Retail Real Estate (Still Worth It?)

Episode Transcript:  

 If you listen to the news, you might think that retail investments are basically a dying breed, but are they, or is there actually loads of opportunity to be found? We're gonna unpack that and more on today's episode. Let's get ready to scale.

Hey guys, my name is Jeannette Friedrich, director of Investor Relations here at Blue Lake Capital, and joining me today is an outstanding guest that is gonna be able to speak to you about retail investments, mixed use investments, and more. His name is Bobak Zai. He's the founder and managing principle of Brand View Incorporated, which is a private real estate investment firm focused on investing and adding value to neighborhood, retail and mixed use properties.

He has a transaction history behind him of $2.5 billion and is an adjunct professor at the University of Southern California. Now prior to that, Bobak was an advisor at Low Enterprises, which was a national real estate company with over 6 billion in a UN. He has his master's in real estate development from the University of Southern California, as well as his BA in Business Economics from UCLA, and he's joining me from just down the road in Los Angeles, California.

So Bobak, welcome to the show, 

Annette. Thank you so much for having me. 

Yeah, we're thrilled to have you on. I think that your background is extremely interesting. Retail, I think is a very misunderstood creature that you can hopefully help shed a lot of light on for folks. And before we jump into the interview process of all of that, do you wanna go ahead and just explain to people when people say retail, it's a very generalized blanket term, but do you wanna break down the various I guess various silos of retail, if you will?

Sure. Happy to do that. So you're right. Retail is in general collapsed all into what we read in the news. And the news does not help in, people think of retail, they think of malls or they think of grocery. But they don't. Usually understand that it's really a segmented property type.

All property, real estate, property types do have like garden apartments versus high rise apartments. Retail has that plus the specialization that's required. And that's really driven by the consumer. So for example, you have mall retail, but then you have open air malls, you have closed.

Malls, you have grocery anchored centers. Those could be regional, national, or part of larger power centers. You have neighborhood retail, which we focus on, which includes for us, as we define it, street retail unor, strip retail altogether in a neighborhood setting that generally is walkable near.

Housing as well as of course drivable. And then it goes on and on. And so within even retail, street retail, you have the luxury high end. You have the last mile more necessity based. And as you can imagine, there are tenants that meet consumer needs and exist to do and therefore they all have different ways of how they use space, how they need it to work in order to drive.

Customer demand and sales. And that's ultimately the heartbeat of not only retail, but community. You can imagine within those things, if you are a real estate retail, real estate operator there's a lot of subspecialty that you gain experience in your focus. It's very difficult for a mall person to suddenly say, I'm gonna go buy a luxury high street.

Not saying you can't, but it's almost two separate animals. 

Interesting. Very interesting. And since I already cracked the door open here, I'll just kick it wide open. So what is the future of retail? Shoppers have basically shifted to being so predominantly e-commerce driven, where they're just simply purchasing everything online.

How do you view the future of retail? What do you. Tell your investors and what do you tell clients about where retail is going to go moving forward when you have what appears to be such huge competition? 

Sure. And I think that competition has provided the opportunity and so I'll go into it. So everyone, Amazon buys Whole Foods and I believe it was 2017, again, it was 2017 or 18, that kind of.

Started the, rang off the bell of suddenly retail becoming a four letter word. Which, everyone's oh, it's G Online's going to eat retail. That's where product and cer, products are gonna be mostly bought and sold. They're not gonna be bought and sold in stores. And that is mostly, I would say true.

I agree with that. However, going into COVID and realizing in isolation that people still need to go out and do basic things. They need to go out, they have needs like haircuts, chiropractic. Fitness eating and dining together. Human interaction, dare I say. 



And so retail has really shifted into this new normal, which is driven by the consumer now wanting service services to happen.

And even more services now, more medical services included as part of retail, whether it's med spas, all of those uses are now part of a new service-based retail demand. That is, that not only, not only hits the consumer needs, but also provides actually a more d durable income.

