Growing up in Oxford Circle, with a drycleaner father and a stay at home mom, developer Carl Dranoff didn't come from money. But he managed to make plenty of it. So how does a guy with no money get enough money to be a developer?
Dranoff, founder and chief executive of Dranoff Properties (Symphony House, 777 S. Broad Street, Left Bank, the Victor in Camden) explains.
"We didn't have very much money. I had to do everything on my own," said Dranoff, 69.
He worked as an engineer, but soon realized he wanted to be the boss, not just part of a crew. "I thought I had to get a business degree to really be in charge and know more about business."
Dranoff got that degree, from Harvard — and his Harvard MBA turned out to be the ticket to his career.
My first job after Harvard MBA was working for an entrepreneurial developer based outside of Philadelphia. His name was Jack W. Blumenfeld, and this was 1972. He was the largest builder of multi-family buildings in the state of Pennsylvania. Not a name well-known today.
Isn't his son Eric, the developer working on the Divine Lorraine on North Broad Street?
Yes. His son is Eric. When I was working for Jack, Eric was a three-year-old. I knew the kids and here I was starting out, working for their dad. At the time, he was building 1500 Locust Street. It started in 1972. It was completed in 1974. I started out as being Jack’s assistant, but then I became the person in charge of leasing up the building. So, I had to know the building and be familiar and be knowledgeable about the city and what the customers wanted, and what the rents had to be, and how to rent the apartments. The biggest impediment to leasing that building up was that people thought it was too far from Center City.
Wow, at 15th and Locust? Unbelievable.
This is 1972. The core of the city was right around City Hall. All the office buildings were clusters. South Broad Street had all the office buildings, and they went from City Walk to Walnut Street. That was the financial center of the city, and it was before the Two Liberty. So people thought it was too far away, but regardless, we finished the building. We leased it up. Then, in about 1974 when that was completed, I got the urge to begin my own business. I just thought, "I see the way Jack did it. I see what he’s doing. I think I can do the same thing. I think I have the ability to be an entrepreneur."
Why did Jack pick you?
I think he probably saw the entrepreneur in me because he was an entrepreneur. He didn't come from money. He actually started out as a pipe contractor. He would install pipes in the ground for the city streets. Then he went into building. He was a self-made man, and he had no help. He just did it. I think he saw something in me. Maybe the fact that I was an entrepreneur at heart, but also that I had these skills. He wanted to professionalize his company, and he thought that having that stamp of Harvard MBA on me would help to project his company to the outside world in a better fashion.
I'm sure the knowledge you gained studying for your Harvard MBA was useful, but…
It was the credential that got me in the door.
Right. It got him what he needed.
Right. It was his message to the world that we were a sophisticated company, if someone with a Harvard MBA is working for us. Labels can do that. It can be superficial, but it got him what he wanted. It got me what I wanted. Then I ended up starting my own company.
How did you get money for that business? What was the first thing you built?
The first thing I built were town homes in Pine Hill, New Jersey. I knew that I really couldn’t get started unless I went cold turkey and quit my job because starting a real estate project is all encompassing. You have to be all-in to do it, and you have to find the site. Make sure you can build something on it, in other words, get zoning and the approvals. You have to have the concept for what you're doing. You got to get the financing for it. Then you got to build it. Then you've got to market it, and ultimately deal with the consumers who are renting or buying.
How did you get the money?
It was dialing for dollars. I called everybody I knew, and said that I was starting a company. By that time, I had identified a site that I wanted to build, which was this site, it was about 40 acres, and it was for sale. I went around. I spoke to brokers for six months. I found out everything that was for sale, and then I found this site. I had all the approvals for about 120 townhouses, and I thought it was a great site. I loved it. It was in a forest. I could be environmental. I could put the townhouses among the trees, and deliver something that was not then available in South Jersey. To get the money to do it, I called everyone I knew, and one of the people who I called, who’s an attorney, had investors that he had put into other projects. He arranged to invest half a million dollars into this project, which was a lot of money.
How did you feel when that happened?
I felt like I was now on my way. I elevated myself from being an employee to being a company.
Did you feel like that your stomach turned into a knot?
Yes. Of course. Because now everything was on me, and I had to make sure that I performed because people were investing in me. I mean they liked the project, but mainly they were investing in me. At the end of the day, you can have a great project, and not a great developer, and ...
You can screw everything up?
That's right. I didn't want to let people down. I've always been very conscientious about under-promising and over delivering. Then the next thing I had to do was get a loan because that was an investor, so I had to borrow money also. Being the only guy without a balance sheet was not that easy, but there were a lot of small banks in Philadelphia at that time. One of those banks was Industrial Valley Bank, known as IVB.
I knew the guy because he had done some work with the loan officer with Blumenfeld. He realized that I was able to attract investor money, and I had this great site, and they decided to lend me $3 million. That was a lot of money. Then I was off and running with my first project, and fortunately it was successful, but I learned a hard lesson on that project, which is, in our business, you have to expect the expected, or a lot of environmental things that happen that are totally not within your control.
The Arab Oil Embargo. Gas shortages. So, I was building homes that you needed a long drive to get to. For about six months I couldn’t get anyone to come visit my subdivision. It was bad. People couldn’t get gas. They were rationing. So, I learned a first hard lesson of real estate development: “[Stuff] happens,” and you need to have a Plan B and a Plan C because we're in a very cyclical industry.
