#308 - Shiloe Bear - Principal @ Creek Development - RE Development Lessons, Converting Industrial to Lab Space & Bay Area Market

Chris Powers: Thank you so much, Shiloe. I'm so excited.

You're here today. Thank you for joining me.

 Shiloe Bear: I am so excited to be here. I'm a big fan, and I love listening. And so it's fun to be on here.

Chris Powers: It's Texas. It's 105 degrees. And you said you ran last night at 10:30, and the heat didn't give up on you even at 10:30.

Shiloe Bear: No, it is hot here.

You all are putting pressure on me, but I made it. I was a little sweaty mess, but I did fine. 

Chris Powers: I love it. We got to spend a lot of time at Capitol camp together. I've enjoyed just getting to know you and following you. And so I'm excited about today's conversation. Starting with how you get to the Bay Area would be fun.

Because you're not from there, how do you get there?

Shiloe Bear: Yeah, I am not. I grew up in rural Oklahoma, a town of about 300 people. And when I was growing up there, I was like most people. So, in a small town, all business is small. There are no major corporations.

So everybody has something where they like to repair wells, keep cattle, and sell hay or something. We don't call it side hustles, but you see all this work happening constantly. And my family was no different. My dad runs a salvage yard and still does there. So I grew up there in his business.

And we have this long history of Oklahomans wanting to go to California. I don't know if it's like the grapes of wrath, the great depression, but it's real. Nobody talks about going to New York. It's always California. So I was growing up there. I was spending a bunch of time in my dad's business.

I was learning a lot about all these other small businesses and had this great opportunity where I got a chance to go to a boarding school that fed into the University of Oklahoma. From there, I did a summer program at UC Berkeley and exited the bay. 

Chris Powers: You left the bay and said your dad owned a salvage yard.

One of my favorite tweets I came across the other day was when a dump truck was heading to the dump, and you flagged them down—and then ended up pulling out these unique steel windows—something about nature.

Shiloe Bear: Yes. I am still a salvage girl; growing up there, I pulled parts.

I was organizing inventory. Like I was deep in it, and that's still definitely part of my blood, I'll tell you a funny story. There was this one guy in our community who was the only guy who changed tractor tires. And so, if you want a tractor tire change, you go to this guy.

And you call him on his phone and then pick him up because he doesn't drive. And so you bring him to your farm, but he had this incredible business. So there's this rich fabric of people just doing things, I don't know, just getting things done.

And that's part of my ethos today. It's I see somebody, got some steel windows. Those things are expensive. They're hard to get. And yeah, I'm flagging them down. I'm putting them in my project. 

Chris Powers: OK. I love your business. What you do is super unique.

And so I think. Let's start with, is this something you studied in college? The first thing is to tell me what you do from your perspective. And was this a dream growing up? Did you fall into it? Like, how did this happen? 

Shiloe Bear: So what I do now is I run a company called Creek Development.

We've been in business since 2016. We do fee development. So essentially, we do. We get hired by developers to run their projects. So we're doing a bunch of construction management, a bunch of designs, some permit expediting, utility expediting, some strategy along the way. And I didn't know that this was a career that existed.

It was not on my radar, but I love it. I have found the place that's the perfect fit for me. It's the left brain, the right brain. It's indoor and outdoor. It's just very balanced. There's a lot of math and art, and that's an excellent fit for me.

Chris Powers: Did you go to school for it or fall into it?

Shiloe Bear: No, I went to school for engineering. I started in physics but needed more money. I went to my advisor and said, "Look, I'm going to take a semester off. And I had this great advisor, this guy named Weinstein.

He wore a tracksuit like the last guy allowed to smoke cigarettes in his office. And he was like, you will do no such thing. What are you doing for the rest of the day? And so I cleared my schedule. I sat in his office, and this guy worked through it with me.

It would help if you changed your major because nobody's giving you a scholarship in physics to get over to engineering. So I did, and then he's what hours are you working? What else can we add? So he got me a 2nd job in a lab, which changed my life.

But it was great. It was a great fit. So, I shifted to automotive engineering, coming from the salvage world. I already know cars. Now I'm in a machine shop. It feels very comfortable to me. And it was; I thought it was perfect. It was a very hands-on program.

I got my first job in engineering, and it was terrible. It was what you think of engineering, right? It's scorched, and it moves very slowly. I'm nimble, and I like to go fast. And so I was devastated. I was like, "OK, all right, I got it. I got to figure out something else and tried several different things.

One of the things was I took a cabinet-making class. And that ended up being a pivot that I could have never expected.

Chris Powers: What did you learn in cabinet-making class that made you become a world-class developer in the Bay Area?

Shiloe Bear: I found that I missed working with my hands. So I got a job as a cabinet maker, and because I knew CAD, I was doing some design work.

I was working on a project, and they asked me to do an install, and so I went out to do this install, and it was one of these big construction sites where there are 200 guys just doing stuff and running all around, and I check in with the site supervisor, and I go to start my work, and I'm like, wide-eyed.

Because I realized for the first time that we were a subcontractor like this thing that I thought was my whole world, I was like, and there's this entire symphony. This guy is conducting the symphony, and I'm like, one tiny piece of it. And so I returned and said, guys, we're a subcontractor.

I'm onto something. And I was like, I need to be on the construction side. So, that company had a construction arm. I started managing construction projects, like tiny residential remodels, more significant projects, and bigger projects. And then, before I knew it, I was running our most essential tasks, doing some operations, and doing some entitlement work.

I looked around, and there was nowhere else to go, and I was still really young. 

Chris Powers: And so then you had an idea. I have the skills to get projects built and done. There are developers out there who could hire me. And now the company you run is outsourced development.

You will get a project done, and you can do that in many different ways. 

Shiloe Bear: That's right. 

Chris Powers: OK, we'll role-play for a little bit. I'm the developer coming to hire you, and I have this project. Let's start with what tasks you may not enjoy most, but what ones do you work on the most?

Are you known for a specific type of project? 

Shiloe Bear: We do a wide range, but I would say the thing we end up with. Doing the most is a large-scale industrial repositioning. 

Chris Powers: OK. So that's what I do. Great meeting. That's what I do.

Shiloe Bear: Except that we're the ones that benefit from the supply constraints we create, like you.

We're taking industrial off the industrial market, so we're taking, usually, sites that are a typical example. We're working on one right now. It's 14 acres, 350,000 feet of industrial core bay area. So we're usually working in the city and converting to higher and better use.

And in most cases, that's biotech, life science, advanced manufacturing, sometimes, or it used to be a more creative office. Sometimes it's other things. 

Chris Powers:  That's a dirty word now. 

Yeah, it is. Sometimes, it's multifamily, which people love. That's a nice word. 

Chris Powers: Yep. That is a nice word. But the creative office could be better right now. 

Shiloe Bear: Needs improvement. 

Chris Powers: Yeah. OK. So I come to you and say I've got 350,000 feet on 14 acres. What are the things that you're going to help me with throughout the project? 

Shiloe Bear: A lot of times, I'll come in very early, so we'll come in, and we'll help diligence the project.

So, what does it have in terms of utilities? What is the structure? What is the environment? We're always working on things that are early-level development. So, where are you at with the parcels? That's always an issue on these significant sites.

