The Private Equity Real Estate Podcast – Show 24

   

   

Summary
On this week’s episode, we discuss the trends that are shaping the future of commercial real estate with Jonathan Gordon, President and CEO of Admiral Real Estate. Jonathan has experience in all aspects of real estate, including acquisitions and dispositions, financing, leasing, management, and construction. He also has closed over $900 million of transactions in Westchester and Fairfield counties and elsewhere in the New York metro area.

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Announcer:
You’re listening to the Private Equity Real Estate Podcast brought to you by First National Realty Partners, where investors learn from private equity experts and insiders. We share our own real world experiences so you know exactly what it takes to be highly successful at investing in passive commercial real estate opportunities.

Eric Murphy:
Hello and welcome to the Private Equity Real Estate podcast, which is brought to you by First National Realty Partners. I’m your host, Eric Murphy, and on this program as always we sit down with experts in commercial real estate and we talk about different topics across the commercial real estate landscape. And this week, we wanted to talk about trends, specifically trends that are shaping the future of commercial real estate. And here to discuss that today is our guest Jonathan Gordon. He is President and CEO of Admiral Real Estate. He has experience in all aspects of real estate, including acquisitions and dispositions, financing, leasing, management, and construction. Jon has closed over $900 million of transactions in Westchester and Fairfield counties and elsewhere in the New York metro area. Jonathan Gordon, thank you for being on the show today.

Jonathan Gordon:
Thanks, Eric.

Eric Murphy:
Before we get into the topic of the program, can you tell us a little bit about yourself? How did you get started in commercial real estate?

Jonathan Gordon:
I started in real estate as a property manager, quickly went into doing small retail brokerage and really enjoyed the chase involved in putting a deal together. And as things went on doing property management and brokerage, my father said to me that almost anyone can get a real estate license and I had to find a way to differentiate myself. So I went back to grad school at night. I went to the NYU then called Browse Program, which was a master’s degree from NYU in real estate investment development, followed that up with getting a CCIM designation, as well as a degree in construction project management from NYU. I worked for a number of the New York city real estate families, then in 2005 I went full-time with my company Admiral Real Estate Services and actually a number of those families are still clients of ours coming up now on almost two decades.

Eric Murphy:
Excellent. Well, today as I mentioned, we are talking about trends shaping the future of commercial real estate. So to start, Jonathan, how important do you think it is for success in your business and commercial real estate in general to both spot and embrace trends within the industry?

Jonathan Gordon:
I think almost with every industry, in order to be a little bit ahead of the curve, you need to be able to do that, Eric. I had a professor many years ago said, “You don’t want to be too far out in front of the herd, but you want to be in the front.” At Admiral, we take a very empirical approach to our retail leasing, which is the majority of our business. And what we do is we meld demographics and buying trends together and we create something called a retail demand gap analysis, where we look at an area and see how many square feet or how many dollars of income is going towards a specific SIC code.

Jonathan Gordon:
An SIC code is what the federal government uses to designate different types of retailers. And then we really see more of a demand or more of an oversupplied for that particular SIC code and then we target those retailers to try to get them to look at our projects. The retailers on the national end are usually a little bit more willing to take our phone calls because when we come to them, we can at least make an argument for the site, why they might want to be there.

Eric Murphy:
Okay. What are some trends that you are noticing or predict in the commercial real estate space that you think investors should take into consideration?

Jonathan Gordon:
Well, it’s hard to answer that right in the middle of the pandemic. Before the pandemic, the most recent set of trends which most retail professionals would agree with was the fact that we were seeing many retail spaces going towards more experiential real estate, things that you can’t buy on the Internet, and I guess that would also include medical, again something that’s very hard to do over the Internet although COVID is showing us that there are ways to get a virtual medical exam and fitness. So really things that you can’t do on the Internet because the Internet really rip through our industry every year, taking more and more bricks-and-mortar sales.

Jonathan Gordon:
That being said, before COVID, we did see a little bit of a trend going away from Internet sales, where people are almost looking at, especially the millennial generations were leaning towards more curated type retail or socially conscious retail or local retail to support their local economies. So I think there was starting to be steps taking away from the Internet to go to the smaller shops and to a retail concept that would actually perhaps even know the customer and provide that sort of curated experience.

Eric Murphy:
Oh, yeah. You mentioned medical retail earlier. There’s been an increase in medical retail over the last few years. What are the more common medical retail tenants that you’re seeing?

Jonathan Gordon:
We are seeing a lot of urgent care, and what we’re seeing is that these larger health organizations are using urgent care as feeders to their hospital or large medical centers. So a local hospital won’t put an urgent care in that same area, but they’ll go into another hospital’s market and drop an urgent care there to try to steal customers to come to their hospital.

