← The Kirsh Connection
The Kirsh Connection
Riches in the Niches: Finding Outsized Returns Where Others Aren’t Looking w/Alex Valner
00:44:17
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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. This week I have Alex Valner, the president and managing partner of Center Capital Partners. On the show, Alex talks about how he and his partners think thematically about real estate. They first invest in real estate and then they buy companies. And in order to achieve opportunistic returns, they have been going deep into, let's call it alternative real estate investments, from airfields to iOS to infrastructure and manufacturing. So a very interesting perspective on real estate investing and I'm sure you're going to enjoy my conversation with Alex Valner. Welcome to another edition of the Kirsch Connection. I'm here in studio with Alex Valner, founder of Center Capital. Alex, good to have you in.
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B
How you doing today? Andrew, thanks for having me.
- [01:21]
A
I mean, it's 90 degrees in March. Should we be concerned or should we be happy about that?
- [01:26]
B
It's a combination of both.
- [01:27]
A
Yeah, yeah, it's. Well, we always go skiing for spring break, which is in a week and a half in Deer Valley. And how's the snow if you like slush? I don't know how we're going to have this trip, but non refundable hotel, blah blah, blah. And so it's like we got to go. We're pot committed.
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B
Just nice to be outdoors.
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A
I will think about that when I'm just on the balcony looking at dirt instead of snow.
- [01:56]
B
Yep. Glass half full.
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A
So want to get into your whole background. But first, for my audience who may not know about your company, talk about Center Capital.
- [02:05]
B
Sure. Center Capital was founded six years ago. Foundationally, we are what we say at platform investors and we'll dig deeper into this throughout this podcast. But we target niche, alternative, overlooked and fragmented sectors and foundationally acquire real estate. But I think we put a little bit more of a venture private equity overlay to how we roll up and aggregate assets to build what could be companies or scalable portfolios and taking advantage of what we feel is a gap in the marketplace hovering below the radar of mega cap private equity institutions.
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A
So instead of just to distill it. So instead of making one off investments like a real estate private equity company allocator, you are taking a platform position in the operating company itself.
- [03:04]
B
Correct. And I'd love to get deeper into that later. But I actually believe scaling propco and building portfolios is what presents the opportunity to build an operating company, to service those. So a little bit cart before the horse to just take a position in an operating company. But we focus on thematically making investments into sectors that, you know, real estate is a herding effect. And if we can be at the front of the herd or earlier on into sectors, there's that venture mentality a little bit and create scale where traditional private equity can't, then I think we have something and can start thinking about to your point, taking positions in an operating company and building a platform or a business.
- [03:48]
A
Yeah, let's just talk 30,000ft for now. For what the mark, like what your perception of the market. You know, I've got a segment of my client base who's transacting and then I've got another segment of my client base who's frustrated, who feel that cap rates have actually come in, that they can't make the returns for their investors, that the expectation of their investor base is not in line with what you can get out on the street today. The overlay of the war in the Middle east, rising oil prices, all of that we're recording mid March. What is your overall sentiment of today's real estate market?
- [04:34]
B
It's a loaded question. You know, we just underwent a challenging few years in our industry, rising rate environment. And the rate environment is really the fundamental driver of our economy. And I still think we're rippling through the effects of that. And I have a larger fundamental issue with the traditional private equity fund model. And I think when you go raise all this capital and then you have to deploy it in a box, that's when moments like this can get you hurt. And that's probably why you have the tale of have and have nots. And you have folks who are sitting here with a lot of capital and not knowing where to invest it. And then you have other folks who might be a little bit more nimble, entrepreneurial, flexible, who are transacting a lot. And I think for the first time in a while, the geopolitical landscape is an absolute driving force of what's happening. Middle east is shut down right now. No one can travel there. And all this is critical to your investment philosophy and picking and choosing where and how you're investing. Which is why, back to the point of being thematic investors, the example I typically use is in 2019, you could have been presented two investment opportunities. You could have been presented a 10 year triple net leased Amazon core industrial asset, probably giving you high single digit return or you could have been presented a piece of land that required entitlement, speculative development, lease up risk landing office tenants. And that pro forma was probably going to show you a higher 20s IRR. Fast forward to today. No one can predict the black swan events that occurred between 2019 and today. But you probably made a 20 IRR on your Amazon deal and maybe you're in some trouble on your office opportunity. And the point that I'm trying to make here is if you can really take a long term fundamental view of where the world is going and thematically pick the right bets, that's where I think people are transacting.
