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For 42-year-old John Korman, president of Korman Residential Properties Inc., continuing the tradition of growth in the family business is paramount. As a fourth generation leader, he has taken on the role of maintaining the reputation that his great-grandfather began in 1919.

While Korman Residential, an offshoot of Korman Co., concentrates its business on the management and ownership of more than 7,000 apartments, the company's reputation stems from the single-family market, for which it has developed 30,000 homes in the greater Philadelphia area.

Maintaining growth and quality through acquisitions and development has been a challenge, especially with current economic pressures and the lack of available land in the area. But John Korman and his 35-year-old brother, James Korman, executive vice president, found an alternative way to grow the company - the brothers expanded the company's third-party management service, extended-stay options and relocation service.

"We're not just going to grow for the sake of growth, because that's when you get yourself into trouble," says John Korman. "We've seen it too many times. We're going to stretch, absolutely, but we're not going to go overboard."

ALTERNATE SOLUTION
In 1970, Korman Co. pioneered the concept of the furnished apartment in the Philadelphia market, says John Korman. It began with the Plaza Apartments, a high-rise apartment complex in Center City Philadelphia.

When the building opened, the leasing agents found there was such a need for short-term furnished apartments, and the concept was born. It was so successful that the company decided to implement the plan in its Philadelphia suburban markets.

Through that community - which later was sold and converted into a hotel - the family learned the pros and cons of corporate house. "We made some mistakes along the way, but ... it allowed us to develop systems which we still use today, making sure that [we] are really providing the best furnished apartment [we] can," says John Korman.

And while the company has been providing extended-stay options in its apartments since the ‘70s, Korman Residential, under the leadership of the two brothers, has expanded that segment of the business.

"The key to integrating extended-stay units into market-rate apartment complexes is managing the flow of residents that occupy the units, says John Korman. "You have to have good systems [to] do it properly. With our current portfolio of apartments, one of the things that we do well is managing the flow."

The company's systems allow a unit to be rented unfurnished on an annual basis and, the day the lease ends, converted into a furnished apartment. Thirty days later, that same unit can be converted back to an unfurnished unit, depending on market demand.

"Managing the flow through changing seasons, the changing economy and the property's submarket is one of the key things that we do which really makes us darn good apartment managers," says John Korman.

While the advantage of offering extended-stay is obvious - an increased revenue stream - the disadvantages are not so apparent. Furnished apartments compete with hotel rooms. While the company believes it has an advantage - hotels have higher per-day costs and Korman Residential offers a full apartment suite, with a living room and a full kitchen - it's also a greater risk.

"If you don't have that unit filled, you lose a lot of money," says John Korman. To avoid vacancies, the company manages lease expirations. During certain times of the year, furnishing has great demand, he explains. For example, Meadowbrook, a 532-unit community, is a popular summer place because it has an 18-hole golf course. Repeat customers may live in Florida during the winter months and stay at the property in a furnished suite during the summer.

QUALITY CONTROL
While managing the flow is important to the Kormans, it's also important to ensure that the quality of the unit is up to the Korman Residential standard.

Between move-ins, representatives from Korman Residential inspect the apartment. If there is a stain on the sofa, the sofa is removed and replaced that day. If the apartment is dirty, the furniture is worn, the bedspread is faded or anything else is unsatisfactory, you risk turning the customer off, explains John Korman. The person who has a bad stay will probably not return, and Korman Residential relies on repeat business.

"You want to impress customers so they come back again," he says.

That's why the company has a quality control person, a maintenance person and housekeeping inspect the units. "We want to make sure [our] furnished apartments are as close to perfect as possible," says John Korman.

RELOCATION
At the end of the ‘90s, when Korman Residential was perfecting and growing its extended-stay units, it still had a problem. Its weekly traffic reports showed it was only fulfilling requests for furnished apartments 30 percent of the time, because clients were looking for furnished apartments in locations where Korman Residential didn't have any.

"We were turning away 70 percent of the potential business. It was driving us crazy," says John Korman. "The fear became that one of the national companies would service [our clients'] needs, and we might never get them back," says James Korman.

One painful example was a deal Korman Residential had with Regal Theaters. When Regal was building its theaters in the Philadelphia area, Korman provided corporate apartments to the construction crew. Two years later, when Regal's business was concluded in that area, the Regal Theater crew went elsewhere.

"They went somewhere else to build their next theater and we didn't follow them," says James Korman. "We knew they were going to more places to build more theaters, we had a fantastic relationship with them ... and then we let them go. We kicked ourselves. That was maybe the most crystal clear example of how we should work. We didn't make that mistake again."

Instead of turning away more business, Korman Residential looked into subleasing units at other communities to accommodate its clients. "It enabled us to convert [more] of our traffic into leases and it has enabled our company to grow, which might be the most important thing," says James Korman.

But, finding apartment owners who were willing to let Korman Residential sublease units wasn't always easy. "Some of the properties didn't want us to do it," says John Korman. "That was the biggest problem. In some cases, it would take us a long time to find a property to work with."

