Retail Trends with Kenneth Bernstein

Foreign.

This is the Insider's Edge to Real Estate Investing with James Nelson, the principal and head of Avis & Young's Tri State investment Sales Group. In this program you'll learn game changing strategies to outperform the market. James will teach you how to source, execute and capitalize on the best real estate opportunities in New York and around the world. Now here's your host.

This podcast is for educational purposes only and should not be relied upon for investment decisions. The opinions expressed are those of the guests and not their companies. Listeners should not act upon the information without first seeking appropriate advice from an accountant, lawyer or other professional.

Welcome to.

Episode number 182 of the Insider's Edge to Real Estate Investing. This is your host, James Nelson. Thank you as always for joining and wow, we have been on a roll. If you have not listened to the last few episodes, just incredible conversations and hopefully you appreciate really trying to dial in to get these speakers stories. Not just where they are today but how they got into the business. For those of you who are aspiring real estate investors, but look for also those of you veteran real estate investors. I know for many of you you're going to get a lot out of this one because talk about taking your business to the next level. So we're going to be talking today with Kenneth Bernstein and Ken talks about going public and managing REITs. Ken is the President and CEO of Acadia Realty Trust. Acadia is a real estate investment trust which specializes in the acquisition, redevelopment and management of open air retail properties. The trust owns or has ownership interests in more than 100 properties to totaling approximately $4 billion in value. In addition, Acadia launched Fund 5, which is capitalized to acquire another $1.5 billion in retail. You're going to hear about the advantages and drawbacks that come with going public or remaining private. Kenneth also discusses the development of Katie, which he co founded in 1998 and is a public company. He also shares his thoughts from his experience in the retail trends of the past decade and the future of the Omnichannel in in the industry. So as always you can go to jamesnelson.com that's where you can find the podcast Show Notes. That's how you can figure out how to connect with Ken and to see all about Acadia Realty Trust. That's also where you can find helpful white papers. You can sign up for the newsletter. There's a lot of helpful information there. I built this site for you so we're going to have a brief word from our sponsor and we'll get right into that discussion with Kenneth Bernstein A.

Different Approach to Putting Our Clients First Avis and Young's Tri State Investment Sales Group sells multifamily office retail development and specialty sales throughout the New York metro area. As experienced thought leaders in our industry, our 35 member group is available to help you make informed investment decisions by advising you on your current holdings or identifying new opportunities in the marketplace. Our one unified team is built on an industry unique platform which promotes unparalleled collaboration and and teamwork. We share core values of hard work, integrity and expertise. We put our clients first providing tailor made strategies to achieve superior results. Please Visit us at aytristateinvestmentsales.com and follow us on Twitter, LinkedIn and Instagram amesnelsonnyc to learn more.

Welcome everyone. So thrilled to have with us today Ken Bernstein, who is President and CEO CEO of Acadia Realty Trust. Ken, thank you so much for joining us.

Thank you for having me.

Wonderful. So I really enjoyed your talk to YMW rea, an organization I've been involved with for years. You've got such an incredible story, as does your company. So to give our audience a little bit of background, I know start off at University of Vermont. You've got a law degree, so maybe just for our audience, maybe tell them how you found your way to real estate.

Sure. By accident. And I think to the extent there's students listening, it's important that they be open minded and explore. I went to college without any understanding of what commercial real estate meant, went to law school without any thought of being a real estate lawyer. Spent a summer at a as a summer intern at one of the major firms here in New York who had an amazing real estate practice and fell in love with it. And so from that I practiced real estate law for a few years, liked the client side of the business and evolved onto that. It was as much luck, right place, right time and following your instincts of what sounds interesting as opposed to deciding in junior high school what you want to be when you're 30, 40 or 50.

Perfect. So in that legal background and mindset, so how did that prepare you to become a better investor even today? Maybe when you're looking at a lease, I mean I would imagine you spent so many hours where you just know to look for where in the clause. So was that a helpful background for you as you got into investing?

Sure. But I guess what I would say is you can get to the route you want to many different ways. The law can be a way if you're good at it. I don't recommend people just going to law school and not practicing. But that combination can give you a seat at the table. You can be very good on the financial side, and you can be very good on the sales or other side. So as people are preparing their careers, they ought to think about what they're good at. I decided the negotiating side and the transactional side was the best vehicle for me to move forward, and it worked out just fine. But that's not to say don't go to business school if Wharton's calling, because that can also be a great route.

