Latest / Icons of DC Area Real Estate / David Orr-Methodical Development Leader (#96)

Transcript

David Orr-Methodical Development Leader (#96) · Icons of DC Area Real Estate

• 0:09
  Speaker A: Hi, I'm John Co, and welcome to Icons of DC area Real Estate, a one on one interview show highlighting the backgrounds and career trajectory of leading luminaries in the Washington, DC area real estate market. The purpose of the show is to highlight their backgrounds and their experiences and some interesting stories about their current business as well as their past, and to cite some things that you might take away, both from educational standpoint as well as lessons learned in the industry and some amusing and sometimes interesting background stories. So I'm hoping that you will enjoy the show. Before I introduce my guest, I'd like to share that both this podcast and the community I started in 2021, called The Iconic Journey in CRE, is now part of a new nonprofit organization with that same name. The new company will offer opportunities for sponsorship to grow the community both in membership and in programs. It also allows you, as listeners to show your appreciation for this podcast, which has delivered episodes twice monthly since August 2019. With a charitable contribution transitioning the community and podcast into the nonprofit organization is underway. The community, which is open to commercial real estate professionals between the ages of 25 and 40 years old, is currently up to 65 members and growing. If you would like to learn more about either joining the community or contributing to the podcast, please reach out directly to me at john at Co Enterprises coenterprises.com separately, my private company, Co Enterprises, now will focus only on advisory work for early stage real estate firms and career counseling. If you have interest in learning more about its services, please review my website@coenterprises.com. Thank you for listening. Thank you for joining me for another episode of Icons of DCR Real Estate. I'm very pleased to introduce my guest for today's show is David Orr, who is the founder and leader of Orr Partners, a firm he started about 35 years ago, initially as a fee development company, mostly in the office sector, and then he's evolved now into much more different property types and in co investment role on most of his projects now. So this episode talks about his role in the company and his daily focus in development industry. David he discusses his mentorship role, strategic planning and involvement in major transactions. He shares his background in construction. This is where he started his career and his passion for entrepreneurship of doing his own thing. His father was a general contractor, so he learned construction from an early age and thrived in interest for that. So then he started out in the construction industry and eventually got into development through a partnership with Pete Scamardo who was a developer in Northern Virginia in the 1980s. And then he joined the Lee Samus companies as well to learn development business. Then he subsequently started his own company and developed from there. So we cover various topics including the importance of logistics and construction, the challenges and risks of real estate development, the transition from working for a company to starting one's own business, and the use of technology in construction. David also discusses his commitment to integrity and his experience with financing and his succession planning for his two sons who are now joining the company. So there's a wide ranging conversation, I will say that about David is he's very meticulous and very thorough and comes back frequently to his integrity, which seems to be his key core value. So without further ado, please enjoy this wide ranging conversation with David Orr. So, David Orr, well, thank you for joining me on icons of DCRA real Estate.
• 4:47
  Speaker B: I appreciate it. Sure, I'm happy to do it.
• 4:50
  Speaker A: Could you describe your role as founder and leader of Or Partners and your focus day to day? Keep it only to your role, and we'll speak about your company later.
• 5:00
  Speaker B: Sure. Well, so my role right now is really one of mentorship and strategic planning, and then I get involved in major transactions.
• 5:11
  Speaker A: Okay. So as far as strategy, talk about that a little bit. What are you thinking about every day?
• 5:18
  Speaker B: Well, so the interesting thing about real estate development is that it's got a lot of variables and it's controlled or it's dictated heavily by the macroeconomic conditions that are out there. It's a very interest rate sensitive program, and it's also economy driven, economically driven. So if the economy is doing well, our customers on our project management side have new needs, and that's what drives the business in general terms.
• 5:48
  Speaker A: And I assume product costs and things like that are important to you as well.
• 5:53
  Speaker B: Yeah. In fact, one of the very difficult things in today's market are hard costs and how you handle hard costs. And we've come up with some interesting strategies on how we can reduce hard costs on our projects and give us a competitive advantage.
• 6:10
  Speaker A: Maybe we can talk about that in a little bit.
• 6:12
  Speaker B: Yes.
• 6:13
  Speaker A: So tell us about your origins, youth and.
• 6:18
  Speaker B: I grew up in the construction side of the business. I did my dad worked for a large contractor in New York City. I was born in Ohio. I like to tell people I'm from Montclair, New Jersey, because that's where I went to high school. I've lived in the DC area for over 45 years now.
• 6:37
  Speaker A: So how did your dad get to New York from Ohio? Out of curiosity?
• 6:40
  Speaker B: He was hired by a contract. He started out of college, he went to Columbia University in New York, and he had an engineering degree. And he was hired out of college to work with a contract, an Ohio based contractor. And then subsequently he was born and raised in New York City. Oh, okay. And so he wanted to get back to New York and got engaged by a company called HRH, which was a very large construction company at the time, and built a number of high rise projects. So I was raised in a construction environment.
• 7:15
  Speaker A: So do you get on sites as a kid?
• 7:18
  Speaker B: Quite a know not a little bit. Yeah. My dad would take me out and would show me some things, and then ultimately what happened? When I was in high school, he helped me get a job as a laborer. I was a union card carrying laborer in New York City. Wow. Working really hard, making $5.25 an hour. But I saved that money to buy my first car.
• 7:41
  Speaker A: So did you work in Manhattan?
• 7:43
  Speaker B: I did. I worked in Manhattan.
• 7:44
  Speaker A: So high rise buildings mostly.
• 7:46
  Speaker B: High rise buildings mostly. Like, one of the projects I worked on was Memorial Hospital. It's a big demolition project, and so we were there with sledgehammers and knocking down block walls and putting it in dumpsters and hauling it off site. Wow. It was very you were in good shape then. I was in really good shape. It was very tedious work, but it paid well.
• 8:08
  Speaker A: So did you do this and think, I want to do this someday? It was in your blood. Was that kind of your thought process when you were a kid?
• 8:18
  Speaker B: Yeah, there were two things I would say that were in my DNA. All right? The construction side of it, because I was raised in the environment. Right. And the other thing that was in my DNA was being an entrepreneur. I've always wanted to be an entrepreneur. I've always wanted to have my own business. And there's an interesting story about how I went about trying to figure out how to start my own business. So that was really know, fueled my growth in the industry.
• 8:47
  Speaker A: So you went to high school in New Jersey, and then, I guess you were always aiming, I guess, towards that business, it sounds like. So you went on to get a civil engineering degree.
• 8:56
  Speaker B: I did about that, yeah. I got a civil engineering degree at Syracuse, and actually, I went to college on a full scholarship from the Air Force. And my goal at the time was to be a fighter pilot.
• 9:07
  Speaker A: Really?
• 9:08
  Speaker B: Yeah. And I was doing some additional coursework at Cornell University and a colonel at Cornell. I was about to start. The way the ROTC works is, in your senior year, you start flight training. You fly Cessnas, you get a private pilot license. Then when you graduate, they commission you, and they put you right into jets. I was about to start my flight training, and a colonel at Cornell Army this was Air Force.
• 9:33
  Speaker A: Air Force.
• 9:34
  Speaker B: And so a colonel at Cornell called me up, said, you got to come down, see me, and you got to realize this is old fashioned dial phones, right. No Internet, no cell phones back then. This is in the so I went down to see this colonel, and he said, I've got bad news and good news. What do you want? I said, Give me the bad news first. And he said, okay. The bad news is you can't fly. I said why? And he said, Vietnam War. Let out. We don't need any more pilots. And I said, okay, I'll be a navigator. He said, Nope, you can't be in the cockpit. Really? I said, well, what's the good news? He said, the good news is you can be anything else you want in the Air Force, or you can get out. You got a free education from the US. Government. I said, well, so I conferred with my dad and, you know, I really wanted to fly airplanes. I really don't have the desire to do anything else other than fly airplanes if I'm going to be in the Air Force. So I took their offer on exiting and getting a free education from the government. So ultimately, I finished my engineering degree and I moved on from there.
• 10:36
  Speaker A: Interestingly. My son with Navy rodsy and flew helicopters for ten years. US. Navy in the Gulf. Went twice to the Gulf.
• 10:46
  Speaker B: Yeah. Well, as you'll find out through this interview, we do an awful lot of work for the Navy. And if I had to do it all over again, I would be a naval aviation. Really? Yeah. I've been fortunate enough to go out on two aircraft carriers during flight operations, and that gave me exposure to it. And then we do an awful lot our company does an awful lot of work on behalf of the Navy, mostly for the nuclear submarine programs. And I have been genuinely, really impressed by the Navy and the people in the Navy and the way they go about their training and then the hardware that they have. Just the surface ships, the submarines, and the jets that they deploy are really, truly extraordinary. So if I had to do it all over again, I'd be a naval aviator.
• 11:36
  Speaker A: Well, I'll share a story. I spent six days on a USS John C. Stennis with my son.
• 11:44
  Speaker B: Awesome.
• 11:45
  Speaker A: And that was the Tiger Cruise, which is you're familiar with that program?
• 11:49
  Speaker B: I am.
• 11:50
  Speaker A: So I did it. From Pearl Harbor to San Diego. Six days on the ocean.
• 11:55
  Speaker B: You'll never forget it.
• 11:56
  Speaker A: Oh, it gives me goosebumps just to talk about it. It was incredible.
• 12:00
  Speaker B: Yeah. Same with my experience on the two carriers that I went out on. Yeah.
• 12:04
  Speaker A: Two air shows over the Pacific. Oh, my. Just there's nothing like it. Yeah, it's incredible to see the force of that. There's nothing like it in the world. There's no other force like that anywhere.
• 12:19
  Speaker B: Do you know how many aircraft carrier battle groups we have in this country?
• 12:22
  Speaker A: Well, there are eleven carriers. Right?
• 12:23
  Speaker B: Right.
• 12:24
  Speaker A: So I don't know how each one.
• 12:25
  Speaker B: Has about 20,000 men. Right.
• 12:28
  Speaker A: There are 5500 on a carrier.
• 12:30
  Speaker B: Correct. And then there's the destroyers and tenders and submarines and everything that goes with a carrier battle group. Perhaps quite impressive.
• 12:38
  Speaker A: Two most exciting moments I'll mention is leaving Pearl Harbor, the port they had a special historian tell the whole story of December 7, 1941. Everyone, all the entire crew was on the perimeter of the flight deck right. In dress whites, saluting, as we passed by the memorial there.
• 13:00
  Speaker B: Oh, my goodness, David. Wow.
• 13:02
  Speaker A: I can't tell you, that brought a.
• 13:03
  Speaker B: Tear to your eyes.
• 13:04
  Speaker A: Oh, my goodness. It was just, you know, it was just amazing.
• 13:09
  Speaker B: Well, the two highlights of my aircraft carrier experiences were an arrested landing and a catapult launch. They were extraordinary.
• 13:20
  Speaker A: So you did a catapult launch up a carrier? Oh, my goodness.
• 13:24
  Speaker B: I did it twice. Wow. Yeah, I watched it.
• 13:27
  Speaker A: I couldn't believe it.
• 13:27
  Speaker B: You can't believe it.
• 13:28
  Speaker A: So loud.
