Brian Saenger, Sponsor Update | Ep. 88

Darren    00:00:05    

Hi everybody, this is Darren Powderly. Welcome back to another edition of Street Beats. I'm here today with Brian Sanger. He is the president and CEO of the Ratkovich Company located in Los Angeles, California. I first, uh, got exposure to the Raich Company on a trip to LA one time when I drove by this humongous building and it was, uh, being rehabilitated at the time. And, uh, I had heard that YouTube was looking to lease some space in, in the building, and it was one of the big, you know, uh, cornerstone type of property developments that was happening in Los Angeles at that time. That was, you know, part of Silicon Beach's, uh, uh, popularity, you know, growing popularity at that time. We've come a long way since then, but, uh, it's a real pleasure to have the Raich company and Brian join us here today. So, Brian, thanks for coming on the show. Uh, please introduce yourself and please tell us a little bit about yourself and the firm.  

Brian   00:01:03    

Well, Darren, well, thank you for having me. It's a, a pleasure to be with you and the CrowdStreet platform in street Pete, so I appreciate you taking some time with me today. So, I'm Brian Sanger. I'm the president and CEO of the Rackage Company. We're a southern California based, uh, real estate development and property management firm that specializes in urban infill and historic rehabilitation products. And we have been doing that for over 40 years. Uh, Wayne Raich, our founder, started the company in the 1970s and it's evolved to where it has today based on his leadership, uh, and vision.  

Darren    00:01:36    

Yeah, and, and Wayne, let's take a moment to, to talk about Wayne. Uh, I'm a member of the Urban Land Institute and, uh, Wayne Raich is a, a bit of a live-in legend within those circles. And so real estate people might know who, who the Urban Land Institute is, but, uh, they celebrate Wayne for many reasons. Not only the contributions to the Los Angeles community build building of the city, but he also is well known for his philanthropy and contributions. Maybe you could just share a little bit about what it's like working with Wayne over the years.  

Brian   00:02:08    

Yeah, so my relationship with Wayne and the company started over 20 years ago, and my role at that time was being their attorney at an outside law firm. So I got to get a peak of their projects. I got a glimpse into that and got to see what Wayne and his team was doing along the way, which was certainly intriguing. Um, as you mentioned, Wayne's a member of Uli, has been a member for many years. He's currently a life trustee, which is an honor that's not bestowed on many, I think there are around 18 life trustees in the ULI history. He's earned those accolades certainly by the work he's done. And one of the things that we're probably most well known for as a company is his and our team's work on 18 historic projects, 18 historic buildings in the Southern California region amongst wics, which are the 11 buildings you're talking about at the Howard Hughes Aircraft Company, campus Supply, <inaudible>.

 
Brian   00:03:01  

Let's talk about some of the things we've done a little bit in the past. We, we were fortunate and we transacted on a a 5,900 Wilshire, which was a property in the miracle mile area of Los Angeles. Uh, we and our partners sold that building in March, uh, of 2020. So right before the pandemic hit, we were at over 90% occupied and we're getting over $50 a square foot per year, uh, for tenants for leases in that building. Um, that was kind of a, uh, example of the types of things we do. We took a, you know, 30 plus story office tower built in the 1970s that had an ownership that really couldn't get their arms around the leasing. And as you know, office is a capital intensive, uh, opportunity mm-hmm. <affirmative> with respect to tenant improvements and leasing commissions and building systems. You know, unlike multi-family where your lease comes up, you don't get go in and demo all the walls of your, of your apartment when your lease is up, but when, when your office leases up, even though it's a longer term, you, you generally have to reposition the, the, the office space, demo the walls and lay it out for the new tenant coming in.  

Brian   00:04:07  

 So it's a capital intensive opportunity. Yeah. Um, 1500 Wilshire particularly, you know, had a large vacancy in it. Uh, and we were able to kind of re, you know, take the branding similar to the branding we had done at Hercules brand, the building, and position it so that it would be attractive to those types of tenants that could see the opportunity. And then also doing spec suites and other things to the building. Uh, we repositioned the lobby, took the colony, which was once an outdoor space and turned into a beautiful indoor lobby, a picture of which you kind of see behind my shoulder here, um, to attract those types of tenants. So over time we were able to do that. We were able to, to kind of do a creative, creative modern office concept in a highrise tower. Uh, so that's some of the, the things we try to bring to our project, whether it's a, a horizontal campus like Ply Vista or it's a vertical campus, like 5,900 Wilshire with pr try to bring the same techniques.  