It's a great point. And for the brokers listening, so. So some of them, when you talk about the broker, the attorney relationship, you know, some would say, okay, the brokers, they put the deal together and then they send it off to the attorneys, and either they make or they kill the deal. And there's always, you know, sometimes there's that friction. I do not subscribe to that. I look at counsel as an incredible partner who I don't try to reach out to. You know, as soon as we send out a deal memo, I like to talk to them right from the onset. But talk a little bit about being an investor. What is the best way to work with your counsel and how to treat that relationship.

And full disclosure, I haven't practiced law since 1990, okay. So I don't really have a horse in that race, other than there is a bit of a Mars and Venus style. Lawyers tend to get paid by the hour and are grinding out on behalf of their client. And the brokers are paid by the success of the transaction. So from a lawyer's perspective, they see the broker show up, spend a few hours on something, and then get extremely well compensated. They don't understand or appreciate what goes on behind the scenes, and vice versa, I would hope. Any lawyers working for us are not trying to kill deals. They're trying to protect their client and get a deal over the finish line. And I think most brokers are that way as well. So that tension, maybe it still exists. But that tension, I think is a distraction from the goal, especially in times like this, of getting transactions closed. And in that case, I think there's great brokers who understand that. There's great lawyers who understand that. And anyone listening should ascribe to being part of that solution.

Yeah, we definitely agree with that. And I think the top professionals in this business, brokers, attorneys, understand the benefit of working closely together. Something that I talk about in my book is about this is a business of specialization, right? So if you are listening and you're looking to do your first commercial real estate investment or you're a vet, you should be relying on specialists. So when we just talk about attorneys, obviously that's a very, you know, general term, but the need for specialization. So maybe talk a little bit about that in your business and maybe you could talk about going public as a company and what that was like working with the council there and the team that you needed to make that happen. Maybe talk about transactions and leasing and how you go about finding the best professionals to work with.

So let's talk about specialization, which is increased in every avenue professionally that exists and actually taking a step back and thinking beyond that or avoiding specialization in every hour that you're working. And here's what I mean. Ultimately, whether you're a real estate investor or an investor in any other kind of financial instrument, it's a financial instrument. And take a step back, whether you're a lawyer or broker or principal and say, what are the appropriate risk adjusted returns and what's the appropriate capital stack? How much debt, how much equity, where are the investors coming from and what's the right deal? And if you're so specialized that all you can focus on is student housing, now that may be your expertise on the value add side, but if you lose sight of what the risk adjusted returns are for other asset classes, you may miss out on a lot. So I encourage everyone to take a step back and say, what does a 12% return feel like? If 12 sounds real high because the 10 year Treasury's at 2, which it was not so long ago, fine. Well, what happens when the 10 year treasury is at 5, which it was just a few months ago? Where should equity returns look like? There's enough generalists out there who can help inform all of us so that even if we are asked to be specialists in our day job that come the evening, think like a generalist and then you can actually add more value when you are talking about your specialized area. So that would be my first point. And then we are a more specialized industry than we were 10, 20, 30, 40 years ago. We are a more sophisticated industry and we should be prepared for that. The cmbs, debt, investment banking, public companies are all areas of expertise that make commercial real estate more interesting today, more sophisticated today, but more specialized today than perhaps in prior decades. Choice of being public versus private. Both work at different times and we operate. Let me take a step back. Katie is about a $5 billion portfolio of open Air retail. So we do specialize in open air retail. We are probably best known for our focus on street and urban retail, which is about half of our overall portfolio. But we're also very active in the suburban space. We are known for being a public company. We are publicly traded reit, New York Stock Exchange. But that REIT is also the general partner of a bunch of joint ventures and funds. And so we utilize private capital and we utilize the public market. There are some points in time where both are open and active and healthy, and there are times where it's painful and both are shut. Right now, the public markets are reopening, which is exciting, and the private markets are settling down, and I would argue reopening as well. A lot of it on the private side has to do with the debt markets, has to do with the inverted yield curve that we're slowly working our way through. And it actually feels like 20, 24 and optimistically, 25, 26 are going to be a great time to be in the real estate business, whether you're public or private.

Definitely agree with that for sure. So 1998, you found the company. You now have ownership interests in over 100 properties. So at what point did you go public and what type of critical mass did you have to have a portfolio that you essentially recap talk about? At what point were you ready to make that decision to go public?