And so what I call it is really the rent roll 2.0. And if you can find opportunities where you can bring this new rent roll to the properties, you can really revitalize them with a much more viable, durable income stream. 

Fascinating. And that kind of opens the door to the mixed use concept as well. So do you wanna explain to our listeners in case they're just not down with all the lingo, exactly what mixed use properties are?

Mixed use is a general catchall term on its best day. And but in, the way we look at mixed use is generally you have. More than one property or use of more than one property type or use of property within an existing property or a group of properties. So it could be a mixed use portfolio, it could be a bunch of buildings on a street mostly retail on the ground floor, maybe some are professional services or office on the ground floor or upstairs.

Could also include living upstairs as well as office use upstairs as well. Still many people still go into the office, but not as many as before. 

That's 

generally the definition. In terms of how we incorporate mixed use, I come from a mixed use real estate investment development background.

Where at low, as you mentioned, where really ground up institutional development, large scale was my experience set. And we have a lot of comfort and excitement frankly, about integrating. Additional uses, which we call really the secondary uses after retail, is the heartbeat and the driver of the neighborhoods we invest in.

Nice. Nice. Now speaking of that, one of the things that you like to specialize in is taking basically overlooked properties and, transforming them into more profitable assets. Now with rent softening and bad debt rising nationwide basically the market is just frankly not playing very nice right now.

Sure. How are you going in and transforming these types of properties? 

You got it. I'll state the obvious one, which I think everyone probably lists in their investor deck and we do too, which is we're going through a big revaluation of commercial real estate at large. So there is a, you know what's being called the great value reset?

I. Or what we like to call as a great entry point in resetting the basis on these investment opportunities. Mainly driven by the cost of capital, obviously starting with the cost of debt, and then off of that, the pri, the higher cost of equity. And so that right there gives us what I just call the opening.

Now, do you have a seller? Do you have a, do you have all those things saying and agreeing with you on that? That's a. We can get to that separately, but that's where I would start from there. If you have that opportunity to start with, the next thing you look at is okay, what is the new, what is the new existence of a property?

Let's just call it a multi-tenant. I. Strip retail property on a street. And the opportunity goes back to what I mentioned earlier, which is you can bring this new rent roll to the property depending on where it's located and what, how consumers in the past have interacted with that property.

Have they, is this some, is this a property where people drive to? Is this a property where people walk to, okay, what, where has this property performed and where has it underperformed? So right there you have basis, you have. Rent roll being service based and I'll use an overused term experiential, which really just means food and gathering.

And if there's a complimentary. Mix of those tendencies, what we call re-merchandising strategy. That's, those are the two places I look first. From there you've got opportunities with the mixed use, what I call, there's mixed use integration with additional uses. There's mixed use expansion of spaces that aren't being rented, or roof decks or upstairs spaces or expansions where we can add value simply by adding square footage.

Leasing it, which is the easiest way to add value, right? The easiest way to at least understand value being added is just adding space. From there, there's opportunity even more in the. Less scientific and more art artistic side, I'll say of what we call placemaking, right?

Driving a sense of place. This is more of an intrinsic value, but, when you go to the Brentwood Country Mart, how you feel and what that experience is like. And you also know how you feel when you go to your daily strip center and pick up your, pick up your dry cleaning and maybe do, some kind of, self care, whether it's a haircut, get your nails done.

And that's an experience. And so the placemaking around that gives the property, this value of, in the consumer's mind being known where to go back to every time for that experience that ultimately drives sales. Sales secures and drives rent. And as we know, rent and all those things drive our yield on cost.

Yeah. Very interesting. Is there a secret combo that you have that you can share with us that you think is the sweet mixture of basically types of stores that you would, always wanna position into? A particular center? 

Yeah. I think you can think, with food it's easier, you almost use the analogy like pairings, like wine and cheese.

If you had a wine shop and. Then found a tenant that's cheese shop and that's perfect pairing like just not to over generalize it, those types of complimentary offerings. Like right now we're looking at a project where. There's a destination oriented restaurant and there could be a sister restaurant to that.

