Matt Slepin (04:38)
Don Wood welcome to Leading Voices in Real Estate. We are here together at your offices in Rockville Maryland at Pike and Rose. And I'm thrilled to have you on the show to talk about federal to talk about the retail real estate business in general about the real world and what's going on. Where's the real world in.

Paris into other forms of real estate ownership and your very long-term leadership in the business. We've had many conversations on the retail business on the show including from your prior colleague and our good friend Jeff Burkis, Liz Holland, one of your board members has been on the show, Jody McLean's been on the show, but it's been a couple years so every time we do it I like want to know what's going on now and what the trends and what the meaning is. So ⁓ welcome to the show and why don't you introduce yourself and briefly about your company.

any chance I get to talk about real estate, particularly retail real estate and what's going on in the place I jump at because I just love the business. Again, my name is Don Wood. I am the CEO of Federal Realty Investment Trust. We are one of the oldest REITs in the country, formed in 1962. This is a retail real estate company and...

When I say retail real estate company, doesn't mean that we don't have some of our properties have some residential properties and some office properties, even a couple of hotels. But the reason people come to the pieces of land that we own, because of the retail. It's about putting people together. ⁓ One of the things that I think is pretty cool about this place is,

while we were formed in 1962, there have only been three CEOs of this company in all of that time, which is really, it's very unusual for 20 years and 20 year plus periods of time for the leaders of the company, but it does give us a level of stability that comes out of that that I think is a little bit different and pretty cool. ⁓ We'll talk more about that as we go, but the one thing I have to say about this company,

were a REIT that means that we need to

⁓ Wow. ⁓

As

we talk today, we'll also be talking about great quality real estate that makes such a difference for us. Yeah, first of all, when did you become CEO? I became CEO in 2002 at the end of that year when I came to the company in 1998 as the CEO. Got it. Okay. And when you talk about the first generation of REITs, how many are left of that first generation? And we talk about this on the show all the time.

the next generation all came about after the SNL crisis in the mid to late 90s, I think.

a way out, if you will, by going public. And so the modern reader really didn't start until the early 90s. And you had some great companies, companies like Kimco and Taubman come out into the public space and many more. ⁓ It really was a ⁓ transcendental time, if you will, for publicly owned real estate. Yeah, think UDR is one of the other first generation streets. was one of the other long-term ones.

in retail real estate where do you play because retail is a has a broad range of property types so talk about that ⁓

retail certainly into different forms like malls and open air and grocery anchored and power centers etc. And basically I see those differences as less meaningful than what retail product are you providing for the particular community and marketplace that you're in. So for federal we do it all.

other than malls. Malls is a separate business that we can talk And that may be where I was getting to because if the reader, I always think the reader of Wall Street Journal, reader of Wall Street Journal looks at retail, real estate, and it's in trouble or was in trouble 20 years ago and it's the malls, it's not grocery anchored shopping or different types of retail. So. No, I guess that's right. And you know, it's not even the malls. It's certain.

Uh-huh, right. it's a certain open air. You know, to the extent the product, whatever your product is, is just not relevant to the consumers that you're trying to attract to it, then it doesn't really matter what the format is of the real estate. If it's not relevant, it's not going to succeed. And so certainly malls took the largest hit to the chest, if you will, on relevance.

as the 2000 teens moved forward and ⁓ really in COVID too obviously. But there are a lot of really strong malls in this country that will remain really strong malls ⁓ owned by some of the best companies including sign ⁓ it as the years progress. And there are some pretty bad open air centers that didn't make it during that period of time too because they were no longer relevant.

to the consumer. you know, the bifurcation, if you will, between malls and open air is one that is, you know, worth talking about. But it really is much more, you know, no matter what the format is, how relevant are you to your consumer? Fair deal. And the amount of change that's occurred over the time of your involvement at Federal in each of those parts of the retail business,

has been huge, maybe the least huge for shopping center, grocery anchored retail, necessity stuff versus open air, which hardly existed in the way that it does today. To some extent, Matt, but you know what's funny? mean, we talk.

You know, 2017, 18, 19, the grocery anchored business was at a real low because who was going to need a grocery store anymore? Everything was going to be delivered directly to your house in a brown box or a bag delivered from...

and every other retailer. And then COVID hit. And in that, ⁓ boy, I socialization is a critical part of being a human being kicked in. ⁓ And grocery shopping centers where they are and still are the hit of the retail real estate sector. They trade at some of the highest values now, maybe too much so in some respects. ⁓ But we're always looking for that arbitrage between

you know, where the greatest ⁓ returns come relative to the price that you have to pay for them. ⁓ you know, again, that comes down to the very specific real estate in a particular sub market ⁓ that we'll get into and we look at very carefully. So generally, where are your properties? So talk a bit about your portfolio, your footprint and what defines you from other companies. Well, you know, the company was founded here in and around

in DC. So it naturally has a large presence. To this day we are ⁓ nearly 30 % or so of the company that's in and around the DC metro area. Nothing in the district per se. Was there ever any in the district? No, not of any size. ⁓

But it's those first ring affluent suburbs on the Virginia side, Fairfax County, Arlington County, and on the Maryland side, in Montgomery County, et cetera. ⁓

And that's a good chunk of the company. But we grew from there ⁓ into Philadelphia, where we have a large presence, into New York and New Jersey, ⁓ into Boston, and then somewhere in the mid-90s ⁓ into the West Coast. And we started with a very large project that is, to this day, our flagship called Santana Row. Which we will talk about. Of course we do. We will. ⁓ Which is in Silicon Valley.

