Bernie Tenenbaum, a private-equity investor who used to run the entrepreneurial studies program at the Wharton School of Business and knows CMS well, explains that by doing good deeds, the firm built value for its clients: "They were able to break into a club, servicing a very narrow niche, by demonstrating both charitable leadership and personal commitment," he explains. Tenenbaum likewise remarks that philanthropy has had great utility for both CMS and the client base it serves. The first-order impact of a successful entrepreneur is wealth creation, he says; the second is philanthropy--the desire to have an impact on society. "I think what the CMS guys have done is tap into that desire for their clients to make a difference," he explains, "to create a legacy that outlasts themselves." Many of the CMS clients contacted for this story agree. Harold Toppel, for instance, who founded and later sold the Pueblo International chain of super stores, tapped the firm's philanthropic expertise when he and his wife decided to set up an after-school mentoring program. They didn't know how to go about it until CMS sent an adviser to Toppel's home in Florida. "Without CMS's help," Toppel says, "we wouldn't be where we are with that program."
Through the years, some observers have questioned Silberberg and Solomon's philanthropic motives but have been at a loss to show they fall short of practicing what they preach. Indeed, whether their motivations are heartfelt or strategic--or both--the CMS partners have demonstrated a steadfast involvement with community and religious charities. Says one client: "I believe they're sincere, I believe they're genuine. But if they're not, who cares? They're doing great things. And if they're not sincere, they sure have been doing this a long, long time. They're acting like a charitable company every single day."
Seated at a circular oak table in a conference room at CMS, Mark Solomon is telling another story. Five years ago, he is explaining, an old friend called to say, "Mark, I've got a client who is a real estate developer and needs a new source of equity. You've got to meet with him." So Solomon asked his friend what the developer did and heard something distinctly unappealing in response. The friend said, "He buys underperforming hotels."
To Solomon, this was exactly the kind of risky investment CMS avoids. "I said, 'Let me explain who our clients are," Solomon recalls. "They tend to be older people who have had a value-realizing event, and the return of their money is more important to them than the return on the money. So I don't think buying underperforming hotels is going to resonate with our client base."
Solomon's friend told him to shut up and try listening for a change. So Solomon listened to a few details of the hotel business Jim Procaccianti was running out of Rhode Island. Then Solomon, his interest piqued, went to meet Procaccianti--or Proc, as everyone at CMS now calls him. It seemed to Solomon, and to some CMS clients, that the way the Procaccianti Group functioned--buying a foundering hotel and using its own integrated construction, design, and management divisions to relaunch it--had potential. And so CMS went ahead and dedicated a small portion of a multifamily housing fund to a hotel that Procaccianti wanted to buy. CMS rules dictate that the firm must put its own money in a fund along with its clients' money; they also dictate that any joint venture partner (Procaccianti in this case) must invest his or her own money as well. So in this hotel test project, they'd all succeed or fail together--CMS, its clients, and Procaccianti.
As it turned out, there was nothing but upside. CMS backed the Procaccianti Group in the $6 million purchase of a Ramada Inn in East Hartford, Conn. The hotel was doing $3.5 million annually in gross income and was earning $138,000 in net operating income--"basically, no income at all," says Solomon. The development team put $6 million into revamping the place--new skin, new elevators, new management, new everything. At the end of the first year, the gross stayed the same but the net went up to $750,000. The management team then changed the hotel from a Ramada to a Sheraton, and in the second year, the gross rose to $7.1 million and the net to $2.2 million. At that point, says Solomon, "we could see that this strategy worked, and we did six more hotels with different funds."
More recently, Procaccianti came up with an opportunity to buy a large number of hotels and turn them around, and CMS took two clients on a fact-finding mission. "The fact-finding team was very encouraging," says Solomon, "so we went back out [to our clients] and raised $125 million." So far, CMS has committed about $43 million of the new fund.
CMS, says Bernie Marcus, has always known that while successful entrepreneurs are not like everyone else, they are very much like each other. Solomon, Silberberg, and Landman, says Marcus, "are entrepreneurs themselves, so they understand us. They understand what entrepreneurs want and need. These are all self-made men, and all self-made men go through certain kinds of struggles. The CMS group is kind of like a family of entrepreneurs."
It's no accident that when scrutinizing CMS for the entrepreneurial lessons its clients can teach, it turns out that the firm itself is just as instructive. Bernie Tenenbaum, the former entrepreneurial studies exec, explains that the CMS partners had the imagination early on to see that they could lead in a marketplace of entrepreneurs when no one saw the opportunity. "They were in effect looking for themselves in the mirror," says Tenenbaum. "They said, 'We can't be the only ones.' Then they had the persistence to keep at it. Woody Allen says that 80% of success in life is just showing up. Well, they stayed focused on their niche, and they didn't deviate. It's a classic lesson for other entrepreneurs. They said: 'Who am I and what am I good at doing?' And once they knew, they stuck to it."
