History: Real Estate
Founding in Los Angeles, California:
Pacifica began in 1982 as a Los Angeles-based firm that specialized in investing in commercial real estate. From its inception, the organization has been committed to implementing its value-based investment philosophy:
- Buy real estate at a discount to replacement cost, in markets and product types where we have knowledge and expertise; hold for the long term; and consider selling when markets reach price levels that are not sustainable and/or when excess new supply threatens market rents and values.
Pacifica began acquiring, improving, developing, and managing commercial income properties in the early 1980s. Its affiliate provided commercial brokerage services for its independent landlord and tenant clientele as well as for Pacifica’s properties.
In the early 1980’s, Southern California began recovering from a deep recession that had resulted in depressed prices for commercial real estate. Pacifica seized on the opportunity to acquire income properties at below their replacement cost and assembled a portfolio extending from West Los Angeles to the South Bay Area of Los Angeles County. As the market improved, selective properties were added where development and re-development could create value. When prices became inflated in the late 1980’s, Pacifica began selling its holdings and looking elsewhere for investment opportunities.
Signature Portfolio in Denver, Colorado:
A regional search led us to Denver in 1988 where severely depressed real estate prices followed the regional energy and real estate boom and bust cycle of the early 1980’s. Repeating its successful Southern California business plan, Pacifica began acquiring commercial income property with its private clients as the local economy began rebounding. To provide a hands-on presence, it soon opened offices in Denver that accommodated some of Pacifica’s top executives – including Steve Leonard – who relocated from Los Angeles to take full advantage of the opportunity. As the cycle continued and the market improved, Pacifica began partnering with institutional investors on both acquisitions and development opportunities. (Some of those same institutional partners, including the Mack Family of New York/previously “Apollo”, have resumed investing with us after Pacifica returned to Southern California.)
By 1997, Pacifica became the largest private owner of commercial space in Colorado, the 2nd largest commercial property manager in the state, and its 4th largest commercial brokerage firm.
As the cycle matured and commercial markets became strong in the mid-1990’s, additional investors with large amounts of capital arrived, and new developments were planned that would likely exceed the increase in demand. So, in 1997 and 1998, Pacifica sold its 8 million square feet of industrial, retail and office product for approximately $750 million. Those sales resulted in an attractive Internal Rate of Return (“IRR”) for the portfolio. As they were exiting the Denver market, principals in the Pacifica portfolio began to pursue opportunities in other markets.
Resume Investing in Los Angeles:
Meanwhile, Steve Leonard, with Pacifica’s LA partners, resumed developing in the late-1990s, again in Southern California. They built a portfolio of approximately 4 million square feet of commercial product. In 2004, Pacifica sold the last facilities built in that phase of the cycle for approximately $400 million, again resulting in an attractive IRR on the equity invested.
Other than that selective activity, Pacifica had generally paused investing in commercial real estate in the early 2000’s, as it was concerned that too much capital – public, private, and institutional – was being deployed in the sector. Those concerns proved justified as The Great Recession lowered real estate markets, creating new opportunities to find value for Pacifica’s capital and that of its investors.
Multi-Family Development in Gateway Cities on West Coast:
The upheaval in housing markets and other demographic, economic and regulatory dynamics following the financial crisis created strong demand for urban apartments – both among renters and institutional investors, including public REITs. The lack of building to meet that demand created a development opportunity to build and sell, or to hold mid- and high-rise multi-family projects.
In 2012, Pacifica joined forces with Matt Burton (now with Pacifica) and Paul Keller of Urban Partners along with the Mack Family of New York (Apollo Real Estate Advisors, “AREA”) to capitalize developments in key cities up and down the West Coast that were experiencing strong growth in high-paying jobs. That portfolio was anchored by several developments in Seattle as well as projects in Southern California and Portland. The total development cost of building out the 20 projects included in that portfolio would exceed $1 billion when completed (not all by Pacifica). Pacifica’s institutional investment partners for the projects we completed included Carlyle, Pritzker, AECOM Capital, LA County Public Employee Pension, and Cigna Insurance.
San Diego Industrial/Office/R&D Showroom:
By 2012, the San Diego economy was experiencing sustainable growth. Pacifica anticipated that the recovery cycle for commercial real estate would follow. Vacancy rates began to fall as the local economy expanded, creating good conditions for investing in a market that had not seen speculative construction for many years. Pacifica teamed with local partner Adam Robinson and his firm, RAF Pacifica Group, and began buying existing product at attractive discounts to replacement cost. As we gained confidence in the market and our local capabilities, Pacifica took on lease up risk in exchange for deeper discounts from sellers. We also initiated the redevelopment of projects where value could be created.
The portfolio of existing product grew to include 4.5 million square feet of commercial buildings (some of which have been sold opportunistically). The majority of that is industrial/office/R&D/showroom product in and around Central and particularly North San Diego County where principals of the firm reside. Other holdings include traditional office, retail, multi-family, and mixed-use product.
San Diego Development:
In the middle of the last decade, Pacifica initiated among the first speculative projects in North County. Our institutional partners in those developments included Carlyle and Bow River. The industrial/R&D market for existing buildings was very tight as the local economy had continued to grow, yet new construction was minimal (at one point, just over a 1% supply of new industrial/R&D product was planned in a market with a low 4% vacancy rate). Pacifica had seen similar conditions when it started development in other markets throughout its history. Those factors, when combined with the strength of our local partner’s capabilities and our deep penetration and knowledge of the San Diego real estate market, lead us to be confident about the investment potential of our new construction projects. Upon their stabilization, those developments and others totaling approximately a dozen projects totaling over 1.5 million SF were included in a major sale to Blackstone. That sale generated another strong IRR for capital invested by Pacifica’s clients.
Santa Barbara Portfolio & Development:
In 2015, the Leonards relocated to Montecito. Since then, Steve Leonard has established relationships with local real estate professionals in Santa Barbara County while acquiring deep market knowledge and a strong presence for Pacifica. Along the way, we acquire individual industrial buildings and developed others, completed multi-family developments with retail/commercial components, and made high interest loans secured by real estate in the area. More developments and acquisitions are underway.
Pacifica has been increasingly focused on coastal submarkets (or those with similar dynamics) in North San Diego County and Santa Barbara County. We are attracted by the investment potential where local demand for commercial and multi-family product is strong and durable, amenities surrounding nearby beaches are unique, high-paying jobs are plentiful, and there is limited competition from new construction due to the difficulty in securing approvals for new developments.
Development projects are now underway and being finalized that will require additional capital. While most are for long term hold, some with institutional investors (i.e., Carlyle) are expected to be sold after completion of construction and stabilization. Product types include industrial/distribution/R&D, creative office, multi-family, and mixed-use (retail, creative office, restaurant, and apartments). Please inquire if you are interested in learning more about those investment opportunities.
Pacifica Senior Living:
Though tempered by the pandemic and related shutdown, senior housing is expected to experience some of the strongest demand among all real estate sectors. Indeed, demographic, life span, and aging patterns suggest that senior housing will be part of a growth industry for decades to come.
In 2017, Pacifica initiated our first Senior Living development in Colorado. We now have three projects underway – one in the Denver Metroplex (Greely) and two in the Western Slope of the Rocky Mountains (Carbondale and Grand Junction). We have teamed with a local development partner we have known for decades and experienced regional operators of senior living communities.
Our projects typically offer Continuum Care that accommodate these key needs during the typical aging cycle: initially, independent living, followed by assisted living options and memory care. Our expectation is to hold one of these investments for long term cash flow and appreciation magnified by modest leverage. The others which include institutional investment partners are expected to be sold after stabilization.