Brian   00:05:02    

Um, so fast forward a little bit, we've owned a property out in Alhambra, California, which is just to the east of Los Angeles in, called the Gateway of the San Gabriel Valley. Uh, we've only Alhambra project for about 20 years now. It's about a million square feet of office in a, we'll call it a horizontal campus on about 40 acres. Um, so we've been very successful in the pandemic, uh, keeping our tenants in place. Uh, we've actually done a substantial amount of leasing there and we're also in the process of getting some entitlements for roughly 14 acres of parking lots and putting some multi-family in those parking lots. And so we're working through the process on that. We're also working on a project in, uh, in San Pedro to do some ground up retail construction down there on a project on about 40 acres as well.  

Darren    00:05:48    

So office, multi-family, retail, lots of excuse. Would you say that, uh, the Raich company has one, uh, one specialist, uh, asset type or, or is it pretty, uh, spread out amongst those three and more?  

Brian   00:06:04    

Yeah, I think if you look at our portfolio and what we've done in the past, kind of the, the mainstay has been office mm-hmm. <affirmative> and surrounding that has been a mixed use component, whether it's retail or hospitality, uh, or in the case of the Alhambra multi-family mm-hmm. <affirmative> to create, uh, in the case of the Alhambra, we called it an, an, an urban community. Right. It was a long-term vision when we bought that property. We had the office, we were successful in leasing the office. We built some retail to accompany the office, and now we have multi-family to create a true urban community where people can live and work, walk, and, you know, have less of an imprint on the surrounding area because all of the amenities they need are close by.  

Darren    00:06:45    

Yeah. Let's talk about drivers for office demand. Sticking on that topic for a moment and talking about like, you've seen some leasing or positive leasing through the pandemic in office. I think, I think most people would be surprised to hear that, you know, um, many of our investors out there are just reading headline news and, and wondering what is going on with the office market. And, uh, you have a lot of different opinions out there, but what are you seeing the data show you, uh, about the office market today and and what does that data, you know, tell you about, you know, office market going forward and say the next one to three years?  

Brian   00:07:21    

Yeah, so, you know, every, everybody brings their probably personal experience to the table, right? Mm-hmm. <affirmative>, many of us who work in the office space understand that we're not working there, and then have an idea of what that's doing to the marketplace. So what we're seeing, uh, particularly in Los Angeles is, you know, office vacancy is up a bit. Uh, I actually saw a statistic that showed that year over year, downtown office vacancy was down slightly. Um, you've got large sublease space, particularly on the west side that's come to bear. Uh, and the question is how is that all going to flesh out mm-hmm. <affirmative>. But as I mentioned, without Hambra, there are opportunities, an opportunists out there in the marketplace looking to expand mm-hmm. <affirmative>. So for instance, in the downtown Los Angeles market, you had a law firm just sign for a little over 110,000 square feet on a 15 year term.  

Brian   00:08:09    

Cuz I think they recognized there was an opportunity there. Yeah. There's an opportunity that they needed to renew that they could take advantage of where the marketplace was, and they were able to do that. That may be a particularly, um, unique circumstance, right? You've got a kind of a white collar firm that's able to work remotely. They're able to probably just sustain the revenue from the, from their legal fees mm-hmm. <affirmative>, uh, which would, you know, give them the foresight to say, okay, we're, we're managing through this. And so we have a long-term view, so we're gonna sign a 15 year lease. But there are three other law firms that have requirements in downtown LA of 60,000 square feet or more, and they're also looking for 15 year terms. And there's a financial firm in downtown that has a 200,000 square foot requirement. It's also looking for a 15 year term. So you've got these groups out there who are looking long-term and seeing an end to the pandemic and a return to the workplace who are willing to place bets and do really long-term leases.

