Real Estate Investment in California 2022 – Where, What, Why for Commercial and Residential Properties – Micael Van Every – Interviews of Notables & Influencers by Joanne Z. Tan
Real Estate Investment in California 2022 – Where, What, Why for Commercial and Residential Properties – Micael Van Every – Interviews of Notables & Influencers by Joanne Z. Tan
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Commercial & residential real estate market in California 2022 – how remote working, housing shortages, governmental policies change investment considerations, building locations, and the Silicon Valley. – where, what, why.
At the end of this interview, Joanne Z. Tan, Branding Expert at 10 Plus Brand, Inc. summarized what the Republic Urban Properties’ brand stands for, based on its president Micael Van Every’s stories: “Build landmarks. Define neighborhoods”, during the interviewing on Oct. 5, 2021, for the series of Interview of the Notables and Influencers.
Joanne Tan 0:00
I have here, Michael Van Every, my honored guest, welcome! for 15 years Michael Van Every has been the president of Republic Urban Properties (RUB, for short,) one of the largest commercial California real estate developers in Silicon Valley, which is also the Bay Area flagship of the Republic Family of Companies known for developing institutional quality real estate throughout the United States.
Michael works with federal, state and local governments on the creation and development of smart growth projects, such as master planned communities near transportation hubs, urban mixed use projects near major employment centers, and innovative public private partnerships. He has 25 years of representing major institutional and private real estate developers in the greater San Francisco Bay Area. Michael has led complicated projects from land acquisition to completion.
Under his leadership RUP has gained national attention for its transit oriented development at key transit stations. Working as the premier public private partner with many transit authorities across California, Mike has been involved with the planning, financing, construction and delivery of 1238 multifamily units and 145,000 square feet of mixed use commercial space, 380 hotel rooms, 151,000 square feet of office and 120,000 square feet of retail in various stages of development at 1.5 billion in value.
A third generation San Jose native, Michael is an active member of the Silicon Valley leadership group.
Very shortly about myself: I am the president and CEO of 10 plus brand Inc. It’s a full service brand building, content creation and digital marketing agency. We are an award winning agency in the San Francisco Bay Area.
Okay, first question, Mike:
Tell us about yourself, your personal stories, your family, why do you do what you do? How did you journey end up here? And where is it going?
Michael Van Every 3:06
Well, thank you, Joanne. And thank you for having me on this wonderful podcast. I appreciate it. So as you mentioned in my bio, I’m a third generation San Jose resident. My family is deeply rooted in the South Bay, specifically San Jose. And they were immigrants from Italy on my mom’s side, which various still a very prominent kind of immigration here in the South Bay. And with that, they were grocery clerks. They were a grocery store owners, they were bakers. And they arrived here in the early 1900’s on my mom’s side, and owned small businesses very similar to many great immigrant groups in this wonderful country we live in.
My father’s family came from, really from the east in Nebraska, they were actually back residents of the United States back in its early infancy in the revolutionary days and migrated westward as expansion and opportunity happened here in California. My dad’s side, our iron workers and house Movers. And so the combination of those two families from my mom and dad side had deep influence into my life, whether it’s working in or owning a grocery store, and you know, that kind of blue collar route that really drove me to respect how hard people work, but also, as a younger man seek educational opportunities. And it just so happened that the real estate industry combines all of those facets. It combines a blue collar workforce, with a white collar direction, understanding how much money and time it takes to build things.
As far as where I’m at, I love my job as the managing partner here of Republic Urban Properties, and where we’re going is a continued investment in the South Bay in the greater Bay Area. My family’s rooted here, we’re actually moving our corporate headquarters from downtown San Jose, where we’re currently filming this podcast into the willow Glen business district, where we’ll construct 15,000 foot building, $11 million, 8000 square feet for our offices, and then a 6000 square foot rooftop restaurant, which I’m very proud of. So where we’re going as another 10-15 years at least with Republic, depending on our pipeline, and we’re excited to continue to move through this stage of the California real estate industry.
Joanne Tan 5:39
What is the most important thing that you value?
Michael Van Every 5:44
You know, I value integrity. And I think to be a respected real estate professional, a marketing professional, in the world of social media, where there’s a lot of misinformation, I think the real estate industry has always provided an opportunity that if you have integrity, and you develop what you promise and you deliver that to the community, to the financial markets, that gives you the integrity that people desire, and also helps shape your brand.
Joanne Tan 6:20
What are your biggest accomplishments, and the biggest learning lessons/ failures?
