← The Kirsh Connection
The Kirsh Connection
Fred Leeds: Building Generational Wealth Through Timeless Real Estate Investing
01:06:52
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- [00:01]
A
Hi, I'm Andrew Kirsch, co founder of Sklar Kirsch. On this podcast, I interview industry leaders. You'll hear their real time opinions on today's market, their background, unique career highlights and guidance for newcomers to the industry. This is the Kirsch Connection. Welcome to another edition of the Kirsch Connection. I'm here with my two favorite people, Maverick and Clementine. We're standing in front of the U.S. capitol, one of the most architecturally inspiring buildings buildings in the world. We are here on an east coast family trip. Courtney's on the sidelines. We're seeing D.C. philadelphia and New York. Can't wait for you to be part of our vacation. On this week's episode of the Kirsch Connection. I've got Fred Leeds. He's an LA real estate icon. I know you'll enjoy my conversation with Fred and enjoy the beautiful scenery of the U.S. capitol. Welcome to another edition of the Kirsch Connection. I am here with a Los Angeles legend, Fred Leeds. Fred, it's an honor to have you in my studio. Thank you for coming in.
- [01:12]
B
Thank you, Andrew. And I'm honored to be here.
- [01:14]
A
I've met you in person a few times, we've sat down a few times. And when I heard you would come join me on my podcast, it truly was an honor, is an honor and I look forward to having a wide ranging conversation from what we're experiencing today in LA to the real estate industry as a whole. But let's start to the extent my audience may not know. Let's talk about your background and where you grew up.
- [01:43]
B
I grew up in Los Angeles. I was born in Atlanta, Georgia and I went to Brentwood Elementary, Paul Revere, Pali High, Uni High, Pepperdine and usa and I studied biochemistry in college. My mother is a schoolteacher. My parents got divorced when I was five. I'm one of four. I had a womb mate, I'm a twin and I have a twin sister. And I actually had an MD once ask me, are you identical or fraternal? And at that point I just stared at my shoes. But it's great to be a twin and it's great to have siblings. And I started working at age 9 as Freddie the babysitter. At 11, I was walking the neighborhood with a bucket and Ajax cleaning windows. And I got a job at 14 as a busboy. And I saved up $500 and I bought my first car at 14.
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A
Before you could even drive or were the laws different then?
- [02:53]
B
The laws were not different then. It, it was in between horse and buggies and the automobile, but before electricity and. And so I bought a 65 Mustang for $500. And I sold it a year later for $1200. And it ruined my life. Here I am. So I began buying and selling and trading cars.
- [03:18]
A
What do you think that car would be worth today?
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B
It didn't have the pony interior. It was a 200 cubic inch. It was bare bones. But the car, clean, whoever has it, the license plate was RAL250. It was a great car to drive, great first car. And today it would probably be worth between 7 and 10,000.
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A
Okay.
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B
But I started flipping cars and it was in the early 70s and it was an inflationary period of time. And so I probably had 100 Datsun 240Zs, 71, 72. I have had probably 50 Porsches, 356A's and B's and C's, maybe five or six 55 to 57 speedsters. And the speedster I was buying for 3,000, selling for 5,000. Today they're 500,000 Jaguars, XK, 120s, 100 and 40s, 150s, E type roadsters. Love Jaguars. I once had three of them. Was hitchhiking. King of darkness was Lucas electrical. And the reason why the English drink warm beer is because of Lucas refrigeration. And it got me into later on a real estate deal. I bought the Hornberg Jaguar repair facility on Olympic in Centinela.
- [04:41]
A
Sure.
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B
And I bought it from cbre. And it was an interesting deal because they were paying 50,000amonth in rent in 2001. They had six months remaining on their lease. And I did a 1031 exchange into the property. Six months. A lot of people thought they would leave. And I thought, they can't leave at Santa Monica. Santa Monica does not find auto repair sexy. So Hornberg sold out to Pendragon plc. They flew this guy out from Coventry, England, Malcolm Bailey. We sit down for lunch. He says, fred, what's your favorite car in the world? I said, oh, Vanquish S. It's what James Bond drove, the Aston Martin. He says, would you like one? I said, well, I drive a Cadillac. There's no conflict of interest here. Let's talk about the lease. He says, well, what do you want for rent? We'd like to extend the lease. I said, I would like 100,000amonth. He says, we won't pay it. I said, we'll be good friends. So he goes to the Papermate building on Stuart, less than a mile away, signs a Lease subject to the demands of the city of Santa Monica. Santa Monica is not difficult. They're impossible. And so Santa Monica walked through the building, gave him a list of things that he would have to do. He hired a contractor who gave him an estimate on what the cost would be, which back then was 7 million. And then he called me back, he says, would you be willing to step that up over a period of time? I said, sure, Malcolm. Well, that's when it went from 50 to 100. And then 10 years later, he said, all right, Fred, what do you want? He realized the barriers to entry are so difficult in Santa Monica. He was a captive audience.
- [06:40]
A
That's amazing.
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B
You go to Hornberg Jaguar Range Rover repair facility on a Monday morning at 6:45am you see the flatbeds lining up, bringing the Range Rovers in. Go to Mercedes at 6:45. The cars are lining up to go in for repair, but they're driving in. Interesting. So it was from flipping the Jaguars, I knew that there was always going to be a great demand for repair facility on 106,000 square feet of land, 62,000 square feet of building. I knew what the value was. It's the last building in the city of Santa Monica. From the sidewalk going east is LA City. So LA City gets all the traffic, but the revenue goes to the city of Santa Monica.
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A
And you still own that property today?
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B
I still own it. Their current rent is 172,000amonth.
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A
Wow. Where do I take the podcast from here? That's an amazing first story.
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B
You know what, Andrew? Our lives, and I'm 71 years old, our lives are a collection of stories, and we all have different experiences.
