How Real Estate Developers Think. Peter Hendee Brown
was shop and to this day I can’t draw a straight line. But I had an instinct.”
Fogelson sold the first of those two houses for $9,900 in 1955.11 For that first year everything he touched was a success and he made more money than his parents or anybody else they knew. “I thought I was something special and in hindsight, I became arrogant, because I had a lot of success really soon. But life isn’t like that and it all came screeching to a halt in 1956 when I received a two-week notice that I was being drafted into the army for two years.” Fogelson went from being “somebody” to being reduced to a buck private who was just another number doing K.P. and guard duty. He also realized that since joining the army his income had stopped, he had no income-producing properties, and he was “like a salaried guy.”
Back to School
In the late 1950s a new real estate product—the farmer’s market—began to emerge. Developers were buying old mill buildings in New England towns, dividing them up, and renting stalls out for farmers who sold meat, fruit, and vegetables and for other vendors who sold dry goods like linens and sundries. Fogelson thought this idea was going to be the wave of the future so he used his weekend passes to visit a couple of them. Although he could not have known it at the time, Kmart, Wal-Mart, and Target would all be founded in 1962. He was a company clerk in the army, which allowed him to resume his real estate business in his off hours, and by the time he was discharged from the army in 1958 Fogelson, his father, and a cousin had purchased a site outside of Chicago together to build a farmer’s market. “And that is what brought me to the middle west—I liked it, got married, and stayed.”
The project was successful, but Fogelson did not like the farmer’s market business. “I liked building the buildings and leasing up the space, but I did not like the operations side of the business—it was like being a shepherd.” More important, Fogelson really wanted to get back into homebuilding but he also knew that he needed to learn the business. He was self-taught and had only built houses in New Jersey—“you know, ten there, five here”—using conventional financing. He didn’t know anything about developing large-scale subdivisions or the mortgage programs that were being offered at the time by the Federal Housing Administration and the Veterans’ Administration.
So Fogelson applied for a job with a large company in Indianapolis and was hired as a salesman. “I didn’t care what they paid me because I was getting paid to learn. I became vice president of sales, then I took over the mortgage department, and within a year sales had increased by 150 percent. I worked seven days a week for a year and that was a cram course in all aspects of subdivisions.” When he first took the job, Fogelson told the company that he would stay for one year and that if they didn’t give him equity then, he would leave. When that year was up he was not granted equity, so he went out on his own. “And that was the only year in my life when I have worked for somebody else.”
Fogelson went on to build garden apartments at a time when there was no alternative minimum tax. “They would throw off cash flow and tax losses and then I would build houses that would throw off tax-sheltered profits, and so I was able to build up equity and cash flow.” As his subdivision projects grew larger, “there was always a leftover corner here or there that could be developed for a gas station or shopping center,” so over time Fogelson learned these other businesses too. “It was almost like being bilingual because I could talk the talk in retail, office, industrial, for-sale and rental residential, and land development. But what I got really good at was land—property.
“So that is a short version of how I got into the real estate development business—it wasn’t some brilliant master plan, that is just the way it evolved. I liked it and I became addicted to it. And the reason that I liked it is because you can see what you have done—those little houses I built back in New Jersey and everything else I have built since. I like it that my children—and now my five grandsons—can see it and I know they get a kick out of driving by $4 billion worth of work and saying ‘my grandfather did that.’”
Three Traits of a Developer
Fogelson has been in the real estate business for more than five decades and he has also helped to start up and shape the curriculum for the School of Real Estate at Roosevelt University, in Chicago, where he endowed a professorship. But with all that experience, when asked what the characteristics of a developer are, Fogelson lists just three: vision, tenacity, and the ability to reconcile many voices and make a good decision.
First, developers must have vision. “One of the characteristics that a developer must have is the ability to visualize what can be. If I were to have a self-evaluation that was as objective as I could make it, it would be that I have the ability to visualize things much more so than most people. I understand land and property, how to assemble it, how to buy it, how to sell it, and how to zone it. I can see what can be.”
Second, developers must be tenacious. “For example,” says Fogelson, “you just can’t take a rejection as a flat rejection, because ‘no’ doesn’t necessarily mean ‘no,’ and sometimes ‘no’ may mean ‘yes.’ You have to be persistent and determined, you need to hang in and hang on, and you need to believe in what you are doing, because if you are not persistent and determined, you will get knocked off too many times. McDonalds founder Ray Kroc said it best: ‘Persistence and determination are omnipotent.’”
And, third, the developer must be able to reconcile the objective facts of the project—“the pieces of the puzzle”—with the vision or “mystery” of what he or she is going to do with it. “On the one hand, you must consider all of the physical characteristics of the property—the sewer, water, soil capacity, topography, etc. On the other hand, you must be looking at potential uses, product type, absorption rates, and what you would do with the property if you had it. For example, the highest and best use for a piece of property may be retail shops, but you must ask yourself whether there is really a market for that product. When you have those two sets of information on the table then you can make a decision about whether you want to pursue this property or development project or not.”
But more important than reconciling these two sets of information is reconciling what Fogelson calls “the subconscious voice and the conscious voice.” “You may lay a set of facts on the table, look at them consciously, and it all makes sense and adds up but if it doesn’t feel right in your gut—if you instinctively have reservations about it—then don’t do it. On the other hand, if your inner voice tells you ‘Boy, this is the greatest thing since sliced bread’ but you can’t make it work with the objective facts, then you shouldn’t do it then either. You should not go ahead with any deal until your inner voice and your outer voice are in harmony because if you do, you will decrease your chances of being right.” But there is a better reason for waiting until the inner and outer voices are in harmony, says Fogelson. “The chances are, you will run into problems, and when you do, if your inner voice had doubts, then it will say to you, ‘See, I told you not to do this,’ and, now, when you have got to have that extra conviction required to push through and do it, it won’t really be there, because you will be thinking, ‘I should have listened in the first place.’”
Like orchestra conductors and movie producers, developers are generalists who bring a lot of other people together to create something. “And at the end of the day,” says Fogelson, “when you put together a development you have to think about all of the people who are going to be around the table—the architect, the land planner, the construction people, the marketing people, the finance people, and all of the others. They are all coming at things from their own perspective or point of view, pushing for what they think is going to be best for the project based upon their own role or persuasion. But the developer is the one who is sitting there at the head of the table, and he has to sort through all of the information and all of the voices and make a decision.”
Gerald Fogelson’s story acts as a bridge between the stories of Beacon Hill and Evanston, showing how long-range vision and tenacity together can shape a place. His summary of the traits required of a developer is just one opinion but in this case, as in all of the stories that follow, his words, views, and ideas closely reflect those of many other developers. Indeed, while each of the stories in this book illustrates specific ideas, in fact the similarities