Making It in Real Estate: Buying It Right

[Music] how many of you are already in the development business or want to be okay good and then another just a comment please feel free to interrupt us at any time during the course of the prepared remarks we both find that uh the interchange in the q a actually is much better at imparting information than prepared remarks so just raise your hand or shout out feel free to interrupt i'm going to give you an overview of the buying process what you might think about how you go about buying and then bob is going to focus a little bit on the nitty gritty of actually buying today we're going to be focused on a very single topic a single question a very important one which is buying real estate if you're interested in kind of a broader view about how to start a development company you might take a look at this talk that i did a couple years ago for uli you can find it on youtube same point we have a series called making it in real estate on the registry magazine which amplifies a lot of these points just 10 seconds on my background 35 years ago my partners and i started a small neighborhood shopping center developing development company in northern california we didn't have any money or any experience and now we have a little of the one and a world's worth of the other today we have just an hour and so we're going to do this quickly and we'll get through it and hopefully have almost a half an hour left for q a and then we can answer the your questions and give you some war stories if you like in journalism school they teach you in the very first paragraph to hit who how what where and why just to kind of lay it out and that's what i'd like to do today so the who i think this is actually the most important point that we can make today tolstoy he wrote all happy families are alike each unhappy family is unhappy in its own way that ladies and gentlemen is also true of real estate deals all happy real estate deals are alike they start with a motivated seller that is my best advice today don't waste your time chasing a deal where the seller is not motivated where a broker says gee if you throw in an offer maybe we can pry this property loose if you don't get a reasonable response to your first offer go find another deal this is actually very easy advice to give and almost impossible to follow when should you buy when everyone else is selling when uh at least when no one else is buying the old expression by when there's blood in the streets has been around for centuries and had you done so in 2009 you would have made a pretty decent fortune but absent this very rare talent for market timing and the ability to raise money when almost nobody else can here's another suggestion think of yourself as a farmer as a on a seasonal basis whether you're going to do one deal a year two three four try to keep that as a pattern and work through the the wet years and the drought years that said i'd be very careful if the numbers don't make sense to you sit it out uh it's it's frustrating in a rapidly rising market to sit out deals but it will ultimately pay off i'm sorry i think uh and i'll talk about local locally in local i'm in northern california i think office and multi-family have topped out uh in fact i'm sure that in northern california i think generally the other disciplines are are probably better off they didn't rise as much but i think we're getting toward the end it's probably not a good time to go deep on land deals right now this is kind of obvious what should you buy if you buy 100 at least aaa assets and core locations what you've bought is an expensive insurance policy you've got a great policy against downside loss i'm going to suggest that you can get that same protection against downside loss and a much greater upside if you think about doing value ads the more value you add the more you're going to enjoy it if you um if you just do a paint and petunia so that is take an empty building paint it new carpet and new landscaping and lease it up you're definitely going to create some value whether that's lasting value you know that remains to be seen if you do a ground-up deal or a total renovation you're definitely going to create value but the the point is uh and today this is absolutely true if you pay too much at the outset what you'll find is you're going to spend the next three years of your life and believe me bob and i have done this and i think every developer has you're going to spend three years of your life trying to make the profit that you gave to the seller on day one this is such an important point bob is going to stress it again in his remarks size hopefully you can see that small print i say start small you know unless you have a napoleonic complex and need to conquer the world overnight it's better to make your mistakes starting out as a developer on a smaller scale it's pretty obvious here's the easiest advice you know somebody just in the hall asked me oh what type of property should i buy i said it doesn't matter it it really doesn't matter at lunch when they were talking about industrial they were talking about office they're all each one is as good as the other each one has its own kind of market cycles retails a little bit slower and not as high not as low it doesn't matter what type you do but what i think bob you will agree with this i think what it does matter is that you specialize you pick one product type and really learn it if the what doesn't matter the where is absolutely critical at that same lunch a couple cities you've all heard of were not dealt with kindly but basically if you're going to develop in a city that is bleeding population and jobs you're going to lose money if in five years from now the rents are going to be lower than they are today and another five years lower still there's no way the smartest guys cannot make money if you're thinking about going to a new city i suggest you