(Editor’s note: This is part one of a two-part Q&A session. The remarks are verbatim, but were edited for continuity and length.)
The toughest things in business and journalism are to not only get face time with the people who matter, but to find out what they really think.
In August, PRG Investments executives launched their Real Estate Investment seminar series, with “Opportunities in The Local Market and Beyond,” an event that put the Louisville real estate investors in the room with top real estate developers.
And they all spoke candidly and on the record about the capital markets and development trends.
Monday night, the series continued with Bill Weyland and Joe Pusateri the featured speakers under the theme, “Suburban and Urban Development Opportunities in Post-Recession Louisville.”
Weyland’s latest project is the 162-room Hilton Garden Inn Downtown, under construction at Fourth and Chestnut streets. The $22 million hotel is a partnership with Chicago-based First Hospitality Group.
Joe Pusateri owns Elite Homes, which rose to national prominence in 2007 when Elite was selected to build a home for the “Extreme Makeover Home Edition” reality TV series. Elite Homes was selected to build a second home for the series in 2011.
Pusateri and Weyland spoke to an audience of 40 investors and industry leaders including Gant Hill, Gant Hill & Associates, Bob Duane, Duane Realty & Development, Charles Cash, former director of Louisville’s Metro Planning & Design Services, Justin Baker, TRIO Commercial Property Group, Colin Underhill with Underhill Associates and Bob Marrett, with CBM Properties.
We were fortunate enough to be invited to the summit Monday night at the Green Building Gallery in NuLu.
Reed Weinberg, PRG Investments president, was the moderator.
Reed Weinberg: I’ll start with Joe. The Recession hits in 2008 … the single family market arguably went into Depression. Joe, Elite Homes has come out of that recession arguably stronger than before. What did you do with your business model to retrench and come out stronger than you were before?
Joe Pusateri: In January 2008, we had just built the Extreme Makeover home in 2007 for the Hughes family. We had 36 employees and had done an expansion in our office … and all of a sudden, the market just slowed down dramatically.
All of a sudden, we were at 70 percent of the business we had done prior. I was in Orlando speaking to a custom builder group. Florida was hit a little earlier than we were. Of the 36 builders I was speaking to, one said, “In our group, we used to have 80 (members). The other 44 went out of business. If you ask any of them, it was because they waited too long to start cutting staff.”
When he said that, I got goosebumps because I already felt like we needed to be doing something. We had 70 percent of the business with 100 percent of our employees. I told our staff, “We’re going to have to lay people off on Friday.” The reason I did that was, once I paint myself into a corner, I can’t retreat. If I tell enough people, I have to do it. We laid five people off that Friday, which was one of the worst days of my life.
Then we had to figure out ways to attract more business.
One was, our realtor business had accounted for 10-to-15 percent of our sales. We had four spec houses. We had our own real estate company, so we decided we were going to list them with other real estate companies.
We invited four realtors to come in and make a pitch for each one of the houses. We had 16 realtors total, and we asked them, “Tell us if we listed that home with you how you would market it. Tell us what your strategy would be.”
We listed four homes with four different companies. Then, we said, “By the way, since we’re your partners, we’d like to come to your sales meetings.” We went to the meetings and said, “Here’s what Extreme Makeover said they were looking for in a builder. They picked us. Aren’t these the same (qualities) you’d want for your clients? Extreme Makeover has done it for you … identified who the best builder is for your clients. It’s us.”
The next year, our sales were down, but 50 percent of our business came from realtors as opposed to 15 percent.
We also went back to hundreds of people on our prospect list … and on Wednesday nights, we’d order in soft drinks and pizza and we’d call these people and say, “Where are you in your home building plans?”
Lastly, we’d built 1,200 homes, many of which had unfinished basements … and spaces. We sent out postcards that said, “We do remodeling too. We know your house. Wouldn’t it be better to invest in your house and enjoy it now rather than lose it in the stock market?”
In 2007, we did zero remodeling. In 2008, we did $3.7 million, and we were the 65th largest remodeler in the United States in one year, going from nothing.”
Bill Weyland: Well, the nice thing from my standpoint is, we’re contrarian. That’s why we’re invested on the edges of downtown. I think we do better when it’s bad.
Basically, in 2010, we stared Whiskey Row. (Editor’s note: Whiskey Row Lofts is a mixed use development at Second and Main streets, with apartments and restaurants including Doc Crow’s Southern Smokehouse and Raw Bar.)
We used New Market tax credits and historic tax credits. The focus was on using those credits to provide capital to potential restaurateurs who couldn’t access capital any more.
Capital had become so scarce for them the only way to create it was through the tax-credit programs we were well versed in. So, folks like the Doc Crow’s, The Troll Pub. Those restaurants. We were able to throw a lot more tenant finish to them, which meant they didn’t have to go to the markets for money, which they honestly couldn’t do.
And we gave them the opportunity to expand. And we gave them the opportunity to expand downtown.
It’s also good when your next-door neighbor spends $300 million or more (at KFC Yum! Center) and that was just luck. It’s better to be lucky than smart.
Beyond that, our focus was on keeping staff. We wanted to keep staff. So I hooked up with Barry Alberts, former (Louisville) head of economic development and we created a consulting business called CITY Visions. And we grew our business through adding a consulting arm.
We’ve been doing consulting all around the country ever since. Barry representing what the public side would do, and us representing what the private side and how these tax credits work. And that was a way for us to stay busy when we weren’t busy doing what we had previously done.
My real focus shifted to trying to identify the right kind of operating partners. When I look at the restaurants we got or the businesses in our buildings, I now know they’re not just leasing from us.
They’re our operating partners and they need to be successful. And we need to give them the tools to be successful. We need to work the incentives so they can be successful.
We started focusing on creating more strategic partnerships with operators. And that’s what’s coming to fruition now.
Because we’ve been able to bring in some out-of-state hotel operators and out-of-state apartment operators that bring much more to the table from the experience standpoint than I do.