Podcast: Connected Mixed-Use Development

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January 13, 2020

Listen to Scott discuss his journey from a blossoming entrepreneur at TCU, to a full-fledged commercial real estate strategist and community-minded mixed-use developer in Dallas, Houston, and beyond.

On this episode I’m speaking with Scott Arnoldy, founder of Triten Real Estate Partners. Triten pursues flexible investment strategies that involve a high level of repositioning or development.

As Founding Partner, Scott drives the strategic goals of the company with a focus on investment thesis identification as well as execution oversight. Since its founding, TREP has acquired or developed over $400 million of properties across a variety of product types.

Podcast Transcript

Chris Arnold: A few quick notes before today's episode. If you enjoy the podcast, please rate it on iTunes or other platforms where you listen. This is a huge part of helping us grow, and it's much appreciated. This podcast is produced by Authentic Form and Function. We're a design and technology studio working in the real estate space. We help developers and architects innovate their work with unique brands, websites, and digital tools. Last year, we launched Amplify, a digital real estate marketing platform that combines high touch custom design with out of the box real estate marketing technology. Find out more at authenticff.com/amplify. Finally, we want to hear from you. Email your feedback and ideas, as well as who else we should speak with, to podcast@authenticff.com.

Scott Arnoldy: I didn't know that was the case when I was coming in. It was like, I thought I was signing up just to do real estate. And I've just gotten a Ph.D. in the last five years about family business. Which not only did I not know anything about, really, in terms of the nuts and bolts of it, but also I almost didn't have any desire, as you can tell by my trek I didn't want to come home, I wasn't interested in the type of business.

Chris Arnold: On this episode, I'm speaking with Scott Arnoldy, founder of Triten Real Estate Partners. Triten pursues flexible investment strategies that involve a high level of repositioning or development. As founding partner, Scott drives the strategic goals of the company with a focus on investment thesis identification as well as execution oversight. Since its founding, TREP has acquired or developed over $400 million of properties across a variety of product types. I'm your host Chris Arnold. Let's jump on in.

Chris Arnold: Scott, thanks so much for joining me today.

Scott Arnoldy: Yeah, thanks for having me, Chris.

Chris Arnold: So I want to start with your upbringing, and I know that you're a Houston guy through and through, so I want to hear a little bit more about what you were like as a kid and what sort of things you got into as a youngster.

Scott Arnoldy: Yeah, sure. I mean, obviously born and raised in Houston. My grandfather was the one who kind of immigrated on my dad's side from Minnesota, so we've always had strong ties to the Midwest and Minnesota, but, spent summers kind of going up there to lake houses and kind of embraced that whole Midwest lake life. But my dad was born and raised in Houston. My parents, my mom was actually from kind of West Texas, and her dad was in the oil and gas business. And so she's got the thicker drawl. But obviously born here, great childhood. Split parents, divorced when I was eight or nine, so I've always had kind of a series of step-siblings in my life. My dad's married unfortunately quite a few times but it's kind of, we joke, a big modern family. We kind of all do Thanksgiving together and somehow it all works. But grew up kind of in town in Houston, inside the loop, as they say here. So kind of infill Houston, if you will. Had just a more idyllic upbringing, into sports, and was kind of always into some entrepreneurial thing. I remember when I was 11 years old, started a lawn care business with a buddy of mine and had actually I think 20 clients. And then unfortunately when I was 11 years old was in a pretty bad hunting accident.

Chris Arnold: Oh man.

Scott Arnoldy: Where I took a point blank 20 gauge shot to the chest.

Chris Arnold: No way.

Scott Arnoldy: Yeah. And so that kind of, definitely in terms of big life events obviously that's a big one. I almost, was very near death and was in the hospital for almost six weeks. And so I was in fourth or fifth grade at the time. You'll never know what kind of impact that really has on you at the end of the day, but I'm sure it has a big one just in terms of some perspective or something like that. But always kind of had a bend towards I'd say business or entrepreneurial things, and thinking through different business concepts, and of course that then led me to go to TCU. I thought I wanted to go out of state, but ended up going to TCU and that's where I kind of fostered the entrepreneurial gene, if you will.

Chris Arnold: Okay. And then I think that you were mentioning to me earlier that your grandfather had a really pretty profound impact on you as a scientist and a tinkerer, I think you put it. What sort of things did he show you as you were growing up?

Scott Arnoldy: Yeah. He was, that's my dad's dad, and he's the one I mentioned that came down from Minnesota. He was kind of this almost legend in our family. He graduated, and that was a different time, it was the '20s, but he graduated college when he was 18 and has all these kind of folkloric stories about Charles Lindbergh kind of crashed in his hometown and he freed him out of the plane. And so he was kind of always this big character in our lives, and he was really good about spending a lot of time with us and we'd see him almost weekly. And he was the founder of what is now our family business, which I've kind of spun out this real estate company within it. But he was a chemical engineer by trade, and so when he moved to Houston it was obviously for the oil and gas industry, and opportunity. It just had a lot more industrial businesses down here at that time. And so he had 52 patents to his name and he was always trying out different things. And the last business he founded he did when he was 80 years old. Which is just kind of amazing.