The de the destination oriented is more local American cuisine. It could really be complimented well with a Mexican restaurant. 



In a smaller format. It was tried and true is usually independent coffee and tacos and you suddenly, you notice like a taco shop and a little coffee place suddenly completely re started.

I don't wanna say, it can be considered gentrification, it can be considered re-energizing with this, this following of people who now know to go there and then they wanna do more. And then, those centers can, or those strips or centers can evolve into, what we see further down the road, which is Hancock, Larchmont in Hancock Park, and like now you have all of that happening in later chapters.

The formula really morphs with the prop. You really have to go with what the neighborhood is already authentically feeling and start to solve it off of that. But there are these little rules of thumb. It's, it makes, it's, what I love about retail, frankly, is that it is a little more subjective and really driven by the local consumer and how you can drive in more.

Interesting. So when you are, looking at a prospective apartment, do you, or excuse me, not apartment a strip center, I apartment's always on my mind. When you're looking at a, a strip center, do you spend time actually walking around the neighborhood and taking note of, resident behavior things along those lines.

Almost a little check checklist, that you have to carry and go through to, to figure out those little un. Spoken hints, that people are communicating to you in some way or another? 

Absolutely. That is actually table stakes. You have to have to do that.

And if you're not doing that, you're missing a lot of the, ground level information around. How does this property just, it's a living, retail's very much like all property types, but especially retail. It's really like a living, breathing. Organism and you wanna understand everything from how people interact with that property during morning hours, midday peak after work based on what it offers, how does the parking interact?

And then definitely get a sense of how the tenants are doing without necessarily prying, but just, see how, see who's going in and out, see if those models are mostly online. Or are they offline and or how are those two com complimenting each compliment complimenting each other? So I think you, you gotta see how it behaves and then walk the block and understand how everybody else behaves.

Because then the broader ecosystem is a bunch of tenants, hopefully driving sales to each other. And that's sometimes very complicated because you can't control and have a blank canvas of all the properties on a block. So in some ways you're get, you're getting in where you think you can fit in.

If you're the first, you're one of the only units. If you're doing a bunch of things, then you can really drive and have something more viable. But it all starts with really, what we call canvassing, really canvassing, streets canvassing. And then you start to even think about, boy, this would really work for Restoration Hardware, for example, or one of their concepts.

And you have all of your tenant. Community or a roster in mind around how you could start to put this together, not just by category of use, but actually users who you think would do well. 

Wow. It sounds very fun, I have to say. It's a puzzle. 

Yeah. Yeah. Puzzles. 

Yeah, it sounds very fun. Now, I am curious to know given the pressure that a lot of people anticipate on small business owners because of the integration of tariffs into, our scenarios.

Now I'm curious to know what are you doing when it comes to working with tenants or how are you advising, some of your clients maybe on how they can work with their tenants to try to find a way over, under and around. These additional economic pressures that are, anticipated to come into play?

Sure. I think in general, indirectly we're all affected. Directly, some are even more affected. Speaking very widely, but for the most part, the service-based tenants they're more impacted by labor costs, then they're impacted by, tariffs necessarily. But you have that and I think, to the extent you can and most owners try to is to get.

Tenants to report sales or ideally share, in, in some cases even share their financials. But usually it's mostly just sales. You start there. From there I think it's about having the conversation and understanding their outlook. It's, for us in our properties, we have a pretty open conversation.

Sometimes it's awkward. 'Cause everybody wants to say they're doing well and you almost don't want to hear if they're not. 



But it's important to look at that and then, are there. Rent restructures that are necessarily, or lease restructures. We haven't necessarily gotten to that yet.

But are there situations where a tenant's Hey, I could really use, some concession here that I'll make up for later, just very broadly and, yes. That's fine. And I think we just, that again, starts a, a broader conversation about how are you doing overall, like how, where are your customers still coming from the same place? Are they driving in to buy or are, what are they doing? And so we really try to do our best to put our ourselves in the shoes of the merchant or tenant and then figure out what we can do. But normally. On a landlord perspective, and it's a delicate, fine line on behalf of investors, you are also open to hold the line.

