Episode Transcript
Speaker 0 00:01 <inaudible>.
Speaker 1 00:09 Hi, I'm John Cohen. Welcome to icons at DC area real estate one-on-one interview show highlighting the backgrounds and career trajectory of leading luminaries in the Washington DC area real estate market. The purpose of this show is to highlight their backgrounds and their experiences and some interesting stories about their current business as well as their past and to cite some things that you might take away both from an educational standpoint as well as lessons learned in the industry and some amusing and sometimes interesting background stories. So I'm hoping that you will enjoy the show. My guest today is Charlie Nelson. Charlie is CEO and founder of Washington property company as a 14 year old enterprise of Charlie founded that is approximately three and a half million square feet in its portfolio office and retail and apartment properties as well as another 1.1 million square feet of primarily residential mixed use projects under construction currently.
Speaker 1 01:18 So he's very active as a developer and operator of real estate. Prior to wash your property company. Charlie founded another company called Atlantic Realty company in Northern Virginia with his partner at that time, David Ross coming out of the recession of the 1990 early 1990s. He grew that enterprise significantly with several acquisitions and development opportunities through the 1990s emerging from the, the issues at that time. Charlie talks a lot about, uh, his family background goes into some of his business philosophy, his philanthropic efforts, and his immense ability to be lucky at the right time in the right situations. So I hope you enjoyed this wide ranging conversation with Charlie Nelson.
Speaker 2 02:08 Welcome Charlie. How are you today? Doing great, John. That's great. Thanks for joining me on the podcast today. Really appreciate your welcome and thanks for inviting me. So Charlie, I thought we'd started out a little bit about your role at Washington property company, what you're doing and how you see yourself as a CEO of the company and how that, how that perspective affects your day to day life now. And then we'll shift back and talk a little bit about your family bank. So my role at a Washington property company is his founder, president and CEO. We are small, about 35 person organization that is entrepreneurially driven and kind of in that uh, framework. I uh, perform roles of uh, chief cook and bottle. I, uh, work through and manage the organization. I'm involved in raising our capital, raising our debt, putting together our ventures and also finding new opportunities for the company, whether it's a development opportunity or value added acquisition opportunity. I'm the head cheerleader for kind of all the above,
Speaker 1 03:21 a bit about your family background and we'll go back a little bit to your childhood and where you grew up and a little bit about that and, and what influences you for your parents, family members had on you as you were growing up?
Speaker 2 03:35 I guess the most important aspect of my childhood is an arm, an army brat, and being a child of a career military, we don't really have a home state or that I moved around quite a bit. A lot of exciting places like Fort Bragg, North Carolina and Fort Leavenworth, Kansas and Carlisle, Pennsylvania. So nothing very exotic. My father was career, military and West point. My grandfather was career military in West point being Charles K. Nelson. The third, their expectations and I too might go to West point and be a career military. That was not the case. Yeah, I grew up in the 70s my father went to Vietnam for two years. My mother had to run the household with the husband in the forest with a gun in his hand and out fighting. So when I came to high school, I did apply to West point and did a few of the things to get there, but it really was not in my DNA. The good news is my father was very, uh, understanding of that and you know, as my career in real estate grew, he was always pointed out that he was very happy that we didn't take the, the military, uh, route.
Speaker 1 04:46 Do you have any brothers and sisters that were at any influence from the military at all?
Speaker 2 04:50 Now I have a sister, but she was, you know, not, uh, no inclination of going into the military. So did the Vietnam issues more or less going to say, wait a minute. You know, it was actually probably I went to boarding school, all boys boarding school for three years of high school and the thought of going to West point for four years really didn't appeal to me very much. The military itself I've learned later in life, and I will use this as an example that when people told me what to do and where to go, I spent all my time avoiding it when their lines and they say you need to stay in between the lines. I would always go outside the lines and the moment. And it was really after college when the lines go away and people say, listen, it's up to you to figure out what you're going to do. You've already checked all the boxes. I found out that I was actually fairly lazy and if I wanted to go someplace I was going to take a straight line and I went there. And uh, so I stopped to spending all my time outside the lines and, and um, just became very efficient doing what I wanted to do.
Speaker 1 06:05 So the boarding school was a stressful high school Alexandria. So if for you it was boarding because your fun, your family was traveling so much the country pretty much. So they didn't live in the DC park area.
Speaker 2 06:18 The first year that I was at a Episcopal, my, we lived in North Carolina and then my father actually moved up to D C to take another position up here right before retirement. So two of the years I was actually a resident of DC. Interestingly enough, my father also went to a fiscal. So I was in legacy even there.
Speaker 1 06:40 So what, what was the decision tree to go to Besson
Speaker 2 06:46 you know, it was very scientific. I spent lots of time studying. What I kind of concluded is I didn't want to be a doctor or I actually wasn't smart enough to be a doctor. I didn't want to be a lawyer and we had lots of lawyers in the family. I didn't want to go in the military and there wasn't much left. And so I said, well I might as well think about business. And my father piped up and says, well, there are two business schools up in Boston. You should go look at it. And it was Bentley and Babson. We went and looked at it and Babson took me and I went. So not very scientific at all. It was really eliminating all the other possibilities.
Speaker 1 07:22 Is that where you caught the real estate bug?
Speaker 2 07:24 Now? When I graduated from school I thought, or a Babson, I thought I was going to be an advertising. I thought I liked the creativity of advertising. And I came to DC where my parents lived and I was got my first job selling advertising for the Washington business journal. And so it's print advertising. I spent about six months in the advertising world was not infatuated with it. I was selling advertising to a company called Spalding and sly, which is real estate company out of Boston. They apparently liked me and offered me a job to get in as a leasing agent, which I immediately took and you know from there. So that was a complete luck. And from there dr Dan was your was your thing? Yeah, marketing sales and marketing. Yeah, yeah. Which meant is really goofing off. But yeah, we did call it a marketing degree.
