The CRE Connection · Samy Soussan

Welcome to the Commercial Real Estate Connection podcast, the place where we connect with the brightest minds in commercial real estate, uncovering their secrets, strategies and captivating stories.

I'm your host, sami Sousan, here to serve as your guide and connector-in-chief on this exciting journey.

Together, we'll dive deep into the world of commercial real estate, exploring the ins and outs of this dynamic industry.

Our goal is to discover the true power of meaningful connections along the way, so get ready to plug in, engage and elevate your commercial real estate journey.

Hey everyone, welcome to the Commercial Real Estate Connection podcast.

I'm your host, sami Sousan, and today we have the privilege of welcoming a true industry Titan, mr Jason Baker, co-founder and principal of Baker Catz Star Show.

With over 25 years of invaluable experience in the Houston retail market, jason's established himself as a prominent figure in the field, leading the Baker Catz Tenant rep team and bringing an unrivaled market knowledge just clients.

Throughout his career, jason's collaborated with many well-renowned brands, such as Best Buy, fox Restaurant Concepts, as well as Texas Children's Hospital.

Furthermore, his contributions extend beyond the Tenant rep, where he plays a pivotal role in identifying and underwriting development projects, which hopefully we'll touch on.

Jason's expertise and achievements are further enhanced by his past presidency in the X Team International, and it's an honor to have Jason Baker as our guest today.

We really look forward to delving into your vast knowledge and insights into the world of commercial real estate.

So welcome, jason.

Hey, sammy, thanks for having me Really really looking forward to this.

So, Jason, I'm really thrilled to have you on the podcast.

It's a real privilege to host you and let's just jump right in there.

I'd love to start off by getting to know you a bit better.

Maybe you can share a bit about your background and what you would say sparked your interest in commercial real estate and what let you down this exciting path.

Yeah, my business partner, kenneth Catz and I always talk about both having grown up in and around the business.

Kenneth's father was a really well-known and very successful real estate attorney in the market named Marvin Catz.

My father actually came to Houston by way of BNFL and then, when he retired from playing professional sports, he got into the real estate business, and so I would say from the time I was very young I'm the oldest of four kids, like you said, I'm a native Houstonian I was driving real estate with my father and hearing about the deals that he was putting together.

He did a little bit of office, a little bit of industrial, a little bit of retail, but also was very successful, and so I would say I grew up around it.

I grew up in Houston.

As I mentioned, I went to college at Texas A&M and after school got out and began really interviewing for jobs.

What felt like crummy time.

It was in the mid-90s.

Oh yeah, it was in the mid-90s and I was very.

Thankfully, I was offered a job by Ed Wolff.

He was in the process of starting a real estate management firm and they needed someone, maybe young and aggressive, to get out and lease these projects for them that they were managing.

That was part of what they needed to offer leasing and management and so I was hired and did that for about a year and then realized pretty quickly what I really had an interest in.

It was tent rep and representing retailers and really growing that side of the business.

Within about a year of being at Wolff Kent at Counts showed up.

We had worked together years earlier for an appraiser, the summer job in college, and he showed up and took a job and in desk right next to me and we began working together.

And of course they say the rest is history.

We began working together in the mid-90s and worked just about every day together since and it's been probably one of the greatest gifts I've ever had.

You know that's a blessing.

I feel like working with someone that you really have a strong and good relationship with is extremely understated in an industry and fundamental and crucial to the success of your business.

I think you're right.

You look there's plenty of examples of bad partnerships.

I think the older I've gotten, the more I appreciate what a good partnership looks like.

One really bad decision can really undermine a great partnership and I'm really, really grateful that partnering with someone who has the habit of making good decisions and is a person of high integrity and really works hard and is organized, I'm very thankful.

That's awesome.

Thanks so much for sharing that, Jason.

So you mentioned that you got into the tenant rep business.

For those that are beginners out there in commercial real estate and kind of getting started out, maybe you can share a little bit about what it's like to be a retail tenant rep and even share maybe a sneak peek into kind of your daily routine, the ins and outs of your role and some things that you handle on a regular basis.

Yeah, I was really fortunate.

I was in a company that was very active when I got started and I was making observations about the people in the industry that I really respected and I since were performing well and successful.

And so the very first tenant rep account I ever had was general nutrition centers.

They were a franchise concept.

