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July 27, 2023

  • What drove the initial RFP by the city to rejuvenate the area?
    When the Atlanta Braves announced their relocation to a suburban location, the City needed a new use for the 72-acre property. It was an opportunity to change the trajectory of an underserved part of town.
  • What else did you want to get done that you couldn’t do due to restrictions or inability to attract the tenants?
    We got close to a boutique hotel deal, but COVID scuttled it. That deal or something similar will resurface when the debt markets settle down.
  • Do retail brokers have info on Sales Comp Figures on comp restaurants/concepts? If not them, what is the best way to get that comp detail? Did you call up the restauranteurs themselves?
    Reliable sales comps take a lot of work to come by. Yes, you can ask an operator, but an answer is neither likely nor reliable. A few ways to triangulate – form relationships with food vendors and alcohol distributors, ask other restaurateurs about their neighbors, talk to municipalities off the record, and, yes, brokers. Accountants specializing in food service businesses can help, giving broad intel without naming names. GMs, after they move locations, are some of the best sources.
  • Would there be a good potential structure for redeveloping a retail site on a main street like Georgia Ave. with an owner who doesn’t want to sell? (They want to pass the building on to their heirs, currently marginally cash-flowing with a mediocre tenant)
    A few ideas: joint venture where they contribute the property, master lease, or a lease assumption.
  • Where do we find your advice on how to build framed indoor/outdoor spaces?
    Check out my Substack post.
  • How large are the average floor plates of these businesses?
    500-5,000 square feet.
  • Can you give us a general (or specific) idea of what the underwriting of a project like Georgia Ave looks like? What metric are you using to say, “Yes, this works.”
    When projected net operating income divided by total costs exceeds 8%, it starts to work, with the real upside being the halo effect on other properties.
  • Is there a negative feedback effect where "halo effect" businesses make the area more attractive, which raises rents, which makes it harder to attract more local "halo" businesses? In other words, do these up-and-coming areas soon come to be dominated by larger chains that can afford to be there?
    It’s kind of like the Yogi Berra-ism “nobody goes there anymore. It’s too crowded." It’s always a bummer when the cool places get overrun by chains and the independents get priced out. The reason I’m such a proponent of using a broader perspective is that the money doesn’t have to be made off the backs of the restaurateurs but can instead be made off of increased desirability and density in the surroundings. Rents can remain affordable when the operator is paying in vibes.
  • Totally agree that some things are more expensive but have some unquantifiable benefit to people, e.g., hand-painted signs. However, how do you sell that to investors if you can’t show how it directly increases profit?
    Investors don’t care how the sausage is made, just how much they get. The trick is making a good enough deal on the land that allows the headroom to pay for details.
  • What was your leasing strategy for Georgia Ave. in terms of the leases? Since it was a "build it, and they will come" type of project, does that mean lower rents and no TI or lots of TI but with market rents or something else?
    The tenant demand was strong out of the gate, with folks willing to invest their own capital in buildouts. In other projects, we’ve provided a lot (sometimes all) of the required improvements.
  • I would love to hear about how this connects with (A) a pattern language, (B) Edens (SC -> DC, retail as a halo for resi) (C) Federal (similar in the DC area).
    Anyone interested in buildings should read "A Pattern Language" (or better yet, the more intensive "Nature of Order" series). We’ve developed our own kit of parts for building these types of places. See this on patios, and we also have them on bars and buildings. Edens and Federal are both terrific operators and have used these ideas to create fabulous places. Union Market and Santana Row are wonderful examples.
  • When you say $3 million in sales, do you mean the sales of all tenants in the retail cluster?
    No, I mean finding a handful of restaurants doing $3 million in sales each in the area or a comparable area.
  • When is it too early to put a patio like this in if we don't have the scale to buy up several acres? E.g., you are a mile away from a great neighborhood that fits all the criteria, but you're still in the part of town that has the "dirty needle mattresses" Eric talked about?
    This is where the comp of a few folks doing $3 million plus in revenue is important. If you can justify to yourself that in the immediate area or in a comparable area, an operator is doing more than 3 million in sales, that is the litmus test.
  • How do you structure the project so that the leases are more affordable for the amazing little shops that bring life to the community while also justifying it to investors? Do you own the whole project and then treat the retail as a loss leader, or is the ownership more fragmented?
    There’s an analogy with golf course development – build a terrific golf course, and the lots around it become more desirable. The course itself often loses money but (when it works) is more than made up for with the surrounding home sales. Same with ski resorts or a big fountain in front of an office building. So yes, consider the overall project, but we’ve been able to structure our projects such that the retail component is a profit center.
  • I currently work in the creative/design world but want to get involved in real estate as well. Any tips on where to start?
