United Properties Developers of Buildings and Talent [ By Ron Derven ] Like all developers, Minneapolis-based United Properties loved the profit potential of ground-up development, but hated the pain of pulling back when the cycle came to an end. That's why, in the late 1980s "to prosper in any real estate market" the company restructured itself to be not only a developer of buildings but also a committed developer of talent in a diverse real estate services organization. "Our strategic plan involves a three-pronged approach that includes development, investments and real estate services," said Boyd B. Stofer, president and CEO of the company. "We emphasize all three simultaneously." For United's innovative and successful approach to the business, its contribution to the commercial real estate industry, and its positive impact on the communities it serves, the National Association of Industrial and Office Properties (NAIOP) has selected United Properties and president and CEO Stofer Developer of the Year for 2004. This award is presented to only one company annually. Launched in 1916 United was launched in 1916, as a private investment company for the Hamm family of Hamm Brewing Company, a prominent Twin Cities family. United managed a wide range of assets, among them the 200,000-square-foot landmark Hamm Building in downtown St. Paul, which was built in 1919-20. In the 1970s, United shifted its focus to project development and a decade later, it accelerated its office, industrial and retail activities to develop numerous high-profile projects for its own portfolio and for third-party clients, primarily in the Minneapolis-St. Paul area. In 1998, the Hamms sold the company to another local group, the Pohlad family, who currently own the company. As United was making its first forays into development, its future president and CEO was launching his own real estate career. Graduating with honors from Harvard Business School in 1975, Stofer found that much of the commercial real estate business in the East was on life support due to the severe 1973-75 recession. He looked to Texas for work, where Trammell Crow and Gerald Hines were the two biggest players of the day. Stofer landed a job as leasing agent at Hines. After three years with the firm, he joined United Properties. When Stofer joined United in 1978, there were 15 people on the payroll; today there are 400. His first job was developing build-to-suit projects along with some industrial development. Stofer's importance at the firm grew and in 1995, he was named president and CEO, taking over from the departing CEO, Ken Stensby. Facing Three Major Challenges Although United Properties is in a strong position today to prosper in almost any real estate market, it did not arrive at this juncture easily or without some tremendous effort. During the past 16 years, it faced and overcame at least three substantial challenges that made the company what it is today and set it on a strong course for the future. Stofer described the most difficult: "Our biggest challenge in the last 30 years was the downturn from 1989 to 1992," he said. "This was not a real estate recession, this was a real estate depression. Values collapsed. This affected all real estate companies, but compelled us to redefine our mission." That's when United began to broaden its approach to the real estate business so that it would no longer be solely dependent on its development business. "We entered the third-party services business in a major way," said Stofer. "We came out of that downturn with a restructured company that had a solid portfolio in place [consisting] of owned real estate, and a much stronger team of real estate professionals. The downturn was really a bad thing but it ultimately helped our company to become better." Another significant challenge for United was the change in ownership that took place from the Hamm family to the Pohlad family. "The change in ownership was accomplished without any disruption, change in our strategic agenda, or loss of employees," Stofer recalled. "That was a difficult thing to pull off while keeping everything moving in the right direction. Now we have a very solid ownership situation and we are off to a longer-term agenda." Another challenge faced by United Properties was an infill project in the city of Edina, Minnesota. It was a 100-acre site, later to be known as Centennial Lakes, that had once been a gravel pit. The company, after competing against national developers, won the rights to develop the site. That was the good news. The bad news - and the challenge - was that the development rights were won prior to the severe 1989 downturn, which meant that the company had to muster all of its resources to carry the project through that slow time. "Centennial Lakes took us about 13 years to complete," said Stofer. "It was clearly the most ambitious and all-encompassing project for our company. We got the property under control in 1986 and did not complete the development until the year 2000. We carried it during the downturn and ultimately completed a $300 million project involving multiple uses-office, retail, medical, housing-all surrounding a 25-acre public park with 10-acre lake. It was a significant project to be doing before, during and after the 1989-92 downturn. It was a great project to be involved with. I am very thankful we had the opportunity." Today, Centennial Lakes