Chris Arnold: Wow.

Scott Arnoldy: It's like, I hope I can live up to that standard. But he never, I think, viewed it necessarily as work. He was just always kind of an entrepreneur and so he was constantly just tinkering, like you said, that's the best word I can come up with. I remember when I used to work out at the factory, his factory on the summers, driving a forklift, there was always this big just contraption in the corner. And I'd say, "What is that?" And one of the factory guys was like, "Oh, that's when Roman," who's my grandfather's name, "tried to invent outdoor air conditioning." And it's like, "What?" It just looked essentially like a giant refrigerator door. I was like, well that doesn't look like it's going to work.

Scott Arnoldy: But things like that he would always just kind of spend his own money that he was making through business on scientific pursuits, really. And so he was always with us as kids showing us, I remember we got a place, kind of a farm and summer house that he bought. And it was 100 acres in 1950, and so we'd go out there to this double wide trailer at the time and he'd have a barn where he essentially was tinkering with cattle. And so he ended up inventing his own cattle breed by cross-breeding, I'm going to screw up the names, but I think it was a Brae Lair, is the cow that he ended up kind of inventing.

Scott Arnoldy: But we'd be out there at the barn, and he'd have all these things. Tools and chemicals and one time he kind of showed us, if you put, you fill up a balloon with, I can't remember, it was helium or oxygen, and then you drop some of these little pebbles that were another chemical and then you put it out in the grass, but on top of a piece of newspaper, and then you light a corner of the newspaper and as the flame got to the balloon, it made, to this day, it's definitely the loudest dry explosion that I've ever. It shook the earth type of thing. And as a 12 year old I just thought it was pretty much the coolest thing I'd ever seen in my life.

Chris Arnold: Yeah.

Scott Arnoldy: He was just always doing things like that. I mean, he spent summers up in Minnesota because he hated the Texas heat and so we'd go up there and he'd teach us about boats. And so that curiosity is definitely something I try to strive to have at least on some level, that he had.

Chris Arnold: And you alluded to this earlier, but you ended up, as you got a bit older, you ended up heading out to TCU for finance and entrepreneurship. But I'm curious if your parents had any impact on that decision. I think at one point when we were chatting briefly you mentioned that you were the Wrangler jeans guy. And I was just kind of laughing at that because I think you were mentioning a few other schools you got into as well, but you ended up going to TCU. What was the story there?

Scott Arnoldy: Yeah, I mean it's funny you say that. Now that I'm old enough to start knowing other people that have kids in high school. And then two days ago I got this Christmas card, it was three guys' sons that, a good friend of ours, and they're all at the same high school I was at. And somehow the style, it seems like, has not changed in the 20 years that ... How is the whole Texas long hair frat boy looking swoop with the Wrangler jeans is still a current fashion at Texas high schools?

Chris Arnold: Texas forever, I guess.

Scott Arnoldy: Had a good laugh about it ... Exactly. It's just rinse and repeat, I guess. But yeah, obviously being brought up in Texas, the good thing my dad was fortunately able to do was travel a lot. So I actually thought I wanted to go out of state, so I applied to TCU as kind of a backup school. I shouldn't say backup, but a safe bet. And then I applied University of Miami in Florida and USC and Indiana University and I thought I really wanted to get out and spread my wings a little bit. But I ended up just, all my buddies ended up going to TCU and it's nice and comfortable and you visit University of Miami and you can tell how different things are.

Scott Arnoldy: And I just went with what was safe and comfortable, and having said that, the education I got through the business school at TCU I've always thought was just really above average, if that's the right way to put it. But I just felt when I graduated I was so far ahead of a lot of my peers, and I was, the first job I got was at Goldman and so a lot of the guys I was working with were from much more perceived prestigious schools, but the education I got and especially the entrepreneurship program at TCU is essentially just a bunch of guys that started businesses that would teach the class. And so they'd kind of start by throwing away the textbook.

Chris Arnold: Yeah.

Scott Arnoldy: And giving you some book that had an impact on them. And kind of always the lesson was, you never know what's going to come at you when you're starting a business, but here's how I screwed up. And that was obviously pretty impactful.

Chris Arnold: And I heard that there's a specific story you have that involves a Redbox and your college campus. What was that all about?

