Ethan Conrad '89 (Business Administration-Strategic Management)

Sacramento Developer builds $300 million empire

 Ethan Conrad
    
Photo by Jose Villegas, The Sacramento Bee


Sacramento developer Ethan Conrad '89 (Business Administration-Strategic Management) makes it a point to go to Hawaii three or four times a year. But only for three-day weekends, not longer. And he spends most of his traveling time working deals with his iPhone.

"You're just sitting there (on the plane), you might as well do something," Conrad says. "I'm not going to read the in-flight magazine."

That sort of focus on work is one reason Conrad—a boyish-looking 47-year-old—has emerged as one of the most active buyers of commercial properties in the country and now sits on a Sacramento real estate empire worth about $300 million.

In an economy where few other local people or investment companies are doing any deals, he's scooping up office, industrial and retail properties—driven, he says, by a desire to take advantage of a shrinking window of opportunity to buy real estate at still-depressed prices. His specialty: taking distressed, often vacant buildings, fixing them up and bringing in tenants.

"He takes a lot of cats and dogs and adds lipstick and makeup" along with more significant enhancements, turning them into high-quality real estate, says John Frisch, Sacramento regional director for brokerage firm Cornish & Carey Commercial Newmark Knight Frank.

It's a strategy he's followed since getting into the real estate business as a broker in 1989 – though his focus has shifted along with market trends, buying residential lots and homes when that sector was weakest, then moving back to commercial deals when they offered better returns.

Conrad, who grew up on a 32-acre ranch in Healdsburg and earned a business management degree at Sacramento State, made his first acquisition in 1995, while working as a commercial broker in the Sacramento office of Bishop Hawk Inc. He still owns that first building, on Fite Circle. Like most of his holdings, it's virtually 100 percent occupied.

He launched his own company—Ethan Conrad Properties—soon after and continued buying up buildings, then focused for a time on buying up residential lots, at one point acquiring about 900 new home lots from Ryland Homes for $4.4 million—about 6 percent of the amount that home builder had invested in the properties before opting to leave this market. Over the past three years, Conrad has returned to the commercial buildings market with a vengeance, acquiring 38 more buildings, including the specialized former Affymetrix plant in West Sacramento that he picked up last month for about $6 million.

That spate of deals recently landed Conrad at No. 14 on Real Capital Analytics' list of the nation's most active acquirers of retail buildings. And Conrad says he actually might be much higher on the list if deals made through "note purchases"—one of his specialties—were included.

The current Conrad portfolio: 76 commercial buildings, about 1,000 residential lots, and 20 single-family homes remaining from the 100 or so he acquired in foreclosure sales on the courthouse steps.
Of the single-family market, he says the foreclosure market was excellent until publicity about easy money lured scores of "flippers" into the game.

"Once it hit the papers that you could make money there," he says, "the opportunity was gone."

(The one blemish on Hanson's track record is a hedge fund venture he joined five years ago that lost money and went into receivership. "I learned my lesson, which is to stick with investing in what you know and what you're good at," he says of that experience.)

Real-life Monopoly


Conrad does his deals while working staggering hours at his headquarters on National Drive, just northeast of Sleep Train Arena, with a staff of 17 people helping with acquisitions and leasing, including three personal assistants whose duties include typing the memos, emails, lease proposals and purchase offers that Conrad dictates into a hand-held tape recorder. The company also has about 40 construction people assigned to fix up Conrad's new acquisitions and maintain the others.

"It's sort of bizarre," Conrad says of the amount of tradespeople on his payroll. "I never thought I'd (own) a construction company."

Conrad's days normally start at about 8 a.m. and sometimes go until 10 or 11 at night – even on weekends.

He typically eats lunch at his desk. So do many employees who take advantage of the kitchen he stocks weekly with sandwich fixings, frozen meals and snacks. Every two weeks or so, he arranges for catered lunches to be brought in for the entire office staff.

His demanding schedule means short vacations and limited time with friends and family. (Conrad's 7-year-old daughter lives with her mother in Granite Bay, and his parents now live in Rocklin.)
Conrad says he's OK with all that and is willing to delay a long-planned dream vacation in Europe so he can focus on what he regards as a "once-in-a-lifetime opportunity" to take advantage of depressed prices in the commercial real estate sector.

"I tell people, if I didn't make the most of this opportunity, I'd regret it for the rest of my life," he says.

Besides, he just seems to have a lot of fun in a job he likens to a "real world Monopoly game."

He's good at the game, friends and colleagues say, partly because he's nimble and unconventional, throwing in unusual incentives – such as furniture and signage – to land a desired tenant in one of his places.

"He's the most creative deal-maker in town," says Chris Strain, a Cushman & Wakefield broker who represents tenants in lease deals.

He's good, too, friends and critics agree, because he can be a pit bull in negotiations.

On building purchases, some say, he's more likely than most to "re-trade" – renegotiate the price on a deal after the start of escrow to account for deficiencies he discovers during his due diligence.
And bargaining with him over rents and amenities can sometimes feel like a war, says Strain, who nonetheless considers Conrad a good friend.

At the end of some lease negotiations with Conrad, Strain says, "you're panting, sweating and your hands are on your knees."

Vacation deferred


In response to the "re-trading" rap, Conrad acknowledges that "the level of due diligence we do is (higher) than most buyers." But he says he wouldn't be closing 90 percent of the deals he takes into escrow if he was always asking for a haircut—broker parlance for a price reduction.

And he insists his main goal in all of his deals—purchases and lease deals—is to arrive at a win-win result that leads to future business.

Indeed, Conrad says he initially planned to be a lawyer when enrolling at Santa Rosa Junior College following high school, but switched to business at Sacramento State after concluding it generated more pleasant outcomes than law.

"In most legal situations, it's rare where you have two happy parties," he says. "In business, usually there are."

It was at Sacramento State that he got his first introduction to sales, working as an intern at a local Chevrolet and Toyota dealership. He says he learned some of the secrets of selling there – and was the top deal-maker for two of his three months on the job.

That didn't sit so well with some of the more experienced employees, he says with a laugh.

"They were saying, 'Who is this punk kid?' "

Also while at Sacramento State, he went through the demanding program that's offered by the Sacramento Entrepreneurship Academy.

"It was real world information," he says of the seminars taught by local business executives. "I got more out of it than everything in college."

So what's ahead for Conrad? He says he expects to continue adding to his commercial portfolio over the coming year. But he notes that prices are starting to rise and more companies – many of them large institutional players – are coming into the market and providing competition on deals.

For instance, he says he recently made an offer on a Raley's-anchored retail center in Folsom and expected to get it. Instead, he was "significantly overbid" on the property by a Southern California company.
The looming end of the go-go market for so-called "value-added" properties doesn't seem to bother Conrad very much.

"I'm actually looking forward to it so I won't have to work so hard," he says. And what will he do when market normalcy returns? "That's when I'll go on vacation."

Article written by Bob Shallit, The Sacramento Bee, published January 2013