- [07:53]
A
Tell me about. All right, so we've talked about the cars and how that started, your entrepreneurial spirit.
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B
I needed to pay for college, and so my experience was I needed to be creative. I needed to have capital. My mother sat me and my twin sister down in high school, said, I can only afford to send one of you to college. Fred, go get a job. My mother was involved with the women's liberation chapter of Los Angeles. She thought it was more important for my sister to have an education. If I were to digress, she had to play Little League with me. I had to take ballet with her. I can still point, but it's not very pretty. So I got to learn about equality at an early age, and I think that was the best education.
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A
And then after college,
- [08:49]
B
I was at USC and I was still flipping cars. I joined a fraternity house because they had a big parking lot and the pledges would clean and polish my cars and I would sell them out of the fraternity parking lot. I love it.
- [09:03]
A
You had cheap labor.
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B
Cheap labor. And I gave a percentage of the profits of the fraternity house. You know, I still to this day have a fraternity brother who's a partner on my buildings. Actually, I have two. Yeah, that's great. And so I bought the Real Estate Reference Guide my junior year for $2.95 and studied it over the weekend and took the exam and passed and applied for a job with Fred Sands in the investment division. That was 1978. And he offered me a job. And I went to work selling apartment buildings and commercial leasing and commercial properties. And it was the best education. Now from college, I had a background. Limits and functions and differentials and a couple years of calculus. I didn't. I mean, I knew how to use my HP12C. I don't know if you know what those are. Maybe today, you know, it's like saying abacus or slide rule. And we didn't have the materials or the opportunities to do analysis like we do today.
- [10:15]
A
Do you personally use Excel?
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B
My office does, but do you? No.
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A
Yeah. Have you ever turned it on?
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B
No.
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A
And how long would it take you to evaluate a real estate deal today?
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B
Usually under five minutes.
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A
And you just make some notes on a piece of paper or.
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B
Less?
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A
Yeah. Do you even have to write anything down?
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B
Rarely.
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A
So what's the most important part?
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B
Well, it depends where the value is. Let me give you an example.
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A
Yeah.
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B
I got a call from a real estate broker in San Francisco. This goes back 15 years ago. He said, my aunt is on this property in Compton for 60 years and we'd like a market rate cap for it. Million bucks. Would you have any interest in it? So my first thought is out of area broker and a long term owner. I said, I'll go out and look at it and I'll call you back. So I hopped in my car, went to Compton, looked at it, came back to my office and I said, you know, I called him up, I said, I'll tell you what, if you can give me an executed deposit receipt and escrow instructions today, I'll pay a million fifty thousand for it. Fifty thousand. Over and above what you're asking. He said, I can do that. I bought the property for a million fifty thousand. It was on three million dollars worth of dirt. So there was a ten thousand square foot building on it, which I renovated and put Dollar Tree in. There was a fast food restaurant called Louisiana Chicken, which is still there. There was a school, a Head Start school. There's no faster way to go to hell than to increase the rent of a Head Start school. So I bought the property. I met with them and I said, do you need any new school equipment for the kids? Do you have functioning air conditioning? How can I make your life and the lives of the kids better? They're still there.
- [12:12]
A
When was this? When you bought it?
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B
15 years ago. Been a great asset. They made a movie about getting out of Compton. I'm. I got in lots of, you know, their horse properties in Compton.
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A
I had no idea.
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B
Yeah, a lot of people and a lot of industrial real estate. So a lot of people look for housing. There's not a lot of housing there, but lots of opportunity.
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A
And so when you were working with Fred Sands going back, what was, I don't know, the one or two things that still stick out to you close to 50 years later?
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B
Out of a thousand agents, I was number one or number two in sales from 78 to 80.
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A
So what were you guys selling?
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B
Selling apartment buildings, shopping centers, and doing commercial leasing everything. And I found myself a shark in a pool of anchovies. Yet a lot of residential agents that sold expensive houses and, and they could, you know, the three ways to determine value. The market approach, the cost approach, and the income approach. Well, when you sell houses, you're doing a market approach. Your house looks like my house. My house is worth X. Your house is worth X. People that can buy an expensive home on the west side, they normally have investments, they normally have real estate. They normally have the opportunity, if someone elects to work with them, to get involved and to be part of another area of real estate. Income producing assets. What sets us free is not what we make per year. It's passive income. I like where your building is located on Sawtel. This area has a history. It was part of a very big Japanese community. And one of my mentors was from this area. And I met him because my car broke down in front of his house.
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A
And who is it?
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B
His name was Frank Fukuhara. And During World War II, his family was sent to Manzanar while he fought for America as a Japanese American. And when he came back, he was a little bit shell shocked. He had lost his house and all of his possessions while his family was at Manzanar and he had to start over and he became a gardener. But From World War II forward, every lawn that he mowed, he bought most of them. And he was very humble. And when I met him, it was because I knocked on his door. I needed to use a phone. He invited me and we talked about real estate. And he told me he had some apartment buildings. And I told him I'd like to sell him some more apartment buildings. He said, well, he says, then I'll buy buildings from you. But I'm Frank the handyman. You can't tell anybody that I own these properties and you will manage them. And so that's how we established our relationship. And he was very kind, very humble. What made him rich was not his financial statement of 10 million in the 70s. What made him rich was his relationship with his wife and his children. The first day, by the way, that he met his wife, the first was the day he married her. It was an arranged marriage.
- [15:29]
A
Wow.
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B
And he was. When you say old school, he was old school. He would get up every morning at 4 and he'd make his rounds. And the landscaping business was one that he loved because nothing talked back to him. And he got to make things beautiful. But he had a mind for numbers. And he taught me a little bit about how to analyze an asset.
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A
And so what's the one or two most critical things that he taught you? And how to analyze an asset?
