The Real Market with Chris Rising – Ep. 71 Anthony Behar
The Real Market with Chris Rising – Ep. 71 Anthony Behar
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Chris Rising (00:00:00):
Welcome to The Real Market with Chris Rising, the only podcast that brings the real estate conference panel to your headphones. You’ll hear from superstars from every realm of commercial real estate, the biggest brokers, the most well-known architects, the largest investors, and the most visionary developers. You’ll learn what they do, how do it, and what drives their success. We’ll discuss the latest trends across regional markets, capital flows, both national and global, and we’ll explore technology’s role in shaping all of them. We’ll take a clear-eyed look at where we’ve been, where we are now and what’s to come. Real conversations, real experts, real insights, this is The Real Market.
Chris Rising (00:00:45):
This is Chris Rising. As you know, I have a podcast, The Real Market, really enjoy doing that podcast, and sometimes I get invited on other people’s podcast. A few weeks ago, I did one with Anthony Behar, and we had a one wonderful conversation and we thought we’d bring it to The Real Market, so that our listeners might be able to hear it here on our platform. I hope you enjoy it, it’s a really interesting discussion about a variety of things in Los Angeles real estate, talking about crowdfunding and experience. It was really an enjoyable conversation and I hope everyone likes it. Enjoy!
Anthony Behar (00:01:23):
Chris, welcome to the show. It is wonderful to have you, and thank you so much for agreeing to do this. I know we’ve been talking about it for several months and so glad we could put some time together. Everybody, Chris Rising, he can be found on Twitter, @ChrisRising. I know you’re very active out there and we’ll get into your other handles later on IG and your podcast, we’ll talk about that too. Chris, the big question, the big white elephant in the room, of course, we have you on your show, you are a big landlord of office properties and other commercial properties. Everywhere I go, every networking group I’m in or real estate circle, the big question is what’s going on with the office markets and what does it look like today?
Anthony Behar (00:02:20):
I thought it’d be great to hear firsthand from you, from somebody that’s very immersed in it here in Los Angeles and elsewhere, but if we could maybe give us a little perspective from the LA market, because a lot of our listeners are really based here in LA. I’m curious to know what you’re seeing now and what are the conversations like with the tenants?
Chris Rising (00:02:46):
Well, a lot in and everything you asked me, but first of all, I’m pleased to be here. We talked about this several months ago and I’m glad we got it together. You and I have been around LA real estate for longer than either of us want to admit and we’ve seen the big boom from when my father and his partners, Rob McGuire and Jim Thomas, built some of the big office buildings. Then, we’ve seen the tech wreck and we’ve seen the great financial crisis. I will tell you that I’ve never seen anything like what we’re seeing now as it relates to office. I think it’s several factors coming together and it’s hard for me, and I say this a lot that, I’m in my early 50s, I’m at that age where I look back of all the positive experiences I had and will sometimes assume that’s how the experience is for everyone today, that they have these communal experiences around an office.
Chris Rising (00:03:44):
I think the reality is, number one, we don’t have enough data to know where office is going to go because we’re still in the pandemic. Number two, there is most certainly habits that have changed fundamentally because of technology and we need to be very honest about that. Number three, we have a baby boomer workforce that is aging out, but quite frankly, are still running things who have one perspective and you have a workforce made up of Gen Xers like myself and who understand where they, the boomers are coming from, but really want to be more like the millennials, and then you have the Gen Z entering. You have three things happening, and I just say over and over again, Friday is a huge day for the county of Los Angeles because it’s the day we don’t have to wear masks indoors finally, and we’re a couple of weeks behind the state of California.
Chris Rising (00:04:42):
That’s going to open some things up in a way that we hadn’t seen before. I do fundamentally believe the fear factor of getting the virus has shut us down in a way that has been painful, beyond painful. Our retailers are hurting. When you look at the city of Los Angeles, especially downtown Los Angeles, the largest concentration of civic workers outside of Washington, DC are here in Los Angeles. Basically, the government has told everybody don’t come back. You’d think about how many people … Los Angeles has a daytime population, pre-COVID of 500,000 people a day that are coming in to downtown.
Anthony Behar (00:05:22):
Chris Rising (00:05:22):
You take out the office piece, it just trickles down. It’s not just the homelessness, which is a horrible problem that we have been a total failure in dealing with. It’s the homelessness problem that then also has increased crime with the fact that you don’t have many people and downtown doesn’t feel safe. There are other parts of Los Angeles have had to deal with the homeless, this issue that I never thought would ever [inaudible 00:05:47] when being one of them, but they didn’t have the associated crime as much there. But there’s examples of it, so I don’t want to say don’t. I think Los Angeles is dealing with the fact, we just don’t have people coming downtown like we usually do, doesn’t feel safe, it doesn’t feel clean. As that starts to change, which I fundamentally believe it will, then we have to ask ourselves what’s the future of office, and boy, I think you have to break it down. These offices were built for a reason, because people needed a place to go to have all their files, to have other communications.
Chris Rising (00:06:18):
We had a culture set up around all of these office buildings that were built that were basically the breadwinner, mostly male, comes downtown in the morning and stays a lot of times all the way through dinner. That lifestyle doesn’t exist anymore. You have a few, I see a few files there, but those are probably things you can just throw in a bag. In the old days, we had walls of those kind of files there and that was our vital information.
Anthony Behar (00:06:47):
Chris Rising (00:06:47):
When I say old days, I’m talking like 1995. It’s not like I’m talking 1975. It’s not that long ago where these habits of what we did and those things are out the window now. I Wrote … when I first started blogging and stuff in the early 2000s, I wrote a lot about trying to become paperless and a lot of pushback, always have paper. Well, I think, you can talk to anybody, who’s a millennial or Gen Z, they are pretty much paperless. Doesn’t mean they don’t have a little notebook and stuff, but not compared to what we used to be, and I think that’s what office is struggling with.
Chris Rising (00:07:20):
Another thing office is struggling with, and I think this is going to be a real social problem, the most wealthy, the most educated are the ones saying I’m not going to the office. I can tell you that we have not had a janitor miss work since it started, we have not had a security person miss, an engineer, a property manager, they’ve all been going to work through all this. If you go to a dentist office, all those people have been going through this, doctor’s offices, teachers, cops. It’s the most educated and the wealthiest people who said, “Nah, I don’t need to be in an office.”
