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Heading for Higher Ground
Hoffman is meeting and greeting hundreds of people who work for WCI Communities. The Naples-based company was the real estate development arm of corporate giant Westinghouse Electric Co. for 32 years before Hoffman assembled a group of investors that bought WCI in the summer of 1995 for about half a billion dollars - one of the largest Florida real estate deals ever, involving about 24,000 acres of land, most of it in the coastal Naples-Fort Myers corridor.
Hoffman has had the tricky assignment of reducing overhead at WCI while reassuring employees like those eating chicken and hamburgers on the beach pavilion behind him. "The morale of the company was such in the beginning that - you know, with a new owner, there was fear of the unknown. What's going to happen? What's he going to do? We cut back on overhead. Some positions were eliminated. But that's all settled out now. The employees know we're going to grow the company and we're not going to liquidate it."
Hoffman manages roughly 1,500 employees who work for WCI Communities and his other real estate company, Florida Design Communities. "My primary job," he says, "is to sell people on the vision and the strategy, identify the opportunities, and then bring in our key people who will execute."
But the real challenges for Hoffman and WCI are not organizational, but demographic.
Florida faces more competition for retirees from other southeastern states. Moreover, the federal government's financial assistance to the elderly may erode. Hoffman knows that if seniors' standard of living shrinks faster than he can turn vacant land into resort and retirement communities, his partnership's huge investment in WCI could go sour.
But Hoffman is convinced that, at least for the next 15 years or so, more seniors than ever will relocate to Florida, and he's bet heavily on retirement housing, especially for buyers in the upper-income brackets. WCI continues to sell land for pricey residential developments in Naples, which is recording the highest per capita number of building permits in the nation. He's also planning a big expansion into one of Florida's wealthiest markets, Palm Beach County.
"I look for my business to be a real boom until 2012, 2013, 2015," he says. "Then, look out."
Long before that, it's a safe bet that he and his partners will cash in their investment in WCI. Indeed, from time to time, Hoffman already wonders what WCI might be worth in the future - whether a sale price, as a multiple of earnings, would be much higher than the 10 to 12 that home construction companies command. "What I'm trying to figure out," he says, "is how we can get the multiple of earnings that an Outback Steakhouse gets." Good luck! Outback has sported a multiple of over 20 in recent months.
A charming 62-year-old with shaggy white hair and elfin blue eyes, Hoffman is affable and ambitious. He was already running Tampa-based Florida Design Communities when his investor group acquired WCI and made him the company's president and chief executive officer. Asked why he's running two companies at an age when most people start collecting Social Security and playing golf, he laughs and says, "It's just a mid-life crisis." Besides, "I really don't like golf."
In framing his window of opportunity, Hoffman assumes that the steady flow of senior citizens who relocate to Florida will turn into a powerful flood during the first decade of the new millennium. Millions of Americans born in the "baby boom" after World War II have just started entering their 50s. If they follow the example of their parents, Hoffman reasons, many will end up in Florida - first as seasonal visitors, then as permanent residents. And Hoffman wants to be there to greet them at the door when they go shopping for their retirement home.
Targeting baby boomers
"Couples start out saying, 'Let's buy a place in Florida and we'll go there for vacations.' Then they spend more and more time there. Then - lo and behold - it becomes a retirement home for them. They buy when they're 55 and then they decide to move here when they're 65."
But that happy-ever-after scenario may play out with less frequency in the coming years for many baby boomers. Looming cuts in federal entitlement programs threaten to lower seniors' standard of living. The outlook for Social Security is bleak, and sharp hikes in Medicare premiums already are cutting into retirees' fixed incomes. Hoffman thinks the state doesn't do enough these days to cater to retirees and their wealth. Writing in the fall issue of Impact magazine - published by Jeb Bush, whom the developer supported in his bid for governor in 1994 - Hoffman warns that rich oldsters are taking their money to other states. Obviously with his own business interests in mind, Hoffman dismisses some state officials who argue that the state has paid a steep price for catering to the elderly for decades: Seniors have moved to the state, but have opposed most progressive initiatives in education and taxation.
For now, at least, Hoffman is convinced that his opportunities in Florida retirement housing still outweigh the risks. But he's hedging his bet: While he hasn't exactly turned his back on the middle-income masses threatened by a meltdown in federal entitlements, Hoffman is gravitating toward pricey homes for high-income individuals who don't need Medicare or Social Security to make ends meet.
