Any retailer who has done business in the Washington, D.C., area over the past 25 years has more than likely done business with The Rappaport Companies. The company is one of the largest owners and managers of shopping centers in the Mid-Atlantic region, and aims to acquire and operate even more in the next few years.The Rappaport Companies leases and manages a number of centers in the Mid-Atlantic, like Muddy Branch Square in Gaithersburg, Maryland (pictured above).
Shopping Center Business caught up with Founder and CEO Gary Rappaport and President Henry Fonvielle while at the ICSC Mid-Atlantic Idea Exchange in late February. Because of Rappaport's extraordinary commitment to ICSC (see sidebar), the setting was a good backdrop for the interview.
Gary Rappaport started as a homebuilder in the Washington, D.C., area in the early 1970s. In 1981, he started in commercial real estate by joining Combined Properties, then an operator of grocery and drug-anchored centers in the Washington, D.C., market, as chief operating officer. In 1984, Rappaport launched his own company to develop and own retail properties."Going back to my homebuilding days, I always wanted to be in the retail real estate business because I felt that's where the long-term stability was — and it had better prospects for the long-term growth of assets," he says.
Rappaport closed on his first shopping center on May 31, 1984, in Baltimore, Maryland. That center was acquired with 14 limited partners. Over the years, Rappaport has sold only a few of his holdings. Today, the company has ownership interest in 14 shopping centers.
While the acquisition of centers has been a focus of the business, Rappaport says what has enabled the company to survive and thrive during the cycles of real estate has been his company's strong third-party management business. The company manages and/or leases 11.8 million square feet of space in 50 shopping centers and 100 mixed-use buildings across the Mid-Atlantic. The company provides third party management and leasing services to a "who's who" list of REITs, financial institutions, insurance companies, pension fund advisors, developers and family offices.
Gary Rappaport"The fee-based business has given us the stability to build an organization, even in times when you cannot build new shopping centers," he says.
Rappaport built a lot of its third-party business with the hiring in 2005 of Henry Fonvielle, who now serves as president. Fonvielle previously ran retail for Charles E. Smith Companies, which sold to Archstone and Vornado. Rappaport challenged Fonvielle to grow the company's third-party management and leasing business. Fonvielle created a new strategy for the company: in addition to third-party management and leasing of shopping centers, the company would become one of the top leasing agencies for street level retail in Washington, D.C. Henry FonvielleThe company also launched a retail tenant representation business that now represents more than 50 tenants in the market. The company has made a big push representing restaurants; its clients include Darden Restaurants, McCormick & Schmick, Brio Tuscan Grill, Ruth's Chris, Panera Bread, Potbelly Sandwich Works, Caribou Coffee and Subway.
"The tenant representation and ground floor leasing business allow us to provide more services to the retail community than any other firm. It also gives us the knowledge of the retail rents and vacancies of almost every rentable space in the Washington, D.C. market," says Rappaport.
Bull Run Plaza, Manassas, Virginia.In 2006, The Rappaport Companies had about 50 employees. Today, it has almost 100 employees.
"Over the last 6 years, we have been very fortunate to add great retail industry leaders to our team of talented people," says Fonvielle. Among those additions have been Bill Dickinson and Melissa Webb, who joined with Fonvielle from Charles E. Smith; Mike Howard, who was head of retail for Carr America; and Jim Farrell, a principal and founding partner of Madison Retail Group.
"By bringing together these senior brokers, we had the opportunity to create one of the area's strongest third-party leasing and tenant representation firm," says Fonvielle. "In addition, we've been able to attract two extraordinary young brokers to our team, Patrick O'Meara and Jason Yanushonis."
"Institutions, which do not typically handle property management and leasing themselves, are now purchasing more and more retail properties," says Rappaport. "They are looking for companies that have the structure to give them the reporting that they require, and who have the broad leasing expertise in the market. They are also looking for a manager who is sophisticated enough in the market that they won't be second guessed as an asset manager."