Chris Rising (00:07:55):
I think that’s going to cause us some real social issues about how we deal with things, but also I think there’s going to be a swing back. Because if you just look at … it’s one thing if you’re writing code all day, but if I have a lawyer telling me their role is very important because this is a apprenticeship business and a mentorship business and word crafting is so important, but yet they don’t know their second and third year associates because they’ve only seen them on Zoom, I kind of put my hand up and go, “Well, maybe AI can do what you do.”
Anthony Behar (00:08:28):
Chris Rising (00:08:30):
There’s some real issues. But I think you have to, and I try to do this all the time, I’m not going to make a strategic decision for our investment thesis on office as a 52-year-old white male. We have to have better perspective. When you look at it though, there’s some interesting things. The tech companies have all said don’t come in until March and I’ve heard even January of next year. But yet you look at the people who are gobbling up the most space, it’s tech companies.
Anthony Behar (00:09:00):
Chris Rising (00:09:00):
You look at here in Los Angeles, the tech payment companies, those are very much collaborative businesses that have kind of moved to, I have friends who are writers and all, and they do a lot on Zoom, but what they’re doing more and more is we’ll go take over a house and turn it into our collaborative space while this show is going on.
Anthony Behar (00:09:19):
Chris Rising (00:09:20):
As those things are trickling back, well then, why would you do a house when I do an office building that meets all of your needs? A place to work out, a place to have nice meals place, easy to come and go. I don’t know, I’m rambling a bit. I will tell you that we don’t have a answer. What we do see is the red state’s offices becoming more important. Texas is moving over 50% occupancy. We are finally getting from low 20s to about 35% or 40%, and I think Friday’s a big day. I think Friday is where you don’t have to use a mask inside if you’re vaccinated. I think you’re going to see people creeping back.
Chris Rising (00:09:57):
But I do believe, something I do believe very fundamentally, if you’re going to have an office, the onus has now changed to the employer creating the reasons for why you need to be there. In the past, I think the employees dictated it because they wanted FaceTime. Now, they’re saying, “Well, I can work without it,” so what is the employer going to do to create that great comradery and culture? I think you’re going to see that also be handed over to landlords and owners and saying, “Can you meet the needs of people who want to come at 10:00 in the morning and stay till 8:00? Or, maybe half the work workforce or maybe 1/3 of the workforce comes in two days a week and then 1/3 the other two. There’s going to be, how can landlords meet those needs?
Chris Rising (00:10:46):
I also think you just have to be honest, that there is probably 25% of the office stock in Southern California doesn’t need to exist, because it can’t meet the broadband needs, the interactive needs. Why would you sign a 5-year lease on 1500 square feet somewhere today? That’s just a reality. You either turn that into much more flexible use space or just realize that that’s probably not a leaseable space today because no one’s going to make that long term commitment over a small amount of space with all these options out there. It’s going to be painful and I’ll tell you, we are seeing life. We went almost a year with, out of three and a half million square feet in downtown with no tours. Literally, no leasing tours.
Anthony Behar (00:11:32):
Chris Rising (00:11:32):
That’s all changing. That’s all changing in 2022.
Anthony Behar (00:11:35):
Chris Rising (00:11:35):
A week ago, we were averaging seven tours a week and are kind of pre-COVID with somewhere between 10 and then 14, 15 a week, and so it’s creeping back up. We are seeing people being more willing to do longer term leases. If you look at who the tenants are, who are signing longer term leases right now in downtown Los Angeles, it’s fashion, techtainment, these collaborative businesses, and I just think it’s a matter of time before all the law firms and the accounting firms bring everybody back in some form and just say, “We got to have something.”
Chris Rising (00:12:16):
I don’t know if you’re … I can’t imagine that everyone’s life goal is to get out of college and in 22, go to an apartment and work there for the next five years. I just can’t imagine that’s a life aspiration for a lot of people or especially young families. I think it’s probably been, as I said, this has been easiest on the wealthiest, older apprenticeship occupations like the lawyers and the accountants who have a back house to work in and not that bad for them.
Anthony Behar (00:12:46):
Chris Rising (00:12:47):
Unless they really care about mentoring. But then I think at some point, they have to look at themselves and go, “My whole retirement is selling my stake in my law firm, but I got a bunch of people who don’t want to buy it or they’re just hired guns and they move from job to job,” that doesn’t work. Then you got a partnership in a law firm you can’t sell, that’s going to freak out a lot of senior partners, I think.
Anthony Behar (00:13:07):
Chris Rising (00:13:08):
Having that culture and that mentor and say, we got to be together, I think will be really important. But it’s not going to be the old days, where if you wanted to get something done … I can edit a whole offer, I can lease, I can do it all from my phone.
Anthony Behar (00:13:25):
[ crosstalk 00:13:29]
Chris Rising (00:13:25):
We have Microsoft Word and Google.
Anthony Behar (00:13:30):
So true, so true.
Chris Rising (00:13:31):
I think you just can’t say that office is fundamentally different, but I also don’t think you can say definitively what its role is going to be, and we’ll find that out over 2022, I believe.
Anthony Behar (00:13:42):
Yeah. Well, thanks for that answer, Chris. You unloaded a lot there.
Chris Rising (00:13:47):
Anthony Behar (00:13:50):
That was a great answer. I think it’s also, I think it’s very fluid from what I’m gathering right now. You guys are still figuring out, tenants are still figuring out and there will be some hybrid approach probably down the road, because I also believe that there’s going to be some use, some concept of the office as we know it and it might not be the away it looked years ago, but that was interesting. One of the-
Chris Rising (00:14:21):
One piece of the puzzle we didn’t get into, I’m sorry to cut you off, but one piece of the puzzle we didn’t get into, which I find fascinating, is there were so many cultural norms around the office, including around dress code that are just blowing up now.
