ON THE LEVEL: Clay Grubb: Taking Grubb Properties to new markets

By: Eric Dinkins//December 8, 2014//

ON THE LEVEL: Clay Grubb: Taking Grubb Properties to new markets

By: Eric Dinkins//December 8, 2014//

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ClayGrubb.webClay Grubb has taken his family’s business in a new direction since he took over as president in 2001, turning Grubb Properties into an employee-owned company and expanding into new markets in the Southeast.

The developer, which specializes in multifamily and commercial properties, is headquartered in Charlotte. Although the majority of Grubb’s assets are in North Carolina, the company has its sights set on pursuing other up-and-coming development areas (read on to find out which ones).

The company is currently working with Novare Group and Batson-Cook Development Co. to develop the 24-story SkyHouse Uptown apartment tower on North Tryon Street, which is planned to open early next year.

Grubb has also managed to increase his public involvement since 2001; he was on the board of directors for Charlotte’s Freedom School Partners organization, a summer reading program for students in kindergarten through eighth grade, for twelve years, and is now on the board of directors of the national Children’s Defense Fund organization, which sponsors the freedom school program.

Grubb loves the outdoors, and takes advantage of Charlotte’s National Whitewater Center to go mountain biking and hiking. He added another activity to his long list of recreational hobbies when he took a stab at surfing during a recent trip to Los Angeles.

Grubb is soft-spoken and laid-back, but it’s clear he’s focused on moving Grubb Properties forward as development continues to bounce back since the Great Recession.

How did you get into the development business?

Real estate has been in our family’s blood. Grubb Properties was started 51 years ago, and one of the primary businesses we had was building affordable for-sale housing in red-line neighborhoods. We had a division that would provide financing for folks who didn’t qualify purely because the neighborhood they were living in, or because of their race. At age 12 I was put in charge of collection for about 300 mortgages, and I did that for four years before I went off to school, and then continued just to work in the business. After graduating law school, I moved to Charlotte in 1993 and opened our Charlotte office. And then about 90 days after 9/11 I took over running the entire company.

Why the change in company operations?

That was part of the transition when I took over. I really wanted to formalize the process and really run it like a business. We established a board of directors that was majority non-Grubb-family members, and then we created an in-perpetuity evergreen fund to invest in real estate that’s primarily family money. We have a lot of family members that are still invested in all the various real estate opportunities, but as far as the operating company itself, we decided you have to be active in the business to be an owner in the company.

What are the advantages and disadvantages of running an employee-owned company?

The biggest advantage is really the team aspect that we’ve created in our culture. Everybody participates the same in each project, so if you have some ownership in one, you’ve got the same ownership in all of them. We stay focused on where we can add the most value, and our goal is always to maximize value for our investors. We take that role very seriously and it allows us to really avoid the egos and what I’ll call the bureaucracy and so forth that may come with….basically it gets rid of the politics, or significantly reduces it. I don’t know if you ever completely get rid of it. You know, everybody feels very open to an environment when people feel like they won’t be prosecuted for being open and honest.

How does it feel to celebrate more than 50 years?

We were very thankful after 2008 that we were able to see 50 years. It was a pretty scary time. We want to be around for another 50. It’s nice to have a history, especially one that was built on compassion, and we try to honor that and incorporate that into where we are today and what we do going forward.

Do you see an endpoint for apartment growth?

For being in the apartment business, this is the golden decade of the century. Certainly the golden decade since World War II, but I wasn’t around for that decade so I don’t know exactly how to compare. But you’ve got more 22-year-olds than you’ve ever had in the United States. Some are living with mom and dad, but eventually they’re going to create households, and as they create households they’re creating a demand for housing. Historically, 75 percent of every household under 30 rents, and after the housing bust, you’re just reinforcing that tradition, so you really have unprecedented pent-up demand for rental housing, which should continue for the foreseeable future. Harvard just came out with a study where they predict it will be 10 years before we even get to equilibrium, where supply and demand are balanced.

How do you think the demand for apartments is affecting home buyers?

