Chuck Watters- Development Mastermind (#71)

Icons of DC Area Real Estate
Icons of DC Area Real Estate
Chuck Watters- Development Mastermind (#71)
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Bio

Chuck Watters is a senior managing director and is the officer responsible for new business procurement and execution, development, acquisitions, asset and property management activities in the Mid-Atlantic region. He currently serves on the Finance, Operations & Tenant Relations Committee. Since joining Hines in 1989, Watters has been involved in a variety of development projects and transactions aggregating more than 15 million square feet.

Watters earned a BA in History from Colgate University and an MBA from Columbia University.

Show Notes

  • He is a “City Head” who oversees Pennsylvania through Virginia. Is a “sounding board” for the Project leaders in the market and a “Mentor” for the younger associates. (4:45)
    • Leadership role mostly, but has some involvement in project business (6:00)

Origins & Education

  • “Grew up” in Erie, PA for most of his youth. His Dad started an assembly machine industries for various manufacturing industries (6:45)
    • Began working for his Dad after college (8:50)
    • Attended Colgate University in Hamilton, NY- History Major (9:30)
    • Decided to attend Columbia Business School in New York (10:45)
      • Finance major
      • Started working at PepsiCo after school (12:25)
      • His friend, Tommy Craig, started at Hines right after school who told him about real estate (12:50)
      • Thought he’d want a basis in corporate finance (13:30)

Career Trajectory

  • Met Scott Malkin of W&M Properties and he joined them (14:10)
    • Was there 5 1/2 yrs.- Acquisitions & Asset Management (15:15)
    • Ownership interest in the Empire State Building among other large office properties (15:50)
    • Laurence Wien was the “deal structurer”- Chuck learned quite a bit from him (16:20)
    • From 1984 to 1989 (17:55)
  • Joined Hines to become an Asst. Project Manager in NY on 450 Lexington Ave. (18:00)
    • Historical redevelopment of an old office Post Office building (18:45)
    • First day on job he was “watering the project down” as it was being demolished (19:25)
    • Built over the tracks of Grand Central Station (20:20)
    • Structural grid of office building was not lined up with the foundation with angled columns (21:00)
    • Learned a considerable amount about construction (21:50)
    • Pile of documents to review on first day on the job-ground lease, agreements, etc. (23:45)
    • Moved into leasing quickly after the building was completed to lease up 50% of the 900,000 s.f. building (24:30)

Hines History & Career

  • HinesGerry Hines graduated Purdue in mechanical engineering (27:00)
    • Moved to Houston and built an industrial building on a lark and began his company (27:40)
    • His first big opportunity was to develop the Shell Oil headquarters and the Galleria in Houston (28:00)
    • Not put all eggs in one basket-
      • Institutional partners
      • Geographical expansion
    • Tom Swift and Ken Hubbard started growing the geographic footprint to include New York and San Francisco in 1981 (29:00)
    • Ken Hubbard was the leader in New York and secured two significant development opportunities there when the office opened
    • EF Hutton Building and a spec building adjacent
    • Lipstick Building (29:45)
    • Capital from the Kuwait Investment Office at the time
  • Quality architecture with distinctive properties became the mantra for HinesPhilip Johnson, HOK, SOM were the architectsHis project (450 Lexington) was the third project in NY (32:50)
  • 383 Madison was his 2nd project (SOM designed) (33:30)
  • Stayed in NY for 9 years
  • Approached to move to Detroit to take on the Renaissance Center project (37:10)
    • Gave him his own office (37:55)
    • Redevelopment of the project
    • SOM architect said that you could throw $50MM at the building and it wouldn’t make any impact (38:45)
    • Project Needs
      • Main improvements to take down the berms in front of the building (39:05)
      • Change facade (39:20)
      • Build a winter garden (39:30)
      • Improve circulation in the building (39:40)
    • GM wanted to put a sign on the building (42:00)
    • First 20 stories of building and had to strengthen the structure connecting the exterior elevators on the hotel building (43:05)
    • 29 individual projects on the property (44:20)
    • Managing Compuware Headquarters (46:00)
    • Guardian Building renovations (46:20)
    • Mostly fee development (46:45)
    • GM hired them to both redevelop and asset manage the transition of the Renaissance Center while being redeveloped (47:30)
  • Gerry Hines and he came to Orlando to meet the Performance Arts opportunity (53:00)
    • Suggested that he would be a good fit in Washington
    • Chris Hughes was CEO of the East Region who brought him to DC from Orlando after Detroit (54:40)
    • Designated to take over the office when Bill Alsup was finishing City Center (55:15)
    • Came in 2009 which was a challenging time in the market (56:10)
    • AAMC project was a fee development (57:20)
    • MaceRich JV on Tysons Tower at Tysons Corner Center (57:30)
      • Needed office expertise to develop a tower at the center (58:45)
      • One of most satisfying projects he had worked on- first office in Tysons in the new wave of development (59:00)
      • Kettler’s residential property (The Vita) came in after Hines had built the office building (59:50)
  • Hines usually “reinvents itself” during downturns (1:01:45)
    • After the S&L crisis in 1991- European expansion and an acquisitions (investment management) program evolved (1:02:15)
    • After the tech downturn- the Fund business for Hines developed (1:02:50)
    • After the GFE- they developed a research group and got into multifamily development activities (1:03:10)
  • Parks at Walter Reed (1:04:00)
    • Four multifamily projects in various stages of development
  • Acquiring multifamily properties as well as development (1:04:45)
  • Willowick is new property management entity (1:05:00)
  • City Center Project (1:06:00)
    • $80MM of predevelopment investment prior to having a capital partner (1:06:10)
    • 7 city blocks under control…some projects continue to get the “green light” (1:07:00)
    • Discipline is important; however, a project of the scale and quality like City Center (1:08:30)
  • Capital Raising process (1:09:50)
    • Capital Markets Group
    • Core Plus Funds (1:10:15)
    • Value Add Fund
    • Development Fund
    • If funds are over-allocated in markets they might go to one off 3rd party investors (1:11:30)
    • Internal process initially to make decisions on capital raising (1:12:15)
    • More capital now than in the past that doesn’t limit business (1:12:30)
    • Group in Houston that helps with construction financing (1:13:00)
  • Scale was important to build (1:13:45)
    • Two types of companies (1:14:00)
      • Centralized and big
      • Decentralized- Hines was that way, but now consolidating more (1:14:40)
    • Difficult for other companies to compete at the same scale (1:15:15)
  • Execution is “one project at a time” regarding reputation (1:15:45)
  • Parks at Walter Reed– JV with Urban Atlantic (1:16:50)
    • Two parts of the project (1:17:00)
      • Horizontal project- Divide by function and geography (1:17:45)
      • Building projects- Either Hines or Urban Atlantic will lead each project (1:18:20)
      • Take down parcels by joint decision (1:19:45)
    • Sometimes land partners are passive in development partnerships (1:20:15)
      • Easier if Hines is sole GP (1:21:00)
    • Urban Atlantic’s strength is in community outreach and in affordable housing (1:21:40)
      • Urban Atlantic typically hire 3rd party construction management while Hines does their own construction management (1:22:30)
    • Other skill sets are analogous
  • On larger scale mixed use projects Hines would pursue RFPs (1:24:00)
  • Multifamily projects and Industrial projects are new business thrusts (1:25:20)
  • Hartland project in Loudoun County, VA– single family lot development (1:26:00)
  • Life Science is another new initiative
  • Office approach (1:27:45)
    • Trophy (Class A space) will continue to be attractive going forward (1:28:00)
    • Mass Timber is an active product they are delivering now (1:28:40)
    • Franklin Square building was adapted for the Washington Post’s use with significant renovation (1:29:15)
    • Some buildings can be adapted to residential (1:30:20)
    • Hines Square– flexibility for tenants (1:33:30)
    • Will CEOs require people to be in the office? (1:36:15)
  • Activity begets activity (1:34:20)
    • Buying and developing constantly
    • Working with DMPED & associations
    • Activity in local market
  • Local office has 173 people- skews heavily to property management teams (1:36:00)
    • DC office is very important at Hines (1:36:45)
    • Ongoing interest in being in the market (1:37:15)

