Ethan Conrad on Kelley Brother’s Radio Show

Episode 16: Ethan Conrad
Release date: 2-23-24
KFBK Radio & all podcast platforms
Transcription provided as guide only.  Our friend Albert Iynstein, (intials AI) is good but not perfect.

Kelly Brothers: [00:00:00] Welcome to Bi Si Fi Bite sized Finance. I’m Kelly Brothers. I’ll be your host, serving up some of the most succulent stories from our region about People, places and things that impact our community and your financial well-being. I’m sure there will even be a few tasty surprises here and there when the recipe is right.

Our goal is to have you learn, think, even laugh a little bit, all calorie free. I know you’ll enjoy what we’re delivering right to your kitchen table or dining room or, sir, will you be eating in your car? Wherever you choose to listen. Welcome to another edition of Bite Sized Finance. Our opportunity to talk with the people who are changing our region.

And doing it through business and finance and deals and no better man to have on this show than the dealmaker himself, Ethan Conrad is joining us today. Many of us, maybe you’ve never met Ethan, maybe you’ve never heard him speak, but [00:01:00] you have absolutely certainly seen his signs around town. As a matter of fact, I’ve gotten to the point now where if I see Anything vacant I’m expecting within two weeks to see an Ethan Conrad sign up because this man has gone through and bought up a lot of Oh, different properties in the area where they’ve just passed 10 million square feet and property ownership in the region. 10 million square feet! Ethan Conrad, thank you so much for joining us on bite size finance.

We appreciate your time. Can’t thank you enough for coming on. So give us an idea. 10 million square feet. Give me some context. What does that mean? How much is that? How many, I know it’s a lot,

Ethan Conrad: so to put it in perspective, we’ve got over 2000 tenants and, you know, the value of it’s, you know, whatever, 1.6 billion or something like that of the portfolio, [00:02:00] and it’s about. 200, a ballpark of 200 properties, depending on actually how you count them. So you could say it’s like 200 different locations. Some of the locations have multiple buildings, but that’s, that’s the ballpark number. And

Kelly Brothers: if I remember correctly, you’re talking about.

More than half of that is retail with the rest being office and industrial. Is that correct?

Ethan Conrad: Correct? Yes, the majority of I’d say Like 60 percent 65 percent the value is retail and the majority of the tenants are retail as

Kelly Brothers: well So what are you doing buying retail? Ethan? Everyone knows retails dead.

It’s gone. It’s never coming back Everything’s gonna be delivered to your front door. What are you doing buying retail? What do you know that no one else knows

Ethan Conrad: So what’s interesting about retail, of the product types between retail office and industrial, I like retail the best, not only from a value added perspective, but, kind of a complexity perspective.

[00:03:00] It’s a bit more multifaceted than like office or industrial. So back to your question. So retail evolves. It has been evolving faster and evolves. It’s will, I think, continue to evolve faster than. industrial or office those uses, right? Because you have companies that are like on fire right now that are doing extremely well, right?

And you have companies that are dying and you have companies that are in between, right? And so you look at. Retail tenants and you look at companies like Sears was one point in time on top of the world. Right. And, and then they just, their business model and with Kmart as well, which is owned by, was owned by Sears, if they just let it sort of decline as a sinking ship, right?

So what the connotation of retail and, you know, it being a declining business or declining demand is, is really not. It’s not true, at least [00:04:00] not for most retail. So, you know, you have these malls, malls got overbuilt, right? So you have malls nationally failing that shouldn’t have never been built.

That was the problem. They, they should have, it got too frothy, right? Like most things, most types of business, things get too frothy. It gets overbuilt or over people value it too high. The, dot com bubble. Right. The dot com bubble is what happened to malls. So, you know, you go through an adjustment period where you get rid of some of these malls that should have never been built and you with consumer demand, there’s less demand for malls, so it’s an evolution though, is really what it is.

Is, that there’s tenants, the retail tenants that are coming and going, and that’s the issue. I’d also say that people, because people see retail real estate more than they see it than an office or industrial, they see when there’s a vacancy in their minds, it’s more prevalent. They see it. Yeah. Yes, yes.

But [00:05:00] here’s the most important thing. So retail, depending on who you listen to and what specific area and so forth. I mean, the vacancy rate on it is like five or 6 percent in the greater Sacramento area. And nationally, it’s pretty low too. It’s I mean, depending on, you know, a variety of different, which area and so forth, but it’s, it’s low.

It’s, let’s put it this way. Retail vacancy nationally and in Sacramento is about a quarter the vacancy of office. A quarter. So there’s three, there’s four times as much vacant office space as a percentage than there is retail. Wow. So that tells you everything.

Kelly Brothers: It does, but you’re right. We see it. It’s more prevalent, especially in the second tier properties.

You just see big chunks just closed down and signs on the windows and people in that neighborhood feel a little, a little bit less about their neighborhood when they see that. So it’s almost like a, it’s got a bigger impact on you, I think, and a bigger impact on communities. I don’t think people would realize [00:06:00] that the overall vacancy rate is that.

