Long Haul The current real estate crisis is the "worst goddamn nightmare" Wes Foster has ever seen. But Long & Foster's CEO plans to come out on the other side, bigger and better. By Christianna McCausland If you ask P. Wesley "Wes" Foster Jr. to wax poetic on the real estate debacle of 2008, he won't disappoint. "It's the worst goddamn nightmare you've ever, ever seen," he exclaims. "The banks were at fault. Fannie May, Freddie Mac were at fault. The people that bought these houses were at fault. There are certainly some real estate people at fault. All kinds of people were at fault. About every 10 to 15 years we get sloppy and get into this mess. But this is the biggest mess I have ever seen in my life." As the 75-year-old CEO of Long & Foster, the largest privately owned real estate firm in the country, that's really saying something. (Long & Foster is the third largest firm in the nation by closed business volume, behind only NRT, Inc., and Home Service of America, Inc.) According to Foster, the cause of the crisis was a combination of greed and sloppiness: people buying homes not to live in but as investments to flip on the premise that the value would increase; people buying more home than they could afford and lenders allowing it, providing loans even when there wasn't enough documentation to indicate the owner could pay on the debt. And then there was the packaging of loans for international sale. "That would've been all right if somebody was tending the shop, but no one was," says Foster. "The people that should have been tending the shop were not and they knew that these people were packaging these bad loans, that they were selling them internationally to poor little ladies in northern Norway that thought they were buying a good deal, and they were buying crap. And now we've got these things all over the world, and they're bad loans. And that's bad. It's terrible. And it's created this awful mess." Real estate can be a tumultuous business of peaks and valleys. In the 40 years since he founded Long & Foster with Henry Long, Foster has seen years of feast and famine. What sets him apart is that where others get bought by competitors or fade into oblivion, Foster has gotten bigger and better. From the Ground Up Wes Foster grew up in Atlanta, GA, with three brothers. "We grew up with nothing," he says, "literally nothing." Like his brothers, Foster got a scholarship for college. He attended Virginia Military Institute and completed two years of obligatory military service in Germany shortly after his graduation in 1956. Upon his return to the United States, he went to work promoting aluminum building products. Eventually the company sent him to Washington, DC, to test market a product, which is where he met his wife, Betty. "I had, by that time, become interested in the real estate business because I had worked with homebuilders all over the country in trying to get them to use more aluminum building products," he explains. Though he wanted to return to the south, his wife, a native of Connecticut, wasn't too keen on leaving the District. "All my relatives down there scared her to death," he says with a grin. Instead, he went to work selling houses for Michew Corporation, a homebuilder, then moved to Nelson Realty to learn the residential resale business. That's where he met Henry Long. "[Long] had just gotten out of the Air Force; he was a B-47 pilot," Foster says. "He'd gone to [Virginia Polytechnic Institute, now Virginia Tech] and I'd gone to VMI, so we had similar backgrounds, about the same age. He was working with another Air Force officer in the commercial business. We liked each other, and we decided to form a company." Foster was just 35 years old when he and Henry Long founded Long & Foster with the agreement that Foster would handle residential and Long would manage commercial real estate. "We flipped a coin - he got his name first and I got to be president." After 11 years in business together, the partners were approached by Merrill Lynch with an offer to buy Long & Foster. Long wanted to sell; Foster did not. By 1979, Long & Foster had become a known, household name that had value, something Foster didn't want to change. He bought out Long (who went on to become a successful developer) and forged ahead on his own. Foster's desire to keep the business privately owned wasn't just about preserving the value inherent in the brand he created. He is a man who believes in leaving a legacy. "My wife's family owns Lane Construction. It's over 100 years old and it's still family owned," he says. "I sit on the board, and I take great pleasure in that family-run company. And I'd like to see Long & Foster go on that way." He is currently in the process of giving Long & Foster to his children, one-third at a time. It Happened at the Holiday Inn When asked if he had a business plan to grow Long & Foster, Foster emphatically says no. "We grew as it seemed to make sense," he says, though a process does emerge that explains how Long & Foster took over the mid-Atlantic from New Jersey to North Carolina, a process that is part strategy and part fate. "It makes sense