Michael Van Every 6:29
What my most recent accomplishment that I’m very proud of, and that is, we accomplished in 2019 is the gateway at Millbrae station project, which is 400 units of housing 150,000 feet of office, 165 key Marriott Residence Inn with mixed use of about 44,000 square feet of retail, roughly about a half billion dollars of construction costs. But one stabilized probably $2 billion worth of valuations. It started in 2013. And it kicked off construction in 2019. Very long journey and a public private partnership. But very satisfying, because our partners, they are Bay Area Rapid Transit – BART, and as well as the city of Millbrae. And I think that’s something that we as a company are excited about that. It’s been a long endeavor, but it’s very fruitful as it finishes and opens here in 2022.
My failures, I would say that, I try to minimize those. But nevertheless, in real estate, you’re always going to have hopefully many successes, a few failures. And you know, that probably would go with some of our retail investment. Especially we have a large project, which we love the location off of the 580 and El charro in Livermore called Republic Square. It’s a wonderful, wonderful location, but because of the times, retail, specifically, restaurants are very difficult to lease. So I’m not going to call it a failure, but it’s been a challenge. And so, you know, but again, that’s the boom bust nature of real estate.
Joanne Tan 8:18
COVID: how is it affecting commercial and residential real estate development, – office buildings, retails, hotels, apartments, housing projects, public transit, mixed use projects, etc? How do you view the new remote work impacting new commercial office development?
Michael Van Every 8:41
Yes, and that’s an excellent question. Joanne. You know, remote work is a real catch 22 for the commercial real estate industry. It is a hindrance, for office. It is a hindrance for retail, especially new retail development. I mentioned Livermore, and it’s a hindrance for hotel. And so I think when we look back 10 years from now, all of us will probably say that we overreacted to the pandemic. In other words, limiting small business, limits retail, – it by nature shuts down hundreds of thousands of square feet. It has …the remote work has affected how companies now view their office buildings.
Well, office buildings typically are located in downtown cores. Downtown cores are served by transit, transit now is severely impacted, you know, through the pandemic. Now some would argue that’s a good thing. We have less traffic.
However, we’ve invested billions upon billions of dollars of public money into very rapid transit, into the valley transportation system. And into our freeways and infrastructure. And with the idea that commercial real estate, specifically office and retail would locate in these downtown cores. And that would be joined by new transit development, apartments, hotels and other things to support convention centers, to support small business.
And so the pandemic has absolutely taken a massive chunk out of the commercial real estate industry. Now, will it come back to full strength? I don’t think it ever will, especially for retail. I do think that there will be a rethinking of corporate campuses, moving forward that hybrid work systems will be more of the norm in the future. It remains to be seen what the demand for commercial real estate will be in the office, retail, and hotel asset classes. But clearly COVID has had a severe effect.
Joanne Tan 10:53
When you say downtown “corridors”? it’s “corridors”, right?
Michael Van Every 10:59
Downtown core. C O R E. For example, downtown San Jose, the core would be around the convention center, the Fairmont Hotel, you would look at Union Square in San Francisco, or, of course, the business district there on California Street in San Francisco, have been severely affected by COVID.
Joanne Tan 11:25
Yeah. Lots gonna change now,
Will the future development of office space, have habitation space associated with it?
Michael Van Every 11:45
Sure. Um, I think mixed use of all types. office with hotel has been has been done in major cities like San Francisco, Los Angeles, office and apartments have had, you know, mixed use components as as well. I would say yes, but I’d also say that the cost side of those are very difficult to accomplish. And typically, you see those in high rise developments. And I think that high rise developments in the near term are a little cloudy, with construction costs, and of course, who is going to be your office tenant?
I do think apartments as standalone will continue.
To further illustrate your question: We will see potentially the conversion of office in the habitat into residential units. I do see that as a possibility. Because there are some large cities like New York, for example, there’s a number of projects being considered as you know, trying to transitioning from an office to a residential property. And look, that might be a good strategy to tackle affordable housing. If you have an existing structure and there is public money available, it might be the solution to house people at a cheaper cost than the millions and millions of dollars, that it takes hundreds of millions to build affordable housing.
Joanne Tan 13:13
Yes, always a silver lining, given whatever the change is, you know, the pandemic induced or not, because affordable housing has always been a really big problem for all major cities in the United States.
Okay, number six:
Wildfires, climate change, California’s water shortage, how are these three things impacting both commercial and residential real estate development?
Michael Van Every 13:40
So natural disasters and the ones you mentioned specifically have a material effect on commodity pricing and labor and in specifically the wildfires have been, you know, devastating from a quality of life, you know, day to day, but it also a real effect when it when it affects properties and structures. When we saw the destruction that past wildfires have done in places like Sonoma County and other places like that, it’s drove up commodity pricing like wood. And of course, labor that goes with some of that commodity pricing is greatly affected the ability to have as affordable pricing as you can.
