LITMIR.BIZ

      Note: Buzz Ruttenberg made a huge profit because when he divided the asset pool, he realized that the twelve houses were worth $70,000 each, whereas Rubloff had not differentiated between units and had priced them all at $15,000 each. Buzz earned a paper profit of more than $600,000 ($55,000 multiplied by twelve houses) in one transaction because he understood the value of the property better than the seller did.

      Lease turnover dates in Chicago were typically May and October and the closing was going to be in March, which was close to lease renewal time. Rubloff was sensitive to the fact that if the lease renewals did not go out on time it could cause problems for the buyer but because they knew the Ruttenbergs they allowed them to send out the leases one month before the closing. “So we sent out our leases,” says Ruttenberg, “and with them we sent a long letter outlining everything we were going to do and informing the tenants that, by the way, your rent is going up 40 percent.

      “Well, the tenants wanted it—they were starving for it—and nobody knew. Half of the leases that were up were renewed by the time we got to closing. In the end we looked like we had outsmarted Rubloff, and we had. We closed on March 1, 1971, we made a big paper profit, and I was thirty years old. To this day we still own a part of that asset although we have sliced and diced it a lot of ways, sold off some of the homes, some of the apartments, and kept some of the retail. For us, Crilly Court was the goose that kept laying golden eggs and it gave us a revenue source on refinance and disposition that has been useful ever since.”

      Cautious Risk Takers

      By the late 1960s it had become apparent to the Ruttenbergs that in addition to rehab projects, there were new construction opportunities. There were plenty of vacant lots and the demand for new housing in the city was increasing, so they started by building new six- and eight-unit infill buildings and that gave them the experience they needed to do twenty- and thirty-unit buildings. They continued pushing west and then north, to an area near Wrigley Field. “We thought of ourselves as ‘cautious risk takers’ and while those areas were rough—there were drugs and gangs—we also knew that Chicago tended to evolve on the basis of contiguity. So if your new neighborhood was contiguous with your old neighborhood, you could generally get people to migrate to the new community. But not if there was a four- or six-block gap—there are plenty of examples of people who went too far west and became isolated and in those cases it took a long time for development to catch up.”

      In the late 1970s the Ruttenbergs started converting loft buildings into offices in the River North area one mile west of Michigan Avenue. “We could see the activity picking up, there were more people living downtown, and since development is about adaptation rather than innovation, we started looking to New York for inspiration.” But by the 1980s they were finished with loft conversions. “Other people started coming in and paying more for loft buildings, so we stopped. We had lived through the run-up but when the office market became supercompetitive in the 1980s we exited, and when we sold our office portfolio it comprised almost one million square feet.”

      At around the same time, Ruttenberg had come to feel that developing, owning, and managing office space was simply not what they did best. “Apartments are easier—when they turnover, you just paint them. With offices, the new tenant wants more walls, less walls, a different arrangement of space, and so you need to change everything else too—the lights, the heating and cooling, and the sprinklers—and you need to pay brokers all the time. With an apartment you just put a sign on the door and have the janitor show the apartments.” So while offices and apartments may look similar, Ruttenberg learned that they are really quite different and he simply felt that he knew how to do apartments better. He also felt that zip-code development was still the best approach.