The Real Art Of The Deal
How Trammell Crow built the world's largest real-estate empire one handshake at a time
Trammell Crow, America's biggest landlord and one of its richest men, started out 40 years ago building warehouses. Crow's informal management style -- intuitively picking a partner here, a partner there -- allowed him to build his vast real-estate empire. But to succeed in today's environment, even Crow has had to change his style. -- N.W.A* * *
Trammell Crow, dressed to perfection in a rich blue, subtly patterned suit, sits in the elegantly appointed "conversation area" of his corner office and looks out the window. The master builder is silent, pondering the question of pride. Of all the things he has accomplished in his long life, of what is he most proud?
His bright blue gaze is leveled over Dallas, where the Stemmons Freeway winds through the haze and heat. The area is a featureless smear of warehouses, here and there relieved by an act of architectural assertiveness -- a massive hotel, a slim office tower, a sprawling "mart." This is the capitol, so to speak, of the master builder's empire. It is also the source and repository of much of his capital. Years ago, when he was starting out, he built many of those warehouses. The freeway is named for two brothers who provided the land for his first big push into real-estate development. The "architecture," much of it, belongs to him.
But his mind is not on what he beholds, all those scattered monuments to his energy, will, and business acumen. It is on the organization he has built here in the Trammell Crow Center, on the hundreds of men he has attracted to these offices and to the other Trammell Crow offices across the country and the world (there has never been a female partner in the Trammell Crow Co.). At TCC headquarters, no walls separate one partner from another. No signs of status separate them, either. Each man seems to dispose of the same number of secretaries, the same square footage, the same view over the freeway or downtown Dallas. If there's any distinction to Trammell Crow's own office, it is that it's more visible than the others, and therefore apparently more accessible. Sitting there, he can survey his partners' comings and goings like a father surveying his family from his favorite armchair. It's a good question, in fact, whether that's not what he is -- the progenitor of a huge, and hugely rich, family. " 'Father' is not an inapt way to relate it," he tells a visitor. He's describing the image of himself he sees in his partners' eyes, or the image he'd like to see.
Now 74 years old, Trammell Crow has built, or helped to build, more square feet of shelter, roughly 250 million square feet of it, than Donald Trump ever dreamed of building, more than any man in the country. More forms of it, too. Not just such path-breaking showplaces as Peachtree Plaza, in Atlanta, or The Embarcadero, in San Francisco, but lowly warehouses and strip shopping centers. Not just elegant atrium hotels, but trailer parks and middle-income housing tracts. Not just elaborate medical and hospital facilities, but huge, cavernous trade marts, such as the dazzling version of London's Crystal Palace he built for Dallas's InfoMart. He has offices in more than 100 U.S. cities, in five European countries, and in Hong Kong. On the company map, if you were to link the little black dots of all the Crow operations, you'd trace a pattern like the flight paths of a major international airline. The map traces the adventures of a consummate operator.
In his conversation area, Crow appears to be done thinking about the success he's had in the world. "My proudest accomplishment is this company," he drawls, very softly. Then he adds: "That it will endure after I'm gone." The unspoken irony is that the company in which he sees his immortality is no longer the company that he founded. The founding father does not repine. But the irony has begun to take a toll on the organization.* * *
Born in 1914, son of a Dallas bookkeeper, Crow grew up during the depression, too poor to go to college. But he studied accounting at night, and married well, to the daughter of the owner of a grain-elevator business. He served in the navy during World War II, and in the grain-elevator business for a few years after that. Real estate he fell into as other men fall in love, by accident: by having to find tenants for a warehouse owned by his in-laws. In his first deal, he bought a small piece of land, used it as collateral to borrow $40,000, and built a warehouse. He rented it to Ray-O-Vac Battery. By the early '50s he had pushed operations into Atlanta and Denver.
In these and subsequent deals, he was working out the formula that won him nearly a quarter century of success, from the early '50s to the mid-'70s. It was a different formula from the one followed by most developers. Theirs is to build a building on Other People's Money, depreciate it, sell it, then deploy the profit to start the process all over again with another building. Crow's formula was to hold on. "You can get rich selling real estate," he always used to say in those days, "but you can only get wealthy owning it." With warehouses, for example, the conventional wisdom held that you built one with a specific sort of customer in mind, then sold it to him, or nailed him down to the longest lease you could get. Crow had no use for that idea. Build the thing to be as adaptable as possible, he argued, and sign up customers for the shortest lease you could agree to. That way you could take advantage of a rising market and charge ever-higher rents. By 1971, according to a Forbes article of that year, Crow was the biggest private landlord in the United States, the proprietor (solo or in partnership) of more than $1 billion worth of real estate.
