How Real Estate Developers Think. Peter Hendee Brown
They avoid innovation, which is costly on the front end and slow to show returns, and instead they tinker at the margins, producing goods that are rarely very different—or better—than those of their competitors. Rather than making grand plans, entrepreneurs try many things, pursuing those that show promise, abandoning those that do not, and adapting to whatever the market sends their way. And while some entrepreneurs claim to be “self-made,” they are often more privileged than others and their backgrounds give them advantages that others lack and that play a central role in their success.16
Five Common Characteristics
Indeed, in their study of nearly ninety very wealthy and successful entrepreneurial businesspeople, most of whom were men, Villette and Vuillermot found only five widely shared personal characteristics. First, the entrepreneur was raised in an enterprising environment where parents and other family members were business creators and owners. Second, the entrepreneur benefited from having more education than the average person, and his academic upbringing also provided access to a network of alumni, friends, and family of friends that supplemented family connections. Third, the entrepreneur gained experience in business very early in his career, through experience in sales, negotiations, or the creation of small companies. Fourth, when starting out, the entrepreneur benefited from privileged financing—access to capital—from family and friends. And fifth, the entrepreneur had the support of a mentor who helped him make his first “good deal.”17
Looking through the overlapping lenses of economics, genetics, and sociology helps to bring into focus how personality traits, background, upbringing, and lucrative opportunities combine to create the entrepreneur. Throughout the rest of the book we will look at the entrepreneur through a series of more personal lenses—the career stories of individual developers. The next is a Chicago developer named Buzz Ruttenberg whose story brings these ideas to life, from his start in the business and his first good deal to his approach to risk management through the design of a condominium project that would soon face a turning market.
Zip-Code Development
David “Buzz” Ruttenberg was born in March 1941 and was raised in a six-flat walkup in downtown Chicago until he was ten, when his family moved into a co-op a few blocks away. He attended a private school in the city that was a short walk from his home and then he enrolled at Cornell University and graduated in 1962. After completing some graduate work at the London School of Economics, Ruttenberg went on to Northwestern Law School and graduated with honors in 1966. Ruttenberg initially practiced law for the renowned Chicago firm of Kirkland and Ellis and then moved to a family law firm while he was “developing his craft” as a developer. He left law in the mid-1980s and became a full-time developer in his early forties. But his career in real estate development really started in the 1950s, when as a child he would accompany his father on visits to the various rental properties that his father owned.18
Ruttenberg’s maternal grandfather was an immigrant from Russia named David Wolf who came to Chicago in his early teenage years. He opened a wholesale dry-cleaning business that served hotels and other institutional laundry users. As his business prospered, he became interested in property. Ruttenberg’s parents married in 1940 and his father, David C. Ruttenberg, was an attorney who “scratched out a living” after the Depression and then during World War II. But the Ruttenbergs lived relatively comfortably although they drove old cars and initially lived in a walkup apartment in the city. By the late 1940s the rush to the suburbs was under way but Ruttenberg’s parents had no interest in moving there, and his mother knew that his father could never ride a train every day, so they stayed downtown.
In the late 1940s, Ruttenberg’s father was introduced to a rooming-house operator named Louis Supera. The two men were close in age—born in 1909 and 1910, respectively—and at the time they met they were in their late thirties. “My father had a creative itch and an interest in real estate that he had picked up from his father-in-law, who had since passed away, and Supera knew how to collect rents and maintain B and C class buildings.” So the two men bought a nine-flat on Hampton Court, just around the corner from the Ruttenbergs’ home at 450 West Wrightwood and two blocks west of Lincoln Park. At the time, says Ruttenberg, “Lincoln Park was green but a little tired and the upscale community now known as ‘Lincoln Park’ had yet to arrive.
“So they did what I call a ‘two-brush rehab,’” says Ruttenberg, “which means they swept it with a broom and repainted it with a brush.” David C. Ruttenberg kept on practicing law and Lou Supera kept on running rooming houses, but they collected rent from their nine-flat, and, although it wasn’t much, it supplemented the incomes of both families. The Superas and the Ruttenbergs each had two children, all of whom were close in age, and the two families both stayed in the city—the Ruttenbergs in Lincoln Park and the Superas a little to the north, in Rogers Park.
Breaking Rules
About 1950, Ruttenberg and Supera decided that for their next investment they would go farther west and “venture into no-man’s land.” The two men bought a twenty-unit apartment building two blocks west of Clark Street and four blocks west of Lincoln Park. The area was a little dangerous but there were no gangs, and yet people saw Clark Street as a big psychological barrier. “At the time, going west of Clark Street was like Christopher Columbus in 1492—it was unchartered and you could fall off the edge,” says Ruttenberg. “Everyone thought they were crazy but in the end they were right, and they didn’t need a market study, it just made sense. After all, in Chicago, east is in the water, which is a real barrier, so any development that is going to happen is going to go west, and if anyone had thought about this it would have been obvious. You start to say, ‘Gee, I think I see a pattern here.’”
Figure 7. David C. Ruttenberg (left) and Lou Supera in 1965. Courtesy of Belgravia Group Ltd.
Ruttenberg and Supera continued to buy and develop properties west of Clark Street. In the 1960s they began to copy what was happening in SoHo in New York City, exposing brick to make things more “cool and hip” for the artist community that was starting to live in Lincoln Park. Ruttenberg and Supera had been working together for about twenty years when, in 1971, two young restaurateurs named Rich Melman and Jerry Orzoff opened a restaurant in Lincoln Park called RJ Grunts. “Everyone told them that they couldn’t succeed but RJ Grunts went on to become one of the most successful restaurants in Chicago.” By the 2000s, Melman’s privately held restaurant company, Lettuce Entertain You Enterprises, owned and operated more than seventy restaurants, mostly in Chicago.
“There was no reason for Clark Street to be a barrier,” says Ruttenberg. “It was a psychological barrier. And this is part of what makes the Midwest the Midwest—it is a great place to live but the people are more conservative and risk-averse.” Having gone east for school and then to London, however, Ruttenberg had learned that rules are meant to be challenged. “Some of the most successful people in the world today have broken the rules,” says Ruttenberg. “Bill Gates did not graduate from Harvard and Steve Jobs dropped out of Reed College but for both of them the old rules did not apply to the new game that they were playing.” For Ruttenberg, the lesson was the same: “Here, in Chicago, there are a lot of perceived barriers that really don’t make sense. My dad and Lou Supera succeeded by pushing the geographic envelope where it wanted to go, and I have been doing the same thing ever since.”
Now I Am a Corporate Raider
“Although I went to law school and practiced law while I was working with my father,” says Ruttenberg, “I had always been drawn to entrepreneurial opportunities in real estate and I had a teacher in my dad. We were very fortunate in that we got along well and we found that it was fun to do things together. He had created a base and we had a level of success in the Lincoln Park area and a nice reputation.” Then along came an opportunity that Ruttenberg was able to convert into his first good deal.
In 1970, when he was just twenty-nine, Ruttenberg and his father bought a property called Crilly Court, on Wells Street in Old Town, just a little to the north. It was a $2 million purchase, “which was humongous for us at that point,” and it comprised about 120