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Hey. Welcome to the next episode of "Commercial Real Estate Talk with Steve and Arnie," where we have what we hope to be informative, interesting, and very educational interviews with major players in the commercial real estate industry. And today, we're really excited about today's host, Daniel Weiss, President of Strauss Investments, major long-time investor owner throughout San Diego County for decades, who's actually been actively buying office properties lately. So we're really interesting to hear what's going on with them and talk to Daniel. But before we get started, let me bring in and introduce my co-host, Arnie Garfinkel, with Allstar Group. Hey, Arnie. Good morning. How you doing today? How you doing, Steve? Doing well. Happy Monday. Yeah, happy Monday. Got a great show today. Really excited about it. Before we do our business, bring in Daniel- Yes ... let's tell the audience a little bit about us. Sure. Tell them about Allstar Group. Well, Allstar Group was started in 1995 as a commercial real estate firm. We're best known for our conferences, the Allstar Group Commercial Real Estate and Lending Conference, the Loan Makers Forums. Very heavy in networking and lending and interaction, and that's basically what we do. We just had a big conference in the end of April. We have a couple of more coming up this year, so just go to allstargroupevents.com. I think that was one of your best shows. That was great, yeah. No, we always- Yeah ... draw about 2 or 300 people. It's a- Yeah, it was great ... huge event. I enjoy doing it. We introduce people to a lot of lenders, and we have a lot of networking. But, anyway- Yeah, it was great ... I also do commercial real estate loans myself. Sort of semi-retired from that. I like doing these interviews and doing my conferences, but that's what's happening at Allstar Group. Nice. Allstargroup.com- All right ... is all you need to know. And many of you know RentTV, the company I started 26, 27 years ago. Our main website providing commercial real estate news on a daily basis throughout the Western US, and then we provide those headlines with a very popular email newsletter, "The Real Estate Insider," that goes out a couple times a week. Banner advertising on all of those, if anyone's interested. We also put on five conferences a year. Our next one's Orange County, June 25th. And we created The Review, this video platform where you're watching this video, where you could load your own videos from YouTube and Vimeo, tag them for different search tags that we created, filters, and then search and find videos and get more views for the videos that you've created. So, with that quick synopsis of RentTV, our next point of business, Arnie, is... Sponsors. We got to talk about- Sponsors ... our sponsors. We've got an amazing set of sponsors that make this show happen. So pay attention, take down some numbers and email addresses, because our first sponsor is an amazing institutional name in the industry, and that is Rockefeller Group. They've been a great partner of RentTV's for many years, and now we welcome them as a sponsor of CRE Talk, and many of you throughout the country, probably in the whole world, know them for nearly a century. Rockefeller Group has delivered exceptional experiences and value creation through dedication to quality in the built environment, from the iconic Rockefeller Center in New York City and office buildings throughout the country, to large-scale industrial facilities and multi-family projects, many throughout the Southwest in our main market areas. Rockefeller Group develops, owns, and operates truly extraordinary properties. Visit rockefellergroup.com on the screen for more information on Rockefeller Group and their projects throughout the US. Arnie, who is next? Our next sponsor is Provident Savings Bank, a California-focused portfolio lender with a legacy dating back to 1956. Provident Savings Bank is a trusted resource for brokers and investors seeking 350,000 to $5 million in financing for property types ranging from light industrial to multi-family. Their deep roots in the community and longstanding commitment to responsible commercial real estate lending make them an ideal partner for your commercial real estate needs. Provident Savings Bank is an FDIC-insured and equal housing lender. Learn more about their lending programs at myprovident.com or contact Gina Conant, Sales Manager, at area code 951-403-0567. Provident Savings Bank. Next. Excellent. The next sponsor has been another great client of RentTV's for many years, and now we welcome them as a sponsor of CRE Talk, and that is Chase Partners. Many of you in our audience know Chase Partners and David Parker as one of Southern California's leading investors and developers of industrial properties throughout Southern California for over 30 years. As a longtime supporter of RentTV, they are now sponsoring this show to get the word out about an updated strategy for Chase, focusing on underperforming industrial and retail properties, other distressed assets, or properties with non-performing debt. So if you're an owner, lender, or broker, needs a fast decision and a fast close on your property, contact Chase Partners. It's on the screen, david@chasepartners.com, david@chasepartners.com. All right. And last but not least is Fidelity Mortgage Lenders. Fidelity is a private lending company specializing in commercial real estate. Founded in 1971 by Chuck Hirshon, is known for its unique terms, fast funding, no prepayment penalty, and long-term fixed rates. Call Uncle Chuck or John McLean at 800-752-9533. That's 800-752-9533. Okay. Daniel Weiss, welcome to the show. Great to see you again. How are you? I'm doing well. Thanks for having me, Steve and Ernie. Yeah, you bet. Well, thank you again- Glad to have you ... for taking the time, doing the show. We know you're busy doing a lot of deals, so very much appreciate. We wouldn't have a show if folks like you didn't take the time to come on and share your knowledge and experience, and mostly good, some of the bad. So we really appreciate you. So let's kick in here. We got a lot to cover. To start off, why don't you tell our audience about Strauss Investments, from the history and founding to the current portfolio, sectors, geographies. Tell us about it. Sure. Strauss Investments, formerly known as M.C. Strauss Company, was founded in 1960 by my grandfather and our principal, Matt Strauss. He got his start in residential real estate. He went to work for an uncle selling some tract homes in Coronado. Actually dropped out of law school to do it. Wow. And kind of set him down the path of building this remarkable business. We currently own and operate about two million square feet of office and retail property, with a geographic emphasis in Southern California. About half of our holdings are in San Diego County. I've been at the company now for 10 years. Had the incredible opportunity to work with him for eight of those years, and to work with some other really great folks here. Mike Rubin comes to mind. He was the former chief operating officer of Burnham Pacific. He's a great mentor of mine. And Pete Oakley, who recently retired. Ah. He's had some stops at some great real estate