Counting Capital Podcast, Episode 5: Bixby Land Company with Aaron Hill

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Robert Brunswick:

My name is Robert Brunswick and I’m Chairman of Buchanan Street Partners, and it’s my pleasure to welcome you to our Counting Capital Podcast. It’s my pleasure today to introduce you to Aaron Hill, the president and CEO of Bixby Land. I’ve known Aaron for a number of years. I’ve had the pleasure to serve on Bixby Land’s board, and with that have watched Aaron and his career evolve to the point where he has assumed a leadership role at Bixby today.

Aaron, welcome. It’s great to have you on our podcast. And I do want to talk to you about a number of things, but first of all, I’d really like to kind of understand and I’d like our audience to understand a little bit about your career path, and where you started, and how you kind of got yourself to the point where you are today as president and CEO of Bixby.

Aaron Hill:

Perfect. And thanks for having me. Happy to be here. So my career progression, I’ve been fortunate to only have had worked for two platforms during my over 20 years in real estate, which I think is pretty unusual. Obviously with Bixby Land, but prior to that, with the Irvine Company located here in Newport Beach, California. I’ve held positions in accounting, finance, transactions, asset management, and operations through that time. So I’ve been really lucky to have a broad exposure to all the different disciplines within the commercial real estate space.

Robert Brunswick:

So helpful, obviously, Irvine Company, quite significant, especially in Southern California. So great foundational experiences for you, but then you got to Bixby. So what is Bixby Land?

Aaron Hill:

So Bixby Land is a multi-generational family-owned private REIT with an operating history that goes back more than 125 years. We acquire, redevelop, develop, institutional quality industrial logistics office and R&D properties in select tier I, tier II markets across the US. Currently, we have about $2 billion of AUM. We utilize a vertically integrated full-service investment and operating platform to identify and execute investment strategies spanning core to opportunistic risk spectrum.

Robert Brunswick:

I hear this often, Bixby 125-year-old company and some might argue even longer, so it’s a private REIT structure. So maybe you can describe that a little bit, the advantages and disadvantages or challenges to that ownership structure.

Aaron Hill:

Yeah. So without getting too technical on the REIT structure, it’s really a tax structure whereby you can eliminate the double taxation so long as you distribute 90 plus percent of your taxable income out in dividends each year. So that’s beneficial in that sense. There are some advantages to our capital in general, not just that structure. But our capital is long-term focused. I’m using that over a 125 years. So we’re not forced to make short-term maybe potentially long-term strategic disadvantaged decisions to meet quarterly estimates or quarterly profits. We could really take a long-term approach to the investment strategies, which gives us some advantage.

The other thing is the age of this capital, it’s not raised on like a traditional maybe closed-end vehicle with a time duration and a targeted return, meaning we didn’t go raise a closed-end seven-year value-add vehicle. This is long-duration capital and that allows us to identify and invest on good risk-adjusted opportunities, rather being forced to make investment decisions based on some parameters that the capital was raised under.

Robert Brunswick:

And just to be clear, so is it only family members of Bixby’s lineage that are shareholders?

Aaron Hill:

We’re into the sixth generation of Bixby family. So as you can imagine, that continues to evolve on a regular basis. So about 90% is family or family-related. We do have some outsiders, board members, management team, but it’s very limited in that ownership structure.

Robert Brunswick:

I like to consider you as very young in your career path. You’ve accomplished a lot. So talk a little bit about your expertise, your passion. How did you get to become president and CEO of Bixby? And I’m specifically looking for some of your skill sets and aptitudes that lent themself to that growth for you.

Aaron Hill:

Yeah, I’d say stepping back to my career path as I mentioned before, is I’ve had the opportunity to be exposed to all different disciplines. I didn’t just say starting acquisitions and spend 20 years chasing deals and doing deals. I had the fortunate opportunity to really work in all the different disciplines within the commercial real estate. And so I think that gave me a good, broad understanding of the complexities of a real estate organization, not just really one silo. The other part of that is frankly I just enjoy the diversity of working on different things. When you show up in each day and you just have to work through what’s presented, changing priorities, solving problems, that’s much more interesting to me. And so I’ve gravitated towards those types of roles, which has just again given me exposure to a lot of different components of the real estate.

