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Hey, hey. Welcome to the next episode of Commercial Real Estate Talk with Stephen Arne, where we have what we hope to be interesting, compelling, and very informative conversations with the very top leaders in the commercial real estate industry. Uh, throughout the Western US Today, we've got a great guest. I'm really excited about the show, Alex AKIs, president of Capstone Advisors. But before we bring him, him in, we got a little bit of business to take care of. Uh, let me introduce myself and our co-host, Arnie Garfinkel. Hey, Arnie, how are you? Hey, how you doing, Steve? I'm doing good. Good, good, good. What's going on today? Tell us about Allstar Group. Well, Allstar Group is, uh, started out is we're a commercial real estate lending firm. Started out with income property lending as the, uh, loan brokerage side, but Allstar Group does events. We do commercial real estate events, great Events. Thank you. The Commercial Real Estate and Lending Conference is an all day event. We do in, in la Uh, we do a lawmakers forum event in, uh, orange County, and we do a networking event, also, including the Lawmakers Forum in San Francisco. All of our events are interactive. The thing about the lawmakers forum that we do at every one of our events is we're like Shark Tank. We have all the lenders talk about what they can do, and then we have the audience speak live and submit loans to the, uh, to the lenders on the panel. So, excellent. That's what we do. Uh, well, I'm Steve Bloom. For those that don't know me, uh, uh, founder, CEO of rent tv.com. Now, in our 25th year media company for the commercial real estate industry, we have our news website, our email blasts. Uh, we have this podcast, we have our conferences. We do five conferences a year. Uh, next one is Inland Empire, then Orange County, and this video platform where you're watching this show, the review, the searchable video platform for the commercial real estate industry. Uh, now with the intros of us, Don Arne, let's start, uh, just Talk about our sponsors. Yeah. Tell us about the sponsors that make this show happen. And the first one is, uh, commercial real estate inspectors, uh, in Southern California. Their skilled inspectors provide critically needed inspection information in easily understood terms, as well as inexpensive and simple solutions whenever possible. Uh, their information is on the screen. Uh, it's commercial real estate inspectors. Let them help you protect your deal. Call Tiffany Simington and book your inspection today. 8 1 8 9 5 7 4 6 5 4. Again, it's on the screen. Tiffany, 8 1 8 9 5 7 4 6 5 4. Who's next? Yeah. Our next, uh, sponsor is Fidelity Mortgage Lenders. Fidelity is a private lending company specializing in commercial real estate. They were founded in 1971 by Chuck Shon. Uh, it is known for its unique terms, fast funding, no prepayment penalties, and long-term fixed rate. Call Uncle Chuck or John McClain at 807 5 2 9 5 3 3. Excellent. And, uh, closing out the sponsors is a great, uh, client of Rent. TV's been advertising with us for a while, and, uh, now they're supporting the podcast because they want to get the word out about their new, uh, strategy. And that is Chase Partners. Uh, many May may know Chase Partners and David Parker as one of Southern California's leading investors and developers of industrial properties throughout Southern California over 30 years. Uh, but now, uh, they want to let people know that they are focusing on underperforming industrial and retail properties and other distressed properties with non-performing debt. If you are an owner, lender, or broker that needs fast decision and a fast close to sell them the property or have them, uh, deal with your debt, please contact David Parker at Chase partnersDavid@chasepartners.com. Again, david@chasepartners.com. Well, with that said, I'm very excited to introduce our guest for today's show. Alex AKIs, president of Capstone Advisors. Good afternoon, Alex. How are you today? I'm Great. I'm great. Thanks for having me on. Uh, You bet. Welcome. Why don't, well, why don't we get started? Uh, Talk about, go for it, Arnie. Alex, give us an overview of Capstone and any other businesses you may be involved in. Uh, portfolio size, sectors, geographies, uh Sure. Residential, all kinds of stuff. Just give us an overview. So The company is 28 years old. Um, it's based in Carlsbad, California. And we've operated in 14 different states. And the business has done a wide variety of investments over that period of time. Our current portfolio is comprised primarily of shopping centers. Uh, probably 70% of our commercial portfolio is shopping centers, the remainder being, uh, multi-tenant flex industrial buildings and, and, um, and two, two office buildings. Um, not much office exposure. Uh, so that's the commercial portfolio. The commercial portfolio is primarily located in Southern California, Phoenix, and Virginia, although we're just recently started buying in Salt Lake City. Mm-hmm. And then in addition to that, the company's got a, a fairly robust land portfolio. We buy land primarily in the path to growth. We don't buy anything that's shovel ready and we buy land to entitle it and get it ready to sell it to other developers, primarily, uh, historically, mostly, uh, to, uh, home builders for production home building. Okay. Excellent. Great. Alright, well, uh, over to me, uh, Alex. And before my first question, lemme just again, uh, uh, while we're on there, thank you for, you know, participating in our events and having some of your great executives on our panels. Really appreciate it over the years. And, you know, we've got some things in common and we will get to that in, uh, in a minute. But, you know, we always start with the origin story. So tell us where you were raised, uh, and then we'll hop back into the real estate. Tell us where you were brought up. Sure, yeah. The education. Yeah. I was raised in Ithaca, New York. So upstate New York. Uh, not a terribly big town. It's 30,000 people. It's a home of two universities. Uh, so Ithaca College and Cornell Universities based there. And, um, I grew up there, graduated high school from there I went to the University of Colorado for four years. Had a great time. Boulder, lovely Boulder place, Boulder to go to school. Boulder. Yeah. And then from there I, uh, I moved in the, uh, mid eighties, uh, when I graduated, moved to New York City. I worked in, uh, finance, um, and as an investment banking, uh, uh, uh, in the analyst program for Merrill Lynch for three years in New York City. And then I went back to my roots. I moved back to Ithaca, uh, to go to Cornell for, uh, grad school. And I got my MBA in Cornell. And then after that I moved to San Diego. And I have been in San Diego ever since. And never one day did I think that was a bad move. Love it. Uh, love, love being located here. Living here in, well, We, we've got a lot of similarities. You know, if, if, you know, I think we've had this discussion, but, you know, I grew up in the city, so did a little reverse, but did the undergraduate at Cornell and yeah. Ithaca was amazing. Nothing