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- [00:01]
A
It's funny, when we first started doing multifamily development, I was kind of surprised at how, for lack of a better word, lax they are about schedules. Okay. We're, you know, we're going to be a week later, we're going to be a month later, we're going to be a week early for that matter. And growing up in the retail world, the dates, the date, you don't ever miss the date. I don't care if it rains, snow, sleet or hail, you are going to hit that date. So we all have retail DNA and, and we live by that. So there's a countdown clock that goes down to the 10th of a second in my conference room. There's one in each of the construction trailers and I don't know what it says today, 500 something days to the grand opening of Medley and everything sort of builds up. It's kind of like building for, building up of an offensive for D day. That is that, that is the date. And we won't, we won't miss it.
- [00:57]
B
Managing 35 properties used to mean manag 35 debit cards, piles of gas receipts and endless transactions. If you're in the real estate business or really any business that manages multiple entities, you know what I'm talking about. That was us until we found Ramp chasing receipts, logging expenses and untangling transactions was low leverage work that held us back. Onboarding with Ramp changed everything. Now our purchases are automatically categorized, our receipts are matched, our approvals are streamlined and our expenses sync into our accounting software. No manual work needed. My CFO said it feels like we hired a full time expense manager. Over 30,000 businesses, including CBRE, the world's largest real estate company, trust Ramp to optimize their operations. As soon as we heard CBRE loves Ramp, we signed. And it was a game changer. We haven't looked back since. Ramp provided us with white glove onboarding support and for listeners of the fort, they're offering the same. Sign up within the next 30 days and you'll get a dedicated team to ensure a fast and seamless setup. Go to ramp.com fort that's R A M p.com fort save time, simplify expenses and take your business to the next level. Cards issued by Sutton Bank, a member of the fdic. Terms and conditions apply. Okay, if you are a real estate company or an operator of a business with multiple entities or bank accounts, listen to this. So at fort we just solved one of our biggest problems by hiring a company called Vesto. And that problem is we have over 20 different banks we work with. And so that is over 20 different logins. None of them share information with each other. And it takes our team hundreds of hours of every month to log in and not just see our account balances, but all the transactions associated with those balances. Now insert Vesto. Vesto is a one stop shop where you can log all of your bank accounts onto one screen and see everything in one visual. Now if you're a company like ours where you have multiple people that have access to each bank, that's giving everybody access to one screen and it makes it one easy to see all your cash balances and saves the time of having to literally log in to 20 different bank accounts. So I strongly recommend you go to vesto.com fort and when you're there remember to tell them that Fort sent you. And you'll get a call with my friend and founder of the company, Ben and they'll work with you directly. Mark, welcome to the show. It's a pleasure to have you today.
- [03:38]
A
Thanks for having me Chris. Happy to be here.
- [03:41]
B
Let's just kind of start with how you got into what I would consider some of the most world class mixed use developments. Like what in your career kind of got you to where this is what you decided to spend most of your time on.
- [03:56]
A
Well, first, thanks for the kind words. World class is maybe a bit hyperbolic, but thank you. You know, during the GFC we all in the real estate business had a lot of time to think and read and take naps and ponder and at the time I was just ripping through a bunch of different books. One was retail revival. At the time I was reading a number of books about the state of the world. One was retail revival, which essentially suggested that two ends of the retail spectrum would survive that most animated and that most automated. So think Apple Store versus Walmart and everything else in the middle was going to get crushed. The other was the great Reset and it essentially suggested that there would be a rise of a renter class in the US by choice. And the third was the experience economy which is suggested that people would invest in experiences, not in things. When we started to compile all those things and conceive what we were going to do next because we were essentially out of business. Before the the gfc I was for the most part developing power centers in the suburbs with targeted publics and others. That business hit the wall in a flaming wreck. It's returning now actually in a pretty big way, but didn't know what we're going to do with our lives and literally spent a lot of time on the couch. I remember it was a Tuesday afternoon about 2:00', clock, and my wife came home and said, are you going to go to the office today? I'm like, why? There's nothing to do. But in the winter of 2010, we had the opportunity to acquire a mixed use asset in Atlanta called Atlantic Station and use it as an incubator for creating all of the ingredients of what is now our secret sauce. We tested things like valet and concierge and music and lighting and events and activations and social media and pr and all of it in the name of community engagement. And we became more about service and hospitality than about real estate. It was no longer about collecting rents, sweeping the parking lot and maximizing noi. Of course, obviously we were seeking that maximize noi, but by doing so in a different, in a different, taking a different approach. So that's kind of where it all began. At that time, we were in the process of writing a ship that was listing very, very badly. Atlantic Station was on the death watch list, was really in a death spiral. And we had the chance to deploy all of these, I'll call them soft skills. We replaced all of the software and none of the hardware, didn't lay a single brick, but bought it for 74 million, put 26 in it, sold it for 200. It was a good day. Good investment really galvanized us in the idea that creating experience. And for what? For you, to use a very, very overused term, place making could create value in real estate. And then we went on to do Avalon, then Colony Square, and now Medley. And each of these has those software components in common. All of them are unique. We say that each of them is one of one. And we are inventing the wheel every time. So it's, it's very taxing. It's by no means a conveyor belt. We can't really scale this business significantly, but I don't know that we want to. I mean, it's a matter of creating really special, highly valuable fortress positions in real estate in really strong demographic markets.
- [08:00]
B
Oh man, we're going to peel back a lot of that before we get there. On that book that you read, I'm just curious, why did it say the middle would get gutted? And now that it's been almost 15 years, what was the middle that got gutted in retail?
- [08:15]
A
Think Sears, think got it. Any, any mall, department store, regional malls generally. So that segment of retail real estate. Doug Stevens, who's to this day one of the great retail futurists and speakers on the. On the subject. His, his belief was at that time and again this is 2010, 910 was that the regional mall was going to go away. And to a great extent it has or is going away.
- [08:46]
B
And that was playing off the E.
- [08:48]
A
Commerce story for the most part. Yes. And the fact that the experience that one could have in a regional mall of that in that at that point time was not adequate in order for the. To capitalize on the entertainment component of it. It was literally just to go buy stuff. If you're going to go buy stuff, you don't need to go farther than your couch. Okay.