But you can't hold, you can't hold it too hard because if you lose the tenant, everybody loses, right? Unless they were not supposed to be in there in the first place. And so you have that as well. You have some, the other thing you do is some tenants may not make it. Or may have a harder time making it and may question if they wanna stay in that location.

And again, you wanna have that visibility as soon as possible to start thinking about relet their space and who goes in and how does that raise the tide for everyone else. 

Interesting. Interesting. And so along those same lines, I'm curious to know what other potential operational levers you've used over the years that have helped your, properties to either perform or even overperform for your investors?

I. 

We've, in our markets, like we operate in Venice Beach, we've operated in Santa Monica, these are coastal, communities that have a hard time getting permits. And so we work with it. We have to do a lot of needle threading around what uses we can put where.

So operationally what we try to do is, we in general I mean it's actually a lot of what I. I already mentioned, which is it's a form of tenant relations. Like we're just having a lot more tenant relation conversations. And for example, if we can do signage differently, if we could do operationally, one of the things we've actually done, which is a little bit different from everybody else, is when we have a vacancy, retail leases can easily take anywhere from three to six to nine months to sometimes 12 months to negotiate for certain tenants.

And we have this vacant space. And this became very real for us during COVID and like anything, necessity forces, I don't wanna call it innovation or whatever. You're in a bridge loan on an asset, you're working a permanent and lease a space for a tenant to go in and start paying rent.

That for us in these coastal areas, can take sometimes 12, sometimes two years, 12 months, two years. Wow. And what are you doing? You're just, you're working, but the space is vacant. What do you do with that? We actually started a separate. Arm of our property management asset management business, which focuses on brand activations, popups, short-term leasing solutions that we actually drive.

And we kept it separate from everything else because it's own little, it's its own little marketplace called at this moment agency and. We use that to actually bridge a lot of the downtime with some income to offset, the bleed that we didn't expect at COVID when we suddenly lost a bunch of tenants altogether.

They just ran for the hills. And so that was the first way we did that. So operationally we handle, we bridge that. And then of course on property management for street retail and mixed use properties is. Either it's either, it's two extremes. It's either a mom and pop business, or it's lumped into and I'm being friendly and respectful about our institutional friends who just lump it in with everything else.

And so a lot of value gets overlooked. A lot of this opportunity around, wait. Is that, are these tenants really doing well? How is the upstairs interacting with the downstairs, there's a lot of opportunities to drive the common areas and how these interact and finding ways to restructure some leases based on how, quote unquote roommates are living together that are maybe office upstairs versus retail downstairs. So we revisit all of that too and try to come up with better ways to run common. I can dig in further, that drives all the way down into the accounting level. Based on how we're accounting for cams and how we're sharing cams and how we're driving that.

So between. Bridging short term to long-term leasing revenue to tenant relations. And then all the way down to how we report and charge cams and how we work with tenants. It's all it's all very hands-on. Wow. Yeah. Yeah. It sounds like a 

very interesting ecosystem. One of all of its own.

Very interesting. 

I get in trouble for saying ecosystem too much. I gotta go, check the thesaurus or look it up and chat, but it's true. It really is. And what you benefit is from is this kind of multiplier effect. You have, you learn how certain tenants work together and that actually helps you go to another asset with that understanding.

And so you're constantly learning and it's constantly evolving. 

Fascinating. My husband is actually a scientist okay. Who specializes in virology. And the way that he describes viruses is, that a virus never wants to kill you. It wants to live off the host for as long as possible. And that was honestly the visual that I was getting when I was thinking of how a retail strip operates and functions within a community.

It needs. To live off that community. It doesn't wanna kill the community, it just needs to live off of it. It absolutely. Community. Yeah. Fascinating. Community needs it. Yeah. Yeah. 

And that's really important, is really understanding that two-way relationship. A dear friend once told me, forming a partnership like anything, tenant and merchant, tenant and landlord is you both really gotta need each other.