Low, but if you have the right product people will come to you to shop at your place, right? I mean, I see it now is it you know Nordstrom obviously left Arden fair and that was a huge blow to that mall But I people just adjusted and they will drive 30 minutes to Galleria now to shop where they want to shop. So you have the product that people want they’re gonna come to your store.

Ethan Conrad: Agreed, for sure.

And there’s definitely, again, it’s an evolution. It’s not, you know, the vacancy rate tells you everything. I mean, that low vacancy means that, type of product, that type of real estate’s healthy. So that’s really it. It’s just, it’s an evolution of, of things, you know, it’d be good to see what, who replaces Nordstrom and, and so forth.

But I mean, you’ve actually, if you look at it. If you talk about the healthiness of retail, you know, with Yuba Mall, which I own in Yuba City, literally the sales there are up like, they’re up like over 40 percent over the last [00:07:00] two years, 40%. So that means the sales that’s generated from that property is again, up 40%.

I think Chico too, and that’s up like 30%. So you’re talking about big numbers. Now, the reason why you see that is because we took space that was vacant or space that had weak tenants and replaced it with strong tenants, but you’re

Kelly Brothers: also coming out of a COVID year at that point too, right?

Ethan Conrad: True. But yeah, but even if you look at prior to COVID, the numbers are up quite a bit.

Kelly Brothers: Do you do that a lot? Do you go back to 2019 and say that’s compared to

Ethan Conrad: that? Yeah. Yes. Yes. Yeah, you’re exactly right. COVID did affect it. So it’s somewhat skewed there, but if you look back, the numbers are still significant increases from what they were pre COVID.

Kelly Brothers: Let’s talk about what you do though. First of all, how many employees do you have, Ethan? Almost 200. 200. So when you come in, you’re not just buying a piece of land. I mean, there’s an entire, uh, kind of an improvement process that you go through [00:08:00] and you have to have some metrics and some formulas that help you figure out, all right, what is the appropriate amount of work put into this property that I can get back over some reasonable time period, right?

Agreed. Yes. Yep. But I mean, that work gets done. Whether it’s painting, whether it’s new glass, whether it’s new frontage, there you, that’s an art form in and of itself, is it

Ethan Conrad: not? Yeah. So, you know, I think probably what I like, what I like about the business, and one of the reasons why, you know, I work 80 hours a week or what have you is because, you know, it’s fun, it’s fun to see opportunities with properties that are in decline.

They’ve got deferred maintenance. You’ve got vacancy and we call it value added, but really look at the value added potential of properties and then maximize. That, that value added component, right? That’s fun. It’s kind of like, I don’t know, it’s like searching for nuggets, you know, when you’re looking for it.

But, you know, I guess one of the reasons why I like retail so [00:09:00] much is that it has this complexity to it where you’re kind of like peeling back the onion, you know, when you’re looking at a property and some of these bigger properties where they have. I mean, they’re really multifaceted. They’ve got a lot of components to it.

And so looking at a property and analyzing it and going, okay, you know, what can I do to make this property as good as it can be, you know, from a financial perspective and an appearance perspective and everything else, you know, how can I, how can I maximize this? Right. Yeah. Give me one

Kelly Brothers: example though.

Give me one example of a specific property where you saw it. And you just knew I am seeing a potential there that no one else sees. And and what’d you do with it? Give me give me just

Ethan Conrad: I don’t know By the way, I don’t know that I could say that no one else sees it I think there’s varying degrees of that right somebody might see something that maybe I don’t see I Good examples of properties where you know Why maybe I clearly saw the potential and I don’t know if other people saw it.

I [00:10:00] mean I could give you 50 of them, but you know, let’s take a, let’s take a typical one. So Rivergate shopping center in Rancho Cordova, basically it was bought by a company that had some pretty good plans for it. They never really had them come to fruition. It was, it’s a former Kmart. It was a Kmart that was in operation when I bought it.

It was cheap because Kmart basically paid really low rent in the value of the property was derived by the rent. But Kmart, you know, was dying there, but really didn’t want to, well, they were, they were making money. So I ended up having to pay Kmart, I think it was like 2 million to terminate their lease.

It sounds kind of crazy, but the, the value that, you know, I leased that Kmart was paying like 25 cents a foot and I released the building after putting money into it for, you know, I don’t know, probably average rent’s like a dollar 10 a square foot, so way higher rent. Right. Okay. So, but put a facade in and so forth.

But. That one was probably a good example. [00:11:00] So, so I buy Kmart out of its lease, right? I can. And before I did that, I had three tenants lined up to lease that box, that space and again, significantly higher rent. And so as part of doing that deal, I then freed up two pads to land areas and ended up doing a, like a Chick fil A ground lease by itself was very viable and then did another, built another building that it has a, a Pielogy in it, in a Chipotle and another tenant. So the, there was this kind of exponential value creation based on spending money to buy Kmart out of its lease

Kelly Brothers: and then that unleashed all the value in the real property.

