Kraus-Anderson Companies, Inc

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Kraus-Anderson Companies, Inc.

523 South 8th Street
Minneapolis, Minnesota 55404
U.S.A.
Telephone: (612) 332-7281
Fax: (612) 332-0217
Web site: http://www.krausanderson.com

Private Company
Incorporated: 1912 as J.L. Robinson Company
Employees: 1,000
Sales: $900 million (2005 est.)
NAIC: 236220 Commercial and Industrial Building Construction; 236116 New Multifamily Housing Construction; 531120 Lessors of Nonresidential Buildings; 522310 Mortgage and Other Loan Brokers

Kraus-Anderson Companies, Inc., has been in the construction business for over a century. Subsidiary Kraus-Anderson Construction Company ranks as one of the top 50 domestic building contractors in the United States. Serving as general contractor, construction manager, or design/builder, the company works on over 400 projects per year. Another subsidiary, Kraus-Anderson Realty, grew out of the construction activities. Related endeavors, insurance, finance and communications also come under the Kraus-Anderson umbrella. Owned by Chairman and CEO Bruce Engelsma and his family, the company has construction offices in Wisconsin, Arizona, Kansas, and Florida, in addition to its home base of Minnesota.

BUILDING A BUSINESS: LATE
19TH THROUGH MID-20TH
CENTURY

Kraus-Anderson's roots go back to 1897. James L. Robinson operated the business as J.L. Robinson Company through the early 20th century. Robinson built the first of several downtown Minneapolis projects in 1902: a store for George D. Dayton, founder of Dayton-Hudson Corporation. The Tudor-Gothic style YMCA Robinson constructed in 1917 would be converted to apartments nearly 80 years later, a testimony to solid workmanship.

Robinson sold the company to two employees, Matthew N. Kraus and Amos Andersen, in 1929, shortly before the stock market crash. Kraus-Andersen Company concentrated on gas station and sidewalk construction during the Depression years. In 1933, the partners hired Lloyd Engelsma as office manager, estimator, and field supervisor. Engelsma, a Hinckley, Minnesota, native, moved to the Twin Cities to study engineering at the University of Minnesota and then attended the Minneapolis College of Law (now William Mitchell College of Law).

Engelsma purchased the business assets in 1937. (The spelling of Andersen was inadvertently changed to Anderson and has been used ever since.) Beginning with little more than a pickup truck, wheelbarrow, and two employees, Engelsma won defense contracts in Minnesota and Wisconsin during World War II and pushed construction volume up to the half million mark. Following the war, Engelsma expanded further; building projects included a church, high school, hospital, and KSTP's radio/television station. Construction volume rose from $1.1 million in 1946 to $2.8 million in 1950.

A second office, opened in 1949, established a foothold across the Mississippi River in St. Paul. The firm operated independently from the Minneapolis-based entity, capitalizing on the rivalry between the neighboring cities, both striving for growth. William Jaeger, Jr., future president of Kraus-Anderson Construction, was hired as project estimator and engineer in 1951. During the mid-1950s, the St. Paul office also worked on county roads in northern Minnesota, built the state's first freeway bridges, and won projects with the U.S. Corps of Engineers.

Industrial and commercial development heated up in the suburban areas during the 1950s and 1960s and provided Kraus-Anderson new opportunities for growth. The company built its first shopping centers and embarked on property ownership and management activities. In 1968, Burton Dahlberg was hired to manage Kraus-Anderson Real Estate, a one-person operation in those days.

EXPANSION YEARS

Construction volume stayed below $10 million into the late 1960s, but change was in store. In 1972, Kraus-Anderson erected its first high-rise, a 32-story apartment building in downtown St. Paul. Yet, the company faced a general construction slowdown in the Twin Cities area. In response, Kraus-Anderson pursued industrial construction projects for the first time, building a sugar beet factory in North Dakota.

The company went on to build power plants, electrical transmission stations, grain-handling and flour-milling facilities, and wastewater treatment plants. By 1979, industrial projects comprised 20 to 25 percent of business. Expanding geographically as well, Kraus-Anderson engaged more work in the five-state area of Minnesota, Wisconsin, Iowa, and North and South Dakota, as well as the West and Southwest. The company established Kraus-Anderson of Texas, Inc., in 1974 as part of that expansion drive.