like, uh, Ithaca, New York, but, uh, very different experience probably growing up there. I'm sure. Yeah. You know, it was a lovely place to grow up. It was fairly cosmopolitan for being a small town in the middle of nowhere 'cause of the influence of the schools. And, uh, when you're growing up, you don't know that the weather's bad 'cause you just think it's the same weather of every place. Right, right. So Well walking across the suspension bridge, teeing those frozen waterfalls over the winter, it was amazing. So. Well, I know Definitely an amazing place. Um, I'm, I'm from New York as well, but I was in, uh, long Island and Queens, so, uh, diff different area. Um, but why don't we go, I'll, I'll get the next question. Yeah. How did you get into real estate? What attracted you and was it retail from the start? Was it something else? Yeah, you know, so it's funny, my, I I just was having this discussion with, uh, my youngest son who is also in New York, uh, working, uh, in the city. Um, and, you know, I, my path into real estate was really predicated on, I knew I wanted to have my own business. That was number one. So I grew up, my father was a successful businessman. He had his own business, uh, businesses. And I grew up, you know, at the kitchen table, uh, listening to the stories about that, I used to go down to his place, uh, his business when I was a kid. I worked there over the summers. And, uh, it wasn't, it wasn't re uh, real estate, but, you know, fundamentally I knew, I always knew I wanna have my own business. Right. So that was kind of, that was very much the starting point is, and from there it was a, uh, series of explorations and try to figure out, okay, what business do I want to have? And I wanted something that was scalable. I wanted something, um, that, uh, had some local knowledge, uh, uh, uh, expertise. I, when I said I, I worked out of undergrad in investment banking, and I thought to myself, I'm not gonna have my own investment bank. That's right. Not likely. And I was watching a, uh, office tower get built across the street from where my office was. And I thought, okay, that's interesting. That's, that's got some ability to scale it. There's lots of different entrepreneurial businesses that are associated with that. You've got the developer, you've got the construction company, you've got the people leasing it, uh, people financing it. I was like, okay, there's, and, and it was local and it was tangible, which was also important to me. I wanted a, I wanted to be a, in a, working in an industry where I could walk and feel and touch whatever the product was. And I just thought, okay, I think it's, I think it's this real estate industry. And then, then it took me a while to figure out exactly where I wanted to, to be in real estate. I got outta school, outta graduate school, just in time for the savings alone collapse, which was really horrific for the real estate industry. It was, you know, in many ways as bad as the, uh, or worse than the, than the GFC was in 2008 for the real estate industry. So I worked for three years doing bankruptcies and workouts and restructuring and portfolio sales. And, um, and that was a great time in my mind to start in the industry because it taught you a lot about risk and about how bad things could turn. And then to also see the new groups forming up and new capital and buying distress. Uh, that was super interesting. Commercial real estate securitization came out of that, uh, outta that time period. So there was, uh, that, so, so that sort of led me in one direction. I actually left that job and traded mortgages for three years, commercial real estate mortgages, uh, and a very entrepreneurial, uh, shop. And that sort of taught me deal making. And then I put those two together, you know, and thought, okay, let's, let's go out and take a principal position. And when I, when I started Capstone Advisors, I mean, the reason it's called I called an advisors was I, well, I still wasn't a hundred percent sure what we were going to do. Um, but I knew it was gonna be opportunistic to start and Right. I, uh, I, and I, I put I, you know, I went off on my own with a very loose business plan and, um, and was very fortunate about my timing and my ability to, to start getting some transactions done. All right. Excellent. So what was that first major deal that you felt took you to that next level? You know Yeah. The ones you were initially kind of scrap, you know, building your knowledge base. Yeah. You know, so, so I had never worked for a company that owned real estate. I never been work, I never worked in leasing asset management, you know, I mean, everything in my experience was all tangential around real estate. Right. I understood sort of, you know, conceptually, but I was not an operator. Um, so the first, the first transaction I did was actually a, um, um, quite a large retail center that, um, I bought. And since I had no operational experience, I, I tied up a, a, a good size asset. And then I, I, I hired a firm to, uh, uh, or lined up a firm, a a large, uh, operator to do property management leasing. And I brought them into the deal with me, and I had a relationship with a couple of guys that were running capital out of New York for an investment bank. So it was really, you know, putting, putting sort of those pieces together. Um, because I, I, I couldn't point to any operational experience that I had, or frankly, and I was so by myself Almost as much as managing people as it was, uh, managing real estate. Yeah, Yeah. You know, and so it, and it all, it all worked out. So I could, I could get that, I could get that done. And once I closed that first transaction, uh, then my capital partners were pretty happy with, uh, with that transaction. And, and, uh, it kind of opened the floodgate and I ended up doing 22 different joint ventures with that capital partner and everything. Well, and then predominantly, most everything after that was I was building out a team of people at Capstone. I was hiring people that with a lot more operational experience and expertise, uh, than I had, which if they had one day was more than I had. And, um, hiring people, you know, sort of a lot more senior than I was and going out and, and, and buying real estate, uh, opportunities, you know, assets kind of indiscriminately where it was located. It was more of a, you know, what's the asset? How's it performing relative to where its position is in the market, and how do we get it to perform at market levels and then exit it? This was once again, during a period that was still sort of recovering from this, from the SNL crisis. And there was still, you know, a a lot of assets that were capital, uh, strained, constrained, you know, the owners were constrained that. Um, so there was still a lot of distress to pick up, and capital was in short supply, um, uh, broken deals were in great supply. So it was just marrying those two things up and then putting together an operating team to be able to execute on it. Excellent. So what major standout projects in your career come to mind? I mean, what really kind of like is like, these are the ones that really, did it put Capstone on the map? Yeah, well, I mean, you know, those first deals put us on the map and, and when I was calling around and those first transactions, so, so the first thing I bought with this 600,000 square foot enclosed regional mall, so that was my first deal. So that's pretty major. That's major. That's a major, yeah. Major Deal. It was a major deal. So getting that done, you know, got me right on the map and I was calling, you know, so I was by myself. I was calling investment sales professionals. I was telling 'em, this is Alex Sakaki of Capstone Advisors. And people would go, oh, I've heard of Capstone. I'm like, great. I dunno why you would've, but fine. You know, it had the name, had a ring, Had that kind of name. Yeah. Right. And then, and then I would drop the name of the big investment bank that was behind me. And, you know, and, and at first that discussion was a little bit met with skepticism. 