Scott Arnoldy: Yeah. So I graduated in '05 right, so this was 2002 or 2003, but I was, I don't even remember exactly how I found this. But I think it was some sort of newspaper that the back had a different classifieds, essentially. And there was a business where you could buy those machines. It was pre-Redbox, but there was a manufacturer of these machines. And so I actually went and pitched the board of our family business that I think it was tens of thousands of dollars to buy one of these machines, and I was going to get a decal, and I ended up calling it Frogflix, for obviously the TCU Hornfrogs, and made it purple. And then I went and had to actually pitch the TCU. I mean, I had to go meet with the administration and get them to approve me putting this in the student commons and ... There was just a huge lesson. I mean, I was the guy that had to set up the payment processing software and manage inventory and literally buy DVDs and sometimes scramble to Best Buy to get the newest thing. And it was a huge lesson.

Scott Arnoldy: I mean, it was obviously a good idea. I'm glad I didn't try to go big with it because I wouldn't want to be Redbox today, competing with the likes of Netflix and streaming and all that. But it didn't end up going. It was fine, but the big problem that I didn't underwrite in my business plan, which is the point, you can never, a business plan is just a business plan. It's just a projection, and you don't know what reality might bring you. You just have to kind of do your best guess. But a school year, a student year, especially in college, as you know, the amount of days that people are there is actually quite few in a calendar year. And so you factor in fall break, spring break, winter break, summer break, and so what was happening is when school was in session I was actually making money. But then they'd leave for two weeks and you've got to manage inventory. You've got to bring in the newest movies. Well, I don't have revenue, and so I'd be shelling out money to get the newest DVDs. And so there was inventory management lessons learned there. And then of course in summer it would, your population would go to a tenth.

Chris Arnold: Yeah.

Scott Arnoldy: And so it was an interesting lesson of, you think starting a business is all sexy and you're your own boss. But then you've got to do the QuickBooks and the inventory management and everything else. But it was a really good experience. If anything, it was almost like the best tuition of anything I did in college.

Chris Arnold: And I guess looking ahead to early career years, I'll call them, you ended up getting an interview with Goldman Sachs. You mentioned that briefly earlier. What was that first professional level experience like coming out of TCU?

Scott Arnoldy: Yeah. When I graduated, all I knew was I didn't want to go home. I didn't want to go to Houston, and that's when I was really kind of like, I want to get out. And I tried to apply to jobs in Argentina. They're like, "Where's TCU? I've never heard of it, do you know Spanish?" I'm like, well, you know, 70%. They're like, "Okay, that's not going to work." So I just said, I'm going to move to Dallas blind. And at the time, I kind of wanted to do something in finance or maybe something entrepreneurship. I mean, I feel like the tech world kind of had exploded in '01, '02, and so the VC thing I don't think was quite as prevalent. Maybe today I would think about that. But I ended up just moving to Dallas blind and ended up through a recruiter getting this interview at Goldman Sachs, which at the time I said, "I don't really care what they want me to do. If I can put Goldman Sachs on my resume I can go move anywhere from there."

Scott Arnoldy: And so I ended up getting this interview with their real estate group. And I had very little interest in real estate at that time. And had never really been exposed to it. But it sounded interesting, and it was kind of this mixture of finance and design elements and construction, which is always fun. But they were doing these big high-flying multi billion dollar portfolios and it was 2005 and '06, right as it was starting to be the big run up. But ended up taking the job, of course, and the rest is kind of history in terms of me falling in love with real estate. But it was an environment where you had to really work hard. You think you're getting paid well but then you later break it down by hour and you're like, "Wow, I was getting really not paid very well."

Scott Arnoldy: But it's the whole investment banker, but not. It wasn't investment banking, obviously, but it was a similar culture and similar vibe.

Chris Arnold: Yeah, I imagine it's kind of like a grind it out, long hours, but you're at the office all the time.

Scott Arnoldy: Totally.

Chris Arnold: Yeah.

Scott Arnoldy: Exactly.

Chris Arnold: Hey listeners, just a quick reminder that today's episode is brought to you by our firm, Authentic Form and Function. I wanted to let you know about an internal research project we recently completed where we analyzed the digital strategy of over 75 commercial real estate projects across multiple asset and project classes. We distilled this research into an ebook called the Real Estate Website Blueprint, which you can download for free on our website at authenticff.com/blueprint. In it, we provide several strategies and tactics you can use on your next project to better position in the market, increase project awareness, and accelerate leasing. To download the ebook, be sure to visit authenticff.com/blueprint.

Chris Arnold: So you did about two and a half years there, I believe, and then you ended up visiting San Francisco and something came from San Francisco.

Scott Arnoldy: Yeah. So I visit my brother, right? And then I'm like, I just fell in love. I'm a fan of the outdoors, and cycling, and anything active. And I go out there, I'm like, wait a minute. You can have a successful career and it almost gives you everything you want out of a mountain town. Beautiful and the weather's great, and I was like, I've got to move here. And so that's when I threw my resume, and I got back to Dallas, I was dating a girl at the time, my kind of college sweetheart, "We've got to move to San Francisco." So fortunately at that time it was 2007, things were still hot. I got a couple offers and moved out to San Francisco.