So we were a private investment company starting in 1990. In 1998, we took over a troubled shopping center, REIT called Mark Center's Trust. And that was when we went public through a reverse merger into that company. And by early 1999, the entire REIT market collapsed and we were faced with a lot of headaches. It wasn't a question of were we too big, it was a question of could we survive. And it wasn't just us. It was every public company. And public companies go through this evolution. So I had to rethink how we were going to grow. And at the time, I felt we were too small. But we also didn't have access to the public markets. That's when by 2000, 2001, we started setting up these joint ventures that have been a very successful vehicle for us. Public markets have evolved even further. Today, I would argue public markets are still going through consolidation. There probably will be fewer. There's a dozen shopping center REITs today. There probably will be fewer five years from now. Investors will want different flavors. We're highly differentiated, and I think more often than not that's appreciated, but size will matter more Consolidation will occur and that's a healthy part of the business.

And it seems there's been a proliferation of non traded REITs as well. So the decision, and again, this is a great conversation not just for those starting out in the business, but maybe for some of our more experienced owners, investors who have that portfolio and, and are thinking about tapping into the public market. So kind of that decision to go traded or non traded.

Right. So non traded REITs have existed in one form or another forever. Syndications were effectively that. And for certain investors, avoiding the volatility of the public market is very appealing. That can be true for individuals who have stocks, but they just want to own real estate and understand how that works. And that could be true for institutions who may own REITs publicly traded, but then want the lower correlation of profit. So the choice of non traded, less liquid, highly traded, both can work. The big difference several years ago was the more recent non traded REITs, more sophisticated, more institutionally backed. Blackstone is one of the well known there that brought a level of governance and a ability for liquidity and a high level of talent and focus to an industry that had a tarnished reputation at times. Now, most recently, there's been some questions around your ability to get your money out. There's been a little angst around that. Think that'll pass and investors will be able to make informed decisions. Do they want to buy publicly traded, highly volatile but very liquid, you can get out on 10 minutes notice or something that you have to be a little more thoughtful about your exit. But really high quality companies, the answer is both are going to do great.

To dig a little bit deeper into the pros and cons of going public. So access to capitals, certainly on the pro side, as long as the markets are behaving. But then I guess the flip side is yes, you are subject to the markets. Some would say maybe you're subject to the quarterly earnings and satisfying the public, for lack of a better word. So how do you kind of balance those two opposing factors?

So to be crystal clear, if I were to do it over again and I could pick any way to arrive as the CEO of a real estate company, I think I would choose to be born a multi billionaire. All right, so that's simple.

Sign me up for that.

Okay?

Exactly.

All right, so that's easy then. Otherwise, if you like the real estate industry and you like investing, any of the avenues are good. If going back to some of your early conversations, you really don't want to ride the roller coaster that is commercial real Estate, be a lawyer, stay being a lawyer, Right. And even there you're going to feel the roller coaster. But we're a cyclical business. Your side of the businesses. Mine is, I think again, if people are considering going public and they are on the cusp and major investment banks are advising them and they're large enough and they have a story, then they should feel free to call me. And I'm happy to have a candid conversation about the pros and cons. But there's pros and cons. And if you are building your business and want to find the right kind of capital partners, public versus private early days, you're going to choose private capital and then over time you'll see where it goes. Being public is rigorous. Being public is not for everyone. But I would argue from where we sit today, if interest rates remain higher than we are used to, but settle down. So if the 10 year treasury is at 3.5%, 3% or higher, that the utilization of debt may not be as fun as it was when you could borrow all in at 3.5% or 4%, which was only a few years ago. But that era may pass. And so if we think that unlevered returns are going to matter more, if we think that cost of debt is going to remain elevated, then the public markets have a slight advantage because it's less debt centric. If you feel otherwise, then lever up to 90% and give it a shot.

I'd like to maybe go back to why in the first place that you acquired, you said a reverse merger. And I'm also thinking about Berkshire Hathaway. So obviously Warren Buffett took over, I guess a failed read at the time. Now it was, was the reason because it was a cost savings. I've got to imagine it's pretty expensive and it takes a lot of time to go public from scratch. So was there a reason why you took over the failed company? Would you recommend that?