And then from a passion standpoint, really today from that leadership, what I’m really passionate about is really helping not only our platform grow but our people, and really providing opportunities for them both personally and professionally to see them identify challenges, create solutions, maybe accomplish something that maybe they didn’t think they would be capable of doing. I find much more joy in that today than closing the big transaction.

Robert Brunswick:

Coaching, mentoring.

Aaron Hill:

And maybe challenging and putting people in positions where maybe it’s a little risk for them, but knowing that they have a good chance of being successful and then seeing them come out the other side of that being willing on to take on more.

Robert Brunswick:

Can you talk about from when you got into the business to today’s, what’s changed in terms of just the real estate space? Maybe less focus on industrial because we’ll get more to that. Just the real estate business in general, what changes have you seen?

Aaron Hill:

I’d point to really the, if this is the right word, the institutionalization of the business. When I started, there wasn’t the type of investment and ownership from the large pension funds, the private equity, even the retail. It was mostly smaller concentrated ownership, either private ownership or smaller concentrated. And that’s really changed adding to commercial real estate now having its own identifiable asset class within some of those larger funds and endowments. And that’s brought a lot more transparency. I think a lot more competition frankly in the space, but also a lot more opportunities for all of us in the space.

Robert Brunswick:

Well, probably a lot of that’s driven by just the immense amount of capital flows. The business has really grown up and with that, the service provider, the steward as you will, now is really required to have an improved workforce and protocol in the way that they conduct their business.

Aaron Hill:

Yeah, really an institutional level of policies, investment parameters, risk management …

Robert Brunswick:

Reporting.

Aaron Hill:

… all of that typically wasn’t part of what I would say most operators or investors in the business were used to.

Robert Brunswick:

So industrial has historically and certainly, I think in today’s time period you’d say is one of the favorite asset classes within real estate. So educate our audience a little bit about why is industrial considered a darling of the investment space and maybe describe industrial. When somebody says industrial, describe industrial.

Aaron Hill:

So starting with industrial and maybe the definition, and that’s a really broad category I would say today. And within that, so industrial really represents everything from manufacturing to logistics, to distribution, and so that’s the space that I would consider industrial. Like most of the asset types, there’s many tranches of that. The evolution of industrial has been really dynamic in the last 20 years. When I started, industrial was not part of the big three, it was office, retail, and multi-family, and industrial was somewhere in between mixed in with the others, so self-storage, life sciences. And today it’s really its own… And as you mentioned, maybe one of the preferred asset classes. I think the evolution of that goes back.

If I could start with where at Bixby, why we really repositioned the portfolio to primarily that asset class was you’ve got a lot of factors in it, but it has significantly lower rollover capital cost and capital expenditures. It has traditionally longer duration leases, which those really provide more consistent cash distributions and less lumpy distributions. Usually, a little lower total return because of that. The dynamics have changed. But that’s really I think what drove us to it, especially in our REIT structure. But I think more and more people have understand that the more consistent cash flows that come out of the industrial. The other thing and this is very oversimplified and we could probably spend a whole another podcast on, the change from the e-commerce and the consumer consumption and how that’s driven with the supply chain. That’s really sort of accelerated that evolution of industrial in the last five to seven years.

Robert Brunswick:

So maybe bring that to life a little bit. As you think about your acquisition appetite and investment criteria today, what in fact do you direct your team to look for? Where are you trying to put money to work? I know you have some geographic expansion that you’ve really been focused on over the last several years, so share a little bit with us on that if you could.

Aaron Hill:

Yeah. We really look from an investment is taking a long-term view, so quality and locations. So functionality are really important for us. We want to own real estate that will lease sort of cycle in and cycle out. And so starting with the fundamentals of physical, functional product for today’s tenants and the future as much as we can see it. And then looking geographically at location that we think will be in demand both now and into the future. So we look a lot more today on investment criteria in the industrial, almost more like from a retail standpoint looking for households, education levels, where labor population is, along with what’s happening with the supply chain and logistics. So port dynamics, intermodal with the rail and the trucking. And so those have really started to frame how we think about investment opportunities.

