Summary On this week’s episode, we have Sam Collier, the Executive Vice President of Leasing and National Accounts at First National Realty Partners. Sam gives us thoughts and insights from over 16 years of commercial real estate experience.
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Nick Cucci : Hey, everyone, welcome to another episode of the Private Equity Real Estate Podcast brought to you by First National Realty Partners. This is the ultimate resource for passive real estate investors. I’m your host, Nick Cucci, and today’s show, we have Sam Collier. Sam is the executive vice president of Leasing and National Accounts at First National Realty Partners. And he has over 16 years of experience in the industry. Welcome to the show, Sam, how you doing today?
Sam Collier: Hey, Nick. Doing great, man. Thanks for having me today.
Nick Cucci : Absolutely. Thanks for joining us. First off, let me ask you, how’s your 2020? It’s strange times we’re in.
Sam Collier: Yeah. I’ll say it like many of us I’ve probably saved a lot of memes on my phone to talk about what 2020 has been. It has provided a lot of unexpected things in life. I use the word things because it could be either challenging, or surprisingly healthy, or good for you. I’ve experienced both, actually, so it’s been an interesting year.
Nick Cucci : It’s the yin and the yang, right?
Sam Collier: Right.
Nick Cucci : There’s the good and the bad. I think there’s a lot of people who would look at this as, oh, 2020 is a really tough year, but I think the people that can identify, and it is it, it is, but I think the people that can also identify the good with the bad are the people that come out on top. So we’ll dig into that in a little bit, but first off, for the people who don’t know you can you give us a little bit of background into who you are, and how you ended up where you are today?
Sam Collier: Sure. Thanks. So, yeah, I spent about 10 years out of college in the finance industry. I worked in public accounting for a few years and then went onto work at GE Capital where I began to learn how to structure fairly complicated financial transactions, and supporting the telecommunications industry. After working there for a few years, I moved into an actual deal-making role and spent almost 16 years working for publicly traded mall REITs in a broader sector that First National actually operates in. And so I spent a big chunk of my commercial real estate career with the publicly traded mall REITs before I came to First National.
Nick Cucci : When you’re working for those mall REITs and you’re trying to put these relationships together, you must have learned a ton about putting together long-lasting relationships. And I know that’s one of the big items that FNRP is looking for. We have to always have high credit national brand tenants that our investors can depend on in these deals. So what are you doing? How can you strengthen those relationships with those tenants so we can further build out those relationships?
Sam Collier: Yeah. It’s relatively simple in terms of key principles of it. It involves your actual as a person, your longevity in the industry, and your actual relationship building skills. One thing I’ve seen over the years is that people tend to stay in our industry that are in the deal-making functions. They build a certain skillset. People tend to really enjoy the work. And so they tend to hang around in the industry. Now they may not stay at the same company. So regardless of how those things evolve, it’s really important to build an actual relationship with individuals so that’s important.
Sam Collier: And I’m able to bring that to the table because I have a number of long relationships and broad contacts within our industry, but then the second thing we have to do in conjunction with that is build a portfolio out that is attractive to those credit retailers we want to do business with. In putting those two things together you create some synergy in the relationship because we’re helping them come into a win-win situation with us whereby their company is more profitable and growing, and so is ours, but naturally then everyone wants to do business together.
Nick Cucci : Absolutely. I think it’s really important what you just called out, the synergy that you’re putting together in these spaces because a successful merchandising mix is really key to any retail center. I know you know how to navigate those and put those together, but I’m curious when it comes to your junior anchors in your merchandising mix, you’ve got your anchors in there. Now how do you go about choosing your juniors that are going to go in there with them?
Sam Collier: Well, you’re right. Those relationships, especially, with the junior anchors adds to the success of our business model for a couple of reasons. One of the reasons is because generally speaking, the amount of GLA we have in each project is relatively small compared to other product types in our industry. An enclosed regional mall might be a million square feet. Our projects might be anywhere from 150,000 to 250,000 to 300,000 square feet. So the impact of those junior anchors is significant is sort of like dropping a boulder in a pond it creates huge ripples. And if those are healthy, vibrant retail ripples then the positive impact on the project itself is incredible. So that’s what we want to do is we want to attract healthy credit quality retailers to our projects as junior anchors because they will drive large amounts of traffic and volume to the centers, which will in turn help feed traffic to smaller shops tenants that we have.
