Shopping Centers with Jeff Edison

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Welcome everyone to episode number 205 of the Insider's Edge to Real Estate Investing. I'm your host, James Nelson. Thank you as always for joining and wow, here we are at it yet again every week delivering new content and we're here to really help you gain that advantage to outperform the market. And today's guest, no exception, we have with us Jeff Edison, co founder of Phillips Edison Company. He served as a prince since 1995. Currently he's the chairman and CEO. I really love Jeff's perspective on the retail market, specifically grocery anchored. We went really deep on the subject matter and I really appreciate his perspective. I know you all are going to get a lot out of this. What's really interesting is that at Phillips Edison they refer to their tenants as neighbors. So they're really thinking about curating and doing what's best for the companies that are tenants of theirs, but going above and beyond thinking about how they can really create the best community. So Jeff's got an incredible background. He's on the Board of trustees for icsc, which is, by the way, a great organization if you all are not involved. Yes, the focus is certainly retail, but if you've ever been to their conference in Vegas, where I've attended for probably at least 10 years, probably more, you see a lot of different investors, developers, brokers. It's a great way to meet people and have some fun while you're out there. And last but not least, Jeff is, yes, another alum from Colgate. We're going to talk about that. We've now had several Colgate alums on this show and I always get a lot out of their perspective. So we're going to have a brief word from our sponsor. Before we do that, go to james nelson.com if you haven't signed up for the mailing list yet. Every month we have a newsletter that's really geared to help you and it aggregates the podcast. It shows some of the recent articles we've done. Other helpful tips there so you can also find the show notes there for this episode and how to follow what Jeff and Philip's Edison is doing. We're going to have a brief word from our sponsor. We'll get right into that interview.

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Welcome everyone. Thrilled to have with us today Jeff Edison, who co founded Phillips Edison and Company and has served as his principal since 1995 where he currently serves as their chairman and CEO. Jeff, welcome. Thank you so much for coming on the show today.

Thanks James. It's great to be here. Enjoy. I look forward to the conversation.

Wonderful. And I do not hide the fact that I am a big fan of our alma mater Colgate and I believe you are now at least the fifth person that we've had on this show from Colgate. So sorry it took us so long to get to you, but we've had our friend Dan Hurwitz on Thomas Campbell, Chad Cooley who co found the Colgate Real Estate Council and of course our mutual friend and my mentor as well, Paul Massey. So I know we already have a lot in common going into this.

Great. It's awesome.

So with that so you graduate Colgate in 1982 Liberal Arts School for those of you who don't know, up in upstate New York did not have a real estate degree sold to this day, although now we do have a pretty active real estate club there and I think they are starting to offer some more courses for it. But Jeff, getting into real estate, was that even on your mind at the time or tell us how you ultimately found your way to the business?

Yeah, you know when I graduated from college I really had no idea what I was going to do. I went to business school for two years. It was really a business school where I started to see real estate as a place where I wanted to go. And a lot of it's just I love hard assets. I love touching them and working them and building them and all the rest. So that part I think is just a natural attraction to it. But, but the other part about real estate that is always intriguing to me is, is how many different parts there are that you got to be good at to be in the business. And it's whether it's on the financial side or raising money or on the equity side, on the raising or the debt side raising money or whether it's, you know, the leasing space or managing the properties, building things. I mean there's just so many pieces to it that I find it, you know, that, that, that part is, is attractive to me. So I think that's what really got me excited about it.

Wonderful. But just. And I think this will be helpful maybe to some those listening who maybe are entirely new to real estate. I mean, at the time graduating you said you didn't have any real estate knowledge. I don't know if you had any context in the real estate world. For me, it was fortunate enough that Paul Massey had posted a job position at the Career service center. But besides that, I knew no one in real estate. So did you have any connections before or have any path?

No, I really didn't. I interviewed with my second year at Bizco, I interviewed with the Taubman Company and they were starting sort of a program to bring people through the organization into different departments and then hopefully get into one part of the business over a longer period of time after probably three to five years of exposure. And that was, I just felt like it was a really unique opportunity that I really liked. I also looked at the Trammel Crow because the year I graduated from business school, Trammer Crow was I think the largest hire from business schools across the country, which is kind of an amazing thing.

Now I see that there's so many of these real estate programs popping up. I don't know if it's just we're hiring and it's a great business that continues to grow, but it definitely seems like a lot, a lot of the jobs are still out there. I think that the colleges are really dialing into that. Jeff, give our listeners a sense of what Phillips Edison is like today. You're a publicly traded company. You've been in existence for 30 years. What does this portfolio consist of? I know the focus is on grocery anchored shopping centers. Maybe you could talk about what that all looks like.

