ERC Raises Standard

ERC Properties Inc. is the best company in Arkansas that no one has ever heard of. At least, that’s what one of its investment partners said. And ERC president Rod Coleman would like to keep it that way.

“We don’t want to get above the radar screen,” Coleman said. “We are not trying to get accolades for what we do. We just want to do our jobs, and we want our folks to create a balance in their lives, and work is just a part of that.”

Patrick Martin, managing director of Related Capital Co. of New York City, one of the largest equity investors nationwide, calls ERC “top notch” among the many developers he’s worked with.

“[ERC is] a proven developer,” Martin said. “They always do what they are supposed to do. They build on budget and on time. We never get complaints on their deals.”

ERC’s revenue increased 80 percent in 2003 to $97 million, up from $54 million in 2002, $47 million in 2001 and $42 million in 2000. It had 1,621 rental starts in 2003, up from 1,081 in 2002, 1,250 in 2001 and 1,083 in 2000. Rental starts are the number of apartments ERC actually started construction on during the respective calendar year.

“We’ve had record profits for the last 10 years,” Coleman said of the firm named after his father, company founder Ernest R. “Buddy” Coleman. “The only difference from us against other folks is our people. We do not concern ourselves with making a profit, we make a profit by concerning ourselves with our people.”

Coleman said ERC is adding employees at a rate of about 100 per year, with the total hovering around 500 right now.

He doesn’t have a 10-year or even five-year business plan, but instead attributes ERC’s growth to the company’s corporate culture.

He said ERC continues to be a company based on and operated under Christian principles.

So the story goes that when an ERC exec’s cell phone rings in the middle of a meeting, if it’s family-related, he stops whatever he’s doing and answers.

“Family is important, quality of life is important,” Coleman said. “If we find a balance, we make a profit.”

Perhaps that’s the reason Coleman brought a snow-cone cart to the parking lot a few weeks ago, or why ERC employees serve as the largest volunteer base for nearby Barling Elementary School.

About 90 percent of ERC’s business is multi-family housing. Of that percentage, 60 to 80 percent comes from housing that is affordable to the median income of an individual market. The other 10 percent comes from ERC’s home site development, where they prep land for lot sales.

Sun Belt Success

The fully integrated real estate development firm has four divisions specializing in multi-family development, management and residential land development.

“We are our own customer,” Coleman said. “We own everything we’ve built in the multi-family market since 1979.”

Coleman said ERC’s synergy gives it an advantage.

“We can move very quickly,” Coleman said. “Because of our integration, we don’t have to find a builder. We have all the pieces here, all the decisions are made here.”

John Clayton, ERC’s executive vice president and chief operating officer, said they often joke that the development company works for the construction company.

“We rely heavily on our construction expertise,” Clayton said. “I think our construction expertise is what makes us a good developer.”

ERC owns, operates and has built more than 12,000 units in Missouri, Mississippi, Iowa, Kansas, Oklahoma, Texas, New Mexico, Arkansas, Tennessee and Alabama.

“Most growth in the future, we think, is going to happen in the Sun Belt,” Coleman said. “It doesn’t mean it won’t happen elsewhere. We are going to focus on these 10 or 15 states in the Southwest because we feel like all parts are there for those states to succeed.”

Coleman said ERC has three full-time development specialists, along with a six-person leasing team. The development specialists are assigned to cover a few states each.

“We cold call or shop every community in a market,” Coleman said. “We will go and send out folks to find out about what’s there in the market.”

Demographics, Coleman said, such as household growth and job growth are key indicators to determine a project’s need.

Right now, ERC builds an average of 2,000 to 3,000 units per year.

Their success comes from being able to identify specific needs for each project.

“We go region specific, we narrow to the state, we narrow to the region within the state, we narrow to the cities within the state, and then we narrow to the neighborhoods within that city,” Clayton said.

With a development in Salina, Kan., in 1994, ERC was the first developer in the country to mix market-rate, multi-family housing with affordable housing.

“Our willingness to try new programs has made us successful in the past,” said Jim Petty, chief financial officer of ERC. “We sort of stay out ahead of the curve when we could see, for example, that one type of financing was going away.”

Coleman said people should be able to drive up to one of ERC’s developments and not know that it’s affordable housing. Coleman calls ERC a real estate developer that includes affordable housing in its development mix.

ERC’s slogan, “a passion to raise the standard,” echoes its actions.

“Just because someone pays $400 as opposed to $800 a month in rent doesn’t mean we can’t use quality materials and quality landscaping in a good location,” Clayton said.

Financing

Clayton said ERC primarily uses two different programs to fund its affordable housing developments: the affordable housing tax credit program and tax-exempt bond financing.

Tax Credit financing came about from the Tax Reform Act of 1986, and ERC has been using it since 1987. Clayton said the tax credit is sold to investors just like a market-rate equity transaction, the only difference being that the credit is government-created.

Developers are given tax credits, Coleman said, because the equity in the affordable housing product is used to lower the rent for residents. The equity in a market-rate product would be used in upgrades and amenities seen in other market-rate housing.

A certain percentage of housing units created through tax-credit financing have to be kept as affordable housing.

Coleman said it takes 10 times longer to develop a tax-credit community as it would a market-rate community.

“It’s a profitable piece that meets a need,” Coleman said.

Tax-exempt bonds function just like municipal bonds, operating under a 40-year amortization rate, Clayton said.

“We are paying bond rates right now of around 6.5 percent,” he said. “That doesn’t differ much from a regular loan right now.”

ERC sells bonds through equity partners Related Capital, Guiliford Capital Corp. of Montgomery, Ala., and WNC & Associates Inc. of Costa Mesa, Calif.

The market-rate housing projects are funded through private investors and banks.

“We have millions of lines of credit,” Clayton said.

Ro Errington, an investment banking consultant with Errington Public Resources in Little Rock calls ERC the “best company in Arkansas that no one has ever heard of.” He is in charge of raising equity portions for the market-rate multi-family Highland Pointe projects.

“I have no problem saying they are my best client because they are a pleasure to work with,” Errington said. “If Rod Coleman says it, it’s so, you don’t question it.”

“They are devoted and they are focused,” Errington said. “They realize what markets are theirs and they realize what markets aren’t theirs.”

“It’s like Alice in Wonderland they are so good,” Errington said.