Scott Arnoldy: The funny image, I think I probably gave to you before was Chevy Tahoe, windows down, white lab, head out the door, my college dog at the time. Cruising out to San Francisco with the luggage on the top rack and all those things are just incredibly hard concepts in San Francisco. Even having a Chevy Tahoe, you may as well be driving a semi truck. You can't park it anywhere, people hate it, they view it as a gas guzzler, and so that lasted, it was kind of a surreal moment, but I think a little over a year in I put up my Tahoe for sale. But I couldn't put it up in California, because nobody wants it.

Scott Arnoldy: So I end up putting it up on Craigslist in the adjacent states, Nevada, and I think I even went out to Oklahoma. And this recent college grad says, "Yeah, I'll do it. I'll bring a cashier's check." And he lands at San Francisco, it's a long flight. And I'm eating at a sushi restaurant. And my car was parked two blocks away. He's like, "Hey, I just landed." I'm like, "All right, meet me at this restaurant." And I get up from the sushi dinner with all my buddies and walk outside, he hands me this big cashier's check and I take the title out and just sign it on the back and... See you later, Tahoe. That was weird. And fortunately I kept the dog but as I started traveling a lot with work my brother kind of ended up helping out there, too. But yeah. San Francisco was great, it's a great city.

Chris Arnold: So you started working for a company called Stockbridge. And that was kind of, I guess, the middle ground between Goldman and what you're doing today. What was that stop in your career like, and what parts of the country did you end up traveling to?

Scott Arnoldy: Yeah. So the concept there was if I could join a small private equity group, private equity being the people that raise capital to try and buy the real estate or partner with people and they're, you're not as close to the pavement, so to speak. The boots on the ground. But you're working a lot with those people, and Goldman was doing one step above that. Much larger portfolio transactions. And then the other part was I thought, if I wanted to do something entrepreneurial and really try to sprint instead of slowly climb a ladder, how do I do that? And I was like, I've got to get with a small shop. So Stockbridge was that. It was 25 people, maybe, when I joined it. In growth mode, they were hiring a lot of senior guys to raise a lot of capital.

Scott Arnoldy: And at the time, I'm an associate. So the deals I was working on were, I was in kind of a support role. But doing a lot of the analytics and just helping oversee the deal. So everything from San Francisco office developments, we did a large, a very large kind of high profile Vegas casino. There was a big land play in San Francisco called Treasure Island that I worked on. Some Central Valley California housing land, where we were essentially, that was part of the housing boom. It didn't work out too well. But flying around and just working on as many things as I possibly could to get as much exposure. And at that point I was then getting a lot of exposure to the development side and developers and the design, and sitting in on some architect meetings. And that's when I really started to get kind of a knack for, man, that seems kind of fun and cool. Where you're putting together teams of people to execute on a vision and it's a little bit more creative and definitely more entrepreneurial than ...

Scott Arnoldy: Stockbridge ended up, I had a big assignment that I did after 2009 that I would say kind of got me noticed in the firm, just because it was a big assignment but with a small team. We got to obviously got to rub shoulders with all the senior guys that way. And after that assignment in 2010 I'm, again, the only Texas guy in the office. Everyone else is from either the West or the East Coast. And Texas at that time in the recovery was looking pretty attractive. I mean, Houston was doing super well, and just Texas as a whole from a fundamentals and economy and job growth, population growth has always been kind of off the charts. Austin, Dallas, Houston kind of being the trifecta there. And of course our clients want to be there, and when we go pitch, when the senior guys were pitching, they were like, "Who can help us acquire assets in Texas?" And I was relatively young at the time, but that was the point, right? That's why you're in a small firm. They're like, "Hey, Scott, you're from Texas. Why don't you be the head of acquisitions for Texas?" I was like, "Absolutely. I'll do that." They're like, "Well, one thing. Do you mind moving to Chicago? Because we just started an office there and we kind of want to grow it out."

Scott Arnoldy: And at the time I was single then, things hadn't ended up working out with the college sweetheart. I'm about as flexible as a lifestyle as one could get. Renting an apartment, single, and willing to travel. And at that point it was kind of like, Chicago seems like a cool town. Which, ironically enough, one of my really good friends from college, my roommate, was like, when we were graduating and we were talking about moving places, he said, "Well, I want to move to Chicago. It seems like a cool town." And I was like, "Are you crazy? Do you know how freaking cold Chicago is? That's going to be terrible." And I just shut it down right away. And I ended up moving there, as you know, and that's where I spent six years, absolutely fell in love with the town. Huge, huge fan of Chicago. But that's kind of the full circle of what ended up bringing me back home a lot. And then all of a sudden I'm coming back to Texas on a weekly basis.

Chris Arnold: Yeah. And I think that was by around 2014 or so you started to transition back into or into the Triten world, the ecosystem again. And you loosely started what is today known as Triten real estate, but what was that transition or what was that spark that got you going back in that direction?