 
Darren    00:09:06    

That's interesting. And, um, I know you're doing some work in the office market outside of Los Angeles. How often do you go outside of Los Angeles, uh, for your investments or acquisitions or developments and, and what are some of the driving factors that help you decide to, to do a deal outside of Los Angeles?  
Brian   00:09:26    

Yeah, so, um, our platform kind of over the last several years has been Southern California focused and kind of when the pandemic hit, we were looking around at opportunities just generally in our business plan and looking to see if there were other markets that we could, uh, be successful in. So we, uh, were looking at places like Boise and some of the other mountain states. Certainly Salt Lake City has come up on the radar in the last few years, Denver, um, as well. And then you're also talking, you know, Colorado Springs is now coming up on the radar. So those have kind of just to me personally been intriguing. Um, I say particularly on Boise, I've been kind of a fan from afar. Uh, I read the Wall Street Journal, and when you start talking about migration or in migration or you talk about different markets, uh, that name Boise comes up often in, in that publication.  

Brian   00:10:15    

So, um, there was an opportunity that came up recently for us that we've been pursuing there thinking that we could take our expertise in the office space and translate that to other markets, uh, assuming that we're comfortable with the market and some of the drivers that you're talking about on the market, obviously, you know, coming from Los Angeles and seeing kind of what's going on with the unemployment rate, what's going on with the cost of living, looking to see if there are places that people are going to, uh, in which, you know, again, we could bring our expertise in the creative modern office to that location, to tech firms moving there or other companies moving there who would benefit from that type of office space and, and want that type of office space.  

Darren    00:10:55    

Boise's a super dynamic market. I mean, definitely the inbound migration from people just moving there, and I know there's, there's probably a pretty steady stream of people from California moving to places like Oregon and Idaho and Boise in particular. And, um, a question that, that I think some people have is like, does that mean they're going to also occupy space, uh, in office buildings? You know, and, and what kind of tenants do you seek to at lease this, this office building to,  
Brian   00:11:25    Yeah. So I, you know, that, that's a question for everybody, but I think going back to your point about, you know, your personal experience, Darren and, and for your company, what you, what you think the plan is. You know, the idea of the office space continuing to be valuable is, is a sentiment that's shared by many people, many executives, um, you know, many executives see themselves keeping the same amount or increasing the amount of office space that they're going to need over the next three years. Um, and, and it's also supported by the fact that they see too the need for collaboration, the need for a place to train, the need to have those coincidental conversations, if you will. And employees are seeing it too, right? That they, they want to build relationships, they want to have the collaboration, uh, with their colleagues. Now, again, will it be a more flexible office place, probably mm-hmm. <affirmative>.  

Brian   00:12:14    

Um, but, but there will be a need. And if you have to put people into a space, you may need more space for those same people, so mm-hmm. <affirmative>, um, you know, with respect to, uh, Boise in particular in that market, while people may be going there and some may be working remotely, you know, often, uh, and currently there are, are companies going there to look to, uh, expand into the market, to, to either put their headquarters there or to expand existing locations there? Um, I think what's bringing them, there are a variety of factors. Uh, you have low unemployment, you have a highly educated workforce, you have lower cost of living, you have an, a lifestyle there, an outdoor amenity lifestyle that people are just very much drawn to. Um, so we think just the historic office vacancy has been really low, particularly in that market. Uh, and I think just overall, um, as people are moving there, there will be a need for office. And I think, uh, for us, what we seek to do is to provide a class, a market leading product wherever we go. So we are willing to go somewhere that we believe in and we want to compete with all the other properties, and we think that we'll get our competitive share of those tenants who wanna have office space.

 
Darren    00:13:23    

It'll be really cool to see what, you know, the, the Boise office market looks like in terms of tenant improvements and interior design and different amenities that a Boise city, you know, tenant is seeking out. Is it, is it the same as, as a Los Angeles market, maybe downtown Los Angeles is different than, uh, Silicon Beach, you know, in Santa Monica, which probably is the case. Uh, and how will that, you know, other, other mountain region, uh, locations where people are moving in droves? Absolutely. I don't, I don't think that's gonna reverse, especially now that corporate, you know, employers are saying, Hey, people want to be there and the technology available, let's set up a a a secondary office there. Let's do the hub and spoke model, right? And may maybe, maybe not move the headquarters there, but let's, let's give our employees employees a place to, uh, to be. But it, it, it'll also be interesting to see what, what some of the amenity packages look like in a place like Boise versus Are you, are you getting any feedback on, on any differences there or is it pretty similar? Um,  

