revenue,” he says. “What I saw was a company that clearly had a lot of resources available, a lot of scale, a lot of scope.”
Now, his challenge is just what to do with all of those resources to take advantage of the growth potential.
D’Arcy continues to get more acquainted with the internal workings of the company’s three main segments: transaction, which includes brokerage leasing and purchase of buildings; investment management of public nontraded REITs; and management services. Then, he combines that knowledge with external barometers of what’s happening in the broader marketplace. The goal is driving the company forward in a way that represents the needs and desires of all constituents.
Basically, D’Arcy has to match the company’s capabilities with opportunities in the marketplace, aligning its capacity with demand for services.
“You can’t just chase every opportunity,” D’Arcy says. “You have to focus in on the highest value opportunities you have as a company. For a company like ours, where we’re so diverse and we have so many resources and such scale, there’s many businesses that we could enter, all which need to make sense. But you really have to try to maintain a focus and focus on those areas that are fully complementary to the core.”
Know your markets
Obviously, you have to know what’s happening around you in order to recognize — not to mention tap into — any opportunities.
D’Arcy’s understanding of the external marketplace comes from parts of the company that are immersed in the outside world. Grubb & Ellis has 100 research professionals scattered across the country, all led by a chief economist.
In each market, researchers keep a close eye on the local ins and outs of the industry — including vacancy rates, rents, sale prices, new developments and new tenants moving in.
“At any point in time, you can get onto our website and you can drill down into the markets and submarkets,” he says, referring to the Metro Trends quarterly reports that include analytical commentary and detailed graphics. “So in almost every market and large secondary market and every asset category, we’re providing real-time research. That’s one of the differentiating factors for us as a company.”
D’Arcy strongly prefers the company’s research capability to the secondhand knowledge leaders get by taking someone else’s word.
“The key is that we’re not just purchasing third-party research, nor are we simply regurgitating what we see in the popular press,” he says. “These folks live in these submarkets and understand these submarkets as well as anybody. It’s all about being local. The closer you are to the market, the better off you are.”
Brokers can then pass that detailed information on to clients. So if a corporate client is considering relocation to a new market, Grubb & Ellis can fill the company in on what’s happening there in terms of rent, vacancies and comparable transactions.
“That’s one of the things that clients are looking for, is that industry knowledge on a market and submarket level,” D’Arcy says. “It’s a clear resource for our brokers as well as for me personally; it’s an opportunity to always keep my pulse and know what’s happening in the marketplace.”
While the local origination of your market research is crucial, that micro-level information can also feed your macro-level understanding — thereby fueling broader decisions you may face. By pooling together local data, you can start to identify broader trends.
D’Arcy, for example, can extrapolate the big themes in retail and industrial spaces from individual market trends. That way, when he decides where to allot additional resources, he has a wealth of information about growing areas of business to back him up.
“When we’re making decisions, we’re making really deeply educated decisions about what’s happening in terms of the trend lines in the commercial real estate market,” he says.
Analyze the facts
Even the best research is just cold data until you apply some analytics. In a service business, that means understanding what current trends mean for your clients’ future. That, in turn, helps determine the direction your company will take as you focus on the areas your customers need.
For example, Grubb & Ellis closely tracks sale prices of buildings. In the third quarter of 2009, for the first time in a couple years, it saw value increasing. That indicated buyers and sellers were getting closer in their ideas of pricing — and the market was nearing the bottom.
While research, charts and tables help convey that, the key is explaining what it means to the client.
“What we’re telling our clients is that the market really does feel like it’s reached the bottom,” D’Arcy says. “We think that the direction of rents is going to be moving higher. So from a corporate perspective, if you’re looking to make a longer-term investment in additional space or move to a new building, now is probably a pretty good time to do that.”
During that analysis, you’ll reveal areas where you need to focus your company’s attention, as well. Grubb & Ellis invests resources in high-return activities — and relies on research to identify demands that will reap the highest return.
For example, when banks began to take over buildings in dealing with problem loans, D’Arcy knew that would mean more appraisal business for banks trying to valuate properties. So in June, D’Arcy announced that the company would enter into the appraisal business. Three months later, Grubb & Ellis Landauer Valuation Advisory Services opened with 12 offices and plans to grow to more than 350 appraisers across the country.