'cause I couldn't, didn't really have a lot that I could point to, you know, it was a Novo company. Sure. But as I, you know, I was able to buy once, like 22 properties in two years. Right. So the, just the amount of velocity that we were buying right off the bat was, was pretty significant. And, um, and I just, you know, we were promoting look at this deal flow that we're doing, and, uh, that got us on the map pretty fast. Where Was that deal? Where was that first one? The six? Oh, yeah. Where Was the mall? It was in Indiana of all places. Ah, really. So I thought you lemme flip it around, But are you, look, when you look back, and these are the ones, you know, the, the toughest to talk about, but they probably provide some of the best, uh, uh, educational opportunities. But how about one that you wish you Never did for whatever reason? Yeah, no, there's, there's, there's, there's a few. We've done, you know, 300 plus transactions in our 28 years. So, you know, we, we've definitely bought stuff with, in retrospect, you sort of wish you hadn't bought. Um, you know, there was, um, uh, some, some, you know, one of the, one of the things we do is buy land entitlement transactions. And, um, you know, we've, we have gotten a lot better at picking what land we're gonna buy, uh, to, to get into and, and to entitle. And those transactions can be super long duration. So we've, uh, you know, we've, we've, we've tightened up, tightened up our, our our, uh, threshold on, you know, uh, what we're gonna buy there. Back in 2000 2, 3, 4, you know, when the world was just on fire, we were buying everything with, you know, both hands. Um, so, you know, it, it's, we've gotten better at, at, at, you know, mitigating our risk. And we have definitely collapsed the investment focus of what we buy these days. In the beginning, as I bought a mall, I bought an office tower, I bought, we'd buy single tenant industrial. We were buying retails, grocery anchored unanchored, you know, you name it, we were buying, we were buying all sorts of different assets. And you know, over time we, we've sort of, and we were buying many different markets. And over time, I think the big L lesson was let's target specific markets and let's target markets where we have synergy because we're now gonna be like a, a, a meaningful player in that market and get synergy with the, you know, the brokerage community and, you know, and establish deep banking relationships and, and, uh, if for investment sales people to be able to argue, you know, to do articulate why we're in this market, why we should get the next deal or, or, or at least be, you know, widely, you know, seriously considered. Um, versus just blown into a market you'd never been in before and buying an asset class you'd never bought before and transacting and leaving. That's harder. Right. Now, do you, do you buy based on strategy or opportunity? Think you were kind of, well, in the beginning, you know, back once again in the nineties, it was like the world was all opportunity. If you had money, there was a million things to buy. Um, you know, then, then capital efficiency came in, right? The liquidity turned back on, and then it was about, okay, you know, as an out of towner, why should I be the one coming into a new market and buying this asset? So we, we definitely have a much more focused on, you know, key markets that we're gonna buy in, and we have a much more focused, you know, this, this, you know, that, that was almost 30 years ago when we started, right? Yeah. So, you know, now we, we buy in key markets, we buy key asset classes that we know and to operate really well. And we've got a very professional team of people that are experts in the domain of which we operate. And we buy, uh, anything from, you know, value add, heavy value add, uh, to core plus, um, I, we, we buy a lot of value add, but, you know, we're also happy to buy core Plus what we don't buy is traditional core. We can't make, you know, we can't compete on that. It's still mainly in the three going forward still mainly retail land for future development on the single family and then some industrial. Yeah. Yeah. Um, how about, so how do you find, you know, and we were touching on this, just, just answer around leads right into our next questions. So how do you find, given that, you know, you've focused, you, you know, the, uh, your, your strategy and you've been in these markets for a while, so how do you find new deals? Or do you pick out properties and keep keep track of them, or Yeah, We have Broker bring You. Yeah. When we have a pipeline meeting every Monday morning, we go through, you know, we've got acquisition people, um, that we go through what, you know, what is on the market. Um, and then people, you know, in the markets we operate, people kinda know, like, you know, I get called occasionally and I'm to somebody, you know, from, and my acquisition guy gets called very frequently with somebody from the investment, um, sales industry, right? Will call and say, Hey, I got a capstone deal, right? This is, this is your kind of deal. It's your name on it. Yeah, Yeah. It's got your name on it, right? I mean, we buy a lot of stuff from, you know, call it 12 million to $25 million purchase price retail. And then, you know, and you're transacting enough into that market, the brokerage community calls you up and goes, okay, I, this is similar to the four other things you own here, right? So you're a logical buyer. Um, so we get, we get a fair amount of stuff that we just buy that's been marketed and it's on the market and people throw offers at it, and, you know, and you put your name in the ring for it. But we also get a fair amount of transactions where the investment salespeople think it's gonna go to market or think the, the seller will sell it. And you sort of get this inside track where they're taking it to three or five of the logical buyers typically, and it's not widely marketed. So we, we see a lot of deal flow that way as well. Right. The next one's my favorite sub quest follow up question to that one. So, and, and maybe it's different for each of these property types, but what do you use, what's the metric you use? You're an NBA guy, NBA guy, I'm an MBA guy. Like, is it