- [09:14]
B
I kind of want to spend a little bit of time almost like how a deal like this. You, you mentioned secret sauce. Obviously location matters. Demographics matter. Building something that's a fortress which is I just. When I hear that I think of something that's kind of impenetrable. It. It becomes the what you would call the third effect, the third place effect. It's almost like walking through how a deal really gets put together. And maybe we just start with like how you would even know you were looking at a location or a site that could possibly fit what could become a fortress. Because I'd imagine the location is the best place to start. Or could it be done almost anywhere?
- [09:55]
A
No, no. The location is the only place to start. And it's all about demographics. Typically before when we were doing power centers in the suburbs, it was not only about the demographics of that specific submarket but how close sister stores were for that specific anchor retailer. So it was all about cannibalization and competition and so forth. Here there is not likely a competitive force of the magnitude that we typically deploy. There are only a dozen or so if that mixed use retail dominant experiential mixed use communities in the U.S. i think domain Northside Legacy West Carolyn Commons Santana Row Americana brand Avalon. It's a relatively short list. It's growing because people are taking up this. They're getting in this business. Heinz is an example recently delivered Fenton and Cary, N.C. essentially studying doing what we did studied the best in class and then sought to improve it and customize it personalize it to the. To the demographic but back to the demographic. High income, reasonably high density suburban communities. I said got back we Colony Square was. Was a very much an urban deployment but still high income, high disposable income, high education levels. Diversity diversity of experience in community is what. What our. Our product is. So the opportunity to deliver something to a discriminating Consumer is, is important and that consumer's got to be resident in that, in that trade area, in that 15 minute drive and that five mile ring and that seven, whatever you want to do. So we're as an example Medley, which is a project we have now under construction, which will be a $560 million deal all in is in a community in Atlanta called Johns Creek, which is the first time I've ever seen a five mile ring with average household incomes north of $200,000. That is, it's a big number in suburban America. You might see that in Alpine New Jersey and in the Bay Area and other places, but in, in a suburban community that, and by the way, unlike many trade areas where you have a pocket that may not be as strong as others, this is 360 degrees or solid gold. So the key and, and I'm, I'm visiting a community next week in the Midwest that is the John's Creek of this major Midwest city. And we're attracted to it purely because of the income levels. So the first step is to identify the fact that a. There's a contiguous site land area that's available. You know, Medley Avalon was 86 acres. Medley is half that size, more dense. All of these projects have gone on what I'll call a retail diet. When we were building 550,000 square feet of experiential retail in 2012, 13, we're now building half of that or less. So then the, the idea is in many of the thing, many of the municipalities that we approach are familiar with Avalon. So they, and then they sometimes seek us out in order to, to bring and, and their own Avalon or their own Medley or their own Colony Square there. So often we approach them with a calling card, but sometimes there's still trepidation and apprehension about multifamily residential, about density in these communities that are used to shopping centers and apartment complexes and gated communities. So entitlements are often challenging because these are planning departments who have never seen seamlessly integrated mixed use. So residential over retail, office over retail, hotel over retail. And, and that commercial district and that streetscape is, is absolutely sacrosanct. So the, the ability to deliver a non traditional suburban. You know, the typical suburban model is grocery store or, or Value retail or Target and a big parking field with you know, a large pylon sign and some, some junior anchors and so forth. Here the retail is, is intended to be experienced from the, from the boulevard from the inside. So we're often tagged with not having what they, what they had referred to as curb appeal. So you're driving by on the street and they the. The typical experience of retail was see the signs of the retailers as you drive by. Well that's not, that doesn't happen here. Our entire mantra is get them out of their car and get them on the street on foot. And that is the magic of this model is that we're able to create an urban experience, a pedestrian experience in the suburbs. And that is, is what has that. That is now why it succeeded. Now we. I live at Avalon. My office is at Avalon to again you know, you can use an overused term. I live and work and play here. Like last night my wife asked me are you going to drive your car this week? I said no, I don't think so. Now how often do you hear that from someone who lives in suburban America? I haven't driven my car this week and I won't because I just don't happen to be going anywhere where I need a car because most everything I have is here. Everything I need is here. So then the next component, demographics, entitlements, retail, leasing, the traction that we have to get early on in order to prove the fact that we can convene call it 150 to 300,000 square feet of retail LED with F& B. You know we say FNB is the new anchor because when you used to build malls in the suburbs with Dilligan, Macy's and Sears that is no longer the case. You're. You're anchoring the experience with F and B patio seating and events and just open air experience that that is draws on the energy of the pedestrian on the bore. One of the challenges with these communities is you know, yet Medley is an example. Hotel, single family, residential, multifamily residential, office and retail. All those cylinders had to be hitting at the same time very difficult thing to do. It is a challenge to some respect in the investment community because no matter how much we blend the returns for each of these uses, any investor we've ever talked to wants us to segregate the cost and income in order to come up with a return on cost for each of the. For each of the uses. And obviously they're looking at creating a spread on return on cost versus cap rate that is market in order to get past their investment committee. So demographics, entitlements, retail leasing investment and then stacking the capital Medley was under was well underway in pre development. We were a week away from closing and lost our institutional investor. In the summer of 23 we were not alone. This particular investor dropped a dozen or more big deals at the same time. It didn't help the fact that it was cold comfort that there were others in our midst. You know, misery loves company. But we were able to restack the capital and we're, we're well underway.
- [18:07]
B
Y' all have heard me talk about this company Better Pitch for a long time. Fort has been using them to build decks over the last six months. And I have to say I thought we were good at building decks until we started working with Better Pitch. They have an awesome service, highly recommend using them. If you reach out to them and mention the FORT podcast, they will work with you risk free on as many iterations as you would like. So go Visit them@betterpitch.com that's B E T T E R P I t c h.com to schedule your call today. Okay, there's a few things you said. You kept saying hotel over retail, office over retail, multi over retail. Is over retail part of the Secret Sauce or can retail be separate from the other use?