• 13:29
  Speaker B: Zero to 180 in 2 seconds.
• 13:33
  Speaker A: The G forces are amazing.
• 13:34
  Speaker B: Yeah, it's extraordinary. Wow.
• 13:37
  Speaker A: So you went to Syracuse and got out, I guess. And then what?
• 13:43
  Speaker B: Well, I started with Morse Diesel in New York City.
• 13:46
  Speaker A: Is that the company your dad worked for?
• 13:47
  Speaker B: It was, yeah. Right. Yeah. So he helped me get a job there.
• 13:53
  Speaker A: Talk about the impact of Morse diesel. I mean, I've read a little bit about them, but they were one of the big GCs.
• 13:59
  Speaker B: Yeah. And Carl Morse was what he was really known for. He founded a process called Fast Track, which is really more or less the similarity would be just in time deliveries for the construction of major office towers. And the big one was, at the time, the Pan Am Building. It's no longer called that. The Pan Am Building in New York City.
• 14:22
  Speaker A: 200 Park Avenue.
• 14:23
  Speaker B: 200 Park Avenue was their big claim to fame. And then they went on and built all kinds of buildings on that was.
• 14:29
  Speaker A: Built on top of the Grand Central Station.
• 14:31
  Speaker B: Correctly. Right, right. So they did some really large projects, and then I helped them build a number of those large projects. I was an assistant project manager, and I worked in their office in the days when everything was typewritten by hand.
• 14:47
  Speaker A: Interestingly. I interviewed Chuck Waters of Heinz. He started his career in Manhattan for Heinz, building very large buildings as a developer there. And he said he told stories there that were amazing.
• 15:00
  Speaker B: They are amazing. They're amazing projects. They're large. And the interesting thing about those projects, if you think about it, everything comes in on the back of a truck. And so your logistics for the whole how you build those things is really one of the most pivotal things.
• 15:20
  Speaker A: How do you get cranes of the magnitude that they have into the city?
• 15:24
  Speaker B: Yeah, you assemble them in place is what you do. You bring them in parts, and then you assemble them in place. And then what they do, they have these jib cranes that they attach to the side of the building, and they bring other cranes up through the jib crane. So it's very interesting way that they go about that.
• 15:41
  Speaker A: Crane on crane, basically.
• 15:42
  Speaker B: Crane on crane.
• 15:43
  Speaker A: Because, you see, they might put elevators on the side of the buildings such that the crane goes up on the side. Is that by an elevator? Right, yeah. Fascinating.
• 15:52
  Speaker B: Yeah, very fascinating. Those elevators, by the way, are extremely fast, and sometimes, on occasion, you would ride them and they'd let them free fall. The operator would let them free fall. It was quite a scary experience going down 50 stories in just a few seconds.
• 16:10
  Speaker A: So my first job was with Prudential Insurance Company. And at that time, in 1979, they were the fee owner of the of the Empire State Building, or they owned it. So there's a film of the construction of the Empire State Building.
• 16:24
  Speaker B: Right.
• 16:25
  Speaker A: And it was built in 1933 during the Depression, and it shows laborers on beams 100 stories up, walking out on.
• 16:34
  Speaker B: Beams with no safety protocols whatsoever. Now, interesting, that's fact about the Empire State Building is that they built it in 13 months with over 3000 people. Laborers.
• 16:47
  Speaker A: That's fast track.
• 16:48
  Speaker B: That's fast track. But it did it at a time when everybody was desperate for wages and work. And so it was a very advantageous.
• 16:57
  Speaker A: They must have had several thousand people on the job then.
• 16:59
  Speaker B: Over 3000, yeah. It was amazing.
• 17:03
  Speaker A: I assume you've seen that film.
• 17:06
  Speaker B: I think I have. Yes.
• 17:08
  Speaker A: It's pretty incredible.
• 17:09
  Speaker B: It is.
• 17:10
  Speaker A: So then you were there for how long?
• 17:13
  Speaker B: So morse diesel. I was there when I finished a couple of projects in New York City. They transferred me to Memphis, Tennessee. I built the headquarters for the Memphis Publishing Company, or Morse Diesel there, which is two big printing press, mean, yeah, I was the lead project manager down. So you moved up pretty quickly.
• 17:33
  Speaker A: Was your dad there at the time when you were there or not?
• 17:36
  Speaker B: No, he was not. He had transitioned over to HRH.
• 17:41
  Speaker A: I see.
• 17:42
  Speaker B: But I was still there at Morse Diesel. Then my college sweetheart, who is now my wife of 45 years, had gotten a job. She went to Syracuse, also undergrad, and she got a job with Time Life Books in Alexandria. So I was in Memphis, and I really wanted to be with her. And so I transitioned from Memphis, and the Marriott Corporation hired me and brought me to DC. And so we lived in Old Town and we got married there. And here we are for 45 years now.
• 18:20
  Speaker A: So I read that you developed their headquarters building, which is now being demolished. So talk about that process and why you came to work for Marriott and all that. Talk about that experience.
• 18:32
  Speaker B: Well, the primary reason I came to work for Marriott is because I wanted to be located geographically here, and they had this need. So I was an assistant project manager for them. Jim Davis's Uncle Ed was the project manager and my boss. And he's the one Vicki Davis's father, he's the one who hired me. And that's how I got small world. And that's how I got to know the davises, and we have a very long history with Jim Davis and Davis Construction, but we worked together in the trailer right at the site, and it was about a two year engagement to build that building. It was a half a million square feet. It was designed by HOK marriott had their own architecture and construction division at the time. It was run by a guy named Jack Graves, who was really revered in the company because he really helped facilitate their worldwide growth of their hotels, which was pretty astonishing. I had an opportunity to meet on several occasions with Bill Marriott. It's a complete gentleman. He would come out and visit the site. We'd walk around, talk about what the various attributes they would have test kitchens and things like that for their various hotels and restaurants that they owned. The Merritt family is a really have you seen their new headquarters family? I have not been through it. I've seen it from the outside, but I've not been through I did a tour. Yeah. So it took two years to build it, and when I got done with it, jack Graves came to me, and he said, son, you've done a really good job here. I want to send you to Saudi Arabia and build a hotel. And I was engaged to be married at the time, and, you know, I really don't think that that's what I want to know, being that I'm about to get married. So I ended up looking for a job, and Richmar hired, so and they were an owner builder, and I went over to Richmar so that I could stay in this area rather than go to Saudi Arabia, and I ended up building because of my high rise experience. Richmore put me on a lot of their high rise condos that they were developing at the time, and I also helped with some of their single family product. So they were a family owned business. They were very prolific in the was a project manager with them, and really, that's where I started to get exposure to the development side of the business because I was doing construction, but they owned what they built, and so that really started giving me exposure and development.
• 21:00
  Speaker A: Which projects you work on with theirs.
• 21:02
  Speaker B: So old Georgetown Village big master plan community was one of them. The Barclay and Chevy Chase. The Barclay, excuse me, in Columbia, pike was a condominium, and there were several other high rises. I did do some work on the Skyline project, and Kings Park was another one. Big single family community in Springfield. Sure.
• 21:24
  Speaker A: So the skyline the Charles E. Smith Skyline project.
• 21:26
  Speaker B: Right, yeah. So if you might recall, there was a collapse there, and so Charles E. Smith was more or less richmond was a sister company of Charles E. Smith. They were related to each other, kirsten's and the Smith. I think Dick Kirstein married a relative of Bob Smith or something like that, as I recall. And so when Smith had that collapse, he couldn't build the buildings anymore, so Richmore took them over, and because of my high rise experience, they had me get involved in some of those high rises over at Bailey's Crossroads.
• 22:04
  Speaker A: Was that just a structural collapse, or was there some other issue with it?
• 22:08
  Speaker B: Well, so what happened was this is before now, these counties have critical structures programs, and so that collapse is what precipitated the critical structures program in county. Prior to that, there was no criteria, there was no jurisdictional criteria for the stripping of forms on concrete. And so in their zealousness to meet the schedule, they stripped the forms early. And so they still had many floors that were building on top of green concrete, and that's what precipitated the collapse. And I think several people died, if I recall correctly.
• 22:50
  Speaker A: What was this, in the 70s?
• 22:52
  Speaker B: Yeah, it was in the 70s. Right.
• 22:57
  Speaker A: So then you were at Rich Mar for a couple of years.
• 23:00
  Speaker B: A couple of years, yes. And then spent one year with Jerry Siegel and Siegel Construction. Oh, sure. He came and recruited me.
• 23:09
  Speaker A: Siegel zuckerman eventually.
• 23:10
  Speaker B: Siegel zuckerman eventually. And then Samus made a very strong push at hiring me. I had probably six interviews with those guys with Lee Samus flying in from California. He was an Irvine, California based developer, wanted to set up shop here, and so he hired Joe Spados. Mark Hassinger, myself, and the three of us ran the DC. Office. And most of the projects we did were joint ventures with New England Life. And we had probably a dozen office parks that we developed here, including the one we're sitting in, Campus Commons.
• 23:44
  Speaker A: So did you guys divide roles up there among the three of you as far as who did what?
• 23:49
  Speaker B: Yeah, we did our own construction, so I ran the construction company. Joe did most of the financing, and Mark did most of the design, and that's kind of how we divided up the you know, it was very symbiotic. And I would say of all the things that I did, that was the one that was really where I cut my teeth in development, really came to understand the development business.
• 24:13
  Speaker A: So did you get into the land use issues and that kind of thing?
• 24:16
  Speaker B: All that all the land use issues go into the hearings, all the entitlements zoning, getting to know the communities, a lot of coffee table conversations in people's living rooms, which is really necessary to be successful as a developer. So I really cut my teeth in the business, understanding what I call and what I teach now is the dynamics of the real estate equation and how a financial model works and all of the variables in that and how important that is to really be utilized as a guide in your Bible. For a successful development project, you always need to check in on your financial model and make sure you're meeting your numbers.
• 24:53
  Speaker A: Oh, yeah. Well, it's interesting how many variables you put into that equation. It could be hundreds, literally.
• 25:00
  Speaker B: Right.
• 25:02
  Speaker A: And what you have to watch throughout the job is how things and then what adjustments you have to make it's interesting.
• 25:10
  Speaker B: And that really makes the business really challenging, because many of those variables are out of your control, like the weather. All right. Or if they're interest rates or interest rates. Right. Or labor supplies, labor and cost of labor. And all those things are variables, many of which are outside of your so, you know, I've over the years, I've taught a number of real estate development classes. The Urban Land Institute. I've taught there. NAOP. I've done a number of those. And there's an interesting question that I start. It's the first question I ask of every class. I'm going to ask you this question. I've never had anybody give me the right answer, but I'm going to ask you the question. Okay?
• 26:03
  Speaker A: You're turning the tables on me.
• 26:05
  Speaker B: So what is it that makes real estate development so unique?
• 26:10
  Speaker A: Well, I have my own kind of thought, and this is very first principles. So to me, and that's why I'm interested in real estate in the first place. It's a three legged stool. There's communications, there's mathematics, analytics, and there's design function. So to me, those are the three basic elements of commercial real estate.
• 26:37
  Speaker B: Right.
• 26:37
  Speaker A: And you have to understand all of them. But in my mind, number one is communications among all of them.
