#388 - Mark Toro - CVO @ Toro Development Co. - Developing Generational Mixed Use "Fortresses"

Chris Powers: Mark, welcome to the show. It's a pleasure to have you today. 

Mark Toro: Thanks for having me, Chris. Happy to be here. 

Chris Powers: Let's just start with how you got into what I would consider some of the most world-class mixed-use developments. What in your career got you to where this is what you decided to spend most of your time on? 

Mark Toro: Well, first, thanks for the kind words. World-class is maybe a bit hyperbolic, but thank you. During the GFC, we all in the real estate business had a lot of time to think and read and take naps and ponder. And at the time, I was just ripping through a bunch of different books. One was Retail Revival by, I forgot his name now. Let's come back to that. At the time, I was reading a number of books about the state of the world. One was Retail Revival, which essentially suggested that two ends of the retail spectrum would survive, that most animated and that most automated. So, think Apple Store versus Walmart, and everything else in the middle was going to get crushed. The other was the Great Reset and it essentially suggested that there would be a rise of a renter class in the US by choice. And the third was the Experience Economy, which suggested that people would invest in experiences, not in things. When we started to compile all those things and conceive what we were going to do next, because we were essentially out of business. Before the GFC, I was, for the most part, developing power centers in the suburbs with Target and Publics and others. And that business hit the wall in a flaming wreck. It's returning now, actually, in a pretty big way. But didn't know what we were going to do with our lives and literally spent a lot of time on the couch. I remember it was a Tuesday afternoon about 2 o'clock and my wife came home and said, are you going to go to the office today? I'm like, why? There's nothing to do. But in the winter of 2010, we had the opportunity to acquire a mixed-use asset in Atlanta called Atlantic Station and use it as an incubator for creating all of the ingredients of what is now our secret sauce. We tested things like valet and concierge and music and lighting and events and activations and social media and PR and all of it in the name of community engagement. And we became more about service and hospitality than about real estate. It was no longer about collecting rent, sweeping the parking lot, and maximizing NOI. Of course, obviously, we were seeking that, maximize NOI, but by doing so in a different...  taking a different approach. So that's kind of where it all began. At that time, we were in the process of righting a ship that was listing very, very badly. Atlantic Station was on the death watch list; it was really in a death spiral. And we had the chance to deploy all of these, I'll call them soft skills. We replaced all of the software and none of the hardware. Didn't lay a single brick, but bought it for 74 million, put 26 in it, sold it for 200. It was a good day. Good investment, really galvanized us in the idea that creating experience and for what, to use a very, very overused term, place making could create value in real estate. And then we went on to do Avalon, then Colony Square, and now Medley, and each of these has those software components in common. All of them are unique. We say that each of them is one of one, and we are inventing the wheel every time, so it's very taxing. It's by no means a conveyor belt. We can't really scale this business significantly. But I don't know that we want to. I mean, it's a matter of creating really special, highly valuable fortress positions in real estate, in really strong demographic markets. 

Chris Powers: Oh man, we're going to peel back a lot of that. Before we get there, on that book that you read, I'm just curious, why did it say the middle would get gutted? And now that it's been almost 15 years, what was the middle that got gutted in retail? 

Mark Toro: Think Sears, think any mall department store, regional malls generally. That segment of retail real estate, Doug Stevens, who's to this day one of the great retail futurists and speakers on the subject, his belief was at that time, and again, this is 2010, ‘09, ’10, was that the regional mall was going to go away. To a great extent, it has or is going away. 

Chris Powers: That was playing off the e-commerce story? 

Mark Toro: For the most part, yes. And the fact that the experience that one could have in a regional mall at that point in time was not adequate in order for- to capitalize on the entertainment component of it. It was literally just to go buy stuff. If you're going to go buy stuff, you don't need to go farther than your couch. 

Chris Powers: Okay, I kind of want to spend a little bit of time, almost like how a deal like this- you mentioned secret sauce. Obviously, location matters, demographics matter, building something that's a fortress, which is... when I hear that, I think of something that's kind of impenetrable, it becomes what you would call the third place effect. But maybe we just like, it's almost like walking through how a deal really gets put together. And maybe we just start with like how you would even know you were looking at a location or a site that could possibly fit what could become a fortress. Because I'd imagine the location is the best place to start, or could it be done almost anywhere? 