Nick Cucci : Absolutely. Yeah. And considering how important the merchandising mix is, and you want to create that synergy, if you have let’s say that a property goes vacant. You don’t want to fill it up with a tenant that’s not going to fit the merchandising mix, but nobody likes a vacant property. So what strategies do you have for filling it up quickly, but also making sure that it’s going to fit that mix that you’ve created?
Sam Collier: Yeah, well, there’s a lot of levers we have to pull on, so to speak, to trim out the smooth operation of the leasing effort. One of the things we have to do is understand what the market demand is. What does the market we’re serving what are the customers in this market demand? And so we try to meet that demand. We’ll do that by talking to key national and regional retailers that are already in the market to understand how they’re doing. And that’s where the relationships come back in where you can actually have those conversations about locations they might have elsewhere that you can get the feedback of how they’re performing in terms of are they healthy? Are they doing better than average and across their portfolio, et cetera. We can use technology like geo-fencing to understand where customers are coming from and we can target certain retailers and see where they’re drawing their customers from, and what are the demographics like that those customers have that are coming to those retailers.
Sam Collier: We can gather shopping data, shopper data via customer intercepts, meaning send people to the shopping centers and speak directly to customers at the shopping center and gather information about why they shop there? What is it they like about the center? What retailers do they like to visit and shop at? And then the other aspect, I think too, is what I call a deep dive in the market where we put our boots on the ground, and we literally circulate through the entire market either in cars, or walking centers, and so forth, and see how everything flows. Drive from key residential areas to the shopping centers and see what that transit is like and what works about traffic circulation and what doesn’t, what’s easy, and what’s not. Understand all of those components.
Sam Collier: And the last thing then we try to do is to engage local representatives on the leasing side to represent us, and obtain or secure tenant interest in our centers. They may be focused across the board, but they’re very helpful in helping us identify and secure local, healthy retailers to fill out our merchandising mix. And those are the people that I say need to wear out the shoe leather, so to speak, and be literally knocking on doors and going into stores and talking to owners and finding out are they happy where they are? And if there was a better location, would they be interested?
Nick Cucci : Thank you for taking us through that. One of the things that really resonated with me with what you just said is that you’re not leveraging just one angle. There’s multiple strategies that you’re going to be hitting. You’re leveraging technology. You’ve got boots on the ground. You’re talking to owners, you’re getting out there and you’re doing, and then you’re pulling all of that data together so that you can make well-informed decisions, and put people in there that are going to make sense, and also have several opportunities with different tenants so that you’ll really have your pick when you do have a vacant property. A lot of investors that I talk to who invest in retail, they love to see a long triple net lease. They love to see that long triple net lease in place. It feels secure, especially, with that high credit national brand tenant. So how do you work to get those leases in place and how do you make it a win-win for the investor, the company, and the tenant?
Sam Collier: It really leans back to one of our company’s core values, which you’ve already alluded to and asking the question is creating the win-win relationship. And that is done with good relationship building, not just being a professional relationship that only calls when we need something, but having a process in your relationship building where you check in regularly with these key tenants and see how their business is doing, and see what their future plans are and how their current operations and financial successes are impacting their view go forward for expanding their businesses, or contracting, or relocating stores, because markets are shifting. Understanding what their appetite is for real estate transactions, but it really all starts with knowing what those hot buttons are so that we can offer the win to them in exchange for what we need.
Nick Cucci : Yeah. We need it to be a win-win because it’s like you said it’s one of the company’s core values. It’s got to be that win-win, but we always have our investors in mind, and when we’re negotiating these leases, we’re trying to maximize NOI. So how do we negotiate these leases to do so while still keeping it a win-win?
Sam Collier: Yeah. Well, part of that is having a story. So, for example, if it’s a new tenant that we want to bring to the center, we want to highlight to them a few things. One, what’s going on well at our center, what tenants are successful and really performing, and how does that relate to their business? The second thing is to have a story about what is the future of this shopping center? Not a story that is just a story of maintaining, but a story of about where are we going to take this center? How are we going to improve it year over year and make it a place where they can see consistent sales and earnings growth as long as they get their product mix right on their side. And a third thing might be then, also, it’s visually representing that to them. It’s not just telling them about it. It’s going in and showing them a visual representation of here’s what the shopping center is like today. Here’s where we’re going to take it in the future, and what our options are in the market, so have a story.