to grow with the umbrella concept," he explains. "That is, as you open an office in Anne Arundel County and you're bumping into Baltimore, then it makes sense to go after Baltimore. As you're here in northern Virginia, it makes sense to go after Montgomery County. As you go after Montgomery County, it makes sense to go after Frederick, on ad infinitum. You just push out." When Foster and Long parted ways, the company held about 30 offices in the Washington area. The most strategic move was to "push out" into Virginia. But coming head to head with established companies entrenched in those markets wasn't always easy. That's where the Holiday Inn came into play. Unable to find a location to open in Manassas, VA, the company opened in the local Holiday Inn in the square footage of the concessionary, which had yet to leased. "We found out that IBM had a plant down there and by being there, the IBM transferees would come in after breakfast or dinner to our office and buy homes from us," he says. "We lived off that until we got a foothold in Manassas." Next, Foster eyed up Bethesda but he realized the old guard realty firms would squelch his advance before he even began. Instead, he went to the burgeoning suburban sleeper community of Gaithersburg. "Lo and behold, there was a Holiday Inn across from an IBM plant, so we said, ‘Damn, we'll do it again,'" he recalls. When the hotel wouldn't provide the company with space, Long & Foster rented a room right off the lobby, Room 111, for the daily rate, about $900 a month. Agents moved the beds out, moved seven desks in and used the bathroom for storage. "And again, we hit it out of the ballpark," he says. Foster utilized a similar strategy to get into Prince George's County, opening a location across from Andrews Air Force Base to capitalize on relocating military families. The umbrella widened its sheltering canopy over Baltimore, Philadelphia, Anne Arundel County, Norfolk, Richmond and Roanoke. In some cases like Norfolk, where Long & Foster used its strong reputation for working well with active military, the growth was based on the "push out" practice. In others, Foster bought up top performing companies in those areas where he wanted to grow. Stayin' Alive Throughout the course of Long & Foster's business life, there have been other real estate bubbles - and painful bursts - though perhaps none that compare with the one we face today. The first major crisis the company saw came in 1974 during the gas crisis when the Middle East turned off the spigot feeding America's fuel consumption needs and the country came to a literal stand still. Long & Foster had just opened its second office, 4,000-square feet. Luckily, the main headquarters was directly across the street from a gas station whose operator would allow the agents to fill their cars first as soon as he started selling gas. Agents would share the fueled up cars and show homes to anyone they could get their hands on. "It was awfully frightening," Foster recalls. "For about three months, no one bought a home." Long & Foster toughed it out until homes started to move again after the three-month stalemate. Low overhead helped keep the company afloat until the next financial juggernaut in 1980 when interests rates ran up to as high as 18 percent. "You can't buy houses at 18 percent," says Foster, "so we were devising all kinds of other financing vehicles - resales, trusts." That crisis lasted about a year. The next arrived in the mid-1990s on the heels of a localized financial fall out in the District in 1990. Despite these setbacks that could easily put a real estate firm six feet under, Long & Foster has prevailed. The company now has 225 locations (down from 250 from several years ago) and about 15,000 agents. The secret is calculated, quick cut backs. "Every time we see a turndown like this, we have been very good at cutting back, and cutting back very soon," he says. He indicates two bound volumes, each the size of a telephone book - Long & Foster's Profit & Loss Statements. "I cut everything I possibly can of overhead, advertising. I found out before that we had somebody watering plants - gone. Everything, secretarial help, we cut it back to the bone. Cleaning, we cut it from five days a week to one day a week, and some places have the people cleaning themselves." To save on rent, the company cut back to 225 offices. In addition to renegotiating utilities and slashing janitorial staff, Foster cut his salary and that of his son (who works at the firm) back to next to nothing and he hacked 10 percent off the salaries of all top management. While some companies are concerned that cutbacks make the brand look weak, Foster "doesn't give a damn." "The rest of them put up a good front and go down the tubes. We're gonna be here," he says. "I can guarantee you that we have super reserves, both liquid and non-liquid, and we'll be here because we do what's necessary to stay here." But how does office morale hold up when the agents are dusting the furniture? "The company's always been good to them," says Foster. "In good times, we take care of them. They know that." One place