- [18:54]
A
Well, when I look at projects that are delivered with single level retail with apartments beside them and single family and hotel and office, I would call that multi use, not mixed use. And by the way, a lot of people will call mixed use of an apartment community with a coffee shop in the middle, I mean in the lobby. This is true. Vertically integrated mixed use. And what we say, you know, another component of the Secret Sauce is the seamless integration. So there's seamless integration vertically, residential office, hotel over retail. There's seamless integration financially because we charge each of the uses above and beside, when I say beside, I mean I'm referring specifically to the single family residential community that is attached. Really it's integrated horizontally but not vertically. So each of those uses pays a fee. We used to call it the outlaw experience fee. Now we call it the experience fee for whatever and medley experience fee and that fee. And it's charged to everybody other than the retail users. So retail retailers are already paying cam taxes or insurance. Sometimes they pay a marketing fund, but for the most part, the others, the other uses are the, are the ones who truly benefit. I mean the real lift in these, the third place effect that, that value premium that we see in the lift associated with the experience on the street level. The real beneficiaries are the other uses, the multi, the office, the hotel and the single family. So there's a financial integration, there's an operational integration. Often these, these uses are managed by different entities. So as an example Here at Avalon, AGI manages the hotel, Range Water manages a multifamily North American Properties or now Jamestown, I was acquired earlier, late last year, manages the retail and the loft office. Cousins manages the class A office. And there's an HOA group, that third party that manages single family. So each of those management companies could operate, which was typically the case in a silo. You know, they, these users, they know what they know and they got their head down and they're doing their best job to make sure that they get the most apartment rents and keep it clean and so forth. But here they are unified by that fee because they're all paying for the experience. They recognize that the experience is creating tremendous value for them. It's juicing ADR in the hotel and monthly rental rate in the apartments and lease up in the office and the single family home sales. They recognize it and therefore they collaborate. So there's a tremendous sense of unity among the managers of each of the five management companies. And the last component of the integration is social and what has transpired here. And again, I, I've lived here for about four years. I didn't live, I live in midtown near Colony Square. We're redeveloping it, but the real, I'll call it surprise is that this is a neighborhood, this is a community. People are friendly with their neighbors, friendly with sometimes not necessarily residents, but frequent guests, office workers, hotel guests, management staff, and it's a community. One thing that we're adding so physical, financial, operational and social integration. The one thing we're adding at Medley is technological integration because we have lots of different technology, lots of different broadband providers, lots of different other kinds of technologies here that are being deployed at, at Avalon and Colony Square, in Atlantic Station. At Medley, one provider will provide any and everything technological. So as an example, you're an apartment resident and you have your, your WI fi. When you leave your apartment with your device, your laptop, and you go sit in the plaza and work for the day, which is what a lot of people do, your WI FI goes with you, your WI FI account goes with you. You don't have to sign on to some random thing and they harvest your data and it's all this kind of wonky, clunky thing. So, so that component is now the, I'll call it the fifth component of integration. That's the difference that is. And, and that one thing that just came to me, the other thing that you see at Avalon that you probably I've haven't seen in most other communities is is this Unity of brand. There's no place on this property that you'll see North American properties or Jamestown or Rangewater or Cousins or hei. Even the hotel is called the Hotel at Avalon. Each of the buildings, the office buildings are 8,000 and 10,000. Avalon Haven at Avalon Veranda at Avalon are the, are the multi family community brands. And the idea is to integrate the brand of the community with the brand, personal brand of its guest, of its user. And that takes the lots of different forms from the playlist on the music to the, to the menus in the restaurants, to the uniforms of the concierge. Everything is, is, is intended to be brand aligned. And we're, we're taking steps at Medley as an example, having lived with avalon now for 10 years to improve on that, to kind of tweak it as an example at Avalon, when we were pre leasing it in order to close a construction loan, Wells Fargo required a 75% threshold in retail and 50% in office. So we had to sort of take some of the low hanging fruit and lease to some soft gauge retails on what we call the plaza which is the sort of centerpiece where all the events happen. It was a mistake because we didn't, we, we, we missed an opportunity to put food and beverage, patio seating activation and energy on the plaza like you'll see in every other European plaza. So we've rectified that at Medley. So we're going, we're essentially going through every aspect of Avalon, calling Square and Atlantic Station and learning from it and seeking to sharpen the saw, iterate it at the next, the next community on Avalon.
- [25:44]
B
Was it a, was it a sign of the times that you didn't do F and B right there on the plaza at the time it was more soft goods like you said, or was it just, it was easier to get those leases done so you just ran with that first?
- [25:56]
A
Yeah, I think a bit, a little bit of both. The times were such that a lot of soft goods retailers were expanding pretty rapidly. It was immediately post recession. We were a first mover and no one was doing anything. So these retailers jumped on the opportunity.
- [26:11]
B
You talked about traction early on and you mentioned fnb and maybe this is a lesson if you're an owner developer, but maybe also if you're a tenant looking to get in early on the next upcoming amazing, you know, fortress or place to be. So how do you pitch tenants with just a plan and a piece of land or you know, an old office park to bring in the best there's got to Be an art to it. And if you're on the other side of that and you're a tenant going, should I be a first mover in something like this? Maybe answer it both ways, like how do you do it from the owner perspective and why is it great for any restaurateur or retailer to really be thinking about getting in early on something that isn't quite proven yet?
- [26:59]
A
Well, we, when we're pitching retailers we lead with demographics. So we're seeking retailers who are going to serve that demographic. So if it's Lululemon or a, a local chef driven restaurant, those retailers and restaurateurs and service providers, by the way, service is a big component of this. So think dry bar and, and Rock by Rock and boutique, boutique fitness and hair salons and that type of thing. You know, those retailers are seeking to serve a high income community. It interesting story. When we first leased Avalon, a good friend of mine who's a restaurateur in Atlanta was the first one I went to and said hey, we're doing this deal in Alpharetta. I know you haven't worked much outside the perimeter you so in the suburbs in Atlanta, but here's a chance to serve this community. Are you interested? He passed. We went to a Charleston based restaurateur named Steve Palmer, who by the way our first Oak Steakhouse at Avalon was his restaurant number five. He's now got 37 and seven hotels. An absolute juggernaut. Great eye for a deal. He committed actually two concepts. So I kept going back to my buddy and saying, hey, we're getting some traction here. We're 50% leased and you know, we've got a spot for you here. It's not the original one because that's gone now but. And he ended up not committing to. He was the last restaurant in out of 26 and he's now in the hotel, in the lobby of the hotel and he's neck and neck to be the highest volume restaurant at avalon. He's pushing $10 million. So that recruiting process is, is art and science. I personally enjoy it. So my leasing team is engaged in it every day. And then if they get traction with somebody and they need a little help for you know, to get, you know, user over the, over the edge, I'll pitch in. I'm not always successful. In fact often I'm not. But it, it's always interesting to see how once we're open and operating, many of those who gave us the Heisman are coming back for our second generation.