So you couple the natural disasters with the manmade disasters of the pandemic, it kind of creates a perfect storm for new construction. And at a recent conference hosted by Marcus and Millichap, it’s evident that to to build a new podium project, a wood frame, say four stories over a podium structure, we can’t achieve the financing metrics to make a bank or an equity investor attracted into that deal. So these natural disasters just again, contribute to the already manmade issues that we’ve created. And it’s tough in especially in California, Florida, and there’s other places that might be affected by hurricanes or tornadoes or flooding, it’s a serious issue, and it all ties back to the cost of construction.
Joanne Tan 15:26
So the labor is in shortage, the materials are priced higher than before, and the supply chain is broken, and that makes the price goes even further. So it’s getting more and more costly to build commercial or residential, yet the demand for at least the residential housing is increasing, because more people are working remotely, so they want a comfortable place, an affordable place to live. Now, so that makes the real estate, – I mean, it’s going to be always more in demand, less in supply.
Michael Van Every 16:04
Joanne Tan 16:04
But places like Paradise or Lake Tahoe where the wildfires burned, you know, so many acres, and houses are all burned, do you think people will go back in the same place and build again? Just to be burned? Again? I mean, are people choosing less hazardous places to build both residential and commercial buildings?
Michael Van Every 16:34
I don’t think it’s the choice. I think given the choice of the consumer, they’ll choose to go back to those locations. The question becomes that of how do you serve that consumer, for example, Pacific Gas and Electric, which, sadly, it has been the reason for some of these fires, and again, I think pg&e is, is doing the best job they can reasonably to stay on top of these natural disasters. But nevertheless, the question should be asked: Do we want to extend services in remote locations to serve the demand of housing, and that may be is not for me to answer, that’s probably for our governors, and our Board of Supervisors, and our city council’s. But also, it’s not just the services of power, that, can, …is there water supply also in those locations that can also serve these residents? It is an issue. And then of course, the last part of that is the cost. And in some cases, insurance agencies will not fund or provide insurance, especially fire in these hazardous zones.
So I do believe that, again, this gets back to why we’ve had the strategy of building in our downtown cores, and that we want to live in nodes and, and villages that allow for us to get out of the automobile, where power is abundant. And solar energy can be provided in a mass kind of situation. So I do think that building remote will become a less and less strategy to house people. But again, given the consumer, anyone would say I’d love to live in Lake Tahoe, if I could afford it.
Joanne Tan 18:22
Okay, so number seven:
Silicon Valley is full of world’s largest monopolies such as Google, Facebook, you know, Google has been buying land in the valley pretty aggressively. How has that impacted your business?
Michael Van Every 18:39
Excellent question. It has driven land costs are extraordinarily high. If you go back to the Trump administration, when he took the presidency, and the Republicans took control of Congress, you know, about six years ago, there was repatriation of a lot of offshore money by the high tech companies. And we’re talking billions and billions of dollars that would have otherwise went into an Irish bank offshore to be protected from you know, capital gains taxes. And what happened was when that the deal occurred, and people, companies like Facebook, Google, Apple and others have been investing in the United States into properties, especially in the Bay Area in California, New York’s a great example and Hudson Yards.
And what has happened is that they’ve come in, and they’ve created a lot of speculation with them in the case of San Jose, where you could buy land for, you know, maybe $40 a foot in the Midtown area of San Jose, now sells for $150 – $200 a foot in a matter of years. So the speculative nature that high tech and their investment or commercial property is created, it’s not unusual, I mean that’s something that you want to see investment and valuation created by these investments by tech.
But what it has done, is it has, you know, depending on what side of the aisle you’re on, politically speaking, there is an issue of equity. And then there’s an issue of who’s going to move into these locations. And that’s been a central debate in cities like San Jose as Google as planned their campus. But in the case of San Jose, and in the case of the Google investment, they have created a relatively good plan to address equity issues, and to address the new development that will come in to benefit the entire city, and most importantly, the economy in general in San Jose, but it has, – the investment by high tech, has absolutely affected almost every aspect of real estate development in the major metropolitan areas.
Joanne Tan 20:59
What messages do you have for Silicon Valley giants like Google, Apple, Facebook, Cisco, Oracle, related to the current COVID remote working situations, and related to all their other monopolistic powers in the more-than-COVID-return-to-work issues?
Michael Van Every 21:21
Get back to work! Get your employees back to work! We’re running that in the high 70s, have vaccinated people and mandate vaccinations and try to restore faith in the fact that, you know, we will never… COVID will always be here in one shape or form. But that we now have ways to deal with COVID. The first way is to get vaccinated. And I think that as you’re seeing across the country, mandates will likely be here to stay. And to your point, if you’re a monopoly, and in this case, some of these companies could be monopolies, I wouldn’t go that far, but then you should mandate people to get back to work.
