Rehab men – Giuffre brothers

Where others see delapidation, Giuffre brothers see opportunity for profit
People who buy distressed real estate have been characterized by the local media as “bottom feeders” and “vultures.” But Mallory Properties President Frank Giuffre would seem to be anything but.
Giuffre, who with his brother Dominic owns Mallory Properties, has a history of buying distressed commercial and industrial buildings and transforming them into marketable properties. He is certainly light years away from being a Carlton Sheets protégé, using tricks learned from videos sold on late-night info-mercials to turn a fast buck in real estate. Rather, Giuffre and his company have developed the capability to buy and manage entire companies and alter the landscape of an area for the better.
He sees what others don’t, say observers in the area real estate industry.
“He is a redeveloper – a visionary type of guy,” says Barry Chavin of MLG Commercial. Chavin has brokered some of Giuffre’s properties and has showed him buildings, as well. “He looks at buildings other people think are functionally obsolete, and redevelops them. He is the one willing to take the risk and spend the money that is necessary to create his vision. Then he goes out and makes it a reality. I personally believe he plays a role in our marketplace – an important role – taking buildings that other people are passing up, revitalizing them and making them marketable.”
Chavin said that apart from rehabilitation, Giuffre leaves a distinctive stamp on a property.
“Frank looks for properties that have an upside,” Chavin said. “He looks for buildings that are challenged — some might call them distressed. Frank is a character, and he tries to put character into the building. He is the ultimate marketer and salesman.”
And far from being a buy-and-flip artist, Giuffre is in it for the long haul, tending to hold most of the real estate he purchases for lease revenue. As a life-long Milwaukee resident, Giuffre seems to take pleasure in preserving bits and pieces of the area’s architectural history — even as he racks up handsome gains for his company.
And while the goal in purchasing a building is always to turn a profit, Giuffre seems to have his own emotional preferences for properties with a connection to heavy iron.
“I like heavy things,” Giuffre said. “Cranes. Trucks. Trains. Machinery.”
Giuffre recalls the furor that resulted in 1963 when New York City’s Penn Station — one of Gotham’s largest, grandest public buildings — was demolished only to be replaced by a structure that has been called “one of the most banal, insipid and deeply depressing public insults.”
“That was the defining moment in historic preservation,” Giuffre said.
While Giuffre might not put the buildings he snaps up and rehabs into the same league as Penn Station, some of them are substantial — and related to transportation.
In April of last year, Mallory Properties purchased the assets of Beloit Corp., including buildings and machinery in Beloit and in Rockton, Ill. At the time, the new owners of Beloit Corp. — Valmet — had a 14-month lease option on part of Beloit Corp.’s complex. While Giuffre later sold the 750,000 square feet of space he purchased in Beloit to Water Tower Industrial Properties West, he has high hopes for the future of the Rockton, Ill., facilities that were part of his purchase transaction. The Rockton property is now a major rail/semi-trailer transportation facility, and Giuffre feels the market potential is there for it to expand even further.
“We are leasing this space to a railroad reload operation,” Giuffre said, adding that the original purchase price for the Beloit transaction was for the equipment, 1.3 million square feet and 300 acres of land — figures that put the deal’s scale into perspective.
Giuffre said rail and highway access to the property were prime factors that gave him an inkling of what the site could become.
According to Reload sales manager Chris Salek, the location has been an outstanding one so far.
“We just had the best year out of any of our yards,” Salek said. “This is a great location — we are not in a big city like Chicago, so we don’t have to deal with that. And we serve three major cities — Milwaukee, Madison and Chicago.”
Reload also operates yards in La Crosse, St. Louis, Mo., and Glendale, Ariz.
While Reload Inc., currently focuses its business on — as its name implies — reloading materials from rail cars to semi-trucks and vice versa, Giuffre feels the yard could also serve the intermodal market – which entails transferring entire freight enclosures from rail flat-beds to semis. Salek was hesitant to describe any specific plans to add an intermodal function.
Giuffre points out that should Reload get into the intermodal business, the facility’s primary competition — Centerpoint Intermodal Center in Joliet, Ill., serves only 5% of the Chicago area’s needs — and as much as 30% of their infrastructure is in poor condition.
“The facility is centrally located on I-90,” Giuffre said. “We brought the railroad into the building. It had the railroad nearby — and I-90- – which is the main highway to Minneapolis and the Fox Valley from Chicago.”
Humble beginnings
The Giuffre brothers’ business holdings currently include not only Mallory Properties, but their crane rental and sales operation, a finance division started to help contractors and other buyers finance their cranes, a marina facility in Florida and other entities.
But it all started with a dump truck.
After high school, Frank Giuffre bought a dump truck and started running loads for Milwaukee contractors. Soon, his brother Dominic joined him. After a time, cranes became part of the mix — and before long, the two wound up with a growing crane business on their hands.