Eric Murphy:
Why do you think that is that medical retail has been growing so fast? And do you think this is something that is going to continue?

Jonathan Gordon:
Oh, I think Eric you look at the demographics of the country as a whole, and we’re certainly, we’re seeing the baby boom generation now having more and more need for medical care or attention. And they also have a large amount of money, that generation. So it just seems like a very fertile area to try to service that market of a group that has disposable income and a requirement to stay alive and stay youthful.

Eric Murphy:
Yeah. That makes sense as well because perhaps someone who is in that baby boomer generation, they aren’t as a customer as maybe some other generations to different online options like Teladoc. They solely prefer frequenting medical retail.

Jonathan Gordon:
I think that’s a good point, Eric.

Eric Murphy:
In that direction of online, with the continued rise of e-commerce, are you seeing a shift to the way brick-and-mortar retailers are handling their fulfillment services?

Jonathan Gordon:
Well, we’re seeing certain retailers who are foregoing their bricks-and-mortar and going just for the warehouse and going to more and more online sales. But then you see the other groups of retailers who are seeing that bricks-and-mortar as being sort of that last mile distribution, using Petco as an example. Rather than buying lots of warehouses, Petco’s management has decided to use their significant store network as their warehouse and to do that last mile distribution. Not to mention there’s a branding aspect to it, there’s a familiarity aspect to it. And I think it helps people choose that brand over other ones, which may contribute nothing to the local economy.

Eric Murphy:
Right. Well, you are listening to the Private Equity Real Estate Podcast brought to you by First National Realty Partners. A little bit about the sponsor of the show, First National Realty Partners. They’re a rapidly growing commercial real estate private equity firm that owns and operates more than three billion square feet of real estate throughout the United States. With a portfolio value to in excess of $400 million, First National Realty Partners focuses on expanding its portfolio by acquiring market dominant, well located commercial assets well below replacement costs.

Eric Murphy:
First National Realty Partners actively manages its portfolio through an in-house team compromised of more than 30 full-time real estate professionals, focused on acquisitions, property and asset management, leasing, finance, accounting, and investor relations. If you’re interested in talking to someone at First National Realty Partners, you can always e-mail them at info@fnrpusa.com.

Eric Murphy:
Well, today we are joined by our guests, Jonathan Gordon, and he is the President and CEO of Admiral Real Estate. And today we are discussing trends that will shape the future in commercial real estate. Jonathan, let’s move on to something that is constantly evolving, technology. What part do you see technology playing to mold commercial real estate moving ahead.

Jonathan Gordon:
I mean, there’s so many ways that it’s going to shape the way we do things. And I think for the younger companies, they’re able to get their hands around it much easier. I mean, everything from pay-to-click to getting people to look at our vacant stores, highlighting a shopping center or a central business district to get people who are looking for goods and services to come there and see the value of making that effort to get there, I think technology, and we use it now, as I said, going back I don’t think a lot of people in our industry are that comfortable doing what we do with creating these demand gap analysis, which is sort of an algorithm of demographics and buying trends all pulled down by different data acquisition companies.

Eric Murphy:
And how has technology changed how you approach things?

Jonathan Gordon:
Well, very much so. I mean, we’re not taking as much advantage of the virtual tours as I think we should be, but at the same time we and some of our clients feel we would rather safely and following protocol meet the prospective tenants or site selection groups at the site so that you can really manage the conversation highlighting the benefits of the site in person as opposed to doing it virtually. But we are, like I said, using pay-per-click in order to get… For example we’re marketing some restaurant space in some higher end areas in the New York metropolitan area and we are doing a pay-per-click program to get restaurant tours who make over a certain amount of money to be able to see our restaurant sites.

Jonathan Gordon:
We’re constantly buying and culling lists, incorporating them and doing email blasts based on what the people on that list, what they’re looking for. Again, I think the key is as a broker to not just throw things up against the wall and see what sticks, you need to be very precise in who you’re marketing to, because it’s so easy for people to unsubscribe or just delete your emails. So you need to show them that you’re putting thought into what you’re sending out to them.

Eric Murphy:
Are there particular advances in technology that you think are going to be paramount for future success in retailers, something that retailers really should embrace?

Jonathan Gordon:
We’re already seeing like touchless type of transactions certainly being a part of it. The retailers need to always work to increase their online presence. And I know it seems like almost a [specificient 00:16:01] task to go up against Amazon, but I think there are lots of retailers who can capture market share from Amazon, because there does seem to be a little bit of a backlash against the big Amazon and even the bigger companies, the retail apparel companies, like Athleta and all that. By managing their online presence, they can make sure that they’re getting no sales as opposed to it going through Amazon to them.