I don’t believe this remote work is a sustainable business plan, despite the employee, you know, acknowledgement or influence that this is a better way for them to work. I do not believe that at all. And I think that ultimately there will be wrought with challenges of production. I also think that it could be a… as people work more from home, it will allow Silicon Valley to make deeper cuts, potentially. if there are layoffs, I fear for those people that think that working from home is the panacea for the long term because there’s not enough… innovation is done when you are working with other people.
And it’s not working over a virtual platform, which you and I are doing, I think this platform for a podcast or a video cast or you know, a meeting where you’re, you know, you’re not, you’re spending time, instead of traveling on a plane, you’re going to spend time having this conversation, and obviously there’s a value there for travel travel dollars.
But from a day in and day out perspective, I just don’t understand why we’re not looking to get people back in their offices, that also will provide more jobs and support services. You know, people forget that a lot of these large campuses have janitors. They have, you know, cooks and employees that support the large companies like Facebook and Apple. And those people right now are trying to… they don’t know if they’re going to have jobs, which means we could lose them out of the region forever. And we already have a problem finding people to do all sorts of jobs that are not high tech, you know, $200,000 a year. So it creates more digital divide and more social equity issues. And yet Silicon Valley is promoting a virtual workplace.
So I’ve always had a problem with Silicon Valley also in that, with the very few exceptions, they’re not very generous individually. You do not see large parks or, you know, new theaters built after billionaires as they did in the turn of the century, when you had the Rockefeller and the print spurs and the others that built monuments to cities, to people in these cities, to foster arts and education. A lot does happen and I’m probably generalizing it. But I’d like to see some of these high net worth folks that make zillions in the stock market, turn around and say, You know what, I’m going to help this school district. I’m going to build This Art Center, I’m going to fix this community issue here. It’s very spread out, and it’s very self interested based upon their tax situation.
So my message is Silicon Valley is stopped being so cheap, and invest in your communities.
Joanne Tan 25:16
Excellent point. And internally, it’s good for them. Because culture building, team building, – you need to have in-person contact. And that’s how we met, you know, we met at the Silicon Valley Chamber of Commerce event, it was in person, and then we chatted, and we followed up, – I cannot imagine meeting you solely virtually, and I’d be interested in what you’re doing.
And you’re absolutely right, those monopolies, they have responsibilities to the communities, they have responsibilities to the economy, okay, it’s not just them, you know, just whatever it is best for their bottom line, their bottom line is linked, is related to the prosperity, to the vibrancy of the community, there is a whole community of supportive services.
So they need to really have a sense of urgency, they need to play the leadership role, not just the bottom line, okay. And in the long term, the bottom line will be negatively affected if they keep this kind of a remote working model. Because people are social animals, they need interaction, they need, … innovation is a contact sport, you got to be in the contact of others to stimulate growth and have innovative ideas.
Okay, so, that’s in their monopoly power, they’d better put it to the best use, post pandemic as well. Okay. Number nine:
With your deep roots in Silicon Valley for generations, what, in your experience, makes or breaks your deals in the valley?
Michael Van Every 27:08
I think the integrity that I mentioned prior, and the ability to demonstrate a record of success, has to be the baseline for any good real estate developer. And we’ve got some really good ones here in the South Bay, as we do in the Bay Area. And so it’s a very fierce competition to get those prize properties. And so for someone like myself and Republic, I think that one of our advantages is because I am a third generation San Jose, and that I’m very comfortable with the politics and the neighborhood, you know, matters, that you have to work through, those are just part of my job.
And that we work very hard in the community. We, you know, you mentioned philanthropy, in our last conversation, Republic Urban Properties is in the top 50 of philanthropic organizations in the entire Bay Area. And we’re ahead of companies like it, believe it or not Clorox, which is a multi billion dollar company. And so we use that philanthropy platform, to make sure that we promote and practice what we preach, and that we value education and children, that we want solutions to house people of all types, that we want to make sure that community based organizations are successful, and that we’re partnered with them in the right way that has nothing to do with profit.
And I think that separates Republic Urban Properties from other people, where you can say, well, hey, you did great on that project, you made millions of dollars, congratulations, all the investors made a bunch of money. The question is, what do we do with that money? And where did it go? Did it go back to an organization outside of the Bay Area, or even outside of the country? And the answer’s no, those those dollars continue to stay local, and they continue to recirculate not just for profit reasons, but also for nonprofit reasons that really go to my core values as a Catholic and as a Jesuit, that we need to teach children, but we need to teach people how to be generous, not just with their money, but with their time, and of course with other people. So I think that would separate Republic a little bit, obviously, I’d like to think so. Again, that’s not something that we we try to promote, we try to make you understand by what we’re doing, and so we hope people will follow our lead.
Joanne Tan 29:40
You just answered my last question: What does your brand stand for? That was an excellent answer. Okay. So I’m quoting you,
You said: “The government is 100% responsible for the housing shortage.” Please explain why.