IRR return on equity, a gut feel based on cash? You know, that's, we get that. Yeah. Yeah. When you're putting, you're the guy signing that deal. Yeah. You're, you're the one signing it. What's the leading Thing? Well, if it's, if it's, if it's core plus, if it's well located, well leased, you know, the, the game plan is don't screw it up and, you know, move rents and, you know, maybe do a little bit better job on the, on the tenant mix, uh, than the, than the seller. But it's generally good real estate. You know, we, we look at, you know, what's our, what's our going ahead cap rate? What's our cap rate gonna be in, you know, three years or five years if we hit our proforma? And what's our cash on cash return going to be? Now, we always run an IRR, we typically run an IRR over a seven year, uh, hold period, seven year. And we, and we've got metrics on where we want that IRR to be, but we're also, typically we buy stuff and we hang outta stuff for very long period of time. Well, the land right? You, the land's, Well, well, the land's a whole different end, but, uh, the income producing stuff, it's right. You know, what, where, where can we, you know, what's the rent growth? So what's the CAGR and the rent? Where can we, what's the rent growth gonna be over time? What's our leveraged cash on cash return gonna be? And sort of at the end of, you know, three to five years, what's would be our implied cap rate of being into that deal? That's sort of your classic core plus deal right? Now, if it's value add, it's, you know, it's, it's different metric, right? It's like, okay, you know, how much risk do we have to take? How much capital do we need to deploy? How heavy of a lift do we have to get this big value add? And when we get that value add, if we, you know, then what can we refinance it for? What's gonna be our remaining equity left in that deal, if any? And then, you know, what's that remaining cash flow look like? Because once again, you know, in the beginning when we were doing this, we were using, you know, sort of that hot wall street money or, you know, it was, you know, buy it, fix it, sell it, right? That was, that was the metric. Now, if it's value add for us, it's buy it, fix it, refinance it, and keep it. Right. So we, we, we have stuff in our portfolio now it's, we buy it with, with the assumption we wanna see, you know, this reasonable, um, value creation over this some reasonable period of time, but we're not expected we're gonna sell it. Right. You know, that brings me to my next question, which is my field. How do you finance your deals? Debt equity? Uh, what, how do you, or is each one separate? Yeah. So, you know, so we use market rate debt, you know, never more than 65% debt on, on an acquisition. Right? We typically, you know, a lot of times we just use, you know, we use traditional bank debt, um, and then there, you know, the rest, the rest we write an equity check for and, and you know, and, and keep it. Now we also use insurance company. I mean, it's really, it's, it's banks and insurance company depending on the property. Yeah. Very occasional. We'll use a debt fund if we've got a real value add deal that unusually value add deal, especially over the last couple years when things have been choppy. But mostly it's like we got good enough bank relationships, we'll just put enough equity in. So, and then our commercial portfolio, you know, we, you know, is sub 50% loan to value, you know, it's probably 45% loan to value overall in the portfolio. So, you know, we don't, we're, we're not debt junkies and on the land, it's kind of hard to, to finance those Yeah. Land, it's all cash, of course. Okay. We, we put no debt on land that is all cash. And, and for, and for what we're doing on land, the metric there is what's the multiple gonna be. It's not, it's, you know, we're, you're not doing this for an IRR, you're doing it 'cause you're gonna sell it for a meaningful multiple of more than you have in it because you don't know how long you're gonna be in it. Right. It's, um, so you, when those things, when those things exit, they, you're looking for a big multiple. Yep. And that's the, my, you know, right into my next question. Well, it's really a two part question. I'm grabbing one of Arnie's is the natural one on the equity side. Where does the equity come from? Do you have, uh, do you raise money for each deal on the equity side? Um, do you have already just the, the funds there? Uh, Yeah. You know, but it's predominantly, we have the funds here. We, we generate our own capital this point from our own funds, especially on our land portfolio, a lot of times, you know, we buy land, we have title it, we sell it, it's got a big capital appreciation. The beautiful thing about land is, uh, you know, all the value creation in the markets we operate, it's all getting the discretionary approvals, right? It's, there's very little additional value for doing the horizontal development. So if all you're do, if you, if all you're doing is buying and taking it through the approval process, which, you know, we, we, we buy it, we get it fully approved, we do all the engineering, we get ready to pull a grading permit. The map is final maps ready to record. I mean, these things are ready to go, but we don't do the horizontal improvements. We sell it typically to the public home builder. And because of that, we are an investor, not a developer on the land. And we can then take the proceeds from that and we can 10 31 it into the commercial portfolio. Makes sense. So the land fuels a lot of our commercial portfolio growth. Yeah. Gotcha. Gotcha. Well, uh, the next question I got for you perfect lead in is then what triggers the exit? Is there a certain time horizon going in? Are you looking at market opportunities? If someone brings you an offer you can't refuse, what's the exit? Yeah. For, for the land, it's, it's when do you get through the entitlements? When do you get through all the engineering? When do you have it, when do you have it with, like, the bow is all tied, right? Because, you know, the, the, the more you can get it to shovel ready for the home building community, the more you get paid. Right? Right. It's, it's, it moves, you know, x almost exponentially, right? If it's ready to go on, you can sell it to 'em on Monday, pull a building permit on Tuesday, and be on the ground on Wednesday. That's best case, right? So we're, we're selling the land predominantly as we get through the approval process. And there's a occasionally a little bit of chop, you know, like timing the market. Okay. Market's choppy right now, we're gonna wait a few months. But even that choppiness is really like the value creation is, is the entitlements. Yeah. So, so that's just more driven by when can we get it approved? And like I said, in the commercial portfolio, we hardly ever sell. Yeah. You know, we, we, But it's a whole, yeah, it makes sense. How do you structure your deals? Uh, they corporate partnerships, LLCs, do you create Yeah, everything's In a standalone, single purpose LLC bankruptcy, remote, you know, it's pretty much, it's pretty much standard in the industry these days. That's where