Whether the Baton Rouge Area Chamber is actively recruiting outside companies or just marketing the Capital Region for expanded economic development, it’s doing so primarily with cash from private investors in the local business community.
That can make courting or assisting new companies—that is, new competition—a tricky business. BRAC President/CEO Adam Knapp knows investors will continue to contribute only if they trust their dollars are being spent on efforts to grow the local economy and not to split the pie into smaller pieces.
“Part of the side effect of growth is increased wage and market competition. That’s always an issue, and our investors are fully aware it occurs,” Knapp says. “However, they also know an overall net increase to the economy is going to benefit them. So when you’re using private funds, there has to be an inherent trust.”
When investors believe—correctly or not—that trust has been violated, it can create problems, exemplified by the recent announcement by national commercial real estate giant Grubb & Ellis Co. it would open an appraisal office in Baton Rouge.
Days before Grubb & Ellis confirmed the move on Feb. 15, a firestorm of e-mails—at least one calling for Knapp’s job—circulated among some of the city’s largest and most prominent commercial real estate agents and appraisers. At the same time, a number of the agents sent a thinly veiled threat to pull their financial support of BRAC to Knapp in an e-mail that was obtained by Business Report.
The uproar has nothing to do with increased competition, says Karl Landreneau, director of commercial sales and leasing in Baton Rouge and Lafayette for NAI/Latter & Blum, who was included in the e-mail chain along with representatives from Beau Box Commercial Real Estate, Donnie Jarreau Companies, Stirling Properties and Kurz & Hebert Commercial Real Estate.
“It has everything to do with the way it was handled,” Landreneau says. “They used the dues we pay them every year to recruit a competitor. That’s just bad business. It was a slip, and they got caught with their pants down.”
Knapp says Grubb & Ellis was “absolutely not” recruited or provided any incentives. Rather, he says, company representatives were part of a selection familiarization tour last year, along with about 10 other companies, because of Grubb & Ellis’ close ties with industry leaders who make major site-selection decisions.
At no point during that trip or since, Knapp says, has anyone at BRAC recruited Grubb & Ellis, adding that the company made its decision after seeing the prospects for growth in the area.
Landreneau vehemently disagrees.
“That is the biggest crock of [bull] I’ve ever heard. It just doesn’t hold water,” he says. “My question is, why weren’t your members invited in along with the competition then? They talk about all these national contacts. Hell, I have the same contacts. In fact, NAI is bigger than Grubb & Ellis.”
The agents and Knapp have scheduled a meeting in the coming weeks to sort out rumor from reality, Landreneau says. Regardless of what really occurred in the Grubb & Ellis situation, it underscores the delicate balancing act BRAC has to perform day in and day out as it goes about its economic-development work.
To achieve that balance, Knapp says, BRAC adheres to a policy when it comes to spending funds to recruit. In short, the chamber won’t recruit a company unless at least 50% of its revenues come from outside the market. By that standard, he says, Grubb & Ellis is not a company BRAC would have considered recruiting.
“That test gives us a way to make sure we’re focused on things that provide a net benefit to all the companies already in our market,” he says.
Though Knapp maintains no money was spent to bring Grubb & Ellis to Baton Rouge, there is some anecdotal evidence to suggest BRAC might have, at the very least, talked up such a move, Landreneau says.
For one, BRAC Executive Director of Business Development Iain Vasey was a vice president for Grubb & Ellis in Glendale, Ariz., before joining the chamber in March 2010. Knapp bristles at the suggestion Vasey had any influence on his former employer.
“I’d be surprised—and a little bit concerned, to be quite honest—if a company made a business or market decision because of the presence of a former employee,” Knapp says. “However, the short answer is no, I don’t see that his status as a former employee played a role in their decision.”
There also are persistent rumors that a Beau Box agent overheard Knapp poor-mouthing the local commercial real estate community, according to the e-mail chain. Knapp denies the allegation, but says he won’t elaborate on rumors.
And then there was the mysterious departure of Chad Cornett, BRAC’s director of business development for the past five years, in the week following the Grubb & Ellis announcement. It’s not clear if Cornett was fired or if he quit, or if his departure had anything to do with the Grubb & Ellis dustup. Neither he nor Knapp will comment, but Landreneau and others in the commercial real estate community believe there’s a connection.
In fairness to BRAC, there’s also plenty of anecdotal evidence suggesting it didn’t recruit Grubb & Ellis. International Economic Development Council President/CEO Jeff Finkle points out that it’s not uncommon for economic development organizations to establish a relationship with Grubb & Ellis through familiarization tours.
“If I were running an economic development program in Tucson or Tulsa or Baltimore or wherever, I’d be bringing Grubb & Ellis in to look at the assets in the community, too,” Finkle says. “They are very involved in helping companies make site-selection decisions.”
Grubb & Ellis’ expansion into new markets hasn’t exactly been rare in recent months, either. The company has been aggressively expanding since the launch of its Landauer Appraisal and Valuation brand last summer, opening 24 new offices across the country.
Knapp describes BRAC’s relationship with the commercial real estate community as great, and says the relationship is “very important because it is the cornerstone of how we effectively market sites.” No pledges from anyone in the commercial real estate community have been pulled, he adds.
According to Landreneau, however, some fences still must be mended.
“I can tell you it’s not patched up at all,” he says. “But it’s not all sour grapes, either, and I think we can work it out. We just want to know the truth—I’m not saying they’re lying—but we want to know what really happened. We haven’t been satisfied with the answers we’ve gotten so far.”
Knapp and Landreneau agree on one thing: A healthy relationship benefits all parties. Finkle says every growing city deals with occasional riffs such as the one created by the Grubb & Ellis situation, but he adds the circumstances are nonetheless unique.
“It sounds to me that what happened was a fluke,” Finkle says. “If you and I sat down and wrote the most stringent policy on recruiting, we couldn’t have covered this scenario.”
About Grubb & Ellis
Santa Ana, Calif.-based Grubb & Ellis is one of the world’s largest commercial real estate services and investment companies, with more than 6,000 professionals in more than 100 company-owned and affiliate offices. The firm’s transaction, management, consulting and investment services are supported by proprietary market research and extensive local expertise. Through its investment subsidiaries, the company is a leading sponsor of real estate investment programs that provide individuals and institutions the opportunity to invest in a broad range of real estate investment vehicles, including public nontraded real estate investment trusts, mutual funds and other real estate investment funds.
