The Koll Company History

Company History:

Founded in 1962 by visionary developer Donald M. Koll as a general construction firm, The Koll Company has grown to become one of the nation's largest real estate investment, development, construction, and management firms, having developed in excess of &Dollar;6 billion worth of office buildings, manufacturing facilities, business and industrial parks, research and development facilities, retail centers and residential communities throughout the West and Southwest United States.

Donald Koll's timing was perfect. The Koll Company, headquartered in Newport Beach, California began as a real estate developer in Southern California at a time when there was little development in the area. Orange County, California, was primarily an agricultural area that would later become a bustling metropolis, with hundreds of thousands of homes, businesses, ancillary shopping centers, business parks, and recreational facilities. Riding the wave of the California real estate boom of the 1970s and 1980s, The Koll Company became a major force in real estate development in the West.

The Koll Company is operated through several subsidiaries with regional offices throughout the nation. Koll Construction, a wholly owned subsidiary of the Koll Company, is one of the largest construction firms on the West Coast with annual revenues in excess of &Dollar;275 million. Koll International Commercial and Koll Resorts International, both wholly owned by The Koll Company, are involved in developing real estate in Mexico. Koll Management Services, Inc., 64 percent owned by The Koll Company, provides property management services to property owners throughout the nation. Formed in 1988, Koll Management Services quickly grew to be one of the largest property management firms in the field, went public in 1991, and was the first publicly traded firm of its kind.

Through Koll Real Estate Group (KREG), a wholly owned subsidiary, The Koll Company has developed in excess of &Dollar;6 billion worth of commercial, retail, and residential real estate, KREG has 10 offices in major cities in California, Washington, Oregon, Arizona, Colorado, and Texas.

Until the recent recession, most of the Real Estate Group's work involved the development of office buildings, industrial parks, and mixed-use commercial centers in joint ventures with financial partners, typically large insurance companies. Since the downturn in the office and industrial real estate markets, KREG has become more heavily involved in developing public projects in partnership with government entities, build-to-suit projects for corporate clients, and the development of retail and health care facilities.

KREG also has an active real estate consulting service, providing environmental, permitting, financial, and work-out consultation to owners of land and property. Its most prominent client in this arena is The Bolsa Chica Company, which owns a large environmentally sensitive oceanfront property in Orange County. KREG has developed a site plan for the parcel in consultation with local government and environmental groups, and is pursuing government approvals.

Donald Koll has been doing business in Mexico for decades and has owned property there since the late 1970s. But in the early 1980s he began to acquire resort property in the Los Cabos area of Mexico, at a time when the political and economic climate in Mexico were precarious at best. This investment gave Koll a strong presence in Mexico and positioned The Koll Company for development in Mexico when the timing was right. Previous U.S. administrations discouraged foreign investment. Then a major building destruction in Mexico caused by an earthquake created shortages of industrial, commercial, and residential property throughout Mexico.

It was likely these events that spurred Koll to seize the opportunity to make additional acquisitions in Mexico and led to the 900-acre Palmilla project and the 1,800-acre Cabo del Sol project. Already, Koll has invested more than &Dollar;75 million in these two prime resorts. The two master-planned resorts in the Los Cabos area will feature 4,700 homes, five hotels, four golf courses, two tennis clubs, a health spa, water sports center, medical center, and shopping center. The Palmilla golf course is the first Jack Nacklaus-designed course in Latin America and is a private course open only to members and guests of Hotel Palmilla. The first of two 18-hole golf courses at Cabo del Sol is now open to the public.

To help finance this development in Mexico, Koll secured a &Dollar;55 million construction loan in 1991 for infrastructure development from Banco Nacional de Comercio Exterior. Thereafter, Koll Resorts International entered into a joint venture with Empresas ICA, Sociedad Controladora S.A. de C.V. (ICA), for the development and management of the Cabo del Sol resort. ICA is one of Mexico's largest holding companies, with assets in excess of &Dollar;2.4 billion, and the largest construction company in Mexico. The estimate value of Cabo del Sol after buildout is &Dollar;750 million. Over the long run, Koll Resorts International hopes to develop resort and commercial properties in Mexico totaling more than &Dollar;1 billion.