every lender needs to see it. So that's where You have investors with you, or it's just under the one umbrella? Um, we have, uh, we, we have very few exterior investors. We don't, we don't go out and generally don't go out and partner. We don't go look for new capital. We're, we're pretty self-contained. I was writing this check to Capstone advisor. Yeah. Yeah. I know. Your next question was how does somebody invest with you? I, you were ready? Yeah. My, my retirement funds there. All right. Well, let's, let's jump now to the, uh, current situation. Why don't you tell us about your recent one or two acquisitions, then we'll get into your recent two dispositions. Yeah. So, you know, last year we had a unusually busy acquisition year, right? Typically, the way we operate, we, we buy one, two deals a year. The today, you know, in, in prior years, we, you know, we, you know, if the market dictates, there's lots of stuff to buy, we buy pretty actively. But, you know, last year we bought four deals. Um, and, um, three were value add. Um, and one was classic core plus, uh, a highly, highly performing grocery anchored center in Salt Lake. We've been canvassing Salt Lake for a while, looking for transactions. And we're happy to get a flag planted there that will start sort of marketing our ownership of that asset with the investment sales community in that for Salt Lake and look to add to our portfolio there. Um, the, um, another one was a super opportunistic, uh, industrial deal that was, we bought in Phoenix, that's a core market for us. And one of our existing relationships and the brokerage side called us up and said, there's this guy gonna just absolutely, you know, sell, liquidate this portfolio, and he's in a panic with his asset. And, uh, I heard about the deal on a Wednesday, and we literally had it under contract. Not LOI, we had it under contract by Friday. I even, I, I used the a IR form contract just so we didn't have to negotiate anything. And I, and I went straight from the first, the LOI was the contract, right? Um, uh, but it was an exceptionally good deal. It was a, it was a property that was going vacant. It, uh, had a lot of great attributes and it was completely mispriced. It had never hit the market, never hit LoopNet. Um, so we were super happy to buy that, uh, by that asset and, uh, did it very, very quickly. Um, and then, and then there was a local, uh, uh, shopping center right in our home market in Solana Beach, which is super high demographics, great location. Yeah. Asset was right on the coast highway, uh, had been not optimally, uh, maximized by the prior owner. What might be a nice way to say it, it had, um, you know, when I bought it at 30% occupancy in a 2% vacancy market. Um, and it, and it, you know, and it was kind of, it, it, it had been a little bit of, uh, I wanna say mismanaged, but undermanaged, let's say that. So, and, and it needed, it needs some capital investment. So we've spent the last five months working with our consultant teams, really, you know, uh, uh, in envisioning like, if money was no object, what would we do to this asset? Right? And, you know, and it, it needs, it needs a significant reinvestment in it. And so we've, we've come up with a plan of, okay, money's no object, you know, we take it all the way to here, and then you, you know, and then we look at, okay, what could we do with, you know, a little bit of cleanup and paint that's over here? And then, and then it's the process of dialing in, you know, what's the right amount of lift, you know, which is closer to money, no object lift. Um, so that's an exciting one. It's especially exciting because it's comp, I live like a mile and a half from this thing. That's exactly, I go to it all the time. And I have for years uhhuh, and most importantly, all my friends know we own it. Right. It's Getting Better. Well, let me ask you a little bit about it. How, how big did you say it is? So this, this is a, uh, 55,000 square foot center, which is a pretty good size center in that market. It's not a lot of big stuff there. Um, No. Really valuable. They're like, you know, little for pearls, you know, they're advancing. Yeah, yeah. Um, how many different tenants? Uh, there's a dozen in it right now. Mostly experiential, uh, restaurant. Yeah. So, yeah, this is, this is, I Know exactly where that is. It's right by the Solana Beach and Tennis Club. Right, right. This, this is on The outside. Yeah, this is this. It's, it's restaurants, it's, uh, health and beauty. It's fitness, you know. That's right. Yeah. It's A, it's a, it's a great asset. It will be a really great asset when we're done with that. Now, I, I wanna ask you, okay. So aside from your, your development and land, because you can't do that, how active and, uh, on architecture and construction are you on your projects now? This was a redone, did you com Did you get involved in the architecture of it? Yeah, Yeah, yeah, yeah. Yeah. We, this one, this one is, we have not started swinging hammers on the, on the redo yet. We just bought at the end of last year. We've, so we're about to, we're just about to kick off, uh, a bunch of improvements on the asset. And then we have the big heavy lift stuff that's gonna take us all this year to entit. Then we have to go through coastal Commission. That'll take another six to 12 months. So that the, the, a lot of, there's a lot of other physical development on that site that'll come, you know, end of 26 or into 27. And, and to answer your question, I'm super involved in the, in the meeting with the teams, the designers, the, you know, the landscape architect, the, the, uh, primary building architects, the engineers, civil engineers. I meet with the city myself. Um, I, you know, I, I am very involved in that process. Excellent. You didn't sneak in any of the, uh, architecture classes while you were at Cornell in that famous No, I, I didn't. Alright, I, I, a little of appreciation of it there. Um, one of the things I wanted to backtrack a little bit. What, what are the rents that you're getting in that, in the, that Solana Beach market on, on, on the rental rates? Right. I mean, so the income in place in this thing is, you know, four 50 to five bucks triple net uhhuh. And we think we can take the rents significantly up from there once we, once we do the heavy lift. Now let's date time this, we're, we're in April of 2025. So people see this in a few months or years might be Different. I mean, I mean, is it like most retail these days where there's very little quality vacancy in, in those markets? I would imagine It's pretty, yeah. Yeah. This market's 2% vacant. Yeah. Yeah. That's a solid. But we're, we're also, we're, we're totally repositioning the type of tenants that we're going after, you know, which is why we're sitting on the vacancy right now, because we're not, we're not actually ready to take this thing to market to lease it yet. We need to get through what's there way more through the design and get through the, the initial set of renovations that we're gonna do, and then we can start taking it to market and leasing it. So it's like a little bit of, you know, on one hand you gotta be patient