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B
Understand value. Understand value. And do deals where you're proud of what you do or don't do them. And that's an interesting concept in business. Be proud of what you do or don't do it. I've been fortunate. In 1986, I did a deal with Fred Sands. I sold him a building on the corner of Cannon and Little Santa Monica Boulevard for four and a half million that his widow sold for 45 million a few years ago.
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A
Sure. Is it the what on. On one of the corners there?
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B
Correct.
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A
On Little Santa Monica?
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B
Correct. He had an estates division in the building for a while and great property. Four and a half million. And he cut my commission. And I asked him, why. Why are you doing this, Fred, I work for you? He said, because I can.
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A
And so what did that teach you?
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B
Taught me to leave. And I left with Frank Caron and Jerry Schutte, who was in charge of acquisitions for Fred. And we formed a company called IPC. From 86 to 91, we did commercial brokerage. But I worked so hard for him. And when he did that, I knew it was time to go. You know, it's not hard to cut a broker's fee, but when you do that, next time that broker has a good deal, he doesn't call you. So one of the things I've always done in my career in real Estate is, I don't cut a broker's fee or an agent's fee, ever. And in the transaction, if the other side wants to cut their fee, I don't buy the property.
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A
Why?
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B
Because if you don't protect the broker, the broker doesn't bring you the next good deal. And if he sees that you're honorable with his fee, he hopefully will be honorable with you. Doesn't mean he will be, but hopefully he will be.
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A
Yep. And you want to be the first person on his list to call or her list?
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B
Yes. People ask me, what are your requirements for acquisitions? And it's very simple. Whenever you sell your mother, but she's busy, call me. So what, what are, you know what, what are your standards? What are you looking for? You want to go by cap rate, cost per square foot, cost per unit, the land area. How do you want to analyze the asset? Well, there are many ways to analyze an asset. I like upside, I like value added opportunity. I'm not a retail buyer. I buy retail, but I'm not a retail buyer.
- [18:54]
A
You want there to be meat on the bone for good, to add value. Now it sounds like, I mean, we've only gotten to the early 90s and we still have another 35 years to go. Do you focus your acquisitions solely in LA county in Southern California?
- [19:14]
B
My buildings are in California, Arizona and New York.
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A
Okay.
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B
So I'm operating right now around 5,000 apartments and a little over 2 million square feet of retail. So I have a couple billion dollars worth of real estate. I have many partners. It's not all mine.
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A
So when did you flip from being full time broker to full time owner transition?
- [19:39]
B
When I started doing brokerage, I as quickly as I could started buying buildings. So in 78 or 79, when I started having a revenue in income stream from brokerage, I knew where I wanted to live, but I had no down payment. I wanted to live in Santa Monica between San Vicente and Montana and between Ocean Avenue and 26th Street.
- [20:06]
A
You want to know where I live right now?
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B
In that area?
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A
Yeah. I lived in the Palisades. My house burned down and my wife had us all over the country. We were gonna. One day it was gonna be Nashville, the next day it was gonna be Park City, then Austin, then Rancho Santa Fe and we kept moving north.
- [20:21]
B
Those are all great areas. Yeah, but you know what, Andrew? When someone has a portfolio of apartments and they tell me, I'm disgusted, I don't want any more apartments. Find me a commercial property, I show them more apartments. It's what they Know. You know Santa Monica.
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A
Yeah, I know that side.
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B
You're not, you're not. You might be knowledgeable about Austin, but it's still foreign.
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A
Yeah.
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B
You know, you might, might love to move to Phoenix. Boy, is it hot there in the summer. You know, you're. You have a comfort level with Los Angeles. I would have been showing you LA real estate.
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A
So I don't know where we were going, but.
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B
Well, I want to talk to you about this first house in Santa Monica.
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A
Okay. Please.
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B
I knocked on every door.
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A
Yeah. For, for. This is for you to live in.
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B
Yes.
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A
Yeah. What time period?
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B
I knocked on every door. It was 1979. 78. 79. Right around first quarter of 70. I knocked on every door in this area. 26 blocks by four or five blocks. I knocked on every door and I found a guy between Alton Margarita on Lincoln, 50 by 150, Lot 16. Sixteen square foot house. English Tutor, 523 Lincoln Boulevard. The house is still there. And his name was Ed Driver. His father was CW Driver Construction. And he wanted, I think, $900 a month rent for the house. And so I offered him 1,500. And he said, why? I said, well, I'd like a three year lease. I want half the rent to accrue for the down payment to purchase your home. I want an agreed upon price of $280,000 now. And I want you to talk to your accountant to see what the benefits are when you're 55 versus today you're 54. He said, I'll call you tomorrow. And he called me back. Oh, and I said, I want you to carry back 80% of the agreed upon purchase price for 10 years at 10%. This was during an inflationary cycle. 81, 82 interest rates hit 22%. And so he said, I'll call you back tomorrow. He did. He says, we have a deal. So I wrote up the lease agreement, purchase sale agreement, and I invited my mother and my stepfather to come see my house. And my stepfather, one of the kindest man I've ever met. He, he was a. He was, he was trained under Zigman Freud had a lifetime seat at the University of Vienna. But Kristal knocked. He was hung and left for dead by the Nazis. His whole family was hung. And he lived because a rope broke. And they put him on top of the desk that he studied from to become a physician, a psychiatrist. And he was pushed off the desk. That desk later made it to my mother's house on Mantua.
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A
Oh my gosh.
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B
And burned in the fire. Oh, no, it could survive the Nazis, it couldn't survive the Palisades fire.
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A
So that's gut wrenching.
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B
Yeah. My stepfather looked at the house and said, you know, what are you paying? And I said, $280,000. He says, for this Halupki, when I say he was the worst businessman, okay. He would send out his accounts receivable once and then throw them away. You paid him good. You didn't pay him. That too is good. He didn't worry about it, he didn't care. And if ever there was a physician that took the Hippocratic oath, it was my stepfather. So 280,000. How could anyone pay that for this house? And my mother looked at him and said, and what did you pay for your first house? And he thought about it and he said, $28,000. And then my mother said, and what did your father pay for his first house? And he said, after thinking about it, $2,800. So does that mean my son would have to pay how much for that house?