Anthony Behar (00:14:36):
Chris Rising (00:14:37):
I don’t have an answer because when you can wear nice, but tennis shoes basically or Nikes into a private club today, that’s just different, jeans. I think those are things that also are going to have a taper down effect on the office market. Can you really put a dry cleaner in your sundry shop retail because will they have the demand? Do people really need to, it’s not like the old days where you drop off three suits on Monday and pick them up and have them dry clean.
Anthony Behar (00:15:08):
Chris Rising (00:15:10):
There’s a lot of social dynamics that relate to retail that are being blown out of the water, and we just don’t quite know how they’re going to come back. We deal with in some of our buildings is, what do you do with that Uber Eats driver or that, because is it security now has to call up and have somebody come down? Do we deliver it? Because the fact is, for two years, people really liked having their food delivered to them and that transfers over to the office too. Between dress code and social norms about how they eat and all that stuff, I think there’s a lot to get figured out in the next year or so.
Anthony Behar (00:15:46):
Oh my God! There’s so much, so much from just like you said, cultural society changes as well as safety and health perspective. I would say, being an office landlord, you guys definitely have your hands full and you’re certainly in one of the most complex asset classes, I think, today of real estate. Luckily, you guys have a great team together. But Chris, you mentioned something a minute ago, I wanted to get some more thoughts on. You mentioned that we have here, say the greater LA, millions and millions of square feet of office space. You said, I don’t think LA could absorb all of the space back traditional office, take the people, maybe the 1500, 2000 square feet. How do you think, like in the next 5 years, 10 years, I know you don’t have a crystal ball and it’s just your perspective, but how do you think that’ll play out? Do you think they’re going to change to condos, apartments? Do you think they’ll be hotels? What do you think will happen with some of that, of the office landscape?
Chris Rising (00:16:58):
Yeah, I think the groundwork was laid after the ’94 earthquake, where a lot of the stuff and the historic tour was so disabled by the seismic issues, that it wasn’t until the city passed a workable, adaptive reuse to encourage people to change something from a 1935 office into apartments that we had some real traction on all that. I think what you’ll see is just an updating of the adaptive reuse for 70s and 80s buildings. I think Dr. Lee, all of us who know Dr. Lee, he’s a pretty good example who owns a lot of office and they’re taking the ones that they think should convert better to residential and they’re converting into residential. I think you’ll see a lot of that. I think some of it will just be obsolete and have to be torn down for a higher and better use.
Chris Rising (00:17:51):
I think we still haven’t done that with all the stock pre-World War II, so I think you’ll have some of it there. Then I do think, one of the issues we’re all going to deal with is where you put that office, so you can encourage people to come back, and it would seem to me that the whole infrastructure of our public transportation is in and around downtown LA. I could also see people rehabbing dated office buildings into more modern office buildings to capture a tendency of people who would take public … normally, I wouldn’t like public transportation, but they’ll do it two or three days a week around their time schedule. Downtown LA, I think we all know, is equally inconvenient, no matter where you live. If you’re going to put the center of a circle somewhere, downtown LA is place to do it.
Chris Rising (00:18:46):
I don’t know how west LA how that’s all going to play out, but if you can run a business and be close to your home, obviously, some big time businesses there and if you don’t need as much support staff who drive a long way, maybe west LA becomes a really, really prime market because just the executives coming in and you don’t need traditional secretary role and things. I think west LA is probably pretty well-positioned in all of this and, downtown LA, its reason of existence is really the transportation in its central location.
Anthony Behar (00:19:21):
Chris Rising (00:19:21):
But I think it’s going to be a painful couple years. I really do. It’s been a painful couple of years already. Our whole system is designed that we can evict people who don’t pay rent and we can charge late fees to encourage people to pay rent, that’s all been taken away from us as landlords and we’re still not quite sure when it comes back. It’s very hard for us to turn over space and make it exciting to people because our hands are so tied on that commercial office side, as well as the residential side, because of all these COVID policies that have come in.
Anthony Behar (00:19:57):
Wow! That’s got to be a lot to deal with.
Chris Rising (00:20:00):
Anthony Behar (00:20:01):
Chris, with all this change happening in office and commercial real estate, what have you guys done with your company as a result of COVID over the last 18 months, specifically with Rising Realty Partners? What changes have you made?
Chris Rising (00:20:21):
Well, it’s been pretty dramatic. In March of 2020, I was in New York with my partner, Scott McMullin and had all the documentation on a $750 million office focused ESG fund. We had been gearing to be really focused on office. I had always wanted to get into industrial multi-family, but in this business, what you find is people like you to specialize a lot. We have that background, even though we’ve owned a lot of industrial in my career and a lot of multi-family. We hit March 7th and that’s where this company was headed of 2020. By March 21, that fund was put on this shelf and probably will never come back. We looked around and said, “What are we going to do?”
Chris Rising (00:21:08):
One of the things we really spent a lot of time on was multi-tenant wide industrial and felt that where the economy was changing, it was leading towards this product. We hired a senior executive, Scott Ward, worked at legacy and said, “Scott, we’re going to back you and us, and let’s go buy multi-tenant line industrial. In the last year, we’ve bought about $125 million worth of it. We own in Houston, Texas, we own in Nevada, Las Vegas area. We’re closing today, I think, on something in Sacramento. We own something in Los Angeles and we’re building out a whole platform there and there.
Chris Rising (00:21:47):
The reason we like multi-tenant line industrial, it’s kind of value add in the industrial space. It’s BB+ that we’re trying to get to an AA-. What it really is, I think, indicative of the new economy. It’s usually 70% of some of these space is warehouse, logistics and 20% or 30% is office, but that really is only about 2000 square feet of office. Most of it is usually in residential neighborhoods because it was built at a time when it was further out and then residents have moved in around it, so it’s very supply-constrained. You’re not going to be able to rip it down and build new stuff, because people don’t … would rather see housing and such.
Chris Rising (00:22:33):
We also think that given this gig economy we’re in and where people can start a business much easier, this is really in demand because 10 years ago, a year or two years ago, you might have inventory, but that would be out in your warehouse when you put yourself in a big office building, because that was your prestige and all that. I think all that’s out the window now. I think people are like, “I don’t need to support an office in a CBD if most of my business is around distribution and logistics. We really like it. We also, I hate to say it, because I’m such a California and a Los Angeles person, it’s in my blood quite literally, but we really like states like Texas and Nevada and Arizona.
