Hard-Won Lessons from Developer Carl Panattoni

Winter 2013
Panattoni Development Company CEO Adon Panattoni interviews his father, company founder and chairman Carl Panattoni, at Development ‘13.

Panattoni Development Company has developed more than 175 million square feet of industrial, office and retail space. In the years leading up to the Great Recession, it had about 20 million square feet of space under construction each year. The recession took the Newport Beach, Calif.-based company and Carl Panattoni, its founder and chairman, right to the brink, but both have bounced back, and Panattoni now has 10 million square feet under construction — two-thirds of it pre-committed.

What has Panattoni learned from this roller-coaster ride? In a unique session at the recent Development ‘13 conference, “CEO Insights: Panattoni Development Company,” Panattoni was interviewed by his son, Adon Panattoni, who now serves as the company’s CEO. The elder Panattoni offered the following lessons learned:

On equity partners: “I have been in equity partnerships with 86 people over the years. There is not one of them who today I do not call my friend. That is one of my proudest achievements in the business, along with the fact that I have had almost zero lawsuits against me and I have built thousands of projects.”

On partnerships: “How can you handle thousands of projects? You can’t do it alone. You must have operating partners who are really good at what they do. The work has to be overseen. If the work is not overseen, it goes to hell and blows up in your face; it blows up big time. In this business, you are playing for a ham sandwich, but if the project blows up, it costs you the whole pig. You cannot afford to have a project blow up.”

On teaching others the business: “Once you teach someone something, it’s theirs; it’s not yours. You have no claim on them. This is something that a lot of people in our industry who have problems with partnerships do not understand. You have to allow them to grow, to go out on their own.”

On surviving a recession: “If you step on people on the way up, you will be kicked on the way down. I survived the recession because I had a large group of friends … at banks, as investors and as tenants. They helped when times got tough. They allowed me and trusted me to work our way through it. When this recent recession started, we had $2.5 billion in debt. All of a sudden the entire portfolio, whether leased or unleased, took a big hit in value. The leased space was worth 25 percent less and the unleased space was worth 50 percent less. Every loan-to-value ratio was upside down. If we hadn’t had those friendships, we could not have done it. We had 300 projects and we worked through them. It worked the way it should work: I lost the most money by far. The investors lost the second most money, but not nearly what I lost. The banks lost the least amount of money.”

On using leverage: “The biggest lesson I learned in this recession was the lesson of leverage. I don’t know how many times I have to learn that same … lesson!”

table with comments from Carl Panattoni