Ethan Conrad: Yes. Yes. And the previous owners had tried to negotiate a lease termination with Kmart, but they didn’t really want to spend that much money.

And, but they didn’t, they didn’t, you know, and paying a tenant 2 million bucks to [00:12:00] terminate a lease sounds, it sounds a little crazy, right? Like they should be doing, well, most lease terminations, the tenants paying the landlord to terminate. Right,

Kelly Brothers: right, right, right. In this case, you’re paying the tenant.

Ethan, we got to take a break. When we come back, I want to hear about. How you got going, how you got started. You know what what drives you to build this huge company that you’ve built in the Sacramento region Ethan Conrad is our guest on bite sized finance

Kelly brothers here for cap trust. We are fiduciaries That’s an interesting word. What does that mean? That means that legally we are obligated to put your best interests over our own non fiduciaries don’t have that same legal Situation they can sell you something as long as it’s suitable But they don’t have to put you in the best thing for you over their best interest.

In other words, they can’t just sell you a nice annuity with a big fat commission for [00:13:00] themselves, even if it’s not the best thing for you. We are fiduciaries. We are proud to be fiduciaries. And let me say something too about price. I am always shocked. By the fact that there are people who I know will scour the Internet for the cheapest flight or the cheapest ticket to a ball game, but they have no idea what they are paying for their advisor.

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I’m Father Christopher Calderon. I serve as the president of Cristo Rey High School, a work study school. As we partner with businesses all throughout Sacramento, we want to take a moment to hear from our students as they share their experience.

I’m Fernando Torres and I work for Accenture. I’m there setting up meetings, talking to people, interacting with people from different backgrounds. Accenture has helped me a lot with my social skills and being a little more outgoing. Thank you, Accenture, for being a Work Study Sponsor. Thank you again to all our Work Study Sponsors for believing in and being a part of the work we do.[00:14:00]

Kelly Brothers: Kelly Brothers back on Bite Size Finance every Sunday on KFBK, three o’clock and wherever you get your favorite podcasts, you’re going to find Bite Size Finance sponsored by CapTrust. And our guest today. Ethan Conrad. You’ve seen his signs. You probably know his name, but maybe you’ve never heard him tell his story before.

Ethan, thanks again for coming on. \ What led you to real estate? I always love to hear kind of the Genesis of where this all began. So take me back to late eighties, early nineties, wherever you

Ethan Conrad: want to go. Okay. Yeah. So I guess I’ve always been kind of entrepreneurial, like seeing opportunities and things and, and, and basically working for myself, but, but seeing opportunities.

So, you know, I went to high school in Healdsburg high school and in Sonoma County, and, and then I thought I wanted to be an attorney. I think I probably could have been a good attorney. My brain kind of works, you know, in that, in that way. But I then, as I, as I, uh, [00:15:00] went through college, I really. I guess my freshman, sophomore year, I really determined that I wanted to, I was more intrigued by business than I was by law.

And so I went from, I came to Sacramento in my junior year in college, went to Sac State as a business major. And then really, I knew I like, I guess when I first moved here, I knew I wanted to do something in sales. Um, and I was intrigued by business, but I didn’t know exactly what. And so actually when the first summer that I was here, actually I sold cars and I had, I bought and sold a bunch of cars on my own before that, but at a Toyota dealership and it was, I knew it was, it was fun.

I mean, I was working, well, they call it Belle to bell, but basically I was working like, whatever, 60 hours a week, 70 hours a week or something like that. And actually I was a top sales person at this dealership as a college kid, two of the three months that I was there full time. And, and it was, it was fun.

I mean, I, the guys that had been there a long time were like, [00:16:00] who’s this kid? But I was like, what was the

Kelly Brothers: juice in all that? Ethan? Was the juice just the, the cutting of the deal to get someone to say yes? Was it, was that kind of the fuel that kept you working that

Ethan Conrad: hard? Yeah, it was just fun. It was just fun.

It was just like, I think if I was going to give people this advice, if they’re wondering what they’re going to do or, or, you know, when they’re in college or what have you, if they do something in sales, I think that’s a great basis. Because you learn how people’s minds work. Right. And you learn when you’re like, I need to nudge this guy a little bit.

And he’s going to buy a car today where this other guy is going to take offense at it. Right. And he really wants a week to think about it and don’t push them. Cause you’re going to alienate them. Right. And then applying that basic sales skills or whatever you want, it’s sales skills is understanding people.

Right. You can apply that to whatever thing you do in life. Right. And it’s so valuable. Right. And, and really just being intuitive about listening to people. [00:17:00] So I think a sales position where, especially if it’s, you know, reasonably high volume, you learn, it’s a great learning tool for whatever you do.

Right. And so, you know, once you agree, I

Kelly Brothers: mean, No, it’s I, I, I mean, it’s, it’s know your audience, empathy, it’s understanding when someone needs a nudge. Or when you need to walk away, yeah, you know, I mean, how many times did you walk away from a deal? Suddenly they came back to like, okay, that guy was willing to walk away This is a good deal.