Michael Van Every 29:57
Well, it’s like anything else. It’s regulated 100%. So in other words, I can’t,…there are some cities like Houston, that you can build anything you want, really whenever you want. But that’s not the case in California. And we’re governed by local jurisdictions, the state of California has helped us a little bit by accelerating state bills, which put requirements on local government to prove more housing. But make no mistake, in a lot of cases, even when you get a government approval, like a city council approval for an apartment complex, that could be sued. And that could end up in the court system. And you could lose the entire project.
But yes, real estate development, and the demand for housing is 120% impacted, I’ll add another 20% to the 100, by local government, and it is why California real estate has consistently under approved new housing units. I mean, realistically, the state of California should do 200,000- 300,000 housing units a year, we typically do a little over 100,000. And depending on the economy, it could be less than that. And so that, … and yet we have 40 million people living here, with many more that come in, through migration, you know, internationally. and then, of course, nationally, in addition to illegal immigration, that happens in droves as well.
So all of those contributing factors, and then you’re relying upon a local city council to approve things? And then how long it takes to get that approval? So yeah, it’s in some regards, like the pandemic, it’s a self inflicted gunshot wound that we consistently shoot ourselves with, and put ourselves behind in the production of housing. I think people are working hard more than ever, our governor, our legislator, we have amazing housing advocates, I don’t want to make it as an anti government platform. But the numbers do equal the lack of supply of housing, and that is a result of government.
Joanne Tan 32:08
Yes. Now we have a message for the California legislators, they need to be really tackling this issue of over regulation, and streamline the permit approval process, and make it the state issue rather than just local municipalities’ issue. A lot of talk, they are keenly aware of the housing shortage, you know, it’s just get it done, you know, get it done!
Alright. So, number 11:
Will increase in warehouses due to the so called Amazon effect permanently continue, while the decrease in brick and mortar retail services last beyond the pandemic?
Michael Van Every 32:56
So anecdotally, I got tired of shopping online the other day, and I decided I’d go with my beautiful wife, Jennifer, and we went to Santana Row and to Westgate shopping there, Valley fair, had a great time, I really miss being out and shopping at a storefront location, and enjoyed that experience immensely. And yet, and that made me to your question, it is becoming a an endangered kind of commercial asset that is the brick and mortar, you know, small business retail, it’s very difficult. And most of those places that I shop that we’re all, you know, larger, you know, well funded, in some cases, international brands.
And so, if there’s no incentive to open up a hobby shop, a toy store, in some cases, even a grocery store now, you know, understanding that Amazon really fulfills, you know, an electronic, you know, good or service and not so much a service, but any kind of goods that you’re looking to purchase can be done within a second and a click. And so I don’t think you’re ever going to win that struggle against Amazon.
I think what we need to do is, we need to continue to work with Amazon and these others, the Walmart’s and others, and really, like they do with housing, mandate that they provide a certain amount of a small business with their locations. For example, Amazon is now starting to put more storefront operations in some of their industrial warehouses, for example, the boxes that you receive, they’re now looking to encourage you to return those there. And then they’ll have some storefront shopping opportunities, where you might say, Hey, you know, I need to pick up this or that, and Amazon provides that location. And maybe Amazon allows a small minority owned business to actually lease that space and run that operation for them.
I think if we start to get that kind of cooperation from these larger big box, instead of just consuming and swallowing up the small businesses as an example, my family used to own 10 grocery stores in the greater San Jose metropolitan area, as the larger Safeways and others began to expand in the superstores, and then Walmart came into the area, my family’s grocery stores could no longer compete. And they were slightly mismanaged in their own right through second generations. But nevertheless, that didn’t help the macro strategy of the Amazons and Safeways and others and Walmart’s have moved in.
So I think that there’s got to be… a government should look to potentially regulate some of this. But it’s difficult because in the free market system, and when every city is chasing sales tax dollars to fund their general funds, which repairs potholes, which funds, the police and fire, when you have local government chasing sales tax dollars, they don’t really care, they just want more sales tax dollars. So the idea of an Amazon having a warehouse there, and sales that might come out of that warehouse, potentially, that’s fine with them, that the government, maybe the local government, so it’s a real conundrum.
And I’m not sure that local government has the expertise to really govern and create better opportunities for this, it might have to come out of the state someday. But for now, it’s a losing war. If you’re a small business, you’re lucky to be around and you’re probably not going to be around for the long term.
Joanne Tan 36:43
Is that same reason for the dying of malls, shopping malls? Same reason?
Michael Van Every 36:50
Joanne Tan 36:50
Because …what’s inside a shopping mall are all these mama papa, brick and mortar stores! Wow.