So I'LL start with a little story. So we, over 30 years ago, it was times of the RTC and things were really tough on the real estate side. And there were amazing opportunities to buy things that, because it was. And you could get seller financing because there was so much distress in the marketplace. And one of my friends from Taubman, we were both leasing agents at the Topman company were talking. We're like, you know, we got to figure out how to buy this stuff, not sell it or manage it. Like, let's figure out a way to do it. And so we put together our first deal in Virginia that we bought and it was a grocery anchor shopping center. And we basically redid the entire center. We, you know, redid the facade, redid the anchor lineup, you know, leased the vacant space, we did the parking lot and the lighting and all the things you had to do to kind of bring it up to speed. And this was a pretty distressed property, as you can imagine. And you know, the rest of our story is very consistent. We continued to do that type of project for a long, you know, for 30 years. And it was that grocer that drives the traffic and the necessity based kind of retail that got us excited about it. And then now you wake up and all of a sudden you got 300 centers and you're in 31 states and we're a public company and the rest. But it really was from that first center that we. And you have the experience with the Massey Nacal thing, I mean it was, you do get really good at knowing your specific market and how you deal with that market by doing it for a long time and building up that experience in your team. And then all of a sudden you can do a lot more. And that's a pretty exciting path over time.

Absolutely. And that specialization and that focus is really remarkable to see when and now you look at how much the company's grown over the 30 plus years. What was it that attracted you to retail and specifically grocery anchored?

Well, we didn't have a lot of money and we were putting it together and we were pretty confident that we didn't want to get into a business that was very, you know, very cyclical because we'd seen enough damage from our, you know, from, from my days of the RTC and, and, and the, and the, where there were, were major changes in the real estate market. And we, so we, you know, as we were looking, we're like, you know, if you, if you think about grocery and you think about necessity based retailers, things have to get really really bad for you to stop shopping at the grocery store. And so we, you know, part of it was this security, you know, sort of having less beta in, in the, in, in the investments that we made. But we also want to be able to grow. We want to be able to, you know, add value to that and that. And that's where the gross Rankard center business was appealing to us. It's also, you know, at that time and it's become more efficient, but it was a really inefficient market. So you could, if you worked hard at finding opportunities, you could find some, you know, opportunities that were not, you know, perfectly priced. And that, you know, was helpful for us.

I love what you just said about the inefficiencies. That's a big premise of my book. Book the Insider's Edge to Real Estate Investing is finding those opportunities where, you know, whether you have an advantage or there's, you know, something that's been overlooked by most investors clearly being able to source and find those opportunities. So I want to get to that, but I have to. We might be jumping around a little bit on our timeline here, but you know, when you said that grocery anchored and services and standing the test of time and things have to get pretty bad for people not to go out and shop. Well, clearly Covid was that, you know, if there was ever going to be that stress test. And I don't know if it was before COVID or after. That's, you know, this is maybe when Amazon was just eating up market share for online sales. There was definitely a time and Fresh Direct is certainly still a thing people are saying, well, hey, is everyone just going to get their groceries delivered? Then of course, Amazon goes and buys Whole Foods. You must have a pretty strong opinion on what that looks like. I'm sure there are going to be some people who want their groceries delivered. But what gives you conviction that people are going to always want to go to the grocery store and, you know, pick out their produce, so to speak.

Yeah, we, I got really tired of retail Armageddon because every investor that we talk, it's retail Armageddon. Amazon's coming in, they're going to take over that market and everyone's going to get their groceries delivered to their, to the, to the front door or even in their house. And you know, one of the advantages of having done this a long time is whenever something has changed in our business, it's always been everyone's thought it was going to be the end of it. And I mean, the, the most relevant for us was, was when Walmart came in. Because I mean Walmart was basically not in the grocery business when we started our business. Our business. And today they're the largest they've taken. You know, I think 25% of the grocery business, online grocery is about, is less than 10% and 90% of that is in New York, Louisiana and Washington D.C. when you put it, it's just not taking off the way now everybody what's happened is the consumer demands that there are times where they want delivery, there are times where they want Bopus to pick it up at the store and there are times they want to shop in the bricks and mortar store and they want all those options. And if you don't give them those options, they're going to find somebody on the grocery side who will. And so we, you know that what's happened is the, from, from our perspective is we've seen this evolution. It is stabilizing in terms of where it's going to happen from a cost standpoint, I mean for the consumer. And as that has stabilized, it's not a lot different than other things that have stabilized similarly on the retail side, the overall retail side, whether it was the catalog business or whether it was Walmart's coming in, there's always this extrapolating the growth line to where it's going to take over 100% and it never does because the consumer does like choices. And if you look back at our history, we, we experienced the Walmart coming in and we, we, we made the basic decision and belief that the consumer is going to support the first and second grocer in their market regardless of how good Walmart gets. And so that really was part of our strategy that what we buy is the number one or two grocer in the market because we think there's less exposure to, to the Internet, to the Walmarts of the world, to the Aldi's coming in with at a very low end. All those pieces have given us, have helped us to develop our, our strategy. So it's, yeah, we were facing retail Armageddon. You know, it's a lot harder business than people think. So Amazon and Amazon really has not proven themselves in the, you know, the bricks and mortar retail business. They've got, you know, they've closed more concepts than they've opened and you know, they continue to be really strong in delivery but they are not, they're not great at yet. They will be probably at some point, but they're not great yet at really being a good bricks and mortar retailer. And part of it just cost. I mean, it's so expensive to deliver the last mile to people's house that you're. The customer's got to pay for it or it's not going to happen. And a lot, you know, most customers are not willing to pay 15 to $15 to have their grocery delivered. So it's going to be that. To me, it's going to see how it bows. Yeah.