Chris Rising (00:23:16):
When people ask me about that, I’d say, “Look, I love the quality of life where I live, even if though it’s been affected by homelessness and all that. I love the weather,” but the framework we’ve set in California is not much different what they have in Arizona or they have in Texas. We’ve just decided that we’re going to fear ourselves to death. Every state has a business license, but is it going to be $100? Is it going to be $10,000 the way California does it?
Anthony Behar (00:23:41):
Chris Rising (00:23:43):
I think you can have a workforce in California that you can pay and all that stuff, but you start looking at all the additional cost, if you have a choice, you’re not going to put your accounting department in California anymore. Why would you, if you can put it in Texas? I think California, the pendulum needs to swing back bit, because there’s so many positives about living here in California. But the negatives when starting a business or running a business are just, they’re real and everybody’s fooling themselves if they think, “Nah, if Sacramento think she can just … well, let’s just add this one more revenue source and get rid of, like the talk was, get rid of Prop 13 on commercial office. They don’t understand it, you’re just going to drive businesses out because one of those things that people can deal with in California is our property taxes are stable and we can understand what they’re going to be.
Anthony Behar (00:24:33):
Chris Rising (00:24:33):
You go to Texas, you don’t know that, and so that’s, your property taxes can swing wildly, in fact.
Anthony Behar (00:24:38):
Chris Rising (00:24:39):
If we’re going to have public policy makers come in and try to put that in to grab more money and change it, it’s only going to get worse. We really, it’s a long-winded way of saying, “Well, we do buy in California, this multi-tenant life industrial. We’re really big fans of some other markets. The great thing about this product is compared to office, it’s a lot less complicated to own and operate. We move bigger than that. We’re also in the multi-family space, hardest space to be in. We’re looking at those same kind of red states. I’m not saying we’re not going to buy Office because we will, we like Office over the long haul, we just got to get more data and understanding workflows. My suspicion is we’ll be buying Office that has consistent cash flow, some more core, which we think we do very well and in markets where there’s business growth.
Anthony Behar (00:25:34):
That’s interesting, Chris. Again, you unloaded a lot there. I wanted to circle back on the acquisitions of this multi-tenant industrial. I was curious, so when you’re considering a new acquisition, can you walk us through what that decision process looks like for you and your team?
Chris Rising (00:26:00):
Oh, absolutely. Our team, going back to maybe, we’re a little bit old school in some regards, but our team meets on Monday from 12:00 to 2:00, the acquisitions team does. We bring lunch in and we go through our pipeline. We do that on a weekly basis. We also have an investment committee that meets every two weeks. We had one today that approves everything that has gone on. What we’re usually doing is taking, “Hey, we either found this off market, or we got an email, and we’re working it through our underwriting process from back of the napkin to formal investment committee.
Chris Rising (00:26:38):
When it comes to multi-tenant light industrial, we are very focused on how we’re going to capitalize these. One of the ways that we’ve done that is we’ve really jumped into what we would call putting our friends and family into a platform structure, so that people who like us, who have invested with us, we have a digital relationship with them. We call it The Rising Investor platform and we have some LPs in there and some who are or GPS, so that we can get deal flow out to them and get feedback and raise capital that way.
Chris Rising (00:27:09):
At the same time, we’re talking to all our private equity real estate partners, and so every Monday, if a deal is going through, we’re saying how are we going to capitalize and who’s talked to Rockwood, who’s talked to [ inaudible 00:27:18], okay, how’s this going? That’s our weekly workflow culminating every two weeks into formal approval of things. I’ll tell you, the area we’ve had some real success is with crowdfunding. My partner, Scott and I kind of looked at each other last March or a year ago March and said, “Something’s happening with this [B-read 00:27:41] stuff in a big way. Blackstone has come in 10 years ago. The brokered deal with that was shunned upon by most real estate investors, only hucksters did it, now, Blackstone has legitimized it. What’s the next step? We fundamentally believe raising money from the crowd is the next step.
Chris Rising (00:27:58):
We’ve partnered with Realty Mogul. They did a full LP raise for us on a deal in Las Vegas. We’ve partnered with Crowd Street. We’ve done it where the platforms have done half the equity, and we raised the other half from our investors. But I really believe, just like all these other changes that have happened, the millennials and the Gen Zs are going to not have brokers. They’re not going to be investing through the broker deal network and they’re going to want to do it directly through a platform. We see it out there. We see it in the multi-family space.
Chris Rising (00:28:33):
My good friend, Keith Wasserman at Gelt, has built the entire platform of investors. I see it with a friend of mine, Chris Powers in Texas, with Fort, his company, Fort Capital that has built their own platform. We continue to, you’ll see more and more from us that if you’d like to be on the platform, please register and we’ll walk you through it. It’s really an accredited investor platform, but we really, I fundamentally believe that younger people are just going to say, “I can do this myself. I’ll be in a few ETFs and I’ll do my real estate allocation.”
Chris Rising (00:29:10):
Whereas, I think if the boomers are much more well, I have a broker who has a plan for me, and that broker is like, “Well, I can put $10,000 into Blackstone, I’ve got you diversification.” But I don’t think the younger generations are going to go for that. Maybe I’m wrong, but I see the way … I have a brother who’s 15 and a half years younger, same parents and everything, and he’s very much a millennial. I see the way that they operate and they just want more control and they want it to be easy. They want it digitize it.
Anthony Behar (00:29:40):
Yeah. Yeah, definitely. Is it you and Scott, Chris, that makes these decision or is it a whole committee if you decide you want to purchase a new building? Do they come to you and say-
Chris Rising (00:29:53):
That’s aa good question.
Anthony Behar (00:29:54):
This is … found this multi-tenant, here’s what I think, and then, do you make the final decision that? How does that work?
Chris Rising (00:30:04):
Well, unfortunately, my father’s retired and aged out of the business, but he has left the structure for us that he felt very important. He ran two public companies, and while the owners of the business are my father, Scott and myself, we have never been in a situation where the owners of the business overruled the committee. The committee is made up of the people who are going to have to be asset managers for this, all the acquisitions, even analysts, we want input from everybody.
