Hoddy Hanna's big move Featured

8:00pm EDT June 29, 2003
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