To further Leverage.com’s mission of democratizing knowledge about commercial real estate, we started an interview series with all kinds of CREF pros: everyone from multifamily and medical to cannabis and construction. This time we connected with LA Realty Partners Principal Gary Weiss.
Here’s how the conversation went:
Joseph Rauch: OK, so my first question is, in terms of the pandemic, has commercial real estate uniquely affected LA? So I know it affected the whole world, but I’ve seen all kinds of different, sometimes even wildly different effects, just depending on the market.
Gary Weiss: So I mean, LA actually has not done as poorly as other cities, primarily because of tech and entertainment. You think about Apple, Amazon, Google, Facebook — you’re talking about millions of square feet — Netflix. A lot of these content producing companies are blowing up because people are watching television and downloading. And so that’s translated into demand for office space. So that industry has really done nothing but boom and grow.
So LA, — certainly the westside of LA, in certain parts of LA, have done well, if not better than a normal year because of all the growth of those particular companies. Apple just announced they’re looking for half a million square feet in West LA. So the short answer is, like every other city, Joseph, LA has been affected. But we’ve done better than most just because of the entertainment, tech and some of the social media stuff and gaming. Gaming is still pretty big, too.
JR: That makes sense to me. Yeah. I mean, there were millions of people stuck at home and watching more TV, playing more video games, so more and more real estate was needed for all those industries.
GW: And then if you look at the outskirts of LA, like LA county — if we’re talking about LA county, which is 53 cities or whatever — we have parts of our county that do nothing but industrial stuff, like Ontario, which is on the way to Palm Springs and is home to most of the distribution centers in the country.
So you’ve got tens of millions of square feet of industrial product out there that are maybe 1% vacant. You’ve got millions and millions of square footage in the distribution center warehouse field that has done incredible because of COVID, because people are buying shit. And so there’s somewhere you’ve got to store it, and somewhere you’ve got to drive it to, and drive it from. So, and again, that’s part of LA county, not LA city, but LA County has a lot of those distribution centers and warehouses. So from an industrial standpoint, they’ve done very well.
JR: Cool. So let me go on to my next question, although you kind of touched on it already. But a lot of our readers at Leverage.com are pretty new to commercial real estate. They’re trying to get a foundation. So I wanted to know, if a rookie had enough money to invest in at least one solid down payment on a good property in LA, is there a particular asset class you would recommend that they start with?
GW: That’s a great question, Joseph. Did you make that one up by yourself? Or did somebody give you that one?
JR: No, I do all the questions for all of these myself. Thank you.
GW: You started out our interview, like you weren’t sure if these are good questions. That’s a great question.
JR: Oh, good. Good. Yeah. You know, maybe I’m getting better at this. This is the first big job I’ve had in commercial real estate.
GW: Well, it’s a great question. So there’s a lot of answers to that question — a lot of different opinions. But it’s kind of a two part answer. One is, if you’ve got a lot of money to invest in real estate, one area that someone should look at would be multifamily apartment buildings, specifically in LA, either ground up development or existing product that has cashflow because the cost of housing out here is ridiculous. And apartment rents keep going up, notwithstanding the pandemic and rent and all the help that renters got. When that blows over, it’s a great place to put money because the cost of owning a home in LA is one of the most expensive cities in the country affordability wise. That’s why apartments here do very well.
So my answers are two part: one is I would invest in multifamily, whatever that looks like, either ground up development or existing product, or invest in industrial real estate. I wouldn’t put money in hotels. I wouldn’t put money in office space. I wouldn’t put money in retail space. Maybe medical space, maybe medical REITs or medical buildings if there’s opportunities, because medical is doing very well also. But I’d stay away from retail, office, hotel, for sure. So I go industrial on one hand and multifamily on the other. Good question.
JR: Thank you. That actually leads me right into my next question, which is, because of the pandemic, is it possible to really invest successfully in a lot of office properties now? Like, are there exceptions where you can jump in, or is it really just best to stay away from that class for now, until we kind of stabilize more?
GW: I would stay away from office just because there’s still some uncertainty to it. There’s exceptions if you can get an opportunity to invest in a company called Hackman Capital Partners, which is a private company. Hackman is building all the buildings for Apple in Culver City, and they’re really big right now. They just bought CBS television studios. In the Fairfax area, they paid I think $700 million for it. If you could invest in that — now it’s a private company, so you can’t, but if you could, even though a lot of that office, that’d be a great. If I had an opportunity right now to give Michael Hackman money to invest in that project, I would give it to him. But most of their money is super private, and I’m not sure how institutional his money is.