Anthony Behar (00:30:36):
Chris Rising (00:30:37):
I’m not saying it has to be unanimous, but to date, a deal has never gotten so far that it hasn’t been unanimous. But we keep very detailed minutes. We would expect any investor would want that from us, so we can see the history of a deal and how it got there. That’s one thing I will say that my father really built into our organization is, we act like we are first class investors and one of the ways you do it is you have this discipline of when you meet, the notes you take, how decisions are made, you have a whole track record of it, and that’s how we do it.
Anthony Behar (00:31:12):
That’s super interesting.
Chris Rising (00:31:14):
If we have a 30-year-old analyst who has a view on whether we should be buying an asset, we want to hear it, and we want them on record, because we track all the votes.
Anthony Behar (00:31:25):
Yeah. That’s right.
Chris Rising (00:31:25):
We think that’s very important. I think my dad was always, how would I say this? He had some partners who didn’t always act that way and it really, he felt it was a detriment to a lot of the investment strategy, because we only … you have one perspective, I have one perspective and if that’s the one that dominates all the time, it’s just group think and what’s the point of having everybody there.
Anthony Behar (00:31:50):
Chris Rising (00:31:50):
He really instilled in us that open communication. Technology, I have to admit, has been great. I’m in the office Monday through Wednesday, religiously, Thursday, I try to have meetings out, and Friday. Today, I have to do go to another meeting, so I’m working from home and we use a software called Portable that tracks the meeting minutes and every, it’s all video, you can record it if you wanted to. We had engaged 90-minute investment committee meeting before we’re doing this. Technology has helped, because it allows people to still be out on the road seeing stuff, but we don’t miss whether it’s the Monday meeting or the every other week investment committee meeting.
Anthony Behar (00:32:36):
Some of those meetings are done virtually if people are positive?
Chris Rising (00:32:39):
Anthony Behar (00:32:39):
But you prefer everyone to be in person for those meetings.
Chris Rising (00:32:43):
We prefer it.
Anthony Behar (00:32:44):
Chris Rising (00:32:45):
I’m less concerned about the investment committee because Thursdays, usually somebody’s on the road, so we probably would never have a hundred percent. But what we try to do is say on Mondays, you should be in from 10:00 to 12:00 and then if you need to get on an airplane, you do your travel stuff Tuesday, Wednesday, Thursday. Last week I was in Kansas city. I really like Kansas city. We do some property management there and I did two very important meetings of ours, but I did it virtually because I was in that market.
Anthony Behar (00:33:18):
Yeah. Chris, when you look at you guys, when you look at your company and your history on paper and Rising Realty and the millions of square feet that you own and the deals you’re involved in, obviously, it looks beautiful. But I got to imagine, being involved in real estate as long as you have, there’s been some horror stories, not every deal ends up the way you had planned it, and I was wondering if you could share with us a deal or an investment that didn’t go well and what did you learn from that?
Chris Rising (00:33:55):
That’s a very good question. Let’s start with, because of the success my father had with his partners, Rob Maguire and Jim Thomas, and then because he went from them to Catellus, which is a major company when he took over, had a $400 million market cap, and when they sold it to ProLogis, it has a $5.8 billion market cap.
Anthony Behar (00:34:18):
Chris Rising (00:34:18):
Because of those things, and then we also, then he took over during the great financial crisis, he and I were at McGuire, the REIT, I think people think we’re bigger than we are because of these public company experiences and such. But when we started Rising Realty Partners in 2012, really, my dad and I, we had no assets. We put up our GP capital, we partnered with LP capital to buy back mutual and then that led to several others. The thing that I would tell people that I have learned is that it’s amazing to me how the faces change so often at our LP capital.
Chris Rising (00:35:03):
We did a deal, I can only get into part of it, but I want to share it with the group, with a company called Mount Kellett, that was founded by a former Goldman Sachs guy. Their first fund was $700 million. their second fund was $2 billion, and their third fund was $4 billion. We had great success in their fund one. We had great success, we did PACMutual, then we bought the BFA portfolio. All of that was going really well or it has gone very well, and then we bought another asset and then I get a call one day saying, “Chris, I have some bad news. Mount Kellett is imploding.” I’m like, “What?”
Anthony Behar (00:35:45):
Chris Rising (00:35:45):
You guys are at $3 billion, third fund, what do you mean you’re imploding? Well, we made some bad bets in China and blah, blah, blah, blah, and then they worked out a deal where Fortress came in. I’m sitting at the table with all new faces who didn’t get into the deal, who, really, their whole focus was to close out the fund. We sat there and said, “This is a capital commitment and part of it was to buy a ground lease,” and said that strategy is over.
Anthony Behar (00:36:15):
Chris Rising (00:36:16):
Well, that was the strategy.
Anthony Behar (00:36:17):
Chris Rising (00:36:18):
What do you mean it’s over?
Anthony Behar (00:36:19):
Chris Rising (00:36:20):
Well, we’re not doing that anymore. We can’t call that capital anymore and we’ll do the best we can the least without spending much money, and it just, ultimately, we had to work out a deal and just get out of it. That was very painful and the lesson I took is, “Boy! You have to be really careful about who you go into business with and don’t assume they’ll be around forever.” It was one thing to say that the person I dealt with at that firm wouldn’t be around forever because that is absolutely the case, people move all time.
Anthony Behar (00:36:49):
Chris Rising (00:36:50):
But to go from, “Hey, we’ve got this great,” I never thought I had to worry about my co-GP partner. My LP partner, when I’m the GP, I thought my LP would be just fine. That’s been a very painful lesson. When people ask me about it, I said, “When I was a kid and I’d watch my dad do stuff or I’d watch other people, John Kushman, who I worked for and really respected, I didn’t appreciate how much they didn’t control. Like, I just assumed that they controlled a lot of things out there and now I’m in the position I am, I realize they don’t control anything. You don’t control when you drive down the street, whether you’re going to make it to the office or to your market or whatever, you just don’t control these things. That’s, therefore, made us, I don’t want to say more cautious cautious, because that isn’t the right word. It has made us more diligent about our operating procedures and doing things right, like the investment committee.
