Developer of the Year: The Alter Group's Art of the Game
By: Ron Derven, contributing editor, Development
Fornelli Hall’s elevator lobby features a carved coffered ceiling that was hand painted in Europe. The art deco building was designated a Chicago landmark in 2002.
Teamwork, loyalty, a dose of humility and the discipline to stick with the basics and get very good at them are all qualities that athletes’ coaches hammer home time and again to turn their teams into champions. Some top companies in the commercial real estate business may have taken a page or two from this playbook as well.
Case in point: The Alter Group out of Chicago. During the boom years of the 2000s, it stayed fast to a set of core beliefs that included:
- real estate must hold to solid fundamentals;
- credit has to be based on real (not future) value;
- underwriting should assure the stability and viability of the asset for the client over the long term; and
- strong cash positions are critical to dealing with the vagaries of the marketplace and to inspiring confidence in employees, clients and capital markets.
By sticking to these values, The Alter Group avoided high-risk, unsecured transactions including securitized and derivative-driven deals. Further, it underwrote transactions with long-term, fixed-resource loans secured with its portfolio of Class A assets that were 97 percent leased. This allowed the company to continue to have access to financing through banks that it had had relationships with for as long as 50 years. Thanks to its traditional approach to financing, for example, it received a $25 million construction loan to renovate and expand the now completed Landmark Condominiums at the famed Lionshead Mall in Vail, Colorado.
Many of The Alter Group’s executives have worked as a team for 30 years, and bring a high degree of cohesion to the decision-making process. From left to right are: Richard M. Gatto, executive vice president, sales; Randolph F. Thomas, executive vice president, who oversees the development team; Michael J. Alter, president; Harvey Alter, executive vice president; Ronald Siegel, CFO; and Samuel F. Gould, president, Alter Asset Management, the firm’s property and asset management affiliate.
Today, the company is developing four million square feet of sustainable, high-image office and industrial buildings for major corporations, in addition to healthcare and student housing. In the last four years, The Alter Group has developed just under 14 million square feet of new product.
For these and other achievements, The Alter Group and its president Michael Alter have been selected by NAIOP as The Developer of the Year for 2010. This award is presented annually to one member-developer company of NAIOP that best exemplifies six criteria: industry and business leadership; involvement in NAIOP; quality of products and services; financial consistency and stability; ability to adapt to market conditions; and social consciousness.
A 55-Year Legacy
Founded by William A. "Bill" Alter, father of the current president, The Alter Group celebrated its 55th year in business in 2010. Over those years, the company has developed more than 100 million square feet of prime build-to-suit and speculative office and industrial space.
"My father founded the company in 1955," said Michael Alter. "My grandfather, who worked as a tailor, lent him money to help him purchase a piece of land. My father quickly sold the lot at a profit and repaid my grandfather. Later in the 1950s, the company began acting as a land broker reselling land. It was a new specialty at the time that required a great deal of expertise. My dad loved land and that’s how the business began."
During the 1950s, Bill Alter began to develop homes and then apartment buildings. One was Kingston Green in Markham, Illinois. Alter was sensitive to the inequities in the housing sector for minorities and built one of America’s first communities for middle-income minorities. He retained Olympian Jesse Owens as his spokesman and hired a largely African-American staff at a time when the civil rights movement was in its nascent state.
Alter+Care developed the Morehead Medical Plaza on the campus of the Carolinas Medical Center in Charlotte, N.C. The building offers new, expanded office space where physicians can enhance their practices in a setting with advanced patient-centered clinical and technological features. Photo: Michael LoBiondo Photographic
The company shifted to commercial development in the 1960s. "By the 1970s, the firm started to evolve into what The Alter Group is today," explained the president. "It was also a time when the firm began to hire more people and to build a vertically integrated operation so that we could control most of the elements of the business. In the 1980s, we focused on becoming a true Class A office build-to-suit developer — our first project was a $35 million campus for Bell Labs in Chicago."
The Alter Group achieved national firm status in the 1990s, going as far east as Washington, D.C., and as far west as California. This was driven by its existing clients who needed space in other markets.
Welcome to the Downturn!
Michael Alter entered the business in 1990, about the time that the commercial real estate market was falling apart. Reflecting on that time, he commented, "The RTC sold $400 billion in real estate and more than 800 banks failed in just over a few years. In retrospect, as painful as that time was, it was a terrific learning experience for me. The experiences we had in the early 1990s toughened and tempered us in terms of how we approach the business. We’ve seen so many recessions and fluctuations that we have a profound understanding of the cyclical nature of this business and how to navigate it."