Scott Arnoldy: Yeah, dumb luck, pretty much. But I was flying back, as I mentioned, essentially coming to find opportunities to buy. People to partner with. How do I put out money? And it was a ton of fun. I mean, at the time I was enjoying traveling, right? You're on a plane and you get to hang out with people and entertain, and kind of "deal make." And as I was doing that of course when I'd come to Houston I'd just stay with my parents. I mean, at that point between San Francisco and Chicago I wasn't coming home a ton, but it was great that now I was coming home at least once a month. And so I'd stay with my dad or my mom and I was trying at the time to get Stockbridge to pursue this industrial warehouse strategy, and at Stockbridge I was kind of a generalist. I'd say my specialty were kind of the big four food groups, as we say in the industry, which is multi-family, retail, office, or warehouses. Or industrial. So there was this industrial strategy in Houston, because of its oil and gas roots, has this kind of a little bit more esoteric but unique or niche market around just smaller buildings that are catered towards people with heavier equipment. And I'll leave it at that, because otherwise I'll put everybody to sleep. Your fans will go to sleep.

Scott Arnoldy: But I'm lamenting to my dad over whiskey and telling him that I can't believe they don't want to do it, because it just seems so good. And he kind of mentions, "Well, you know, your grandfather bought seven acres of land in north west Houston a long time ago and we've never done anything with it. Should we do something with it?" I'm like, "Wait a minute, we own land?" I've been in real estate for eight years, nine years at this point. You're just mentioning this to me? And it was kind of just like, you want to knock him over the head moment. Especially when it's land, because land just is an expense. There's no income with land. And so we approached somebody about doing it together, and couldn't end up agreeing on terms. And I kind of told my dad, "Look, this is an industrial project. What if I tried to do this myself, and I'll just keep my day job at Stockbridge and maybe it can be some good kind of side income or mailbox money." And so literally right on the spot he was like, "How would we do that?" I'm like, "Well, let's just form something called Triten Real Estate Partners and, again, it can be the side hustle."

Scott Arnoldy: And it started with one building, 30000 feet, that was 2012. And so I just went to Stockbridge and said, "Hey, do you mind if I do this? I don't think it conflicts with any of our portfolio," and they said, "No problem." Long story short, that two and a half years later, I kind of found land from the neighbor and it kind of ended up being an aggregate play and I kept kind of financially engineering it using the skills I had at Stockbridge. And would kind of come down and meet with architects and kind of fly by night type of stuff. And before I knew it, I had a pretty substantial asset, and I really enjoyed putting the pieces together. And so I at that point said, well, look. I can use some of the equity or value that we built up in this one property to harvest some capital and see if I can't go become a developer operator type that could maybe use the lens of my private equity experience to know what the institutions might want and create a business out of it. So August of '14, just over five years ago now, which is crazy, I jumped out and kind of at that point went full time on what was, at the time, just kind of a side hustle.

Chris Arnold: So you started early and often, I would say, with Triten, and you kind of jumped in headfirst. And I'm curious what those first few years were like. Because I believe, as you've told me in the past is, it wasn't only just the real estate side. The kind of newer real estate partner side. You were also helping Triten Corporation during that transition. And so how did you balance those two sides of the business?

Scott Arnoldy: Yeah. I mean, I didn't know that was the case when I was coming in. It was like, I thought I was signing up just to do real estate. And I've just gotten a Ph.D. the last five years about family business, which not only did I not know anything about, really, in terms of the nuts and bolts of it, but also I almost didn't have any desire. As you can tell by my truck, I didn't want to come home, I wasn't interested in that type of business. So it kind of evolved. But when I joined, no matter what you do, if your, quote, name is on the door, your family name is on the door, it's all linked. No matter how much you want to try and maybe de-link it, especially in the format we did, with this kind of legacy land. And so when I started I really was just focused on real estate. I joined in 2014.

Scott Arnoldy: By early 2015, the oil and gas market was taking this massive correction. And so that's when I felt some need or obligation to help, and so that's when I started getting involved and trying to just ... I also solved some just, I would almost just say antiquated typical family business things where the processes and the systems were developed in the prime of my dad's career, right? And then that's the group of people he has around him. And so you have to always be thinking about next gen and succession planning, and are we best in class on all of our ERP systems. And I was using some of that stuff. And so just by virtue of using it, and I was used to everything best in class, working with super type A people and just this go-getter culture. And then you come into a family business that I wasn't sensing that as much. So that kind of dragged me into the family business.

Scott Arnoldy: It was incredibly difficult to juggle starting a business and also help improve existing businesses. And so it's been a super just evolving and interesting road, and now both of my other brothers are now in the business, and thank god, because there's such a huge body of work to do. And I've got, the real estate has been growing throughout that. And so it's just been, working with family, I mean, I've talked with Bryant about it a little bit too. It's just a totally different dynamic. And I joke with my wife, it's like, imagine the Thanksgiving table but then that's a conference table, and then what you're discussing is not politics but business issues, right? The emotions in the background and the whole ... it's a totally different format. And so you have to really draw lines of respect and structure and governance and respect is pretty paramount because the emotions are just more deeply rooted, right?