They were, like, it used to be 25 houses at some point. They got torn down, and this big thing got built, and that's never fixed. So we're figuring out lot lines. We're figuring out utilities and how to maximize utilities. And then we're thinking through demising: where should your main entrances be?

Where should you move people through the space? And then we're building teams to do the construction, so we're bringing in the architect. We're bringing the consultants. We're figuring out what contractors are the best fit—and overseeing all the construction. 

Chris Powers: Why don't most developers do this in-house?

Like what have you, you've worked, we talked about, you've worked on hundreds of projects. Why is this? Is there a skill that some developers do this in-house and some don't? 

Shiloe Bear: I think most of them do in-house. But sometimes they run out of capacity, so they've acquired some stuff and must build their team upright.

Sometimes, they have developed a lot recently and need their asset managers to focus on leasing. Sometimes, they were supplementing, but they often call us because we have the expertise, which frees up their teams to do other things. 

Chris Powers: And how do you all differentiate yourself in the market?

Why are you different? 

Shiloe Bear: So we have three pillars that make us different. As you mentioned, we've had a lot of reps, so we've had side-line access to a hundred deals. The second one is design. And then the third one is we've perfected this expertise of building just enough, which is like the minimum viable product for construction.

We can unpack those a bit, or I can run through them. Let's do it. So, let's start with the first one. 

Chris Powers: And you said you had this like database. 

Shiloe Bear: Yes. We have seen so many projects, and partly that's because we're because of the role that we play in them. We're not deep in the weeds on every single one.

So we're able to take on multiples. And in that, we've seen all the myriad ways things can go wrong. And we've also seen the incremental decisions that lead to something going right; let me go back. And what that does for us is see how different developers approach it.

So people work very differently in this field, and we can see that. I've examined how a project can get hung up in entitlements, soils, and seismic. I've seen all the reasons a tenant won't pay their first month's rent and how you get out of that.

Many problems, right? We've stepped in many holes, so that's a big one. And in doing that, we're also getting real-time data. So we're seeing which brokers are closing deals out in the market, canvassing and bringing in good tenants about six months ago when construction lending started tightening up.

We were the 1st to see because we're doing lender draws, and we see they're coming back, and they're asking for a lot more information. So then we could go to our other clients and projects and say, this is what's coming. We will spend a few extra hours and create a better package to ensure you get your payments on time.

Chris Powers: All right, two things. You said incremental decisions pay off big. Can you give an example of something that mightn't seem obvious, but as it's man, this to you is just second nature, and it has enormous value.

Shiloe Bear: Planting trees, number one. If you go in and on day one, you plant 50 trees, day 700, your place looks like it's worth twice as much.

Something about a canopied street makes you think it's expensive, and industrial sites don't have it. And so as soon as you add that, it's night and day, 

Chris Powers: If you're listening to this, this is why you don't have to be a genius to be in real estate; just plant trees.

Shiloe Bear: Just plant trees; it's that easy.

Chris Powers: But it's true. 

Shiloe Bear: It is. None of this is rocket science. It's just seeing things in the market that work—and continuing to iterate on them.

Chris Powers: If you talk to the best developers in the country, almost always, if you say you had an extra X budget, where would you put it?

You expect them to be like, Oh, I'd get a more admirable countertop or more. It's almost unequivocally. The answer is more landscaping outside. 

Shiloe Bear: It's fantastic. 

Chris Powers: The second thing you said. You said I've seen every reason a tenant won't pay their first month's rent. What is a situation where it seems apparent that they should have to pay, but one little thing is off, so they will be able to withhold?

Shiloe Bear: Yeah, so when we are often now, we get to look at the most miniature work letters, and we usually write the most miniature work letters, which helps. But earlier on, we would have projects where people would a work letter would be. Written by an attorney somewhere, and they would say something like.

Remodel bathrooms, and you will have excellent bathrooms remodeled a year ago. And so what does that mean? It needs to be more specific. And then the tenant would come in and go you did these things, but you still need to remodel the bathroom. It's we changed out the fixtures, and we changed out the tile.

Yeah, but you still need to change the light fixtures. And so now I know you have to be incredibly specific. You can't say remodel a bathroom. Replace tile and plumbing fixtures in bathroom one. It's straightforward, but everybody will push back if it's not in the lease.

And they're just looking for an excuse. Usually, they're looking for a reason. 

Chris Powers: I'd come to you and say, great, I've got this tenant, and all we got to do is remodel the bathroom, and you would come back to me and say, let's just put a lot of detail in what that means before we call that forward.

Shiloe Bear: It's a simplified version, but yeah. 

Chris Powers: When I hear MVP, I think of the most valuable player. You think of the minimum viable project. And you said that is a tremendous value add because many folks will spend a lot, especially biotech. 

Shiloe Bear: Yes. 

Chris Powers: So describe a situation where somebody has gone all the way, and you're looking at it going, Oh my gosh, you could have saved 2 million or whatever it is.

Shiloe Bear: Yes. That is the number one value add we provide to our clients, and the way it usually works, especially in biotech, is that no one understands what the scientists do, right? And so when the scientist says I want 800 amps at 480 volts, They tell the broker tells the landlord, and usually, the construction team goes about figuring out how to get more power; what we do that's different is we go back to the scientists.

And we say Can we look at your equipment list? Can we run through your load calks? Is this peak load, or is this live load? Are you running equipment all night, 24 hours, or are some only happening during the day when you have people working? So we're picking apart, looking at every assumption, and scaling back.

And so if we dig into it, you don't need 800 amps. It would help if you had 500 amps, and the building has 6so we're OK then if you take that to another example, like HVAC, if you ask. A facilities guy, but what kind of HVAC do you need? They will say that every space needs to be temperature controlled to within 5 degrees.

OK, then we go back and say, OK, we'll look into other projects. We've done you've got the shipping and receiving area. That's going to have a roll-up door open. We're in a pretty climate-neutral place. That doesn't need to be climate-controlled. So we go room by room and say, which ones need it and then next level, antistatic tile everywhere or in some places, waste separation about or in certain rooms, you make, you do that over a hundred decisions, and you start to de-scope the project. 

Chris Powers: How come you all have to call that out? Why would the architect not have known that or somebody else? Why does the buck stop with you?

Shiloe Bear: So consultants are constantly building in a safety factor. So there, if you go to the mechanical engineer on this 1, they're going to say they said they want to control within 5 degrees, and then we want to make sure that you don't call us and say, hey, engineer, you designed it in this way.

And we have to go, we have to think like the building owner and then tell them like, look, these guys are willing to take a certain amount of risk, and they'll write a piece of paper that says, we're not going to call you if this goes wrong. If we get a call, we won't come to blame you for all of that.

All those safety factors, all of that kind of building in all that cushion, suddenly, you're up at 60% more than you need to be if everybody does it every step of the way. And so it's the way our industry works. Nobody wants to get that call where they're getting blamed.

It's a little covering yourself, but it adds unbelievable costs to a project. 

Chris Powers: That's America's development state today. If you look back, somebody told me the other day that in 18 months, they built the Empire State Building. You look at pictures: people without hard helmets just hanging out in the middle of nowhere, 50 floors up in the air.