google google the phrase shrinking cities in america shrinking cities in america you'll find a list longer than my arm of cities that have lost more than 20 of their population in the last 50 years that's where you don't want to develop to underscore this point warren beatty excuse me warren beatty warren buffett [Laughter] where did warren beatty come from jimmy's uncle uh warren buffett once said that he'd rather be a mediocre executive yes a mediocre executive in a brilliant indus brilliant industry than a brilliant executive in a mediocre industry folks the same is true for us you're much much better off being a mediocre developer in a brilliant town where the thing is on fire so pick the where very carefully this is kind of an interesting side point why are you buying if you're in it and i think almost everybody in this room is to make money to make a living to be a professional developer you are not going to be competing very well with somebody who wants to buy the same building that you're competing for and he wants to buy a why because it's between his house and his country club he wants to drive his buddies by and say see that's my building he is going to have a dramatically different yield requirement if you're in a horse race if you're in a competition for a property it's not a bad idea to try to figure out who your competition is and what their motivation is and if you are competing against someone the op the most obvious example is trade money they don't really care what their yield is they're so anti-tax that they'll take almost no yield in order to do do a deal if you're starting out with fresh money you can't compete keep your yield requirements and walk away now with that the first paragraph out of the way we're going to talk about the how the heart of buying if my best advice was find a motivated seller my second best advice is make sure that the broker is highly highly motivated there's a popular myth that albert einstein said that the strongest force in the universe was compound interest i don't think that's true and he also probably didn't say and never underestimate the power of the financial incentive but i'm saying it today the financial incentive power is amazing if you can somehow make sure that the listing broker gets a full commission he will not be twice as motivated to make sure you get the deal then all the co-broker deals he'll be kind of an order of magnitude more motivated figure out a way to get the listing broker a full commission in a competitive situation as a corollary to that the classic rookie developer mistake is to say i'm going to act as my own broker don't do it i've made that mistake what happens is you get to buy properties that really aren't that competitive because no one else is trying to buy it they don't care if you get a commission but once you have a reputation for being your own broker you're not going to see the best deals don't do it there ought to be a country western song and there probably is that says something like don't fall in love with nothing that can't fall in love with you and that's that's really good advice if you but if you're a type if you're romantic and you have to fall in love with something fall in love with the numbers not the property i have a very smart successful friend who won't even look at a property until he has it tied up pursuant to numbers that he's really happy with he doesn't want the fancy french windows or the a bay view to get in the way of the cold hard analysis of the numbers another way to address the same point is to suggest you buy ugly buildings also true rarely do people make major financial mistakes on ugly buildings this may be a little counter-intuitive the best deals tend to have the worst purchase contracts the most onerous ugliest purchase contracts why because the best sellers from a buyer's standpoint it tends to be reo property it tends to be held by loan servicers tends to be held by companies who aren't in the real estate business who need to dump their property they tend to hire the most obnoxious lawyers with the most loathsome contracts i'm going to suggest to you today that if the purchase price is right and the contingencies are right and the closing date is right then you ignore the 50 pages of crap you buy it as is you even agree to indemnify the seller you've all seen these crazy provisions and you close the deal now if you're going to do that you really have to be careful and you've got to do your own due diligence let me just stress this point a slightly different way if you had a brilliant lawyer who crafted the best possible contract from a buyer's standpoint got you representations and warranties on environmental on zoning on the tenant's financial health brilliant warranties and you closed and gave the seller all your money then you'll find out why this is considered a mexican curse you know you have a lawsuit against someone who has all your money it's not going to help you that much you're much better off doing your own due diligence in figuring out the zoning and the tenant's financial health read everything yourself focus on it the leases the title exceptions all of the tenant correspondence file the notices from the city i would read absolutely everything uh very carefully in fact a lot of young developers will raise an extra ten thousand dollars from their family and friends in order to have the money to have a consultant do this i would not do that i think that's bad practice read it yourself tenant estoppels i think this is probably the 11th commandment for a development deal you need to tenant estoppels now to be a little bit inconsistent i said contracts don't matter that much when the seller's attorney comes along and says gee we're not sure we can get you the tenant of dopples we'll give you landlord estoppels don't take it if the landlord gives you absolutely clean estoppels and then you find out after that the tenant has a