Stanley W. (Stan) Sloter- Setting the Paradigm (#16)

"Control costs during the design phase to help you save money in the overall planning process"- Stan Sloter

Bio

President and founder of the Paradigm Companies, Stanley manages Paradigm’s daily responsibilities as a full-service development, construction and property management firm.

Beyond his Paradigm responsibilities, he also teaches a graduate-level real estate development course during the fall semester at The George Washington University. Before initiating a career in development, Stanley worked in construction lending with Pittsburgh National Bank. An active community member, he is a founder of Rocketship Education (a DC charter school) and serves as both the Chairman of the Board of Trustees for Lycoming College and a member of the Board of Trustees for The Washington Center for Academic Studies.

Stanley is a longtime supporter of Teach for America in DC and an advocate for affordable housing. He has served on the DC Comprehensive Housing Strategy Task Force, the Arlington County Housing Commission and the City of Alexandria Affordable Housing Work Group. Stanley is a graduate of Lycoming College, with a Bachelor of Arts degree in Chemistry, and has a Master of Business Administration degree from the University of Pittsburgh.

Show Notes

Current Role at Paradigm

• Diversified real estate company (3:40)
• Effort to manage and maximize value on mostly multifamily
• Construction company- $200MM/yr.
• Property Management- 8,000+ units
• Development business (1-2 projects per year)
• Rolled up into a holding company
• Oversee and capitalization of companies- strategic management

Perspective of COVID 19 Crisis

• How do we work through this? (6:20)
• In housing business and are "deemed essential" in all businesses (6:40)
• Operating business needs to keep going during crisis (7:00)
• Day to day issues- tenants' illnesses & rental capability
• If in office or retail business, what are structural changes ahead? (8:30)
• TOD oriented now- will this (transit orientation) be a viable strategy beyond the pandemic? (9:15)
• Prediction- Numbers will save us such that we will get comfortable again (a hope) (10:05)
• Collections- Good so far due to tenant demographics…not sure about May (11:20)
• Affordable units are harder hit…some tenants may take advantage if they are laid off (12:00)
• DC area will fare better in the short run (12:30)
• Situation now is different than earlier downturns (13:00)

Background & Education

• Origins- Central PA (Altoona, PA) (15:05)
• Mother was entrepreneurial (15:30)
• First business at 16- Painted parking lots- striping (Story)A&P hired him to stripe their parking lots around PA (15:45)
• While a Sr. in HS he wanted Tax ID info from him and found out he was a "minor" and his agreement with A&P was not valid- he didn't accomplish any of his duties (17:15)
• He was ready to go to work, but they told him he should go to college and they would forget all the legal issues (19:30)
• Parents nor siblings went to college
• He then attended Lycoming College with wrestling as an initial focus (20:45)
  • Majored in chemistry
  • Internship with Merck- learned he didn't want to be a chemist
  • Shifted interest to business
• University of Pittsburgh MBA (22:30)
  • Finance focus

