What do you do when half of your business gets clobbered?
If you’re Bob Peterson, you focus on growing the other half of your commercial real estate operations. You also search for new opportunities.
Peterson, chairman and CEO of Atlanta-based Carter, has had to pilot his company through an industry tailspin.
“I clearly think this is the worst I’ve been through,” said Peterson, a 35-year veteran of the business.
Essentially, he explained, every type of commercial development — office, retail, hotel, industrial and apartment — has been hit hard. By one measure, he said, the value of commercial properties has fallen about 30 percent during the past year.
“It’s not going to get much worse, but we’ll stay here for a long time,” he said.
“A couple more years at this low point,” Peterson, 57, said. “We need to figure out how not to be a part of that.”
Privately held Carter, one of the country’s largest commercial real estate firms, is still profitable. But it has seen its “transaction” business — selling and leasing property — fall dramatically. As a result, the company’s annual revenue has dropped from about $40 million to the “low 30s now,” Peterson said. The transaction business now represents only about 30 percent of that revenue — down from 50 percent.
An optimist at heart, Peterson didn’t dwell on the bad news, but told himself: “It’s OK. We’re going to get through this.” Then he and the other four owners figured out a game plan:
– Go after new business niches by forming strategic alliances or hiring experts in other fields.
“You take advantage of this [economic] debacle by adding excellent people,” Peterson said.
For example, Carter forged an alliance with T5 Partners, which specializes in “mission critical” data centers. Carter became project manager this year for a new $400 million Apple data center in North Carolina.
Just last week, it announced an alliance with Align Healthcare to plan and develop hospitals, clinics and medical office buildings in that growing field.
And the company hired two local experts for a new consulting business helping banks decide what to do with their foreclosed commercial properties and bad debt.
– Take advantage of the crisis by investing in foreclosed properties that will be worth more in a few years. In fact, Carter already has accumulated funds from investors and is scouting distressed real estate now.
– Get more revenue out of the existing business of managing properties, which has to be done in good times and bad. Carter manages everything from three office towers at Atlantic Station to a signature office complex in downtown Minneapolis.
– Finally, cut costs. In this business, that means people.
“Probably what hurts the most are the layoffs, the salary reductions,” Peterson said. “Those are the tough decisions.”
The company now has about 375 employees, which is down from a peak of 450. It implemented an across-the-board salary cut of 8.5 percent. Also, bonuses are down 70 percent.
Because of the cuts, Peterson said, it’s easier for him to communicate a key message of the game plan to the troops: “You have to be so good at what you do today.”
That’s being said by a lot of CEOs these days.