The following is an edited transcript of my interview with Adam Ifshin, Founder and CEO of DLC Management, a multi-billion dollar retail real estate developer and management company.
My name is Howard Kline. I'm the founder and host of CRE Radio and TV since 2010. I've also been a commercial real estate attorney since 1976 and a commercial real estate agent in New York and Nevada, as well as being a broker in California.
For today's podcast, I've dipped into the archives for my 2018 interview with Adam Ifshin at the ICSC 2018 RECON Convention. Honestly, after listening to this interview, I feel like hitting myself on the side of the head. This was such a good interview, I have to question my competency in waiting so long to publish it. This was really a personal interview between two men who already like and respect each other. We mix the personal with business, including how to incorporate family into business, creating a culture from the top down. For that, I want you to think of the book from Good to Great, what retail real estate will look like in 2038 and what the current trends are between now and 2038. The topics on this interview are as relevant now as they were in 2018.
Howard F Kline [00:01:29] Let me also take this opportunity to tell you a little bit about Adam, because he is not only personable and smart, but he has the experience and credibility of a person that we should listen to. Adam is the founder and CEO of DLC Management, which he founded in 1991. DLC is a billion-dollar company that he founded, that operates retail real estate and is one of the most active acquirers of assets with value added potential. Adam is also a member of the Board of Trustees of the International Council of Shopping Centers and a member of the Executive Board of ICSC, among his many other positions, if you want to know more about Adam. You can go to his website at dlcmgmt.com.
Adam Ifshin [00:04:06] When I started DLC, I was the youngest person at DLC. I was 24 1/2. There were only three of us. I was the only person under 50. And for the longest time, I was very often the youngest person until Daniel, my cousin came in 96. Daniel is now our president. At this convention, I actually sent everybody, who came out here, a two page note about what it was like to come here in 1992 when I was completely broke and spent the last of the money I had in my bank account on airfare.
Howard F Kline [00:04:47] Let's talk a little bit about that, because people don't understand that everybody starts somewhere. I moved back to New York in 83'. Before I moved back I had been general counsel for Big Supermarkets in San Diego. After moving back, I was unemployed for six months and then I tried to become a broker. It takes a while in New York City to make money. It just doesn't happen overnight. I can remember times, when I lived in Astoria when I would take my change from my change draw to get enough money to take the subway to get to work. I worked in the Helmsley building in Manhattan. There was no doubt that it was a struggle.
Adam Ifshin [00:05:33] I grew up in a brokerage family. My father went in the real estate business as a commercial real estate broker. You always knew exactly where you stood. You knew more about your father's bank account when you were eight years old than any dad who did anything else, because it was directly a ratio of what your mother could put on for food on the table.
Adam Ifshin [00:06:18] My father was my partner in DLC from the time we founded the company together from scratch to when he passed away in 2016. I spent the first 10 years at DLC trying to make something from nothing and at the same time trying to put some little governor of risk on my father, which took a long time to have any modicum of success. I was much more successful in business than I was putting a governor on risk on him.
Adam Ifshin [00:07:13] So many people think about that real estate ownership, redevelopment and development requires taking great risks. That's how you make the money. I'm a huge believer, actually, that a lot of our success has to do with our ability to mitigate risk, not take it. A huge component of what we do is consider the risk associated with the deal and if the probability of getting success really worth it?
Adam Ifshin [00:07:44] We went back in the development business in 2011 doing single tenant net leased development. When we did, we put up a whole bunch of rules and guardrails that were self-imposed. We passed on a lot of deals because of those rules. But we said, hey, look, we are just not going to buy on entitled land no matter how cheap it is, no matter how badly the client says they want to be there. We passed on some deals that other people may have made a lot of money. But you know what? We made good money for the level of risk we were comfortable about taking. I think that's one of the myriad of things in this world that people don't really know and understand. I don't sleep much to begin with, but the only chance you have to sleep at night is to figure out where your own personal risk tolerance is.
Howard F Kline [00:08:28] Sam Zell, I remember seeing him talking to us during the recession, some time. I can remember him saying, something to the affect that if you're going to invest, you invest enough to know and in such a way so that when things go to hell in a handbasket, you're still around.
Adam Ifshin [00:08:49] The way I like to phrase it is, conviction does not necessarily equal, taking acceptable risk. You can have conviction about an investment and still do everything you can possibly do to mitigate the risk associated, that conviction or confidence naturally brings forth. You have to step back.
