Industrial Insights with Rob Guthrie

Rob Guthrie 00:37

Okay, well, thanks Justin. I really appreciate this opportunity and I am an oddball because I didn't start in commercial brokerage. I came right out of USC through their real estate development program and started immediately as an industrial real estate developer. There were some times, lean times during recessions where I renewed my license and got active and was working on full commission but

Rob Guthrie 01:07

Generally speaking for the last 41 years. I've just been a specialist in Orange County and the counties that touch Orange County working on industrial properties, but in particular small buildings for sale and the tagline for our company is homes for business and that's really what we are as we build and provide homes for small business owners and Gosh, I've been doing it a long time and over those years I've thought about wandering into different product types, different market areas, but really have just stuck close to home and specialized. Yeah, yeah. And I still like it, so it's working. But you're right, I did start with Burke Real Estate Group. Brian Burke and I were fraternity brothers and roommates at USC.

Rob Guthrie 02:02

At the time, we didn't know that we were going to go in business together. I was working for a residential developer, and they transferred me up to Northern California when I graduated. was working through the USC real estate development program on an internship basis with this developer. They shipped me off to Northern California, and my wife hated it up there. So Brian and his wife, Susie, gave us a call during this terrible El Nino winter.

Rob Guthrie 02:31

and dangled this opportunity to come back down to Southern California and work in industrial real estate development alongside Brian's father and founder of Bill Burke. so Bill had recently sold his company or split up his company, Ashwell Burke, which was a brokerage company and development company, asset management company. And Bill didn't. want to be as active anymore. And so he tasked Brian and me to continue with the company, but with his backing. And that was a tremendous advantage as young, what were we, 23, 24 -year -olds to go out there in the market and have his financial statement, his track record, and just go out and make deals. So we had a great run for 16 years.

Rob Guthrie 03:28

That was embarrassed, but it was 1983. So let's see, what were you doing in 1983?

Rob Guthrie 03:41

Okay. I'm used to that actually. I'm one of the old guys left in the market today. And so we had a 16 year run as partners. And then in 2000, I started Guthrie Development Company. And I'm still partners with Brian in a bunch of business parks and

Rob Guthrie 04:07

not working full -time anymore. I'm working with his daughter, Christine. She's brilliant and taking the Burke family of companies into their third generation. So we're still in touch. And I would say we're friendly competitors. We still do the same thing and run into each other from time to time. But it's hard to believe that it's now been 24 years since I founded Guthrie Development Company. And it's been...

Rob Guthrie 04:37

a journey, you know, there's been some ups and downs. I don't know how many recessions I've been through. I think more. I remember going broke in one of them. See, back in the early 90s, where the first Iraq war, we were young and dumb and over -levered and

Rob Guthrie 05:07

since then I've gotten a little better with each recession. It's been a little less painful. But over the years I question, especially in those down times, what I'm doing for a living. You know, being in the business we're in is tough at times. We're really a cyclical business and somehow I just can't give it up. You know, people ask me if I want to retire. Yeah, yeah.

Rob Guthrie 05:37

and that at least for now I'm having fun and I just don't want to step away from it. But so that's a little background and right now I have a team that is focused in primarily acquisition of multi -tenant industrial property and then we have a management company that manages multi -tenant industrial. And because we do a lot of

Rob Guthrie 06:05

Condo conversions, we also do a lot of association management because when we convert one of these business parks to condos, we go from tenants to owners. And so we manage the associations on behalf of those owners and it's a great way to keep in touch with our customers and clients and as their needs change over the years, if they grow, if they move.

Rob Guthrie 06:30

we are constantly in front of them. we like our association management division. But yeah,

Rob Guthrie 06:54

Exactly. We have a project in Fountain Valley where I bought it and then I decided to map it, but I wasn't sure whether or not to sell the units, but it's easy enough just to hang on to it as a leased investment and then make that call at any point down the road. just recently we've decided to release three of the eight units for sale as condos and.

Rob Guthrie 07:22

And again, there's flexibility in these projects. Even when you pull the trigger on a condo conversion, we can decide to keep the other five units as long -term least investment property, or we can sell them all off. So there's a lot of flexibility there. But I like when we go into a deal, we always underwrite it as if we're gonna hold it as a least investment. Our financial partners underwrite the deal that way and want us to underwrite the deal that way.

