Mark Green: Butler Construction Co. and Covington-based Corporex have been successful in commercial real estate development for 53 years. Is there anything unique you have done to achieve this longevity?
Bill Butler: Our success in business over the past 52 years encompasses major economic corrections that amounted to nearly 19 years. We successfully navigated four most difficult, sometimes severe periods because we adhered to strict and sound principles in everything we undertook. Our projects were of the highest quality we could afford; the people we did business with, both in construction and tenants in our buildings, were high-quality firms; we did not overfinance; and we never used lines of credit to finance our businesses or projects. Finally, we were flexible to change. We remade ourselves multiple times along the way in response to the changes in trends and financial markets that followed each recession. Success is something one must seek out. At Corporex, we are always seeking the opportunity to fill an unmet need.
MG: Development projects are so complex. Is there a typical sequence of steps for undertaking a project? What comes first: financing, land, specific idea, plans?
BB: Each development project is unique. Accordingly, how one goes about it may be different. There is a general consistency of steps that must be taken. We develop an action agenda for each project that sets forth the steps, hurdles and dates for accomplishment. Development of buildings is like manufacturing, but without a roof overhead and an assembly line for repetition; it is a building process. Being in the construction business was good training for development. We talk about the need to build on a strong foundation and to go step by step through the agenda. But unlike with manufacturing, there is not a customer pulling the product through the process; it is all about push from the top. The job of a developer is to light the fires constantly, every day. There are not a lot of people put together that way.
MG: What is the current status of the Ovation multiuse project in Newport and what will its scope be?
BB: We had to be patient. First, there was the eight-year Great Recession. Then there was the roadway system that the Kentucky Department of Transportation was putting through the property. We redesigned the master plan to allow for this road, which initially was to be funded in 2010 by “shovel-ready money” from the federal government. Then the project got bigger, including Route 9, and the recession got longer.
Now, almost 10 years later, the road is completed, but the market has changed. People do not want townhomes; they want smaller flats. Condominiums are not in vogue; apartments are the current need. Office building opportunities are limited at best. Traditional retail centers and stores are not expanding. So what is to be? We are focused on a variety of entertainment opportunities connected with retail services as the fuel for the Tax Increment Financing district that is necessary to activate the infrastructure and parking podium.
However, Corporex is again intensely focused on this development, wanting to make it happen for this Northern Kentucky community – or bust. We hope to begin work in the spring of 2019, or even sooner should some opportunity come our way. As we speak, we are redoing the master plan to align with the current marketplace.
I view the Ovation development as one of the most important and defining undertakings that will affect the Northern Kentucky community and its economy for the next 100 years or more. It must be designed just right to present a skyline in which the whole community, including Cincinnati, can take pride for generations.
MG: How did the Great Recession restructure the real estate market?
BB: In 10 years, a lot has changed. People want smaller residences. They want more electronics, digital systems. There will be less need for parking structures given that more people will use Uber and Lyft, rent cars for short periods, and live in the urban centers more. The demand for office buildings is moving back to the urban centers, as younger people want to live in the urban areas and work there, too. They do not want a long drive to work. So corporations will be forced to return to urban areas to attract the more highly skilled workers they need.
With each recession, a number of developers and builders drop out of the market for various reasons. This recent recession was no exception. It’s survival of the fittest – and Corporex has never been more fit to move forward than it is today.
MG: Are there any real estate development best practices Corporex is trying to bring to its home community from Denver, where it has been very active for years?
BB: Not really. We wish we could bring the level of activity and the economics of the Denver market home. Rents there are 50-70 percent higher than here, which is better for developers and building owners, and the population continues to grow at a pace three times what we experience here. Denver has great business energy. If anything, what I bring home is the determination that we Kentuckians, and Cincinnatians, should take a stand for change.
There just is not a good reason why our geographical areas should not have a higher growth rate – and we should demand more of both our politicians and ourselves to reject the complacency of the past and get on with building a dynamic environment, demand action. We can do better. Kentucky needs a vision of its future.
MG: How do you currently view the Northern Kentucky market? What will be the impact of Amazon Prime’s decision to locate its first hub operation at CVG in Northern Kentucky?
BB: Northern Kentucky is currently experiencing much demand for logistics infrastructure. Our market is a prime location for distribution centers. However, distribution centers do not employ many people, and those they employ occupy relatively low-paying positions; they do not generate much tax revenue; and they chew up lots of land.
The Amazon Prime installation, in my view, does not fit that mold. It is a higher-level, very sophisticated logistics center that will generate lots of jobs both on-site and for employers and vendors, consultants and others who will service the operations. Basing Prime Air here is also a big plus for the airport, and what is good for the airport is good for the community at large. I understand this to be a global logistics focus, thus generating international interaction, which is another plus. The Amazon investment will take time to unfold and impact, but I am optimistic this will be a huge benefit and that Amazon will be a strong community partner as well.