I’ll explain that as we go along, but by the very nature of it, it goes up and down. Then beyond that, there are other things that you can't control, like 9/11 was another example. That was happened when I was about to launch the Victor building in Camden, and we were very close to starting the building, and the banks closed. I mean literally, you couldn’t get money. Our economy was so frozen for six months that banks no matter whether you had a commitment, it didn't matter. The banks closed for business, and everything was delayed.
Fortunately, at that point, I had staying power, and I could afford a delay. As it turned out in Pine Hill, I was able to sell the townhouses eventually. It took longer, but I eventually did sell them, and then I went on to do another project.
Did you repay everybody?
Everyone was repaid. It was fine, but I could never find enough money to put in my pocket. I would finish the project, and have no money left over. My costs would be higher than I thought, and it would take longer, and I did two projects on my own. Then I got married, and when I got married I had to really take stock of things because I needed to make sure I could bring the money home. We wanted to have a family, and so …
You were literally bringing no money home?
I was bringing a salary home. I was making some money, but I wasn’t able to get that big stockpile of money to start my new project with. I would still have to go after investors, and kind of going in circles. I decided that I would deviate, and stop being an entrepreneur for a couple of years and get a job that could pay me a higher salary, and be more predictable. It was a very good decision because the company I joined, I learned so much. That company was Kaufman and Broad Homes [now KB Home]. At the time they were the largest homebuilder in the United States. In fact, they were the first homebuilder to go public. Eli Broad started the company when he was my age. He had the idea of setting up divisions in different cities and states, and he became large and successful and went public, and had become the largest homebuilder in the United States at one point.
I went to work for Kaufman and Broad for the reason that I wanted to get a predictable salary, but I had an amazing position. I was the Director of Land Acquisition, and we were buying track land all over New Jersey. This was 1978. Do you remember what happened in New Jersey in 1978?
Gambling passed. It actually passed in 1976. Atlantic City it was just on its backside, just like they are now, but it was way worse back then. A major investment in Atlantic City at that point was when someone painted their front porch. That's how bad it was. But gambling passed, and then Resorts International came in from the Caribbean and opened the first casino in 1978. I convinced the folks from Kaufman and Broad that they should start up a division in Atlantic City, and capture what was going to come out of that place. They agreed with me, and they put me in charge of it. So, from 1978 to 1981, I ran the South Jersey division of Kaufman and Broad Homes. I was able to really buy the land and develop. I had a lot more capital available from the big companies. So, I was able to basically mass produce homes in South Jersey.
Meanwhile, how much of your salary did you set aside to fund your next big dream?
Not that much. I mean, I had some savings set aside.
I thought your goal was in this period was to amass a stockpile so didn't have to borrow every cent?
But I didn't make enough. I'm going to get to the next phase. I'm still in my early stage now. I'm not even 30, and I have a lot of responsibility. I'm building homes all over South Jersey. I'm talking about hundreds of homes that I was in charge of building. I got great experience because that's a big difference between mass production and one-off homes. We had to buy our materials six months in advance to make sure we had lumber and the drywall. So the thought process, the planning and the delivery and making sure everything showed up on time, and the customers got their homes in time was a fantastic experience.
Then at the end of 1981, after four years, I said, "I've learned everything I'm going to learn here. It's been a great run. I'm now ready to be an entrepreneur again. I know so much more, and I have the training. I'm an engineer. I have the experience. I need to go back on my own.”
So, I begin looking around for opportunities. This is 1981. I actually called up [builder] Bob Toll at the time. He was a small builder. He was big, but not [as big as he is] now, and I knew him from home-building associations. I called him, among many dozens of people I called. He said that he had a friend who just started a fledgling company for rehabbing historic properties and I should call him, and I did. I called him.
His name was Steve Solms and I met him. He called me right back because Bob was his good friend, and I went to see him a week later. He invited me to a 76ers game. He was a basketball fanatic and he had front row seats, so he invited me.
And I sat courtside, and I had my job interview on the seats of the Spectrum, and that night he hired me as executive vice president of the company. His background was sort of coming from the finance end, and I was coming from the production end — the technology of actually building buildings, which he had no knowledge of.
Right. One guy gets the money. The other one understands buildings.
Exactly. So, we were dynamic duo. It was a perfect match for him and for me. He had formed a company. It was called Historic Landmarks for Living.
But did you have an ownership stake?
Well, I did eventually. I started off as an executive, and within a year he made me a partner.
That was the goal, wasn't it. Didn't you tell him you'd only come in under that circumstance?
Yes. Exactly. I said, "I will join you, and if things work out I want to be an owner," and I became a 35 percent owner of that company. That company, I'm pleased to say became the largest rehabber of historic buildings in the United States. When we were finished in 1989, we did our last project in ’89, we had rehabbed 66 buildings all across the eastern and western part of the country.
Name a couple in Philly.
The Wireworks, the Chocolate Works, Bridgeview Place, the Colonnade at 15th and Spring Garden, which was Wills Eye Hospital. We converted that. Logan View Lofts, 17th and Callowhill. The Touraine on 1528 Spruce Street. The building right down the street, Locust Point.
Next: In October, 19, 1987, stock markets around the world collapsed on what became known as "Black Monday." In the U.S., stocks lost 22.6 percent of their value in one day. That set off a cascade of financial woes that eventually came around to bite Dranoff's company. Dranoff and his partner Solms were down, but not out.