Consider this: One WCI 31-unit condo project in Naples called the Windsor, now under construction a few doors down from the Ritz-Carlton, is 50% sold, with the lowest priced units selling for $2.3 million.
"Three sales contracts out of the first 16 were Argentine. I think one or two were Belgian, one was Swiss. We're getting a lot more international every year, it seems," Hoffman says. "These wealthy businessmen from overseas realize that Naples is a real great way of life."
Al Hoffman - his full name is Alfred Hoffman Jr. - didn't come from money. He grew up in Chicago the youngest of seven children, and the only boy. His father emigrated from Vienna, Austria; his mother was Scottish. They met on the job after a state sanitarium hired both as manual laborers. Alfred Hoffman Sr. later went to work for a poultry farm and slaughtered chickens for a living. Dreams of a better life helped to sustain him and his family.
"My dad was fascinated with real estate," says Hoffman. "He could never invest in it. Never could afford it. But I remember, sometimes in the summer, we'd go for a slow drive through the fancy residential areas to look at the houses. That was our entertainment: Get an ice cream cone - get a rainbow ice cream cone - and drive through the fancy neighborhoods and just 'ooh' and 'aah' over the houses."
Sniffing out fire sales
A budding artist, Al passed up a scholarship to a Chicago art institute when he got an appointment to the U.S. Military Academy. He calls his time at the academy "the hardest thing I've ever done. It was a rude awakening. I was a momma's boy." After graduation in 1956, Hoffman did a tour of military service in Bitburg, Germany, rising from pilot and flight leader to the rank of captain. He resigned his commission in 1960 and went back to school, earning an MBA from Harvard Business School in 1962.
His first job out of Harvard was with Kaufman & Broad, the big land developer and home builder based in Los Angeles. A darling of Wall Street in the 1960s, Kaufman & Broad was throwing up $25,000 homes by the thousands along the suburban frontiers of Los Angeles, Detroit, Chicago and San Francisco.
Hoffman quit in 1967 to form his own land development company, Tekton Corp., and went on to develop a scattering of residential projects in Arizona, Illinois, Michigan and Florida. His first-ever project in Florida was a 1,000-unit condominium complex called Cypress Chase, a dull collection of square, brown buildings scrunched up against Florida's Turnpike in northwest Broward County. "Not to my taste," Hoffman admits today, "but it sold out fast."
In 1970, Union Camp Corp. paid $12.7 million for 60% control of Tekton, retaining Hoffman as president of the company he founded. But by 1975, the paper and chemical giant had grown disenchanted with home building and liquidated its unsold inventory of housing.
Hoffman was back developing his own projects, starting with several in Tampa and Clearwater. From 1985 through 1993, he branched out geographically, and with a series of investor groups bought five residential developments: two near Tampa, two near Fort Myers, one just south of Miami. Today all five are owned by Florida Design Communities, of which Hoffman is majority owner and chief executive officer. Hoffman built that company largely by sniffing out fire sales from a number of sources: big companies that, like Union Camp, dabbled in real estate and got burned; financial institutions saddled with properties repossessed in bankruptcy or foreclosure, and developers who got in over their heads.
In building his base in Florida, Hoffman has gotten a helping hand from an old friend, Don E. Ackerman. Ackerman, who turns 63 this month and is moving to Pelican Bay following his second divorce, made his fortune during a 25-year career at J.H. Whitney & Co., the old-line Stamford, Conn. venture capital firm rooted in the legendary 19th century Whitney family fortune. In recent times, it seeded the growth of Compaq, Memorex and other corporate success stories. Ackerman and Hoffman attended West Point at the same time in the 1950s, ran into each other again at Harvard Business School, then went their separate professional ways.
"After Harvard, we kept running into each other at airports and class reunions," Ackerman recalls, "and we started trying to figure out how to do business together." The two men became partners in Florida land developments in the mid- 1980s, Ackerman as an investor, Hoffman the hands-on operator.