Adam Ifshin [00:09:12] Now, at this point in time in this organization, it's as much about teaching how to do that as it is doing it yourself. We have a lot of young people in the company and I teach frequently. And one of the things I teach to our leasing people our asset management people, often is that we're an unsecured creditor to retailers. That means that it's great to think like a developer and act like a developer, but what you really need to do is to think like an owner and act like an owner and most of all, you need to think like a lender, you need to act like a lender. Just because someone's got some great new sexy concept doesn't mean that you need to do it.
Adam Ifshin [00:09:53] We considered one last week in Buffalo, of all places. Phenomenal concept, one step up from fast casual. It was healthy, had dynamite products. But, the store cost a fortune to build. We questioned if we wanted to have them as a tenant. We considered if it is a corporate concept, is there any credit, who's backing the concept? Turns out it's a franchise concept? It's a $250, $300 hour of foot spend. We really had to think about it. This was different than doing a corporate deal for Chipotle, which may not be as sexy and maybe a little cheaper to do, but at least there's some corporate credit there to back you up.
Howard F Kline [00:11:15] That's how I learned. Let's take a short break to tell you a little bit more about Howard Kline. I'd like you to consider this shameless promotion. You know, among other things, I've been criticized for not doing and ask. What is an ask? Well, what that means is that I don't tell people what I'm trying to get out of these interviews. Here is my ask.
Howard F Kline [00:11:42] I'm a Nevada, real estate agent looking to put together commercial real estate deals, including institutional sales and leases. In addition, as of this publication in January of 2020, I've been doing a deep dive into opportunity zones and looking to educate and advise investors with capital gains, as well as developers and owners with assets located within opportunity zones. As an attorney, I have many years of experience advising businesses how to maximize their assets and revenue as well as mitigate risks. I've also negotiated probably upwards of a thousand commercial real estate leases for both landlords and tenants. So if you're interested, you can hire me as a broker or you can hire me as an attorney. For more information, you can contact me at hfk@hfkesq.com.
Howard F Kline [00:13:12] What's it like having your daughter work for you?
[00:13:19] It creates a whole another dynamic that you have to learn to manage.
Adam Ifshin [00:17:19] There are similarities between running a business and raising children, particularly a business like this where we're so committed to developing young talent in the industry. My kids were all out here before the show. They went and did all the networking events that I do as an ICSC trustee and executive board member. And they pride themselves on having met people, knowing people, even if they're never going to be in the industry, can you ever spend enough time helping your kids be better people? You can't. One of the things that's kind of cool now about where we're at a DLC is we have a dozen to 15 people under the age of 25 in the organization who are not only hard working and already making an impact, but they come in and they want to learn. And one of things that does is that really creates a great culture and it really motivates the more senior people. It also activates the senior people's brains a little bit. Hey, you know, I'm pretty good at this. I have a story to tell. I have wisdom to impart. And it's really working. It's making everybody feel good and it's making everybody do good things.
Howard F Kline [00:18:43] That's not all by luck. You realize that, that all happens because of the leadership.
Howard F Kline [00:18:57] But I've been around long enough to know that when it starts at the top and you have a good team working, it's hard to keep it that way.
Howard F Kline [00:19:07] But you attract people who think the way you want them to think. The tough part, in my opinion, is keeping them and keeping them motivated.
Adam Ifshin [00:19:19] So it's certainly not just me, right? There's a group of us that run this company. Am I the founder and CEO? Make no mistake about it, the top echelon of the organization, the leaders of the team, are incredibly good at what they do. They share, I think, the motivation and the passion I have for teaching.
Howard F Kline [00:19:50] Did you bring them in?
Adam Ifshin [00:19:50] Many of them certainly I recruited personally. But many of them have subsequently recruited other leaders in the organization. This is about a team. This is an organization. It's about a team. It's not just about me.
Howard F Kline [00:20:13] That's what you convey to everybody. It's not just about Adam.
Adam Ifshin [00:20:21] Right.
Howard F Kline [00:20:21] So they come in. They like working in the organization. They understand that. So when they recruit people, they understand that it's not about them. And they convey that to the people who work for them. I've been general counsel for companies of 2,000 - 3,000 employees.
Howard F Kline [00:20:40] I think of it, you know, like an electric line. We had great organizers at the top. And then as you expand throughout the country, well, then you have to have the second tier and then you have the third tier. That dynamic personality, that energy starts dissipating, if it's not fostered correctly and it starts at the top. And what you have to do is you've got to start here and know how to recruit, know how to foster confidence and the ability to do your job correctly and then teach those people how to do it, who then teach other people. Then all of a sudden you find, while you may have an aberration down the line, but you find that there's a purpose throughout the organization.