Construction volume for the privately held business rose from $40 million in 1973 to an estimated $220 million in 1979. Kraus-Anderson St. Paul brought in $50 million of the 1979 volume via projects such as condominiums in Hawaii, a theater in Hollywood, and a shopping center in Bismarck, North Dakota.

Kraus-Anderson Building Company, established in 1974 to take on smaller-scale construction projects, in the under $5 million range, contributed more than $25 million to the coffers. Meanwhile, Kraus-Anderson of Minneapolis, Inc. had more than 20 major projects under construction during 1979, including the Northwestern National Life Insurance Co. building. The $42 million project was "one of the most complicated the company has ever tackled and is one of the most unusual buildings under construction in the entire United States," wrote Wayne Christensen for Corporate Report Minnesota.

"The 100 Washington Square project is unusual because of the method being used to build its concrete central core. The core, which—along with the four corner columns—will eventually support the weight of the building, is being poured into a 'slipform,' a device usually used in the construction of concrete grain elevators," explained Christensen. Concurrently, the company was involved in the construction of another significant downtown Minneapolis building, the Pillsbury Center, the company's largest project to date.

Jerry R. Svee, Kraus-Anderson executive vice-president and COO, ran both the Minneapolis and the Dallas-based construction operations. Kraus-Anderson of Texas pulled in about 10 percent of total construction volume, although Svee was predicting 30 percent of the company's work would be generated by the southern branch within the next five years. Construction projects in Dallas during the 1970s included the Plaza of the Americas Tower and Lincoln Center.

Beyond the construction realm of the business, Kraus-Anderson owned and operated 15 shopping centers, a number of office buildings and apartment complexes, and four bowling alleys. According to the Christensen article, the company had been increasing its real estate holdings at a rate of $15 million a year.

COMPANY PERSPECTIVES

The mission of Kraus-Anderson Construction is to serve our customers by providing superior construction services that complete projects on time, add value and are cost effective.

We are dedicated to achieving company objectives and maintaining financial stability though the pride and commitment to excellence of our employees and business partners.

To serve the internal real estate operations and some outside clients, Kraus-Anderson established related businesses during the early 1970s. Kraus-Anderson Insurance Agency, for example, provided property and liability coverage. Kraus-Anderson Mortgage Company was involved in property financing. Key Group Advertising, Inc. produced a full range of advertising services.

By the late 1970s, President and owner Lloyd Engelsma had handed over the daily operation of the construction end of the business to other company executives, but sons Daniel and Bruce were in line to inherit the family-owned company. Both of the younger men held degrees in business administration and worked for the company their father had built up over the last four decades.

Christensen wrote of Lloyd Engelsma in 1979, "It may well be that his basic decency and honesty have contributed to Kraus-Anderson's getting much of its business over the years, for the conventional wisdom in the construction business, largely dominated by family-owned concerns, holds that many contracts are awarded on the basis of the integrity of the company's principals and not to the lowest bidder."

STUMBLING ECONOMY

The real estate and construction industries hit some choppy waters in 1980: tight money, inflation, and fluctuating interest rates. Construction contracts in the Minnesota, South Dakota, and North Dakota region fell 24 percent during the year versus a 31 percent increase in 1979, according to a 1981 Minnesota Business Journal article by Ken Wakershauser. Despite the difficult economic conditions, Kraus-Anderson lined up a number of significant construction projects, including $25 million worth of construction in Sioux City, Iowa, and a $10 million bank project in Minneapolis.

The company restructured in 1982, combining Kraus-Anderson Minneapolis, Kraus-Anderson St. Paul, and Kraus-Anderson Building Company into a single unit operating as three divisions. The change allowed Kraus-Anderson to work with clients on every step of a project from site selection through financing and construction.

Burton Dahlberg was named president and COO of Kraus-Anderson Incorporated and Kraus-Anderson Realty in 1984 and took responsibility for the related operations while Chairman and CEO Lloyd Engelsma continued to guide the company. Daniel Engelsma succeeded Dahlberg as executive vice-president of the real estate concern, heading up project development and property management.