on the leasing side. On the other hand, you gotta go as fast as you can with the design and development teams to, to get the plan really envisioned. And we're, you know, we're talking about moving, you know, access to the site, moving dry vials, taking out, you know, increasing a plaza area, taking out parking, um, in the center, you know, having to reallocate. It's a, it's a complicated, Yeah. That's, uh, um, well, you know, another, another perfect, uh, right into the next, uh, train of thought then. So, you know, and really you could break this down for each of your, the sectors that trend, but what do you see as the major challenges today? You know, as we go forward? Obviously there's a few that have been introduced in the last couple weeks. Yeah. But, uh, You know, I mean, so we buy existing property mostly, so we don't do a lot of ground up development. You know, obviously ground up development is, is got a lot of challenges on just making stuff pencil with where construction cost is. Right. You know, the, you know, tis have gone up dramatically, especially for really good tenants. Right. You know, uh, the days of giving somebody 10 or 20 bucks and thinking, you know, in retail or over, if you're looking for good tenants, you're writing much bigger ti checks. Um, you know, for, for good tenants, you feel really strongly tenants Too. Right. It's not just the landlord, the tenant is also Right. Yeah. Tenants writing big checks as well. So, um, you know, it's, it, you know, but in, in the retail world, the good news is rents don't justify construction by and large in most markets, especially the markets we're in. So you don't have to worry about competitive projects coming in, uh, especially when we buy sort of more infill locations. So, you know, we don't, we don't lose a lot of sleep about some big flood of increased, um, uh, competition on a lot of our centers. Um, you know, it's all, you know, it's, it's about consumer spending and about, you know, what they're discretionary dollars are and how good they feel about spending it. And then it's also like, how good of a job are you doing given, given consumers, given the shopper a reason to come to your center. Right. And keeping your centers vibrant and interesting and, and well merchandised, you know, um, so that people, people have a reason to, to go there. Right. You know, one of the, one of the one things on some of the more urban stuff, you know, there's, there's issues in, in lots of markets with what's going on in the streets around your centers. Mm-hmm. Um, you know, the, the increase in, um, the unhoused in, in many markets makes, makes things difficult. You know, we, we tend to be in better areas by and large. We, you know, I, I like to buy nice things and nice locations, um, that, uh, that, that we don't have to, you know, deal as much with that element or, or, or crime and a lot of our centers. And On the financing side, it seems, from what you've said, that you're a bit sheltered from the interest rate swings. Uh, so that's not keeping you up At night. Yeah, I mean, I mean, the good news with retailers, our cap rates, you know, besides the single tenant triple net stuff that we don't really play in our cap rates never got so compressed. Right? Right. We never saw three caps for our sales. Yeah, yeah, yeah. You know, we didn't, you know, like, you know, the, the, the industrial guys and the, especially the multifamily, right? When, when the government agencies were putting out debt at 2%, you know, cap rates got so aggressive on multifamily, then everything reverts back up to the higher interest rate and everybody's upside down, their equities wiped down. Or not everybody, but enough people. Right. We, we, we, we never saw that. Right? So, retail's been this funny thing for like 20, I've been in, you know, my first deal was retail. I've owned retail for close to, you know, 29 years now. And I'd say for 20 years people were like, oh, retail, Ooh, what's up with that? Why do you know? And now I go to, you know, these developer dinners and I see my developer buddies that were in office or, you know, other asset classes, they're all like, Hey, tell me about this retail thing that seems pretty good. Now, are You, are you buying more retail? Are you selling retail? I mean, I'm, I'm buying it. Yeah. I'm buying It. So, so you're always looking for that. Yeah, I'm always looking for it. And I like, and I like the multi-tenant flex industrial, small based stuff. I like that stuff a lot. Okay. Done a similar characteristics to retail, some of That. Yeah. You know, you can be a good landlord in that. There's a, frankly, a lot of landlords that, you know, are let that stuff get real deferred and, and, and, you know, you, you can, you can increase your rents, um, and your tenant longevity by just being a better landlord. I'm convinced in that, in that space. And the releasing cost is very reasonable, even if you got 40% office, um, you know, releasing costs. People don't go in and want you to build elaborate offices if they've got equipment and a warehouse behind them. Yeah. Right. Well, uh, let me, uh, ask you, you know, you mentioned it it a bit with, uh, with Salt Lake City, but what, where are the other states, you know, or other areas of the country that you might be looking to expand into? And maybe that's different for each of the, uh, you know, the sectors, the retail, the industrial, and the, uh, residential land? Yeah. You know, obviously we're based here in Southern California, so Southern California is a, you know, a place where we're always gonna buy stuff because we're, we're here, we live here, we know this market. Even LA City doesn't scare you. I don't go, I didn't, I said I we're pretty, we're we're pretty focused on where we'll go in California. Yeah. There's lots of, yeah. I don't see much stuff in la Yeah. We don't have anything in la I got nothing in San Francisco. I got, I certainly don't have everything. And I mean, there's lots of markets. I don't want call 'em all out, but there's lots of markets where the, you know, the political risk, the regulatory risk is, is, you know, has kept me out of those markets for decades. I just, I know It's a shame, but it's can't be avoided. Yeah. So, you know, we, there, there's markets further up north from California that are on the coast that became very trendy. And I'm like, I'm not going. Yeah. I don't, I don't like the, I don't, I don't like the business environment of those areas, you know? So Phoenix, I love Phoenix. I think, you know, Phoenix operates really well. It's got great population growth. It's got good household, um, growth. It's got good cost of living. You know, home pricing's reasonable. It's increased a lot, but it's still, it's still doable for people to buy a house there. It's got great education, it's got a can do. Very functional government and business, you know, doesn't have a lot of regulatory capture risk. I mean, you can, I like, I like Phoenix a lot. People Really rally there. Our event there was great last year. How'd you get into Virginia? How did that Stand out? Yeah. So, well then before I get to Virginia, then I feel the same way