Stratus Quo?

William H. "Beau" Armstrong III, the boyish CEO, president, and chairman of Stratus Properties, would be a happier man if he could figure out a way to distance his company from Jim Bob Moffett.

Moffett, Armstrong's former boss and founder of the real estate development outfit formerly known as FM Properties, is kaput, gone, history, Armstrong says. "I run the company." Understandably, Armstrong has tried to dispel the widespread perception that Moffett -- who 10 years ago threatened to bankrupt the city after being denied a permit to build a 4,000-acre development in Southwest Austin -- is still calling the shots at Stratus. The Moffett rumors persist despite the nearly three years that have passed since the company changed its name to Stratus and severed its business ties with both Moffett and Stratus' former parent, Freeport-McMoRan, the multibillion-dollar copper and gold empire that Moffett oversees.

"Jim Bob doesn't even own stock in Stratus," Armstrong says, his voice tinged with exasperation. "Elvis," he adds for final emphasis, "has left the building." (Another big act, Tom Hicks, however, has arrived.)

It's one thing for Stratus to break clean away from the Elvis impersonator who seems to generate controversy wherever he goes, but it's hard to think of Stratus without being reminded of Moffett's bluster-and-swagger business model. Moffett, after all, was a dominant force on the development and politics scene through much of the Nineties. To this day, the Austin community's apprehensions about Moffett continue to spill over into Stratus' dealings with the city and, at least every odd year, with the local delegation at the Legislature.

This spring, for example, when Stratus and the city began negotiating a settlement on the 4,000 acres of undeveloped land in its Barton Creek and Circle C properties, suspicions cropped up almost immediately that Moffett was pulling the Stratus strings, via Armstrong, during the dealmaking process. The 36-year-old Armstrong was offended, to put it mildly. In response to the allegations, he hand-delivered a letter on March 23 to Casey Dobson, the city's outside legal counsel, "to resolve this concern once and for all." The letter reiterated Armstrong's assertions that neither Moffett nor Freeport-McMoRan is affiliated with Stratus. Armstrong further invited those in doubt to scrutinize the SEC filings of the publicly held company.

"Because we're a public company, we're held accountable ... we can't hide anything," Armstrong told the Chronicle last week. Still, the Moffett legend arouses a certain natural curiosity about the Stratus culture, which was shaped, for better or worse, by Moffett's hands.

It should be noted, though, that it wasn't Moffett who first laid down mega-development stakes across the sensitive Barton Creek terrain, but rather two powerful Texans, former governor John Connally and former lieutenant governor Ben Barnes. The legendary Barnes-Connally partnership built the Barton Creek Country Club, golf course, and conference center as the centerpiece of the swank, 2,200-acre Estates of Barton Creek in Southwest Austin.

But when an economic recession settled in Texas in the late 1980s, the Barnes-Connally empire -- an enormous real estate portfolio built during the days when bankers were throwing money left and right at real estate developers -- came crashing down. It was just a matter of time before the Connally-Barnes financial partner, Community Federal Savings and Loan Association of St. Louis, put the Estates of Barton Creek up for sale.

It found a willing buyer. At a time when many developers and bankers were heading down the well-worn path to U.S. Bankruptcy Court, Jim Bob Moffett was looking to throw down some money on a big piece of the Hill Country. A Southern boy who grew up dirt poor and went on to play football at UT under famed coach Darrell K. Royal, Moffett was at the time riding a new-money wave brought about by the success of his New Orleans-based Freeport-McMoRan. Having bought Connally's house in The Estates the previous year, Moffett bought the entire country club resort and Estates subdivision for a cool $60 million. The year was 1988, when anyone willing to make an investment of that size in Austin was either a fool or ridiculously rich.

Moffett's purchase earned him the respect of local business leaders, who believed that his acquisition was illustrative of his commitment to the community. A few months later, Moffett sold the country club and golf course for $30 million to his pal and Club Corp. Chairman Robert H. Dedman. But he continued his land-acquisition march across the watershed. In 1989, Moffett bought another big chunk of property -- 863 acres located just east of The Estates -- which would become the notorious Barton Creek Planned Unit Development. Already, plans for the Barton Creek PUD were well under way and moving at incredible speed toward City Hall -- and that's where they came to an abrupt halt in June 1990, when the City Council roundly rejected the proposal. But Moffett vowed to fight until he got what he wanted.

Fast forward to the present, and we see what appears to be a similar Jim Bob-helmed proposal under consideration at City Hall. Of course, Armstrong insists it's nothing of the sort. But given the improbability that Moffett will disappear from this town's institutional memory any time soon, Armstrong faces the unenviable challenge of trying to convince a doubting public that he is nothing like his predecessor. In short, Armstrong has his work cut out for him on any deal he tries to make with the city.

