CRE SPECIAL REPORT A year after it split from Nusbaum, new CRE group takes stock

Article Courtesy of Inside Business

By Lydia Wheeler

A year has passed since Wendell Franklin, his son Taylor Franklin and Tom Johnston split from S.L. Nusbaum Realty Co., where they held executive titles, to form their own commercial real estate firm – the Franklin Johnston Group.

Taylor Franklin and Tom JohnstonThe break-up, sources said then, was messy and understandably awkward at first. The new firm, which also drew Steve Cooper, a vice president of development and acquisition, a construction manager, a few administrative assistants and a couple of property managers away from the 108-year-old company, opened a temporary office one floor above its former partners in Norfolk’s Wells Fargo Tower.

About two months later, in May 2013, the company moved to an office suite on the third floor of the Sidney Kellam Office Building, at the corner of Pacific Avenue and 32nd Street, in Virginia Beach. Now, as the group finalizes plans to expand the office by 1,000 square feet in September and hire additional employees, members of the C-suite say they are focusing on the future.

The city of Virginia Beach recently approved the rezoning of land in the Princess Anne Commons area, giving the Franklin Johnston Group the go-ahead to move forward on plans to build Southern Pines Apartments. The 240 luxury units are expected to open in the fall of 2015 and amenities will include resort-style pools, cabanas and a two-lane bowling alley. Rental rates for the mix of one-, two- and three-bedroom apartments will range from $1,000 to $1,500 a month.

Here, Chief Operating Officer Taylor Franklin and Chief Development Officer Thomas Johnston talk about why they formed their own company, where the firm is headed and new projects under way.

On why they decided to form their own firm

Johnston: They [S.L. Nusbaum] are a large commercial development and management company that has a wide array of different business interests in commercial real estate. And we wanted to form a company that focused specifically on apartment development and management. That wasn’t one of their strategic goals, so that’s why we did it.

Creating their own legacies

Franklin: That’s definitely part of it. Tom and I are partners, as well as my dad, and we both wanted kind of a legacy for our families, which is definitely part of it, but as Tom mentioned before, we wanted our focus to be more on the apartment development and management side.

On staff

Franklin: We have 26 in the corporate office and on any given day, 175 in the field and we’re growing.

How the company is growing

Johnston: We’re developing two or three new apartment communities a year and as we develop those we obviously have to bring on new people to manage them. So far, we have managed only properties that we own. We’re considering managing for other owners of apartment communities, we just haven’t gotten to that point yet. There could be some growth from third-party management accounts, in essence other owners who like the way we manage, but for the most part it’s organic through development.

Their first projects

Johnston: My relationship with Taylor’s dad Wendell goes back 22 years and so we always developed these properties with what we called single-purpose entities, limited liability companies or partnerships, and I believe Wendell’s first deal was the Oaks of Dunlop Farms Apartments in 1988. It’s south of Richmond in Colonial Heights. It’s 144 units. I got together with Wendell in 1993. Since then he and I and later Taylor have developed over 30 apartment communities. That’s really our management portfolio, all the communities we developed over the years. We only sold a few.

On developing properties at S.L. Nusbaum

Johnston: It’s a difficult arrangement to explain because I know of no other like it. Basically we were partners in S.L. Nusbaum, but never employees. I was never an employee.

Franklin: Nor was I.

Johnston: We basically developed these properties through these limited liability companies and controlled them and S.L. Nusbaum got a piece of ownership in exchange for covering some of our administrative costs of doing business in their office. So we were a company within a company. We were pretty autonomous even when we were there, we just decided to form our own company and do it within our own offices rather than S.L. Nusbaum’s.

Current projects

Franklin: We have one we just opened in Norfolk called the Pointe at Pickett Farms. The clubhouse is now open and the first building will open Aug. 1. It’s phase one of a two- phase project of 300 units. The first phase is 120 and the second phase will be under construction in early September. It’s a 23-acre site in Norfolk that was the last working farm in Norfolk. It’s off Virginia Beach Boulevard and Raby Road. We’ve got 58 leased.

Johnston: We haven’t even opened the door for occupancy yet, but we are leasing. We generate a bunch of interest and we’ve actually leased 58 apartments without them being able to see where they are going to live yet, so it’s pretty strong. Usually prospective residents need to kick the tire in order to sign the lease.

Again, Franklin Johnston Group manages the assets. The limited liability companies, of which there is one for each development, own them.

What makes the apartment buildings different from the competition?

Johnston: Specifically it’s the attention to detail with regard to what the residents really want and what they want to pay for.

Franklin: We have a two-lane bowling alley in Spring Water, 252 units at the corner of Northampton Boulevard and Diamond Springs Road in Virginia Beach. We have infinity-style pools, top-of-the-line fitness facilities, tanning beds, massage rooms. We have walking trails, dog parks, and in the units themselves, tile floors, granite countertops and 9-foot ceilings.

Johnston: We try to create the impression of living within a resort atmosphere.

Rental rates

Franklin: We build two types of housing – market-rate luxury deals and affordable housing deals with rents that are very affordable, between $600 and $950 a month. Some of our upper ends push $1,600 to $1,700 a month.

Johnston: And our geographic portfolio is D.C. to the North Carolina line, so those markets have different rent structures depending on where we’re developing. D.C. is much more expensive to develop and to rent.

On oversaturating the marketplace

Johnston: Some submarkets in our region and other regions will be oversupplied. There’s no doubt about it. Personally, I think the Greenbrier area of Chesapeake is approaching oversupply as well as downtown Norfolk and a few other submarkets that aren’t quite as dangerous at this point. We select our sites based upon job growth in the area and barriers to entry, which means barriers to people coming in and building and competing around us, because we’re long-term holders of our apartments. We’re not developers who develop, lease-up and sell. Those folks have a shorter window to manage risk and they can build in overbuilt markets and sometimes come out OK.

Biggest challenge of forming your own firm

Franklin: I have a list in my office for you. But putting the right staff together is one of the most important parts. To find that right fit with Tom and I. Staffing is always the biggest challenge. One of the cool things we did after the dust settled a little in October, we got together our executive team, which is about 16 of us, and went on a little retreat together and we created our core values and mission statement for the company.

Moving on

Johnston: It’s a real exciting time for us. We’re focused on positive growth. The whole S.L. Nusbaum thing is something that we’re moving on from and something we don’t want to revisit a lot.

Franklin: We’ve all tried to put it behind us, I think on both sides.

Johnston: Things happen. This is the United States of America and we’re moving on in a positive, productive way.

Franklin: Splits are never fun. It is what it is. We’d like to put it behind us.

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