Speaker 2 08:20 It was not high finance, that's for sure. But obviously numbers interest you, you know, it really is, is it's natural. While I could not sit still enough in school to really enjoy the, the number crunching, the moment you're doing it for something that you really are interested in, and that was real estate. I've found my number focus increased dramatically. And in fact, you know, I was so good at it when I started working with, uh, David Ross at Atlantic, that I was the guy that would have look at everything and proofread it before it ever went out the door. So that acumen started at Spalding and sly. It was actually, I was in Spalding and sly for three years. I was in a leasing agent for their properties in Montgomery County. Spelling sly was a, it was a great organization, but it was very Ivy league MBA directed.
Speaker 2 09:19 I was not an I an MBA or an Ivy leaguer. And I just thought that my growth pattern might not be what I want it to be there. So I went and got my real education from a company called Centennial development and I joined them in 1982 it was owned by an entrepreneur called pizza Marto and I was the 15th person hired. We Rose in 10 years. We Rose up to 95 folks and then went back down to 15 and we were considered one of the most prolific developers in the 80s but as David Ross and I used to laugh, we've got 20 years experience in our 10 years there. We get to see it all, we got to see a startup, we got to see a full sledge machine cranking on all cylinders. And then we watched a, I got to see and participate in the workouts and the world fell apart in the early nineties recession.
Speaker 2 10:16 So we experienced that 10 experience at Centennial. Was that kind of your foundation or why for being able to <inaudible> it? It really was. So I started and I would like people to kind of take a page from this playbook because I think it's successful. I started leasing and my first week there we had a small company of 15 people and they just had tons and tons of projects. So the first week there I showed up and they said, listen, we don't have anybody who can go to this architect meeting, can you please go over there and pick all the, you know, the interior finishes for the lobby and everything else. And I'm like going, okay, you know. So I walked over to an architect's office all by myself at the age of 24 and selected everything and came back and you know, said, what do you, what do you guys think?
Speaker 2 11:08 Pizza. And it looks good. And, and so when I realized is that I got into a company that I was going to get exposed to so many parts of the business, I started as a leasing agent, but after about three years I decided to transfer to project management. It was taking a step down in salary and maybe prestige, but I wanted to understand the detailing of site plan and processing and the real hard, or it was mine. Nobody wanted me to do it. In the entire company. They all looked at me and thought I had two heads and I said, listen, I have a lot more desire to learn this than I do just to keep doing the leasing. You have a long range strategy and your thought process there that you thought eventually be an entrepreneur. Learn a little bit. I actually, I mean it just came as a basic fundamental thirst for knowledge.
Speaker 2 12:03 So I spent two and a half years, three years doing project management and that was just brutal site plans, civil engineer drawings. I worked on four different projects. This is all pre-development stuff, mostly mostly pre-development and development. So I've, I built a Woodburn medical park by handled a track, which 167 single family homes that pizza Marto bought. I've planned that and site planned it. So an interesting story in that we bought the site for $9 million. Some word Zuckerman, we had about $2 million in it. In terms of soft costs. I planted for 167, uh, single family homes, one acre lots. It was in the Gogo days of 88 89 I guess it was 88 I brought in a contract from a builder for $22 million. I sat with Pete in his office and he looked at me and I said, you know, Pete? I said, yeah, you only got 3 million cash in the deal.
Speaker 2 13:06 It's like the $11 million profit. This is a good thing. And he goes, there'll be worth more later. And I said yes. And I said, Oh my God. And I did look at him and he and I had a great relationship and I said, if you needed an appraisal, you shouldn't be using may. And he kind of laughed. The moral of the story is two years later he gave it back to the bank at all that equity wiped out and had the bank chase chasing him because it was a recourse note and they eventually sold it for $6 million. So those types of things taught me so much about risk, the reward, believing your own press clippings, the whole aspect. And to be able to be with a company where we grew so dramatically from 15 people to 95 and then we go back down to 15 we build 24 office buildings and we gave back 23 Oh my goodness.
Speaker 2 14:07 So it was a very quick climb up in a very quick climb down. How did you feel personally when this, you know, this crash? I mean what clouds on the horizon that you see individually or just everybody around you say, Oh we're in trouble here. So there's a couple of things that stick in my mind and Centennial one we, Pete decided to kind of in the Gogo years kind of remove himself from day to day. And so he hired some senior people from institutional development companies. Jeff Arnold is somebody who put down and a couple of other folks and they immediately kind of took a very institutional approach to life. And we were doing a strategic plan and I looked at the strategic plan in 1988 and it had as doubling every five years. And in reality, what happened after 1988 and 89 as we fell apart and completely blew up and two years and I was, it's those types of lessons.
Speaker 2 15:11 Is there a trigger point when you could see the, you know, the storm really hitting? Yeah. I could tell in the 88 timeframe when we were giving 18 months of free rent and all of that, and Pete put together a cashflow model of all of our assets and there were only two in the entire portfolio that had positive cash flow. And I kept going with 24 S as I said, this is not good. There's another time Pete was a recourse borrower, like everybody in those days and it was working with one of the local banks and instead of building one of the office buildings, there's a twin next to it and the bank says, why don't you build both at the same time? It will be cheaper. And I'm rolling my eyes going, Oh, it might be cheaper, but it's certainly riskier. And then P had he and his wife signing on all the documents.
Speaker 2 16:04 And I remember at the age of 27 saying, P and this is not a good idea to continue to have your wife signing these things now at some point in time when you get successful, you don't want to put everybody on the line. And he did it and I just remember shaking my head, go on. That is like not a smart move. And three years later know he had more banks chasing the two of them than you would want to ever have in your lifetime. So you personally at that time, were you married at that point? I got married in 87 okay, so you were newlywed at that point? Yeah. With the crash, yes. And did you have any children at that point or whatnot? We did not. So at the end of Centennial, we were workout specialists. There's only six of us. And we had a contract with chase Manhattan bank and pizza Marto or Centennial to continue the app, keep the assets alive and viable as they were working out their issues.