We saw real estate value. So it was first and foremost a we could buy real estate. This was a company that had not done well, saw the opportunity to acquire the company and create real estate value first and foremost. Everything else. I have to admit these were earlier days of REIT World. Everything else about should we just take the company private and own it versus keep it public was a bit of a guess. And at some points shortly thereafter, when the stock went from seven to four, huge mistake. And then when it went from four to 30, we were brilliant. And the answer is somewhere in between. So again, I don't think we will be able to answer with a lot of clarity in this conversation the pros and cons of public versus private buying an asset pool, in this case Mark Center's trust at attractive pricing, that felt really good and we were validated a few years later for that.

So it was really about when you looked at the total market capitalization of that company at the time and looking at what the implied value was to the real estate. And you hear a lot about that today when talking about the big office REITs here and at what they're trading for. It's an implied 8 cap or it would be value in the portfolio. So obviously there's other considerations than just the real estate. But for you it was really that that was the math was what was the underlying real estate.

The real estate was worth enough that we didn't have to think about the cost of quote being public. That came for free. The decision to continue to stay public, again, sometimes that was a brilliant decision, sometimes less so. But once you are a public company, you have shareholders that you must execute on their behalf and that's what we continue to do.

Well, I really appreciate, as I'm sure our audience does, you're going into depths because it's not a topic that we've talked a lot about on this show. And so I'll ask one more question on the ret topic that I really want to get into. Retail and your strategy and advice to our listeners. Making decisions based on what your shareholders, the feedback that you're getting. So again, you're trying to make decisions to create long term value. And yet yes, you have these quarterly earnings reports where trying to make decisions to satisfy investors at the same time. So that question probably did not come out incredibly well. But the idea again, balancing the shareholder expectations and making the right decisions as you see fit for the long term or are they one in the same?

9 out of 10 times it's the decision is a real estate decision an investing decision or a decision between right and wrong. And it's pretty obvious what you should do at the margin. Then there are shareholders who they tend to be in REIT world, a very smart group. They tend to be very well informed and they may not know our specific business as well as other companies, but then one out of ten times they'd be of the point of view. You should buy back stock or you should issue stock or you should do converts and all that. You listen to it, you make sure you understand where they're coming from and then you make the decisions that you think are in the company's the shareholders best interest. Sometimes you agree, sometimes you don't. It's not that different with primarily endowments and foundations and pension funds. All very smart investors as well. Nine out of 10 of the decisions, it's on us. But I still listen to them. These are smart investors with a point of view and a seat at the table. I don't find it that different for that one out of ten times I've been fortunate. I have a great board. I'm fortunate that I have a senior management team that gets it. We sit, we talk about it, we probably disagree. And then ultimately, and I've had to make tough decisions, I think about I own a significant stake. How do I feel as a shareholder, what would I do? And it tends to not to be as difficult as it sounds. So when my fellow CEOs or you hear me say, oh, it's so hard, Wall street driving me crazy period of time. Do right by the real estate, do right by your shareholders. And it tends to work out sooner or later. I don't think that there's a group of really smart investors in one part of the real estate world and really dumb investors elsewhere. So it tends to work out well.

It's definitely wonderful to hear that. Nine out of 10 times, at least it would seem the interests are aligned and so it's not having these polarized views. So on that note, and certainly there's been a lot of different takes on retail as we know it, certainly since COVID Right. So and that was right after E Commerce is, you know, we've heard so much about is bricks and mortar dead. And you know, who would have ever guessed what, what you know, Covid would have done? And now we're seeing a surge back in retail. So I would imagine you're trying to keep everyone on board and keep things moving while there's so many of these different challenges that we've been facing the market. How did you navigate? I mean we can talk a little bit about E Commerce and what that's evolved to. Maybe talk a little bit about COVID but just, you know, the last five years of retail and maybe where you feel like we've landed.

