Gary Rappaport- Compassionate Leader Who Works Hard and Cares For Others (#94)

[00:00:09] Speaker A: Hi, I'm John Co, and welcome to Icons of DC area Real Estate, a 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 the 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 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. Before I introduce my guest, I'd like to share that both this podcast and the community I started in 2021, called The Iconic Journey in CRE, is now part of a new nonprofit organization with that same name. The new company will offer opportunities for sponsorship to grow the community both in membership and in programs. It also allows you, as listeners, to show your appreciation for this podcast, which has delivered episodes twice monthly since August 2019. With a charitable contribution, transitioning the community and podcast into the nonprofit organization is underway. The community, which is open to commercial real estate professionals between the ages of 25 and 40 years old, is currently up to 65 members and growing. If you would like to learn more about either joining the community or contributing to the podcast, please reach out directly to me at john at coenterprises coenterprases.com. Separately, my private company, Co Enterprises, now will focus only on advisory work for early stage real estate firms and career counseling. If you have interest in learning more about its services, please review my [email protected]. Thank you for listening. Thank you for joining me for another episode of Icons of DC area Real Estate. My guest for today's show is Gary Rappaport. Gary is joining me for a second time. He was my first podcast guest four years ago, prior to the Pandemic, and since then, of course, the Pandemic had a huge impact on his business and on everyone else's. But he discusses how it hit him, how it affected his business, how it affected his tenants, his investors, and then he also talks about how it has emerged the business has come back because retail has rebounded very well, among the best of the commercial sector right now in grocery anchored retail. He also discusses the impact of high interest rates that have happened over the last couple of years, affecting his investment strategies and ability to acquire, because he likes using leverage. So it's challenging for him to use his model to try to pursue assets. So he's now looking at the idea of perhaps forming a fund as an alternative. So he discusses also the factors in structuring a retail acquisition. He talks about the emergence of mixed use properties and the decline of we talk about the decline of regional malls. We also talk about his third edition of his book Investing in Retail Properties a link to which is in the show Notes. Gary is very proud of the book and it's a 600 page tome of his experiences and a very detailed, meticulous description of how to and why he invests in retail properties. So please give it a look. He also discusses why he gives back and why he loves helping others. He shares his email address at the end of the conversation and encourages all of you as listeners to reach out to him, especially you young listeners. If you have any questions about not only retail investing, but just investment in general and just business philosophy, all I can say is Gary Rappaport is one of my idols. He's a great person. So without further ado, please enjoy this wide ranging conversation with Gary Rappaport. Gary, thank you for joining me on Icons of DCRE Real Estate Podcast for the second time. I want to thank you for taking a flyer on my first interview for the podcast, which is now four years in the making. What a four years? It's been eight months. After our interview in March 2020, the world basically shut down with COVID-19. You were kind enough to join four other leaders in December 2020 to share your experiences to my audience then as well, and I appreciate it. At that time, you were quite concerned about the state of the retail industry and the struggles that many of your tenants and customers were having operating their businesses and shopping safely. Perhaps describe the initial shock of the pandemic and how your portfolio withstood that challenge and then discuss how the retail industry, and particularly grocery anchored retail, has recovered quite nicely as the Pandemic played out and dissipated over the past two years. [00:05:56] Speaker B: Well, John, first of all, thank you for allowing me to be on your podcast before. I'm honored that in all of the many people that you have had podcasts with over the last four years, that I was your number one podcast. We've known each other 38 years. I think now we are very good friends and so I appreciate that you want to again have this podcast with me today. Sure. It's been quite a difference since that time. I always think of beginning of COVID being around April 1, 2020. Right. I remember that day because I was asked by Bisno to speak on a webinar that they had where I was the only speaker for an hour, where they put a camera in front of me in my office and had the webinar remote so that nobody would have to sit near me because of the fear of COVID and asking me these questions about COVID And I understand there were almost 1500 people on this call because we had recently been announced that all of our shopping centers had to be closed and many people wanted to know what we were doing with our tenants and also with our lenders. And it was a very difficult time it was in all of the past recessions that I've experienced since the early 1970s when I started in real estate, this was by far the worst. And I say it was the worst because in all other recessions, our tenant sales went down 10% or 20% or 30%, but not 100%. And many of our tenants, they were closed and their sales obviously went down 100% during those times. I think it's when people have an opportunity to find out what they really are. And I have always wanted to be known, and hopefully I am known first as a good man and then second as a good businessman. And we as landlords, control the livelihoods many times of our tenants, especially all of our mom and pop tenants that might have their entire livelihood in one store. And these were the times where it was most important to decide what one was going to do with one's tenants, with one's lenders, with one's employees, with one's vendors, with one's partners. And I'm very proud of what we did and the philosophy that was expressed throughout this company. We had in 2020, we have more now, but we had 2000 and tenant leases. And I know over the first two years of COVID we had over 1100 negotiations, abating Rent, Deferring Rent, deferring Rent, and then Abating Rent, and multiple renegotiations of agreements that the tenants, as COVID continued on, could not agree to what they originally agreed to. The most important thing was to give people an opportunity when they couldn't control their own lives, to have many times these stores closed and safely closed, and then be able to be reopened six months and twelve months later and have these tenants continue in the businesses that they had before COVID So I look back at those times and I'm very proud of what I did and what others here in the company did. We decided to initially hold all distributions. We decided to hold all major capital improvement projects, but we never thought of not paying our lenders. We have three different types of loans. Generally. We have loans with commercial banks, we have loans with insurance companies, and we have loans on Wall Street, CMBS, commercial mortgage backed security loans. Three different types of lenders with three different types of what they perceive to be short term and long term goals. And no question, the commercial banks, the local banks, looked to this as an opportunity to reinforce relationships and they were more understanding and deferred at times, interest payments, principal premiums, until when those loans could be paid again, insurance companies somewhere in the middle, let's say. And the most difficult were the commercial mortgage backed security lenders, where really there is no relationship there, and their responsibilities are to protect the bondholders. And we did go to all those lenders and we were successful. We thought initially we needed great help. As covert continued on in 2020, we found out we actually didn't need as much help as we thought. But the commercial lenders, the local banks, those relationships were solidified. The insurance companies, a little of both, but not much. And we went back on four CMBS lenders requesting deferrals, and we were not able to make an arrangement with any of the four, three of them. Fortunately, we found out we didn't need that one property. We did. And on that one property we went back to all our investors and we raised the additional monies needed and never missed a mortgage payment. [00:12:53] Speaker A: That's great. [00:12:54] Speaker B: And then eventually paid back those monies to those investors that contributed extra equity in order to cover those needed mortgage payments until no longer needed. [00:13:14] Speaker A: So what lessons did you take away from COVID-19 in the Pandemic? What did you learn about your team, about the industry, how the government reacted to it, I mean, all those things, how your tenants withstood it, if they did. [00:13:31] Speaker B: And other lessons that you know, John, it comes down to the main lesson and philosophical beliefs that I was brought up with from the time I was a young boy that my parents and especially my father taught me. You know, I've had the experiences of working with some really wonderful people who believe reputation helps one throughout one's career. And I have experience working with some people in this business where they've been known as very tough business people, but have truly hurt other people for the benefit of receiving additional proceeds, whether it's rent or partnership distributions. And I have never been anything but all the way on the side of helping others and never hurting anyone and putting other people always in front of my own needs or desires. And because of it, I sit at a time in my life that I'm very proud of. I have my name on the company. I've been in Washington DC for over 50 years, and when someone comes over to me outside of the business and says, I see your signs everywhere, but more importantly say, I understand. You're a really good man, I'm again very proud of what my dad taught me. And, yeah, that's great. That's where my beliefs are. [00:15:26] Speaker A: As usual, when the shocks occur to our economy or culture, our government usually reacts or overreacts to helping or protecting the American public. Early in the Pandemic, the Fed flooded the market with cash to boost consumers and business reliant on employment or demand. As people do, they consumed and inflation kicked in. The Fed then began interest rate hikes, which may soon be ending, we hope, to slow the economy's, inflation and perceived overspending. It seems that the consumer sales shot up with the influx of cash and then began to stabilize when costs increased. What are you seeing at your centers? Have sales continued to rise or are they flattening? Where are you seeing strength and weakness among your retailers? [00:16:21] Speaker B: Well, even in COVID, once the stores were able to continue to operate again and many of the stores obviously never did close. There's been a resurgence of real stability in retail and especially the retail we'll call it first non mall retail and then we'll call it even more so on stability into grocery anchored shopping centers. And whether I'm just fortunate or lucky, I made my career basically in grocery anchored shopping centers in one market. And it's been very, very successful for me in the model that I've set. And we're fortunate in the fact that in the sector of retail and especially let's call it the subsector of grocery anchor shopping centers, we have a lot of anchor credit tenants fighting for our space. And it has been that way my entire career. We might look at a category like Home Improvements today and say really only have two major players in Home Depot or Lowe's. We might say in the office supply category, we might only have Staples or Office Depot. But look at Washington d. C. In the grocery anchor shopping center category. Now, we have in no special order, we have wegmans harris, teeter, giant, safeway, whole foods, trader joe's, lidl, aldi I mean, that's eight credit worthy anchor grocery store tenants that's outside of Cost, of Walmart and Costco and all the ethnic grocers that are also always fighting for space. But we have eight credit tenants in that category fighting for space in Washington too. Well, you know, I'd mentioned oh, if I didn't mention Whole Foods, of course, Whole Foods as well. But Amazon right now is another conversation about can they find that place that allows them to really be open and successful? And right now, obviously they have not found that as we actually have an Amazon that is signed and they are not opening. And we built another Amazon for them up in Maryland and they're not opening that. [00:19:05] Speaker A: I read that they're consolidating with Whole Foods, but we'll see it'll be interesting to see how that happens. [00:19:10] Speaker B: Yeah, but in the category that is grocery, we're obviously very strong in having that as our anchor. Now, during COVID all the way to where we are today, we're sitting right now and we're overseeing 76 retail properties, about 14 and a half million square feet, about three and a half billion dollars of real estate and about 2000 tenant leases. And that's outside of the first floor retail. We're doing on over 100 high rise buildings and the different retailers that we represent. But we are over 95% leased. But it's not just us. Everybody in the market is over 95% leased. Our tenants, maybe because of COVID and the amount of money that was put into this economy in order to get past the COVID problem, shifted into sales. Now, we can talk about the difference of sales downtown and the sales in the suburbs and there is a difference there. But overall retail is very, very strong still. But with that said, it depends on the category and it depends where we are today versus last year and where we'll be next year. Right now we're at the beginnings of seeing sales not growing as quickly. And these higher interest rates are definitely affecting sales. They are affecting growth, expansion. We talk about interest rates today, and we talk about that it was only 18 months ago that we were borrowing money at 4%. We put a loan on a property in March of 2022, ten years fixed at three and a quarter percent. We're sitting here today in a ten year fixed rate loan, 7%. And it's very difficult for someone like under the model we have, which is generally a leveraged buyer to compete in the market today with the interest rates they are. Of course, people say, just to digress, that this is the worst inflation in 40 years, the highest interest rates in 25 years. [00:21:38] Speaker A: You and I were there 40 years ago. [00:21:40] Speaker B: Well, we talk about 40 years ago. I looked 1981. Yeah, I was a home builder, I was a lender, and prime was 20%. I think it was even a little higher than that at the highest, but I know it was 20%. And I was borrowing money at 22%. And 30 year fixed rate mortgages on homes were 13 and a half percent. And a lot of people went out of business, and I would have too, if I wasn't with the financial strength that I had behind me at that point. But I said, I'm getting out of a home building