• 26:44
  Speaker B: I agree with that completely. But however, that's not what makes real estate development so unique. I mean, you're right. Your three legs of the stool are absolutely spot on, and communications is the hallmark of a successful project. But what makes real estate development so unique is that, without exception, every single aspect of it is negotiable. And that's what makes it such a challenging and invigorating whether to do it at all. Right. As you're interviewing people like myself, and you're interviewing icons in real estate, and some of which are developers, what really makes good developers is that they become really good negotiators, and that becomes the skill that you have to refine in order to be a really successful the.
• 27:34
  Speaker A: Hardest person to negotiate with, though, is yourself.
• 27:38
  Speaker B: Is yourself. Right. And having discipline. Having discipline, exactly. And that's another thing that I teach, is that you can't fall in love with your real estate. No, you cannot do them. Too many people do. And you have to know when know fish are cut bait, you really have to do that.
• 27:56
  Speaker A: It's funny how you say that, because I just interviewed Gary Rappaport.
• 28:00
  Speaker B: Yeah.
• 28:00
  Speaker A: So Gary Rappaport doesn't like to sell. Just that's his whole mantra, never to sell. And he also says, why develop when you can buy five shopping centers in the time that it takes to build one?
• 28:13
  Speaker B: Right?
• 28:14
  Speaker A: So it's an interesting philosophy that he has and it's served him pretty well. But everyone has a different kind of thought process in looking at that.
• 28:25
  Speaker B: Well, it really comes down to the liquidity, right. One of the things that is challenging about real estate is it is an illiquid investment. It's only when it's finished and stabilized and producing cash flow that you get some liquidity back.
• 28:42
  Speaker A: That's the risk of development.
• 28:43
  Speaker B: That's the risk of development and we go through. Unfortunately, it's a cyclical business and the scale of the projects that we do tends to be quite large. And so the cycle for us to get a project from start to stabilization can be upwards of five or six years. Those are long time frames and the macroeconomics in the world change dramatically in those five or six years.
• 29:06
  Speaker A: Well, this thought that you just brought up brings me back to your transition from Lee Samus to your own company. And I'm going to paint a scenario and you can either tell me no or not. But my sense is that you took on fee development, which was kind of your main thrust because of the capital markets risks doing that because you had a client that says, okay, certainty here. At least I've cut away the capital part of it. So now all I have to do is build this project for this client and get it developed in time, help that group with the entitlements, with the county and do all those things. But I don't have to worry about the capital markets because they're going to cover the cost. They've set the budget for me. That's what I have to build under. Am I wrong with that assessment?
• 29:58
  Speaker B: No. Well, so it's a little different than that, but you're more right than wrong. Okay, so what happened was how I got into my own business. Sure. Okay, let's start with that. And I'm going to tell you how I morphed into fee development and what the macroeconomics were that required that. Okay. So I got into the business. I was a partner at Lee Samus, and we had made a really good name for ourself. We had a dozen office parks and I had people like Bob Smith call me up and say, hey, I want to meet with you. Okay. And he started to make some inroads, know, would you come work to trying to get me? And I was know, look, I'm a general partner in what I do, right know, I'm pretty happy with where I am. And I was okay. However, one offer came to me, and it was from Pete Skamarta. And he came to me, said, listen, I want to start a whole new division to my business. I've had my eye on you. Things are going really well. I'll put up some seed capital and you and I can start a company, we'll own it 50 50. And I took the plunge and said, okay, let's do it. And we started this business.
• 31:11
  Speaker A: What year was that?
• 31:12
  Speaker B: That was 88. Okay. And that was 88. I left Samus. I started the business, and it was started as a development company, and I went out and as a developer, I formed a joint venture with Till Hazel on a property we put under contract at Sullyfield Circle. I formed a joint venture with David Evans. Sure. Okay. Yeah. And I had a joint venture with Scamardo. And was it just you and Pete.
• 31:42
  Speaker A: Or did you have some of his team on your team?
• 31:45
  Speaker B: It was just me and him. Okay. All right. It was a whole separate division. We would meet once a week, and irrespective of anything you might have heard about Pete Skamardo, I will tell you, he was a tremendous mentor. He really had very good business acumen. He would sit me down once a week. We'd spend about 2 hours. And it was a lot of focus on the numbers. A lot of focus on he had a famous saying that I remember he said to me, he said, Your most important thing is to earn a living. He said, Meaning you got to be able to pay for yourself. Right. He said, Making money is easy. Earning a living is a really hard thing to do. He said, So let's focus on earning a living, and then we'll find a way to make money.
• 32:32
  Speaker A: Let me pivot for a moment. One of my prior guests was Charlie Nelson.
• 32:37
  Speaker B: Yeah.
• 32:38
  Speaker A: Charlie worked for Pete, and he talks about Pete specifically in that interview.
• 32:42
  Speaker B: Quite a bit. Yeah.
• 32:44
  Speaker A: Charlie, he was there to the end with Pete, basically.
• 32:47
  Speaker B: He was. And I watched so I was there watching Pete's empire kind of fall apart. So, if you remember, we formed our business, and this is 87. eightyAt. And then 89 was the SNL crisis. Okay. And Pete Scamardo was really in the crosshairs of a number of lenders. I mean, big time, including our company. Yeah, big time. Right? Yeah. And so there were all kinds of things swirling around. I was over there meeting with him, and you just hear this noise in the hallway, and Pete was hiring bankruptcy attorneys, and he was under siege. Okay. I really didn't have anything to do with that, but I just could hear it in the hallways. And eventually it got to a point where I said to him, I said, Pete, listen, you got a lot going on here, right? You got a lot of issues that you've got to deal with. It'd probably be best for you if I bought you out. And he said, I agree with that. I said all right. And he had of the half a million dollars or so that he had said that he would invest, he probably had $100,000 laid out. I said, I'll pay you back the $100,000, sign over the other half of the company to me, and I'll exit, and we can both go our ways. And we did that amicably and moved on. And that was the genesis of me having my own company.
• 34:10
  Speaker A: So for the listeners, I just wanted to share that. Pete Scamardo's Company was called Centennial Development Company at the time. Right. He started, I think, in the early 1980s, had 300 people, and Northern Virginia at that time, just to give some market perspective, was just perhaps one of the two. Other than Southern California, the fastest growing office, suburban office market in the United States.
• 34:34
  Speaker B: Correct.
• 34:35
  Speaker A: The CB office here was number one in the nation.
• 34:37
  Speaker B: Correct.
• 34:38
  Speaker A: Number one in the nation.
• 34:39
  Speaker B: Right. Guys like John Mckevely, Steve Spencer, just.
• 34:43
  Speaker A: Incredible icons of they were making millions.
• 34:46
  Speaker B: Millions, millions in commissions. And we were doing these huge build a suits, and it was really unique time. I'll give you an example. We were out at Dallas Technology Center and we were trying to do business with a company called very, you know, large network company that was growing. And I remember standing on the property and the CEO of CIT Alcatel said, I'll do this 200,000 square foot building with you guys, but I got to be in in a year. And we said a year. Okay. And we had a preliminary design, right? That's about all that we had. And so I went to meet the guy running the county permit division was Claude Cooper, a real gentleman. We had good standing with them. I went and met with Claude Cooper and the county was really keen on growing their commercial tax base. And so they were really rolling out the red carpet to these big corporations who wanted to locate here during these very heady times. And so we met with Mr. Cooper and he said, so what do you need? I said, We've got this build a suit. They've got to be in in a says, So what do you need for me? I said, we need to be able to start now in order to make this he says, do you have a site plan? I said, we have a site plan. He goes, okay, I'm going to have my staff review it quickly, and we'll get right back to you. And within a week we had an approval. Within a week we had an approval. And we launching. Yeah, there's no way you could do that today. But those were different times.
• 36:33
  Speaker A: Fast track.
• 36:33
  Speaker B: Fast track. Big time. Yeah, it's interesting times, no question.
• 36:39
  Speaker A: So then how did your company start? Well, what was the impetus there?
• 36:42
  Speaker B: Well, then what happened was I bought out Pete. And so there we are. In 1989, the SNL crisis happened, right? And so I had one project under construction, the other two were still under contract, and I had negotiated the contracts to the point where I could get out of those deals and get our deposits returned and move on. Right. Because all the banks had melted down, development community was melting down. But I had one that was under construction. It was a medical condominium called Suddenly Park. It's directly across the street from Prince William hospital. There I was. And I had personally guaranteed the $5 million construction loan.
• 37:28
  Speaker A: This in manassas.
• 37:29
  Speaker B: This is in Manassas. Yeah. So this thing's half done, right? And so I've got to sell units. The bank itself ultimately went under that I lent to. But I'm the kind of person where I don't default on loans. I always pay back my debts. It's part of the integrity that you'll hear about. That is really kind of what we tout as our number one attribute is our integrity.
• 37:55
  Speaker A: Which bank was it? Do you remember?
• 37:57
  Speaker B: I don't remember the name.
• 37:58
  Speaker A: United Savings Bank?
• 37:59
  Speaker B: No, it wasn't United Perpetual. I don't remember who it was. Just out of curiosity, it was a small bank. They had made this $5 million loan to me. The whole market was melting down. And so what I did, I was a condo, remember? I had to sell units. I had 80 some OD units of commercial medical office spaces. What was meant to be for doctors?
• 38:23
  Speaker A: Your break even point was probably, what, about 60 units, 50, something like that?
• 38:27
  Speaker B: Yeah, right. So, long story short, I would hold seminars at the Holiday Inn in Manassas, okay? And the title of the seminar was how to Buy Commercial Real Estate with no Money. Down. And I'd serve some chicken fingers and I'd sell a unit. And that's what I did. And I hustled, and I worked it, and I worked it, and I worked it. And long story short, I paid the loan back in Fall. Now, I lost a half a million dollars, okay? But I paid the debt. Personally. Personally, but I paid the debt. So there I was. Now I've gotten through that. You're in 1991, and I'm kind of the last man standing. Skamardo went under. Everybody was gone. Oh, yeah. Okay. It was a complete collapse of the industry. Okay. I'm the last man standing. So that's when I realized that there's still a need for a real estate project. There's all these institutions that need real estate. So I started doing fee development and project management and started to develop a system that ensures predictability of outcome. It ensures on time and on budget every time. And that was something that really became a pivot point for us and really launched our project management business to where now it's a national company that's built in 35 states.
• 39:58
  Speaker A: So who are your first clients?
• 40:01
  Speaker B: So one of the largest first clients I went to speech that a guy named Knox Singleton gave. He used to run inova health system.
• 40:09
  Speaker A: Oh, I know that name. Right, sure.