And now it's like what you just said. There are all these codes. There are all these regulations. There's all this risk. Nobody wants to screw up. So, projects take way longer to build and are way more expensive. And somebody is coming up with a new safety code every year because one person might have done something.

And now, they have built a million buildings that will be impacted by how they are.

Shiloe Bear: And lawsuits, right? Everyone is so afraid of being sued. And so you have to release people from their liability and say, Hey, OK, if it were your project, tell me what it is without any of this added fluff.

And then we'll return to you and say, OK, add more. But let's start with what is the minimum viable project. And it's only sometimes what gets built. It's nice to go then. OK, now we've brought it down enough to go back up a notch. But the typical process is designing the moon and the stars, and you price it out.

It's super expensive. You try to scale it back. You never get all that money back, and everyone feels it's a compromise. It's messy, and it's unnecessary to work that way. And I like thinking about all this on the front end instead of trying to pull back from something overdesigned.

Chris Powers: OK. You just said something that was on my mind. When should I hire you as the developer on the front end? Like, how early should you get on? Because of what you said, they still need to go this way, seeing their first budget come back off the plans. They had been like, Oh, this is great. It is perfect in line.

It's usually, like you said, it's. We dream big, and then we pull back.

Shiloe Bear: Yes. We want to be in very early. 

Chris Powers: How early?

Shiloe Bear: Usually, we're the first ones on a project. So we're hiring the architects. We're hiring the consultants where we're bringing in the contractors because you also want the right fit for the job.

And many folks need to learn that if you have fewer reps, you don't know, but you don't want an architect that typically does 300 square feet. For a 20-square-foot building, you need someone who's scaled, whose business is scaled correctly for the project.

Chris Powers: Does the owner usually hire the developer, or is it possible the architect the developer was talking to brings you in?

Are you mainly being hired by the investor?

Shiloe Bear: Yeah, mainly by the owner or by the developers.

Chris Powers: One quick sidebar: It made me think about what you discussed with risk. Wasn't there a building in San Francisco like five years ago, a vast tower that started leaning?

Shiloe Bear: Yes. It's still happening.

Chris Powers: From your perspective.

So we don't have to go too much into it, but all I remember thinking this has to be the biggest nightmare ever. It is a skyscraper downtown that's now leaning or something.

Shiloe Bear: Yeah, with very high-end residences, like some of the most expensive units sold.

Chris Powers: And it's the whole building vacant now.

Or can people still live in it? 

Shiloe Bear: I don't know. I have been waiting to hear about it lately. 

Chris Powers: As of  June 2023, it says they spent a hundred million dollars to address the sinking and tilting issues are settled.

Shiloe Bear: Oh, OK. 

Chris Powers: Good on them.

OK, so from your perspective now. What happened there? Do you even have a view of it? 

Shiloe Bear: I assume it's a soil issue, but I don't know. I need to learn more about that, but I know that if you end up with foundation problems, it's something with the soils and what type of foundation you were looking at.

Chris Powers: So where I'm getting at with this because we used to develop a lot because you have architects, you have engineers. You have consultants. Sometimes, it can get tricky to determine who is accountable for what. 

Shiloe Bear: Definitely.

Chris Powers: From your perspective, how do you all work to understand where accountability lies throughout the project?

Great developers understand that people you've talked to who have developed for the first or second time need to find out who came up with what and how the people made the decision. It's just that the engineers start working with the architects and work with the consultants too late.

How do you guys fit into that where everybody is out of line, and you know who's accountable for what?

Shiloe Bear: We usually're writing all of that scope. So we're coming in early enough to say this is where the architect, what their content is, this is the structural engineer, this is civil, this is landscape.

And so we're building that out and putting that into the contracts. 

Chris Powers: OK. Going back to the minimum viable project. Are there certain parts of a project where it is most evident that you can save money? Is it usually like significant mechanicals and structural things? Or are people over-designed for something they don't need? 

Shiloe Bear: It's the first one. It is usually significant, mechanical, and structural. So often, we're working with boat trust buildings, and people show equipment on the roof, and boat trusses can't handle equipment on the top, but you also have land. Let's take that equipment and put it on the ground.

It's basic, but that's not where people start. They start with equipment on the roof. So then that backs out a lot of structural. The other thing that we can do is what a lot of multifamily developers do is look at your floor plan and how you are in a group in rooms. 

So you always want to have plumbing back to back, but you also want to have wet walls and a shared wall. So, if you like in apartments, you have your bathrooms or kitchens back to back. Let's share one plumbing set if you have two units.

And so we're doing that same thing in labs where if you have two rooms, you want your plumbing back to back so that you're not, you're minimizing the number of runs. And then the same with HVAC; if you have rooms with the same temperature control, you want them grouped. 

Chris Powers: Is lab space evolving, or has it always been the same? I know very little about lab space, but this is a niche that you have mastered.

Shiloe Bear: It's an exciting market. You would be amazed how many people tell me I have no concept that this is even. The asset class has changed some, but every project is different because we're doing everything from batteries, which you cannot water. After all, it's lithium.

There is no water in the fire sprinklers, and everything is dry rather than clean rooms. Everything is about humidity control. And then, all the way to the other end of bioreactors and fermentation, where it's all water and drains. Every project is learning a new business, but it's also cool because it's like looking into the future.

These people are building such incredible stuff; you get to see and be a part of it. 

Chris Powers: OK. It is a moment to, 're going to talk more about Bio, but. It's an excellent time to ask, How would you describe what's happening in the markets right now? I have called the Bay Area, San Francisco, and Oakland since we were in 2023.

How do you describe the market in your? You can say it broadly but then niche it into your focus. 

Shiloe Bear: So a lot of, we know, the office market is struggling. The San Francisco office market is particularly struggling, and there are several reasons for that.

So, San Francisco, about a year ago, made an accurate bid to get more tech companies in. Historically, tech was South Bay, and San Francisco proper was finance, insurance, and health care. They wanted the tech, so they recruited it. They did tax breaks. They all moved in. Rents went up. All those companies moved over to the East Bay.

Chris Powers: And real quick, East Bay is what a tourist like me. 

Shiloe Bear: That's Oakland. East Bay is like Oakland, Berkeley, and San Leandro. You probably wouldn't go there. He wouldn't cross that bridge. So, San Francisco also does not have any residential downtown, whereas if you look at Oakland, tons of residential mixed in with the commercial, so you have this perfect storm of abandonment of a space.

You don't have anybody living there, and then now you have. All of the tech workers who are saying, we're not going back to the office. So you have eight city blocks that are just empty in a space that used to be the bustling core financial district. 

Chris Powers: Literally 4 or 5 years ago? 

Shiloe Bear: Literally. Just like I used to commute there long ago, you're fighting for space on the sidewalk. It's New York City. You're like, shoulder to shoulder during commute hours, and you're like this person, please move, and now it's empty that the restaurants are closed because they all served the office workers.

And so what's happening is prices are dropping considerably. So there's a couple, there are three kinds of significant buildings. 160 Spear was a lovely office building that had just closed. It closed around 260 a foot. 

Chris Powers: And previously probably traded close to a thousand afoot.

Shiloe Bear: There's another 550 California in contract right now, and it will close around 120 a foot.

