Ep. 72 Jean Paul Wardy
About Jean Paul Wardy, Chief Executive Officer and Founder of Centercal Properties
Jean Paul Wardy began his career in real estate while attending the University of Southern California. Mr. Wardy joined the Alexander Haagen Company in 1990, and by 1993 had been promoted to Vice President, Acquisitions. From 1993 through 1998, Mr. Wardy was the executive primarily responsible for the successful acquisition of over 20 shopping centers.
In 1998, Mr. Wardy co-founded CenterOak Properties with Fred Bruning, which became CenterCal Properties in 2004. Since that time, Mr. Wardy has committed his efforts toward creating successful retail driven projects that both enhance and elevate the communities they serve.
In the pursuit of his real estate career, Mr. Wardy built upon the solid foundation of his family’s successful retail background in the Amen Wardy Stores and Amen Wardy Home Stores. Mr. Wardy is a member of the International Council of Shopping Centers and the Urban Land Institute, and is a devoted husband and father.
Chris Rising (00:00:50):
Welcome to The Real Market. I'm really excited to have Jean Paul Wardy here with me today. Jean Paul has been in the retail side of the real estate business for his whole career. I mean, retail post COVID, retail pre COVID. We've heard things like it's dead and it's never coming back. And then we've watched other stores just hit it out of the park and take on Amazon. Jean Paul, I'm really excited to have you on the podcast, excited to hear about how you started, how you worked your way through things and really go into depth about what's happening in retail. Jean Paul, welcome to The Real Market.
Jean Paul Wardy (00:01:26):
Thank you very much, Chris, super excited to be here. I'm a big fan of your podcast and just grateful to be here.
Chris Rising (00:01:34):
Well, what I love about having you here is you've built your reputation. You're fairly well known within the circles of ICSE, and Southern California real estate and Western US real estate. However, one of the great things about having kids as they get older, you and I met on a bench watching our daughters play club volleyball. It was a pretty cool way to meet you and get to know you and bring you here onto the podcast. So kind of a cool way we met, not in a cocktail party, but watching our daughters play volleyball.
Jean Paul Wardy (00:02:09):
Yeah, you can't get much better than that.
Chris Rising (00:02:13):
Well, why don't you tell the audience, tell us a little bit about yourself and a little bit about your company and what you're doing right now. And then we'll kind of weave our way through a whole story. But why don't you introduce yourself to the audience?
Jean Paul Wardy (00:02:26):
I'll tell you how I got started in the retail business. My dad was a retailer, so I used to work for him during the summers. And I always loved the retail business. Being an actual retailer felt very passive to me, always felt like you were waiting for the customer to come in. And my dad had a store in Fashion Island. Lunchtime we used to walk around and I was really excited about seeing new stores and new things come about.
Jean Paul Wardy (00:02:50):
And so when I was a sophomore in college, I got an internship for a company called Alexander Haagen and they built a lot of grocery anchored centers. And I remember when I was interviewed, the person that interviewed me asked me a bunch of questions of all the things that, do you know how to do this, that or the other? And I really didn't know how to do any of them, but I was fortunate enough to land an internship and I never left. I spent nine years there. I met my business partner, Fred Bruning. He and I have worked together now for 32 years, if you can believe that.
Chris Rising (00:03:26):
Jean Paul Wardy (00:03:27):
It's been a great partnership. And he and I were there until the Alexander Haagen company went public. And at the time, in 1993, and then Lazard Freres came and bought a big chunk of the company and started taking it in a little bit of a different direction. So Fred and I really wanted to get back to the roots of developing retail. And so he and I left in 1998 and started our own company, and was Fred and I and his assistant.
Jean Paul Wardy (00:04:00):
And so at that time, we teamed up with Oaktree Capital as a partner, and they were kind enough to fund our operation and help us get started. And so we were able to do that and we built some great projects together. And then in 2004, we decided to a lot of things aligned and we looked for kind of a longer term capital source, so we teamed up with another institutional pension fund, so that was 18 years ago. So they've been our partner ever since. And we went from about eight people at that time to about 160 today. And we've just been super fortunate to being the markets we're in. The companies in Oregon, Washington, Utah, Idaho, and California. And so there's great markets to be in.
Chris Rising (00:04:48):
Well, there's a lot to unwrap in everything you just said there, from how you go from being a young person in the business to working at a company that goes public, which has its own things and then leaving. I love our friends at Oaktree, but I can imagine that after a couple years, their cost to capital was wearing on you. I can imagine that finding another capital source was probably a good thing. Let's kind of take all that, put it to the side and just go back to what you were first talking about. Your parents, your father was in retail, you grew up watching it. Wasn't that enough to say, why on earth would I ever want to own any retail, the customer service piece of it?
Jean Paul Wardy (00:05:34):
My mom was actually in retail as well, and she had a manufacturing business. But it was enough to, I think understand that, I think retail is a lifeblood of so many of these projects. It's really what creates community. It creates a place for people to come and gather as families. And so I think once you have that in your blood, it's super hard to let it go. And whenever I'm traveling with the family or we're together, being able to see what's new and exciting in a community, and you'll get a kick out of this.
Jean Paul Wardy (00:06:06):
I mean, we're always traveling with the kids for a volleyball tournament or whatever. But you always want to see what's the best coffee shop in the market, what's the best grocery store, what's the most exciting restaurants. Because every community has its own distinct flavor and its own distinct character. And so being able to see that and how do we bring those kind of best of class operators into our projects?
Chris Rising (00:06:32):
Yeah. But let me ask you this on a kind of a 30,000 foot looking down. Retail has gotten a lot of negative press I would say, up until recently it was more negative than office, but clearly offices, the more negative these days. But what would you say, why would people have the impression that retail is negative and then what were those factors out there, but yet you've gone through the pandemic and things have gone very well for you. Why is there this overall generalization that retail's a negative thing, but yet the reality is you guys have been very successful.