Mark Toro: No, no, the location is the only place to start, and it's all about demographics. Before when we were doing power centers in the suburbs, it was not only about the demographics of that specific sub-market, but how close sister stores were for that specific anchor retailer. So it was all about cannibalization and competition and so forth. Here, there is not likely a competitive force of the magnitude that we typically deploy. There are only a dozen or so, if that, mixed use, retail dominant experiential mixed-use communities in the US. I think Domain Northside, Legacy West, Kierland Commons, Santana Row, Americana at Brand, Avalon. It's a relatively short list. It's growing because people are taking up this, they're getting in this business. Hines is an example, recently delivered Fenton in North Carolina, essentially doing what we did, studied the best in class and then sought to improve it and and customize it, personalize it to the demographic. Back to the demographic – high income, reasonably high density, suburban communities. I take that back. Colony Square was very much an urban deployment, but still, high income, high disposable income, high education levels, diversity, diversity of experience in community is what our product is. So, the opportunity to deliver something to a discriminating consumer is important, and that consumer's got to be a resident in that trade area, in that 15-minute drive, in that five-mile ring, in that seven- whatever you want to do. So, we're- as an example, Medley, which is a project we have now under construction, which will be a $560 million deal all in, is in a community in Atlanta called Johns Creek, which is the first time I've ever seen a five mile ring with average household incomes north of $200,000. That is, it's a big number in suburban America. You might see that in Alpine, New Jersey, and in the Bay Area and other places. But in a suburban community that- and by the way, unlike many trade areas where you have a pocket that may not be as strong as others, this is 360 degrees of solid gold. So the key, and I'm visiting a community next week in the Midwest that is the Johns Creek of this major Midwest city, and we're attracted to it purely because of the income levels. So, the first step is to identify the fact that, A, there's a contiguous site, land area that's available. At Medley- Avalon was 86 acres. Medley is half that size, more dense. All of these projects have gone on what I'll call a retail diet. When we were building 550,000 square feet of experiential retail in 2012, ’13, we're now building half of that or less. So, then the idea is many of the municipalities that we approach are familiar with Avalon, so they sometimes seek us out in order to bring in their own Avalon or their own Medley or their own Colony Square. So often we approach them with a calling card, but sometimes there's still trepidation and apprehension about multifamily residential, about density in these communities that are used to shopping centers and apartment complexes and gated communities. So, entitlements are often challenging because these are planning departments who have never seen seamlessly integrated mixed use. So residential over retail, office over retail, hotel over retail, and that commercial district and that streetscape is absolutely sacrosanct. So, the ability to deliver a non-traditional suburban- the typical suburban model is grocery store or value retail or Target in a big parking field with a large pylon sign and some junior anchors and so forth. Here, the retail is intended to be experienced from the boulevard, from the inside. So we're often tagged with not having what they had referred to as curb appeal. So, you're driving by on the street and they- the typical experience of retail was see the signs of the retailers as you drive by. Well, that's not- that doesn't happen here. Our entire mantra is get them out of their car and get them on the street on foot. And that is the magic of this model is that we're able to create an urban experience, a pedestrian experience in the suburbs. And that is what has- that is now why it succeeded. I live at Avalon, my office is at Avalon, to again, you can use an overused term, live, work play, I live and work and play here. Like last night, my wife asked me, are you going to drive your car this week? I said, no, I don't think so. Now, how often do you hear that from someone who lives in suburban America? I haven't driven my car this week, and I won't because I just don't happen to be going anywhere where I need a car because most everything I have is here. Everything I need is here. So then the next component, demographics, entitlements, retail leasing. The traction that we have to get early on in order to prove the fact that we can convene call it 150 to 300,000 square feet of retail, led with F&B. We say F&B is the new anchor because when you used to build malls in the suburbs with Dillard’s and Macy's and Sears, that is no longer the case. You're anchoring the experience with F&B patio seating and events and just open air experience that draws on the energy of the pedestrian on the boulevard. Then it's a matter of identifying- the key, the one of the challenges with these communities is... Medley is an example, hotel, single family residential, multifamily residential, office, and retail, all of those uses have to be hitting on all cylinders... all those cylinders have to be hitting at the same time. Very difficult thing to do. It is a challenge to some respect in the investment community because no matter how much we blend the returns for each of these uses, any investor we've ever talked to wants us to segregate the cost and income in order to come up with a return on cost for each of the uses. And obviously, they're looking at creating a spread on return on cost versus cap rate that is market in order to get past their investment committee. So demographics, entitlements, retail leasing, investment. And then stacking the capital, Medley was well underway in pre-development. We were a week away from closing and lost our institutional investor in the summer of ’23. We were not alone. This particular investor dropped a dozen or more big deals at the same time. It didn't help the fact that it was cold comfort that there were others in our midst, and misery loves company, but we were able to restack the capital and we're well underway. 

Chris Powers: Okay, there's a few things you said. You kept saying hotel over retail, office over retail, multi over retail. Is over retail part of the secret sauce, or can retail be separate from the other use? 