It was not, of course, by reasoning alone that he achieved this extraordinary success. All during the first great growth spurt of his career, property values rose and rose and rose. Even so, Crow needed something besides good luck, good money, and good reasoning. In the world of the entrepreneur, personality is destiny, and Crow's personality has always promised him a good one. Though he has long since reached a time of life when for most men only the past seems full of promise, and though his home state -- his principal base of operations -- is in the midst of the worst slump in real property values since the Depression, the old operator is full of optimism about the future. "How can you be pessimistic in this country," he asks, "when we're seeing millions of people move into the economy annually -- women, blacks, Hispanics? Why, it's like adding another country to your economy every year!'
Much more significant than Crow's optimism are his qualities of will and of energy. "The real secret of Trammell Crow," says one of his early partners, "is that he works harder than you do. He believes that persistence is far more important than genius. Never, never, NEVER give up -- that's his motto." If the operator has ever stated a credo, it probably comes down to this: "I believe that my fate is in my hands and no one else's. Nobody's going to take care of us but ourselves. I don't ask the government to help me; I don't ask you to help me. I just do what I have to do, and if I do right, I hope I remember how I did it, so I can do it the same way the next time."
But with Crow, toughness isn't everything. He has also been extraordinarily creative. Tom Shutt, who was with Crow for 18 years, beginning in 1962, can list Crow's innovative achievements right off the top of his head. He pioneered the idea of office and service-center malls: warehouses, essentially, but with 14-foot ceilings that could be adapted for high-tech repair centers, fitness centers, and the like. He pioneered the specialized trade mart -- Joseph P. Kennedy's idea, as in the Chicago Trade Mart -- but now devoted to a single industry: furniture, clothing, information processing, whatever. Recently, he has founded a Communications Center, a type of market center for film, video, and radio production. One of Crow's investors, a man who has done business with him for 30 years, says that Crow (unlike most real-estate developers) "thinks of himself as a manufacturer of a product -- space. He always used to say that he wanted to build a company, an organization that would be the IBM of the real-estate industry." And behind these accomplishments, there is the deal-maker. "He loves doing new deals," says Ned Spieker, a former partner of Crow's in San Francisco.
Wherever there were good real-estate deals to be made, and good people to make them with, Trammell Crow would pick up partners. He moved through the cities of the land, trailing behind him one young partner after another, each of them inspired with the deal-maker's spirit, each of them very smart and very competitive, and most of them to become, thanks to him, very rich.
Tom Shutt remembers how it was. Shutt is 57 now, managing his own considerable affairs out of an office at 2001 Bryan Street, Dallas, the first major office building Trammell Crow ever built in downtown Dallas. Twenty-six years ago, however, when Crow was building warehouses, Shutt was his first in-house leasing agent. This was no mean distinction. Rarely in the history of real estate had a developer ever thought to lease or sell space himself. But if space was a product like any other, then it made far better sense to keep control of the marketing process. But more important, Shutt was the first in a long line of agents who became of Crow's partners. "I'd been working for him for about 18 months," Shutt says, "and one day Trammell comes up to me and says, 'We're going to be partners.' No papers, nothing to sign. I didn't know what he meant. I don't think he did. I just knew it was better than being an employee."
What he went ahead with was a 50/50 partnership in a 30,000-square-foot building in an industrial park in southwest Dallas. Crow supplied the credit and the know-how (Shutt having neither), while Shutt supplied the sweat and the time. The level of trust, as Shutt remembers it, was almost unbelievable. In the beginning, Crow would find a promising piece of land in Dallas, outline a deal, then turn everything over to Shutt. Shutt would then oversee the purchase, the building of the facility, and the leasing of space. Within a few short years he was operating in St. Louis, still on the credit and good name of his older partner, but otherwise totally independent. There were hardly any controls from the central office. In fact, there was hardly any central office, just Crow and his partners winging around the country doing deals. Once, when an inventory report showed that in one city the partnership owned no less than 600,000 square feet of unleased space, all Crow said to Shutt was: "Looks like you overbuilt St. Louis."
The Trammell Crow Co. is now made up of about 230 partners countrywide. The early partners tell how Crowe came into their lives in roughly the same terms they would use to describe the appearance of a fairy godfather. One day he was just there -- suddenly, inexplicably. Ned Spieker, Crow's partner in the Pacific Northwest until last year, was 25 when Crow entered his life. The year was 1969, and Spieker had been working in real estate, a salaried employee, for three years. "Trammell flew out in his Learjet," the younger man remembers, "and I flew back with him to Dallas. He's a very persuasive guy -- warm, engaging, humorous. Trammell told me I'd be an owner, that what I built would be mine. He'd provide the capital." He also provided the spirit: "Just being around him, you wanted to pattern your life after him. Not in all respects, maybe, but many. There's only one Trammell Crow. I love him."