- [24:57]
A
2.8.
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B
And his son will have to pay how much?
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A
28 million.
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B
And that's why I'm in real estate, because we don't really think generationally, we don't think about the time value of money. But you better.
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A
So that house today, if it was a tear down, just a lot and just thought, what's the square foot? It's 7,500 square foot lot, 50 by
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B
150 to an alley in the back. It's not part of Gillette Regency.
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A
Sure, sure. So look, the 9,000 square foot lots go for north of five, five to five and a half. 7,500 square foot lot probably goes for four and a half plus, right? Four and a half to five on
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B
its way to 28 million, right?
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A
Yeah.
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B
So I'm a buyer, I'm not a seller.
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A
Well, do you still own that lot?
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B
No, unfortunately I don't. Unfortunately I don't. And I would say I've probably held on to. I have maybe 300 properties. So I've held on to more than 90 plus percent of acquisitions. Every now and then I sell a building.
- [26:03]
A
How come?
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B
Numerous reasons. I just sold two apartment buildings because I had a manager and assistant manager that I just couldn't work with.
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A
And you just can't fire them?
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B
Well, I got one card from one person in your office. Hr, Human resources. When you fire in the state of California, you got problems.
- [26:25]
A
Well, try, yeah. I mean, you run a business, I run a business. It's tough. And in California you've Been through so many cycles.
- [26:32]
B
Yes. If you want to be successful, survive cycle. I've. I've now survived six. Six downturns. And. And there is a reason for surviving six downturns. And the first is we all have to understand in real estate or any business, what debt is. It's a drug. And I call my mortgage bankers drug dealers, and some of them get upset when I call them drug dealers. But like antibiotics, like a drug. A drug can save your life. It can make your life better. But if you don't know how to use that drug, it'll kill you. So I watch my debt. Always have. I watch my leverage. There's always another deal. There's always another opportunity. I like chocolate, but if I eat too much chocolate, I get sick. You got to watch your acquisitions. You got to understand the value of your tenants, your residents with apartments, and on the retail side, your lessees. So if I have Mike and Larry's hamburger stand, the cap rate is different than if I have McDonald's. You got to understand the difference. See, most people work so hard their whole life, they really don't know how to make a proper investment. I've spent my life understanding proper investments and being frugal and saving. In fact, I just had a conversation with my mother.
- [28:07]
A
How old is she?
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B
97. She just passed her driver's license, but she doesn't have a car to drive.
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A
That's good.
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B
Yeah, it is good. So she said, you know, Fred, I taught you delayed gratification. I taught it to you. You too. Well, she says, you don't have any toys, Go get some toys. Well, I have the best toys in the world. I have children, I have grandchildren. I have a beautiful wife. I've got a great life.
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A
So all of these cycles that you've been through, from the high interest rate environment of the late 70s, early 80s to SNL crash to I don't know, post 911 GFC Covid. But we're experiencing now any similarities, any that stick out where you're like, ah, you know what? This could be worse than others. Or what is your philosophy? You know, going through the past few years?
- [29:05]
B
Andrew, do you remember the Three Little Pigs? Remember that story?
- [29:08]
A
Of course.
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B
Build your house out of brick.
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A
Yeah. Well, I wish all the Palisades houses. You know, it's funny, my kids asked me, they said, how come our houses aren't out of what material doesn't burn? Dad, you know, why are some of these buildings still up? Well, they're brick. Well, why wasn't our house made of Brick.
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B
So when. When the big wolf comes and huffs and puffs, make sure the house doesn't fall down, it. In reality, maybe it shouldn't be brick because we have earthquakes, right? Yeah, but.
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A
But I know it's a metaphor.
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B
Build. Build your foundation strong so that when there are problems, you overcome them. Problems only create opportunities. I got a call from this guy who had 101 units in Compton and he said, I'm asking 10 million for the property. You're in Compton. Would you have any interest? I said, in fact, I do. And I went and looked at the property and I called him back and I said, I'm willing to give you 6 million for it. He said, But I want 10. I said, well, here's my offer, as is, where is no warranties, no reps, 60 day close. And I'm not a tire kicker, and I'm not going to waste your time, but that's what it's worth to me. He said, would you pay more? I said, no. He said, and you're not a tire kicker? I said, no, no, I'm not. He said, I'll take your deal. So 59 days later, I closed the escrow. 60 days later, I mean from, from the date that we first met. We have lunch and he says, you know, Fred, you. You didn't want to pay much, but you paid it. And I struggled to manage the property and I'm sick, I have a brain tumor and I'm in remission. He says, you know, I have a lot of other property, but because I'm in remission, I don't want to sell them. And this property was just too hard for me to operate. I said, well, I said, I hope never hear from you again. But if I do hear from you again, know that I am interested in the rest of your portfolio. And a few years went by and then one day he called me. He said, do you still have interest in my assets? I said, yes. He said, I'm not in remission anymore. Make me an offer. I said, give me a list. I'll make you an offer for all of them. At 11 other properties, I made him an offer. He says, I have to disclose to you I'm being sued by the city for some non conforming apartments. I have some mold issues. I have some other problems in my portfolio. I said, I'm going to make you an offer as is for the total portfolio. And whatever the issues are, they become my issues, not yours. I'll indemnify you on your problems. So I made him an Offer. He says, wow, but you'll close? I said, yes, I will. So I bought his portfolio. And the name of the portfolio for my LLC is SC Portfolio, because the properties are all around USC and. And it was an opportunity, and I had a history with him, and he was happy with the way I performed. So you. You will, in our cycles, come to difficult times and the relationships are important.
- [32:47]
A
Yep, it's relationship business.