brilliant claim against future rent or worse you've underwritten your development deal and you think that the tenant only has six months left on his lease and then you find out lo and behold he's got two five-year options that totally blows your deal if you have a landlord estoppel you're back to the mexican curse you've got a great lawsuit if you've got a tenant estoppel you actually have some leverage uh the tenants in occupancy title insurance i've been doing this for a long time and i'm kind of agnostic on title insurance we tend to buy the cheapest possible policy we can hopefully there's no one in the title industry here i think it's a racket uh unless you're uh unless we're doing major uh construction where we're not certain whether there are easements involved uh we do buy the cheapest policy and occasionally about without policies but but since we're being filmed i can't recommend that uh learning the property even if the contract says you can only go on the property you know with an armed police escort from the the seller i'd ignore that i just make my own site visits and i'd walk in and see every tenant just ask them how business is you can learn more from one tenant's receptionist about the health of the project and particularly her company than you you'll get from a week out of the seller's brokers and if you walk into a space this large and you see only 10 people in there well you know that the tenant's got a problem the roof of course you should get a roof inspection and all the the building uh major systems my experience with roofs is pretty simple you get a roofer up there a roofing contractor and he says the roof's got five years left you wait five years you get same guy or a new guy up there and he says roof's got five years left and you can do that again so unless the tenants are carrying umbrellas around inside uh we don't tend to replace roofs until there's actually a problem almost every with few exceptions almost every project is going to be subject to future uh competition visiting the city going to the planning department going up to the the counter and just saying hey i'm interested in buying this corner what's plan that might affect me you should do it it's a good practice my third best advice is is actually quite simple and it's fun if there's any way the seller will agree to meet you do it become his best friend he cannot tell you how effective this can be even if the guy is tighter than a clam if you can just go to his office and meet him and look around you get a big sense and the more you can establish a rapport with the seller the more you can ask the seller how he's doing and the more you can send him reports if it's a development deal and you need to get city approvals or tenant approvals or financing chances are and i think most of you know this you're going to need an extension if you're talking to the seller and and you're honestly reporting your progress you're much more likely to get that extension on fair terms hopefully without additional price on the other hand if this were a sales if we were talking about selling rather than buying i would never agree to being a buyer sorry if i were a seller life's not fair if you're a seller don't meet buyers there's it's true too many of them will you're just giving them ammunition there are too many uh people out there that could use that as an opportunity to um to sue to be litigious so i know it's not fair but i would not meet uh any of the buyers so our rule meet the sellers not the buyers even if it's going to cost 10 20 50 000 to walk away it's the cheapest thing you can do you learn if you if you figure out that you've been dealt a bad hand you have to be able to walk away from your ante or things are going to get a lot worse a couple of quick questions here and then we're going to turn it over to mr hughes questions anybody all right while you're mulling that over i like to introduce my good friend here's another pitch we had dave mulvil make one for uli but i think the best part about uli is the friendships that you developed bob and i met we never would have otherwise he being from somewhere south of georgia no north of georgia yeah you people in california it's all one place over there but we met here but like 35 years ago we've become great and good friends i think between us we've probably developed 200 projects bob's done 197. i've done three [Laughter] anyway folks thank you bob hughes you're here for buying it right you've got to buy it right so you can make money john said you'd be working for the seller you will be but you're doing a project to benefit your community that needs to be sort of your first motivation certainly don't take off the table you got to make money but if you're not benefiting somebody nobody's going to give you money for it so you've got to serve your community but you're not going to be back to do it again if you don't make any money so your community is going to suffer you you've got to prime the pump and means you don't need to pay any more than you have to for the land the profit you make is an unbiased measure of your competence if you steal the land that's no measure of your competence you don't get any positive feedback if you sneak it away from somebody you don't so you do it right but you work hard to get it done there's nothing wrong with being known as a tough trader or a hard negotiator but there's something terribly wrong to be known as a crook or you're not going to get in the door to get this done and when you buy it right you give yourself the best chance to make the money because it's something unexpected is going to happen and if it happens early and you haven't built your cushion in early you're done i was told from my entire life a thing well bought is half sold i was also told by my dad why should i pay market value for that that's all i can sell it for so and the truth is you didn't buy it to sell it you're buying it to