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Creating a Company

Brad Schroth breaks the commercial real estate mold.
By Elizabeth Lund

Traditionally, commercial real estate is a cutthroat world. Working on hefty commissions, brokers are looking to enrich themselves as much as help their clients. Why not pull the rug out from under your fellow broker if it will get you a bigger share of that $100,000 commission?

Brad Schroth, CEO and founder of PRES Inc. (Professional Real Estate Services), a company with 28 employees headquartered in Newport Beach, worked in that world for 14 years. His heart was in the work - Schroth calls it a passion for real estate - but he wanted to change the rat-race atmosphere. In true entrepreneur fashion, he created a company that operates outside the box when compared to other firms. Schroth doesn't know whether any other company operates like PRES. Commissions are gone; salaries, teamwork and equity sharing are the operating principles. And in addition to offering brokerage, PRES is a one-stop shopping center for real estate-related services, featuring development and construction, consulting, acquisitions and property management divisions.

Five years ago, Schroth had reached the peak in the commercial real estate business. The clients he was representing liked and trusted him. They wanted him to provide more services; to manage, build, and own buildings on their behalf. Schroth was an expert broker but, because of the way his commercial brokerage house was structured, he was learning nothing about the other components of real estate. He had neither the expertise nor the infrastructure to do what his clients wanted him to do. "I concluded it was time to start a full-service commercial real estate firm that did all those things," says Schroth. He thoroughly researched the top 50 commercial real estate companies, picking them apart, trying to take the best from each.

Despite starting out with a great idea, solid client relationships and plenty of research, the first two years of Schroth's new business were tough and painful. Schroth had a business concept in his mind, but somehow, he wasn't making good hiring decisions. People were coming to him wanting to join the company, and Schroth found himself making too many assumptions. "I thought everyone thought like me," he says, "but they didn't. I thought, the more people, the better the organization. But I wasn't hiring the right infrastructure to support me in my business philosophy. It was a very difficult process."

Not until the third year did PRES begin to evolve into the company it is today. Schroth says he learned from his early mistakes. "The first two years were training. It wasn't fun. I wouldn't recommend it. If I knew what I know now, I might not have started this company. Success doesn't come overnight."

Yet five years later, PRES has grown in each of its operating units, with the construction management division up 100 percent over the past three years and the property management division tripling the square footage under management. Schroth's employees are salaried, an earthshaking exception in the real estate business. Certain employees are selected to receive equity in the business.

"We are almost a boring organization," laughs Schroth, who feels that his success is based on a well-balanced life. "My priorities are God, family and business, in that order, and the same goes for the whole company. We socialize when we have to, we work hard, but we believe in family and having

time for our kids." Like many entrepreneurs, Schroth stays physically active to relax and stay sane. "I play golf, snow ski, coach Little League baseball, coach soccer, and dance with my daughter, if she'll let me." While the employees at PRES work long hours, they challenge one another to hold on to the company's foundation priorities.

Schroth's training in sales came at IBM, and he's brought some of IBM's company values into PRES. "Training at IBM was a very good discipline," says Schroth, "and a good core for confidence building. At IBM, I learned about the fundamentals and the value of hard work. IBM groomed me. Lots of IBM and Xerox salesmen gravitated to commercial real estate." Today at PRES, Schroth takes his cue from IBM, requiring white shirts and suits from all employees. "I demand it," says Schroth. "Our clients demand it. You can never insult anyone by dressing more formally than they are. You can insult them, however, by wearing a Hawaiian shirt when they're in a suit. Why lose?"

Commercial real estate requires consistent long-term planning, and Schroth looks 10 years out when plotting company strategy. PRES recently opened a Nevada office, based in Las Vegas, and would like to continue controlled growth in Southern California and the satellite areas of Phoenix, Northern California and Colorado. "Our goal is to grow in both infrastructure and services," says Schroth. "We want not only to represent our clients properly, but to grow our asset base." This means continuing to acquire and own real estate.

But getting bigger isn't Schroth's only goal. He also wants to continue learning about humility. "If you boast of possessions," he says, "you lose. Just tuck it away, no one needs to know, and go about your business. A lot of people like to boast. Our question is, why? Why not grow quietly? Then, if people find out, that's power. There are a lot of egos in Southern California, unfortunately. When you work in brokerage, they teach you to put up a lot of signs and talk all about the deals you're making. I'd rather be the quiet guy. I don't need to be high-profile, smoking a cigar, with my name on high-rise office buildings. My strategy is to keep a low profile. It's a much more powerful philosophy. When they find out about you, it means more than you telling them about yourself. People love to talk about the millions they make.

My goal is to be selective about where and when I talk about the deals I've made. You have to market yourself. So let select people know. Then, when people find out, often it turns out we're in the right place at the right time. I've sat opposite a competitor at a meeting; afterwards, their client comes up to me and says, 'I have the wrong guy on my side.' Suddenly, we have a new client."

Schroth would like to build his business to 50 or 60 employees, but he's aware of the diminishing returns of growth. "The odds of failure grow the bigger you get," he says. "When real estate firms get too big, you lose control. Once you go public, you don't make the calls anymore. I like to be in control. We have five or six guys making good decisions. It's very personal. And that's one of our strengths. We move quickly, because we're not too big. To survive in Orange County, you have to be able to do that." And now that all of PRES's five divisions are profitable, they're always looking for talented employees who will fit in with the company's philosophies and goals. "I like these guys in the organization," says Schroth. "It's a really fun group. I like coming to work every day. And it's not all about money." OCM

Elizabeth Lund is a regular contributor to OC METRO Magazine. E-mail: eslund@bigfoot.com.