Surviving The Real Estate Shakeout

October 14, 1991|By Ellen James Martin

When Richard Alter gets stressed out, he reaches for junk food.

Lately, the chief executive of Manekin Corp. has been reaching more and more for the three-pound bag of M&Ms he keeps in one of his file cabinets and the oversized box of Utz pretzels in another. In fact, he's gained 10 pounds since January.

"The industry is facing conditions worse than anything since the Great Depression and Richard is munching his way through," says Robert Manekin, a senior vice president for the essentially family-owned business.

Manekin's CEO undoubtedly will be doing more munching before the commercial real estate industry reaches recovery.

With more than 50 buildings and 4.5 million square feet of space, Manekin is vulnerable to problems facing the entire real estate industry: declining demand for office space, slow payment by tenants and increased competition amid a sea of excess space.

Manekin's revenues have fallen 5 percent a year for the last two years and the value of its assets has also slipped, says Louis LaPenna, Manekin's chief financial officer.

"Three years ago, real estate was everyone's darling," Mr. Alter says. "They said it was recession-proof, a hedge against inflation and viewed favorably by the credit markets. Today it is 180 degrees opposite. It is viewed basically as a non-growth, non-promising industry."

To cope with the growing glut of office space, Manekin has made leasing deals that would have seemed unimaginable just a few years ago. For example, it recently signed a five-year lease with an important tenant, Don Richard Associates of Baltimore Inc., an employment agency, that involves free rent in the Bank of Baltimore Building for the first two years. Like others in the market, Manekin is also making concessions to tenants that include free building improvements or payments for the tenant's moving expenses.

"Anyone who has vacant space on the market is being confronted with offering substantial concessions," says Robert Manekin, who heads general business development for Manekin and is the son of Chairman Bernard Manekin.

Despite the problems, industry executives see Manekin as a survivor in the shakeout that has already caused a number of casualties in the region's commercial realty field.

To cope, Manekin has slashed costs. It has cut 10 percent of its staff of just over 100 and has reduced executive salaries by 30 percent over two years. It has also withdrawn from high-risk ventures, such as speculative development, and maneuvered back into old lines of business or found its way into new fields.

As many real estate companies go from bank to bank searching for financing, Manekin has partially shielded itself through its decade-long alliance with a Boston-based joint venture partner, Copley Real Estate Advisors.

"Copley is the horse that's brought us here. It's been with us in good deals and in bad," says Donald Manekin, the son of Vice Chairman Harold Manekin, and a partner at the company's Columbia office.

Luckily for Manekin, Copley -- the pension fund investment arm of New England Mutual Insurance Co. -- has deep pockets and a willingness to back Manekin on development projects that still make financial sense. For instance, Manekin recently obtained more than $6 million in financing from Copley to build a new U.S. headquarters for the French industrial company, Telemecanique, in Owings Mills.

"Manekin's greatest strength is having a financial partner who will commit, on short notice, to a build-to-suit project or almost anything else they want to finance," says Walter "Wally" Pinkard, head of W. C. Pinkard & Co., another large Baltimore-based real estate firm.

Leslie Legum, chairman of The Circle Companies and a key player in Baltimore-Washington corridor real estate for more than two decades, says Manekin's financial backing sets it apart from others in the field.

"The trouble with other developers is that the banks are calling them, trying to change their loans, and demanding additional cash. And some of them are going bust because of that," he says.

A pioneer in the redevelopment of downtown Baltimore, Manekin's arms have stretched far into the suburbs. With six offices, Manekin has established a reputation as an entrepreneurial developer of office and research and development space from Owings Mills to Loudon County, Va. It also operates an active brokerage business, leasing space built on its own or by other developers.

These days Manekin is returning to one of its old business lines: managing properties developed and owned by other firms.

This summer, Copley turned over to Manekin's management a million square feet of office space in Northern Virginia, as well as 300 undeveloped acres of land in the area. The pension fund adviser had been dissatisfied with the way the properties' developer, Lee Sammis, another joint venture partner of Copley, had been handling the Virginia developments.

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