Scott Arnoldy: And so it's a fun environment, but you have to make sure you structure it properly and it's kind of fun now that the three of us brothers are involved. And the one thing I can say about Triten, the broader Triten Corporation, is just what the company looks like today is quite literally zero overlap, has zero overlap with what it was when it was started. So that's like, to me, every business has to do that over time. I mean, if you just commit to always being Kodak and don't evolve to technology or whatever, you have to be evolving with the world. So the one thing I would say we're proud of is we've always been fairly entrepreneurial as a company, and starting businesses that we think fit the current needs of the world. And obviously real estate's kind of chief among them. So the Triten of today is very different looking than the Triten of my grandfather's forming. And if anything, any successful business has to do that over time.

Chris Arnold: I would love to take a look at some of your current projects. Over the last handful of years, there have been quite a few unique projects that you've released, that you've worked on, and I think you used the term kind of barbelling in terms of the projects that you take on, especially earlier on, where it's placemaking on some projects and maybe more industrial minded on others. And there are some projects that come to mind for me that you have worked on, the MKT, Swift, Workshop. And I guess as we look at current projects, I want to hear from you what they're all about, why they're unique, and why you think they strike a chord with your customers and tenants.

Scott Arnoldy: Yeah. So as I mentioned, when I started Triten it was that industrial project. And industrial's a great business. It's obviously about as unsexy as it gets. It's just four walls, a piece of concrete, and a bunch of inventory. But it's got, from a fundamental standpoint, this is where the more investor side of me comes out. It's just fundamentally a great business. You can build it quicker, the projects are not as hard to put together, there's tailwinds for income growth and rent growth. And so when I first left Stockbridge, I was kind of like, what am I going to do? And the idea was, I was just going to keep doing what I was doing at Stockbridge. I just had no money. And I needed to go raise third party capital, so our format is we go talk with institutions like USAA or Carlisle. Some of the bigger institutional funds that essentially mimic a Stockbridge, and then say, "Hey, we'll invest skin the game behind you, or with you, alongside you. And then we can go scale out and do larger projects, instead of just me doing some small projects."

Scott Arnoldy: And so the first deal I bought, as I mentioned, Houston was kind of entering a downturn. So I said, I need to go focus on Dallas. And so I was flying to Dallas, driving around, and ended up finding this mixed use kind of interesting site. And that's kind of where my passion lies, is trying to take something and completely reinvent it or rethink it, or renovate it, or do an adaptive reuse of it. And so at the same time I was like, well, industrial's a really solid business. And so what came out of that over the years is, bringing in some folks that really can help grow the industrial business. Which ended up being a buddy of mine from not only high school but also college who never left. I mean, he came right back home to Houston and he's an expert in industrial.

Scott Arnoldy: And so the idea of what we are today is where I really spend my time, is kind of on that placemaking or mixed use environments around, can you buy an office building in Dallas and take the parking lot and put a Velvet Taco with a plaza and maybe some beanbag throwing and a patio and a plaza that makes a different environment? And ironically, in some ways, spending so much time in San Francisco and Chicago, after I sold that Tahoe, I didn't own a car for the next 10 years. And I was an urbanite through and through, and public transportation everywhere. And I really started to have that curiosity for that environment, and that vibe. And I always would come back home and say, "Why don't we have anything that is like that? It's kind of 'cool,' and has a unique feel to it. And it's not just tearing down what was there and creating some new glass curtain wall." And so that's what's kind of come out of that, is what our portfolio looks like.

Scott Arnoldy: In Dallas we had that deal The Crossing, which is a 1970s office building and then a parking lot. It was like, okay, let's add onto the existing garage and then free up that parking lot to put this kind of urban textured environment. And then in a weird way, our now kind of largest project, which is the Heights in Houston which is kind of like our West Loop Chicago and our Williamsburg, it's just kind of more the creative class, if you will. But that actually was a smashing of our two worlds, where my industrial partner came into my office one night and said, "You've got to buy this thing and do something else with it." And then it was like, well, let me take a look. And as I, what I saw was five 1970s industrial buildings that aren't that interesting. But it's like, well, what if we created a 12 acre walkable environment with a mixture of office and restaurants and retail? And so that's kind of the barbell you mentioned is, we still don't ostracize, and we still kind of pursue the warehouse strategies, and have done very well there. And then at the same time, we've got these kind of single rifle shot mixed use kind of destinations that we're trying to create between Dallas and Houston.