“We’re not simply entering this business because we see a short-term market opportunity,” he says. “We think it’s fundamentally a good business over time, and we’re going to be good at it. In order to do it, you have to be national in scope, and we have the ability, obviously, to be able to deliver that to our clients.”
Although, as a public company (NYSE: GBE), Grubb & Ellis reports quarterly financial results, D’Arcy doesn’t run the business quarter to quarter. Looking longer term will help you validate opportunities as core areas rather than one-off transactions.
The key to evaluating whether opportunities will continue reaping success in the future is considering the past.
“You have to look back at what the business has been like historically,” D’Arcy says. “You’re looking at recent trends and you’re looking at what technology can appear, and then you try to make the best reasoned judgment that you can.”
Knowing what has affected an area in the past can help you predict future obstacles or successes. D’Arcy found that the appraisal business has been steadfast, driven mainly by the expertise of the appraisers. Even technological improvements won’t change the necessary skill set that makes an appraisal successful, so as long as the company can staff those competencies, the business line will be as fruitful next year as it will in the next five.
“We’re trying to make investments in our business so it’s going to create long-term value for our share owners and our clients and our employees,” D’Arcy says. “We’re obviously very cognizant of [quarterly] financial performance. We have strict metrics that we use. But when we’re investing in something, we’re not investing for next quarter or next year. We’re investing over the long term.”
Keep an internal gauge
Of course, to determine what opportunities the company can realistically pursue, you also have to understand how far your internal strengths can stretch by staying in touch with employees. They should be part of your growth equation all along.
D’Arcy taps into the company’s “robust internal communication regime” to keep employees aligned around growth goals. He holds companywide conference calls, for example, and records weekly calls between management directors so employees can tune in at any time. The company distributes a weekly newsletter and recently began posting a blog, as well.
“We try to use a number of different ways to be able to communicate a consistent message — not only to our employee base but also to our clients as well as to the investment community,” he says. “We put out a lot of information and then provide an awful lot of ability to provide feedback. So there are many doors and avenues open for employees to relay information.”
Often, the struggle isn’t providing the avenues but getting people to pursue them. Overcome that obstacle and encourage feedback by confirming that employee input matters.
“Not everybody wants to make a suggestion or say something critical,” D’Arcy says. “And so from a corporate perspective, one of the most difficult things is to get people comfortable challenging decisions. … Once we get that feedback, it’s incumbent on us to make sure that we relay back to the employee base that it is valued, that what they’re saying means a lot to everyone at this company.”
Top-down and bottom-up communication happens in tandem. To keep employees informed about your company’s direction, for example, an important message is articulating financial targets. While D’Arcy reiterates those goals to management directors to pass on to their teams, he’s also asking what tools and resources they need in order to meet expectations.
While it’s important to have those feedback loops built into companywide communication, getting input requires getting personal.
“One of the challenges is making sure you’re getting into the field,” D’Arcy says. “And that’s probably the funnest part of my job, is being able to meet with our team members and hearing what’s on their mind, hearing what’s working, hearing what we could do better.”
In addition to asking those general questions, drill down to get details.
“From an employee perspective, [ask], ‘What are the resources you need? What are you hearing in the field? Is there a message in the marketplace that’s not consistent with what we’re trying to relay as a company?’” D’Arcy says, citing examples of questions he asks employees. “Every aspect of where we are as a company is something that we want to hear.”
That constant loop of communication is critical for keeping your entire company focused on the growth areas you’re pursuing. At Grubb & Ellis, that means rallying the work force around a four-pronged growth strategy that involves recruiting brokers, expanding management services and investment management, and entering into high-margin complementary businesses.
Grubb & Ellis ended 2009 with $535.6 million in revenue and $5.8 billion in assets under management — all thanks to a strategic approach to growing in the right areas.
“The biggest challenge you have is you want to be aggressive from a growth perspective, but you don’t want to be reckless,” D’Arcy says. “You always want to be growing and pushing, going forward, but at the same time, you want to make sure that you’re doing it in the prudent fashion ... on a measured basis with the resources of the company.”
How to reach: Grubb & Ellis Co., (800) 877-9066 or www.grubb-ellis.com