business and going into something that will build a different model and different stability over a career. And it was surely the smartest decision I ever made. So I sit here now and these are very difficult times because leveraged buyers in the industry we're in, we're all leveraged with lots of monies that we borrow. And there's a big difference between three and a quarter percent and 7%, and it's affecting our tenants. And I think we'll see more of that. And the only thing is, I do remember that no matter how bad it was with Volcker's stopping inflation, it did stabilize this economy, the economy at that time, and it was beneficial no matter how much it hurt during that time. So I look at it during these times and I hope it ends quickly. But it is definitely affecting it depends. [00:23:20] Speaker A: On the category, but it's had the most impact. What category? What's the most interest rate sensitive category in your new portfolio? [00:23:29] Speaker B: You know, Sean, that's a good know. I was looking ICSC just came out with a new survey of Occupancy costs, and it had the dollars. And they're looking at some of these categories that have gone up and gone. You know, we surely have had problems for different reasons in the drugstore category. [00:23:56] Speaker A: Banking is a little tough. [00:23:59] Speaker B: If I would pick one category, John, where our pad sites rents have materially decreased is in the bank category. Surely we don't need to go in a bank as often as we used to. Surely we do a lot more on our phone than we ever did and we don't close on our properties by going in a bank branch and it's just not needed as much. Sorry, John, we'll talk about banking in a second. Banks, the category that is the most difficult for us right now are banks. Not just because the use of their stores on shopping centers are just not needed as much as in the past. We are all doing more of our banking business on our phone. We're doing it surely without having to coming into a bank branch. And the banks have historically been paying very high rents for many years compared to the other uses that could be on path, such as fast food, as one example. We find that almost every time a bank branch comes up for renewal, the rents are going down. We know their deposits, we know their business, being able to understand at least which are good bank branches and which are not. But there's no other use in those bank branches anywhere near the rents that these bank branches are paying. And when we underwrite our purchases now or our pro formas going forward, we many times are reducing the rents that those banks are paying. However, as it relates to sales on our tenants, our quick service restaurants, our food tenants are all expanding medical as well. [00:26:06] Speaker A: But they got the shock in 2020 and then they've come back, is what you're saying. [00:26:11] Speaker B: I was at a restaurant the other night and asked them and it was a very positive yes, we actually see our sales continually even going up now. Now, they talked about the cost of their food and the bottom line of what they're making, but overall they're all doing well if they survived COVID they're doing well now, especially in the suburbs. If we want to talk a little bit about the difference of downtown, please. We are the largest company that's managing and leasing retail in Washington DC. By far. I believe that's whether it's downtown or in the suburbs, surely in the suburbs, but in downtown there's problems and we have a lot of vacancy and we still have a lot of stores that the tenants are paying percentage rent on. And I like to unfortunately say I can still drive downtown during the week, usually at lunchtime, and find a parking spot on the street if I want to go for a meeting or for a restaurant for lunch. And we don't have enough people coming back to our offices and we know the federal government is the lead on that and they have not come back and thus other on the private sector have not as well. And what has that done? It's shifted a tremendous amount of sales from downtown to the suburbs. I mean, if you're spending two or three days at home at the minimum you're buying more food with Uber eats from restaurants. You're going out. You're even changing where you're exercising from an exercising facility downtown to an exercising facility near your home. So everybody's benefiting in the suburbs by the number of hours and days that all of us are spending at home versus in our office. Now, I can give you my feeling based on my age and what I think, but even in our company, you can telework two days a week. I don't think it's beneficial. I think young people need to be taught by people that have been in companies for a long period of time. I think that mentoring, that coming to conferences and not doing things just on zoom is very beneficial for young people. And I think it's detrimental for them at a young point in their life to be that alone in their job and in their home. But as it relates to my business of primarily retail in the suburbs, this has been another reason why retail has been so strong in the suburbs. What's really interesting, which I just read about, is about even Internet. And you think about the difficulties that Internet are putting on bricks and mortar retail. We've been talking about it since the beginnings of the Internet, and it's competition, but it's also complementary. And we find out that many stores that are on the Internet as they grow end up opening bricks and mortar stores. And when they open a bricks and mortar store, not just that the store has sales, but all of the people within and around that store in a certain radius. Actually, the sales on the Internet site for that particular retailer is greater as well. So that one in one does truly equal three. What I am concerned about, but maybe a little bit less now than I was just because of what happened this last week, is the question of Internet sales for groceries, which, of course, is what I most try to be sure that the long term growth of that sector will continue. And more and more people are going online ordering their groceries, and they're being delivered to their home. And the question is how's that going to affect all of our grocery stores in the future? [00:30:25] Speaker A: How does it affect sales at the specific stores that you have? Is what you're saying to somebody? [00:30:29] Speaker B: Absolutely. Well, we just opened last year a brand new Giant Food store in Bull Run in Manassas, Virginia. And it's a magnificent store. And at the same time they opened the store, they announced they were opening a brand, and this is in Manassas. They're opening a brand new 80,000 square foot warehouse in Manassas, their third or fourth here in Washington for their Pea Pod division to deliver groceries to home directly from directly from the warehouse to the home. [00:31:05] Speaker A: Right. [00:31:06] Speaker B: And if you read last week, giant said that they have let go of 400 employees, and they're closing all their warehouses, really. And they are going to be delivering, I believe it doesn't say, but from their stores. And they're doing it from their stores. And they're doing it from their stores. I asked this weekend, and I was asking a couple of people, and I said, where do you buy your groceries and do you go in the store? Do you have it delivered? And they're doing both. Everyone I asked said they're doing both. And they said, though, that some of the groceries are different. One person I asked said, well, I order from Harris Teeter. And I order from Giant. And I order from Wegmans. Wegmans they have some relationship with instacart and somebody picks what I order in the store and delivers it to my home. Harris Teeter. They have shoppers in the store that pick the goods. And if they don't have exactly what I want, they actually call me on the phone and tell me right and they're right there. [00:32:27] Speaker A: What are your alternatives? [00:32:28] Speaker B: That's Right. And now I think we're going to find is giant is going to do the same thing. Because this person said was, when I order from Giant and if I want to order things something special, they normally don't have it because it's coming out of the warehouse and they don't have as much choice. They have. Okay, choice, but not as much as the others. So what Giant, I think, has found out is that the warehouse doesn't have as much choice as the store and maybe doesn't I don't know the details of it. But the good news that I see is that if right now, the majority of online shopping is coming out of the store as an adjunct to the shopping in the store. And that surely makes me feel comfortable for the long term growth and stability of the grocery sector in all shopping centers, not just the Washington, DC. Area. [00:33:32] Speaker A: Well, it's interesting, Gary, that you mentioned warehouses. And the industrial sector has exploded because of the internet and the internet's distributions of that. I mean, without The Internet, the industrial sector would be probably a third of what it is, or two thirds of what it is. At most, I'm Guessing, because of the massive growth of distribution from companies like Amazon and Walmart and Other big retailers that Do A Lot Of Business online. [00:34:01] Speaker B: Well, one of the most difficult parts of one of our just this last year or two lease negotiation was with one of our grocery stores. And I'd rather not say which one, but they're all doing the same. They wanted to have a very broad right to take a 50,000 square foot store and only have at the most, even though today they want to have 95% of it be the front of the store. They wanted to have the right that only 10% of the store would ever have to be the front of the store, thinking that one day they might want the back of the store only for delivery. And that was a breaking point in the negotiations for a long time until they finally came back. And we ended up agreeing that at least 75% of the store has to be an operational grocery store where a customer can come in, shop and shop within at least 37,500. If that's not the case, I believe what we had the right to do was terminate the lease, take it back and lease it to someone. [00:35:17] Speaker A: Now, what about using a parking field or something like that for that kind of use? [00:35:21] Speaker B: Not anything major. I mean, only sometimes for carts, but no, not for able to use it for that. So I think everyone wants to have that. As for flexibility, but I'm not as concerned that a shopping center is going to turn into a distribution center, but we have to be careful because from a retailer's point of view, they'd always want as much flexibility as they can. And we have to protect that cross shopping. We have to protect building sales across a shopping center for the benefit of all tenants and tenant mix and never forget that. [00:35:59] Speaker A: Did the pandemic cause that kind of thought process come up with the retailers? Because I remember we had what was called ghost kitchens that came out because some restaurants said how we continue to operate, we can do this with a delivery service. We'll take a warehouse space or we'll close our and we'll just have these kitchens that distribute and do distribution that way. And some retailers thought the same thing too. They said, okay, well, if we can't have customers coming in the store, then we can do deliveries out of the store or do something to keep our sales going. So to me, that thought process, doesn't that make sense that that would well. [00:36:36] Speaker B: During COVID anyone that was entrepreneurial enough to say, can I do some sales instead of none, right? We looked and said, okay, let's make this agreement into a percentage rent agreement right now until such time as we can build sales back up, because we want you to survive and we want you to do as much business as you can, whether it's delivery or eventually outside or eventually back inside again. So that's all the flexibility that we had. Fortunately. Fortunately we had a broad base of different philosophies of how to deal with our tenants. That's why I think that Bisno call on April 1, 2020, there were so many people listening because we manage for ourselves, but we manage for so many different types of owners, families, institutional owners, insurance companies, pension funds. And we had to get many, some, let's say some of these owners to understand our philosophy, our philosophy of not just saving tenants because it seems to be good business, but being flexible enough, even when it wasn't good business, for the ability to look back at this point in one's life, and we. Were able to do that in really every case. And our investors, none of them said, if I don't get my distribution, I can't make my mortgage payment on my home. Everyone are investors, are investors for the long term. They're there for their families. If they're individuals, they're there for their children, they're there for their retirement. And thus everybody understood. Even though some people wanted more explanation than others, nobody said this is not the right thing to do. And by stopping distributions and deferring major capital improvement projects, we were able to not miss any rental payments on any projects. And then as sales started coming back, we started on center by center making distributions. Right. [00:38:52] Speaker A: But it seemed like that people had to adapt because of that period of time. But those adaptations and just like you were talking about the work from home, there's this new cultural kind of feeling, okay, let's be creative and continue this kind of creativity as we keep going. So that's where I'm going with this idea of the grocery store saying, well, we want the flexibility to in case the economy shuts down again, we can adapt accordingly. So maybe thinking about the future there, I don't know. [00:39:22] Speaker B: Yeah, but again, I'm very comfortable in the subsector that I'm in and the model that I've set. And the model is, again, we don't sell very rarely. We're long term owners. And the sector we are in is primarily grocery anchor shopping centers in one market where we understand the road networks, we have the relationships with all of the supervisors, and that allows us to be good community members. And that's what I've always believed retail to be. [00:40:06] Speaker A: Well, let's move on here. The capital markets are certainly affected by the Fed's activities. Interest rates now are the highest since 2011. How has that affected your investment activities? Interestingly, grocery anchored centers might have been the least volatile real estate investment over the period since 2011. Talk about why you might agree with this and what the prognosis is going forward. [00:40:32] Speaker B: Well, the shopping centers themselves are very strong right now. It doesn't mean that we can be an acquirer. I mean, our model is a difficult model in high interest rates to compete against other buyers that are not as highly leveraged. We have not purchased a property since the summer of 2022. We have underwritten many, we have offered to purchase many, and we have not been selected on any of them because we have not reached the price that someone else has reached. And that has been everything from very large retail properties to small retail properties. [00:41:22] Speaker A: All existing, not grant, all existing. [00:41:26] Speaker B: We are working on some beginnings of some ground up, but they're few and far between. And it has its own difficulty also because of the interest rate that you need to pay during construction. Sure, the