Eric Murphy:
Yeah, you mention touch free technology, I mean, I think that’s something that we’ve definitely seen an increase in. And that is something that came out of necessity of the pandemic. A lot of things have changed because of the coronavirus. When it comes to retail, can you see any of those changes carrying over post coronavirus?

Jonathan Gordon:
That’s a double-edged sword and we’re yet to see which way it’s going to go. But I could see it going on one hand that people have gotten so used to making almost all of their retail purchases online that they’re just as happy to sit at home and continue to do that. Flip side to that is, I think you’re seeing Internet fatigue. People can go out and have the experience of shopping again, that they’re going to embrace that and see the benefits of it.

Jonathan Gordon:
I’m going to be an optimist and say I think that there will be a good degree of pent up demand for the shopping experience. Again, I think it’s something ingrained in our nature as human beings and it’s an activity, it’s fun. And I think we’ve seen people when they used to go to the outlet mall or central business district and spend a day shopping, that’s an activity for them and they walk home and they’re satisfied. I don’t know that they get the same endorphins by clicking. And they also probably don’t get the same level of service or as precise of a purchase as they would want unless they do it themselves.

Eric Murphy:
What do you think are some strategies that will be implemented in the future that’s going to help to drive that in-store shopping experience?

Jonathan Gordon:
I think the retailers need to work harder. The sales staff needs to really offer that higher level of service, I think they need to offer the concierge type of service. An example would be we have a men’s clothing store just below my office here in Bronxville, New York. I know I can walk in there and they will help me find something that I will walk out feeling that it is exactly the right thing for me and I’ll be proud to wear it and I feel I look better for the benefit of their helping me find that apparel.

Eric Murphy:
Do you have any examples of stores giving their consumers more of an experience?

Jonathan Gordon:
Yes. I would use another example of another store that’s near my office called the Running Company, where not only will they sell you running shoes, and not only do they have an online presence, but you can come in and they will video you running on a treadmill. And somehow there’s some sort of a computer that shows you your type of run and why a specific shoe will provide you the necessary support and cushion for that specific type of gate. I think that’s probably a perfect example of that experiential type of situation that aids in a better retail purchase for the consumer. And you really have fun if you have got a nice salesperson, you’re laughing with them and it goes from there.

Eric Murphy:
What do you see for office space moving forward?

Jonathan Gordon:
Really you’d have to drill it down to a specific area, Eric. Like New York city, I don’t know, the jury still out. Will people start coming back into their offices? Will employers demand that people come back into their offices when it’s safe? I think a lot of people like working from home and there’s some people that don’t. It’s yet to be seen what the employers on a large scale are going to require of their employees. I’ve read and listened to a bunch of white papers as it relates to this, where some say that employers right now are being very accommodating, but they want to impart their culture onto their employees. It’s much harder to do that when they’re home.

Jonathan Gordon:
As far as suburban office space, I think that we’ve already started to see a little bit of a flight from New York city towards office space near mass transit so people do need to get into the city they can. And even small office spaces, we have a couple of small office spaces that we market near train stations and the New York MSA. We’ve been marketing that rent is cheaper than a divorce. Pre COVID, I would say office was doing pretty well in New York city and also the suburbs may actually see it in that benefit from COVID.

Eric Murphy:
Before I let you go, Jonathan, how do you think that some of these trends that we have mentioned here during the program today, how do you think those trends should inform an investor’s philosophy?

Jonathan Gordon:
I wish I had something more insightful than the flight to quality. I think that the better real estate will always have the prospect of a tenant. I think hands-on management is more important now than ever to be able to feel which way the tenants are going with things, what the trends are just to our earlier conversation, and be able to react accordingly. So I don’t think retail is dead the way we’ve seen articles saying. I think that good retail that offers that experiential scenario will still continue to thrive, and I think that the national retailers will see the need to have to offer that in order to stay viable with their Internet sales.

Eric Murphy:
Great. Well, Jonathan, if someone wants to get in touch with you, how did they do so?

Jonathan Gordon:
They can visit our website at www.admiralrealestate.com or they can call me at 914-779-8200.

Eric Murphy:
Fantastic. Jonathan Gordon, President and CEO of Admiral Real Estate, thank you so much for being on the program today.

Jonathan Gordon:
Thanks very much, Eric. Nice chatting with you.

Eric Murphy:
My thanks again to our guests today, Jonathan Gordon, and thank you as always for listening to the Private Equity Real Estate podcast brought to you by First National Realty Partners. If you enjoyed listening, please remember to subscribe, rate, and review the podcast. We appreciate it. I’m your host Eric Murphy, and I’ll talk to you again next week. Thanks for listening.

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