Do the Right Thing; The Wallick Companies Honors Commitments

By Miriam Lupkin
Multifamily Executive I March 15, 2002

It's not every day that executives of a failing business will pick up where their former company left off, but that's exactly how The Wallick Companies was formed.

In 1966, the late Jack Wallick and Sanford (Sandy) Goldston worked for Kesk Inc., a real estate development and construction firm in New Orleans that got into financial trouble and went bankrupt.

At the time, the company had about 10 projects under construction in the Ohio area. In order to finish those jobs, the two men formed a company with the help of the lenders and bonding companies with whom they had worked on those deals.

When the company began, it was primarily a general contractor with the bulk of its work being deals with some of the lenders that it helped bail out. It now manages more than 130 multifamily communities with 11,500 units. The Wallick Companies, based in Columbus, Ohio, consists of Wallick Construction Co., Wallick-Hendy Properties L.L.C.,Partnership Equities Inc., TA-Wallick Construction L.L.C.,Partnership Equities Southwest L.L.C. and Wallick Construction Southeast L.L.C.

By forming their own company - which specializes in the development and management of affordable housing - Wallick and Goldston were able to make everyone with whom they had done business financially whole, says Goldston, the chairman. "No one lost anything, and we started a new business."

The original philosophy of the company has stuck with its employees throughout its business transactions: Treat people the way you would like to be treated, says the 69-year-old Goldston. For instance, in a project that the company did with National Church Residences (NCR), there was a job change order that the accounting side of NCR didn't know about, says Joe Kasberg, CFO of NCR. As a result, NCR didn't get enough funding from the U.S. Department of Housing and Urban Development (HUD). The company didn't have enough money to pay off The Wallick Companies, so The Wallick Companies absorbed the cost, says Kasberg.

"We built a reputation that said we were honest, that we thought enough about people who worked [with] us to make sure that they made money and that they didn't lose any money," says Goldston. "If we told somebody we were going to do something, we did it. We did contracts with a handshake."

Knowledge and Flexibility

While reliability is an important factor in any successful business, it takes more than honoring your commitments to build a winning real estate company. "They really do go the extra mile to make sure the details are taken care of and that we are apprised of the construction process," says Patrick Higgins, director of communications at NCR.

Because The Wallick Companies builds, owns and manages for its own account, as well as for third-party clients, it knows the operations and finance side of the business. And, it knows what it takes to get it done, says Kasberg. "They are easy to work with because they are people of integrity. When you want to make a change there is no argument."

It's that knowledge and flexibility that has caused Columbus Housing Partnership Inc. to continue to do deals with the Wallick Companies "We use them because not only do they provide good apartment management services, but they have the ability to understand the financial structuring of our transactions which are extraordinarily complex with many layers of financing and many compliance issues," says Amy Klaben, executive director of Columbus Housing. "They understand fair housing and ensure that it's strictly complied with. They understand tax and bond rules. That is very important."

While the company understands how to obtain the financing for complicated deals, it also knows how to deal with neighborhood groups and municipalities who are against the construction of its projects - particularly its affordable housing complexes.

According to Goldston, the easiest way to deal with not-in-my-backyard (NIMBY) groups, is to show them successful complexes which the company built 20 to 30 years ago that are well managed and maintained. "We show them how well-kept these properties are," he says. "The fact that the [residents] don't cause community problems ... puts their minds at ease."

At city council meetings, Goldston has been asked what type of people he was going to put in his units. His response, "If purple people with pink polka dots [need housing], that's who I'm going to put in there. I'm going to put in people that need it."

The company closely reviews each applicant for every apartment complex whether it's low-income, market-rate or luxury housing. The company applies the same basic rules to everybody.

It also applies the same basic construction and quality materials in its buildings. "You'd be hard pressed to look at one of our complexes and say whether or not it's low-income or market-rate, they look identical," says Goldston. "We try to give the same quality and the same things in every community."

An added touch found in its affordable housing projects is social service programs for residents. "The Wallick Companies has helped us implement the coordination necessary with social service agencies," says Klaben. "It's an added level of work."

Some of the more common programs include day care centers, computer training and financial counseling. And the final result, according to NCR's Higgins, is an outstanding project. "The attention to detail is there. They come in on time and on budget. There are no surprises working with them. They know our mission - to build low-income housing - and their product fights the stereotype of what low-income housing looks like," he says.

Low-Income Housing

At about the same time the company started its business, HUD decided that developers could use HUD's financing programs with limited partnerships. "We fell into it. It provided a vehicle that didn't require a great deal of investment on our part," says Goldston.