- [29:15]
B
Space and are the people taking the first couple spaces out the gate. Usually folks that have done something like this before or is it different every time? And do they, I guess, do they often feel like they're taking a big risk or do the demographics. You do such a good job on that side that it's almost a no brainer.
- [29:35]
A
You know, many of them, we have a handful of them who are at Avalon, so operate and medley is about 20 minutes east, sort of deeper into the solid gold demographic. It's not quite as regional. So there are those who are seeking that really regional play. But it works for some, doesn't work for others. There's some of these, especially with the F and B guys. We bet on the horse. Not, I'm sorry, the jockey, not the horse. Because this, this business takes heart and soul. There's a guy named Julio Delgado who has a concept in downtown Alpharetta called Fogon and Lions. And I love it. He does a great job. It was his first restaurant ever. He was a Ritz Carlton traced trained chef from Puerto Rico. And I'm like, I love this guy, love his concept. We're going to bet the farm on him. Another guy named Darren Henderson who's got a Italian restaurant concept called Rena's, same thing. This will be his third unit. And you know, we're not big on true startups, but 2, 3, 4 unit concepts we like because then we get the real. We get the proprietor in the store every day and that heart and soul. We call Medley the United nations because we've got Thai, Japanese, Mexican, Italian, Spanish, Irish. I'm trying to think what we have, what else we have.
- [31:05]
B
We got.
- [31:05]
A
We got pretty much everybody. And then of course we got donuts and cookies, but. And ice cream. So the idea that we're. And we're betting big on these guys. Some, these guys all require big ti allowances and we're essentially putting them in business and then promoting them like crazy through events and social media and PR and all that and build a crescendo up to opening day. So opening day of Avalon is October 29th of next year at 10am and that's when we'll open everybody all on the same day.
- [31:40]
B
Okay, you, you already moved me along. We're going to skip a lot. We'll come back. But you said you already have the opening day at 10am which to anybody not listening to this wouldn't know that you tell them what you do with your groundbreaking project so that everybody's aligned. It's fascinating that you already know the exact Time you're opening a year from now.
- [32:02]
A
So first of all, we pick a date that is, with. Most retailers have blackout dates, right? So we pick a date outside the blackout period. We pick a date that is either a spring is related to Easter, which of course nobody but the Pope knows when the actual day of Easter is. And then we look at a. A fall opening and it's always on a Thursday, so that we've got, you know, room to sort of maneuver through the weekend. And we set that date. And you know, after having it's. It's funny, when we first started doing multifamily development, I was kind of surprised at how, for lack of a better word, lax they are about schedules. Okay. We're, you know, we're going to be a week later, we're going to be a month later, we're going to be a week early for that matter. And in growing up in the retail world, the date's the date. You don't ever miss the date. I don't care if it rains, snow, sleet, or hail, you are going to hit that date. So we all have retail DNA and we live by that. So there's a countdown clock that goes down to the 10th of a second in my conference room. There's one in each of the construction trailers. And I don't know what it says today, 500 something days to the grand opening of Medley. And everything sort of builds up. It's kind of like building for building up of an offensive for D Day. That is the date and we won't miss it.
- [33:25]
B
I love it. Okay, you said bet the farm on these folks. What does betting the farm mean? So that would that just mean, okay, obviously y' all are building the structure, but y' all are going to put up majority of the dollars into the retail space to get them open. And then I would assume you have like a percentage rent deal or something that you're. By betting the farm, you're also betting they'll be successful and you'll be able to capture some type of outsized income from that.
- [33:54]
A
Right. So their tenant improvement allowances sometimes exceed $200, $250 a square foot. And that was unheard of years ago. It continues to inch up just like a rent. I mean, the, our. Our rental rate structure is far in excess of what it was in at, well, 10 years ago. We're unquestionably top of the market in every aspect. I'm going to get to office. I want to share something about office leasing too, here in a minute. But on While we're still in retail, that $250 a square foot is not usually the vast majority of their expense. So they, they have to bootstrap. However they, you know, investors or however they, they capitalize their, their outfit, they end up investing as well. But you know, most of these guys have no credit. They're signing personal guarantees. They've got, you know, working capital, they're making money. But if we ever had to, you know, go after them, there wouldn't be anything there. And we know that we are literally betting on the jockey. And that's why many, in fact, we're looking at one right now. Love the concept. Have followed this restaurateur for years. He's kind of stubbed his toe on a, on a unit in another city that's really impacting his financials. And we're, we can't do, we probably won't do the deal because he's just too shaky. So, so the, you, you gotta, you have to do more than fog a mirror. You, you need to, you need to have a few bucks and you need to be able to, to commit. And, and it, and it, your guarantee is intended to keep you up at night and to keep you focused. Kind of like when we sign guarantees on construction loans.
- [35:46]
B
For sure. Let's move right into the office piece that you want to talk about.