Their first investment was the Walden Lake community in Plant City, a 2,000-acre development along Interstate 4 east of Tampa. Hoffman bought it in 1985 from Beatrice Foods, another conglomerate eager to exit the real estate business. Hoffman has lived in Walden Lake since 1988. He met his second wife, Dawn, eight years ago while separated from his first wife, who has since died. The couple shares a casual but impressive two-story home on a pond and is building a new home in Gulf Harbour. During his first marriage, he lived in a sprawling manse in Clearwater, which was sold in February by race car driver Nigel Mansell for $6.5 million. Hoffman has three grown children from his first marriage, two daughters and a son. When Hoffman arrived at Plant City, he thought it just another ho-hum Florida town that needed pizzazz. "We thought, let's create something that would give a little more ?lan to the name," he recalls. "So we built a polo field and called it Walden Lake Polo and Country Club."
In the saddle
Next, Hoffman and his son, Matthew, attended a polo clinic at the University of Virginia. He took to the dangerous game, and now he owns a string of polo ponies. The club has 40 members, and on these December weekends Hoffman and his Walden Lake team do battle with other polo clubs from around Florida.
Hoffman compares riding horseback in a competitive polo match with the thrill of flight. "You're doing a lot of things in formation - you're interacting in very close quarters - and it's a very competitive thing - you're trying to gain an advantage over the other guy. Instead of shooting a guy down, you want to bump him off the line," he enthuses.
"It's really the only sport that I can go out and I can spend an hour on and be totally mentally diverted and totally physically exhausted. Golf, I can't do that in an hour. Tennis, I used to be able to, but my knee gave way. Now, the horses are my knees."
Walden Lake may be home to Hoffman, but it hasn't always been sweet. Indeed, the developer has learned some very tough lessons right in his own back yard. One came when he sold the Walden Lake clubhouse and other amenities to a small group of residents who hired an incompetent club-management firm to cut costs. Since that experience, he and his partners retain control of everything from clubhouses and golf courses to nature trails and swimming pools at all his developments.
Another time he was caught holding a stack of IOUs from Walden Lake home builders who made deposits on vacant lots and then went bust. "They were dropping like flies," recalls Paul DiVito, an Atlanta-based residential development officer for First National Bank of Boston, who took over the bank's account with Hoffman in 1992. "I thought he might be one of those developers who was going to screw me." DiVito sat Hoffman down and told him that the vacant land at Walden Lake had depreciated, and that the bank was worried. Hoffman promptly wrote a check for $3 million to pay down his loan with Bank of Boston - and made an institutional friend that became the lead lender in the purchase of WCI.
Westinghouse, ranked 135th in the latest Fortune 500 list with annual revenue of nearly $9.6 billion, had begun its involvement in land development in Florida in 1963, when it established and planned Coral Springs in northwest Broward County. Just a rugged outback in those days, the development has become the state's 13th largest city with a population of 100,000.
Soon after, Westinghouse turned its attention to the West Coast, buying huge tracts in Collier and Lee counties. Ultimately, the company built some 10,000 condos and homes around golf courses, marinas and natural preserves, mostly in Naples but also farther up the coast in Fort Myers and in Punta Gorda. It employed hundreds of people in Florida who handled everything from pool and golf course maintenance to land-use plans, site sales and construction contracts. With headquarters in Naples and a regional office in Coral Springs, WCI even reached into California and Arizona to acquire a few properties.
In 1993 and 1994, its last years under Westinghouse's ownership, WCI Communities' annual pre-tax profit topped $60 million.
Cutting the deal
Still, WCI's profits didn't bring much to Westinghouse's big bottom line, so in 1992, as part of a company restructuring, WCI went on the block. Several offers were rejected, including one from a formidable consortium of Miami-based Lennar Corp., the investment banking firm of Goldman Sachs and Hungarian-born billionaire George Soros. "We were almost positive that they were going to accept our offer," says Anthony J. Trella, a Miami-based development investment adviser who worked as a consultant in the Goldman Sachs camp during the bidding war for WCI. "We all shook hands on a number."
Then, to the surprise of everyone, Westinghouse Chairman and Chief Executive Officer Michael H. Jordan abruptly terminated negotiations, announcing WCI was no longer for sale.