It's less pleasant of a building, but still like a friendly building downtown. Tulsa is the only other market I know well. I'm like, that's Tulsa prices. So would you rather have? The old Highland dairy, or would you rather have the downtown San Francisco financial district? It's incredible to me.

It's a huge opportunity. It's like an actual sale. 

Chris Powers: Is there anything going on at the government level locally that, is there any, is there light at the end of the tunnel? Like anything that you maybe know about or things that we should know about that says there is, this will get turned around, and people are working on it, or is it still just purgatory?

Shiloe Bear: There are a lot of people working on it. And there's a fundamental tide shift that's occurring right now. There are a couple of different things. There's in the past two years. We've had a ton of state legislature that's come down and said all of these small cities and all these places that made it hard to build for the last 30 years.

And now we're paying the consequences. You guys can't do that anymore. You have to build new housing, you have to develop a percentage, and you have to do it by the state and show us how you're going to do it and change your zoning laws. And that has been huge because what's happening is if you have a project that your city is saying is giving you a lot of pushback, you, if it meets the requirements, you can go to the state, and they'll approve it.

They override. 

Chris Powers: How quickly?

Shiloe Bear: Fast. Usually, within a couple of months.

Chris Powers: So if I know you're in Oakland and the Bay area, but I want to finish talking about this, I loved that area of San Francisco so much. I can picture it. 

Shiloe Bear: It's magical. 

Chris Powers: So there are these buildings; any idea what people will do with them?

Is it? Will they stay in the office, or will they try and do a different use? 

Shiloe Bear: I think everyone was going through this exercise for a while: What do we do with these buildings? Do we tear them down? Do we make them residential? Everybody's going back to the office. It feels like Zoom announced that they're going back to the office.

That's the direction we're heading. Whether people listen, whether you like it, you agree with it. That's where we're going. It will take some time. Some of the smaller ones will get converted to something else because if you have small enough floor plates, it can work the historic buildings that are a little smaller that get good light.

But these big behemoths are an entire city block. What else do you do with them? I think you wait. 

Chris Powers: I can only speak for myself, but I don't know how people sit on Zoom all day. I'd rather be in person with people. 

Shiloe Bear: 100%  I am not myself on Zoom; I'm not focused and not as present as I am when I'm right in front of someone.

Chris Powers: This podcast would be different if it were over Zoom. It's just the in-person conversations. If I can get them in person, it's the best way to do them. And it transcends every situation where you're with somebody, you're talking to somebody.

Shiloe Bear: Yeah, my, my 1st is in person. My 2nd is a phone. A distant 3rd is text email signals.

Chris Powers: On that topic, do you have an opinion on a residence or office to home? I know it's case by case, deal by deal, but in your view, is this even possible with most properties? Or if you can get the building cheap enough, you can afford to put in the money it would take to turn these into residential units.

Shiloe Bear: You can make them work on a small enough building. That's not a typical office building; the office buildings that we're worried about are class B or class C, like big, 80s fixtures. They need a lot of work anyway, but those are 2, the floor plates are too big. You can't get light into the interior of the units. 

Chris Powers: No way, because you can't build an atrium.

Shiloe Bear: We've done a couple of industrial to multifamily, and on those, were cutting out, like, big holes through the center of the buildings, and that works when you're talking about 3 or 4 stories. But when you get up at 1415, what do you get?

Right at noon? You're the vampire, and I don't think it works. Structurally, it's a lot more complicated. The industrial buildings have evident pillars. It's easy to see where you can cut out and what you can lose. 

Chris Powers: How are they doing multi and industrial buildings?

Is it just one store unit? 

Shiloe Bear: Yeah. Single-story unit. Sometimes, they're two-story, but usually, they're single-story units; they're loft feel. So it still has a lot of the industrial, concrete floors, you've got like the big steel windows that we love. And They're usually open, very open floor plan.

So think like a studio with super high ceilings, and they're coming for you. They're going to take your industrial buildings. 

Chris Powers: Somebody I was talking to about the office to the residence, and the argument many times is, yeah, you cannot get light back there. His recommendation, which I thought was brilliant, but you can poke a hole in this, was how many units do you ever have where you could build a 600 square foot storage facility in the back towards the interior of the building?

Because if you go to any other apartment on the planet, you're not getting storage. You may have a little closet or running a warehouse somewhere else. These are more attractive because you could put a garage-sized storage unit for people to have that viable.

Shiloe Bear: Again, on a small enough building.

But if you're talking about an entire city block, a typical unit is 30 feet deep. So you come in all sides on 30 feet and still have 300 in the middle. That's a lot of storage; maybe you're renting it out separately or vertical farming.

Chris Powers: But vertical farming data centers, I've heard data centers might work, but you want a small number of great class, old shells of buildings with just servers in them.

No, it's still just killing the fabric of the community. 

Shiloe Bear: It does; it'll be interesting. I am still determining how it's all going to play out. If enough of the smaller buildings get converted to residences, the more prominent buildings are more in demand because now you've pulled more offices off the market, and the number of offices left will increase. 

Chris Powers: So is, so prices are down obviously for office is the investment appetite. Again, you get to talk to many brokers equity developers, like what's the sentiment, is it San Francisco, which, to be fair, had gotten expensive. Yes. It's more affordable and suitable for significant investments.

Shiloe Bear: Definitely. 

Chris Powers: Is that what you're seeing? 

Shiloe Bear: It seems like investors are excited about it. There's a lot of interest from the East Coast, but lenders aren't lending on it; I'm not sure lenders are lending on anything, but they're certainly not lending on office in San Francisco, so that is an issue. But vacancy is still high compared to most cities. So that's giving some people pause. There are people with cash. They're figuring it out. 

Chris Powers: So we talked about San Francisco. If you go across the bridge, there's Oakland. Is it a different environment or the same environment, or is it different?

Shiloe Bear: Oakland has always been cheaper than San Francisco. The San Francisco office set the market for rates in our area. And so when Not that tremendous industrial, East Bay industrial was 300 a foot. That's because the San Francisco office was 900 a foot. So they're related. It will be interesting to see what happens now because our top-of-the-mark has fallen significantly, and the brokers will tell you they're different asset classes.

They're not connected. I don't buy it. Yeah, they're connected. We have yet to learn how. We need more transaction volume to understand how they're connected. We know they are. And so I expect that prices will fall everywhere. It's interesting because Oakland didn't have it. It has less of a ghost town feeling than downtown San Francisco because you have these other industries that didn't work from home.

You have insurance, you have health care, you have a lot more residential mixed in with the office. So it hasn't felt as dead, but it still has issues in much of the same way. We're still dealing with a lot of homelessness and crime, and there's been a fundamental political shift in that front to where people are.

They've had enough.

Chris Powers: The homelessness, the crimes concentrated in certain pockets, like rampant all over the city. And we talked about that. You're like, in most areas, it's vibrant. It's beautiful. A lot is going on. 

Shiloe Bear: Oh, my gosh. Keep talking doom and gloom, people.

It's bringing my prices down, but I will tell you from boots on the ground. The sun is shining, and people are sitting on patios, eating tacos, drinking margaritas, and doing fine. 

Chris Powers: Isn't there an Instagram account of The Fog with a million followers?

Yes, Carl The Fog. Is he still a celebrity out in the Bay Area? 