The company realized it couldn't just go to the local guidebook for an area, and make calls to a leasing office. Instead, it decided to create alliances with owners and managers. Korman Residential joined local and national associations to help build these relationships.

Before the alliances, properties that had low vacancies would charge the company large premiums for their units. "That doesn't work out so well because it really shrinks the margin of profit," says John Korman.

With alliances, Korman Residential found management companies on which it could depend. "And once we got a select group [of companies to work with], it made the whole program work a lot better," says John Korman.

MANAGEMENT
Third-party management was the first extension of growth for Korman Residential. Like any third-party management company that also manages its own supply, Korman Residential was faced with the challenge of proving that there would be no conflict of interest. But, as James Korman points out, it was a hurdle.

"If we manage, we are managing for the owners," says John Korman. "We have a responsibility to achieve the highest possible bottom-line and we take that very seriously - no matter who owns the property."

And, Korman Residential believes it can offer its third-party clients an advantage because of its extended-stay program, its size and its reputation. For instance, on the day that the company takes over management, it brings the opportunity to place corporate clients in furnished aparmtnets, says John Korman. "We can have a deal where we have units pre-leased before we even take over management."

The size of the entire Korman Residential portfolio, including the family's other companies, (see KORMAN MEANS QUALITY, SIDEBAR I), allows the company to negotiate the best deals with vendors. That means if a problem needs to be fixed or furniture needs to be replaced, the company can do it in one day.

"They like to keep a fresh, quality product in the units," says Jerry Hellmann, president of American Furniture Rentals, a long-time supplier. "They don't care that the furniture looked good two years ago, it has to look good now."

No matter which side of the business Korman Residential advances, the company is ready for growth, says James Korman. "Whether it's the relocation business, which is going phenomenally, whether it's a property that becomes available that we could purchase, we're ready to do it all." END ARTICLE

KORMAN MEANS QUALITY - SIDEBAR I
Outside the Greater Philadelphia area, the Korman name might not mean much. But in this submarket, the Korman name goes hand-in-hand with quality housing. The Kormans have been in business since 1919, and have large master-planned developments in several markets, from single-family homes and retail to multifamily housing and hotels.

Now, with the fourth generation at the helm the company has spun off into three separate management companies - Korman Residential Properties Inc., Korman Communities Inc. and Korman Commercial Properties Inc. - so that each segment of the family has the chance to control its own destiny, says John Korman, president of Korman Residential. Leading Korman Residential is John Korman; James Korman, executive vice president; and Carolyn Korman Jacobs, director of marketing.

Controlling their own destiny meant expanding the third-party management services and the extended-stay component of Korman Residential; Korman Communities spent more time on multifamily development opportunities, and Korman Commercial took advantage of the retail market.

"One of the major reasons for the spin-off was so we could each go and take advantage of different opportunities," explains John Korman. While all three companies have taken different approaches to growth, they each retain ownership in the properties owned by the company before the 1996 split. And Korman Services, a fourth division, provides centralized services such as tax accounting to the other three companies.

In addition, Korman Residential at Korman Communities benefit from group purchasing programs. They combine their name and size to get the best deals on supplies and services.

The companies also benefit from the reputation that their fathers, grandfathers and great grandfathers built. "The benefits of our name have been passed from generation to generation. Our generation is now buying, building, doing all sorts of things as an extension of the three generations before us," says John Korman. "We are very fortunate in the sense that we have a brand name which makes us somewhat unique in this market. When you've been in business for a long time, your name is very important."

CREATING OPPORTUNITIES - SIDEBAR II
Some professionals avoid family-run businesses because of the perceived lack of opportunities. But, at Korman Residential Properties Inc., the fourth generation now running the business is committed to "sharing the wealth," says Albert (Abby) DeFruscio Jr., vice president of asset management.

DeFruscio started working for the Korman family when he was 16 years old. His job was to water the grass for the single-family homes - previously the company's main focus - that were not yet sold.

Now, at 48, he works hand-in-hand with John and James Korman, president and executive vice president, respectively.

"Every employee knows Jim and John," says DeFruscio. "They let you run the company like it's your own."

The company also believes in rewarding their employees, says DeFruscio. "If [Korman Residential] is making money, employees are making money."

Each year, employees come up with a business plan, explains John Korman. While there are guidelines on what the company wants to accomplish, it's important that the employees feel like it's their plan, he says. "They are [rewarded] heavily on the bottom-line of that plan," he adds.

And it's not just senior management or leasing agents that earn bonuses, says James Korman. "I wanted to make sure that everybody was [motivated] toward the same thing," he says. "It was important that the regional director had the same exact goals as the manager, the leasing person and [even] the maintenance supervisor."

So, Korman Residential bases its bonus structure on cash flow. "That way, everybody is looking at the same thing," says James Korman. "And I think that people really like that."

Just as important to employees is the respect and commitment that the Korman family demonstrates, says Jerry Hellmann, president of American Furniture Rentals. "I think having a family-run business makes them a little more reasonable, less dogmatic, and they listen and work with you."