Friday, March 08, 2013 7:00 AM
Hubbell Realty Co. has 12 projects at the start or finish line of construction this year, and they reveal the diversity that defines the company and helped it emerge from the recession.
“The whole company is running pretty hot right now,” said Rick Tollakson, the Hubbell president and CEO who has watched the company grow from a big property manager to one of the state’s major commercial and residential real estate firms since he came on board in 1984.
At the same time that Hubbell has walked away from some of its signature developments – the Kaleidoscope at Hub was sold last year to EMC Insurance Cos. and an office building in Riverpoint Business Park will be sold at sheriff’s sale – it has grandiose plans for other projects.
Hubbell used its prestige, a record of achievement over the past 157 years and some smart financing to weather the recession.
Navigating the recession
When financing disappeared and other developers folded, Hubbell stepped in to buy their projects, eight in all. The failed loans were picked up on a nonrecourse basis, meaning that the company didn’t have its own money on the hook. If the developments failed, they would be returned to the banks. The company did guarantee the construction loans to finish the projects, which were a mix of residential and commercial ventures.
“The banks need to know that you have skin in the game,” Tollakson said.
In most cases, Hubbell revised the previous owners’ development plans in order to make the projects work.
Tollakson said that if he ever broke a sweat during the recession, it was when banks would foreclose on a developer and sell their lots for pennies on the dollar – right across from a Hubbell project that was selling at market rates.
“Then the banks say you’re not selling lots fast enough, you need to buy down the loan,” Tollakson said. “What really hurt was the fallout from the failed companies.”
Hubbell became the area’s largest home builder in 2008 and has laid claim to that distinction every year since.
Prior to the recession, about 80 percent of Hubbell’s houses were being constructed by third-party builders, Tollakson said. During the recession, the company was building 90 percent of its houses. Perhaps as a sign of an improved economy, Hubbell currently is the builder on 50 percent of its lots.
It also is selling platted lots at a remarkable pace, with 149 of 165 properties in Grimes, Johnston, Urbandale and Waukee selling before development work began.
And from those eight projects started by developers such as Regency, Dave Walters and Randy Walters, Hubbell took on 378 townhouse lots beginning in 2009 and has sold 202, or 53 percent.
Commercial arm grows
As strong as the home building operation has been – Hubbell Homes finished 2012 about 6 percent over projected revenues – the real surprise for Tollakson has been in the resurgence of the company’s commercial brokerage, CBRE/Hubbell Commercial.
The brokerage accounted for nearly 50 percent of Hubbell’s revenues last year, with growth appearing in its industrial and warehousing market and service retail. One small retail center in the Greenway Crossing development near 90th Street and University Avenue has been 100 percent leased since it opened in 2008. Hubbell is building another nearly 8,000-square-foot retail building nearby where father-and-son team Jim and Drew Cownie will open their second Dunkin’ Donuts franchise in Greater Des Moines.
Hubbell also has started construction on an industrial building in Grimes, and it is scheduled to begin work this year on a commercial and residential project it calls Cityville, located on an empty lot where a steel factory once stood on Southwest Ninth Street.
Opportunities for growth on the retail side will be with businesses offering services, such as veterinary clinics, insurance agencies, chiropractors, dentists, massage therapists and restaurants, Tollakson said. The economy needs to generate more jobs for the office market to grow, and he estimates it will be another five years before there is growth in that sector.
Tollakson does not shy away from the fact that the company also has sold some key properties to generate equity for future projects, such as Cityville.
Another property that Tollakson said he would have liked to keep was an 2office building where Wells Fargo Home Mortgage is located in the Riverpoint Business Park.
Riverpoint is the area south of Martin Luther King Jr. Parkway, the Raccoon River and roughly between Southwest Third and Southwest Ninth streets. Back in the 19th century, company patriarch F.M. Hubbell began assembling properties in the area, which originally was called the Factory Addition, and it has been the site of a massive redevelopment effort that now includes the renovation of former office and industrial sites into apartment buildings.
The Wells Fargo Home Mortgage location was built with financing from a cluster of investors and serviced by U.S. Bank. In the current highly competitive leasing market, with owners offering bargain rents and short-term leases, the loan could not be renegotiated on a nonrecourse basis.
The smart business move was to let the lenders, who were represented by U.S. Bank, have the property. Tollakson believes a local lender would have worked with the company to renegotiate the loan.
Instead, the property will be sold at a sheriff’s auction.
Hubbell also sold the Kaleidoscope at the Hub, a fixture of the city’s skywalk system, after repeated attempts to turn it into a thriving retail space.
“We tried three business models in Kaleidoscope,” Tollakson said. “We didn’t have the pockets to make it happen.”
As for downtown retail, Tollakson says the area will support more restaurants and bars.
Not surprisingly, Tollakson said he is “really excited” by development projects downtown. It should be noted that he speaks with equal enthusiasm about developments in Grimes and Waukee.
Still, Hubbell has been a key player downtown, sparking redevelopment efforts in the 1980s, and it is in thick of nascent efforts to rejuvenate and repurpose old buildings. The company wants to play a significant role with the Des Moines Redevelopment Co.
And, Tollakson said he looks forward to competition from savvy developers, such as Jake Christiansen, Mike Nelson and Kurt Mauck, who seem to have figured out the financing and business models needed to dog their way out of the recession.
As for those who failed, Tollakson says there were too many people coming into the development business with no experience, people who believed that “I’ve never done it before, but I can do it with your money and my brains.”
Hubbell made successes out of their failures.
“We’ve done it; we’ve been doing it for quite a while,” Tollakson said.
The Depot at 4th, 100 4th Street, Des Moines, Iowa 50309 | (515) 288-3336 | © 2012 Business Record. All Rights Reserved. | Legal disclaimer