Adam Ifshin [00:21:38] Well, sure. There's a culture that emerges and you can foster for a culture, you can preach for a culture. You can live by those rules. And if you don't, generally won't work. But at the end of the day, it's interesting that culture is ultimately determined by the team. You can't impose it on anybody.
Adam Ifshin [00:22:04] One of things we did in the last year that I'm most proud, the most important thing we did last year, the biggest success we had last year was, we went out for the first time ever and anonymously did the Great Place to Work survey. This is the survey that is the underpinning of the backbone of the Fortune 100 best places to work in all of those types of ratings and rankings. We didn't do it to try and be on them and we never even thought that we would get certified as a great place to work. So roughly one and a half to two percent of the 30,000 companies a year that take the survey get certified as a great place to work based on the anonymous responses of the people on those teams at those companies.
Adam Ifshin [00:22:54] We did it because we wanted the impact and the data and the feedback so that we could figure out how to get better right at bringing people into the organization and to your point, getting them to stay, recruitment and retention. Lo and behold, when the survey results came back, we qualified and we got certified as a great place to work. That to me was the biggest accomplishment of the last twelve months, by far. The assets will come and go, we will buy more assets, we will sell some assets, we'll cull the herd, whatever you want to call it, we will harvest profits, but the thing that makes us go, the engine that makes us go is the strength of the culture and the talent and the skill set of that human capital team.
Howard F Kline [00:23:36] Let's look at your crystal ball. You go to sleep tonight and you wake up 20 years from now. What's retail real estate going to look like?
Adam Ifshin [00:23:51] Retail real estate is going to be here. It's not going away. Will it look the way it looks today? Do I know exactly what to look like? And if I did, I wouldn't have to do this. I might have to be out, you know, displacing Mark Zuckerberg and Jeff Bezos. I don't know exactly what it's going to look like. Clearly, it's trending to more about the person as a lifecycle than it is a consumer of goods.
Howard F Kline [00:24:26] Explain that to me.
Adam Ifshin [00:24:27] For years, retailers looked at consumers, people as consumers, people who were going to come into their stores, buy things they wanted or needed and consume them and come back for more. Increasingly, people are going to retail destinations. They don't have to go anymore for those things. If you're a recluse, you can figure out how to get your food. You can figure out how to get new clothes. You can figure out how to get toilet paper and toothpaste. But increasingly, it's about people's lives. It's about their social interactions. It's about their experiences. I had this conversation with Bill Horner at LA Fitness that we’ve built 7 stores for.
Adam Ifshin [00:25:18] When we started doing them, every retailer said, I don't want a gym. They call them a gym. I don't want a gym next to me. I was a meeting today with my forward-thinking friends at Burlington. We love gyms. We'd love a gym next to us. In the last 15 years, this is really amazing turnaround. It's about experience. It's about lifestyle. People are going to gyms for a myriad of reasons. Want to live longer. They want the quality of life where they're alive to be better. They want to be more mobile, they want to be more flexible, they want to look better. But they're also going there for social interaction. And people are waking up to the fact that a retail venue does not only have to be about the T-shirt and the skirt and the toothbrush and the toothpaste and the toilet paper. It can be about eating, it can be about being with friends, it can be about working out. It can be about going to see your doctor.
Adam Ifshin [00:26:16] We've done four now and we're working on more, not urgent care or dental clinic, I'm talking about a full blown mini hospital in a shopping center. The one of the ones we did, we put a 30,000 square foot facility with ambulatory surgery, radiology, orthopedics, OBGYN, pediatrics and EMT next to the number one home goods in the state of Connecticut.
Adam Ifshin [00:26:59] You know, it's interesting that there's there's plenty of demand for those boxes. Getting the numbers to work in a market, in an environment where retailers are incredibly cost conscious about rent and occupancy cost and where construction costs have really leapt up, is a challenge. But, when I look at who's interested in coming in and taking over vacant space lot of stuff related to health and wellness, lots related to fitness, a lot related to home.
Adam Ifshin [00:27:37] It's interesting for all of the renting, home product is hot. I mean, we're doing a ton of deals with people like home goods, At Home, Kirkland's, and furniture. We just did two more deals with Ashley. We did a deal with Lazy Boy last year. Home is hot and it was hot last year.
Howard F Kline [00:28:06] You should be in Vegas. I haven't seen this kind of homebuilding in many, many years.