Yeah. Yes. I think it's worth dialing back to either the global financial crisis first just very quickly and then the so called retail Armageddon. So we all pull out of the global financial crisis. Retail actually was in decent shape, both suburban and urban retail. And so by 2011 I was sitting down with our retailer saying where do you want to be? And Most of them were underserved in the urban markets. So we started adding to the five boroughs of New York pretty aggressively and to street retail, whether it be Soho or Greenwich Avenue or Melrose Place in LA. And then around 2016, 17, all of a sudden, we saw the beginning of weakness, probably around 2015. 16, partially as a result of. Of overexpansion by many retailers. First it happened in the enclosed malls, but then it quickly bled through the entire industry. And by 2017 or 18, there was legitimate concern that online retailing was gonna wipe out all bricks and mortar. Now, this is where being a specialist is a pro and a con. The negative, being a retail specialist is what we did. So if the answer is physical retail real estate is going away, well, I had spent 20 years building that up, and all of a sudden it's. And many of my friends became industrial developers or something. But you had to be prepared to pivot if that was your conclusion. By 2019, meeting with our retailers, listening to them carefully, it became clear that online was here to stay, but was unlikely to be a major profit center. That of all the different channels, it was going to be very difficult for retailers to do it profitably. And so by 2019, I felt pretty good that online was part of Omnichannel. Target is our largest tenant. And in 2019, they started breaking down the different components. And they said, Brian Cornell was very clear that if you buy online and we deliver to you, very hard for us to make a profit. If you buy online and pick up at the store, it starts to feel like a more traditional profit. And certainly if we can get you into the store, so that's on that end, luxury, similar kinds of response. So by 2019, I felt really good. And I was that moron CEO during a quarterly call who said, we are at a bumpy bottom. I was half right. It was bumpy because then Covid hits. Thank goodness our retailers had online. Thank goodness that many of our other retailers figured it out, because Covid was horrific. For the half of my portfolio that was in major. That is in major cities, it was horrific. It was very scary. Thank goodness we all pulled out through that and then we had the interest rate spikes. So it's been a series of headwinds. And yet by 2019, it was becoming clearer that the fundamentals were looking better. And now when you look at retail real estate, our retailers are doing better than before 2019, almost without exception. Rents are better than before COVID almost without exception. And because of the retail Armageddon, we have not seen any new supply to our industry in close to a decade. So the supply and demand is back in balance and thus it's good time to be a tenant. Good time to be a landlord.

And the one other thing that I think I've heard you say before is about the customer acquisition cost and just how expensive. I mean some might think, well, oh, it's online. That's, that's free, right? No, to actually onboard that customer. And social media is actually, you know, Facebook and their, you know, the other social platforms have really figured out how to optimize the cost there, let alone the once you have that customer and all the returns and all of that.

So if we were having this conversation in 2017 with relatively sophisticated shoppers who were doing a fair amount of online purchasing, they all would have thought that customer acquisition cost was free. Let me explain. We all kind of assume Google just does this as a courtesy Facebook, why not? The reality was is they charge a lot. That's customer acquisition cost. But it goes further than that. 2017, free delivery, free returns. Shoppers thought it was a constitutional right. Now you're seeing, especially on returns, retailers pushing back, saying we can't give you free returns. One, because there's a shipping cost, but also because it's what's referred to as orphan goods. Really hard to get that back in the distribution system. And so it either sells for pennies on the dollar, not good for the retailers, or worse, ends up in landfills, not good for anyone. And that's why Omni Channel works. That's why retailers recognize when they have a store where you can go and try something on, where you can go and pick something up or return it, your online sales go up, right? So the store and online help and it helps alleviate some of that friction. That's omnichannel. That's the future. The future of online only, what we call the digitally natives. The future of that is going to be very difficult and our retailers are no longer concerned about that. And I'm not particularly concerned.

And I think you also said Warby Parker, who started digitally Native brand has now is rolling out. I don't know if it's hundreds of stores but, but it's, it's a lot. So that, that certainly drives the point home. So I would like to talk about your site locations and take Soho for example. You have been very specific about where you buy and you've been inquiring retail up and down Green street, for example. So. And I don't know if that means you haven't been buying on Broadway. But just for our listeners when they're thinking about what maybe makes for a great retail location. And that might sound obvious, you like SoHo, but it's where in Soho, what streets, what blocks? How would you advise our listeners to find the best retail out there?

So a lot of this is understanding the data around tenant sales and rent to sales. And there's a lot of data available now. You can look at foot traffic, you can look at which retailers are showing up where. But as opposed to in the suburban business where you're really counting on a good location, but the right anchor, the right draw, the right inducement tenants. Soho has a population around it. It's booming right now, but each block has a different attraction to different retailers. There's nothing wrong with most of the blocks. We probably would buy almost anywhere in SoHo. But if you're going to assume that we're going to get the same rents on a property further south towards Canal street that we are getting on Prince or Spring, you're wrong because our retailers won't do those same sales. There's high foot traffic streets such as Broadway, we like Broadway and we own on Broadway, and there's lower foot traffic, but real selective that's attracting a different kind of shopper and a different kind of retailer. Still getting strong sales, slightly less foot traffic. And that's fine. You need to just understand each block within a soho, each block within a Williamsburg where we own, or Melrose Place, which is only a few blocks there, it's kind of easier. But we are ultimately a location industry. Think about the locations. Be prepared to understand that retailers are going to measure their rent based on sales. So you better be right about what kind of sales they can do.