Speaker 2 17:05 That all came to an end. And David Ross, who's my partner in Atlantic and I looked at each other and we had two choices. One was go work for a bank, which is where a lot of the real estate guys went or start a company and Dave and I said, you know, I'm not really interested in working for a bank. And so we chose door number two at the same time. I had my first child at the same time. I moved renovated house and moved into it. So in 1992 I had my first child in March. We started the company in February and my first child in March and we moved in September, October only. Can you do that in youth? Talk about the origins of the Atlantic and how it all and how many people you had and how quickly you grew the company already.
Speaker 2 17:53 So Atlantic M Realty was formed by David Ross and myself and David and I both had worked at Centennial for 10 years and we're very close and we knew each other very well and we knew our strengths, we knew our weaknesses and we split off from Centennial form the company. And bartered for office space with Chris Walker. We would trade leasing help for is free office space and we kinda just went out and did a bunch of transactional work to put some money in the, in the coffers or anybody else at Centennial that you've thought about bringing on with you or not? There wasn't in the beginning. We did end up after years starting to hire some people, which was great and they were Centennial folks and we were able to get a little bit of traction on investments. I think one of the things that, um, is part of <inaudible> we'll call it is that my wife at the time had started working for Microsoft and they had just gone through their IPO and their IPO was starting to gain traction and stock prices going up.
Speaker 2 18:59 So we went out and fought very hard to buy a property from New York life. It's called rest in business center and we kept looking for equity partners and we drove around and drove around and drove around and met with a, B and C, but in 93 nobody was really distressed. Yeah. Nobody was really buying into the investment, but we were and we knew it was gonna work. I had a friend at a bank of America who I went and said, we want an acquisition loan and improvement loan, and a, he said, you gotta be kidding me. I said, no, we want it and you just need to tell me what I need to do to get it. I then my wife had this Microsoft stock that was starting to do very well and we had not been able to raise equity, so we used her stock as collateral, so the loan in a way that they made us print the certificates and hold them in their safety deposit, buy or hold them at the bank, so they really weren't making real estate loan.
Speaker 2 20:04 They were making a loan against stock portfolio and she was our, our largest investor or she was the equity. We went and did our first deal and she had to sign on the note. We put our stock up as collateral and we invested in it and knocked the cover off the ball. We were completely sold. It was like office condo and completely sold out in six months. So you knew that a man was there. We knew the thing was gonna work and that was the first and only time my wife has ever signed on a note or use stock as collateral. It is what we need to do to, to get it going. And then we went on a a great program of buying distress real estate with my wife as the lead investor
Speaker 3 20:48 for the next four years. And we bought a lot of a bank owned assets using our marketing skills and to value add and bring tenants into the building. And then either in pretty much finance equity out it was, you didn't have to raise third party equity from any, any other source? We did not. So the other strategy because what we were doing is we were churning the, the money so fast that my wife could literally use the sameX amount of money and just keep investing and keep investing and investing cause we return it in a year. And so then we just take the same money and then buy something else. The other thing that David and I did that other people did not was that we borrowed from local banks on a recourse basis, which meant we didn't have to give up part of the deal to capitalize it.
Speaker 3 21:40 And that ended up being the smart move because it allowed us to keep 100 cents on the dollar on terms of those, the project, you know, we really looked at ourselves and said, you know, we're buying this it 40 cents on the dollar. What is the probability after our cash is in there at 10 cents that it's going to go down to 30 cents on the dollar and we're going to give it back. And we said there's really not much of a probability of doing that. So while everybody else was very afraid of recourse and personal loans and recourse financing, we were not. And we were able to kind of leverage ourselves in the early night with a very active portfolio. We bought 50 or 60 buildings in the night. So it became very only the office sector mostly pretty much. We did some shopping centers, a Hunter's woods and arrest in, geez, can't remember the post office.
Speaker 3 22:38 It was grocery anchored and they just needed value. And once you solve some of the leasing problems, uh, you can do very well. Was your philosophy of Atlanta to keep everything in house or did you diversify services like property management? We sing and all that. So we use the, the eighties model of development where we kept it all in house. So we had, we finally create a property management company to take care of the assets we have at leasing person. We had construction people element. We also brought on another partner, Stan Bard, who is a transactional attorney at Pittman. And what he brought to the table was that David and I were very, very good at bringing deals in and making deals and he was very instrumental in processing the technical aspect of the transaction so that we could do lots in a short period of time and scope very fast with it.
Speaker 3 23:37 You have all the financing for you as well? Yes and no. He handled the technical aspect of financing. I was kind of the the money guy or I was the one who was going to the banks and dealing. How did that affect your business philosophy? The whole, I mean you obviously went through your cycle, the down cycle and then you had a belief obviously to start your own company that you're on your way back up. When did you have a feeling that maybe we're going to have some issues here again and based on what your experience was, the prior tenure period or did you that feel a little bit, I mean in like the tech level. Yeah, 2008 that and some of the other bumps, you know, nine 11 and some of the things that happened, we really were able to take advantage of the nineties and developed, you know, a good strong portfolio of cheap buildings.
Speaker 3 24:29 A cash flowed and gave us a base. And you were diversified and we were diversified. And then we went and built Plaza America and we did a lot of new construction, but they are all pre-leased office. So one of the things was that we did not build office unless we pre-leased it. That was a, that was a, that was a rule of thumb that came out of the 80s. The other is don't put your wife on the note and that was a rule in the 80s and then, you know, be completely honest on the risk and if you can really look yourself in the mirror and say, you know, the, this is the risk profile and be comfortable with it. Um, should be doing that as opposed to reading, press clippings and making feel like everything. So inner circle that each looked at each other and said, okay, here's the situation.