companies along the way, from Whittier Property Trust to Red Mountain Realty- Right ... Realty Income. So, I've got to work with some really great people and it's really helped shape the professional direction I've taken and our portfolio. Nice. Excellent. Yeah. So Daniel, tell us a little bit about your upbringing. Obviously, it's a family company, and this is your grandfather, and just tell us where did you grow up? Tell us a little bit about you and where it all started for you. Sure. Yeah. I grew up here in San Diego, in North County, Del Mar. Went to La Jolla Country Day School until about halfway through high school, went to Torrey Pines. Ah. Went to University of Oregon originally, out of college. Wasn't for me. Yeah. San Diego guy used to being in the sun. And I think I didn't see the sun from the time I left San Diego to go up there until I came back for winter break. So, transferred- I was going to say Sco Ducks because my son went to Oregon. Oh, cool. Great athletic programs, not really a great place to be if you like being outside. Right. Yeah. Yeah. So, transferred to USD. I was a mid-year graduate, so I think technically I graduated January 2011. But the last class I took was December 2010, which obviously was right after the Great Recession. And graduated with a psychology degree. Right. Yeah. Weren't exactly a whole lot of job opportunities. Had a couple of positions in the psychology-related field. One of them was working with, I guess I'd say folks who had just been released from juvenile detention facilities, and they were working towards getting their GEDs. Wow. Yeah. Tough stuff, too. You hear some really heartbreaking stories about what their family lives were like. It was really hard to leave that at work. Right. And then went to go work with a bereavement counselor who had specialized in parents who had lost children, which was equally challenging to absorb that all day. So realized pretty quickly that was not the direction that I wanted my career headed in. And essentially took the first sales job I could get, which happened to be in for-profit education. Which was an interesting experience. I guess the title was admissions counselor, but really what you're doing is selling a college education. Right. And the expectation was you'd make a couple of hundred calls a day. So from that perspective, I think it was a really good training for ultimately getting into commercial real estate brokerage, which is where I went next. But kind of figured out pretty quickly that for-profit education was not for me, to the extent that there was this massively high dropout rate. And really what you're doing as an admissions counselor is, A, kind of selling this dream of the college education and what may come of it, but B, also helping them obtain financial aid from the federal government. And I think there's been a pretty well-publicized crackdown on for-profit education after this. So, I took my sales training and decided I want to get my real estate license. So, had a lot of exposure to real estate growing up. My dad was and still is a commercial real estate broker. He was primarily focused on industrial property down in the South Bay when he was getting started- Right ... in Otay Mesa and Chula Vista. So growing up, he dragged my brother and I along to all sorts of different property visits and most of the time we're messing around on a forklift or a scissor lift. Right. Had some fun racing those around.But yeah, then I started like a junior broker or runner program with a couple of different brokers at Lee San Diego. One of them was focused on investment sales, particularly net leased investments, Southeast United States, focused on a single group of tenants for the most part, CVS, Rite Aid, AutoZones. At the time, with the economy being where it was, he wasn't very busy, as you can imagine. Right. The other broker that I had the opportunity of working with was more of a leasing broker and had one really big institutional client that had about a million square feet of light industrial. And, so I spent a lot of time door-knocking industrial tenants, and that set me on my way on my brokerage career, which lasted about six years. So, again, at the time, economy being what it was, and a lot of brokers' income had decreased 50% or 100%. There wasn't exactly an opportunity to work my way onto a team. So I moved over to another local real estate brokerage, during that first year, somehow, some way, was able to transact about 30 deals. It's one of those, you get a phone and, I don't even think they gave us a computer. You got a cord to plug your computer in. And, it was a great learning experience and built some relationships in the brokerage community and had an opportunity to go work at another brokerage firm in a more traditional brokerage model, where I was paired up with a more senior broker who was able to leverage some of his relationships. And I would do a lot of the cold calling and door-knocking and the heavy lifting. Right. Yeah. Incredible experience with him. We're super close to this day. I want to say about, I don't know, two and a half, three years into my time over there, there was an opportunity to do some office leasing for, at the time, M.C. Strauss Company for a headquarter building here in Solana Beach. And there's a block of about 5,000 feet vacant. It was roughly 10% of the GLA of the project. Had some success leasing it pretty quickly. And at the time, my predecessor was looking at moving on to something that she felt was a better fit. And she had mentioned to me, "Gee, I'm going to be leaving here, and your grandfather's a tough guy to work with." And "There may not be a whole lot of people who've got the tolerance to do it, but you're family and you have some interest in these, and I think it would be really great if you talk to him about it." So, we ended up going to lunch. We talked about it. He brought in a couple other people. Ended up offering me the opportunity, I think because I was the one willing to take the least amount to do it. Right. Business is business. Yeah. Family is family. But more than anything, I saw it as just an incredible opportunity to spend time with him, learn from him, and learn from his chief operating officer, again, Mike Rubin, who's been a great mentor of mine and has had a tremendous influence on me. So, kind of looked at the lay of the land here. Here you've got a principal who's in his 80s, and the top blue tenant here is in his early 70s, and it just seemed like a good opportunity for me to learn, absorb as much as I can and hopefully earn an opportunity to find my way into the leadership. Right. You got to take advantage of certain timing that only presents itself rarely in life, and that is a clear case of that. Thanks for sharing that story. I know that is a bit behind the curtain. So Arnie- Yeah ... you got the next one teed up. Well, okay. I thought you were going to go next, but that's okay. Well, I'll throw it out there. Yeah. No, that's fine. No, no. Yeah. Go ahead. Tell us about the first real estate deal. It could be brokerage. That was- Yeah. The first big one- Which one was- ... that set you big time over at Strauss. Which was the one? I don't know that there's any one deal that I can point towards and say that's the one. I