So you’re right. It is great training for anything you’d want to do in life So I I yeah, that’s a

Ethan Conrad: great point Yeah, so anyway, so I knew I didn’t want to be in the car business for my rest of my life But I thought it was great experience. And so I actually interned it at two different Commercial real estate brokerages while I was in college and then I was hired actually even before I graduated By Bishop Hawk which at the time Bishop Hawk was just it was like I [00:18:00] think the third largest Commercial brokerage in Sacramento, uh, ultimately was bought by Grubb & Ellis, who then ultimately was bought by Newmark and so forth.

Bishop Hawk was, it was a lot of fun. It was well, I mean, it was like 45 guys and it was kind of like a fraternity. It was like an extension of college. No joke. I mean, it was like, I could tell you. Hours of crazy stories.

Kelly Brothers: But there’s most commercial real estate like that. I find that there’s a real, uh, there’s kind of a bro mentality there.

There’s a little, uh, there’s a lot of ex athletes go into commercial real estate. They love the push toward a goal and you know, that sort of thing. So I appreciate you saying that I can see it.

Ethan Conrad: Well, you mentioned 45 guys. You know, in one office, right. And there’s a mix of different ages, but you know, a bunch of the guys are out of college, let’s say one to five years.

Right. And you put them all together and you have like these deal parties that we used to have. And it was like, I mean, so when you have a, if there was a hundred, over a hundred thousand dollar [00:19:00] commission, the brokerage would pay for this deal party. And it was basically like a drunken festival. It was great.

I mean, it was, it was really fun.

Kelly Brothers: Those would be. frowned upon today. You realize that

Ethan Conrad: most good things in life are frowned upon today.

Kelly Brothers: What was the trigger for you, Ethan, when you eventually made the decision to Leave the big corporate real estate world and kind of go out on your own. What was that trigger?

Ethan Conrad: I wouldn’t say it was even a trigger. It was more of a transformation. So the guy who owned Bishop Hawks, this guy, Bruce Ashwell, entrepreneurial type guy, he would let me. Cause I, I was, I was a rookie of the year and I think it was in the top, whatever, top, top 10 of the, of the company, which was like 150 people. Cause it was three different offices the whole time I was there. So I went to Bruce and said, Hey Bruce, I want to buy some buildings. And I, you know, want to basically do the brokerage [00:20:00] out of your office.

And he had let some other guys buy some buildings and so forth and not like charge them commissions on those deals. Right. So basically I started doing that and I think what the first building I bought. I graduated in 89 and then 95 was the first building, so whatever it was like five years later. And then, so I bought one building and then I think that first year I bought two buildings in 95 and then started buying more and more.

Where was the first

Kelly Brothers: building you bought? Ethan, which was the first 1,

Ethan Conrad: 3123 Fight Circle, which is uh, Bradshaw Highway 50, which I Did you still own that building? No, actually I sold that building about three years ago or so. Oh, okay. Alright. You held it for a long time though. Yeah. Yeah. So I think I actually be going a little storage.

I think I bought that building for 23. 50 a foot and I sold it for, I think about 135 a square foot, but I owned it for a while, you know, and

Kelly Brothers: you’d know the numbers down to the penny. I love it. I love it. Well,

Ethan Conrad: especially like the first deal, [00:21:00] you know, it’s pretty memorable and so forth. And people often ask that question, what was the first building you bought and what happened to it?

You know? So what happened is I started buying. Buildings when I was at Bishop Hawk and I think it was, gosh, I don’t because there are

Kelly Brothers: a lot of people think, Oh wait, why don’t I just do it? But I mean, where did you get the capital? Is that just something you saved up? Did you have investors who were with you?

Where did, where’d you get the capital to put the down payment down?

Ethan Conrad: Yeah, good question. So the first building I bought that went on fite circle is telling about actually, that’s kind of a fun story, too. But basically, there’s a property was in foreclosure and a bunch of brokers monitoring it saying, Okay, when it goes back to the bank, I’m gonna, you know, you know, contact the lender, blah, blah.

And so I looked at it and I went, Hey, you know what, Why do I have to wait till it goes back to the bank? Why don’t I contact the borrower, the owner, and say, Hey, you want to do a short sale? And so, I contacted the owner, and they said, Yeah, we’d love to do a short sale. No one’s contacted us for that. And I said, Okay.

And so I went to the lender, [00:22:00] and I got the lender to do a short sale, and actually give me financing. So basically I got the lender to, I don’t know, it was probably like 70 percent loan to value or something like that. So they basically, I had a 30 percent down payment, right? Wrote the deal. So it was written as a short sale. I think I rolled my commission in, I showed my commission as a, as a, you know, credit, roll it in. So I had this, the lender give me financing and then got like a very good deal before it ever went REO before it’s foreclosed on. Right. And I remember actually afterwards, people were like, wait a second. How’d you do that?

Cause we were all waiting until it was going to get foreclosed on. I’m like, why wait? So it was just fun. And I’m like, this is great. I’m like, this is like, we’re, this is a pretty fun game. This is, it’s a fun game and it keeps changing. Right. And then the second building I bought, it was a listing I had for sale and it wasn’t really selling.