Back on the construction side, in 1984, Kraus-Anderson was named general contractor for the new Minnesota parimutuel race track Canterbury Downs, a $50 million effort. The Piper Jaffray Tower in downtown Minneapolis and an office building for Cargill in Minnetonka, Minnesota, were also underway. Revenues of more than $250 million earned the company 38th place among the largest building contractors in the United States. Additionally, the company ranked among the top 100 shopping center developers in the nation.

By 1987, combined sales had reached $370 million, and the company employed nearly 1,000 people. Kraus-Anderson received some negative press the next year. The city of Minneapolis rejected the construction company's low bid for a parking ramp renovation. "The city's Civil Rights Department is investigating whether the company discriminated against minorities. Until that probe is complete the department is recommending that the company not be allowed to work on any city-assisted project," reported the Star Tribune in September 1988.

KEY DATES

1897:: Firm is founded as J.L. Robinson Company.
1929:: Robinson sells business to employees Matthew N. Kraus and Amos F. Andersen.
1937:: Lloyd Engelsma buys company assets from his employers; name changes from Kraus-Andersen to Kraus-Anderson.
1949:: Second construction office opens in St. Paul, Minnesota.
1959:: Southtown Shopping Center construction signifies period of rapid suburban growth.
1968:: Kraus-Anderson Realty Company is established.
1973:: Kraus-Anderson achieves listing for first time on Engineering News Record 's Top 400 contractors.
1987:: Combined sales surpass $370 million.
1997:: Company celebrates its 100th anniversary.
2005:: Company ranks among the country's top 15 healthcare construction management companies.

Overall, Kraus-Anderson fared well during the 1980s, a period when many general contractors folded under market pressures. "We aren't a flying-high company," said Dahlberg in a 1992 Minneapolis/St. Paul CityBusiness article by Mark Mensheha. "We do projects that are in our means to do." While other companies built up an already over supplied market, Kraus-Anderson pulled back on real estate development. In the early 1990s, Kraus-Anderson continued "to follow its pattern of restraint," according to Mensheha, focusing on maximizing revenue on existing properties, which numbered more than 80.

HOLDING STEADY

While the real estate development market continued to slump in the early 1990s, construction stayed steady, producing a volume of $320 million in 1991. Construction at the Mall of America in Bloomington helped a number of contractors, including Kraus-Anderson. The company built R.H. Macy & Co's. $41 million entry in the Mega Mall and worked on about a dozen other improvement projects. About the same period Kraus-Anderson tackled its largest ever hotel project, the $95 million, 816-room Minneapolis Hilton and Towers.

Kraus-Anderson began renovating one of its older properties, Southtown Shopping Center, in 1995. Located in Bloomington, the property survived the 1992 onslaught of the Mall of America and its four million square feet of new retail space. Built as a "community center" during the late 1950s, Southtown counterbalanced Southdale, a regional shopping center and the county's first indoor mall, Jennifer Waters observed in a 1994 Minneapolis/St. Paul CityBusiness article. The $20 million endeavor, the first major upgrade to the property in 15 years, was spurred on in part by the retailing trend toward more big-box offerings and ever increasing competition in the area.

Historically, the company held onto most of the property it developed. Kraus-Anderson, in 1995, owned slightly more than three million square feet of retail space, mainly smaller community or neighborhood centers, and one million square feet of office and warehouse space, according to a Corporate Report Minnesota article by Eric J. Wieffering.

Kraus-Anderson's combined revenue climbed to $490 million in 1996: 75 percent from construction and 25 percent from real estate leasing and management, insurance, development, financing, and advertising businesses. The company's annual growth rate had been 10 percent over the previous five years.

ENDINGS AND BEGINNINGS

The company marked its 100th anniversary in 1997, as well as the passing of Lloyd Engelsma. Over a period of six decades, Engelsma built Kraus-Anderson into one of the largest privately held construction firms in the country. His son Bruce Engelsma succeeded him as chairman and CEO of the parent company, Kraus-Anderson, Incorporated.

In 1998, the company added a commercial leasing business, Kraus-Anderson Capital, to the fold. The company was entering a crowded market: leasing companies were among the most common sources of commercial financing. Banks also served the market with low interest loans. Kraus-Anderson Capital, according to a Minneapolis/St. Paul CityBusiness article by Tim Huber, planned to concentrate on "small ticket leasing" ($100,000 or less) and target entities such as subcontractors with which it already had formed relationships. Kraus-Anderson's entry into the business was driven by available capital and the desire to retain displaced workers from a discontinued operation.