- [32:49]
B
Very important. I have a great relationship with JP Morgan Chase. They believe in me, and that means a lot. I went a number of years ago to a difficult area called Baldwin Village. And I bought 700 units in Baldwin Village. And they told me they wouldn't make a loan there. And I said, why? They said, well, we've made loans in the past. We haven't been able to get our money back. I said, well, I said, I've borrowed from you for how many decades? And they said, a few. I said, and before JPMorgan Chase, with your lender, with your mortgage bankers? I said, I was borrowing from Washington Mutual. They said, yes. I said, before Washington Mutual, some of them I was borrowing from at Cal Fed and Home Savings and Loan, Ahmanson. I said, and they didn't have a problem with me. I said, so before you turn me down, I said, I want you to look up Enterprise Zone, and I want you to figure out whether or not if you make me a loan in this area for my acquisitions, whether or not you have to pay taxes on your interest earned because it is in an enterprise zone. And I said, take your time. Call me tomorrow. And they did call me. And they said, we would be honored to make you loans in this area. So I started to acquire not only just units there, but I bought Crenshaw Square, which my offices are there now, and I bought the rest of the block. And also involved in Baldwin Village is David Schwartzman.
- [34:31]
A
Yep. Who sat in your chair not just once, but twice. And a good friend.
- [34:35]
B
And right, Andrew. Money is made in real estate. Between hindsight and foresight, anyone can say if I had only bought this or if I had only bought that. You have to have the ability and the strength to buy chicken shit and turn it into chicken salad. And so, you know, I have. My mother asked me in the early 80s, she said, do the screwdriver marks on the side of your car bother you? I said, no, mom, what bothers me is the guy who stood on my hood and urinated down the heater vent. I can't get the odor out of the car. Should never get into my car again.
- [35:17]
A
Oh my God.
- [35:19]
B
So you know, there are lessons in property management. You know what, I've never seen a bad two by four, I've seen bad operators, never seen a bad building. I've just seen people that should have never bought what they own.
- [35:35]
A
And also, so we're here today, mid-2026 and there's a lot of headwinds and I want to get into your thoughts on this city that we both grew up in. But before we get into get there, you know, there's opportunities, whether it's, you know, in the entertainment properties, studio properties that we're seeing, you know, foreclosures, people that we know who are getting foreclosed on to those that over purchased in 2021 when rates were basically at zero and they had locked in for short term rates and now they're losing their properties. Throughout the Sun Belt we see downtown LA office buildings trading at record low numbers, you know, basically $100 a foot off their peaks by multiples and multiples. We're seeing a pushback in the industrial real estate market. Sitting here today, where do you see the most opportunity?
- [36:46]
B
Great question Andrew. I see it everywhere. So back four or five years ago, six years ago, when interest rates were very low, I went to Wells Fargo and they offered me 3.5 million debt for this house at 2.2% interest. And I said no, I said, how about if I give you 50,000, what does it buy the interest rate down to? They said 1.8%, I said lock and load. So I borrowed the 3.5 million at 1.8%, fixed 30 years. You see you don't have to just be on the equity side, you can be on the debt side too. A lot of people looked at this opportunity when interest rates were low, not believing ever that they may rise. And then what will happen? And you lock your money in, 30 year amortization, doing 5 and interest rates double. And now your property doesn't have the right DCR debt coverage ratio to pay that higher interest rate. And what are you going to do? Lose the asset. And that's what happens, that's what we're seeing. The opportunities today are bountiful. I've never seen better opportunities than exist today.
- [38:01]
A
So you're just looking at your chops every day. I mean what are you, are you acquisition? Are you on a buying spree?
- [38:06]
B
Can you see the drool on my shirt?
- [38:08]
A
It's a beautiful suit.
- [38:14]
B
I had a roommate in college, okay? His name was Suho Cho. And Suho said to me when I first met him, he says, my father, number one taxpayer in all of Korea. My mother number five. His family owned Korean Airlines. And sophomore year of college, he met this very attractive redhead, married her, bought a house on Rinds Road, Playa del Rey, overlooking the ocean. I'd go to his home, we'd sit down for dinner. All of a sudden the table would rattle, the window would rattle. He'd go, D.C. 10. Fifteen minutes later, the table would rattle, the window would rattle 747. I was thinking, why would anyone in the right mind live here? But it was his family's DC10. It was family 747. To him. It was music. It was Korean Airlines, right? He gave me a cross pen. I still have it somewhere. 700 million. I said, where did this come from? He says, oh, B of A. They gave us a box of these pens. My father borrowed 700 million to buy 747 aircraft. Suho was married a year to this redhead when his father found out about the wedding, called him back to Seoul and said, suho, I'm going to give you two choices. Number one, annul the marriage, move back to Seoul. I will arrange for you to have a wife. And Suho said, but I love this girl. What's choice number two? His father looked at him and said, good luck.
- [39:52]
A
What did Suho choose?
- [39:53]
B
Well, he really loved this girl. So after the marriage was annulled, he moved to South Korea and his father arranged for him to marry the daughter of the largest hotel chain in South Korea. And he'd call me, meet me in the south of France, meet me here, meet me there. And when his daughters got a little older, he killed himself. Drug overdose. And the lesson I learned was sometimes if you push your kids too hard, you don't get the result you want. And it was about 1998. I was reminiscing about my dear friend Suho. And I drove by the Korean Airlines corporate offices, which were on Wilshire, kind of a non distinct building. Wilshire and Union, east of Alpharado. And there were homeless encampments everywhere and drug sales and prostitution. And I was there. I was stopped by a policeman, wanted to know what I was doing, and I assembled nine acres of land. I was there just because I was reminiscing about Suho. So if you graduate last in your medical school class, Andrew, what do they call you?
- [41:12]
A
Doctor.
- [41:13]
B
And if you go to the worst beach community, what is it called?
- [41:17]
A
Beachfront property.