- [06:46]
A
Yeah. And yet so many investments, especially those who have real estate, private equity, joint venture money, they're playing in three to five at most seven year time horizons. So how do you do that when based on what you just said or can you that.
- [07:10]
B
I think we're figuring that out. Yeah, I think we're figuring that out.
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A
Especially in real estate.
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B
Especially in real estate. Especially in real estate.
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A
All right, let's, let's go back in time and then, and then we'll dive more into what's going on with Center Capital. Tell, tell us about just your background, where you grew up and all that.
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B
Yeah, from la. Born and raised.
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A
Makes both of us.
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B
There you go.
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A
Born and bred Los Angeles. Not too many of us.
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B
Not too many. I think we're outnumbered at this point. Best city to grow up in. Love LA Passionate Los Angeleno.
- [07:46]
A
Still.
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B
Still. Amidst everything going on in this city. Still. And went to UPenn on the east coast to get my education in Philadelphia and launched my career at Canyon Partners which was formerly in Century City and had the fortunate opportunity to be in their real estate group. So I spent four years at Canyon Capital Realty Advisors and Hindsight 20 20. I didn't plan it out this way, but I started my career in the great financial crisis and it was really hard to get a job. And Canyon was probably one of the more active firms at that time given the type of capital that they had and the multiple sleeves of capital that they had. So it allowed me to create my foundation of investing in real estate and presented me the opportunity to invest 0 to 100 on the capital stack. Senior loan originations, Mezz bridge debt, preferred equity, equity across. You know, back then, what were the five major asset classes across real estate which we should dive into because alternatives is our whole thesis. But you know, my career started all in on the five foundational main asset classes. Right. Multifamily hospitality, retail, office, industrial. Industrial was the alternative back then, right.
- [09:20]
A
Yeah, yeah. And now it's just a core.
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B
Yeah.
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A
Pillar.
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B
Yeah.
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A
Of real estate.
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B
But again, I believe you need to make your own luck through hard work. And I think a fortunate opportunity once again arose where I was introduced to a gentleman named John Kroll. And John was a prolific name in the real estate community. One of the early hires and founders of Blackstone Real Estate Partners hired by Steve Schwarzman and John Schreiber. And John Kukorl was the president of Blackstone and departed in 2006. Went out and raised his first series and sat on a big bucket of capital. I think he was the. It was the largest fundraise for a first time manager at that time. And then he brought me on in the midst of deploying his first series and building out his team. And I had a wonderful eight years with the Northwood team.
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A
Sure.
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B
And it was so much fun.
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A
We work with a few former Northwood alums, so it seems like it's a. There are several of these companies, Canyon's one on the operator side, Meguiar, where there's a great crop of, I don't know, young real estate professionals who then do their own thing. And it's sort of like the, the Bill Belichick coaching tree where his assistants become head coaches and I guess Northwood has become like that as well.
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B
I think we all have John to thank. Right. He was such a great mentor for us all. And look, he launched and we should get into capital inflows because I learned that from John. And back to your original comment on what drives investment, he raised very unique capital. It was differentiated. It was structured at the onsen as an open fund model. 20 year visions and horizons, not that that's how long we would hold, but a longer duration. And I think he attracted a lot of endowment, foundation, family office capital at first, contrary to the traditional pension, et cetera, capital. And that brought with him an extraordinarily entrepreneurial group of individuals that have all proud to say have all done wonderful things and we're all very close and we all stay in touch and it's really a special community.
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A
And so what is inspired you to start Center Capital?
- [12:08]
B
You know, I always kind of had that entrepreneurial itch. You know, I spent eight years at Northwood. I think when I started I probably would have told myself I'd be there for maximum five. And I think I surrounded myself by company who was building businesses around me, mutual friends of ours and folks within the community. And really what I needed to do was curate my thesis around where the world was heading back to the point that we were talking about. What I recognized was there was this bifurcation happening across the capital markets with capital inflows. And what I started seeing was mega cap private equity. You know, the top 10 largest private equity real estate firms were eating almost everybody's lunch when it came down to capital raising. And that similarly drew them to target larger capital commitments from sovereign wealth funds and the pensions and the like. And as a result, you know, I felt there was an opportunity for the secondary or tertiary clientele of those firms which were more aligned with an RIA multifamily office family office investing background. And therein lied, I felt the gap in opportunity to target lower market niche alternative sectors where the big boys couldn't play. And leveraging our ability to get in with nimble, flexible entrepreneurial capital to thematically target the right asset class. And when we picked the asset class, we like to not do one deal, but do 10, 20, 30, 40 deals and build again platforms and businesses out of that. So I think that all kind of came together and came to a head. It was something I was always passionate and focused. But I think the catalyst, you know, Covid, everyone started thinking about what the next 10, 20, 30 years look like. And Covid presented the perfect opportunity and the perfect storm to go off and launch center capital.