Shiloe Bear: Yes, yeah, he's still there with us. Now it's like The Doom Fog, right? The Doom Fog. 

Chris Powers: San Francisco, the barrier, is one of my favorite places. I haven't been in years, but when I was single, I told you earlier I loved being out there.

Shiloe Bear: It's magical. It has something special around it; it just draws so many entrepreneurs and people with big ideas who are building exciting things. And there's this feeling that anything is possible, and that's hard to find in other places that just that feeling that everyone around you is super ambitious, and you see it play out.

And you see, People who got here three years ago, and now they're IPO, and you're like, Whoa, what just happened? You just got here from Indiana. I met you at a party, and it happens so fast now. But there's also something to the barrier that people don't think about when picturing or talking about doom and gloom, but it's the only place I've been where you have access to nature within such proximity to the city.

And you think about Oakland, I'm sure you have an image in your mind, but. Oakland has. 

Chris Powers: I've never been to. 

Shiloe Bear: Oh, OK. 

Chris Powers: I think of the Oakland athletics. That's what I think about. Because when I grew up, I had an Oakland A's hat, and that's about the extent of what I believe about Oakland.

Shiloe Bear: That is the most positive version I have. I have heard from almost anyone. There's an image, and it's usually not that. But the reality is, We have, and you had the Raiders, right? Now we have, we're about to have no teams. 

Chris Powers: OK. Are the A's leaving, too? 

Shiloe Bear: The A's are leaving. It is not complete, but it is.

All right. I'm going to tell you what's great about Oakland. We have 19 miles of coastline. We have over 100,000 acres of parks. Major parks like it's like National Park in your backyard in the city limits, and you don't get that anywhere. There are miles and miles of trails.

And for me, I'm still like a little country mouse city mouse. I like to be able to get into the woods, and it's so easy to do. It's you're at the ocean in 10 minutes. You're at the woods in 10 minutes. You can do that in some other cities, but it's extraordinary.

Chris Powers: All right, now we've set the stage. So you've built a remarkable developer consulting business, construction consulting. You've worked on hundreds of projects. Prices have come down. The Bay Area is not out. It's great. It's in transition. The Phoenix always has to rise again. That's right. And we've been talking a lot about both the capital camp, and earlier today was the opportunity that you see that you want to move the business onto the equity side of the company.

You said, I've seen the value I've created for many people, and I know I can make it for myself and my investors. So I want to discuss what some projects look like that would be deals you would like to be doing because I'm an industrial. There needs to be lab space or bio space here.

So it's familiar, but not. I want to discuss some examples of how this might work. 

Shiloe Bear: I do think we've had a lot of access. The intention all along with my company was to do our developments, but they're very capital-intensive. The barrier prices are high, and say it's not cheap.

It's not. 

Chris Powers: And I'm not coming from except you did buy a, you did buy a little place on the river. That was a good deal. 

Shiloe Bear: I did get a good deal. I did get a good deal on that. It's tough. It's a tough place to start. And so why? Because of the pricing and because it's a very sophisticated market.

There's a lot of competition. And so if anything looks a little bit like a deal, somebody will grab it. And so where we're at is what we started doing was entitlement work. So, we started buying land off our balance sheet. It's an easier way to get access. It's cheaper. There was a point where you could get land pretty cheap.

So we were buying land. Where mainly in Oakland, and what type of land mix? We were trying to buy lots zoned for multi that needed more utilized, either one house or nothing. So we were buying the land by the square foot. We were spending two years titling and then selling them by the unit.

Chris Powers: OK, pause. Yes. Please walk me through how that works because that in and of itself is a fascinating way to invest. I've been there doing it how we do it in Texas, but there's a lot of value to create. If you can get the entitlements, there is. So, how did you look at the project going into it?

What happened over two years? And then you said I bought it on a square foot, but I sold it on a per unit. 

Shiloe Bear: How does all that work? I started looking at land. I bought a couple of small lots. At tax auction, so that was my 1st. I just did it on my own. Let me try this out, and those turned out well.

So then I started with our company's money using our balance sheet. What happened that was lucky was Oakland's passive vacant parcel tax. OK. And that's a 6,000 yearly tax on vacant land. And so the tax comes about, it comes in early December. So right before the holidays, you get a bill you didn't know was coming for 6,000.

And so what we said is No matter how big the land is. So where we started was looking at, we started looking at lists of people that have recently inherited land. We would call them about a week after that bill came, and they were always surprised. We started cold calling new owners of land people who had inherited a piece of property.

They haven't wanted to deal with it, or somehow, they came into it, and they're getting their 1st bill. Sometimes, they'll pay the 1st but want to save the 2nd one. So we're also calling 2nd years. So we started picking up land cheap. Because people were slightly distressed, we're bothered by the whole thing.

Our team will do entitlement work for other developers. And for us, it became a filler if we had a little time and were working on something similar. Bring this one, and we'll do it at the same time. So we were doing, we were designing usually multifamily and then getting through planning approval, and then actually building support, too. So we're getting shovel-ready projects with plans that you could make, and we didn't have the capital to build them, but we knew that they were buildable, good projects, and we would sell them to people who wanted a buildable, good project and didn't have two years to wait.

And so at that point in the cycle, we're not there now, but what year did we sell most of the land between 2018 and 2021? So we were doing 1 or 2 of those a year for a while. 

Chris Powers: Would you then sell it to them and then stay on the project in some capacity, or they would buy the plans a lot, the permits, and they were off to the races?

Shiloe Bear: Most of the time, they buy and do it themselves. On two, we stayed on and helped with design and construction management. 

Chris Powers: Were all the lots you bought, did you see a clear pathway to getting entitlements, or was there some entitlement risk in there? 

Shiloe Bear: I saw a clear path on all of them.

We don't have to rezone, so all the zoning is proper. But it is messy. So, the code is very long, and you have to look into many details. But once you can figure out every area that says you have the right to do it, you must document and show it.

Chris Powers: I love your business so much, and investing with you would be interesting because I can speak to what has developed here, and you can give a little insight into this even if I move to Oakland tomorrow. You gave me your whole company's file, and I somehow digested it.

Even if I walked into City Hall and the only thing I didn't have was relationships, I had everything else but no connections, so forgive me. I love San Francisco. I love the Bay Area. But when I think of areas that would be difficult to develop in, which is also why there's so much opportunity.

Places like the Bay Area, New York City, and Vancouver are dense. Yes. You can pat yourself on the back or brag a little bit here. How important is it for the decade of relationships you've built there? That is almost like a moat. 

Shiloe Bear: It's priceless. It is. It, if you were to say, OK, I gave you my file, and I, and you're going to go, and you're going to submit online, and no one's ever going to look at it for 7 or 8 months, and you have to know who to talk to get things moving.

You want to steer it to the right people because some get things done, but you only know that by trying many times and having it not get done. And then you have to know who to go to when it gets stuck. All that takes a lot of reps, and it just takes doing it.

It does. People always ask me, is there some magic to the entitlement work? It's just volume. It's just that we're doing so much more of it than anyone else. We see the minute a code changes, and we see it the minute the way that they process something changes, we see it.

And so we can apply that to the 30 or 40 other projects we're entitled to. It's it becomes straightforward purely because of volume. 