Chris Rising (00:37:43):
Even though Scott and I could probably have everybody on a call and be anywhere and not record it, not do that, we don’t do that because we got to have these operating procedures in place. Why that’s relevant? Look at this one deal. Well, I’ve got to go back and show this new LP three years of decisions that were made in investment committees to do things, so that can back up that this was the business line. Now, it didn’t help, but I was able to do that and I also think, part of the other reason, when we were ready to go on this fund, you got to show a pension fund, all the discipline that you have in your operation. I do like a lot about the technology because it’s so easy, I really do. I think it’s … you have access to it. We try to use technology as a force multiplier, that’s one of our mantras over and over again, and it allowed us to show things.
Chris Rising (00:38:42):
I just go back to, you can do all those things and you realize how little control. I have no control over whether people come back to the office in downtown LA. I have zero control. It doesn’t mean I’m dumb, it doesn’t mean I’m smart, it doesn’t … you get way too much credit when you have a home run deal and probably get too negative of credit when things don’t go as well.
Anthony Behar (00:39:03):
Chris Rising (00:39:03):
I think it’s over a career and what we’ve seen and why we’ve pivoted to doing more industrial is there were opportunities and we got to jump on them just the same way we did when we jumped to the creative office.
Anthony Behar (00:39:15):
Nice, nice, I like that. That leads me to some other questions for you with everything you’ve just been talking. One of the things you touched on a little bit and I just wanted to see if there was anything you wanted to add, when I look at you, when people look at a company like you, and it seems like you have so many people that you’re talking to or answering to, whether it’s investors, you have employees, I don’t know how many employees, you have a lot of employees, you have tenants, you have technical issues, you have mechanical issues, you deal with the city a lot by owning big commercial real estate, how do you stay focused with all of these things coming at you and having to be aware and make decisions on all of these inputs? How do you stay focused?
Chris Rising (00:40:14):
Let me start with number one. For most of my life, I had a great mentor in my father and I was always able to bounce things off him, and now at this stage of my life, I have a great partnership with my partner, Scott McMullin. Scott and I knew each other at Duke. He ran HFF on the west coast and built it up when they had moved to Texas out here. We have a very yin and yang, and I think that is number one. I can tend to get a little more emotional and passionate about things. Scott’s much more by the book, and so when something comes up, we’re good at bouncing things off of each other. How do you approach it? I think one of the things I’m very poor at doing, and I think Scott does much better than me is leaving things “at the office.” If something goes wrong, it takes me two or three to work through it, what my strategy is going to be.
Chris Rising (00:41:03):
I don’t always do that as well, and I think I struggle with that. I think with my father leaving the business, that’s been the biggest struggle because we would talk three times, four times a day. I also, as I try to tell people, I just own it. I deal with anxiety just like anybody else does. I deal with the fact that I feel the weight of, we have about 45 employees and that we’re the reason that they can put food on their table and I’ve got investors and I think for the most part, investors don’t take things personally, but sometimes they do. We have big time, some of our investors would bottle up sovereign wealth fund and state of Oregon, big time investors and I don’t want to disappoint them.
Chris Rising (00:41:48):
I deal with a lot of those stresses and I try to do it because I have a partner to talk to, and I think we give a voice to our people in a way. We’re not a micromanagement shop. I think anybody who’s worked for us or worked with us knows that we defer a lot to our team and I think that that can help with all of this. But I think, getting to a punchline here is, here I said at 52, after going to Duke University and playing college football and then doing all these other things, one of the things I’ve realized is how important it is to have structure in your life and the support you have in your life and the people around you because, otherwise, the weight of all this stuff can be crushing.
Chris Rising (00:42:30):
I’m very involved with YPO and I see some people handle the stuff all so much better. They just can have a positive, let’s go have fun attitude all the time. I struggle with that a little bit. I like to think I’m an optimist.
Anthony Behar (00:42:43):
Chris Rising (00:42:44):
I don’t want to have to … we have an investor on something that is not going the way we want, you know, I fret about that phone call. I think one of the things I’ve learned is do it the first thing in the morning and get it done, but I struggle with all these things.
Anthony Behar (00:42:58):
Chris Rising (00:42:58):
I think it’s important that everybody recognize that. I think there’s a lot of assumptions made just because our name is well known. That’s okay. I probably make a lot of assumptions about other people out there too, but it’s a struggle and you got to be honest about it. I think the worst thing you can do is try to pretend that it’s not so, and so hopefully that was a long-winded answer, but hopefully it was an honest answer.
Anthony Behar (00:43:23):
Yeah, no. Thank you. Thank you for sharing that. Everybody, you have some of those real concerns, worries too. Chris, if you were starting, say, small today, and I know that’s so out of your wheelhouse today, but if you could give some advice to, say, younger, newer CRE investor maybe that doesn’t want to invest in a big platform, but maybe wants to start small, trying to do you something theirselves, what would you recommend?
Chris Rising (00:44:02):
Here’s where I’d start. My dad loves to say he’s been around so long, he’s seen things that are never going to happen again happen again and again and again. The point is, real estate is cyclical. Right now, office is the stepchild, nobody knows what’s going to happen, industrial is big, apartments are big. What does that mean? It means cap rates are lower. It’s harder to buy there. If you’re a young investor and you’re trying to do something in real estate directly, or just build a company, I’d be very careful about the flavor of the year for real estate, because it does go in and out. I think you have to have a thesis and that thesis has to be something different. If I was 25 doing this, I mean, I’ll tell you, I would use the SBA loans and try to find a duplex that I could buy with a loan and just to get me some equity in it.
Chris Rising (00:44:57):
I find it interesting that we have people on our team and I’ve worked with people who, while they’re in real estate, they’re still W2 workers and they haven’t realized that, “No, you want to be an investor. You got to get yourself use that money to help you go make an investment, but don’t pay income tax if you can avoid it.” I think people are in the … until you make that step in the real estate business, you’re not really in the real estate business. You’re just working on a corporation, taking a salary, plus a bonus the government gives 50% or more of. I would encourage people to, when you’re young, you don’t have kids or you have kids and they’re young, that’s where you start to try to buy a small industrial building with some friends. Instead of taking that trip down to Cabo or some pull that money and go buy something that gets you in with equity.