On what sort of men did the magic wand of partnership fall in those early days? Crow has always been pretty clear about what he wants. "I ask myself if he's a nice person," he says, "a good human being, someone you like to see coming into the room. Has he got any brains? Is he disciplined and eager enough to get up in the morning without an alarm clock? Is he the sort of man whom other people want to succeed?'
This is an astonishing set of criteria. "Someone you like to see coming into the room," for God's sake! What about merit, expertise, experience? And what about toughness, aggressiveness, competitive spirit, hunger, realism, and the like? These, after all, are emphatically the personal values of Trammell Crow himself, the values of the man who made himself into someone The Wall Street Journal called "America's biggest landlord.'
The fact is, there seems to be a strange anomaly in the character and behavior of America's biggest landlord. On the one hand there is the man who is described as hating his competition, as wanting to own the world. For what is Crow if not a caricature of the cowboy capitalist, scoping out the opportunities at the local saloon, shooting out the competition, and loping off into the sunset with a fortune recently estimated by Forbes at $750 million. The annals of U.S. real estate are filled with loners like that: independent operators, men with grand, often grandiose visions.
This is the macho elite to which, by the testimony of his friends and admirers, by the testimony, indeed, of his own sly-shy self, Trammell Crow ought to belong. Nice people, people whom you want to succeed; somehow these types don't belong in the same picture as Crow, the cowboy capitalist. Yet the anomaly of the great operator's career is that he may be remembered as much for the partnerships he has made, and the equity he has shared, as for the deals he has made and the fortune he amassed.* * *
When Trammell Crow talks about building relationships with people, he gives a glimpse of the ambition that drives this formidable deal maker and partner maker. It is an ambition for power. "Partnerships make for a humanly rewarding life," he said last spring, speaking more philosophically, one suspects, than comes easy to him. "There's also an element of right and wrong in it: a fair distribution of the fruits of common labor. We have here a fraternity, a camaraderie, a brotherhood, which I find very satisfying. At the same time, in a partnership, you leverage yourself. I'd rather be one strong man among other strong men than one strong man among weak ones, or one strong man alone.'
But power alone is not enough. Trammell Crow wants power over time. That meant building a company that will survive him, a somewhat quixotic enterprise in the real-estate industry. Partly because development is so local, so ad hoc, so irredeemably particular, nothing lasts for very long, certainly not human relationships. Real-estate companies tend to be the lengthened shadows of their founders, and when the founders die, their companies die. Crow is determined that this shall not happen to his company. As he and his partners never tire of announcing, they vow to keep it "evergreen."
Nothing better demonstrates the strength of Crow's will in pursuing this end than his responses to the sometimes catastrophic ups and downs of the market. In two separate and extraordinarily fateful moves over the past 15 years, Crow sought to rationalize, then to centralize the delicate network of partnerships he built in the first 25 years.
His first major restructuring came toward the end of the real-estate depression of 1975-78. According to observers, Crow went into this time of trial with an organization organized in name only. "It was d/b/a all the way," Shutt remembers, "Trammell Crow doing business as the Trammell Crow Co." A reporter for Fortune, assigned a story on one of America's "biggest real estate entrepreneurs" in late 1973, before the crash, could barely contain his astonishment at the structural chaos he saw. "Just as remarkable as Crow's ability to raise money is his bewilderingly complex organization -- if, indeed, the term organization can be accurately applied," he wrote.
Equally astonishing, however, were the bottom-line results turned in by this peculiar way of doing business. About 15 operating partners had already become millionaires, the reporter was pleased to note, and 4, including Crow, were worth more than $10 million.
But Fortune had caught Crow at the top of the slide. A year later he was at the bottom, though pluckily staggering over to the ladder to get back up again. What had happened, of course, was a lethal combination of high interest rates and overbuilding. Trammell Crow (d/b/a the Trammell Crow Co.) soon found himself with several hundred million dollars of debt.
Enter now (as if TCC really were one big, rich family) the heir apparent. He is J. McDonald Williams, called Don, and the course of his succession has seemingly been smoother and more certain than if he had been to the manor (that is, the corporation) born. A native of Roswell, N.M., Williams came to Dallas in 1966 fresh out of George Washington University Law School. After working for a big law firm for some years -- a firm that handled a lot of TCC business -- he and a friend quit to found their own partnership. They located in the same building as Crow. "I had no hope of getting any major business from him," Williams recalls. "But I thought we'd get some crumbs."