develop it but you may have to sell it your lender may have to sell it your estate your spouse may have to sell it you know the spouse you divorced may want to sell it and there's no harm in offering a lower price than ultimately you may have to buy it for because you don't know what that person is going to take you offer that low price you may get it there's also a thing in negotiation called threshold establishment the first person to say a number the other person has a little bit of angst about getting too far from that number so you want to go ahead and establish your threshold and then if you go up you're actually paying a compliment to the seller he has beat you up some he feels good so so it helps you in sort of greasing the deal and unfortunately though sometimes you start low and all you've done is make it easier for the next guy who shows up to get a good deal because he tells you no and then goes home and starts thinking maybe i should have taken it so and you may have to bail out of your deal you're going to want to cushion what you'll discover your competitors are going to try to slow you down because they think if they can slow you down you've got no cushion your deal is going to go away you can also change a plan in in this economy someone asked about the economy earlier you may have bought an office building site and it may need to be apartments before you're finished and you need to have a price that covers that no subtitle of this one do not borrow money to buy land um loans were really popular in the 70s if you heard the earlier speaker there was a leverage problem with a leverage problem in the 70s was a lot of people borrowed money on land they're not underwriting the value of that land when you go buy land they're underwriting your balance sheet you probably borrow that money without that land they're looking at you you're not getting any help if you've got a tenant though and you've got a plan a development plan then go to the bank and say i want to borrow non-recourse the tenant is going to pay it back and if the bank will listen to you about non-recourse then you've got everybody at the bank underwriting your project and telling you where the risks are so now you got experts telling you what about this risk what are you going to do with that and now you've got a better chance of making your own your own deal stronger you don't have to have this piece of land you just don't have to have it you may want it you may think you want it but you don't have to have it and if you go in with the attitude that i don't have to have it let him worry about why doesn't he have to have it once he's got a better deal somewhere else it will come across they can smell it if you feel like you've got to have it john said you're working john had the benefit of my slides and but he said a lot of it first you if you pay too much you are working for the seller if you i mean that's just i know everybody knows that but it took me a while to really grasp that anything i paid more than what it's worth first i've got to go do something to make it worth that before i can start getting my return and all of that is the sellers and the best way i've found for me to be sure that i don't pay too much and it's a little more work is have a second sight have another choice in your mind it's a little more work to bring that choice along but it will keep you honest and the seller honest you need to get to know and if if the seller doesn't say it it doesn't count um john said you've got to meet the seller you do the seller's broker doesn't know what the seller really is motivated to do um nobody no i've never met a person who owns land because they've just got to have that piece of land their entire life their entire being their everything about them is tied to being that land it's not the land it's their daddy told them never to sell it it's the college education it's their retirement fund it's something else to them and you need to find out from the seller what that something else is and then you go about rewarding that something else we always say no does not mean no no means not that way so you want to go back and take a look again and i said the broker won't know but it doesn't mean don't listen to the broker the broker can give you a lot of intelligence on that seller that will help you when you're there but you do want to see the seller face to face the broker won't know what you can do to meet those other to meet the other requirements the seller might have and then you've got to motivate the seller one thing we joke i've made more money finding a coming soon sign than i have finding a for sale site the old coming soon sign that's faded or knocked down on the property that guy was motivated he wanted to do something and it didn't happen then you go find the seller again everybody'll tell you the seller's not going to sell it didn't work or something you go find him does the seller want we in the when you get to see him when you motivate him does he want attention does he want a place in history john told me not to do war stories but one guy he wanted to be mayor he chained himself to his property and ran for mayor um he may not even know he wants to sell don't be afraid that it doesn't have a for sale sign on it don't be afraid that it's not listed um you know you'll hear all his friends that he'll never sell that's why it's not listed go see him there's again there's something he wants there there are tricks you can use you can create more value buy part of his land you make the rest of his land more valuable he ought to give it to you there are reasons some people they just want to be sure they got enough income till they die so maybe you need to lease his land buying his land is not the only way you can get an option to buy it later lease it from him now be calm and find out there's something the seller values more than the obligation to pay property taxes and john