- [41:19]
B
Beach community. And what's the worst part of Wilshire Boulevard? Wilshire Boulevard. So I bought nine acres on Wilshire for 14 million. And I built the Home Depot, the Food for less, the McDonald's and other retail.
- [41:34]
A
Yep, I know it well.
- [41:35]
B
And the 14 million of dirt then today is 140 million.
- [41:42]
A
You still own it?
- [41:43]
B
I still own it. And I built something. It was the first in the nation. There I built a day laborer center. And I got the city to fund it with 150,000 a year for bathrooms for the day laborers. A place where they could have English lessons at night.
- [42:01]
A
Are these the people who are sitting on the corner of a Home Depot looking for daily work?
- [42:07]
B
Yes. Who will, for $20, $25 an hour, dig ditches and, you know, breathe asbestos for you. These guys work hard and, and so when Home Depot saw what we built, they were impressed enough to demand it now in all future Home Depots, a day labor center. And when we signed our lease with Home Depot, within the lease, they had to hire by zip code. And when I did my deal with food for less. 50, we have a 53,000 square foot food for less. It's the number one food for less in the nation. Their sales are north of 1400 a foot for market. That's pretty outstanding. Home Depot, it's in the top five. I saw something other people didn't see. I got turned down. The guy who was making decisions for Home Depot at the time was Greg George. And brilliant guy, big guy, he played football for usc. And he, he said, no, no, no, no, no. So I signed a lease with Kmart. When I say signed a lease, we had loi. They flew four guys out from Michigan. We sat down at a table. One of them, it was at the Hilton by the airport, pulled out a pen, crossed out $18 a square foot in rent per year with 10% bumps every five years on a 20 year lease. Crossed it out and wrote 12 bucks flat, 20 years. My broker said, sign it, Fred. You're not going to do any better. That was on 140,000 square foot store. And my business partner, David Ovette looked at me and says, what are we going to do? I said, david, let's go outside and talk. And I said, you know what, guys, we'll be right back. So we go outside. I said, you know what, let's sit in my car. I don't want anyone to hear this. So David gets in my car and I turn it on. I start driving away. I said, fuck that. I get a hold of Greg George, who had turned me down four times at that point or five times. He says, fred, I told you we don't have any interest. And I said, you know what, Greg? It will be a very high grossing store for you. He said, how do you know? I said, well, I operate thousands of apartments and my employees live within a mile of this location. This is not for new construction. This is for the repair and the maintenance. How many hundreds of millions of square feet of buildings do you have within a 2 mile, 3 mile radius of this location? I said, there are no other Home Depots. This will be it. And who's going to assemble nine acres in the most densely populated area west of the Mississippi? He says, why are you so sure? I said, you played football? Football for usc. He said, yeah. I said, how sure were you? He's all right, I'll sign a lease.
- [45:23]
A
Wow.
- [45:24]
B
And it happened that fast. And the city, in order to approve them for this site, said, you're going to have to build one level subterranean parking because of the traffic. So I went back to Home Depot, I said, it's going to cost me 4 million to build the additional parking. Give me a check for two. They gave me a check for 2 million and we built the level of subterranean parking. I had a fight with my business partner over it. He wanted eight foot clear. I said, I want 10. He said, why? I said, I don't want an F150 going down into the garage for materials and ripping out the plumbing. The garage. So we built the 10 foot clear. I spent an extra 400,000. We put in gear driven elevators. They're mechanical, not hydraulic. Not hydraulic. Because if you can put 2,000 pounds of cement in an elevator, it's not going to level. So we put gear driven 400,000 extra.
- [46:30]
A
Amazing.
- [46:31]
B
But we did it right.
- [46:32]
A
And today you said what? Top five Home Depot.
- [46:36]
B
Yes. And the Food for Less. By the way, rite Aid put 600,000 into their store within months of their bankruptcy. And when I got the keys, they didn't even take the cash out of the cash registers. How does that happen?
- [46:55]
A
That's incredible.
- [46:56]
B
So what did I do with my. They were paying $2 a foot.
- [46:59]
A
Yeah.
- [47:01]
B
And I go back and forth. California, we quote rent per month.
- [47:05]
A
Sure.
- [47:06]
B
The rest of the nation quotes it per year. So I can say $24 a foot. Or I could say doll of a foot. Andrew, you got to figure out if I'm thinking month or year rent. I'm a little scattered. So Rite Aid goes bust, and I've got my first vacancy in 20 years at that property. And I call Chuck E. Cheese and they're going to be my new tenant at $3 a foot. I did them a favor. What is that, a 50% increase? The TI's, they said, we're more than happy to do it. They said, oh, and by the way, our number one store, Chuck E. Cheese, was Wilshire and Alvarado, and the homeless burned it down. So we. We have a very big homeless problem.
- [47:57]
A
So it's a good segue.
- [47:59]
B
Yes.
- [47:59]
A
In our remaining minutes. Okay, we're almost at an hour.
- [48:02]
B
All right.
- [48:03]
A
We have to talk about our city, our state. We just went through a primary of our mayor election. Just give me your thoughts on the state of LA.