Jean Paul Wardy (00:07:13):
Well, I think if you look at why there have been so much negative press around retail. You've had a lot of bankruptcies, you've had a lot of store closures, but in a lot of cases, those were some of the larger retailers they were bought by institutions that took on a lot of debt. The retail business for a long time has been perceived as a very steady business. So it was a business where you could take a public company private, put a lot of debt on it. And if things went well, the investors could do very well.
Jean Paul Wardy (00:07:43):
But if you look at a lot of the retailers that have gone bankrupt, a lot of it was capital structure. Toys "R" Us is a great example. They just took on too much debt and got into a downturn and didn't really have the flexibility to be able to weather it. And there's a lot of stories like that. And obviously the internet and sales has had an impact. But I think if you look at this last year, post COVID, a lot of our retailers have had the best years that they've ever had. So in markets like Southern California, Oregon, Washington, Utah, we're seeing a lot of sales that are better than pre COVID levels.
Jean Paul Wardy (00:08:23):
And I think what's really happened as well is for the consumer being locked up for 18 months and seeing what would life be like without retail down the street that I can go and grab a coffee. And I mean, I think we're seeing people really, there's a lot of pent up demand. People enjoy getting out and seeing their friends and taking their family to grab a scoop of ice cream or go to the movies or have dinner or just walk down the street to Lululemon and buy a pair of yoga pants.
Chris Rising (00:08:57):
When someone thinks of CenterCal, what should they be thinking? I know there's a lot of people who you think of Rick Caruso, you think of the Americana, you think of Westfield, you think of how they're big, that were indoor, and they've had to try to convert them to outdoor. Just in a couple sentences, how you would describe the vision for what CenterCal is trying to build. When you look at all the photos behind you there, what's that vision? What would you tell an investor?
Jean Paul Wardy (00:09:26):
I think we're very focused on delivering the right solution for a particular community. We spend a lot of time in a community trying to figure out what's needed. We don't have a cookie cutter solution that we're going to take the same project every market. And so we spend a lot of time trying to figure out who's going to be the best retail solution. What does the customer really want and how do we bring that solution to the project? And so I think-
Chris Rising (00:09:52):
Are your projects only retail? My understanding is you'll bring in a hotel if that's appropriate, you'll do some multifamily if that's appropriate.
Jean Paul Wardy (00:10:01):
We feel Chris that having a great retail base is important, because that's really what creates community. And then we add other components to it where we think we can add value to the overall project.
Chris Rising (00:10:18):
When you're looking at acquiring, are you trying to buy things that are entitled or do you take entitlement risk?
Jean Paul Wardy (00:10:26):
Both. We've taken entitlement risk and we've been very successful in projects where we've done that. We've also taken entitlement risk in not been so successful. But a lot of times, we are very focused on trying to understand what the community wants and how do we create something that is in need that's going to be a win-win for everybody. If we found a project where we knew there was a lot of opposition and that's probably not a project for us.
Chris Rising (00:10:55):
Early on in your relationship with your capital, whether it was Oaktree or your current pension fund partner, you always had that box, you could buy land that was untitled.
Jean Paul Wardy (00:11:06):
Chris Rising (00:11:08):
How scary is that for you when you buy that land?
Jean Paul Wardy (00:11:13):
Well, I think it depends on, again, it's spending time upfront and understanding kind of what the hurdles are and what the impediments to getting an approval is. I would say we've been fairly successful in doing that. I think everybody's got a horror story of a project that didn't work out the way you thought it was. And I think those are projects that tend to leave scar tissue. But at the end of the day, I think we've been very focused on understanding what the community wants and needs and bringing that to the community.
Chris Rising (00:11:52):
I think one of the things that my audience likes is when we get kind of honest about things that haven't gone as well as we liked. I know I'm in the middle of a project right now that it just seems like everything that can go wrong goes wrong, even with the best of intentions and all the standard operating procedures and all the backup. We still just can't make up for the fact that there's not a lot of leasing activity, that inflation is really driving up tenant improvement costs.
Chris Rising (00:12:20):
But when you look back at your career, you don't have to get too specific on what the deal name is and all of that, but what's the gut punch that you kind of looked back with that created that scar tissue and what could you tell kind of the audience on real estate Twitter, RE Twitter about the lessons learned from a deal that was really tough and didn't go the way you thought?
Jean Paul Wardy (00:12:42):
I mean, I would say that there's fundamentals that we've all learned in the business, right? Access, signage, visibility, being able to get in and out of a project. If you're buying something that you're not buying it so far above replacement cost. If you lose a tenant that it's hard to replace. I mean, I think that those fundamental lessons that we all learn sometimes where you've gotten super excited about something and entitlement risk or the site is so large that it's going to take you a couple of phases to do that. I think all of those lessons, if you start straying from those fundamentals, you start to understand that there's a reason those fundamentals are in place.
Chris Rising (00:13:31):
I hear you. But I also think that sometimes you don't have a choice, it's that little line of dominoes. Once one falls, you got to wait till they all fall. And then you're like, "Oh, how do I course correct?" And my biggest frustration and all the development I've done in my career has been the unpredictability of dealing with municipalities and building departments. And in some respect you hear great things and you say, "This municipality is a great place to do business."
Chris Rising (00:13:59):
And all your due diligence says it's so, and then you go in and you find out, wow, it's not as good as I thought. I mean, have you had those kind of experiences where you thought you crossed every T and dotted every I, and then it turned out that the municipality was hard to deal with or the building department was hard to deal with?
Jean Paul Wardy (00:14:15):
Absolutely. But I will say what I found is, in some cases, we've been involved with a project and we've got a project team leader who kind of waits till they need help from the city to start building those relationships. And there's other people on our team that started building those relationships from the beginning and they're getting out in front of when they need permits. And they're letting the municipality know that here's a schedule of when all my tenants are bringing permits and they're meeting with the city every week and they're really helping them to be successful.