I wonder if how that also applies to Whole Foods and if that's been a successful venture for them. Not. I mean, I don't know if there's a parallel with what we saw. Some of these digitally native brands that when then went to, you know, bricks and mortar and then they call it Omni Channel so you can buy online, you can return there, whatever. So I don't, it's not exactly how, you know, grocery shopping works, but I wonder if, you know that those options that you spoke of, if the other grocers, you know, if that's had as big of an impact for them where they say, okay, I want our customers to be able to come here and shop or we can have their order ready or if they want, you know, they can deliver. And if it's the latter, then maybe they're just, you know, relying on Instacart or whatever it is to bring the stuff to them. But yeah. Do you think that Amazon and Whole Foods acquisition has proved out as positive and then do you see some of the other grocers kind of following suit?

I think it has not turned out very positively. I mean, I would say I think that Amazon is very disappointed with their inability to be a more dominant player in the grocery business because for them, you know, the 1.7 times a week that people go to the shopping center is their brass ring. I mean, if they can, if they could have you have every customer in the United States come to their store 1.7 times a week, think of all the things they could add on to that and reduce their costs of delivery, reduce their costing. So they, they, they, they want to be really good at that. But, but their new stores that they opened, I mean, I think they've closed more of the new stores than they've opened at this point because they're, they're fresh, direct. That, that was going to be, that was going to be their, their thing and you know, they were going to tie it in with. So yeah, it's the, they will continue to work at it and they'll continue to try and figure out how to make it work so far they haven't, they haven't even, I mean, they tried, they tried books, they tried. I mean, they've tried a lot of different things to where they tie in their. Online. And it's, you know, I, I mean, there's, there's a lot of people out there who would say it's much more difficult to go from bricks and mortar from, to go from Internet only to bricks and mortar than it is the other way around. And you know, Walmart's, you know, Walmart's kind of, I think, proving it. I mean, they're, they're consistently taking market share and moving up on the, on the Internet and delivery side.

So it would seem to me then that most of your grocery tenants, and I noticed you call your tenants neighbors, right? So your neighbors would seem to me that they're seeing their customers shop there in person. And I don't know if that's more than 1.7 times per week, but I would imagine that the benefit of having that grocery anchor is obviously once the person's there and whether it's even to pick up, you know, a half gallon of milk or, you know, whatever it is that they're there and then if they got to get their dry cleaning or whatever else. But you know, how much of that kind of benefit do the other tenants in, in the shopping center get from that, you know, shopper or having that strong grocery anchor?

It's the, it's a very integrated and a really important thing for them. And I, I call it sort of the Saturday morning decision where you've got a bunch of things you got to get done and where are you going to get them done. And you know, you want to get a workout and you want to get your haircut, you want to get your nails done, you want to, you want to get a smoothie, and then you got to get some groceries for dinner. And we want to be where your mind goes. That's where I want to be. And then we want to merchandise the center so that we have the best of each of those categories for you. So we have the best nail salon, we have the best place to get reasonably priced haircut. We have the best place where you might want to go to dinner on a casual place on, in, you know, on a, you know, a Friday evening or a Saturday evening like that. That's what we're, we want to provide the best of in, in each center that we have. And it's, you know, and I actually got a lot of this from, from Massey Nacco which was that, that, you know, block by block kind of concept and being really locally smart. That to us is the key to our being successful in our business. Because we have 300 shopping centers and they don't compete with each other, they don't compete in regions, they don't compete in the southwest or southeast. They compete in a three mile radius. And we have to be the best operator in that three mile radius to win. And we've got to have the best anchor and then we've got to have the best merchandising of our centers. That getting smart neighborhood by neighborhood is what we think has allowed us to be successful over a sustained period of time.

