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Family Matters: GrayCo Case Study

Innovating Across Industries and Generations

An apartment Complex.

GrayCo began as a lumber company and pivoted to become a commercial real estate venture when the moment was right. While for years the leadership was comprised only of non-family members, Lawrence Gray brought just the experience the business needed in investment strategy and general management and was able to boost not only family engagement but also maintain its tradition of philanthropy.


Never lose sight of your mission, but don’t be afraid to change course. This approach has served the Gray family well for the past 125 years. While the company’s current holdings are in real estate, “we are essentially a family office,” says Lawrence Gray, chairman and CEO of Richmond, Virginia-based real estate investment company GrayCo and a fifth-generation family member. The mission is clear: “We are in business to steward the wealth of the family.”


The Gray family wealth originated in lumber. In 1884, Alfred Lee Gray and his wife, Hester, moved from Delaware to Tidewater, Virginia. Alfred bought a sawmill and began acquiring timberlands throughout the Southeast, eventually settling the company in Waverly, Virginia. His three sons, Elmon, John and Horace, joined him in the business. For a century, various descendants kept a steady hand, buying land and guiding the lumber business through cycles of prosperity and retrenchment. But by the late 1980s, a governing group of family members admitted the business’s long-term prospects looked dim. They were stuck in the middle: less nimble than small operators and without the scale of the giants. Changing environmental policies also increased the difficulty of using the land profitability. Additionally, the low financial yield — and the single concentrated bet (a single asset: timber and a single location: the tidewater area of Virginia) — put the family, which then numbered more than 30 people, financially at risk. It made sense to diversify, but could they switch gears?

As a young man, fifth-generation Lawrence Gray remembers ongoing discussions among his father, Horace A. Gray, III; his cousin Elmon Gray; Elmon’s sons Bruce and Garland; and Elmon’s brother in law, Wally Stettinius, all of whom were board members. Eventually, they made a bold decision. Given the land had been owned in the family for generations, these real estate assets had a very low-cost basis, so they could use an IRC Section 1031 tax-deferred exchange structure to sell the land and exchange for commercial real estate thereby transferring the basis into new assets without tax implications for the family.

They hired an entire new management team who guided and staged the sale of the timberland portfolio, identified exchange property, and managed the deals. Within 18 months, they sold 75 percent of their land — over 100 years after the family started their lumber business.

It was innovative and forward-looking and a perfect example of keeping one’s eye on the mission — of maintaining the family’s wealth — Lawrence Gray notes.

“We had been a lumber company for 100 years, but that wasn’t going to work for much longer. We had to totally re-characterize who and what we were.”

The timing could not have been better. It was the late 1980s, early 1990s; the recession had knocked the wind out of commercial real estate while land values had fallen by far less. Banks were essentially legislated to sell foreclosed property at bargain prices. The Grays were able to reinvest and even expand their portfolio using all equity from the land exchange to invest capital quickly. Following the initial transactions, they borrowed a modest amount of mortgage debt and bought more commercial real estate.

The senior Grays took an important step that Lawrence believes was crucial. Recognizing they did not have the requisite real estate expertise in the family, they broke with the tradition of family management and hired a commercial real estate team to run the company. Instead of serving as managers themselves, family members would govern at arm’s length, via a board of directors made up of two members from each branch of the family. Another important step given the growth of the family was assuming an unwritten policy of no family members in the day to day management team in order for the board to remain completely objective regarding management performance.

“That was an incredibly important decision,” Lawrence says. “With a lot of families, wealth creates hubris and they try to do things they’re not capable of doing. I owe a tremendous amount to the generation ahead of me for recognizing their true capability set and for going out and hiring expertise.”


Yet any major shift comes with bumps. Because the §1031 exchanges were set up quickly, the Grays ended up with a portfolio containing a little of everything: office parks and industrial locations, shopping centers and multifamily communities. Each type of property had maintained vastly different cash flows, management demands and risk profiles.

“We learned as a business through the school of hard knocks,” Lawrence Gray says. But once again, the mission — protect the family’s wealth — guided them.