Sam Collier: And then knowing their business well enough to do things like offer the clustering of other retailers that they like to co-tenant with and showing them how we’re going to have those retailers, or we already have those retailers and what that could look like for them. So it’s really making a commitment because both sides are typically making a long-term commitment to each other. And in order to get that very attractive, stable NOI we need to make promises and deliver on those promises. And over time, as we consistently deliver on those promises, the relationship gets better and better. And so that when you go to meet and talk in the future and you tell the story, it’s then believed because you’ve done it before you’ve got a track record.
Nick Cucci : Absolutely. Yeah. Obviously, we’re just an increasingly digital society. 2020 has pushed us even just years ahead of where we would have likely been from a digital standpoint. How have you seen the online world transform the brick and mortar spaces that you lease?
Sam Collier: Yeah. As you say, it’s almost been surreal in some aspects. There are sections of our industry or sectors that have seen real damage done to them, especially combined with the pandemic, which we can get into because customers are able now to still obtain products that they want and enjoy without necessarily having to make a full shopping trip that may have involved stay times that we were used to seeing five years ago. And now dwell times are often going down.
Nick Cucci : Yeah.
Sam Collier: So shopping center owners are trying to create more experiential retail to increase those dwell times and therefore drive sales volumes up. It’s been difficult, but in particular in our segment of grocery-anchored community centers has actually in many aspects been very positive as grocers have seen substantial increases in their sales volume. So the technology that has done some damage to certain non-essential retail categories has actually been great for us because the groceries are doing more business than ever via use of online sales, and ordering online and picking up at store and having things delivered directly to the home. It has helped many sectors of our business.
Nick Cucci : And it seems like something that this has been a necessary sea change due to the pandemic. And at this point, I don’t see us going back. I order groceries online at this point. And the ease that comes along with it is I can’t get that time back otherwise. So I just see society making the shift, and yeah, you’re right, the grocery-anchored stores, I think they’re only going to continue seeing the positives, at least as far as I can see right now. So let’s dig into you had mentioned talking about the pandemic. Obviously, it’s been such an unusual year. How have you really seen this impact your business?
Sam Collier: Well, in addition to some of the things we talked about on the last question lifting certain segments it has, of course, weakened tenants that are more sensitive to certain parts of our economy like workers that had been leaving their homes every day and going to an office, or going to a place of employment who are now no longer doing that. And so the effect of that has rippled through certain segments. I’ll give you an example. The dry cleaning segment, or the laundry service business has seen a fair amount of erosion in their sales because people aren’t taking their nice office clothes to get cleaned every week, and do that type of thing. And so they’ve had some pretty serious impact by COVID.
Nick Cucci : Yeah.
Sam Collier: Certain segments of the restaurant industry were full service restaurants have been very negatively impacted because they’re not able to push through the volume through the restaurants. In many markets they’re restricted on capacity. So it’s been just devastating. They’ve made long-term deals based on operating a five or 6,000 square foot full service restaurant that’s turning a certain number of tables every hour. And now depending on the market, they may be only operating at 25%, or 50% capacity maximum. That’s what they’re allowed to do. That doesn’t mean the customers are that interested in being out right now and circulating with the pandemic going on. So it’s had some really negative impact on certain parts of the business. On the other hand, other businesses have almost completely dried up. Certainly, we can look to some of the entertainment categories where people used to go out to access entertainment like movie theaters, and some of the big family entertainment centers. I don’t want to use names, but we all know who they are and we’re all reading the news, right?
Nick Cucci : Yeah. It’s been quite a sad situation to watch them over the last seven months.
Sam Collier: It’s been devastating some of those industries, but there’s going to be somewhere down the road in the future a pent-up demand is going to get released. What companies will still be around to meet that demand it’s hard to say. I believe that there will be some new companies that are formed because we have a capitalist economy where it responds to levels of demand.
Nick Cucci : I completely agree with you. I’m seeing it. I’m at the Jersey Shore and the arts are extremely important around here. We’ve seen drive-in concerts become a thing now.
Sam Collier: Right.
Nick Cucci : We were talking at the top of the show about the good and the bad, the yin and the yang, there’s one of the positives of living in that capitalist society is that you’re going to have those entrepreneurs that bring that positive change about regardless of the circumstance. So return to normal, and I’m using air quotes over here.
Sam Collier: Right.
Nick Cucci : I want to know what do you think the return to normal looks like, or what do you think the new normal is going to become next year, two years from now?