[00:23:00] And so I went to the owners and I said, Hey, I’ll buy this from you and roll in my commission. And why don’t you give me seller financing though? And they said, okay, we’ll give you seller finance. And we’ll, you know, we’re retiring and we could use the cashflow and we’d rather have that anyway. I’m like, okay,

Kelly Brothers: I got to stop because we got to take a break, but this is great.

I want to hear more about how you got going and how you built. A little empire now with 10 million square feet in the area. Ethan Conrad is our guest this week on bite sized finance.

Hello, this is Marcel Plumta with CapTrust in our Roseville office. I specialize in providing retirement plan advisory services to corporate fiduciaries. While we focus on many areas such as investment management and vendor oversight, it’s our dedication to working closely with participants that drives my passion for the industry.

Without a high level of engagement between advisors and participants, even well designed retirement plans can fall short of their objectives. Should you have any questions on your retirement plan, please reach out. Marcel Plumto at [00:24:00] CapTrust. com.

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Kelly Brothers:  Kelly Brothers back again, bite size finance every Sunday, three o’clock on KFBK or wherever you find your podcast. And if you ever want to get ahold of me, drop me an email at by sci fi podcast at gmail. com. B I S I F I. Where we love to talk to people who have built businesses about their successes, about the failures that led them to even higher heights.

And we are talking today with Ethan Conrad, who came [00:25:00] to Sac State back in the late 80s and has now built a 10 million square foot property juggernaut in the Sacramento area. So Ethan, when we left off, you were one, two, you’re still working for Bishop Hawk. Well, you were starting to buy your own company. So this is 95 96, correct?

Ethan Conrad: Yep. So as I was saying, I’m like, this is, I had fun with brokerage brokerage is fun, but I had a lot more fun, sort of exponentially more fun on buying deals as a principle, right? Because it was, uh, so much more the financial reward, but just the creativity and basically I was getting rewarded for my creativity or, you know, figuring out smart ways to do things.

Right. And, and so, so I bought the first year, which is 95, I bought. You know, two properties. And then I think the next year I ended up buying one. And the next year I bought another one or two. And so I think I forget what year Bishop Hawk was sold to Grubb&Ellis, but [00:26:00] it was probably like 2000 or something like that, like five years later.

And so when Bishop Hawk was sold, Grub & Ellis came in as a corporate. The big corporation said, Hey Ethan, we like you and want you to stay here, but we can’t give you these, you know, all this stuff you’re doing on the side. You know, you need to pay commissions on that. And I said, well, okay, I think it’s time for me to go.

That was the sort of motivation for more of a transition. And at that point in time, I was probably spending like maybe, Oh, I don’t know. Maybe. 60, 70, probably 70 percent of my time on brokerage and like 30 or 40 percent on acting as a principal. So then I transitioned to then sort of leasing space in another brokerage for, you know, there was a smaller one where I could kind of like, you know, kind of run my own show a little bit more.

And then I went on my own after about two years after that. So basically, ultimately, you know, went off and actually, I think we started, I think I had, like, it was like a, [00:27:00] whatever, it was like a four person office in West Sacramento and a building I own there. And at that time was probably maybe 10 or 15 buildings or something like that, and then kept going from there as far as just really solely being a principal in growing the company to, you know, ultimately what it is today.

Kelly Brothers: 200 people, work with you. Are you the sole owner of the company, Ethan? I’m Yes. Okay. So you’re the sole owner of this huge company now with 1. 6 billion in property values, right? You know, you mentioned I, you told me, uh, off air, you’re doing about 700 deals a year. I mean, think about that. That’s, that’s crazy.

That’s, that’s two deals a day, every day. Um, tell me a little bit about, I think a lot of us can understand when you see a real value and you go in and you get it for under what you believe the potential value that property is. Tell me about your sell discipline. How do you decide when is the right time?[00:28:00]

To sell one of your babies, you know, you got on something, you put a bunch of money and work into it. And now someone is coming along and wants to buy it. Tell me about the sell discipline that your company employs.

Ethan Conrad: So that’s a good question. Yeah. So we mainly sell to is owner users. So we mainly sell, we have a building that’s vacant or more than 50 percent vacant.

Our normal protocol is to put it on the market for sale, right? Because an owner user, someone is going to occupy all or Typically it’s 50 percent of the space, their valuation of the building in general would be more than a valuation of an investor such as myself, who’s looking for revenue, um, that rent.

Right. So I look at most, you know, owner user sales as being a win win, right? I’m. I’m selling something to them that they want. They want vacant space in a building to the occupy their, for their company occupying. And I’m in essence, reducing my [00:29:00] vacancy rate by selling a property that’s vacant or has significant vacancy in it.

Right. So I like those deals. So we probably do, I don’t know, um, maybe on the average of like five to six, seven, it’s probably maybe it’s like, it’s probably. Six or seven, eight owner user sales per year on properties. And then we sell land, same, same basic principle. We’re not that big in the land, but sell some land, same basic principle of selling it to somebody who is going to build on it and utilize it.