They were predominantly in malls, but they had an interest in being in grocery anchor centers around Houston.

In the mid 90s there was a tremendous amount of grocery development in our city and so I had the one tenant that had all but no competition and there was, like that, an insatiable appetite for being in grocery anchored centers.

And so I learned that then, this again, or very early on in my career, how to develop a market strategy, the things that the retailer really cared about, where growth pockets were, how traffic patterns worked and the importance of future road construction, how it may or may not impact positively or negatively a tennis decision and so really focused so much energy in those first year to two years of my career on that one account and it forced me to learn the shade really well.

But I did realize, like you said, through that account, how much more of that business I wanted to pick up and so early on I set a goal.

I really thought it would be possible to represent a retailer in every category of retail.

So I would want to represent a retailer that specialized in consumer electronics, an office supply, in coffee, and it didn't work out 100% that way, but it worked out close.

I love the people part of it, I love the strategy of it and I love the competition of it and almost every category of retailer.

You may have almost always two competitors and so I love the competition of it and I just I really fell in love with the tenant rep side of our work, the service element of it, but the people part of it I really liked.

You know, I guess most people view commercial real estate as just very binary.

You know, buying, selling buildings, but sounds like when you really delve deep into it, you realize that and I would say in particular in retail, that the tenants are everything, and so having key relationships with those tenants is extremely important.

Yeah, no, that's, there's no question about it, and that changes from time to time.

Right now, we're in an environment where the market is so tight that in some ways it feels like it's better to control the product than it is even the retail.

But for most of my career, I would say being able to, you know, control the retailers maybe not the right way for me to say it, but to have a strong and strengthening relationship with a retailer that's looking to expand your market is a really valuable thing.

I think there's a lot of truth.

There is a lot of truth to that.

And then being able to develop a habit for seeing retail through the lens of seeing retail in commercial space through the lens of a retailer, is really what it's all about.

To slip into their shoes and, with different product types, being able to behave like a real estate manager creates a lot of value for the retailer, who oftentimes doesn't have a physical presence in your market or certainly doesn't have corporate headquarters in your market.

I think that is a really valuable thing and I think, frankly, I think separates one tentrep broker from another.

But I think the other thing, sammy, is not everybody leashes multifamily space, not everybody leases office space, and not everybody certainly has ever had a need for industrial space, but everybody's a consumer and so I think that sort of, I think that makes retail a more appealing subject than almost any other category of commercial real estate.

And so, yeah, the retail space, number one, it's exciting.

Number two, and I think probably what I'm most excited about is all the naysayers going into and coming out of COVID if they're wrong.

Retail is very, very relevant among institutional investors and among local investors, and it is a great time to be a developer in this market.

It's a great time to represent retailers looking to expand in this market.

That's really interesting and we're definitely gonna touch back on that in a couple of moments, but I wanted to delve a little bit more into when you transitioned to Tether Rep.

I think it was about 15 years ago, you mentioned.

It's a little bit longer than that.

It's probably closer to 20 more years, but yeah.

Gotcha.

So you mentioned how you got started in commercial real estate.

What kind of motivated that shift into specifically the Tether Rep side and how would you say that has influenced your perspective and that approach to commercial real estate overall?

Yeah, no, this is a great question, you know, I would say when Kenneth and I got started, we look in any given year there's only going to be a certain number of retailers that are coming to the market and there's going to be a lot more brokers vying for that business and there are retailers to go around.

So it is competitive and it's a competitive space.

Early on in our careers, like so many brokers before us and after us there was, we were heavily concentrated in projects.

We were doing a lot of project leashing and had great relationships with a number of publicly traded companies and with local, with local developers, and we love those relationships.

But what we found, at least across the board, is that there was this continuum, if you will, where you've got the really high quality product on one end and then you kind of have everything else on the other end.

A lot of that would be on anchor or mid block retail.

What we found was to really create a lot of value for the customer on the project leasing side was to us more difficult day in and day out than creating value for the retailer that was looking to either expand its existing presence or come into the market for the very first time, and so we just we really gravitated towards the service side and the tenant rep business more than the project side For anything.

There's more reasons than that, but that is a really simplified way of saying we just fell in love with the value proposition that we could add on the tenant rep side, and I think that was a good decision for us.

That's awesome, jason.