Talk now a little bit about your tenant relationship. So you said Target is your largest tenant or one of them. First of all, what do you look for in a, in a great tenant besides just, you know, the right number of sales? But what are the tenants that you really gravitate towards? And then how do you cultivate those relationships? Relationships. So when you go buy a vacant piece of retail that you have that CEO's ear when it's time to suggest that they move to your location.

Right. So I, I strongly recommend anyone who's focused on retail get involved with icsc. Full disclosure, I was the chair several years ago, so I'm a big fan. But it is probably the best way to just understand who's hot, aggressive, expanding, who's not, and to learn a lot about what does a good TJ Maxx look Like versus what does a good YSL look like? And ICSE does a great job of educating people, whether it's through their panels or just meetings in general. Getting involved in ICSC for us as a company was important because it was a great way for us to sit down, share ideas with retailers and understand who's doing well, who's not, what their goals are. That being said, be prepared to be wrong. You could pick the best retailer to do business with and if they merge with a less good retailer, you're in trouble. And they 99 out of 100 times, they don't have to call you and check on that merger. And so we have woken up at different points in a cycle with a tenant who we loved, had great relationship with, but they merged and all of a sudden now we're overexposed because rather than having two tenants in my portfolio and I liked both, now they're consolidated to one. So you have to be careful about diversifying and otherwise building those relationships takes time. We have a fantastic leasing team that really does the heavy lifting on that. But retailers want relationships with landlords as well, so it tends to work out. And if you listen carefully, if you read their information, if they're public, there's going to be a ton of it. You can learn a lot about their business.

So we've now talked about location, we've talked about the right tenants, so you've got the ingredients for finding the right opportunity. But what is it that makes a deal an incredible deal? And kind of thinking about some of your greatest successes, what do those deals have in common? Were these longer term bets with solid cash flow? Was it a value add where there was a pop? Like what is it when a deal shows up to investment committee that it just, it's an immediate green light for you.

And so this is the big issue, the third and fourth leg on the stool, if you've got to buy it right. Kudos to our leasing team, but also to our acquisition team. If acquisitions overpays for an asset, I don't care how good the leasing is. So basis matters. And then the fourth piece of this is the right capital stack. Now that enables enough finger pointing. Acquisitions can say, well, you just didn't finance it correctly. And finance could say the leasing, you didn't lease it up fast enough and let the games begin. What I would argue is you need a realistic seller, you need to be prepared to meet the market. If that works, fine. If you're stretching too much, you're going to regret it. And then you need the right capital stack. And by that I mean if this is an asset that's going to take three to 10 years to mature, you sure as heck better not have two year financing with no ability to extend or equity investors who aren't prepared to see it through to stabilization. Conversely, especially now when we have an inverted yield curve, if you put 10 year financing on an asset that you plan on flipping in two years, and oh, by the way, it's cmbs where you have no ability to do it, you're not going to achieve your business plan. It's lining those four pieces up. Do we have a realistic seller? Now it's great. Everyone wants to find that perfect deal at 50 cents on the dollar. Occasionally it does, but usually that's occurring at a time when there's a global pandemic or interest rates are soaring and other things like do you have a realistic seller? Do you have the right capital stack for the business plan, preferably with more staying power than you think you need. And then do you have a business plan to execute at the real estate level? Is your leasing team on board? Having all of that is what's essential. Having a great leasing plan but not the right purchase price, you're screwed. Perfect.

What is your insider's edge? What is your way to win the deal? So clearly your credibility in the marketplace, your, I would hope, ability to move quickly. But what is it when you're in a competitive bidding situation that gets you across the finish line?