Jean Paul Wardy (00:14:44):
And we found when we do that as a company, nine times out of 10 we're super successful. If we wait and we don't build those relationships and we don't help the city understand what our needs are going to be, or what's going to happen with the project or how important something is, then we typically find that something will get off track and it's very hard at the time where you need help to get to the right person and to course correct.
Chris Rising (00:15:13):
How has your business changed being much bigger than from when you first started when you left Haagen and you had Oaktree back and there was only three of you there. I mean, how have some of these issues that you've dealt with, are they easier to deal with, with more people or are they harder, and how did you grow it?
Jean Paul Wardy (00:15:34):
It's a different skillset. I think when you are doing everything. I mean, when Fred and I started, I was doing the books on QuickBooks and he was doing a lot of the entitlement and anchor store work, but we were doing everything. We were managing the construction, we were doing the leasing. So that takes a different skillset than having a very skilled group of people. And in a lot of ways, you're just trying to get out of their way and help them to be successful and not get in the way of their success.
Jean Paul Wardy (00:16:06):
It is just developing a different skillset. And I think for Fred and I, we love the business, we love being part of the deal and we love being part of the merchandising discussions and the picking out benches. And so I think that's the hardest part for us is letting go of some of that, because that brings us a lot of joy, but it's really just developing a different skillset.
Chris Rising (00:16:29):
I just kind of thought of this, but I think it would be kind of fun if we did it. Let's go deep on the first deal you did, Oaktree's your partner. And then we'll go to how the last deal you did and how it's different from running a business point of view. What was the first deal that you and Fred did with Oaktree as your partner in the, sound like 99 or something?
Jean Paul Wardy (00:16:51):
Yeah, we developed a project called Gresham Station. It was a little ground up project in Gresham, Oregon. At the time it had a quality food center, which is a grocery store out of Seattle.
Chris Rising (00:17:04):
So it was an existing, you were buying something existing, it wasn't development. It was a redevelopment plan.
Jean Paul Wardy (00:17:11):
It was an assemblage of two pieces of property, one was an old saw mill. And the other was a piece of property that Winmar which is a mall developer out of Seattle had owned. They were going to put a regional mall there. We acquired these two parcels and built an outdoor about 220,000 square foot shopping center.
Chris Rising (00:17:33):
So just to put into context, this was right around the tech rack, late 90s, early 2000. This is when Pets.com imploded. But did you have to deal with the fact that there was this fear that all retail was going to the internet then at the beginning of that project or had that passed?
Jean Paul Wardy (00:17:52):
Not really at that time, you still had ... I mean, our tenant mix was Porter's books and Bed Bath & Beyond and Old Navy and we had a grocery store. We had a lot of great restaurants, Starbucks and Panda Express and Taylor Loft. It was a very successful center, but two of us I think at that time, we might have had four people in the company.
Chris Rising (00:18:18):
And how did you finance? Did you guys put traditional bank financing on it or how did you do it?
Jean Paul Wardy (00:18:24):
We did. We did a loan with Bank One at the time, and Bank One was the only lender that would give us non-recourse debt. So we put a fair amount of equity in, we were looking for [inaudible 00:18:38].
Chris Rising (00:18:37):
How did you deal with the bad boy governance?
Jean Paul Wardy (00:18:41):
I think Fred and I signed on the bad boy governance, and we developed that project and the lender on that project, we developed a 30 year relationship with, he's still a banker for [inaudible 00:18:54] today and still a very strong relationship for us.
Chris Rising (00:18:58):
What was the scariest part of doing that deal? First of all, did you have income when you left, personal income? You had started a family at that point or? Maybe not, maybe you were just getting close to starting a family, but how'd you deal with, hey, I got a full time job, I'm a W2. I'm going to take this risk with Fred and we're going to have this equity partner. How did you do it?
Jean Paul Wardy (00:19:26):
For me it was easy. I was single at the time. I had a little apartment or I think I had a condo in Hermosa Beach. And if something happened, my opportunity cost was fairly small. I always had a tremendous amount of respect for Fred because he was a very seasoned executive at a publicly traded company. And he gave all that up too on a hope and a dream with a kid that was at the time I think 28 years old, so it was he and I. And so I think it took a lot more courage and guts for Fred than for me. Because I always thought of it, if I did a face plan, it wouldn't be that hard to ... I wasn't lifting up far from where I was. And for Fred, he had kids in college and he had a much different experience than I did.
Chris Rising (00:20:23):
Was there a lesson out of that first deal or lessons plural that you took that has been part of your company ever since?
Jean Paul Wardy (00:20:32):
I think the lesson that I took there is that we just needed to watch everything. And I think that, that being kind of our first ground up project as a new company, we touched everything. We made sure that the construction happened correctly, leasing. And it was a great project and it sold and we made a lot of money on it and we made our investor a lot of money on it and we were happy to have had the opportunity to do that. But I think the one thing we learned is just all the details and you got to watch everything.
Chris Rising (00:21:10):
I mean, I still have this issue and I'm sure you do too today when you're doing construction. Once you start, and if things start to cost more or the timeline goes longer, it's hard to put the genie back in the bottle. What have you learned over the years as you're doing a development, a construction part, so it could be a redevelopment, it could be a value add project. Not necessarily like a software or something like that, but what have you learned about the construction process that you think is the most important piece?
Jean Paul Wardy (00:21:47):
The most important link, finish the drawings.
Chris Rising (00:21:51):
I agree with that.
Jean Paul Wardy (00:21:54):
Because we've convinced ourselves on projects in the past. We're going to start grading and we'll do a GMP for this, and then we'll do ... at the end of the day, what I found is you just got to buckle down, get the drawings done, get it all bought out and it's 10 times easier.
Chris Rising (00:22:11):
What have you learned about dealing with cities since that first deal? Whether it's the building department or entitlement or all. What have you learned about dealing with those kind of necessary, but sometimes bureaucratic pieces of the puzzle? What have you learned about what you have to do consistently that came out of maybe that first project or your first couple project?