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A
Yeah, and so that was the original thesis, or did you morph into it as you were transacting and raising capital and saw where you could?
- [14:31]
B
That's a great question. You know, everything morphs. You know, I don't think anyone has a crystal ball to say how it's going to play out perfectly. You know, I remember early on having an attraction to alternatives and back to that concept. I believe mega cap and institutions are oversaturated or overexposed into. Well, they're reducing their exposure to office. I feel now they're overexposed to just traditional, industrial and arguably even multifamily retail and hospitality, I don't think are the sectors that absorb the movement of capital inflows. I think there's a bigger picture going on here where that's going to move into alternatives. So that was always a discussion, but then we started talking about larger picture items of what should we be investing to. And well, we should talk about infrastructure, we should talk about health and wellness, we should talk about America's education system, simple backbones of the country and the US and making solid bets on where the growth was going. And I think that is how we wanted to drive our investment philosophy. So thank you. Through that, we started spending time across different sectors and asset classes. And then this mentality of the platform investment started evolving.
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A
And so what did you. If you could talk about some of your first investments either at the platform level or specifically actual real estate investments.
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B
Of course, our very first investment was into a company by the name of Sky Harbor Group. Simply put, sky harbor focuses on owning real estate on airfields and building aviation hangar campuses. To me, it was actually just quite simple. Owning real estate on airfields was like owning beachfront property and the supply was captive. How do you recreate airfields across major city centers? And when we studied the demand side of the equation, that felt even more compelling with thousands of jets being produced in our country. But most importantly, the size of those jets. The clear heights were way taller than the existing hangar base. And nobody was building hangars across the country in a programmatic, thematic way. And we saw in front of us an acute supply demand imbalance.
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A
How did you get connected with them? I mean, that's a very specific.
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B
I knew nothing about aviation or developing hangars right prior to getting into the asset class through our channels of my partners. The deal came across our desk. My partner found it to be an interesting opportunity, but didn't quite understand or did it fall into a real estate bucket, what type of bucket it was? And we actually invested through a series A. It was a venture capital structured deal, but we owned the collateral and we used our capital and our investment into developing the first few. We acquired one existing campus in Houston, but we used our capital to fund the groundbreaking of a second and a third campus in Miami and Nashville. Fast forward to today. We actually took the company public and it's on the New York Stock Exchange.
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A
Amazing.
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B
So, yeah, it's been a great story. And look, all the growth of the business is attested to the team, our partners and the CEO and cfo Tao Kynan and Francisco Gonzalez, and the wonderful job they've done there. I read a great article this week by Brad Thomas, an editor and investment analyst. He said the riches are in the niches and find a niche that you can exploit the supply, demand imbalances in. And we, we feel that could outperform. And you know, I think it resonates well with that thesis as well as some of the other investments we've made.
- [18:35]
A
And how about on the flip side where they're partnering with with you? It's your first investment into a platform. You know, I've got clients who are on the capital side who have left their institutional shop and is there, I guess sort of a dog and pony show going both ways where you're trying to show the market and them of we are a legitimate source of capital and they're trying to do a dog and pony show saying hey, give us capital to a very niche asset class where there may not be a lot of capital interest.
- [19:17]
B
Totally right. And to that point, look, I think what we try and target specifically are again the overlooked sectors that have the fragmentation that can implement a roll up strategy. And I think that if you would have taken an aviation hanger business to a traditional private equity fund that was in a box of raised capital that had to be deployed in a certain way, they probably wouldn't have gotten outside of that box to make that type of investment. That I think is one component of it. Second, my partners come from investment banking and hedge fund backgrounds that are brilliant thinkers and extraordinarily creative but at the root of it all really understand good businesses and I owe the credit to them on understanding the opportunity while I was able to run down the sound economics on a foundational real estate investment play as well.