    Get a job in the industry, working for someone specializing in retail and mixed-use properties. Spend time in leasing, property management, and finance, and get educated on construction.
  • I have a spot that I believe would be very solid for the tacos/patios strategy and meets most of your metrics. Not free land...LOL. But we already own and have had it for over a decade. Tweaking the building and adding the patios is doable. How do you find the hot dog/bbq/beer partners? Build to suit? Field of dreams model?
    Our gathering in October solves that problem, allowing building owners to meet quality operators and learn their language.
  • What are the total building costs for projects like these (hard costs and TIs)?
    We’re seeing really nice shell buildings priced at $400 per square foot. TIs can range from zero to $300 per square foot.
  • How do you identify operators for awesome little retail shops? How do you attract them?
    There’s a lot of friction there – the best way is through personal shoe leather, walking in and talking to the owner. Our gathering in October removes the friction allowing building owners and developers (and aspiring developers) the opportunity to meet operators, form relationships, and learn how to approach them on their own.
  • Are you investing in these retail shops? Is there a significant TI component to recruitment?
    Independent retail shops don’t require much tenant improvement; restaurants are a different story. We invest in great operators but didn’t have the opportunity to on this project.
  • Which is the cart, and which is the horse? In other words, build halo first, or is there a key to starting the surrounding at the same time?
    Finding an area where existing operators are doing more than $3 million in sales is where to start. Then use that as a recruitment tool to build additional scale with new operators. The vertical commodity buildings come later.
  • Do food trucks work, or are they too transient?
    They can play a role, but they’re not great at getting people to hang out and sit together. Also weather dependent.
  • Beyond development consult fees, what would the retained interest look like for your role?
    We haven’t done much consulting. Our role is as a principal in our projects, either by ourselves or partnering with others. In this case, our partners at Carter did all the heavy lifting.
  • How many of the buildings on Georgia Avenue were new construction versus adaptive reuse of the existing buildings, or were you able to redevelop everything that was existing?
    Three of the buildings were new; the others were heavy renovations.
  • How do you decide where to land on the spectrum you described, from ground leases to turnkey buildings with full TIs for any given tenant?
    It depends on what the operator needs. When we find someone with a halo, we work to solve for their needs.
  • Neighborhood approval and connection are so important, but it seems there will always be the camp that opposes any change (even if it's delicious tacos). As a developer, how hard do you push? Have you ever worked on similar projects in mountain towns?
    We’ve been involved in large-scale re-entitlements, but partners managed it. I don’t have the stomach for it. Now we’re only involved in projects where communities reach out to us because they want what we do. I’ve lived in mountain towns and observed the unique culture. Because it’s universally appealing, there’s an opportunity to use the approach and product I encourage to make controversial projects more palatable.
  • How critical is the “10 halo businesses” number? If you have a parcel that only accommodates 6 or 7, could that work, or should you move on and ID another larger parcel?
    The halo businesses don’t need to only be on the land you own (it’s better if they're spread around) but just in your immediate vicinity. The idea is to create enough critical mass of vibe to make a worthwhile destination.
  • Have you ever experimented with giving the early operators who take a chance on a new project some equity in the overall project? Is that a crazy idea?
    We’ve done this, and it can be a powerful tool. Picking the right partners is the trick.
  • What is your thought process around parking in these spaces?
    They don’t work if people can’t get there, but big parking lots kill vibes. Sidewalks, bike lanes, and mass transit all help and may be all that’s needed in certain areas, but there has to be a place to park them in car-dependent areas. In dense areas, that can be surrounding garages, but when it is surface lots, the lots should be secondary (in the back or otherwise tucked away). The best is a few small lots mixed with street parking.
  • In your experience, can you cite certain uses that have conflicted being in very close proximity to each other? (i.e., ice cream next to XY tenant)
    The conflict comes when two operators are doing the same thing – two scoop ice cream shops next to each other doesn’t end well. There’s a benefit to clustering uses with different day parts – breakfast/brunch restaurants next to dinner & drinks or a juice shop next to a yoga studio.
  • I would love a separate meeting centered specifically on Step 5 (Get free land...). Understanding the steps and strategies involved in locking up pockets of land or buildings with limited or zero capital in major urban centers (or on the outskirts thereof) would be fascinating.
    Good idea – we’ll put it in the queue!
  • I would love to see some detail of underwriting to understand what the math looks like behind a project like this.
    The math is like any other real estate development - solving for a return on cost. The difference with these types of projects is that there are more levers to pull that help get there – things like shared infrastructure costs, participation in surrounding development, percentage rents, municipal grants, and others. We’ll do a deeper dive in the future.
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