Jean Paul Wardy (00:22:37):
I think that, and this is something that Fred was very strong on in the beginning. Just before we get down the road, let's just go meet with the city and let's just go do a lot of listening. What do they want to see there? What's the city's vision for the site? And can we create something that's going to align with that vision? If the city really wants housing there and we want to build a office building, that may not be the best idea. But so I think doing a lot of listening is really something that we found very helpful. And sometimes in those very early meetings, if you're truly listening, you understand what some of the goals are and I think that can be super helpful.
Chris Rising (00:23:21):
How much importance and then I guess, faith, do you put in market studies before you start, for use and things like that?
Jean Paul Wardy (00:23:31):
I mean, I think it's-
Chris Rising (00:23:32):
Sorry to catch up. But so a city says, "Oh, no, that sounds like a great mall, but we really want housing." And then would you say, "Okay, we probably aren't the right people," or would you do market studies? What would you do to help? Because part of it is listening at least in my experience and the other part is educating.
Jean Paul Wardy (00:23:53):
Yeah. I think that you can have a very strong vision and that you can get the city aligned behind that vision, but you need to go through that process. At the end of the day, if you go through that process ... I think the part that's important is listening at the beginning to understand, and then being able to take that information and craft a strategy and a story. But at the end of the day, your vision for the site has got to align with what the city wants. Because if it doesn't, it's just I think going to be a very long process, especially in California.
Jean Paul Wardy (00:24:38):
But that doesn't mean the first thing that the city said, if they understand what your vision is and that they can't get aligned around it, but you need to have that dialogue and it needs to be a two way dialogue and not just a ... we're the super smart developer, and we're going to tell you how it should be, we haven't found that to be successful.
Chris Rising (00:25:00):
Yeah. So your first deal was in Oregon, why was that? I mean, as two Southern California people, right? Fred's from Southern California as well, right?
Jean Paul Wardy (00:25:10):
Yeah. But we had Alexander Haagen. We bought a lot of centers in the Northwest and Seattle and Portland, and they always performed really well. When we started the company, we were kind of looking all up and down the West Coast and we found opportunities in those markets.
Chris Rising (00:25:27):
Maybe talk a little bit about your first meeting with the Oaktree people, who I have a great relationship with too. I think over the years they've had some change over, but Ambrose Fisher's been there forever and a few other people that are kind of household names. How did that discussion initiate with them? Did you and Fred just go to 10 people like Oaktree, or did you have a unique relationship?
Jean Paul Wardy (00:25:49):
No, actually, Fred had met Greg Geiger through a acquaintance he helped Oaktree on a project that they had in Oxnard, just as a friend. He showed up at a meeting and I think helped them solve a problem. And I think Greg was impressed with what happened in that meeting. And then afterwards he said, "Tell me a little bit about what you're doing." And so that's how that relationship started.
Chris Rising (00:26:15):
And it turned out to be the most pivotable sounds like, up until you're a pension fund client. But I mean, getting that jolted capital with someone who believes in you, I know how important it was to my career and my company. Sounds like it was for Oaktree as well for you.
Jean Paul Wardy (00:26:31):
Oh, for sure. I think if I look back at my career and hopefully I got a long ways to go, but there's been three relationships that have really changed the direction of what happened, meeting Fred, meeting Greg and the Oaktree team and meeting our current partner.
Chris Rising (00:26:48):
Yeah. Well, let's jump back a little bit, because we kind of jumped from you growing up around the retail business and then you in college getting a internship. When you went to USC, which has a wonderful business school and a wonderful real estate school, did you go to USC and go into the undergraduate program in Marshall for business or were you more of like humanities and bachelor of arts type back then?
Jean Paul Wardy (00:27:17):
I was in the Marshall school and when I was in school after my sophomore year, I was working three days a week and going to school two days a week. And I think that was the best gift that I could get because it gave me context for ... it gave meaning to my schoolwork. And so at the time I was working for Haagen and they owned Baldwin Hills Crenshaw Plaza and that little-
Chris Rising (00:27:45):
Jean Paul Wardy (00:27:45):
They got that little project getting built. It's a grocery store and a little retail building next to it. So that little retail building was mine and I was so proud of it. I used to ditch school to go to my job site meetings. But it was having the ability to kind of get involved in work that was meaningful for where I wanted to go while I was still in school. I thought was the biggest gift I could have gotten in being in school.
Chris Rising (00:28:15):
During that time when you're in school and just right after you graduate, did you learn more from the books or did you learn more from just being around people who are in the business and absorbing?
Jean Paul Wardy (00:28:31):
I think that it was synergistic between the two. Because I think if I just would've gone to school and I wouldn't have taken any finance classes or I wouldn't have taken any of ... I would've been missing something. And I think if I just would've stayed in school and waited until I graduated, I think I would've missed something as well. I thought it was just an unbelievable experience to be able to do both at the same time.
Chris Rising (00:28:59):
What were the classes at USC that you thought were most or that you feel were most in instrumental to your growth?
Jean Paul Wardy (00:29:08):
When I was there, they had an undergraduate real estate program that was like 25 kids. And you had to apply to it, which had like finance classes, had some construction engineering classes. I did that emphasis and I loved it. I thought I really liked the finance classes. And then I took an undergraduate emphasis in the entrepreneur school, which I also thought was amazing.
Chris Rising (00:29:34):
Well, what about that? What was kind of just the general pitch of that class that was so impactful to you?
Jean Paul Wardy (00:29:40):
It was the only class I went to at SC where if you didn't get there 15 minutes early, you didn't get a seat. Because everybody went to the classes, they had unbelievable speakers. You did a series of business plans that was basically your project for the semester. And what I really liked about that is everybody in the program was very aggressive. They all wanted to be there. They were all excited to be there. They all had big aspirations of starting their own business. And so it was a very interesting group of people and everybody was focused on wanting to do something with their lives. And I thought that [crosstalk 00:30:21].