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A
So how much of your underwriting and your thesis is real estate driven versus the company itself and who's within the company and the senior, the C suite and all the way down to how deep is their bench, et cetera?
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B
Yeah, it's 100% real estate to start and that's the beauty. And that actually is what I think is one of the largest differentiations behind how we look at it versus what I think maybe some other groups look at where again, every single asset we buy stands on its own as a good investment. But when you put them all together, that's when I think you can create something special and then think about building the team out and developing to your point, a C suite or an executive team to run and build a business. I, I watched how Bay Grove built Lineage Logistics and I thought it was a wonderful case study. So we tried to apply that to how we think about the world. That's what we did in sky harbor and similarly that's what we've done across our industrial outdoor storage platform, terminal logistics and similarly some of the asset classes we're spending time in now.
- [21:35]
A
Yeah, I was going to get into some of these other, these other asset classes. So are you guys sitting in your office thinking of that niche that you want to get into or are you figuring out what niche works based on the inbound emails that you're seeing? And that's how the creativity mind is being cultivated.
- [21:58]
B
Yeah, I think that's an interesting point. I think now that we've been doing this for year, we're on year six now, we get a tremendous number of inbounds of creative ideas and you know, we can, we can run through some of those but we love to go, you know, a mile deep in an inch wide where, okay, we want to get into aviation, real estate. We're going all in on it, we're getting behind it and we're building this business right to the point of where that has been a public company now with team of I believe over 100 employees. You know, we don't do any of the day to day operations. We're nothing more than an investor in the business on our iOS side of things. You know, we've gone out and raised capital that has allowed us to build a best in class industrial outdoor storage platform that we've self operated. But at this point now, you know, we are, you know, have a very sizable portfolio and I think we're a top 10 or top 15 operator in the space. And you know, now we're getting to the point where we're really building out the team at our business terminal logistics and thinking about building out the platform because we have enough scale to do that. Right. Which would then over time lead us to another niche we can go build a business out of.
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A
Sort of a side topic on aviation. Santa Monica airport.
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B
Sure.
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A
Okay. JSX is now flying out of there.
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B
I've heard about that.
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A
Oh, you haven't flown? I haven't flown out of that airport yet. Where do you live?
- [23:37]
B
Beverly Hills.
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A
Okay, so I live in Santa Monica. After the fire and going up to nmhc, you know, the multi family conference in January, I took JSX out of Santa Monica airport. I left my house at 10:45. I was, we were wheels up, 11:15.
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B
That's incredible.
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A
Okay.
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B
Yeah.
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A
And everyone on this plane, I mean we're all in the real estate business. We're all saying, oh my God, what a game changer. Now they're flying to Scottsdale private, they're going to Napa. But the airport's supposed to close in two years.
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B
I know.
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A
Is that gonna happen? I mean, why would JSX put all this money into these new routes? These new planes get everybody so excited about them flying out of Santa Monica and then the airport closes in two years.
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B
From what I hear, it is going to close. The timing is unclear. They're shortening the Runway. To your point, I think. Why would JSX put all that money into that, I actually don't think. I don't know, but I believe they probably took over an existing hanger, didn't put much capital into it, and are able to just land the planes.
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A
You literally just walk into a lobby at the Santa Monica business park and you give the valet your car, you walk into the lobby, they quickly scan you, you go out the back door,
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B
you're on the Runway, but look back to aviation for a minute. I think that will create a supply shock to the LA market. There's gonna be a whole wave of assets that are stored and equipped on that airport, and that is in the heart of the city. So where are they all gonna go?
- [25:11]
A
So talk about iOS niche asset classes. Right, I'll go. Ten years ago, the asset du jour was anything relating to cannabis. So in terms of maybe it was crappy retail, we're going to lease to a cannabis, or we've got farmland, we're going to lease a cannabis. And it took off and then it sort of fizzled. IOS several years ago, every single deal, it was iOS, iOS, iOS. Now there's still iOS, but not as much as there was, I would say today, Small Bay Industrial, everyone I was down, I don't know if you were in the IMN Laguna conference, every single capital provider, I asked them, what are you focusing on? What do you want to get into? Small Bay Industrial. So tell me about iOS. Am I perceiving it correctly that there was a heyday a few years ago when everyone and their mother got into iOS and now it's scaled back a little bit, or maybe I'm wrong.