interest rate upon stabilization and obviously the cost of construction. But on the existing properties, we have lived through some really wonderful times and owning properties long term have created a stability and a cash flow and a net worth for myself and my partners and the top people here at Rapport that were never expected 15 years ago or 20 years ago. And it's been a long time with low interest rates when we had low interest rates and we're a borrower at 75% debt and before COVID it was 75% debt, 25% equity. Today maybe it's 65 or 70% debt but it's still relatively highly leveraged debt. Well, when an interest rate was three and a half or 4% and a constant was 5% or five and a half percent, and you bought something at five and three quarters, six and a quarter, it was pretty easy to give an 8% return to start and be able to have a big back end promote, of course. And everybody getting a very strong return. [00:42:52] Speaker A: For the risk positive leverage. [00:42:54] Speaker B: But sitting here in these times where interest rates have moved so quickly, cap rates of course, have not moved as quickly. So now we sit where cap rate might have moved from. Just make an example. It moved from five and three quarters to seven but interest rates have now moved to seven and constants are over eight. So we have negative arbitrage in that kind of sense, in the fact that you buy something in a seven cap rate and instead of giving an 8% return I can't even give a four or 5% return. [00:43:27] Speaker A: You have to have a lot of upside to make the numbers work is what you're saying. [00:43:32] Speaker B: But if you're a buyer that buys it all cash and says, okay, I'm buying something on a seven cap rate and I'm going to give a 6% return initially with miscellaneous costs of closing and capital investment. And then maybe a year from now or two years from now or three years from now or four years from now, maybe rates will come down to 5%, maybe to 6% instead of 7%. But at some number I'll then put on the debt and I'll end up with a very strong return that's a little different business. Or if you're a business or a model such as a pension fund, maybe you're 50% debt or even less than 50% debt or even no debt. And thus you can buy something at a price that I cannot. So sitting here where I am, we're creating value every day in what we have. We're creating the asset value of the property by the amortization that's being paid off every day and our loan to values on our properties over our model of generally putting on ten years. So when the ten years come up the loan to value is quite a lot, but less is we're not concerned that we can't refinance any of our properties. What we have to recognize is that with the higher interest rates our cash distributions will be less our values might not be as high, but fortunately, the model allows us to again do what I've done all my life and telling others to do as well. Is real estate is a long term investment. If you own it over a life, you'll create more assets than you ever thought you might create by being what I think is a different model of that merchant builder. Now, I have many friends that are merchant builders that have done quite well, but I don't think they've created anywhere near the assets of one that owns real estate over a career like we have. When I talk, I talk about the model. I believe that the more you hear of other people's model, the more you can decide how much of that model. Whether it's the model of buying or building properties, the model of building a management company up for stability, to get the best people to work within the company because they believe there is stability in good and bad times. We always know we're going to have good and bad times. Or the model of living with the risk of how does one own real estate? Should one own real estate by home? Working for a public company and having some stock options. Working maybe in a venture capital firm if possible and sharing in a back end promote on a more transactional type of model. Working for someone like myself or even being someone like myself with a tremendous risk that I take. And finding out where your personality and level of risk is. And that's what I love to teach. [00:46:28] Speaker A: Let me go in a little deeper into that thought process, if I can. So I know you believe strongly that acquiring property and either retrofitting it or remerchandising it is a much better strategy than developing a center from the ground up, especially if you're relatively new in the business. At what point would it make sense to shift away from acquisitions and look at development? Let's say you see a new grocery anchor come into the market and you've seen eight of them. You mentioned earlier. Some of them have been here a long time, others are fairly new. At what point would it make sense to shift away from acquisitions and look at development? Let's say, as I said, a new anchor comes in. How much experience do you believe a developer needs to approach that anchor and negotiate a lease, find a site and build a shopping center together with inline stores adjacent to it? [00:47:23] Speaker B: That's a long question, John. I know we have to divide that up so I could remember it all. Remind me if I don't answer it all. But first of all, I tell all young people that looking to own real estate, to acquire several times structuring deals before one builds anything new for many different reasons, right? The number one reason risk one of them. No, I look at the number one reason is the ability to survive over a career and building up how does one build up the ability to live and still own the real estate? How does one have the ability to raise equity? And equity is the hardest part of all the parts of putting a deal together. I generally say it's like first, like a three legged stool. I say if someone wants to put a deal together, one is they have to. And when I say a person, it doesn't have to be one person. It could be two people, could be three people that are leaving a company and trying to do something on their own. But just consider it as a team. Someone in that team has to have the expertise in the area to be able to create that value, whether it's a new construction or whether it's renovation, remodeling and expansion. One has to have the ability to obtain a bank loan. One has to have the ability to raise the equity. Raising that equity is the most difficult, in my opinion, of those three stools, or three legs to that stool. When you're going to an investor and you're a young person looking to raise equity and you say to them, I'd like to invest with me in this new development, in the first year we're going to draw the plans. In the second year, we're going to get the permits. In the third year, the second year we're going to also get the financing and leasing that we need. In the third year, we're going to start the horizontal construction. In the fourth year, we're going to do the vertical construction. In the fifth year, we're going to stabilize it. And the 6th year I'm going to give you some cash distributions versus saying, I'd like to show you this property. It's operating. It's down the block. Let's look at it together. I can't give you 8% this year. I can give you four, and then five, and then six, and then eight, and then ten, and then 12% return every year. And it's really there, it's operating. It's a lot easier to raise that money. Also, you just took five years to do one deal, right? If you can buy one center a year, the end of five years on that development, maybe have one management fee, one leasing fee, some development fees. Fees are a little bit higher during the process of development. But if you can buy five properties and have five management fees and five leasing fees and five development fees, you're on your way. Then if you want to try to build something as well, and you have credibility with the banks, your investors and your own expertise, then you have to decide, can I do it myself or do I want to bring in a partner with more expertise? It doesn't matter when you do something new each time, you learn by it. And this is a very risky business. And I have seen too many people not survive over a lifetime, and I have survived over a lifetime and I have signed the liabilities greater than my assets every day of my life from the time I was in my early twenty s to my mid to late fifty s. And even today I'm 73. And I won't tell you how much I'm personally guaranteeing, but it is more than I wish to. But the model where every property is in a separate LLC and there is no major company for a completion guarantee or guarantees on new development, especially I'm required to sign, I have to live that life if I want to continue to create the assets that I wish to create. And I love what I'm doing, so I try to balance that. But one definitely always has to evaluate risk and return. And when I talk about risk and return, I consider retail the best category for risk versus return, the best sector. We all know that residential apartment buildings, rental have the lowest cap rates, good or bad times, the highest sales prices and the lowest returns. And quite honestly it should from the standpoint of risk. Because if we have 100 unit apartment building, every apartment is basically 1% of the gross leaseable area. Every lease is one year, maybe a few or two go to a shopping center, let alone the other sectors. But let's go to shopping centers and say we've got anchor tenants, sometimes with 20 year leases, four or five, six year, five year options. They go out of business. You can't pay your rent back to an apartment building. If you drop the rent a little bit, you'll go from 90 to 92 to 95 to 98. You can get to whatever percentage of occupancy you want by dropping rents a little bit, but it's going to fill up. But in shopping centers you could have spaces that will never fill up or for many years won't fill up, or just so economically don't work with the monies needed to release it. And then think about co tenancies and no build areas and restrictions and exclusives and percentage rent and co tenancy. I mean it is a very complicated business and we all know it's the sector that is the most complicated. But because it's the most complicated, that means there's less players in it. That means if you're good at it, there's less players to compete against. So when you look at risk and return, I look that if you have a good partner, someone that really understands the business, then the risk that goes along with the retail, which will be bought at a higher cap rate, a lower sales price, a higher amount of return than surely an apartment building. Now, the other sectors, quite honestly, I don't know the other sectors. I have never been in an industrial or warehouses, data centers. I have a little bit of office and I could tell you I hate it and I wish I never had it before these times. But I love the sector I'm in. It's the fastest moving, it's the most dynamic. [00:53:48] Speaker A: You and I have that in common. I grew up son of a retailer. [00:53:52] Speaker B: So I know well, my father was a tie manufacturer and mine was a retailer. So I grew up in that business. I like to say I'm not a shopping center developer. I'm a retailer. And I try to look at all my properties as if I am a retailer. [00:54:08] Speaker A: So you and I have that shared passion, understanding the shopkeepers needs, et cetera. But I guess what I'm trying to get to also is there's a maturity level in your role. So how know? And I'll go back to what I know about when I met you. I met you on a development project in Centerville, Virginia that you were in partnership with Bob Kepler called Sully Station. And you said in the last interview that we had that you probably jumped the gun a bit there on that project. Maybe you want to share a little bit more on that subject. But in retrospect, you probably would have done more buying than developing at that point. Possibly maybe the interest rate environment was such or that you just had the opportunity and said, well, maybe I'll give it a shot, see what I can do with that. [00:55:00] Speaker B: Well, everybody I think who's a developer or an entrepreneur in real estate wants to build, right? They want to say, I built that, of course, and I do too. But I think now I own like 35 shopping centers or 36 shopping centers and maybe about 5 millionft or so. But I'm in business 40 years, right? So I'm doing one deal a year or less. And I've built like built three shopping centers and I've bought all the rest. And it's a balance of if it's there and it makes sense, I don't mind building. I understand the risks that go with it and the returns need to be greater because that land development and the timing and all the other things that go along with it. You work all those years and I sometimes look at times like now and I look at some of these high rise buildings that are being built and think about how many years some of these friends of mine and developers that I know took to finally get a building permit. The cliche is 90% of the job is done by the time shovel on the ground. And then all of a sudden they're building a building in the worst of times. And how is that going to affect them because of the timing that they couldn't think about when they first started that many years ago. So I am not against development. I just think it's part of what one should be doing, not only what should be doing. And I like the model I've set and that's what I'm generally telling young people to follow if they believe what I believe. [00:56:43] Speaker A: Well, what's interesting about retail now, and it's always been said that well, not always, just last 20 years or so, we've over retailed in this country. We have way more retail than we ought. We need to have. Of course, that depends on the sector and the category. But certainly in the regional mall business, we are way overbuilt. And maybe even in the power center business, the larger scale centers, but the smaller the center seems like, the more demand there is because it's closer to the community. It creates more of a community center type of feeling. And it's more convenient to shop at a smaller center and usually in a smaller location because it doesn't take as much land or infrastructure to get it built. [00:57:27] Speaker B: I don't really know the mall category sector at all. Like I know the non mall sector, even though I surely have many friends that have been in that sector all their lives that I've spoken to over my entire career. And the mall will just take a minute and say anything from the different ways our kids spend their time today than the way we did, than we did when we were their age. The cost of operating in a mall versus a non mall setting, things have just changed. It's just a totally different sector that needs to be changed in almost all locations where a mall is located today. [00:58:21] Speaker A: Not everyone, with a few exceptions that's. [00:58:24] Speaker B: Right, the few exceptions are still quite successful, but I can't really talk about that category. Understood. But if you want to talk about where we are in this market now, there are no big box vacancies anywhere, whether you're a power center or not. And we have many of the big box category killers as our tenants. [00:58:47] Speaker A: Right. [00:58:48] Speaker B: What I don't like is a property that only has those tenants because those tenants truly control your destiny. You are forced to give them large commitments of money when they first open to help them build their store out. And then we kind of forget that when their lease