It was more important to make low-risk choices and protect their principal versus chasing unpredictable returns. From there, “we realized that the apartment asset class had a return characteristic that best fit our family investment objectives” to preserve principle, generate steady current returns and appreciation in value over time. They sold off retail, office and industrial properties to focus on luxury apartment communities across the Southeast, from Virginia to Florida.

Today, 85 percent of their portfolio is multifamily housing and the remaining balance of 15 percent is land. GrayCo apartment communities, which are stylish and amenity-filled (pools, gyms, landscaped common areas, etc.) are well suited for millennials. This demographic is expected to become the largest U.S. adult population by 2019. They are reluctant to accrue debt and are known for putting off major purchases, such as home buying, until later in life. Meanwhile the 15 percent of investment in land is split between two categories: land zoned for master planned development and timberland, retained from the major land sales in the early 1990s when GrayCo exited the lumber business. Much of the timberland land is earmarked for future development.

“We’ve kept a toe in the master-planned community business as a hedge against a market shift away from rentals towards home buying,” Lawrence notes.


In 1998, Lawrence Gray — great-great-grandson of Alfred — joined the board of directors. An active and outspoken

board member, Lawrence built a 17-year career in real estate investment banking, working for J.P. Morgan, Morgan Stanley, and finally as a senior manager in Wachovia’s real estate division. After the 2008 financial crisis and the acquisition by Wells Fargo, Lawrence Gray took an exit package from Wachovia. His plan was to take a year off and spend time with his children, but an immediate need called. As a GrayCo board member, he was aware the chief executive officer was planning to retire at the end of 2009 and Lawrence was concerned about what he saw as a “strategy drift” at GrayCo. He believed the company was overinvested in and overly focused on master-planned communities and had structured management team incentives in ways that were not aligned with the family’s long-term mission. At the same time, he felt the Company had assembled an extremely strong management team and apartment investment track record providing its owners with a “scalable” opportunity. Despite the unwritten anti-nepotism policy, he approached the Company Chairman, Elmon Gray, about becoming CEO.

“I said I believed we needed someone with a background like mine and I also knew what it would take to hire someone like me,” he recalls. At that point, he felt he had the qualifications and knew the company extremely well having sat on the GrayCo board for a decade. His approach with the board was to emphasize these characteristics and downplay the family connection. “I wanted it to be maybe the tenth reason down the list of why they should put me in the position,” Lawrence says.

With Elmon’s blessing, Lawrence met with each director individually to take his temperature about placing a family member in the top management position and to outline his general business plan including immediate and longer-term priorities. Following these meetings, the board (excluding Lawrence) met as a group and agreed to name Lawrence as the chief executive officer.

As CEO, Lawrence immediately began laying the groundwork for his business plan, unifying GrayCo’s operations so it could be run as a company and not as a series of individual real estate investments. As retention of his key senior team was a critical priority, actual change was somewhat slow. Lawrence spent considerable time in the first six months meeting with his team to better understand strengths, traveling to each of the company’s properties, and speaking and listening to his key managers and long-tenured staff to ensure any changes did not disrupt the parts of the culture he wanted to maintain. He re-engineered the incentive plan for senior management, refined career paths, and delegated authority to his key team members and raised the first co-mingled investment fund, with outside investors investing alongside the family. The GrayCo Capital Advisors fund was invested during 2011 to 2013 generating strong financial returns thereby paving the way for a second fund. This additional capital has allowed GrayCo to diversify, expand its assets, and collect asset management fees by managing other people’s money. This plan has been an important part of the company’s capital and growth strategy and, for Lawrence, will continue to be an important part of GrayCo’s business strategy going forward.


Lawrence Gray wasn’t hired because he was family; however, now that he runs GrayCo, he never forgets he is protecting the financial interests of over 70 living family members. He feels the weight. “At the end of the day, my decisions are about preserving 125 years of family legacy, wealth and reputation — not about my annual paycheck or bonus,” he says.