Adam Ifshin [00:28:11] I will tell you that when you talk to locals here, they're worried there isn't enough.
Howard F Kline [00:28:20] There are so many people like my wife and I who moved from Southern California to Vegas and we're renting right now. My wife is telling me that as soon as possible, let's find a place to buy even if we rent it out, because if we wait two years, it's going to be too expensive. This is the time to buy. And they are building like crazy, but they're building like crazy because everybody's moving here. That's one of the things that I'm going to be doing is I'm getting my broker's license and I am going to use this platform to bring people to Las Vegas for other than the strip. Other than gaming, you know, the infrastructure that will help Las Vegas when the next downturn occurs, because it will.
Adam Ifshin [00:29:06] Millions of people live here who have nothing to do with the strip already.
Howard F Kline [00:29:10] Well, that's true. That's very true.
Howard F Kline [00:29:12] But the strip feeds the engine. Yeah. It's the engine right now. And what they need to do is develop more of the other infrastructure so that when you hit a recession because Vegas got hit, awful bad, it got hit awful bad during the recession. But if you have all of these are the businesses that could take care of everybody. So if gaming drops a bit, it's not going to hurt as bad.
Adam Ifshin [00:29:40] So you talk about homebuilding here. We bought this this big million square foot asset now in Texas last year for value-add play. There has been a lot of leasing demand. We are getting a Toys R US Babies box back. Tons of demand. We have over 150 thousand feet of LOIs. We don't even have the box back yet. It's around the corner from the Allen Eagles football stadium of Friday Nights Lights fame.
Adam Ifshin [00:30:10] The home building and the upscale multi-family construction that is going on in that part of the world. Plano. Frisco. Allen, McKinney, Texas. Very powerful. What's amazing is how much of it is pre-sold. You know, people are building 3,000, 4,000 units a year, single family and there's no increase in supply. So essentially pre-sold.
Howard F Kline [00:30:36] People are moving out of California. They're moving out of New York. They're moving out of the Democratic states because it's so expensive to live.
Adam Ifshin [00:30:48] Oh, I think I think, by the way, that it's only a matter of time before Texas is a blue state, not a red state.
Howard F Kline [00:30:58] The demographics are changing all over the place because people can move around.
Adam Ifshin [00:31:04] Well, they have a motivation to move, right? You know, eight miles from this center that we bought in in Allen, in the last year, Toyota has opened up their North American headquarters there to relocate from Fremont, California. They move twelve and a half thousand people with an average salary of over one hundred thousand dollars. Liberty Mutual. That's moving the same kind of number of people, 10,000 - 12,000 people. They're moving next door to Toyota. And State Farm's going next to them. NTT DoCoMo is North American headquarters going next to them.
Adam Ifshin [00:31:43] The people who are moving are people who were largely from California, little bit in New York, Illinois, people are moving because the math doesn't work in those other places anymore. That's a big challenge in those places.
Howard F Kline [00:32:01] What keeps you awake at night?
Adam Ifshin [00:32:14] I don't understand why lenders continue to lend into private equity backed, LBO backed, retailers who are starved for capital because of the leverage levels putting them in the position that they can't improve their stores. Look, there's no question that there is a significant level of disruption in our world because of Amazon and a million other technology related developments. But when I look at most of the distress that we've encountered from retailer bankruptcies, they're largely not driven by e-commerce. They are largely driven by you have a relatively commoditization chain, nothing really to differentiate it, perhaps the management is part of that, that company gets LBO'd.
Adam Ifshin [00:33:18] And now every last bit of free cash flow, instead of going into reinventing your supply chain, leaning out your inventories, refreshing the stores, creating a compelling reason for customers to come in and shop, the money is all going to pay debt. And then a year later, they're doing another debt piece that's for the purpose of growing the business, it's to take a special dividend so they can take out more equity. I don't understand why the lenders are still so compliant, so complicit, so willing to extend leverage to entities in the face of what the track record is.
Adam Ifshin [00:33:57] What keeps me up at night is you go out, you make a deal with a great retailer. They've got a nice balance sheet and six months later they get LBO'd and all of a sudden you're thinking, why did I buy into here? Like I said before, we view ourselves as an unsecured creditor at a bankruptcy table, but we view ourselves as an unsecured lender when we put out a large TI package to a tenant. We have absolutely zero control over what their balance sheet could look fine on Tuesday and they can get a buyout offer on Friday.
Howard F Kline [00:34:27] OK, let me just stop you there. Now, you remember you're talking to a lawyer who's been a tenant, who's also been a landlord and the whole nine yards. I could go on and on why that doesn't have to be what you're talking about.