⁓ But then also some pretty sizable investments in Southern California, ⁓ in both Los Angeles and the San Diego area. ⁓ We then expanded into Phoenix and into Arizona. And most recently, ⁓ in addition to Florida, which was a big expansion for us, the middle of the country, and we're just very proud of it, nearly $300 million deal ⁓ in Kansas City, Kansas.

because those consumers are underserved for the type of things that we do. Lots of changes over the past 10 years for sure. Yeah, absolutely. It's interesting. When you came to the West Coast, I had just moved there from here, here in DC, and you had started Santana Row. We helped you expand that property or build that property from a recruiting standpoint. And one of the fears in how you staffed it was that that was such a humongous project. ⁓

couldn't be the tail that wagged the dog of your west coast. So you had to have non-Santana people play with other assets in California because it was so all-consuming. Yeah, there's something to that.

just a primary responsibility for anybody who is handling other people's money and that's what we are as a public company. This is not my company. I'm a high-priced manager for this company but this is public investor money. You need to allocate it appropriately and I think we took too big a bet back in the late 90s.

in terms of ⁓ investing in Santana Row. was many hundreds of millions of dollars in a company that was less than $2 billion in market cap. And so the bet was too big. The idea was great. The asset is very, very special. But when you make a bet that large ⁓ relative to the entire company, then natural swings ⁓ of positives and negatives in an economy have an outsized effect on you. ⁓

that has been a critical ⁓ piece of the last 20 or 25 years since I've been here is to allocate that capital appropriately relative to the size of the company. Since you went there, let's spend a few minutes on the too big a bet. And it's an interesting one. knew Steve Gutman and it was actually when you say you are the steward for investor capital here, I think he lost sight of that. It was his thing and that property became his thing.

and I don't want to speak ill of a person, but you did make too big a bet.

We did, but you know, and ⁓ gosh, Steve could certainly speak for himself in terms of that. And by the way, just something to say about Steve, who was the CEO of this company for a very long time. That guy was brilliant and really did a fine, fine job with the merchandising DNA of this company. mean, we're still, we are still a company that cares more about who goes next to each other on the retail side. Can we talk about that a little more?

than most other companies do, we believe. And that came from the DNA of Steve. And in addition to really the understanding of what ⁓ customers and retailers really wanted.

You what I tried to do was to keep those strengths and to add into them the capital discipline that we talked about in addition to the expansion, if you will, of the company from a diversification perspective. Yeah. And go back to one other point, and I don't want to change subjects. You've talked about you don't do malls. You've talked about a flagship property, Santana, what that means, and we'll talk about that later. But what is the range of kinds of properties

that you do have in the retail space just so we get a sense of the...

they even happened in the first place, but grocery anchored shopping centers, communities in affluent areas are very important to us as our lifestyle type centers that again, we are always aiming for a more affluent customer. ⁓

I always say, you know, the one, from my perspective, the worst business in the world is a business where the only thing you can compete on is price. If you've gotta be the lowest price ⁓ in order to win business, that's not a business I'm very interested in at all. And so what we always try to do is to create a product that doesn't compete solely on price, that can charge more rent, that is a better... ⁓

you know, has more things going for it, if you will. And that's why we are in affluent areas so that the consumer who is consuming can also choose to pay more for things that they want. And that's proven to be very successful ⁓ component, if you will, of our business plan for Long Island. And does the growth as the industry changes and there's the ups and downs of cycles, does the more affluent and

Always perform better sometimes performs less better like I have to track the last 20 years But play that one out for a sec You have to look at mix, first of all. mean, my whole theory of life is the word balance. And if you are imbalanced, you're really setting yourself up in all sorts of things, personal, professional, everything else. the ups and downs to be extreme. in running a REIT,

which really is a series of cash flows contracts. We've got 3,500 leases. They're 3,500 contracts. What we try to do is to provide an ever increasing stream of cash flow. And if I were to, if you and I were sitting and forming a company and we sat back and said, if our objective, our goal was to provide an ever increasing stream of cash flow through the inevitable ups and downs of the real estate business, how would you do it?

You would do it with probably a dozen parameters, not just one. But one would be a consumer who has the ability to spend. Absolutely. Yes. Number two would be ⁓ lots of them. population density. Right. Reaching to a larger audience. Number three would be diversity of geography. Diversity of product type. Right.

No one tenant that comprises, our case, more than 2.5 % of the income stream. All of these things together, a low leverage balance sheet.

Because our overall objective is to not say everything is always good. It's to understand the realities of economies through time and to effectively have the highs high, but the lows muted. by building a company that's based on those principles, think that's how you wind up with dividends that went up every year for 58 years. ⁓ And again, dividends are tied to the income of the

company. So income that's gone up. Now there was one period where that didn't work. One in the last 62 years. When was that and what have I was about to ask you is it? Now the reality is that I've always been

Trying to build the company so that whatever the negative was the negative would impact us less than other Than other companies that was largely successful for through the whole period of time until March 15 2020 and a Bottom line is this the coastal states that we were in closed down and we're competing with companies which have real estate in the south which have real estate in

Texas in other parts of the country that were open and so with a closed down business which lasted far longer ⁓ than others we were hurt more and we still today are recovering ⁓ from that as we had some development underway during that period of time and ⁓ product that are mixed-use properties and that everything during that period of time was hold on just we're not gonna make any moves and so companies would not lease space

for us and the office component of our business plan until they had some understanding of where COVID was going to take, which again, in California, Maryland, Massachusetts, New York, was, took a lot longer than it took in other places. Other than that period of time. Which you're still paying for a little bit. We're still paying for a little bit, but that...

Right. think you'll see 26 and 27 as being very good years for us. Good. And let's keep playing with that for a minute. so and during COVID, your portfolio and I'm thinking of Santana Rose, so I'm thinking of California, I'm thinking of San Jose, you maybe having had an office component there, amplified the pain instead of balance the pain.

Same with high-end apartments there. Not so on the apartments on that but on the office yes, but it wasn't because it was office per se because of where they were in the development and Yeah, we started building right brand new buildings right at both pike and Rose and centenar row right in 2018 19 and including a building that was

about to be fully 100 % least at Santana. On March 10th.

signature pages were going across the table for for a well-known tenant at Santana West and that got stopped immediately in its tracks because of COVID. Right. And so now you have a building where you've got several hundred million dollars out the door for a building. Right. And no tenant in there, ⁓ which clearly dragged us down for four years. That building is today. Ninety one percent lease and it'll be ninety five percent. Good for you.