- [35:51]
A
Yeah, so, so office, as we know, is a four letter word. And the investment community has absolutely shut down other than some really, really steep discounted distress sales when we acquired the site that is now Medley. Well, let me, let me start beginning Atlantic Station. There was, I want to say, 2 million square feet of office space there when we bought it. And the leasing velocity picked up immediately once we started to turn the ship, rectify the situation on the ground, create an experience for the office worker and the resident and the guest. Next up, Avalon totally redefined suburban office. In fact, our equity was a Midwest pension fund who absolutely refused to invest in suburban office anywhere in America. Even that was a mandate. So we sold the air rights to Heinz who teamed with Cousins. Heinz eventually sold to Cousins and they achieved, they, they were there. There's a guy named John Hagee who's a dear friend who's been, you know, leasing office space in Atlanta for, I don't know, 40 something years. And he said there were two projects that he leased up from spec to 100% least during the course of construction. One was Monarch Tower in Buckhead and the second was Avalon. Because people recognize that here's an opportunity to recruit, retain and Engage the best and the brightest by putting them in a vibrant, activated workplace. Recruit, retain, engage. We now say recruit, retain and return. So when we went to Medley, there was, there was a large, it was a State Farm Insurance campus, 330,000 square foot sort of call center building, two story behemoth that we demolished, but there was 108, 125,000 square foot executive office building, separate building. And we were able to weave it into the streetscape so that we could strip out the ground level, make that retail and Lee and, and then re upfit the building up, you know, essentially renovate the building to class A standards. One of the investors we talked to asked, suggested that we tear the office building down and we bought it for a hundred dollars a square foot. So like why? It's, it's, it's a. First of all, it's only 108,000 square feet. It's only 8% of the NOI for the total project and it's a very, very low risk. Well, early on in the process we started fielding calls from employers in suburban office markets, one of which was literally across the street from Medley, who couldn't get their people to come back to work. And they, we put them in touch with the employers here at Avalon who have had a different experience because they're, I guess people enjoy coming to work here. So the, the second user, another is a multinational company based in a, in a nearby suburb. Same thing. He could wait. My wife and I went to dinner with him and his wife one night and he was lamenting the fact that his, his people wouldn't come to work. So he ended up having three quarters of bad results and blah, blah, blah. And they decided not to pull the plug on, on a new office. The third, the largest private pharmaceutical company in the world has their animal health division here in Atlanta. It's called Boehringer Ingelheim. We've announced it, so I'll name them. They showed up, took two of the three floors, were considering all the, the entire building and decided not to paid a top of the market rent. We're accelerating our construction schedule to get them in early. And it was notable in that it was the largest lease in, in suburban metro Atlanta. Clearly this year, maybe in the last, in the last 12 or 18 months. And it was solely because of the fact that this CEO recognized that his brain trust is his largest single investment and he needs to get them in the office or at least have them in a workplace environment that's not the kind of class B office building where you step outside into a sea of asphalt and you get your car and drive to Applebee's for lunch. That's just not acceptable. It's not, it's not attractive to this, to, to this in this day and age.
- [40:20]
B
So is most of the whole thing parked, I'm assuming with central parking garages that feed all the uses?
- [40:27]
A
Yes, we learned that. Actually, you know, one of the things that we studied, we studied a lot when we first developed Avalon. Those aforementioned mixed use communities apps except for Legacy west and, and Domain Domain Northside, which didn't exist then. But specifically the Grove and Americana brand at grand have their parking deck is their anchor. Right. So you park your car, get on foot and then explore the property on foot. We do have a number of service parking lots. At Medley we've got a grocer that is, you know, more traditional. And then at Avalon, same way we've got grocers that need to operate in a more traditional suburban office. I mean a parking scenario. So we've got service lines for them but, but the rest of it is on decks. So all of the, the both of the multifamily communities have their secured deck parking with ground level parking for retail. And then we've got a big deck that serves all the uses, including the hotel.
- [41:29]
B
Okay, I, I want to just chat a little bit about and, and help me just think through this. So you have real estate co that builds real estate and tenants are in there. But like the, and I'll go quote unquote, the secret sauce is almost like the hospitality company that I'll call that you wrap around it all.
- [41:52]
A
That's right.
- [41:54]
B
So does that company have its own employees? Like it almost runs like a real, like a hospitality business. And do the people that invest in the real estate also invest in the hospitality related to that? Because I'd imagine there's all these new revenue income generating opportunities that you're able to create through the hospitality. So I'm trying to figure out who owns what or does everything. Is everything owned together?
- [42:20]
A
Well, the, the, the owner employs the manager. Right. So in the case of Avalon, before we sold a Prudential we were both North American properties was the owner and operator. When Prudential acquired Avalon they employed North American properties. Now Jamestown, same team, same team that we built 10 years ago almost to a man. There has been some growth and promotion internally, but that team is exactly the same and that, that DNA, you know, it takes a service heart, right, to be, to be on this team. And they, our, our team came from Hotels and gol and places that were not real estate. We actually had two general managers that flamed on us that came from Simon specifically. They were mall managers and they thought it was a mall and it's not a mall. It's a community. And there's a tremendous component of service and hospitality that has to be delivered. We brought the Ritz Carlton Leadership center in early on to train everybody from the C suite to the housekeepers in the delivery of five star hospitality. They kind of train the trainers. And now we've got a team on site that when someone is onboarded to the management team, they are, you know, they're, they're taught, they're trained in that, in that aspect. So that's, that's a, that that management company earns a fee from the owner in order to deliver that experience.
- [43:55]
B
And I would imagine just the management fee, if you were just comparing it to other management companies, is probably a little higher because it's doing a whole lot more. But the, the promise is kind of. But we'll deliver you way higher rents than a typical manager could ever deliver you. Is that correct?
- [44:12]
A
Well, the rents being higher is correct. The, the fee is somewhat, it's not, say it's complicated, but there is a team of professionals from marketing, repairs and maintenance, engineering, general manager, assistant general manager, concierge events, social media managers. Those are all actually expenses of the community of the project. Right. So those are, those are line items in the budget. Then there's a fee paid to the manager, the company for, I'll call it GNA to cover the overhead.
- [44:49]
B
And it's just 365A team that's planning of. I mean, this is like, I'm trying to get to the essence of like how hard this is to pull off because when you go to these places, it does work seamlessly. It's almost like being at Disneyland a little bit where you don't know how everything's kind of working how it is. So it's as much of a labor of love to design the project as it is to create these experiences where it doesn't feel goofy or forced, but it's just like this ongoing, natural kind of always on energy. And so I don't know what the, what the question is. Maybe if you could just explain like how hard it is to pull all that off and maybe some tidbits of what goes on behind the scenes that the average person just isn't realizing is going on.
