The Right Place

He's also seen a lot of growth in the real estate industry.

A brief history of real estate by Doug Crocker
By Sally Duros
Credit: The Chicago Sun-Times -COPYRIGHT- © 2006 Chicago Sun-Times. All rights reserved. Reproduction prohibited.

Doug Crocker has made buckets of money riding real estate
investments through ups and through downs, and he's seen four
recessions. But what really sticks in his memory is the pegboard.

"We used to keep rent records on what was called the 'old pegboard system,' " Crocker says in his exuberant and forceful way. "You're a resident in 1-A, you got a piece of paper. If a piece of paper is on the pegboard, you didn't pay your rent. If a piece of paper is off the pegboard, you paid your rent. I'm serious. That's the way it was done.

"Real estate in those days was really controlled by thousands of people," Crocker says. "A family might own a four-flat, and they live in the bottom, and renting out the top, and they're in the real estate industry."

A Harvard graduate with more than 30 years experience in real estate, Crocker was the CEO of Equity Residential Properties Inc., the largest apartment Real Estate Investment Trust in the country. Currently a founding sponsor of the Real Estate Center at DePaul University and an executive in residence in DePaul's Finance Department, Crocker, who retired in 2003, is living out his dream of creating new standards of professionalism in the real estate industry.

"I want to elevate the real estate industry. The more professional they are, the higher the industry is regarded in the world," Crocker says. "You don't have to go back more than a decade to find that the real estate industry was basically considered a bunch of sharpshooters, gunslingers, hotshots, screw the banks, screw the investors, unscrupulous types of people.

"I may be Don Quixote, . . . I don't care. I'm going to tilt against the windmills. With awareness and professionalism through transparency, which is what the public market really needs, we can create an industry which will be significantly more acceptable from an investor's standpoint than it has been in the past."

Last summer, Crocker tilted $2 million in the direction of the Real Estate Center at DePaul University to create a director's seat, a position filled by Susanne Cannon.

The Real Estate Center offers classes in professional real estate management and finance. Offerings include traditional academic programs through DePaul's finance department, as well as continuing education. Students can choose from among three degree programs -- an undergraduate major, an MBA concentration, and a master of science in real estate -- to prepare students for careers in a multitude of careers.

During his career, Crocker worked hands-on creating new technology and standards for operational management.

"I grew up in an era where there was literally no technology, no training," Crocker says. "Your training was all received through mentoring, and I happen to have been very lucky, and I was mentored by some extraordinarily bright and successful people." These include controversial real estate giant Harry Helmsley.

Crocker's early work experiences got him thinking that real estate was a major piece of the GNP -- much bigger then that it is today -- at that point in time.

"I knew you couldn't take care of 56,000 apartments with information by Pony Express coming in three months later," Crocker says. "So we built a very sophisticated management system and management information systems."

As efficiencies grew and success continued, Crocker was looking to hand things off to his capable staffers, but "there was still nothing really available at that particular point in time where you could say to your first lieutenant, 'Go to Wharton and go to the real estate school and come back and now you're my guy in charge of operations.'

"And it was clear to me that this was what was needed in the industry," Crocker says.

To hear Crocker tell it, some kind of magic propelled him to the top when he was working with Arthur Cohen of Arlen Realty and Development, in charge of operations for $2 billion worth of real estate.

"If you put it in today's terms," Crocker says, "it would probably be $200 billion worth of real estate. Somehow I floated to the top, and I was 32 or something like that, and I'm working for the CEO of the company. And I'm his left hand, his right hand, and his in-between hand."

From an operational standpoint, the company was public. Information had to be delivered to shareholders fairly quickly. They had grown way past the peg board.

"We had a $200 million rent roll from thousands of tenants. I call up my controller, 'What's our delinquencies?' Five days later I get a guesstimate. I said, 'What are you talking about? How come we can't get this information?'

"We needed information quickly. We had to build a better mousetrap to collect and monitor and oversee all of this stuff."

Crocker set about creating new systems.

Shortly thereafter Crocker went to work for himself. "It was a wonderful time," Crocker says. "We made a lot of money."

But then, in 1989, the S&L crisis hit, and, Crocker says, everybody in real estate became a bad guy.

"The banking industry was shut down, literally closed down," Crocker says. "It was a horrible period. There was a massive liquidity crisis, which just drove real estate prices down by 60 and 70 and 80 percent depending on what sections of the country you were in." But for Crocker the horror didn't last too long.

"So I've gotten through all of my problems and I say, 'Oh, my, look at this. What an opportunity.' At that point I've been through four recessions in my life, but this is incredible. I can buy something for 20 cents on the dollar, 30 cents on the dollar, and all I've got to do is find the money."

Crocker went looking for partners and he found old friend, Sam Zell, who wanted to take his company public.

"Sam had a real ragtag group of apartments, and Barry Sternlicht currently of Starwood Hotels had accumulated various positions. We took Barry's 6,000 apartments and Sam's 15,000 apartments and put them together, and off into the public we went in August of 1993," Crocker says. "I knew this was a once in a lifetime event.

"The sun was coming up," Crocker says. "The cost of building was 100 percent more than the cost of buying. A unit that would cost $50,000 to build you could buy at $20,000 or $25,000 a unit.

"We hadn't stopped producing, and we hadn't stopped immigrating," Crocker says. "So we had 2-million-plus people coming through the system. They're either all going to be unemployed, and we're going to have bread lines, or they're going to get employment, and they're going to want a place to live. Well, guess what? They're going to live in my apartments.

"There were just too many things that were perfectly aligned," he says. "It was just a question of how much money you were going to make. We put the accelerator down and raised money as fast we could." In 1995 property values in the multi-family sector started to rise at about one percent a month, so Equity Residential began an aggressive series of mergers to get on top of the tidal wave. Six followed in rapid succession.

"Early in 1998 the game was over," Crocker says. It was around then that the stock market fell. "In 2000, real estate started to really take off," Crocker says. "The smart, smart people were in there in late 1999 and early 2000. If you look at the REIT track record starting in 2000 to 2001 versus all the other markets, there's nothing that comes close to it."

From Crocker's perspective the lessons of the past apply to today. "Things are correcting now as they always do," Crocker says."Is there an excess of condos in Chicago? Yes, there is an excess. So if you're in the market to buy today, have a nice time. You have a good feast on the developers' buffet table. You'll get a good deal."

sduros@suntimes.com