In today’s real estate market, just finding a suitable property poses a challenge. Add to that spiraling prices, a seemingly endless spate of construction materials cost increases and a mountain of bureaucratic red tape tied to the development process. Developers and investors need competitive spirit and resourcefulness in equal measure to survive the challenging environment. We asked a handful of developers and investors active in the San Fernando Valley’s real estate scene what they think of the current market, how they see the future and how they cope. Here’s what they said. Jeff Johnston President The Johnston Group Calabasas Q: What are you currently developing? We currently have seven buildings on the Malibu Canyon Business Park and Corporate Center at Malibu Canyon campus. We’re developing the eighth and final building in the second complex. We’ve been doing a lot of redevelopment lately. We purchased the Canwood Business Park last year in Agoura Hills and we’re currently redeveloping that property. Q: Why have you focused on redevelopment lately? We’ve looked more toward that direction simply because land prices have gotten so out of hand. It’s very difficult between construction costs and land costs to build something that makes any sense right now. So we’ve focused on trying to redevelop existing properties. Q: Have you sold any of your properties recently? Our last sale was the Westlake Promenade office park within the last two years. That was more of an internal decision with our partner. The way the partnership was structured, it was a good time to sell for both partners. Q: How difficult has it been to resist the temptation to sell in this market? We’ve sold a few properties over the years but for the most part we like to hold property just because we love the area. To try to trade into something else doesn’t make sense. You’re now buying something else at a higher price that you don’t know and we’d just as soon stick with the property we do know since we intend to be in the real estate business for the foreseeable future. But I would say, yes, it’s difficult not to sell. Q: What’s your best-kept negotiating secret? I think the key to negotiation is trying to be reasonable on most issues, and when you need your issue, you stick to it. And most people will give it to you if you’ve been reasonable. The key is you’ve got to know the points you have to have and figure those out ahead of time and structure your negotiation that way. Q: How do you manage the stress of the real estate business? That’s an easy one: golf. Just getting out on the links with a little fresh air and a little competition among friends relieves stress. Q: What’s your favorite local course? Probably the Riviera Country Club. Cary Lefton CEO Agoura Realty and Management Sherman Oaks Q: What have you bought recently? Last year most of our focus was on Hawaii. We recently closed on a six-acre parcel of land in Cudahy. It was an old industrial manufacturing site that we’re going to redevelop into a 90,000 square foot retail center. Q: Most of your development roots are in the Valley. Why are your current projects elsewhere? We haven’t had much luck in the Valley based on limited opportunities for large parcels of land, and those that have been available have been priced very high. We’ve had to compete with commercial developers for a lot of the property that’s been on the market, and the residential developers are able to pay higher prices, so we’re not able to be as competitive. Q: Where do you see your future efforts focused? We’re still looking for opportunities in the San Fernando Valley. There’s such a limited amount of inventory that’s out there. But at the same time, we still have to make deals as developers, so we’re looking at other communities as well. Q: What’s your best secret negotiating strategy? Our best negotiating secret is our tenure in the business. Our company has been established for 20 years. We certainly have that to our advantage when competing against companies that have not been around as long as we have. Q: How do you manage the stress of being in the real estate business Lots of exercise. I run four to five miles every other day and I do some light weight lifting. Mark Ossola President M.W. Ossola & Associates Inc. Calabasas Q: What are you currently developing? We’re doing a $45-million shopping center, Village at Moorpark, and the $8-million Moorpark Corporate Center. Q: What attracted you to these projects? On the shopping center, it was a piece of property on a key intersection across from a major shopping center and we had the opportunity to attract tenants. When we closed (on the acquisition) we were 70 percent pre-leased, and the economics of the deal were extremely favorable. On the Corporate Center, it was the opportunity to buy 33 acres of land that were already entitled and ready to go. Q: Is your strategy to hold or sell? It depends on the partners I’m working with. Some of my partners are opportunity funds, so they like the higher yield and you end up selling the property. The other partner is a family trust that likes to hold onto the asset for cash flow. Q: How difficult has it been to refrain from selling property in the current market? We’ve been offered a 6 cap rate on the Village at Moorpark which we turned down. It makes it extremely difficult to walk away from potentially a $20 million profit. But in the long term, we’d rather hold on to it than take a $20 million profit that you’d potentially have to pay ordinary income taxes on. Q: Where will your next projects come from? I have an $80 million project under construction in Seattle. I have a $50 million project under construction in Utah. So that it means for us is we’re looking at projects in other parts of the U.S. and you’re on an airplane a couple days a week. Q: What’s your best-kept negotiating secret? I’d say it’s generating a personal relationship with the seller. If you look at most of my deals, I