comes up for renewal, that they don't have to pay the rent, that's in the renewal, that they have a strength that can force them in most cases, to give you an ultimatum. And that ultimatum could be, I'm not raising the rent if you want me to stay, or I want the rent lower. And you might say, well, let me see your sales, and try to justify on each side who has more strength. But in most cases, those big anchor tenants have tremendous strength because you have your loan and you have your promises of distributions, and the cost of leasing these spaces is very large. So you sit there. And so what I don't like is I don't like the large power center where 90% of the space is four or five tenants. I don't mind having a community center that's 250,000 or 350,000 sqft. Or even 400. I have a center in Bel Air that's 440,000ft. It's got a grocery store, it's got a Kohl's, it's got a Marshall's, it's got a Burlington, but it's got 65 tenants, right? And when I look at the overall ratio, I have strength that compares with the strength of a couple of my anchors. [01:00:33] Speaker A: There is one property I know that you manage at least and may still own down in Fredericksburg that has a lot of big box tenants in it. [01:00:42] Speaker B: Well, I own 600,000ft still in Fredericksburg. In Central Park. [01:00:47] Speaker A: Central park. [01:00:48] Speaker B: And yes, but the park is central park is over 2 million sqft. So the way that was structured is that many of the big boxes are shadow anchors. I don't own the big boxes. I don't own the Target, I don't own the Walmart. [01:01:06] Speaker A: What's, like a mall in that respect? [01:01:08] Speaker B: It's a big open air property that is very complicated to make sure the roads are well maintained, the stormwater facilities are maintained. We do all that type of work, the marketing programs, the advertising programs, the Pylon signs. But at the end of the day, that's almost like the perfect scenario in the fact that, yes, you don't control your destiny of what those tenants could do with their big boxes. But on the other side, your ratio of small space where your rents move more with the market over a long time create tremendous ability to control your own destiny. So that's a very successful project and I'm happy with that. What I'm not willing to purchase and what I don't own is what you mentioned before is that power center with four or five big anchors where 90% of the space is the four or five big anchors. [01:02:02] Speaker A: Right. [01:02:02] Speaker B: Those centers I don't care for, but the town center I do. And that's another category, which is like what we have at Village of Leesburg, which is a wegmans and a movie theater and a trampoline park and a bowling alley and a la fitness and lots of restaurants. Very complicated, lots of activities going on every night. But at the end of the day, a category that still works very well for the customer. And that's where you go back into the question you raised earlier about the importance of making these shopping centers into truly that place where people want to spend time and enjoy. [01:02:47] Speaker A: My next question kind of goes into that a little bit deeper. The retail industry continues to evolve. As we were talking about its formats and delivery to customers in the 19th century. I'm going to go back in history now. It was stores in towns and mail order catalogs, basically, because back then you couldn't drive, so he was going pretty much horseback. So the 20th century led to urban department stores and urban shops evolving to suburban regional malls and neighborhood shopping centers, grocery stores and centers. Now the Internet has surpassed 10% of all retail shopping. With Pandemic accelerating that trend, the retail sales pie has shifted away from department stores and regional malls towards more mixed use environments nearer to transit. Examples in the DC. Region include and I'm using specific projects now. The Mosaic, which is here in Northern Virginia. The Wharf, downtown Washington, pike and Rose up in Montgomery County. The Borough here in Tyson's Corner National Landing in Arlington, Virginia. Your portfolio has a wide range of formats. What trends have you seen that either conform to or contradict what I've suggested here? [01:04:08] Speaker B: Those bixchu's projects of where things have moved to? And I think it's great and exciting. I think people want to go and spend their entire day at the mall or have their entertainment at the mall. I mean, not that the mall is not part of it, but these open air mixed use projects, you talk about things like the Wharf, you talk about Mosaic. Everyone that you mentioned, like, we have Village of Leesburg, we have 550,000ft of retail, we have hundreds of apartments, we have office as well, and we have the ability at Village of Leesburg to you can walk around, you can have a drink in one restaurant, walk outside and walk down the street and go to another restaurant. I mean, the public sector has realized, as well as the private, that there are benefits in keeping people at the properties and building sales for a longer period of time. And people, especially COVID, has just further increased the ability for people wanting to get out from their homes and not travel a long distance. I always like to say not that people are not still having somewhat of the American dream once they have children to maybe own that yard and that house in the suburbs, as I was brought up to dream for. But at the same point, there are still many, many people that want to live and work and shop without having to get back in that car. And so the success of properties that allow you to both live, work and shop without getting in a car in these mixed use projects are very desirable. Whether it's perceived to be a true town center like we have at Village of Leesburg, or if it's something like the borough where we've tried to make some parts of Tyson's almost into that walkable type of community, or the Wharf, which does much more of that, or what we've done at Skyland right now, all of these properties are trying to bring that all together for that success. And I'm very excited about it. Retail is the base, the anchor, and usually the first of the base that needs to be solidified in order for the other sectors to come together and be successful with that. And I think retail is doing that here in Washington in many locations, and I'm very positive and excited about that. [01:06:47] Speaker A: So I was going to go into sponsorship, but I want to go further into the different shopping center formats a little bit and go back to the malls for one more time. You've invested in community centers and big box centers, but not regional malls, which was wise in retrospect. Learner Enterprises developed five regional malls in the region. Two of them are now vacant sites. I recently interviewed Arch Husillo, and he told me that there was one more mall they had planned in Gainesville, Virginia, and because the department stores had stopped expanding, he couldn't assemble that project. Back in probably the 90s, they sold that site just this last year for over $200 million to a data center developer. I asked him what they had planned on the vacant sites, and he told me that they will just be patient to see what the market will bring to them. Do you have any properties that you've had to reengineer or reconsider their original plans? How did you address them? [01:07:56] Speaker B: Well, those are, let's say, dreams that did not come to fruition. And everyone thinks that people that are successful, all they have are good projects, and we learn more by our problems or our dreams that did not come to fruition. Now, simply again, Art is I've known him for his whole career. He's known me. I love Art and the learners there. In another level, I'm a little guy compared to them, and I know the parcel they're talking about. And I remember when we looked at retail all around there. I own retail in a relatively close radius to their property, and it sat there for many, many years, expecting to be the next regional mall. That never occurred. And there were other parcels. I could tell you historically throughout Virginia in Centerville, there was another one that was going to be a mall. It turned out not to be a mall. Yeah. I bought 20 acres in Buoy to build a shopping center, had a lease ready to sign, and the tenant never signed the lease, even though it was ready for signature. And eventually, after many years, we ended up rezoning it. And today it's an entire project of single family and townhouses. Okay. Life went on. Fortunately, we were able to get out of it, but it was not a successful project. But it was sold at least and allowed us to move on. Right now, in Front Royal, I have close to 90 acres that was going to be either a Walmart or a Target. We zoned it for 700,000. [01:09:49] Speaker A: Wow. [01:09:49] Speaker B: Yeah. It's a big site on 522, 340, and I 66. [01:09:55] Speaker A: Wow. [01:09:56] Speaker B: The Walmart's there, but not on our parcel. The target is there, but not on our parcel. And today, after many years, I think I've owned it 20 years. It is under contract to be sold for a data center. Out in front. There it is. So who knows what one day brings? If you wait long enough, every deal has a story. But at the end of the day. It's just a piece of land and you go on to something else. And hopefully your positive stories are more than negative ones. [01:10:38] Speaker A: That's pretty ironic. Let's see. [01:10:46] Speaker B: Talk john, let's talk about skyland and eight street. Yeah, okay. We can bring that know, sometimes we do things in our lives that have nothing to do with the financial side of why we're doing something right. Yes, we hope it's going to be successful. Yes, we hope we're not going to lose money. But the question is, do we take part of our lives to help others in some way? And just like I take and I like to say, as you've heard, a third of my life is my family, and a third is my business, and a third is helping others as well. I know still talk about before we finish, about the book and about that part of my life that's so important in helping others. But I was asked twice as a suburban developer to come into washington, DC. And help communities that needed retail, and I came both times, and I'm very proud of it. The first was h street, and the second was skyland and h street. I was asked in 1981 the h street corridor. H street northeast was one of the major retail carriers in the city in the 1960s and 1950s and earlier in the riots, it was one of the three major streets that was burned down. And that street, from the late 1960s until 1981, when I was asked to put a team together, had still not ever come back in any way to what it was prior to the riots. And the city was thinking about investing money in the street, thinking about what was called eventually the great streets program, eventually putting a trolley on that street. But at that point in 1981, they were just those are just things that were being talked about. But they asked me to put a team together and build a strip shopping center on two acres of land from eigth to 10th street and just at least start something since that was the major intersection from union station down to bedding road. And I did that, and I put a team together and we built a strip shopping center. [01:13:08] Speaker A: How did you know there was retail demand at that time in that location? [01:13:11] Speaker B: Well, I didn't. I just figured that there was before and there must be again. [01:13:25] Speaker A: It was a tough neighborhood at that time. [01:13:28] Speaker B: It was very tough. [01:13:31] Speaker A: We had armed guards on the properties, I remembered. [01:13:34] Speaker B: Yeah, we had a police substation where they paid no rent, but they guaranteed that was part of the deal. They would man a police substation on the shopping center. And we opened that center in was. [01:13:47] Speaker A: Marion barry the mayor at that time? [01:13:51] Speaker B: Yes, he was there for the groundbreaking at that. And we the week we opened, we had a dark drug as anchor tenant, and there was a guard in the store, and the guard caught a shoplifter, and by the time the police got down from the substation shoplifter had pulled out a knife and killed the guard. Oh, my God. Died on did they open the center the week the week it opened, we kept the lights on 24 hours a day. We had an older gentleman who lived in the neighborhood who worked full time on that 135 38,000 square foot shopping center, keeping it clean. We painted graffiti every night. If for some reason it was placed, we cleaned it the next day. And we had a successful shopping center there. [01:14:49] Speaker A: That was CBS anchored, wasn't it? [01:14:51] Speaker B: No, that was dark. Dark. And then Rite Aid. [01:14:54] Speaker A: Rite Aid was after that. [01:14:55] Speaker B: Right. And we ran that center from the mid eighty s. And then in maybe 2010, we were always involved with the city and always involved with the street. We gave Monies for the renovation of the Atlas Theater. Right in the beginning, when they first were committing for monies, we gave money to the H Street Community Development Corporation on 6th street. We were the beginnings with anwasalim with the H Street Trolley. Not the trolley, the event that they have every spring there. [01:15:33] Speaker A: I remember Jim Abdo was, I think, the first developer to do anything residentially. [01:15:37] Speaker B: There is that he was always a great commitment of doing things downtown, and we were a big supporter of anything, of course, on 8th street. And you're right, eventually we rezoned it. We were part of the master planning process, and we eventually zoned it for an eight story apartment building. [01:15:59] Speaker A: How did you find Chris Smith as your partner? [01:16:01] Speaker B: Well, that goes back to Skyland first. [01:16:04] Speaker A: So Skyland before that. [01:16:05] Speaker B: Okay. So we ended up opening that center as a retail center, but with the master planning to be able to have higher density and again, the city pushing us for that because a higher density would bring more retail and a higher density on the main intersection of 8th and H would be a critical component for the continued growth of what the city envisioned H Street to be and what it once was. But back in 2001, the city came to me and asked me about Skyland, and Skyland is on Good Hope, Alabama. Naylor at ward seven. Across the street from ward eight. [01:16:53] Speaker A: Right. And Good Hope Marketplace is across the street, too. [01:16:57] Speaker B: Yeah, that was a safeway center that was developed many years ago by Butch Hopkins and the Anacostia Economic Development Authority. And I was giving speeches for the trade association international Council of Shopping Centers. I was a trustee since the late 1990s, and I was asking developers, or explaining to developers as well as retailers, that we should come back at our inner cities, that there was an opportunity not just to make money, but to give back to our inner cities. And there was a need for retail as the catalyst and the base for other sectors of real estate to follow. And in 2002, I was nominated as chairman of ICSC. And at that same point, approximately, I had put my team together and I was selected to develop retail on this large parcel of approximately 20 acres in ward seven and eight called Skyland. It was owned in 20 separate parcels by different owners. And because of such, nobody was easily maintaining the entire shopping center from the standpoint of