Wow. Okay. So that leads to a lot of interesting follow up questions. First of all, the idea of getting best in class tenants, but then kind of weighing that against the highest rent. So I'm sure you've had this happen. You probably have this happen every single day where you have some startup concept and maybe it's the latest, you know, fad or whatever it is, but they come in and they're willing to pay a really big rent. You know, maybe the credit's there, maybe it's not, versus the, you know, maybe the other. If we're saying the, the hair salon, you know, you have them and maybe it's a chain or maybe you have them in other locations. So how do you, how do you make that decision where on one hand you are trying to maximize value and you're trying to get the best rent, but you also want the best operator. And I think what I'm hearing you say is it's got to be the right fit for the center. You want to have the right tenant mix. So how do you, how do you weigh that all?

Yeah, you, you. We have. One thing that really helps us is that we get sales information from our retailers. And the way we kind of equate it is if somebody is a great retailer, they're going to do really good sales. That by definition is almost the definition of being a great retailer. I mean, you can't be at the high end, Louis Vuitton. They wouldn't be great if they didn't have really good sales and that customer wants to buy that product. Well, it's the same thing on a much simpler scale. What we do. I mean, if, if you're, if your nail salon is the best nail salon, you're going to max, they are the one that you can get the best rent from for us as an owner, but also for them as a merchant and then for the customer ultimately for the customer who wants, who wants the best of that category. And we, you know, whether it's, you know, fitness or whether it's, you know, fast food or whatever, we're constantly looking for the ones who can do the, who are the most profitable because the most profitable can pay us the most rent. And we're, you know, unlike some of the office. And so like we are a direct part of their business in a way that, that, you know, retail is, I mean it, you have to be, you got to be in a location that draws the customer so that you're helping the retailer be more successful. And that is a big part of what we're doing.

That makes a ton of sense. Now I want to talk about this is really interesting to me. This idea of, okay, you want to be the best center within a 3 mile radius. I would assume with that you're clearly not buying centers that would cannibalize each other, but you see an asset that you want to buy. And maybe this is a good example or maybe it's not. But let's say that you're looking to acquire the shopping center that is not performing at its highest level. Maybe it's got some vacancy, maybe it's been mismanaged, but a mile away is the powerhouse, the go to. It's got all the tenants that you want in your portfolio. Are you ruling out that value add opportunity to turn it around? Or you say, hey, we know how to do this, we can do it better. This is basically war and we're taking on this other center. I don't know if that's the right question to ask. It's almost thinking about like, what's the competition, you know, when you go in to buy that asset and are you going to say, you know what, this other center is just stealing all the action and we don't want to go head to head with them. Let's go find something else where we can be best in class. Or are you willing to kind of make that long term proposition?

It really revolves for us around the grocer. And if, if, if we have the number one or two grocer, we're highly confident we can win in the market. And that means that that's against anybody. I mean, we will, but if you don't have the number one or two grocer, then you're, you're taking, you can, there still is a place for that. But it's not our, it's not where we play. We play in the, in the number one or two Groceries and we expand that a little bit. I mean we've got a lot of Trader Joe's that are probably not truly one or two in the market, but they do bring a tremendous amount of traffic and buy them. So they work really well in that environment. If we have a center that, if that B center that you're talking about or C center has the opportunity to bring a grocer into it that isn't there, that we know through our sort of long term relationships that we do, that's a great opportunity for us. But it's, it's not. There aren't that many of those versus the, the ones where you're, you're, you're finding a sort of a mis priced or mismanaged center with the number one or two grocer.

Jeff, how many states did you say that you operate in again?

31.

Okay, 31. So you've had experience in a lot of different regions I would imagine. So what is the common denominator, if there is one, on where you, you're going to have success? So again, you're dealing with a bunch of different municipalities and rules and you know, I don't know if there's a certain size where, if it, if you don't have a certain population within that three mile drive, I mean, how do you know what your target is and then kind of what are the attributes of those geographies that you're looking for that hopefully I would assume you're looking for to grow?