• 40:12
  Speaker B: So Knox gave a system, gave a speech at was either a NIOP or associated builder to Contractors conference. I forget. I think it was NIOP. So he gave a speech, and after the speech, I went and chatted him up, introduced myself, said hi to him started talking about some of the medical things that I had done in Manassas and some of the physician practices we had built and dialysis labs and things like that. And he says, you know quite a bit about this stuff. He said, can you come see me tomorrow? I said sure. He said, okay, give me a call, and we'll get it on the calendar. I went and saw him, and he says, Look, I'm affiliated with our Cubs, affiliated with 14 hospitals. We got this big platform. I have a facilities department. And he says, It's just completely broken, okay? He says, It's just a mess. And I said, well, that's completely understandable. And he looked at me questioning why I would say that, and I said, well, you're in the business of delivering health care. You're not in the business of delivering real estate. You shouldn't be in the real estate business, quite frankly. He said, can you do me a favor? He said, Take a look at my facilities department and come back to me with some recommendations. I said, okay, I'll take a look at it. Looked at it, came back to him with some recommendations. And he said to me, he goes, can you take it over? I said, what do you mean? He said, can you take over the facilities of Inova health System as an employee? As an employee? And I said no. I said, I have my own business. He said, didn't do it as a consultant. I said, I have my own business. Hard thing to do. He said, well, then do this for me. Take it over for a year and hire your replacement. Hire somebody who's good, who can run the thing. And I did that. And I did a number of facilities for Nova while I still had my own business and ultimately hired a gentleman who took over and stayed with them for many years and really turned their facilities around. And that became the launching pad for doing a lot of institutional work and leading ultimately to the relationship that we have now. That these 20 year relationship, customer base relationships with the likes of Gulf Stream and General Dynamics and Electric Boat and these larger project management clients that our system has worked so well for.
• 42:29
  Speaker A: So what you did is you brought your construction expertise and experience to clients that didn't have it or shouldn't have had it, is what you said.
• 42:41
  Speaker B: Right.
• 42:41
  Speaker A: And they had to build, but there was nobody out there to do it, because the construction companies were all probably really in deep trouble at that time.
• 42:50
  Speaker B: Yeah. One of the biggest challenges, if not the biggest challenge to the development industry is cost overruns. Right. Okay. And people do not like to go back to their bosses or to their boards or the decision makers and ask for more money. And unfortunately, the way that these process we talked about the number of variables and how complex these projects are. And there's a lack of discipline in a number of the various constituent parts that comprise these projects. The construction industry, by way of example, it's not always, but can be predatory. And so if you're not prepared upfront to address that, you're going to have some challenges. You're going to have some struggles with your schedule and your budget. And so what we did and what I did use my construction acumen to realize, to really understand the pain points of development. And how can I make this easy for people? How can we make this process where they have predictability of outcome, where they don't have to go back to a board for money, where they have reassurance that they're going to finish on time and on budget? And that's the system that we've developed that's resonated so well with these large corporations.
• 44:20
  Speaker A: So you mentioned pain points.
• 44:21
  Speaker B: Maybe.
• 44:22
  Speaker A: I did a course from my community on the development process and I brought an experienced developer in to lead it. I brought the capital markets view, and then I had an attorney that did all the document aspects of the development project.
• 44:39
  Speaker B: Right.
• 44:40
  Speaker A: We didn't get into the specific pain points. More of the process. These are the things you get step by step by step kind of thing. But we didn't talk about distill down to pain points. It could be a whole course to tell this, but I'm just curious if they're at a high level, what pain points do you see that other people may not be aware of unless they were taught what they were?
• 45:03
  Speaker B: Well, I think one of the biggest ones is agreements and how to utilize smart agreements and how to make sure you have the proper language in your agreement and that you enforce your agreement.
• 45:20
  Speaker A: You're talking about the general contract, subcontracts, all the above here or what?
• 45:24
  Speaker B: Architects, engineers, contracts, all of those things.
• 45:28
  Speaker A: Right.
• 45:28
  Speaker B: Really, one of the strengths that we have as a company is that we've developed a proprietary set of documents that address the issues that an owner is going to face and allow us to have surety of outcome. So I'll give you an example, okay. In our construction agreements, we have a phrase that says irrespective of the errors and omissions and the plans and specifications, you, the contractor, are going to give us a complete and functioning project. Now, the contractors say, whoa, wait a minute, I didn't design this. And we say, True, but you've built 300 buildings like this. You know what it's going to take?
• 46:15
  Speaker A: Is that different than a construction guarantee?
• 46:19
  Speaker B: Well, yes. A construction guarantee is typically what a lender it's typically what we call a completion guarantee, what the lenders require of us to lend us money.
• 46:30
  Speaker A: Right.
• 46:31
  Speaker B: And we generally are risk averse, and we try not to enter into recourse provisions on our loan where we have personal guarantees. But there is one personal guarantee I willingly sign because I think I need to sign it because it's our business. It's what we're responsible for. And it's called a completion guarantee, right, where we're telling the lender that we're going to make sure this is done on time and we're going to make sure it's done on budget. It's our business. We should stand tall to that.
• 47:00
  Speaker A: How does that differ from the language you were talking about earlier?
• 47:03
  Speaker B: So the language I'm talking about earlier is the language that's actually in the construction agreement with the contractor. And so you can enforce with the contractor language like that so that you don't get nickeled and dime with change orders. Now the contractor is going to come back and say, listen, these drawings, these projects have drawings. It's 1000 sheets of plans. And of course, they're created by humans. There's going to be a lot of mistakes in them, right? Of course, there's no such thing as a perfect set of plans, right. And so we know that. So what we do is we tell the contractor, listen, we understand there's a certain amount of risk that you're taking by agreeing to that phrase. So we're going to give you a contingency, all right, that we'll agree to for you to take that risk. Okay? And so under that premise, the contractors accept that language. So that in and of itself saves an enormous amount of time and headache fighting change orders when we can point to that and say, wait a minute, okay. And so some examples and the way I adjudicate that, or way that we adjudicate that with contractors is we say, look, if there's a light fixture shown on the ceiling and there's no light switch in the wall, we expect you to have the light switch. And they say, of course I do. All right. On the other hand, the term that I use is I can't expect you to be clairvoyant. So by way of example, if the structural engineer has designed a staircase and he put the wrong size rebar in it, I can't expect you, the contractor to know that, all right? And so on a situation like that, I'll talk to the architect and I'll talk to the engineer and we'll look to their insurance to cover something like that and I won't ask you, Mr. Contractor, to cover it. So when we give examples like that and we explain the rationale behind this, every single contractor says, that's fair, we'll accept it's. There are many, many more phrases like that and strategies that we employ in our agreements that help us ensure and deliver consistently on time and on budget.
• 49:28
  Speaker A: Strikes me that a lot of developers would learn by understanding that.
• 49:32
  Speaker B: Yeah, it's interesting that you say that because we're in the process of finalizing a webinar where we're going to teach these principles.
• 49:39
  Speaker A: There you go.
• 49:40
  Speaker B: And we're going to put that online and we're going to ask people to pay us some modest consideration or return for seeing it, but we think we can access a worldwide market and teach people some of these proven principles that have worked again and again and again.
• 49:59
  Speaker A: So you've already talked about several of your clients. While many other companies focus on building their own portfolios, it seems that you were focused on serving others development needs. Was it because you were concerned about the capital market risks at the time, or did you have so much business that you believed you didn't need that risk?
• 50:18
  Speaker B: Well, so it was a combination of both. So the development business requires a lot of capital. And you got to remember, I started as a project manager. I didn't have any money and I.
• 50:30
  Speaker A: Was a financier, so I know exactly what people right.
• 50:34
  Speaker B: And on any particular development project, the most that the bank is going to give you is about 60%. You've got to come up with the other 40%. And when you're doing 100 million dollar project, that's a lot of money. Okay. And so typically in our relationships with our capital partners, they'll give us 90% of that 40%, but we have to come up with the other ten. And so it took a long time to get to a point where we had enough capital to invest alongside a limited partner and do some of these projects. And we're fortunate now, and we run the company without any debt. And I can't say that that was true for the whole history of the company. Early on you take on debt. Right. And as these market cycles would arise, debt becomes a problem.
• 51:23
  Speaker A: So when did you pivot from fee development or doing purely projects for others and do your own private projects?
• 51:31
  Speaker B: Well, as you recall, we started the company was founded when I founded it with Pete Tomorrow as a development company. But we pivoted to project management with the meltdown in 89 and 90 markets. And where our development process really launched is when I brought in my two sons. Okay. My son Ryan, he's a Dartmouth grad, really smart financially. He's a spreadsheet guru, really good with design. He looked at this whole process, he said, dad, listen, we're making a lot of money for other people. We need to start bringing some of that home. And so we pivoted into more and more under he and Tyler's leadership.
• 52:17
  Speaker A: All right, so what year was that?
• 52:19
  Speaker B: So Ryan's been with me for eleven years.
• 52:22
  Speaker A: Okay.
• 52:23
  Speaker B: And Tyler's been with me for five or six years now.
• 52:27
  Speaker A: So for about 20 years, you really were a fee development shop.
• 52:31
  Speaker B: Mostly. Mostly. We did a couple of developments that were successful. Loudon Parkway Commons was 150,000 square foot warehouse condominium project we did on Loudoun County Parkway.
• 52:45
  Speaker A: Right.
• 52:46
  Speaker B: We presold every unit before we broke ground. It was an amazing story. And that partnership made about $6 million. Right. And I had some brokers who were investors, and I had my own capital in it and high net worth investors and everybody. The way we measure development success, one of the measurements is return on cost, and another one is multiple of money. Right? So on that particular project, the multiple of money was a three. It's a three X for everybody.
• 53:14
  Speaker A: That's pretty good.
• 53:15
  Speaker B: It was an amazing there was a guy named Bill Saltes, who was our broker, who was selling the units for us, and he would call me up, and he'd say, hey, I sold units ABC and D today. I said, okay, let's raise the price on the next four. He goes, I sold them, too. And I'm like, wow. So we couldn't raise the prices fast enough. Literally, they were flying off the shell. It was an incredible you won't see that anytime soon. You won't see that. So but we have another similar success story on our Centro project, which is a large multifamily project we did in South Arlington. And really, again, I owe that to my two sons. So Tyler's specialty is construction, and he was out in the field working with Jennings, who was the contractor excellent contractor by the Jennings. And I knew Larry before he passed away. He and I were on the board at ABC together, and we did a lot of stuff in our early years. So to this day, they're a great company. So we built this project, 366 units. Ryan was really in charge of the finance and design. Tyler was running the construction. We got the project completed in November of 19. We were methodically leasing it. We had gotten to the point where we were about 40% leased up. And what happened in March of 2020? COVID boom. All of a sudden, we went from leasing 30 units a month to zero to zero. Okay, so you're sitting here watching this. I had negotiated a lease with Harris Teeter to put a grocery store in there. All of our retail had been fully leased up. It was all about just leasing it up. And we had this great success story unfolding before us. And then COVID hit and the leasing, the music stopped. And so, to my son's credit, my son Ryan did a deep dive and said, Wait a minute. Okay, we're getting zero leases, but some of our competitors are getting two or three leases. So what's going on? Why are they so there's still a market out there. Okay.
• 55:24
  Speaker A: Were the units delivered so they could physically walk?
• 55:27
  Speaker B: The tenants could walk, yeah, we were done. We were done and moving people in. All right. Yeah, we were 40% leased at the time. Okay. And on a 366 unit project, you typically are going to plan for about 18 to 24 months to lease it up. It's pretty typical that you'll do somewhere between 20 and 30.
• 55:46
  Speaker A: You can lease for models, too. You don't have of course.