- [48:20]
B
Okay. He was 14, I was 16. 17, maybe. His name was Rick Caruso. I knew his sister. They invited me to their home. I go through the front door, and on the right is a photograph of his father, Rick's father, Hank. And the photograph said, time magazine man of the Year. And I looked at Rick, and when I saw it, I said, this is beautiful. This is your dad. I said, was he man of the Year? He looked at me, he said, he's always man of the Year to me, to my sister and to my mother. I'll never forget that. And leadership, we said earlier, lead follower, get out of the way. Unfortunately, we have a lack of leadership in the state of California. Money has wheels. You tax me too much, my money goes elsewhere. I'm up to 12 shopping centers and five apartment complexes in Arizona. So I haven't sold buildings. I have moved equities. I have a lot of friends that have left California with a lot of jobs. I have opportunity here, but it looks like there's better opportunity in other places. I'm watching movie industries leave. You can talk to Victor Coleman. What he's had to face with what he built up and what's being torn down. I have seen office buildings vacated that were once thriving and successful, and today they're boat anchors. You want to build housing in Los Angeles, you got to get five bucks a foot to break even. That means a 600 square foot apartment. You need 3,000amonth. How many people have disposable income of 3,000amonth? Is that affordable? No. If you're flipping burgers at McDonald's, you've got to make. You're going to be making $20 an hour. That's $40,000 a year. It means that you can afford maybe 15,000 a year in rent or 12, $1300. You can't get a bachelor for that. In Bullhead City, Arizona, if you're making 20 bucks an hour, 40,000 a year, you can rent a two bedroom apartment all by yourself. So the numbers really don't work on new construction here. And if you look at the cost of construction, a lot of it is the city and the state and the barriers to entry and the down zoning and the problems with construction. We have created our own housing shortfall. We've created our own problems. We're the highest tax state in the nation and our services suck at best. And at worst, you lose your house. So.
- [51:14]
A
So why stay here?
- [51:15]
B
Why stay here? I don't like hurricanes. I don't like a lot of humidity.
- [51:22]
A
So is it worth the 14% state income tax? Is it worth the homeless encampments? Is it worth the.
- [51:27]
B
We're going to. We're going to talk about whether or not it's worth it. Why are there people that are tightening their belt and riding the wave? I remember in the early 70s, New York City went broke. My grandfather, father's father handed back buildings across from Madison Square Garden, walked away from them. I have a block of real estate in Queens. Listen to this number, Andrew. Buildings that I've owned for a while. My property taxes run 6 to 7% of my gross schedule income in Queens, in John Gotti's neighborhood, I have a block of property and my property taxes run 50% of my gross. With Mandami telling me they need to go up 10% more. I carry no debt. You know there's a 2% mortgage tax in New York. I know. Difficulty in Los Angeles. I know impossible in New York. And I'm still not a seller.
- [52:32]
A
So
- [52:35]
B
I think that we have to look at a present value of a future income stream. No matter what the business is, whether you're practicing law, you got to keep your overhead on rent at 10% or less. Otherwise a law firm doesn't make money. You're here to make money and watch your liability. Same thing with me and my business. Do you know what an 831B is?
- [53:00]
A
No.
- [53:00]
B
It's a captive insurance trust. You should explain that. Look it up, understand it, and make sure your clients understand it. I formed my own insurance company five, six years ago. That has given me an avenue to be competitive where other people can't be. I'm not happy with our governor, but my wife, who's Egyptian, says sometimes the king you have is better than the king you get. Does that sound like our mayoral race? I walked through an apartment building with one of the best brokers I've ever met, Tony Ozzie Martin, military.
- [53:38]
A
I've done many deals with him and
- [53:40]
B
from 1 to 10. He's an 11. And I love the leadership. I love the brokers. I love their training. I love the opportunity they can afford you. I walked through an apartment building that he had listed that I thought maybe I might buy. And every apartment there were singles and ones had five or six ballots. I thought how peculiar the building was in the Westlake area. Who's stuffing ballots? What is going on with our vote? What is the value of our vote? I don't know about truth, justice in the American way. I remember Superman. The only thing he feared was kryptonite. Well, if you live in California, there's a lot to fear. I remember our streets being clean. I have to deal with needles and human feces in my shopping centers and I have to spend a lot of money on security. Why should I have to wait five hours for a dead for police to show up for a dead body in my center? 5 hours. Why should I have to be sued on a regular basis on ADA code compliance, American Disabilities Act? My last lawsuit was at Washington and Hoover. I have a McDonald's. I'm the landlord. Someone walked in, heard music, they went to the counter. May I have the hearing impaired headsets, please? The girl behind the counter said, diet Coca cola, double cheeseburger. So they sued me as the owner of the property. They sued McDonald's because if you play music, you have to offer hearing impaired headset. How do you give someone a hearing impaired headset for $100 headset when they order a 99 cent diet code? So we need to have, we need to have the ability to change some of these laws. I would like to have the ability to turn off the music. Please don't sue me. I mean, I get sued ADA maybe once a month.
- [55:48]
A
I'm sure
- [55:51]
B
insurance, nobody wants to insure anymore in the state of California. So we have to change these laws to be competitive. We need leadership, someone who cares about our city. I don't need a bullet train for 18 billion that's been spent so far that goes nowhere. That doesn't exist. The money we spend on housing, but we don't have housing. One of the things that we did at Crenshaw Square was I put in a 12,000 square foot mental health facility. You see, it was in the Reagan administration that they shut down mental health facilities. You know what they call those people today? Homeless. We need them everywhere to resolve and deal with issues and problems that exist in our society. They're actually busier. It's called sharp. They do a phenomenal job. They're actually busier than the Social Security office next door. And how do I know? Because I own the Social Security building next door as well. They got upset at me because I ripped out the Ficus Benjaminas and put in orange trees. Why not be able to pull in orange while you're waiting in line for your Social Security?
- [57:07]
A
Wow.
- [57:08]
B
So where am I gonna go with this?
- [57:10]
A
Yeah.
- [57:10]
B
I adore and have a crush on Maxine Waters and I'm a Republican. I like.
- [57:19]
A
Why do you have that crush?
- [57:20]
B
Because I've walked her congressional district with her and I see people that come up to her and say, because of you, I got a roof over my head. Because of you, my husband has cancer treatment. Because of you, my children eat.