Career Trajectory

• PNC Bank- Training program Real Estate Group- Early career learning the business in the early 1980s (23:20)
  • Loved real estate sector
  • Mostly workouts in early 1980s
• National Development hired him from the bank (25:00)
  • Affordable housing
  • Tax shelter business coming to an end in the mid 1980s (25:45)
  • Seymour Baskin, Principal
  • Hired him to open development office in DC in 1986 (26:10)
  • $100,000 for everything- office, project sourcing, and salary
  • Used their construction business capacity to deliver at a lower basis (27:00)
  • Satisfaction of "hard work" on job work- understands the working philosophy (27:50)
  • Controlling cost during design phase to save money prior to building (28:40)
  • Embedding cost savings in a deal as a result of keeping costs steady during HUD approval process (30:10)
  • Start with a system (31:05)
  • Efficient Structure most important as the cost saving approach (31:30)
  • Architect need to work with structure design before designing units (31:45)
  • Air flow and his philosophy of the entire project (32:25)
  • Wardman Row project- affordable renovation project (HUD financed) (33:00)
  • Ballston Place was the first "real" project (34:15)Paine Webber Properties provided equity- Gary Gowdy then joined Aetna (34:50)
  • Aetna relationship- Equity investor (35:15)
  • Inflation plus 4% then (over 10% at that time)- Open Ended Fund (35:52)
  • Used philosophy of "lower cost denominator" to develop projects (36:05)
  • Agreed with development strategy to own long, not merchant build and sell
  • Stan never was in "affordable" business- wanted him to do market rate projects (38:00)
  • Built operation up to 40 people until 1990 (38:35)
  • Construction and Development in other project types (39:00)
  • Projects went under water and he laid off the bulk of his staff except for a few people he kept on ongoing projects (39:40)
  • He was let go in 1991 (40:15)
• His current team and he formed Paradigm in 1991 (40:30)
  • He was given deals under development (41:00)
  • He had no problem assets and became a receiver on several projects that were in distress by the bankruptcy court (41:30)
  • New project in Courthouse financed by Hawaii Pension fund with Obayashi Const. as a bond agent for construction (42:50)
  • Bought out Obayashi out of the deals (43:30)
  • Three profit centers for Paradigm (Development, Construction, and Property Management) (44:00)
  • Wanted to have three buckets to keep fees steady
  • Few development deals ongoing
  • Partners who are best partners are like us-long term hold (46:00)
  • Still have institutional partners (46:30)
  • UBS could hold long term as they were "open end" funds
  • Construction is 80-90% third party (47:30)
  • Help competitors save money on construction and he usually doesn't compete (47:55)
  • Paradigm as a builder adds value to construction process in planning (48:20)
  • Property Management is 80% owned (50:05)
    • Volume business but not profitable (51:10)
    • Comparison with Bozzuto (51:30)

Market and Risk Perspectives

• Market perspective
  • Fan of TOD and urban lifestyle and have created considerable value in the DC area (53:30)
  • Believer in owning apartments long term
  • Easier to be "green" in high rise buildings (54:25)
  • Not sure that COVID 19 will impact this thinking
  • Decided not to get involved in "micro-units" (55:05)
  • Worried philosophically about affordable housing (55:20)
• Risk mitigation is long term holds with lower leverage (56:25)
  • Short run issues cause problems (56:55)
  • Locks in construction/permanent financing typically (12 yrs. plus) (57:10)
    • More equity
    • Fewer transactions
  • Northwestern Mutual sale deal in 2009 recession (58:25)
    • Paid a great price, but wanted to determine that value while low had no impact on his other assets (since he owns long he is not "marked to market") (59:10)
• Personnel
  • Seeking integrity and hard work ethic (1:00:30)
  • Environment to be successful
  • Find the right chemistry- good people we want to work with (1:01:10)
  • You know for sure when you get it wrong (1:02:00)
• Partners- 30 years together- great cultural blessing since the beginning of Paradigm  (1:03:10)
  • Clark Ewart
  • Michael Bushkoff
  • Alice Barrett
  • Patty Smith
  • Need to figure out next generation of leaders (1:04:45)
• Rolled up all partnership interests into a holding company (1:05:20)
  • Working on finding leaders for each of the three businesses
  • Created a "family office" type environment (1:06:00)

Giving Back & Personal Philosophy

• Two daughters (1:06:45)
• No children in business now (1:07:20)
• Teaches at GW (1:07:50)
• Board of Lycoming College
• Rocketship Schools- DC based school- K-5- Read and math at grade level in 5th grade (1:08:00)
• Feed them and no homework
  • Ambition to give them a chance as a middle school kids
  • Ground up schools
  • California based and have a philosophy about hiring teachers (1:10:30)
  • Technology
  • Wife is most interested
• To his 25 yr. old self: Not to be afraid to take a chance to go for something you want"Take a chance to get what you want" (1:12:00)
• Self Reliance, Integrity- "You don't have to be from a wealthy family, yet hard work can get you what you want." (1:13:30)

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