Chris Rising (00:30:22):
Interesting. I bet. When you went to Haagen, were there people there that talked to you as much about what you didn't want to be as a pro, as what you wanted to be? You know that old thing, and sometimes your best mentors are the ones that you say I don't want to be like that person or did you just fit in right with Fred and you're like, "I'm just going to emulate what he does."
Jean Paul Wardy (00:30:44):
Fred was one click away from Mr. Haagen and I was in the basement. I didn't really get to work with Fred until much later. And I think what I found at Haagen was it was a relatively small company and it was a company that allowed you to take on things if you wanted to take them on. And so I loved the ability to do that. The company, they bought 26 Gemco stores and they all had gas stations that were leaking. And it was like the project that nobody wanted. And so it's like one of those. And so I ended up getting involved in that because I wanted to learn. And there were a lot of projects like that that if you wanted to get involved, you could just take it on and learn. And so it was a great place for me to learn.
Chris Rising (00:31:38):
Well, I'd love to tell you, you have no idea what it's like to have a site that has a fuel tank that leaks, but unfortunately I do. And they're not fun and they take a long time and there's lots of levels of approval. I would've thought you could still be dealing with some of those [crosstalk 00:31:57].
Jean Paul Wardy (00:31:56):
I think they're, I think that whoever owns those sites probably still is.
Chris Rising (00:32:01):
Yeah, that's amazing. At what point when you were doing the Haagen stuff, you were working on some of the gas station, but when did you find yourself back? And everybody I think in my experience has their first kind of, this was my first development that I was a part of. And that's different than fixing problems of an existing asset. What was the first kind of pure development play that you got involved in?
Jean Paul Wardy (00:32:26):
I think at Haagen, I'm trying to think, a lot of the projects were at that time the company had just gone public. So most of the things that I was working on were acquisitions. We were buying a lot of centers. We probably bought 20 centers in between Seattle and Portland. A lot of what I was doing kind of right before I left was acquisitions.
Chris Rising (00:32:50):
And at that time, I mean the software was at its infancy. Were you doing most of your modeling on Excel on a desktop computer?
Jean Paul Wardy (00:32:59):
Yeah, it was all Excel. I mean, Argus was just coming into its own, but most of the projects we're looking at, we've built kind of an in-house Excel model.
Chris Rising (00:33:12):
And they were all very desktop based, right. This is before the laptop really allowed to mobility and obviously way before iPhones and iPads. A lot of late nights, running numbers and hoping it's saved correctly. I remember those days to myself, formula save, wait, save, hit save, a lot of that. When did you feel like, hey, I have enough self confidence in this to go out of on your own. Was it more Fred driving you or did you go to Fred? I mean, I always find the birth of a company has an interesting plot twist to it. How did that happen?
Jean Paul Wardy (00:33:52):
I think what happened for Fred was there was a project in Utah that he had brought the company that he thought was a great opportunity. And the company said, "We really don't want to do that." And I think that got Fred starting to think about maybe doing something else. And I just saw some things happening in the company that really you felt like the company wasn't going in a great direction. And so just everything kind of lined up at the right time.
Chris Rising (00:34:19):
Yeah. So you have a couple meetings with Oaktree, you started the company, it starts to grow. Let's take it to where it is today. On the last project you've done and you're proud of, and you're excited about, why don't you tell the audience about that one?
Jean Paul Wardy (00:34:33):
Sure. I mean locally, well, on Monday we did a little project in El Segundo called Topgolf. That was the last project for us to do, so we're super excited about that. It's a fairly small project.
Chris Rising (00:34:48):
Describe it. I think we had talked about it and I totally forgot about it. But you did a one off facility with Topgolf or did you do it as part of a larger retail?
Jean Paul Wardy (00:34:58):
No, our office is in El Segundo and we had a young associate that was working with us at the time and he had this idea. He'd been to Topgolf and he was at the driving range and kind of started looking into it. And the driving range was losing about a half a million dollars a year for the city.
Chris Rising (00:35:17):
That's the one right in El Segundo, right? Right off of Manhattan-
Jean Paul Wardy (00:35:19):
Yeah, there's the lakes. And so I think that he actually had the idea and so we pursued it and had a couple of meetings with the city. And it was something that everybody thought was a win-win and there was some change in politics. And so it kind of went through three or four lives before coming back, ended up in an RFP. And we ended up being successful in that process. But I think it'll be a great amenity for the community.
Chris Rising (00:35:48):
I think I know it was raised here in Pasadena and unfortunately it didn't get as much traction. The CEO at Topgolf is a former Pasadena [inaudible 00:35:57], who's a great guy. And I think it's a great company, it's exciting. Now that you've built that relationship, do you think you could bring them to some of your other projects?
Jean Paul Wardy (00:36:07):
Yeah. We think it's a great use and we think it's use really adds a lot of value to a project.
Chris Rising (00:36:14):
Explain, because I think some people have an idea of Topgolf, but what makes it unique from just a driving range concept?
Jean Paul Wardy (00:36:23):
The balls have a tracer component, so you can see where your ball goes. As you're sitting there on the driving range, and then it also has a very significant food and beverage component.
Chris Rising (00:36:33):
I was going to say, the golf ball has a tracer on it, but it's also because you have a beer in your hand for most of these, right? They do a lot of the F&B at these, they're fun place to go. We were just in Salt Lake City for a volleyball tournament, we were talking about some of the projects you've done in Utah. I thought they were pretty interesting. Can you talk about the one where you did some multifamily and the local grocery anchor, which it was just the top of my head, now I've forgotten the name of them.
Jean Paul Wardy (00:37:06):
Yeah. We have a project that's going to open in about 60 days in a community called Riverton. And the first phase opened has a Harmons Grocer, which is a great local grocer. But also has Old Navy and a lot of the TGX concepts and just been a very successful project. The second phase, which is under construction now has a movie theater, couple hundred thousand square feet of office, as well as just a great cadre of tenants, Lululemon and Anthropologie and Sephora, and a great listing of restaurants. We're super excited about that project.
