From the early 1900s to 1970, the brick building at 601 E. Pratt St. was a power plant fueling Charm City’s streetcar system. Today, electricity is no longer produced in the building, but that doesn’t mean it isn’t a hub for commerce. A Hard Rock Café and Barnes and Noble sit on the first floor, drawing office workers and visitors to Baltimore. But it’s on three floors upstairs where the real money is made. That’s home to the Cordish Cos.
Cordish redeveloped the building on Pratt Street in 1996 and has now taken that template to downtowns in cities all over North America. The goal: Put retail, restaurants, entertainment, and pedestrian-friendly paths in once downtrodden downtown areas—build it, and people will come. In 12 cities across the country, that’s exactly what happened. In Maryland, Power Plant LIVE! is the third most-visited attraction in the state, drawing 7.9 million people. In Kansas City, Mo., its Power and Light District draws 8 million people. In Louisville, Ky., Cordish’s Fourth Street LIVE! was originally supposed to draw between 2 million and 3 million people, but in 2007, 4.5 million visited, making it the fourth most-visited site in the state. The development created 1,500 permanent jobs, while Cordish’s next two projects, Center City and The Gardens in Louisville, are expected to create 2,000 jobs.
“Those are big numbers,” says Bruce Traughber, director of economic development for the city of Louisville. “It’s not every day that you get a company coming to town that will create 2,000 jobs.”
The cities aren’t the only one’s who have noticed Cordish’s work. The Urban Land Institute has given them six awards for excellence. Revitalizing downtowns with its LIVE! entertainment districts may be what Cordish is known for now but isn’t the only thing that kept the 99-year-old company, which was started by current CEO David Cordish’s grandfather, Louis Cordish, in business. Its product mix has evolved from apartments to grocery-centered developments to urban revitalization, sports-anchored developments, and entertainment. And its entertainment and gaming development division helps manage these projects once they’re built.
As the firm approaches its 100th year in business, it has a measured growth strategy to navigate the current recession with David and his three sons—Jon, Blake, and Reed—calmly in the driver’s seat. Here are five principles upon which the company has built a sturdy organization that can survive, and prosper, in tough times.
1) DIVERSIFY TO SUCCEED.
When David began building Cordish in 1965, it looked nothing like it does today. His grandfather and father had built a small apartment company. Soon after taking the reins, David, a lawyer at the time, began building grocery-anchored shopping centers in the Northeast.
Though Cordish has since gone on to create what David calls “sexy” urban projects, the company still does traditional deals. “In suburban development, it’s very formulaic,” says Blake Cordish, the company’s vice president of development. “You can get the economies of scale.”
While David was content with the risks and rewards of this type of development, in 1977, he launched the Urban Development Action Grant program, whereby grants are given to severely distressed cities to stimulate economic activity. David was well-prepared to help cities such as Charleston, S.C., Detroit, and Baltimore rebuild their downtowns.
“I was introduced to mayors, governors, and development directors all over the United States,” David says. “Suddenly, public officials everywhere knew about us. The phones started ringing.”
Cordish developed a reputation as a company that could take on big urban projects with layers of financing, complicated construction, and high-profile problems. That was no easy task. “It’s a lot of brain damage in every one of these developments,” says Jack Luetkemeyer, principal for Continental Realty Corp., a developer, owner, and manager of commercial and residential properties and Cordish’s partner in multiple projects. “That’s why they have the pick of the litter.”
Diversification extends beyond where it builds. Even in downtowns, Cordish has no single formula. Kansas City, Mo., for instance, had existing roads and residential but needed a grocery store. Elsewhere, there may be a need for more residential.
“Our projects are all very different,” says vice president Reed Cordish, who runs the firm’s entertainment group. “We’re looking at the overall project. We look at the particular city we’re going into and other amenities and attractions.” Cordish diversifies its architectural design as well. It has national architects and materials suppliers but will tap into local materials suppliers to ensure that its product type works with the existing community. “In Charleston, you’re matching historic preservation,” David says. “The day[Charleston Place] opened, you thought it was built 100 years ago. In Houston, [Bayou Place] is in the midst of gleaming modern skyscrapers.”