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B
I believe what happened was, I think a lot of smart groups and the smart operators entered the space in 2021, 2022, and that's, I think, what you're referring to. And when we learned about iOS and got into the space, I think I can count, I think there were five groups doing it, like very, a very limited number of groups. And the term iOS wasn't even created. There was this, this funny game where every time you would reach out to someone to talk about it, they would be like, is that that ISF thing you're talking about or is that the, you know, yard stuff you're talking about? Or is that the low coverage industry? And it was almost like everyone had a different name for it, the Rising rate environment, I think.
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A
You know, I thought you were going to say that you coined you Alex. Val.
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B
I don't, I don't know. Do not get credit for that. You could be like Pat Riley. I feel like we were really early movers, right. Like we were at the front of the herd for sure. And you know, a lot of our peers in the space, we looked at partnering with them at the onset and I think we felt so much conviction in the space that we used our own capital and bought a portfolio of assets and we wanted to kind of test the market and see what it is. Right. This is kind of our mentality of platform investing. Let's use our own capital to buy the first or second or third and create a proof of concept and then, and then we can bring capital in around that and scale it. And then when we get big enough, we can sell that to the mega cap private equity funds once we've built an institutional platform or portfolio out of it. But I think the rising rate environment is actually what washed out a ton of those operators that were doing it and then made it a bit less competitive. To your point, what we're seeing in the market right now is actually a tremendous growth and movement into more core and core plus iOS capital being raised actively and portfolio iOS sales. And it's an. The barrier to entry on iOS is that the average deal size is $4 million.
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A
Yeah.
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B
And large institutions, again back to what we were talking about when they need to deploy capital and scale, it's just not efficient and it's not worth their time. So, you know, we stay very disciplined into what iOS we buy. We're a quality, not a quantity, quantity iOS owner, operator and Right. We target population growth which we think leads to more e commerce penetration and more warehouse development and that takes more land offline. And then when the warehouses are built, they need more parking. And I think what's, what's, what's really driven the asset class over the last 12 to 18 months is the financing markets. And you know, I think lenders have taken note of the fact that iOS delivers sticky tenants that are credit with with very low capex in the event that a tenant opts to leave. And you know, you can look at a company like FedEx's balance sheet and they're going to look at their fixed and their variable costs as a business. And I think what they realize as a result of the COVID shock was, was if they can get more of their fixed costs to control the variable costs and you know, not worry about gas prices, right. Labor costs, etc. They'll take that right now. And you know, I think when you then quantify them leasing a 200,000 to 500,000 square foot warehouse versus a 3 to 10 or 15 acre site. The nominal dollars they have to pay to maintain that site that's mission critical to their business is somewhat of a rounding error for iOS.
- [29:56]
A
And so are you just comfortable with the business plan of that tenant and possibly releasing it, maybe increasing rent, or is there still a business plan of a covered land play and entitling it for a higher, denser use?
- [30:17]
B
The former for us. Right. I think the ability to, you know, re entitle and zone for a higher use is upside. Never something we'd ever underwrite as a base case. Right.
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A
But do you guys do your partners?
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B
We absolutely have seen folks in the space, you know, focus on that more than us. I think what we really focus on is how mission critical that site is to the, to the tenant and to the business. And, you know, we, we have a strong bias towards cash flow right now. We feel we can generate core plus risk for opportunistic returns. And we think that that exists specifically because of our ability to buy an average $4 million deal as opposed to buying scale and the portfolios and acquiring every single asset we buy off market. So, you know, that, that's our general thought on how we enter into the industrial outdoor storage market. I think we're a little bit more. More risk averse, but focused on the quality of the assets we're buying with quality tenants and marketing to market.
- [31:26]
A
Are you focusing in Southern California or is it a broader geographical.
- [31:31]
B
We are Sunbelt focused, but expanding nationally. So, you know. Right. We started again this idea of platform creation. We started in Atlanta, in Charleston. We said, these are our two favorite markets. We took a step back, we looked at, we looked at the entire country. We looked at the fundamentals and we said, where should we go in first? And we said, let's do Atlanta. It's the backbone of the Southeast. Transportation, logistics, like wonderful iOS there. We fell in love with the story in Charleston.
- [31:59]
A
Have you spent time in Charleston?
- [32:01]
B
We have. It's such a great city. It is, yeah.
- [32:02]
A
I was there a couple years ago.