Mark Toro: Well, when I look at projects that are delivered with single level retail with apartments beside them and single family and hotel and office, I would call that multi-use, not mixed use. And by the way, a lot of people will call mixed use an apartment community with a coffee shop in the middle, I mean, in the lobby. This is true vertically integrated mixed use. And what we say, another component of the secret sauce is the seamless integration. So, there's seamless integration vertically, residential, office, hotel over retail. There's seamless integration financially because we charge each of the uses above and beside, when I say beside, I mean I'm referring specifically to the single-family residential community that is attached really. It's integrated horizontally, but not vertically. So each of those uses pays a fee. We used to call it the [?] experience fee. Now we call it the experience fee for whatever, at Medley, the Medley experience fee. And that fee, and it's charged to everybody other than the retail users. So retail, retailers are already paying CAM taxes and insurance, sometimes they pay a marketing fund, but for the most part, the others, the other uses are the ones who truly benefit. I mean, the real lift in these, the third place effect, that value premium that we see in the lift associated with the experience on the street level, the real beneficiaries are the other uses, the multi, the office, the hotel, and the single family. So, there's a financial integration. There's an operational integration. Often, these users, these uses are managed by different entities. So as an example, here at Avalon, HEI manages the hotel, RangeWater manages the multifamily, North American Properties, or now Jamestown, it was acquired earlier, late last year, manages the retail and the loft office, Cousins manages the Class A office, and there's an HOA group, that third party that manages single family. So, each of those management companies could operate, which was typically the case, in a silo... they know what they know, and they kept their head down, and they're doing their best job to make sure that they get the most apartment rents and keep it clean and so forth. But here, they are unified by that fee because they're all paying for the experience. They recognize that the experience is creating tremendous value for them. It's juicing ADR in a hotel and monthly rental rate in the apartments and lease up in the office and the single family home sales. They recognize it, and therefore they collaborate. So there's a tremendous sense of unity among the managers of each of the five management companies. And the last component of the integration is social, and what has transpired here, and again, I've lived here for about four years. I didn't live- I live in midtown near Colony Square when we were redeveloping it. But the real I’ll call it surprise is that this is a neighborhood. This is a community. People are friendly with their neighbors, friendly with sometimes not necessarily residents but frequent guests, office workers, hotel guests, management staff, and it’s a community. One thing that we’re adding, so physical, financial, operational, and social integration. The one thing we're adding at Medley is technological integration because we have lots of different technology, lots of different broadband providers, lots of different other kinds of technologies here that are being deployed at Avalon and Colony Square and Atlantic Station. At Medley, one provider will provide any and everything technological. So as an example, you're an apartment resident and you have your Wi-Fi. When you leave your apartment with your device, your laptop, and you go sit in the plaza and work for the day, which is what a lot of people do, your Wi-Fi goes with you. Your Wi-Fi account goes with you. You don't have to sign on to some random thing and they harvest your data and it's all this kind of wonky, clunky thing. So that component is now, I'll call it the fifth component of integration. That's the difference. That is- and one thing that just came to me, the other thing that you see at Avalon that you probably haven't seen in most other communities is this unity of brand. There's no place on this property that you'll see North American Properties or Jamestown or RangeWater or Cousins or HEI. Even the hotel is called The Hotel at Avalon. Each of the buildings, the office buildings are 8,000 and 10,000 Avalon, Haven at Avalon, Veranda at Avalon are the multifamily community brands. And the idea is to integrate the brand of the community with the brand, personal brand of its guest or its user. And that takes lots of different forms, from the playlist on the music to the menus in the restaurants, to the uniforms of the concierge. Everything is intended to be brand aligned. And we're taking steps at Medley, as an example, having lived with Avalon now for 10 years, to improve on that, to kind of tweak it, as an example. At Avalon, when we were pre-leasing it in order to close a construction loan, Wells Fargo required a 75% threshold in retail and 50% in office. So, we had to sort of take some of the low-hanging fruit and lease to some soft goods retails on what we call the plaza, which is the sort of centerpiece where all the events happen. It was a mistake because we missed an opportunity to put food and beverage, patio seating, activation and energy on the plaza like you'll see in every other European plaza. So, we've rectified that at Medley. So, we're going- we're essentially going through every aspect of Avalon, Colony Square, and Atlantic Station and learning from it and seeking to sharpen the saw, iterate it at the next degree. 

Chris Powers: On Avalon, was it a sign of the times that you didn't do F&B right there on the plaza? At the time, it was more soft goods, like you said, or was it just, it was easier to get those leases done, so you just ran with that first? 

Mark Toro: Yeah, I think a little bit of both. It was the times were such that a lot of soft goods retailers were expanding pretty rapidly. It was immediately post recession, we were a first mover, and no one was doing anything, so these retailers jumped on the opportunity. 

Chris Powers: Okay, you talked about traction early on, and you mentioned F&B, and maybe this is a lesson if you're an owner-developer, but maybe also if you're a tenant looking to get in early on the next upcoming amazing fortress or place to be. How do you pitch tenants with just a plan and a piece of land or an old office park to bring in the best? There's got to be an art to it. And if you're on the other side of that and you're a tenant going, should I be a first mover in something like this, maybe answer it both ways. Like how do you do it from the owner perspective, and why is it great for any restaurateur or retailer to really be thinking about getting in early on something that isn't quite proven yet? 

Mark Toro: Well, when we're pitching retailers, we lead with demographics. So we're seeking retailers who are going to serve that demographic. So if it's Lululemon or a local chef-driven restaurant, those retailers and restaurateurs and service providers, by the way, service is a big component of this. So, think Dry Bar and Body Rock and boutique fitness and hair salons and that type of thing. Those retailers are seeking to serve a high-income community. It's an interesting story, when we first leased Avalon, a good friend of mine who's a restaurateur in Atlanta was the first one I went to and said, hey, we're doing this deal in Alpharetta. I know you haven't worked much outside the perimeter, so in the suburbs in Atlanta, but here's a chance to serve this community. Are you interested? He passed. We went to a Charleston-based restaurateur named Steve Palmer, who by the way, our first Oak Steakhouse at Avalon was his restaurant number five. He's now got 37 and seven hotels. An absolute juggernaut. Great eye for a deal. He committed actually two concepts. So, I kept going back to my buddy and saying, hey, we're getting some traction here. We're 50% leased. And we've got a spot for you here. It's not the original one because that's gone now, but- and he ended up not committing... he was the last restaurant in out of 26... and he's now in the hotel, in the lobby of the hotel. And he's neck and neck to be the highest volume restaurant at Avalon. He is pushing $10 million. So that recruiting process is art and science. I personally enjoy it. So my leasing team is engaged in it every day. And then if they get traction with somebody and they need a little help to get a user over the edge, I'll pitch in. I'm not always successful. In fact, often I'm not. But it's always interesting to see how once we're open and operating, many of those who gave us the Heisman are coming back for our second generation space. 

Chris Powers: And are the people taking the first couple spaces out the gate usually folks that have done something like this before, or is it different every time, and I guess do they often feel like they're taking a big risk or do the demographics, you do such a good job on that side that it's almost a no-brainer?

