Peter Michelis and Larry Rose have a storied history in retail and mixed-use development, working for well-known names like Forest City Ratner, Hartz Mountain Industries, Vornado, and Kimco Realty. From constructing the Barclays Bank headquarters to leasing Atlantic Terminal, they’ve had a hand in some of the region’s biggest development projects.
The duo met in 2000 while working on the leasing and construction of a ground-up retail power strip center for Forest City Ratner in Woodbridge, NJ, and have been industry compatriots and friends since. This year, they joined forces to form The Michelis Rose Group, which they’re seeking to grow into an innovative and creative national real estate owner and developer specializing in urban, downtown transit-oriented projects. Success has come early—within six months, they’ve been working on over $100 million in development and redevelopment projects.
The duo sat down with EisnerAmper managing director Harry Dublinsky to discuss the new company, industry trends, and best practices they’ve learned on the development frontline.
Dublinsky: What encouraged you to join forces and form the The Michelis Rose Group earlier this year?
Michelis: When I left Forest City, Larry and I kept in touch. In January 2015, Hartz Mountain’s president, Manny Stern, left to pursue another opportunity. At that point, I had been with the company for about seven years as executive vice president of development, design and construction, and decided I wanted to do something entrepreneurial. Within three months, I had a 7.5-acre property and vacant school building next to Vassar College in Poughkeepsie under contract, and teamed up with Larry to start talking to the university about a mixed-use development with a student housing and faculty housing component.
Rose: We worked on it for about a year and came very close to clinching a deal to jointly develop our first $100 million mixed-used development with the college. We even had the vice president of finance and the school’s president on board. Unfortunately, when presented to a board member, Vassar was not prepared to proceed—it needed more time and further study.
Michelis: But we worked well together, so we decided to join forces and The Michelis Rose Group was born. We complement each other’s skill sets.
Rose: Having known each other for over 15 years and having worked together has allowed us to move quickly in getting started. Peter has so much experience in construction and development, plus his engineering background has been a valuable asset. My background in leasing and development help round out our ability to execute a project. We’ve cultivated a large network, and that is necessary when you run your own firm. Being able to take a project from inception to completion is invaluable.
Rose: We realized we needed a platform that would allow us to use our expertise to generate fees while simultaneously pursing development projects. That opportunity came when Seritage Growth Properties, a publicly traded REIT and one of the nation’s largest owners and operators of premier retail properties, was looking to redevelop several assets in the Tri-State area.
Dublinsky: These properties turned out to be three former Sears locations owned by Seritage, a public company in which Warren Buffet took an 8 percent stake last year. Can you tell us about these projects, for which you were hired as development managers and fee developers?
Michelis: We can’t get into too much detail, as some information is not public yet, but we recently secured preliminary and final site plan approvals at the Willowbrook Mall in Wayne, NJ, to re-develop the Sears box. The redevelopment will include Dave and Buster’s on the second floor and additional junior box and smaller format retailers on the ground floor, while Sears will retain space on both floors. There are multiple phases to this project that we are working on.
Rose: The box will be split and redeveloped with Sears remaining. The biggest challenge is subdividing the space while Sears stays open throughout the process. Both Peter and I had worked with Seritage’s senior management before they joined the company, which has helped us—the lines of communication are open and the trust level high.
Michelis: The two other projects are Sears-occupied stand alone properties—one on Long Island and the other in Central NJ—that sit on large, 20- to 30-acre properties. For both properties, we’re exploring options such as multi-tenanted retail power centers and open-air, Main Street-type lifestyle center concepts with multifamily, experiential and entertainment retail, and multiple green pedestrian-friendly areas.
Dublinsky: The Long Island project is unique in that you’re considering a retail concept with several hundred multifamily units. Do you foresee this as a redevelopment trend for freestanding big box properties, given lack of developable land?
Michelis: Everything evolves and changes with time. As the real estate becomes more valuable and growth expands to that locale, you can no longer have only one department store occupy a 30-acre site. Real estate dictates this—it’s an economic calculation. When you develop, you’re always evaluating what the best and highest use of the real estate is in that location.
Rose: Many REITS have started taking stock of their assets to determine which have mixed-use redevelopment opportunities. Kimco, Equity One, and Seritage, among others, have all identified and are currently creating value by taking advantage of assets they already control. As mixed-use projects have proven to be successful—especially in urban and high-barrier-to-entry markets—it further enhances the opportunity to execute on those plans.
Michelis: There’s a lot of retail around this site, so the question becomes, “How do you distinguish your property from the rest?” By providing something different and exciting, we believe that a mix of uses in a pedestrian friendly environment provides this. Is it a trend? It’s certainly becoming more popular among many developers.
Rose: Our experience has included reworking, rethinking, and repurposing many properties: dead and vacant malls converted into vibrant outdoor power centers, old obsolete warehouses into new modern high ceiling warehouses, vacant corporate campuses into Main Street retail, parking lots into multifamily, and more. New ideas, changing demographics, growth dynamics, and the regulatory environment will always provide us with ample opportunities.
Dublinsky: Do you believe there is an opportunity to redevelop even more big-box locations, whether Sears or other spaces left behind by struggling retailers?
Rose: Clearly, many anchor chains are facing challenges. Macy’s, JC Penney, and Sears have reported store closures over the past year. In some cases, Class-B malls have multiple anchors that are underperforming and have serious risks associated with them. We believe that real estate is like politics—it’s all local. Each scenario is different and has unique factors that will drive what the demand is for either retail or other uses. Having redeveloped many properties throughout the country, we are well positioned to help maximize value through redevelopment.
