Important Disclosure: The views and opinions expressed in this article are those of Chief Development Officer Will Little, and reflect his personal perspective as of the date of publication, informed by professional experience, ongoing market observations, and qualitative assessments developed over time. This commentary is not intended to be, and should not be construed as, investment advice, a forecast, or a prediction of future performance. The observations shared do not rely on or present specific statistical analyses. Actual market conditions, outcomes, and performance may differ materially. Past experience is not indicative of future results.

Q: Realberry has a 35-year history as a developer, mostly in Colorado. Looking out five to 10 years, what’s Realberry’s national development strategy now?

It’s multifaceted. Driven by demand, we’re focused on hospitality and multifamily, as well as mixed-use commercial including retail and some likelihood of industrial, particularly in the context of master-planned development, which is a specialty of Realberry’s. Our strategy for each product type is different, but there are some commonalities relative to the end-goal: ​​great placemaking in durable markets with great demand drivers.

Q: Wonderful. Let’s start with hospitality. What’s Realberry’s development strategy there?

We really see the opportunity in luxury and resort markets. We're looking at opportunities in Texas, in Tennessee, at additional investments in ​​California to expand on our presence with the Lake Tahoe Resort and Spa renovations. Our main strategy has been focused on luxury hospitality with branded residences. The ability to sell condos, buy down the basis of the hotel, and enhance the returns for investors is really attractive.

We’re focused on cities where we think we can get an ADR (average daily rate) and an occupancy level that are going to justify the cost of building a luxury asset. Today, those hotels generally cost at least $1,000,000 a key in an urban environment and significantly more in a resort environment. That means markets that can support $600 or $700 a night or more; those markets are limited.

Q: Shifting to ​​multifamily, what’s Realberry’s development strategy for that property type?

As far as multifamily goes, we're really focused on suburban markets that are directly adjacent to urban areas. In other words, properties that are suburban in nature, but located in great proximity to urban cores with all the amenities and lifestyle benefits that entails.

We’re concentrating on Colorado, Texas, Idaho, Utah, and starting to look at Arizona. The Mountain West is our home and where we’re most focused on the multifamily side. There are a lot of players in the Southeast, and trying to go into that market without a unique project or product is not something we've pursued to date.

We’re most likely to develop multifamily projects in the range of 200 to 350 units. At that level you start to get some scale from a management standpoint. When you go over 350, forecasting an exit plan becomes more difficult because the lot size is typically very large. I’m not saying we’d never do that, but it’s unlikely.

Q: What segment of the multifamily residential market is Realberry building for?

I would say we are building, generally, for the middle-market — for renters with about 80% of AMI (adjusted median income). You've got to be at about that level to make projects pencil. That bucket is getting harder because costs continue to rise and we haven't seen real wage appreciation keep up with cost to date. That said, with additional density [more units per acre] the underwriting often can work.

Along those lines, I think we’re going to start looking at more workforce type housing — not restricted income housing, but products that cost less to build, can be built very efficiently, and leased up successfully at, say, 70% AMI. That’s in the middle between lower-income and Class A. Demand for market-rate units at that price-point is generally high across geographic markets.

Q: What about other property types, including commercial mixed-use, retail, and industrial?

As far as the other verticals, commercial mixed-use can encompass industrial, retail, and office all in one bucket. ​​We do selective work in each of those asset classes, but more often combine uses in a single development.

We certainly like lifestyle retail. Brick-and-mortar retail has made a huge resurgence since COVID. The retail market got oversupplied for decades, and it’s finally burning off. In many cases, new development makes sense.

We typically view large-scale commercial mixed-use, including retail, through the lens of a public-private partnership. A municipality or county that really wants the economic driver of retail and is willing to share in the risk can be an ideal partner.

Those partnerships are crucial. Cities benefit by activating underutilized real estate, creating great places, and adding to their tax bases. Developers benefit when cities can lean in and say, “This is great. We can share some of the tax revenue with you to help make the development feasible.”

One more thought about industrial specifically: We typically consider industrial in the context of mixed-use, as well. Today we see the industrial development opportunity, generally, as under 100,000 square foot spaces serving multiple tenants — normally front-park, rear-load buildings. Think showroom space and light distribution.

Q: Is Realberry looking to develop larger scale commercial and mixed-use projects everywhere or in specific areas or regions of the U.S.?

We’ll have conversations about those as they come to us or as we surface opportunities. We're typically focused on markets​​ where we see potential for growth. A key piece of those projects is retail, and you need to be in a market where there’s upward mobility from an income standpoint, and a growing population. So Texas is certainly attractive. The Carolinas are certainly attractive. Those are markets where we continue to see massive population growth and job creation, which can support large-scale development.

Q: Switching gears to master-planned communities, please speak to the company’s holdings today and the state of those developments.

​​​We have two master-planned communities in development that are managed by our firm. The first one is Baseline in Broomfield, Colorado. It's about 1,000 acres. We acquired the land right after the Great Financial Crisis.

We're in the process of building out that community. It has all kinds of uses: single-family residential, multifamily, attached homes, detached homes, and commercial. It'll probably have limited select-service hospitality at some point. That community is well under way from a development standpoint.

The other master-planned community in our portfolio is Centerra in Loveland, Colorado, which is where the company started. We have several retail projects under way, single-family residential, active adult housing. So a number of different uses and asset classes within those master-planned communities.