Maybe you could share now a bit about how you've seen the role of tenant reps evolve over the years.

I feel like there's been a lot of change in these strategies that have improved and effective in representing tenants, yeah.

One thing is for sure feel like retail has evolved in a different way than the other commercial property types.

For sure, Retailers, for years, middle part of the century, they would take one prototype, one floor plan, one shelving and inventory, lighting and music, you know, feel like they would take everything and they would just, you know, they would cookie cut it from one march to the next.

And I think, in a lot of ways, retailers and again, this is a big generalization, but I think retail is retailers that realize that the customer is insisting on more than that, I mean.

A great example of that, of course, is HEP, and they're certainly more regional than they are national, but they have figured that out in a really unique way with the way that they roll out stores and different brands, depending on the market they're going into or expanding in, and so I would say too, just the industry in general.

While retailers have certainly changed a lot over the years, you know, we saw early on in my career I remember HEP was rolling out pantry stores and they were 25,000 feet.

Of course, now HEP's got stores that are well over 100,000 square feet and Martin's, like San Antonio and Houston, and of course they're expanding aggressively right now in Dallas.

The trend has been interesting.

I mean, you've seen the shift towards smaller footprints than to larger footprints and I now feel like, in a lot of ways, retailers trending smaller or certainly more efficient.

But also the role of the broker, I think, has changed a lot.

You know the idea for as long as real estate has been around the tenant rep broker, that role has not been around that long and retailers should have high expectations of the brokers that are representing them.

I think number one I think a broker is responsible for representing or advocating for the brand well, obviously, which means leveraging hopefully good relationships that they have in the market.

I think also, the role of a broker is to control the things that you can control, and oftentimes that means turning up business that's really hard to come by.

We tell retailers every week that look if there is a sign in the window of a space, there is a 95% chance that it's not going to be a fit for us, which is not what every retailer wants to hear.

It goes back to turning up information that's hard to come by is really where you are your match, and that's what the role of a good tenant rep broker is, at least one of the things that they need to be doing so represent the brand well, be aware of changes in your market that someone in Minneapolis or Denver, atlanta, couldn't possibly be expected to know, and then to turn up information that's hard to come by.

But then, ultimately, the people that you're working with are going to, at some point, have to stand up and make presentation on a sign that they're hoping to get committee approved, and the goal, ultimately, is to make them look really, really good in that decision making process.

And that's really the role, that's really the role of a tenant rep broker.

Sounds like you really really have to study your tenant.

You know, when you're project leasing, essentially you're just thinking care about filling a spot, but as a tenant rep, you really take on a lot of responsibility for the clients or for the greater brand, as you mentioned.

It's certainly a lot of accountability on behalf of the broker.

Yeah, I think that's right and, by the way, that's part of what makes me a tenant rep work on the retail side.

So interesting is, man, if you think about the scope of the retailers that we work with and that other tenant rep brokers work with in our market.

You know, you've got to know, a little bit about electronics.

You've got to know a little bit about grocery.

You've got to know, or maybe a lot about grocery and a lot about just consumer behavior, spending patterns and the overall economy, both on a macro and a micro level.

Then even take it down, more locals than that.

You know, we get asked all the time about representing retailers in other major markets and we always tell them like, look, we're the city of seven and a half closing in on eight million people, and the nature of retail is change and it's our responsibility to be aware of what is changing in our market and communicating that to our clients.

To get outside of a market that already has 300 or 400 million square feet of retail and a growing population is at least a company our size is almost more than we could responsibly handle, and so I would say most of what we do is I always describe it as like somewhere between an hour and a half, two hours of Houston and Rio Grande Valley.

That's where we spend most of our time, yeah.

So it's not too far of a distance, not too far, not too far.

So now to shift gears a little bit and discuss a little bit of the ever changing retail landscape.

I know we touched on it a bit earlier but you know, traditional brick and mortar retailers are facing some very unique challenges with the rise of direct to consumer brands, e-commerce and your opinion maybe you can share a bit about how Traditional brick and mortar retailers perhaps can adapt and stay competitive in this shifting retail environment.

Yeah, I don't.

I mean calling it a shifting retail environment.

I don't know that.

I totally I don't know that.

I totally see it that way.

The word that's been more overused in retail than any other word over the last decade is this idea of Omni Channel, and I feel like, now more than ever, on the heels of COVID retailers.