Mark Toro: Many of them, we have a handful of them who are at Avalon, so operate, and Medley is about 20 minutes east, sort of deeper into the solid gold demographic. It's not quite as regional. So there are those who are seeking that, that really regional play. But it works for some, doesn't work for others. There's some of these, especially with the F&B guys, we bet on the horse, I'm sorry, the jockey, not the horse, because this business takes heart and soul. There's a guy named Julio Delgado who has a concept in downtown Alpharetta called Fogon and Lions, and I love it. He does a great job. It was his first restaurant ever. He was a Ritz-Carlton trained chef from Puerto Rico. And I'm like, I love this guy, love his concept. We're going to bet the farm on him. Another guy named Darren Henderson, who's got an Italian restaurant concept called Rinas, same thing. This will be his third unit. And we're not big on true startups, but two, three, four unit concepts we like because then we get the real- we get the proprietor in the store every day. And that heart and soul, we call Avalon the United Nations, sorry, we call Medley the United Nations because we've got Thai, Japanese, Mexican, Italian, Spanish, Irish. I'm trying to think what else we have. We've got pretty much everybody. And then, of course, we've got donuts and cookies and ice cream. So the idea that we're betting big on these guys. These guys all require big TI allowances, and we're essentially putting them in business and then promoting them like crazy through events and social media and PR and all that and build a crescendo up to opening day. So opening day of Avalon is October 29th of next year at 10 a.m. And that's when we'll open everybody, all on the same day. 

Chris Powers: Okay, you already moved me along. We're going to skip a lot; we'll come back. But you said you already have the opening day at 10 a.m., which to anybody not listening to this wouldn't know that you- tell them what you do with your groundbreaking projects so that everybody's aligned. It's fascinating that you already know the exact time you're opening a year from now. 

Mark Toro: So, first of all, we pick a date that is... most retailers have blackout dates. So we pick a date outside the blackout period. We pick a date that is either a spring- is related to Easter, which of course nobody but the Pope knows when the actual day of Easter is. And then we'd look at a fall opening, and it's always on a Thursday so that we've got room to sort of maneuver through the weekend. And we set that date. And after having- it's funny, when we first started doing multifamily development, I was kind of surprised at how, for lack of a better word, lax they are about schedules. Okay, we're going to be a week later, we're going to be a month later, we're going to be a week early, for that matter. And growing up in the retail world, the date's the date. You don't ever miss the date. I don't care if it rains, snows, sleet, or hail, you are going to hit that date. So we all have retail DNA and we live by that. So, there's a countdown clock that goes down to the tenth of a second in my conference room. There's one in each of the construction trailers, and I don't know what it says today, 500 something days to the grand opening of Medley, and everything sort of builds up. It's kind of like building for- building up of an offensive for D-Day. That is the date, and we won't miss it. 

Chris Powers: I love it. Okay, you said bet the farm on these folks. What does betting the farm mean? Would that just mean, obviously, you all are building the structure, but you all are going to put up majority of the dollars into the retail space to get them open, then I would assume you have a percentage rent deal or something that, by betting the farm, you're also betting they'll be successful and you'll be able to capture some type of outsized income from that? 

Mark Toro: So their tenant improvement allowances sometimes exceed $200, $250 a square foot. And that was unheard of years ago. It continues to inch up just like a rent. I mean, our rental rate structure is far in excess of what it was. And that was 10 years ago, but it is... we're unquestionably top of the market in every aspect. I'm going to get to office. I want to share something about office leasing too here in a minute. While we're still on retail, that $250 a square foot is not usually the vast majority of their expense. So, they have to bootstrap however they, investors, however they capitalize their outfit. They end up investing as well. But most of these guys have no credit. They're signing personal guarantees. They've got working capital. They're making money. But if we ever had to go after them, there wouldn't be anything there. And we know that. We are literally betting on the jockey. And that's why many- in fact, we're looking at one right now, love the concept, have followed this restaurateur for years. He's kind of stubbed his toe on a unit in another city that's really impacting his financials. And we probably won't do the deal with him because he's just too shaky. So you have to do more than fog a mirror. You need to have a few bucks and you need to be able to commit. And your guarantee is intended to keep you up at night and to keep you focused, kind of like when we sign guarantees on construction loans. 

Chris Powers: For sure. Let's move right into the office piece that you wanted to talk about. 

Mark Toro: Yeah. So, office, as we know, is a four letter word, and the investment community has absolutely shut down other than some really, really steep discounted, distress sales. When we acquired the site that is now Medley, well, let me start at the beginning. Atlantic Station, there was I want to say 2 million square feet of office space there when we bought it. And the leasing velocity picked up immediately once we started to turn the ship, rectify the situation on the ground, create an experience for the office worker and the resident and the guest. Next up, Avalon totally redefined suburban office. In fact, our equity was a Midwest pension fund who absolutely refused to invest in suburban office anywhere in America, even then. It was a mandate. So, we sold the air rights to Hines, who teamed with Cousins. Hines eventually sold to Cousins, and they achieved, there's a guy named John Hagee, who's a dear friend, who's been leasing office space in Atlanta for, I don’t know, 40 something years. And he said there were two projects that he leased up from spec to 100% leased during the course of construction. One was Monarch Tower in Buckhead and the second was Avalon. Because people recognize that here's an opportunity to recruit, retain, and engage the best and the brightest by putting them in a vibrant, activated workplace. Recruit, retain, engage. We now say recruit, retain, and return. So when we went to Medley, there was a large, it was a State Farm Insurance campus, 330,000 square foot sort of call center building, two-story behemoth that we demolished. But there was 125,000 square foot executive office building, separate building, and we were able to weave it into the streetscape so that we could strip out the ground level, make that retail, and then re-upfit the building, essentially renovate the building to class A standards. One of the investors we talked to asked, suggested that we tear the office building down. We bought it for $100 a square foot. So like, why? First of all, it's only 108,000 square feet. It's only 8% of the NOI for the total project. And it's a very, very low risk. Well, early on in the process, we started fielding calls from employers in suburban office markets, one of which was literally across the street from Medley, who couldn't get their people to come back to work. And we put them in touch with the employers here at Avalon who have had a different experience because they're- I guess people enjoy coming to work here. So, the second user, another is a multinational company based in a nearby suburb, same thing... My wife and I went to dinner with him and his wife one night. He was lamenting the fact that his people wouldn't come to work. So he ended up having three quarters of bad results and blah, blah, blah, and they decided not to pull the plug on a new office. The third, the largest private pharmaceutical company in the world, has their animal health division here in Atlanta. It's called Boehringer Ingelheim. We've announced it, so I'll name them. They showed up, took two of the three floors, were considering the entire building and decided not to, pay the top of the market rent. We're accelerating our construction schedule to get them in early. And it was notable and there was the largest lease in suburban metro Atlanta clearly this year, maybe in the last 12 or 18 months. And it was solely because of the fact that this CEO recognized that his brain trust is his largest single investment, and he needs to get them in the office, or at least have them in a workplace environment that's not the kind of class B office building where you step outside into a sea of asphalt, and you get in your car and drive to Applebee's for lunch. That's just not acceptable. It's not attractive in this day and age. 