Rob Guthrie 07:52

Granted, it may show a slim return going in, but history has shown in Southern California that over time, you look smarter than you really are.

Rob Guthrie 08:08

Yeah. Yeah, yeah, and then 10 years from now, they're going to be patting you on the back saying, Justin, what a great idea to buy that at a five cap. But yeah, so we start looking at the deal from a least investment basis. And then we always look at it from the condo conversion basis as well. And generally speaking, what we like to see, there's a couple of tests that we run a project through when we're going to look at it from a condo conversion standpoint. And the first is where do the decision makers live? It's amazing, but time and time again, we sell these buildings to a small business owner. And one of their primary reasons for buying it is it's close to their house.

Rob Guthrie 09:04

And I often hear why I could save a lot of money if I was only willing to go to X, to Corona, to Victorville, to Kentucky. But they want to work close to where they live. And so we look at the location of the property and try to figure out where are the likely places that our customers are going to live.

Rob Guthrie 09:31

It's a no brainer in coastal Orange County and any more in infill Orange County, there's always close proximity to where the decision makers live. that if we get to an area and I hope I don't insult anybody from San Bernardino, but I'll use that as an example. It's a little tougher demographically to find where the decision makers live. You have Redlands and some of the other communities around there.

Rob Guthrie 10:00

but we don't do as well in communities where there's not a high concentration of.

Rob Guthrie 10:08

of executive housing.

Rob Guthrie 10:11

Yeah. And then of course we look at multi -tenant lease rates and do the comparison of lease versus buy. So we look at what our buyers will generally pay in terms of our sales price and getting a mortgage. And usually our buyers go to the SBA. and use a 504 or 7A, more likely a 504 loan with the SBA, put 10 % or more down. And we compare that monthly payment to what their lease rate would be, and then we take in to count some of the tax advantages of ownership and show them those, and we do a test up front to see how that compares. Interestingly,

Rob Guthrie 11:08

Yeah, it has to be. And there are some intrinsic benefits to owning that don't necessarily depend on economics. I oftentimes hear of people that are sick and tired of their neighbors in a multi -tenant park, the parking, the management, the owner constantly getting their rent increased. And they like the idea of owning their own place, fixing their cost of ownership. and controlling a bit more of their environment. But it needs to have some economic basis to have the cost of ownership be close enough to the cost of leasing. then we look at the amount of multi -tenant space nearby because most of our buyers come within a

Rob Guthrie 12:04

Yeah, two or three mile radius. what is the multi -tenant market look like in a two to three mile radius from our projects? So those are some general tests that we go through when we're looking at a project on a condo conversion basis. Then some of the other things is we take a look at the city. There are some cities that are very easy to work with and some cities that are very difficult to work with. And so we will.

Rob Guthrie 12:34

I hate to say it, but that's true throughout California. I'm a pro -California person. I'm always going to live here and pay the sunshine tax. there's a lot of heartache in the time that I've been working in this industry over entitlement. And that's become more more difficult. So we do look at that.

Rob Guthrie 13:07

Exactly. Yeah. Oftentimes we're coming into.

Rob Guthrie 13:21

You obviously know the market because that is the message we take to the cities. And there are certain cities like Costa Mesa, for instance, that is very in tune with wanting to keep their employment base with small businesses intact. And so they're very excited about our condo conversions and being able to serve sometimes an underserved market. Interestingly enough, a lot of our buyers

Rob Guthrie 13:50

our first generation immigrants to this country and our English as second language buyers. And they come from all over the world, legally. I don't want to get into politics, but these are hardworking people who come to this. Absolutely, yeah. And it's amazing that we have such a high percentage of this profile of buyer because they see the opportunity that all of us have.

Rob Guthrie 14:19

and realize all I have to do is work hard and start my own business and at some point they're successful enough that they want to buy their building. These are often underserved people in the community, so cities like the fact that we're providing a product to serve these small businesses. Buying an existing project. And converting it works for cities because we're not adding to traffic. We're not adding to the development of a city. So we're able to walk in and be the good guys most times. So, and that's good because personally, I don't like to take on city hall. If there's going to be an issue. No, no, no, I'll cut and run. I just would.

