Bringing an owner-operator mind-set to construction

Real Estate Weekly, Nov 13, 1996 by Eric R. Gerard

"One of the first deals that I ever had to look at was an office suite in New York City," recalls W&M Construction President Anthony E. Malkin, who said he was struck by how little was known about what the actual costs and details of tenant installation work were. "I asked how we came up with the numbers. What are we doing and how much does it cost? And the answer that came back was 'We don't know.'"

That was the genesis of W&M Construction Corp., initially an effort to bring all construction, tenant installation work and related services for W&M Properties inhouse in order to control costs, create a definitive bottom line and minimize losses.

Nine years later, the company's annual revenues are over $13 million, and more than half of the firm's work is now for outside clients, including such notable names Ralph Lauren, Arthur Andersen, Charles Schwab and Zell/Merrill Lynch Real Estate.

"Back then, the only business we were doing were several small tenant installations within our own buildings," recalls Thomas P. Durels, senior vice president, who assumed responsibility for all construction, engineering and maintenance at W&M Properties in 1987 after seven years with the Helmsley organization.

"We had a construction company that was doing virtually no business, and at that juncture we were going to decide whether or not to simply shut this company down," Durels said. "But with the internal problems of dealing with construction costs and tenants who may have a problem leftover from a prior general contractor, we realized that we needed to keep the construction in-house to deal with these issues."

The three chief issues that W&M focused on were to insure reliable and accurate budgeting for their own tenant installations; to insure quality control to their tenants; and to control costs and insure payment to subcontractors.

"Back in the late 80's, a lot of companies were going out of business, or taking on jobs they couldn't afford to do because of the economic times," Durels recalls. "Many general contractors found themselves in a downward spiral of taking on one more job at a loss in the hope of keeping their companies afloat. Eventually it caught up to them."

W&M's focus on tight control and supervision of projects within their own properties also spelled success on outside jobs. "There was an emphasis on knowing where every nickel was going, because in many instances we were doing the work for our own properties with our own money," says Malkin. "You learn deal with unforeseen conditions and bring the same level of detail and understanding to outside projects. We've never lost money on a job and we don't intend to. I don't know that there's any other construction company that can really say that."

The company's reputation for quality and tight economic control sparked increased referrals from tenants and architects they worked with. In fact, it wasn't until two years ago that W&M even began marketing themselves for outside work.

The company expanded its scope from tenant installations and maintenance to property upgrades and modernizations in conjunction with W&M Properties acquisition and rehabilitation of several Class A office buildings in Fairfield County. Owners in that market, comfortable with a construction company with an owner's mind-set, began contracting with W&M for their New York City properties as well.

"One of the things which has drawn business to us and has gotten us repeat business and referrals is that we only have one mind-set, which is the owner-operator," Malkin says. "This means we want to get the best values for whatever is fair to spend. And if we have a budget, we need to find out how to make it work within that budget."

"We bring that same knowledge, skill and discipline that we use in-house to the promotional work that we do, and that has created a lot of very good results," adds Durels.

"I think one of the neat things about how the situation has come about is that out in Fairfield, we rose to the top of a reasonably competitive pack," says Malkin. "But in New York City, where there's no shortage of high profile construction companies, these owners reviewed a number of different proposals and ended up working with us again. Frankly, I think it's because of the good job Tom's people did out in Connecticut, and to our approach."

Since 1989, W&M Construction has conducted major renovations in virtually every property in its parent companies portfolio, as well as some new acquisitions. Current projects include a build-out for AMT Capital Advisors' new headquarters at Rockefeller Center, and a $1.2 million major renovation at Four Stamford Plaza, a 15-story, 224,000 square-foot Class A office building owned by Zell/Merrill Lynch Real Estate Opportunity Partners II. The Zell/Merrill Lynch partnership has also selected W&M Construction for renovation of the lobby and common areas at 850 Third Avenue.