Q&A with David Bronner
INVESTING IN YOURSELF
David Bronner is CEO of the Retirement Systems of Alabama (RSA) and oversees a $28 billion-plus pension fund that serves more than 325,000 public employees and retirees. He was recently interviewed by Montgomery Business Journal Managing Editor David Zaslawsky
Montgomery Business Journal: The University of Alabama’s Center for Business and Economic Research conducted an economic impact of about RSA’s owned investments in Alabama. The bottom line was 19,225 jobs and $3.3 billion in output, which is the value of goods and services produced in Alabama. For the 2002-2008 period, capital expenditures were $854.3 million. Please comment about RSA-owned investments in the state, which accounted for nearly 2 percent of the state’s GDP in 2007 ($165.8 billion).
Bronner: One of the things, historically that you have to keep in perspective is that Alabama has been one of the poor states. I made a judgment about 15 years ago that unless we invested in ourselves, we couldn’t really change. What I was trying to do was to find industries for many decades, but also to say if you can’t find the industries what can you create? That’s why we created things like the Robert Trent Jones Golf Trail or the eight hotels we have across the state. We also did office
buildings in Montgomery and Mobile. Part of that was to say if you’re going to invest big dollars in first-class or Class A office buildings – the only ones you had in the state were in Birmingham and the only reason you had those was because you had big banks, who wanted to have a corporate headquarters that they were proud of. We did that intentionally to try to change the image of the state, to improve the image of the state and simply to bring people to the state. In conjunction with that we have a couple of major organizations that are influential across the country.
MBJ: Those organizations are?
Bronner: Raycom Media has 43 TV stations and Community Newspaper Holdings Inc. has about 99 newspapers. They are big from the point of view of not only size, but also importance in the country. By having their corporate headquarters in Alabama you expose Alabama to a whole set of people that you never would have had the chance to otherwise.
MBJ: In that economic impact study, it also showed RSA providing more than $670 million in advertisement benefits that contributed to growing the state’s tourism industry from $1.8 billion to more than $9.5 billion. Didn’t that exposure also help Alabama recruit new industries to the state?
Bronner: Exactly. Decades ago when you looked at Alabama tourism, it was pretty pathetic. Even 15 years ago it was only $1.8 billion and now it’s about $9.6 billion. But even back then – 15 years ago – Florida had a budget of about $30 million a year to advertise, and we had a couple hundred-thousand dollars. By using the newspapers and TV to do what the public won’t do you’ve created that same ability to advertise and firepower behind your message because without money you really don’t have anything. Without money you’re basically sitting there talking about it and you don’t have the firepower behind it. As I’ve often said – my dad convinced me in eighth grade ‘that ideas without money remain ideas.’ So if you don’t have the money, you better figure out another way to do it. What we did was to try to find an investment that we knew had excess capacity, and any newspaper, TV or radio station has excess time, but then to capture that excess time and advertise something called your state.
MBJ: RSA recently funded an outlet shopping center in Leeds, which will create an estimated 700 jobs. Do you see any potential in the River Region for an outlet mall such as The Shops at Grand River?
Bronner: I tried to do that actually about 10 years ago and I wanted to do that in downtown Montgomery, but we couldn’t do it because it was (too close to) Eastdale Mall. That’s why that shopping center in Leeds works as an outlet center because you can’t have any competition within so many miles.
MBJ: Are there any other sites in the River Region where an outlet mall makes sense?
Bronner: It could probably work here. But (because of) your retail growth in Prattville in particular – it takes away most of the chances to do that because you’ve already developed now. With the new shopping center in Montgomery near AUM (Auburn University at Montgomery) and new shopping center in Prattville you just don’t have the need that you did when I really looked at the idea a decade ago.
MBJ: RSA has two residential real estate developments in Alabama. Are there opportunities for similar type of residential real estate developments in the River Region during a time when the market is in trouble? Is this a good time to invest for the long term?