Rob Guthrie 15:17

you know, not want to get into that kind of battle. I want their support. And so early on, we try to make sure that's something that the city wants to see. There's always surprises, but so with these condo conversions, you're spot on. The cities usually prefer that over new development. And then for us, for economic reasons, it breaks my heart because I love development, but we can't pencil ground up. multi -tenant or ground up small buildings anymore.

Rob Guthrie 16:39

Yes, but it is a shrinking base because we see now some of these multi -tenant projects getting torn down for residential. And more common lately, these business parks have been consolidated or torn down for big box industrial development. I'm curious, Justin, since you've been in the market, have you seen new multi -tenant projects built since 2004? Yeah.

Rob Guthrie 17:49

Yeah, and I would love to get back into development because that's how I got started. I actually started at age 14 in construction. My dad was an architect. His buddy was a builder. And I was told at 14 that I was going to work in construction. Yeah.

Rob Guthrie 18:13

And loved it. You know, I actually joined the Carpenters Union when I was in college, just as my backup plan. And to this day, when I go out in the job site just smelling fresh cut lumber, hearing all the noise and seeing the activity, I just love that part of the business. And it just hurts that I haven't been able to do it for so long, because economically, it's cost prohibitive to build.

Rob Guthrie 18:42

in Orange County, that product type. So we're content on buying. can buy below replacement cost. that gets into the value add portion of what we do. Typically, we're not buying a fully stabilized, nice, pretty project. We're trying to get in early on an older asset that needs work and do as much value add as we can.

Rob Guthrie 19:40

Those are two good examples. The building on Thomas and Irvine Spectrum was unique in that it was a larger building, but it wasn't a square. It was a long rectangle. And so it made it easier to cut it up into six. Yeah, I can work with that. And that Irvine Spectrum market is great. There are just a lot of small businesses that want to own in that market.

Rob Guthrie 20:10

We love that location. And same with Costa Mesa. Costa Mesa draws a lot from Newport Beach, so we built that project on Logan, or as an existing project that we converted. We spruced it up a bit. a majority of the buyers were Newport Beach toy storage people. Yeah.

Rob Guthrie 20:34

Costa Mesa is becoming the king of car storage. It's interesting how that's really caught on, but we had a lot of that. if you drive, sorry, sorry. When you drive by that project though, it looks like it's vacant. People often ask, did you sell all those units or what's going on with that project? Because it's primarily storage.

Rob Guthrie 21:03

toy boxes and it's not always.

Rob Guthrie 21:09

Good point. Good point. yeah, can, brokers that bring us deals don't think about these existing larger buildings that can be broken up into small units. I try to encourage them to take a look and filter their thing, or filter the projects through that lens, you know, trying to take an existing building and convert it into smaller units.

Rob Guthrie 21:43

Yeah, the cost to do it is surprisingly high. It's much easier to get into an existing project and just bring it up to date. anymore, we're pretty much gutting the inside of these multi -tenant business parks because they're outdated. They don't meet current ADA code. And we find

Rob Guthrie 22:08

If a building has 10 % office and 90 % warehouse, when we tour a buyer, it's that 10 % office that is the sizzle. For some reason, that's what sells. that's what, So it makes sense for us to spend a little bit more money on the office finishes and add a little bit extra. And that tends to set the hook more often than the.

Rob Guthrie 22:36

height clear warehouse, the great loading and circulation. a lot of times we can't work with the existing TIs in these projects. They've got functionally obsolescent, low, clear ceiling height in the office area restrooms that don't meet code. Yeah.

Rob Guthrie 23:05

So that's been something that we've been doing more more often is just start over and really make it look nice for the buyers.

Rob Guthrie 23:28

So our territory is Orange County and any county that touches Orange County. But for instance, with San Diego, we're active in Oceanside, Vista, Carlsbad. But we don't want to go further south than that. So we're not going to be down in Otay Mesa out in Poway. And in the Inland Empire, Corona, Chino, Ontario, the Infield Inland Empire we love. But we're not going

Rob Guthrie 23:57

to Inland Empire East. In LA, Santa Fe Springs, South Bay, Port area, but we're not gonna go out to Santa Clarita or Thousand Oaks. we do see San Diego has a lot of similarities to Orange County market -wise demographics and we love that North San Diego market.