Right? Yeah. Yeah. So it's, it starts with the analysis of the trade area. Right. So we've got, we've got the one or two grocer we know in that trade area and then, and, and we know what their sales are. So we know that they're either being successful in that market or not being successful in that market. If they're not being successful in the market, unless there is a lot of change going on, it's probably not a center that we're going to, you know, gonna, gonna jump. Jump into. But if it is, if it does have the, the, the, the right sales and sales and grocery are kind of a little bit you have to be careful about because it's not just gross sales, it's sales of the most profitable parts of their business, which is basically the outside of the grocery store. If you look at the stuff that the parish was. So that's where they make their money. The other stuff is very, I mean the margins on the other, you know, Campbell soup is really tight. So you know, they can Sell a lot of Campbell soup or they can sell one, you know, thing of lettuce and, you know, make 10 times as much profit. So you do have to look at sales in terms of where, where it is in the store and the profitability of that. But once you have that, then, and I mean this, this can be, I mean, we, we find, we find better markets in Omaha than we do in New York City. For, for our business. It's some.

And why is that, Jeff? Is there just maybe there's less competition? I mean, New York is such a expensive competitive market and maybe Omaha, you don't have as many choices.

I mean, you got your, you're competing with 10 grocers in a, you know, three mile radius versus one other one. Okay. And you're, you're. So your, your competition is significantly different. The. If you're, you're, if you bring the national tenants into some of these, you know, secondary markets, you do, you do bring a level of excitement and it's, you know, I mean, you bring a Chipotle into New York City, it's like, like care less, right? I mean, like, they're not, they're 10 better, you know, in, around. You bring that to, you know, you bring that to Cincinnati, you bring that to Columbus, you bring that to Orlando, you bring that to like, like it has a much more positive impact. You know, Starbucks, like, I mean, you only have like 4 every block in New York. I mean, but, but they haven't built that whole infrastructure out in the suburbs and that's where we can bring those players in. And then again, we're bringing more people. We're making it a more attractive place for shoppers and then we can grow the value. And so we don't have a lot of centers in really small markets because that gets really hard. And there aren't options for you if they're really small markets. But there are secondary markets where we have been really, have been really successful for us. And that inefficiency you can find in those markets is phenomenal. But our biggest states is Florida, but we're not just in Miami. I mean, we're also in Tampa, we're in Orlando, we're in Jacksonville. Like, we're in, in multiple markets. And you know, I mean, Atlanta is not considered, you know, you know, a top tier market. Well, it is. And I like, it's crazy not to be. And we're, you know, so. But our. Atlanta's, I think, I mean, George, Atlanta is probably our second largest market in terms of concentration.

So I would have to imagine you have 300 centers, you have 5,500 tenants, neighbors. That's got to be a huge competitive advantage for you because, and I don't know how many Trader Joe's you have, you might, you know, know off the top of your head. But, but I've got to imagine if you're looking for a center and Trader Joe's is not there, it's probably very easy for you to call whoever the head is of real estate there to say, hey, is this something that you're interested in and have that knowledge going into it? So I mean, how much are you leveraging? Or I'd say capitalizing on that, that knowledge, understanding and having those tenant relationships. I mean, that's got to be one of the most important parts of your business to have success, right?

Yeah, yeah. And, and you know, when, when you've sort of done what you were going to do, what you said you're going to do your anchors over, you know, over a 30 year period of time, you build a, you build those relationships and you build them all the way throughout the organization. So we, but, but the place where they help us the most and, and occasionally we get, you know, a center where they want to be and they, they can't get along with the owner and they, they need to get, you know, new store built like, and we will come into those situations and they will bring us into those situations. But, but the most important part about the relationship is when we're buying properties to be able to talk to them and have them help us to say, look, that, you know, that's a very profitable store for us, or no, I'd stay away from that one and because that is, but I kind of feel like we've earned that because we've done a lot of things for them over time to help them make sure that their stores are successful and that we, wherever we can, you know, giving them the best access, giving them the best visibility, making sure that they're, you know, that the, that we're surrounding them with really good merchants that will encourage their, their sales, not necessarily conflict with them. And so that, that is, that's where that, that's a big part, you know, has been really helpful for us. And you know, because we're in 30 states, we, there's, there we got to deal with all the grocers.

Jeff, I'd love to expand on this point because it's so important and whether, you know, our listener, you know, maybe they don't have any plans to, you know, go and Buy a grocery anchored center. Maybe it's even just their multifamily, their tenant relationships or whatever it is. But how important it is to have that tenant relationship. Because I'm sure this has happened to you multiple times where maybe there is that competitive site that would say your three mile radius and they sell the site and the tenant, whoever the new landlord is, is not as hands on or friendly. And they'd say Jeff, you know this isn't working out so great for us. We'd love to join you. Right, so I've got to imagine that comes back to you but you talked about what that means to be a good landlord and I think you said to give that visibility but you know, how do those discussions go? What separates you and is it really being hands on and being responsive? Is that really kind of how you differentiate yourself?