would tell you that in brokerage, I sold a mixed-use project with my then partner. It was office over retail on Adams Avenue in that North Park area. Mm-hmm. And just challenging people across the board, like challenging ownership, challenging tenancy, challenging buyer. And I'd tell you that in working through some of those challenges, I found a lot of confidence. Oh. And brought that with me here where there were some challenging personalities to navigate. And you always get that in any sales position, right? Right. And in my early days here, shoot, like day one , there was a long-standing tenant here at our headquarter building in Solana Beach who had had some concerns about mold in her space. And we had gone to great lengths to investigate it. And by the way, psychologist, and I would caution other landlords to walk slow with- I was going to say, I bet the psychology thing more applies to real estate than being in the psychology field. Yeah, really. Yeah. For sure. And so look, there were some challenging tenant issues to navigate early on, andI think that with anything, as you're able to have some success in navigating those challenges, it just builds on itself, right? Yeah. Like the snowball effect is real. And then at the time I started here, we weren't really acquiring or selling of properties at the pace that we're doing right now. It was one guy's capital stack, right? He was the entire capital stack. So, initially we had bought something in 2017. It was an opportunity that I had sourced from some broker relationships that I had had some lead brokers up in that Temecula office, and there's an opportunity to buy a project that we still own to this day out of receivership. I think that we were maybe a little overly aggressive negotiating it initially. But the first buyer that was selected blew out escrow. The receiver came back to us. There was one thing that we always did really well, which was look, our price is our price, but we will close at our price. And Strauss really sort of relished the role of being the white knight that comes in after the dragon. Right. And so we've had a few opportunities like that where we weren't the first buyer. Sometimes we weren't even the second, we were the third or fourth in, but we did what we said we were going to do. And he was a person who, I mean, utmost integrity. And that was one of the values that he wanted to pass down, which is you operate with integrity, you do what you say you're going to do. And then things really kind of picked up steam for us here, I'd say in '21. So '17, '18, '19, we're acquiring about a deal a year. Super leasing and operationally intensive, right? Our sweet spot is still to this day, tenants in that, call it 1 to 5,000 foot range. And there's a lot of churn. I think on average, probably about 200 transactions a year, between new leasing and renewals. Right. Fast forward to 2020, which was really impactful in terms of our strategy and the direction of our business on a go-forward basis. Spent a lot of time on the line with legal departments for Fortune 100 companies- Right ... that were withholding rent and reporting sales. And because people are hoarding dog food and toilet paper, these tenant sales were up 10, 20, 30, 40%. Yet they're withholding rent and we're getting no relief from the lenders, from the county tax assessor, from the utility providers. We were really kind of stuck in a vice, right? Where on one hand, our income, at least on the retail side, had decreased by 60, 70%. And expenses, on the other hand, were remaining static. So got to a point with some of these tenants where it's like, "Look guys, you're open, your sales are up. And using the pandemic in a self-serving manner is totally inappropriate. So what are you going to do?" Right. And eventually we were able to get some of these tenants current. We also deferred over a million dollars worth of rent for the service users, the mom-and-pop restaurants, the nail salons, who were actually shut down and suffering, right? So after that experience, we were kind of looking at the portfolio, gee, collections on the retail side right now are 35, 40, 42%. And meanwhile, office has never been below 97% throughout the pandemic, 97 to 99%. And we really didn't own any high-rise office in urban cores. What we had owned at the time was suburban office with smaller tenants. And so, I think when the pandemic started, we were already about 90% occupied, and we were able to capture these users that wanted out of the urban cores and were rightsizing and reducing their footprints, and our occupancy went from 90 to 100 very quickly. Nice. And we had always attempted to take this sort of apartment model to office, which works particularly well with small users in that, call it 1,000 to 2,500 foot range, because there's only so many ways you can configure those spaces. Right. So we would come up with a pretty generic build-out that would work for, call it 70, 75% of users. Now, we might miss out on this one really specific tenant that's out touring the market right now, but that's okay if we're saving ourselves building up and tearing down TIs every three to five years. Right. So- And you always want a little vacant space, for some of the tenants in the... Usually it's never 100. Ninety-seven is really the sweet spot anyway, right? Yeah. So you have a little space in case a tenant needs it. Yeah. Well, look, I think there's a school of thought which is if you're 100% occupied, you're not charging enough rent, right? That's my position on this. So, you like to have a vacant suite and- Right ... have it move-in ready. I'd tell you tenants have gotten a lot more sophisticated. A lot more of them are represented now. So they're not waiting until 30 days out to make their lease. You know, I was Cresson Partners tenant rep before I started- Yeah. Right ... Cresson. So you get it. But being able to deliver turnkey space and provide a move-in-ready solution for tenants that have maybe not prepared as well for their upcoming lease expiration is a real benefit. Right. And when I started here, we didn't spec any suites. And that was kind of one of the early, I don't want to call it a problem, but one of the early changes I sought to implement was-Let's have spec suites ready at every property at two different size intervals, so you can capture the 1,000, 1,200 foot tenant, and you can capture the 1,800, 2,000 foot tenant, rather than waiting for them and missing an opportunity because you didn't have space that was deliverable. Right. Hey, this has been great. I want to get us shift back to the questions, because the next one I want to ask is, I think you went through the first couple deals that you did at Shust. But now looking back on it, and I know you've done a couple that we'll really get into in a minute or two, but when you look back on it now, which is the one standout, if there is one, deal that you did, I'm probably assuming on the acquisition front, but that you've done in your career up until this date, what would be that standout deal? I'd tell you there's two of them. One of them, we were disposing of the asset, and it was a retail shopping center in East LA. High vacancy. Had high vacancy from the time I started here. There was some functional obsolescence with