But that's a long road. That's a long road. That's a long road. It was interesting because we were working with you on a little bit on development at that time and when the office market stopped and shut down, my question to people finishing up an office building, are you building it the way it will want to be built when people start coming back to the office?

and you're making bets. Now we're sitting in one of those buildings right now because it was the same era and this building feels good but you wonder about the choices that you make when the world's about to change. Well listen, there's a couple of other things and this goes back to the conversation about how you build a company for sustainable cash flow throughout the year. The most important thing we did was we made short development. So building something new. ⁓

would never ever be more than ten percent of the value of our company. This is fifteen billion dollar company today.

at the right at the beginning of covid we had nearly one billion dollars under development and so while while that was painful right as it went through it was never going to knock the company off slow it down but never going to knock it knock it off because from the lessons learned in the 1990s right too big a bet would have been disastrous that could have been catastrophic it wasn't it was annoying right it's still annoying to tell you but nonetheless you know we can we can pound through

that. Now interestingly, and you brought this up, and this just goes to show how local real estate is. We were building this building, the building we're sitting in, which is 909 Rose Avenue in

in 2019 and we were to move in on August 10th, 2020. Right in the thick in the heart of I call it the real COVID, the hard times, the first year or so. And we said, you know, we're going, we're moving. were the only tenant, we were the only lease. 18 months later, through COVID, this building was 100 % leased. So much so that a tenant that we were talking to

to the choice hotels, was no room for them. And so we decided in COVID, next door, to build the next building. Good for you. And it just goes to show, and I think this is really important when you think about office, the importance post COVID, this gets to your question, of what consumers want and what office workers want changed.

And that that notion of having a fully amenitized environment, all of the restaurants, all of the shopping places to live, a hotel became so much more important. Right. Post COVID than it was, it was always important. ⁓ But so much like a lot of things with COVID, the dial got turned to the right. So much more important. And we had the only product available that was new.

that would that have the right ventilation systems in it that was that was in a fully amenitized environment. And so at least right up. So this building is 100 percent least. The building that choices in is 100 percent least ⁓ because there's no competing product. Right. And that's the important thing about not necessarily the category, but the the how well does the product that you're building, whatever it is, retail office, residential

How well does it support the objectives of the marketplace that it's in? What's the rest of the supply that's available? That's why the mixed use stuff is so critically important to our overall thesis of retail real estate investing. Yeah, and go back to office for a minute because people talk about, office has to be AAA office and it's a new variety of what the inside looks like. And they talk about amenities within the building, but if you deliver the amenities, you have more amenities.

right here Pike and Rose than you could have in any single office building. For sure, know it does come down to it is very expensive to build anything and which I guess is an obvious thing to say except that it needs a certain level of rent that can make a building viable.

get those premium rents, you need a premium experience. And a premium experience is often defined. ⁓

a full amenity base which which you can't do in a single building right very well at all and doesn't mean that lesser buildings won't sure they'll lease but they'll lease at far lower rents and some won't lease at all because of it so it's got to be the right product retail resi office safe I worked at an office building in Tyson's corner on Leesburg Pike 30 years ago and to go to lunch it

across the street, I would drive my car because it was dangerous to walk across this like godforsaken thing. And if you compare that to walking across the street and having six choices right here, that's just how the world has changed. So yeah, it's unbelievable. OK, I want to totally change the subject. during.

the 90s when I was at the RTC actually so I was there during the bad days when the real estate world changed the REITs got us out of that whole environment and the REITs became the first institutional platforms for real estate and they were platforms not collections of assets which we could talk about what that means and for about 15 years the REITs led the way in the real estate business to create portfolios and create business platforms and then in

Then it slowed down in terms of the REITs being in favor. And one of the things that is true right now, I believe, is in the main food group asset classes, not the specialty asset classes of the REIT world, the REITs trade below NAV. So they're trading below market. I could go buy this stuff cheaper outside of the REIT world. Talk to me about that and what that means and why that is and will that change to get back to NAV, if that's the right answer, or a premium.

because you have a business platform that creates value as we've talked about. That is such a great question and it is clear that the evolution of the investor base has changed dramatically over the last 10, 15 years. Let's just talk about that. Yeah. So the first thing to understand is buckets of investment money are really delineated and you know,

and have specific purposes and objectives. And it's not like all of the investment world can just choose what it wants to invest in as easily as it seems that would be. If your mantra

to exist is to invest in real estate, then you have to invest in real estate. If your mantra to exist is to provide a level of return that includes a little bit of real estate, can be technology and everything else, then that is your mantra. The re-dedicated money is clearly less important today than it was.

⁓ 10 years ago for sure. And REIT not being real estate because real estate allocations have increased, I believe, in portfolios, but not the REIT allocation. That's correct. So the I think federal is a very good example of what has happened in total. When REITs were founded and came out, the purpose of a REIT

Was to have the individual investor able to participate in real estate without going out and buying a building and and so clearly the the Let's call that retail ownership. I don't mean retail like a store. I mean, you know an individual who buys stocks or buy stocks through their broker That retail ownership was a large percentage. Yep of the ownership of

Federal was a local REIT, started in Washington DC, had a very high percentage, I don't know what it was, in the early days of retail ownership. Today that retail ownership is far below 1%. There's about 87 million shares of federal realty outstanding. Less than 1 % of that.

is owned by the retail shareholder. It's all effectively institutionally owned. And institutions own on behalf of so I might put my money into a REIT fund and the REIT fund is an institutional investor in your parlance. It's one of them. Okay. Okay. But what has happened is mutual funds, passive investments, have become a larger and larger

component of our read ownership about 50 % of our 87 million shares is owned passively in mutual funds, etc. Those funds, they're index related. And so it's hard to differentiate yourself in those funds, because differentiation doesn't matter as much. It's how much you are weighted in that fund that determines how much they will own of you. And so there's a large part of

REITs today, which really are not actively managed, if you will, but are owned by these indexed funds. And so what makes up the balance then? And what was the case was was REIT-dedicated funds for a very long time. REIT-dedicated funds were generally real estate-oriented people who ran those funds, who really cared.

about NAV. Are they still 50 %? They are much smaller. So what's smaller than that? But they used, but they were 35, 40, 45 % and they're smaller than that today. Okay. Because those funds, those were the NAV guys, the guys that said, okay. I think of Cohen and Steers in the old days as the kind of the stock pickers of real estate. Cohen and Steers was a good example of that. Cohen and Steers is as big as ever.

but they're not NAV driven anymore to the extent they were. Far more earnings growth, cash flow growth. And those are two different things if you think about it, right? If you think about where we're sitting, we're sitting at Pike and Rose, and Pike and Rose throws off a certain amount of income. And that income, as that income grows, is valued by today's investor.