Michael Van Every 36:59
Joanne Tan 36:59
What are the challenges for realizing internal return on investment, (ROI) for real estate investors?
Michael Van Every 37:11
Yeah, great question. It’s all about cost right now. Joanne, it’s … we want to achieve on a commercial apartment, new development, 250 units as an example, over a podium project, save up two or three stories, you know that that projects probably going to cost $150 million on average, okay, you want to get a return on cost of about five and a half percent, 5 – 5% return on costs, which means your internal rate of return should be around 20 – 25%. And that’s difficult to do right now, because we can only charge so much rent, with, you know, construction costs continually rising, and that’s where we’re at right now we’re at a standstill for new construction. I mean, you’re seeing some construction here or there, a lot of that was probably done in 2019. Some of that’s affordable housing.
But as far as starting new apartment projects now in like San Jose, San Francisco, Oakland, Walnut Creek, the major cores, with the cost of construction, it’s virtually impossible. And we’re all sitting around now asking ourselves, when is this going to change? Well, we know this, we know that we can’t push rents that much further, understanding that we have the highest rents in the nation, in some cases, the world. And so we keep looking to the fact that maybe we’ll get a better deal on construction costs. Yeah, we have inflation. We have supply chain issues. We have labor, you know, rate issues. So for now, we’re again in that perfect storm of rents being capped, construction costs still rising, and we’re not able to move to that next level.
And that’s… what’s that doing now is it’s causing companies like myself to look outside of the of the nine county Bay Area and maybe in more built-for-rent opportunities in places like Fairfield, or Sacramento, when I mean by built for rent is townhomes for rent, single family homes for rent. That seems to be where the industry is moving for the time being. But again, as someone like myself would much rather be building in my hometown, a mixed use project that I could deliver. And yet I’m not able to do that right now. And candidly, here we are in 2021, q4, I do not see a pathway to do that in 2022.
Joanne Tan 39:42
That is profoundly impacting the future of Silicon Valley. Because, well, a couple of years ago, there was already a lot of exodus from Silicon Valley. Very good companies moving out of state to Utah, to Texas, you know, Nebraska. Well, I don’t see any reversal of that trend based on what you just described.
Imagine yourself as someone with money to invest in real estate, what would you invest in right now, industrial properties such as warehouses, residential townhouses or duplexes triplexes, quadplexes, or single family homes for rent, land only?…
Michael Van Every 40:34
Wow, um, if I were to invest personally, I would look for, you know, opportunities in built for rent in some of these off market locations that I mentioned, Fairfield, Hollister, Salinas, Vacaville, the Sacramento area, even Manteca, in places like that. But I would look in areas that are supported by a very good infrastructure. I still like the train stations, and there are train stations. And the Capitol corridor, for example, is a good line that a lot of people can take Sacramento in the Bay Area. I do like those built for rent opportunities.
I do think that industrial has, especially existing industrial, if you can find a core location, like San Jose, for example, or, you know, even parts of Santa Clara would be another great example, and you find a 50,000 – 100,000 foot warehouse, there will always be the need for those uses inside the core. And those are excellent long term investments for families that maybe are looking to do a 1031 exchange, maybe into that product. I also would say that there are some great shopping center locations, that while retail, you know, is still a little down, there are some great existing locations and services that you’ll consistently need from now to the end of time anchored by grocery stores, and then the ancillary uses that would go with the grocery store anchor, I do think those are good, you know, infill opportunities.
Last but not least, I am a believer still in apartment projects and of all types. And making sure that you’re working with the right developer, like a Republic, that maybe like, for example, we have a friends and family program. And we do preferred interest versus ownership, which is more risky. So if you look for, like preferred interest into real estate projects, there are still 7 – 12% returns that you can achieve on your money on a yearly compounded basis that are out there.
But you know, real estate is still the best investment, I have a 1030, I have a I have a 401k, I have some stock portfolio, but I look at it and say, Oh, God, I guess this works. And I guess the stock market’s going to do its thing. Whereas with real estate, I can own it, I can control it, I can live it. And it’s just fun. And frankly, it’s still the best return on investment, once you find the right property.
Joanne Tan 43:22
Yes. So you almost answered all of my next questions, just see if there’s anything to add, okay:
Where would you advise commercial real estate investors to invest? If all things being equal, Silicon Valley? or elsewhere? And why?
Michael Van Every 43:38
Silicon Valley is a great long term investment. You just can’t go into commercial real estate thinking that you’re going to get your money back, you know, right away. So anyone that wants to be in commercial real estate better understand this. It takes a while. And so I always marvel at some of the people that want to get into our industry and how did you get where you’re at? And how do I make, how do I get there and make that kind of money? Well, guess what? Any investment that you do with me is a five year business plan. And it might be longer depending on the tax ramifications of the investors and so you know, I think if you’re committed to a long term investment, if you like where jobs and great weather is, then Silicon Valley is where you should be, but you better bring your wallet, and your dad’s wallet, and everybody else with you because it’s not going to be inexpensive and that’s unfortunate because you know, we would like to get more people in to this great region, but it tends to be the high net worth people that invest in Silicon Valley.