To go along. To go along together. And I think that's very true. It's very wise. 

Yeah, I think the the team mindset and mentality is critical, it sounds like for everyone's, everyone's success. 

I think that's right, and I think that's gonna be still what keeps us employed and AI not completely taken over, is that human element, that real understanding of how a center or a strip of buildings can provide, what that energy is.



And so it's really important there. Yeah. So I, for me, I think if, going back to your earlier question, I think. You can see that retail still has a lot of opportunity and a lot of legs in this application of it. 

Yeah, absolutely. I it really does. I've been convinced even in just this short conversation.

Okay, 

good. I, and I don't think have you score me yet and say I'm winning or anything. But I think generally, I think, even think about like how many boxes show up at your doorstep. 



Great. You didn't have to go to the store for those, but where are you gonna go eat?

Are you gonna leave your house at some point? What is that? To do? What? And there's a million rea, there's a million great things to do that only you can do by leaving your house. So that's 

where we start. Very true. Now, along those lines, and before I get into what I call the lightning round questions, okay, my last question for you, quote of the interview here is, you teach real estate finance right at USBI do.

So I'm just curious to know, what is the biggest misconception that you have discovered people have about retail real estate? 

Okay, perfect. Yeah, so I'm on the adjunct faculty at USC. I'm teach some years. I don't teach some other years, but I've been doing it for about 10 years now.

And retail and it's the students I think, but the students catch up 'cause they're there to learn. But I'd say in general, retail remains super misunderstood. I think. You know when it was a four letter word, starting with Amazon's purchase of Whole Foods, at least that's when I started a clock hit to the last year and a half, two years, where now grocery anchored retail on the other side of the stream is slow, is slowly if not considered, what you know, buy again.

The press has the bell of the ball. I think it was misunderstood then, and I think it's misunderstood now, and I think it's for the same reasons we talked about, which is you have consumer patterns that have changed, whether it's migration, whether it's preference, whether it's, buying online.

And so all of those provide different opportunities. It's no different from multifamily. Suddenly like quartz countertops becoming almost the standard for a certain level of apartment. A, a minus or above apartment, it almost has to have that. 

But we didn't know that.

No one knew that until you saw the demand for it. Yeah. Same thing goes for retail. We're seeing that, a lot of uses, these third spaces that people call them. They're not coffee shops, they're not offices, they're wellness spaces, whether they're fitness and hanging out. Pilates and or fitness and hanging out, coworking and hanging out, all of these we evolved to do.

So going back to the definition of retail now, I truly believe it's really service-based. 



And experience-based. And within that you have a host of ways to handle it. You can even think about how it applies in a mall setting versus a grocery setting versus a street retail setting.

So the students have their work cut out for 'em and everybody else does too. Trying to even break this down. Because as soon as you do it, it moves a bit. 

Yeah. Fascinating. Very interesting. All right Bobak, I have arrived to the point where we do the lightning round questions, which are five questions that I ask all of the guests on the show.

So are you ready? I. 

I'm ready and I didn't even watch a, I didn't watch till the end of your other shows today. It's 

too 

cold. 

All right then it's very authentic. Good. Excuse me. 

Great. 

Good. So when you're not, eyeing retail space that you wanna transform for investors, what do you actually do for fun?

Ah, good question. That's an easy one. I like to spend time with my fiance. 

We're both entrepreneurs. I really love the ocean, so anything I could be doing to be playing outside, whether it's swimming, surfing running by the water, all of those things are super exciting. I. 

Nice. You're living in the right place.

Yes. Thank you. All right. The next question is going to be more challenging for you then, and it's not easy. What is something interesting about you that most people don't know? 

Sure. I, it was the thick of COVID and I was honestly just trying to find something different other than just.

Solving the problems we were solving, which we were gladly doing and stepping into. But I was looking for some other motivation. And I was selling a piece of like office equipment on Craigslist, and the guy that showed up was a fireman and said, fireman on a sh or excuse me, lifeguard said lifeguard on his shirt.