Robert Brunswick:

National platform?

Aaron Hill:

Yes. We cover, I would say across the US but we’re focused, as I mentioned, on tier I and tier II markets. We really don’t chase into tertiary or tier III markets. And then not focused in the Northeast and the Midwest. So really everything else in the US.

Robert Brunswick:

So I think most people would think of industrial real estate as a core profile types. You think of core value add and opportunity and their associated risk profile. So industrial and most of your investing really has a core return expectation, if you will, which varies depending on the year that you’re investing. But I know you have some value add and core plus capabilities. So talk a little bit about how you round out or diversify Bixby’s investment strategy.

Aaron Hill:

Yes, it is a product type. The benefits I mentioned about it usually lead to less opportunities for value creation with existing real estate. I’m using an example of maybe an office building that’s in a great location but is dysfunctional in some way, that creates opportunities for more of a value add or opportunistic type risk profile to go in and fix something that’s broken. Maybe that you can then fix, lease, and then sell as a core investment. Industrial in general has less of that, so you’re really more spanning the spectrums of core to opportunistic and that being spec development construction.

And so that’s usually how you have to invest in industrial. But what you can do for more core plus and more value add is start to mix those two together, meaning you start to aggregate portfolios. So you make core investments that may deliver lower returns and then you take a percentage of that investment capital and maybe reach up the risk spectrum to do whether it’s for purchase or development. And then as you blend that, you get into those more value add core plus type, depending on how much you want to put into each one of those buckets.

The other way, there is I think in the future, not as much today, but really looking to reposition different product type into industrial today. A lot of the demand for industrial is infill in dense population and there really isn’t available land. So looking at other asset types and be able to then convert them into industrial, I think that’s something that we’re just starting to see based on where the rents are and where the land price is, that starts to make sense.

Robert Brunswick:

Sure. I think you’re talking about adaptive reuse and you’re seeing that now within lots of product types, not just office or a mall to industrial, but you’re actually seeing it in hotel converting to a workforce housing. So there’s a lot of that. To that end, I think what 90% of Bixby is really industrial-oriented, but with your background at Irvine Company. And I’ve been to your headquarter offices, which you guys own the building, you’ve done a phenomenal job of renovating that and turn it into quite an interesting space. Is there still aspiration or interest or reason to do things outside of industrial?

Aaron Hill:

Yeah, we look at, and we were active… Really, we look at the office investing and the office repositioning, more value add opportunistic type investing as a cycle point. Where we’re looking with dislocations in the cycle where we can buy at a good basis, really contribute capital to make that place something unique and differentiated to generate those premium rents and then be able to exit that.

Our view is, it’s difficult to be in that at a smaller scale cycle and then cycle out. So the capital that we have to allocate to that, we really look at when is there a good opportunity in the marketplace to do that. So we get active in that when we think the right opportunities are there from the market dynamics, and then we try and hopefully roll through that as the market turns and then we wait for the next cycle. I think we are on the precipice again of being able to do that. It got to the point where we couldn’t buy at a basis that allowed us to really reposition and add value in a way that we think is appropriate. So we bought our last office asset about three and a half years ago, but I’d say we do have that appetite, we do have that capability, and are looking to do that at the right time in the market soon.

Robert Brunswick:

As those opportunities present themself.

Aaron Hill:

Yeah.

Robert Brunswick:

So that reminds me, historically you really just use Bixby’s balance sheet from I’ll say its family of shareholders and its years of property appreciation and land appreciation as your investment vehicle. But I believe you’re really aspiring the next chapter of Bixby to really also be a third-party investment manager. So can you just touch upon that because I know you spend a bunch of your time or some of your time now traveling in on the capital raising forefront? What’s that next chapter for Bixby look like?