Speaker 3 25:24 You're the good thing through the bad things. How do you make those decisions? You and David or David and Stan and myself and just, I will tell you where all three the same age we all three grew up at Centennial. Stan was an outside attorney, but we had 10 years of practice making decisions on somebody else's money. And then when we got to our putting in our own money, we really I think could look at almost any real estate problem and solve it between the three of us. We had a very, very well oiled approach to looking at different aspects of real estate. Talking about pluses and minuses from legal standpoint, from market standpoint, from financing standpoint, we solved a lot of problems. So my partnership that Atlantic, you know, really was very, very strong. We never had problems making decisions. We never ended up voting for the three of us.
Speaker 3 26:21 And if all three of us didn't think as a good idea, we wouldn't do it. And uh, so it was never a two on one situation for him. Problem deals at the back. I mean, situations you maybe got a little bit ahead of yourself, maybe not this time. Yeah, I don't think so. Yeah, we had any, we did that. We did a couple of partnership deals with some outsiders that were interesting. And I, and I did a ULI talk on one of us when we bought Tycon courthouse, which is a 440,000 square foot office building and Tysons, we bought it with Walton street capital toy level building they called. Yeah. Yeah. And so it was a big project and, and um, we were going to be a small player in a big project, but you know, we have property management expertise. So we bought it and I guess I want to say 99 or 2000 it was 2000 the entire world changed in 2001.
Speaker 3 27:19 So we missed every one of our assumptions by at least 40% we missed our rental assumptions, we missed our assumptions, we missed <inaudible> the companies who are going to be viable or not viable. But we also missed our debt assumptions and our cap rate assumptions. And so while we got less rent and spent more money to get the less rent, our debt service went almost to zero. Our cap rate dropped 200 basis points on the exit. And we ended up leasing it up to the FBI, getting it stabilized and selling it and made more money. So you were lucky. Yes. And that, and that, that that is, that is a very important aspect of all of real estate. And I think anybody that you talk to who knows me would say Charlie's got a horseshoe somewhere or rabbit's foot or whatever, but, uh, you gotta be lucky.
Speaker 3 28:16 I'd rather be lucky than smart. So that I always say, you invested in pain in your early part of your career, which was good. Yes. You learned the hard way that what to do, what not to do. And you obviously learned for pizza Barto so the lessons that you probably will never forget, Oh yeah. There's no doubt. There's no doubt that the largest influence on my business strategy in my assessment of risk was having spent 10 years work without a doubt. I saw the good and the bad and the ugly. And you know, it helps you make those decisions whether you want to do, when you're at the, when you're in the driver's seat, how are you going to respond? Let's summarize those real quick from him. What, what good things that you learned from him? He was a prolific deal maker. He loves the business.
Speaker 3 29:07 He was a great personality. So he had all this energy and he was very interesting in his deal-making approach. But he was, he was extremely aggressive. That in a good way in terms of of doing that isn't very likable guy. He also paid attention in the, actually too much attention to detail and sometimes he would take a project meeting and take it five hours, start arguing about, you know, FedEx bills and things. And so this architectural detail or financial detail, Roger construction can, you know, just your project meeting the buildings under construction costs and that type of thing. Change orders. So that was the, the bad side. They would definitely over negotiate. He definitely a, did not have a good antenna for risk. I've always been amazed at the age of 27 I had that better antenna at risk than he did. And so your gut told you he was doing some yes.
Speaker 3 30:10 Yeah. And you know, and the ugly, it really wasn't, I mean everybody in the, in that crash, which I call the a hundred year flood, which took out all the developers were really put in some very, very, very hard spots. You know, when you're 20,000 leagues under the sea and every one of your bags is calling their note all at the same time, it's a very hard position. And then we can dial forward to 2008. And the banks responded exactly the opposite. They didn't call their notes, they extended their notes, right. They cut deals and they did everything exactly the opposite because they saw, you know, with the, uh, the putting together the RTC, I mean, for banks to own all this real estate was just full on. We went to another session in 2008. That has allowed a lot of stress in it. But, uh, candidly it allowed us to work through it cause the financial industry gave us the flexibility to do that.
Speaker 3 31:14 So let's dial back a little bit to your transition from Atlanta Realty into the Washington property and the evolution of Washington property. It was 2003 2004 I was doing kind of some soul searching with David and Stan and we had a strangely well-run machine for 14 years, 13 years. And we made decisions and didn't have any problems. But I was at a point in my career where I had four kids and I wanted to start thinking generationally in terms of operating companies and generationally in terms of assets. And it was really hard to introduce the control mechanisms to give a third owner of those control mechanisms to create that. And it was candidly really unfair for me to insert that into that partnership. So we worked it out where I could remove myself from Atlantic and, and start Washington property company on my own. I was able to take about a third of the assets that we had under management that, uh, at Atlantic and bring them over to my shop so that I could start a management company, have a revenue stream, you know, bring personnel with you.
Speaker 3 32:33 I did, I would like to think that they brought the personnel that wanted to work with me. But when I found out that one of them lived in Maryland and my office was in Maryland, the reason they came was that they didn't want the drive over the bridge. But I did bring some personnel over and it worked out okay. And we didn't have, you know, as divorces go, it was a five. So it wasn't totally seamless, but it wasn't, we know litigation that it was interesting because I started out myself and then I brought my secretary and then you know, I had to get some bookkeeping folks. I hired that out. Then when I worked through bringing over some of the management of the buildings and administering contracts, I hired Derek Henderson who was the head of management over there. And we kind of built the management company and collecting rents and paying bills and that type of thing for investments.