Currently, the Washington, D.C. market is one of the best performing markets for retail in the United States, and competition to acquire centers is heated.
The Rappaport Companies leases Chevy Chase Pavillion along Wisconsin Avenue in Washington, D.C. The company has expanded its third party business substantially in the last few years."Finding product in this market has always been difficult," says Rappaport. "Every institutional deal I've ever done, I still own. I have pre-negotiated arrangements within the partnership agreements so that when it is time for the institution to exit, we have an option to recapitalize the deal or bring in another partner at a different level of risk and return."
At that point, Rappaport adds, the company has a significant track record with the property and has a deep level of involvement through the management and ownership stake it has in the center.
Rappaport has spent significant time over the last 15 years making sure his company is stable for any cycle that real estate may bring. He says this strategy is based on an experience he had during the downturn in the early 1990s.
Rappaport’s Bristow Center in Prince William County, Virginia."At that point, I hadn't built up much of a base of stable business," he says. "We had 40 employees and had to let 10 of them go. That decision haunted me for 15 years. I spent those years trying to build a more stable platform with management and leasing so that our employees could rest assured that no matter what, their company would be a stable place to work."
Because Rappaport has owned some of the centers in his portfolio personally, he is now in the process of de-leveraging his personal position in some of the assets. The company is bringing in partners into some of the centers that Rappaport owns 100 percent to lower the stake he holds to 10 to 20 percent. He plans on using the proceeds of his equity to acquire more centers.
"We are looking to raise this company to another level by using some of these illiquid assets created over the years to purchase more properties and grow the third party business," he says. "We believe this strategy will lead to the long-term growth, stability and success of the company."
With all its activities and growth, Rappaport still considers his company a boutique firm.
"We are able to compete with larger, regional and national companies because of our specialization in the Washington, D.C., retail real estate market," he says. "Our full range of real estate services, including leasing, tenant representation, property management, development, construction management, real estate consulting, receivership and marketing, are centered exclusively on retail."
Commitment To The Industry
In addition to his shopping centers and company, Gary Rappaport is known for another aspect of his life: his deep commitment to the International Council of Shopping Centers. Rappaport, who served as ICSC's chairman from 2002 to 2003, is the only member of ICSC's Board of Trustees to hold all four of ICSC's designations: SCSM, SCMD, SCLS, SCDP. Rappaport joined ICSC in the 1980s as soon as he became involved in the industry to learn all he could about retail real estate.
"I'm like a sponge when it comes to learning," he says. "I try to read everything I can. ICSC gives you the opportunity to do just that. When I first got into the business, I took classes in everything from property management to leasing to marketing."
Rappaport believes that ICSC has grown because it facilitates the exchange of information that must take place between the landlord and the tenant. As time goes on, more information must be shared between the two parties. He also commends the association for providing a platform to educate its members.
"Retail is the business that requires us, as landlords, to constantly tell retailers what we have available for lease, and for retailers to constantly tell us about their growth plans," says Rappaport. "This isn't like office buildings, where a tenant has only one location and continual networking is not necessary."
Rappaport joined his first committee in 1984 and grew his involvement from there. In 1998, he became a trustee of the association. For more than 15 years, he has taught classes on structuring partnerships at ICSC's University of Shopping Centers and most recently at ICSC's Executive Learning Series. He teaches the class as a guest instructor at Georgetown, George Washington, American, George Mason and Johns Hopkins universities. Last year, Rappaport authored a book titled Investing in Retail Properties, which explains how to structure real estate partnerships for sharing appreciation and cash flow. The information contained in the book is the basis for the classes he teaches.
He has also been a relentless voice for the industry on Capitol Hill. He currently sits on ICSC's Government Relations Committee and its Executive Compensation Committee, and is chairman of the association's Political Action Committee and Nominating Committee.
"I often say that a third of my life is my family; a third of my life is my business; and a third of my life is ICSC," says Rappaport.
— Randall Shearin