it. Mm-hmm. The reason why it's such a monumental deal for us and for me is, I think three days prior to the closing, the buyer had identified a pretty obscure title issue. And when you're that late in the game, there's not a whole lot the buyer can do. Right. They could've failed to perform, at which point, we would've been stuck with the property with the title issue and their deposit. We weren't in it for their deposit. We were in it to close the deal. Right? And so, tracked down the broker that had sold us the property 20 years previously. And, there was a connection between him and the family of the previous ownership who had passed away. And anyways, long story short, we were able to reform the deeds to fix the break in the chain of title- No way ... to convey title to the buyer. Yeah. Wow. And that was really a springboard for us to reposition the portfolio and, from that day forward, we've acquired about 750,000 feet of multi-tenant suburban office in San Diego County. On the acquisition side, we acquired a two-project portfolio in Carlsbad. And Carlsbad was always a market that I had targeted us to break into. Great suburban market, strong demographics, newer build for the most part, good tenant base there. And Arnie and I both put on our San Diego events down there, so. There you go. Yeah. The Westin Carlsbad. That's- Yeah. Right. Shout out to The Westin. Great location. Well, yeah. And I just participated as a speaker, so- Yes. Thank you ... thank you, Steve. But yeah. So, we had broken into that market with this splashy acquisition, two projects, it's approximately 50 million bucks. We are going to show pictures while we're describing it now, so- Okay ... look at the screen when he's talking about this. Go. Let me cut you off. Sorry. Yeah. No, and Carlsbad, I think historically had been a little overbuilt. And so, throughout the different real estate cycles, it would underperform in the market in terms of occupancy. Yet, ultimately, I would describe us as low-basis buyers. And so, when we were making this acquisition, office market is being dragged. There's- Right ... it's being painted in broad strokes in the journal because what's happening with all the distress in the urban cores and the high-rise office, and that same thing is not playing out in the suburbs. Right. And so we've opportunistically took a swing at buying this portfolio. I think we averaged out around two tenant square foot. At the time we went under contract, the projects were 70% and 60% occupied respectively. What year was-- When was that? What was the timing? 2022. November of '22. So, we're like, we had thought that we were at the bottom. But I think that there was still a ways down to go before the market sentiment- Right ... reached. And, like tenants were still in the process of right-sizing, and requirements were changing in real time. And so anyways, by the time we closed, the projects were 60% and 50% occupied respectively. And, those first few months post-closing, it's pretty quiet. I think part of that is there's a seasonality to this business, right? We closed November 8th, I think it was, and then there's Thanksgiving, Christmas, New Year's, and things don't start really picking up again until middle of January. So, middle of January hits and we're like, "Oh, shoot. Did we miscalculate?" And I'm very pleased to share that within that, call it first year of ownership, the projects are now 90% and 85% leased respectively. So- What's the project name? Carlsbad Executive Plaza- Yeah. Yeah ... is one of them. It's 2111 through 2141 Palomar Airport Road. Nice. And the second project was called Plaza One and Two, which we've subsequently renamed, but it's located at 1921 and 1925 Palomar Oaks Way. Nice. Okay. So now you might have- What do you get for rents now? Let me ask one more question. What do you get for rents now in that building? So part of the strategy was reducing rents to stimulate occupancy. Ah. Because we're long-term holders of our real estate, we're not merchandising the rent roll for a sale. Right? So when we bought it, the owners were attempting to charge 265 a square foot plus electricity. So part of the leasing strategy was let's offer a lower introductory rate around 225 a square foot. So today- Also modified or full service? Modified. Right. Modified lease. Yeah. Today, Plaza, excuse me, I'll always refer to it as that because that's what it was called when we bought it. Right. Today, we're at about that same asking rate on one of the projects and still a tick beneath it at the other. But what we've been able to do is add a ton of occupancy. Right. And in the interim, we've also built our Carlsbad portfolio. So we've acquired another two projects. One of them, Carlsbad Pacific Center, it's 135,000 square feet. The other one is Right Place, another 100,000 square feet. So now we've got about a half a million square foot portfolio in Carlsbad. And in terms of being in the deal flow, we've got a sizable enough portfolio now where, six, eight, 10, 12 months before things happen, it's like, okay, this project, the owner's having trouble with their lender, and this project, they're going to be losing their biggest tenant. And portfolio-wide in San Diego, across all of our office, we're 90% occupied. Right. Yeah. So Daniel, let me ask you, you're kind of getting into my next question, is how do you find your new projects or deals? Do you get them from brokers? Off-market? Do you track the area? What's your strategy to find new stuff? All the above. Okay. Yeah. So- Which works best? Well, listen, can't discount our broker relationships. Right. Worked with some incredible capital markets brokers here, Rick Reider and Brad Tecca. In fact, I think our last six acquisitions have been sourced through them. That being said, we've now worked with some owners or sellers multiple times now, and they know that we're going to follow through and do what we say we're going to do. Concurrently, we're also building our internal database of what's going on in the market. And so, you track what other people are buying things for, and you give your own internal valuation on them, and if you're resourceful enough, you can track the note and the maturity date, and you can do an analysis saying, like, "Okay, if this owner is going to be able to refi this loan, then they're going to need to add capital," which presents a buying opportunity. And that's where we're really focused right now, is identifying what we perceive to be buying opportunities- Mm-hmm ... and thoughtfully approaching them. I'm a former broker, right? Right. And I value the jobs that brokers do tremendously, and I'm incredibly respectful of the relationships that brokers have with sellers. And so oftentimes, the initial approach is through a broker. Right. Even if we do have a relationship with the seller, the goal is always to honor relationships, and- And they grease the wheels. They want to see a deal happen, right? So their job is to make the deal happen. Well, yeah. That's how they make their money. Right. Exactly. Well, also, valuing a property can sometimes be an emotional decision. And I think having that independent advisor say, "Hey guys, here's what the data says," can help recalibrate expectations and bring some of the emotion out of