How Real Estate Developers Think. Peter Hendee Brown

Чтение книги онлайн.

      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 residential units and a dozen stores. “We knew nothing about stores, but it was our neighborhood and we knew that we were experts in our neighborhood, so we said, ‘What the hell, let’s go for it.’” The seller was a group of investors led by a big Chicago developer named Arthur Rubloff who together owned everything on both sides of Wells Street but who wanted to sell the whole portfolio at once, rather than piecemeal. But to Ruttenberg the seller was Arthur Rubloff, the person. Rubloff had bought up all of this property for the purposes of developing a higher-density project on the east side of Wells Street, closer to the park, but he didn’t want the old property on the west side of the street. “So Rubloff signed a contract for all of it and then flipped the old stuff to us.”

      Rubloff was selling all 108 apartments, 12 rental houses, and 12 stores for an average price of $15,000 per unit but Ruttenberg divided the portfolio into different property types and found hidden opportunities. “We got some homes, some apartments, and some stores, and I took a look at the asset pool and thought, ‘Once again, it is a matter of breaking the rules and thinking creatively.’ I thought that we could fix up the twelve rental houses and sell them as separate homes, and I knew that the market value for these homes was $70,000. The difference between $15,000 and $70,000 is $55,000 per home, and if you multiply that times twelve homes, it is a lot of money and 30 percent of the deal. On the day I signed the contract the average price was $15,000 but I knew that those twelve houses were worth $70,000, so I said to myself, ‘Now I am a corporate raider.’”

      Better still, Ruttenberg had a sense that the current tenants of the houses would be ready buyers and indeed they were. “We sold them all as is to the tenants and most of them were thrilled to buy them so it wasn’t a big effort. We didn’t have to do any renovating or spend any money on marketing so it was the perfect deal.”

      As for the apartments, there was another reason why Arthur Rubloff and his investor partners did not see what Ruttenberg saw. “They were guilty of living in downtown office buildings but there is no substitute for being the guy in the field with on-the-ground experience.” Because they lacked that experience, Rubloff and his partners believed that the rents were maxed out. But Ruttenberg had worked his way through law school as a janitor and property manager: “I knew how to rent buildings, I knew what people wanted, and I knew what they didn’t want. I also knew that the problem here was that these owners had never reinvested any money in these properties, so the carpet, hallways, and appliances were all tired and needed to be freshened up.” This time, Ruttenberg went up a notch from the two-brush rehab to include some more significant improvements.

       Table 2. An Example of Entrepreneurial Profit