Yeah, and, and it's so interesting because we 99 out of 100 times have the capital every now and then it's conditioned on us going to the public markets and raising money or something like that. And yet that in and of itself turning to the sellers or the their advisors and saying we're ready to put down a deposit, we can do due diligence faster than anybody else. You still have to be prepared to be pretty darn close to the highest bidder. So what helps us is making sure we understand up front which deals to chase, understand how our retailers are performing or how they're thinking about that location. So that when someone says, okay, you're close, you need to increase your purchase price by your bid by a certain amount. You have conviction around it. Two bad things happen when you don't have that conviction. One is you lose credibility. Thankfully, that is not how we roll because you end up spending time coming back for price reduction and all of the other noise and nonsense around that for some people, they can make money off of price reductions. I don't want to operate that way. The other thing is you're just wasting time. So by the time we know, yes, we're prepared to win this bid and yes, that price works. We've thought through the capital stack. We understand more often than not how our retailers are going to respond, whether it's a lease up deal, meaning calling retailers saying hey Aritzia, are you interested? Having a good sense of their view or if it's existing retailers. And then every now and then problems creep up and you lose environmental problems or for whatever reason things that you just didn't forecast structural issues. But I try to make sure that that's as few and far between so that when you pick your spots, you're more likely to win.

Great advice. With only a couple minutes left. So we'd like to talk a little bit about how you've built your team and how do you find the right people? I would imagine that they're a big part of your company's success.

Yeah. And really hard. Really hard. And I would argue harder today than it's ever been. When I started when Acadia went public, my entire senior management team was 10 years older than I was. I wanted experts and I really needed help. And thank goodness I had them and they were fantastic. And then over time they moved on, they retired and now I have a team that almost without exception is younger than I am. And that's great too. So you need to make sure you have the right students, the right teachers, you have enough industry experts and enough people who are open minded to trying new ways. The challenge today is Covid was such a body blow, obviously the disease itself, but also just how we are pulling out of what I would argue we're still in this post Covid discovery of what's the right amount of time in the office, what's the right way to learn? How much can we do remotely, how much can we do in person. And there's a phenomenon that's occurring now that's unfortunate for the young professionals. Probably they were in college when Covid hit. They've never really seen the kind of professional world that you and I grew up in. They heard this myth about arrive at the office before your boss gets there and leave after she leaves. But they don't really understand what that means. And in a 247 world they're constantly somewhat on. We need to get past that. At the same time, these young professionals are getting blamed. I don't believe it. If you tell me someone graduated from a important university or someone graduated frankly from any University. They are the most tutored, the most coached young professionals that we've ever known. And the thought that they are somehow overall looking for a different, quote, quality of life, I think that's a myth perpetuated to some degree by you and me. We may not want to show up, so everyone's pointing fingers. The reality is for the young professionals, show up, engage, learn your trade, learn as much as you can, as quickly as you can. You will just be better and have more choices for middle managers. You better make sure you're teaching because if you're not, all of that hard work that you did 5, 10, 15 years ago, you're going to get overlooked. And then for us senior leaders, we need to wake up to this new reality, which may not mean five days in the office or six days in the office, but it's going to mean we got to hold people accountable. And that's, I think, the evolution that's occurring right now. I probably will get some hate mail around for saying that.

No, you took some of the blame as well. And it's great advice for all. And we've all been trying to figure out how to navigate through this, but this has been an incredible conversation. I'm sure everyone who's listening will benefit tremendously from this. And so just on a last note, you've achieved incredible success over 25 years. What is it? What are those one or two things that you would say is about you, your company, that set you apart and have led to the success and longevity?

So I'll give four, four things. Okay. About 25 years ago when we were trying to figure out should we, how should we survive and all of that, I was going to an off site. I had to come up with something and it was the four eyes. Integrity, intensity, innovation and intelligence. And I thought, you know what, that's good for this off site meeting. It still exists today. You bring those four eyes to your career, to your job and stuff tends to work out.

Ken, thank you again for joining us today. Really appreciate you giving your time and we'll look forward to being in touch.

Great.

Thank you again.

Thanks.

And thank you everyone for joining as well. This is your host, James Nelson. Sorry, your host of the Insider's Edge to Real Estate Investing. We appreciate your following sharing this episode with your friends. If you enjoyed it. Until next week. Thank you again.

Thank you for listening to the Insider's Edge to Real Estate Investors Investing. We appreciate your subscribing and sharing with your friends. If you haven't already, please connect with James at James Nelson NYC on LinkedIn, Instagram and Twitter. Please also visit James Nelson.com where you can find the show, notes and other episodes, along with an exclusive video series and other helpful resources so you can gain the insider's edge to real estate investing. Until next week.

Sam.