Rob Guthrie 24:25

The largest project I've ever worked on was in Oceanside, the Pacific Coast Business Park. So we were partners in that. was a 120 or 130 acre development. we were the industrial partner. There was a multifamily partner that initially bought the property, but they brought us in because there were only 30 acres of multifamily and 100 acres of industrial.

Rob Guthrie 24:53

And we developed that, built out a couple of business parks, and then sold it to AMB, which was then acquired by Prologis. And we still manage those parks down there with the association management. And we are still looking and poking around in that North San Diego County market. Love that area.

Rob Guthrie 25:43

Yeah, it's not a wildly profitable business, but it does keep us in touch with our customers and it keeps us up to speed on expenses. What's going on in the market in terms of these vendors and what they charge to maintain and take care of a property and where we go on with utilities and insurance and other things. So it helps us to stay current.

Rob Guthrie 26:16

yeah, we've had some nightmares. So let me start with one of the positives of doing these condo conversions versus doing ground up development is there's generally an income stream in case the market goes south on you. So if the sales market goes south, which it will, it's a very discretionary purchase.

Rob Guthrie 26:44

you always have the income to turn around and lease these units. And so that's a positive versus ground up. We've been stuck with projects where we've built 20 buildings and complete construction, the market tanks, and you're sitting on a project with zero income.

Rob Guthrie 27:10

Yeah, Yeah, thank goodness for that. So with the buying the existing multi -tenant, it's less risky. But like I touched on before that purchase decision is very discretionary. And when markets slow down, when interest rates rise, it's one of the first things that slows down for us is that a business owner will say, you know, I'm not, no need for me to buy a building today. I don't think that real estate prices are going to continue to appreciate the way they have, or I need to preserve my capital for my business, or why not just stay leasing? So.

Rob Guthrie 28:03

Excuse me. So yes, we've been stuck before in the market where the sales market just stops. And we have tools that we use. One of them is to do a lease option. we'll, for someone who really wants that dream to own their own building,

Rob Guthrie 28:30

put them in on a lease. Typically what we do is we agree that the lease is 10 % over market and we will credit that 10 % plus some towards their down payment if they exercise their option. But if they choose not to exercise their option, they have to stay on that, say five year lease at a premium.

Rob Guthrie 28:56

which then allows us to sell it as a least investment to small investors. So that's one way to try to move product when the market is slow.

Rob Guthrie 29:19

Yeah, it can be a win -win. It really can work. then in the past, we've also carried some financing. Do a second trustee or an AITD where we help them with their down payment. And short term.

Rob Guthrie 29:39

All -inclusive trustee, I think it's a wrap where you take the first and the second and wrap it together. It's been a while since we've done that. It's just typically a second trustee that we'll do to try to move product.

Rob Guthrie 30:02

Yeah, and these construction lenders sometimes get impatient if you, they'll go to the loan docs and have you read the first sentence where it says, hereby promise to repay. And one thing I'm proud of is that I've always repaid, even when I have to dig into my pocket to do that, which I don't like to do, but you know, it's not all.

Rob Guthrie 30:27

easy. There are times when moving these buildings is difficult and so we have to go into our tool bag and see what we can do to help keep the activity, keep the sales and pay off our lenders.

Rob Guthrie 30:46

Yeah, that is probably the most important, especially with our equity investors and IRR -based returns. It's really important for us to stay on schedule. And we touched on earlier with entitlement, that can really hurt the returns to an investor if we get hung up in the city for an extra six, 12 months. And if sales slow down, we can... hang on to the project and keep it as a leased investment, it generally drags down the returns to the equity investors. However,

Rob Guthrie 31:26

Yeah, and that gets into on the capital side of things. For some reason, we've never been able to attract the true institutional investors.

Rob Guthrie 31:43

Primarily, think we up to a certain size deal, it's friends and family, country club equity, just private equity investment. We're closing escrow in a week and a half on a deal in Anaheim and it's seven investors, myself and six commercial brokers. And I know you own property, Justin, so you know what that's like. So it's been good for me to cultivate those relationships over the years.

Rob Guthrie 32:13

What's happening though is that I need to get out there and meet some of the younger people in the market, and I include you in that, where a lot of the work's being done by brokers that are your age and your level of experience, which just is the sweet spot, because you've got 20 years of experience, which gives you all the knowledge that you need, and you're still young and energetic and active, and you have a plan, and...