He got more than that. It happened in the usual way -- with a sudden, apparently random wave of Crow's magic wand. They were riding in an elevator together, the great landlord and the 30-year-old lawyer who had been handling his eviction cases, and the landlord said: "Oh, by the way, Don, can you go to Hong Kong with me next week?" That was in 1970. Three years later he was a partner. Two years after that, working with another TCC partner, Joel C. Peterson, Williams was striving furiously to bring some order and rationality to the debt-ridden network of partnerships.
"Coherence" is the word Williams uses to describe the first wave of changes. And between the upturn in the real-estate market of 1976 and the downturn of 1986, the company's assets grew from $1 billion to $14 billion, and the number of partners from 40 to 220.
This growth spurt has had far more thoroughgoing consequences for the company than the earlier recession. Financial controls and reporting requirements have gotten more stringent. The standard partnership agreement that in Tom Shutt's day was verbal, signed with a handshake, has slowly evolved into a 25-page document bristling with stipulations, contingencies, guarantees, and escape clauses, all the usual signs of mutual mistrust. Most important, the structure of the partnerships has been radically redesigned. What once looked like a sketch of an airline's flight paths has come to resemble that familiar image of corporate America, the pyramid.
If Crow the master builder is the client who commanded this structure to be built, and he most emphatically is, then his architect, equally emphatically, is Williams. He also sits on top of it, alone, no longer sharing the responsibilities of succession with Peterson. But in a basic sense the new restructuring represents the will of Crow himself, more so even than the first, primarily financial, one. The proof of this is in the organizational chart of TCC today. It shows a broad band at the top -- the Trammell Crow Co. -- and underneath it four separate divisions: Trammell Crow Commercial, Trammell Crow Residential, Trammell Crow Interests, and Trammell Crow Ventures, the overall money-management arm of the organization. What's new and significant are the Interests. In the first restructuring, Crow used Williams to institutionalize his partnerships. In the second, he deployed Williams to integrate all the other operations he had built up over the years: the hotel chains, the medical facilities, even rice farms in Louisiana -- $1 billion worth of personal holdings.
Williams himself -- the sort of man he is, the quality of his leadership -- is probably the best measure of Crow's willingness to change with the times. The man the founding father has chosen to be his favorite son, his successor, would appear to be as unlike his progenitor as a child can get and still belong to the same family. If Crow is an optimist tempered by realism, Williams is a realist tempered by skepticism. Crow talks about adding whole countries to the economy; Williams talks about a real break in the trend of the times. "Since World War II, really since the Depression, the economy has been in inflation and growth," he argues. "We rode that wave, driven by opportunity. Now, the wave is going out and we're riding it, too, but driven by efficiency.'
Williams is all intelligence, all kinds of intelligence. He can drop an apposite line from Nietzsche as easily, and as chillingly, as he can cite the latest statistics from the real-estate market in Houston. If will and energy are the distinguishing characteristics of Trammell Crow, along with charm, then will and discipline are the distinguishing characteristics of his designated successor, whose charm is purely intellectual. Williams himself doesn't shy away from the comparisons. "The day of the Lone Ranger, Trammell Crow riding into town and making deals, that's gone!" he said to a visitor recently. "The day calls for teams of highly professional people, disciplined entrepreneurs. If I'm wrong, we'll make a killing. But if I'm right, well, I think it's a tougher challenge. It takes a better entrepreneur to succeed in deflationary times. After all, that's what deflationary times are: times when failures outnumber successes. These days, high divers hit the pavement."
The consequences of Don Williams's discipline have been a transformation of the Trammell Crow Co. The partnership that Crow built is now the sort of place that he, as a younger man, could scarcely have tolerated. It has become a chic place to work, especially among the proud possessors of designer-label M.B.A.s, such as Harvard's. In 1984, it made the grade in The 100 Best Companies to Work for in America, placing in the "10 best paying" and "10 best for benefits" categories, and among the 7 companies "where an advanced degree from a top school helps."
The partners who have come up in the past 10 years or so all tend to look as though they'd been ordered from a firm of social engineers, not discovered in an elevator. They certainly don't look as if they'd gotten where they are by having had a magic wand waved over them by a benevolent, wildly ambitious fairy godfather. They are as fresh and cool as Boston lettuce, as well-organized as a spreadsheet in a computer program, and as friendly and affable, if you met them socially, as the offensive line of the Dallas Cowboys. The change in the social atmosphere reflects the "discipline" and "structure" that Crow, through Williams, wants to bring to TCC as the company endeavors to remain "evergreen" in this latest ice age.