Speaker 3 33:30 So these assets that you moved over to your sits you'd already acquired. Yes. Yeah, yeah, yeah. So you go out and buy assets, just build your revenue stream right up front. Well not, yeah, I had, I had an existing revenue stream from management, but then I did go out and buy immediately and I bought a fair number of suburban office buildings in 2006 2007 which I had a rough go of it in 2008 what was your philosophy then that me just more of the same from Atlantic or was there a different thought processes? A little bit different thought process on that. I transactionally in value add, you know, we would do the same thing, but from a development standpoint I wanted to branch into a multifamily, so I went out the soon as I started in Washington property company and started looking at sites that were apartment sites, was able to tie down a site.
Speaker 3 34:24 And was that market reasons or was that just personally it was a product diversification and I looked at the big development families, the Petersons, the learners, you know, I said what kind of differentiates them from other folks and it was really product diversification that when retail was going strong mill, Peterson was building big box and office was strong. He was doing office when multifamily was going strong. He's doing multifamily and doing single family homes. And then the same with the learners. They build office, they build multifamily, they've got big retail than I just said. They do it and they do it well. We did, we got fortunate and that we tied up some just terrific sites. All of them Metro, all of them a CBD oriented. The multifamily kind of way started happening 2010 and that's when we started our first 300 a unit apartment building downtown silver spring.
Speaker 3 35:28 So the financial situation coming and starting requesting a property company, you had enough cashflow to live and to do that. And actually even more than that, we'd done very well. So I had a lot of capital and I, I set aside about $40 million to go out and invest with. That was kind of my platform. That's a good start. Yeah. Well, I mean we've done very well. Um, my wife had done very well, both in Microsoft but also in real estate. And so things that had gone, you know, very, very well. And I had, you know, I had a company that could carry itself and pay salaries and then I had an investment pool in which to go out and Whoa.
Speaker 1 36:12 Oh, stepping back to the start, was there a certain issue that came up on you and your partners? Other than that your personal desire to build wealth for your family and stuff? Was there anything that came up that there was no cataclysmic event or
Speaker 3 36:26 not really? Not really. We talked about it for a year and a half. It was evolution and evolutionary. I took the summer off in 2004 and took my family on an RV trip for seven weeks and we traveled 10,000 miles and that was kind of my, I'm going to take a little bit of a break and see if I still feel the same way when I get back and, and I came back, you know, in the fall of 2004 and said, yeah, I just don't think I'm going to be able to change my thought process on this. And so we kind of started in 2005 I think I left maybe may or June, 2005
Speaker 1 37:08 your thought process is evolutionary throughout. So you started out with the rise and fall and then the startup and then now we've reached a certain point,
Speaker 3 37:19 now it's time to kind of transition to another level. Right. So as you are now, what, how many? 1214 years into Washington property company? Yeah, I think it's 14 or too. Yeah. What's the, what's kind of the next in your, in your mind, what's, so I'm a, I am a, I'm a big planner. I think one of the criticisms that would be trolley, you're trying to solve problems 10 years downstream today. And so yeah, my big challenge going forward is to get a family office structure that allows my kids to come in and participate family office, whether it's in real estate or some other investment and look to do the gen one to gen two transfer. I was lucky enough to have put the real estate into dynasty trusts in 2002 which is long time ago. So we've been operating all in all the real estates and dynasty trusts.
Speaker 3 38:20 This company's stock is, and the dynasty trust, it's not my name because all of these inherited passing along of wealth issues. Can you say dynasty trust? Is that a foundation or is it a different, no, it's a trust that is is uh, the beneficiaries are my kids and their kids. So it's a generation skipping trust. So now we're, we're taking that backbone, if you will, and creating a much more management related infrastructure that has a governing board with outside people to help give input to the next generation. And then a family council that gives the family of the ability placed chat and talk about things. So that's kind of the new thing. I mean, right now from a, from a development standpoint, we've got, I don't know about $500 million worth of development in the pipeline, which is a lot for this organization. You know, I think that's, you know, we're going to go to fill that before we hunt for too much more.
Speaker 3 39:25 We've got, you know, a lot of things to look at from an acquisition standpoint. We're going to go raise some <inaudible> outside money for that. But uh, the acquisition or you add in or right now is kind of a tough, tough platform. So are your children, they all interested in real estate and what's, what's the thought process there? You know, I mean we've got two who have gone to Wisconsin or graduating from the grass camp school. Real estates was number one or number two in the country. I've got to have not chosen that as a career path. The cool thing about a family office is that you don't have to be in the operating company to be associated with real estate decisions to be involved. I think I've got two that want to be directly involved in the operation. I've got two that don't, but everybody will be somewhat, well I've put together a rule where none of the kids to come in and work for me until they've worked either five or seven years in the real estate industry before coming here and it's two fold. I want to see if they like it cause I have no interest in any of my children working for me.
Speaker 3 40:37 The business that is the others is to, you know, get information and to get what I achieved as Centennial so that when they show up here they have a different perspective. They're, they're gonna bring something to the table. I don't want to have people in my ointment that just mimic how are you encouraging? Are you here was my career path. You can go a lot of different ways. What advice do you give your children to sort of thinking about the business? So I've got two things of advice and that is don't sweat it that much because no matter what you do you can always change it in the future. And see I started off selling advertising and I was leasing guy and then I went to development and my son right now is an analyst at NorthMarq. So he's learning the financial game and that's a great entry spot.
Speaker 3 41:29 And then I would say, you know, it might, once you feel like you got that down, go look at, you know, maybe working for a developer or something to that effect. So that's kind of the advice is that there is no absolute way to do it and you just need to be involved and you need to be a sponge and you need to learn and then you need to kind of figure out what floats your boat, what gets you excited so that you know, when you're out there, it doesn't seem like work. It's just fun. So Charlie, let's, let's kinda transition a little bit to your philanthropic interests. Your children obviously is the number one philanthropic interests you <inaudible> you know, the, I'm, I'm getting beyond them now. I'm like going, okay, I've done enough for you guys. Probably the most important thing is that we're not put on this planet just to serve ourselves and we need to serve other people.