Rob Guthrie 32:44

Those are the people that I'd love to reach because I'm now in my mid -60s and most of my contemporaries have retired or moved on. And I really need to get to a different generation. Yours is a sweet spot. If I go down one generation younger, still early in the learning curve, lots of potential. But I see a lot more deals from

Rob Guthrie 33:11

people your age that know what they're doing. And I also am getting investment through that same vintage broker who's been around long enough, made some money, and sees the value of investing in a property. So that's our typical deal up to a certain size. Once the deal gets larger, say 15, 20 million and above, we have some small medium -sized equity funds that we work with. And that's nice. It's a single check. They can act quickly. Today it's actually easier for me to do a $20 million deal than it is a $10 million deal because to cobble together the friends and family equity takes a lot more work than calling one of our funds and just having a very quick decision made.

Rob Guthrie 34:09

boom. So, but back to the institutional investors, they just kind They don't like our product. They don't like these high, I know, I still take it personally. You've got small tenants, little or no credit, short term leases, high management, and all these things. Well.

Rob Guthrie 34:46

I need you as my, would you be my advocate and go out there and try to convince them because we have not been able to really land with a strategic partner like that. yet I see you could build a portfolio of multi -tenant investment property for lease. And Justin, I know you know that because you own some investment property.

Rob Guthrie 35:12

And then what you could do beyond that is have strategic conversions in a pool of investment property where you sell some to boost the overall return to the investors and then keep the balance. And I just think that would make a mid to long term investment for an institutional investor. I just haven't been able to sell that dream.

Rob Guthrie 35:59

Well, right now we have a very simple way of bringing in the capital. So it's either private equity or small funds. someday, someday I hope to be able to.

Rob Guthrie 36:48

Exactly, you're spot on. I think that I take it for granted that there are a lot of markets in the United States that don't have this product or don't have much of this product. There are places you go where a business owner would say, why would I want to own my own building when I can rent? Usually markets that don't have strong appreciation or.

Rob Guthrie 37:10

have an abundance of product or a unlimited supply of land for development. So we see a lot of markets where this product just doesn't exist.

Rob Guthrie 37:45

Yeah, and we find that we need a certain size market. There are some cities that are just too small. For instance, Phoenix is good, Tucson's a little small for us. If we got three or four projects going in Tucson, we could overwhelm the demand in that market for our product. And so there are certain markets that look good, but might be just a bit.

Rob Guthrie 38:14

too small for us to put a full -time stake in the ground and try to get multiple projects going in that market.

Rob Guthrie 38:25

yeah. No, I think my mistake has been being too tentative. And then what I do is I wait and I wait and I wait and then I finally start putting my toe in the water right before the market slows down. So I think we had three deals in escrow in Phoenix before the Great Recession.

Rob Guthrie 39:00

We walked away from some deposit money and some pre -development costs, but we saw the slowdown coming and so we bailed and it was just poor market timing. know, that Phoenix market's great, a lot of activity, a lot of growth, but we just didn't get in at the right time in the market and so fortunately we got out and that shook me up a little. So I've just stuck to our own backyard, pretty provincial, yeah.

Rob Guthrie 40:08

There's a lot of kuddish -ish -ish -ish I have in my career.

Rob Guthrie 40:20

Hahaha. Well, we look for those turds. Any more, it's death and divorce, just like some residential. But we have our ear to the ground and look for properties, typically generational properties, where there's been a transfer of patriarch, matriarch passes away, kids get it.

Rob Guthrie 41:06

It's been ignored for years. They just keep it full by keeping rents well below market, but they don't put any money back in the property. And so we look at where we can spend the money to get return. a lot of it boils down to does the property have functional design? Because we can deal with the cosmetics.

Rob Guthrie 41:35

put a fancy facade on it. We can bring the TIs up to date, but it needs to be functional in the first place. we find that, yeah, yeah. Fortunately, a lot of these old projects were built at a time where coverage wasn't so tight and design, you still had.

Rob Guthrie 41:57

nice rectangular properties, not these last bit of infill properties that are funky and odd shaped. So we find they have good bones and we can work with that. Sometimes there are issues. We do see some projects built with 11 foot clear, tiny little truck doors. you know, things that we can't change. But it's easy for us to come in and just take the finishes, including, you know, windows, doors, and bring them up to date. And we have to completely change the tenant mix because the people in these old projects are there for a reason. They're paying dirt cheap rent for a reason. and they're typically not going to be excited about this brand new shiny project at a higher rent. So we'll spend the money to bring them up to speed, but we have to re -tenant. Also on these condo conversion deals of note, when we go through this value add process, we're always surprised at how few of the existing tenants actually buy their own unit.

