Allan Glass, president and chief executive officer of ASG Real Estate in Los Angeles, had enough nerve to start his own restaurant in his 20s, even though his lone experience in the dining industry was working for a few months as a busboy. His Colorado counterpart, Jason Winkler, owner and chief executive officer of Industry in Denver, is a former professional skier who put himself through Yale University by running a t-shirt company and who prides himself on never having had a boss.
That sort of self-confidence and disregard for convention, it turns out, is part of what it takes to develop a small-scale, commercial real estate project that can serve as an innovation hub for startup companies. But as Glass and Winkler detailed in a presentation at ULI’s 2017 Fall Meeting in Los Angeles, the story arc of an imaginative building can be full of drama, setbacks, and plot twists.
Martin McDermott, managing director of Method Commercial Real Estate, described such buildings as “catalytic projects” that can have outsized effects in terms of revitalizing urban neighborhoods.
Glass, who grew up in an affluent suburb south of Los Angeles, said that experience led him to seek out “gritty” urban environments. He and business partner Howard Kozloff, managing partner of Agora Partners, got the inspiration to acquire an 80-year-old, 22,000-square-foot (2,000 sq m) former furniture factory and warehouse in East Los Angeles with the aim of developing it into Hatch Bioscience Labs, a space designed for bioscience startup companies that had outgrown incubators.
Although the building was dilapidated, Glass said he saw a market opportunity because bioscience researchers from local universities had difficulty finding spaces for their fledgling companies to set up shop in Los Angeles, and as a result often were forced to relocate to San Francisco or San Diego. There are two types of developers, he said—those who value an asset based on its present characteristics, “and those who look for what its value might be down the line.”
Repurposing an old industrial building for biomedical use is more challenging than a conversion to creative office space, Glass said. Though Glass had no background in the life sciences, he made up for it by assembling a team that understood the market, ranging from an architect who had designed operating theaters and other medical spaces to a consultant with knowledge of the technical specifications that bioscience startups might need.
Even with that careful planning, the project hit a rough spot when bankers balked at the costs of creating space suitable for biomedical use. That compelled Glass and his team to go back to the drawing board and come up with a more efficient design, fitting in spaces for eight tenants instead of six. “The building was $1 million cheaper,” Glass noted.
Construction on the $6 million project is scheduled to be completed in spring 2018, according to ASG Real Estate’s website.
“We’re hoping to establish a brand,” Glass said. “We need to prove out the success of this type of real estate project. Successive ones we would want to roll out much faster than the 18 months it took for the first one.”
In contrast with Glass’s careful strategizing, Winkler says he became a developer largely by accident. After his skiing career, he got into the television production and event management business. When Winkler and his wife and business partner, Ellen, relocated from Jackson Hole, Wyoming, to Denver, they needed a creative office space for their company. When the spaces he looked at turned out to be too staid, they decided to find a vacant warehouse and renovate it to suit their needs. “We had to have a cool and funky space,” Winkler said.
That notion grew into Battery 621, a collaborative and creative workspace around the corner from Denver’s Santa Fe Arts District. Because the Winklers’ company only needed a portion of the building, he decided to invite a few other small companies to be tenants. Interest in the space turned out to be so strong that Battery 621 was fully leased in just 90 days.
Encouraged by that success, the Winklers decided to do a second creative office space building, called Industry. That project turned out to have more complications, including an early mentor who left the project. After Winker found a second partner, he also found it necessary to expand the project to accommodate all the tenants who wanted to be in the building. In addition to the renovated building, he built a second structure behind it with more office and parking space. The project’s cost increased to nearly $46 million, with a project-level return of 27 percent.
Winkler said he is in the process of completing another building in Denver, and has plans to expand to Salt Lake City and other markets.