Sam Collier: Right. A lot of times in our business the saying is pretty common that overall in retail real estate, or in retail we tend to run and lag about six months behind what’s happening. And that’s a broad statement about the overall business. Certain segments of it aren’t quite so slow to react. For us, I think the potential really exists for, especially, in our company and companies that focus on the particular segments we do for the business to be even better than it is today because there will be categories that will reinvigorate and restrengthen, and we will react to them.
Sam Collier: We’ve spent our time during the pandemic, during the downturn, addressing retailers that have had issues financially, and getting those things worked out, and bringing new retailers in centers to replace certain retailers that may not have survived the pandemic. And so I see our business being very stabilized right now. And as we see some return of some momentum into certain categories, as we get past the pandemic, whether that takes another six months or eight months or 12 months, whatever it is, there’s going to be opportunity for us in that revitalization of certain segments then to make new transactions and bring more income into our centers.
Nick Cucci : Without a doubt. I appreciate your insights there. Put on your investor hat for a moment. What do you think is the most important thing that investors should consider when they’re investing in commercial real estate?
Sam Collier: Generally, I use some big industry terms that are very reliable. One is really two things together are current and future cap rate potential of the project.
Nick Cucci : Yeah.
Sam Collier: What do we own it at? And what do we think it’s going to be worth in the future at some point?
Nick Cucci : Yeah.
Sam Collier: Hopefully, we’re expecting improvements in the cap rate in every center that we own. The second thing is really the durability and longevity of the credit rate income tenants. So to your line of questioning earlier, do we have major credit rate tenants with long-term deals that have healthy businesses?
Nick Cucci : Yeah.
Sam Collier: And so if you’re able to buy into investment opportunities where those particular criterion you feel are being met and they’re strong, and the future potential is there, it should be a very good buying opportunity.
Nick Cucci : Well, Sam, I appreciate your thoughts and your time that we’ve spent so far. We close every show we have three quick questions that we ask everyone. So I’m going to ask you, what was your first real job?
Sam Collier: First real job. We all get to define what real is. I was a 12 or 13-year-old boy, and I had a paper route. And that was my first real job.
Nick Cucci : How American. That’s as American as you get right there.
Sam Collier: To further demonstrate American ingenuity this will tell you how old I am, but back in that day the new thing for the kids to ride were called mopeds, these little motorized bicycles. And so I became very efficient with my paper route with my moped because I used my moped to make my deliveries.
Nick Cucci : Nice. That must have been fun.
Sam Collier: Yeah. I made the money as fast as I could. I’m not sure my customers appreciated the moped at five in the morning when I was bringing their papers, but they were there.
Nick Cucci : Yeah, right. How about your favorite business book?
Sam Collier: Favorite business book is How to Make Friends and Influence People.
Nick Cucci : It’s one of the classics.
Sam Collier: Yeah. Actually, I’m taking my first full read of it right now, so I’m really enjoying it.
Nick Cucci : Yeah. It’s a fantastic book. If you could travel anywhere in the world tomorrow, where would you go?
Sam Collier: I love the coasts. I love warm weather and clear water and beautiful beaches, but I also have had the opportunity to go to Europe a few times in the last few years. And I really have enjoyed Switzerland when I’ve gone there. It’s beautiful.
Nick Cucci : Oh, beautiful.
Sam Collier: There’s so much nature, and so many things to see there. And the people are wonderful. And if I could just drop everything and make a quick trip, I’d probably go there.
Nick Cucci : Nice. Well, I hope you get to do that soon enough.
Sam Collier: Yeah.
Nick Cucci : So that’s all we’ve got for today. Sam, thank you so much for making the time and joining us on the show and hope to have you on again sometime soon.
Sam Collier: I would love the opportunity. Thanks so much for inviting me.
Nick Cucci : Absolutely. Hey, thanks to everyone for listening to the Private Equity Real Estate Podcast. If you like what you’re hearing, please leave us a review, subscribe and share the show. If there’s anything that you would like to hear us discuss reach out, and let us know. We’ll be happy to talk about it. The show is brought to you by First National Realty Partners, one of the top private equity commercial real estate firms in the country. If you’re interested in learning more about FNRP, or would like to get access to our private offerings, please click the link in the show notes, or visit fnrpusa.com. Remember that this show is for educational purposes only and should not be considered a solicitation to purchase securities, or be construed as tax, legal, investment, or accounting advice. All right, everyone, thanks for listening. We’ll see you again soon.
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