The program enabled high-income investors to invest money, which The Wallick Companies could in turn use as equity. The investors became limited partners and could use the tax losses and depreciation to shelter income from other investments. And, they could receive a return on their investment by paying less taxes.

The rates of return were usually greater than what the investors could get from other standard investments, says Goldston. Prior to 1969, if you used HUD financing you couldn't use limited partnerships.

This new flexibility enabled The Wallick Companies to make a business out of this program. "We became developers out of necessity. We couldn't find enough third-party general construction work to keep everybody busy. So, we began a development operation," he says.

In 1969, the company started to develop moderate- and low-income housing projects. It was able to take advantage of new HUD programs that were aimed at housing low-income residents. "We became the so-called experts," says Goldston. "Jack Wallick [who died in 1995] was an engineer; he was the builder. I was a CPA. I learned all those programs inside out."

While many developers avoid working with HUD because of its reputation of having a slow response time and a lot of red tape, Jim Carswell, the company's CEO, points out that people who wanted to work with HUD stuck around and learned how to do it. "Yes, it's a government program and, yes, there are bureaucrats," he says. "But there are bureaucrats in every lending organization across the country, whether it be HUD or a bank."

The key, he says, is to build relationships with the people with whom you work. "I don't think it's the programs that are the problems, you work around those. It's the individual relationships with the HUD staff. They are people too. I think some of our people have great relationships with HUD's staff. And that's the reason we do so well with its programs," says Carswell.

Adaptation

Anyone who's been in the real estate business for a while knows that tax laws and HUD programs change periodically; a successful company needs to know how to adapt to those changes.

"In 1985, the HUD Section 8 program was discontinued, so the company responded by expanding into congregate housing using the then new HUD programs for congregate housing, which was a moderate program known as 221(d)4," Goldston says. "We went with what the marketplace had out there for us to do."

In 1986, the Internal Revenue Act eliminated the tax angles that the company used to help finance projects. In addition, the company was faced with a situation where there weren't any Section 8 projects, and congregate housing couldn't be syndicated. So, in 1987, The Wallick Companies built a luxury, high-rise condominium in downtown Columbus. That was the first and only time the company did this type of project. "We went in and did whatever the marketplace needed at that point in time," says Goldston, "but moderate- and low-income housing is our forte."

And, to continue to adapt to the real estate market, the company began working with the Low-Income Housing Tax Credit program in 1988.

"The economic conditions out there haven't affected us in housing," says Goldston. "If they were to affect us in housing a few years from now, we'd look around and see what we could do." But, he points out, "There's been a HUD housing program of some kind since 1937, and there'll be something again."

Expansion

But, the company is not going to wait around for the next great financing program. Instead, it has expanded out of its core market - the Midwest - to the Southeast and Southwest to seek new opportunities with development and construction joint venture companies. This year, it plans to start separate management companies in the Southeast and Southwest.

"Until about four years ago, our philosophy about expansion was to expand out from the Columbus area into the surrounding Midwest and, specifically, in Arizona, in which we had a joint venture operation going [TA-Wallick Construction L.L.C.]," says Goldston. "The Arizona joint venture operation was the first time that we had done anything with another organization or in which anybody who was associated with the company ended up with a portion of the equity in that operation. Thanks to Carswell, we have moved to a philosophy that in order to expand, we had to put good people in those areas [into which] we want to expand and we had to give them a piece of the action as individuals."

For Steven L. Tofel, president of TA-Wallick Construction, becoming The Wallick Companies' first joint venture partner was an easy decision. "They share the same high standards, integrity, consistency and fairness - they are ideal partners," he says. "[Plus,] a lot of people will say they will do the right thing. But when it costs money, that's when people fail. If [The Wallick Companies] makes a mistake, they will correct the problem."

For instance, there was a large beam that held the roof up over a pool that started to split in a large high-rise condo project, says Tofel. "They made good and replaced it. It cost a lot of money, but they came through."

The countless stories of The Wallick Companies coming in on time and on budget, and fulfilling its commitments led Mark Shoemacher to join the company. He is a former employee of the Columbus Housing Authority and now a principal in Partnership Equities Southwest L.L.C., the Southwest development arm of the Wallick Companies.

But Shoemacher also joined the company because "Goldston is extremely knowledgeable and you know when he says something, you can take it to the bank," he says.
But in the end, Shoemacher stays with the company because of the integrity with which the company operates.

The example that sticks out most in his mind is an affordable housing project that The Wallick Companies bid on in Logan, Ohio. "By the time we were ready to start construction, we knew we couldn't build it for what we put on the table," he says. "We could have walked away, but Sandy said 'No, we have to build it,'" says Shoemacher. "We didn't make any money on that project, but Sandy felt there was an obligation on the table. Our reputation and integrity was more important than the profit."