Scott Dorsey, the chairman and CEO of Merritt Properties, knows he sometimes meets raised eyebrows when he identifies himself as a developer. As a leader of a company with the largest privately held real estate portfolio in the state, it's an attitude he wants to change.
"There's been a perception that we don't really need more growth," he said. "We do need growth. It needs to be done right."
Merritt Properties, which was founded by his cousin Leroy Merritt, had 12 workers when Dorsey joined in 1972 and today employs about 160 people. It owns 16 million square feet of space — much of it in warehouses — in 70 locations across the Baltimore/Washington region.
Dorsey, who bought his first Porsche in 1975 and has owned one ever since, is a car lover, but he supports policies to reduce sprawl.
Dorsey, who received a lifetime achievement award from NAIOP Maryland, a commercial real estate trade association this month, reflected on the business in an interview with The Baltimore Sun. The interview has been edited and condensed.
How did you get into real estate?
I got out of college and it seemed natural for me to start working with Leroy. I'd worked with my dad in the summers and I knew construction. I came in working with Leroy in an entry-level position. The company was very small then. I think we had 12 people, and I became the fourth person working in the office.
Everybody knew everything that was going on. The company was growing very rapidly. … I had an opportunity to do everything. … I worked in the field doing construction. I was getting permits, I was showing space, negotiating leases, helping the engineers to design the buildings. Sometimes I did the payroll. It was an opportunity to learn every facet of the commercial real estate business. You couldn't get that kind of education if you went to the Hopkins school of real estate. The hands-on experience I was able to get in that situation was just phenomenal.
What was the transition like, as founder Leroy Merritt stepped back from running the company? Did you consider taking the business outside of the family?
The transition largely occurred back in 1997. Robb [Merritt, Leroy's son and Merritt Properties president] and I went up to New York in 1996, 1997 trying to figure out ways to capitalize the company going forward and we met with everybody on Wall Street. Most of the companies we talked to, it was like Gordon Gecko. Then we met with Rothschild Realty (now known as Almanac Realty Investors), and it was such a fit in our personalities — they were long-term investors. When we did our deal with Rothschild, they'd been there for 10 years. The same individuals that were on our board in 1997, when we did our deal, are still our partners.
We've considered becoming a real estate investment trust. We considered it in 1997. The biggest reason we haven't wanted to do that is because real estate is intrinsically a long-term investment horizon and public companies tend to be certainly annual, and often quarterly, in their focus, so it's difficult to make the best long-term decisions in the context of a public company. I think lots of problems have been caused in many industries — the steel industry comes to mind — where short-term profitability became more important than long-term investment.
Merritt calls itself an employee-owned company. What does that mean?
As early as 1974, rather than just develop a property and say, 'OK, you guys all work for me and this is mine,' Leroy would say, 'OK, you guys are going to be partners on this.' Those partnerships were done project by project. … In 1997, we took all of those partnerships and we created Merritt Properties LLC … one master LLC where people had units of ownership, which are essentially shares of stock.
Every few years we create a new class of ownership to provide an opportunity for the people who have started working recently. … It's a much more efficient ownership structure for us and it provides a great opportunity for people to participate. … It's not socialism, but everybody participates in a way that at the end of the day should be significant.
Where does the money come from right now? How did your business change with the recession?
We have 16 million square feet of space and right now we're 92 percent occupied, so we've always had a significant source of revenue. The bulk of our revenue is always going to be the cash flow from the existing real estate projects.
We are also focusing on third-party construction. … We were doing so much construction of our own account from 1999 to 2005 that we were as busy as we could possibly be. We actually added a lot of really good people in construction teams during that period. Then when things slowed down after the stock market crashed … we didn't lay anybody off. We realized we had this really, really extraordinary group of really qualified construction people, and we thought, 'Let's really go after this,' and we started our construction services and marketing.
We didn't get into the third-party construction with the idea that this is going to be something to tide us over. We saw there's never going to be the opportunity to develop at the breakneck pace that we saw in the first part of the last decade. … It was a way for us to make sure that these really good people have the opportunity to continue to be productive, and it is going to be an important part of the company going forward.
You were once a member of a band called The Common Lot. How did you pick up the acoustic guitar?
From the age of 9 until I got out of school, I played the trumpet … but when I got to be 16 — everybody wants to play the guitar. You end up playing the guitar, and you get in the band, and you do all that. And I did all that. And then I really started to like finger-style guitar. Learning a musical instrument teaches you discipline. You're so bad for so long and then after a while, after doing it every day, week in, week out, eventually you get good. I think that teaches kids something about perseverance and sticking to something.