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Lo, Beau

On a personal level, the Stratus of today bears little resemblance to its former self. Armstrong, who was a youthful 27-year-old when Moffett hired him nine years ago, is far more likable than his former boss. While Moffett wears his money in the form of expensive suits and gold watches, Armstrong, even with his half-million-dollar annual salary, is a dress-down guy who favors worn gimme caps.

Laurie Swan, who handles government relations for the Real Estate Council of Austin, describes Armstrong as a "stand-up guy who would be a great guy to strike some sort of compromise with because I think he's a man of his word." Swan takes issue with the scorn heaped on Armstrong because of his relationship with Moffett. "I don't think it's fair to judge one man by another's reputation," she says.

But while Armstrong is affable enough, and forthcoming on some topics, he's extremely hard to read. When asked if he considered Moffett a mentor, Armstrong paused for several seconds. "That's a personal matter," he says, "and I respectfully decline to answer."

Nevertheless, it's safe to assume that without Moffett, Armstrong probably wouldn't have enjoyed such a meteoric rise to the top. Starting as a financial analyst, Armstrong began climbing up the food chain in 1992, when Moffett spun off his real estate holdings into a new subsidiary called FM Properties Operating Co. Moffett put one of his longtime lieutenants, Richard Adkerson, in charge of FMP, and he made Armstrong, then 32, the president, chief operating officer, and chief financial officer.

As its owner and managing partner, Freeport McMoRan had served as FMP's banker. But once FMP paid down its $500,000 debt to its parent, Armstrong says, the newly named Stratus was strong enough to stand on its own. So in late 1997, no doubt with Moffett's blessing, Stratus struck out on its own, with Armstrong at the helm. Since then, the company has shown virtually no growth in revenues. But Armstrong says that's not a problem, because it has enjoyed increased profits (see "Stratus Financials," p.34). "As an asset company, we're more concerned with bottom-line profitability rather than top-line revenue," he says in upbeat business jargon.

Stratus has built its reputation on the more traditional, garden-style suburban communities in which sprawling golf courses serve as the centerpieces. Armstrong likes to refer to these developments as Traditional Neighborhood Districts -- because they provide schools and shopping and office complexes -- but these are TNDs for the affluent only. Armstrong also points to what might be called an intangible asset: "It's our ability to manage the development process in contentious environments. We've managed to develop our properties in a responsible way, adding several hundred million dollars to the Travis County tax rolls in the process."

After leaving its financially beneficial parent company, Stratus was consumed with finding another funding source. In May 1998, Armstrong inked the first of three joint ventures with Dallas-based Olympus Real Estate Corp., affiliate of Hicks, Muse, Tate & Furst, an investment firm headed by the king of dealmakers, Tom Hicks, a big George W. Bush backer and Texas Rangers owner. The joint partnership gives Olympus 50.1% ownership in each of the three ventures, while Stratus secures a financial cushion with Olympus' commitment of up to $50 million through 2001. If Stratus paid off its half-million dollar note and left its first banker, the deal with Hicks provides the company two new bankers: Olympus and Comerica Bank, from which it secured a $20 million loan, plus a $10 million revolving line of credit in December 1999. And given Hicks' considerable sway among the rich and powerful, the Stratus-Hicks connection sparks plenty of speculation about how much power Hicks has over Armstrong. "I've never met the man," Armstrong says flatly.

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The Stratus Way

Although the company is traded on the Nasdaq exchange, and its financials and major stockholders can be easily accessed on the Internet, Stratus remains a stranger on the defensive in its hometown. In fact, the joke among environmentalists and even some developers is that Stratus' bravado far outweighs its own market value, ranked somewhere in the neighborhood of $64 million. SOS executive director Bill Bunch worries that the city, anxious to settle its long-standing battle with the company, which dates back to its days as FM Properties, might agree to pay the jacked-up prices he says Stratus places on its land. "The city," he says, laughing, "would be better off buying the company."

Much of Stratus' bravado these days comes not from Armstrong but from the pack of lobbyists it employs each legislative session. The team, which includes heavyweights like Dick Brown and Stan Schlueter, will be armed and ready for whatever comes its way in the next session.

Stratus -- with 25 employees -- is small enough to go unnoticed by most industry analysts. But that could soon change. Armstrong says he's focused on growing his company, and it's evident that Hicks could be a source of capital for that growth. That, and Stratus' possible venture off of the watershed and into the city's Desired Development Zone at Mueller Municipal Airport (see "Mueller: The Art of the Deal," p.40), are sure to attract the attention of industry watchers.