If they don't, they'll fail.

The retailers do understand the value of a physical presence and an online presence, and you really can't do one without the other.

There's no question about that at this point, other than Shiel, what can't you buy online, right, I mean?

And so think about, like, I mean, did anybody ever talk about buying a car in a meaningful way, buying a car online?

Pre-covid?

I mean, there was a little bit of that happening, but not nearly like it is now.

And for grocery sales, I mean, curbside was available pre-COVID, but I know most people I know now are doing most of their grocery sales Online, and so this idea of Omni Channel is now more important than ever.

But I'm trying to shy away from that word because I feel like it has truly been so overused.

I think that they're, I think that retail, because it is so interesting, I think it is every evolving.

I think that retailers that have only had an online presence have underestimated, as a rule, have underestimated what it costs to capture the attention of a consumer if you don't have a physical presence.

And then I think retailers that only have a physical presence are going to have challenges by not having an online presence, and I think we'll see more and more of that, especially in soft goods.

I think you'll see the challenges of that more and more, especially with discounted soft goods.

I think that's where you'll see a big plane, a big move.

I think the really interesting story real interesting recent story is this idea that Nike wanted to pull so much of their product out of these really important physical outlets and it was a I feel like it was a failed experiment almost overnight, where they'd gone back and renegotiated their deals with almost every one of those outlets, understanding the importance of having a physical presence and not feeling like, in order to cut out the middleman, they're going to go DTC on, you know, on all of their higher end or higher quality product.

I just think they realize quickly that's not a successful recipe and I don't think it's a successful recipe with the possible exception of luxury goods.

I don't think it's a successful recipe for just about any other, any kind of retail product.

That is fascinating.

You know, I have a friend who mentioned that he buys retail centers and one of the most important factors that he takes into consideration when purchasing those centers is that they're kind of Amazon proof quote, unquote where all the tenants are going to be primarily service based Maybe it's selling alcohol, maybe it's nail salons, maybe it's hair salons, but primarily businesses that don't have an online presence and that way kind of protects his investors, investments.

Is that something that you've seen on the investment side or you know?

Based on our conversation, it sounds like even if they're online, tenants are still finding it very, very important to have a physical presence as well.

That's what it sounds like.

Yeah, that's what it feels like to me for sure.

Across the board, look, there's independent franchise model retail storefronts that really can't afford to do much online or very little.

The cost of really having a robust presence online is also expensive, but no, but across the board think that is very much true.

Is that you really have to have both to be sustainably successful over time?

No, question.

So, Jason, I know last week when we were putting our heads together, we kind of spoke about this for a bit.

We're taking a look at our market, the Houston market, where quality inventory is very low but there's still pretty high demand for that type of inventory.

What kind of strategies do you recommend for the businesses that are looking to expand and, maybe you know, find those suitable commercial spaces to accommodate their growth needs?

What would you suggest to retailers to perhaps do a better job at finding those spots?

Yeah, I know it is.

It's a really tough market, tough in the sense that very, not tough, it's very tight and, a matter of fact, as tight as any time that I can really remember.

You know, we are at really interesting time in Houston where, you know, outside of, like Charlotte, I think we had more retail per capita than any other major market in the country.

We have a lot of retail per capita and I do believe that this constriction, with all of the material costs overrides and the cost to develop and how problematic that's been for local developers and developers all over the country, but I think it's been especially good for Houston.

I think it has allowed our population to grow without, frankly, adding much in the ways of retail.

I think that's good for landlords, I think that's good for retailers.

I think across the board, I think it's going to be good.

You better believe, when these costs come down and when interest rates come down and we get all this detention craziness under control and really figured out, I think there will be continued, there will be a robust amount of retail added to this market.

There just will be, and I think a lot of it will continue to happen along the Grand Parkway.

But this is the environment we're in.

Every landlord at some level struggles with keeping or getting I should really should say certain space leased.

It doesn't matter how you market it, it doesn't even matter how you might discount it rent-wise, and we're seeing a lot of that space even getting leased right now, which tells you a little bit about just how tight our market really is Then.

So this is where I really do believe that tent-rep brokers have to have an opportunity to make clients for a lifetime is coming up with again the information is hard to come by, and I think part of that is number one really refining the strategy that your client has.