bought property multiple times from the same sellers. Q: How do you manage the stress of the real estate business? I play ice hockey. I play competitive ice hockey at the Los Angeles Kings training center in El Segundo twice a week. My team is Los Angeles Thunder. We’re in fourth place in our division out of 19, and we’re the oldest average age team in the league. We routinely play against 19 and 20 year olds. Larry Scott Senior Vice President AvalonBay Communities Inc. Newport Beach and Encino Q: What have you acquired recently in the Valley? We’ve acquired a land site, 3.3 acres in Canoga Park, and it has a 39,000-square-foot office building that will be redeveloped for 210 apartment homes. We closed on Avalon Encino, and we’ll develop 131 luxury apartment homes and 12,000 feet of street level retail. Construction should start in March or April. Q: The company’s strategy has been to hold onto its properties rather than sell them. Why? The reasons are twofold. One is being a REIT we’re required under IRS guidelines to hold properties for four years. That’s one underlying consideration. The other is that being a public company our main driver of stock price is funds from operations. So by increasing funds from operations year over year, the value of the company increases. So the more units we build from ground up and the longer we hold those that’s providing new funds from operations year over year. Wall Street analyzes us based on cash flow from our operating properties. The higher the FFO, the higher the stock price goes. Q: Why did the company just open an office in Encino? Geographically, it strategically puts us in a location that can service not only Los Angeles proper but also Ventura County. Our business plan focus is more heavily geared towards L.A. County and Ventura County as opposed to Orange County at the current time. Q: What is attracting you to the LA area? High barriers to entry, which limits the supply. We like the apartment fundamentals we see in L.A. and Ventura as well as Orange County and San Diego. The problem with Orange and San Diego is finding adequate sites. They tend to be newer areas. Where we find a lot of our opportunities is L.A. tends to be an older, more established municipality with older buildings a lot of which are coming to the end of their useful life. We’re looking at more of a focus on infill where we’re tearing down older uses. Ventura provides us an opportunity to differentiate the product we’re providing by doing more suburban apartment communities. Avalon Camarillo, with 249 apartment units, will be finished in July. Q: What’s your best-kept negotiating secret? I would say it’s being well prepared and having a strong knowledge of land use and product. We know what we’re going to put on a site when we first look at it and therefore we can negotiate with accuracy from the very beginning and that gets us a lot of deals. We may not be the first choice every time, but when something happens with the first choice we’re the trustworthy second choice backup. We’re not going to tell somebody we think their price is crazy. We say this is what we can pay you for the site. If you find the greater fool terrific, but at the end of the day if you want to sell it and don’t want to be re-trading, we’re the company to come to. When we put an offer forward we will commit to that offer and close the deal based on that offer. Q: How do you handle the stress of the real estate business? I like to surf. It’s very meditative. It’s a solo sport and it gives you a lot of time to reflect. I usually get out once a week. I collect American muscle cars, and I like to drive them on weekends. I go out very early in the morning. I currently have a 1965 Chevy Chevelle Super Sport convertible and I have a 1967 Camaro RS/SS convertible. Howard Stern Senior Vice President, Chief Investment Officer Arden Realty Inc. Los Angeles Q: What have you bought in the greater San Fernando Valley area recently? We bought a portion of the Teradyne campus in Agoura Hills from Lowe Enterprises. We also purchased the Homestore building in Westlake Village and Warner Corporate Center. Q: What attracted you to those properties? We are a big fan of the West Valley in general. We feel the demographics are very strong. The whole Conejo corridor is someplace we would love to have more presence. We have a good amount of product in that corridor we thought it would be enhanced by Homestore. We already owned the Woodland Hills Financial Center and we always wanted something in Warner Center. When we bought the Agoura property, we were hoping we would get that whole Teradyne site. We felt it would be a good foothold there. Q: What’s your outlook for the greater Valley real estate market in the coming year? We are looking at many other things in the West Valley. I think everyone believes 2006 will be another good year. The volume for the first couple of months has not been high; I’ve seen a lot of little deals. They have a little more hair on them, and they’re not easy deals. Unless you’re dealing with a trophy building, the deals aren’t easy. The due diligence is becoming more detailed, so as a seller, you can’t just say here’s my stuff. Q: What’s your best-kept negotiating secret? As you know it’s very hard these days to have a competitive advantage. Most people can offer the high price, they can offer a quick due diligence, they can offer cash and close fairly quickly. So what we have is our reputation and credibility. I think we’re at the top of our game with that. We do a lot of stuff up front when we’re giving our best and final so we take out the uncertainty that is associated with those deals. I think at the end of the day when all is equal, people like to do deals with people they enjoy doing business with. Q: What do you do to relieve the stress of the real estate business? I just stay very focused and I don’t let emotion cloud judgment and I communicate internally with all the departments here.