it. Right. So from that end, I think they're incredibly helpful, particularly Rick and Brad, who I've just got so much experience working with. Sure. They've been on my San Diego panels. Yeah. And you know them. They're great guys. Yeah. Hey, we skipped one, and I love this question, so we got to ask it. How about a deal that you did that or- No, he already covered that. The one he did- That was the one that they, I think, when we asked him about the first deal he ever did, he told us the one that he got rid of, and then the other one that he bought. That's why I skipped it. The one he wished he never did. Yeah. All right. Same properties? Mm-mm. I think that's why I asked that question because he already covered it. We'll edit this part out, but- All right ... all right, let me move on. So- Well, I guess to answer your question, there is one deal, I wouldn't say I wish I never did it. All right. All right. So maybe you didn't cover it. I'd tell you it was incredibly complex, and it could've been simplified and saved us all a little bit of a headache along the way. We owned a just terrible executive office building down in Lemon Grove, which is not much of an office market if you know San Diego well. Right. It was small. It was an outlier for us. It was very management intensive. I think the average suite size there is probably 600 square feet. The biggest cash flow generator there wasn't what was within the building, it was what was on top of the building. We had multiple cell sites there. Oh. And we got approached by a company to sell the cell sites. And this was a first for me, and we were sitting there kind of scratching our heads, like, how do you sell the roof on top of a building where there's- Hmm ... tenants currently occupying it, and you've got all these maintenance and repair obligations to the tenants? Well, the short answer is what you're selling is a- Right ... essentially an easement in perpetuity. Right. Yeah. So you grant them a 99-year easement. In exchange, you get a lump sum of cash. And so I tell you based on the buyer profile for that asset, it was not very big... not really appealing to a sophisticated investor, was going to be a mom and pop. Explaining that there's this easement in perpetuity on the roof that you don't really own was a challenge. And I think it created some unnecessary hurdles to getting that deal done. But hey, at the end of the day, we were able to do it, and by employing that strategy, we were able to maximize our sale proceeds. So do I regret doing it? No, but it presented some unique challenges along the way. Yeah. So you learn from it. So how do you finance these? It was a learning experience. That's right. That was good. Daniel- All right, so- You just took my question. No, go ahead, Arnie. Go ahead. Tell me about financing your deals. You use debt equity. Do you do construction loans? Do you finance them yourself? You got your own funds? How do you finance this stuff? So we don't bring in any outside capital. It's all of our own equity. Yeah. As far as financing goes, we work with a few different lenders. We have a relationship lender who, from a kind of customer service standpoint is... You can't beat them. They're incredible. That- Do you mind if I ask who it is or are you- Sure. Yeah. It's Western Alliance Bank. Oh, good. Okay. Formerly Pines Bank, now Western Alliance. Mm-hmm. Yeah, just great relationship with them. Oh, Western Alliance. No, they're- Yeah. Sometimes the smaller or mid-size regional banks are the best for stuff like that. Yeah, especially for the treasury management relationship as well. Right. They don't pay the highest yields, although they are competitive. Sure. But when there's a problem, you pick up the phone, and you get to talk to an actual human being on the other end of it, rather than just dialing into an 800 number and having- Yeah ... to navigate their automated system. So again, I kind of look at the customer service component of this and highly value that. Right. In addition, we also work with several life insurance companies. Of course. We worked with CMBS lenders. Mm-hmm. We worked with debt funds. I'd tell you that it's really asset specific and even more specific to the business plan. We're unique in the sense that we don't have predetermined hold periods. We're not buying something with a five-year hold or a seven-year hold in mind. By and large, what we're buying we view as long-term holds, and we've held projects for... Shoot, we sold something that had been in the portfolio for over 50 years. Right. And I think that's one of the differentiators for us, which allows us to transact differently. When you have a long-term hold mindset, fighting for that extra nickel of rent isn't as meaningful because in the fifth year outlook, it'll catch up. Right. Mm-hmm. And so I'd tell you our most recent deals, again, love the real estate, love the sticks and bricks on top of it. And we've used Life Co Lending. It's hard to beat their rates. Right. What you get on rate, you give up maneuverability. Yield maintenance is a bad word around here. We've had to dip our toe in those waters opportunistically with the shopping center when we were carving off some pads and it's designed to be punitive, and it is. So, there's a mix of wanting to achieve the best economics, but also allowing yourself the maneuverability to execute on your specific business plan. Right. And I think you said, it's all your own equity. It's all self, yeah. You're not out there- They don't bring in investors ... having to raise funds or anything. Yeah. All right, I'll stop this Zelle payment that I was sending over to you. So let me back up and ask you this other question. I have an analyst background, so I love this question. Arnie rags me on it, but how do you decide to green light a deal? Are you an IRR, return on equity? Do you run a zillion different scenarios? How analysis intensive is it? And, at the end of the day, when you're about to sign that check, what is it that you're really focused on? You go with your gut. No. Well, I'd tell you that Strauss was more of a gut feel guy, which, hard to argue with the results, right? Right. We're mostly cash on cash is the primary metric that we're looking at. Making decisions based on IRR can be challenging when you have a undetermined hold period, right? So much of the IRR for several deals is what's on the exit. Right. And that's not to say that we don't consider it. Tend to be incredibly conservative with my assumptions. You start looking at... We're also LP investors in some other operators' deals. And one thing I'm really skeptical about is when you see a cash flow model and you're looking at the IRR, and the assumption is that cap rates are going to improve by 100 or 150 or 200 basis points at the end of the hold period. Well, to me, that's a guess. No idea what's going to happen in the economy. It's so far outside of your control. And so when I evaluate a deal, I want to add value by doing things that I have relative control over, right? So using the Carlsbad properties as an example, if there's a project that's 70% occupied and we've got the capital to make improvements, I'm going to bet on us to be able to deliver a efficient and high quality product and be able to backfill that vacancy. And when I'm