safety and cleanliness and tenant mix. [01:18:24] Speaker A: So there was retail there at that time. [01:18:26] Speaker B: It was, but it was not such that what the community envisions they would like to have. We were selected and it took many, many years for the city to gain control of these parcels, to plan what the city envisioned for these parcels. And over time, it grew from, let's call it a highly designed retail project into a mixed use project due to the fact that the added density of residential was important to bring the type of retail that the community wished. And with my expertise not being residential, I had put together a team with the marshall heights community development corporation, washington east foundation, another nonprofit, and another entity called harrison Malone. And those we had put together when it was only retail and when it morphed into residential as well, I was introduced to Chris Smith, and we brought Chris Smith and WC. Smith into the partnership as well. Okay. [01:19:45] Speaker A: And then both projects. [01:19:47] Speaker B: And then eventually I brought Chris as a partner into h street as well. And he has been just a fabulous partner. And I'm not sure where my long term commitment of Skyland would have been without Chris there helping me along to understand the commitment, because there is no one in this city that has been more committed to the stability ward seven and eight and Chris smith. [01:20:19] Speaker A: No one. [01:20:20] Speaker B: And I was very fortunate. And today we're partners on both projects, and my original three partners on skyland are still our partners as great. [01:20:31] Speaker A: Well, I think, you know, next year sometime, I think we're going to revisit one more time and talk about Skyland in a little bit more detail in an open forum, which hopefully some of the listeners will be able to listen to. So let me switch back again to a little bit more of the investment philosophy that you have. Usually, sponsors grow their business by seeking high net worth investors to become their partners, as you did early in your career. Once that reputation is built and you have success with your investments, you look to larger properties requiring larger equity investments. This leads to institutional investment partners, which you did. However, you were determined to have the ability to remain in ownership if your partner wanted to sell. You were able to negotiate favorable terms with several institutions, yet those terms had some restrictions. During our last conversation, you said you decided to return heavily into the smaller investment syndication model even on large transactions, which is considerably more work and than working with a few institutional investors. Why did you decide to go this route? Was it due to your reputation and the opportunity to share investment opportunities with a wider group of investors? [01:21:52] Speaker B: I bought my first center May 31, 1984, with 14 partners that each put in $35,000. I put in 35, and I borrowed half of my 35 from one of the partners. But I must have spoken to 70 people in order to do that. And I remember the stress at that time, from that time until about into the early two thousand s, I was doing primarily friends and family. And then maybe in the late 1990s, I started doing institutional deals as well, one off deals, because again, do you spend your time raising the money? Do you spend your time finding the deal? Surely the deals are more lucrative on a deal by deal basis with me, with friends and family, but very difficult to raise large sums of money that way. So I did institutional deals primarily for many years until the early or mid, early two hundred and five s, two ten, two thousand and ten. And the question I was very fortunate is that even today, every institutional deal I've done in my entire life, I still own every deal. Whether it's Lehman Brothers or G Capital or Ing Bearings or Clarion or Texas Teachers or Principal life insurance company, it doesn't matter. I negotiate the best buy sell I can. And when they want to sell, they know we're no longer aligned. But they knew that from day one. We sit across a table and hopefully I'm able to make some arrangement and buy them out and recapitalize with friends and family. Because the institutional deals are not the end, it's a means to the end. The end is to stabilize those properties where you control your own destiny with friends and family and own it long term because the institutions are always transactional and the model is not aligned. So in sitting there, what happened is that I started owning many deals with institutions and the capital needed to buy them out became quite great. So I decided I needed to start building an entire new pool of friends and family. And then I did that. And we now have over 500 separate investors in thousands of units across these properties that we now own in these partnerships. And so I still have institutional partners, but I try to spend more time with the friends and family in the long term because I think that's where my direction is. But it's very stressful. And the last deal we purchased last year, we raised $44 million of equity from friends and family, and that's a. [01:24:53] Speaker A: Big roadshow in order to sell from individuals. [01:24:57] Speaker B: And I've never in the past raised a fund in the fact that when I was earlier educated, I thought funds were always where the back end promote was calculated across the entire fund. But I've now been educated, and I've read several packages and funds where they actually have funds, where the back end promote is on a deal by deal basis and also more flexibility in being able to keep properties within a fund, whether they're in the fund or outside the fund forever. And the structure doesn't force me to sell like it did when I earlier looked at that over 20 years ago or more. So to sit here at my age, I'm active. I'm fortunately healthy. I love coming to work. I love what I'm doing. And we are researching do we want to continue to only buy properties on a one off basis where we basically have lines of credit? We go out and do it on a deal by deal basis, and we take all the stress of raising all the money and closing within a 60 day period of time between an engineering study and a close, or do I go out there and raise probably a substantial amount of money and have some type of fund? It's almost a little bit of a reverse than why most people would raise a fund. The problem we have is that if we go out there right now and buy a shopping center and we need 10 million of equity and we go out and notify 500 investors that we have $500 available, we generally have more people unhappy than we have people that are partners. We sell the project so quickly that I get a lot of calls from people that are very upset with me that they're my partners and some they can't come in. They were out on vacation. They didn't have a chance to talk to their spouse, their financial advisor, and it's gone. Interesting problem to have people say, yes, a nice problem to have, but on the other side, they're very difficult calls. [01:27:12] Speaker A: That's where a fund could solve that problem. [01:27:15] Speaker B: Yeah, as long as people trust. And the important thing, again is I'm always looking to figure out that next place I want to be. [01:27:24] Speaker A: You've become a mutual fund almost. [01:27:27] Speaker B: Well, I got to be careful. I have to fit under the SEC. But there are different requirements for people that have $5 million and more in real estate than just your accredited investor. So I'm learning. I'm always learning. I always say to people, if you don't know where you're going, you're not going to get there. I spend a lot of time just sitting and thinking is, okay, now, what do I want to do? Do I want to retire? Oh, my God, no, I don't want to retire. What do I want to do over the next five years? What do I want to do over the next ten? What do I want to do for the employees in the company, for the top employees especially, what do I want to do for the family? And I like that kind of thinking. I'm a long way, hopefully, away from doing anything to do what I'm doing. [01:28:15] Speaker A: That's key. [01:28:16] Speaker B: Yeah. [01:28:20] Speaker A: During our last conversation, we didn't delve into your particular nature to understand quote the details, and your book talks about that. When we first did business, I found you to be the most meticulous sponsor I worked with in providing due diligence materials and understanding every aspect of your properties. Let's walk through the process of reviewing a prospective acquisition. You receive a package from a broker and it looks interesting. You more than likely know the property as you have an encyclopedic memory of every shopping center in the Washington, DC. And Baltimore Market. When you walk a property for the first time, what do you look for and how do you think about addressing either the physical aspects or the leasing of the. [01:29:15] Speaker B: You know, just like the grocery store that you go to, you never talk about the rent. First you have to get that store saying, I wish to be that property. Then you could talk about rent and you could talk about sales. So the first thing is but you are right, John, I probably know every property. I'll say that 75,000ft, maybe even smaller in the entire Washington metropolitan area. I don't know if it's for sale. I don't know every owner. But I spent a lot of time making sure I know the road networks, the growth, and to see anything and everything. And being in one town for 50 years has enabled me, I think, to make quick decisions with a lot of diligence. [01:30:02] Speaker A: Probably know every intersection in the region that needs a retail center. [01:30:08] Speaker B: And I do track zonings and comprehensive plans in all the jurisdictions, so I know what's coming up. But now you look at that property and you have to look in the basics first. Is it perpendicular to the road or parallel to the road? Is it on the going home side of the road or the going to work side of the road? Obviously more people shop going home. Unless you're to Starbucks and a little strip, maybe it'll be on the going to work side. But on that grocery and these other type of tenants, more people shop, obviously going home than going to work. Some of the basics of the business, then you have to say, okay, now the basics are there and you look at the layout. Okay, what can you do with it? I mean, is it one tenant and it's a post office for the next 40 years and there's nothing you could do? Or is your expertise going to be helpful? And then when you have that expertise, yeah, we do the same thing again and again and again. I could say that I know, but the people here in the company know even better than I. How many inches go in an asphalt going to drive lane? How many of inches should be in a parking lot. What kind of Led lightings are the best? Not the best to save the last penny, but the best to have the best light level so people can shop and build sales up at times where they otherwise would if they were not safe. What's the Led lighting that should go into the canopy? And how do you renovate a center? Five different ways. And all the other things that go with roofs and parking lots and lighting and signage and landscaping in order to build sales. And then you start looking at every tenant. You look at the time of the leases, and you look at where you want to be in the long run. What's your tenant mix today, and what can it be? Do you have rents, leases coming up? And you can make two spaces into one, you can make one space into two. You know all the categories that help with cross shopping, but then you know all the tenants in all the categories of what you wish for when you have the opportunities to do more than just collect rents and fix a roof leak. We're really good at the business we're in because that's really all we do, as you said, a very detailed person. Okay, now you have the basics. That's not the financial sign. That's just saying, yes, I want to proceed, I want to make now you start the real underwriting. So now you go into every single space, and I'm in every one of those meetings for hours and hours. And we look at every space over eleven years, and maybe even longer, but at least eleven years on the fact that we generally, if we buy something existing, generally we're putting on a ten year loan, and we're selling it. I'm sorry, we're not selling it, but we're showing the overall return based on the NOI and the 11th capital, but we're going to refinance it at the end of that 10th year. But we look at every space, and I look at every space, and I want to see the sales. I want to see the plan, the long term plan, to be able to make this center better over the ten years. And I want to bless every assumption that is put together by the team so that I feel comfortable. And the construction department, they're going in there and pricing out everything from landscaping to signage, to asphalt Led lighting. And it's all part of a package to be able to then put in the financial side how much debt, how much equity, what's the price of a unit, how much equity do we have. [01:33:41] Speaker A: To rent, what restrictions to lease. [01:33:43] Speaker B: Well, in putting together all of the performance of rents and assumptions, of course, you've got to understand what we talked about before co tenancies cross season, no build areas, percentage rent, exclusives restrictions, all that has to be done as part of the underwriting. But if you're doing all that, then you could determine if it's worth your time and effort and back it the last thing you do is back in the price. And when you put in your assumptions of what debt you can obtain, what equity is expected on the return on that equity based on what you think the risk is, and your back end promote and do all this work and I've done it this year. In the last twelve months I've probably done it six times. And in six times it's all gone in a file because we haven't been selected, any of them. But at the end of 40 year career I've got 5 millionft and a billion and a half dollars real estate. [01:34:42] Speaker A: You didn't mention expansion potential. And do you look at that as well? [01:34:46] Speaker B: Of course. And the expansion potential is a redesign of the parking lot. Right. Taking anything from an adjoining piece of ground and making it into parking to putting a pad on the site to ending up taking a pad off the site and building a strip of stores, three or four stores. But you surely can create value. It's hard, it's very hard to find that property. Everyone says I want that value added property where I can take my expertise, I can raise rents, I can build additional space. But the answer is the only way I know how to do it is to do all that underwriting. We were looking at a property that recently got sold that we were 8% lower in purchase price in a property over $100 million. The amount of time it took to underwrite that property and we needed like 50. It was like almost $50 million of equity. I had put together handshakes with friends and family for $50 million of equity and I had spent I can't tell you how many hours doing the underwriting and putting this package together so that I can get the equity. I knew it was there and we had a chance to meet the price. We couldn't meet it. We just couldn't meet it. I could not give the returns because the buyer had a different model than we did. They were not individual entrepreneurs. They did not need the debt we needed and they were the natural