I will say this, you know, there’s been a lot of these opportunities zones that have come up. I’m not a huge believer in some of that opportunity zones investment, so be careful. Might be a way to dodge your tax capital gain issue. But that’s, if you’re if you’re going just to dodge your capital gains, great, that’s wonderful, just never expect that money back because that’s the thing about commercial real estate: unless you’re in control of it and you are the person that are making, calling the shots, there’s no guarantee you’ll ever get that money back. Read the fine print!
Joanne Tan 45:17
Is AI, Smart Cities, smart project, and sustainability technology changing the way the buildings are built?
And I have two folds to this question: when people build residential single family homes, they expect to be able to use Alexa or Siri to voice control everything; and the other aspect is with the technology lowering your cost for building because right now you are in a big hole of this labor shortage, the supply chain broken, and also the materials are getting more expensive…
Michael Van Every 46:06
Certainly technology, whether you want to classify it as artificial intelligence or you know, we’re seeing that now with prefab technology. So anything that’s built off site, trucks shipped, railed in, unloaded and then man constructs… and I don’t know if that will change too much on the back end, which means you know, the carpenter and the you know, the electrician, I don’t see a lot of new AI technology or machine technology that will replace that skilled labor, at least in the real estate construction industry.
What I do see how are on the front end, and I mentioned the prefab and for example, at the gateway at Millbrae station, we’re putting together a system called light gauge framing system called prescient, it’s constructed, it’s actually a software so we work with the software designers to essentially fit together the framing aspects of light gauge metal construction, as the frame and all of that is, you know, manufactured in a warehouse in Colorado, and it’s all put together and it’s been shipped by truck or trucked from Colorado over the Rockies, over the Sierras, here to the Bay Area. And then it’s put together on site using a QR code that stands, and that event basically comes together like an erector set like you would put together an erector set as child, and that all has been from the innovation of prefab technology.
So like I said, I think on the front end, we’re continuing to see some great innovation with AI software and lots of great innovation you’re also seeing that with pre fab where things are being built, like now full bathrooms now, are being built off site, truck ship, railed over, craned in, and assembled on site by man labor; on the back end I’m not seeing much innovation beyond just good skill people; on the front end certainly we will continue to see more innovation.
Joanne Tan 48:25
Right, innovation is always going to solve whatever the crises and issues.
Okay, so I’m curious about what do you know or what you think about “the One” in LA, you’ve heard of “the One“?
Michael Van Every 48:39
Joanne Tan 48:40
Oh, it’s the most expensive residential house ever built, hundreds of millions of dollars and now nobody wants to buy it, nobody; I mean it’s over the top excess, and well, never mind, it was talked about on…
Michael Van Every 49:00
Tell Elon Musk to buy it.
Joanne Tan 49:06
He sold his houses, he doesn’t want to own any earthly belongings. So let’s move to the next one:
How do you think the Biden administration’s infrastructure spending can help with real estate development?
Michael Van Every 49:27
Well, you know you mentioned the question earlier about helping out through natural disasters, and I think bottom line is this: let’s create more reservoirs and let’s create more supply for human beings. And water chiefly comes up as the number one thing here in California. As far as what else will happen with that spending plan, I am, look I’m a centrist and so I don’t have a lot of patience for the left that I don’t have a lot of patience for the right, I’m right down the middle. And so in some cases, I’m misrepresented by both of them.
I don’t like all of these spending plans as much, because one of the problems that we have is we were spending a lot. And we’re not necessarily telling us who’s going to repay that spending. And so what happens with those spending plans is they become a platform for other issues. And that’s unfortunately, what’s happening with this spending plan.
By its definition, it could be an amazing thing in that, if that money got to the water district to build a new reservoir, if that money got to transit system, you know, agency to do expand transit ridership, or a local government to help out on its fair share of building new roadways and other infrastructure, – if it works like that, then I’ll be extremely happy. But as of yet, it seems to continue to change. It confuses me. And I’m pretty sophisticated. And so my hope is that we just land on something that will benefit anything, a better water supply in California.
Joanne Tan 51:09
Right? You didn’t mention the word “cheap” water?
Michael Van Every 51:15
water supplies? Yeah. So we saw a supply of water, that’s not going to cost, you know, ratepayers double of what they’re paying today. And so we need, you know, sustainable water supplies that are is affordable, for its consumers.
Joanne Tan 51:32
What can the federal government do to ease the labor shortage?