Chris Arnold: And it sounds like you're seeing a lot of shift around expectations for tenants moving into spaces these days. Where it needs to be a mix of cool, good atmosphere, tech spaces, maybe even coffee shops or various amenities in and around the location. How has that impacted projects that you're working on today, including MKT, which you're referring to now?

Scott Arnoldy: Houston's a great ground zero for the broader dynamic that's going on in the country within real estate. Which, people would say, is because millennials are now coming into their own and their needs and wants are different. And it's all about the experience. And in Houston right now, we've got a pretty ugly office market, fundamentally. I mean, large vacancy, a lot of sublease and companies trying to get rid of space. And the only thing that is leasing right now is something that's either new, unique, or different. And fundamentals of statistics or data within the market would tell you not to build any office space right now. And MKT, which has been a bit of a surprise even to us, these old industrial buildings, it doesn't even really have an office submarket directly around it. I mean, there's not competing office space. You'd have to go to adjacent submarkets like downtown or the Galleria.

Scott Arnoldy: But because we've got this, what's perceived as cool, unique, repurposing the buildings and kind of exposing its industrial past and embracing it in some ways, refinishing it, and of course we're just under construction. But what we've seen is that even the more "traditional" oil and gas tenants that people would tell you would never want that space are highly interested in it. And it's kind of, people our age, so to speak, or our generation, are now coming into the decision making realm of being part of the company and executive. Or, that is, maybe it's a young executive, but they now are saying, "Hey, this is what our employees want. And this is how we can compete and retain."

Scott Arnoldy: And the retail space, same thing. You read the headlines, and Amazon's taking over and e-commerce and everything's going online. But you're seeing a little bit of a shift, and these direct to consumer brands are still ending up opening storefronts. And you have to comp on how that works, but maybe you shrink your inventory and your store size can shrink down a little bit and you're seeing kind of the depths of these stores shrink because there's no inventory in the back anymore, right? So we're going to put everything in the front, we'll mail it to you. Kind of like the Bonobos format. And even a coffee concept. We're not going for the big names in the industry. We want local boutique, that'll create the right environment that people will say, "Oh, this is a pretty interesting mixed use community that you could work," it's a little bit of that live work play.

Scott Arnoldy: And then of course the big piece of MKT is that we're right on a hike and bike trail. So Houston doesn't really have geographical advantages on land, like mountains or a beach. We have these bayous that run through our city that are essentially drainage systems. So we're kind of embracing the bike trail as our local amenity, and that's been a rails to trails program that, again, has been the community demanding that we have some amenities that other cities embrace.

Scott Arnoldy: So it's just all about trying to create a different, something that isn't perceived as commodity. It's not a strip center, but it's very hard to find. And it's not like you can just go to any part of town and say, "Oh, we can do that right there." So you have to have kind of an aligning of stars to find something that works.

Chris Arnold: I'm curious if there's anything in particular about the Houston or Dallas markets that you've found that really play into your decisions around the type of development that you go after. And I think you've mentioned maybe a few that relate to that, such as being a differentiator in the region. Not a lot of similar projects in the area. But what else are you seeing that kind of helps boost these projects' success?

Scott Arnoldy: Yeah. I mean, it's just probably more of that same trying to do it a little bit different. Or for whatever reason, this is probably not a good thing, we seem to take on projects that have a ton of complexity and that might scare some other people away. And what's interesting about Texas, really, is it has so many, so much in migration from the other cities in the US because of the job growth. And you're seeing, even in Houston now, I mean, it's such a different place from when I grew up. Everyone's, I'd say more than half the people I meet now socially are not from Houston, did not grow up here. And then in many places are coming from these other urban cores. New York, Chicago, LA. Or just other Midwest cities, or Florida. And so they all see it, right? And they're like, Houston's this kind of sprawling LA-like, in terms of its just urban sprawl, and it's kind of like everyone is saying, "Why don't people bring some of these concepts or other real estate projects?" And it's not like I'm the oracle here. There's plenty of other people now doing the same thing. But I just, if anything, I'm trying to copy some of the stuff that I've seen in West Loop Chicago or the Mission in San Francisco, or just trying to put my lens on it.

Scott Arnoldy: And so there's plenty of other people that are in the exact same boat, and there's plenty of awesome projects across the state that are doing the same thing. We're just trying to figure out how to, how can we find something that we think we can put our lens on or that we're not afraid of figuring out complexity of whatever the existing site might look like. Or the seller, or some easements, or what have you, or a lot of moving pieces. Which is, I think, where my background of just working in a lot of different product types. I mean, some of the norm in the industry is like you're an apartment developer or an office developer. Sometimes it's, we can be our own worst enemy because we understand multiple things. But it's also, I think, where, on Workshop, right? There's a movie theater, there's two office buildings. There's this existing retail structure in a garage in the middle. And people would typically say, "Well, you need to kind of parcel it off, and sell it to an apartment guy. Or sell it to ..." And we're like, "We'll take the whole thing, and we'll try to attack it from, we're going to put the pieces together," type of thing.