Rob Guthrie 43:22

And we have a great program for existing tenants where we say it's going to take us a year to process this map and condo plan and record it and be able to sell you your unit and in that year's period of time We'll give you a credit of X amount per square foot on your rent towards your down payment so that when you're ready to buy a Good portion if not all of your down payment has been made and credited to you. So Why not buy your own unit, Mr. Tenet? But we have very few of them that actually do. It's probably a good guess, yeah, yeah. 10%, maybe a couple per project. But.

Rob Guthrie 44:08

There are plenty of people out there that don't want to be in that type of older dilapidated project. So if we can get that value add done, there is a broad pool of people that want something that's nicer, newer, better.

Rob Guthrie 44:29

Absolutely. Thank goodness for these coatings that we can do now that can really add a lot of life to the roof. you know, not quite the expense of a complete reroof. But we jump in early and look at roof and HVAC and try to make sure that when someone's buying, they wanna know that they're buying.

Rob Guthrie 44:58

something that they're not gonna need to replace immediately. Now, I did get a little greedy when the market got hot, you know, and we did try to push things through, you know, and tell these buyers, okay, the air conditioning is beyond its useful life, but you know, take it or leave it. Yeah.

Rob Guthrie 45:23

But that's not the case today. I think we're at replacing and bringing everything up to speed that is truly functional. And the roof HVAC paving, we actually look at the condition of the slab inside the warehouse and also. have structural engineers take a look at the roof structure and what limitations we might have. But generally speaking, the sizzle isn't all the pretty stuff. And so we enjoy that process of redoing the landscaping, trying to change the elevations, add something new and exciting, new signage, obviously new paint and new improvements on the inside.

Rob Guthrie 46:34

Hahaha So the architect always sells the dream, and then we always bring them back to reality once we get the price from the contractor. But we like to create some sort of experience at the entry, an awning, a metal.

Rob Guthrie 47:03

overhang, you know, on our Costa Mesa project, we took this old style design and we looked at it and said, you know, this is like mid -century modern industrial. And so we just embraced it and went with that with the color scheme, put some light fixtures, vintage type of corrugated metal. Yeah, even down to the signage, I...

Rob Guthrie 47:33

I ripped off the Welcome to Las Vegas sign idea. And if you look at our entry signs, it's just that sign with the name of the project and with some color schemes that really harken back to mid -century modern. And it was new and different, and it really did change the appearance of the project. our

Rob Guthrie 47:58

Biggest bang for the buck is in landscaping. It's not expensive, but you can really add quite a lot. we will not only redo the existing planter areas, but sometimes there are places where we can add landscaping that will break up the monotony of the elevation or give someone some sense of arrival in the entryway. And then exterior lighting, it's inexpensive, but it adds a lot. A lot of these old wall packs and

Rob Guthrie 48:28

recessed fixtures in the entryways, we can add some cool looking steampunk industrial light fixtures and it adds something at a relatively low cost. you know, the paint scheme, we try to get as bold as we can sticking with industrial colors. really, industrial buildings don't work well by getting too brilliant and too bright on the color scheme. Yeah, we tried that once on a building on Kettering Street in Irvine and we got way over the top with the architect. It was almost like graffiti art on the building and it went over. I wish others thought the same thing. We ended up having to repaint the building.

Rob Guthrie 49:25

So we got a little too excited, went a little too far. But it's the basic stuff, you know. It's the basic things that we do on the sizzle, on the exterior appearance and then.

Rob Guthrie 49:41

Sometimes, you know, there's a point of no return with some of these doors where you just can't do anything to repair it. And if a forklift is punched through the door too many times, take it out, put a new door in. And we have a pretty good door guy that can do a good job on really refurbishing existing doors. But

Rob Guthrie 50:10

It's not a big expense overall to add it and it looks good and it feels good when a potential buyer comes in. one of the things with these old projects is electrical. know, like this new project we're buying in Anaheim, this old project we're buying in Anaheim has single phase wiring. And yeah. It's still out there. We had that in Costa Mesa as well.