Foster says he rarely needs to bring his mercenary's knife is to his body of agents. "Never cut back on real estate agents. They fire themselves," he states. "Because if they're not good, productive agents, they get out of the business." Man of his Word Cost cutting may be only a part of the secret to Long & Foster's longevity. Foster's real gift is how he manages his people, who are willing to stand by the company in good times and bad. "The thing that has distinguished Long & Foster all these years is that Wes and the people around him first and foremost care about doing what's right for their people," says Steve Murray, editor of RealTrends and LORE magazines and a real estate consultant. Murray has known Foster for over 30 years. "I know that sounds cheesy, but it's the case. He's a man of his word." To illustrate how far Foster will go to get and keep the best people, Murray recalls the story of how two top agents Foster wanted to recruit stated that if Long & Foster wanted them so badly, Foster could come pack them up and move them. So he did just that. "One of Wes' benefits is they're comfortable - if he needs to take less profit in a down market, he'll do it," Murray continues. "For him, it's not about money, it's about leaving a legacy ... His people come first; him making money comes second." John Morisey of Fonville Morisey Realty in Raleigh, NC, agrees that Foster's asset is that he knows how to surround himself with good people. "He understood years ago that if you get the right people, you get the job done," Morisey says. "He is the single-most respected person in the real estate industry today. He's looked up to by everybody. He's a good guy. He's built an unbelievable real estate company and he's the kind of person an individual would like to have as a friend." Kind words indeed, especially when one considers that Foster bought Morisey's 35-year-old real estate company two years ago. Wes Foster is the first to admit that his company was caught out by the most recent crisis and began its trademark cuts too late to salvage the year. For the first year in its 40-year history, Long & Foster lost money in 2008. But, says Murray, "[Foster] is fiscally sound and he'll get through this, and every time he goes through one of these, the firm is stronger than it was before." Although Long & Foster currently resides in a new building in Chantilly, VA, a brick colonial-style colossus surrounded by still-to-be developed building pads, Long & Foster does not like to spend money it doesn't have or carry debt. "Wes has always been aggressive in terms of entering and taking over marketplaces, but he's conservative fiscally and an incredibly good businessman," Morisey says. "He does not like debt. He doesn't borrow money to go out and do things; he uses his own money and that's a big deal today. The people with all the debt have all the problems." Though 2008 was full of challenges, Foster is optimistic about the current year. He sees both investors looking to buy properties to turn into rentals and people looking for homes to live in getting into the market. Foreclosure properties (or those on the brink of foreclosure) are already moving quickly. Foster predicts a 20 percent to 25 percent improvement in the market in 2009 and by 2010 real estate will look more sound. "We've been hurting for three years," he explains. "We know there's a huge pent-up demand out there." Future Development Though one-third of the company is in the hands of his children (Foster has a son who works for Long & Foster, a daughter whose husband works in the Philadelphia offices, and a stepson working for Raytheon) he still enjoys punching the clock at the office and describes his work style as "hands on." In addition to real estate sales, Long & Foster has branched into all the businesses associated with homeownership. The company is a mortgage lender, title company and insurance company. Foster wants to fill in his agency base and expand it, and he wants to do more - more mortgages, more insurance, more titles. Currently the company has 20 percent mortgage penetration; Foster wants to see 50. The company holds about 40 percent of its own base in title, a number Foster wants to be 60 or 70. Likewise, he hopes insurance will grow to 20 percent to 30 percent from the under 10 percent share it now holds. As aggressive a businessman as he is and as much inherent pride as he takes in his work, Foster is a singularly pleasant person who seems to appreciate family and the life he's worked so hard to make. He enjoys the perks of a patriarch - he works most days from 10 a.m. to 4 p.m., takes off the month of August to spend time on the shore in Connecticut playing with his five grandsons (and a sixth on the way), and travels in February with Betty, his wife of 45 years. But he's not interested in retirement. He's not a golfer or a hobbiest and his tennis game isn't that great. (Betty plays three times a week and he says she would probably beat him anyway.) "I would be so bored not to have something to do," he explains. "I need this to stay busy and I need the challenge. I just find it fun to try and win."