Scott Arnoldy: So just trying to look at areas that we think we may not bump up against a ton of people, but it's a competitive world no matter what.

Chris Arnold: Yeah. As we begin to wrap up, Scott, I want to piggyback off of that mindset and hear your thoughts about future trends. What do you think is really going to impact the market? What do you think is going to be ongoing differentiation in the upcoming years? Are there any things in particular that you're keeping an eye on?

Scott Arnoldy: Yeah. I mean, I think generally speaking there's kind of a few things at play. One is on the housing side. In many ways, constructions costs continue to go up. And without getting too finance geeky about it, but the cost of capital has continually gone down. And because of the Great Recession, in some ways it's fueled another asset inflation, to some degree. And so in a lot of ways, housing is still expensive, especially in urban cores. And so because of that I think you're starting to see things like micro-units pop up, or these apartment communities that have little amenities to them to try and transfer that cost to something else. Or just say, we'll pass it through to you unless rent.

Scott Arnoldy: And then there's the single family rental market of, essentially, when you go outside the urban core, it's the affordability of a home and a down payment is more challenging because of the lending standards. And so maybe in some ways people build almost single family residential, and some of the bigger capital groups have actually gone through after the housing crisis and bought up all these homes. And now they're renting them, and it's almost like this new multi-family sector but it's not multi-family. It's almost single family. And so trying to watch that has just been an interesting trend. And seeing what opportunity might come out of that, and there's also, within the hospitality sector we've been kind of tracking the fact that people are taking some of these same multi-family projects and saying, "Hey, we should do short term rentals." And people are okay staying at these, what are effectively apartment buildings that are kind of like Airbnb but with an operating platform behind them to say ... And some very good friends of mine are going into this business. But it's kind of like, can you take some of those units and rent it out for a night or two? And utilizing technology to do everything from have your Netflix set up when you show up to open the door and how you check in check out, and so that's, to me, kind of an interesting trend.

Scott Arnoldy: And then of course there's kind of, which is probably a little bit more relevant to us, is just the e-commerce retail industrial overlay. I mean, we have an interesting circumstance where one of the retail tenants at MKT was wanting space at MKT, and at the very same time they wanted some of our industrial space. And it was literally, they were going to produce the goods in the industrial space and kind of house it there at, call it, $4 rent. And then they'll put the retail store, much smaller, at MKT. And so just figuring it out, how do you play into that? I still think there's a demand for retail and I still think there's a demand for a shopper's environment. Statistically, e-commerce is still a low percentage of the overall retail spend, and people want, restaurants are driving a lot of it now. Restaurants used to be not as popular, now they're kind of the belle of the ball that drive the whole project.

Scott Arnoldy: And so just figuring out, where does that land you going forward. And within the office space there's obviously the whole coworking boom, which has been kind of called into question with the WeWork recent kind of debacle. And so work trends are almost starting to get blended with hospitality trends. Where your office lobby might, is starting to look a little bit like a hotel lobby. What the amenity set changes over time. And so anyways, those are just, that's me kind of thinking out loud, but some of the things that we're constantly kind of tracking and looking at.

Chris Arnold: Scott, thank you so much for your time today. I want to ask you one final question here. It's one of my favorite questions. And that is, given all of your experience and given all of your history within the industry, I'm curious who you would tell me and the rest of the listeners to be paying attention to that's also doing really cool groundbreaking or inspiring work out there.

Scott Arnoldy: Oh, wow. In Texas I think there's some really talented guys that, I mean, one of which is, by the way, our partner at MKT, a guy named Steve Radom, at Radom Capital, and I think you guys might have met. He's got some incredible projects here locally in town and we've collaborated on a couple times and just had a great time doing it. Others, Endeavor in Austin I think is doing some really cool projects that are going to translate well, I think, as they continue expanding across the state. I've always been a huge fan of Sterling Bay in Chicago. I think they obviously kind of pioneered the West Loop and some of the adaptive reuse projects they've done out there. So those are kind of a few names off the top of my head.

Chris Arnold: Yeah. Yeah, those are great. We'll be sure to link those in the show notes, so visitors and listeners can pop in and take a look. And there's only one more thing to do, Scott, it's time to roll out the red carpet for you. Tell the world what you're up to, where they can find you online, and any other links that you want to share.

Scott Arnoldy: Yeah. I mean, you can find our company website. It's Tritenre, T-R-I-T-E-N-R-E.com. Obviously you can find us on LinkedIn or on the web, and the broader family business you'll find through that as well. But you can reach out through the website, happy to talk with whoever, and appreciate you even thinking this was worth the time, Chris. Hopefully people have some interest in hearing me blabber. But hopefully there's something they glean from it, so appreciate you reaching out on it.

Chris Arnold: Yeah, there absolutely is. Scott, thanks so much for your time today.

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