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Aug 23, 2019

Posted on
Jan 16 2019

The Guthrie Center for Real Estate had the pleasure of hosting Al Klairmont for an Executive Speaker Luncheon on November 8, 2018. As President of Imperial Realty Company, Al has been inducted into both the Chicago Area Entrepreneurship Hall of Fame and the Chicago Association of Realtors Hall of Fame. During a presentation to the students of the Kellogg Real Estate Club and the Family Enterprise Club, Al provided insight into his experience joining and growing his family business and elaborated on his commercial real estate ventures throughout Chicago. He also shared words of wisdom on becoming a successful real estate entrepreneur and discussed his involvement in the Harold E. Eisenberg Foundation, encouraging students to participate in the foundation’s incredible mentorship program which pairs students with industry leaders.

After graduating from the University of Illinois at Urbana-Champaign, Al went to join his father Larry to manage and invest in commercial properties. At the time, Al recollects, it was just him and his father that made up Imperial Realty Company, and he learned on the job the many things that school did not prepare him for. Forced to wear all hats at the company, Al intimately learned all aspects of the business, from brokerage and property management to acquisitions and development. As the family’s investments grew, he slowly built a team around him so that the company could continue to manage and own each aspect of its growing portfolio.

From its inception, the firm’s strategy has been to purchase undervalued assets and redevelop them to realize each property’s full potential. The company often purchases properties in foreclosure and maintains a close relationship with local banks; however, Al explained that good deals can also be made with independent property owners who have either neglected or mismanaged their properties. Through proper maintenance, attention to detail and care for the tenants, Imperial Realty Company has been able to capture the full value of its properties while minimizing incremental investments.

Shortly after Al joined the company, his brother Robert followed suit and worked alongside his brother and father to grow and scale the business. More recently, the company introduced its first member of the 3rd generation by hiring Al’s daughter Julia. Like many family businesses, Imperial Realty Company takes a long-term approach to investments and prefers to buy rather than sell assets. In fact, Al said that the firm rarely disposes of its assets and maintains conviction in every one of its investments.
Furthermore, the family prefers to avoid debt and in almost all cases uses cashflows from existing holdings to purchase new properties. Having little to no leverage in its portfolio, the firm has been able to avoid financial distress and take advantage of amazing buying opportunities during economic downturns. By keeping with this strategy as well as maintaining a commitment to quality and its clients, Imperial Realty Company has built a portfolio of over 100 properties and has redeveloped over 20 million square feet of office, industrial, retail and residential properties. Running a family business is challenging, Al mentions, however, one can do so successfully if at least one steward of the business is willing to put personal interests aside to work for the greater good of the family.

Al reiterated his love for the industry throughout his presentation and provided his opinion on the three factors which make real estate the best investment vehicle. First, he explained the tax benefits of depreciation. Second, he described inflation benefits and how real estate provides a great hedge as the value of the underlying asset increases along with inflation. Finally, he explained the value of positive financial leverage and how moderate leverage can be used to generate positive returns. With this however, Al warned against the dangers of becoming too opportunistic and discussed the three most common reasons that real estate professionals fail. First is over-leverage. Taking on too much debt introduces the greatest risk of default during unexpected downturns. Second is ego. Many property owners stay in a bad deal due to personal pride or for emotional reasons despite better alternatives. Third is indifference. It takes care and attention to detail to successfully manage an asset.

To aspiring entrepreneurs, Al gave three pieces of advice. First, forget about the cap rate. In this, he means that rather than speculating on market trends and relying on complicated models which sway with cap rate assumptions and the like, one should focus on property fundamentals and simply shop for deals where value can be added and captured. Second, create and identify a niche. Beyond finding a niche with few competitors in which they can succeed, real estate entrepreneurs should also find something they are passionate and excited about. Third, only buy on main street. Properties with good locations are the ones that will succeed, and buildings on primary streets are the ones that hold latent upside. Finally, Al went on to encourage every person to pick up two habits: write everything down & record good ideas. As a busy entrepreneur, it is only in writing down his daily to-dos that he can keep track of his countless obligations and ensures that he is maintaining his commitments. He has a system in which every day he transcribes and tracks all items on a yellow notepad and highly recommends everyone to do the same. His second important habit is to always carry a voice recorder. He explained how his best ideas come to him while driving and if he did not have a method to capture these, many of his greatest ideas could have slipped away.

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