It’s logistics, but it’s global logistics, and it’s huge, and it’s going to be automated to a great degree. It is better viewed as a high-tech kind of installation than it is a warehouse distribution center. It’s going to create lots of jobs. We did a study on what happened at UPS in Louisville. Some people would claim there are 160 different businesses in the Louisville area that are there because of UPS. The same kind of thing must happen here. It’s going to take time to unfold.
MG: Many business community members as well as public officials say Kentucky needs further tax reform. What do you advocate to improve Kentucky’s tax structure?
BB: Nothing. I feel that what has been done is already helpful and that Kentucky is competitive. What is needed now is a unified effort of the entire state, the business community and government acting in concert to paint a picture of what Kentucky could be in 10 or 20 years, and go for it. We need new and lofty goals for our state that are reduced to a form that business, the population, and the elected can understand and support daily in their work and lives. We as a state still struggle with perceptions of the past. Why not remake ourselves as Kentuckians, as corporations do in response to changing environments? Develop a strategic vision, a blueprint to execute it, and do it.
Growth is what we need, faster and smart. Target high-paying job growth, position ourselves in that respect, and tax revenues will expand. There then will be more resources to support improvements in education and quality-of-life amenities. Business and elected officials in Northern Kentucky are engaged together like never before to address these very quests for our region’s future. It is an exciting time as we speak.
MG: Some people advocate focusing more on occupational taxes from job growth for local revenue streams, rather than property tax.
BB: Well, that and consumption taxes, sales taxes, where you create business and create additional retail revenues. In my view, those are the most fair taxes.
MG: You entered the banking sector a few years ago. Why? Is there adequate financing available to business today and are there changes you suggest?
BB: This was not a decision to enter banking. However, the Corporex of the future will definitely become a diversified financial or capital investing entity, potentially with interests or investments in that sector. I acquired the ownership of a bank as a solution to a problem that arose from the recession. I was a 15 percent investor in American Founders Bank, and it needed capitalization.
I was able to remove OREO assets (‘other real estate owned’ property not related to a bank’s operation, typically collateral acquired in defaults) that were keeping it from moving forward following the recession. But the bank is solid now, and the headquarters have moved to Louisville, where there is more business opportunity. It is today more a business-focused bank than a real-estate-focused entity.
There are, indeed, adequate financial sources today to service the real estate industry. Competition among lenders is strong, some would say tough. I do not see that changing soon, as the world is awash in money in circulation.
MG: What economic metrics do you follow closely?
BB: Money supply is something I have studied since 1977. As money moves, so does the economy, and interest rates are in direct relation. However, money supply is less weighty since the United States has become a part of a greater world economy rather than self-determinant. So there are lots of factors today that one must look at to develop a forecast in which one can be somewhat confident. That is the change of the past 10-plus years. I do not believe we are nearing a recession based on the underlying fundamentals, and I reject the idea that a correction must happen every so many years. However, we could create a recession as a result of the infighting in Washington, the solid growth environment notwithstanding.
MG: Does Corporex have a succession plan? What is it?
BB: The challenge of getting Corporex to continue for another 50 years is my stated purpose and mission. For a commercial developer, succession is always difficult. Private developers are usually dependent on the unique makeup of the founder. This is why we are reinventing ourselves once again. The internal plan is called TRE, which stands for The Reconstituted Entity. We adopted the term early in the recession period with an eye to succession. We are intensely focused on perfecting our portfolio of $1.4 billion in assets by fully leasing property and exploring alternative strategies – with an eye to monetizing at least 50 percent before 2020. We just sold four hotels, representing an approximate $100 million transaction. We have 16 more just like those and several bigger hotel properties in Denver, plus office buildings both here and in Denver. We sold an office building in Denver, and another will be bought by its tenant in February, for approximately $74 million for the two.
Once repositioned with all that cash, we will be seeking opportunities in alternative fields. Those could well include financial services, manufacturing investments, entertainment or simply lending. In any event, Corporex will be more traditionally positioned, and that will facilitate handing off the reins to individuals who are more oriented more toward finance than toward real estate development.
My resolve is that Corporex will be here 50 years from now and will continue the philosophy of contribution as a core element of its purpose.
MG: Who are Corporex’s peer entities in this region? Is anybody else trying to do projects along the scale you are?
BB: Nobody. There are no peers. I would welcome other risk-takers.
MG: You have shifted a lot of your time and energy in recent years beyond your business toward philanthropy and community impact activities. You launched Horizon Community Funds last year with the mission “to unite resources to raise the quality of life for all Northern Kentuckians.” What is your strategy for approaching this in an impactful manner?
BB: This community work is the source of my energy these days. Throughout our corporate career, we held to a standard that we would not wait to give back, but rather we would give along the way both financially and of ourselves, with personal time devoted to the community. Now I am more free to give both time and money. As we monetize assets, we put some of that money in the bank, but we also put a chunk into a charitable vehicle. In addition to the four hotels we sold, we gave a fifth to a charitable trust; a significant amount was set aside for a variety of community purposes. I am building an organization devoted solely to advancing the community agendas, with staff devoted solely to causing change and accelerating various plans that are already in play in the community.