Chris Powers: Is most of the whole thing parked, I'm assuming, with central parking garages that feed all the uses? 

Mark Toro: Yes. We learned that actually, one of the things that we study, we studied a lot when we first developed Avalon. Those aforementioned mixed-use communities, except for Legacy West and Domain Northside, which didn't exist then, but specifically, the Grove and Americana at Brand have their parking deck as their anchor. So, you park your car, get on foot, and then explore the property on foot. We do have a number of service parking lots. At Medley, we've got a grocer that is more traditional, and at Avalon, same way. We've got grocers that need to operate in a more traditional suburban office, I mean, parking scenario. So we've got service lots for them, but the rest of it is on decks. So, both of the multifamily communities have their secured deck parking with ground level parking for retail and then we've got a big deck that serves all the uses including the hotel. 

Chris Powers: Okay, I want to just chat a little bit about and help me just think through this, so you have Real Estate Co that builds real estate and tenants are in there. I'll go, quote unquote, the secret sauce is almost like the hospitality company that I'll call that you wrap around it all. Does that company have its own employees? It almost runs like a hospitality business? And do the people that invest in the real estate also invest in the hospitality related to that? Because I'd imagine there's all these new revenue income generating opportunities that you're able to create through the hospitality. So, I'm trying to figure out who owns what or does everything- is everything owned together? 

Mark Toro: Well, the owner employs the manager. So, in the case of Avalon, before we sold to Prudential, we were both; North American Properties was the owner and operator. When Prudential acquired Avalon, they employed North American Properties, now Jamestown, same team, same team that we built 10 years ago, almost to a man. There has been some growth and promotion internally, but that team is exactly the same. And that DNA, it takes a service heart to be on this team. And our team came from hotels and golf courses and places that were not real estate. We actually had two general managers that flamed on us that came from Simon specifically. They were mall managers, and they thought it was a mall. And it's not a mall, it's a community. And there's a tremendous component of service and hospitality that has to be delivered. We brought the Ritz Carlton Leadership Center in early on to train everybody from the C-suite to the housekeepers in the delivery of five-star hospitality. They kind of train the trainers, and now we've got a team on site that when someone is onboarded to the management team, they are taught, they're trained in that aspect. So that management company earns a fee from the owner in order to deliver that experience. 

Chris Powers: And I would imagine just the management fee, if you were just comparing it to other management companies, is probably a little higher because it's doing a whole lot more, but the promise is kind of, but we'll deliver you way higher rents than a typical manager could ever deliver you. Is that correct? 

Mark Toro: Well, the rents being higher is correct. The fee is somewhat, it's not to say it's complicated, but there is a team of professionals from marketing, repairs and maintenance, engineering, general manager, assistant general manager, concierge, that are- events, social media managers, those are all actually expenses of the project. So those are line items in the budget. Then there's a fee paid to the manager, the company, for I'll call it G&A to cover the overhead. 

Chris Powers: And it's just 365, a team that's planning- I mean, this is- I'm trying to get to the essence of how hard this is to pull off, because when you go to these places, it does work seamlessly. It's almost like being at Disneyland a little bit, where you don't know how everything's kind of working, how it is. So, it's as much of a labor of love to design the project as it is to create these experiences where it doesn't feel goofy or forced, but it's just like this ongoing, natural, kind of always on energy. And so, I don't know what the question is. Maybe if you could just explain how hard it is to pull all that off and maybe some tidbits of what goes on behind the scenes that the average person just isn't realizing is going on. 

Mark Toro: Well, let me address the Disney component first. We're often accused of being Disney-esque because there's music on the property, of all things. So that was the first thing, by the way, when we acquired Atlantic Station, and I've got to give a shout out to Tom Miles, who actually brought with him from Caruso and Federal Realty, the Grove and Santana Row, brought with him a kit of parts, a toolkit in creating that experience. First thing we did was install music at Atlantic Station. The next thing we did was host a concert series. Then we built a concierge team. Then we built a valet station. And all of these components literally we layered on one after another after another. They create value. Which of them does the most? I have no idea idea. We have a quiver of arrows, we fire them all at the same time. But that Disney component, first of all, the properties are absolutely spotless. I mean, you can eat off the floor. I know all the housekeepers that you would normally see in a hotel working in the hallway to clean rooms are on the sidewalks of Avalon every morning between 8 and 10. So because people live here, we can't start blowers and pressure washers or any of the mechanized equipment, street sweepers. There's a team that descends on Avalon at 8 a.m., landscape maintenance, hedge trimmers, descends on the property at 8 a.m. and is swept up and gone at 10. Very Disney-esque in that regard. Because once the stores open, they've got to be gone. There can't be any work happening on the boulevard. When we refit a tenant, that tenant operates their construction- their construction operations are all behind a barricade that, by the way, is wrapped in that tenant's brand. Very, very critical component. Some of the best, most beautiful wraps you'll see are at the Grove in LA. Caruso does everything bigger and better and brighter. When we first launched Avalon, our mantra was we are going to out Caruso Caruso. Did we? In some ways we did. In some ways, our experience is authentic because people live here. No, the Grove is not mixed use, it's straight retail, but that experience is what we borrowed. So, Tom Miles came to us from the Grove and Santana Row, brought with him that kit of parts, taught us the business. When he left to get married, he said, go to LA and hire Matt Simon, who was his protege. We went to LA, my wife and I flew out there and talked his wife into leaving Huntington Beach, where he went surfing every day and she just hung out in a beautiful experience in Huntington Beach, to move to Atlanta, live above J. Crew in the suburbs, and continue what Tom had created with the Avalon experience. He did so, was here with us for a number of years, continued to build the team. He's since left us, went to Disney of all places, ran Disney Springs and then now was just recently promoted to the president of Epcot. So, he gets it, gets the experience. We take each component of that and seek to personalize it to the Avalon community. But those tricks of the trade we learned from two Caruso veterans who brought with them what Rick Caruso created originally at the Grove 27 years ago. 

