Two years ago Robert Kogod and Robert Smith, the two barons of one of the Washington area's largest real estate empires, considered coasting into retirement on the strength of an estimated $3 billion to $5 billion in real estate assets.
"When you reach a certain age," Kogod explained, "you have to decide where you want to go."
But after much thought, they decided that their privately held firm, Charles E. Smith Cos., should plunge ahead with plans that could in the next 10 years double the amount of office space they now own, manage and lease -- dramatically transforming their company and the Washington real estate market in the process.
It wasn't a simple decision for the company, which owns Crystal City, a chunk of downtown Washington and dozens of buildings scattered throughout Northern Virginia and Maryland. Smith and Kogod have kept a low profile, shunning the limelight favored by peers like Oliver T. Carr. But now, in recognition of what Smith describes as the "highly competitive market that exists today," the company has decided to become more open. "We have to tell our story," Smith said.
The company hired consultants, including Arthur Andersen and Co., which was brought in to draw up a strategic plan for the company's future. "Deciding to grow meant that we could no longer do everything ourselves," Kogod explains.
Kogod, who is president of Charles E. Smith Management Inc., and Smith, who is president of Charles E. Smith Co. Construction Inc., overhauled the top management structure of the firm, delegating some of the responsibilities they have held closely for years. For example, they created two new management slots, hiring Ernest A. Gerardi Jr. from Arthur Andersen as executive vice president of Charles E. Smith Management Inc., and Kenneth L. McVearry from Coldwell Banker to be senior vice president in charge of the commercial leasing department.
By the time the company's plans are completed they will add major developments near Dulles Airport, in Loudoun County and in Fairfax County, and additional buildings in Bethesda and Arlington, bringing the firm's holdings to 30 million square feet of office space, and almost 20,000 residential units.
The strategy has raised questions with some analysts who wonder whether the company's expanded management team can handle the firm's development ambitions. "You'd better have good people and an organization in good shape, or it's going to cost you," he said. "They haven't yet demonstrated they have the people. I'm not sure you can do the things they want to do."
Charles E. Smith, who retired two decades ago but is still chairman of the company, is the father of Robert Smith and the father-in-law of Robert Kogod. He began in the real estate business more than 60 years ago.
His father, Reuven Smith, had been a building contractor in the Brownsville section of Brooklyn after coming to America from western Russia at the turn of the century. Charles Smith followed his father into the business, working in New York during the Depression years before moving to Washington during World War II to build defense housing under the Federal Housing Authority program.
His efforts were not an immediate success. In 1943, faced with serious losses from a housing tract in District Heights, Smith nearly abandoned the construction business to open a bar and grill in Bridgeport, Conn.
He persevered, however, working briefly for another development firm before formally starting his own company with other investors in 1946. In the next 10 years that company exploded, building 16 apartment buildings, including the Brandywine, the Albemarle and the huge Calvert-Woodley building overlooking Rock Creek Park in Washington.
The firm's master stroke, however, was Crystal City, the massive development on what used to be a barren stretch of railway lands between National Airport and the Pentagon in Arlington.
"Most other developers saw that as a wasteland," Kogod said. "But Bob recognized that in terms of its location and size, it was ideal. We could create our own environment."
Kogod said the Crystal House apartments, built in 1963, formed an "oasis" amidst the wasteland. From there, plot by plot, over the next 10 years the company pieced together a project that now covers 150 acres. Today Crystal City's 41 high-rise buildings represent either a home or an office for 60,000 people.
"Crystal City was a real gutsy move," said John "Til" Hazel, principal of Hazel-Petersen Cos. Inc. in Fairfax. "When they went out there, it was not a foregone success."
Added John Sarpa, senior vice president of Hadid Development Cos. in Rosslyn, "Who would have thought it possible? They basically created their own market out there."
The Smith Cos. organization doesn't just own every building in Crystal City; it also leases and manages every apartment and office complex in the project. Indeed, the firm continues to lease and manage every building it's ve built.
"We believe that the way to be the most successful in the development of rental income properties is to have maximum control," Robert Smith explained. "Control begins from land acquisition, hiring architects, on to leasing, mangement, the whole ball."
Real estate brokers say that the Smith Cos.' continuing involvement with its projects gives it a number of advantages as a landlord. "Because they own their own buildings, they take care of them. They're not absentee landlords milking the tenant for all he's worth," said one.