Rob Guthrie 50:38

And sometimes there's constraints where the transformer will only allow so much capacity and we can only convert so much to three -phase and fortune.

Rob Guthrie 50:51

You can get them on the line, but getting them to the project is another story. Yeah, we have some constraints sometimes with that. Interestingly, we had a deal in Tustin where a electric vehicle charging station really wanted that site, and they were going to pay a premium for rent. And I really wanted them at the site. But it was going to take SoCal Edison.

Rob Guthrie 51:19

two years plus to bring the power to the site that they needed to put all those charging stations in. we couldn't get the deal done.

Rob Guthrie 51:38

There's probably a place somewhere in this country where that happens, but it's not in Southern California. Unfortunately, these utility companies have not been very cooperative. It's taking longer and longer to get them to the property to add anything.

Rob Guthrie 52:27

It's a four -letter word, mez. And we do own it. Yeah, no, our Tustin project, there's a fair amount of mezzanine office. The project in Irvine, there was a lot of mezzanine. In that project in Irvine, the building that we took that was a single -user building, we actually cut a lot of the mezzanine out of the building as we repurposed it because we felt that there was too much mezzanine.

Rob Guthrie 52:57

And it restricts your buyer pool. think there are a lot fewer.

Rob Guthrie 53:04

companies out there that need 50 % office build out in today's environment. And we would much rather have 10 % office than 50 % office. So in general, it's not my favorite thing. And it's not that we can't work with it. It just limits our buyer pool, our tenant pool. So yeah.

Rob Guthrie 53:52

Yeah, we've done small scale remediation, but not any brownfield type of development. We will take hydrocarbons off site. We'll take some heavy metal contaminants off site if there's a limited scope and if it hasn't gotten down to the water supply. But we don't want to take on big projects. It's just not worth it to us. It gets back to that. the time and the returns if it takes too long to go through that process, it's just not worth it for us.

Rob Guthrie 54:38

Yeah, that's one that we'll avoid if it looks like it's too much effort, too much time, too much cost. We just will avoid it. That being said, I think there's people that make a good living on getting discounts and working through that process. It's just not us.

Rob Guthrie 55:25

Smart. Yeah.

Rob Guthrie 55:40

You know, I think don't make too big a deal out of it. It's a pretty simple process. it's, I would say for those, I'm gonna use an example of a commercial real estate broker. You could probably, yeah.

Rob Guthrie 56:00

Make it a side gig, know, try it. Do a limited scale, do a small project and go through the process and see how it goes. And if you enjoy it, if you do well, then jump in with both feet. I think that I sometimes underestimate how simple it is because we've been doing it for so long. And periodically we run into a building owner with no real estate experience who says, to hell with it, I'm not going to sell to you. I'm going to do what you do. And it's usually a heartache, but it's because they're completely outside the real estate community. But for those that are looking to do this, I think that there's a market.

Rob Guthrie 56:52

It's a limited supply. I think that's where your constraint is is finding the product and I would say that Don't underestimate the cost To transition the property for sale. So we're for example, we're buying today Between 200 and 250 dollars a square foot going in on these multi tenant business parks to sell

Rob Guthrie 57:20

at $400 to $450 a square foot. And a lot of brokers look at that and just say, it's $200 profit per square foot. Yeah, yeah. I wish it was like that. So be careful with the cost, especially what I'll call the soft costs, the cost for architecture, engineering, especially permits and fees at the city, legal.

Rob Guthrie 57:49

and certainly the financing costs in today's interest rate environment, that's one of our largest line items right now is interest expense. And just be careful going in on what you can limit your expenses, try to limit your expenses and know that you have. a pretty good margin because there are things that are going to happen. In every project, there's something that comes up that you don't anticipate, so leave some margin there, some contingency. Then just be patient because especially in this entitlement process, it can take time. Then to the extent you can get the right listing brokers, it makes a huge difference to have an experienced broker. who knows what they're doing. I grew up in the industry with a mentor that was very pro -broker. He owned a commercial brokerage company and that's been my bread and butter. never, people have mentioned to us at times, why don't you take it in -house and do that process yourself, list all your projects and, nope, nope, nope, I

Rob Guthrie 59:11

paying 6 % commissions on everything we do because the brokers earn their keep and they bring me great deals. I'd say that if you're going to go out there, think twice about trying to do it yourself and get a good listing agent to help you even if you're in the industry. So that's the limited advice.