And it being a win, win them being a better owner than me or desiring it more than me. But to answer your question, though, I think that the way to look at the intelligent way to look at any, whether you. Selling something or not is what would I pay for it? Right? So if I get an offer on something that’s not marketed for sale and somebody is offering me whatever a million dollars and I look at it and go, what would I pay for that?

Right. Would I pay 800, [00:30:00] 000? Well, Okay. If I pay 800, 000 and this guy’s offering me a million and I think, whatever, that’s, that’s what it’s worth to them. I’m, it makes logical sense to sell it. Why would I, why would I hold on to it? Cause in essence, if I hold on to it, I’m in essence paying a million dollars for something that I’m only valuing at 800 and I wouldn’t do that.

Right. Right, right. So I think it’s a pretty simple logic, though. I think most people, I am amazed, though, how many people don’t apply that logic and they should, right, is what would I, what’s it worth to me? Not

Kelly Brothers: growing emotionally attached to, uh, the pieces of the buildings or the property. Tell me about, geography.

I mean, obviously you, you’re, most, I assume, are you all in Northern California or do you own, have you branched out to any

Ethan Conrad: other states? So that’s a, that’s a good question. So one of the things I learned about when I was a [00:31:00] broker, and I would tell any, anyone that’s going to be a principal, that’s going to be a landlord, that’s going to own properties.

If they have a brokerage background and they learn from all those deals, they saw that’s a, that is, it’s like going to grad school, but way better. Right. So one of the things I think, one of the reasons why I am successful is I learned as a broker, I saw people make a bunch of money and I saw people lose a bunch of money.

Right. And I saw people do smart things and do dumb things. Right. And you learn, right. And that’s like. I mean, that experience, like even if I was doing brokerage for free, that the value of that knowledge is huge. So, the way that correlates to your question really is that what I learned as a broker is that people’s success with, with commercial real estate and residential too, but, but in particular commercial is them.

Really understanding where they own [00:32:00] properties, right? Either it’s where they live or where they own a bunch of other properties, and they’re not just buying properties all over the place that they don’t have any knowledge of those areas. And that’s what probably one of the biggest mistakes I think. Uh, investors make is they’ll see something in whatever, some other state, especially other than California, where it looks cheap when the price per square foot might be cheap, the cap rate may be higher than what they can get here. And they go, Oh, this is a great deal. Well, is it a great deal? You don’t know

Kelly Brothers: the marketplace. You

Ethan Conrad: don’t know the marketplace, right? You don’t know, you don’t know all the baseline information you don’t have. So you, you don’t have enough knowledge to know whether it’s a good deal or not. Right. So as a broker, I saw that like the, the probability of somebody’s success with commercial real estate infinitely higher, if it was where they owned, if they owned a bunch of other properties in the area and where they lived in the area, but out of town owners, much higher odds [00:33:00] of failure.

So I applied that to basically to my business. And so everything I own is in the like 90, let’s say 85, 90 percent of it is in the four County, Sacramento, four County area. And the rest of it is in the central Valley, North and South of Sacramento, up to about a two hour drive. So going up to like Reading, going down to like Los Banos, Fresno.

Kelly Brothers: No, you’re making a great point though about, you know, the value of working in brokerage like you did is just seeing the mistakes, seeing the C, seeing the successes and the failures, and then learning from them and applying them to your own business. That’s great, Ethan. So listen, when we come back, I want to ask Ethan, we have one section left and I want to ask Ethan about, you know, what he sees.

10 years out what he sees in the world of retail with, you know, delivery to your front door, still exploding what he sees in, in office with, you know, San Francisco and San Jose bucking up on 40 percent [00:34:00] vacancy rates. What does he see out there in the future? The view from Ethan Conrad’s perch when we come back on by sci fi right after this.

Hello, this is Will Gabry and I am an advisor with cap trust here in the Sacramento area. I’m a busy father of four, and life comes at us fast. As my 20th year of advising clients begin, I want to take a moment and reflect on why I’m thankful to have chosen this profession. Quite simply, I get to help people.I work with clients on wealth management, income, and taxes, to name a few. But even more importantly, I get to be part of great relationships. People often interact with an advisor during life events, and I’ve been with clients through difficulties and joyous times. Conversations, connections, and trust built mean more to me than anything else. Working at a nationwide firm like CapTrust gives me a team of professionals to assist in all aspects of financial advising. Being part of our local office means great care and service to our clients. If you would like to start a discussion and see how we can partner with you, you can [00:35:00] find me at CapTrust.com. Look for Will Gabri, G A B R I.

Kelly Brothers: Back again on bi si fi bite sized finance every Sunday, three o’clock KFBK, wherever you get your podcast today, our guest is Ethan Conrad and Ethan can’t thank you enough for, for taking the time. I want to know what you see what’s going on in the world today. I mean, you’re right.