Pike and Rose also has empty pieces of land that we control, that have real value in them, that are going to be able to create growth in the future. A rededicated NAV investor used to give you value for that stuff. And today, ⁓ a cash flow oriented investor says, yeah, yeah, yeah, when that's built and it's producing cash flow, then I'll value it. But until then, just...

It's not a value to me. Got it. And I'm generalizing here, obviously. But the difference between cash flow investors and NAB investors, I think one of the things we were very successful at was attracting both of those type of investors. And there now is a lesser and lesser of those NAB investors and more cash flow investors, which puts us and other companies like us on a

you know, is a dollar of rent from a tenant of Pike at Pike and Rose of the same value as a dollar of rent from a pizza shop in, you know. So a dollar equals a dollar. Resilience of the dollar doesn't matter because they can't look at that in the same way that you might in a long term. That's right. And if you think about it since COVID, well, rising tide has lifted all boats between five and a half trillion dollars of public stimulus.

Right. Wait, The migration of people to other markets in the country, the absence of development of new products, everybody benefited. Hard to differentiate yourself. Everyone benefited relatively equally. So if they're making bets on, let's just play some of this out because I'm curious. If these mutual funds are making a bet in the REIT world, are they making certain

allocation to retail certain allocation to apartments certain allocation especially classes okay

That's they however you are however you sit in right, okay Okay, then within though either side though when within that when they look at you versus your competitors in the retail Space and I spend most of my time in the apartment business. I think of the six apartment REITs They are less differentiated than they used to be and I think that might be the same in retail So how do those investors?

to differentiate you, which is question one. And then question two is, so I was with someone this morning, he says 185 REITs, no way there's gonna be 185 REITs in six years. Consolidation is the answer. So answer both of those at the same time.

Sorry Don't be simple it's go for Yeah, yeah, and it's never one thing it's a lot of things so in the in the space today of Cash flow and where cash flow is going right? The thesis here is that the natural

peaks and valleys in the marketplace and the economy will treat companies very differently. So while it was hard to see during the COVID years, as we go forward.

As the economy changes, better quality portfolios will differentiate themselves in terms of better cash flow. And that's the way, other than these COVID years, it has worked for a very long time and I expect that to work again. And so there are a couple of things that mitigate that right now. One is, and I think you referred to it a bit before, really since the great financial crisis of 2008, nine, 10.

there has been very little new retail supply that has been added. Now that's a good thing, frankly, because there was way too much retail supply in the 90s and in the 2000s. so...

federal did extremely well during that period of time because federal was the heads and shoulders above the quality of other real estate and while there was a lot of supply the good stuff was we owned a lot better and so now it's 15 years later there has not been construction because of cost because a lot of things right over that over that period of of time and so the high quality real estate is very much in demand

But

there's not a lot of room in it. so and so. The public companies which generally own better quality real estate than privately held simply, it's simply capital privately held is often owned to generate turn and cash. You're going to hold it long term. Yeah, I tend not to reinvest in the property in the public side.

Most of the public companies invest in their properties to some extent to be able to create better cash flow down the road. So the higher quality properties are generally owned by the public, by the publics, and those have been able to rise post-COVID. First of all, they were hurt during COVID, we all were, and so they've risen more. 88 and 89 % leased portfolios to 94, 95 and 96 leased portfolios. So everybody looked real good.

That doesn't stay. Now everybody's pretty much fully leased. The economy will do whatever the economy does. And it is my bet that the higher quality stuff will shine again. Fair deal. And I want to talk about what higher quality stuff is and what you have, but let's not yet. I'm not ready to talk about portfolio. I want to keep talking about business platform and some more of the questions about this. Is one of the differentiators, 15 billion

is a small company. If the world looks at you, this is a small business. Not small, but whatever small means. so it gets back to a little bit the consolidation question, also the question around mixing private capital with public capital in the REIT market. And some of the REITs have big ⁓ sidecar businesses.

in with private capital is that part of your plan and how does that help differentiate companies? ⁓ certainly could be. notion of raising capital, if you will, for a business. can raise capital basically three ways.

can sell stock, it's equity capital, not debt. You can raise equity three ways. You can sell your own stock and that is determined by how you feel about the net asset value of your company and the stock and should you issue stock cheaply and all those considerations. Second thing is you can sell assets. So sell some of the assets that you own and

Assets presumably that are slower growing and you deploy better And the third way is what you're about joint venturing. Uh-huh. And that is effectively using the leverage if you will of a cheaper cost of capital ⁓ with private money that is very much available on out there, right? ⁓

for ⁓ a venture of either existing assets that you have or a combination of existing assets and future growth that you'd to go after together. And the ability to do all three of those is very attractive to me. It depends very much on the particular deal, it depends very much on the particular real estate that you're talking about. But one of the things that we didn't talk about before that is so critical, I think, to long-term success in our business

is having many arrows in your quiver. One trick pony stuff works when you're in favor, but doesn't when it's not. And so having the ability to reach back into that quiver and to pull out an arrow that can access all sorts of capital, all sorts of different buckets, very, very important. ⁓ Build or buy, very, very important. Redevelop or lease, end lease, very, very important.

to do it all is one of our trademarks, hallmarks actually, and something that, you know, there are times when it's better to build than it is to buy, there are times when it's better to buy than it is to build, and combinations thereafter. I still keep our development team together throughout those markets, because you can't build expertise overnight. And so having those arrows in the quiver, if you've got a more long-term view of real estate, boy boy.

then you could do it. maybe the capital, the private capital that is investing into real estate is more prone now towards longer term investment horizons than we want to go into a closed end fund to do flips. Well, there's some, I think that's probably true. It's certainly true.

that the public real estate investors are shorter term focused, which is not good for our business. Real estate is a slow moving, long term business. So stock traders within that don't match up real well.

and respect to who your investors are or aren't but they're playing you all the time so you gotta be able to handle that right because there are less longer-term owners than there have been. It's been one of the biggest changes in our business over last 15 years.

