FEATURE ARTICLE, MAY 2004

MAKING IT THROUGH
For employees of Donahue Schriber, 2003 was a bittersweet year that brought huge success and a constant reminder that things are now different.
Randall Shearin

For Donahue Schriber, 2003 was one of the company’s best years financially, but one of the toughest emotionally. On December 31, 2002, the Costa Mesa, California-based firm’s longstanding chairman, Dan Donahue, passed away following heart surgery. Donahue, along with the company’s CEO and co-founder, Tom Schriber, had been a daily presence and a visionary of the company. His departure left a huge void that some in the industry thought would never be filled. In some ways, says Schriber, Donahue’s shoes will never be filled. But the company never lost pace.

Western Real Estate Business recently met with Schriber and newly-appointed company President and COO Pat Donahue to discuss the company’s latest chapter and future plans.

Del Mar Highlands Town Center in San Diego County, California, successfully mixes national and regional tenants that are a strong draw from an affluent neighborhood. © 2003 RMA Photography

What kept Donahue Schriber moving during the transition period was a pre-established succession plan. That plan called for Tom Schriber to become chairman, in addition to CEO, and for Pat Donahue, executive vice president of the company and Dan’s brother, to assume the title of president and chief operating officer. Together, Pat Donahue and Tom Schriber outlined a new plan for top management. They also continued to involve Donahue Schriber’s executive committee in every decision. This ensured confidence among the company’s 135-plus employees.

“It was important for our team members to understand where they fit into the picture long-term,” says Schriber. “Our board was confident, our retailers understood that this was a bigger company than Dan and me. That was always our goal. The reality was that people like Pat and others who had been with us for a number of years were known in the industry. Our institutional investors already knew that we had financial stability. We moved right through this unfortunate event without any major interruptions. There was never a question that we wouldn’t continue to move the company forward.”

The transition of Pat Donahue from executive vice president of operations to president of the company went very smoothly. The larger concern was who would fill Pat’s role as head of operations for the company’s existing portfolio. Michele Babcock, another company veteran, was promoted to take Pat’s former job.

After all the roles were set, it was left to Schriber and Donahue to set the tone of unity in a company meeting early in 2003. Donahue said to them, “If we stick together, we’re going to be fine.” Those words, more than any others, stood out to employees.

“We’ve always had a team culture at Donahue Schriber,” says Pat Donahue. “It was our position in crises like this that people either pull apart or pull together. Our team has done a magnificent job of sticking together and continuing on the course that Dan and Tom set for us years ago. We are really only missing one thing and that’s Dan.”

The last 2 years have been record-breaking for Donahue Schriber. The company has leased more space and has more projects on its boards than ever before. The company currently has 12 projects in development, totaling about 2 million square feet and exceeding $250 million in value. Six of the projects underway are grocery-anchored shopping centers. Four are community centers, all of which are anchored by Kohl’s. One is a small, drugstore-anchored strip center across from an existing larger Donahue Schriber property in Las Vegas, and one is a large, freestanding Lowe’s Home Improvement Center. All but two of the projects are located in California.

“The projects eased the grief and helped heal the company this year,” says Schriber.”

For the past 5 years, Donahue Schriber has continued its efforts to become a dominant force in neighborhood and community centers throughout the Golden State. Since forming a private UPREIT in 1997, the company has made an effort to balance its acquisitions evenly with new development. It’s third-party management business has continued to grow as well. The company also continues to expand its presence in Northern California, where one-third of its portfolio is now located, and other growth areas like Arizona and Nevada.

In 2003, the company strengthened its commitment to the Arizona market by putting a development team on the ground in Arizona. Based in Phoenix, Charlie Hickcox heads up development efforts throughout Arizona for Donahue Schriber. In a short period of time, the company expects to add a number of developments to its existing portfolio there. Donahue Schriber is also seeking opportunities in the Denver, Salt Lake City and Seattle markets.

Long known for its development of regional malls, the company sold its interest in the Glendale Galleria in December 2002. One of the top regional malls in the Los Angeles areas for years, Glendale was the last remaining regional mall in Donahue Schriber’s portfolio of predominantly neighborhood and power centers. With cap rates on top mall properties at all time lows, the company had made the decision to sell, and General Growth quickly snatched up Glendale Galleria.

Glendale Galleria wasn’t the only asset that Donahue Schriber sold recently. It estimates that from 2003 through 2004 it will sell $150 million in assets. The company’s strategy is to redeploy the capital from the sales into new development and acquisitions yielding higher returns.

Donahue Schriber continues to change the way it develops neighborhood centers. “Many of the tricks of the trade we learned from our regional mall experience translate to a smaller footprint,” says Schriber. “We’re bringing those things to our [community center] projects, whether we acquire and rehab them, or whether we develop them from the ground up.”

The company’s Park Place shopping center, in the Sacramento suburb of Natomas, California, is one center that is exemplary of Donahue Schriber’s magic touch. Phase I was a 100,000-square-foot Raley’s-anchored center. The second phase added big box retailers like Kohl’s, Borders Books, Marshalls and a number of restaurants. Donahue Schriber integrated the two properties together to create a 382,000-square-foot community center which addresses the need for necessity-based retail in the area.

The company’s market capitalization is now over $1.1 billion — a far cry from 1997 when it launched the private REIT with a market cap of $125 million. Institutional investors in the UPREIT include New York State Teachers Pension Fund, Dutch Metal Workers Pension Fund and JPMorgan Strategic Fund. All of these funds have a long-term vision of growth. Donahue Schriber currently owns 53 shopping centers, consisting of 6 million square feet, in California, Arizona and Nevada. With the pace the company has set over the last 3 years, it is scheduled to undertake $100 million in new development or acquisition in 2004. Size is not Donahue Schriber’s strategy, though. It has also never been the company’s style. Instead, the company has concentrated on the quality of its portfolio, focusing on a center’s ability to be the most competitive center in its respective trade area.

The company’s leasing records have also been broken over the past 2 years. In both the company’s properties and its third-party managed properties, occupancy is at an all time high at more than 97 percent. The company has renewed about 85 percent of existing tenants in the 500,000 square feet per year of turnover in the portfolio. Same store rental growth continues to exceed 10 percent.

Guiding Donahue Schriber through its transition and its decision-making process over the last year were two important factors: the company’s executive committee and its board of directors. The executive committee consists of Tom Schriber and Pat Donahue, plus CFO Larry Casey, Mark Whitfield, executive vice president of development and acquisitions, and Michele Babcock, executive vice president of operations. The executive committee must approve any investment the company makes, as well as any development that the company wants to undertake. After executive committee approval, the decision goes through the company’s board of directors.

“So far, our score with the board of directors is 100 percent,” says Schriber. “In 2004, we are looking forward to our brisk development pace and continued success of our existing portfolio. My longtime business partner would be proud of the strength of the company.”

©2004 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.