The northridge earthquake meant disaster for many apartment owners, but paul jennings saw the temblor as an opportunity to buy damaged buildings and transform them into luxuary units A lot of folks told Paul Jennings he was crazy when he started building apartment complexes in the San Fernando Valley. The year was 1995. The Northridge earthquake had combined with an economic recession to send hordes fleeing Southern California. Why would the city need a fresh supply of apartment buildings, let alone the kinds of pricey units Jennings planned to build? But Jennings, who eight years earlier had founded PCS, a telecommunications company that provides pay phones and operator-assisted services to large corporate clients and government agencies, had a hunch. In other cities, luxury apartment living close to the urban core had replaced home ownership as the residence of choice by upwardly mobile professionals, and it wouldn’t be long before Angelenos were making the same lifestyle choices, he thought. PCS launched its real estate business by transforming earthquake-damaged properties into luxury apartments with amenities ranging from granite countertops to racquetball courts. Today, the company’s 40-odd apartment complexes, mostly in Sherman Oaks and Northridge, average a 3 or 4 percent vacancy rate at rents that range from $800 for a single to $2,500 for a two-bedroom apartment. The division accounts for about 40 percent of PCS revenues, generating $20 million annually. Question: What was the initial impetus to branch out from telecommunications? Answer: The opportunity really availed itself after the earthquake. The (Federal Emergency Management Agency) money was the impetus. It was incredibly difficult to work through all the hurdles that the city and federal government placed on this money. We invested with a friend in one of these (housing renovation) projects and realized the project was going nowhere. So we put a couple of our savvy administrators from our telecommunications business, where we do a lot of business with the government, on the project. At that point I understood there was an opportunity. Most of the building owners just wanted to get rid of the building because they weren’t going to go through the city’s hassle. Q: Telecommunications surely would have provided a lot of opportunity as well. Why shift gears so dramatically? A: In ’95, in part because of the new technology and some of the new licensing bandwidths, it was evident that the wireless business was going to start cannibalizing traditional calling card and pay phone traffic. It was a decision to either reinvest in new telecommunication technologies or to invest in a very stable long-term investment that, after the trials and tribulations of our business, I felt was a sure bet. Q: That’s the first time I’ve heard real estate described as a sure bet. A: I was very conscious of the fact that we were buying 30 cents on the dollar on the asset. I was very conscious of the fact that people had all left California because of the mudslides, the riots, the earthquakes. I coined a cliche: earthquakes are a small price to pay for good weather, and they’ll all move back to California. On a serious note, California by far was one of the best areas for quality of life. My fundamental belief was, Los Angeles still had all the right ingredients to make a big comeback. So the sure bet was, given the factors at that time, the real estate market could only go one place, and that was up. And, of course, that has proven to be the case. Q: How do the two businesses work together? A: In a high-tech business you feel on a daily basis the pressure of needing to look 360 degrees, because the industry moves at such a (rapid) rate. It’s like being on the ocean: not only do you move 360 degrees, but the boat is rocking the whole time you’re doing it. By comparison, real estate is so much simpler than telecommunications. I have an appreciation of real estate and an appreciation of just how hard it is to succeed in telecommunications, and don’t take for granted our continued success. (Personally), real estate also offers me a creative outlet and a diversion from something I’ve been doing a long time and rightfully should have burned out on. So in a way it’s rejuvenated me. Q: What made you think there would be a demand for apartments? A: My view of L.A. was that it was transitioning from a city where you just mowed down the next orange grove and built more homes to taking on more of the characteristics of a major city, where there is a premium paid to live closer to the areas of commerce. In the ’70s and ’80s everybody sat at parties talking about how much money they made on their homes. That mentality went away after the early ’90s and people started to look at homes as a more utilitarian function. Also, home ownership means you spend a lot of time and effort around the house, and I don’t believe, for at least a segment of our society today, that they have any interest in doing that. Q: How much of a premium are people actually willing to spend for the types of luxury apartment units your company builds? A: Traditionally, apartments in the Sherman Oaks area were getting under $1 a foot. Today we get a minimum $1.50, up to $2 a foot. We have spent $60 million in the last four years on rehabbing buildings. So it’s not like we haven’t put our money where our mouth is, to be able to justify asking top dollar. Q: Now that the FEMA money is no longer available, you must be spending a lot more money to buy property. Has that changed your business strategy? A: Yes, very much. The great returns we saw early on are gone. We’ve gone back and looked at real estate from a more conventional point of view. If we can get a 12, 15 percent return on the investment, then we still do it. Right now we have five projects underway. Q: What kinds of returns were you getting before? A: We built our first 16 projects with FEMA money. We got 50 percent, in some cases 100 percent (returns). In some cases we would get all our money back on the deal within a year after we invested it, and sometimes double. What we did is, we used that good fortune to build a business where today a lot of those proceeds we made early on are part of our equity pool that we use today to continue to buy property. Q: How did you first get started in telecommunications? A: When I looked in the Sunday Times, there was only one job that didn’t say “college degree preferred.” It was a job in telecommunications. They didn’t know what they wanted because it was brand new and if you could walk and chew gum, they gave you a job. Mind you, I saw 300 salespeople come and go my first year on the job, and I was the only one left. It was a very tough job. I knocked on every door on Ventura Boulevard and Wilshire Boulevard cold calling, mostly office buildings. This was back in the days when people looked at you and said, “You can’t steal business from Ma Bell.” Q: Your professional life sounds like it has moved at breakneck speed. Have you found time for anything else? A: There’s no question my family has paid a price for me to accomplish this. I’ve really made a focus to redefine my family values. I committed to taking off four weeks of vacation. We’re going to Hawaii and we’re going on an Alaska cruise. I won’t do business on Sundays (anymore) and I’ve tried to minimize my travel. I’ve relocated my residence five minutes from work. I take my kids to school every morning now, and it affords me some flexibility to go to basketball games and do all the things dads would like to do.
