“Failure is not fatal, but failure to change might be.”
— John Wooden, former UCLA coach and Basketball Hall of Famer
As often is the case, the wisdom of the top performers in the sports world is applicable in the business world. John Wooden, the legendary coach of the UCLA Bruins basketball team whose teams won 10 NCAA National Championships in a 12-year span, was onto something with the above quote.
Indeed, the business archives are littered with the remains of failed ventures because their entrepreneurs stubbornly clung to a business model or approach when the market shifted around them.
Such is not the case for longtime friends and business partners Paul Skalny and Todd and Scott Arterburn, who avoided failure with a strategic shift of focus.
Skalny is the managing partner of Columbia law firm Davis, Agnor, Rapaport & Skalny, and the Arterburn brothers are the owners of The Rainmaker Group, which provides real estate development and general contracting services on commercial, residential and golf course development projects, including Howard County’s highly-acclaimed Timbers at Troy Golf Course.
In late 2007, near the beginning of the recession, these business veterans collaborated to develop Class A office condominium space in a new building in Elkridge. They optimistically surmised that the economic downturn would last a year or so and then, upon its rebound, their condo spaces would be well suited for sale.
So much for optimism.
A Different Approach
The recession turned out to be deeper and longer than any downturn in several generations. Banks significantly curtailed lending on commercial real estate, business expansion screeched to a halt and business owners became increasingly hesitant to buy office space.
Moreover, as businesses downsized and closed, vacancy rates ballooned, which drove down rental rates and made existing landlords more willing to make deals.
In turn, office condo sales in the region were practically nonexistent. “With each passing month, we became more and more concerned that our investment would fail,” said Todd Arterburn, “and then we swallowed our pride and realized that we needed to take a different approach to succeed.”
That new approach had to match the market conditions. “If business owners were increasingly risk-averse, then we needed a product with less risk and more flexibility,” said Skalny.
Executive office suites were the ideal fit. So, beginning in mid-2010, the partners began converting one of their four floors. Soon, without any real marketing efforts, that floor was 75% occupied. The partners could see that they were onto something good, so they built out two of the remaining three floors.
Know the Market
The trio’s banker, Mary Ann Scully, president and CEO of Howard Bank, is pleased with the results.
“Banks are famous for focusing on the Big C’s of credit, including capital, capacity (or cash flow), collateral and character,” said Scully. “When we enthusiastically took on the financing for Roosevelt Commons — with a downturn looming if not quite in sight — it was because we knew we were supporting three professionals who understand these requirements as well as we do.
“Todd, Scott, and Paul have never come to the bank with a plea; instead, they have always come with an acceptance of ownership’s first responsibility, which is to own a plan of how to generate cash flow and shore up collateral values,” she said.
“When necessary, they changed their plans while always communicating, informing, seeking feedback and advice and consistently adapting. And from time immemorial, the survival of the fittest is really about adaptation,” said Scully.
Plenty of Options
The executive office suites, branded as BW Offices at Roosevelt Commons in a nod to the building’s location within the Baltimore-Washington Corridor, were strategically priced at the low end of the price spectrum.
“We recognized that financial pressures remain in the market, so we have priced the suites aggressively, while still delivering high-end fixtures, such as granite countertops in the kitchenettes, complimentary FiOS service and solid mahogany fluted-glass doors,” said Todd Arterburn. Suites range from small offices at a low of $495 to larger suites with private terraces at $1,800 per month.
“We want to market to a broad range of tenants, so we tried to create plenty of options in size and price,” said Skalny. “So far, that has worked. We have startups of one to two entrepreneurs, medical practitioners and national companies who need a local presence in the Corridor.”
The partnership is also offering virtual office services for people who want a business address and access to conference rooms without a physical office.
Failure Only Temporary for Elkridge Developers
Originally posted on Business Monthly on June 6, 2011