"They've got a very good track record of keeping their existing tenants, and that's the highest accolade that a manager can be paid," said F. Joseph Moravec, president of the Leggat McCall brokerage firm in Washington and head of the Washington Association of Realtors. "Their buildings are full, while those of a number of other firms of similar vintage are virtually empty."
Barry Lewis, a former Smith vice president, said that tenants are attracted to the company's "conservative, stable image." It hasn't hurt that over the last 20 years the Smith families have emerged as one of the city's leading philanthropists, donating millions to everything from George Washington University to the Greater Washington Jewish Community Center.
"It's like a bank or IBM," Lewis said. "Everything there is reputation, reputation, reputation."
Now Smith Cos. is attempting to marry that conservative, meticulous management style with an appetite for more megaprojects on the scale of Crystal City. Over the past few years many major developers have set up shop in Washington in hopes of cashing in on what has become America's hottest real estate market. Smith's ambitious development plans are aimed at keeping pace with the competition.
Take Worldgate, for example, a 94-acre office park near Dulles Airport.
"It's huge," said Moravec. "They've got hundreds of millions of dollars in off-site improvements alone. They're gambling that it will be another Crystal City."
This fall Smith and its construction partner, Artery Organization Inc., received the go-ahead for a 216-acre, $395 million government center in Fairfax, combining five 10-story office buildings; a 10-story hotel; a million-square-foot government and cultural center on 100 acres; 192 town houses; 404 garden apartments, and a community center, pool and tennis courts.
But these projects are dwarfed by Smith's proposed University Center near Leesburg in Loudoun County, for which the firm has bought 576 acres for what is initially planned to be 14.7 million square feet of office space, 433 apartments and a graduate engineering school for George Washington University.
At the heart of the plan is a bold cooperative arrangement with GWU in which Smith would give the university 50 acres outright to build a graduate engineering school and sell it an additional 75 acres at below market prices. On top of that, Smith plans to make GWU a 20 percent partner in the entire project with the understanding that all the revenue the university receives will be reinvested in the engineering school.
"The idea is to give them a mechanism to fund, to expand, to endow, to equip labs, without dipping into their pockets," Robert Smith said. "We want to create here what exists out in California with Stanford as a hub, or in Boston with MIT as a hub. We believe that with GWU there, this will serve as a focal point of the type of tenants we want to attract."
Not everyone supports such grandiose building plans. Loudoun County planning officials, for example, balked at the size of the university center, requesting that it be scaled back to 9.5 million square feet of office space before the matter is referred to the Loudoun County Board of Supervisors.
"The one thing we don't want is another Crystal City or Tysons Corner," said John Stowers, the Planning Commission chairman.
In Bethesda, meanwhile, the company's proposed Rock Spring Center -- complete with office towers, a 500-room hotel and 800 apartments along Montgomery's Old Georgetown Road -- has raised the ire of some planning officials and homeowners, worried about traffic and the impact of a development on that scale on the neighborhood.
"There's nothing in the project designed to draw the community in, that the community can take pleasure in. You can look at it, admire it, but not participate in," said Doug Alexander, chief of Montgomery County's urban design division. "That does not a city make."
Alexander said the proposal should have a park "that everyone can use on a Sunday" or a community facility. "If you come to an existing community, you have the responsibility to do something that completes it, that makes it more of a whole. You have to make it more friendly."
These, of course, are many of the same criticisms that have been made about Crystal City for years.
"Crystal is an example of what not to do in urban planning," said Margaret Savard of Arlington County's Committee for Neighborhood Preservation.
Part of the problem, say some real estate developers, lies with the fact that Crystal City was built to provide basic office space for government agencies or government contractors. "And when you're dealing with people on lowest-bid budgets, you don't put in marble lobbies," said one developer.
Another problem is the age of the project.
Marvin Gerstin, head of Marvin Gerstin Associates, the Smith Cos.' longtime advertising agency, points out "it was designed in the '60s. It was the typical outcome of the Bauhaus, international style, and it has become bland. Tastes change. I don't know how you prevent that kind of thing from happening."
But Smith officials stress that Crystal City is changing with the times. In the next few years the company would like to add 42 acres to the project, eight new blocks with a hotel and two million square feet of office space in modern buildings.
"We love what we do," said Smith. "How many people have the opportunity to build a city?