News & Press Releases
Legends of the Industry: Kelly Doran
July 1, 2007
After a two-year hiatus from commercial real estate to enter politics, Kelly Doran is back in the industry with a new company and a new plan.
Don Jacobson Editor
Minnesota Real Estate Journal
After a two-year hiatus from the commercial real estate industry in which he ran first for U.S. Senator and then for Governor of Minnesota as a “centrist Democrat,” Kelly Doran, 49, has re-entered the industry as the head of his own new firm, Doran Companies, a full-service development company with construction and property management divisions.
Doran gained much of his prominence in the industry in the 1980’s and ’90s as president of the Robert Muir Companies, in which he and Muir co-developed 2.5 million square feet of retail and commercial space, including Woodbury Village and Tamarack Village in Woodbury, Oakdale Village and portions of the Silver Lake Village in St. Anthony, the redevelopment of the former Apache Plaza.
Now he’s split from Muir. He says his new company will include some of the properties he co-owned while with his former partner. In the meantime, he purchased Muir’s interest in the Muir-Doran Construction Co. and will assume its controlling interest, operating it under the name of Doran Construction.
Doran says he will be active in all three entities and will especially concentrate on seeking development opportunities that could generate additional business for his construction and property management divisions. His new property management company will manage several shopping centers jointly owned by Doran and Robert Muir, while other jointly-owned properties will continue to be managed by the Robert Muir Co.
Doran sat down in June with the Minnesota Real Estate Journal and talked about his past, future and how he’s found the industry has changed in the years he’s been away.
MREJ: How has the commercial real estate industry changed since you began your hiatus?
Kelly Doran: I think a lot of things have happened in the real estate industry and it’s important because real estate touches everybody. I think one the really important things that’s been going on in the last few years, particularly on the construction side, has been a huge influx of contractors and sub-contractors coming over from residential real estate, most of whom are non-union. They’re coming in and bidding on jobs.
We’re a general contractor, and so now all of a sudden we’re getting, in many cases, unsolicited bids from XYZ Plumbing and ABC Electric and all these outfits that we’ve never really done business with. And they’re coming in with, in some cases, ridiculously low numbers. So now you’re faced with a quandary: If I don’t use those numbers, I won’t be competitive - because obviously those bids are going in to everybody - but I don’t know if that company can perform, so now I’m taking additional risk.
And the building process is getting quicker, so you have to wonder, “Do I have this? Do I have that?” Now you’ve got to double-check to make sure these sub-contractors have done the bidding process correctly, so in effect, you’re doing their work for them.
It’s becoming a very significant issue, and I think the interesting thing is that it has a profound potential impact on the building and trade unions. And if there is a union that has maintained a solid footing over time, it’s the building and trade unions. They’ve had less impact in terms of job loss than practically any other union, but they’re going to be faced with a real quandary. I have been in this business for 20 years and I have never seen a time in our local market where just about every segment of commercial real estate is down at the same time.
Historically, it’s always been a situation where there are ebbs and flows in different sectors, but it’s usually been that one sector is flowing while another’s ebbing, and it balances out. This is the first time where, over the short term, everything is basically down. Residential is down, office is down, retail is down, industrial is down… none of the commercial real estate sectors are booming.
Now, you’re starting to see a little bit of growth in the corporate sectors. That will help the trades, obviously, but it only impacts a few companies. We’re having sub-contractors calling us and asking us, “Do you have anything we can bid on?” Compare that to a few years ago when you couldn’t get a sub-contractor to return your call. Part of it is because of residential. There was such a huge boom in condo development, beyond reality, fueled predominantly by investor money. Prices were escalating, everybody thought there’d be no end to it.
MREJ: Your niche has long been retail development. What is changing the most in that sector?
Doran: It used to be, 10 to 15 years ago, if you wanted you wanted to lease up a shopping center, you’d just have to get a grocery store at one end and a Target, Wal-Mart or K-Mart store for the other end, and you were cooking with gas. You could lease up the space in between for however big you wanted it to be. The reality of it now is that the grocery stores are struggling for the most part and the discount stores don’t want the grocery stores because they are the grocery stores.
The Targets and the Wal-Marts and the Kohls’ all want to own their own real estate now. That’s also true for Home Depot, Lowe’s, even Cub Foods, they all prefer to own their own real estate now, so it’s really harder to put that kind of project together and make money. You spend a lot of time and energy putting those variables together for somebody to sell off at your cost and in order to get your increase in there, and you end up owning all of the small shops, which is difficult today.
And then the second factor is land prices. Land prices have escalated beyond reason in many cases, and I think that’s the one trailing part of a popped real estate bubble that has yet to see the effects of what’s happened. That realistic adjustment of land values hasn’t happened yet. Landowners only understand the basic law of physics in real estate: Up is good and down is bad, and they’re not going down.
The question is how long will the market take to recover before you can justify those kinds of prices? When you’re doing retail shopping centers and you’re looking at third-ring suburbs and outlying areas where they have land prices at $8 or $10 per square foot for large tracts, you’re looking at having to lease small shop space at mid-20’s rents, plus operating expenses, a retailer can’t make it with those numbers. They (landowners) who are doing this will have a day of reckoning. If you’re talking about redevelopment of closer-in areas, such as we did with the old Apache Center in St. Anthony, those opportunities are very rare, although we are one of the finalists for the Cedar Avenue and Highway 13 redevelopment project in Eagan. The big variable with those is, can you get the numbers to work?
MREJ: What do you see as your new firm’s strengths in this more competitive market?
Doran: There’s lot of competition in the industry, that hasn’t changed much, and if you’re going to be successful, you basically have to figure out how to do it better. I think that’s what we try to bring to the table. I think we’re known in our developments for the design that we do, the landscaping we do, and bringing art into our projects.
Now more and more people are doing those things as well, so the bar just keeps getting raised, and I’m sure the communities love that. But that’s okay. Our strong points are our commitment to quality and excellence. We want to do things the right way, and we’re not going to get involved in projects where people want to do it in a half-assed way. We’re going to maintain our quality standards and that approach to business.
MREJ: What were some of the personal considerations that went into your latest career move?
Doran: When I went into politics, I had discussions with my partner, Robert Muir, and obviously he was happy that I was doing that and he had positioned the Robert Muir Company to operate without my involvement. The game plan was that if I wasn’t successful, I was going to take some time off and do some things with my family, which we did. And then kind of towards the end of that period, my wife was diagnosed with cancer, so that delayed the time frame for me to get back into the game.
During that process, I just kind of started re-evaluating what I wanted to do. I talked to Robert, and I love Robert, he’s a wonderful guy. There’s no animosity between us in any way, shape or form. But I just decided that what I wanted to do was to have my name on the door, and maybe start building something that’s a legacy of my own. I don’t mean anything negative. He’s 80, and I’m not, so there’s a difference in expectations going forward, too.
But I think there are opportunities there. Everyone thinks the real estate development business is easy - it’s not easy. Those that understand what they’re doing will be successful, and those that shouldn’t be in the business should get out. Potentially, we could moving into a shake-out period, and I don’t think that’s necessarily bad.