Chris Rising (00:37:40):
How did you underwrite the credit of the movie theater operator?
Jean Paul Wardy (00:37:46):
We're big believers in the movie business, and I think we've kind of seen a lot of cycles, but we think in the right location. Again, it's family entertainment and when you look at it compared to a concert or a sporting event, it's a very cost effective entertainment to be able to take your family out or take a date out, so we're big believers in that business.
Chris Rising (00:38:12):
How about with the pandemic shutting things down, did you have to work with some of your movie theater tenants because they just weren't even allowed to open for business?
Jean Paul Wardy (00:38:23):
Yeah. We had to work with pretty much all of our tenants, just trying to figure out how to ... in some cases and some municipalities, they had to close for much longer than others. I think we tried to be as fair as we could given the constraints. We didn't get any assistance from any of our lenders or all of our property taxes, all of the expenses continued without any abatement or any reduction. I think in a lot of cases we would've liked to have helped our retailers more. But just given the constraints of our constraints, that's kind of the best we could do. And I think we-
Chris Rising (00:38:58):
You say that all much nicer than I say it. I think it's just outrageous that landlords somehow were chosen to be the jerks in all of this and that the lenders didn't work with us, the tenants weren't paying rent, you couldn't evict people. I've found this all to be. And I still see it playing out. We were just on a call about whether a lender's going to fund some TI's that they're obligated to fund because our parking revenue went down. We're not just right at that threshold. And it's just so frustrating to say that we did anything wrong in all this. Did you have some of those frustrating discussions with lenders where there was no movement?
Jean Paul Wardy (00:39:38):
Absolutely. I mean, I think that in a lot of cases, our properties, we don't have a lot of leverage on them and they're very low leverage. So a lot of those conversations weren't going to go anywhere, so we didn't really have a lot of them.
Chris Rising (00:39:54):
Yeah, interesting. Well, as your company's grown, I mean, obviously starting in the late 90s, early 2000s, desktops and that kind of technology was there, but today is a whole different world. How has your company evolved in using technology? Do you guys use Microsoft? Do you use Office as kind of the background or use Google? How have you built the technology piece of your business?
Jean Paul Wardy (00:40:23):
I think that we're kind of a Microsoft organization. We're evolving to teams on a lot of what we're doing. We still use Zoom a lot just because I think people are used to it. But we use PlanGrid for a lot of our drawings. People have iPads and just being able to access information quickly is super important to us. We think that there's a lot of value in being able to have people have access to what they're doing. We use something called Smartsheet a lot, again, just to be able to track information and make good decisions.
Chris Rising (00:41:04):
Are you a believer in either work from home or hybrid work or do you think at least the retail development side of the business needs an office and needs that collaboration?
Jean Paul Wardy (00:41:15):
I think both. I think to sit here today and say everybody's got to be in the office 9:00 to 5:00, five days a week, I think would be a mistake. I think to say we're remote only and nobody's going to get together, I think is also a mistake. I think being very intentional about when you're in the office with your team to be able to spend time together. If everybody's in the office and everyone's in separate offices and there's no collaboration, there's not a lot of value to it.
Jean Paul Wardy (00:41:41):
But if you're on a development team or a construction team or a leasing team, and you can spend time together in the office intentionally, I think that there's a lot of value in that. But I don't think it requires everyone to be in the office 9:00 to 5:00, five days a week.
Chris Rising (00:41:59):
Yeah, I agree with you. I think that's where we're headed. Where do you see some of the competition, whether it's Amazon, even Walmart moving things online or Best Buy, where do you see that element of some of those big retailers? Amazon, everybody thought, I mean, at least I thought, wow, they saw the light, you got to have brick and mortar stores, you got to have this. And now they pulled all those brick and mortar stores. What do you think that is? How do you think you can compete with that or will compete with it? And I have to imagine that you had some leases signed with Amazon's brick and mortar stuff. How do you look at that?
Jean Paul Wardy (00:42:38):
Well, I think there's a couple of things happening. I think that we had several leases signed and stores open with their four star concept. And I thought it was a great concept that was doing very well in the centers we had. And I think it also is a great addition to the tenant mix, in a lot of cases, in those centers, there were grocery anchored centers. You didn't have a Best Buy. There's a lot of things you could get in those stores that you couldn't get anywhere else on the projects.
Jean Paul Wardy (00:43:04):
And so we were sad to see them leave. I think that they are still building a lot of grocery stores. And I think that they're doing very well with that. And they're continuing to do that. I think that they have a new style store that's going to open at the Americana. And I think that's going to be a great addition. I wouldn't say that they are getting out of the brick and mortar business. I think they just decided that those stores were not something that they could grow to scale [inaudible 00:43:36] for them.
Chris Rising (00:43:37):
Well, they certainly don't seem to have ... I mean, their history as a company, the idea they don't think it's working, they have no problem saying it didn't work and taking a loss. I think we discussed this too. I had Jim Dillavou on and he talked ... who's somewhat of a competitor of yours, but they do a lot with some of those Amazon stores that are designed for the grab and go and things like that, just the amount of TI's, tenant improvements that the Amazons of the world are putting in with technology is amazing to me, would make me think that tenants are stickier today that maybe in the past, because of their need for the technology. Is that a true statement or outside of Amazon being willing to take a loss? Are you finding your tenants, the retail tenants putting significant technology and things into their source, such that they're stickier than tenant?
Jean Paul Wardy (00:44:30):
I think it's probably no different than it's ever been. If it's a successful store for them, they're going to stay and prosper. If the store's not working for them, I think it's just not working for them. And if they've invested a little more in technology, it's probably not going to make the difference between whether they stay or go.
Chris Rising (00:44:49):
Interesting. What has been your most surprising tenant in your years in business that you felt you got blindsided on of them basically not paying rent and moving out. I'm not saying the whole company goes bankrupt, maybe that's it, but do you have a story around, oh my God, I can't believe they just closed their store.