that's it for me we'd love to have some questions yes sir um what have you found as the most successful type of that's a great question because i think we have two wildly uh different approaches to that so i'll let bob go first and help that clean up well i would i would have bet we had the same approach i'd do it myself um oops so dwight yeah that's you don't i mean you don't know what you're willing to pay either so oh if you come up since we're filming this i just got the cue from our av guys if you just step over just so that your question will be heard to one of the mikes and with their on either side and i'll just repeat that question the question was as he's making his way there how do bob and i approach the purchasing of land do we have a staff that does it and now your follow-up questions so that gave some context to it that's all thanks right i have two principal operating partners so one runs the company and the other runs all the property and the construction and i'm the guy that goes out and finds the deals and ours pretty simple approach we've got 17 people um but we we generally retain everything we build i think john does that as well so mostly it's property management and servicing we've got four in the development side but mostly i'll acquire the land and sort of set the stage and then they'll work on the development part yes sir it's good to see so many small scale development council folks here welcome the question is really about a larger scale development a master plan development and how do you guys mitigate the risk around upfront infrastructure costs and holding costs specifically we're in the middle of one now and and a lot of that it it took me seven years to buy the property that we're developing now and but part of what we needed to do was mitigate these risks i mean when you do a large master plan community i'm not we're not big enough to write that kind of check so we were able to buy the land in pieces we had a basically a schedule seven year schedule to buy the property the net present value of the prices was the price they needed to achieve for the property and as long as we bought on certain milestones we could acquire those contracts we also we did another one prior to that which was a little different but the trick was still the same but we had three different prices for the three pieces we agreed to purchase we had one year separations for each piece but we got a discount if we bought them faster so um and and then obviously infrastructure and i got you don't put in any more than you need to see if you can get the community to contribute some of it that's actually a good question i think risk management and laying off risk on everybody else is what we try to do so if we have occasionally we'll have partners because i'm in the the retail world so occasionally we'll have major retailers as our partners occasionally now because we're doing mixed use projects we have much larger residential companies and we're the the retail trick pony that that helps them get the deal approved on a mixed use basis we pretty much try to get and we'll we'll trade profit for a risk we'll say you guys take that front end risk we'll take a lesser return i do not like going deep and if it's a smaller project we will pay non-refundable non-applicable option consideration if we like a project till the cows come home rather than step up and buy it and because we want to get all of the risk wrung out of a deal now i'm getting annoyed here that we've got guys who know more about real estate than we do asking those questions but go ahead chris i thought i was supposed to give a softball okay i was going to say one more point the seller also those is incredibly well positioned to give you that kind of flexibility at least in the deals where we're coming up and buying land because we're paying them 10 12 times what they actually have it for they're not speculators the people who've owned it for a while so they can take a little bit of time to get all that extra money my question is how how do you change your approach when you're dealing with a headless seller another a large corporation or a municipality well a large corporation you're kind of stuck with um you know municipality you go see the politicians there's somebody at that municipality who's going to get something out of your development not financially but politically and you go to them and try to make sure that you include them the only time i've ever really had bought from a corporation they didn't they didn't want to talk to me but i found a tax problem they had and uh and informed them that i would assume their tax problem or they were going to have to go pay a bunch of taxes and it worked got that off the price i still try to do my same basic strategy which is usually there's somebody who's going to make the decision and i try to get to know them i'm working on a deal right now with jp morgan and i'm trying to navigate my way and it's very difficult through that labyrinth to find out who is actually going to make the decision but i'm trying to get to that point you sir hi can you talk about any direct marketing campaigns that you send out or put in play in order to solicit off-market opportunities yeah i sure can because i've never done one we don't even have our name on the door i it's absolutely true it's just a little house i i have found that the deals you know see bob is much more ambitious than i uh the deals have a way of finding us people say people just suggest deals to us and i don't know that marketing you know what we're looking for is someone because again i'm in retail who owns a great corner or a great or a formerly great shopping center that's fallen on hard times we don't the only marketing we do right now and we were forced into it is our website uh and that interestingly uh which i was uh beyond agnostic on originally but that gets a fair bit of traffic you know we used to in