Around that time, Alter and the company got another surprise as well. "First Chicago was our bank," recalled Alter. "We did 90 percent of our business and 90 percent of our loans through them. We woke up one day to find that the bank was going to sell its entire loan portfolio- -including ours — to G.E. We were alarmed that with the stroke of a pen, our fate would be in the hands of someone we didn’t know and had no relationship with whatsoever." The Alter Group asked the bank if it might buy its portion of the loan portfolio, agreeing even to pay a premium over what G.E. would buy it for. The bank agreed.
"That was a watershed moment for us," said Alter. "We learned two lessons: Number One, the importance of bank relationships; Number Two, the importance of diversifying bank relationships. No matter how close we feel to a bank, we need to have a diversity of lenders that we can call on because stuff happens and things change."
Keeping the Business Lean and Mean
One of the last parcels located minutes from O’Hare International Airport, Lake Center Corporate Park in Mt. Prospect, Ill., is suited for expanding air-freight companies.
The Alter Group has come through the recessions of 1973, 1981, 1991 and 2000 and is dealing with the current behemoth. One indelible lesson it has learned is to stay lean, maintaining a staff of about 115 employees. "We are proud that we can accomplish a great deal without having to build up a huge overhead," Alter said. "We are also lean in our decision-making. Decisions are made by me and our senior management team."
Another thing that works for the firm is to do business nationally but without building up a lot of regional offices and staff. Currently, it has only three offices. Headquartered in Chicago, it has regional offices in Atlanta and Phoenix. The company does not have separate divisions; instead, it works collaboratively and closely. "The relationships we have and the access to capital that we have transcend boundaries. Success in Chicago can be translated to any city in the country," asserted Alter. The company takes the extra step of partnering with local firms as well.
Projects Under Development
Dearborn Plaza was the first office tower constructed in Chicago’s River North neighborhood in a decade. The building’s high-tech infrastructure and desirable location satisfied the area’s need for Class A space.
At a time when projects of many companies have been slowed or stopped by lack of funds, The Alter Group has moved forward in development. Last year, it launched one of the country’s largest mixed-used developments, Cornerstone in Graylake, Illinois. The company began acquiring land for this development, which now totals 650 acres, years ago. Costing around $750 million, Cornerstone has an estimated 12- year build-out. Development plans currently call for 3 to 3.5 million square feet of light industrial/office space, 500,000-600,000 square feet of shops and restaurants and 800 homes—mostly townhouses, apartments and condos.
Another large development in the works is King Mill, a 180-acre site in Henry County, Georgia, south of Atlanta. The site can support up to three million square feet of build-to-suit industrial space and is one of the only sites in the county that can accommodate two 1.5 million-square-foot, cross-dock industrial buildings.
The Alter Group’s newest downtown Chicago office building is One11 West Illinois Street in the 24/7 River North neighborhood. The building is 10 stories and 227,500 square feet.
Filling a Development Niche
The Alter Group is adding new property types, including healthcare and student housing, in an effort to diversify the business. Said Alter, "There is a healthy demand in the market for medical office because of the growth of outpatient visits and it will only get stronger as time goes on. We are very well-positioned to profit in this market because we do something very powerful: we offer third-party financing, ownership and investment in medical facilities at a time when hospitals have seen their reimbursements, philanthropy and investments decrease. As one of the first major developers to create a healthcare affiliate, we are creating outpatient buildings and environments that have the cohesiveness of an inpatient environment. We bring together preventative medicine with primary care, imaging diagnostics, emergency department and surgery centers."
Another big move for the company has been college housing. College enrollment is going up three percent every year to more than 11 million students annually, according to The Alter Group, so demand for student housing is strong. The Alter Group undertook a major deal in Chicago- -Fornelli Hall--a landmark building overlooking Millennium Park in downtown Chicago.
"We actually condo-ed the building, buying eight floors for a $45 million conversion that houses almost 500 students," according to the president. "Chicago is a great market for student housing, particularly in the Loop—home to about 30 higher-education institutions with a combined enrollment of almost 100,000 students."
Medicis Pharmaceutical Corporation chose Riverwalk Arizona for its 300,000-square-foot world headquarters because of the park’s freeway access, central location and planned amenities.