Speaker 3 42:22 And it's extremely important, I think, for entrepreneurial and family businesses that have roots in the community to give back and give back, substantially give back, both financially but, and also give back and your energy and your time and your thought. And so I think it's extremely important. We do all sorts of things. I've been involved with children's hospital for 25 years, but not just sitting on a board. If we, we organized the children's run fiveK run in the 90s and had it out at Plaza American, very successful. And then when I split off and formed Washington property company, I didn't have that venue available. So we went to a Monte Carlo night, if you remember. But we had great success at and raised two and a half million dollars over five years. So it's a combination of writing tax, but also giving of yourself and, and trying to help them.
Speaker 3 43:21 Is this something your father and stuff? So not really. You know, my, my father was a government worker right now and, and you know, we didn't even own the house that we lived in, right? I mean, you're on base. So, uh, it's a different, different setup. My father was a very generous man, but he was not able to, you know, do what we've been able to do to give back. I mean, he was a former military guy, obviously getting back in his old, you know, and I gotta tell ya, I mean, the military personality is, that's all they do is give back. They're giving to their country always. I do look around and there's, I just wish some civilians have exposure to military mentality because it would be very fruitful and healthful foods. Your children have an interest in the military at all know? Not really. Not at all now. I'm not sure why, but uh, yeah. Nobody knew their family. Oh yeah, yeah. Absolutely. Knew their grandfather. Yeah. My wife does think it explains some of my, uh, risk-taking capabilities because when you think about it, I mean, my father was an infantry. He in the jungle
Speaker 2 44:32 taken shots and getting people shooting at them and the, it takes a certain person to deal with all that. Absolutely. So it's pretty interesting. So philanthropically we have a foundation, which is kind of the financial side, but we also give of our time to a inner city, kids for scholarships. That new community foundation, we have given a lot of time and energy to Shepherd's table, which is serving the homeless. We've given to all of our educational institutions. Most recently we endowed a chair that a the Babson college Institute of the family. I'm involved in AAU, you alive and ULI and you know, so we're giving back is a big, big piece of things.
Speaker 1 45:21 So you encourage everyone that works for you to do that same thing. Is that a philosophical thing?
Speaker 2 45:26 Yeah, no, absolutely. And we're going to do more of it. Not less. I mean cause what happened is everybody would do it because I would take charge, you know, I would go do the Monte Carlo night and people would be on committee and I would meet people for this and that. I'm now really hoping that, you know, I can pass the Baton and say you guys now charge, you need to give your time in addition to San Angelo patients that we can create.
Speaker 1 45:53 So Charlie, looking back at your career a little bit, asked you to test your memory a little bit on stories of things that can accuse me of events, either positive or negative in your career that might be interesting.
Speaker 2 46:05 People don't know about. You know, it's funny, I mean, I guess I have a few stories. Like one of the interesting things I was working for Centennial, we had bead on a tenant who wanted a a build a suit, 210,000 feet. And I'm a somebody who does not like people to say no to me or take no as an answer. I kept calling their broker saying, I've, we've got something for you. We should take a look at it. We got a story to tell you. And the guy said, no, we've kind of made up our mind. We're going to go over here. And I said, well yeah, that's really, you know, I think we have something better, you know, whatever. And I said, listen, you know, I know you're in Boston, I'm gonna fly up and I'm going to spend a half an hour with you while you're eating lunch.
Speaker 2 46:52 And then I'm going to leave the broker who was representing us missed the plane and I guess I was like 20 years old and I flew up to Boston and grabbed this guy at lunch, eat soup at his desk and I went through my pitch and you know, six months later they signed a lease with us and it was a pre lease for 210,000 feet, which was the biggest deal Centennial had ever done. It all was by me just not taking no for an answer, but being nice about it and saying, listen, I will fly up, take my time to come to visit you to tell you our story. And it's sunk in. So that was a success
Speaker 1 47:37 is just a gut feeling that you had, that you knew you had the better deal, the better site, the better location, or was it just determination, I'm going to get this.
Speaker 2 47:46 That's just kind of brute determination. What was interesting is I went up to pitch him on a building that we had at fair Oaks that hadn't been built and he was signing a lease and rest him and that he was signing it for a couple of reasons and we just sat down and said, well, if he wants to be there, why doesn't he want to be right here? And it was owned by rest and land. So we all looked around and says, let's go talk to the rest of the land, see if they'll sell us the dark. And the moment we had a good conversation on breasts land about buying the dirt, we sat down and say, I know that you think you want to go here, but why don't you want to go here? And it was next to a very important client. And they said, yeah, it makes sense for us to go there.