Bronner: Often I do things and sort of sit and wait and see if anybody else will do anything. In the case of the golf courses, we put some hotels there because nobody else decided to do it. In the case of Opelika, we had hundreds and hundreds of extra acres so we fundamentally started a small project over there – two 36-unit places. We actually sold over half of them in the last year. That’s worked out pretty well or at least it’s going in the right direction. The one real estate thing that we’ve done at The Grand has not worked out because we couldn’t have hit it at a worse time. It’s just one building with about 30-some units in it and we probably only sold a dozen of them. Residential is not something that I would want to be in. I would rather let other people do it, but there was an opportunity at The Grand which was unique because we owned the only land there. The other opportunity was that we already had the acreage at Opelika. To go out and find new land and do something now … we would be looking at things coming through that somebody has spent $200 million, $300 million, $400 million or $500 million on and trying to buy it for $50 million or $75 million. We just bought the old AmSouth building in Mobile about a year ago because it was in bankruptcy. Real estate right now in this country is not exactly a great place to be unless you’re a buyer.
MBJ: Speaking about real estate, the City of Montgomery has bought the One Court Square building. If you were advising Montgomery Mayor Todd Strange, what would you recommend for the property?
Bronner: The city is making progress whereas for a long time it didn’t make much progress. Part of that progress is the ability to live above your store. Our first big venture downtown was getting the baseball park (Riverwalk Stadium). That clearly was the first instrument that we got that was meaningful. Once you got the new hotel downtown (Renaissance Montgomery Hotel & Spa at the Convention Center) and redid the civic center and created the performing arts center you then had the genesis to create The Alley and activities like that – restaurants and late-night things. That is just a continuation of progress and the next big step as I’ve already told the mayor is to get some sort of supermarket downtown. You are never going to develop your ability or my ability to live downtown – especially if I am one who doesn’t have a car or want a car – without grocery stores. That’s one of the next big challenges. I think once they can get a grocery store and get more people living in condominiums – tops of buildings that would be retail on the first floor and living above it then you have to develop that base called a grocery store. Eventually you have a have a supermarket downtown if you are going to develop all those warehouses and things into condominiums.
MBJ: Getting back to One Court Square, what would you like to
Bronner: You will have to develop it into something that has multiple purposes whether it’s a library-type thing. One of your great assets of downtown Montgomery is Troy University, which is a great attribute and hopefully it can flourish and continue to flourish. The growth of a university makes all the difference. Even though it started out as a night school, hopefully it will expand into more day classes. Once you expand into more day classes, you have more regular students not just working people. The more regular students you have then you have more demands for housing; more demands for that supermarket.
MBJ: Are you saying One Court Square could have a library, loft apartments and offices for Troy University.
Bronner: It could be anything. It really depends on what the mayor wants to do. I know we want to do (something) with those old, empty buildings on Dexter Avenue. Once you have accomplished that with what has been accomplished with the baseball park, hotel and The Alley – now you really have something going.
MBJ: I’ve heard that you would not have built the Renaissance without the Biscuits and Riverwalk Stadium. Is that accurate? And if so, why?
Bronner: That’s true because there was no reason to be downtown unless I create everything myself. The baseball park was what I originally told Emory Folmar when he was mayor. They were concerned that it would fail and I said, ‘I don’t care even if it does fail – by wiping out the blight you helped downtown.’ At worst case, the kids can use it. It’s obviously been a roaring success.
MBJ: When I first came in December 2001, downtown was dead. Now, there are people everywhere, restaurants, bars and you can hear music from several locations.
Bronner: You have to thank the guy who got me to finance the Embassy Suites because that was really the first. You have to thank the (Montgomery) Advertiser for leaving its old property and the county taking it over and making it useful, but more importantly building a new building and staying downtown – all are important. Because when you have jobs you then have restaurants, you have hotels and things like that. If you abandon the place with no jobs then everything else has to leave. Getting those companies downtown and staying there is incredibly important.
MBJ: The Regions Bank building on Commerce Street is for sale. Doesn’t that create some opportunities?
Bronner: You can always do things with buildings it just depends on how much money you want to spend.
MBJ: Are you interested in such a building?