Chris Rising (00:45:47):
Because if you can do that when you’re young, you can absorb a loss here or there, but you can also start to really double and triple your money and do 1031. If the goal is to be an investor, I would find a way to do it. Now, one of the things that has opened up has been this crowdfunding and I really think that Real Team Mobile and Crowd Street and Fund Rise. Well, Fund Rise is a little different because they’re also an operator, but the crowd streets and the Realty moguls of the world, they’re really vetting and operating. If they’re willing to take a $25,000 investment as an LP, that’s a great vehicle to do it through to get your feet wet, because you have access to all the property management reports, you have access to all the documents, because you’re an LP in the deal, and that’s a good way to see a deal and to get started.
Chris Rising (00:46:42):
This is what I say to a lot of people and I go, people don’t always understand it. I’ll tell you, one of the smart things to do is get your real estate license as young as you can and then the soonest you can’t get your brokers license, because that just … if you have a broker’s license, you can go do deals on your own. You can start your own business and what it takes to get that. I say this to people all the time, especially if you’ve gone to law school or you’re just out of college, just buckled down, get those accreditations early in life because it gives you optionality. When someone decides at 30 to get in the business. Well, I’ve had my real estate license for eight years, my brokerage license for two years, you’re just further along the journey than other people are.
Chris Rising (00:47:25):
I know people, I get it all the time. Well, I’ve had a sales license for 30 years, why would I want a brokerage license? Well, then you’re not going to change much, if you’re only going with the sales license, you’ll never start your own company, you’ll never be able to go it on your own, you can’t start a property management company.
Anthony Behar (00:47:41):
Mm-hmm (affirmative). No, that’s great advice. That was some really, really good points in there. Thank you on that. Chris, besides commercial real estate, what else is important to you in your life? If this, maybe too big of a question, but have you ever thought about your legacy?
Chris Rising (00:48:05):
Well, I haven’t thought much about mine. I think about my fathers a lot as he’s gotten older, but here’s what’s important. My family’s the most important thing. My wife and three children are, by far, the most important thing. My parents, my brother, I start there because that’s just what drives me to do everything that I do, because I want to impress them. I want to be, I want them to feel secure. I want all that. That’s number one. Number two are my friends, especially my partner, Scott. Friends are really important. If you get outside of that, one of the things that I’m involved in that means a lot to me is River LA, which is a group that is really focused on trying to make that 51 mile LA river a vital part of uniting our city.
Anthony Behar (00:48:55):
Chris Rising (00:48:56):
There’s [inaudible 00:48:57], that’s a little bit more grassroots. They go out and pick the trash up and things like this. We’re talking about how do we make that river less of a concrete blight? You got to have concrete in it in a lot of places for flood control because that’s real, but how do we use that 51 miles from Long Beach to Canoga Park where somebody from … Compton can get on it and go up to Disney studios by riding a bike path. I really think that is a legacy thing because you can create another coast really. Housing and how we deal with our housing needs along the river. That’s been something that’s been really important to me. Over the years, I’ve been very involved in Catholic causes, on the board of Loyola High School for many, many years, for 10 years, so that’s important to me.
Chris Rising (00:49:49):
My father has built a big name. He was campaign manager for Tom Bradley in ’73 and was very involved in politics. Tom was one of his best friends. John Tunney, the former Senator was one of his best friends, Ted Kennedy. My dad did it on a bigger scale. I’m not that interested in doing some of those things. I’m pretty disheartened about the city of Los Angeles and where we’re at right now and the lack of leadership that we have across the city. I’d love to be supportive in some ways, but I’m also, gotten a little cynical when you see what [Weez 00:50:25] are and some of the others have done to really, just some bad things.
Anthony Behar (00:50:30):
Mm-hmm (affirmative), yeah.
Chris Rising (00:50:30):
Hopefully, with this new election. I know Karen Bass, she’s really a bright woman and I like her, but I also know Rick, who’s very, very well, and I’m hopeful that Rick will bring a new leadership to the city. But whoever wins this, I think is determinative on the future of our investments in Los Angeles, and I think the whole city and the county. But I do know, whoever wins, we need leadership in a way we haven’t … We need leadership from city hall.
Anthony Behar (00:51:02):
Chris Rising (00:51:02):
We need someone out there every day and not to, “Oh, that’s the county. Oh, that’s the state.”
Anthony Behar (00:51:09):
Chris Rising (00:51:09):
All of us.
Anthony Behar (00:51:09):
Right. Yeah. No, I agree, and yeah, I agree. I hope Caruso comes in and lays down some hard, hard, new rules and leadership. I agree with you on that.
Chris Rising (00:51:23):
Yeah. I’m so a fan of Rick. I will tell you that Karen Bass is a very impressive woman. I don’t want this to come out and people, “Oh, you just want the white guy who does what you do there.” No, I just want leadership. I want active leadership, and I think, of the candidates, I think Rick does that, but it doesn’t mean that other people can’t do it.
Anthony Behar (00:51:44):
For sure. For sure. Just a couple quick questions before we wrap up. These are two questions I like to ask all of my guests since we’re an LA-based podcast, and a lot of the listeners, majority of the listeners are really out here in Los Angeles. Two questions, you can answer them in either order, it doesn’t matter. The first is, what is your favorite place or thing to do in Los Angeles? The second is, if you could ask the listeners to make LA a better place, what would you like to ask them? You can take those in any order you’d want.
Chris Rising (00:52:26):
Well, let me start with the first one. I live in Pasadena and grew up in Glendale and have lived in Manhattan beach for 8 or 9 years, and I’ve lived in Brentwood in Santa Monica, and I’ve lived in Pasadena for the last 15 years. I really love the Arroyo Seco and I walk around every day. I love everything about this ecosystem here, very Mediterranean climate. I’m a big fan of the Arroyo Seco in Pasadena. Probably my favorite place, but I will tell you to get above that, what I really like is that when I start in a morning and I’m going on the trails, where I take my mountain bike and I go up and then I get it out to the beach later in the day, and then you maybe go to a game.