Its program of diversification includes new businesses to fill niches in the commercial real estate business as well. One is Alter Construction Management, which provides program management services. Another is Alter Asset Management that offers third-party and portfolio property management and leasing services for institutional, corporate and private investors. A third new business is EnTrust Realty Advisors. This unit offers disposition and recapitalization of investment real estate through direct sales, joint ventures and structured financing. There is also Alter Asset Recovery, providing expedited solutions for lenders and investors with distressed properties. Finally there is Alter 360°, a turnkey real estate brokerage company for small to medium business tenants and private building investor/owners.
Supporting Public Policy and NAIOP
As The Alter Group has expanded nationally over the years, its NAIOP roots have also spread from Chicago to Atlanta and Phoenix. "I am personally involved in the Real Estate Roundtable, which works closely with NAIOP on public policy issues. Our company has been very involved in NAIOP, especially in the Phoenix market where Kurt Rosene, our senior vice president, was NAIOP chapter president. And my brother has had great experiences with the NAIOP Forums programs," related Alter.
Alter pointed out that NAIOP provides the company with a platform to work with its fellow developers, investors and commercial property owners to pursue a public policy agenda that favors the entire development community. He said that NAIOP also connects the firm to the brokerage and service communities that are vital to its business.
"NAIOP has brought us business," explained Alter. "Our 160-acre Buckeye Logistics Center distribution park in southwest Phoenix is an example of a transaction that happened because of The Alter Group’s involvement in NAIOP. The land was purchased through a broker with whom we had a strong relationship through NAIOP. The first building we developed was a 600,000-square-foot speculative distribution building and the contractor was another strong NAIOP relationship."
The Alter Group eventually sold the building to Duke and the local principal was not only a NAIOP relationship, but he also sat on the NAIOP board with Kurt Rosene. "While completing the building and prior to closing the purchase," said the president, Alter began conversations with a broker who represented Amazon.com and who also sits on the NAIOP board. "We honored our agreement to sell the building to Duke and then signed the lease with Amazon.com. To cap it off, the building was then honored with NAIOP’s Industrial Spec Building of the Year award."
Commitment to Community
Quadrangle Corporate Park is a 60-acre office park in Orlando’s high-tech corridor anchored by Siemens Westinghouse Power Corporation’s 450,000-square-foot corporate headquarters.
Like many of the outstanding companies that have garnered The Developer of the Year honors in years past, The Alter Group has a strong commitment to helping and being involved in the communities that it serves.
The Alter Group’s commitment to community manifests itself in a number of ways today, including its focus on dealing with the energy crisis and global warming, helping to raise the next generation of leaders, creating minority-owned businesses, expanding equal opportunity, working with the Alzheimer’s Association and much more.
Michael Alter’s favorite is a group he founded in 1994 called City Year Chicago, which is a powerful organization to mentor a cadre of young leaders. It is a member of The AmeriCorps national service organization, which unites diverse people ages 17-24 for a challenging year of service, leadership and civic engagement. The Alter Group supports this model of public/private partnership that engages approximately 1,000 members nationally in more than 1.5 million hours of annual service. In honor of The Alter Group’s 50th anniversary in 2005, Michael Alter donated $1 million to further promote the cause.
"We have been a financial supporter and we are involved with the group," he said. "We meet with them continually throughout the year and we expose them to our business and talk to them about what the business world is. We want them to have a sense of what we do and maybe some of them will have an interest in pursuing a career in real estate.
"We also go out and do service with our team, once or twice a year. This is an opportunity for our employees to give back. It is a great team bonding experience for us to get out of the office and be together and do something fun and meaningful. So it has become a very important part of who we are."
The Alter Group Going Forward
Like every developer in the business, Michael Alter’s chief concern for the future is the economy. "The economic recovery continues to be very, very tepid--very slow. The other thing that worries me is the debt in our industry which, by some estimates, is over $3.5 trillion with roughly 40 percent of that coming due over the next four years."
Despite these looming problems, the focus at The Alter Group is to keep the company strong, healthy and nimble: "We have tried to be smart about our expenditures and to watch them closely. We want our balance sheet to continue to be strong. We will watch carefully what deals we do in the short term. We will not spend our capital chasing deals that do not make sense. We are going to stay disciplined and stick to what we do well," concluded Alter.