the old days we have to show up with a brochure and so here are all the pictures of the deals we've done now we have that's that's all on our website and we find that if we're going to go see a city uh or a seller you know they google us and they can kind of get all that so i guess that's our direct marketing but it's honestly it's it's face to face for us you know it's like hey let me drive out let's have a cup of coffee let's have a meeting bob yeah yeah i'm sorry you drew the short end of the stick with this meeting we don't do any direct marketing either the first time we ever did a web pages i was speaking at a uli meeting they said you have to have a web page we put up a word document said please enter password that was all it did and in fact if you ever go to our website now we've got younger people so we've got to have a website but as a nod to that we have please and her password up in the upper right hand corner still don't do anything yes sir you mentioned uh the strategy of buying ugly buildings as as a strategy and i like that because in philadelphia and the surrounding neighborhoods there's a lot of run down ugly buildings and i was wondering if you could elaborate on that share any success stories is that something that's more position for someone that's getting started with a small deal do you still do that today any stories about that oh yeah i would definitely still do it today i have just found that when there's a little jewel box building you know just kind of going the other way where it says oh wow this is such a pretty building or the architects the architects always say oh they have such great bones or whatever that you can kind of let get the vision the beauty of it in the way of the numbers whereas if it's just an old industrial building or in our case kmart you know folks you got a hundred thousand am i right so you are not going to make a mistake on a closed kmart too often because uh you're not going to step up and buy it you're going to figure out how you're going to pre-lease it in advance so we just did one uh in northern california and that is a you just can't go wrong with one of those you know what it cost to chop them up and to put a new skin on them so that's my fourth best advice today close kmarts yes sir john and bob uh i'm going to ask you for a war story uh but hopefully one that is instructive for the group and that is the story of your first deal and hoping you could speak to that and the unique lessons learned for that very first transaction for sourcing it and then tying it up you want to go first sure my first deal was at kmart and i still hope it doesn't close um we started in retail and we were lucky at that time that kmart was sending us places we need a store in roanoke virginia um and we went and sure enough we had a seller who wouldn't sell because this was going to be land he was going to uh lease forever and and this was going to be his income we struck a really strange deal where he got half of the percentage rent and half of all the rent when the mortgage got paid off but it let us do the deal and you want to you want to set your leases just right about halfway through the term he went bankrupt his assets were seized because of the way our lease was structured we were able it was just pure dumb luck i think but we were able to buy the ground that was subject to this ground lease for a cap rate based off the minimum rent and then the percentage rent hit and within three years we'd received back a hundred percent of our land cost so that's my war story and i hope the k-mart doesn't close my first adult i did little deals but my first adult deal was a a shopping center which we still own we built it in 83 in northern california and what's now a really swanky little wine town called heelsburg and i guess it was a classic barbell center safeway drugstore the lesson i learned there i had an older partner at the time i was pretty decent at marketing but i couldn't 28 year olds are not particularly good at marketing themselves so i had an older partner deal worked out in the long run brilliantly we love it but the mistake i made with that older partner and we were never the closest of friends uh and let's just say we're not as close as we once were uh we did not have a put call provision in our partnership agreement and i think the the one advantage partnerships have or should have over marriages is you can plan in a kind of a cool calm way for your divorce in advance you can put in a put call a shotgun option they're called um you know where i want i want to buy you out no in that case then i'll buy you out you know we didn't have that we have three projects today and we have not been partners for over 20 years but i i cannot we cannot buy each other out so that's a it's a great project i love it but that's a lesson that i'll never forget yes sir hi um so here we are at what appears to be the the top of a cycle right and so naturally anybody who's looking at either a heavy value-add or ground-up development is faced with in most cases what appears to be irrational optimism on the part of any property owner particularly those who aren't really monitoring data about what's happening and need to be educated often so i'm curious if you guys ever find yourself entering into jv's with the legacy property owners and if so if you have any advice to dispense any uh success or failure stories to share about ways to risk share particularly in light of where we seem to be in the cycle where it could be that by the time you're under construction conditions are not quite as favorable as they are right now i can do that one you can do it after you uh that's a really good question uh we don't do financial partners but occasionally there's a piece of land that's so good and the seller says that i'm not a seller but i like you guys i'll joint venture with you the way we solve that problem is we say uh you need to learn a little