I think that is a really important thing making sure that the expectations on economics and timing are clearly outlined on the front end.

And then I think, too, it is this idea of calling on signs.

While it's valuable, I think it means getting ahead of lease expiration dates and even week tenants.

I had a conversation with the landlord just in the last few weeks.

He's got a quality tenant their best days are behind them but where he's just like we want this space back because we feel like by re-letting the space to our higher quality tenants, it's going to help us with leasing on this second phase of our project, but we can't get it back, and so they're looking at doing it on it this retailer to make sure that they're actually keeping up their end of the deal, especially as it relates to hurdles, sales hurdles that are built into their lease.

And that's really at the point where we are, which, by the way, I can't say that I've seen a lot of that in my career.

I think you lease in the higher, better quality projects.

I think you can expect to see some of that, to the extent that it's built into leases.

But I think it means being persistent.

I think it means being in your car a lot.

There are things, despite what people think, there's things that you just can't learn by being behind your desk and behind Google or behind email and I think that it means getting a more aggressive and more persistent and better follow through than maybe you've been in your career.

That's where we are in this very, very tight retail landscape.

Yeah, a friend of mine once told me that when it gets to this point, when it gets tough, you just got to pedal harder, and so I think being more creative, coming up with unique ways to find those locations, will be crucial to their success.

Yeah, I think that's right.

So, jason, there's an ongoing debate.

Whether we're in a recession or not, it's something that we see all over the news every day, all the conversations you hear at every restaurant, doctor's office, wherever you're going, and it's something that any commercial real estate professional or anyone who's in the finance industry is always talking about.

I'd love to hear your insights and maybe perhaps some forecasts that you can share about in the next 12 to 18 months and thoughts that you have in regards and in particular, to the commercial real estate industry, and if there's any specific sectors or markets that you think will experience growth or perhaps face more challenges.

Based on that, yeah, in an effort to keep things positive, I would say I'm not an economist, that's for sure.

Anybody here in my office would say he's definitely not an economist, but it is interesting.

I make observations about the stuff I see at street level every day.

Right, that has a lot to do even with the way I invest in the market and in stocks.

I just see, I look at just human nature and human patterns.

That's why I pay attention to and I don't think there's any question that we're starting to see a little bit of a pulling in, a little bit of a drawing in in terms of spending.

You might not necessarily see it in Houston, but I do think we're seeing signs of it in other parts of the country.

Number one, and so it's interesting how even the way that people define recessions has seemed to have changed over the last six months.

I mean, I know that there was technically a way of defining it and had to do with two consecutive negative GDP.

I think people have moved away from that, the people that I really respect and the people that I listen to, and I learned something really valuable through COVID and hitting it really simplified by saying man, be mindful of what you're listening to Be really careful.

You can't take bits and pieces from every talking head that's looking for a crowd or looking for an audience.

Be really mindful of who you listen to, and the people that I respect would say that number one if we aren't in a recession, we're going into a recession, but it is possibly going to have a softer landing ultimately than what we were originally braced for.

That is where I truly believe Number one.

Number two is there's the empirical information that you can look at and go what are the federal funds rate is predicting at the end of 24 to have rates at 40% lower than where they are right now, and the only reason I think that is important is we've seen the Fed lift these rates consistently, not this past week, but in the weeks prior or in the months prior, and that was something again that they had a tool out of their toolbox so that they ultimately could begin lowering the rate of the federal funds rate in an effort to spur on the economy.

Right now, it sure appears that they're preparing to do that at the end of 24, which only can lead you to believe that they think things will be getting worse towards the middle and latter part of next year than it is right now.

I mean, that is an oversimplified way of looking at things.

I am glad that, while the office environment seems to still have some serious headwinds, I think the next six to 12 months in the office space is going to be really interesting to watch.

But I think, too, you'll start seeing a slowdown of all the crazy amount of industrial development that we've seen in this market, and I'm glad that we've experienced that kind of growth.

I think you'll start seeing more retail development and I think you'll continue to see some but not an overly high amount, of single family development.

And so all that to say, sammy, is I think Houston will continue to be vibrant, I think that Houston will continue to be a great place to live and I think that things will move forward, but in check, and we're probably going into the beginning of 24, through the middle part of 24.

I think you can start feeling a little hairier, but with maybe without the hard landing that everybody was expecting initially.