We're looking to grow this business. We've been tracking potential opportunities in Atlanta, Austin, and Nashville, among other areas. The challenge with master-planned communities is finding opportunities that make sense. These projects require a high level of civic engagement and public-private partnership to get off the ground. But we’re actively looking for them. Master-planned community development is in our DNA.

Q: What about office-to-residential conversions? Is Realberry interested in that segment?

We continue to explore it, but we can't make economic sense of the investments we've been approached with so far.

Where I’ve seen this be most successful is with affordable housing that utilizes Low Income Housing Tax Credits (LIHTC). If you can get LIHTC financing, then it makes a lot more sense, but doing it purely to create market-rate housing is really difficult. Much of the office space available for conversion is very old product. It's functionally challenging and costs a fortune to convert. The economics aren't that dissimilar to building from the ground up. But we’ll keep our eyes open for potential opportunities.

Q: Let’s go up to 30,000 feet. Looking back on Realberry’s history as a developer for 35 years, what’s been key to the company’s success to date and positions Realberry to execute on the strategies you’ve outlined?

I would say it starts with the ethos of the company. We want to create places people love. And not just for customers or users, but that investors and staff and our public sector stakeholders love. When we can bring that magic together and create a place where people walk through the community and say “Wow” or “Amazing” or “Awesome” numerous times throughout their experience, we know we’ve succeeded.

Dairy Block in downtown Denver is a great example. We have essentially no available office space at the property — it’s completely full, with incredibly high-grade tenants — in an office market with probably 45% vacancy today. A big part of Dairy Block’s success is because the ground-floor experience in the building is something people love. It doesn’t feel like a sterile office building. It’s a community gathering spot; it’s fun. We’ve created a great place. That’s our secret sauce.

We are not production builders. We are not stamping out the same product across the country. Every site is different. We're really looking to integrate our projects into the community so they feel part of the community. That's true for hospitality, multifamily, industrial, retail — the whole gamut of real estate developments that we produce.

Other examples are our large master-planned communities. The street-level feelings they inspire are so important. What people experience, if you're walking through a neighborhood, is not the vertical buildings but the action at the pedestrian level. So much of our planning process is geared toward creating a cohesive environment that's complementary at pedestrian scale.

Q: How does Realberry do that? What is it about the company’s process that produces that result?

It starts with ​​very thoughtful design: selecting our design partners appropriately — partners whose real skillset is the pedestrian scale, and then matching them with other teams that have the sophistication to build the vertical components. Then finding tenants we think

really add value to the other uses to create a unique experience. Finally, we seek to create a multi-sensory experience: is the development visually appealing at street level? Is there music playing? Is the scent right? All those elements we carefully consider and address for every project we develop.

Q: How does Realberry find the right sites for development and redevelopment?

The process is guided by data and analytics, including demographics, but that’s just part of it. Cityscapes change from block to block, and the data may not reveal such granular insights. But it’s critical we have them.

There have to be boots on the ground as part of site selection and evaluation. You need to visit sites physically to fully understand the nuances of the neighborhood. We go back and visit sites we're pursuing numerous times. We meet our design teams on site. Only then can we connect the real environment with potential development plans, including the underwriting and all the economics and metrics.

Take multifamily, for example. We're not just looking for generic five-acre pads, linear pads, wherever we can find them. We're looking for sites that we think are differentiated, unique, and where new supply is really challenging to create. Supply is the enemy of returns. So typically we are looking at markets and sites where there's some supply constraint. That’s how we vet a site so at the end of the day we have a much more defensible asset.

Q: Talk a bit about the challenges and opportunities surrounding the economics of development.

I think “challenges” has probably been the operative word for the last three years. We saw a massive run up in interest rates, quickly, which has a direct correlation to the value of our existing assets in the market. That’s a challenge for new development, as well. But there’s stability now, and there are upsides to a higher cost of capital.

The cost of capital should correlate with the risk of new development. If it doesn’t — if money is too easy or free — there’s incentive to build for the sake of building, which can create oversupply as well as other problems. We’re now seeing the market price risk more rationally than it had in the rent past.

We’re also seeing some price stability on the construction side, which is really helpful. We have two really large, complex mixed-use projects that have been on schedule and on budget now for two years during the design phase, which is pretty incredible. I can't remember the last time that happened.

Q: How would you characterize the development environment generally looking ahead five to 10 years?

I think we're going into a very interesting time. Probably with the proliferation of artificial intelligence, with autonomous vehicles, we may see the biggest shift in real estate we've seen in 100 years. For example, think about all the parking infrastructure in this country that's dedicated to owning a car. Think about what people spend on cars. Not only do they buy the car, but they spend money on gas, they spend money on a garage at their home. If vehicles become autonomous and subsequently far more efficient, I think you could see a massive shift in the landscape of real estate development across the country, which is really interesting to think about.

It's a cool time to be in the business and think about it. It'll be interesting to see what challenges and opportunities arise as a function of these big changes, particularly from automation and artificial intelligence.

Q: Last question: Is it fair to say that being a private developer is an advantage?

Absolutely. We're not trying to manage quarterly earnings as a public company, which allows us to be more opportunistic and yet super-selective. For Realberry and our co-investors who deploy private capital, development is a medium- to long-term play that, arguably, is an advantage in and of itself. In other words, our investment capital is typically patient enough to allow new development — and great places — to be realized over time.