Speaker 1 48:31 So that's your leasing agent coming out? To some extent,
Speaker 2 48:34 yes. And I would say the leasing agent along with the development was really kind of my specialty where I could blend the market and the market information with the technical aspect. And that's kind of why I've been able to flourish in terms of deals and working through stuff because it combines both. Kind of a weird story is in our very first project, it was an office condo and <inaudible>,
Speaker 3 49:00 but it was rented in and it was built to be an office condo. It ended up being rental that got taken back. We're going to buy it cheap and then go sell it. So similarly, similar going to go buy this thing for $50 a foot and sell it for $80 a foot. This is what, 1993
Speaker 2 49:17 93 yes. We ended up buying it and there's this one unit owner who we could never find and never talked to and never do anything. And he would show up on a bike with cash and pay his rent. And we're like going, wow, I wonder what's gone on there. And so finally we just got one of the keys and knocked and we didn't hear him. And so we went in and the guy was living in the office space, goodness. And he was a schizophrenia and a hoarder, and he had been taping CIA. He was taping some things. And anyway, the entire suite thing is 1500 feet. It was full of, uh, tapes and tape boxes with a TV in the middle. So that was really weird. And so we're like going, we have to sell this thing, you know, and, and how are we going to do that? And so we finally kept, you know, sending him letters saying, you know, you need to vacate, need, vacate. Unfortunately. And it was very strange, but he ended up having a heart attack in his face
Speaker 3 50:24 and we kept knocking and knocking. And finally we went in and found out that he had passed away. So we had to, no, no, next to Ken, we didn't know what to do and how to do it. And then finally, his brother who hadn't talked to him in 20 some odd years showed up and cleaned it all out. But that was very strange, very strange dealings. You know, you know, we have so many stories, but I, yeah, I can't, you know, couldn't go through all and take all day. What was some of the words disappointing things or that just sort of real estate but personnel or partnership or anything that, that you learn a lesson from it you wouldn't do again or life experience type of thing. Yeah, we've been pretty fortunate. I'm a total optimist, so everything happens for a reason. So if something really disappointing happens, it's because it's gonna make room for something positive.
Speaker 3 51:21 And so I haven't really looked at the world as, Oh my God, that's where your luck comes from. I will tell you that I, we had a, a failed zoning attempt at prosperity medical, uh, when I was at Atlantic and we went all the way to the board of supervisors and they voted against us. I want a process was that it took us about a year and the lots of community meetings in the community got really upside down in terms of their, what they wanted and, but we had buy, right. My project manager says, I'll never forget. He says, you walked out of that hearing and the first thing you said is let's get the anti right thing filed tomorrow and we're just going to move forward. You did not think one second more about what had just happened. We build prosperity medical campus, which is a highly successful medical campus and did very well with it and we just moved on.
Speaker 3 52:19 I don't have a lotta and I bought some assets in 2006 and 2007 that are still problems today. I would say, uh, I regret probably would, I would've sold some of the suburban office assets and held on to some of the medical assets, maybe some of the retail assets. You told me that Prince George's County was a difficult experience. Yes or no. I mean when we first bought it, it was a very positive experience and where you bought golden triangle with nine acres of land and we sold three acres to a hotel. Then we built two pre-leased office buildings. Most of Maryland is kind of slow commercially and now those assets really don't perform to where we would have ever expected them. Again, I lost a big tenant in Greenbelt. They had Zuto move out and that was a very disappointing situation. But we've now released it.
Speaker 3 53:20 We've survived. So there not too many. You are also taken interest in politics too. Charlie. Talk to me a little bit about that evolution of was that primarily for real estate, you know, ownership standpoint or was there another, yeah, I would say my political involvement is strictly locationally and it's Montgomery County. It's focus primarily that we have a huge investment in <inaudible> County and sure that we help out the political landscape as much as possible to keep it healthy. You know, and my partnership at Atlantic, David was really the politician. I was finance and that was what Northern Virginia mostly. Yeah. Yeah. And so politics does not come naturally to me, but I have gotten very involved putting together some political action committees and things of that nature. And a lot of it has to do with, I just don't think we're doing things as well as they that could be done in Montgomery County.
Speaker 3 54:18 Does that affect your investing <inaudible> County in the future or does it to these will. It will. Right now I have a huge investment on the County and so strategically without regard to Montgomery counties politics, we've made a decision that we need to spend more time in Virginia and more time in the district. I'm SWAT, my name is Washington property company and we don't own any property in Washington so we will be doing that really regardless. We just bought 700 unit a parcel and Tyson's, which we think gives a is a good spot to be and we will be focusing on it to other jurisdictions a little bit more. You see yourself working for what other 10 15 years or a little? See this business doesn't lend itself to totally retiring. So when I look at my friends like Sonny small and his dad and Josh Bernstein or his dad, I mean these guys are still coming.
Speaker 3 55:18 Office, Lerner, mill, Peterson, these guys, you know, you don't really retire until the car Ollie car. But I would like to get my kids involved in and start getting them to be involved in and to day to day. And let me, you know, kind of go goof off a little bit. So if you were in front of class of let's say graduate students today, what lessons would you have to leave based on your experience, what you've learned? Career? What I would, I'd love to promote to young people is that you can do it. And, and when I say that, take the entrepreneurial approach to real estate. I'm a big advocate of entre, you know, family enterprise and family entrepreneurs as opposed to institutional direction in real estate. And I just got back from a hundredth anniversary of Babson college, which is a school for entrepreneurship.
Speaker 3 56:16 And I would say the most underlying trait that people would say you should possess to be an entrepreneur is just stick to it. Don't let people say you can't do it, go stick to it. And every decision is going to change and every situation's going to change. And just grasp change as a positive and keep making better decisions as you move along. Don't be afraid, but I started, Atlantic is right in the middle of the darkest real state recession all time, and I had so many people look at me and say, why are you doing that? You know, I just looked him, I said, because the alternative isn't all that attractive to me and I don't possess any great magical wand, but it's been fun and we've had great success here, so it's even doubly funneling linen. Yeah.
Speaker 1 57:13 It's interesting you mentioned that Charlie, because I look at other people that have come out of the early nineties as being, I would say that's the greatest wealth creation timeframe from early nineties
Speaker 3 57:24 so the 2000 perhaps in the history of real estate. Yeah.
Speaker 1 57:28 It States read industry. All those things happened and the decisions you made earlier than a lot of people did cause some people waited till the mid nineties too.