The endeavor, moreover, is taking its toll on the partners. In the past two years there have been defections in Atlanta, San Francisco, and Chicago, major markets for America's biggest landlord. Among the defectors was Ned Spieker; 11 partners and about 100 employees broke away with him. "The kind of people who are good at real estate do not respond well to structure," Spieker is on record as saying, back in the days when he was proud to be a member of the TCC family. And so, with the coming of "structure," he quit the partnership. Allan Hamilton in Chicago, the first big defector, who'd been a partner for about 19 years, put the matter more brutally. "TCC is an administrative monster now, unlike the organization that prevailed so beautifully for so many years. . . . They thought they had to reshuffle the deck, and in the process they broke the traditional relationships that had grown up among the subordinate partnerships. People who reported to me were ordered to report to others. This was hard to take. A long time had gone into establishing those relationships. They were natural pecking orders, and they worked real well. The reorganization of 1986 mixed oil and water, different working styles."
There is also a grand and stirring human drama being played out here. It is fairly clear, for example, that Ned Spieker's disaffection for the TCC has as much to do with his being cut off from personal access to Crow the man, Crow his inspiration and mentor, Crow his "father," as it does with the restructuring of the company. "How does the center of a company keep the periphery happy?" he asked last summer, echoing a reporter's question. "Through personal magnetism. Trouble comes when you insulate the magnet. Personal relationships are everything in a partnership. It's not a matter of structure or distance, it's the diluting of personal relationships."
None of the defections has much disturbed the cool, clean, powerful engine of market domination that Crow and Williams have made of the Trammell Crow Co. The partners that remain "in the family" are, in fact, just as tickled to be Trammell Crow's sons as he is proud to be their father. TCC is filled with a spirit of corporate narcissism. Ask almost any one of Crow's partners about his social life, and he will tell you that a notable portion of it is spent with fellow partners.
The narcissism is underwritten, too, by the partnership principle that still animates and articulates each of the company's divisions, pyramidal though they are. At the bottom of the two real-estate divisions, for example, the M.B.A.s still have to get their shirts wrinkled as leasing agents before moving on up to partner. Thereafter the hierarchy is clear: project partner, divisional partner, regional partner, finally national partner. Your place in this scheme also determines your "take" of any given project. Project and divisional partners get 25% to 30% of the profits, a regional partner 15% to 25%. The national partners, of whom there are currently 10, share 15%, with the national partner in charge of the project getting one-third of that. The Crow family gets 15%, the managing partner group, 10%. Another 5% goes to a profit-sharing trust for all nonpartners, with the remainder going to Trammell Crow Ltd., a pool for all partners.
As for Trammell Crow himself, the truth is that the master builder is extremely pleased with his handiwork. To some people, his story might seem to be unfolding like King Lear's, the old man handing over the reins of power to his successors, only to see them transform his kingdom into a strange and hostile place. But it has never seemed like that to him. Again and again last spring he told his visitor that, yes, his company was the greatest and proudest of all his accomplishments, but that it wasn't his accomplishment alone, not by a long shot. "You've got to know and remember that this company wasn't made by me," he says, "but by Don and Joel -- and 100 others." The even-handedness isn't quite perfect. Perhaps because Williams has always been closest to him, geographically speaking, perhaps because he is now the sovereign, not just the heir apparent, the old man's pride focuses on him. "He's a better man than I am," he says. "He's the guy who made this a great company. How did I know he was the man to do it? I'm that smart." Crow grins -- a quick mischievous grin. "He had the talent, the personality, the intellect. He was the man everybody would accept as leader. I called him in 'cause it was time, 'cause he was there, ready, right for the job. So I did it. Smartest thing I ever did."
Clearly, the old man's energy, will, and optimism are undiminished. When Spieker announced his withdrawal from the partnership, Crow wrote him a note that, according to Spieker, thanked him for helping Crow make all that money. Nor does he look back. Crow might have handed over managerial responsibilities to Williams, but his presence in the company, as a source of inspiration, wisdom, and cunning, seems all the greater for his "retirement." In fact, a kind of synergy has developed between the old shoot-'em-up cowboy deal maker, with his night-school degree in accounting, and the suave, stay-pressed young men from Harvard, Stanford, and Wharton.
Instinctively, Trammell Crow has always understood the tragicomic moral of life in a remorselessly changing world: that to save something it is always necessary to destroy it.* * *
Nelson W. Aldrich Jr. is a free-lance writer in New York City. His most recent book is Old Money (Knopf).