Kraus-Anderson Construction's affiliation with Anton Construction, Inc. received some favorable ink in 1999. The construction companies worked together under the Construction Partnership Program designed to help small minority-owned firms gain a foothold in the market. Minneapolis-based Anton's revenue was less than $10 million.

By contrast, Kraus-Anderson's revenue climbed from $640 million in 1998 to $710 million in 1999. Its five full-service operating divisions—Minneapolis, St. Paul, Building, Midwest, and North—were all based in Minnesota and handled projects ranging from small remodeling jobs to major new construction. Kraus-Anderson Realty Company owned or managed more than five million square feet of commercial property (office, industrial, medical, multi-unit residential, and shopping centers) in nine states. Other businesses supporting the company's primary operations included: Kraus-Anderson Insurance, which generated sales in excess of $27 million by providing commercial, personal, and cost-containment services; and Kraus-Anderson Communications Group, a full service advertising agency and special event producer.

GOING STRONG IN THE 21ST
CENTURY

Despite these supporting businesses, Kraus-Anderson was first and foremost a construction firm; in 2004 volume reached $792 million. From 2000 to 2004, the company's strategy had been to expand and grow outside the Minnesota marketplace: offices opened in Wisconsin, Kansas, and Arizona. Kraus-Anderson also sought to increase name recognition in the Midwest. The efforts paid off; business generated outside Minnesota would grow from 10 percent to over 20 percent.

During 2005, Kraus-Anderson Construction completed a Cabela's store in half the expected time. The company had built Cabela's megastores in Minnesota, Texas, Kansas, Pennsylvania, Wisconsin, South Dakota, and West Virginia, but the 185,000-square-foot Rogers, Minnesota, location ranked as the most quickly completed. "We put $35 million worth of work in place in less than eight months," Gary Hook, senior vice-president for the company told Finance and Commerce Daily Newspaper.

Construction began in February 2005, when the ground was still frozen to a depth of six feet and holding a lot of moisture from a wet summer. Furthermore, the project required the approval of eight to ten government agencies and coordination of more than 100 subcontractors. The rapidity in which the outdoors-oriented retail store was completed set a new level of expectation for future work. Kraus-Anderson was slated to build future stores for Cabela's, one of its major clients.

Kraus-Anderson Construction was "a leading contender for the lucrative construction contracts" for a proposed Minnesota Vikings stadium, according to the Star Tribune (Minneapolis) in September 2005. Vikings owner Zygi Wilf vigorously lobbied for public financing for the complex. However, faced with the possible loss of the major league baseball franchise, the state governing bodies funded a stadium for the Minnesota Twins in 2006. In addition, popular support helped the University of Minnesota (U of M) bring its Gophers football team back on campus in the near future. A third stadium was not approved. The Vikings were told to come back with their proposal during another funding session. Kraus-Anderson, for its part, pursued work on the U of M stadium.

Modern Healthcare magazine placed Kraus-Anderson in the 13th slot among the country's top healthcare construction management companies, based on dollar volume. Business climbed 71 percent, from $133 million in 2004 to $227 million in 2005. Approximately 30 percent of total 2005 construction business was from healthcare projects, a niche which had been growing since 1990. "We've recognized the demographic trends and developed our depth of resources to meet the growing demand, Al Gerhardt, company executive vice-president said in Finance & Commerce. Healthcare construction square footage climbed from 985,000 square feet to 1.26 million square feet from 2004 to 2005.

Engineering News Record reported that Kraus-Anderson climbed from 69th to the 50th largest contractor in the United States. Kraus-Anderson also climbed from 38th to 27th place based on domestic general building revenue. One of the Midwest's largest commercial general contractors and construction managers, Kraus-Anderson received 78 percent of its construction volume from Minnesota-based projects. The company was "the most active contractor in the state," Kraus-Anderson senior vice-president John Campobasso told Finance & Commerce in July 2006.

Kathleen Peippo

PRINCIPAL SUBSIDIARIES

Kraus-Anderson Construction Company; Kraus-Anderson Realty Company; Kraus-Anderson Insurance; Kraus-Anderson Communications, Kraus-Anderson Capital Inc.