Speaker 3 57:39 Yeah. For take to put your toe in. I agree with that type of risk. It's impressive that you were able to do that, but I think that it sounds like the circumstances came together well for you. With David, you've had a partner that the two of you had the same mindset to go after it. We were very symbiotic in that and we had known each other for 10 years, so we already knew how we thought. And same with Stan and Stan was our transactional attorney for 10 years, so we had three people sitting at the table who knew each other very well. All very smart. And as I said, I don't think anybody could attack real estate problem better than the three of us. Well, it's an interesting model for people going forward as we're
Speaker 1 58:20 now thinking about maybe that we're coming into a recession
Speaker 3 58:25 after what, 10 11 years of prosperity, what's next? You know, looking over the horizon. How do you think about why you think about as you're going forward when you're yeah, and recessions create opportunities and they create imbalance in the market. What's interesting is that the real estate business is not really over leveraged right now. I would say for the first time in my 40 years, we are as conservatively leveraged is I've ever seen. And so even a recession is not going to create quite the distress opportunities at other recession. So consequently you're developing more or you're taking more risks. Right. And you feel confident in that primarily I think because other people are more cautious going into this and you're saying, Hey, you know, why not take an opportunity when it's here is lousy. You definitely, you know, if you're contrarian, I'm a little bit of a contrarian.
Speaker 3 59:26 You kind of go when everybody's not going right. Those have tended to be in my 40 year career. The better decisions when you're going with the pack and everybody's doing the same thing, find the returns on those investment decisions. Pretty marginal. I've always found that when you make decisions at work with the pack and saw some, uh, inefficiencies in the market and took advantage of it, that that's where, well, it's interesting. You and I worked on a project up on Rockville, right? Where you saw what your largest tenant leave and you had to make a decision about what you were going to do with that asset. And our first meeting I was like, wow, this is impressive. It's, you're going to take this location. And again, I think that's the marketing aspect of your background. See that site to be able, and maybe we should give a little backstory on what that is, but this is a book.
Speaker 3 00:25 It was about a hundred thousand square foot building, you know, maybe seventy thousand seventy thousand square foot office building threes, three or four stories on ITU 70 on research, on research place. I think it is research frontage right on <inaudible>. And when I first met with Charlie, I was trying to help him work out a a alone alone that was, you know, the front of the property value was maybe 60% of the loan amount. So we were able to figure out a solution to acquire the node. And then in the back of Charlie's mind or even the front of his mind at the time, he decided that he was going to build, convert this to self-storage, which I thought was a brilliant play because of the location. And the opportunity was really the only sole storage facility on that side of two 70, which was a more dense office community. And it's turned out, maybe not, we tell the story on how it's one is one of the grain that I think adaptive for the uses of the office bowling that I can remember or that scene.
Speaker 3 01:28 It really was, we had an old zoning overlay on our property that was from the 60s and that really created that opportunity because it allowed self storage while it didn't allow self storage for anybody else. And it was fortunate that we were able to, when we were thinking about what we want to do with the asset, figure out that the zoning gave us a loophole in which we could go implement a different, uh, approach. And the asset has turned out to be, you know, just a great asset. And candidly for this town of Rockville who closed the loophole, I think they're doing it foolishly because South storage assets are immensely energy efficient, immensely profitable in terms of both cash flow and value generate hardly any traffic and generate really no, no use of of a government facility and infrastructure. So it's like the perfect thing. It pays taxes without using anything.
Speaker 3 02:32 But they've got this misperception that a self storage is a place where hoodlums hang out and they don't want them. And I'm like going guys, you guys got a backwards. This is like the cleanest, most efficient use and tax paying use that you could possibly put there. It's always a funny world. What other, one other story that I, that I recall you talking about that is acquiring land the right time, particularly residential. So tell the story about the property and like what's allowed and co yeah, I mean that's just kind of one of these lucky things where I guess it was in, was it called Washington center? George Washington center <inaudible> GW university center. And they had a very awkward commercially zoned piece of property at what ended up being a dead end road and Wells Fargo had taken back the land. What year was this? 2007 eight I think I bought it in 2009 so it was 13 acres kind of up on a Hill completely.
Speaker 3 03:42 Mrs zoned. It was interesting in that everybody in Loudon thought Loudon was getting away from residential, wanted to go to commercial. This was commercial piece. And so everybody said, nobody is going to get this rezoned to residential, but we bought it at such a cheap price and the price kept coming down and down and down. And finally, I think we picked up 13 acres of land bank, $750,000. It was cheap enough that, you know, I just said, fine, we'll deal with it 30 years from today. I mean, I don't know. But my first meeting with the superintendent, I said, you know, this thing's now a dead end road. It's ms zoned. It really would make a nice townhouse community and you've got a ballpark and maybe we can help out with that. And she says, you know, Loudon County needs more townhouses almost fell out of my chair.
Speaker 3 04:33 I said, good cause that's what we'd like to do. And we ended up rezoning the, the parcel 13 acres to 95 townhouses and ended up selling it to a, I think it was NVR or you know, 12 or $13 million, which was a pretty big profit in two years for a piece of land that not many people had an interest in owning. So as far as a transaction with a multiple, was that perhaps why of look the best deals you've ever done from a multiple students from multiple standpoints. Sure. And such little cash in it. There've been other instances where we've done extremely well and it all boils down to the story of pizza Marto with his hundred and 67 acres turned down at $22 million offer with them $11 million cost. So $11 million profit, two and a year and a half later. Turn it over to the bank.
Speaker 3 05:31 At a complete loss. And I said, you know, sometimes you got to take it and make it and put it in your pocket. And it's been well worth having gone through that experience because a can hold onto some of these things too long. So Charlie, thanks for your time. Is there anything else before we let go that you want to share with the audience at all stars here? No, I don't think so. I really appreciate kind of being included in this and hopefully somebody has the time to listen. Do that. I think many people will listen. Listen. Well. So thank you very much, Charlie, for your time and energy today. Great. Thanks John. Yeah, absolutely. Have a good day.
"I am a total optimist"