Rob Guthrie 59:44

Yeah, yeah. But I would encourage anyone listening that is thinking about it, give it a try. You can find a small project. There's financing that's available in today's world. Equity is surprisingly easy. Capital's out there. And if you know your market and you've done your homework, I think it's a great business model. Justin Smith (01:00:11.2) Most of your stuff, I would imagine, comes through brokers. But maybe you have also gone some from attorneys, maybe even not driving for dollars, but projects that you've just seen over the years and maybe piqued your interest. When you think of just a deal flow, would you say most of it's just coming out of the mid -level broker? Rob Guthrie (01:00:35.338) Yeah, I'd say that because our projects are small, we're not going to get the rock star team at every brokerage house to work with us. It's the investment teams that are doing national investment sales that don't deal on. Yeah, they don't deal in our world. And 90 % of our deals come through the brokerage community. Justin Smith (01:00:53.705) Amazon, yeah. Rob Guthrie (01:01:03.014) You know, there are some that come through other sources. Oftentimes it's from owners that I've kept in contact with through the years that I've expressed interest in properties and made offers or done something where they've kept my name in a file and when it comes time, they reach out to me. And then there are some attorneys or CPAs who know us Rob Guthrie (01:01:32.244) reach out to us to say, I've got a client, this might work for them. And then one of the things I'll throw out there that we do, we've done a fair amount of joint ventures with building owners and sometimes there's a seller out there that just wants too much or has unrealistic expectations. Okay, yeah, all sellers. Justin Smith (01:01:48.909) Okay? Justin Smith (01:01:53.698) Yeah. There is? my god, Rob. Rob Guthrie (01:02:01.854) But we've been able to structure deals where we get them to agree to put the property in at a market value, create a capital account for them, and then we do the development, we do all the work, we take all the financing risk, and then we split the profits with them and they end up at the end of the day doing better than they would have otherwise at the front end of the project. And it's a win -win for us. So I did. 42 buildings at Foothill Ranch and joint venture with the Foothill Ranch Company. And that worked out well. They would put the land in. I would do everything else, and we'd split the profits. Back at Burke, we did a dairy farm in La Mirada, one of the last holdout dairy farms. yeah. Justin Smith (01:02:48.61) Familiar with it. Rob Guthrie (01:02:50.05) And so the Van Dam family that's now in their third generation, they didn't want to sell the property. Cor Van Dam, the original dairy farmer, had a vision. He thought that property was valuable, so he contributed it into a venture. We developed out the business park, and to this day, Cor's long gone, but his family's still collecting some pretty nice income every month from that project. So that's just another. that sometimes our broker friends at Subinist deals don't have that in their radar screen, but it's a way for us to put a deal together. Justin Smith (01:03:31.242) Yeah, I had known it not of the kiss of death, but it was like at the last resort where you're like, gosh, what else can we possibly do? But I love that you have been there and like there is a time and a place and it can align interests and it can be a long term benefit. So yeah, that's great to open your eyes to. Rob Guthrie (01:03:50.708) So Justin, if you want me to joint venture on any of your industrial properties, you can put it in like that and we'll work together and then create a partnership and make it happen. Justin Smith (01:03:59.286) Yes. Justin Smith (01:04:04.278) Yes, I'm in Rob. Yeah, I'm the gas, not the brake. So usually if there's a project where we can align like that, yeah, I'm all in. That's fantastic. It's been a real treat, Rob. We blew through an hour. And so what good way to spend our Friday morning. I really appreciate getting to know you better and you being like open and honest about some of the. Rob Guthrie (01:04:11.942) Love it. Rob Guthrie (01:04:18.154) Wow. Justin Smith (01:04:28.328) aspects of the business and I'm glad that you've had such a great run and you enjoy it and you're here with us and doing it. So I'm excited to bring you some projects. Rob Guthrie (01:04:37.212) That would be great. think I really enjoyed this time, Justin. I really appreciate the opportunity. It's been great to spend this time with you. Justin Smith (01:04:46.572) Wonderful. We'll see you later, Rob. Have a good one. Yep. Bye bye. Rob Guthrie (01:04:47.728) Okay, take care. Bye.