In this exclusive interview with James W. Chang, Founder and CEO of Ponderosa Land Development Company, we explore the core vision and strategic evolution of a company renowned for its superior commercial retail real estate assets. Under James’ leadership, Ponderosa has developed over $600 million in retail properties and consistently demonstrated its commitment to creating significant value through disciplined development and management. Join us as we explore the unique challenges of the retail real estate sector, the impact of environmental sustainability on development practices, and the strategic measures Ponderosa employs to navigate economic fluctuations.
James, could you start by sharing the core vision behind Ponderosa Land Development Company and how it has evolved under your leadership?
Since the founding of Ponderosa in 2000, our core vision of developing and managing superior commercial retail real estate assets occupied by market-dominant tenants in demographically desirable locations remains steadfast and has changed very little. We believe the success and longevity in being able to carry out this core vision for almost three decades is a direct testament to its lasting endurance.
The retail real estate sector is a dynamic, exciting, and constantly changing space that is affected by many different endogenous and exogenous factors. As the founder and leader of Ponderosa, I constantly strive to find opportunities to expand Ponderosa’s business operations while pursuing ways to operate our internal synergies more effectively and efficiently. All that we do at Ponderosa is effectuated under the purview of our core vision. Whether managing the expansion strategies of our retail tenants or adjusting to market driven rental rates and capitalization rates, we are extremely proud to create significant value through Ponderosa’s disciplined approach of developing and managing our retail properties.
As CEO, how would you describe your leadership style and how has it influenced the company’s growth and development strategies?
As the CEO of Ponderosa, my overriding style in leading is surrounding Ponderosa with talented, driven, and perseverant individuals and allowing these individuals to independently add value at any and all levels to support our growth strategies. A foundational centerpiece of Ponderosa’s business strategy is investing in tenants, consultants, and stakeholders who are committed to adding significant value to the retail projects we develop and manage. More importantly, we continually seek to affiliate with parties who understand that service, quality, and value are paramount to successful business endeavors and relationships.
My leadership style can perhaps be best described as a mix between democratic and laissez faire. Internally, we rely heavily on collaboration and consensus-building where ideas flow freely and our principals openly vet ideas and make methodical decisions. Outside of our principals, Ponderosa relies heavily on utilizing trusted consultants who possess motivations and abilities to independently manage tasks with little oversight or guidance. My style of leadership allows Ponderosa to make quick, yet educated, business decisions, mitigate transactional delays, and resolve challenges quickly. Employing this mix of leadership styles serves Ponderosa extremely well in that it wholly aligns with Ponderosa’s business strategy and brings out the highest level of performance from
our team.
How does Ponderosa approach the financing of acquisitions and new projects? What is your preferred funding structure and to what extent is it possible to consider the carbon footprint and ethical investment strategies of the lines of credit you use?
Historically, Ponderosa has funded most of its development projects internally and through third party construction and permanent lenders. Ponderosa’s singular focus on developing single and multi-tenant build-to-suit projects leased to national retail tenants on a long term basis has allowed Ponderosa to foster longstanding relationships with a cadre of construction and permanent lenders.
The vast majority of the retail projects developed by Ponderosa involve securing interim financing during the construction phase of these projects. Then, once construction is substantially completed and stabilized, Ponderosa secures permanent financing mostly through CMBS lenders, life companies, or investment funds. In specific instances, Ponderosa sometimes sells all or a portion of its completed projects to individual or institutional buyers.
All of Ponderosa’s financing needs are secured from well-established lenders, domiciled in the United States, with track records of strong performance. Further, Ponderosa’s lenders are subject to a plethora of regulatory reporting regimes and specific requirements promulgated by their sponsors. Thus, carbon footprint and ethical investment strategies play a negligible role in Ponderosa’s financing needs.
With increasing attention on environmental sustainability, what measures has Ponderosa implemented to ensure its projects are environmentally responsible?
Traditionally, the real estate development industry has had a significant carbon footprint and has inordinately contributed to global greenhouse gas emissions. In recent years, the real estate development industry, as a whole, has become a forerunner for environmental sustainability through the adoption of standards of operation that implement environmentally responsible practices.
