An Interview With: Jim Beers
Jim Beers is one of the elder statesmen of commercial real estate in Washington, advising developers and others for over 40 years on accounting, taxes, transaction structuring, succession planning and general business matters. Today, at 67, he spends three weeks each month in London helping a longtime client develop shopping mall projects throughout Europe. This month he matched a gift of his firm and together they contributed a quarter million dollars to George Mason University’s School of Management for the James R. Beers scholars. Beers & Cutler, founded by Beers and his colleague John Cutler in 1976 with one other employee and 800 square feet at 18th and M (see more colorful details below), now has 250 employees, $40 million in revenue, and a shiny big building in Tysons Corner it moved into last September.Editor’s Note: One of the bonuses of publishing these newsletters is the chance to come to know my sponsors, who tend to be major names in Washington business, both companies and people who are very much a part of the scene that these newsletters cover. So I trust readers will understand when on occasion I interview one of my sponsors—I wouldn’t do so unless they are certifiably important and interesting. Jim Beers is an example who clearly fits that description.
Bisnow on Business: Given your humble roots 30 years ago, what do you think when you drive up to the office and see this huge Beers & Cutler sign on Leesburg Pike?
That they couldn’t possibly have made it any bigger?
No! That you’re such a big institution.
Well, I reflect back on the decisions that John and I made when we started the firm in terms of focus, and I think that has served us well. We wanted to hire the best people, but that was not so easy in the beginning as you tell candidates, “This is a really wonderful opportunity,” and the person’s looking around your small office thinking, “You gotta’ be kidding.”
You were competing with the Big Eight back then.
And some very good local firms. So we decided we had to focus. For example, we said no to auditing public companies, and we’ve stuck to that. We did not do stand-alone individual tax returns. We made these decisions because otherwise it would have diluted our resources. When condominiums became a big deal, we didn’t do work for condominium associations.
On the other hand, you said yes to real estate.
Yes, and today we have more than 70 professionals including six partners serving the real estate practice. This whole floor is our real estate group. We let Ed [Offterdinger, managing partner since 2000] share the space up here, but that’s just so that he can feel important. And we have a terrific law firm practice, the largest one in Washington. We have the dominant auto dealer practice in Washington. We have a wonderful government contracting practice. But the thing that ties them all together is that they’re entrepreneurial businesses. We work for over a third of the largest commercial real estate developers in this area and a third of the largest general contractors, doing not just traditional audits and tax returns, but an enormous amount of transaction structuring, tax planning, and succession planning.
You’ve been watching the real estate scene for 43 years. How’s it changed?
Most of the real estate development in the 60’s was private development done by such people as Oliver Carr and Charles E. Smith. The developers were mostly local and the capital investment was relatively modest. They would raise money among friends and business associates. There’s been an enormous amount of capital wealth created by successful developers who brought in partners, such as JBG, Carr, Smith and Quadrangle. But the landscape changed gradually as real estate became much more expensive and capital intensive. Washington started attracting large institutional and international investors which, combined with growth in the federal government and related independent businesses attracted more “big money players,” making it more challenging for the small guys.
How does that change your activities when you have more outside institutions coming in like Boston Properties and Hines?
That does shrink the market a bit since we don’t audit public companies, but we do consulting and other special projects for them. It’s interesting because some of our clients will have transactions with private institutions like Blue Capital based in Germany, then Blue Capital will end up hiring us to do select work for them because they understand we have local knowledge, real estate expertise and relevant tax skills. And so that continues to add opportunities, and we get an awful lot of international and institutional clients.
Is it harder to be a small real estate entrepreneur now in Washington?
One of the things you have to do is try to figure out what part of the market the big guys are not playing in. So you can have somebody say, “Okay, I’m going to start off with developments that are in the five to ten million dollar range,” whereas a big company says, “We’ve got a fifty million dollar cutoff because we don’t want to fool around.” It’s just as time-consuming to buy something for five million as 50 million or 200 million, because you still have all the legal work and due diligence. The smaller developers may be more willing to take a risk. I remember when a Watergate building was sold a while back and there was some small environmental risk associated with it. And it was thought to be almost a non-event. But it might take a large developer out of it because they can’t take that risk, so somebody local can step in and say, “I know how to manage that risk.” Then you also see smaller developers who come in and decide to go into an untested market either way out in the suburbs or parts of DC that have not yet been developed and that the big institutions are not interested in. The big guys want to be on K Street, the East End, Tysons Corner or something established. So there are still lots of opportunities for these smart young developers who want to start their own business.
Your name is up in lights in Tysons, but you’ve spent much of the last three years in London?
I’ve been going over every month for three weeks a month, working for a developer there who builds outlet shopping centers. He’s built seven in the UK and seven on the continent. I originally went over for a limited period of time to help organize the finance department, and became more actively involved in the transactional aspects of the business. So now I’m helping in financing and joint venture negotiations with Italian real estate developers, Austrian insurance companies, UK institutional investment funds, and so on.
Are you doing this individually or wearing your Beers & Cutler hat?
And how did you get involved in this?