buyer. And life goes on and it's disappointing. [01:36:28] Speaker A: Taught you a lesson that maybe you might adapt your model a little bit for things. [01:36:32] Speaker B: Well, the only problem, it's hard because my investors over the last 15 years are spoiled. I mean, you're sitting at a time like this where when they could invest their monies elsewhere, put the stock market aside and they could put their money in a treasury bill or in a money market account in a bank and get 1% and all of a sudden they can get over 5%. So now when I was giving eight or seven and then eight and then more but let's just say cash flow sheltered. Of course it's sheltered and of course treasury bill is taxable. But if you put it at eight and they were getting one or two, let's just say that's a big risk. There was a big difference. And so they invested with me. Today they're getting five, and my eights moved down to five. So you're sitting there in a model that's more difficult to raise equity. Yeah, but I've been up and down this curve enough times in my life. And if this is a period of time where I have to spend this time underwriting and I can't purchase, then I can't purchase. I'm not purchasing for the wrong reason. I'm not purchasing the wrong price. Remember, in this business, you make hundreds of assumptions on every space. You say is, what's the rent going to be? How long is it going to be vacant? What's? The T tenant improvement. What's the tenant allowance? What's the bumps? How long is the lease going to be? All these different assumptions, and what are you going to sell it for? What's the cap rate? Even though we don't sell, you have to show a sale to get an overall return. All these different assumptions. You make your assumptions too conservative, someone else can buy it at a higher price. You make your assumptions too aggressive, you can buy it at any price, you just won't perform. And then basically, you've lost a lot of your reputation. So I've done something over my career that's long term, and that is, if it's right, I'm going to buy it, and if it's not, I'm not. But if I own long term, I'm going to create value because I'm good at what I do over a lifetime, because I'm in the right city. This city, as we all know, surely has had its problems, not just the city, but even the whole area. When you listen to Stephen Fuller and some of the concerns he's had about the growth in this entire marketplace compared to other cities and the concern he has, he has very valid concerns. But nobody went out of business when the highs were too high. They went out of business when the lows were really low, and they did not figure out how much liquidity they needed, and they did not understand how bad things could become. And in this city, no matter how bad things are, we still have the military, we still have the government, and our base of things when they're low are never as low as other cities. And so I believe this is still the best city to be in. And if someone says to me, as they say, gary, can you still do this again today? If the times were such that you needed to start today, could you do this again? And the answer is absolutely. And I still believe this is the best city to make one's life and one's career in. [01:39:50] Speaker A: So I'm going to go back to the fund question again, because I know now it's interesting you're starting to waver. You're wavering. It's interesting. During our last conversation no, wait a minute. You've never raised a fund per se where you had a pool of money that had a deadline to invest. So your perspective is more long term and perhaps Opportunistic. Is that how you differentiate yourself among your competitors that are either public companies or private equity funds? How is positioning and perspective important in acquiring properties? We just talked a lot about that. [01:40:30] Speaker B: My model, in some ways, it's like a dinosaur. To raise as much equity as I raise friends and family is a very stressful model. And it does put tremendous stress on me at a time where I am trying to figure how to not have as much stress in that part of my life. Because in buying a property, until I actually buy it, I don't know if I can raise 10 million or 50 million. I know I could raise either, but I know that if I raise 50 on a project that has ten, I upsell a lot of people. And I know that if I'm trying to raise 40 again or 50, that maybe I'm not going to be able to. And how does that affect that purchase? So I understand, surely, why funds are put together in so many different ways. And I have spoken over the last couple of years now to a lot of different people both putting funds together, institutional type of funds, and friends and family funds, and read a lot of other people's funds. And so I'm not doing anything quickly. I never do. But in the diligence that I'm doing, I think it's something you might see with Gary Rappaport sometime next year. [01:41:46] Speaker A: Well, you have the brand for it, certainly. [01:41:49] Speaker B: Well, thank you, John. Yeah, we spent a lot of time on that brand, and that brand is everything from how we take care of our properties and how we take care of our partners and our tenants and our employees and our vendors and everyone we work with. But I was educated that shopping centers are the stability and the base of a community. And if we can have people come to our centers more often, spend more time there, spend more money there, and we, in return, can take part of what we receive and give back to the community by being a supporter of almost anything within the community that surrounds our shopping centers, then we're going to do that as well. And we're all going to benefit by that philosophy. As I've been educated, for the first time I've been in this business, you've. [01:42:42] Speaker A: Always said that you never want to sell a property that you acquire. I believe you've only sold properties that didn't fit into your overall investment thesis about being in the DC baltimore markets. The three centers in North Carolina that you bought back in the 1980s, I think that you sold because you said, I want to stay in. Washington, basically, in this region, why not sell and take profits on a property that might need considerable retrofitting, and you've maximized its long term potential or its useful life as a retail property? So I'm going to bring up a case that you mentioned right up front, and that's the first property you bought is Milford Mill in Baltimore, which I read in your book, which we'll talk about in a minute, that you've done at least three, maybe four retrofits now of that property. And I look at that location and I say to myself, why does Gary still believe in that property long term? So maybe you can answer using that case study or another one that you might want to cite in that well. [01:43:49] Speaker B: Well, John, first, you're correct about the three in North Carolina. Yes. So I was not able to watch those properties. I wasn't able to get in a car on a weekend and drive and inspect those properties. And that bothered me, while the ones in Baltimore, even in Bel Air, is an hour and 20 minutes or so from the office. [01:44:11] Speaker A: Roanoke. [01:44:12] Speaker B: Well, Roanoke is a special example. You're not supposed to fall in love with a piece of property. But I bought a 300,000 square foot shopping center in Roanoke in 1985, like, I bought the three in North Carolina in 86, but the one in Roanoke was able to I was able to drive down in a day and back in the same day. And I went down enough times, and I had enough times when I was younger. And the center has two grocery stores, and it's a very important part of Roanoke, and I became enamored with the city and the public sector, and I met a lot of people there, and I just felt very committed to continuing reinvesting in Roanoke, and it's been a very successful property. But you're right, I generally don't want to sell anything, and you're never supposed to fall in love with a piece of property. And I have sold a few properties, both from the standpoint, at times of needing liquidity, that's part of at times one needs. But most importantly, I have sold one or two properties because I felt I could not make them better. And the area was such that, in fact, it might not be a good investment even still to own them. Baltimore is somewhere in the middle. My first property, I bought a 30 year old property that today is 70 years old or almost it was bought in 19 right, almost 70 years old. And I have renovated it several times, and I'm presently renovating it again, but I continue to give distributions. I continue to able to refinance without taking great risk. [01:46:00] Speaker A: And you believe in that location. [01:46:01] Speaker B: And the center has always been 100% leased. We took a C minus center and made it into I'll call it a C plus or a B minus, but it offers something to the community, and it hasn't been in a market that is such where the investment still is not a good investment. Now, some people say, Why don't you sell, get your capital gains, start depreciation again on some other property. It's really hard to find good properties. It's much harder than finding the equity. And so my model, that's what I teach it's like, the more you see of other people's model, the more you can decide what fits you. And someone else might say, I should have sold a property a long time ago, but my partners got their money back. We bought it in 84. They got their money back, I think, in 87 or 88, and they've been. [01:46:52] Speaker A: Getting distribution, next generation partners. [01:46:55] Speaker B: Now. Well, I definitely have children and grandchildren of some of my original partners, but it's difficult at times to say in one sense, you're never supposed to fall in love with the piece of property. And another point, it's part of your life. [01:47:13] Speaker A: Sure. [01:47:13] Speaker B: And you live it, and you've visited hundreds of times. I went up to Milford maybe two weeks ago. I was up visiting Bel Air on the way back, I drove 30 minutes out of the way and 30 minutes back to do an inspection, because how could I ever go to Baltimore and not stop and inspect it? And I don't want to tell you I love it like a person. [01:47:39] Speaker A: I don't, but I do love it sentimental. So one property that I financed for you that I'm curious and I didn't look, unfortunately, before our interview today whether it's still in your portfolio, but it's a center in Laurel, Maryland, called Brockbridge Shopping Center. Is that still in your portfolio? [01:47:56] Speaker B: Yeah, we're still in Brockbridge. Bought that in November 1985. [01:48:00] Speaker A: Yeah. And I financed it when you bought it. So that center was right in and right out, and I believe it still is. [01:48:08] Speaker B: No, when we first bought it in 1985, there was no division in the street. It was not a right in, right out. You could cross over on 198 and go left or right. [01:48:20] Speaker A: Oh, okay. [01:48:20] Speaker B: But around the year 1995, they put a concrete median all down oh, they did. Okay. From Laurel up to the BW Parkway, and it became a right in, right out center. However, maybe just like Milford, maybe also because we do a good job, the center looks great. There's no deferred maintenance. That's great. The Pylon is easily visible. [01:48:49] Speaker A: The landscaping you did a renovation when you first bought it? [01:48:53] Speaker B: We did a renovation then, and we renovated it since. But there's no mismanagement. And it's a shame, because we used to own Monpelia office, which was on the 197 in the BW Parkway. And if you want to talk about a center that has gone from a B plus center to a D minus center, it has no reason it should be, except by the ownership and the management interesting of the property. And the hardest thing for us in managing and leasing for other people is to try to have them understand our philosophy of reinvesting money to build sales, thus eventually build rents. And we do have a few properties where we have our name on the property, where we question, should we? Because the owner doesn't have the same philosophy of reinvesting. [01:49:49] Speaker A: They won't listen to you. [01:49:51] Speaker B: And maybe they can't. Maybe there's many family members living off of the money. They're not in the shopping center business. They've owned it in their family. And they are all out of town people. And thus it's a continual education process of why, in my model, you bring your property up to the highest level. You give people the most reasons to want to shop there because they feel comfortable and safe and enjoy the experience and thus build sales and thus build rents and thus build value. But there are other people that have a different philosophy of questioning how some of that money is spent. And when you don't own the property, but you manage and lease for others, you have to balance that with your brand, which the customer only sees your sign and could say, how can Rappaport keep a property in that condition? And that is something we go through all the time in deciding what we want to manage, what property we want to manage. [01:50:55] Speaker A: Have you convinced any of those types of owners to sell to you? Because they said, okay, if you can do better here, we'll sell it to you. [01:51:03] Speaker B: We have bought properties off market like that at times. But some of those owners, they don't want to sell. They have their own tie to the property. Their parents or grandparents own that property, maybe built that property. One of the most enjoyable things that I do right now is there are at least three properties I can quickly think of that are owned by three families. One is owned by two families, the other two are owned by three families. And the families don't even generally see each other. They're all over the country. It's second and third generation. The properties are 60 and 70 years old here in Washington. But these properties, they've allowed us to they respect our opinions and decision and they only get together once a year in our office from all over the country for the budget. There might be zoom calls during the year for something's important, but they all come. They say hello to each other. I haven't seen you since, like a reunion. But they look to us to give them thoughts for the long term plan. [01:52:16] Speaker A: And they listen to you. [01:52:18] Speaker B: And they generally listen, yes. And it's very satisfying for me at this point in my life. That's one of the reasons I could not stop, because I'm in effect taking care of these people and their family, their business or their property as if it's mine. And they're allowing me to do that for them, based on the success that we've had over many, many years of creating value for them. They don't want to sell to me. They want to own these properties for their children. But that part of my life, of that middle third of business, of coming to work every day, is continually meeting new people, learning, and even helping the people that we manage, at least for be very hard for me to give that up. [01:53:09] Speaker A: Okay, so as long as I've known you, Gary, and that's now almost 40 years we met 1986, you have been eager to learn and share your learnings with others. As you just said, you just finished the third edition of your book, Investing in Retail Properties, which is more than a how to book about investing. It is a philosophy book about you and your business practices. Why did you want to write the first edition in the first place? And why did you update it with the two subsequent editions? Were the subsequent editions due to the changes in the retail market? Or did your philosophy evolve and you wanted to amend or edit your initial messages? Why didn't you just write a new book with a new or related theme? [01:54:04] Speaker B: Well, John, back around 2000 no, I'm sorry, back around 19 early 1990s, a trade association, ICSC, now almost over 30 years ago, asked me if I would teach at the University of Shopping Centers. And they said, Pick a topic and tell me what you think you want to teach on. And the only thing I know is what I do every day, and that is structuring real estate partnerships. Right. How does one share cash flow and appreciation with one's partners so they can receive a return based on the risk they're taking, and you can receive a bonus or promote or sponsorship based on the risk and the expertise that you're bringing into a deal to create that value. I mean, I didn't invent that, but I was educated in that from the beginning of my career, and I wanted that to teach that to others. And I did that for many years. And back in 2005, ICSE, who was then in the publishing business, decided to publish a book on what I taught. So they helped me in putting together the table of contents and the different sections and giving me my thoughts, because there's nothing more difficult for me than writing a book. I'm really good with the numbers, but I am not the best writer. But more important is I always give people the thoughts who have never written a book. Think how hard it is to write a good email, a good two page report, a ten page report, a 50 page report, and then a 500 page book, right? So I wrote this book, and ICSC, for the first book they ever published, they put my picture on the book, and they paid for the publishing, the marketing, the warehousing, the editing, the typesetting, proofreading, design, everything. [01:56:07] Speaker A: This was after you were chairman of that? [01:56:09] Speaker B: Yes, I was chairman. 