2) FEED OFF OF THE ANCHOR.
The St. Louis Cardinals President Bill DeWitt knew his franchise, which has been around since 1900, was deeply interwoven in the community, but it wasn’t fully capitalizing on the passions of its fans.
“There’s still a tendency to come to the game and, when it’s done, hop in their cars and go back to the suburbs,” he says. “We’d like to create something that gets people down here 365 days a year and supports the game day experience.”
DeWitt knew of Cordish’s success doing just that. It built Philly LIVE! around the Phillies’, Eagles’, and 76ers’ stadiums in Philadelphia as well as Bayou Place around the Astros’ and Rockets’ stadiums in downtown Houston. The Cardinals eventually chose Cordish to build Ballpark Village. Cordish expects this anchor in St. Louis, the new Busch Stadium, to draw in people, while its restaurants, retail, and
nightlife keep them spending money.
Cordish does this in many places with its trademark Power Plants and Power Plant LIVE! districts.(Power Plants generally have family-friendly shopping and restaurants, while Power Plant LIVE! is usually a block within that district with nighttime activities.) “[LIVE!] is a collection of live performance venues, restaurants, bistros, cafés, all centered around a central main plaza, which is active more than 300 nights per year with live [shows]—all free to the public,” Reed says.
Cordish will take existing structures inside these entertainment blocks, renovate them, and partner with different brands. In Kansas City, Cordish and locally based AMC Entertainment entered a $60 million joint venture to turn the historic Empire Theater and the Midland Theatre complex into a movie theater and live music venue, respectively. In Louisville, it negotiated with local distillery Maker’s Mark to lend its name to a restaurant and lounge.
And in each scenario, the development philosophy is open with a bang and then keep the momentum going. “If you’re making a market, don’t do it incrementally,” Blake says. “People should say, ‘Wow, they exceeded my expectations.’”
Ultimately, by locating these branded concepts downtown—away from congested suburban malls—and around downtown anchors such as sports stadiums, Cordish thinks it may also be slightly insulated from economic downturns. “If you’re best in class, you will be the last to be affected, but no one is fully immune,” Blake says. In fact, the company said 2008 was a good year. “Our teams have been burning the candle at both ends but proud to say that occupancy levels have remained high and sales and visitation have actually increased in 2008; we are confident this trend will continue in 2009,” Blake adds.
Cordish’s best in class position can also help it retain retailers. While retailers may be likely to close a suburban store where the competition is just down the road, the equation is different in urban destinations. “Retailers are more apt to want to go where they’re not worried about their competitors being down the street,” says Pete Matthews, senior vice president and deputy credit officer for commercial real estate at M&T Bank, a Baltimore-based lender that has worked with Cordish for nearly 20 years.
3) FIND A PUBLIC SECTOR PARTNER.
Cordish is proud of its urban developments. David can go on and on about The Walk in Atlantic City, N.J., where the company took eight blocks infested with drugs and crime and turned it into a retail and entertainment district. But the company can’t do these projects alone. “By partnering with local government, they’re able to make economics work for the project that otherwise wouldn’t work,” Matthews says. “The city gets a thriving tax base. The developer is able to produce a project with lower costs going in. Everyone ends up a winner.”
Just because a city gains job and tax revenue doesn’t mean it will throw out money, especially in today’s era of tightening budgets. “It’s about a willingness to work through compromises [with the locality] and get to a situation where both sides feel like they’re achieving a very attractive return,” says John Cordish, a vice president in charge of finance with the company.
Once you get the project, the work still isn’t done. In fact, it gets harder. Using public dollars and land invites scrutiny. “If you fire a manager at a big urban project, it’s a front page story in the paper,” David says.
Cordish expects this scrutiny. “We approach any public/private venture as an open book process,” John says. “We hand them the financial statement. If you’re going to be high-profile, people will have a right to have an opinion.”