evaluating IRR in our... acquisitions. I'm usually assuming that the cap rate's going to get higher by about 10 basis to 20 basis points per year. Right. Just because I want to understand the worst case scenario. I'm not buying something, we're not buying something based on the best case scenario. Oftentimes, we're making the decision to buy it based on what does the worst case scenario look like? So you still have to run all the analysis and everything just to do the work. Right. But at the end of the day, it's that cash on cash. Well, yeah. Right. That makes sense. That answered your question, Steve, pretty well. Right. So Dale, tell us, how do you exit deal? When do you know? Why? When you figure it's time to get out, and you gave us an example before, when you knew it, but just in the general rule, how do you exit deals? I'd tell you several factors are considered. Let's start with what's happening in the broader economy and the debt markets. I don't think anyone would've guessed that we would've exited our center in East LA or one of our centers in Fresno at the time because there were such big occupancy issues, but interest rates were what they were, and high tides raise all ships. I hate to use a cliche here, but we saw the exit strategy there as, here's an opportunity to achieve the value that we believe is accurate without having to invest the capital. So what are we chasing, right? These vacancies could remain vacant for six, eight, 12, 18 months, and by then the debt markets could've changed dramatically. And ultimately, buyers are pricing things oftentimes based on the spread that they're going to get on their debt. So for those, it was less about what we had done and more about what was happening in the market. Whereas there are other projects that we've sold, and including one recently, where we felt that we've added the value. And there was really little left for us to do, and we had a different use for the equity that was tied up in those projects, and ultimately concluded that it would be best to dispose of those assets and redeploy the equity elsewhere. We had made our returns. Right. Do you go off-market? Do you use brokers? Ever try an auction? Never tried an auction. The most recent sale that we did was off-market. It was marketed previously in mixed results, and pulled it off-market to address something, and at that time, we were approached off-market, and it made sense based on the price that was offered. But traditionally, we work with brokers. We do like to have a process. Thinking back to some of the retail assets that we've sold recently, we listed the two projects that we sold in Arizona, one up in Santa Clarita. So yeah, we traditionally do work with brokers. I think a lot of people get wrapped up in this, like, "I want to buy off-market." Right. Or I want to sell off-market, and it doesn't actually yield the best result because- Broker would know it. Yeah, exactly. Right. All right. Well, let me then, and to repeat what you said at the beginning for our audience, retail office, mainly California, San Diego, mostly, and a little in Arizona up to Fresno. So how do you see the sector trends on those two sectors going forward, in terms of rents, occupancies, challenges? Sure, and actually, I think this is a good segue from the previous question. So, and let me tie the two together really quick. So part of the strategy is we're opportunistic buyers. And for instance, the market seems to really value retail right now, whereas there's not a whole lot of value placed on office. And so we've said, "Okay, we can sell these properties that are in secondary or tertiary locations at a really competitive cap rate, and we can reinvest in what we believe is better real estate, better geographic location, higher construction quality, sometimes better occupancy." The only reason we're able to achieve a better return is because the market's not valuing it. Right. So, to your point, the portfolio makeup now is very different. When I started here, it was about 70% retail, 30% office. Now, the opposite is true, and we're continuing to pursue office because we believe that it's, I don't want to say generational pricing, but there's certainly an opportunity in the sector. You make the money at the buy. Exactly. And to your point, my now former colleague, Pete Oakley, used to always repeat that. You make your money on the buy. And we're keenly aware of that, which is why I get back to ultimately, we're basis buyers, right? We identify an opportunity, and you buy at the right basis, then it kind of gives you the runway to have a couple of mistakes along the way. And I promise you, there are going to be mistakes. Right. Tenants are going to default. This isn't going to match your underwriting based on your turnover vacancy or your expenses or whatever. But if you're buying at the right price, you can afford to have some bumps in the road along the way and still make a profit on the back end. Yeah. Right. So do you feel like the office as a general rule, not necessarily in the specific markets that you're in, do you feel that the office market is bottom, and we're going to start seeing generally rising and improving conditions going forward? I know there's pockets like Downtown LA, Downtown San Diego, but in general, do you feel like the sector's now at the bottom? I do. I think we've passed the bottom. I think- Okay ... investor sentiment would probably agree with that.I'd tell you that office projects now are more financeable. There's really not much in the development pipeline. In fact, the existing supply is diminishing, right? There was this wave of conversions to lab space, at least here locally. Right. I think that same thing is true in other sub-markets, but they're converting it to different product types. Like in Orange County, there's been a lot of office-to-industrial conversions because the zoning's a little bit more flexible and allows for it. I know one of the catchy things that a lot of people have been talking about is office-to-residential conversions. I think it's really challenging, and in most- Yeah ... cases, makes more sense to just demolish the building and start from scratch. Right. Especially if they're big floor plate suburban buildings. Right. Well, yeah. Yeah. You know. Right. So, Daniel, do you have any desire to expand to industrial or multifamily or even go other than California or Arizona, other states? Or you kind of like your niche right now? Yes. Cautiously. Obviously I got my start doing industrial brokerage. Right. Those deals tend to be more focused around functionality of the space, clear height, electrical capacity, loading. Mm-hmm. Industrial's really had a renaissance over the past seven, eight years. When I started in brokerage, felt like the office brokers were kind of looking down on us industrials. Yeah. And we were kind of pining to be the office broker. Boy, how times have changed. Yeah. Definitely. And now the opposite is true, and you've got all this capital chasing industrial, and there are some really big institutional players in the space. And, my hope is that we might see some more competitive pricing with industrial in the future. I still can't really wrap my mind around that you can buy office, which the cost of building and improving