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RIDING THE TIGER

DEVELOPER WILLIAM GERRITY, FORMERLY OF SAN DIEGO, HAS SET UP SHOP IN ASIA

By Jennifer Hopfinger

Traveling halfway around the world turned William Gerrity’s world upside down. A year ago Gerrity, a San Diego developer, was president and CEO of GMS Realty, which developed and managed grocery-anchored neighborhood and community shopping centers in the western U.S. He had some 25 years of experience in asset management, development, acquisition and disposition under his belt. But after his first visit to China in January 2006 as a consultant for Morgan Stanley, Gerrity’s career took a sharp turn. “It was as simple as arriving here and immediately seeing the tremendous pace of change, the economic vibrancy, the openness to new ideas and the emergence of a middle class, which also means the emergence of a shopping class and a merchant class,” Gerrity said. “I felt it was an opportunity I couldn’t pass up. It’s the chance to be in the center of historic social, political, economic and commercial changes that I probably won’t see again in my lifetime.”

Gerrity moved to Hong Kong seven months later. At the end of last year, he sold his interest in GMS Realty to concentrate on Asia, and in January he formed Gerrity International, a private development, management and leasing company focused on community shopping centers in China and India.

Gerrity, 52, was born in New York City and raised in Los Angeles. He was a child actor who appeared in national TV commercials, including the memorable “Uh-oh, SpaghettiOs” spot. As a teen, he abandoned acting for baseball. Gerrity was a pitcher at the University of Southern California and Pierce College. After graduating from UCLA with a history degree, he played for some semipro teams and briefly for the Minnesota Twins’ minor league system. But “baseball was like a bad girlfriend,” he said. “I loved it more than it loved me.”

Gerrity got started in real estate in the 1980s. “I was attracted to the field because I liked the creative process,” he said. “It requires managing a series of complex, interconnected pieces to create a coherent project that has a sense of community and purpose. Working with a team to overcome challenges and implement a vision was very exciting in the beginning, and still is.” Throughout the decade, Gerrity developed office, residential and retail properties. His big opportunity came in the early 1990s, during California’s real estate recession. By then Gerrity was focused on retail. At the time, neighborhood shopping centers tended to be owned by small operators and had few large investors behind them. “The industry was sophisticated but highly fragmented, and there were few large concentrations of assets,” he said. Gerrity knew the market would bounce back, and he worked to attract institutional investors for his retail properties.

In 1996 Gerrity and Morgan Stanley Real Estate Fund II formed GMS Realty, in Carlsbad, Calif. “Morgan Stanley’s commitment of capital on a large scale was fairly unique at the time,” he said. In 2000 Morgan Stanley sold its interest to Principal Enterprise Capital in a transaction GMS valued at about $300 million. Over a decade GMS bought, sold or developed some $1 billion in real estate assets. At one time GMS owned 28 shopping centers.

GMS has subsequently changed its name to Terramar Retail Centers, and it currently owns 19 shopping centers in California, Oregon and Washington.

Gerrity International is initially concentrating on China, even as it also establishes its India business. GMS China is developing a portfolio of hypermarket-anchored community centers in China in partnership with Morgan Stanley Real Estate Fund and Shenzhen International Trust & Investment Co. The firm has committed to 30 projects totaling some 1 million square meters (about 11 million square feet) of commercial space, averaging about 40,000 square meters, and more projects are under consideration. Construction on three of these projects has already begun, and work on a fourth is set to begin by next month. These are slated for completion by the end of next year or the beginning of 2009. Construction on an additional 16 to 20 centers is set to begin early next year.

GMS China is based in Shenzhen, across the bay from Hong Kong, though there is also a major office in Shanghai. Most of GMS China’s properties are within a four-hour drive of Shanghai. The corporate headquarters of Gerrity International are in Hong Kong, which enables Gerrity to move easily between China and India.

GMS China has about 100 employees, roughly split between Shanghai and Shenzhen. Three are Americans, the rest are Chinese. GMS India is also pursuing opportunities with Morgan Stanley Real Estate Fund and local partners to develop community centers in India’s main cities. GMS India has five employees in the country selecting office space for the firm.

One of Gerrity’s primary goals is to build a Chinese company managed by Chinese executives. He sees recruiting and training locals as crucial to success. But drawing from China’s limited pool of experienced workers and managers is a challenge. “The industry is moving faster than there are people trained to work in it,” Gerrity said. “And there’s dramatically more demand than there is supply. As a result, there are many projects that are not well conceived but tend to work just because of the lack of supply.” He aims to raise the bar in terms of shopping center standards.

As concerns tenant mix, Gerrity says his projects are similar to community centers in the U.S., though they are located in more-urban areas. Chinese cities are dense and real estate is expensive, so community centers are typically three levels high and have parking in the basement or on the roof; surface parking lots are rare there.

Martin Lamb, senior vice president of asset management at GMS China, heads the Shanghai office. Lamb has known Gerrity for nearly 12 years. In 1996 Lamb helped lead the deal to finance GMS Realty. Lamb says he spent a few years flying between New York and California to review potential acquisitions with Gerrity, and they became good friends. Lamb subsequently worked at AIG Global Real Estate for a couple of years, until Gerrity approached him about joining the Asian venture. Lamb moved to China in July of last year. “Frankly, I wouldn’t have gone to China with anyone else,” Lamb said. “I’ve worked with him long enough to know that he has a certain talent for understanding trends and translating them into very practical opportunities. He’s a visionary who’s great at execution.”

Just as Gerrity seized a great opportunity in Southern California a decade ago, his timing in Asia is again spot-on, Lamb says. “I don’t think we’d have wanted to be here two or three years ago, because it would have been too early,” he said. “And in five years many of the best opportunities will be gone. The timing of doing what we’re doing is typical of Bill.”

Ben Cornish, president of GMS China, has worked with Gerrity since last October, when he left his position as head of development in China for Wal-Mart. “I saw right away that GMS China had the right product type at the right time, and more importantly, that Bill had the right attitude to be successful here,” Cornish said. “Although he didn’t have experience in China prior to coming here, he does understand what it takes to enter a new market.”