Yeah, I, I, I think it's, it's, it's we the way way I describe it is we have an organization that is, has scale but our people think like owners and they know how important the each one of our neighbors is to us and so they treat them with that in mind. And it doesn't mean that we don't have tough discussions and you know, and, and like the things you have to do as a landlord. But you're really looking at building a neighborhood. You're building something that, that where each neighbor helps each other. Each the other neighbors not you know, not physically help but help them by drawing that their customer and being really good at what they do. And if you can do that you, everybody benefits. And you know, if we like and we do have to make the hard decisions too which is equally important to the neighborhood. I mean you know they, that, that is part of, of, of being a really good landlord. It's not just saying yes to everything because you actually there are places where one like if, I mean we're pretty strict on in terms of signage at just an example but you know, if somebody puts up crappy signage in their stores and, and you let that stay well that, that, that, that creates an image of the entire center which affects all the rest of the neighbors too. And so there are things about being really hands on and making sure that you are focused on creating that right shopping environment that I think is really, it builds that loyalty. And then the other part is you got to do what you said you're going to do and you can't say oh yeah, we'll take care of that. And then all of a sudden it's six months later and you haven't done that. That's an important part about it. And for our national guys, it's building relationships throughout the organization, not just at the store level, which is really important, but also at the corporate level and being able to have those relationships over time.

Jeff, I'm really glad you expanded on that because I know that'll be super helpful to the audience. And really, again, doing right for the property and doing right for your, you know, the, the tenants, the neighbors in your property.

So it's, it's, you know this so well. It's not a one way street. I mean if you're not, if you're not working together, you're and, and you know, we, there, there are adversarial points and that is part of the, the real estate game. But if, if, if you can look at it from both perspectives, our driver here is to get our retailers to do the best sales they possibly can because that gets us in a position where we can get the best rents and that's a win win.

Wonderful. So Jeff, now I'd like to talk about how you went about growing Philips. Addison. Right, so you start, you talked about your first acquisition and then, and I would assume maybe along the way you were raising private capital. You know, maybe it was the, you know, the friends and family and you clearly really scaled this business. Now I don't know if this was, and I know you did spend time at hbs and so maybe it was out of that, that playbook. But was it always your vision that you were going to scale, maybe go public one day? Was this kind of all part of the plan or talk a little bit about the growth of your company?

Yeah, so the first one was we actually, Mike and I bought a property in Detroit before, way, way before this. That was in Birmingham. So it was a one store, a single store in a, in a more downtown environment. It was suburban downtown, but it was a downtown environment and we'd done well on it and it was, that was great. But we, that was sort of the formation of, yeah, we want to own like we'd rather be owners than, you know, than any other part of the process. So we, yeah, we, we, the first deal we put together was my dad, a friend of my dad's, Mike and myself. And we were, Mike and I were always among the biggest investors in what we did. We always wanted that. We felt that was like really important. And, and then we, we, we, we, you know, then we bought in a second, in the second one we had to go outside because it's a little Bigger we had to get, you know, we started going friends and family and we did that for about 10 years and then we ran out, we like to say we ran out of friends and we wish we had had more friends but, but it was, we, we did keep that going and then so we, and we were very lucky because we, we kind of got in when the CMBS market was just starting. I think we were in Morgan Stanley's first CMBS sale. So the first, first commercial backed mortgage portfolio. And, and what that allowed us to do was to get all of our money back with a return for our investors and to hold the property. And you know, this was 10 year money. So it was like we, we could do that and we, so we would buy these properties, we'd turn them around and then we put cmbs, get your money back and keep going. And that, that was really the ten year process. And then we started a fund, our first institutional fund and we were extremely lucky to get the government of Singapore to be the lead on it. And then we got with them a number of other very strong partners, you know, a big Dutch pension fund like so, so that, that was our first sort of institutional fund business. And we did first one, we did a second one and then we hit the great financial crisis which in honesty was probably more difficult even than the pandemic. It was, it was a pretty brutal time for everybody on the real estate side. And we, so we'd raised that money. We were told like the, our lead investors told us they didn't want to invest anymore. They would, they were obligated to, but they didn't want to. So we had to close our second institutional fund off early. And we're sitting there like, wow, this is, this is going to be a real opportunity time. But it's also going to be a really difficult time to raise capital. And we, you know, we got into the non traded REIT business and we raised a bunch of retail money and we raised almost $3 billion of retail money and that would, that gave us another step on the, on the growth curve because we were, when we, and yeah the, that, that was the stage that took us to where you know, we got to where we were of a scale where being a public company was a real option. And we, we, we were one of the non traders that made some, you know, really good money for our investors. So they stayed with us now, you know, through, through the IPO and the rest. But they also have full liquidity now, which is, which we promised them we were going to do and we kind of lived by what we said we're going to do. And they, you know, they made a really nice return on it. And so that, that, that worked out, you know, great. And we were very, you know, that, that got us to kind of where we are today as a, you know, three year. We've been in, you know, public for three years and, you know, continued to keep that, you know, the culture and the focus that we have in the, in the company, but with access to additional capital that we didn't, didn't have before.