Chris Powers: So a lot of real estate owners listen to this and they don't own things like the Avalon, but maybe they own a strip center and just they don't have the huge budget. And maybe the question is, what is some low hanging fruit that any kind of retail type owner or somebody that's looking to spruce up their property without a huge budget, like what are the little things that are obvious to you that you probably walk by properties and you're like, man, if they would just do this one thing, it would change the game for them? Is there anything that comes to mind that's just an obvious low-cost, low-budget item that makes high return? 

Mark Toro: Well, I don't know that anything is a low- it's all relative. Low-cost, first thing to do is keep it clean. It makes me crazy sometimes to see some of these communities that are shopping centers or retail outlets that are just filthy because somebody doesn't care. I mean, Atlantic Station was that way when we bought it. And what we said was, all this needs is somebody with $100 million dollars who gives a shit. We did in both cases. We really put heart and soul and elbow grease into turning that asset around, starting with just some spit polish. That's a critical component. The next is, I think, to the extent that there's an experiential opportunity, and most straight shopping centers don't have it, but to the extent that you're- and here, you're going to have to partner and team with your retailers to create community. The one thing, if you’re looking at all the verticals of commercial real estate, multifamily residential serves the people that it houses. Single family residential, same. Office serves the people who work there. Industrial doesn't serve any people. It serves boxes. The only vertical that is a community center, and back to Rick Caruso, he did an NRF, National Retail Federation, talk about ancient marketplaces and how these shopping centers of today are the only place you'll go to see your neighbors if you don't live down the street from each other, if you're just kind of bumping into each other. They serve the community. And to the extent your retailers can embrace that, A, in respect to their benefit, because they become known as- it's like a butcher at Whole Foods. I went actually, this afternoon, I stopped by to pick up a ribeye for- and stop by means walk from my house to my office and stop on the way and pick up a ribeye to throw on the grill tonight. And the butcher knows me because I live here and go there. That's the one thing that I think people are missing. And that's people... humanity is missing is that human connection, that exchange of human energy, that ability to sort of impart goodness to each other. And that's what we say, that our stock and trade is human energy. That's not something you say in a boardroom in an institutional investor pension fund... unless and until you can monetize it. And when we sold Avalon for $500 million, it was the largest single investment, largest single asset transaction in the history of Metro Line at the time, it sort of set off the investment community’s- piqued their interest, and the institutional community now sees mixed use as its own asset class and sees properly and well executed mixed use as another kind of fortress. The team, the pension fund that is in Medley has invested in what's called a build to core strategy where we build it with value add capital, and then they switch it to a core bucket and hold it long term. Which I wish we had done at Avalon or Colony Square or even Atlantic station because these assets continue to grow in value over time, like all assets do, but these have a relatively steep growth curve that really can't be realized the moment the paint is dry. We were a merchant builder building Target anchored shopping centers in the suburbs, we would, the moment the leases commenced, it was on the market or the same thing with apartment computers. And that's relatively common with merchant built or merchant developers. Here, we have an opportunity to own something long term that is what our investors call a generational investment, that my grandkids will hopefully be clipping coupons. 

Chris Powers: One more kind of thing that you mentioned while we're just talking about how maybe the marketing and the hospitality gets executed. You said something about marketing fund. Is that like a fee that maybe retailers pay on top to opt in to y'all's marketing machine? Or what did you mean by that? 

Mark Toro: Well, that was, back in the day when we were building straight retail, many retailers, our form lease would include like 25 cents a foot or something to pay into a marketing fund. And some of those lease provisions have survived and many retailers push back against it, some pay it. But here, the experience fee eclipses all that. So the experience fee at Medley will be close to a million dollars a year to host, to stage 200 events, to run a full concierge program, to, as an example, if you're a resident at Medley or at Avalon or Colony Square, you call concierge and you ask them to deliver a pitcher of margaritas from Superica, it'll show up at your door... I was doing a staycation at the hotel this week with my wife and my family, and we called concierge and said- NFA Burger is a new tenant that just opened here. It's kind of like this cult following guy that operates out of a gas station, and it is a really cool concept. But he says you can’t order online. You can’t call to order. You have to order in person. So, we called concierge and said hey, NFA Burger, we can only order in person. He said- Jackson, who is our kind of go-to guy at concierge, said, we'll deliver your burgers to the hotel pool deck in 15 minutes. Not a lot of places you can do that. Another thing that is a beneficiary, another component we haven't talked about much is the hotel. So, the hotel was built in a public-private partnership with the city of Alpharetta, who was seeking a conference center to house many of their business meetings. They didn't have any space in the city. So we built a 75,000 square foot conference center, 46,000 square feet of net meeting space. And that has brought a tremendous amount, a tremendous influx of conference goers. So, the UPS World Sales Meeting, as an example, fills the 330 keys, takes over the hotel, takes over the conference center, can buy out seven or eight or ten restaurants on one night or three nights in a row because those restaurants are all, back to that seamless integration, operational integration, the GM at the hotel is in touch with the GM in the retail, who is talking to each of the GMs of all those restaurants and say, hey, I want to send my South American team to Japanese, and I will send my European team to Mexican, I want to send my North American team to wherever, and the entire property is then taken over by by the hotel. I don't know anywhere you can do that. You can't do that in a real city. There are a lot of- we're approximating an urban experience here by having patio seating on the sidewalk, and you walk by, and you feel the vibe of the restaurant, you go ahead and check it out, how long is the wait. It's just like you would in Boston or New York. But they don't have the unity and the consistency of ownership to collaborate. So, that's a big opportunity as well. 