- [45:36]
A
Well, let me address the Disney component first. We're often accused of being Disney Esque. Because there's music on the property of all things, right? So that was the first thing, by the way, when we acquired Atlantic Station. And I've got to give a shout out to Tom Miles, who actually brought with him from Caruso and Federal Realty, the Grove and Santana Row brought with him a kit of parts, a toolkit. In creating that experience, first thing we did was install music at Atlantic Station. The next thing we did was host a concert series. Then we built a concierge team, then we built a valet station. And all of these components, literally we layered on one after another after another. They create value, right? Which of them does the most? I have no idea. We fire, we have a quiver of arrows. We fire them all at the same time. But the Disney component, first of all, the properties are absolutely spotless. I mean, you can eat off the floor. I know all the, the housekeepers that you would normally see in a hotel working in, in the hallway to clean rooms are on the sidewalks of Avalon every morning between 8 and tap. So because people live here, we can't start blowers and pressure washers or any of the sort of mechanized equipment, street sweepers. There's a, there's a team that descends on Avalon at 8am Landscape maintenance, you know, hedge trimmers, descends on the property 8am and is swept up and gone at 10. Very Disney esque in that regard because once the stores open, they've got to be gone. There can't be any work happening on the boulevard. When we refit a tenant, that tenant operates their construction. You know, their construction operations are all behind a barricade that, by the way, is wrapped in that tenant's brand. Very, very critical component. Some of the best, most beautiful wraps you'll see are at the Grove in la. You know, Caruso does everything bigger and better and brighter. When we first launched Avalon, our mantra was, we are going to out Caruso. Caruso did we? In some ways we did. You know, in some ways our experience is, is authentic. And that because people live here. No, the Grove is not, is not mixed use. It's straight retail. But that experience is what we borrowed. So Tom Miles came to us from the Grove and Santana Row, brought within that kit of parts, taught us the business. When he left to get married, he said, go to LA and hire Matt Simon, who was his protege. We went to la. My wife and I flew out there and talked his wife into leaving Huntington beach, where he went surfing every day. And she did, you know, just hung out in a beautiful experience in Huntington beach to move To Atlanta, live above J. Crew in the suburbs and continue what Tom had created with the Avalon experience. He did so was here with us for a number of years, continued to build the team. He's since left us, gone to one, went to Disney of all places, ran Disney Springs and then now as was just recently promoted to the president of Epcot. So he, he gets it, gets the experience. We take each component of that and seek to personalize it to the Avalon community. But those, you know, tricks of the trade we learned from two Caruso veterans who brought with them what Rick Caruso created originally had to grow of 20 something years ago.
- [49:15]
B
So some, a lot of real estate owners listening to this and they don't own things like the Avalon, but maybe they own a strip center and they're just, they don't have a huge budget. And maybe the question is what is some low hanging fruit that any kind of retail type owner or somebody that's looking to spruce up their property without a huge budget, like what are the little things that are obvious to you that you probably walk by properties and you're like man, if they would just do this one thing, it would change the game for them. Is there anything that comes to mind that's just an obvious low cost, low budget item that makes high return?
- [49:53]
A
Well, I, I don't know that anything is a low. It's all relative, right? So low cost, first thing to do is keep it clean. I mean it, it is, it makes me crazy sometimes to see some of these communities that are shopping centers or retail outlets that are just filthy because somebody doesn't care. I mean Atlantic Station was that way when we bought it. And, and we, we, what we said was all the, some, all this needs is somebody with a hundred million dollars. Who gives a. Yeah. And we did in both cases. And we really put heart and soul and elbow grease into turning that, that asset around starting with just some spit polish. So that, that's a critical component. The next is I think to the extent that there's a, that there's an experiential opportunity and most straight shopping centers don't have it. But to the extent that you're. And here you're going to have to partner and team with your retailers to create community. The one thing, if you look at all the verticals of commercial real estate, multifamily residential serves the people that it houses. Single family residential, same office serves the people who work there. Industrial and serve any people it serves, know boxes. The only vertical that create that is a community center. And back To Rick Ruso, he did a an NRF National Retail Federation talk about ancient market, you know, ancient marketplaces and how these shopping centers of today are the only place you'll go to see your neighbors. If you don't live down the street from each other, if you're just kind of bumping into each other, they serve the community. And to the extent you can, your retailers can embrace that a nurse to their benefit because they become known as, you know, it's like a butcher butcher at Whole Foods, right. I went, I actually this, this afternoon I stopped by to pick up a ribeye for stop by means walk from my house to my office and stop on the way and pick up a ribeye to throw on the grill tonight. And a butcher knows me because I live here and go there, right? That's the one thing that I think people are missing and that's the humanity is missing is that human connection, that exchange of human energy, that ability to sort of impart goodness to each other. And that's what, you know, we say that our stock in trade is human energy. That's not something you say in a boardroom in an institutional investor pension fund, that's until unless and until you can monetize it. And when we sold Avalon for $500 million, it was the largest single investment, largest single asset transaction in the history of Metroland at the time. It sort of set off the investment communities, piqued their interest and they're. The institutional community now sees mixed use as its own asset class and sees properly and well executed mixed use as another kind of fortress. The team, the pension fund that is in Medley has invested in a what's called a build to core strategy, where we build it with value, add capital and then they switch it to a core bucket and hold it long term, which I wish we had done at Avalon or Colony Square or even Atlantic Station because these assets continue to grow in value over time, like all assets do. But these have a relatively steep growth curve that really can't be realized the moment the paint is dry. When we were a merchant builder building Target Anchorage shopping centers in the suburbs, we would the moment the leases commenced, it was on the market or the same thing with apartment communities. And that's relatively common with merchant built or merchant developers. Here we have an opportunity to own something long term that is what our investors call a generational investment that my grandkids will hopefully be clipping coupons.
- [54:14]
B
One more kind of thing that you mentioned while we're just talking about how maybe the marketing and the Hospitality gets executed. You said something about marketing funding. Is that like a fee that maybe retailers pay on top to opt in to Yalls marketing machine or what? What did you mean by that?