• 55:49
  Speaker B: And we did. Yeah, we probably had 35 or 40 pre leased units when we opened the doors right. So we were all successful with that. And it was the COVID that really took everything, stopped everything in his tracks. To Ryan's credit, what he did is did a lot of research, and he discovered, okay, so what was happening is that the way apartments get leased is people use a filter, they go online. They're all leased online, and they put a filter in. Typically, what's the most that they want to spend per month? Where's the geographic location? And then options pop up.
• 56:30
  Speaker A: Did you have your own leasing team?
• 56:32
  Speaker B: We used van meter. Van Meter did the property management leasing, and they did a spectacular job for us. But working with Van Meter, we were trying to figure out what we could do strategically to reinvigorate our leasing, which had really just stopped in its tracks. Right. And so what Ryan figured out is, in the state of Virginia, you're allowed to advertise net effective rents. Okay? And so leasing, apartment leasing is all about it's a numbers game about traffic. All right? We have what's called a capture ratio. It typically is around 10%. And what that means is the number of people who tour, about 10% of.
• 57:15
  Speaker A: Them sign a lease.
• 57:16
  Speaker B: Will sign a lease. Right. So you need hundreds of people to tour if you want to get to a point where you're signing 20 to 30 leases every single month. Right. So Ryan discovered that we could advertise legally net effective rent. So what that means we're giving concessions.
• 57:37
  Speaker A: At the time two months.
• 57:38
  Speaker B: Two months at the time. Two months. All right. So you can advertise in Virginia, you can't do this in the District Columbia, but you can in Virginia. You can take the two months and factor it into the annual rent, and you could say 1499 a month. Now, what's happening is you're going to tell them that the first two months are free. You're not going to pay any rent for the first two months. But then after that, you're going to pay 1700, 700 a month. Exactly. Right. And it's all about how potential buyers for the property or potential capital sources for your refinancing when you put your mortgage on, are going to underwrite it. They're going to underwrite that higher level of income. Okay. So we would advertise units at 1499 a month. All right. We leased 60 units in May, 62 units in June, 65 units in July, 60 units in August, and in September, we were fully stabilized in less than a year.
• 58:44
  Speaker A: So what was the differential before and after with regard to the advertising?
• 58:48
  Speaker B: It's about $200 a month, and that tripped it. And it was so attractive. And people would show up at our property, say, wait a minute, I can live here for five hundred dollars to one thousand dollars a month cheaper in South Arlington than ten minutes away in the Rosin Ballston Club. It was a value proposition.
• 59:07
  Speaker A: It's an experiment.
• 59:08
  Speaker B: It's an experiment.
• 59:09
  Speaker A: And you weren't sure whether it would work or not.
• 59:12
  Speaker B: Right time.
• 59:13
  Speaker A: Which is interesting.
• 59:14
  Speaker B: Right.
• 59:14
  Speaker A: So were not other developers not doing the same thing?
• 59:17
  Speaker B: They weren't aware of it. Really? Yeah, they eventually caught on. Our competition eventually caught on. They couldn't believe it. I mean, our direct competitors were getting three, four leases a month and here we are getting 60 units a month. And they're like, what are these people doing? And it took that. By the time they figured out what we were doing, we were fall. You were leased? We were fall. Wow. Now we got to 99% on that. Congratulations. That's exciting. A real success story.
• 59:42
  Speaker A: You must have been really pleased.
• 59:45
  Speaker B: Pleased and proud, yeah.
• 59:47
  Speaker A: That's awesome.
• 59:47
  Speaker B: We still are. It's a great asset.
• 59:51
  Speaker A: So getting into the residential, most of your earlier work was in office and institutional facilities. When did you pivot into residential projects? And you're also doing land development now, I understand.
• 1:00:02
  Speaker B: So we started with a project on Capitol Hill that we invested in and actually served as a construction manager.
• 1:00:09
  Speaker A: When was that?
• 1:00:10
  Speaker B: That was about ten years ago. 1012 years ago. It did well. We made good money. The owners made good money. We were a co owner.
• 1:00:19
  Speaker A: Why did you do it at the time?
• 1:00:21
  Speaker B: Again, we wanted to really break into they presented the opportunity to us. They said, look, we'd love to have you construction manage it. It would be really helpful to us if you would make an investment and leave part of your fee in the deal. And so we agreed to it and it worked out quite well for us and for them. And so that really got us going on the multifamily side of the business. That was a 70 unit deal on Capitol Hill. And then we went on and started doing more and eventually put the central property under contract. And we have about 1000 units in the pipeline right now that'll break ground next year in Arlington.
• 1:00:59
  Speaker A: So how is steel and concrete construction different than stick built? Construction?
• 1:01:04
  Speaker B: Yeah. So stick built is a lot more cost effective. And that's the reason why we purchased the Red Lion Hotel a year ago in Arlington. It's a three acre site. We're going to demolish the hotel and put an office I mean, excuse me, an apartment building there. And we are allowed by zoning, we could build a 15 story building there out of concrete. However, that would mean that the building would be about 600, 550 to 600 units.
• 1:01:32
  Speaker A: That's a lot.
• 1:01:33
  Speaker B: It's a lot. It's really too many units to dump onto a submarine.
• 1:01:36
  Speaker A: You can't do it in phases.
• 1:01:38
  Speaker B: You can't do it in phases because it's high rise. It would be very difficult to do in phases. And it's concrete, so it's really expensive. Concrete is a very punishingly expensive commodity right now. So we intentionally built a smaller building. We're building a smaller build, a shorter building that's stick built because. It's more cost effective and it'll provide a greater return to our investor. We still get 440 units out of it, which is more than enough, but we are intentionally foregoing density for the sake of building stick built, which has an 84 foot height limit.
• 1:02:15
  Speaker A: So do you think that your return on cost will be better to do it that way than it would be with the other? Or was it just a risk issue.
• 1:02:21
  Speaker B: That you know about? The return on cost is better. It's definite. So, you know, the parallel to that is at the same time, we have a concrete building that we've designed in Arlington called Joyce Motors. And that one, the return on cost is not quite as high because it's concrete versus stick, which is less expensive. We see that there's going to be a pretty significant adjustment in hard costs because the underwriting has really dried up on new development, and so it just hasn't hit the subcontractors yet. One of the largest multifamily contractors in the country told me a week ago his business is off 40% this year from last year. So it's coming. There is absolutely a correction in hard costs. The reason why we haven't seen it yet is because of labor. Labor is still the big challenge. But what's going to happen is there's going to become a tipping point where the subcontractors run out of work and then they're going to start dropping their prices. I can't tell you when that's going to happen, but I know it's got to happen because all the developers are really struggling with their underwriting on new projects right now. Talk a little bit about cutting edge.
• 1:03:37
  Speaker A: Technology that you might be involved in. One area that I want to ask you about, if you have any familiarity or done with is what's known as Mass Timber, which is a new construction area. I toured a building on M Street in Southeast Washington. It's an office building. That actually, I think, davis Construction.
• 1:03:56
  Speaker B: Davis built it? Yeah. It was an addition to a building. Right. Yes.
• 1:04:01
  Speaker A: And one of my members of my community is planning a project in Glover Park, which will be 100% Mass Timber apartment building residential with For Grovener.
• 1:04:16
  Speaker B: Right.
• 1:04:16
  Speaker A: And I'm just curious, if you explored that, if you looked at it, what are the pluses and minuses of doing it all? That kind of thing. What do you think?
• 1:04:24
  Speaker B: So we have and it's very near and dear to my son Tyler's heart, who's very much into that type of construction. And so we had an interview yesterday with a Mass timber company called Beamery who's located in Indiana, and we're building ski homes on top of a mountain in Utah. Really? Yes. Okay. And we have ten lots there. We built three, sold them. There's a desire to build the next seven, but having come through the first three, we did well on them, we made money on them. But it's really really challenging to build anything on top of a mountain. Just think about getting a load of concrete up 10,000ft right on the back of a truck. It's really hard. And so we are looking at alternatives, and one of them is mass timber. Having gone through this discovery on it, what is attractive about it is that there's a certain amount of prefabrication that goes with mass timber and that they actually build it in their factory and then ship it out on the back of a truck and assemble it. So your construction time gets cut significantly. And in a mountaintop environment, you have six months to build. The other six months, you cannot barely traverse the roads, let alone try to build anything. So given that anything that leads to prefabrication and a more efficient construction time is very attractive to us, and mass timber fits that bill. So the one thing we haven't figured out yet is the cost associated with it. That's the next step in our discovery of mass timber. But we're very attracted to it.
• 1:06:08
  Speaker A: Interesting.
• 1:06:09
  Speaker B: Yeah.
• 1:06:09
  Speaker A: Talk about other technology aspects of the building side that you share with your clients and then you benefit from yourselves.
• 1:06:19
  Speaker B: Well, I think technology is playing a big role now. And there's two aspects of that, particularly in our apartment communities that I'll point to. Number one is smart buildings. We've been using on our apartment buildings, an app called Rise Buildings. They're based in Chicago. And what it does is it uses your phone. It allows your tenants to use a phone to sign the lease, pay the rent, open the door, open the garage door for their cars, allow guests, order food through grubhub or whatever. We actually can get a revenue share on some of that. So we're seeing the advent of smart buildings, really through the PDAs that people carry. There's more and more apps that are coming up on that. And another one that we've done a deep dive on, it looks like we're going to utilize in the apartment buildings that we're about to start construction on in Arlington is one of the biggest costs we have is structured parking. Right now, it's about $80,000 for a below grade parking space, which is up from 50,003 years ago. And again, that's the cost of concrete right in the digging. So there are a number of companies. One is called Envoy, another one is called Skip that have apps on phones. And what you do is you lease from them a Tesla vehicle. And the data, there's not a lot of data out there, but the data that we've been able to gather in the communities that they put these in, you can save somewhere between six and ten parking spaces for every Tesla vehicle that you put in your community. So if we put in three Tesla vehicles, we might be able to save say, 18 or 20 parking spaces. And what you do is you give your residents access. They pay $25 an hour or whatever the rate is to lease the car. They don't have to have a car, but there's a car always available to them. It seems like that's a new technology driven initiative that we as a company are really looking hard at.
• 1:08:31
  Speaker A: That's cool. So you started developing for your own account several years ago. Did you develop capital markets relationships then at that point? And how did you raise capital for your deals?
• 1:08:44
  Speaker B: Yeah, so the way that we raise capital, as I said previously, our projects tend to be larger. The capital needs are pretty significant. Our largest project to date is 300 million. So you had over $100 million of equity. That was River Point, where we bought the old United States Coast Guard's headquarters, 700,000 square foot office building, and we converted it to a 488 unit apartment building, and it's completed, and it's 87%.
• 1:09:16
  Speaker A: Were you a partner with anyone on that one? Okay. Who was your partners?
• 1:09:19
  Speaker B: So we had partners. We had capital partners. So Square Mile Capital was our financial partner, and then the Acreage Company and Western Development were partners in that transaction. Red Brick was in that one also, initially, but we bought them out, and the project's completed now and is in lease up.
• 1:09:40
  Speaker A: Herb Miller talks about it in his interview with me.
• 1:09:42
  Speaker B: Oh, yeah. So he did all the retail leasing. I think he's 80 years old at this point, and he is really a retail guru. I mean, that's why he was the retail partner in the project.