Aaron Hill:

Yeah. We talked a little bit about the advantages of the REIT structure and that capital that we have. One of the challenges is not being a public REIT with access to the public capital markets and that REIT structure that requires those distributions. It’s difficult to retain or raise growth capital on the balance sheet, if you will. So for us, really the future is to leverage the infrastructure and the operating platform and our capabilities on behalf of investors to help them deploy capital and execute capital like we have for our balance sheet. So it’s a focus for us and it’s a long-term growth strategy for us really as we look at… We talked about over that 125-year operating history, part of my priority is to make sure that we’re in a position to go another 125 years. And that really has to do with becoming a nationally recognized investment manager for third-party capital.

Robert Brunswick:

Oh, that’s exciting. So, Aaron, what do you like most about your job today?

Aaron Hill:

I would say, as easy as it would be to go to the transactions, it’s not what I enjoy most. I touched on this a little bit, but I really enjoy today… I work and have the privilege of working with a great group of people and being able to see them grow both personally and professionally I think is… When I go home at night, that’s what I enjoy the most, and reflect on the most. Candidly, it’s the harder part, the deals are frankly easier compared to the people part, but it’s definitely not as rewarding.

Robert Brunswick:

Sure. Well, I know from my own vantage point, you and I have talked about this often, it’s that intangible, that psychic ROI that you might get as you kind of reflect at the end of the day of what difference you made out there. And with that, what guidance might you give to a young person today who is excited about the real estate industry and looking to make it a career?

Aaron Hill:

Yeah, on that front, one, we need more in our space. I’ve been fortunate to have started my career frankly in an industry that I’m passionate about, and I feel blessed to have that. But we need more, and we need more diversity, we need different backgrounds. And so part of where I spend a fair amount of time today is trying to just introduce commercial real estate as an option to maybe some groups that wouldn’t have thought about that as a career path.

So within that though, I think getting advice is really, one, to continue to be curious about learning, to never think that you’ve arrived, and to always continue to be open to new ideas, new thoughts. But also try and look for ways in the business to have practical hands-on exposure to the different disciplines within our business to find what your true passion is within the space and looking for… Not being afraid to say, take a job in the acquisitions role, or take a job on the operations side just to get some exposure to see, was this a good fit for what skills I have and what I’m good and what I like to do.

Robert Brunswick:

So Aaron, as we look to close, I would ask that you reflect for a minute. You’ve accomplished so much and what I would characterize as an early part of your career. I mean you’ve got a lot more ahead of you. But as you think, I know you’re a planner and you’re a competitive guy and you’re a goal setter, so what might that next chapter for Aaron Hill look like? Maybe with or separate from Bixby. Not that you plan on departing Bixby, but I’m looking for more of a personal reflection.

Aaron Hill:

Yeah, I would say, I am a goal-setter. I like to have goals out there that you’re working towards, but I’m also mindful to be in the present. I think it’s important to stay within the present and where you are, but also have a mindset of where you’re trying to go from a goal standpoint. For the next chapter, it’s frankly really exciting for me personally to be at Bixby in the time that I am and have the team that we have. I think there’s a really dynamic and interesting growth prospect for us as an organization. So that’s really the focus for the next chapter.

A little more personally though, and it’s leveraging the position I’m in both at Bixby and within the space to really try and move our business forward as an organization and to be a leader in really diversity and equity, and inclusion. As I talked about the passion I have for trying to get more different backgrounds and experiences into our space, I think we need that to stay competitive as an industry. So whether that’s doing some of the undergraduate lecturing at the colleges, locally the dollars that we’re spending as Bixby and me personally investing my time and money and really trying to really gain exposure as commercial real estate as an industry that has given me a lot and I think a lot of people would find rewarding. But also to bring different perspective into our space because the more institutionalized it gets, the more we need those different perspectives.

Robert Brunswick:

Sure. Well, I appreciate your time today. Aaron is a great example of somebody that’s all about paying it forward. I hope you enjoyed and you got some good learning today from our Counting Capital Podcast. I appreciate your time, and we will look forward to seeing you next month. Thank you very much.