- [54:32]
A
Well that was back in the day when we were building straight retail. Many retailers, many arcs form lease would include like 25 cents a foot or something to pay into a marketing fund. And some of those lease provisions have survived and many retailers push back against it. Some pay it. But here the experience fee eclipses all that. So the, the experience fee at at Medley will be close to a million dollars a year to host 200 events to run a full concierge program to as an example, if you're, if you're a resident at Medley or Dabylon or Colony Square, you call concierge and you ask them to deliver a picture of margaritas from Super Rica. It'll show up at your door. I was staying at the, doing a staycation at the hotel this week with my wife and my family and we called concierge and said NFA Burger is a new tenant that just opened here is kind of like this cult following guy that operates out of a gas station and it's really cool con concept but he's, you know, he says you get, you can't order online, you can't call to order, you have to order in person. So he called concierge and said hey, NFA Burger can only order in person. He said Jackson, who is our kind of go to guy at concierge said we'll deliver your burgers to the hotel pool deck in 15 minutes. Not a lot of places you can do that. You know another thing that, that is a, a beneficiary. Another component we haven't talked about much is the hotel. So the hotel was built in a public private partnership with the city of Alpharetta who was seeking a conference center to house much of many of their business meetings. They had, they didn't have any space in, in the city. So we built a 75000 square foot conference center, 46000 square feet of that meeting space. And that has brought a tremendous amount, tremendous influx of, of you know, conference goers. So the UPS World Sales meeting as an example fills the 330 keys, takes over the hotel, takes over the conference center. Can buy out seven or eight or 10 restaurants on one night or three nights in a row because those hotel, those restaurants are all back to that seamless integration, operational integration. The GM at the hotel is in touch with the GM at, on the, in the Retail who is talking to each of the GMs of all those restaurants and say, hey, I want to send my South American team to Japanese and I want to send my, you know, European team to Mexican. I want to send my American, North American team to wherever. And, and the entire property is then taken over by, by the hotel. I don't know, anywhere you can do that. You can't do that in a real city. You know, there are a lot of, we're approximating an urban experience here, right by having patio seating on the sidewalk and you walk by and you feel the vibe of the restaurant. You go in and check it out. How long's the wait? You know, it's just like you would in Boston or New York, but you, they don't have the unity and the, the consistency of ownership to collaborate. Right. So, so that's, that's a big opportunity as well.
- [57:58]
B
And on Medley is Medley one equity partner? Is there an equity partner for each asset class or is part of also the sauce that it's got to be one group that gets it all?
- [58:09]
A
Well, there's got to be one developer and one manager. That's the key. The, the capital is somewhat invisible clearly to the user and to the experience. Medley is all one. No, sorry. It's three investors. So it's one investor in the meat, the retail office. Retail office and multifamily. One investor in the single family. Although our, our investment group is, is developing a lot and selling to a builder and a third investor in the hotel. That's a very specialized component. As you know, hotels are operating businesses, they're not real estate. And it takes a different kind of investor.
- [58:53]
B
So you mentioned this like this is the gold mined demographics. You said that income levels is maybe what you would rank one if you had to guess how many of these areas exist around the country. Is it. Can you count them on a couple hands? I mean you said it's the best you've ever seen. Maybe you have some proprietary method that's using AI or something to scour the country. I would imagine you have a heat map we don't have to talk about. We're not going to give away all the locations. But you said it's not scalable. Are there other locations that meet this threshold or is this really the gold of all golds?
- [59:26]
A
Well, it's really only not scalable because a my team has chosen not to scale beyond something that we can enjoy and pour our hearts and soul into creating one of one each time. When I spun off Toro Development company from North America and the entire development team came with me and, and we got together at the early days and said hey, what do you want to do? I said well we want to, we want to make an impact in the communities we serve and we want to create fortress positions that are unique and they're extremely valuable A from a social perspective and B, from a monetary perspective and we want to enjoy our lives too. So we, we didn't want to put it up, get on a treadmill you can't take. Maybe you could, I don't know. I've Never tried a 35 year old shopping center developer and throw them out there and say go develop Medley. The, the t, the integration and the experience and the hand in glove that goes between finance, multi family development, retail development, office, hotel, all those components sort of. It's a, it's a fine art. It's, it is, it's, it's surgery with a scalpel, not a machete. So when I say scalable, I mean we can't do, we're not going to do 10 of these. And I don't think you're going to see. I, so far in my, you know, study of the industry and I'm a student of the industry literally every day to this day, I haven't seen a developer scale it. I haven't seen somebody do 10 of these. If you look at Federal Realty who did Santana row 25 years ago, they've done a handful since then. Caruso, same way trademark, smaller scale, sometimes third party, but relatively active in this space. I haven't seen something, not to be, you know, dismissive, but I haven't seen something truly impactful from them. There's Madison Marquette. There's, you know, there are, there are a number. But if, take an example, The Wharf in D.C. spectacularly well executed urban, dense waterfront community will never be replicated. It's, it's not like any of we can find, if we could find another community with $200,000 average household incomes and I think I may have the one I'm going to visit in the Midwest next week, then a lot of things have to, a lot of stars have to align. I mean there's got to be a perfect storm of community support. In some cases. Incentives, you know, they're, they're. Sometimes the economics don't work here. There's got to be a distressed property or an infill property that's going to be made available by a seller or a user. Not like in the, our case was State Farm. In the case of Avalon I mean this was a, this was a site, a vacant site, suburban Greenfield, that was developed but was trying, was attempted a major mixed use development on it. And the developer hit the wall during the, during the recession. So we have to be able to buy the land, right? Cities got to cooperate, retailers have to be on board. A lot of this has to happen all at the same time. And it's a really, really heavy lift. You know, you what someone that they. There's a community when. Sorry, there's a project, I wouldn't call it a community up the street from Avalon called Halcyon on 400 in Forsyth county at north Atlanta. And when it was first proposed, someone said to me, aren't you worried about Halcyon completing, competing with Avalon? And I said no. And it was a bit arrogant, but they said, why? I said, because it's too fucking hard. It is just a heavy lift. Every day, all day, there's an impediment that has to be cleared. There are people who don't believe what we believe. You know, one of the things, I'm a big Simon Sinek fan and one of the things that he talks about in his, his great TED talk called the Golden Circle, said to the extent that you can work with people who believe what you believe, you'll succeed. And those who believed what we believed early on at Atlantic Station, Avalon Colony Square, now Medley are, are succeeding and we're succeeding. And then there are those who didn't believe what we believed, who now do so takes a village. I mean, this is not meatball surgery. This is fine surgery.
- [64:11]
B
I know you wouldn't compare one fortress to the other, but if you had to maybe say when a, when you get it right with a fortress, how much more profitable is it than maybe a similar situation that just didn't get it right? Like what makes the fortress the fortress? It has to obviously flow to the bottom line, which I know a lot of things have to go right to get there, but the essence of the question is like, how great is a fortress compared to just owning a normal mixed use center in where, Eversville, you know, America.
- [64:44]
A
Well, there are a number of mixed use deals that we've seen that have missed three or four degrees left. I won't name them. I'll name the ones that have called.