We're going talk about portfolio in a moment, but one thing that I find fascinating and it's my topic to talk about with people is what does the business platform mean? Not the real estate, but what's the business platform, the resilience of the platform? It's people, it's culture, it's technology, it's practices, it's the flexibility, it's how many arrows you have in your quiver is your platform, not your portfolio. We're going to talk about your portfolio next, but talk about this business platform and how you run it.

And last point to the question is talking to CEOs, this is 70 % of their time is spent on their team, their platform, their business, not the assets. Critically, critically important. And the only thing I would say to you that I ⁓ doubt it's a disagreement, it's the fundamental. It has to start with a portfolio that allows the... Fair deal. ...platform.

to be able to bob and weave and move and have flexibility. if you've got all of one thing, it's really hard to have the levers in the platform to be able to move it. So let's... ⁓

Let's start with the notion that the portfolio is critically important to what you choose to do with your platform. Fair deal. I want to talk again, we're going to talk about your platform, your portfolio, because I think of the stability of these fortresses that you have, these mini fortresses in places, some of which I were at one. But anyhow, so go back to the platform. So how do you think about that? So when I think about that, there's a number of things. So

This team. ⁓ And I think this is the ability to put together a team of human beings who are all. Singing from the same hymnal is so critically important, and the way to do that.

has to include some notion of long-term and occasional new blood. You can't mix that. Thank you for saying that is very true. If it's all long-term you could just calcify. If it's exactly the same team that's been around for decades without new ideas and new blood put in place, I don't think you're maximizing the platform.

On the other hand, you've got turnover like a head coach in a sports team that is constantly changing, changing over. You don't have the time and the ability to fortify your plan together and accomplish it because you waste too much time explaining, trying to get somebody on, trying something, having a fail, going on to the next thing. Yeah. I think what is.

Frankly, I'm very, very proud of the team that we've put together at all levels that mixes that new and experienced together. ⁓ It's critically important. It also allows you to make sure you're getting the best ideas from your competition and knowing what is happening out there and not being too insular. And in an open mind,

without jumping at every new thing. You know, it's funny, we talk about this business, I think I would be the worst CEO in the world for ⁓ a technology company which has to change every 30 days for something else and has to be the first.

Real estate is a mature business that requires a steady hand, lot of arrows in the quiver, and decision making that's right. You can't build a building and say, darn, that was the wrong product, let me switch it out. The retailer can do that and take the clothes out from spring and put in the clothes for fall. But once you've built a building, a shopping center, it's yours. So you better be right along the way.

I think that is so indicative of the need for stability over the decades. So it gets down to things like, I believe this platform.

should be able to develop when those opportunities arise. Should be able to build, should be able to do something in a different format, not just grocery anchored, not just mixed use, not just, not just, not just. That's really important. But you can't just put people together and do that ⁓ any particular year, any...

take a couple of years. You've got to build that creativity. You've got to build that level of competence. And so you need to hold all of those disciplines together during the ups and the downs ⁓ throughout the period of time. It's why it's a long-term business. Two examples you gave. You said you hold development. You didn't get rid of the development talent because you can't just start it from scratch. Second thing is you said is you quote you talk about

Steve Gutman and having that retail mindset of what is the adjacencies are going to work and be collaborative with each other and continuing that long-term thinking that is in the DNA of a company that's platform that is platform that's our sales team so if you if you were if I could bring you know all of our leasing team ⁓ into here you would see a beautiful combination of very long-term people new people mid-range people

Imagine though, you have to build a company that leases to tenants at the fancy places, and tenants at grocery shopping centers, and tenants at lifestyle centers, power centers, etc. You need...

very different types of human beings. If you all had one type, you can hire the same type of leasing agent all the way through to lease up your portfolio. can. We need to have people who are very proud that they're able to go out and get the local pizza guy, the local dry cleaner, the local drug store or whatever tenant that is. We have to have people that also have great relationships with the Vioris of the world.

lemons of the world in the upper end type of tenants. We also have to have people who are accomplished at those big anchor boxes. All of these are different because you're...

creating a contract with a business. They're not just tenants, they're businesses that have their own board of directors, that have their own money issues, that have their own capital plans, et cetera. And so in any negotiation, you need the right person on the other side of that negotiation. That is platform.

That is about the right mix of human beings with the right levels of experience, with the right level of creativity who have also created great long-term relationships. That's platform. You can't just do that with an asset. So it matters who owns an asset in a portfolio. And frankly, one of the things that I think we do best are acquire assets that are under managed, that are

treated like an asset and not like a platform. then bringing in our team of very diverse points of view, very diverse levels of responsibilities throughout the company brings something to us that we've tested and retested and tested again throughout a portfolio that does things to assets that aren't able to be done by a sole owner or even a company that is simply looking at cash flow.

wrap on the reach sector might be because you don't do value add as much that you're a longer term owner so you might be, I'm using a negative word, sleepier owner towards the goals that you just described than a value add owner who knows they're in a rush. So they get the property, they get five years to turn it and move it and add that value.

Make no mistake, Matt, we're in a rush. And there is nothing sleepy. I've never heard the word sleepy, particularly about you. So just so you know. Never, never, never, never. What it is is clearly longer term focused. Right. So I hope we're around.

next hundred years. And you know, we got 60 some odd in. The next 60 some odd to come, there'll be somebody new running the place, but I always want us.

to be able to increase cash flow every single year. To do that, you have to be in a rush. To do that, you have to, but you have to balance that with the notion that you don't just wanna do this for two or three years, that you wanna make sure that you know that real estate value will continue to increase. So you better be in the right place.

and you better effectively be doing it with the right group of tenants with the right mix of those tenants adding other uses when the land allows you to do that and having all of those errors in your quiver then i think you create a very valuable company and while fifteen billion may not be as big we were one point six billion dollars when we started this together so the notion of how to grow

great value. think we've become really good at it. Yeah, I think and one of the challenges and you've exhibited as we've talked about this has is to be a CEO who gets all of the aspects of that business holistically and makes them sing together. You're an orchestra leader of capital, you're an orchestra leader of leasing, you're an orchestra leader of development and that holds it together as does the people who've been here longer term.