Jean Paul Wardy (00:45:16):
That's a good question. I think we were surprised by Toys "R" Us. I think that we understood that there was some capital issues, but we felt there was an ongoing viable business there that somebody would come in and buy them out of bankruptcy. And that was probably the one that was the most sudden for me, that you felt there was a viable business there and that somebody would buy it out of bankruptcy and move forward with it. And so that was probably the biggest, where we've seen a retailer that we thought had viability to it. Usually if somebody comes in and buys the company and continues to operate it.
Chris Rising (00:46:01):
Yeah, interesting. When you looked at your tenant mix, the one thing we haven't talked about, how do you look at food options and how they relate to the more physical retail stores? Do you spend a lot of time envisioning a project and what food concepts you put in and how it's going to work and how do you go from ... it would be great if we had these five restaurants and these five retailers. But you can't always make all that happen. How do you look at the mix between restaurants and retail?
Jean Paul Wardy (00:46:37):
Well, in a lot of cases, we're starting with the restaurants. Today I would say the food offering is as important as the retail offering and in a lot of cases for your more sought after retailers, the first thing they want to understand is, what's the food offering? So for example, who's your coffee operator? Is it Starbucks? And that's going to take your project in a certain direction, or is it Cafe Luxe or Red Bay, or who's your coffee operator? It really starts to set the tone.
Jean Paul Wardy (00:47:09):
Something as simple as who you're picking for a 1200 square foot tenant is really going to start to set the direction for your project. Are you going to lease to yard house or a great local brewery? And so there's pluses and minuses to how you develop your tenant mix, but it's really going to develop into what's the position in the market you want be and who are you telling your consumer you want to be?
Chris Rising (00:47:39):
Interesting. This is kind a post pandemic question, but in my career, conferences have been very important to how I do business. And whether it's from people on our side, the architects, the construction people to the tenant side. Obviously in your business ICIC was hugely important for many, many years. What do you think post pandemic? Do you think those big conferences are going to come back to prominence the way they once were? Or do you think that a lot of that kind of interaction has moved offline or just to one on one outside of a big conference?
Jean Paul Wardy (00:48:16):
I think that we'll see, we have URI coming up next week. And I think from what I can tell, it's going to be very well attended. And a lot of people are very excited to be able to get together again and see each other. And I think ICSC from what we're hearing from our leasing team is going to be also very well attended. A lot of excitement, a lot of people that want to get back out and have meetings and see each other in person.
Chris Rising (00:48:42):
Interesting. The reason I asked that question, when I was a young person and I was working for Jean Kushman, he was a big proponent of FaceTime and everything you do. Big proponent, you got to get out and you got to get in front of people. When I talk to young people today, if you're not saying that you're willing to at least let them work at home two days a week, it's hard to hire young talent. How do you think this all plays out? Do you think that our world goes back to a face to face world where developers need to be in front of people? Do you think it's going to be more of a video based world? I'm not talking about your company, I'm talking about how you get deals done and how you make relationships.
Jean Paul Wardy (00:49:24):
I think it's like anything, it's that building a connection, building relationships is the lifeblood of our business. And so I think if you have a group of young people, if you have five leasing people on your team, and two of them are subscribing to the idea that they're going to get out, they're going to get in their car and they're going to drive out and meet the local coffee operator and build a relationship with them.
Jean Paul Wardy (00:49:48):
And you have three people that are going to send a text and try to negotiate a deal that way. I think over time, you're going to see the people that are building those connections and those relationships be much more successful. And the people that are trying to do it all via text messaging are going to find out that they're getting left behind. And I think that that will naturally correct itself.
Chris Rising (00:50:11):
When a 23 or 24 year old college graduate comes to you and says, "Jean Paul, I just want to be you in 20 years." What kind of advice would you give them?
Jean Paul Wardy (00:50:22):
I would say, "You have to find something that you love doing." If you are interested in retail and you don't like shopping, it's probably not the business for you. If on a weekend you don't want to go see what, and a new retailer opened and you don't want to get in your car and go see it because it's interesting and it's new. You probably shouldn't be in the retail business because it's all about details. And if you don't understand what your retailers are doing and you don't understand kind of what they're trying to accomplish, you're not going to be successful.
Jean Paul Wardy (00:50:53):
If you're just moving things around and saying, "Oh, that's a coffee guy." And you're not taking the time to go taste his coffee or her coffee and understand kind of what they're doing and go meet with the owner and understand what they're trying to do, you're not going to be successful. And a lot of people might say, "Why do I want to take that time and why do I want to do all that?" I just want to get deals done. And that may be better in the industrial space or the office space where that level of detail and that level of importance doesn't matter, or doesn't matter, you got to look at [inaudible 00:51:28].
Chris Rising (00:51:28):
Yeah. Unfortunately I think to be successful, it matters no matter what asset class you're in. I think that's my biggest frustration, I was telling someone today that I just now find myself getting out of the office two or three days a week, either to walk or drive in different markets, just to try to get the vibe post COVID. And I can't tell you that if anybody says, that's how you make money in this business. I can just tell you, from my perspective, I think from your perspective too, that's the only way you can get a finger on the pulse of what works and what doesn't work.
Chris Rising (00:52:00):
Let me ask this as far, as hard as you work, you have daughter the same age as my two daughters and our sons are similar in age, your son's in eighth grade. And you have a wonderful wife who I've known since high school. How do you do all this stuff? How do you run a big company, raise your kids, have a great relationship with your wife and not implode, especially given all the pressures of the last two years? How do you make your life work?
Jean Paul Wardy (00:52:28):
Well, I would say that my wife, Mariana, kind of creates the ... I mean, she sets the stage to be able to make all this work. She keeps us all organized and I think for us it's spending time together and spending time with our kids. And so if I have the opportunity to go to Chicago with my daughter and that's kind of what I want to do. I'm super excited about it and we're going to go and we're going to have a great time. If I can go to one of the tournaments with my son on a Saturday morning, I don't have a golf game, so I'm not competing with that.