Chris Powers: And there's so many great folks that work up at the city in all these cities. But people forget that nobody in the town gets an award if a project happens.

No. So, the timeline in the city is often different from yours or a developer's, which means I have to get paid.

Shiloe Bear: And they're all understaffed. And so what happens is they get 15 projects across their desk, 14 of them are straightforward, and they move on, and one needs a supervisor to review a thing.

So it gets set in a pile, and then the next day, they get 15 more, and that one gets something stacked on top of it, and it just goes like that. And so you've got this percentage of projects that get they're just sitting on somebody's desk. They need to review, and you don't know it.

If you need to know what the typical timelines are supposed to be. The other thing is, you can't go in and say it's been in for a week. Where is it? You have to be able to know. Hey, I've done a bunch of these. I'm usually getting something in three weeks. It's been three and a half. Can you look into it?

Chris Powers: It's why I'm bullish on it. I tweeted about the other day operators, but in your case, if you're investing with somebody or doing a project with somebody where a lot of the value is in relationships, buying an industrial building in Texas is one thing. We need connections to get the deal done, but there needs to be this additional level of 10 years of relationships to pull something off.

So you are one, able to look at something unique way to, you're able to get something done that no matter how brilliant Johnny is over here if he moves to San Francisco, it will take him. You have to be there for ten years.

Shiloe Bear: We also have a great database with every plan check comment we've ever gotten.

And so we can review the plans before they go into the city and say, on a project of this type, we've seen them come back with these ten comments. Why don't you guys go back? Add in pretend as if you just got these comments, add that information, and send it back. That often saves us months in review because we do not have to send them back through again.

Chris Powers: OK, we're going to get to what a deal might look like, but we're going to go real quick back to just land entitlement. And you tweeted that land entitlement is the closest path I found to creating money out of thin air. And what you meant is. You buy something, and maybe you can build one unit on it, but if you can then get it entitled to make five units on it, the value of the land is infinitely more, even though you haven't moved any dirt or put a stake in the ground.

Shiloe Bear: Exactly. Exactly. So you're going in price. I've seen people do it in a lot of different ways. Still, the way that we're doing it is, it's just that we're buying it per square foot, and we're selling it per unit, but I think some people will buy a building and then partner with someone on OK if this gets entitled to up to this height, I'll split that with you.

50-50. Nobody's building anything in that scenario. It's not that there aren't costs. There's money that goes into permitting, and we're paying our team, but it being in-house, it's relatively inexpensive for us to do that. And it would help if you still moved a shovel. 

Chris Powers: OK.

Let's be OK. We've talked about land investing, but let's talk about some of these conversion projects, or let's go through some of the things that appear to be becoming interesting that you think there's a lot of upside in. 

Shiloe Bear: Awesome. So, our main project is some industrial conversion.

We're usually working on things that are OK. Pretty big square footage, 2 to 400 square feet. OK. We're considering doing that same project but on a smaller scale. The idea is to look at things 20 to 50,000 feet around there to begin mainly from a capital perspective.

We're trying to ensure that we have partners aligned with us. And in doing that, we want to start small and grow from there. So, our ideal project is 20 to 50 000 feet industrial.

Chris Powers: What's the building like the day you buy it. 

Shiloe Bear: Pretty bad, usually the worst, the better.

Yeah, because we're going to redo it. So we like industrial tilt-ups. We like those. Those make good conversions. We want things with character because we're into preserving and holding on to some pieces. 

Chris Powers: That's industrial tenants deserve character, too. 

Shiloe Bear: We'll get into the design later.

People should pay attention to a whole component of design in an industry that they should notice. But we're looking for something that has land. So we want a big site. In most places, you only pay a little for the land you're spending on a price per square foot for the building, and then the ground is just extra.

Why do you want the land parking? I like the land for future entitlement. I want our projects to be a covered land play for this cycle. And a vertical in the following process. And so we are, we know how to get good cash flow on these projects, especially the biotech.

We have a perfect niche and are doing that. We know how to build it inexpensively, and The rents are reasonable. The rents are solid. If we're just a typical example, buying at 200 a foot, we're putting 100 into it. At the low end, we rent 350 square feet a month.

And then it goes up from there. 

Chris Powers: It's so funny, no matter where you are in the country, you all do it on a per month. Yeah, it's ten a foot, but that's over a year. You always quote month. Yeah. OK. So you're in all so that Bio would pay three 50-plus nets. 

Shiloe Bear: Yeah. So, three 50 triple net. So that's like a 14 cap or unleveled yield.

That's pretty good. And that's why we can do that project over and over again. Maybe not the exact details, but that project exists and is out there. 

Chris Powers: And how would you source this building? How come nobody, if nobody else, would see it that way? 

Shiloe Bear: Because back to our overbuilding, most people think that the only way to build biotech is to spend 300 a foot, and we're not doing that.

Those people are also getting higher rents. So if you're spending 300 a foot, maybe you're getting 6 or 7. We're looking at whether you have smaller buildings, we're building them out on spec, and the idea is that you have smaller tenants. So, think of businesses coming like little startups out of the Berkeley incubators.

They need space right away. They can't wait 18 months for permits. They need some things in the labs, but we're used to what they seek. They want areas. They're clean and washable. They need hoods. They need sinks. They need drains. And so we're building those on spec. We're multi-tenanting, and then the ideas are a little bit, V.C., where one grows and takes over the building, and the others go out of business, and along the way, people build out your site more and more. So it's more and more valuable.

Chris Powers: Do labs work where it's like if one lab focused on this cool biotech thing goes there, the building usually fills out with other biotechs in the similar.

Shiloe Bear: Yes, they love to cluster. And they want to be in specific neighborhoods. And so we have these Giant printed zoning maps, and they show us where we're allowed to build the type of project we want. But then we also overlay those with what are good sites for entitlement? What sites will enable you to go very tall and very dense?

And then, we overlay that with opportunity zones and state laws. So we have these like layered maps. And from that, we end up with this kind of small area of sites that we're targeting. And then there's a guy on our team, Noah, who calls those people, knocks on their doors, and calls brokers when sites in that range come up.

And that's how we're sourcing.

Chris Powers: I'm going to sound like an idiot. There's probably some biotech and DFW. What is how big is the biotech industry? Is it growing? What's the state of biotech in your market? 

Shiloe Bear: In the Bay Area? It's enormous; it's mainly in the Bay Area, LA. Boston. 

Chris Powers: OK. And why? 

Shiloe Bear: Because there are universities. It's starting to be more in Research Triangle Park. There's a little bit on Austin. It's only in some markets. There are plenty of calls it's not in at all, but it's really about talent, where the talent is, and where people are building companies.

Chris Powers: OK. I'm asking this for the second time because we talked about it when we were talking about more of the service side of the business. But will you repeat why? Can you all build biotech cheaper? Is it more from the minimum viable project, like you know what people need and don't do all the fluff, or is there something else you're bringing to the table that allows you to create more value?

Create these spaces where other people can't.

Shiloe Bear: It starts with a minimum viable project. That's the beginning of it. But if we're building on spec, we have found that people will take it if you create a space on spec. If you allow someone to customize it, they will customize it.

Their heart's content. And so part of it is we're building something that we know will generally work and leasing it. So you take it if you need three hoods instead of 1, you can get yourself two more.