“Our first development was a building we utilized ourselves in 1967 in Cudahy,” Giuffre said. “We built a shop for our cranes.”
The experience left Giuffre with the feeling that this was something he would enjoy doing.
“Next, we built a multi-tenant building,” Giuffre said. “We were in the process of looking for tenants when a single tenant came along — a telephone company — AT&T it would have been 35 years ago — and they used the whole thing. So we built another building and it went on from there. It evolved slowly. I was more active in the development end of it, and my brother was more active in the crane end of it.”
While Giuffre got his start in development with ground-up construction, his first rehab project opened a lot of doors.
“The first rehab we did was a car dealership in South Milwaukee,” Giuffre said. “We converted it into a Wonderbread discount store. That was our first venture into rehab. I enjoyed that. I liked doing that. I thought I knew what the potential was and it worked out pretty well. We rehabbed a couple of Firestone stores — both were turned into auto body shops. And I think the first large project was 25th and St. Paul. That was an old gasification works owned by the gas company. It’s an 8-sided tower in the Menomonee Valley — 200,0000 square feet. We turned it into warehousing and transportation.”
In August of this year, Giuffre bought an additional 12.5 acre tract south of St. Paul Avenue and west of the 16th Street Viaduct — adjacent to the former gasification plant. The deal includes 30,000 square feet of building space — making Giuffre one of the largest property owners in the Menomonee River Valley.
Mallory Properties has put its stamp on a vast number of tracts in the Milwaukee area and beyond, but Giuffre still has his favorites.
“Our most significant one now is the Oster Building,” Giuffre said, referring to the facility at 5301 N. Ironwood Lane in Whitefish Bay. “The unique thing about that building is that it was an old industrial building — vacant — and had some environmental problems. It was a location suitable for office or retail.”
Giuffre said there were distinct things about the building that told him of the property’s potential.
“One thing was the physical location,” Giuffre said. “Most of these old buildings were in industrial areas — but that building has hotels and retail around it. We thought it would be turned into something like office or retail.”
Giuffre bought the property in 1995, and things started to happen.
“We brought in some warehousing people,” he said. “We used it as a warehouse, and then we made our contact with Manpower — which was a natural because they were neighbors. The building lent itself to rehab — the column spacings were right, the ceiling spacings were right — it had the right amount of plumbing. It had adequate parking — you need more parking per square foot for an office development than an industrial property. It had all the elements of a conversion. We negotiated long-term leases and rehabbed the space.”
When Manpower initially looked at it, managers of the firm had a hard time envisioning what it could be, according to Giuffre — it was just wide-open space.
According to Manpower director of corporate facilities and services Bob Ruger, the potential of the building was not immediately apparent — at least to him.
“The building had been sitting vacant and underutilized for quite some time,” Ruger said. “When we got involved, we were looking for space for some of our expanding operations …. You had to really work with the architects. Standing there looking at the loading docks where our main entrance is now — you had to really not look at the building but look at the plans. The building didn’t tell you that story.”
Like Giuffre, Ruger found the transformation of the aging structure to be fascinating.
“It has been an interesting process seeing a building that was a tired old industrial building – a building that had seen its better days — seeing it brought from an aged manufacturing facility to an office building,” Ruger said. “It was a fun process to go through — seeing the transformation of the building. I think it demonstrates that the possibility is there. I have seen a lot of former industrial buildings in the Milwaukee area rehabbed into office or commercial space. You need the willingness, fortitude, dollars and the commitment to follow it through. It is not like starting new construction — it is more challenging than that.”
Manpower started with 200 employees at the Oster Building — and now has around 500 there, according to Ruger.
“It started out as a short-term commitment for a small portion of the property — then Manpower expanded its commitment,” Giuffre said. “Now the Oster property is almost leased out. We have Emjay — a division of Wells Fargo that does pension management. We rebuilt Emjay’s space identical to Manpower’s, including the carpet and the colors of the building because they liked Manpower’s space so much. There are not too many buildings around that are suitable for that type of rehab. It was unique.”
But as much as Giuffre likes the Oster building, his favorite project is still a combination swap/purchase deal he put together with compressor manufacturer Vilter Manufacturing in 1994. Giuffre had bought and rehabbed former Ladish Co. facilities on Packard Avenue. Giuffre leased the space to machinery clients until trading the building to Vilter for Vilter’s own 1st Street facility, just south of downtown Milwaukee, and an undisclosed amount of cash.
Giuffre said he liked the project “because of the potential. We bought a building 10 years ago from Ladish — half a million square feet. We rehabbed it, brought in machinery tenants and later traded with the Vilter Corp. Now it is a first-class manufacturing and office space.”
What it takes
Giuffre said the projects he takes on are not for everybody.
“One thing these buildings all had in common was they had some type of environmental problem – or brownfields issues,” Giuffre said. “One reason that we have been able to acquire these buildings is that we have an environmental remediation company. We like to buy buildings that are environmentally challenging.”