So there’s exceptions to investing in office right now, but generally, I would probably not go the office route unless it’s a pre-leased office building to a high credit tenant who’s going to pay good rents.
JR: Right, that makes sense. And then this last question is kind of something we always ask. Are there any trends you’re looking out for that are happening now or would be coming up in 2022? Either, it could be in the LA market, or it could be a trend toward a certain asset class, like, for example, cannabis real estate is really blowing up. And we tend to just ask people that to see if there’s something new they’re looking at that maybe would be unexpected or overlooked.
GW: Well, if you look at cannabis, because it’s the most recent boom in real estate, and now that it’s getting more regulated, you’re going to see a little bit more activity in that space. Because up until now, these guys couldn’t open bank accounts, they couldn’t write checks. Everything that they had was cash. There’s still a lot of landlords who won’t do business with them, for fear of getting shut down by the government. So as that works its way out, that’s a space to watch for.
Biotech and anything related to any kind of medical research and development is blowing up. LA isn’t really ground zero for that. That’s like parts of the East Coast, like Boston’s big in tech and in that field. Austin’s big in that space. San Diego — North County, San Diego is big in that space. Parts of Silicon Valley are big in that space. So biotech and medical research and laboratories are blowing up, but I won’t be the first one to tell you just look at what’s happened in the last 18 months, and not just because of COVID. Even before COVID there was still a lot of activity in that space — that life sciences space.
JR: You’re right. You know, I don’t think I mentioned this, but I’m actually from San Diego. So I saw a lot of that even just growing up there, graduating.
GW: Where are you from in San Diego? I went to school there.
JR: Oh, cool. I’m from North Park. It’s this neighborhood that’s like right near Downtown.
GW: I know exactly where that is. I went to San Diego State.
JR: Oh, nice. Cool. Yeah, my mom has taught there a bit and then my dad — his jobs is as a UCSD professor. So I would go up sometimes to UCSD and see all the real estate development around like Scripps Ranch.
GW: There’s a lot of that now, Joseph. A lot of it is tech. A lot of it is biotech and biomedical sciences all through there.
JR: Yeah, exactly. I mean, a lot of my friends who grew up there, that’s what they work in now. And it makes sense.
GW: It’s funny you say that because the call I was on this morning was with a professor at San Diego State. I’m going down next week to guest lecture a class in the real estate school. So we were just talking about that. It’s pretty cool. So you went from San Diego to New York City. I love it. A fish out of water, huh?
JR: I know, yeah. It was weird. I wasn’t one of those kids who had any kind of particular vision for college, so when I got into NYU, my parents just looked at it, and we were like, well, this is the best school you got into. And I’m half white Jewish, so I have some relatives in New York, and we were kind of just like, well, let’s get into debt and send you there.
GW: Good for you. That’s awesome. Well, congrats, man, that’s great.
JR: Thanks. Yeah, I’ve been in New York for 12 years.
GW: Are you going back to southern Cali? Or are you going to hang there for a while?
JR: I don’t know. My wife is graduating from grad school about a year from now. And I can do what I do from anywhere. I mean, it really doesn’t matter much. But for her, it might be more important because she does industrial design. So it kind of just depends on if she has to be in any particular place. But if she does, and if we both don’t have to be anywhere, then San Diego is on the list of places.
GW: Where do you guys live in New York?
JR: Chelsea, Manhattan.
GW: Ah, dude, I love it. That’s awesome.
JR: Yeah, it’s really nice. It was good timing, actually, to get into the real estate industry because the developments around here are like, oh, my gosh, there’s just so much happening. There’s this huge hotel being built near us.
GW: Well, that one Vanderbilt is finished, right?
JR: I think so. Let me check
GW: It’s a huge high rise, just a little north of you. Vanderbilt’s huge.
JR: I think it is. There’s that going on. There’s the the Hudson Yards being finished up.
GW: Yeah, I was just in New York in May. I love New York. It’s my favorite city.
JR: Nice. Cool. Well, those were all the questions I had, and I’ll whip this up into an article, but yeah, this was fun. Let me know if you ever want to do any other collaborations.
GW: Anytime you want to pick my brain, I’m happy to do it. You know, whether this was just a phone call, whatever, I’m happy to give you my insights. And I always like talking to people about this kind of stuff because it’s easy. It’s what I do everyday
JR: Yeah, right. Awesome. Cool. Well, I will get back to you soon.