That's absolutely true, but nobody starts out with all of those. so if you, I'm gonna dumb this down. We are not splitting the atom here. We are trying to create places that consumers want to go. when you simplify it, you say, how do I do that? ⁓

and you take the components of how you do that. Of course.

Retail tenants have to be in the right water. It is the only sector of the real estate business where who's next to each other matters. Totally. Think about it. Any office building, who cares? Can they pay the rent or not? Whatever law firm or county firm or whoever it is next to each other, whatever. In an apartment building, can they pay the rent or not?

But in retail, if you put the right group together, the sum of the parts, man, is a whole lot. It's huge. that's that we never forget about. That's the part that energizes me every single day and creates something that is more valuable than it would otherwise be if you just say, let me get the rent from these guys. I don't care who's together. Have you ever seen a shopping center with six banks in it? huh. And, know,

three pizza guys and you know.

some less desirable tenants and everything. Why are they like that? Because the people who own them don't have any sense of what it should be? No, because those were the best financial deals for the time. At that moment in time. you're signing leases for 10 years and 15 years and 20 years. And so you're locking in lower value. It's more value today, but next year it'll be worth less. The year after that will be worth less. ⁓

⁓ It's interesting working actually with your company over the years I I'm not a retail guy and My wife and I don't shop very often So we're online people or we wear the same clothes too long or whatever it is and my wife Hardly knows to shop that you'll enjoy the story She worked for CIM and she worked with Jeff Krashik years ago, and she had an important role there and Jeff

subscribed her to women's fashion magazines, which for like three years we used to get at our house so she could learn what shopping is about because she didn't do it. So we don't know that stuff. But the merchandising thought and walking through a center that makes you feel good and want to hang out and go around the corner to the next place is totally different. And it has changed over the years. But it's magic. So I think there's magic in your business. I think that's right. ⁓

It did say something I just want to make sure I clear up fashion is an important part of Most retail centers. Yeah Whether it's higher fashion, but it sure isn't the only one and and it is actually less important Absolutely the right service is food the right restaurants the right the right if we have my way

Uh-huh. What we're doing to a family, here we are in North Bethesda, Maryland. There's a family, you know, three blocks from here that includes a husband, a wife, a few kids, a couple of college age. If I had my way, somebody comes to this shopping center in the morning for a cup of coffee and some breakfast. Somebody else in the family comes back.

just after lunchtime probably gets her nails done, let's say, or hair blown out in addition to a meal. ⁓

somebody in the family comes back later in the afternoon to buy some clothes and for an event that they're going to. Her whole family comes back for dinner that evening. It is the backyard ⁓ of the community. To the extent we create that, we've been successful. The only way to do that is with the right merchandising. Yeah. Well, I told you the story when I walked in, was walking through this center a year ago to go to

Bar Mitzvah. Unfortunately I tripped on the way to the Bar Mitzvah, ripped my pants, had to walk back towards the subway and found myself in one of your restrooms. Now you think of restrooms at a outdoor shopping area, not very nice. It like saved my life. It was beautiful, it clean, it was accessible. I didn't have to do a coat. I walked right in and then I went to REI across the street and got a new pair of jeans, got rid of my pants that were wrapped, you know, wrecked up and stuff.

But it was because it was all in this place next to the subway so I could walk there. Like that's the story that you just told but in a personal way. And I went right home. They're still pissed. It's OK. And then also in Bethesda I've been to the Silver restaurant like five times in last three weeks to have lunch with people. And from the subway to the Silver instead of walking directly

I walk through the alleyways of your property there to see what might be around that corner or right around the other corner. And that's what you're describing. That's what we did. Yeah. It's an awesome thing. Okay. So let's talk a little bit about the real estate and we're going to move on and talk about you. And then we have to wrap up. What are, what, if you think of these centers, is there an element to the G of the space that they exist? And I'm to ask you about one in particular.

which was my neighborhood shopping center growing up in Winwood, Pennsylvania. They're irreplaceable and you can keep playing with them, densifying them, changing them, adding value when it is the right real estate surrounded by the right people. I think that is your thesis, but I don't know that. That is 100 % the thesis. You know, it's funny, just up the road is a shopping center that we've owned since the 1960s called Congressional Plaza. Yep.

congressional plaza sits on Rockville Pike, a very high traveled road in Affluent County ⁓ here in Maryland. And I think we've redeveloped that shopping center four times, five times over that period of time. We've added residential units to the back of it. We have added pads out to the front of it. There's now development across the street by another landlord that's helping.

what is happening because the entire area densified over a period of time. It's the gift that keeps on giving. And that cannot happen.

without the right piece of real estate. And it cannot happen without the right team that knows what's changing in the retail landscaping and has the ability to effectively capitalize on that change. We do that everywhere. ⁓ Funny you said Wynwood, Wynwood and it just on the main line.

in Lower Merrion Township, Pennsylvania, I just came right before this meeting from an investment committee meeting where we just approved a bunch of changes that are happening to modernize Windwood, which you'll see over the next couple of years, including densification on the property, more rent paying tenants. ⁓ That can only happen in great places. It just doesn't happen everywhere because demand just isn't there otherwise.

It all does start with finding that right piece of real estate and

in putting on that real estate or improving on that real estate what that community needs. Sometimes the community is the surrounding area is just three miles. That's often a grocery anchor shopping center. Sometimes the community, if you will, is 10 miles or 20 miles wide because you're a regional shopping center. Understanding the perspective market and putting the tenants on that piece of land that'll draw them is the magic. Have you had properties in

areas that become less affluent and you're selling out of them or do you keep them and maintain the value? I actually answered that too quickly. I can't think of one that has become less affluent. I can think of one which has a number which effectively we've done all we can to. over and then doing all you can is a decades long.

notion it's not it's not we're done in nine months or 18 months so after a number of decades right we've done all we can to a shopping center we will sell that shopping center and redeploy those back to winwood here's a problem I learned to drive in your parking lot ⁓ and because no longer can you drive you know like a quarter mile in an empty parking lot because these things are densified now so where are kids gonna

learn to drive. This is your fault. Okay. Okay, good. Well, keep dense. Find that. Okay. So how did you get into this business? Let's talk about you for a few minutes before we wrap up. And I've listened to a few podcasts where you get to tell your story at great length and you don't need and we know which one of these DC icons, man, you go through the whole thing. So that's a good thing. And you don't have to do that today. But a couple of headlines because you came from working class background. Yeah.