Michael Van Every 51:39
Well, we can fix immigration or define immigration, we are a nation that relies on immigration to service our great industries. And you don’t have to go any farther than Japan to see an immigration problem and their economy has been stagnant for a generation now. And so you know, we are a nation of immigrants. And we have to embrace that. And we have to have compassionate towards that, we have to have pragmatism. So we can have a highly skilled workforce of all levels, not just at the highest professor level, but also the people that are going to staff our assembly lines, that are going to pick our produce, and that are going to basically work in our industries, because we don’t have high enough birth rates in the United States of America, we need to have more children. So any of you that are 25 and 35, have children. Because if we have children or work hard, in a productive way, to challenge your elected leaders, to make sure that we have a good immigration policy, I’m not talking about letting everybody run the borders and run in. I’m talking about, you know, doing what we do here, and making sure that America still has a great immigration policy for everyone to have a fair share to come here. But the work here, not to get a handout.
Joanne Tan 53:02
Yes, yes, absolutely. I agree with that.
What do you want the state and local governments to do? Now an after the pandemic for the real estate market? And the economy?
Michael Van Every 53:14
Great question. Locally, get out of the way. And let us build things and stop, you know, there’s a crane fee, a crane! CRANE. Crane fee in the city, actually proposing a crane fee!
Joanne Tan 53:30
For what? For using a crane?!
Michael Van Every 53:33
In San Jose! And I’m losing my mind because we’re trying to say, wait a minute; and they want to do that because the airport, they want to create more user fees for the airport. It’s insane. It’s insane! So on the local level, stop it. Stop the madness, okay, get out!
Also, on a local level, stop creating more mandates that are going to create things that are going to be more expensive. For example, the “reach code” is a another, Berkeley, San Jose, San Francisco, it’s, in other words, no more natural gas for houses, only electric, all electric, because in theory, that will eliminate greenhouse gas emissions that are emitted by natural gas. That’s absurd. That’s absurd. That’s creating more cost to housing. So all you’re doing is exacerbating more costs and forcing more people not to be able to own or rent. Craziness! Local governments: Stop it. Get out of the way.
State Government, I think, at least in my lifetime, this is unbelievable, you’ve got incredible leaders like Senator Scott Wiener, David Chiu, and Gavin Newsom, and others who continually lead the charge to make local government stop. So they can continue to build housing because they see the statewide impact it’s creating on the economy! So continue what you’re doing state government, because you’re doing a better job than you’ve ever done before.
Joanne Tan 55:09
Absolutely! Yes. Now last question: what does your brand stand for? I asked this as a branding expert I build brands and personal brands so first your business brand:
What does your business brand stand for? And then if any difference as a personal brand, then you know elaborate on that.
Michael Van Every 55:29
Well the personal brand would be about being from the South Bay and creating product in the South Bay that makes you recognize Republic Urban Properties. So in other words, you build that transit station, you recreated that corner that has a nice restaurant in it now, so someone that does mixed use well, and understands mixed use and not afraid of it, and can create something that is a benefit from a lifestyle perspective, but also from a tax perspective. So you know, again, our trademark is “we build landmarks” and I think that’s a little corny, or old and cliche, but I think it remains true if you translate it back to our brand, which is building mixed use and building it well and reshaping a neighborhood.
Joanne Tan 56:29
Okay, so you know what I really miss, and I hate to see them disappearing, are these mama papa, local colors, local tastes, local elements of that really adds to the diversity of a culture of a city. When you go to Europe, they still have those old stores, some of them more than 100 years old. And here we see are all these franchise chains, Taco Bell, and even Barnes and Noble that where I took my little boys, (now they’re all grown ups) you know, for just go to the local Barnes and Noble – now that’s completely vanished. It’ll be a very sad way of living that you only have Amazon, and Walmart, and Safeway and it’s just like… what do you think? What do you think?
Michael Van Every 57:27
Yeah, now, I couldn’t agree with you more and that’s why we as property owners need to foster mom and pop in small business, for example Republic will spend a lot of dollars on tenant improvements to make sure that mom and pop can spend it’s money maybe on the other startup operation ventures, and so all you can do is create spaces and opportunities for small business and hope that you’ve got the right location for them to grow and foster their businesses.
Joanne Tan 58:00
Right. And they will grow much better if they build the brand first. We help them and serve their growth.
Well, thank you so much. Exactly one hour. Appreciate it very much. I will have this made into a podcast, video, and a transcript, edited, slightly edited, so we will get it out, you get it out. I get it out. And hopefully, the Silicon Valley monopolies and state and local governments will hear your message loud and clear. Thank you so much.
Michael Van Every 58:36
Thank you, Joanne. I appreciate it. Thank you for the opportunity, you are wonderful.
Joanne Tan 58:41
Thank you. Bye.
Transcribed by https://otter.ai
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