This isn’t a good time to start a new business venture? Don’t tell that to Lewis Taulbee, president of Cincinnati-based RICORE Strategic Asset Services, a division of Lee & Associates. Taulbee launched RICORE in August of this year, even as the country and commercial real estate industry continued to face the challenge of COVID-19.
Taulbee, of course, has seen challenging markets before. He brings more than 25 years of experience in the shopping center industry to his new venture, and he’s succeeded in markets both thriving and struggling. His career includes stints at Starwood Capital, CompassRock Real Estate, Corporex and Simon Property Group.
Midwest Real Estate News recently spoke with Taulbee about his new CRE adventure, why CRE will survive the pandemic and why this isn’t the worst time to start a new business.
You launched RICORE Strategic Asset Services on August 1. Why did you make this move during a pandemic?
Lewis Taulbee: I was ready for this change. I’ve spent most of my career working primarily with owners, REITs and large corporations. During the last several years, I’ve seen the impact on all types of commercial real estate that has been brought on by the change in lifestyle trends. People’s habits are changing, and that means that real estate has to change, too. I realized that there is a rapidly growing need for stabilizing CRE properties that have been affected by our lifestyle changes and finding the best new uses for them.
What kind of lifestyle changes are you seeing?
Taulbee: A good example is the way people shop now. This has changed the dynamics of brick-and-mortar retail forever, so we have these giant assets that need to be repurposed. While there is still a need for brick-and-mortar, the mall assets are overbuilt for pure retail. I realized this is creating a rapid and growing need to stabilize these properties, find the new best use for the asset based on the specific market and community needs and then work toward transforming them.
These transitions will not happen while the malls are within REITS because those REITs only work for their stockholders. They are limited to invest the necessary capital needed to repurpose these properties. So as the special servicers are getting flooded with distressed assets and private investors are seeing opportunities, I am confident my experience and our abilities can be very valuable. It is much more fun coming to work every day looking for solutions to a client’s challenges than it is being in a REIT right now trying cut every penny to satisfy their stock.
Can you give me a brief description of what RICORE Strategic Asset Services does and what separates it from traditional brokerage?
Taulbee: It is truly all in our name. The key word is “strategic” because we go beyond being just a service provider. We partner with our clients to find solutions and create value in distressed commercial assets. Asset services encompasses every need our commercial real estate clients may have. What gives us the advantage over traditional brokerage firms is that we have all of the resources under one roof, including accounting, construction, management, marketing and brokerage. This gives us great leverage and the ability to meet all of our clients’ needs.
How important is this service today?
Taulbee: In today’s environment they are more important than ever. Many of our clients are trying to weather the impact of COVID. Many tenants are paying decreased or no rents, but the property operating expenses don’t necessarily coincide. We have to find and implement strategies to mitigate expenses without interrupting business or compromising cleanliness and safety standards. We also find and negotiate creative rent solutions for their tenants so that they are able to continue operating their businesses.
Can you talk a little about what it means to be a consultant to your clients?
Taulbee: Transparency and honesty. When clients engage me as a consultant, they are putting trust in my experience and knowledge, so it is very important that I provide them with factual and thorough information to help them make informed decisions. If I don’t know something, I find an expert that does and will never provide a client with anything that is uncertain. Also, I have primarily worked for and been the CR owner for most of my career. So I think like an owner and understand their challenges and frustrations, which helps me to better meet their needs.
For example, if my client is an investor who is considering purchasing a distressed mall that has lost an anchor it is not only my job to provide them with my opinion based on my industry experience or knowledge of the particular asset. I need to do extensive due diligence to understand the market and the best use for that asset. I then look for opportunities and project the capital needs. Then my client can have the necessary information to make the best decision on purchasing the asset and how much they should spend. I believe I am batting 1000, if you ask anyone I have consulted.
What are some of the ways in which you stabilize properties?
Taulbee: Like I said, many of our clients are trying to weather the impact of COVID-19 right now. Many of their tenants are not paying rent at all or are just paying a portion of it. We have to find a strategy to help mitigate our clients’ expenses without interrupting their businesses or compromising their security. We find and negotiate creative rent solutions for tenants. We evaluate our clients’ expenses. What services are they paying for? We help them prioritize those expenses. What can we eliminate? What can they cut back on during this slow period? It’s our job to help them make those decisions.
Say we are working with the owner of a shopping mall. The mall might have been closed in April and May. Many of their tenants might still be closed. It’s tough for tenants to pay rent, but the mall still has to pay the mortgage. We’ll work with the tenants and help them on arrangements to defer their rent down the road. We’d then add terms to the lease in the backside.
These are really challenging times for retail.
Taulbee: Retail is having the hardest time right now. Office is going to follow that fairly quickly. People aren’t going into the office right now. Most people aren’t going to shopping malls, either. But lifestyle trends were changing in these areas even before COVID-19. Malls were impacted before the pandemic because the way people shop has changed. We have these giant retail assets that need to be repurposed now. The malls are simply overbuilt right now.
The bulk of my experience has been in shopping malls. A few years ago, I’d read Wall Street Journal articles about the death of retail and I would get heartburn. After leaving the REITs and getting on this side where I am actually working with banks and investors to find creative solutions and new uses, I get excited when I read an article like that. I don’t want to see Sears go. But these assets are often well-positioned in good areas. There are better uses for these assets. The needs of their communities have changed. The assets need to be repurposed to meet those needs. I’ve really enjoyed going into a community to figure out what the best use for a property is now.
It seems like the trend is leaning heavily toward experiential real estate, right?
Taulbee: You get into these struggling malls today and one of the first things they want to put in is entertainment. People still want a place to go. They want to go to the mall, but they don’t necessarily just want retail. They want restaurants. They want to be entertained. Those are always great backfills for some of the square footage in malls.
In some locations they might need more office or a hotel or multifamily. There are so many different ways to go. All of it is 100 percent market driven. You need to go into that market and figure out what it needs.
Is working on this side of the equation an interesting change for you?
Taulbee: Absolutely. A few years ago, I was stressing over the way in which the world was changing for retail, the way people were shopping online. I am guilty of it myself. It is just much easier to buy certain items online. There is always a need for brick-and-mortar retail. But shopping habits have changed. It’s exciting to get into the communities and find new uses for distressed properties.
How is commercial real estate performing in your home market of Cincinnati today? Are there signs of hope?
Taulbee: We are a national platform, so I am working in markets from coast to coast and can tell you that Cincinnati has the same challenges as all of them. Again, it goes back to the changing lifestyle trends of the way people office, the way they shop, and the way they live. Because of these shifts, all markets have found themselves victims of being oversaturated with one type of commercial real estate and in need of another type. Then for 2020, you add to that the COVID pandemic.
The good news is that vacancy rates in Cincinnati have been fairly stable for the past year, which gives us solid ground to come back out of this. Changing trends and pandemics like we are in create opportunity for CRE players to acquire and repurpose assets for the betterment of communities. I believe Cincinnati will be in a very good position coming out of this pandemic. It’s a stable market and a desirable place to raise families and operate businesses. While it is hard to see the light now, I am confident our comeback will be much stronger than the setback over the coming year.