exceeds industrial, yet the cost of buying an industrial property far exceeds that of office. And it kind of goes back to the supply and demand fundamentals of any given market. And to your other question about expanding to other markets, as it relates to office specifically, what we're really targeting is suburban markets. So if there's a great suburban market outside of San Diego County, and we can determine that the fundamentals are there, where there's going to be office leasing demand, then we'll absolutely pursue it. As far as multifamily goes, I don't know what the appetite is there. There's just so many people in that space. Right. It seems very crowded. There's a lot of capital chasing those deals. And I would tell you that we're unlikely to start looking at multifamily, though we have invested in it as LP investors as a diversity play. Right. How far a state? Would you look southeast, Texas, in terms of the office plan? Is it more like on the conditions, the market there? What's your thoughts? How far and wide would you go? There's no hard and fast rule here. Right. Texas is obviously a market that has demonstrated really strong fundamentals, and you've seen a lot of corporate headquarter relocations to Texas. Right. We recently looked at a couple of deals in Nevada and some great suburban markets- Right ... outside of Las Vegas. Phoenix, maybe less enthusiastic about. We've owned projects in Phoenix. We currently own two. The kind of office fallout there has taken a different path, largely based on the politics of how the pandemic was approached. So, not too bullish on it, but obviously we really like select markets in California, from the southernmost part, the border crossing all the way up to the Oregon border. It just depends on the market. And so sorry to not directly answer your question, but all I can say is we're open. No, no, no. Yeah. And that's kind of what we're looking for is- The answer's the answer ... what you think. Right. Yeah. Yeah, Arne, go ahead. What are your thoughts on architecture and construction when it comes to a new project? How involved do you get in those areas? Or is there somebody else within the company that handles that? No, I'm incredibly involved in it. So let's start with we're not ground-up developers. Okay. We're just not set up for ground-up development. And I think that if you were to ask that question to someone who does do ground-up development, you probably would get a very different answer. Mm-hmm. That being said, a big part of what I do is talking with the architects and contractors and selecting our materials and finishes. So, the tenant expectation in the market is you as the landlord, as an office landlord right now, are going to deliver them a high-quality, turnkey solution. And it's kind of taken a more residential path here with having open kitchens within the office environment, and small details, right? Like the spillover on your granite countertops. Right? And so I have the pleasure of working with a couple of different architects. The best in the world is Jennifer Bennett with Orcus Harris. We do a ton of work with her. We work with several different GCs. Just depends on the scope of the project and the pipeline.I think an area where we're able to win deals is because we have a great relationship with a local tenant improvement contractor, and he's priced really competitively. And I give him a pipeline of six, nine, 12 months worth of projects. And because I give him so many projects, we're able to achieve economies of scale. Whereas, for some of the bigger projects, like a common area renovation or a 10,000-foot space, we might use one of the larger GCs. It's not that he's not capable of doing it. Look, it's more drywall, it's more ceiling tiles, it's more open to structure ceiling, it's more millwork, it's more paint. It's not stuff that he can't tackle, but it's the scope of it. And being able to execute on time and deliver to the tenant to get rent started is an important factor in making the decision. So it's not always based on pricing. It's pricing and methodology and ability to timely execute. Right. Yeah, I'm a big fan of architecture, so I love style and stuff like that, so it's great. But let me, going forward, and today, what do you see as major challenges, I guess maybe in California, but in certain cities and insurance, cost of materials, labor. What do you see as the major challenges going forward, in your spaces? All the above. And I guess, plus the political climate, I think that's a good place to start. I didn't want to start there, but feel free. Look, I don't have a political message that I want to deliver on this. But that being said, there are some problems with vagrancy that affect some cities more than others. And, while I acknowledge that it's really a problem and a multifaceted problem, and there's a whole lot of people working to solve it that are far smarter than me. Tenants, they want to feel safe when going to their office. And as a landlord, I feel like the most basic obligation that we have to our tenants is to provide them a safe and clean, sanitary place to work. Right? And so that's been a challenge, and I think some municipalities have been more successful in addressing it than others. San Diego specifically has done a pretty good job, which is part of the desire to keep growing locally. Combined with our existing relationships with contractors, with architects, with the brokerage community, and being able to leverage those and be able to be efficient and successful. But to your point, TI's have gone up significantly over the last five, six years, and that's not going away. Right? Look at what's happening politically abroad right now, and the cost of oil has gone up. Yeah. That means the cost of a slurry seal for the landowner has gone up, which means the cost that's passed through to the tenant has gone up. So there's a ripple effect to these things. And ultimately, it's very important to work with people that you like, that you know, that you trust. And once you have those relationships, you've really got to nurture them. Right. Yeah. All right, my last question. We've just got a couple minutes, Arnie. Let me get the last one out there. So, and we just got a few minutes, so I want to get your quick thought on this. Advice for someone starting out today in hiring initiatives you may have. Advice for someone starting out today, and I'm sorry, what was the second part of the question? If you're having hiring initiatives, kind of a similar question. Hiring initiatives. Yeah. Okay. I would tell those people to be fearless. I think in the current digital age that we're in, a lot of people are not as assertive and outgoing as they could be. And being on the employer side of the equation now, I appreciate when someone's assertive and is willing to take a calculated risk to get my attention. Excellent point. I tell you that people who just repeatedly email me are not as successful as someone who- They got to stand out. Yeah. They got to be personable. They got to be memorable. So you can't be afraid to take a risk. Right. I'll also tell you I value resourcefulness above all else. Right? No one's born a property manager. No one's born a director of leasing. There's all this information and data out