It may be the problems with retail or overstated, but the way people shop. is changing right in front of our eyes because of the way they can shop on their phone. Or I’m still shocked when I order something on my phone at three in the afternoon, it’s on my doorstep at seven 30. I mean, that’s still just kind of blows me away and office.

We know that a lot of big cities have not come back post COVID. to the office, which to me is a huge negative for downtown’s. It’s a huge negative for young workers who rely on rubbing elbows with people to work their way up the chain. And you know, you got San Francisco and San Jose with vacancy rates between 35 and 40%.

So [00:36:00] either give me your view. Look out 10 years. Look out to 2035. What? What is your world look like? And therefore our world in terms of How real estate is used or where the big transition is going to happen. What do you think?

Ethan Conrad: So, , you brought up office. So office is probably, I would say it’s, it’s the highest risk, highest upside, potential upside of the product types, you know, between retail office and industrial.

So, you know, I’ve actually bought a fair amount of, I think, well, you originally contacted me because I bought, you know, whatever, three office buildings, whatever, about a month ago, totaling about 250, 000 square feet. And, and, you know, People were like, why’d you buy those? What are you doing? What are you thinking?

So this is a bet. This is an educated bet, right? I might lose on this better of this bet. My, I don’t know exactly how this bet’s going to turn out. Right. But [00:37:00] my, my analysis. Could be wrong. And I don’t know the exact timing. I don’t have that nailed down. And no one knows really is that I think that office in Sacramento in time is going to come back.

It’s going to because of it being a suburban area and being a reasonably desirable higher growth area. And the bottom line is that, you know, People have different opinions, but from what everything I’ve seen overwhelmingly is that people, most people, not all people, most people work, they’re much more productive if they work in an office environment than they work from home.

There’s exceptions to everything. Okay. I’m not saying that’s everybody. People get seemingly offended at that, you know, that statistic, but, but most of the time, I mean, when most people, they are more productive if they’re in the office, myself included. I mean, I’m pretty self motivated, disciplined guy, but guess what?

Who doesn’t get a better workout when they go to the gym? [00:38:00] They’re working out their home gym or their gym in their apartment complex or whatever. Everyone gets a better workout at the gym. Why? Well, because they go into a mindset when they go to the gym of they’re there to work out, right? And there’s more machines and there’s all this stuff, right?

The same as 100 percent applies. Two people working in office space when they go into the office myself, I put, I turn on the light switch and I’m like, I’m here to work mode, right? I’m not here to, you know, do other things and I’m going to stay focused on work. And most people are like that. Right. So, and here’s something else that’s interesting. So I was listening to a guy on a podcast the other day, and he was talking about the fact that globally, most everyone has returned to their offices globally. And the global office vacancy rate is actually quite low, like 5 percent or something like that. So the rest of the world is going back to their offices, right? It’s just us lazy Americans that are like, Oh, well, you know, I want this or [00:39:00] that or whatever. Then they’re, they’re sitting at home still, or their employers are afraid to tell them to come back to work. So. Is that the United States going to catch up with that? Yeah, I think we’re just slow. I think we’re just like, you know, we’ve gotten fat and lazy, right?So we’re slow.

Kelly Brothers: Yeah, I mean, yeah, people don’t want to get out of their Lulu lemons or their Uggs and, and actually, you know, do what it takes to come back downtown. But it’s killing our downtowns as well, as you know. But Ethan, but I imagine that offices that you just bought. I mean, I can only imagine the discount you got. I mean, the replacement cost on what you bought has got to be what three to four times what you paid for it. Is that right?

Ethan Conrad: At least. Yeah. I mean, I’ll give you one example. So I bought a beautiful classy office building in gold river about 150, 000 square feet. Beautiful. I mean, like really, really nice. It was, it was, uh, occupied by health net or when these, I think it was health net, but super nice. I mean, very, very nice. It’s got a gym in there. It’s got a full kitchen, [00:40:00] et cetera. Beautiful. The replacement cost today would probably be about. At least, at least 350 a square foot and I bought it for 57 a square foot and it’s nice. I mean, that’s like, you know, and there’s not like there’s something antiquated or something needs to be changed on it or something that’s wrong with it. It’s just a big vacant box and it might sit there for a while, you know what I mean? And so, you know, it’s not like it’s, uh, how would I make it sound? This is an educated. Risk, right? I mean, I this may not it might sit there for six years, you know, but I I’m betting

Kelly Brothers: You’re betting it won’t I mean the state of california has to come back to the office Well, I mean, we’ll see if that ever happens but I mean that’s a big deal in sacramento because As the state goes so go other government agencies and not to mention the private sector, you know, I we can’t end this Ethan without talking about the benefit that you bring to our community.

And I mean that because I have seen your properties and I’ve [00:41:00] seen some of the, the dilapidation that you have purchased and then rehabilitated and changed and made usable again. And I want to touch on that because I know you take a little pride in the benefit that you bring to the community, don’t you?