Michelis: But this is not new news. Thirty years ago, one of my first projects included a Jamesway, a Grand Union Supermarket, and a Channel Lumber. All three are now bankrupt, and the property has been repurposed because the real estate is still in a good location that has only gotten better since it was built. We’ve seen so many retailers come and go, and this will continue—not just because of e-commerce and the Internet. Those that embrace change will be fine; those that stick to old concepts and don’t adapt will perish. New evolving, refreshing concepts and technologically savvy retailers will not only survive, but thrive.
Rose: The uses that seem to be least affected by the Internet and have shown strength in the current market are restaurants, health clubs, and movie theaters. Since you cannot eat or workout on the Internet, it stands to reason these uses will continue to be a bright light. Box office receipts are up 4.5% versus last year. People still like to be part of something, and the movies still provides that opportunity.
Dublinsky: How are you identifying and taking advantage of development opportunities in the marketplace?
Michelis: Given our experience executing large-scale, complex projects of all asset types, we can evaluate properties from multiple perspectives and different potential uses that others with less experience cannot—reimagining that potential is what we love. We love tired, old existing assets that have outlived their original use and are located in densely populated areas or ones in the path of growth. If it’s near a downtown area or transit hub, we love it even more. We primarily focus in the Tri-State area, but we’ll also venture into Philadelphia and Boston.
Rose: We also believe that infill locations with some type of mass transit and high-barrier-to-entry markets will outperform over the long term. We are focused on using our current projects to seek other opportunities; right now, we’re pursuing two multifamily and mixed-use deals in Westchester and New Jersey that are within walking distance of downtown areas and transit stations.
Dublinsky: What have you learned from your time with larger developers and REITs that help you in your business today?
Michelis: Larry and I have been fortunate to have seen and experienced different firms at different points in a company’s life cycle. Operational and organizational charts are not always consistent from one company to another; it is interesting to see how different companies structure and allocate their limited resources within departments and projects. Having this knowledge—seeing what works and what doesn’t—gives us an advantage.
Rose: The companies we have worked for are very different from each other. We have had the opportunity to take the best traits from each of them. Working on large mixed-use projects is a labor of love. It requires total commitment and a singular determination to get the project completed.
Michelis: Having worked with and for some of the industry’s greatest leaders, we know what best practices and best-in-class means and feels like. Success is always dependent on the leadership and the quality of the team. What the leaders at the top of the organizational chart truly believe and focus on is important. What we’ve found to be critical are a focused and visionary leadership, passion, and commitment.
Dublinsky: Both of you have a significant history in retail and development. What piqued your interest in real estate?
Michelis: My parents were immigrants and had a strong belief in the endless opportunities in America. Their country struggled through WWII and the Greek civil war; there were no opportunities for two people that didn’t even graduate elementary school, so America was quite the dream for them. My mom became a seamstress and my dad a waiter. While they didn’t earn a lot, they always thought they should own some real estate and bought a run-down, two-family house in New Jersey, fixed it up, and moved in. They saved and invested what little they earned in real estate and each time we moved, they held onto the house for rental income and repeated the concept—and it enabled my parents to live the American Dream. I caught real estate fever, so when I graduated Columbia’s engineering school, I bought my first rental house then went on to buy another 15 houses in North Jersey and Houston by age 28.
Rose: My dad is a partner in a real estate firm that owns a dozen multifamily buildings in Queens and Long Island. I grew up learning about tenants and rents and refinancing mortgages. That said, I was not pushed to go into real estate. My parents are old school and didn’t help me or my sister get any job we ever had. They wanted our successes or failures to be our own. It ended up being a tremendous advantage when I started my own company.
Dublinsky: How did you enter the industry?
Michelis: After purchasing the rental houses, I wanted to learn how the big boys did it. I entered the industry by getting a job with Tishman Construction 30 years ago. In that time, I also worked as retail project manager and senior vice president overseeing construction for Forest City Ratner; led Vornado’s retail construction and development in the U.S.; and headed up the development and construction group for Hartz Mountain Industries.
Rose: Unlike Peter, I somewhat fell into real estate while at Sony Theaters after getting my MBA at Columbia. The company was starting to roll out stadium seating theaters all over the country. I worked on the underwriting of those deals and started negotiating leases, including the New York Yankees store in Times Square in the late ‘90s. After Sony—where I had been director of corporate development—I joined Forest City Ratner to negotiate retail leases, then was hired away by Kimco to oversee the company’s East Coast redevelopment team. In 2010, I started my own company to redevelop and reposition assets, including Sky View Center in Flushing.
Dublinsky: Who have been your mentors?
Michelis: I think I’ve taken bits and pieces from various people in the industry. But the one most influential leader and mentor that I have admired and learned the most from has been Sandeep Mathrani, president and CEO of General Growth. I’ve known him for 30 years as a colleague, a friend, and a boss. Watching his career trajectory has been nothing short of inspirational.I’ve watched his rise from an engineer to an industry leader running a multibillion dollar corporation. He learns and incorporates every life lesson and experience into his style to always improve; he has evolved and transformed himself with each step. Where others fret and dwell on problems and issues, his pathway has always been clear and his goals are always clearly envisioned—there are no obstacles or potholes on his roadmap. He also never categorizes, labels, or limits people. He truly believes that if you’re capable, you are given the leeway to stretch and be more than your job title.
Rose: I have also learned from many people in the industry, but one particular standout is Kimco executive chairman Milton Cooper. His breadth of knowledge is startling. He is an active listener, asks probing questions, and is always reading— usually a book a week. Also, Fisher Brothers head of development Brian Collins. I met Brian while he was at Millennium Partners and I was with Sony. His focus on finding common ground and his ability to solve problems is exemplary. He has a positive attitude and is open to new ideas.