The Elbert Files: Lessons from Professor Knapp
Friday, November 15, 2013 7:00 AM
William B. Friedricks’ recent book, “The Real Deal; The Life of Bill Knapp,” has a lot of good advice for business owners. Here are some examples.
Plan for the worst: Friedricks describes a 1972 meeting when Dick Bryan, president of Des Moines Savings and Loan, told Knapp: “The real estate business has its ups and downs, and I’m not sure you are prepared for the downs.”
That’s good advice for any business, and someone should have given it to Regency Builders, as well as the banks that loaned money to the failed developer, before the bottom fell out in 2008.
In any case, Bryan was concerned enough about Iowa Realty Co. Inc.’s growth in 1972 that he set up a meeting between Knapp and Chicago real estate consultant James Downs Jr., who told Knapp his business needed to “have enough cash on hand to cover two years of loan payments and all other expenses.”
“This was a sock,” Knapp later told Friedricks. “We didn’t keep a lot of cash in the bank because it was all invested in real estate.”
But Knapp did as Downs suggested.
“He set aside money for a rainy day fund and ‘stuck with the formula,’” Friedricks wrote.
“These reserves gave Bill and Iowa Realty a cushion when the economy soured late in the decade,” the book said. When the downturn came, “Bill started tightening the belt. Corporate staff was cut. … Planned projects were shelved, in the hope of revisiting them in better times,” which in many cases happened, according to Friedricks.
Know when to sell: During the early 1980s, Friedricks writes, Iowa Realty was toe-to-toe with Gene Stanbrough’s Better Homes and Gardens franchise.
Then two things happened.
Stanbrough bought two troubled savings and loans, whose losses eventually bled into his real estate business, ruining his entire operation.
Knapp chose a different plan for expansion, selling 80 percent of Iowa Realty to Central Life Assurance Co. “Bill saw Central Life’s deep pockets as a way to protect Iowa Realty and rapidly expand the number and size of its developments,” Friedricks wrote.
“With access to Central Life’s capital, Bill believed he could make more money owning 20 percent of the company than he had when he controlled all of it,” Friedricks wrote.
“When you are up and going great is the time to sell,” Knapp told Friedricks.
Be a visionary: Knapp saw the potential to revitalize the area around Drake University during the mid-1980s at a time when others were ready to throw in the towel, Friedricks wrote.
Banker Mike Earley was the first to urge Drake to become involved in the area, and he organized a bus tour in 1984 for Knapp and other Drake trustees. The tour was discouraging for most. One trustee even suggested “building a moat around the campus.”
Knapp argued that walling off the area would only make matters worse. He and Earley pushed for creation of the Drake-Des Moines Development Corp.
Nothing much was done until Michael Ferrari became Drake’s new president in 1985.
There was no plan for land acquisition, but Ferrari told Knapp to go ahead and see what he could do. Knapp sent Pat Greene, Iowa Realty’s commercial agent, into the neighborhood, and before anyone knew what was happening, Greene had purchased land from 35 to 40 landowners.
Meanwhile, Knapp worked behind the scenes to line up investors who put up the money needed to build a 52-room hotel, a 108-unit apartment complex and a restaurant, the Drake Diner.
That was all done in less than two years, opening the door for Drake’s $115 million capital campaign, which eventually resulted in a number of improvements, including erection of the $12 million Knapp Center.
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