2002, 2003. So this is 2010. And they printed the book. They sold the book, and they made whatever profits they made or monies it cost, I never knew, I didn't care. I surely wasn't doing it to make any money. And in 2013, they asked if I would write a second edition, new case studies, not a whole new topic, just things I've learned that were different. And I thought about it for a while, and I decided I would do that. So while the first book took five years, the second book took three. And I wrote the second book, and ICSE was still in the publishing business, and they published that book again with my photo on the COVID and all new experiences that I had learned from basically 2005, let's say, to 2000. [01:57:01] Speaker A: Do you remember any of the nuanced differences? [01:57:04] Speaker B: Well, I just became more sophisticated. It's like in what we learned and raise more money, how to better sell, to bring in equity, all the things that related to the business I'm in that just became I became better at. And I thought I would never write a book again. And COVID came, and ICSC is no longer in the publishing business, but they came to me, and another man came to me named Rudy Million, who had helped me write the first two books when he worked for ICSC. And I decided I had learned a lot since 2016. And we were going through COVID, and we were going through the beginnings of the first beginnings of inflation. And I said, I think I have further things I'd like to teach and experiences that are different. Most of my readers are in their twenty s and thirty s and early 40s people that have a dream one day to leave what they're doing and do what I'm doing and want to hear the model. And they were not in the business, let alone born in 1981. And that's a time period I never forgot and has always been in the back of my mind that it could happen again, and has always balanced one of the reasons I've balanced risk and return and have survived over a career in this model that I've set. So I decided to write the book. And this book I'm very proud of. But first of all, I had to pick a publisher. So I went to Forbes. And Forbes because they're known as, if not the best, one of the best business publishers in the country, and you have to be selected to be a Forbes publisher. So I went to them, and they did select me because I'd already published twice, but I have to pay for everything, and they share in the benefits. But I'm not John Grisham. I'm doing a business book, and business books are very expensive to put together, and you're not selling enough to make money on the book. And I said, well, the last thing I ever want to do is have anyone think I'm making any money on the book. So the design, the editing, the typesetting, the proofreading, the marketing, the warehousing, and the actual printing of the books, all those costs I'm paying for, including the printing of the book. And I don't need to say how. [01:59:50] Speaker A: Much it is, but it's why even have Forbes involved? If you're paying for everything? [01:59:54] Speaker B: You need a publisher. I needed them. [01:59:57] Speaker A: You can't self publish. [01:59:59] Speaker B: No way. Not for a book of 600 pages. And I need them because they are experts in helping to market it, in understanding Amazon and how to get up on the list. But what I decided to do was I was going to pay for everything, including the printing of the book. And I am giving 100% of the proceeds that are coming to me, to the ICSC Educational Foundation. [02:00:25] Speaker A: That's great. [02:00:26] Speaker B: Plus 1000 copies of the book as a gift. And that way, all I'm doing is or what I'm doing is what I want to do. I want to help others. Just like in the beginning, I've always said, if I can help someone reach their dreams sooner than they otherwise can reach them, then I've done something special with my life, as my dad taught me. [02:00:49] Speaker A: That's your billboard statement. [02:00:52] Speaker B: Well, I've said it all my life. I believe it. And so this third of helping others john, the book is like every time you do something again and again, you get better at it. My first book was good, but this third book edition, I'm really proud of it. Proud of it because I'm a better teacher, I'm a better explainer. In the book, I give my offering memorandums. I show exactly what I've done very thoroughly. It's very detailed. And it all goes along with my teaching. I was in Las Vegas in May for the shopping center convention, and I spoke for an hour in front of 700 people on exactly what I wrote in the book. And I start the class the same way I end it. Whether there's 25 people in a class or 700, I say my cards are in the front, my cards are in the back. Anybody that wants to have a zoom, call. Anybody that wants to come to my office, I will find a time, and I will meet with you as many times as you want in order to help you reach your dreams. And I could tell you that it took me a few months after May, but some of those people are still calling, are still having that second and third and fourth call as I help them to understand this model. And how to underwrite deals so they can leave one day and be able to put a deal together and still live while they're raising equity and putting that next deal and that next deal together. And I teach, as you know, probably every two or three months. I was in Nashville last week, be at the University of Michigan in October. I'll teach sometime this fall at Georgetown and I generally come and teach a three hour class for a visiting professor in the entrepreneurship of the master's program of real estate at many different universities that ask me to teach. And I love that part of my life. And when someone comes back at some point in the future and says I took your class ten years ago and I just want to show you what I'm doing, I'm as proud of that as I am of my own family. [02:03:20] Speaker A: You were generous enough to share your book with me and I've gone through it. And there was a story at the end of an African American man in DC who you helped buy a 31 unit apartment building with, as I recall. And that's a story in the book. Interesting. [02:03:36] Speaker B: Yeah. He's a very good friend and some of his what he's done he's gone from buying a Duplex apartment to six units to twelve units now 31 units. And I walked that property with him and yeah, I helped him put together his offering memorandum in order to sell units in that building. [02:03:59] Speaker A: That's awesome. So since learning is such an important aspect of your experience, what are you learning now that you didn't realize before in retail, in the real estate industry? Are there any macro trends that have fascinated you and how do you want to capitalize on them if you do? [02:04:18] Speaker B: John, I haven't done things much different my whole career. I've sat in one marketplace, in one sector and become better at each at what I've done. [02:04:34] Speaker A: You say you're learning every day. [02:04:36] Speaker B: You say, Well, I'm learning, but I'm the first college graduate of my family. I didn't come through working at Morgan Stanley or Morgan or Carlisle. And I'm a grassroots type of guy that started raising monies from friends and family in smallest increments. That one generally raises money. I've seen, of course, the changes but I've also seen the stability in the sector that I've decided to make my career. I first came here and I was a home builder and I shifted from that recognizing that selling homes and not controlling the largest line item of interest cost was not the right business to be in. But I also believed that real estate was the industry to be in to create tremendous assets over a lifetime with patients. And retail gave me the ability to learn a business that allowed me to follow that dream and that model. And when I first started in retail in 1981 and then when I bought my first center in 84, the base, whether I could buy a grocery anchored center or not I can't buy everything grocery anchored. And there are other sectors of real estate that work very well that are not grocery anchored today. But overall, the base of what I said is still there today. And I don't know that I would say that I wouldn't do the same thing today that I would do when I started. And I think I'd be just as successful today with it, even though things are complicated and longer to get permits and all the things that we all know are different than they were in 1980. But just like a gentleman said to me in 1980, who was an older gentleman just about to retire. And he said to me in fact, he said it to me in the 70s when I was a home builder. He said, you young guys do this because things are too difficult right now. Too complicated, too much paperwork. Not like when I was younger. It's not for me. Things aren't done on a handshake anymore, and it's for you young guys. And today things are surely more complicated than when I started in business, but they're also no different. And I tell anyone that wants to go out and try to do it. This is a business where in non mall properties, 85% of the properties are still owned by individuals and non institutions. And this is the business that one, if one is willing to take the risk, very entrepreneurial to be able to still be successful in a business in a sector of the economy where surely difficult to be successful opening a new car company unless you're musk. But in this business, you can reach that dream. [02:07:58] Speaker A: I know you have an executive management team, including Henry, Larry, Steve and Frank. You mentioned in our last conversation that you share ownership interests in properties with them, but you retain 100% ownership in your company. You don't have any family heirs for your business, as I recall. Talk about your succession plan and what young people who are early in business, in building a business, should think about in planning company growth. Have you introduced your team to your investor base and would they be capable of carrying on your level of attention after you depart? Your advisor, Steph Tucker, helped you with your organizational thinking, perhaps share some of his advice to you with the listeners. [02:08:44] Speaker B: Well, again, John, that's a lot of questions. So if I don't answer it all, please come back and look at that again. The first thing is the model here is the management company is only the base, the stability, so that people can make their career here and know in good or bad times that they have a position. The management company has very little worth compared to the real estate. So if I always looked at the management company as not an entity to make money, then it was not an entity for anyone else to own. Because if I wanted to hire more people in order to better protect the real estate, that was my choice. If I wanted to go through the beginnings of COVID where we there's about 110 people here. Nobody lost their job, nobody had their salary reduced, but we lost money. But it was my choice and I was able to do that. So the decision of not having any owners on the management company was because it's only part of the model, it's not a money making entity and I never wish it to be. I find out that whenever we start to make money, we talk about how we can hire more people in order to better protect the real estate. [02:10:13] Speaker A: The idea of brand creating value through the brand, you see that more in just investing in the properties themselves or how do you see in creating value that way? [02:10:25] Speaker B: Well, no, the management company look, management companies could be in the back of a C office space. We have a plus space because part of the model is people have a choice where to work. You want to get the best people to work in a company, you're going to give them a great place to work. You're going to talk about all the things you can offer them outside of salary in addition to salary, so that they say, this place really cares about me more than any other place I've ever worked at. You also have a management company that is for bankers to come and say no matter how stable and secure we seem to be, we look more stable and secure. When investors come, it looks like we're more stable and secure. No matter how big we are, we look bigger. And no matter how stable we are, we look stronger. So part of the model is to build and pay for a space that is outside of just a management company. I always felt I didn't need other people, even the top people in the company, to question if we want to spend more money in order to sell that brand of who we are. Got it. But they are not going to be here unless they have an ownership in real estate. So the top four people in the company have a salary, a bonus, an ownership in real estate, and a signed agreement that says that if I can't work anymore or I'm no longer on this earth, they have an ability to buy the management company from the estate on a long term note at the lowest interest rate the government sets. And in theory, and hopefully in reality, they can actually pay for the management company, which doesn't have a lot of value compared to the real estate, without having to put any money in because the contracts that we have are really all month to month. And so what does a management company really have except the reputation and a brand? And we have a strong brand because we invest in it, but it's for the ability to take care of the real estate. And that's the part of the model which we always talk about. There is no second generation here. And in some ways, yeah, I might be disappointed about that with five daughters, but on the other side, I'm