Chris Powers: Yeah. Do the people who lease or the tenant reps and the leasing brokers usually work specifically in this industry?

, they could be representing any industry, and sometimes it's biotech, or is it niche even within the broker community?

Shiloe Bear: It's pretty niche, even within the broker community. There are a handful of brokers that focus just on these deals. 

Chris Powers: OK. You talked about cleanliness, safety, dry areas, and clean areas.

Is there anything else that comes to mind that biotech tenants need that no other tenant needs? Is it Vena hoods? 

Shiloe Bear: It's almost always airflow because they're dealing with hazardous materials. 

Chris Powers: Because of COVID?

Shiloe Bear: It's always been the case. It's mainly about hazardous materials.

So, they are generally working with some level of controlled substances. And so they'll tell you these are the substances I'm working with. These are the safety requirements around them. And so these rooms need different ventilation. Sometimes, it's 100% outside air. Sometimes, it's a certain number of air changes.

So it's about how you recycle the air based on their chemicals. 

Chris Powers: We've talked about all the, maybe not boring stuff. That may interest some people, but I have an all-caps with a line design. 

Shiloe Bear: Everyone wants to hear about design. 

Chris Powers: Biotech people care about design. 

Shiloe Bear: Everyone cares about design.

Chris Powers: Really? 

Shiloe Bear: Everyone cares about design, Chris. 

Chris Powers: Teach me a lesson I needed to learn. 

Shiloe Bear: Yeah. So we found very early on that we were doing these projects. People are spending a lot of money; ultimately, it's different from what you want to be. I'm a salvage girl. I'm OK with waste. It felt wasteful, right? It felt wasteful and inefficient that we were spending all this money on something frankly ugly at the end of the day.

And so we started design as a service. So that these places would stop looking like that, and it took off. It's been something that I'm surprised by; we have these buildings that have never had someone. If the design gets thought about at all in an industrial or commercial building, it's an afterthought, and it's usually way at the back.

But the way that we approach them is. We want to go in very early, and we want to find. A couple of every building has some magic. So, we want to figure out what pieces we can maintain. John Marsh said the demo guy needs to be your team's most skilled person, and we're on the same page. 

Our guys know if they uncover some cool old tile or interesting corbels. They stop, they send us pictures. We run over there and say, OK, this is worth saving. Every building has something, and you need that. You need those pieces because you need the gravitas that they provide.

If you have everything new, it's like an Ikea showroom. Like it's poppy, it's nice, but there's no heft to it. There's no soul. And so we start with that. And then we come in and take a couple of magic moments. It's what your tour path going to be? What will you see when you walk in, and what will draw you into the space?

We want to bring you into whatever the most excellent part of the space is. And so it's, sometimes it's only a couple of things. It doesn't cost a lot of money. We're not doing high-end design. We're taking fundamental materials and, interestingly, using them. And we're using a lot of color and light, so you have these big, substantial industrial spaces.

You're looking, and you're standing in a space. It's 50000 feet. You want something way over on the back wall. That will bring you in, which has to be like saturated color because everything else is white and concrete. It would help if you had something that differentiates it and makes people feel like someone here cares.

Chris Powers: So you're telling me biotech people are humans, too? 

Shiloe Bear: They spend all day in these sterile environments and don't want that when they come out. 

Chris Powers: OK, so you said bring me in. So that'd be like tile patterns; you said light, maybe not murals or murals.

Shiloe Bear: Maybe murals, colors. The worst thing you can do in commercial design is mimic residential design. Mainly, now residential design is, let's make everything super muted and very neutral. I'm a maximalist. I want, I want bold. I want a lot of color. I like super-saturated colors.

I want good light. I want it bright. I want it to feel energetic. When you walk in, I want you to go, Wow, I've never seen anyone, I've never seen anything that looks like this. And the problem with that is there's always someone who thinks it's too much. And so you must be careful who you show it to, right?

You have to if, as soon as it gets on a design by committee, one person says, I don't know, it gets watered down until it's just garbage. 

Chris Powers: You and my wife would be best friends. We have a loud house.

Shiloe Bear: I can't wait to meet her. 

Chris Powers: There's no mute. 

Shiloe Bear: Yes, I love that.

Chris Powers: And I came from maybe the more the mute world. So, I've had to become a convert. I've converted over the last ten years. 

Shiloe Bear: And how does it feel? 

Chris Powers: It's good, Colourful. She would tell you it's bright, It's happy.

Shiloe Bear: Yes, why not have a happy space? Why do we need sad space? We want to work in something other than an office.

It's like we don't want to work in a sad space.  

Chris Powers: That is true. I think a lot about the problem, and I agree: you walk into some buildings, and your soul dies the minute you get in the parking lot. 

Shiloe Bear: They're terrible, like those fluorescent lights, the buzzy, oh, it isn't good. 

Chris Powers: So, does design work?

It's all the above. It helps space leased faster. You may get more rent. But it's something that, from what you found, most developers in this space totally neglect.

Shiloe Bear: 100%, they neglect it. And we found that space had leased much faster if we put a little time and energy into it.

And I wonder if they bring more rent. I'm still determining. But I know they fly off the market.

Chris Powers: Hey, an empty building is it was just eating cash. OK. So we buy a building. It could be a better-looking building. It has some land attached to it or extra space. You're going in, and you're redoing the bones.

You're building out spec lab space. A good question here is, do you all? Build it to where it's moving ready, or do you get to a white box shell but keep dollars or something available, knowing we'll have to customize this at least once the tenant arrives?

Shiloe Bear: Projects were building and moving, ready on a smaller scale.

We're doing turnkey spaces; what we've done for other groups on more extensive properties is we'll build out like the office on spec and maybe one lab so they can move in, and then they're building out there—the rest of their labs. But the projects we're looking at are smaller, and we're pretty agnostic about project type.

I will do that; we've done many of these, like industrial multifamily. There's less meat on the bone than in the lab space. But we're looking at similar projects, some industrial conversion in the city.

Chris Powers: But market expert, first and foremost, you told me, like, there's not a corner in Oakland that I could mention that you couldn't tell me something about.

Shiloe Bear: Oh, you give me an intersection. I'm like a savant. It's almost a curse, but there's everything sold. I can tell you when, what it traded for, who bought it, what they've done with it since then, maybe even if they're in trouble today, which many people are.

Chris Powers: Yep. OK. So the market's opening up. Are there a lot of these opportunities available? Are they hard to come by?

Shiloe Bear: There are more and more coming there. I've seen more in the last six months than in the previous three years. The opportunities are coming, and we're different.

Cap rates have yet to catch up with interest rates entirely, but we're on the way. So there's still room for things to come down as these things transact, and we start to get more comps, where we should be landing price per square foot. 

Chris Powers: And it's the best way to lease these because you'll have a set of design plans done.

Is the best way to lease these once and bring them to market, or is our lab space usually out far enough in advance? The first question is, how far out in advance is the lab looking for space? Is it on demand, or they're usually out in the market a year in advance? 

Shiloe Bear: Big companies are out a year in advance because they need a lot of customization.

Small companies are Like they're looking for space next week.

Chris Powers: And are we living in a world where there are many more small companies now because of the biotech innovation, or it's always been about the same? 

