Falcones pass the baton at Pioneer Cos.

CNY Business Journal (1996+), Oct 26, 2007 by Tampone, Kevin

SYRACUSE - Michael P. Falcone has a simple answer for why his father, Michael J. Falcone, is giving up his role as chairman of the company he founded more than 20 years ago.

"It means he doesn't have to wear a tie anymore," he says. "That's what this is really all about."

Michael P. Falcone took his father's seat as chairman of The Pioneer Companies on Sept. 26. Michael J. Falcone is now chairman emeritus and head of a new committee that will serve as a broad advisory group for the company.

Pioneer is a real-estate firm that has developed and managed more than 20 million square feet of properties throughout the country. The company, which employs 75, has about $1.2 billion in projects currently under way.

Although Michael P. Falcone took over as CEO of Pioneer and has been running the company's day-to-day business since 1996, his father has still been very involved, especially on the deal-making end of the operation. That's now changing.

"We've reached a point where I'm really passing the baton," Michael J. Falcone says. "I am stepping back."

He says it's simply the right time and is looking forward to spending more time with his family.

New directions

The switch comes as Pioneer is forging a new direction and attacking new markets.

About 18 months ago, Michael P. Falcone closed the company's first ever deal in New York City. Pioneer, along with a few downstate partners, is building a $300 million, 48-story hotel and condominium project on the East River.

It's the first of what the Falcones hope will be many New York City - area projects. The company has bid for a condo project in Brooklyn and is also looking at two possible hotel sites in Midtown - one would be a $300 million project, the other $325 million.

Pioneer should have an office in the city within the next six months, Michael P. Falcone says.

"There's an awful lot going on in New York," he says.

Locally, Pioneer is still on track to construct a new building downtown that will serve as the company's new headquarters and bring engineering firm O'Brien & Gere from DeWitt to Syracuse. Pioneer plans to break ground in spring 2008 and is currently designing the building.

The firm is also in the midst of building Midler Crossing, a 28-acre development on Midler Avenue that will house a Lowe's Home Improvement store and 20,000 square feet of additional retail space.

In addition to its ongoing local projects and efforts downstate, Pioneer is changing its overall focus in some areas, Michael P. Falcone says.

"I guess what we're saying is the days of us doing an assisted-living project plus an industrial warehouse and a suburban office building are probably behind us," he says. "I think our focus will be more narrow."

Pioneer will continue to develop new retail projects from the ground up, but also plans to begin acquiring existing properties to manage - something it has not done before, the Falcones say. The companywill also concentrate on the hotel market in both urban and suburban settings, as well as urban mixed-use developments.

Although the focus will be sharper, diversity will still be a key component of Pioneer's plans. The array of projects the company has taken on over the years has been one of its strengths, Michael J. Falcone says.

Where many' developers focus on just office parks or retail centers, for example, Pioneer has had a broader portfolio.

Outside cash is another change likely on the horizon at Pioneer. For its entire history, the, company self-funded its projects, but is now looking for additional investors.

The specifics are still a work in progress, but Michael P. Falcone says the most likely candidate would be some sort of institutional investor such as a pension fund.

"It's become very apparent to me that if you're going to do a couple billion dollars worth of development, it's nice to have someone else's money alongside your own," he says.

Market crunch

The real-estate industry has changed enormously since Pioneer first started, Michael J. Falcone says. Public companies now dominate the landscape.

"People like ourselves, the independent developers are fewer and fewer," he says. "We've been very fortunate because we were successful early on and were able to accumulate the capital that was necessaryto do business in this kind of environment.

"But there aren't very many of us left. They've either become public companies or they're no longer in business."

Recent downturns in residential real estate and broader financial markets have helped cool the real-estate boom of the past several years, the Falcones say. That boom threw financing structures out of whack, but lenders are now returning to more traditional terms.

"There's no 5 percent money down anymore," Michael P. Falcone says. "On a $100 million building, that eliminates a lot of people if they have to put down $20 million instead of $5 million."

While all that will make developing real estate harder, that's not necessarily a bad thing for Pioneer, Michael J. Falcone says.

"The returns that investors, purchasers are going to be looking for are going to be higher. They already are higher," he says. "The risk-reward ratio has gotten back into what I consider to be a more logical place. It was to the point where it was distorted. There was so much money chasing real estate.