consists of nearly one million square feet of Class A office space, 200,000 square feet of retail space and restaurants, a 100,000-square-foot medical office center, 346 residential units and an eight-screen movie theater. United Properties' Executive Team United Properties president and CEO Boyd B. Stofer said that a hallmark of the company is its culture of shared leadership to profitably manage a wide range of development activities and related third-party services. Besides Stofer, United's executive team includes: Frank J. Dutke, senior vice president of investments, United Properties. Dutke is responsible for United's real estate investments. He directs development, finance, acquisitions, disposition and asset management. Jeff Eaton, senior vice president of real estate services, United Properties. Eaton oversees United's brokerage, property management and construction management divisions. Paul E. Hawkins, senior vice president and chief financial officer, United Properties. Hawkins is responsible for corporate financial and tax planning and reporting, and providing strategic direction to the company's technology efforts. He also oversees all corporate and property accounting functions as well as the company's human resources and administrative functions. Lawrence A. Pobuda, senior vice president, United Properties. Pobuda oversees the United Properties Healthcare Real Estate Group, as well as the company's geographic expansion initiative. The fast-growing Healthcare Real Estate Group provides development, construction and project management, facility management, tenant representation and investment services for healthcare organizations nationwide. United's Diverse Organization In describing the company's product mix, Stofer said it develops master planned business parks, speculative office and industrial, build-to-suit office and industrial, medical office development, grocery-anchored retail, redevelopment, multi-family residential and senior housing. United has been able to take this strong development culture and integrate numerous third-party services businesses into the company. Besides its development business, United boasts a diverse platform, including property management, brokerage, corporate real estate services, facilities management, construction services and investments. United has made a big commitment to its service business as well as its development efforts. Indicative of this, in just a few years, United claims that it is the largest commercial property manager in Minnesota, with a managed portfolio of over 26.5 million square feet of space, which includes its six million-square-foot owned portfolio. The company also claims a leadership position in brokerage, with the largest general brokerage team in the Twin Cities metropolitan area. It has 64 producing brokers involved in office, industrial, retail, multi-family and investment sales. United has doubled the size of its brokerage operation in just three years. Stofer attributes this to the unique team culture at United. In fact, in 2003, United was selected as one of the 16 top firms in the Twin Cities, and deemed "A Great Place To Work" by The Business Journal. Much of the selection was based on employee responses on how they viewed the company. Integrating Diverse Skill Sets When United Properties decided to broaden its skill set to include many more real estate disciplines, the issue was how to effectively integrate them, since the underlying culture of the company had been oriented to development. " We have an organization that places the customer at the top, and everyone else in the organization is there to advance the agenda of our customers," Stofer asserted. "Our management style is both collegial and participative. It is not a rigid structure. At the center of this is, I personally believe, shared leadership." Stofer said that because the company operates in so many different areas, his personal influence on any one of these endeavors is quite small. This means that United has to attract or train or otherwise involve key leaders who have the ability to take on the personal challenge of defining the market opportunity, the necessary skills to pursue it, and ultimately, the ability to mitigate risk. "I must employ a number of people who have the ability to stand up to this challenge," he said. "For example, one of our key office development people, on his own, initiated a new venture into senior housing. I did not come up with the idea. It happened because of that person's entrepreneurial spirit and ability to look for new opportunities. We have now become a very significant player in this business and it was self-initiated. I think the key to our organization is to encourage risk taking without the fear of spending several months and coming up dry." Risk-taking is one thing, but what about failure? "I think you have to tolerate it," said Stofer. "You have to encourage people that one failure does not define an individual's career. At the same time, you have to have people who understand how to mitigate risk because there are failures and then there are huge failures. You need people who are complete players, who understand both the upside and the downside of new business ventures. Good people are not going to get you into severe trouble - but not every venture is going to be perfect. A key aspect of our structure is that we have traditional profit centers but