From one long-term investment to another

R.D. Merrill founded a timber business in the 1890s. Today the company is a diversified enterprise with a focus on senior housing.

By Margaret Steen

When R.D. Merrill came to the Pacific Northwest from the East Coast in the 1890s and started amassing timberlands, he wanted a long-term asset for his family.

Merrill “believed strongly in the continuity of family and also in the ultimate value of timberland investments,” says his great-grandson Charlie Wright, 57. “He recognized that it was a long-term investment, but he also recognized that families are long-term entities.”

Merrill’s investment did provide the continuity he sought for his family, though today the company he started has grown well beyond timber. In 1992, about 60% of the company’s revenues came from timber. Today, the proportion is less than 30%.

“He bought these on faith that they would grow and become valuable for his descendants, and that’s been true,” Wright says.

Today, the R.D. Merrill Co., headquartered in Seattle, still holds timberlands, but it also operates senior housing communities through a wholly owned subsidiary, Merrill Gardens. (Merrill Gardens’ real estate is 80% owned by a public healthcare REIT.) The only two family members actively working at the company are Charlie Wright, the chairman and CEO, and his son Cole, 29. About 50 family members have an ownership interest in the company.

Merrill Gardens runs 56 senior communities in nine states, primarily in Washington and California. The communities offer housing for seniors who can live independently as well as those who need some assistance with baths, medications and meals. A number of communities also offer care for those with dementia and Alzheimer’s disease. Seniors can move in when they’re independent and stay until they require skilled nursing.

Merrill Gardens, which has more than 2,500 employees, will celebrate its 20th anniversary in 2013. Merrill Gardens’ 2011 revenues were $223.11 million.

The R.D. Merrill Co., which is family-owned, also includes a relatively new division, Pillar Properties, that builds apartment buildings with a younger clientele. A signature project in Seattle’s Pioneer Square is under construction now.

“It’s what I call our urban tree farm,” says Bill Pettit, president of R.D. Merrill Co. and Merrill Gardens. The idea is to hold the Pillar housing to provide long-term cash flow—with fewer operational requirements than senior housing.

Family values

The long-term investment goals are not the only way in which the company has reflected its founder’s values through the years.

For example, Merrill came early to the practice of replanting trees so the land wouldn’t be exhausted. He was also “one of the first to take a truly compassionate interest in the environment of his workforce,” Pettit says. He brought mattresses into bunkhouses and served good food in his logging camps, making a dangerous business more attractive to workers. “This was a gentleman who was ahead of his time in recognizing the value of treating your team members well,” Pettit says.

Wright, the company’s current chairman, also is committed to making it a good place to work, according to Pettit. “It’s made it very easy for us who are not part of the family to both attract great people and treat them well, under the belief that if you do that, the company’s performance and the returns to the family will take care of themselves,” says Pettit, who just celebrated 20 years with the company. “They value professionalism and they have the utmost integrity and pride in what they do. It’s very down to earth.”

Turning point

The R.D. Merrill Co.’s transition from a timber enterprise to a diversified company with a focus on senior housing came about 100 years after its founding, in the 1990s. It was a critical time for the company, one of the first times the family had seriously discussed the company’s future and leadership succession plans.

At the time, the company employed just a handful of people to manage its timber holdings. The family needed to decide who would run the company after R.D. Merrill’s grandson Corydon (Cordy) Wagner, the chairman prior to Charlie Wright. (Bagley Wright, Charlie Wright’s father, was the company’s family director.)

The family also faced deeper questions, Wright recalls: “What should we do now? Liquidate? Provide for a new generation of owners and managers? Everything was up for grabs. We were really faced with a great big question as to whether this company was going to endure for the next generation or not.”

In the end, Wright says, they were guided by their founder’s vision: “R.D. Merrill had made a long-term investment with the family’s best interest in mind.”

The consensus was that it would be worth it to try to do the same for future generations—with some changes. “The recognition was that if we were going to keep the thing going, then there would be some tolerance for new risk, new investment and probably some diversification,” Wright says.

Wagner and Bagley Wright convinced Charlie Wright to take over the family business. Wright moved to Seattle from New York, where he was running the Dia Center for the Arts after having practiced law for a few years.

The request from his family that he consider running the family business came as a surprise. “Literally a month before it came up, I don’t think I’d given it any thought,” Wright says.

Wright didn’t hear much about the family business when he was growing up. The business, then focused entirely on timber, was “kind of in a dormant period,” he says. “The trees were growing, and there was not much to talk about.”

Wright was the only member of his generation who was interested in running the business. He agreed to take on the responsibility as long as the family agreed with his vision of diversification.

Wright wanted to bring someone in with him with a different background, who could help sort through the possibilities. That was when the family authorized the search that led to Pettit’s hiring.