- [64:53]
B
Them out right now. I'm kidding.
- [64:54]
A
No, I know, that's just not right. But, but they're, and they're, you know, some of them are about the retailer they curated, some of them about the streetscape they created. What some of Them are about parking restrictions. Some it. It's everything matters and having lived it, studied it. I mean when every time, the moment that Domain north side opened, we were on the property. The moment that Legacy west opened, we visited. Now we see what Legacy west recently traded at some. I mean there's your best example, most current example, massive number that where was previously unimaginable on a pound for pound basis for the multi family and the office of the retail which indicates the, the rise of this new asset class that these and Legacy West. Mark McInter, who's a dear friend did, you know, curated the retailer did a great job but it has its flaws just like everyone. I mean Santana Row, I love it but their plaza is in the wrong place and it is, you know, there are issues there. Americana brand. I don't know that I can find fault with Americana brand. It's just sumptuous, just beautiful. So getting it right means getting it right in every single aspect.
- [66:13]
B
But to the bottom line, that doubles what it would normally make. Like how much more do you make when it's amazing?
- [66:22]
A
A lot. I, I can't tell you how you know, but when, when, when people say did Avalon exceed expectations? They said it exceeded everyone's expectations, especially our own. Not only from the, the performance, the, the, the market acceptance, the vibrancy. You know, I remember being there at, at sitting at Kona Grill the day we opened and we were all just dog ass tired about, you know, after hitting that date, October 30, 2014. And I'm sitting there with my wife and watching all these people. I'm like, what were these people Yesterday? You know, 7.5 million visitors a year consistently since we opened. And you know, it's, it's just again, it's hard to ascertain what creates that impact.
- [67:17]
B
I have a good friend in Atlanta. Do you know a gentleman by the name of Eric Weatherholtz?
- [67:21]
A
I do. So Eric and I were together at his Automatic. He's got this great conference. Did you go when it was in Dallas?
- [67:30]
B
I wasn't able to make it. I was out of town. But I love him. He's just an amazing human being. But he, he always talks about like the way to raise rents or the way to make money is a great patio. Everybody else is like looking for certain things. He's like an amazing patio, can change your whole life.
- [67:48]
A
You are. He is absolutely spot on as he typically is. I mean, a, he's a tremendous practitioner, B, he's uber cool. And, and his, his conferences are just really really cool. I was invited to talk at one of them, this, when we was in Atlanta, but patios. So we literally are at least an hour to two hours a week talking about umbrellas, radiant heating, fans, outdoor, semi conditioned space in order to extend the season of patio seating for restaurant tours. And we're constantly pushing back on their efforts to not do it well enough. I mean, there's right and wrong. It's in the eyes of the beholder, but quality experiences. And we. I was in. I did a. A river cruise on the Danube last summer, which, by the way, I would not recommend. You know, I'm probably the right age, but not the right attitude to, you know, sit on a riverboat and just cruise at 4 knots. So anyway. But we visit some amazing places, and each port of call, I would literally walk around whatever that little town's plaza was and photograph how they deployed their patios. It's. It is an absolute art to get it right. And we're working on it literally every day now. And we're. We're more than a year out, year and a half out, and we're talking about umbrellas every day here.
- [69:22]
B
I don't want to put you on the spot. What are some of the ingredients to the perfect patio?
- [69:27]
A
You know, we. The one that is most successful here at Avalon because of the retailer. The. The restaurateur is called Roomies. And the patio is offset from the storefront so that the sidewalk, the pedestrians are walking by the restaurant, pass between this, the. The front door and the patio. And that conflict between the pedestrian and the server or the guest creates this sort of friction and this almost excitement, if you will. That's one of my favorites. That was a knockoff of a restaurant in Santana Row called Left Bank. But in that case, that particular restaurateur gets it. He understands that it's hitting his bottom line. He, by the way, is the one who's neck and neck with the restaurant, the hotel, doing $10 million. And he. He gets the fact that he can heat and cool and control sun and do all the things to make his guests comfortable. But it's got to be attractive. It's got to be first class. It's got to be energized. And the true test of a great patio is, are there people there? You know, the funny thing about people is the thing that attracts people is people. And that is the true test. And that patio is always mopped.
- [70:48]
B
I love it. All right, we're going to finish on one story that I thought was intriguing. How a bottle of tequila brings a world of meaning to our company and our projects. How does a bottle of tequila do that?
- [71:03]
A
So April 1990, Austin, Texas. We have been working with a little Austin suburb called Sunset Valley who was really worried about having this massive shopping center built. It was Home Depot and a bunch of other big boxes. Anyway, we, we did battle with them for 19 months. And at when we. The night we got our approval, somehow all of us engineers and architects and others who are working on the project, zoning attorneys found ourselves on the job site. We had already started construction because we had some level of approval and we found ourselves on the job site in the moonlight with a bottle of Eradorano like this. This is, this is the Medley. So it says Medley groundbreaking January 13, 2025. And we take. So. So you'll notice that this bottle, the cap is the size of a shot glass. So we everybody. I'm not going to do one now, but everybody would do. Everybody did a shot. Everybody did a shot as a blessing to the construction guys that it would be. It was. So we repeated that again and again and again. And then we were doing a project in Richmond, Virginia one time and the Virginia State Store didn't sell Air Dora at the time. They sold Jose Cuevo gold. I'm like Tequila's Tequila, right? Wrong. Project was, was a big loser. All kinds of challenges with that project. So we reverted back. Even if we had to import the, the Aurora, we, we, we reverted back and we've done it. I've got in fact you can barely see in the screen on the lower right the lineup of about a dozen, most of them empty tequila Eradorano bottles that we inscribe and give them as gifts to the attendees. So everybody does a shot and you pour some on the ground and that's the rest is history. So every time we. And it's again, I think it's 60 plus projects since. Since then. So that's, that's the genesis of our success.
- [73:09]
B
Mark, this was a fantastic episode and really glad we were able to make this work today. Thank you.
- [73:14]
A
I really appreciate you having me and I'll be listening into your next so who's next on your podcast?
- [73:21]
B
I hope you've enjoyed this episode of the Fort podcast. Be sure to follow us on your favorite podcast platform or hop on on over to YouTube to watch full video episodes if that's what you prefer. For more information, you can check out thefortpod.com.