In late 1994, top management again came under pressure to sell WCI and other subsidiaries. Hoffman says that in late 1994, a friend on Westinghouse's board of directors "made a comment that the board was anxious that Westinghouse complete its divestiture plan, and that they would have to address it again in the coming year." In retrospect, it's obvious why Westinghouse needed cash: By the end of 1995, it would acquire the CBS radio and television broadcasting network and burden its balance sheet with an extra $5.4 billion in long-term debt.
Even as it sent out feelers to Westinghouse, the Hoffman group began lining up financial allies. "It started with a call from Don Ackerman to me," recalls Larry Landry, chief financial officer of the MacArthur Foundation. The MacArthur Foundation was an investor at J.H. Whitney, where Ackerman was a partner. "It was just a cold call," Landry says. "I said we're probably not interested."
Letter of intent
But the MacArthur Foundation later changed its mind and joined Hoffman's WCI venture. The attraction? Self-interest. The foundation owns valuable property in Palm Beach County and needs to develop it to generate income. But non-profit organizations are prohibited from direct engagement in for-profit ventures. By buying into the WCI deal, the foundation could dodge that prohibition, generate the cash it needs and influence how its former properties are developed by having Hoffman do the job.
Westinghouse's Jordan agreed to give Hoffman's band of investors a 30-minute meeting. That was all he needed: Jordan accepted Hoffman's pitch and gave him about 80 days to secure financing. "After that meeting, we looked at each other and started laughing," Hoffman says. "I could not believe it. The last thing in my mind was that we would shake hands on a letter of intent in one meeting."
Scrambling to raise more than $300 million in debt financing, the Hoffman group found that potential lenders demanded that it pay their legal fees if the WCI deal didn't close. "There was over $2 million of legal fees at risk here."
Along with lead lender Bank of Boston, a number of financial institutions - including First American Bank in Dallas, Bank of Hawaii and the Travelers insurance company - agreed to participate in the WCI financing. In July 1995, Hoffman's partnership bought 76% of the stock of WCI Communities in a transaction that valued the majority stake at about $500 million. Westinghouse retained 24% ownership of WCI.
Trella, who says he was both shocked and impressed that Hoffman pulled off the deal, shrugs off the question of whether Hoffman got WCI for a good price. "You don't really know until five or ten years from now," he says. "Are his partners happy? That's the real acid test. When you entice that much money to come in, it comes with a big price tag."
Marketing upscale
It's clear from a review of WCI properties that Hoffman has set his sights on selling to the high end of the market - buyers whose wealth puts them above the uncertainties of government entitlement programs. In Naples, for example, WCI's Pelican Bay community builds houses in the $149,000 to $6 million range. Its Bay Colony, also located in the shadow of the Ritz, is selling vacant lots for $2 million.
Compare that with one of Hoffman's biggest successes to date, Sun City Center, a 14,000-person retirement community south of Tampa. New homes there are priced between $70,000 and $300,000.
Prices for Hoffman's homes run considerably higher in Collier and Lee counties, where WCI Communities owns approximately 14,000 acres, and in Palm Beach County, where the MacArthur Foundation has 18,000 acres. The foundation "will be providing a lot of the land we'll be buying," Hoffman says. "They probably have the best-located large acreages of any land holder in Florida." In fact, WCI could break ground in Palm Beach within months; the company expects to start building 200 villas and townhouses on MacArthur-owned land along the Intracoastal Waterway in North Palm Beach.
Data compiled by Northern Trust Bank of Florida further confirms that Hoffman is headed for higher ground. In a national ranking of counties based on the number of millionaires who live in them, Lee placed 124th, Collier 92nd and Palm Beach ninth. Hoffman plans to move WCI more aggressively into home construction, which Westinghouse left mostly to contractors. His other company, Florida Design Communities, has been a land developer and home builder for years. In a list published by Florida Trend, Florida Design Communities was the 14th largest home builder in the state, with 564 closings in 1995.
While WCI branches into several new businesses, including builder financing and title searches, Hoffman says "home building really is the most important. That's really the great opportunity for our company. It's a great profit center." As the company picnic at Pelican Bay comes to an end, Hoffman gets ready to drive 200 miles north to his home in Plant City.
He says his work pace has eased since the hectic weeks leading up the closing of the WCI acquisition. "Yeah, there's no more of that flying into Hawaii-Chicago-Boston-New York, and back, in two days or three days. Gosh, it was terrible. But now we're at the fun stage."
