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Paterakis family plans for the next generation

Paterakis says family may be less risky moving forward. "There is only one John Paterakis."

When John Paterakis Sr. set out to build a Four Seasons hotel and condos in Baltimore as part of his Harbor East redevelopment, he was prepared to risk everything to do it.

As lending slowed amid the recession, he put up the bakeries that made him his fortune as collateral for loans to finance the project. That kind of move was in keeping with Paterakis' methods: His handshake was his word, his political influence was legendary and his taste for gambling was well-known.

Now, as Bill Paterakis prepares to take the helm of the family's companies following his father's death on Sunday, the son said he expects to take a more conservative approach. The family plans to continue to develop Harbor East and to expand the bakery business.

"We certainly are a little bit more risk-averse than my dad," said Bill Paterakis, 64.

As for politics, Bill Paterakis said he recognizes the importance of building relationships with politicians and expects some fundraising activities to continue. But he does not style himself as the city's next behind-the-scenes mover and shaker.

"My dad became the Godfather, right? That's not my vision for myself," he said. "There is only one John Paterakis."

John Paterakis, whose father started the bakery in a rowhouse with business partner Harry Tsakalos in 1943, grew it into a massive operation with about $800 million in annual revenue and 2,500 employees at 12 locations, including about 1,000 people in the Baltimore area. It produces hundreds of varieties of bread and is the largest supplier of hamburger buns for McDonald's.

After branching out into real estate, John Paterakis made his biggest deals in Harbor East, a bustling development that has drawn residents, restaurants and other businesses that employ thousands.

Chairman until his death, John Paterakis continued to work at his downtown office into his 80s, going from one office to another for updates.

While he continued to be involved, he started planning early for a transition in leadership. His four sons spent childhood summers working in the bakeries, and Paterakis passed his ownership stake in the bakeries — Schmidt Baking Co., Northeast Foods, and H&S Bakery — to them decades ago for tax reasons.

"A couple times, a couple of us decided we were going to venture out and do something different, and we were practically disowned," said Bill Paterakis, the second oldest son, who began by focusing on engineering and bringing the latest technology to new plants. "To keep the peace, we just stayed where we were."

Tsakalos family members also still work there; the estate of Harry Tsakalos' son, Nicholas, retains an ownership stake in the bakeries.

The sons took over day-to-day responsibility for the bakeries about 15 years ago, but John Paterakis technically retained control over decision-making. He remained more involved in H&S Properties Development, where ownership includes his daughters and other business partners, until a health scare about three years ago.

At that time, he stepped back further, and it was well-known that he had confidence in Bill to take the lead in making decisions. The three other brothers also have leadership roles.

"He entrusted us through the years as he saw us maturing, and I think he had a lot of trust, especially in Bill, as our leader," said Bill's brother J.R. Paterakis, who now is head of sales. "We trust Bill's judgment."

John Paterakis was well aware that family-owned firms often stumble when they move from one generation to the next, said Richard Alter, president and CEO of Manekin, a longtime friend and sometime business partner.

"He worked hard to establish a business that would survive generationally," Alter said. "He was thoughtful about that."

Having a management transition plan in place is rare but makes the privately owned firm better positioned than most for the future, said Wayne Rivers, co-founder of the Family Business Institute, a North Carolina-based consulting firm that works with businesses on succession issues.

While many firms may not be prepared, most see a switch to a more conservative leadership style after the passing of an entrepreneur who built the business.

"Nobody takes risks like the founding generation, usually," Rivers said.

Future redevelopment in Harbor East is likely to proceed at a slower pace, as the company avoids taking on any debt that might threaten the core bakery businesses, Bill Paterakis said.

Construction that's already underway will continue, including a new bakery in Fells Point and a $170 million building that will include a larger Whole Foods and apartments.

Northeast Foods supplies McDonald's and other firms in the fast food industry; H&S caters more to institutional clients, including schools and prisons; and Schmidt offers retail brands. The firms are active in seven states and distribute to more than 20.

Bill Paterakis said he and his brothers expect to look for growth opportunities for the bakeries, but only if it makes sense, he said — "not just for the sake of growth."

Like his father, Bill Paterakis said one of his most important tasks now is preparing the next generation to lead. Five Paterakis grandchildren and three Tsakalos grandchildren work in the business.

"Our responsibility the next 15, 20 years is to really get the next generation to a place where they can be leaders and run this company," he said.

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