Ponderosa strives to embed sustainability across all phases of construction, including planning, procurement, construction, and post-construction. For example, with regard to all buildings developed by Ponderosa, we seek to achieve LEED certification in order to proactively address all segments of environmental quality. At Ponderosa, not only do we view protecting the environment as a transcendent issue, but we also believe that protecting the environment is simply good business. Costs needed to operate sustainable buildings get significantly reduced over time resulting in increased rents, higher occupancy rates, and less turnover. We intentionally align ourselves with strategic tenants who also appreciate the importance of being environmentally responsible and recognize that embracing environmental sustainability is financially advantageous and the right thing to do.
How do you anticipate the market will change in the next 2 years, and how is Ponderosa preparing to meet these changes?
We believe the market for income producing real estate assets, such as retail shopping centers and single tenant assets will remain strong and steady for the next 2 years, especially in the trade areas where Ponderosa operates. Since the COVID pandemic, we have observed a discernible flight to quality in the retail development space from tenants, investors, lenders, and other stakeholders. Developing high quality commercial real estate property located in demographically desirable, highly traveled, and densely populated locales will continue to command elevated rents from quality tenants, generate the highest occupancy rates, and garner the highest valuations from lenders and investors. We do not expect this sentiment to change in the next 2 years. At Ponderosa, we plan to position all of our efforts to take advantage of the continued growth we expect to see in the market for
retail assets.
Considering the economic fluctuations and market uncertainties, what are the most significant challenges and financial headwinds that could potentially impact returns on Ponderosa’s projects, and how are you strategizing to mitigate these risks?
Economic fluctuations and market uncertainties are realities of the commercial real estate development business. Currently, the most significant challenges we see affecting Ponderosa’s projects are commodity prices, labor costs and availability, and interest rates. Almost every facet of our business, from cost of funds, rental rates, construction costs, and cap rates, is sensitive to these challenges in some shape or form. Ponderosa takes great measures to manage these uncertainties by carrying out a meticulous approach in underwriting our projects to achieve specific financial metrics and milestones that best consider these uncertainties. Further, real estate investments oftentimes affords more options than with other types of asset classes. For example, if you own stocks, bonds, or a private offerings, your success is largely dependent on factors outside of your control. At most, your options are to hold or sell. With real estate, there are many more flexible options that can come into play if market conditions turn unfavorable. Real estate can be refinanced, subdivided, or even sold outright (hopefully after some appreciation). No other asset class offers the same flexibility as a hedge against market uncertainties as real estate, and this flexibility is one of reasons that real estate investments have created more wealth than any other asset class.
Ponderosa has adopted a detailed approach to the development of retail properties to enhance property values. Could you describe this strategy and its effectiveness in boosting the financial outcomes of your developments?
The bedrock of Ponderosa’s approach to developing retail properties is discipline. Since inception, Ponderosa has developed and established a unique and proprietary set of metrics that all of Ponderosa’s projects must achieve in order for such project to come to fruition. These metrics consider many factors such as timing, internal hurdle
rates, and exit strategy, as well as specific financial milestones. Any material deviation from this set of established metrics normally results in Ponderosa not moving forward with a prospective project. Requiring a potential project to strictly satisfy our internal metrics sometimes results in Ponderosa passing on opportunities which ultimately become profitable for others. However, we believe that staying true to our developed set of metrics has served Ponderosa for the past 25 years and will continue to yield long term success.
Looking ahead, what are the long-term goals for Ponderosa, and what steps are you taking today to achieve them?
At Ponderosa, our outlook on real estate is bullish. Without exception, we believe the business of real estate is the greatest business in the world, and owning real estate will remain fundamental to financial success. Access, optionality, inherent demand, tangibility, and diversification all contribute to incredible opportunities afforded from owning real estate. In fact, real estate will continue to touch all other business industries and sectors through its incredible depth and breadth as an asset class. In the long-term, we do not expect any systemic changes to the overall attraction that real estate offers offer to owners and investors.
Our long-term objectives at Ponderosa are to refine and continue to carry out the mission of our core values in identifying, acquiring, developing, and owning exceptional commercial real property situated in premier locations and occupied by best-in-class tenants. For Ponderosa, we regularly work to stay in front of the growth curve in cultivating our relationships with existing and new national credit tenants. Many of these tenants expand organically through their own business operations or through private equity infusions which fuel various growth initiatives such as expansion into new or existing markets. As such, we constantly develop new approaches to partner with new tenants who are in growth mode, as well as foster ways to better leverage our strategic partnerships with existing tenants to assist in their ongoing expansion efforts.
Ultimately, the enhancement of our orchestrated methodology and collaboration with tenants and stakeholders in all phases of developing, managing, and owning retail real estate assets results in maximizing project valuation and driving desired results.