basic algebra that the land has no value the land is the residual plug figure we know but let's keep it my world or the the kmart safeway sort of world we know how much rent safeway can pay we know what the shop rents are so we know what the income is and we know what the costs are uh retail the costs are pretty close say within five percent so if we know what all and we can figure out all the other costs if we know what the income is and then the only thing we have to decide on is what's a fair yield to develop to uh let's say seven percent eight percent whatever that number but once you have those three numbers the land is a plug figure so if the guy will agree to that and most often they won't they say well you know the gas stations hold for 30 bucks a foot and so i want 30 bucks a foot on my 200 acres and and that's back to my very first point i say sir you're not a motivated seller i'll let bob work on you but uh so we take a hike but if you can set the land and some that does work occasionally you can solve that problem but the big question where are you from fort worth so you think that it's frothy and fort worth as well yeah so i i definitely have that feeling in northern california it's just for fun a show of hands who thinks we're at at the absolute peak right now in in real estate in your hometowns wherever that happens to be so minority who thinks we're on the way up still okay so the a good majority of you think yeah okay we're on the way up that's good we're developers we have to yeah yeah there are very few pessimists in our business i've got two quick examples um one is a retail suburban retail shopping center uh where the landowner said i want to be a partner i want to be your partner because my out lots are worth so much money we said i tell you what let's put that much money on your outlines and you sell us the rest and for the discount off and and that worked we developed he kept the outlook profit we've also done it in a downtown large downtown mixed use project uh where the owners were not going to be sellers but they wanted to be developers and we we settled they had a tax reason too they were really it would it'd have been horrible for them if we'd have bought their land so we agreed to pay a little more than we thought it was worth but we got to set the number and then took the rest of the money they thought it was worth and stuck it on a sort of a hope note in the back so we had to make what we expected to make and then it because john's right the land what the land is worth is after you've paid for the building on it whatever's left so we explain that to them set it up we'll guarantee you this much for the land then we want to get what we were going to get then you get your hope note and then there'll be some kind of participation after that that one is still in the oven i mean we do the project's finished we just don't know what the final number looks like any more questions yes uh this question is from the branding and marketing side again so i'm hoping it's relevant we see a trend in retail shopping centers which which seems like your past experience is primarily in not doing as well with their original models and so primarily with urban land development specifically we see a shift in those retail shopping centers changing over to live work played you know mixed use environments my question is for you guys what are you doing to diversify your land in that regard and what projects are you looking at for an indicator of what is success when it goes into educating your motivation to purchase new property that might be of a similar layout i agree with you completely that the suburban shopping center was an interesting phenomenon during the hundred years of the automobile and euclidean zoning when everybody wanted to go that way from the city i think it's kind of over we're back on the long term trend and everybody's coming back in and mixed use is will bring you more value so we're actually going to turn some of our the good news is that i've been at this so long some of the shopping centers i did 35 years ago are pretty urban now they're going to be multi-story buildings when the k-mart's come down the problem is the rent has to go away in the meantime um the i don't the rest of the question we do the way we measure success i think is if the places are full or vibrant and full we call it uh was it 24 to 18 6.5 as opposed to 24 7. 18 hours a day six and a half days a week and if we really we sincerely believe the other part just like the equation that land is what is worth what's left profit is what people pay you because you've created something that they value more than it cost you to produce it so if we see them full of people and see vibrancy around it and people wanting to be there the profit is so far knock on wood has always been there i don't know if that's responsive exactly but i got all philosophical on you i apologize uh we see that i think we're working on three mixed-use projects right now uh in uh what will be extremely dense parts of less dense cities so we are doing that but we also see that the classic uh supermarket anchored a small center not with a whole lot of soft goods but a supermarket and maybe 20 000 feet of ancillary shops in highly competition constrained locations uh those are all they're all thriving as far as i can tell i don't think they're going to go away anytime soon i think people will continue to buy groceries pick up pizza get their nails done uh at places like this so we are actually trying to develop one right you know ground up right now so we're doing both kind of the traditional single story um surface parking lot deals along with the much more technically difficult mixed-use projects [Music] you

Channel: Urban Land Institute

Views: 29,135

Rating: 4.8450365 out of 5

Keywords: ULI, land use, real estate, cities

Id: O-MBA4mS9rQ

Length: 46min 45sec (2805 seconds)

Published: Tue Apr 26 2016