- [32:04]
B
Back to your point earlier, Ross Cowan, a mentor and close friend from Northwood, lives there. So it's great to get together with him whenever we're there. Yeah.
- [32:13]
A
We did this summer Southern trip where we started at the Montage, Palmetto Bluff.
- [32:22]
B
It's beautiful there.
- [32:23]
A
Yeah. So you stayed. Yeah, it's incredible. About 30, 40 minutes from Savannah in South Carolina. And we headed up to Charleston and spent another several days there. And yeah, what a great area of the country that I feel like a Lot of people from Los Angeles never go to. Because it's tough to get to.
- [32:39]
B
It's hard. It's hard to get to. Very limited direct flights.
- [32:42]
A
Maybe Breeze Airways.
- [32:44]
B
Yeah, I think you stop on the way somewhere, but to fuel up. But it has a direct flight now.
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A
Yeah, yeah. All right, so we're sitting here March of 2026. To the extent that you're wanting to talk about what you guys are looking at, what's the next niche that everyone wants to know. That's why they're listening to the Kirsch connection. And Alex Valner, he's gonna do a big re.
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B
You know, I love the asset classes we're in. Look, we closed on a wonderful transaction a couple weeks ago in the advanced manufacturing space. We acquired a piece of land with a wonderful partner in Austin to build the headquarters for base power. It's a wonderful business. We're really excited about it. And I think, you know, I take a step back again and I'm looking at the CHIPS act. Chips, CHIPS act, the Infrastructure act, the Inflation Reduction act, the one big beautiful bill. And I'm seeing again where I believe the capital is going. I think. I think there is a generational opportunity in the hybrid of infrastructure meets real estate. Real estate. And I think you see it across the board, right? Like KKR merged their divisions together and now it's just the real Assets division. Right. I know Blackstone has such a great relationship between their two teams and how they work together. You know, I think that ample opportunity will pop up across this infrastructure, adjacent real estate, big picture sector. And I think that's consistent with what we've been talking about here. Right. Aviation, truck parking, iOS, advanced manufacturing. I think that's where we're really finding our stride and where we want to spend a lot more time and effort. So what is the next niche? I don't know. Today, part of what I do is focusing on meeting really interesting people who are showing us really unique opportunities. But I think that's where a lot of our time, energy and effort is. And I love iOS still. I think the fundamentals are wonderful. And that's really where we're spending predominantly, majority of our time today. Today.
- [34:57]
A
So when you're doing a platform investment, what are some of the hot button issues that you guys have to be concerned about that you negotiate over? That is not necessarily germane to a one off investment in a partnership, in a real estate deal.
- [35:23]
B
Look, I think you really need to go into it with the mentality of, like, this is something we're going to be doing over the next five, 10, even 15 years. And like having that long term vision and what you might find when someone comes and brings you one deal is they're so focused on getting one deal closed that they're focused on what the economics look like on that one deal. And our vision is let's focus on what the economics can look like doing 20, 30, 40 of these deals, right? So I think it changes the whole picture a little bit. And you know what, what we look at and provide is we're kind of one foot in the institutional world with all of our close friends and peers that come from mega cap private equity funds and then one foot in this, you know, Nichier, lower market asset class world. And what we're trying to do is kind of bridge that, right? So our, you know, the team at center is just incredible, right? The, the, the folks that work, you know, with us all, you know, they are, you know, really hard working, disciplined individuals that come from the institutional firms and have been trained there. But realize like, once you can come into the sandbox we like to play in, you know, there, there no longer is that box that we were talking about and you can get more creative and think a little bit outside of it. And I think that that's what creates, you know, the opportunity. Again, I didn't know what aviation hanger real estate was. I didn't know what iOS was. I didn't know the extent of what advanced manufacturing could be prior to launching center capital. And it's our ability to, I think, be open minded and think longer term that allows us to really focus on getting into unique asset classes and sectors.
- [37:10]
A
And what about your capital? Are they, are they concerned? They say, Alex, what the hell do you know about aviation? What do you know about iOS or what do you know about manufacturing? How do you have those conversations with, with your capital?