The international division has also been seeking U.S. capital for investment in Mexico and is actively developing build-to-suit projects for U.S. firms in Mexico City, Guadalajara, and Monterrey. Koll International Commercial has focused its attention on developing industrial properties in Monterrey, speculative high-rise development in Mexico City, and retail centers throughout Mexico. In addition, Koll expects the passage of the North American Free Trade Agreement (NAFTA) to create a trading block with a combined economy of &Dollar;6.3 trillion to emerge as a major force n the world economy. With more and more American companies doing business in Mexico, their need for real estate facilities in Mexico should expand as well. Koll International Commercial hopes to be available to accommodate expansion of U.S. and Mexican operations throughout Mexico. Koll International Commercial has also assisted Koll Management Services in its analysis of Mexico as a growth market.

Koll Construction was hit hard during the recession and the resulting building slump of the early 1990s, with annual revenues slipping from &Dollar;540 million in 1989 to under &Dollar;300 million in 1993. Although Koll Construction had been a strong participant in the speculative development activity in the 1980s, its focus in the 1990s has been on corporate build-to-suits and public agency and tenant build-out projects to take up some of the slack. These assignments include a &Dollar;40 million construction contract at the 560,000 square foot federal building and courthouse in Los Angeles; a &Dollar;37 million construction contract to build a 418,000 square foot complex for NCR Corp. in San Diego; a &Dollar;28 million contract to erect a General Services Administration building in downtown Los Angeles; a &Dollar;27 million tenant improvement project for several government agencies slated to occupy a 780,000 square foot building in San Francisco; a &Dollar;25 million contract at St. Joseph's Medical Center in Orange County, California; a &Dollar;25 million renovation on the 250,000 square foot facility of a Dallas credit card processor; construction of a 61,165 square foot library and a 21,160 square foot theater for Portland Community College; renovation and tenant improvements for the 200,000 square foot headquarters of San Diego Gas & Electric; a 67,000 square foot library for the City of Newport Beach; and a &Dollar;23 million contract to construct the Oregon Museum of Science & Industry in Portland.

Koll Construction was forced to downsize its operations in the early 1990s because of the prolonged slump in the real estate market. Some of the projects it was working on at that time included an 830-acre project near Sky Harbor Airport in Phoenix; a contract to develop Sierra Health Services' 175,000 square foot corporate headquarters in Las Vegas; and the 220,000 square foot First Nationwide Bank complex in Sacramento, developed with Ford Motor Land Company.

One of the bright spots for Koll Construction was its joint effort with the City of Anaheim to develop a new city hall structure as part of the redevelopment agency's master plan for the area. The city saved &Dollar;1.3 million on the construction, and the construction was completed two months ahead of schedule in 1992. The 11-story city hall was just a small piece of the Koll Anaheim Center project. Because of the slowdown in the construction industry, contracts were obtained at prices lower than original estimates.

Koll Management Services has become the star performer of the Koll Company, employing more than 600 people among 107 field offices. Begun in 1988, by 1993 it was managing a property profile of 100 million square feet, serving nearly 11,000 clients around the country. And with a client list including some of the country's largest players in real estate, such as Aetna, Ford Motor Land Company, and the Irvine Company, the company was poised for a bright future.

Koll Management Services went public in 1991, trading on NASDAQ, and became the first property management firm to do so. It was ranked two years in a tow among Forbes magazine's 200 best-managed small companies in the U.S. In 1991, Koll Management Services achieved profits of &Dollar;2.7 million on sales of &Dollar;29.1 million. Lawrence Horan, a real estate analyst at Prudential Securities, said in 1992 that he expected Koll Management Services to sustain 20 percent earnings growth for several years.

The public offering raised &Dollar;11.9 million. Following the public offering, Koll Management Services had added nearly &Dollar;6 million in operating capital to its war chest (after underwriting and other costs) and provide more than &Dollar;5 million to the Koll Company. Flush with cash from the offering, Koll Management Services could now pursue its strategy of acquisitions and expansion. The company began acquiring regional property management firms, expanding into new markets and seizing on what it perceived to be an increasing demand for professional managers by large, institutional property owners, and by corporations with large owned or leased real estate portfolios.

Shortly after the public offering, Koll Management Services acquired Newport Beach-based Sunwest Asset Management, adding 7.3 million square feet to its portfolio and entering new markets in Nevada and Arizona. At about the same time, the company linked a joint venture arrangement with Boston-based CC & F Asset Management to manage 15 million square feet in Boston, Washington D.C., Baltimore, and Chicago. Other deals that came in quick succession include acquisition of Swearingen Management Company's Texas and Oklahoma-based portfolio of 4.2 million square feet; Tishman West's portfolio of 3.8 million square feet in New York; Chicago, Georgia, California, and Virginia; and the recent 30-million square foot Rubloff portfolio in several major East Coast and Midwest markets. And prior to the public offering, the company had already acquired four other property management firms, adding 5 million square feet to its portfolio.