Sure, and I think the fact that we saw the Feds didn't raise the rates this past week was a certainly a breath of fresh air and a bit of a slight relief.

So I guess we'll see where it goes from there.

So, Jason, I would love to hear more about a recent deal or project, something you worked on.

Maybe you can walk us through briefly and share some valuable lessons and key takeaways that you've gained from that experience.

It's hard not to think COVID.

In one sense it feels like a lifetime ago and of course, in another sense, gosh, maybe you do too.

I mean, I know people that have COVID right now.

So in some ways, those little like, those little like examples of people that are in your life that have COVID you're like coming okay, so it's still never really was a real thing.

And it wasn't that long ago.

We bought a parcel land Northwest Houston, up in the Brenna market, shortly before COVID hit, and I had never I had never nobody had experienced what we experienced right during COVID.

It was fresh and new for all of us, and so to me there was a lot of grace on the front end as people were trying to navigate those choppy waters.

Thank goodness we're in Texas, because while we had started site work on this 50 acre site, things came not for us because we'd already begun the work, but at least in terms of retail interest we felt like things came to a screeching halt.

That, to Kenneth and me, felt like scary times.

We weren't sure what things would look like going out, you know, three, six, nine and 12 months, and thankfully, within just a couple of months, things seem to be closer or maybe even operating at a higher level of interest on this particular site.

So the lesson was that project has turned out great I mean we're really great and city, the county, everyone that had a part in that project coming together, it was great experience all the way around.

I would say the big lesson for us at that point was never one keep your wits, maintain your poise.

Even in uncertain times, cooler heads will prevail.

I just think about those early months and all the stream statements that we were hearing about COVID and the death of retail as we do it and all those things.

And the reality is that retail, if nothing else, retail, proved just resiliency and the fact that it really isn't going anywhere.

But I think the other lesson and I mentioned it just a minute ago is guard and protect your hearing.

Listen to the people you trust.

Don't listen to every soundbites and all the pundits and talking heads on TV that are an expert in nothing right but like part of it's got instinct.

But part of it too is leaning into and trusting the people you really respect and that have been through our times I mean, you know, leading and demanding times.

There are a lot of books that could be written about that coming out of COVID and there's something about Sammy, a wobbliness, or maybe the change that was happening so fast in the front end of COVID in a really strange way.

I enjoyed, really enjoyed.

There were pieces of it that were very scary, but I love change.

I really love change.

And I could because I feel, like you know, jeff Bezos has a really good line.

I'm not I don't know if I'm particularly a huge Bezos fan, but I do like this line Is he said, when everything's turned upside down, people try to move towards the areas where they feel like things are changing.

And he said great leaders remind people around them to focus not on what's changing but on what's not going to change or what will remain the same.

And the fact of the matter is, we knew that people will continue to shop.

We knew that a well-designed and thoughtful project would be embraced by the community and we knew that this was a part of our state that was continuing to grow, even if it was delayed by three to six months, and we were exactly right.

So, again, that was a project that turned out great.

It's called Brenham Crossing.

We're under construction with two new anchor tenants Tum Depot and Marshalls, and Petsmore and Fibolo and then it's a big project.

It's about 250,000 square feet of anchors in the back we're leasing the pads up front and the really cool thing which is add, is that by putting this project together, we really created.

With the help of Texton, we created a new retail pocket up in Brenham.

It's only about 80 miles northwest of Houston and the guy you're seeing, academy under construction and we've got Burlington and Alton under construction.

In our project Chick-fil-A's come into the market.

They've wanted to be there for a long time so it's been fun to help.

Had to have a hand in delivering this to that city in County.

It's been great.

You know, besides the actual tenant rep, it sounds like you're also spearheading and building communities and that really drives the businesses that are around there and so it kind of really brings in and helps grow the communities that are around there.

So that sounds really really cool.

So now to focus a little bit on building relationships and how crucial that is in the commercial real estate industry how do you approach fostering connections with industry professionals?

It's interesting that you're asking that question, especially given the yesterday was Father's Day.

I had dinner with my father on Father's Day and I don't think I learned from anyone else more than what I learned from him about the importance of relationships, and so I would give him 100% of the credit.

Everything I've learned about relationship building I feel like I've learned from him, and he used to number one, especially as a young person.

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