In May 2006, two longstanding and respected companies merged. Grand Real Estate joined Taatjes & Tol to form NAI West Michigan, a full-service commercial real estate firm that became affiliated with the NAI Global network.
But NAI WM found itself in a profoundly changed real estate marketplace not long after it opened its doors.
At the time of the merger, the local real estate market wasn’t setting many sales records but it was somewhat stable and offering opportunities for the future. That began to change the next year when a slew of bad subprime mortgages and a worsening economy took the housing market down. Then, just a year later, things got worse when Wall Street was brought to its knees by the bundled mortgages it sold. Analysts said the commercial market would be next to be swamped with steeply falling property values and a wave of foreclosure notices.
CQ sat down with three of the firm’s seven partners — Dave Smies, Doug Taatjes and Jim Decker — to learn how a relative newcomer to the local commercial real estate industry handled the drastic situation the market was in at that time. What follows is a portion of that conversation.
Taatjes, who has been in the industry since 1979, said he has never seen a property-value loss the size of the current decline that started in 2007 when the housing market began its nosedive. “This is brand new stuff, and for the sophisticated guys who purchased hard assets, which everybody has believed in all these years, it is a different game,” said Taatjes, who was named by the Commercial Alliance of Realtors as its 2010 Realtor of the Year.
Decker, the firm’s president, said the value loss has been so steep that the appraisal process has had to change; appraisers can’t look to the past anymore for a value figure and then add an inflation number to set a property’s value. “None of that is of any benefit anymore. The past is not the predicted future, in terms of what the value of real estate is. The whole real estate appraisal has changed. You can’t use the past anymore,” said Decker, who joined Taatjes & Tol in 2000.
Taatjes said he remembered a meeting the NAI WM partners held two years ago. The main topic discussed was the property losses that owners had incurred. Their values, he said, had fallen then by as much as 30 percent. “We were hearing that over and over again. We, I think, as a group were able to just talk each other into the realities of what happened in the market and make some adjustments in our game plan,” he said.
Only using real-time market information was one of those adjustments. Taatjes said the firm decided that any data prior to September 2008, the month of the meeting, was considered to be invalid. Decker said the firm also made adjustments to its operating expenses and then had to decipher what the realism and certainty was of value and lending in an upside-down market, and then share what they had with their clients. Even though they were able to do that, it wasn’t easy, because many of their clients were shocked and confused by what had happened and weren’t in the best frame of mind to hear about the new reality.
“We needed to quickly, in our best judgment and using everybody’s experiences, figure out what are the realities of that marketplace and then bring that information to our clients. That all sounds very simple,” said Decker. “But put yourself in the shoes of someone who has got $2 million invested in a building that they just built three or four years ago, and history said it was going to increase in value. Now they need to refinance that building, and they suddenly find out it’s worth 70 percent of what it was. Then they wonder what their lender is going to do with the mortgage on the property. We had clients come to us and ask, ‘What do we do?’” said Decker.
At the same time, Decker said the partners and agents had to discover what the new opportunities were in a dramatically changed market. What they found was an opportunity to manage the properties that lenders foreclosed on because banks didn’t want to be in that business. “We actually added staff to grow that property management area,” said Decker. “You just can’t, in this business, react. You need to lead. The adjusting never ends.”
But the firm’s intangibles were not adjusted because they make up the company’s core, regardless of the market’s condition. For instance, Smies said that NAI WM employs a conservative approach to what it does so risk for clients is minimized. During the market’s turmoil, he pointed out that the firm’s credibility with its customers remained solid and its recently established reputation and track record weren’t damaged.
“These are the times when people in our industry will do just about anything to survive and they compromise different things. That hasn’t happened here. It’s been a joy for me to be involved in how we pulled together and talked about how do we get through versus watching your backside getting through it,” he said.
Smies also said NAI WM has continued to work hard to understand the needs of unique entrepreneurs and has strived to help them get through the real estate process. He said the firm has accomplished that by building a trusting relationship based on integrity. “I feel that with the group we have, together we can get in a room and help each other understand that (process),” said Smies, who has been in the business for 27 years and started Grand Real Estate in 1982.
Contrary to what some might think, Smies said it has been easier to explain the reality of the new real estate market to a younger entrepreneur than to a more sophisticated one because the older business person hangs on to a notion of property value that no longer applies. “Third parties are coming in and telling them that their valuation could be diminished and they have no control over that,” he said.
Taatjes said the firm also hasn’t wavered from its team approach, which is emphasized by the fact that no one at NAI WM has a private office, and that includes the partners. He also said everyone at the firm has personal values that reflect their strong Christian beliefs. Taatjes even indicated that a touch of divine intervention played a role in the merger. He and Bob Tol’s firm’s office was on the second floor of the building that NAI WM currently occupies at 100 Grandville Ave. SW, and Taatjes said the ground-floor space suddenly became available when he and Smies agreed to merge.
The merger came about when a representative of NAI Global first approached Taatjes about joining the network. Taatjes then contacted Smies, and Smies agreed to fold Grand into the new firm. Today, NAI has 22 licensed agents who work in the office, industrial, retail, multi-family, property investment and property management fields, along with eight staff members. Rod Alderink, Tom Kilgore, Kurt Kunst and Bill Tyson also are partners in the company.
With the firm’s five-year anniversary only about six months away, CQ asked if the merger was the right thing to do considering the state of the market. Without hesitating, Taatjes and Smies said, “Absolutely.” Then Decker smiled and said, “I thought things were good at Taatjes & Tol, but it’s better at NAI.”