Adam Ifshin [00:34:46] But it is.
Howard F Kline [00:34:47] It is.
Howard F Kline [00:34:49] I can remember in 1986 negotiating a deal. It took me six months to negotiate 40,000 square feet in Houston with Citibank. We had a letter of credit, actually there were multiple declining letters of credit. They made it very difficult and we were the biggest deal in Houston that year. I can also tell you that when it comes to getting a security interest and I know every landlord tells you that they'll never give it to you, but there's no reason why you can't take a security interest in a lease. You can do that. But I've never seen a landlord say, oh, yeah, let's do it. Great idea, Howard, because I always hear, well, they have to finance their tenant improvements. Well, if you're doing the tenant improvements, you'd better secure it. And there's no reason why you can't secure file a security interests in all of their assets. I think that that should be part of the deal.
Adam Ifshin [00:35:49] Right. But if they're leveraged in front of you, secured in front of you, what are you going to do?
Howard F Kline [00:35:55] I'm telling you that you worry about whether or not you're first or second in line when they're in bankruptcy, you're at least a secured creditor.
Adam Ifshin [00:36:07] Fair point.
Howard F Kline [00:36:07] I get good judgments. I represent some large companies and I get judgments. And then I don't execute on that judgment for a minimum of 90 days after I file my UCC liens so that I don't force them into bankruptcy, whether they have assets or not. I don't care. File that UCC lien. I wait 90 days and then I perfect my security interest so that if they do file bankruptcy, of course I'm looking to see how much they lie on there, you know, on their schedules.
Howard F Kline [00:36:44] But if they file bankruptcy, I'm in a secured position. I don't even care that point in time, whether or not I'm first in line there, second, if I don't secure it, then I'm not even in line. So at least let me get in line. What's the best time to get in line?
Adam Ifshin [00:37:01] In the beginning.
Howard F Kline [00:37:02] Right now? Certainly, don't wait till tomorrow.
Adam Ifshin [00:37:05] You always have a great closer.
Howard F Kline [00:37:10] Data. Talk to me about data. Over the last two days I've spoken to people about how big data is right now. Then some people are going, but there's a scary part to data. What are your thoughts on data, where it is now and where is it going?
Adam Ifshin [00:37:30] So data is a big deal. Our team at DLC spent the last nine months working on putting a product in place that enables us to more easily, more seamlessly extract data from our various databases, particularly our primary, commercial management, property management, accounting software package in a manner in which you don't have to be an accountant to get it out and then manipulate it. You don't have to be some Excel wizard to get it out. We want easier to access the data. It makes it easier to use, analyze the data and then use those analytics to your advantage to do everything from make better deals speed the lease process, come to better resolution in disputes. We're a big believer in harnessing and but it's about transparency and access.
Adam Ifshin [00:38:25] I happen to be and we're not using the product yet, but I happen to be an investor outside of DLC as a private person in a venture startup that's got a really dynamic CEO. This is his fifth startup, all of which have been highly successful. It's an entity called “data.world”. This is a major, very big concept idea about unlocking access to data legally, in old legacy systems where they're buried, where it's hard to get it out. Our launch customers are people like Associated Press and Gannett and the Census Bureau.
Adam Ifshin [00:39:14] There are large scale projects out there now designed to address the opaqueness and the difficulty in accessing data for the purposes of good and being in a way in which we can do things from reframe and rethink what efficiency means because and what productivity means. If you look at the single biggest drag on growth in America, it's that the productivity gains that we saw in the 90's from the application of the personal computer, in the laptop computer and the software systems that grew up on those platforms has peaked and it's plateaued and it's led to very mediocre productivity growth over the last decade, almost 15 years now.
Adam Ifshin [00:40:02] We have to get back to productivity increases in this country if we want to see real GDP growth at a rate that's materially higher than inflation so that we can pay the bill for some of the stuff that's gone on in this country. I believe that harnessing data more efficiently so that things can be built more efficiently and government can manage and fix its infrastructure more or less expensively and faster all comes back to unleashing and harnessing the benefits of data. Health care is another place. Now, look, are there privacy concerns, there are privacy concerns? You know, we have a president who tweets from an unsafe phone.
Adam Ifshin [00:40:51] The one thing I'll close with, I think that within reason those privacy concerns can be addressed and certainly in a private company setting with appropriate confidentiality and security. I'm not worried about it, but I see a great future for using data, DLC and beyond.