Brian   00:14:27    

The amenity packages haven't been, uh, with respect to the building itself, like the basic building amenities, right? So if mm-hmm. <affirmative> in Boise in particular, right? If you have a room to put your bike and you have a room, uh, where you can take a shower and kind of get ready if you bike into work, that's about it, right? Yeah. You don't need a bunch of outdoor barbecue space and you don't need, you know, all this other stuff. Um, and oftentimes I say that even when we do put that in, in Los Angeles, it looks nice for the marketing tour, but nobody ever uses it, right? But in the case of Boise, right, if you can have some good basic amenities, a good location, a strong sponsorship ownership, strong property management, and provide good tenant, uh, and client services, all you have to do is open up your door and walk outside, right? You're, you're right there, right next to all the amenities outdoors you would ever need and the culture you would need. And if you wanna go ski, it's, uh, less than an hour away. You've got premier ski resorts that are two hours away. Um, you've got a river that's right down the street. Uh, yeah. So, so the building itself doesn't necessarily have to have the amenities, but once you open the door in the location, that should be what you really rely on.  

Darren    00:15:35    

Well, let's, uh, let's circle back to LA for a second. I, I, I, I'm really curious, because you live in LA and you've been there for a long time, what's life like in LA right now? I think, I think a lot of people are curious about it. You know, we want to get the inside scoop from someone like you and, and what your employees are reporting. Uh, what's your sense for what's happening right now, now in Los Angeles? As, as the pandemic, we start to see the, the light at the end of the tunnel, and people are becoming vaccinated and, and hopefully return till normalcy sometime very soon.  

Brian   00:16:06    

Life in Los Angeles is getting back to normal. I know, you know, we've, I've been out of town on some business trips and seen that's a little bit more open in other places with respect to indoor dining and other things, and we have not quite gotten there yet, but, um, the numbers are coming down quickly. Uh, one of my sons actually went back to school on a limited basis, which was great for everybody, including him. Yes. Um, so I think we're a little bit slower to get back to everything, but people are ready for it, particularly the weather's getting nice here. Um, so, you know, once that time comes, I think you're gonna just see this explosion of energy back into the world. People spending money going to restaurants and retailers and supporting those businesses, and I'm very much looking forward to it.  

Darren    00:16:48    

Any other thoughts about, you know, real estate investment for, you know, say the next six months or so, as, as things start to open back up where you see opportunities, you and your team at the Raich company?  
Brian   00:16:59    Yeah, I mean, we're, we're optimistic, and that's not just because we are owners and developers of office space and other commercial space, but, um, just from personal experiences, you know, we, we hired somebody during the pandemic. We actually hired two people during the pandemic and just understanding the need to be together. I was just thinking about your comment at the end of the, your comments about getting back to normal, right? It's just gonna be nice to like shake somebody's hand or give somebody a hug, right? I mean, it's just to be able to do that. But my outlook is this, you know, it's gonna take a little bit of time as everybody knows, for people to kind of get their, their legs under them. But I think that employers and employees will come back to the workspace, uh, that will, there will be a need for office, there will be a need for retail, multi-family, and the, the office, the, the types of products we've been talking about. And, and we're just looking to kind of be ahead of that, looking for opportunities now while we're getting our legs under ourselves and, and just seeking to be ahead of when that demand comes to the market. So that's, that's our goal as a  Company. Yeah. Well, I, I, I love the fact that, uh, we're partners. I appreciate, uh, the fact that we're doing business together and, uh, you know, because I have so much admiration for you and your team for the projects that you've all delivered over the last 40 years at the Rap Bitch Company. And, uh, you know, I'm, I'm a student of real estate and I just really love, you know, how companies like yours, you know, make a city a better place, a more fun place, more entertaining place. Uh, we didn't even mention the fact that you, uh, was it the Wille Theater that you guys remodeled?  

Brian   00:18:33    

Yeah, so the Will Turn Theater on the Miracle Mile was one of the early, uh, rehabilitation projects that, that Wayne was a part

 
Darren    00:18:39    

Of. What a gem. I mean, like, to, to add that to the community. That's what I'm talking about. Like really contributing to the community, giving to the people that, uh, that occupy, you know, your space, but also to just a giving to anybody who, who happens to be fortunate to live in a community where you're, you're delivering projects. So, uh, thanks for all you do and thanks for joining us today on StreetBeats.  

Brian   00:18:59    

You wanna say thank you Darren, thanks to the CrowdStreet team. They've been great. And, uh, we look forward to talking soon.

 
Darren    00:19:05    

Sounds great. Thank you, Brian.