So Jeff, like Paul, you're incredibly humble and you know, I'm listening to the saying, and then raised a retail fund and we had 3 billion. I'm sure that didn't just happen. I mean, the amount of work and to go out and reach the retail investor, because I'm sure you're not going to tell us that the average ticket size on that was, you know, a half a million dollars. I mean, I, I don't know, 35,000. 35,000. Okay. So I can't even do the math in my head, but that's, that's a lot of investors. So how do you.

We had 60,000 investors.

60,000 investors. Okay.

So.

And this should be really interesting for our audience. Sure. In order to do that, you had to have the platform first, you had to have a track record. Right. To attract that. But then how do you go out and find 60,000 investors?

Yeah, we ended up with a partner who helped help raise that for us. So we were, but we were, it was a, a sort of a joint deal between, you know, getting somebody who could, could access the, the, the retail investor. But it was, it was a very, I mean, it was a very intentional thing on our part because the, you know, over time the retail investor has taken on an increasing control of their own capital. It used to be, you know, you, you got a pension fund and you, you know, the pension fund was managed and you, and if you're in the real estate business, you go to the pension fund guys and you invest their money of their pensioners. But as you've gotten into 401ks, you got into people having to control their own savings. Our feeling was that the retail investor was going to increasingly be a driver of capital. And that's when we got, that was one of the things that got us into deciding that that was, you know, place where we, we, we could, we could find, you know, good, good capital and opportunity. But as you say, it, it, it was, it was very expensive to get in and it took a long time before we started raising any capital. So these are not like you turn them on. I mean, this was year and a half, probably 15, $20 million invested in starting to raise the money before we actually started raising any money. Got it. So yeah, it was, it was, yeah, it was, it wasn't. There were some sort of speak, there were some sleepless nights about, you know, we were, we were like, when is this going to start actually raising money?

Yes, I wanted to ask the question because I knew it wasn't just a matter of flipping the switch and then 3 billion, you know, landed in your account. And just to be clear, we talk about retail investor and I don't know if they, you know, with the terminology of accredited investor. Is that when you define the retail investor, who are you speaking about there?

Yeah, I'm talking about like everyday Americans who have a savings and they usually use a financial advisor, but some do it themselves and they have a financial advisor who helps them to run their 401k and to run their, you know, their, their savings so that they hopefully have some money when they're, when they retire. And you know, that, that, that, that's what we're talking about for the retail investor.

Got it. So, Jeff, and maybe then this was your partner who had the relationship with the, the investment advisors, the, I think the RIAs. Right. And so was time spent then to I, I guess cultivate those relationships again, if this was new, to introduce them to the opportunity. I guess that's question one. And then the other part is for those advisors listening to the show now or the retail investor, how do you know you want exposure to real estate? I think what you're saying about grocery anchored. I know what you're saying makes a ton of sense, but I'm sure there's other options out there as well, you know, other companies that are doing the same thing. So how do you, you know, as the investor, how do you diligence these, how do you figure out what sounds good and most importantly, how do you know that you're dealing with a, you know, a trustworthy and capable sponsor?

You know, I, we, we got a lot of credibility because we'd been around for a long time and we had had investors and, and you know, friends and family really is just retail investors, but they're that. So, so I mean, our roots are in that and our roots are in making sure that we make money for them. And, and it's, you know, it's, we're making money for ourselves too. Don't, don't get me wrong, but, but making sure we make money for them, that, that's a really important thing. And if you, if you invest with people who see that as their objective, you know, you got a much better chance of it being successful. They won't all be successful, but, but they, but you got a much better chance of that happening. And you know, we, we, we had a track record that was, you know, was strong and you know, reputation was good, but we also had a product that our investors really understood. So when we started and it's sort of that Warren Buffett thing, which is, you know, invest in things, you understand. And you know, when we, when we would talk to the retail investors and say, okay, where do you go on Saturday morning when you got to get your necessity based stuff done? You know, where do you go to go and like, oh, we got through. Oh, is, and, and you're like, oh, is that a Publix or is that a Kroger? Is that a, you know, a safe way? Like, like. Because we would, and they would be like, yeah, oh, oh, I see what you do. You, you go to those centers. Well, that, that was a. Helped us a lot because the, the investor understood our, what we're doing. And, and we, you know, we see that as hopefully something that can, you know, it has continued and we want it to continue to, to happen, which is that when they're investing in our public stock, it's the exact same thing. They're investing in a company that has been around for 30 years, that has a very focused strategy and a strategy that's kind of understandable for the average consumer because they experience it. By the way, we are Kroger's largest landlord, where Publix's second largest landlord. So we are in those markets where these investors, they understand what they're doing.