Bronner: I have my own deal going in Mobile and I have all of these nice new buildings. It’s tough to go ahead and mess around with old ones. Any building you can do anything to. Remember what I did to St. Margaret’s Hospital. It was abandoned. Now it’s the home of the Department of Public Safety; it’s the home of Pardons and Parole; and it’s the home of the Board of Corrections. You have to have something in mind to what you’re going to do with it (old building). And remember a hospital is a lot worse than a bank building. I had more holes when I gutted that place than you can imagine. The floors looked like Swiss cheese. The idea being you can do about anything you want to with any type of building if you will be creative enough to say what really works in something like this. In the case of the hospital, the whole thing there was knocking out one wall after another and then filling every hole because a hospital has more holes through the floor than you can imagine. You can do a lot of different things it’s just whether you have a market for that.
MBJ: The Community Newspapers Holdings Inc. (CNHI) is moving its corporate headquarters from Birmingham to Montgomery and was the first announced tenant in the RSA Dexter Avenue building. Do you have any other tenants and when do you expect to fill the 200,000-plus square feet of office space?
Bronner: I have one big one. What happens is the same way the RSA Tower was built. When I built that we had about 30 to 40 percent of it rented and it took me about four years (to fill it). We are close on three different leases (for the RSA Dexter Avenue building). We don’t talk about them until we finalize them. Once we get another two leases and they start to see how the building forms out, then we’ll have action, and if not – I’ll try to go buy some other company someplace in the United States and move it here just like I did with CNHI. I have a back-up plan.
MBJ: When you said you have one big one at the RSA Dexter Avenue building, were you referring to CNHI and its 70-plus employees?
Bronner: Yes, that’s a neat one because the salaries are so high. That’s not your normal company when you have $70,000 average salary in Alabama. You would be looking for professional-type organizations to move in there.
MBJ: Wouldn’t that be a great location for lobbyists?
Bronner: The other ones (buildings) are even closer like the RSA Plaza. If it’s a big lobbying group – that would be impressive. We don’t chase that – they’ll come if they want to come. You really are looking for professional organizations that add to the status of Montgomery.
MBJ: Will the building have retail on the first floor – maybe a restaurant?
Bronner: We could, but we probably won’t because I put one in here (RSA corporate headquarters). We have Baumhower’s in this building. Again, you are looking more for the upscale, white-collar job. It might be in the insurance industry; it might be in the banking business; you need things like that.
MBJ: How would you characterize the River Region’s economy?
Bronner: Historically, if you look at Montgomery, it had state government, which should be stable and federal government, which should be stable. The problem is in the immediate years because of the state government budgets across the country not just Alabama, that won’t have the growth that it had before unless there is a special allocation from the feds. I don’t see the growth at all in state government across the country because they have themselves in a financial pickle. The growth in Montgomery will come from downtown if we can keep finding companies that are relatively new or start-ups or older companies that I can find and bring here that I want to keep a closer eye on than if I wanted to operate in Nashville. Like I said, CNHI is in 22 states or Raycom, which is in more than 20 states. If you can get the corporate headquarters – the dynamics of that town – are phenomenally affected. For example, look at the airport. Somebody that is trying to sell something to our newspaper in Massachusetts or Texas is going to end up in Montgomery. Someone that is trying to sell something to the TV group is going to end up in Montgomery because you have to go to corporate headquarters - most of the decisions are made there.
MBJ: How has the Renaissance Montgomery Hotel & Spa at the Convention Center fared, and how does it compare to other hotels on the golf trail?