Chris Powers: And on Medley, is Medley one equity partner? Is there an equity partner for each asset class? Or is part of also the sauce that it's got to be one group that gets it all? 

Mark Toro: Well, there's got to be one developer and one manager. That's the key. The capital is somewhat invisible, clearly to the user and to the experience. Medley is all one, no sorry, it's three investors. So, it's one investor in the retail, office and multifamily, one investor in the single family, although our investment group is developing a lot and selling to a builder, and a third investor in the hotel because that's a very specialized component. As you know, hotels are operating businesses, they're not real estate, and it takes a different kind of investor. 

Chris Powers: You mentioned this is the gold mine of demographics. You said that income levels is maybe what you would rank one. If you had to guess, how many of these areas exist around the country? Can you count them on a couple of hands? I mean, you said it's the best you've ever seen. Maybe you have some proprietary method that's using AI or something to scour the country. I would imagine you have a heat map. We don't have to talk about, we're not going to give away all the locations. But you said it's not scalable. Are there other locations that meet this threshold? Or is this really the gold of all golds? 

Mark Toro: It's really only not scalable because, A, my team has chosen not to scale beyond something that we can enjoy and pour our hearts and soul into creating one of one each time. When I spun off Toro Development Company from North American, the entire development team came with me, and we got together at the early days and said, hey, what do you want to do? I said, well, we want to make an impact in the communities we serve, and we want to create fortress positions that are unique and they're extremely valuable, A, from a social perspective, and B, from a monetary perspective. And we want to enjoy our lives too. So we didn't want to put it on, get on a treadmill. You can't take – maybe you could, I don't know, I've never tried – a 35-year-old shopping center developer and throw them out there and say, go develop Medley. The integration and the experience and the hand in glove that goes between finance, multifamily development, retail development, office, hotel, all those components sort of- it's a fine art. It's surgery with a scalpel, not a machete. So, when I say scale by, I mean we can't do- we're not going to do ten of these. And I don't think you're going to see- so far in my study of the industry, and I'm a student of the industry literally every day to this day, I haven't seen a developer scale it. I haven't seen somebody do ten of these. If you look at Federal Realty who did Santana Row 25 years ago, they've done a handful since then. Caruso, same way. Trademark, smaller scale, sometimes third party, but relatively active in the space. I haven't seen something, not to be dismissive, but I haven't seen something truly impactful from them. There's Madison Marquette. There are a number, but take an example, the Wharf in DC, spectacularly well-executed, urban, dense waterfront community, will never be replicated. It's not like any we can find. If we could find another community with $200,000 average household incomes, and I think I may have, the one I'm going to visit in the Midwest next week, then a lot of things have to, a lot of stars have to align. I mean, there's got to be a perfect storm of community support, in some cases, incentives. Sometimes the economics don't work here. There's got to be a distress property or an infill property that's going to be made available by a seller or user, not like in our case with State Farm. In the case of Avalon, I mean, this was a site, a vacant site, suburban Greenfield, that was developed, but was trying- attempted a major mixed use development on it. And the developer hit the wall during the recession. So we have to be able to buy the land right. The city’s got to cooperate. Retailers have to be on board. A lot of this has to happen all at the same time. And it's a really, really heavy lift.... There's a community, sorry, there's a project, I wouldn't call it a community, up the street from Avalon called Halcyon on 400 in Forsyth County, North Atlanta. And when it was first proposed, someone said to me, aren't you worried about Halcyon competing with Avalon? And I said, no. And it was a bit arrogant, but they said, why? I said, because it's too fucking hard. It is just a heavy lift. Every day, all day, there's an impediment that has to be cleared. There are people who don't believe what we believe. One of the things, I'm a big Simon Sinek fan, and one of the things that he talks about in his great TED talk called The Golden Circle, said to the extent that you can work with people who believe what you believe, you'll succeed. And those who believed what we believed early on at Atlantic Station, Avalon, Colony Square, and now Medley are succeeding and we're succeeding. And then there are those who didn't believe what we believed who now do. So it takes a village. I mean, this is not meatball surgery. This is fine surgery. 

Chris Powers: I know you wouldn't compare one fortress to the other, but if you had to maybe say when you get it right with a fortress, how much more profitable is it than maybe a similar situation that just didn't get it right? What makes the fortress the fortress? It has to obviously flow to the bottom line, which I know a lot of things have to go right to get there. But the essence of the question is like, how great is a fortress compared to just owning a normal mixed-use center in whereversville, America? 

Mark Toro: Well, there are a number of mixed-use deals that we've seen that have missed three or four degrees left. I won't name them. I'll name the ones that have hit it exactly right.  

Chris Powers: Let's call them out right now. I'm kidding. 