about Salt Lake, right? I think Salt Lake's got a lot of, you know, a lot of the exact same, uh, attributes of Phoenix. You know, salt Lake's kind of strange though. It always like, it, it, it, the lower velocity market, you know, and cap rates have been historically from what I could see over the last, you know, eight years, cap rates are lower in Salt Lake. And I'm, you know, for versus what I could buy in Phoenix. And I'm sort of feeling like, you, you. So I think that's just, there's very little, it's a low velocity market of assets to trade in Salt Lake. Um, but I, I like it when stuff comes under the market that's appropriately priced. I, I like that location. And then Virginia, like I've owned, we, we've owned those centers for long time. Um, that was, that was back when we were buying all over the country. And I bought a portfolio of shopping centers, uh, six shopping centers. And, and I've sold most of them, but I still kept a few in Virginia. What are your major leasing challenges right now on retail? You know, the, the major leasing challenges is, once again, it's primarily, you know, what the tenant build out cost is, right? It's, it's cost to get the tenant open and the costs just keep going up and up. And in certain markets like California, like, you know, it's high operating costs, right? Um, especially for sit down restaurants, uhhuh, you know, there's, it's very expensive to operate those, uh, here in which, you know, most of our restaurants that you're find in our centers, you know, even, even though the, it could be quite nice food, you know, it's still a walk in order at the counter generally, right? So people are optimizing their, their, their business strategies to, to covid Us. Covid taught us all that. I mean, yeah, you find out that like some of these high-end, uh, restaurants, sometimes takeout is just as good. Yeah. Or, or, you know, you can order at the counter and get your food delivered to the table. Right? So, well, I Guess you could do that too. Yeah. Yeah. There's a lot of that, right? And, and, you know, and quite nice, quite high quality food, right? So, you know, I I would say it's, it's, uh, the biggest challenge is yeah, it's getting the right space available and then getting, you know, the cost to get to tenant into that space, But Tenant, but, you know, but, but vacancy levels are super low in the markets that we're operating in. Yeah. You know, so vacancy isn't that scary. Generally, you know, you, you're, You're in, you know, the markets you're in, so you, you pick them, so Yeah. Yeah, yeah. And, and with a lot of the tenants, I'm curious, you know, especially in the restaurant business, if they're corporate or they're mom and pop, and how they guarantee how they're, how they're good for the, the, the cost of these tis. Yeah. Well, definitely you give more tis to the corporate, right? Right. The independence, uh, you know, you're looking at the financial statement of the, uh, of the, of the guarantor. All this stuff is, you know, is guaranteed by the operator, but, you know, there's only so much people, you know, that, you know, you, you still have to have a good concepts that are gonna perform. Right? So, um, it's really, a lot of it is just selection of who's that tenant and how good do you feel about it? And, and if they go, what's your cost to put 'em in? Retail's a funny asset, right? It's unlike office, you know, an office you get, you get a big tenant in your office building and they operate there, and then a new shiny building opens up and they're just as happy to move over a weekend and operate in a new building. Right? Like that makes no difference besides a little friction on the moving costs, right? Retail, your location is your business, right? Retailers, they don't leave a well functioning a well performing store to go to some store down the street. Right. If your store's doing well, you're staying. So No, it's really part of the brand. Yeah. You know, it becomes, yes. And then, and then the key part for the landlord is don't screw it up. Right? You gotta keep the property well occupied. You gotta keep it well maintained, you know, super important. You gotta keep it safe, uh, keep it well lit and you can't go put a junkie tenant in, right? I mean, the, the, you know, you can't just go chase high rent and put somebody in that's going to lower the experience for all your other tenants around it. So, you know, we have a, uh, you know, as long as our list is of the tenants that we wanna do business with, we have a list that is, that is, these are the types of tenants we are never putting into our centers. Right. So, Well that, that leads me right to my next thought is are there great new retail trends, uh, you know, that, that you're seeing new great, new exciting tenant news? Yeah, Yeah, yeah. You know, um, in, in the other part of our retail is, you know, you, you need enough contemporary things in your centers to continually to excite the, the local community to come and then cross shop with your other tenants. So you, you wanna be, you wanna be getting new concepts in as opportunities come in, you also wanna be realistic of like, is that thing got any legs? Yeah. Or is that a flash in a pan? They're gonna be gone in two or three years. 'cause that concept's just not durable enough. Uh, uh, so, you know, but I, I'd say, you know, the big, the big trends, you know, it's definitely health, wellness, beauty, right? And that evolves over time and fitness evolves, right? So fitness concepts, you know, we don't generally have like large format gyms, right? But we have lots of gyms, lots of places to go to for physical activity. But they're, you know, we've got yoga studios, we've got Pilates studios, we have fitness classes, you know, bootcamp type workouts, um, right. More the niche for the specific Yeah. And you don't Need as much space, you know? Yeah. They don't need as much. And, and, you know, and I'm a big believer in, you know, a good class concept. I think those, those, the, you know, like an orange theory is a, is a great brand. Yeah. Right, right. So, you know, you'd be like, okay, I feel good. Like that thing's gonna be there for a while. Now. Are you seeing any multi-family trends changing? You know, I don't, we don't really do a lot of multi-family. You're not, So then on the residential, I, you know, do, do you track the, the stock market, you know, for like the NARS and Toll brothers and all the major players of the world that, that then has an effect on, on probably your business, right? Yeah. You know, the, the public builders, I mean, their stock goes up and down, but they're, but they're, they're really well, the big public home builders are really, really well run organizations. And even though they get variation in their stock performance, they are manufacturers and they have to manufacture, it's utterly important that they are manufacturing widgets and their widgets or houses. Right. And the, the non-negotiable input into that widget is piece of land to put it on. So, um, you know, the, the most of the big publics, they have fortress balance sheets. They, you know, they're, they're just rock solid these