Anthony Behar (00:53:17):
Chris Rising (00:53:17):
What I love is you can do everything here. I think that’s, you just can’t. People forget I’ve lived in North Carolina and there’s times of the year where the weather just, you can’t be outside. It’s too hot and humid and there’s too many bugs. Texas has some of that. I think it’s very unique here in Southern California. What would I like to ask? Give me that question again that was, what would I like to ask?
Anthony Behar (00:53:42):
If you could ask the listeners to make LA a better place, what would you ask them to do?
Chris Rising (00:53:51):
Let’s not be so cynical. I think, we, as Los Angelinos have gotten very cynical about our life, the state, the high taxes and all this. Let’s be less cynical and let’s push for change, because this really is a great place and the politics go, they do swing back and forth. Instead of just rolling our eyes and saying, “Well, that’s LA, and that just sucks,” or, “It’s just high tax and we have to live with.” Get engaged. I think there’s an attitude that’s come in during COVID that I find disappointing that is just, “Well, we’ll let the red states take all the businesses and all,” it’s like almost we give up. Let’s be proponents of where we live and where we send our kids to school and where we choose to, a lot of people live and die and not be cynical about it.
Chris Rising (00:54:41):
That’s what I would hope because when you really pull away the layers, yeah, we have high taxes, yes, there’s homelessness and there’s crime, it’s still a place that everybody comes to, especially every January 1st for the Rose Bowl and then you see the Super Bowl and then you’d see the World Series and all these people come here and they go, “What an amazing place to live?”
Anthony Behar (00:54:59):
Chris Rising (00:54:59):
I just think that we can’t be cynical. We got to be really proponents of where we live.
Anthony Behar (00:55:04):
That’s a great answer.
Chris Rising (00:55:05):
That’s my big … I’m just going to throw it out there. My biggest frustration is the LA Times is why aren’t we proponents for this community? Why is everything a scandal and why is everything awful awful, awful? I want to see people be cheerleaders for this region.
Anthony Behar (00:55:21):
Yeah. I love that. That’s a great answer and that’s a great LA answer. Chris, are you an LA native as well? Or, you were born and raised in LA?
Chris Rising (00:55:33):
I was born at Hollywood Presbyterian Hospital.
Anthony Behar (00:55:36):
Oh my God. Oh gosh, [crosstalk 00:55:38]
Chris Rising (00:55:39):
I was born in Hollywood. Yeah. My father came here in 1954. His father was a merchant Marine and then was very good with machinery and was the engineer when they built the Statler Hotel. That’s what brought my father here, and so he’s been here since ’54. My mother is from Fresno. Father was a big car dealer there, but she’s been here since she came to UCLA in 1960 and that’s where my parents met. Yeah, I am a born-and-raised Angelino and I know the joke is, you move here, after a week, you’re all a sudden native, but there are those of us who really are natives.
Anthony Behar (00:56:18):
Well, that’s great. I am actually a native too and born and raised, second generation, at least on half my side, my dad. They grew up in Boyle Heights and then he ended up going to LA high school in mid city. My mom’s from New York, but my dad’s whole side of the family, they’re all from Los Angeles. There used to be a lot of Behars back in Boyle Heights back in the day, but they’ve all left at this point.
Chris Rising (00:56:49):
Anthony Behar (00:56:50):
Hey Chris, we’ve been going for a while, I appreciate your time. I just want to let people know that Chris has a podcast, you’re the host of The Real Market podcast and it could be found on Apple iTunes. Chris meets with and interviews some of the biggest names in all aspects of commercial real estate. I think it’s a great show and would recommend any of my listeners to take a listen to your podcast to get another taste on commercial real estate and go in depth with Chris. Chris, again, could be found on Twitter @ChrisRising and Instagram, ChristopherRising.
Chris Rising (00:57:33):
Anthony Behar (00:57:37):
Chris, before we sign off, is there anything else, any departing words you’d like to share or that we’ve missed? I don’t know if I want to open that up and go, we go another hour, I think I’ll lose some listeners, but maybe, because I feel like there are things we didn’t get into, but I do want to be respectful of your time and the listeners’ time and I want them to be able to really hear everything you have to say, because you have so much wealth of knowledge and so much experience, and I think there’s so much depth to what you’ve shared with us. I think, hopefully, people really took a listen, maybe even took some notes and I think there was something for the early investors and definitely some people who are really engaged in commercial real estate as their profession. Hopefully, they’ve picked up on a couple things as well, that they can implement with their company or in their life and how they approach real estate. You shared some really, really good nuggets with us.
Chris Rising (00:58:39):
Let me share one very important thing, and I want everyone to listen, who’s listening to really understand this. Anthony, what you do is still one of the most important things in real estate, and I think the role of a broker has evolved and changed, and when you see the big companies, the CBEs and the JLLs and you have a broker who’s really just an account manager for a large corporation, it gets lost what you do. It’s no longer a world where you have your little note cards, where you know that one owner who has that one space, that world has changed. Somebody who knows their market inside and out knows the history of the market, has seen businesses come and go, who knows opportunities are coming because they were there three years ago and saw that.
Chris Rising (00:59:27):
It’s a dying profession in some respects, but for us, we try to go to markets and find you. Find that person who can give us some history. If I was going … you provide so much and I think the listeners need to understand that. I think what a broker does today gets lost a little bit and the way that you’re able to have a career of being a part of transactions, because you’re adding value is extraordinarily my … I’ll leave it with this story my father used to love to say, three people outside his office, there’s a banker, there’s the lawyer and there’s the broker who might have a tenant. He meets with the broker first all the time.
Anthony Behar (01:00:08):
I love that. Thank you so much for that, for sharing that. I really appreciate that. That’s great, Chris. Okay. Well, we will pick it up. Everybody listens to The Real Market, and Chris, this will be out in a couple of weeks. Everybody, thank you so much. Thank you for listening and we’ll be back with other great guests down the road. Thank you.
Chris Rising (01:00:36):
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. Follow us on Twitter, @ChrisRising or @RisingRP and please follow our blog, chrisrising.com or risingrp.com. Thanks so much.
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, multi-family and data. 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.