The family wanted to diversify away from its tree farm, limited real estate holdings and a stock portfolio that “had some scale but no imagination,” according to David Weyerhaeuser, 53, an R.D. Merrill board member. Weyerhaeuser is a member of two Northwest timber families: the Merrills and the Weyerhaeusers. His father was CEO of Weyerhaeuser, and he works for Northwest Hardwoods, which was owned by Weyerhaeuser until last year. His mother is a member of the Merrill family; like Wright, he is a fourth-generation member.

“We were very lucky to get Bill Pettit,” Weyerhaeuser says. “He’s somebody you’re proud to have represent your family. He’s community-oriented, highly intelligent and moral.”

Pettit had spent 18 years in commercial and investment banking but was “feeling detached from the roots that I had thought I was going to put down in the Northwest.” In 1992, a recruiter working for the Merrills approached him and explained that the family had just completed a year-long strategic review; they had been debating whether to liquidate the company or turn over the leadership to a new generation.

“The family was looking for a strategic purpose and a vision for the future,” Pettit says.

Branching out required taking on some debt, something the family preferred to avoid. But as they watched the metrics of the new investment each quarter, “it quickly became apparent that the group that Bill Pettit had assembled was really good at managing it,” Weyerhaeuser says. The new venture generally had higher occupancy rates and margins than its competitors. “The numbers were very, very good, and that gave us the confidence to keep building it,” Weyerhaeuser explains.

For Pettit, the move was “a leap of faith.” When he joined the company, it was well capitalized but still lacked a strategic direction. It was “a very unusual opportunity to come in with the family to help plan and execute a future,” Pettit says.

Growth of senior housing

Merrill Gardens started with one senior housing community in Seattle in 1993, as Pettit and Wright explored new directions for the company. At the time, the family was looking into several additional businesses. “It kind of evolved that we saw a real opportunity in the senior housing space,” Wright says, “and we also felt like we had the ability to be good owner/operators in that industry.”

Diversifying by investing in real estate was a logical choice for a family that values long-term investments, according to Pettit. Looking for quick returns is “not the business model for timber, and it’s not the business model for certain types of long-term real estate portfolios,” Pettit says.

“Timber families are unique families,” Pettit says. “It’s rare when you find a source of business like timber, which was the Merrill heritage, where you invested in one generation and didn’t harvest anything until the next generation.”

The company found its niche supplying high-quality yet affordable senior housing. From 1995 to 2005, the company focused on expanding in that industry.

“If you’ve been through one of the Merrill Gardens facilities, what you find is happy people inside of it,” Weyerhaeuser says. “It’s not extravagant. We’re not at the highest end of the scale, but we’re nowhere near the lowest.”

Branching out

Although Merrill Gardens continues to have a regional focus, the company is also expanding far from its home base: China. That country is ripe for new approaches to senior housing, according to Pettit. With its one-child policy, there are fewer children to take in their elderly parents, and Chinese cities are becoming increasingly crowded. “Our senior aging issues in the United States are significant, but you multiply them times 10 for China,” Pettit says.

Merrill Gardens is not building its own properties in China; it’s offering advice and forming partnerships with companies working locally. “Our role is advising in design and operations and taking on management of projects that we are assisting on,” Pettit says.

Merrill Gardens set up its Shanghai office in October 2010. Cole Wright, development director for the company’s China operations, runs the office. Merrill Gardens has several consulting contracts with companies that are building senior housing projects and expects those to lead to management contracts as the projects get built.

The Chinese expansion came at a good time for Cole, who had grown up knowing about his father’s job with the family business but hadn’t planned to work for it himself. After studying English at Duke University, he moved to China and studied Mandarin. He later went to law school and had planned a career in corporate law or consulting.

Cole moved to Shanghai full-time in June 2011, after spending part of the previous year planning and visiting. He says it took time to learn how business is conducted in China. “There is a strong relationship culture,” he says. “Business development is relationship development.” Sometimes this means having a meeting with no agenda other than talking with a potential partner, he explains.

In addition to sustaining the company’s long-term health with the China expansion, company leaders will need to look at succession plans as the number of owners grows, Charlie Wright says.

The current ownership, spread among five basic family groups, is mostly in the third and fourth generation but is starting to move to the fifth. So far, they have not had significant conflict; an annual shareholder meeting and the existence of a family board of directors for R.D. Merrill Co. have sufficed to keep family members happy. Wright notes that the company’s success has undoubtedly made the process smoother. “We haven’t been put to the test yet with any major setbacks,” he says.

“I think that family companies that are private and that try to endure generation to generation are faced with that problem of increasing numbers of people with increasingly small pieces of the pie,” Wright says. “We are probably entering into that phase now. That will have significant impacts on the way succession works.

“That’s the challenge for the next group to face.”

Margaret Steen is a freelance writer based in Los Altos, Calif.


Copyright 2012 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permssion from the publisher. For reprint information, contact bwenger@familybusinessmagazine.com.