days. And the 2008 washed everybody else out and back before 2008, you know, you had a lot of private builders and private builders competed with, you know, innovative product and, you know, really nice, um, design and, and you know, uh, and marketing and the public home builders, you know, competed with everything el that and everything else, but the gulf between 'em wasn't that dramatic. Um, after 2008, many, many, many of the private builders went away. It, but the, but the Publix also have spent years now really refining their, their operational excellence and driving down their cost, uh, to, to produce a house. Right? And, and now the price differential on the sticks and bricks and the cost to put up a home, you know, the public builders can generally beat, uh, a private builder by like 15% on cost, which is a huge, huge margin of competitiveness. Yeah. Right, right. So, Alex, what advice would you give somebody for starting out if, let's say you started today in today's market? Yeah. Well, the advice is, um, it is, well, first I would tell people, I think it's the greatest industry on earth. I love, I love the real estate industry. I've been happy as a clam ever since I got into it. I find it super, um, thought provoking and interesting and evolutionary. You know, we hear That from all of our guests. Yeah, yeah. Yeah. That's true. No, It's fascinating. I think it's such a fascinating, and then, you know, as somebody that I, I think the biggest question of somebody starting out is, you know, it's okay to take a little bit of time and bounce around and figure out where is your sort of natural path Yeah. Gonna lead you to, in the industry, you know, and frankly, how much risk, um, uh, are you willing to take or do you wanna take? And the risk isn't for everybody, right? So, you know, the, you know, people, you know, I've learned over the years, like there's, there's really not really that many people that wanna start their own business and own and operate it, right? It comes with a very unique, uh, set of responsibilities that never goes away. You gotta have that in you. Yeah. You gotta have that in you. Um, but, you know, and, and there's all sorts of spectrums, right? I mean, there, you can be fully commissioned, you can be fully salaried, you can, you know, but, but it's also, you know, to understand the ups and downs of the industries, right? You know, development is, I meet a lot of young people that are coming out of school and they get their master's in real estate, and they want to be a developer. And I'm like, you know, that's great until development shuts down and development shuts down way more frequently than you think, right? And when it shuts down, it's super hard to bridge your time through it, right? So, um, you know, so, so it's also just understanding, you know, what's, you know, what sort of is your natural inclination and where do you really belong? And one of the things that we do with all the people that interview for a job at Capstone Advisor, they get to a, they get to a, a, a position. We're, we're interviewing 'em, we're pretty serious about 'em. We give 'em, we, we give a personality assessment and we, and it's not a, it's not a test, right? It's just like, there's no wrong answer. It's just like, what is your personality say about you and how you like to operate and how you think and, and what's your, what your natural indications are of, of what you should be led to. And um, and, and we, we look at that pretty closely and we sure that, and even everybody in our company, we all have our sort of our graph, our chart of like, how do we operate at our desk where it's available for everybody else to understand, like how do we think and, and how to communicate between ourselves. Interesting. Interesting. Well, you know, we're, we're running out of time. I, I, I said I'd kind of keep us on track here for an hour, you know, left some things on the table, which we'll, we'll, we'll get you on again. One of the things on the closing, I, I, I think it's important to get out there on the non-business side, you know, the charity, the charities and other, uh, things that Capstone does, you know, supporting. Are there any key charities or, or, uh, causes that, uh, we can highlight for the audience? Maybe suck one of them or two to, to help support? Yeah. You know, so one of the things we do is we, we do, we do charitable contributions with local charities and all the markets where we operate, right? So we, we wanna be, we wanna be contributing to the local communities where we, where we operate. And over the last few years, we set up a foundation and it's called the Capstone Impact Foundation. And when we have a significant liquidity event with an asset, um, we, we fund it, we put money, uh, a, a sizable amount of capital into that foundation. And that foundation is really primarily focused on helping the most vulnerable people in our society that are the most in need. Um, so I'm a big believer of, of, of organizations that work on job training, uh, uh, a, a addiction, um, counseling, um, you know, crisis counseling. We, we give a fair amount of money to, uh, educational, uh, focused, uh, groups. We support the foster care system pretty strongly. You know, we wanna put that money to work where it's gonna make the biggest impact in individual people's lives as quickly as possible and, and help people get 'em on the road to as much productivity and happiness as they can have in their life. 'cause we know that'll cascade down generation after generation. Yeah. Right. Now what, what about hobbies are, are you like a sports fan? Do you play golf, tennis? Uh, are you, you went to Colorado. Are you a big Dion Sanders guy now? Or, uh, you Know, it's, it's funny. I, I, uh, I, I don't watch any sports, but I, I'm very active. I surf a lot. Um, I went running this morning with my dog, um, I very active in the winter. My wife and I ski a lot. Our kids are big skiers, so surfing, skiing, mountain biking. I, I go to the one shopping center by my house. I go to yoga on Saturday mornings. That's great. Yeah. That's, you know, no Better place than Southern California where you could take pictures of snow cap mountains with the ocean in the same picture. Well, you can, you can go surfing in the morning and skiing at night. I mean, you really can do that. Yep. Yeah. Still is left to that. So, um, you know, I, I, I think, uh, I think we covered most everything. We, we needed to. I mean, we got to know a lot about you, Alex. Right, Alex. More than we did before. It's great. Uh, great. Well time we, like I said, we left stuff on the table, so, you know, we'll have to get you back on in a couple months, hear about recent deals, how all these things shift through the economy. Yeah. And, um, we'll go from there. So thank you very much. Thank you, Alex. Thanks. Appreciate it. Happy to do it. Thanks for having me on. Yeah. Good luck with the deals and the projects. Have a great day. All right. Take care. Take care. Bye. You've been watching Commercial Real Estate Talk with Steven Arne, sponsored by commercial real estate inspectors, fidelity Mortgage Lenders, and Chase Partners. I think I'm.