much more cross-functional cooperation than is typical in companies like ours." A Sampling of United Properties Projects Centennial Lakes, a 100-acre, mixed-use development that integrates office, retail, entertainment, residential, medical and park land, is a signature United Properties development. The five-building office develop-ment in Edina, Minnesota, has had an occupancy rate of close to 95 percent since it was completed. The overall development has become a nationally recognized symbol of thoughtful, master-planned development and smart growth. Parkers Lake Corporate Center, a 225-acre residential and business park development in Plymouth, Minnesota. Mendota Heights Business Park, a 230-acre, mixed-used commercial, office and industrial site in Mendota Heights, Minnesota. Golden Hills Office Center, a 192,000-square-foot Class A office building located in Golden Valley, Minnesota. Northland Executive Office Center, a 460,000-square-foot, two-building Class A office complex, and Southpoint Center, a 240,000-square-foot, Class A office building - both located in Bloomington, Minnesota. Eagle Point Business Park, a 120-acre, master-planned business park in Lake Elmo that began development in 1999. Normandale Lake Office Park, the fourth and final phase of the 1.4 million-square-foot Normandale Lake Office Park developed on behalf of owner Teachers Insurance and Annuity Association of America (TIAA). The 8000 Tower, a 240,000-square-foot, 12-story Class A building, opened in May 2001. NAIOP and United Properties As committed as United Properties is to its success in the upper Midwest, executives have still found time to become heavily involved in NAIOP and other real estate organizations. Stofer said that United Properties' involvement in NAIOP goes back many years and has been mutually beneficial to both organizations. "I attribute United's early involvement in NAIOP to our former CEO Ken Stensby, who was one of the founders of the Minnesota Chapter and was a former National Chairman of NAIOP. He saw the value of people giving back to the industry and I have carried this attitude forward. "Our company has always been a big supporter of NAIOP in both terms of talent and financial commitment," he went on. "I believe, on balance, we have gotten much more in return than we have given. It has just been a great format for sharing ideas with peers both locally and nationally. The spirit of cooperation within NAIOP has increased the professionalism in our company. This learning is irreplaceable." Six current or former United employees have served as local NAIOP chapter presidents over the past 30 years. These include Stofer; Larry Pobuda; Ken Stensby; Rick Collins; Dave Jellison, former Chairman of the Board; and Clint Miller. Stofer served on NAIOP's national board for six years and Pobuda is a current member of that board. United is active in NAIOP National Forums and at the local chapter. Approximately 15 years ago, Stofer helped conceive the NAIOP Penny Per Square Foot Fund (PPSF), which has been enormously successful for NAIOP. Stofer helped draft the original charter and has promoted the fund. The fund currently raises about $550,000 a year for the local NAIOP chapter for legislative lobbying. United has been the single largest contributor to the fund, with contributions in both 2001 and 2002 of over $85,000 and in 2003, over $95,000. Commitment to Community United has made major commitments to the communities in which it works. Last year the company provided management, engineering and maintenance resources to the Boys and Girls Clubs of the Twin Cities, where Stofer serves as a board member. United put the Clubs' current facility engineer on its own staff so that he would have more guidance and back-up, provided long-term facility planning, and found vendor partners in the Twin Cities to donate services. In addition, United contributed construction services to build a facility for CornerHouse, a child-abuse evaluation center. It regularly supports a group called Bridging, Inc., a non-profit organization that collects and distributes home furnishings for people in transition. The company held two furnishing drives and donated a pick-up truck to the agency earlier this year. Said Stofer, "One of the company's guiding principles is that in addition to being a profitable business enterprise, we will positively contribute to both the community at large and to the broader industry within which we operate." United Properties in the Future Looking at the future, Stofer will continue to build on the company's three-pronged strategy of development, investment and real estate services. "We would like to expand geographically, but we will do this with local partners who know their markets better than we do. Changing demographics are going to be a big driver in our business." Stofer sees new opportunities and challenges ahead in retail, health care and residential. Concluded Stofer: "The most important element of our strategy, going forward, is just a clear, ever-sharpening focus on our customers. We state in our strategic plan that we want to provide world-class service-personally. Why world class? Because we want to be defined by our customers as providing either services or solutions better than anyone they deal with in the world-and that is our measure." Ron Derven is co-editor of Development. 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