• 1:09:56
  Speaker A: His story is quite something.
• 1:09:58
  Speaker B: Quite something. And he really brought a lot of really good retailers to the asset. He's got these very deep retail connections. And so the benefit that they brought to the property was the retail leases.
• 1:10:15
  Speaker A: Capital markets.
• 1:10:16
  Speaker B: Capital market. Yes. I'm sorry. So capital market. So, like I said, a lot of capital required for these projects. You have to have very deep capital. So the way that we go about funding our projects, we put some of our own capital in in each project, and then we typically will go out to high net worth individuals and raise some capital. All right. And that usually represents, between their money and our money, we end up coming up with about 10% of the equity that's needed for a project. So on the projects we're currently doing, that might be five or $6 million. Okay. And then we probably need another 30 million on top of it, plus or minus. And we go to limited partners.
• 1:11:05
  Speaker A: Sure.
• 1:11:06
  Speaker B: So on the Red Lion Hotel, we formed a limited partnership with a company called ELV Associates. They're based in Boston, and it's basically a family office of high net worth European families who invest together. And they actually sought us out and know, we're looking for a new partner for your DC relationship. And we've identified you as a company we'd like to do business with, and we went through a mating ritual and we ended up transacting with them. And now we're looking at multiple. They want to have a programmatic relationship with us and we're looking for so.
• 1:11:40
  Speaker A: It'S a traditional joint venture, limited partnership.
• 1:11:43
  Speaker B: Joint venture, yes.
• 1:11:45
  Speaker A: Yeah. And then you just go out and bid the construction financing and we do debt. Okay.
• 1:11:50
  Speaker B: Yeah. We typically use brokers for that who go out and compete those needs for us.
• 1:11:57
  Speaker A: You don't have a bank that you just continually go to over and over again.
• 1:12:05
  Speaker B: The bank that we use as a company is United Bank.
• 1:12:09
  Speaker A: Sure.
• 1:12:09
  Speaker B: They're a very well run bank. They're a $30 billion bank. And they've been very prudent in how they run their. They're our corporate banker. They serve our needs. Well. I do believe on our local projects they probably will serve as a construction lender to us. We've got some townhouses that we're going to do in Aberdeen, Maryland. We've got these apartment buildings in Arlington. I think that they could play a pivotal role in that. And if know, we've never had a problem attracting capital. Projects are well conceived and the numbers are know, we are always able to get financing california will require. We opened an office in La. My son Ryan runs it. And that will require new relationships out. So we're starting down that path with a number of financiers right now.
• 1:13:03
  Speaker A: So before we started the conversation, we mentioned one company that you have a very strong relationship with and you've had for a long period of time and you actually now have an office down there in Savannah, Georgia.
• 1:13:16
  Speaker B: Right.
• 1:13:16
  Speaker A: And that's gulfstream. Talk about how that relationship developed and how you started that.
• 1:13:20
  Speaker B: Well, it really know, Gulfstream is owned by General Dynamics and it really started when we built General Dynamics headquarters. And that's an interesting so I'd formed a relationship. What happened was there was a guy, one of the founders of the Internet, a guy named Rick Adams who had sold his company to WorldCom. He made a lot of money. He bought Fairview Park. Bought the remaining land at Fairview Park. He called me up out of the blue one day and said, hey, I've heard good things about you. I'd like to talk to you about developing Fairview Park. I went and met with them and we started doing some master planning. And the General Dynamics headquarters, they were out with a broker running around looking for a place to be. And so I had an opportunity to meet with the board of directors of General Dynamics. They were looking strategically at properties and they had identified Fairview Park as a place where they thought that could work pretty nicely for them. And so I met with the board and the board chairman. His name was Nick Gibrai at the time. And we had gone through a couple of interviews and eventually he had the whole board come in and he had me come and talk with them. And so I got to meet them and socialize with them. And then Nick asked me, he, David, we can pick anybody we want. Why should we pick you? Right? And I said, well, the truth is, you'll get me. And I said, you'll get my undivided time and attention and you'll get surety of outcome. That's the best answer I can give you. Okay, thanks. We appreciate your time. We'll let you know. So a week later he called up and he said, Get it done. And so they hired us to do their headquarters. We went and built that. It was the original one in Falls Church. We got it done on time and on budget. And at the end of the project he called me up and he said, hey, David, listen, this went pretty well. Can you help us with some of our business units? And I said, sure. He said okay. He said, I've recently got the board to approve a capital expansion plan for Gulfstream and I didn't even know that they owned says I said, okay, great. I said you own them. He goes, yeah. He goes, I'd like you to come down to Savannah with me. We'll go meet with the powers that be down there and we'll talk about the campus expansion plan. So we flew down there together. I went into the meeting of the leadership at Gulfstream and he introduced me to them. And he said, David, recently his company recently completed our headquarters. It went pretty well. I've gotten the board to approve a 500 million dollar campus expansion for you guys. I want to take you guys from 60 jets a year to 130 jets a year. All right. And I think David can help us get there. So that was the start of the relationship. We have been down there for 20 years. We've probably built 5 million sqft for them.
• 1:16:15
  Speaker A: Wow, that's a big.
• 1:16:16
  Speaker B: Every time they so we have seven full time people in an office in Savannah and every time they roll out a new platform. So we started with the G 450 and then the G 550, the G 650, the G 750 announced the G 850. So every time they come out with a new platform they have to create a new plant and new machining associated with that. So we build all those facilities. We build all those buildings that manufacture those jets. We've built R and D centers for them. We've built testing facilities for them. We've built service centers for their jets all over the country.
• 1:16:56
  Speaker A: Must be extremely profitable business.
• 1:16:59
  Speaker B: Their business enormously profitable. Has to be. Yeah. They have 10,000 employees. And if you do the math, they sell these jets for 60, 70 million apiece. And they're selling how much do they.
• 1:17:09
  Speaker A: Cost to build them?
• 1:17:10
  Speaker B: Do you know? I don't know that sure, that's confidential. That's really confidential. Yeah. They would never I bet it's at least twice. I wouldn't know half as much. All I can tell you is that I know that it takes about a year to get a jet through the line. Right. They buy all their engines from RollsRoyce. I think that's the only thing they don't make. Yeah, they buy all their engines.
• 1:17:33
  Speaker A: They don't manufacture their own engines.
• 1:17:34
  Speaker B: They don't make their own interesting. Yeah, they do. Now, they used to sub out wings, but now we built a plant that makes the wings. So they build their own wings now. They do all of the bodies and the tail and the empanage.
• 1:17:50
  Speaker A: I lived in Wichita, Kansas, for a.
• 1:17:52
  Speaker B: Year and a half, Beachcraft.
• 1:17:54
  Speaker A: And not only Beachcraft cesna Boeing. It was the aircraft capital.
• 1:18:02
  Speaker B: It's been a really wonderful relationship with Gulfstream. We've been a go to service provider for them. Their projects finish routinely on time and on budget. There's no controversy. It's dependable, it's surety of outcome. They know that's going to get so and they're centralized.
• 1:18:22
  Speaker A: They don't have plants elsewhere.
• 1:18:24
  Speaker B: They do, actually. We've worked on one in Dallas where they have really and they have some partnerships politically. They're such a big company. They have partnerships like they have a partnership with Israel to build the G 150. And so there's some sharing with them.
• 1:18:40
  Speaker A: So they do build elsewhere.
• 1:18:42
  Speaker B: They do build elsewhere. But the majority of it is in Savannah, down at Love Field in Dallas. They have a presence down there. The 450, I think, is built down there. And we're building some new service centers for them and some other new manufacturing facilities.
• 1:18:58
  Speaker A: What's unique about an airplane factory as far as development, building one and doing that? Or were you doing mostly office?
• 1:19:07
  Speaker B: No, it's industrial space. What's unique about it is it's column free. It's huge in column free.
• 1:19:13
  Speaker A: And so you've got large spans.
• 1:19:14
  Speaker B: Yeah. And these trusses that support the roofs on these buildings are so large that we actually fabricate the truss on site. So you bring in all the steel members and bolt them all together to create these enormously long trusses. And then you have a crane that picks them up in the air.
• 1:19:31
  Speaker A: So there's a civil engineering problem for you.
• 1:19:33
  Speaker B: Yeah, it's a big one. Big civil and structural engineering problem. Yeah, it's exciting. So that relationship really went well, and then they expanded on it and they said, look, we own a company called Electric Boat. They build most of the nuclear submarines for the US. Navy. They're having some struggles with their facilities. And they brought us up there. Is that in Connecticut? That's in Groton, Connecticut, and Quantum Point, Rhode Island. And so I'm proud to say that we've built most of the modular manufacturing facilities for the Virginia class submarines. We built the building that builds the common missile compartment and the hulls of the submarines and all various facets of it. It's very, very secret.
• 1:20:22
  Speaker A: Mean. They have the Naval Surface Warfare Testing Facility here in Maryland.
• 1:20:29
  Speaker B: Right.
• 1:20:29
  Speaker A: Are you involved in any federal work like that? Any of the testing? Testing?
• 1:20:34
  Speaker B: Not in that testing per se. I would imagine that the submarines get tested there, but I don't know that for certain. It's the most secret part. Right. And even the guys who build them, build Electric Boat, do not get to go on the submarines. They're that secret. Really? Yeah. Very select. Few people are allowed to go on a nuclear submarine. It's the number one deterrent. I mean, they really are incredible machines and from what I've seen and how various parts of them are manufactured it's really quite stunning that the technology and the things that we do we're a world leader in it. It's very clear. And I have nothing but pride in the Navy and the people who serve them and serve with them. And what these vessels represent is really quite extraordinary. And as an engineer and a know being able to stand next to a submarine like that when it's in manufacturing is quite extraordinary.
• 1:21:36
  Speaker A: Well, it's analogous to the aircraft carrier and we could tour the carrier when we did it.
• 1:21:43
  Speaker B: Right.
• 1:21:44
  Speaker A: But one area they would never take.
• 1:21:45
  Speaker B: You to was a nuclear power. That's right.
• 1:21:48
  Speaker A: Couldn't see that.
• 1:21:49
  Speaker B: Can't see that at all. They don't want you going near that. In fact, at Electric Boat they don't make the nuclear compound. They make them elsewhere. And then they plug them into the submarine after they're done. So nobody gets to see that.
• 1:22:03
  Speaker A: I met you when you were scoping the Arlington campus of George Mason University.
• 1:22:09
  Speaker B: Right.
• 1:22:09
  Speaker A: I can't remember the exact context of that meeting, but I could tell at the time you had broad experience of large scale projects. Public RFPs are competitively bid, typically. How did you position your bid there and who were your competitors in that situation? George Mason?
• 1:22:27
  Speaker B: Yeah. I think our number one competitor might have been Edgemore, which is Clark's project Management division. I think they were our number. There were a lot of competitors. Those public RFPs attract a lot of, you know, the challenge there is differentiating yourself. Right. And it was really, I think, the big project. We ultimately built the George Mason building there and we built FDIC's headquarters there. We have a very long history of building projects in Arlington and we prevailed on that. And I think it really has to do with our track record and again, our ability to demonstrate to customers like that that there will be surety of outcome, that you won't have any controversy. Your project will finish on time and on budget which is really what institutions want. They just don't want to have to go to the well for more money.