Mark Toro: No, no, that's just not right... and there, some of them are about the retailer that they curated. Some of them about the streetscape they created. Some of them are about parking restrictions... I mean, it's everything matters. And having lived it, studied it, I mean, every time, the moment that Domain Northside opened, we were on the property. The moment that Legacy West opened, we visited. Now we see what Legacy West recently traded... I mean, there's your best example, most current example, massive number that was previously unimaginable pound for pound basis for the multifamily and the office and the retail, which indicates the rise of this new asset class... And Legacy West, Mark McSinner, who is a dear friend, curated the retail there, did a great job, but it has its flaws just like everyone. I mean, Santana Row, I love it, but their plaza is in the wrong place. And... there are issues there. Americana at Brand, I don't know that I can find fault with Americana at Brand. It's just sumptuous. It's just beautiful. So getting it right means getting it right in every single aspect. 

Chris Powers: But to the bottom line, that doubles what it would normally make. Like, how much more do you make when it's amazing? 

Mark Toro: A lot. I can't tell you how- when people say, did Avalon exceed expectations? They said it exceeded everyone's expectations, especially our own, not only from the performance, the market acceptance, the vibrancy. I remember being there sitting at Kona Grill the day we opened, and we were all just dog-ass tired after hitting that date, October 30th, 2014. And I'm sitting there with my wife and watching all these- I'm saying, where were these people yesterday? 7.5 million visitors a year consistently since we opened. And it's just, again, it's hard to ascertain what creates that impact. 

Chris Powers: I have a good friend in Atlanta. Do you know a gentleman by the name of Eric Weatherholtz? 

Mark Toro: I do. So Eric and I were together at his Automatic. He's got this great conference. Did you go when it was in Dallas? 

Chris Powers: I wasn't able to make it. I was out of town, but I love him. He's just an amazing human being. But he always talks about like the way to raise rents or the way to make money is a great patio. Everybody else is looking for certain things. He's like, an amazing patio can change your whole life. 

Mark Toro: You are- he is absolutely spot on as he typically is. I mean, A, he's a tremendous practitioner. B, he's uber cool. His conferences are just really, really cool. I was invited to talk at one of them, that's when I was in Atlanta. But patios, so we literally are at least an hour to two hours a week talking about umbrellas, radiant heating, fans, outdoor semi-conditioned space in order to extend the season of patio seating for restaurateurs. And we're constantly pushing back on their efforts to not do it well enough. I mean, there's right and wrong. It's in the eyes of the beholder, but quality experiences... I did a river cruise on the Danube last summer, which by the way, I would not recommend. I'm probably the right age but not the right attitude to sit on a riverboat and just cruise at four knots. Anyway, but we visited some amazing places. And each port of call, I would literally walk around whatever that little town's plaza was and photograph how they deployed their patios. It is an absolute art to get it right, and we're working on it literally every day now. We're more than a year out, year and a half out, and we're talking about umbrellas every day here. 

Chris Powers: I don't want to put you on the spot. What are some of the ingredients to the perfect patio? 

Mark Toro: The one that is most successful here at Avalon because of the retailer, the restaurateur, is Roomies. And the patio is offset from the storefront so that the sidewalk, the pedestrians that are walking by the restaurant pass between this front door and the patio. And that conflict between the pedestrian and the server or the guest creates this sort of friction and this almost excitement, if you will. That's one of my favorites. That was a knockoff of a restaurant in Santana Row called Left Bank. But in that case, that particular restaurateur gets it. He understands that it's hitting his bottom line. He, by the way, is the one who's neck and neck with the restaurant and the hotel doing $10 million. And he gets the fact that he can heat and cool and control sun and do all the things to make his guests comfortable, but it's got to be attractive. It's got to be first class. It's got to be energized. And the true test of a great patio is are there people there? The funny thing about people is the thing that attracts people is people. And that is the true test and that patio is always mobbed. 

Chris Powers: I love it. All right, we're going to finish on one story that I thought was intriguing, how a bottle of tequila brings a world of meaning to our company and our projects. How does a bottle of tequila do that? 

Mark Toro: So, April 1990, Austin, Texas, we had been working with a little Austin suburb called Sunset Valley, who was really worried about having this massive shopping center built. It was Home Depot and a bunch of other big boxes. Anyway, we did that with them for 19 months. And the night we got our approval, somehow all of us engineers and architects and others who were working on the project, zoning attorneys, found ourselves on the job site. We had already started construction because we had some level of approval, and we found ourselves on the job site in the moonlight with a bottle of Herradura Añejo. Like this. This is the Medley. So it says Medley groundbreaking, January 13th, 2025. And we take- so you'll notice that this bottle, the cap is the size of a shot glass. So, everybody, I'm not going to do one now, but everybody would do, everybody did a shot. Everybody did a shot as a blessing to the construction guys that it would be a successful project. And it was. So we repeated that again and again and again. And then we were doing a project in Richmond, Virginia, one time and the Virginia state store didn't sell Herradura Añejo at the time. They sold Jose Cuervo gold. I'm like, tequila's tequila, right? Wrong. Project was a big loser, all kinds of challenges with that project. So we reverted back. Even if we had to import the Herradura, we reverted back. And we've done it. I've got, in fact, you can barely see in the screen on the lower right, a lineup of about a dozen, most of them empty, tequila Herradura Añejo bottles that we inscribe and give them as gifts to the attendees. So, everybody does a shot, and you pour some on the ground and the rest is history. So every time we- and it's, again, I think it's 60 plus projects since then. So that's the genesis of our success. 

Chris Powers: Mark, this was a fantastic episode and really glad we were able to make this work today. Thank you. 

Mark Toro: I really appreciate you having me, and I'll be listening in to your next. So who's next on your podcast?