actually also happy about it because one always talks about problems sometimes in families, and we have no problems, and hopefully we'll have no problems when I'm no longer on this Earth. I have five daughters, eight grandchildren, a wife, an ex wife, big families, and my wife has big family as well. We all get along. Everybody gets along. We travel together, wife, ex wife, everybody. All the trips together. Awesome. We have a big cruise. It's our third big family cruise, decided for now, in the summer of 2025, and we've got 24 people on that cruise, including my ex wife and her significant other joining us. And I'm proud about that, that everybody in the family gets along. And what I need to do is make sure, hopefully, if I can, that that will continue when I'm no longer on this Earth. And by having none of the children in the business, then they're all aligned equally and they can hopefully all recognize what was given to them, and hopefully they can all be equal if they need to discuss issues with others that might have certain controls based on their age and different trusts. At the same point, it also gives security to the people in the company that they have security for there and to make their career here. So we spent a lot of time in trying to decide that. And even presently, my wife has an office, and she's here now working two days a week so that the top people in the company know that, God forbid, something happens. And even though I don't think it will be, for a long time that things will not radically change. That she understands enough of what's going on and gives them more security and comfort. To know that what I need to do a better job of is to educate all the partners. I have these 500 separate investors that they are investing knowing they're not investing just in me. They know there's an organization behind me, and they invest knowing if something happened to me, their investment is secure or they want to invest with us, sure. But the question going forward is, will they invest again with the people here if I'm not here? And they should, because I'm just one person out of 110, and I've got to do even a better job in making sure that they have personal relationships with the top four people in the company and not just in me. What Steph Tucker has done for me is we all have a mentor, just like I very much love being considered a mentor for all these young people that look to me for some guidance. But Steph, who just retired as an attorney, is and was my mentor, and so he helped me structure these partnerships and these returns and sharing arrangements. And introduced me to people during my career that helped me to progress and grow to where I am today. So, yeah, he's a very special man in my life that helped me to. [02:16:14] Speaker A: You gave me the opportunity to interview him as well. [02:16:17] Speaker B: That's right. And balance my thoughts. I mean, sitting in a company here sometimes is a little lonely. I have opinions from the top people here, but this is not two people, each earning 50% of something, each deciding what you should do. Most people need someone across that table to say, what do you think we should do? And I sit here and I make every decision if we're going to buy that center or not, if we're going to sign on a loan or not. I'm the only one signing. So the stress and the responsibilities for not just my family, but all the people that are working here at times is stressful. And I like to say that when times are tough and right now, interest rates make things I'll say, to the tough side. Not that we're not very secure, but it definitely makes it tough. And I like to say when the lows are low, they're sometimes low, but the lows are never as low as the highs are high. And I somehow get past the lows. I think there's like six or seven recessions since the early 70s. [02:17:28] Speaker A: You and I have been through a few lows together. [02:17:31] Speaker B: I keep bouncing back and I keep wanting to do it again. You're right, john, you and I are at the back third of our careers at this point. [02:17:42] Speaker A: Well, I'll never forget the early 90s, what you and I went through. That was a very difficult time. Yeah. [02:17:52] Speaker B: But I like to say I'm very fortunate. The glass is always half full. My parents, and especially my dad taught me that. I love that my name is on the company. I love the reputation that I've built. I love that I don't hurt people. I haven't hurt people. In a landlord, you control so many people's lives. And I just thank my dad, who I dedicated all these books to, for teaching me what's important in life. [02:18:32] Speaker A: So you speak about branding in your book at length. I noticed you have a new subtitle called Cultivating. Places your competitors Edens with enriched community through human engagement and federal realty with best in class destinations. Also discuss place in engaging community. Talk about that addition to your brand. Has the industry evolved to that thinking, or have you realized it gradually in your own business? [02:19:05] Speaker B: You know, you mentioned two companies with two people that run those companies that I greatly mean. Jody McClain at Edens and Don Wood at Federal are both two individuals that have the same philosophy that I do. They believe that if they can build a place where people who have choice wish to come to and then figure out once they come, how do we get that customer to stay as long as possible. Neither one are in the mall business. So how do you get a customer to stay in an open air center longer than they otherwise might? How do you get a customer to cross shop and be able to both exercise, go to a place for a meal, grocery shop, all the things that are offered on these properties, how do you get them to maximize their stay? And it's by building a brand. It's by changing an impression of one property from another. And not everybody wants to do that or can do that. It's very difficult. It is a million little things, from bringing entertainment to how it looks and feels, from that feeling of not just joy, but of course, first safety. And they're both really good at it. And because of it, Eden's and Federal and of course, federal, being that federal is an entity. A REIT that started in Washington DC 1962, has always been considered the top of the top in professional management, marketing and leasing of shopping of non mall properties in Eden's coming in this market as well as the other markets they're in. And Jodie McLean is one of the experts in understanding, talking about, and tracking how to get people to stay on her properties longer and understanding by the minutes how long they stay. And what I'm trying to do is copy the best and become the best as they are. And my wording of cultivating places is in some ways no different than they're coming up with wording. But we're all trying to do the same thing. We are trying to differentiate ourselves from our competition. We are trying to differentiate ourselves by being what we consider the best. And the best is to build is to build sales, be part of our communities, and by building sales, building rents and value of our properties. And thus everybody benefits by the philosophy that both Jody and Don were brought up with. And so was I. [02:22:25] Speaker A: It's interesting. Maya Angelou is quoted one of her favorite quotes is, it's not what you do or what you see. It's how people make you feel. And it seems to me when you're in an environment that makes you feel like you want to stay there or be there, it's really important. And to me, the pandemic has really accelerated that need. And I think in the office sector and I've said this before on my podcast, is that unless you have a reason to be there, why does it even exist in the first place? So to me, you've got to create that feeling. You've got to want to be there. And why do you want to be there? I mean, in a grocery hanger center, it's a pretty rational idea that you got to get food. You got to know, but why would you stay? So that's the other thing. [02:23:24] Speaker B: That's exactly right, John. It's why would you stay? And the difference or the differentiation between I'll even say a successful center and a very successful center is just that. How do we whether it's with outdoor seating and entertainment and just benches and how do we get you to stay? How do we get someone to sit on a bench and just read a book? How do you get them to sit in a little park area and bring their kids and just play? [02:24:06] Speaker A: A regional mall was able to do that in the old days, but they can't do it today. [02:24:10] Speaker B: Well, and it's a shame. Again, as I said earlier, I don't exactly know why, but people's habits have changed, but we have an opportunity to take advantage of that. And our centers it's very difficult when you have one or two properties and you could spend all your time on it. We're sitting with 76 properties, and when I look at these companies that have hundreds and hundreds and hundreds of properties and I'm a detailed guy, it is hard. It's just building a business. It's building that pyramid of people and responsibilities and detail and plans and reports and oversight so that you're properly taking care of the property, whether it's the roofs and the parking lots and all the other things that need to be, of course, maintained. But then the other side is, how do I do all these other activities and how do I make a place so that people do have an opportunity to stay longer and look forward to going there when they do have a choice of where to go? And I think we do a good job of it, and part of it goes all the way back to branding it with the right type of tenants so that over time, if you have an opportunity, you can raise that mix of tenants. Because retail is continually evolving. One tenant that was where everybody wishes to be and go to five years later might not be the number one choice anymore. And we have to be able not just to be happy collecting rents, but always working on making our centers better. [02:25:48] Speaker A: Has anyone ever said to you, and I'm curious, I know when I'm at a rapaport property, there's a certain feeling that I get when I'm at a rapaport. [02:25:58] Speaker B: First of all, I know it right away, okay? I know it by the signage and the landscaping, okay? Because there's a certain look that we want, right? I know that. I hear it, but I hear it more from the tenant, maybe just because of being more involved with the tenant sometimes than the actual customer. But I know we have many tenants that move from center to center and only want to be on a center that we're managing and leasing because they know that we will take care of the property. We will help them maximize the sales by doing the correct co shopping and co merchandising and bringing in the right tenant mix. But they also know that if there's a problem and they need something and there's something we can do to help them, that we're going to be very responsive to their needs. But I do know that there are certain tenants, I have certain customers that shop in our properties that also know that they seem to be shopping in a property, that are signs on that property. And that's nice to know. [02:27:11] Speaker A: Yeah, well, tenants, because they can be at those two other competitors as well as your properties, probably can distinguish if there is a difference whether they want to be at your property or somewhere else possibly. I don't know. [02:27:27] Speaker B: They do. We manage at least so many properties that some of the questions are, are you taking advantage? We have corners that we own a property, we manage a property, we do it for an institution, we do it for a family. And the questions sometimes come out is how do you keep it all straight, where you're fair to everybody when there's a choice? And the answer is, there aren't many choices. The retailer is many times deciding where they want to be and where they don't want to be. We had some properties years ago that before the owner allowed us to do some major remerchandising and renovation, they could understand why a certain tenant at Starbucks in that case says, I don't want to be there at any price. That's not my brand. That's not where I wish to be today. There's a Starbucks there. But these retailers, they don't really go to a corner very often and say, I don't care if I'm in that center, that center, or that center. They know where they want to be in that center first if there's something available and if they can make a deal there, they're going to make it there first because they know their sales are going to be better there because it's the better mix and the better location and the better access of all the other reasons. So we don't fall into the problem very often where we have a tenant that says, I don't really care on which one of these two centers on this corner which everyone's going to pay me the loan, that's going to be the lower rent, that is not important. Rent is only one part of the overall cost of doing business. And the sales side of maximizing sales is so much more important than if the rent is X or X plus a dollar. [02:29:20] Speaker A: So finally we're going to have my last question. You gave your email address to my listeners in our last conversation and said that they could reach out to you and ask anything they wanted about your company or their own careers and becoming a real estate owner. And you talked about this earlier a little bit. I know you work seven days a week, or at least you had. You may not now, but you did and enjoy sharing with others. I admire it, and to some extent, I do the same thing now with young professionals. However, I don't lead a company of your scale, of course. Why is it important for you to be a mentor to so many people who call you just to ask out of the blue? [02:30:04] Speaker B: Well, that comes down to, again, what my dad taught me. He said, Gary, you take part of your life for your family and your business, but you take part of that life to help others, and you will receive as much satisfaction in that third of helping others as you will with your business and your family. And he taught that from the day I can remember, he could talk to anyone. [02:30:37] Speaker A: What did he do for his community that was unique? [02:30:40] Speaker B: He was a tie manufacturer and he worked in a factory, and he helped others and he gave to others as much as he could afford. He was not a college graduate. He did not make a lot of money. My mom and dad lived in the same house for 48 years, a small 6000 square foot lot. But whatever he had, he shared. And he taught me that I'm the only son, the oldest child. And I could tell everyone right now. Yeah, my email address is G-D-R Garydennisrappaport. G d [email protected] R-A-P-P-A-P-O-R-T-C O.com And if they don't get that, they can call the office and ask for me. And I could tell you, anyone wants to come to my office, I'll meet with them. Anyone that want to have a zoom call, I'll have a zoom call. And if we end up going down a road putting together an investment package, an offering memorandum, a further detail in that one needs, these meetings I have, they go on for as long as people want. People say, how do you find the time? As you just said, John? And I could tell you, anybody that wants to find the time to do anything in one's life, they can find it. I find the time. I enjoy it. I look forward to it. And it's part of my life. It's been my life my entire life, and it will not stop. It will be part of my life forever. [02:32:18] Speaker A: Gary, thank you very much for another wonderful.