Shiloe Bear: I think it's always been about the same. We'll probably have a bit of shrinking because V.C. is slowing down.

There was so much money pouring into it for so long. And that's starting to contract. So, we'll see a little slowdown. 

Chris Powers: Would you want to start leasing these before completion, or would you like to complete them so that nobody's coming in and screwing with your plans and adding costs?

Do you want to get the minimum by-product and bring it to market? 

Shiloe Bear: Yes. 

Chris Powers: Building and selling a spec home doesn't turn into a custom home.

Shiloe Bear: Exactly. So many of our projects, as we start on spec about halfway through, find a tenant, and then it becomes a very custom project, and it's just more admirable when you don't have to deal with all that.

Chris Powers: And do our most lenders, it's if you bring somebody an industrial project or a multi, they get it, it's everywhere. It is a unique niche; do lenders get it? 

Shiloe Bear: No, I've seen them struggle with it. They need help understanding the lease-up. They need help understanding the rent.

They want to see a lot of evidence around it. And then you give them all the evidence, and they still sit on it. 

Chris Powers: How long are the leases usually?

Shiloe Bear: We're looking at 18 months to 3 years for the smaller ones, so there is turnover. And that makes people a little nervous, too; you don't, and they're not credit tenants.

Chris Powers: They're VC-backed, or the big ones are credit.

Shiloe Bear: But these small ones, even the big ones, sometimes aren't; they're still VC-like.

Chris Powers: Our labs are interesting. Do they have revenue, or are you designing something, and if it works, you're getting paid big time?

Shiloe Bear: I think it's more than that. The second is because it's so much of it is I.P. there. They're researching things that, if it works, they're selling to other companies. They're selling that intellectual property. Some of them are profitable, but they're years in.

Chris Powers: If you're going to start a lab for which you've funded pretty well.

They give you, it's not Hey, hope you can come up with it in six months. 

Shiloe Bear: And then there's these things to develop. And the funding could be more consistent; there are certain things that they, like every year, we see a couple of years ago it was like alternative protein.

Everybody wanted to put money into fake meat, chicken, and fish. Then that moved on, and now it's carbon capture. So you've got the corn industry is subsidizing. You have these big old markets that you don't think about that are coming in and trying to, like, they realize beef is going away.

They're going to lose corn. So they want to get in on alternative protein. Or you have environmental folks working on carbon, and oil companies are working on carbon capture. It's bananas. 

Chris Powers: Interesting. We've designed a building. We've built a tower. We have tenants in it. Do you have a philosophy on hold period?

Are these things you want to own for a long time? Do you want to flip them? 

Shiloe Bear: I want to own a long time. The lab buildings mainly take time to season before people understand they're known as lab buildings. And at that point, your rents can go up more.

But then, indeed, we're looking at these things like this is our current play. But There's a longer cycle that we have in mind. Whether that's developing or entitling for development, we're looking for partners who can, are aligned in and holding for a long time, and like letting these things play out.

Chris Powers: I could have asked this initially, but you've seen hundreds of projects all over the Bay area. You could niche down into lots of different things. We've talked about why this is a significant investment, but From your perspective, why did this become the one that you're like?

The most opportunities here are because you've seen this many times. Is it because you've run the numbers and banged your head against the wall? It is unbelievable. Like, why did this become the niche? 

Shiloe Bear: For me, there's a lot less competition. So there's a lot of people in multifamily and a lot of regulation around multifamily.

So, I'm not trying to be in that zone. I want to hold something other than multifamily long-term. I might develop it. But I don't want to sit on it. I know you guys like it, and I'm glad you're doing it. It is not for me, so I want to be in the commercial space. I've done a lot of office projects, but we know where offices are right now.

I see many people doing it, but only a few people who are experts and what they're doing, especially at the smaller scale. Most of the people I see are, you've got Alexandria, who's that's the name brand there.

They're working at a very high level on a vast scale of institutional capital. So I'm not in that zone. I'm looking at smaller deals to start. It seems straightforward to apply all of the knowledge I've learned on these other projects to this situation.

Chris Powers: I love it. Alright, we're going to end with a couple of fun questions. Those were all fun, but these are more fun. You said I can identify a ridiculous number of birds. How many birds do you think you can remember?

Shiloe Bear: Oh, by sight? I don't know, probably 60. 

Chris Powers: So when walking around town, you're in the back of your mind. Oh, there's a sparrow, or there's a Robin.

Shiloe Bear: Yeah, there's a dark-eyed Junko. 

Chris Powers: There's a bald eagle. I know the very, very basic ones. 

Shiloe Bear: Yeah, you're naming the big ones. See, you got to get more comfortable. 

Chris Powers: OK, what's the most rare bird? Or what's a bird that you think of that maybe nobody else has ever heard of besides a rare Junko?

Shiloe Bear: That's a common bird.

That's common. I'm talking about mostly backyard birds. I have a pair of baby great-horned owls in my backyard. 

Chris Powers: Oh, wow. And you own them.

Shiloe Bear: No, I don't own them, but I've made a pair of great horned owls, and they just had two babies, and they're hilarious.

They make insane screeching noises all night long. That's I'm hungry, like, where's my food? And they're massive. They're babies, but they're like the size of, I don't know, a mountain lion. 

Chris Powers: OK. And the last one is you're a trail runner and long-distance runner. 

Shiloe Bear: I do. Yeah.

Chris Powers: And I think. Running is attached to driven people who get a lot done because that might be a release. 

Shiloe Bear: Yeah, I will tell you, so for most of my career, I have approached my work like a badger. I am tenacious. If I work harder than everyone else and hustle more, if I get to that next level and unlock, I will get there, and something happened along the way where I just.

I had this epiphany that applying more pressure is no longer helpful. I'm already working at my capacity. I need to get away from the badger for peace and time for big thinking. And the only way I found is to exhaust that thing. I run, run, and then I get to a point where everything else is tired, and my mind is clear.

And that's when I do my best thinking. 

Chris Powers: How far can you run? 

Shiloe Bear: I guess as far as I want. 

Chris Powers: How long have you been doing it? 

Shiloe Bear: 20 years.

Chris Powers: Oh, wow. 

Shiloe Bear: Yeah. 

Chris Powers: So, could you run like 10 miles right now? 

Shiloe Bear: Yeah, I could. 

Chris Powers: I don't know if I've ever run more than five miles in my whole life.

Shiloe Bear: So I will say I dislike the ultras.

Like, I do less than 50 miles. 

Chris Powers: Could you do a marathon? 

Shiloe Bear: Yeah. 

Chris Powers: Have you ever done one? 

Shiloe Bear: Yeah. I could. And I have.

Chris Powers: And you run every day. 

Shiloe Bear: I run almost every day, like not every single day, but I run; I feel better when I run; I'm just like clear, but yeah, I do think like most of the people I know who are real runners are like a little intense, 

Chris Powers: Shiloe.

It has been a fantastic conversation. 

Shiloe Bear: Thank you. I've had a blast.

Chris Powers: I hope you've enjoyed this episode of the Fort podcasts. Follow us on your favorite podcast platform, or hop over to YouTube to watch full video episodes for more information. For more information, you can check out @thefortpod.com.