Sometimes, the venture will remain in place, but the partners will be diff erent. “Keep in mind you’ll get a new partner in the form of a new administration every four or eight years,” Blake says. “Then, you’re starting over. In many instances, the new group will have run on a platform against you.”You can minimize the risk by knowing the political climate before you get in and whether the city has the financial tools and wherewithal to get the development to the finish line. “If you have a city council that is at war with the mayor, for example, you want to steer clear of that situation,” David says. “You want to have a public sector that’s acting in harmony.”
4) DON’T PILE ON THE DEBT.
At the height of the real estate market, banks came to Cordish with tempting offers (floating debt at 3 percent over LIBOR, for instance). But Cordish would usually ask for a more stable option—fixing the
debt for 25 years at 6.5 percent or so. Looking back, David is happy he didn’t give into temptation. Today, the firm’s leverage hovers around 30 percent loan-to-value.
“Our financing matches our perspective of long-term holds,” Blake says. “So we’ll take a more conservative approach, which will mean a lower debt ratio. We’ll always choose a long-term debt, fixed-rate, and let it pay down over 25 years.”
Cordish also likes a long hold time—it built 98 percent of the assets in its portfolio. And it’s sold “very few” of the shopping centers the company built since the ’60s.
This strategy plays well with the people with whom Cordish works—both financial sources and municipalities. “I like dealing with developers who have a long-term view and have recurring cash flow, as opposed to a merchant who is building, leasing, and reinvesting the proceeds,” says M&T Bank’s Matthews.
Cordish also has a sizable war chest (it won’t release exact fi gures), built up by owning a lot of income-producing assets. The company plans to leverage some of those funds to explore troubled deals. “We do not require outside sources of equity financing, and we are able to self-finance our developments,” Blake says. “It is this financial strength, coupled with strong, long-term banking relationships, that has allowed us to thrive in up and down markets and to focus on long-term value creation opportunities via ‘best in class’ developments. Our philosophy is to invest our own capital, stay extremely deleveraged, and hold for the long term.”
This strategy impresses the cities with which Cordish works. “They have partners ready to participate in their deals,” Traughber of the city of Louisville says. “We had a couple of developers that did appealing developments, but we didn’t understand how they would finance them. As it turned out, the ones we’ve looked at have had financial trouble—they were just undercapitalized. Cordish delivered.”
That doesn’t mean Cordish won’t have to adjust to the economy. It has and probably will even more in 2009. But David thinks Cordish can weather this storm, and the company has had no layoffs. “You
have to tighten your belt, keep expenses in line with revenue,” he says.
5) ADJUST FOR THE TIMES.
With cities facing financial pressures and seeing the ratings on their bonds skyrocket, they may be less likely to do deals in the immediate future. But Cordish will still find opportunities with struggling developers and banks. “Historically, our source of new deals has been public sector and team owners,”
Blake says. “Now, we’re seeing an almost equal flow from lenders who have foreclosed and want someone who can put money in and operate.”
Cordish has succeeded with troubled projects before. Look no further than its headquarters to see proof. When Six Flags failed with 601 E. Pratt St., Cordish built the now successful Power Plant. It repeated this formula in Louisville, taking over a dilapidated mall that The Oxford Group failed to redevelop. “They’ve been able to jump into situations that others didn’t find attractive and have a knack for making those things work,” Matthews says.
And those deals aren’t just limited to development. In the gaming arena, Cordish took over the Tropicana Atlantic City Casino and Resort from its conservator, the New Jersey Casino Control Commission, after its original owner, Tropicana Entertainment, filed for Chapter 11 bankruptcy protection. “We’re starting to see some intriguing opportunities that are driven by capital constraints,” Blake says. “We’re seeing opportunities across all of the divisions of the company.”
David thinks the company’s challenge won’t be getting projects but determining which are worth pursuing—and which aren’t. In the past, it’s taken a hard line with cities pushing projects that weren’t
feasible. “We had that discipline with the public sector,” David says. “[Now] we’ll have to impose it on banks.”