As the sixth generation matures, he is already thinking about future transitions and company leaders. To him, transparency and family engagement are the keys to longevity.

“As I grew up a fifth-generation family member watching the third and fourth generations, there was a deliberate element of opaqueness, of protecting the family from their wealth,” he says. “There was limited disclosure.” Management reporting was weak, and it was difficult for family members to understand what they owned. Lawrence believed it made GrayCo vulnerable. “One of the reasons family businesses break down is because members know they have wealth invested, but they don’t know how much it is, how to get it out, or how distributions work. They can’t actually see if they are making money or not.” He worried that a lack of transparency would breed complacency and resentment or force inopportune decisions by both management and family members.

Modeling GrayCo after public companies, Lawrence and his management team host an annual meeting and quarterly conference calls for family members. He presents the results of the preceding quarter and then opens the call up for questions, reminding family members that this is their company. Last year, he launched a junior board whereby four members of the sixth generation (ranging in age from 15 to 40) serve a one-year term observing the board’s meetings. Not only does this provide an opportunity for increased involvement from junior family members to get more involved, it also serves as training for future board members.

Passing the Baton

How has the Gray family beaten the odds and survived through five generations (with everyone still speaking to each other!)? Here are a few key actions they took:
  • 1950s through 1960s: The family pursued lumber technology patents, including in particleboards, to generate cash to buy tracts of timberland. Eventually, they amassed more than 100,000 acres.
  • 1970s: The family members created a partnership to roll up individual timberland properties into a consolidated ownership structure, a difficult and complex transaction. In a 2013 Commonwealth Land Forum speech, Lawrence Gray noted, “There must have been a very low jerk factor in the family because we were able to get through this formation transaction and create the consolidated ownership entity that really is a critical part of who we are today.”
  • Late 1980s, Early 1990s: The senior family leadership realized that their core business—timberland—was not going to provide for the family in future decades. Setting aside emotion, they left the familiar path and moved into commercial real estate, hiring outsiders to manage the business on a day-to-day basis. To avoid conflict, all involved family members left direct operational roles and instead assumed governance roles on a board of directors where each family branch was equally represented.
  • Late 1990s, Early 2000s: Eight to ten years after the formation transactions creating GrayCo, the board and management shifts their commercial real estate strategy to focus primarily on apartment property ownership and management and commences the sale of the office, industrial and retail properties, exchanging them for apartment properties.
  • Late 2000s: Based on very successful returns from a modest amount of investment in land development, the company expands its investments in this area at the height of the housing boom.
  • 2009: Recognizing one of their own has the qualifications and experience, the GrayCo board names Lawrence Gray, great-great-grandson of the founder, CEO of GrayCo.
  • Present day: Under Lawrence Gray’s leadership, GrayCo refines its holdings to significantly downsize the land development business and focus on luxury apartments, creates the GrayCo Capital Advisors investment fund model using outside investment, and engages in new transparency to increase family knowledge and engagement. 


Lawrence wanted to operate GrayCo with full transparency, “as if we are competing for owners’ capital . . . we don’t want anyone to feel we’re holding their money hostage. We are constantly benchmarking financial performance and we’re very clear about tracking our performance relative to public REITS, the stock and bond markets.”

Finally, though strong results have meant that most family members keep the majority of their money invested in GrayCo, Lawrence encourages family stakeholders to use the profit distributions from one-time transactions to diversify. The objective is to say “this is an effort by the management team and the board to give you opportunities to invest on your own.”


Today, as the management team identifies partners and employees, personal reputation matters more than GPAs or their salaries at former employers. The Gray family also has a long history of philanthropic giving. “We receive lots of calls from groups that do incredible work for our community, but we don’t have staff to vet these causes and organizations.”

As a way to channel its corporate philanthropy, GrayCo has established a matching gift program for directors and employees. This allows directors and employees to donate to causes personal to them. This philanthropic giving primarily benefits organizations in Virginia, where the Gray family businesses have been headquartered for over a century.

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Family Matters - Executive Summary