• 1:23:20
  Speaker A: What architect did you work with on that press structure? Do you remember?
• 1:23:24
  Speaker B: I don't remember who that was.
• 1:23:25
  Speaker A: I'm just curious.
• 1:23:26
  Speaker B: Yeah, Scott might remember. He was out there. I'm sorry, I didn't remember. That was a long time ago. I just don't remember who that was.
• 1:23:33
  Speaker A: I've forgotten how long ago what that.
• 1:23:35
  Speaker B: Was their school of law now, right? Yeah. 34 34 the Business Washington is there too, and the business school, 34 34 North Washington is the address.
• 1:23:47
  Speaker A: Any other large relationships or projects you'd like to highlight in our conversation today? Anything else that's of magnitude that you want to chat about?
• 1:23:56
  Speaker B: Well, I just think just as a general statement, I think that what we've been able to do is develop a really strong system that provides surety of outcome on our projects. And I think one of the questions you asked that I saw previously was if there was a billboard, I'll get to that. Yeah, okay. So I won't preempt that, but I'll get to that. Okay. So I think that really we spend very little money in marketing. Right. And I think what I'm really proud of, as I said, it takes a long time to get to a point where you have quality people. And right now we have the best people in our company than at any time in our history. We have some real superstars here, and the only way you can attract them and keep them is if you create a family like culture in your business. You treat them like family, and then you give them a certain amount of latitude to work on your projects. And so if there's anything we're guilty of, it's not touting our horn and not marketing. We've been very much under the radar, and a lot of the big companies we work with like that. All right? But if we're going to grow the company and scale it the way that we want to because we have really good systems that are proven with a great track record, I think now the company is ready to take its next step in growth.
• 1:25:32
  Speaker A: Your company's Pivoted also in a couple of other areas. One is you're doing interiors, and maybe you didn't talk about that much before, and you're also a property manager, which is interesting.
• 1:25:43
  Speaker B: Right. So we started the business back. The company is 35 years old at this point. And when we started doing office buildings, I've always had a piece of a property management company. When I was at Samus, we had our own property management, and it's a relatively easy revenue stream that you can pick up on as you develop office buildings. And so when we founded the company and all the initial projects we did were all mostly office related. And so our property management company has 15 properties under management, and they're all office or retail. We don't manage residential, and we've done that intentionally. Residential is a whole different Kettlefish. But our critical mass on residential is getting to a point where we may at some point pull the trigger and say, let's also add residential property management here. But it really has to do with customer service. And if you have property management and you have engineers on staff like we do. We can service our customers and we can take care of issues that arise and be there for them. And so you're providing for them a more complete platform of service. That's really why we branched into property.
• 1:26:56
  Speaker A: Management and the interiors business.
• 1:26:59
  Speaker B: Yeah, interiors. So that's run by Brian Kaplan and again, it's about the quality of the people. And Brian's a real superstar in terms of interiors. In fact, we just hired another project manager to work under Know. It took him about two years of really sowing the seeds out there in the brokerage community, in the user community to have awareness that we have expertise in interiors. We've always done interiors, but we've never really separately approached it as a separate business unit like we are now. And so Brian runs that. He has project managers that work underneath him. He just picked up a big law firm job, 50,000 sqft. He's gathering a lot of momentum and delivering a lot of quality projects. So, yeah, interiors is a key component in one of the main divisions we have alongside institutional and multifamily and so on.
• 1:27:55
  Speaker A: One of the other key areas on your website that you talk about is lead and green building projects. Talk about the evolution of that in your culture.
• 1:28:05
  Speaker B: Yeah. So you really have to adopt sustainability in every project that you do. It's really being mandated jurisdictionally. Right. But a lot of it makes sense. Now. The challenge for sustainable initiatives is that they can be costly. Right. They can be expensive. But at the end, in the long run, if you're a long term holder of assets, it's the right thing to do. And so we are a green company. We've adopted sustainability standards and we employ them in every project that we do. So like as an example, most jurisdictions take Arlington County, they will give you an increase in density for if you increase your sustainability. We always pursue the increased sustainability. Our projects at a minimum are lead gold and we strive for higher levels.
• 1:28:56
  Speaker A: Expand on that in the ESG. Totally. So the other aspects of ESG, which I'm sure you're familiar with.
• 1:29:04
  Speaker B: Yeah. So holistically as a company, again, the jurisdictions are looking for you to demonstrate that you've adopted ESG standards. And we as a company have and so we really seek out hiring more people of color, to be honest about it. And we really try to diversify our workforce intentionally. We work very hard at that. That's a very important consideration, particularly in the public RFP arena that people are looking for that sure.
• 1:29:36
  Speaker A: Great. So you talked a little bit about it earlier, but let's pivot to culture and your company a little bit. You need a comprehensive team to take on a scale of projects you developed. Large scale development is one of the most challenging endeavors among human activities in general, analogous to a space mission or medical research project. And we talked about the definition of development earlier. So with your brand broad experience and clear discipline, talk about why you believe it's a worthy endeavor for young professionals and how you train your team to learn the business.
• 1:30:10
  Speaker B: Yeah. So really what I've come to learn that's most beneficial to the younger people in our company is mentorship and really providing a platform where it's safe for them to ask what they feel might be a dumb question. That's really important. With any new hire, the first thing I say to them is, hi, welcome to the company. We're really glad to have you here. My door is always open, and I want you to know that no question is too dumb. Ask it. Ask it. It doesn't matter. Nobody's going to laugh at you. We'll give you the answer. Okay. It's really important that you feel comfortable. So creating a safe environment for your employees from that perspective is one of the most pivotal things. The other thing I will tell you that is a hallmark of our company that we really stress is integrity, and that kind of permeates throughout. And not everybody shares that philosophy. We bump into some bad actors probably more often than we would like in this business. As I said, there can be some predatory pricing on things and some difficulties. And so I tell everybody, we've got to set the standards. That's our job. We're the conductor of the orchestra on these projects. It's a good analogy for our role. Okay. And as the conductor of the orchestra, we've got to set the standard for everybody to follow, and it really comes down to your integrity.
• 1:31:37
  Speaker A: Well, you can choose who you do business with and who you don't do business with. Right?
• 1:31:41
  Speaker B: Right. Yeah. You got to pick your partners carefully. And that's one of the things that I think could help our industry, is a repository of information on various firms and people you're considering, particularly when you're going into a new market. How do you know who's a good architect? How do you know who's a good engineer? How do you know who's a good contractor? Right now, it's all done pretty much by word of mouth.
• 1:32:03
  Speaker A: Reputation.
• 1:32:04
  Speaker B: It's reputation. Right. And so perhaps something that provides a little more discipline on that would be helpful.
• 1:32:12
  Speaker A: Well, I didn't have a question about this, but I'll just bring it up because it's become almost as pervasive as the Internet was when it first came out, and that's what's known as AI and the LLMs. Are you at all exploring that corporately or personally, even that aspect of I've looked into it.
• 1:32:33
  Speaker B: My daughter, who's not in the business, she's an attorney. She's based in San Francisco, and she's in the leadership for AI at Intuit, one of the largest. And so she's really up to speed on all of that and the ethics associated with it and the privacy and how that all goes handed. So we have a. Keen interest in that. We have not started to employ AI, but I see that that's in the not too distant future. So I do think that there's a role for it. It's generally repetitive tasks is where I think AI can be beneficial.
• 1:33:12
  Speaker A: Analytical side of the business.
• 1:33:13
  Speaker B: Analytical side of the business. I think where you still need the personal touch is in interacting with jurisdictions and the various approvals and just the day to day interaction with people and.
• 1:33:26
  Speaker A: Getting things done, putting a proposal together. It could be half the amount of time to put approach.
• 1:33:33
  Speaker B: It could actually absolutely, yeah. So those are exciting things that we as a company, everybody is looking to be more efficient. And that would be one of those initiatives. Yes.
• 1:33:46
  Speaker A: It appears that you've built a legacy with your two sons and you've obviously very proud of them and you've talked about them already. Expand a bit about your culture. You said a family like environment. What do you look for in prospective employee?
• 1:34:02
  Speaker B: Well, there's a couple of things. Number one, we tend to gravitate towards people who have some level of experience, all right.
• 1:34:13
  Speaker A: In development and construction.
• 1:34:15
  Speaker B: Both. All the above. Okay, all the above. We find that people who come from a construction background tend to make better project managers because it's the most intricate part of the business. Not to discount the design and the financing. Those are both very intricate and detailed and you have to have an understanding of them. But I think the construction side of the business probably poses the most risk. And so we tend to gravitate towards people who have that kind of awareness and knowledge and then we shore them up with our training specific to our agreements and how we run our projects and our system for project management and our system for communications, which is really another hallmark of the company. You have to have really strong communications and then finally it has to do with their character and their integrity. We look at that very heavily as well because they're going to reflect on us and we want people and I think you know several of the people here like Karim, who really do us a great amount of justice and honor by how they carry themselves out there. And I think it's our family culture and our recognition of their strengths that allows that to come forward.
• 1:35:37
  Speaker A: Here at the company, I've interviewed a lot of developers and you and maybe one or two others come at it from the construction side, different. Whereas other people have the deal making structuring, the financial, let's get a partner, let's go in together. I'll hire an architect or hire an engineer. I'll sit down with a general contractor, make sure I know what I'm doing there. But the economics and the deal structuring right up front is really the critical aspect of the business. But you come at it a little differently. It's interesting you come at it, the construction. We got to make sure this is right physically, and then we'll go get the capital and do it that way, which is interesting. There's a lot of ways to skin the cat in the development business.
• 1:36:26
  Speaker B: Yeah. The deal economics, you're right. And the deal economics have to work, of course. Right. But you're in a point in time right now where the hard costs are really a struggle. And so what's happening is those developers who don't really focus that much on construct, they're more deal oriented. They're collecting data from general contractors and wherever else may be cost estimators, who are telling them it's going to cost them this much, and then the project doesn't pencil. Okay. And so what do they do? Right? They're in paralysis, basically. They're static. They can't really do anything with their project. We, on the other hand, are saying we see that as a challenge to say, okay, how do we make this equation work now? It's more than that, right? It's more than that, and it's a lot deeper than that. And we dig deeper into the relationships with the subcontractors and the suppliers and the vendors, and we reach that deeply into seeing what we can do to help decrease our costs and bring value to them and to ourselves. And that process is working quite well right now. So that's what's unique about having a very deep construction background versus an analytical you got to have the analytical side. You need to be able to run a financial model. You need to understand it. You need to be able to iterate it. You would be shocked at the number of developers who cannot do that well, okay, you'd be shocked, but you must do that. And you must use that as your guidepost. But then if you take a look at the components of a project, what are your major cost components? You have your land, but there's not so much. Once you have your land deal done, your deal is done. It's really understanding what's in the land that might provide a potential risk. That's where your due diligence comes in. But your single biggest component in the total cost of a project is your hard costs. Okay? And so that's where your biggest risk is. And so that's why our focus is so intent on that, because we know if we manage that well, the project is going to meet its numbers. All right? And I would venture to say that in your interviews, as you talk to developers and you talk to people who are in this industry that they would share with you that their biggest challenge is getting things done on time and on budget, right?