Company Strategy & Hiring

  • Hiring strategy (1:37:45)
    • Want people who are passionate toward the business (1:38:00)
    • Looking to background to bring in people with experience in the product type where the need is now (1:38:40)
    • Imagine being on a bus ride across the country to want to be with that person (1:39:20)
    • Hire MBAs and others, including interns to understand their capabilities in advance (1:40:00)
    • Undergrads come in as analysts and work a couple years to become a development associate (1:41:30)
    • Retention (1:42:30)
    • As much work as ever, but the deals are challenging (1:43:00)
    • Younger generation is seeking for more recognition (1:43:50)
  • 2020 was one of Hines’ best years in the face of uncertainty (1:46:00)
  • Ground up “co-living” building at Parks at Walter Reed (1:47:30)
  • Value proposition important relying on their research group (1:49:10)
  • ESG is deep in Hines’ DNA (1:50:00)
    • First developer doing dual pane windows (1:50:15)
    • Always had thread of environmental sensitivity (1:50:30)
    • Geothermal technologies (1:51:00)
    • What is realistic goal for carbon neutrality? Looking at 2040 (1:51:25)
    • Social- looking to improve their diversity (1:51:50)
  • Internet of Things will be an important trend to stay ahead of now (1:52:50)
  • Hines Conceptual Construction group (1:53:50)
    • Work on experimental technology including AI
  • Risk mitigation (1:55:45)
    • Look at conceptual issues
    • Staff a project appropriately (not too many or too few on a job) (1:56:30)
    • Don’t hold out for the last dollar (1:57:00)
    • Don’t over lawyer a project (1:57:15)

Personal Philosophy

  • Life priorities (2:01:00)
    • Giving priority to family is important (1:58:00)
      • Bringing family together
    • Mentoring is important at work (1:58:50)
    • Volunteer to teach and guidance (1:59:20)
  • Wins
    • Assuming the leadership mantle from Bill Alsup to a broader opportunity for people can look at more diverse opportunities than just City Center (2:00:20)
    • Renaissance Center Project- Olympic Torch came into the Winter Garden (2:01:25)
  • Losses
    • Two acquisitions that should not have been made (2:02:00)
  • Surprises
    • Still learning things after 33 years (2:03:30)
  • Advice to 25 yr. old self
    • Try and figure it out by yourself, but don’t hesitate to ask for help if stumped (2:03:25)
    • Commit oneself to taking on a project (2:04:00)
  • Billboard Statement- “Do the Right Thing” (2:04:30)

Postscript

  • Rameez Munawar takeaways:
    • Hines exudes quality in everything they do
    • Hines constantly reinvents themselves to improve
    • Hines is willing to take on challenges that other companies wouldn’t
  • Hines has mastered international scale
  • Thought process has changed over time
  • Getting ahead of trends
  • Hines/ULI Competition experience- 30 page project brief and prepare a proposal in two weeks
    • Competing with 182 proposals
    • He was on the team that won the competition representing the University of Maryland
    • They won back to back years
    • Catalyst to students
    • Eternally grateful for the experience
  • He joined Gerry Hines for dinner and thought it was a great experience
  • Future proofing the office product today- change perspective on office use going forward
  • Renaissance Center project in Detroit

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