Bronner: When you build a downtown hotel, you generally build in you’re going to lose money for three or four years. We started making money right away – toward the end of the first year. That was due principally to the newness and the unusualness of having a neat hotel in Montgomery because you didn’t have any. You had the Embassy Suites, which is good, but has been here for 15 years or 20 years. We’ve been happy with it (Renaissance); it’s making money and it will make money. I always thought it would make money and the reason I thought it would make money is that even in a relatively poor state like Alabama you constantly have conferences. Yes, you can have them at the beach; yes, you can have them in Huntsville, but the problem is you usually lose anywhere from 25 percent to one-third of your audience whereas if you have it in Montgomery, you pick up that 25 percent to 33 percent extra attendance. That’s been true and don’t forget all your statewide organizations are housed in Montgomery. Obviously, if you have a statewide organization – yes you want to go out in the state and encourage you to do that – but you are also going to have a preponderance of your meetings in Montgomery if at all possible. If you’re in Huntsville you can meet here in two hours and from Mobile you can be here in two hours, but if you’re in Huntsville and have to go to Gulf Shores – five hours later you’re a tired puppy. That’s why it (Renaissance) worked out and again it’s the baseball park and the business community of Montgomery wrapping their arms around the hotel and doing The Alley.
MBJ: Does The Alley compete with your restaurants and bars at the Renaissance?
Bronner: Some people say doesn’t it bother you to have restaurants down there and more bars than just yours? The answer is: ‘Are you kidding me?’ The more you have – every new place that opens takes a little business away for a few weeks or few months, but what it does is down the road it proportionally grows the pie for everybody. That’s the whole purpose of what RSA has tried to do since I’ve been here.
MBJ: You made a proposal to fund a new Statehouse two years ago. Is that something you are still trying to work on?
Bronner: You can’t really tell now because you have a new governor; you have a new Legislature; and the problem is when you have a switch over come January of next year, you are going to have people who have a totally different scenario as far as where they want the state to go. My theory is very simple: I have recommended a new Statehouse since the ’70s. I actually took the Speaker of the House in the ’70s to Tennessee to show what one should look like and it should not be an old state building that was built for the highway department. That’s one of the things I’ve tried to convince Alabamians about that you have to invest in yourself. If you don’t want to invest in yourself it’s a little hard for other people to come in and invest. The stronger the state is the stronger the retirement system is. That’s always been my philosophy since the ’70s. If the state is weak and people aren’t working and there are no tax dollars, then the retirement system is weak. If the state is prosperous and people are working and paying their taxes, the retirement system is stronger.
MBJ: What would you like to see the state Legislature do next year?
Bronner: They have to sometime in their lifetime address the tax issue in the State of Alabama because it is unfair and unreasonable. They also have to start addressing what the whole country is addressing – it’s on the nightly news every night now – is the education issue. We simply cannot have 50 percent of our kids not graduating from high school. That’s crazy. If you think you can be competitive in this world you’re kidding yourself. You’re not doing those kids any favor and you’re not doing the state any favor. Those are the two primary issues. But there are a lot of other socioeconomic issues in the state: We have always operated on the cheap. I cannot get out of my mind you’re funding the state prisoners at the lowest level in America – roughly $10,000. The next lowest state is South Carolina, which funds them at $13,000 a prisoner, which by the way is 30 percent more than Alabama. By the way, the national average is $25,000. You can’t ignore these problems forever and think that you can build a society that industry will want to come and locate in; industry will be happy; and the people will be happy. You’re letting the infrastructure of the state just sink. Eventually, you have to face certain problems.
MBJ: What is your vision for Montgomery and the River Region?
Bronner: I think the biggest step and the biggest improvement in the last year has been the concept – even though it was talked about four or five years ago, but was not implemented well at all – and that’s called the River Region. That means what is good for Montgomery is good for Greenville, Wetumpka, Prattville and Millbrook; what is good for Prattville is good for Wetumpka, for Montgomery and for Millbrook. They are starting to work together like they had not worked together before.
MBJ: The River Region worked together to get Hyundai Heavy Industries to come to Montgomery – regional economic development.
Bronner: It was a big deal. I’ve preached that for 30 years. They have to learn to work together because that’s the only way the region will be effective. Certain attributes are going to be more attractive to sell as a package – that is a River Region packaged as opposed to Millbrook or Prattville or Montgomery or Wetumpka or Greenville. Guests don’t care (which city they visit) they just want a good experience. A good experience is a nice hotel, something to do, something to eat and something to drink. •