• 1:38:56
  Speaker A: No question.
• 1:38:57
  Speaker B: Yeah.
• 1:38:59
  Speaker A: So you've worked in the DC market for 35 years. How do you see its future? What are you focusing your new business efforts on now?
• 1:39:09
  Speaker B: Well, that's an interesting question. So the company has been 35 years. I've worked in the DC market for 45 years.
• 1:39:14
  Speaker A: That's true.
• 1:39:15
  Speaker B: Right. But as far as new initiatives are concerned, we see tremendous opportunity in housing and in multifamily housing. Eventually the capital market situation we have right now, which is really topsy Derby, will correct itself. There's an election year coming up. I think some good things will probably happen. I think hard costs will correct. So we still see a strong opportunity. The industrial side AI is driving the need for data centers. Loudoun county is kind of full and there's some power challenges with Loudoun County. So you're starting to see more proliferation of data centers moving to Prince William County right now. So we see industrial as still e commerce is here to say we see industrial as kind of a strong opportunity. We see multifamily housing as a strong opportunity. We see single family housing as strong opportunity. Those are the asset classes that we see. We see offices being very challenged. And for those, there's a big push in the country right now to take really obsolete office buildings and try to convert them to residential. And I just did that. We as a company who just did one of the largest one, in fact, it won the National Award from the National Association of Home Builders as the number one adaptive reuse project in the country.
• 1:40:43
  Speaker A: Which project was that?
• 1:40:44
  Speaker B: Riverpoint. Riverpoint won ten awards. Okay. It won every award we entered. That's great. Right? And I mean, it is an astounding project, but I can tell you, you're trying to convert an office building to an apartment building. If you don't have a rock solid construction manager who understands the intricacies of that, you're going to really struggle with it.
• 1:41:08
  Speaker A: How old was the original structure?
• 1:41:09
  Speaker B: 60 years.
• 1:41:11
  Speaker A: Okay.
• 1:41:11
  Speaker B: Right. So it's obsolete. So the building is too deep, the cores are not in the right place. You don't have enough pipes for your plumbing and your kitchens and everything. It's a major undertaking. Okay. And it's not for the faint hearted. And so there's a big push by the brokerage community. Let's just sell these buildings and have developers convert them to residential. It's a very difficult process.
• 1:41:34
  Speaker A: Who was your contractor on that job?
• 1:41:36
  Speaker B: That was CBG. CBG did an excellent job for us. They're really stand up people. They came through COVID. There were times during the course of that project where I'd get a phone call and they'd say, the foreman for the glass crew got sick and we had to send them home. And back then it was ten day quarantine. Yeah. So we'd lose 30 men. Okay. And then two weeks later, we had four guys from the electrical crew get sick or the elevator crew and it just went through and it decimated. It decimated. No matter what we did, we put in all special sanitizing stations and hand washing stations and separating people. No matter what we did, it just kept proliferating and it really had a big impact on that project. Wow. Yeah, we worked through it and got it done, to their credit, to, you know, they stood tall to their obligations, and they finished. There were definitely delays as a result. I mean, our glass we bought our glass for the building from a company called Schluter. It's a German company. They're renowned for really building an excellent product. So when you say, I'm going to put Schluter windows in here, people in the business would say, wow, that's a good product. Okay. It's got a great brand name associated quality. Their factory for our building was in Turkey. Okay. And so we had huge delays when COVID arrived of getting the ships to get to Baltimore so we could get the product. I mean, months and months of delay associated with that. And so you had to bring in extra manpower. You would accelerate your cruise. There were all kinds of workarounds that you end up doing. COVID was really hit us halfway through the project, and it was a tough hit.
• 1:43:22
  Speaker A: We've been through a lot of downturns. Was that the toughest one for you guys? COVID?
• 1:43:26
  Speaker B: Yeah, I would say COVID on that particular project, that was tough. I would say eight was tough, too, because it was a capital market meltdown.
• 1:43:36
  Speaker A: Yes.
• 1:43:38
  Speaker B: And as I've explained in this interview today, how capital intensive real estate is. You need a lot of cash, and it dries up like it is right now. It's really hard to access capital in this market. So those downturns are tough.
• 1:43:54
  Speaker A: So the Pandemic obviously left society with a lot of changes. I mean, how has that affected other than that project, how did it affect your business? And long term, how do you see it affecting the business?
• 1:44:08
  Speaker B: Yeah, we have a pretty strong work at home program. And so from that perspective, I think technology and zoom meetings has really helped our mean it's to a point where I remember when we were in design on our Joyce Motors project, which is being designed by Antunovich, and they have an office in DC. We would have to make a know every other week, and it would take us an hour each way and a couple hours in the meeting. You spend the whole day. Now we're able to do a 1 hour, one and a half hour, two hour zoom call and accomplish the same thing and eliminate the travel and have all the players on the screen. So I think from that perspective, it's really made our business a lot more efficient.
• 1:44:57
  Speaker A: Well, that's interesting. That's kind of the reverse of what I'm obviously for team building and all that. Everyone wants to have everybody in the office and all that. I think it's the big societal conversation right now in our industry and in the world.
• 1:45:13
  Speaker B: Well, the interesting thing is you look out here and you see quite a few people, right? And so what happens is that people really still have the need for human connection and the ability to collaborate. So the default position is that most people still come to our office. I think a lot of companies are struggling, like Amazon, by way of example, recently announced that all their people have to report to the office. It was too many people away and there wasn't enough collaboration. And so we haven't had to make that kind of announcement. Generally, people gravitate towards being here and collaborating and understanding about projects or agreements or getting advice from Scott or myself or Ryan or there's a lot of that that's necessary.
• 1:45:55
  Speaker A: All right, let's shift to personal things now.
• 1:45:57
  Speaker B: Sure.
• 1:45:57
  Speaker A: Going to conclude here with a couple more questions.
• 1:46:00
  Speaker B: Yeah.
• 1:46:00
  Speaker A: What are your life priorities among family, work and giving?
• 1:46:05
  Speaker B: You know, one of the things that my wife and I are looking real hard at right now is, as we are soon to march towards retirement, would be more of an emphasis on giving back. If you look at our website, you'll see a landing page for all the charities that we donate to. We give each employee both an allowance of money and time that they can donate to the charity of their choice on an annual basis. And then we, as a company, we give a lot back. So that's a priority for us, is giving back and helping know. Other than the initial seed capital that Pete Skamardo offered to me, I really started with nothing and built the company through a lot of hard work, so a lot of sacrifices that my family had to make, and in particular my wife, to allow this business to flourish. Right. And so it's time now to recognize that and to really place more of an emphasis on her and the family going forward.
• 1:47:04
  Speaker A: Your two sons right down the hall right.
• 1:47:07
  Speaker B: To take over. Right. So we're developing a succession plan right now, and we'll transition into that.
• 1:47:15
  Speaker A: That's great.
• 1:47:16
  Speaker B: Yeah.
• 1:47:17
  Speaker A: That's awesome. So what advice would you give your 25 year old self today, David?
• 1:47:26
  Speaker B: Don't give up. Okay? Whatever it is that you love, pursue it and don't give up. There's always going to be setbacks. Learn from them and press forward. Always deal with a high degree of integrity and be honorable in the things that you do. And that would be the advice that I would give when I was 25 years old. Right. I always had this entrepreneurial DNA, and I wanted to have my own business, but I did not know how to get there. Now, I rode on the crew team at Syracuse, and so when I got out of school, I was this big muscular guy. And one of the things that that did for me is it allowed me to hit a golf ball a mile. Now, I can't come anywhere close to that now, but back then, I could hit a golf ball really far. And so what I found out is that there would be older gentlemen who would want to play with me to see that. Okay? And so what I did is utilize that to play with entrepreneurs who had started their own business. I play around a golf with them, and when you play around a golf with somebody, you have them for 4 hours. And I talked to them about, well, how'd you start your business? One guy had a printing company. Another guy was selling paint. There were all kinds of different entrepreneurs, and I wanted to know how'd you get started. And that really planted the seeds in me as to shape how I would go about trying to get started as an entrepreneur, starting my own company.
• 1:49:10
  Speaker A: You didn't have my podcast to listen to at the time, did you?
• 1:49:13
  Speaker B: No, that's right. I didn't.
• 1:49:17
  Speaker A: I think this podcast has helped a lot of people in your age group, I hope.
• 1:49:22
  Speaker B: Yeah, I hope so. Yeah. I think it would be really good.
• 1:49:26
  Speaker A: Because I've interviewed now 90 plus.
• 1:49:29
  Speaker B: Have you really? People. Wow.
• 1:49:30
  Speaker A: Yeah, it's been great. I've enjoyed it. And that's the whole purpose of to get 25 year olds to listen and learn from it.
• 1:49:41
  Speaker B: Right.
• 1:49:41
  Speaker A: Which I think is hopefully helpful.
• 1:49:43
  Speaker B: Yeah.
• 1:49:43
  Speaker A: So I'm going to get to the question you anticipated. If you could post a statement on a billboard on the Capitol Beltway for millions to see, what would it say?
• 1:49:53
  Speaker B: David? It would say it's all about your integrity.
• 1:49:56
  Speaker A: That's great.
• 1:49:58
  Speaker B: To me, that's everything. It shapes our culture. It shapes our business. It shapes our relations with people. I'll tell you, I played golf with a young man. I guess he's like 37. He's got two kids. He's a member at the club that I'm at. And I played golf with him last Saturday. And he said to me, he paid the greatest compliment to me that I think I could ever have. We're out in the golf course. We're talking to a he runs a private office, a family office for one of the wealthiest families in DC. I won't say who it is, but that's what he does. Okay. And we're friends, and he's a really good golfer. And so we were out there playing golf, and he says to me during the course of this, he says to me, he says, David, there's something I want to say to you. I said, what's that, Rob? And he said, well, he said, you know, I got to tell you that in the past five years or so, everywhere I've gone, okay? And I've gone to a lot of places, but everywhere I've gone where you have some affiliation with it. People always ask me, oh, do you know David Orr? And he said, I've never heard a bad thing. I've heard nothing but positive things about you and the way you conduct yourself. And I said, Well, I really appreciate that. That really is a testament to what we as a company are trying to espouse. Rob, I got to tell you, it all comes down to one thing. It's all about your integrity and how you approach people. We pride ourselves on the fact that we're straightforward, right? We look people in the eye, we tell them what we can do and can't do. We're honest and upfront about it, and people really genuinely appreciate that. When we make a mistake, we admit it, all right? We deal with it. We take responsibility, and we're human beings. We're going to make mistakes, so fix it. That's what we do. We just fix it. We go in there and fix it. We're sorry, okay? And we go in there and fix it. So I think that that integrity is really what defines us as a company, and I'm hopeful that ultimately my legacy will be about the integrity of that company and the people that we serve. That's a great data.
• 1:52:01
  Speaker A: Thank you very much. I appreciate your time.
• 1:52:04
  Speaker B: You're welcome.
• 1:52:04
  Speaker A: Effort.
• 1:52:05
  Speaker B: This is fun. Thank you so much. I appreciate it.