We are encouraging projects that unite the various elements of our community’s leadership. Projects are the way to bring people together. For example, we are working on a new building to be called “OneNKY” where five agencies involved in growth will relocate and share facilities. It will be a striking building in architecture, and it will symbolize progressiveness and paint a new picture, a perspective of a united community on the move. We have formed a not-for-profit development entity to do high-quality infill housing in the urban sector. We are seeking a CEO to run that business, and we hope to stimulate the inner city by building houses, which frankly will sell at a loss, to buyers who will add value by their entry into our community.
Horizon Community Funds of Northern Kentucky, our new public charity, is off to a great start. We were able to engage a roster of high-level trustees to lead this undertaking, many of whom were not previously participating in such efforts. The fund is approaching $20 million under management after only 14 months. The charter of HCF is not limited to serving the less hopeful population; it also will engage as a partner with multiple organizations and with government on projects that move our community forward.
There is no end to the opportunities, nor only one way engagement is accomplished. What we all want for the Northern Kentucky metro of the future cannot be achieved unless all the leadership and all the people who can help are in lockstep and committed. And I am happy – no, excited – to say there is a cohesiveness developing between elected officials, businesses and the executives of the state as well, such as I have not witnessed in my previous 50 years of involvement.
The possibility of our being truly “OneNKY” in all respects is no longer just in our dreams. It is moving to reality.
MG: How is Northern Kentucky doing overall now? What does it need to do more of economically, business-wise or in areas that attach to that?
BB: In Northern Kentucky we don’t separate the economic and community. If the community is vibrant and on the move and has a direction, knows where it’s going as a community, the economic things will follow.
The big issue in Northern Kentucky is unity. We have too many governments, too many municipalities. But there is, for really the first time in my 50-year career here, what appears to be a very strong commitment by most of the top leadership, both governmental and business, and by the not-for-profit organizations as well that are impactful on the community. There appears to be a common consensus that we want to do something about the fragmentation so that we can get to the point of acting as one.
MG: We hear, as you say, that there is more cohesion among all the municipalities and governmental entities in Northern Kentucky. Is there something in particular that’s pulling the area together?
BB: Well, there’s a new organization called the Northern Kentucky Regional Alliance. It’s a collection of 15 or 16 initial members who are all CEOs of their respective entities. They have come together in the past year and hired Karen Finan as the CEO, a dynamic personality. And the mission of this organization is to give rise to change, to advance the community in every way. And they are meeting, as an organization, with the three (Boone, Campbell and Kenton) county judge-executives on a monthly basis.
MG: You’re one of the CEOs in the Regional Alliance?
MG: Is there a single goal that you’re aiming for?
BB: The alliance, being only a year old, is still building its platform and identifying the priorities and the methodologies for moving the community forward. The meetings with the three county judge-executives have been very fruitful and collaborative and give rise to much optimism and energy.
MG: What does the Alliance hope to accomplish? More economic development, more housing construction, more infrastructure construction, all of the above?
BB: Working together, we intend to be working on every aspect of the community. When I speak of the community, I speak of the three-county area that comprises nearly 400,000 people. That’s not a small place anymore.
MG: How’s the education system doing in meeting the needs of the private sector, providing a good and appropriate workforce?
BB: One of the first areas the Regional Alliance is addressing is, in fact, the workforce development methodology. The Northern Kentucky Chamber of Commerce just started an initiative called Growing Regional Outcomes through Workforce, and the Regional Alliance members provided the initial funding for GROW. We recognize that workforce development is a paramount need, and we are endeavoring to develop a streamlined system beginning at preschool ages all the way through to either skilled or collegiate levels.
We know that you have to begin at the preschool levels and that it would involve mentoring programs and scholarship programs and internship programs and tutoring of people from one end to the other. Solutions to workforce development are not going to be short-term in any community, in any part of the country, because it’s a common problem throughout the country. So we want to address it in a total way.
There are currently about 20 organizations trying to address different aspects of it, and the initiative of the Chamber of Commerce is to bring all 20 of them together. We think we can do that.
MG: How would you characterize the region’s relationship with Frankfort and its engagement with the rest of Kentucky?
BB: There has never been a better working relationship or a more supportive executive branch of state government in respect to helping us. There’s never been a closer working relationship. For eight years under the previous administration, Northern Kentucky got nothing, and it was all lost time. This governor has boundless energy. He’s very personable, and the people he has surrounded himself with are strong. It’s a lot of fun to work with them, particularly when we get an economic development opportunity or a prospect in the city. They’re the greatest team we’ve ever seen out of that office.
MG: How can the process for upgrading the Brent Spence Bridge and resolving the traffic bottleneck there be pushed forward?
BB: I feel like the federal government owns that bridge. They built the interstate systems. They have the responsibility to build this bridge.
MG: Does the region have enough available land?
BB: We have the land. We need to quit covering it with warehouses. I started in that business, but we need white-collar jobs. We need high-pay jobs. If you want to grow taxes, you don’t have to add infrastructure; you have to go for a higher-paying job, where you just generate four times as much revenue from the same activity level. ■
Mark Green is executive editor of The Lane Report. He can be reached at [email protected]