there, both in your professional network through educational opportunities, whether it's a trade organization like NAIOP or CCIM or ULI. Plus, there's just what's out there on the internet, too. And so I'd tell you, the people I value most in our organization are people who make their best efforts to deliver solutions prior to asking the question, right? There's such a difference between someone coming to you and saying, "Gee, Daniel, I have this problem. What do I do?" Versus, "Hey, Daniel, I noticed that this is a problem, and I think that these three potential solutions might be a good fit. What do you think about that?" Those are the people that I want on our team. Right. All right. Well, I think we can wrap it up there. Well, hopefully. Right? No. Hopefully- Do we have time for another? ... Steve will let me ask a question. Go ahead. He feels- You're back. Arnie, you're back. All right It's not Steve and Arnie. It seems to be just Steve today. But anyway, I do have a question for you. Let's take the suit and tie off, and let's find out a little bit more about Daniel. What are your personal interests? Do you have charities? Who's your favorite sports team? When Oregon and USC play, who do you root for? I think I know who. Those are the kind of things we kind of want to know a little bit more about the person. Yeah, sure. I appreciate the question. My wife's amazing. She's a saint. She's just perfect in every way imaginable. I'm not saying that because it's the day after Mother's Day. I'm saying it because I mean it. I have two kids. My son is four and a half. I have a daughter who's just turned one. I love baseball. I actually coached my son's T-ball team this year, which was challenging, but also fun and fulfilling experience. I think after the first practice, I had talked to my wife. I'm like, "Babe, I don't know how I can do this or how people coach." And then the kids somehow intuitively know that there's a different level of- What- ... focus required for the games. Oh, what's great about that age is when the ball goes, and they all sprint- They all go ... to the ball. Yeah. Yeah. It is the funniest thing to wa-- I have a grandson that's just turned four, and he's in the same age, so it is a pleasure to watch them. But yeah, that's rewarding. So yeah. I did a lot of coaching Little League. Wait till you get to the All-Star level and Pony. That's a level of stress. Well, he's not there yet. Right now he's enjoying the youngest. Yeah, but go ahead. Yeah, no, so I really enjoyed that. And, yeah, I'm a huge baseball fan. I grew up going to what was then Jack Murphy and Qualcomm. Saw all those Padres teams that went to the '98 World Series. Mm-hmm. And saw us get beat by the Cardinals a few times in the early mid-2000s at Petco. I probably go to 12, 15 games a year now. As much as my wife will allow me to. Yeah. But yeah, huge baseball fan. Love my family and love- Chargers? You follow football? Not really. You know, they left, and that was it for me. Yep. Yeah. It's such a shame, too. Taking a step back for a moment, core memories of my childhood- Right ... my dad and my brother, were spent running the concourse at Qualcomm Stadium and doing the tailgates, and there were cousins involved, and like- Yeah ... it was just such a great, rewarding experience. And the thing that hurts the most about it is that experience is now something I can't have with my son. Right? Yeah. Yeah, it's- It just seems like, I don't know, like lines were drawn unnecessarily by both sides, and you look at what's happening in Mission Valley now, and if you were to go to Spanos today with the question of, "Hey, be an owner in Mission Valley and have this whole market to yourself," versus be the JV team in LA, I don't know, I'd like to think he might have a different answer. Now you got Heinze though. It all comes down to dollars. We all know that when it comes to sports now, and- Hey, Arnie, do I have time for one more? Can I get one more in? One more. Go ahead, Steve. You- What- What charities? We always like giving a little pop to charities that you may be involved because at the end of the day, doing good deeds, that's what a lot of real estate developers are known for and strive for, so- Yeah ... making the communities better. So, and maybe mentioning this will make a couple checks occur, or people call you. So- Yeah. You never know. Yeah. What? Give a little pop to a charity or two that you guys are really involved in. Yeah. We've been really involved with the Museum of Contemporary Art, San Diego. Mm-hmm. Matt Strauss was a huge art collector. They're also very involved with UCSD Medical Center. My wife and I have been involved with various different animal rescues, including having rescued two dogs ourselves. That's great. And also, I unfortunately, tragically lost my brother years ago. He was 37 years old. And, a personal goal of mine, and one that I've taken some steps towards accomplishing, is establishing a charitable foundation in his name, and the focus of the foundation will be to allow greater access to sports for youth sports participants who are maybe more challenged. And also providing healthcare access, particularly colon cancer patients, allowing them access to treatments that they may not otherwise have. So, it's been a really profound loss in my life. I've had some personal loss between my brother and my mom- Mm ... who I lost at 19, and what really motivates me as a person is to honor their names and wishes and legacies, and I carry that with me with everything I do, so. You know what? That's fantastic, and that's a great way to end. We know a little bit more about you and your family outside the real estate. That's what we like to do- Especially after Mother's Day. As much as we know about your real estate and all of these interviews we do is really to find out more about the commercial real estate industry, but really I like to focus on the person. And you just gave us a great thing to know a little bit more about you and how rewarding it is for you to do stuff like that, and we really appreciate having you with us today and- Yeah. Yeah, Daniel, thanks for the time again, and now that we've done the interview, even more so a thank you on the- Yeah ... the information you shared and the willingness to be open on some things because I think that's really going to be helpful at the end of the day for a lot of people in the business because everyone thinks everything's frigging walk in the park when they see big companies and the projects, but- Yeah ... a lot of challenges that we all face, so- All right ... very much appreciate it. Thank you, Daniel. Well, I appreciate- Appreciate it ... the time and opportunity to speak, and I guess if there's kind of one parting shot I'd like to- Sure ... it's work hard and keep your head down and have a positive attitude, and if you're a young professional out there, then opportunities are going to come your way, you know? Perfect way to end. Thank you, Daniel. Nice job right there. All right, Daniel. Good luck on the deals. All right. Thanks, guys. Yeah. Appreciate the time. You've been watching "Commercial Real Estate Talk" with Steve and Arnie, sponsored by Rockefeller Group, Providence Savings Bank, Fidelity Mortgage Lenders, and Chase Partners. Start to ignite