A client of the firm went to London to set up a business. I’d known and worked with him for 35 years and he knew that I had changed my role here. It’s been seven years since I decided that the firm needed to start preparing for a change. I had been managing partner for almost 25 years. The developer knew I had terrific partners who were running Beers & Cutler and doing all the work, and he said, "Why don’t you come over and spend six months?"
But you ended up staying three years in London, and still counting.
Is that partly because you’d gotten to like London?
What’s it like? What do you do?
A lot of what I enjoy about it, besides the excitement of the work, is the cultural stimulation of dealing with people in different countries. We have real estate developers in Italy who are partners in three Italian developments, soon to be a fourth, and working with them closely is very interesting and you learn about the different countries. For example, I was much more interested in Italy’s recent election results than I would have otherwise been.
What’s it like to do commercial real estate in Europe compared to America?
Much more lawyer driven. Horribly so. The transaction costs associated with buying or selling something they call pan-European transactions, among multiple countries, have fees that are way out of proportion to the price by US standards. If something’s worth a hundred million, the fees can be four to five times what you would have in the US. That’s money wasted. It doesn’t create value, it’s simply following all the laws.
So as much as you like to learn about other cultures, it must drive you crazy.
Do you think that’s one of the reasons that Germans and others invest money in the US, not just because they think it will appreciate so much but it’s easier to do business here?
Yes. The US market is much more dynamic and business friendly than the continental European market.
So I’m realizing this is an inspirational story. You’re basically saying you’ve worked with all these local Washington developers, and now you’re applying lessons from them in Europe. You’re spreading the Washington real estate gospel!
Sometimes they have suggested they would like me to stay in Washington. So I guess I’m spreading something. The Europeans we work with are very smart, hard working and ambitious, but they are hamstrung by government regulations. They’ve grown up with them and they don’t challenge them. Bringing a fresh perspective enables one to challenge more and say why don’t you do it this way or why don’t you try that, which is one of those things I’ve learned from all of my clients.
How long could you see staying in London?
Another couple of years. We go to plays, walk the parks, visit UK towns, take long weekend trips to Eastern Europe and the Middle East.
Now, what’s this I hear about giving your money away to George Mason? And you decided to even before they got to the Final Four.
That’s right. In fact we were over there in early April. They had a little ceremony. I’m especially proud since we had two-dozen George Mason graduates there who work for us, and we took a picture of me with all of them.
Why did you make this gift?
You know, you talk about what helps you with your success, and it’s having terrific people. We have to have the best people around us, so to have educational institutions like George Mason producing these people is great for Beers & Cutler. So many people help a firm succeed, you have to run it for everyone, not just yourself. One of the things John and I put in our partnership agreement was a mandatory retirement age of 65. Of course, at that time I was 37, so I thought 65 was a hundred years away. Now I’m 67. But I had seen too many firms where the founders would hang around too long, instead of giving the young guys with new ideas the opportunity to run things. So my mandatory retirement was two years ago. Besides a little bit of a roast, the firm said it wanted to set up a scholarship fund in my name. I thought that was wonderful. But then I gave some thought to it and I said, “Well, I’ll match the amount.” And we’re going to do the same thing at the Robert H. Smith School of Business at the University of Maryland.
How did Beers & Cutler come together?
John Cutler and I worked together at a firm in Washington, MB Hariton & Company. A very prominent firm, a very good real estate practice. I had gone to work for them in 1963, and John joined in the late ‘60s. I was a partner in the firm and he worked for me. In 1976, I decided to set up my own business, and so I told the people I needed to tell. But John, who had just been made a partner, said, “Hold on, I want to come with you.” And I said: “That’s terrific. It’d be great to have you, and if there are two names that will make it sound more substantial than just ‘Beers.’” So we started with the two of us and one other accountant at 1800 M Street. It was a nice building, with 800 square feet. I think the rent was about eight dollars a square foot, and I remember saying this space may last for five years.
No, it lasted nine months, and we moved three blocks away to 21st and M for two years, then to 1200 New Hampshire for six years, then 1250 Connecticut Ave. We remained based in Washington, partly because that’s where the firm we had worked was located, and we didn’t want our clients to know there was any difference.
What were your revenues then and now?
We started off with about $100,000 in billings, and today we have revenue of $40 million.
Always a strong focus on real estate?
Yes, because that’s what John and I had both worked on at Hariton. Real estate has always provided enormous opportunities for tax planning and tax savings. In fact, in the early 1980’s a friend with the Joint Committee on Taxation said that if the real estate industry were exempt from tax, it would actually add revenue to the economy because of all the tax shelters. You would have huge tax deductions at a 50% or 60% rate, but you would pay it back as capital gains at a 20% rate, so it was a net loser.
Why did you move your headquarters to Tyson’s?
Recruiting was the main reason. We had two offices for the longest time, because we wanted to keep the DC presence. We established the second office in Tysons 15 years ago because northern Virginia was a strong and growing market. We moved most of our DC employees into our new offices in Tysons Corner last fall. As the fastest growing accounting and consulting firm in the Washington DC region, we needed space to expand. :)