- [57:35]
A
And how do you distinguish her from the two people that are running for mayor and other city council members who are part of the DSA and Andrew,
- [57:43]
B
that's a great, a great question. DSA now controls five, I believe, of the 15 seats of the city council and it's moving in the direction of eventually a majority. DSA does not believe in property rights. You can see Mandami this week. He froze rents for the next year or two. You know, I, I am a named plaintiff on a class action lawsuit against the city of Los Angeles on trash. I don't have a choice now to choose my own trash company. That choice has been made for me by our city council in their, in their belief that they were doing the right thing for our city. My trash fees went up 400% because I don't have a choice on who to choose. But 8 out of the 11 zones for trash pickup are now controlled by Waste management. And there's a 25 million and I'll use the word kickback to the city council every year. 25 million non restricted funds to the city council for the right for these 11 zones, not just waste management. How does that make you feel when you're operating affordable housing? And in order to operate affordable housing, you need to keep your costs reasonable. How do I get insurance when no one wants to insure in the state of California? Worse than waste management is DWP. I built 10,000 square feet Central and 32nd. We put up a temporary power pole. My tenant is a big employer in the inner city and warehouse shoe store wss, which is now owned by Dick's and great tenant. And we built a beautiful build. So we put up our temporary power pole and then we bring in a diesel generator and then we build the building for the next 10 months and we still don't have our temporary power. We built it on a diesel generator. I know people that won't build in LA because of DWP, of course. And my rates again, 400% higher for my water in LA than what I pay in Bullhead City, Arizona, in the desert. How does that happen?
- [60:12]
A
All right, so two final questions.
- [60:14]
B
Yes.
- [60:15]
A
Number one, is it fixable?
- [60:18]
B
Yes. Was there any hesitation there?
- [60:21]
A
No.
- [60:21]
B
Absolutely. We are the Golden State.
- [60:23]
A
So it's just. It's just leadership.
- [60:25]
B
We are the Golden State. How do we bring back our businesses? We have to be competitive. Money and jobs have wheels. So what are we doing that has made us not competitive? My. My father and mother moved out of move to California because of the aerospace industry. My father was an engineer. We still have the bare bones of industries that exist here. We are the food basket, almost to the world, our central Valley. But we have a governor that doesn't want to give them water because he wants to save a fish, which maybe he's not saving anyway. We have an oil industry. Chevron just left after 140 years. Santa Paula, that's where they started. And they had to leave California. Is it safer for the environment to bring the water through the Strait of Hormuz?
- [61:23]
A
You mean oil? The oil? Yeah.
- [61:25]
B
Yeah. Is that safer for our environment or for the people on the ship? You know, it's like right is wrong and wrong is right and up is down and down is up. Can I tell you a secret, Andrew?
- [61:39]
A
Please.
- [61:40]
B
Common sense is not common. It's just not. And you have to think before you act about what is reasonable, what's reasonable. So I see craziness every day. Craziness. You know, we can go back and talk about how do you analyze an asset and cap rate and what gives you appreciation. You know, we could spend more sessions doing that, but I would say a couple things before closing.
- [62:21]
A
Sure.
- [62:22]
B
Be proud of what you do or don't do it. Know with your success how to give back. Whether it's to education, to your church, to your religion. I don't care if it's a madrasa or a temple. Be God fearing and don't think your religion is any better than anyone else's religion. Have values that you learn and that you educate your children. Show kindness, show humility, like my friend Frank Fukuhara. And most importantly, the most important deal you will ever do in your lifetime is when you choose your mate, your partner. If you don't respect your partner, who you gonna respect? If I have a business partner who's not honorable to his wife, why would he be honorable to me? Make the time. Go to your, your son's baseball game. Take the time. Go camping with your kids. I mean, at my age now the idea of camping would be, you know, Hilton Hotel, but travel, see the world. I couldn't understand how the Bellagio, how Steve Wynn came up with that until I was on Lake Como pulling into the area of Bellagio and it's right there in front of your face, face. Look at what Rick Caruso builds. Look at how beautiful his projects are. Look at the amount of time he spends in Italy. Where does he come up with the, with, with the artistic flair to build the rosewood? You know what? I sought the rosewood. I, I married off one of my kids there. They had a train, Amtrak, that goes right through the middle of the hotel. What a drawback. Except for he turned it into an E ticket at Disneyland. And you can sit at the bar and the people on the Amtrak wave at you as you're drinking your tequila. And it's fun.
- [64:33]
A
It is.
- [64:33]
B
You know what he did? I think he went to, and I'm not sure about this, I think he went to MIT and he had engineered going 15 or 20ft into the ground on both sides of the track so that the vibration stays within the track and doesn't impact his hotel rooms.
- [64:52]
A
Well, at $2,000 a night, you better make sure that that's correct.
- [64:56]
B
And you know what, Andrew? It's worth it. It's beautiful.
- [65:00]
A
Well, I'll tell you what's worth it, Fred. Having you on, on this podcast has been truly an honor for me, a privilege. I know my guests are going to get this and listen to this and say, Andrew, if not the best podcast, definitely one of the top couple. No, it is.
- [65:20]
B
And if you ever invite me back, if I may quote our ex governor from the state of California, I'll be back.
- [65:28]
A
One of our best. Fred, thank you so much for spending your time sharing your wisdom and all of, all of your great stories.
- [65:36]
B
Thank you, Andrew.
- [65:37]
A
And that is another episode of the Kirsch Connection. I now have my guest star, Courtney K. Kirsch, in this video. We're standing in front. Hey guys, what are we standing in front of? And what is the Supreme Court? You don't know? You didn't listen. One of the branches of government, the judiciary, nine Supreme Court justices. We're having an amazing time in D.C. we forget how beautiful all these buildings are, the significance, the architecture, our government. It's really awe inspiring. And so we're very proud to show our kids this great country. We're at the World War II memorial in Washington, D.C. what an incredible memorial. Watch this. Take a look. Really impressed with this memorial. I've never been here before. We've got the Lincoln Memorial behind us, and then I think you guys have seen this before. The Washington Memorial. Incredible. There's Clementine. Hope you're enjoying these little snippets of our tour of Washington, dc.