Mallory Property’s remediation company, Terrapuris, currently works almost entirely for the developer.
“We will do outside work, but we are pretty much in-house,” Giuffre said.
Industrial buildings left vacant tend to require some type of remediation, and Giuffre says there is a wealth of industrial property opening up — properties like his company’s current headquarters — the former Rexworks building in the 400 block of West Oklahoma Avenue on Milwaukee’s south side.
Giuffre purchased what was left of the ailing manufacturing company in its entirety in 1997 after another firm bought several product lines, and for a time operated the division which made concrete mixers.
In March of last year, Giuffre sold the remaining division to Trinity Industries of Dallas. Giuffre Brothers hung onto the company’s 400,000-square-foot building, which now houses its own operations and several tenants, including a truck-repair company and a steel fabrication shop.
“The Rexworks building here – most of the things that were built here are now built in Mexico,” Giuffre said, pointing to the trend of industrial jobs away from old-line industrial areas of the US.
Of course not all industrial buildings are created equal.
“If you are familiar with West Milwaukee and West Allis — even Vilter — a couple of those buildings — there is not much other use for them,” Giuffre said. “This building here (the former Rexworks facility) was built in the ’40s and ’50s. But some of the buildings that were built earlier were so specialized there was no ability to convert them to anything.”
A simple walk-through is all it takes for Giuffre to determine whether a building is a diamond in the rough or a chunk of quartz on the sidewalk.
“Column spacings, ceiling heights, floor levels and access are important,” Giuffre said. “Some of these buildings were built in small sections. You could get a building that totaled 400,000 square feet — but it might have had 15 different additions. The floor heights are not uniform. The ceilings are not uniform. The windows are not uniform. On the other hand, one of the buildings in Beloit was 400,000 square feet — but it was all built at the same time. You can spot these things just on a walk-through. It is easy to tell a bad one from a good one.”
The number of additions even eclipses age in importance, according to Giuffre.
“Age isn’t as important as the number of additions. If it was built at the turn of the century and was built all at once — it is easier to work with than something that was built 40 years ago and added onto 10 times,” Giuffre said. “Rexworks — this place has only been added onto twice. The bay widths and ceilings are pretty uniform.”
One recent acquisition that does not meet Giuffre’s buy-rehab-and-hold requirements is the Pelton Casteel building on South Chase Street, also on Milwaukee’s industrial south side. Giuffre bought the building after the manufacturer of transportation industry castings filed for Chapter 7 bankruptcy late last year in the wake of losing a contract with Peterbilt — which accounted for 60% of Pelton Casteel’s revenue.
“We bought the Pelton Casteel building — but it is highly unlikely it will be rehabbed,” Giuffre said. “That thing was built in so many different sections — it doesn’t lend itself to a rehab. That is going to be a new industrial site or more retail. It is across the street from Target and right next to a K-Mart.”
Another thing Giuffre looks for in a property is proximity to an expressway.
“My preference is access to the expressway — particularly if it has expressway exposure,” Giuffre said. “The majority of what we have has expressway exposure. The last couple years it has been a little harder to find that — when the economy was good. Now as the economy slows there will be more things available.”
Even in a brisk economy, according to MLG’s Chavin, availability of Giuffre’s type of property is tight.
“Compared to some larger cities, there are less opportunities, but we are still in a large marketplace,” Chavin said. “I think there are slim pickings. But this marketplace does allow a person such as Frank to grow and flourish. He picks up the more challenging buildings and repackages and remarkets them. I think he is good for Milwaukee and Milwaukee is good for him.”
Buying the whole enchilada
As the pickings tighten, Giuffre has found that success in purchasing choice properties at low prices comes easier when Mallory Properties opts in for more than the real estate – purchasing machinery and sometimes the whole company.
“To get a hold of these you will have to be a little more aggressive now,” Giuffre said. “When you buy these things you might have to buy the business segments and some machinery — it is just awareness of the process. We are always looking for more acquisitions. One thing that will set us apart from a rehabber of buildings is that we have the ability to come in and buy a business because of our knowledge of the machinery. We bought Rexworks — and operated the company for three years and then sold it. Our next phase will involve more purchasing of business operations. We will be looking for ongoing operations.”
The ability to buy the whole enchilada gives Mallory a natural negotiating advantage, Giuffre said.
“Machinery people aren’t interested in real estate and real estate people aren’t interested in machinery or ongoing businesses,” Giuffre said. “This way the seller can negotiate with one person on the whole transaction as opposed to three.”
Giuffre said experience gained in transactions with Freuhoff Trailer, Beloit Corp. and Rexworks were instrumental in gaining expertise and confidence in purchasing entire existing businesses.
“We are looking at two projects right now as ongoing operations — both in Chicago,” Giuffre said.
November 23, 2001 Small Business Times, Milwaukee