The company also invested in sophisticated computer systems, enabling it to provide better reporting to its clients and to branch out into asset management, advising property owners about buying and selling properties, receivership services, and various consulting capabilities.

Competition can be expected to increase in the property management field as a whole, and particularly for Koll Management Services, as many developers who have curtailed activities as a result of the real estate slump will be looking to use their skills as real estate experts and enter the field of property management. But William Rothe, president of Koll Management Services said in 1992 that the real estate slump would be a boon to large and efficient managers like Koll. An industry shakeout seemed likely whereby only the most efficient managers would survive. In the event of such a shakeout large corporations would be motivated to seek out good property managers as a way of cutting their own costs.

Although The Koll Company has generally been focused on real estate development in the western an southwestern parts of the country, Koll Management Services is likely to help globally expand the company's empire. Koll Management Services already stretches across the nation and is likely to begin managing properties in Mexico as well. It has already begun actively pursuing property management opportunities in Mexico City and has considered establishing operations there.

Kol Management Services also boasts several wholly owned subsidiaries of its own; Koll Carlsbad Management Company, Koll Asset Management Company and Koll Management of Oregon, Inc. Koll/Tipton Management Services, L.P. and Koll/CC & F Management Services are 51 percent and 50 percent owned, respectively, by Koll Management Services.

Even though Koll Management Services seems to be on a fast track to success, it remains well behind industry leader Trammell Crow, which has 230 million square feet under management. Although Koll Management Services can lean of The Koll Company, which naturally gives all its property management business to its subsidiary, the percentage of portfolio gained through its parent company has continued to steadily decline.

Koll Management Services has made up for this decline in the years following the public offering, by winning some notable contracts: four separate contracts from California Federal Bank to manage more than 325,000 square feet; a management and leasing contract for WestPark, and 604,000 square foot business park in Redmond, Washington; a 75,000 square foot management and leasing contract in Seattle for Aetna Realty Investors; and the management contract for One Colorado, a 275,000 square foot retail and entertainment center in Pasadena, California.

Facilities management is a growth business for Koll Management Services, which is benefiting from many corporations' desire to outsource functions previously carried out by in-house corporate real estate offices. The company's facilities management portfolio has grown from one million to 11 million square feet in less than two years, and clients include Bank of America, NationsBank, McDonnell Douglas, Hughes, and Sun Microsystems.

One of the major undertakings of Koll Management Services in its campaign to leap to the forefront of the industry is to train its employees through the funding and operation of Koll College, which offers company employees and its service providers over 20 different courses related to property and asset management and customer service. Koll College has been funded by Koll Management Services to the tune of &Dollar;500,000 annually and includes courses on tenant relations, marketing, lease terminology, and facilities management, among others.

The Koll Company has show that it can roll with the ever-changing tides of the U.S. real estate market, shifting its focus to remain strong throughout the decades to come. With its entry into real estate investment, development, and management in Mexico, it is possible that it will become a company of world-wide dimension in the next century.

Principal Subsidiaries: Koll Construction; Koll International Commercial; Koll Resorts International; Koll Management Services, Inc.

Further Reading:

• "Bolsa Chica Names Koll as Chairman, Plans California Move," The Wall Street Journal, March 17, 1993, p. A5.
• "Koll Management: A New Way to Profit From Property," Barron's, October 19, 1992, pp. 40-41.
  Koll Management Services, 1992 Annual Report, Newport Beach: 1992.
• "Koll's KMS Sees Opportunities in Slow RE market," Orange County Business Journal, May 4-10, 1992.
  The Koll Company: Company History, Management Organization, Major Market Areas, Portfolio Statistics, Clients, Biographies, Newport Beach: The Koll Company, April, 1993.
  The Koll Company: Update 1993, Issue No. 1.
• Reprints, Commercial Property News.
  Smith, Carter, "America's Fastest Growing Employers," Holbrook, MA, 1992, pp. 178-179.

Source: International Directory of Company Histories, Vol. 8. St. James Press, 1994.