Long story longer. I said, how do I become a lifeguard if I were ever to do this in a second life? And he said, you could become one now. You just gotta show up and try out. So I did try out, I took the swim. Test and was almost gonna be a lifeguard on reserve on the side. It didn't work with my schedule, but people don't know that I was almost gonna be a lifeguard.

Wow. Interesting. Okay. I don't know if that's 

interesting, but that definitely happened. 

Yeah, no, it's fun. It's fun. Alright, and then what about as far as a book or a podcast? What would you recommend people get plugged into if they want to learn more about navigating into the retail space? 

Ooh, that's a good one.

I. I, I would say in general there are people that I lo I really enjoy following and that they are on podcasts and have newsletters. I'm a huge fan and he's a dear friend of Eric Weather Holt. And he has a newsletter that he writes really well, really succinctly with great photos called Asphalt Jungle.

And I believe he has, or he's a, he's part of a podcast as well, but if you look up Eric Weather, Holt on Twitter or LinkedIn he also runs a really great network called Automatic, that is a meetup of developers, investors, tenants, vendors around. This type of retail, which is, creating places ultimately.

So I'm a big fan of his and would definitely endorse that one. 

Nice. All right, good. Now, one of the things that we also like to focus on this show is, yes, we all wanna make money. We wanna have some good returns, but the point of all of it, is so that we can live extraordinary lives.

Build extraordinary lives. So what's your advice to someone that is focused on doing that? 

I think it, it's all about, and I think this is said by a lot of people, it's all about your why, and just knowing that, I think real estate is a very difficult. Business. It's very, for all the reasons, it's capital intensive, it's slow moving.

As soon as you build something, the market switches and you can't build parking garages fast enough to keep up or whatever you have to do to make it work. And I really believe having your why really clearly defined for yourself is. It's gonna help you jump out of bed. And it's also gonna provide what's really important, which is that conviction.

As investors, we have to have a lot of conviction, and that only comes, becomes put to test when interest rates aren't zero. When you know, co things like COVID do happen when presidents get elected and never be expected. One outcome. And then it was a totally different outcome with race, we all thought, everyone widely thought certain things.

And I think that constantly tests your conviction, which is driven by your why. And so having that, why, for me, I love neighborhoods. I love creating vibrant neighborhoods. I grew up watching Sesame Street. I think about that when something's really difficult. Like, why what am I doing?

So I find that to be super helpful. 

Nice. Very good. All right. And then last but not least, if folks wanna get in touch with you, how can they find you? 

They can find me. I'm on LinkedIn at my name, my handle Bobak, B-A-B-A-K, last name Z-I-Z-I-A-I. They can also go to our website it's Brand View Inc.

Or brand view cap.com. I think we have both domains and we are gonna be have, we are gonna start a quarterly update on all the happenings that and help that we're doing. But I'm pretty active on LinkedIn. Try to share as much as I can with folks as we're learning it to be of value. So hopefully folks can find us there and be happy to engage.

All right. Wonderful. Thank you so much for taking time to walk us down the shopping journey and the retail journey and, the experience journey, you honestly made me more excited and interested in it than I've ever actually been before. It sounds very fun and I really appreciate you sharing it with us.

Honored to be here. Really appreciate it and thank you. 

Yeah. And for those of you that invested your time with us this week, thank you. Don't forget to leave us some comments and let us know others topics that you'd like us to dig into. And in the meantime, be bold, be extraordinary, and keep moving forward.

Ready to scale is brought to you by Blue Lake Capital, where we hunt down the best multifamily investment opportunities that we can find. And invite investors to join in with us. We target class B value, add multi-family properties across the Sunbelt. Our CEO Ellie Perlman invest a substantial amount of capital into every deal.

This means our interests are aligned with yours. If you're an accredited investor looking to expand your portfolio and diversify sponsors, be sure to visit us@bluelakecapital.com. Blue Lake Capital, be bold, be extraordinary, and keep moving forward.