So Jeff, as we start to near the end of our time together today, we'd love to hear about your ethos, the way that you run your company. I mean, obviously you've been doing this for 30 plus years. I've got to imagine your people are a bit big part of that. So talk a little bit about how you actually built the company and the culture.

Yeah, well, the, the, the, the story I will start with is our president at the in, in June, retired. He'd been with us for 10 years. Devin Murphy. You may, you may. He's a, you may know him. He's one of our, I've heard that name. And his replacement has worked for us for 20 years. Over 20 years. Bob Myers, Bob's replacement, had worked for us for 20 years as our chief operating officer. The length of time we've kept the band together for a long time. And we are huge believers that every center we buy, we learn something from. And if we can keep that knowledge in the company, we just keep getting better. And, and what that does is it makes it harder for our competitors to keep up because we're, we're constantly changing, we're constantly trying to, to improve and, and we like to win. Like, we like, we like, we really like when we say like we like to win at, you know, in that three mile race, we want all 300 of our centers to win. And that's a fun, it creates a really fun environment to where like, yeah, no, we're going to win here. And that is what we've tried to build within the organization. Every one of our associates has stock in the company. It's part of our strategy and has been forever that you're, you know, because we want you to think like an owner and if we want you to think like an owner, you better be an owner or it's just academic. But everyone in the company is an owner. That's been an important part and we have some sort of baseline things that are really, we think are really important. One is we assume good intent of every associate in the company. And when you start with that belief that everyone's trying to, you know, pull the oars in the same direction, it's really helpful. We are violently against any kind of triangulation. And our thing is like, if you're not allowed to talk about somebody else unless that other person is in the room with you and then you can talk about everything you want. But that's a core sort of strategy of ours because if, you know, we think of gossip and that stuff as sort of a cancer and we're going to like cut it out wherever we can. And so that's a big thing for us. We're big on over communicating. We believe that like 90% of the problems that happen in an organization are lack of communication. Because if people are all trying to do the right thing, it's, it's, it's emotional things. It's like. And so you got it, you got to really work on, on that part of the communication. And then the last piece is we, we believe we're in a really competitive business. And but, but we're very focused on the fact that the competition is outside the four walls of the company. We, we don't compete internally. We compete externally and we got to win. Where we want to win is not some internal battle. We want to win by being the best out there against the competitors that are outside the company. And those are simple things, but they have long term impact and they're hard to keep pushing on, but they do, I think, have a, a long term benefit. And you know, part of, you know, when you look at the, the retention we've had of our senior management team, it said there, there, there is something to it that, that, that you know, we think is, is good. And you know, we, we, we do. We've received a lot of awards for the best places to work. We've received a lot of having the best health program in what was in Cincinnati, but we just got one for a national award, top 10 in the country for healthiest places to work. So we do work at these things beyond just the compensation and it's a focus on building something that, that's long term. And I, I get back when I was at an ICSC meeting with the young, it's a, I can't remember the name of it, but it's basically young. It's a young, the young emerging leaders in the ICSC world. And we were, we were at, you know, a convention and the, one of the questions, so what, what would you, what would you recommend? Like, what was the driver for you? And you know, I really love to build things and whether that's real estate, but in build, like our greatest accomplishment is building the Pico team and building that over a long period of time and continuing to kind of try and improve it.

Oh, that's wonderful, Jeff. Well, that's a great way to end and just we appreciate it so much you're taking the time today and sharing about what you've been able to accomplish as a team. And I think that last piece and the culture, but having fun, but also playing to win. I mean, let's not forget that's important. So Jeff, we really appreciate your coming on and sharing your story, so thank you again.

Good. Well, thanks and hopefully we'll get a chance to get together in New York sometime soon.

Absolutely. I look forward to it and thank you everyone who joined us to listen. And I know you got a tremendous amount of benefit out of this. So you know, share it with a friend. You know, that's a great way for this episode. That's what we're out there is to help you all gain the insider's edge to real estate investing. And this was a great conversation. So thank you all for joining. Until next week.

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