very working class background, Clifton, New Jersey. I hear of accent very much like mine from Philly, by the By the way, you can leave New Jersey, but it never leaves you. I don't care where you go or how long it is. It's there, it's right under the surface too, comes out in those ways. But what was crystal clear for me, ⁓ my dad worked until... ⁓

He was 72 years old, not because he wanted to. He made very little money, but he had to. then finally did retire and passed away six months after he retired. Really? And I said, that ain't gonna be me. And so in trying to figure out how to make sure that didn't happen, if you came from a place like I came from,

Accounting was a really good thing to learn because every business, every business needed it. And so I went to a local state school and I came out of that school with an accounting degree and went to work for Arthur Anderson. And that's not because I loved real estate or, you know, this was a dream forever. What the dream was, was to be able to pay bills. Arthur Anderson wasn't accounting or wasn't real estate, was it? No, Arthur Anderson. for you.

different clients as an auditor for Arthur Anderson in the 80s, but one of the things that did happen was one of our largest clients in the office was the Trump Organization. Trump Organization, yes. In the 1980s. Uh-huh. And in those days in particular, mean, what that organization was involved in was broad.

And it was everything from Eastern Airlines to a lot of real estate, the St. Moritz Hotel, the Plaza Hotel in New York, lots of stuff like that. And then he got into casinos. one of those casinos was the new, not quite finished, Taj Mahal in Atlantic City. ⁓ Trump was a client of mine, or the Trump Organization was a client of mine.

five or six years and at the end of that, that period of time, I was asked to go be the vice president of finance at the Trump Taj Mahal ⁓ in Atlantic City. Now, I'm 28 years old at time. I had a great run at Arthur Anderson. I couldn't be more excited and you never saw a kid so far over his head in a job in your life. ⁓

I was offered $100,000 a year, which I thought was gonna make me the governor of New Jersey, my gosh. ⁓ And that lasted, I don't know, 13 months, 15 months, when the opening of the Taj did not go well. ⁓ I was the vice president of finance. I had 1,000 employees working up for me. my God. talked about a kid over his head. The opening did not go well.

was fired and escorted out of the building by security. And ⁓ I can tell you that that was one of the most important things that could have ever happened to me in my life. And I'm so glad that happened at a young age. And I say that because I left that building, I left that day, I remember getting in my car and driving out of that parking lot, not angry, ⁓ not upset, relieved. And, and

I think I can spot somebody over their head in a job, ⁓ no matter what words they use to Right. Better than anybody. And so getting thrown out of there at that period of time, and by the way, going with my tail between my legs back to... ⁓

New York out of Atlantic City and using my Arthur Anderson connections to get me started at ITT Corporation was a wonderful, wonderful thing. We have to go back for just a second to tail between your legs and being over your skis and being fired. Were you fired by Donald Trump himself? Did he come in because he knows how to do that? Still does. Yeah, the way that the way those things worked in the opening.

big casino. ⁓ There's a war room and a war room is where ⁓ senior management, the 10 or 15 or 20 of them would meet every four hours around the opening of a casino. It's really one of the toughest but greatest experiences you can have. It's tough stuff.

Yes, it was very clear by in one of those meetings that that I wasn't going to survive the walk back to my office ⁓ And yes, Donald was in that meeting and he did what he should have done Let's get this kid the heck out of the job It's interesting the first leadership job I had I was at the group called the National Housing Partnership here in DC and We were doing seniors housing and I was put in charge of the group for some couple of

months. In the first meeting I led, I was so far over my skis, I just didn't know to sit at the end of the table and I thought I was the boss and it was really awkward and until you tell your story, I haven't told this story, to remember it was embarrassing and silly and I wasn't ready, I eventually became a leader. It took me a little bit longer though than that. It does.

going back to New York and being ⁓ taking it to motion and starting again but starting at ITT and I did real well. Good, of course.

And that led to federal realty investment.

How did one lead to the other?

the I was at the time I was a corporate guy at ITT but I had been offered this spot as a chief financial officer of Caesar's world. And again because of the Trump stuff I had the ability to take that job. Now I'm eight years older and the difference between a 38 year old you know a 30 year old 29 year old. Humongous. Yeah yeah. When you when you kind of think about it and

the company ITT and Caesars was taken over by Starwood. And that meant I was gonna be out of work. And I got a call from a headhunter who said there's this REIT in Bethesda, Maryland. Would you be interested in a CFO spot? And I said, sure I would. What's a REIT? And had no idea at all. And so I came in in 1998 here and...

was CFO and then, you Steve and I did very well together. ⁓ But we did have a disagreement on the ⁓ future of the company. And that, you know, went back and forth and...

Ultimately, I got the CEO job here. And that was now whatever it was 27 or 28 years ago. can't believe it. And that's how it all started. But you come in. The reason I say that Trump firing was so important is because it made me not afraid to be fired. And it's not the end of the world. Makes it easier to speak the truth. I took chances.

bigger chances, even when, you know, whatever it was years later, when I guess it was 10 years later, when or 12 years later that that ⁓ Steve and I disagreed here, I said, well, then fire me. It just didn't it didn't. It'll be all right. There'll be another job. And that would not have happened right without that Trump experience. So, no, I very much don't don't shy away from talking about that or or. ⁓

being appreciative of how that whole thing came about. And how much was this disagreement moment with Santana and the allocation towards that, risk? My wife was then at Arthur Anderson. I don't know if you know this or maybe you were in the meeting and they came and proposed to Steve, maybe again you were in the room, proposed a joint venture that would have taken off like a whole bunch of the risk.

And Steve said, I'm all in baby. And my wife came home and said, these people are nuts.

