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Turner Corp., the largest building construction company in the country, has learned the hard way that real estate development is not as easy as it looks.
The Manhattan-based company's decision in the late Seventies to begin wearing an owner's hat as well as a hard hat led to disaster. Real estate projects that went sour forced Turner to post a $22.3 million loss in 1987, after years of profitable operations. Development activities lost another $15.5 million last year, meaning the company managed only a $3.7 million profit.
For Turner officials, the losses were convincing proof that they had erred in making such a commitment to development in the first place. So while they continue to extricate themselves from ownership positions, executives are focusing on increasing their market share in their traditional construction business and expanding into new building markets.
"We're going to continue to do what we do best and have done best for the last 88 years, and that's construction," says Harold J. Parmelee, chief executive of Turner Construction Co.
But Turner's torturous experience in development also provides a powerful lesson for the construction industry in general. It demonstrates that constructing buildings and making buildings financially successful require completely different skills.
Some New York area construction companies, however, have been successful developers. For example, DeMatteis Organizations has developed and constructed U.N. Plaza, the Museum Tower and numerous other profitable projects along the East Coast. Tishman Realty & Construction Co. has also been making money off development in recent years, although it does not own property that would compete with structures Tishman builds for other developers.
But other large national construction companies that have delved into development, like Turner, have also been hurt. For example, Boise, Idaho-based Morrison Krudsen Corp. is divesting itself of its real estate holdings after suffering development losses of $82 million in 1987 and 1988. "The abiding conviction at this company now is to do what we know best," a Morrison Knudsen spokesman says.
Construction industry analysts trace the difference between those construction companies that succeed in development and those that do not to corporate culture.
Development requires much different skills than construction; risk analysis, dealing with government...