I don’t think the availability of apartments has any significant impact on the demand for buying houses. There are two primary issues with homeownership right now. One is, your primary household that wants to own a home is the baby bust, and there’s not a whole lot of those people out there. The families with kids right now are the smallest portion. If you take the demographics of the United States, there are these huge barbells, those being the baby boom and the children of the baby boom, and that’s where the bulk of the population is, and those households aren’t really interested in homeownership. Two, Time magazine recently had a picture of Ben Bernanke with a quote that said, ‘I tried to get a home loan and I was rejected.’ So whenever the former Federal Reserve chairman gets turned down for a home loan, you know there’s a real impact on people’s ability to buy homes. You can’t get a home loan right now; it’s so hard to get a home loan that it’s ridiculous, and that fuels even more demand for apartments.

How has Charlotte’s light rail transit affected development?

I can’t imagine what Charlotte would have looked like if had we not built the south line. I don’t know the count, but we have to be pushing close to 10,000 apartment units along the south line. That’s 10,000 households that wouldn’t be here if we hadn’t built that, or at least 75 percent of them wouldn’t be here, and that’s had a huge impact on Charlotte’s ability to grow. You know, no one wants to be stuck in traffic for 45 minutes in the morning and 45 minutes in the evening. Life is too short to spend 10 hours a week stuck in traffic, and I think this generation realized that, and I think the average American realizes that. People aren’t going to live in cities that aren’t dealing with congestion, and making the city more livable.

Why branch out to other Southeast cities following the Great Recession?

We go down to Jackson, Miss., up to Richmond, Va., out to Nashville, Tenn., and out to Chattanooga, Tenn. It’s nice to be diversified. We had the bulk of our assets in Charlotte in 2008, and that was a really painful experience, not one I want to repeat. And there have been a lot of opportunities. We’re very selective because we’re fiduciaries of people’s money and we typically will raise funds to own real estate long term, and folks invest as little as $25,000 with us to as much as $25 million, so we have to make sure we’re securing the best opportunities for them. Right now, on our apartment acquisition side, we’re typically looking at 125 opportunities for every one that we secure. So we have to go to a lot of markets to do that, to make sure we’re finding the very best investment opportunities.

It sounds like you do a lot of traveling. What differences do you notice between Charlotte and the other cities you mentioned?

Everybody gets mad at me for mentioning Mississippi, like, ‘Don’t make people think we’re going to take their money to Mississippi.’ But in Jackson, Miss., we actually have some business with the hospital there. It’s a little bit different because it’s not as market reliant as what our typical investment is. But Atlanta was way behind the curve, and Raleigh and Charlotte were well ahead of Atlanta, and Raleigh is arguably well ahead of Charlotte. But you take a town like Greenville, S.C. The money they have invested in that downtown is now paying huge dividends and the desirability of downtown Greenville is unbelievable. We’re actually breaking ground next month on our first urban, multifamily deal in downtown Greenville. We’re really excited about that. We’re typically looking for markets in which the municipalities are reinvesting in the infrastructure, and making the smart investments that are attracting this conscientious demographic of today. When we build new product, it’s exclusively designed to cater to the millennial generation, and Chattanooga was a prime example. We went into a town where there’s only 10,000 apartment units and had seen little to no rent growth for 10 years. But you realize Volkswagen is going to come in and change that market completely. So we went in, bought two apartment deals for $5.9 million, and 18 months later we ended up selling them for $11 million. Our intent was to own them long term, but sometimes that happens.

How do you approach going into new markets?

Our preference is to go into a new market via multifamily more so than office, because households aren’t that dissimilar from market to market, but businesses can be dramatically different. And there’s just a lot more risk in the office business. Some of my board members say, ‘The office guys live better; the apartment guys sleep better.’

How has expanding into new markets changed your role?

Well, my average day starts by dropping my daughter off at the bus stop at 7:15 every morning. But I travel a lot more. I used to just travel back and forth to Raleigh and now I go to Atlanta, Richmond, Greenville and New York a fair amount. And I’m actually on a board in Washington, D.C.

Which board?

I’m on the Children’s Defense Fund board. The Freedom School Partners in Charlotte is affiliated with them, and I was on that board for about 12 years, and chaired it for almost four. Charlotte’s really become the model for the nation in running these Freedom Schools, and I’ve been trying to help other cities duplicate what Charlotte’s doing because we’re the largest provider of Freedom Schools in the country. It’s fun. It’s really fun.


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