Capital allocation is very important. Capital allocation. OK. We've done that one. let's think of one thing before we wrap up. And the question is, if we go backwards to when you became CEO after three years at this retail company, and now we look forward to when we talked about business platform.

and your ability to understand all aspects of the business, the business becomes somewhat more complex, but the magic was still there back then too. So talk about your learning curve to become an evolutionist CEO. Well, that's a great question. You know, it's interesting. My experience at Arthur Henderson, ⁓

which was again my first job, included a lot of profit improvement and process improvement. And when I interviewed at Federal, ⁓ it was so crystal clear that the company had great assets, but that needed... ⁓

organizational change. And so even though I didn't know real estate, I knew that I could be valuable for some period of time with what my skill set was, right in, order to rationalize costs in order to put the organization in place. And so, so I knew that that while I didn't know, merchandising, I didn't know

development, didn't know components, important components of what this company did, I knew that I would have time to learn those things while adding value in another way. And I put my mind to that in a big way. as the initial couple of years of getting the place centered ⁓ were taking place, I wasn't sitting not learning ⁓ other things. So I laughed because

You know, at one point, you are an expert in something ⁓ that you knew nothing about early on. It's like when you think about somebody that you knew in grammar school or in high school and you imagine hiring them today and you say, my god, guy's an idiot. I couldn't hire him.

Well, you know, he or she has been doing some, of course, 30 years. They've been learning something. Right. Along the way. So keeping an open mind. Yeah. Well, it's just actually because you come in as a very young CEO. You're not now an old CEO, but a longstanding CEO. Thanks, Matt. But along the way, right, you embody the business that it is and you do learn everything and holistically about it. So the skill set does change over time and you evolve and people skills and

you have to be a curious person. Right. And and ⁓ you have to stay open minded. You have to enjoy people. ⁓ think, you know, the real estate business is generally a financial business. And so you can be successful simply being a financially oriented.

person and running the business that way. I do think there's something additive if you can be a financially oriented person, but also ⁓ have EQ and understand people and understand motives. And if you can put that all together, you can add more value than if you simply look at things financially. Right. And it's interesting, if I was a CEO because I am a platform oriented and a people oriented person and my numbers are my numbers

skill

are mediocre and I would lose the discipline of the through line of the numbers but when you add both that is the magic that you have to have. So next to last question you've been a leader in cystic fibrosis for many years. Your daughter has this disease and it's a disease that when I first learned this of your family I went to a fundraiser 25 years ago and it was a death sentence maybe that's the right word to use.

and it no longer is and you've been a leader in helping move it from one place to the other, what does that mean for you? What does... Honestly, I'm far more ⁓ proud, if you will, ⁓ of our family's role in the advancement of a cure to...

cystic fibrosis than anything. so than work, more so than anything else. Now, I'm not nearly as involved as I used to be. ⁓ And part of the reason for that ⁓ is because the business model of the cystic fibrosis foundation has found a way to raise money. ⁓

through venture capitalism that I think makes me less needed. And if you look at what has happened along the way, my daughter is 30 years old and my daughter is very healthy. And that is just a, it's just something I will always be incredibly proud of. The advancement in CF research has been amazing.

So it's an important part of what it is we do and who we are. And what is the business model of the foundation that enables a business

I've never heard the word business model and foundation in the same sentence. So what does that look like? So there have been two Harvard business reviews done on the Cystic Fibrosis Foundation. You should check. I will. Yeah. Venture capitalism. that the disease that you have, that you're trying to help is only affects ⁓ roughly 30,000 people. Right. It's not going to make money for Pfizer or for any big pharmaceutical company because.

They do the research and they'll never be able to make money off it because there's not enough people that are afflicted ⁓ So you got to find a smarter and better way to do that venture capitalism was the way that the CF foundation did this and and so they partnered with with a lot of small even startup Biotech companies many of which are in Boston one of which in particular company called vertex has been a

That's That's ⁓

⁓

Last question on leading voices your advice to a young person getting into the real estate business. man ⁓ First of all do it. You don't have to be a financial genius So please if you say gosh, you know, like if you say look I suck at math and I can't do three times three then you're right you shouldn't be the real estate business, but if you were if you're solid at the ability to understand and manipulate numbers, that's great, but it's more important

that if you have that combined in my view with people skills because so much of real estate, we haven't even talked about entitlement. How to and when I say entitlement, I mean how to get the permission with a city or a county or some level of government to build something or do something on a piece of land. You need to be influential. You need to read the room. You need to understand that the various various factors to do

that you need to have a personality right and so so you know from up from this is why I do think and I'm gonna get on my my in office kick here for a second I know I sound like an old guy here

But I hate the notion of remote work. I just hate it. And here is why. It's not about in your job when things are going well. When things are going well and you're just doing your job, that's great. You can be anywhere doing whatever. It's when things don't go well. It's when some boss or leader or something in a company has a problem that he or she looks to his or her left or right.

and says, can help me with this? I promise you that human being is more likely to enlist the help of someone who's there that they know, that they know they can trust. That's not some faceless name that's working somewhere else. That's how you get ahead. Become important to people who need you. And so the notion of how to become important to people who need you in this business.

or any business should be at the forefront of any younger person's thinking. If you are decent with a decent financial acumen and you've got the ability to work hard and not mind...

doing whatever is necessary to become to build relationships. Right. With not only your bosses, but with outsiders, you will be successful. I don't know how I don't know how it plays out. No, it's not guaranteed, but it is guaranteed that if you're not going to do any of those things, you won't be. So if you're not in the office, it is hard to learn to build relationships with colleagues. You have to build relationships however you do it. And again, think about what times are not good.

Not when they're good and everything's fine. Yeah, it's interesting. One of the two things I say on the podcast all the time is the two negative words in the English language are developer and landlord. And we are. And you have to get entitlements. So someone has to trust this developer and landlord to say, hey, at Pike and Rose, I'm going to build this thing that you're going to want to be here community. So they have to trust you. There's people skills all over the place in there.

I'm not so sure what jobs there are that really aren't. And I would say...

that because of what is kind of happening in the overall workforce, that if you do have people skills and you're not a dummy and you've got the ability to work hard and build relationships like that, then your chances of being successful are better than they were 10 years ago because there's fewer people doing it. That's a fair deal. Totally agree. Let's leave it at that. This is a great conversation. Don, thank you. pleasure to be here. Thanks again for giving me the opportunity.