Ethan Conrad: Yeah, so I’d say I’m definitely like a pride of ownership owner in general, like I, I like it when our properties are looking good. I have good tenants in them. I enjoy that. And I also enjoy, I’d say taking properties that have been neglected. And have higher vacancy or have tenants in them. They’re not the greatest tenants and replacing them with great tenants and having the properties look beautiful. I mean, literally I’ve gotten thousands of thank you emails and texts and phone calls and stuff, you know, primarily, most notably from retail properties, because people shop there and they go there, right. And if they’ve got a dead Kmart or Sears or whatever, and we replace it with a good tenant. That [00:42:00] is something that’s a benefit to the community. People appreciate that. I mean, , they appreciate that and they like that and it makes them proud of where they live. And it’s, it’s great. I mean, I’d say, and I’d say politicians too, people in the, in the, in the, in the government, the planning department, billing department, they were hopefully most of them recognize that as well. And we tell them, we have to remind them from time to time, like, Hey, work with us a little, or we’re doing something that’s a benefit to the community. And that’s enjoyable.

Kelly Brothers: It is. Some politicians just look at you as a greedy capitalist, I’m sure, but others understand, no, he’s buying something that’s beat up and he’s going to make it better. And that’s so good for all of us. So, and we need more of that because some of our neighborhoods do begin to look tired and without a capitalist coming in and putting money into it, hopefully for a return down the road. These places

Ethan Conrad: never looked that. Yes. And I would say one of the things about us getting bigger is that it’s helped in terms of having, you know, government, [00:43:00] government, people see the big picture, right. And seeing that we are doing a benefit for the community, because it’s true. And, and people who doesn’t want to benefit a community, it’s a good thing, right. And it actually, and it feels, and it’s interesting. I’ve kind of analyzed this and I think, you know, is it feels like that’s the best thing I could do to give right into especially here in Sacramento that benefits people here and if I got people, a lot of people thanking me for it, that feels good.

I mean, that that feels good. It’s kind of like the icing on the cake.

Kelly Brothers: It’s your contribution and you’re right. It’s different if Ethan Conrad, who lives here. Is doing this as opposed to some absentee, nameless, faceless L. A. corporation owning that building who really don’t care if it improves or not, you know? Right. They’re just looking for a return. Ethan, we got one minute left. Where does this all go? You know, 10 years out, Ethan Conrad properties are, where does this go? [00:44:00] What, what, what are you aiming for?

Ethan Conrad: You know what? That’s, I mean, that’s a good question. And I don’t know that I have a perfect answer for it, but I will say this.I enjoy this game. This is a fun game. It’s fun. It’s fun to see potential in properties. It’s fun to maximize the potential. It’s fun to make money. It’s fun to give back to the community. It’s fun. It’s fun to give tenants lots of good deals. So we do 700 deals a year because we’re giving tenants good deals.Like we honestly, my business model is to be lower than fair market value rent, not a giant amount, but enough to where it’s a competitive advantage, right? And doing deals. So why would I want to stop that? I mean, I don’t, you know, I want to keep going. It’s, it’s fun. Yeah. You’re

Kelly Brothers: not, you’d have more fun doing deals than sitting on a beach somewhere.

I’m sure you’re just wired. Yeah. Ethan Conrad. Great to have you in town. Great to have you on bi si fi. Great to hear your voice, your vision. And thank you so much for taking the time. My pleasure. Take care.

Ethan [00:45:00] Conrad, Ethan Conrad properties As we had mentioned 10 million square feet in property ownership in northern California And just great to hear his perspective because these are not just developers not just property owners.

These are people who are taking Something that needs improvement and improving it and our communities need that as well if you got any comments questions ideas suggestions Buy sci fi podcast at gmail. com and we’ll talk to you next week, three o’clock on Sundays or wherever you find your favorite podcasts.

Thanks for listening to bi si fi, bite sized finance. If you liked what we served up today, please give us your rating, subscribe and by all means share music for the show produced locally by Kitty O’Neill and her band Skyler’s.

Ethan Conrad: Under the Investment Advisors Act of 1940, this podcast is defined as an advertisement and includes an uncompensated testimonial by a [00:46:00] CAP Trust client. Please be advised that clients experiences as described in this podcast do not necessarily represent the experience of other clients. The discussions and opinions expressed in this podcast are those of the speaker and are subject to change without notice.

This podcast is intended to be informational only. Nothing in this podcast constitutes a solicitation. Investment advice or recommendation to invest in any securities. Cap Trust Financial Advisors is an investment advisor registered under the Investment Advisors Act of 1940. Cap Trust does not render legal advice.

Kelly Brothers: Thanks again for listening to Bite Sized Finance. I’m Kelly Brothers of CapTrust, and I get the question a lot. How do you pick an advisor that is right for you? I always suggest, interview a few people. Go talk to a few people. The truth is, most people will spend more time planning their next weekend getaway than they will actually finding the advisor that is right for them.

Their family, the next generation, an advisor that [00:47:00] may serve you for decades or a generation or more. It’s an important decision. Sit down and talk to people. See if you feel comfortable talking to people. After all, this is all about the conversation, mitigating risks, and preparing for the future. CAP Trust.

Here in Sacramento, Roseville, and Folsom.