Jean Paul Wardy (00:53:08):
But we have a lot of fun as a family. And I will say that my poor kids get dragged out to see a lot of retail. If we're traveling or we're somewhere, I mean, they will come with me and Mariana will come with me and they provide a lot of insight. When you see things through your wife's eyes, your kid's eyes, they're part of our consumer set. And so I think being able to see things together is super important. And they're very patient in terms of understanding that all of this takes a lot of effort.
Chris Rising (00:53:45):
Yeah, that's great. Well, as you look at your career and where you're at today, you're still a young guy about my age. I consider myself still a young guy in the business. What do you think if you had to make some predictions about the future of retail development and retail projects, how do you think they're going to evolve and change over the next to say five or 10 years?
Jean Paul Wardy (00:54:06):
I think that the one thing that is for certain is customers taste continues to evolve and change and they become ... it's just a reflection of how they live their lives. And so what I think is really interesting is, as people spend more and more time on devices, they're really looking for outlets that don't include any of that. If you're a 15 year old kid and you're always on a phone or you want to get out and you want to see things and you want to spend time with others, I think our business is really evolving to a retail driven, but most of the projects we're doing now have residential, land cost is becoming so expensive.
Jean Paul Wardy (00:54:55):
It's hard to build a ground up project, a ground up retail project that's strictly retail today, unless you're far outside the ring of where the population is. Most of our projects have a mixed use component to them. We're super excited about that because adding that vibrancy of residential helps the retail, having a Whole Foods or a Trader Joe's on the ground floor helps the apartments. We're super excited about the projects we're working on. But I think that I don't feel that retail's going away anytime soon and I don't think physical space is going away anytime soon, it's really too convenient.
Chris Rising (00:55:37):
Yeah. And how do you see like the Instacarts of the world and the Uber Eats? I mean, is that just going to be ancillary component or do you think you're going to start building things that make it easier for those delivery services to access those stores to bring things to people's office? Basically, do you look at Instacart and Uber Eats as the enemy or are you going to try to make them part of the business?
Jean Paul Wardy (00:56:01):
No, we think all of those additional revenues sources for our retailers help sustain them and help them be successful. And we're going to do everything we can as a landlord to help them be successful. So if that means we're going to drive up lanes, we're going to add outdoor seating areas. We're going to add delivery, pull up windows. I mean, whatever it takes to support our end customer, which is a consumer and our retail customers we're going to work really hard to be ahead of that curve and to support them.
Chris Rising (00:56:35):
That's great. Well, as we wrap up here, I do have to ask you one question that I think about. When I grew up and you grew up, and when I grew up, I remember specifically going to the Glendale Galleria and the Sherman Oaks Galleria. Do you think the indoor mall has died and is never coming back? Has the outdoor experiential mall or retail experience, is that the future? What do you think about that?
Jean Paul Wardy (00:57:03):
Well, I think there are some enclosed regional malls that will always be successful. South Coast Plaza is not going away anytime soon. But in a lot of markets, you might have a need for three very successful malls and you have seven or eight. I think the stuff on the periphery will end up becoming something different. And I think over time, I think you'll see more outdoor centers getting billed with residential, with grocery stores, that really become a part of somebody's life.
Chris Rising (00:57:40):
And if I ask you one last question, what's the biggest challenge that you see for retail developers in the West? Because I mean, be easy if I said California we'd have a long list of things, but just what do you think the biggest challenge is going to be for your company and companies like yours going forward?
Jean Paul Wardy (00:58:01):
And I think in the short term it's really construction costs.
Chris Rising (00:58:05):
Jean Paul Wardy (00:58:06):
It's really lots of construction.
Chris Rising (00:58:09):
Are you concerned about interest rates as well or is it just more the inflation of construction costs?
Jean Paul Wardy (00:58:18):
Of course we're worried about interest rates. But I think if we can get cost under control, we can support a little bit higher interest rate in terms of our construction costs. But right now we're just seeing a lot of escalation and construction that's very hard to predict and is creating opportunities that just are hard to deal with.
Chris Rising (00:58:44):
Yeah, I think you hit on the head. I think until we can get a grasp on inflation stabilizing or going down, or is it still going, it's just all over the place. And I've found that it's not even within one particular, it's all over the place within particular things that we buy, whether it's steel, cement or drywall. It's not like everything is skyrocketed, but some has and some hasn't. To me that's I would say the number one thing we got to deal with over the next year is getting a better understanding of what the inflation costs are going to be.
Chris Rising (00:59:14):
Well, this has been a great conversation. I was so excited to have you on. It's not a world I spend a lot of time in other than to shop myself, and I feel like I've learned a lot, so hopefully the audience has too. So Jean Paul, thank you so much. And let's have the sunshine club come home with a bid this weekend in Chicago.
Jean Paul Wardy (00:59:34):
Thank you very much, Chris. Have a great rest of your afternoon.
Chris Rising (00:59:36):
All right. You too. Thanks buddy. And please don't forget to follow us. We'd really appreciate it if you subscribe to the podcast, you can do that on Apple iTunes or any of the other podcasting services. It's The Real Market with Chris Rising. And follow us on Twitter at Chris Rising or at Rising RP. And please follow our blog, chrisrising.com or risingrp.com. Thanks so much.
Speaker 4 (01:00:03):
This episode of The Real Market is brought to you by Rising Investor Platform. The platform provides accredited investors with exclusive real estate investment opportunities on a deal by deal basis across various asset classes, including office, industrial, hospitality, multifamily and data.
Speaker 4 (01:00:20):
The platform also provides an inside look at deals in our pipeline while giving investors the chance to indicate interest before it's too late. We recently funded our acquisition of 9320 Telstar, a mixed use office industrial property in El Monte, California, using our investor platform. To learn more about how accredited investors can join the Rising Investor Platform, please visit risinginvestorplatform.com.