- [37:25]
B
That's, that's a great question. And you know, we, we, we don't have one discretionary fund. We, we, we raise capital on a platform by platform basis, right? And number two, we come with our own capital. So typically how something works is we're doing it with or without raising a dollar because we're capitalized in a way that we have our own capital to do what we're doing so we can close with or without outside capital. And that's what makes it, I think, pretty unique where we build our own conviction. We, you know, really dive, dive, you know, do a deep dive into the story and then, and then we proceed and then what we do is we open it up and raise the capital with our investors and our partners. And that's back to the concept I mentioned earlier, where what we have found is typically investors want to see a proof of concept. So sometimes it means we need to buy something ourselves a few times and then show that and then they're interested in scaling it with us.
- [38:26]
A
Just overall sentiment, I guess we touched upon it earlier, but not that you need to raise capital for these platform investments like you said, but when you're out there talking to outside capital, what is their sentiment towards how they perceive just the, the investing market today, you know, our clients who are actively raising capital, it's still challenging now. Things have opened up since, you know, 23 and 24, where it was, you know, crickets to raise capital.
- [39:05]
B
Yeah.
- [39:06]
A
But it's, we are a far cry from. Yeah, even pre Covid 20, 18, 19 days.
- [39:12]
B
Yeah, like it's, it's hard out there, no question. Right. And, and I think it's slowed down compared to, to the peak days. That being said, back to what we were talking about earlier, I think when you look at a lot of the capital allocators or capital providers, you know, they're significantly under allocated to alternatives.
- [39:36]
A
Sure.
- [39:37]
B
So I think as we see that pie open up and we're putting a chart together, I think it's, we're seeing growth from like alternatives being 12% growing to 18% growing to 34% of like the average institutional investor private equity funds portfolio. And I think as that happens, alternatives are harder to access again because of the moat built around it, of the size of the deals. So I think that's part of what our whole thesis is on finding the gap in the market where, you know, if you're looking to raise these larger multi billion dollar institutional funds, you're limited in what you can invest into. But when you're staying nimble, entrepreneurial and flexible and thinking about it on a platform by platform basis or on a sector by sector basis, I think it presents you the opportunity to, you know, present deals to the investor market and from there be able to go roll up larger portfolios and platforms.
- [40:40]
A
Yeah. All right, last question. Very respectful for your, Appreciate your time here. You mentioned you're a Los Angeleno. So am I. We made a comment of, you know, is it still great to live in la? You travel all over the country. You know, I talk about this a lot of my podcasts of the state of, of la, California in general. You look to a city like San Francisco, which hit rock bottom after Covid Right. Tons of homeless, couldn't even go into a drugstore without risk of someone stealing anything. Fast forward 18 months recently, San Francisco's a totally different city. New mayor, new leadership. Obviously the AI industry has rocket shipped. San Francisco's rebound. Where do you see L A going? And can we be like a San Francisco that has had such a dramatic turnaround or are we going to be more like a Portland which is where people don't want to invest anymore? I don't know. What are your thoughts just overall of our city?
- [41:52]
B
Yeah. You know, San Francisco is the hardest to crash and the quickest to rise. Right. It's, it is, you know, it's, it's. I read something, it was, you know, the world's being propped up on, you know, San Francisco selling New York on the AI power, innovation and then New York selling, you know, the Middle east on that. You know, it's a good place for them to invest. And look, I think that LA foundationally has been anchored by entertainment amongst other industries and I think we need to find a way to repatriotize those industries into our cities. I do think we, you know, have one of the best places to live from, from a climate standpoint. Right. And that's what you pay the tax for. I think it's an incredible city with tremendous diversity and you, you can do go to the beach one day and then go for a nice hike another day. And I'm very bullish on LA long term, but I think we're gonna take some time here to try and figure this out and I think it's actually one of the harder hit cities right now in the country and I hope we can figure that out quicker, sooner rather than later. And I'm hopeful that large scale events that put it on the world stage coming up over the next few years help, you know, expedite that.
- [43:16]
A
Yeah, well, World Cup, World Cup, Olympics, super bowl, they're all coming and it's either going to expose what's going on or hopefully that'll be the catapult to, to get our city back to what it once was.
- [43:29]
B
Yeah.
- [43:30]
A
Alex, I truly appreciate you coming on to the show, coming in studio and really remarkable of already the success that you've had individually and with center capital. And I know that it's going to be one of the bellwether real estate companies in our city. So I'm excited to keep track of you.
- [43:51]
B
Sounds great. I appreciate the time Andrew, and we look forward to it and really excited about continuing to build our relationship with you and your firm as well.
- [43:59]
A
Fantastic. And that's another episode of the Kirsch Connection, Sam.