From Living in His Car to Closing an $81.5 Million Real Estate Deal at 24

Paul Petrovich (00:00)
And my dad was pounding on me, pounding on me to get a real job. And so I eventually had to move out of my fraternity house because the next year started. And I didn’t have enough money to do anything and I didn’t want to put a burden on my parents. And so I— I was living out of my car. And there was an elderly woman that lived next to the fraternity house, and she used to iron my shirts for a dollar. And the first 14 months in the business, I made $1,100.

Scott Bursey (02:08)
Welcome back to the Real Estate Pros podcast powered by Investor Fuel. I’m your host, Scott Bursey. And today we’re thrilled to be joined by a true legend in the space, Paul Petrovich. Paul is a 45-year veteran of retail shopping center development and master-planned communities, primarily throughout Northern California. Having served as the preferred developer for some of the biggest national tenants in the country, Paul’s track record is impressive. Pros, you can expect an incredible masterclass today on perseverance, mission, and how to scale development in even the toughest environments. Paul, welcome to the show.

Paul Petrovich (02:49)
Thank you, Scott. I— I— I’m happy to be here.

Scott Bursey (02:52)
It is nice to have you here. And Paul, to help our listeners get up to speed, please give us the front row seat on how your career ignited and where you’re pouring your fuel now.

Paul Petrovich (03:05)
Well, as quickly as I can. My dad was a World War II hero, if you will. And I was the last of five and the only son. And he instilled a toughness in me that was incredible to match. And I was also a very competitive athlete. I was drafted twice to the— to the minor leagues and I played, you know, college ball and college all-stars and so on and so forth. So I have a competitive streak in me to begin with. And then what I saw— my dad as a— he worked 43 years for the phone company, and he was a corporate guy. And he worked, you know, 6 a.m. to 6 p.m. And he was always held down by his superiors. They— they loved what they— he did for them and they wanted to keep him there. And I grew up thinking, “Not for me. I’m not gonna be, you know, apply my talents and efforts and— and ingenuity to something that doesn’t reward me and my family.” So coming out of college at UC Davis, I had four job offers for corporate. And then I happened to go to an intern day when I was a fireman while I was going to school, and I saw a table for commercial real estate by a brokerage company. And I— I went straight up to the front of the line. There was like 30 people on line, and I just put my hand in front of the guy’s face and said, “Look, I don’t have time for the line. I read your flyer here. It sounds really good to me.” His eyes got about this big, because that was the type of personality he was looking for. He says, “Get your real estate license while you’re at school, come to work for me as soon as you graduate.” So I did that. And four days after my last final, I walk into this brokerage firm and the manager had been fired the Friday before. And the guy that was there said, “I don’t know you. I don’t know what you think you’re— you have here, but you don’t have a job, and leave.” And I looked him square in the eyes and I said, “Look, I have a job here. I was promised a job here.” This was like my first test. And I said, “I’m not going anywhere.” So I stood in the lobby for four hours. And the guy kept looking at me, and he was— he was small of stature, I will say that. So he wasn’t gonna throw me out. So finally, after he came back from lunch, he said, “Fine.” It was a bullpen setup— there’s a phone, there’s a— there’s a phone book and a desk. Go for it. No training, no nothing. And this is the end of the Jimmy Carter presidency when interest rates were 18 to 21 percent. And I was working on things— oil refineries in Portland, senior facilities in Stockton, California. I was all over the board. I had no specialty, I had no retail in mind at the time. And my dad was pounding on me, pounding on me to get a real job. And so I eventually had to move out of my fraternity house because the next year started. And I didn’t have enough money to do anything and I didn’t want to put a burden on my parents. And so I— I was living out of my car. And there was an elderly woman that lived next to the fraternity house, and she used to iron my shirts for a dollar. And the first 14 months in the business, I made $1,100. And I finally, as the economy with Reagan started to get better— this is 1981, ’82— I started to make some— some real money and slowly, gradually dug out of that hole in a matter of, you know, six, eight months. And then my talent and my— and my tenacity and having confidence at a very young age put me in front of a guy that liked me. And I found out he had a building that was empty, but he had just signed a lease with the state of California Controller’s Office. And so I just picked up the phone and started dialing for dollars. And I ended up selling the building for 81 and a half million dollars. And my commission was $2.1 million at the age of 23, 24. It was the largest sale in Sacramento by 3X. And it was just like front-page news in this— in the Sacramento burg. And people were like, “Wow.” And then 90 days later, I closed a $34.5 million deal. This was with Heitman Financial as a buyer. So I was brokering back then, and I brokered through about 1995, and I closed in those years’ dollars about eleven billion, just myself and a secretary. And I was beating, you know, the big brokerage houses who had a team of people that they added, you know, all their sales together just for the one head guy of the team. So that was satisfying, and it was the competitiveness and, you know, Broker of the Year awards and all that stuff. And then, so I’m cruising along and I— I had what I called the— the hat trick where I would find the land, I would find the tenant— because I represented a lot of these big-box tenants— and I would run the proforma and I would hand it— and I would get exclusive control— and then I would hand it to a large developer. Back then it was like Opus. And I’d say, “I have a deal for you. Here’s how it pencils. Here are the tenants already lined up. Here are the rents they’re going to pay. Here’s the price of the land. Here’s your off-site costs, your on-site costs,” because you learn this stuff as a broker— at least some brokers do. And I say, “What I ask of you is I don’t need you to protect me in the land sale because I’ve already got that listed. But I want to be paid a commission on every lease. And then I want to be able to sell the shopping center when it’s done.” So land commission, leasing commissions, sale commission. And I got to the point where I had enough of these that I had millions and millions of dollars of brokerage income coming in. And at one point I said to myself, “If I don’t get out of bed, I’m still gonna make this money,” because it was all booked. Because it takes so long for something to be built, takes so long for a tenant to occupy, and you get your first half of commission, and then— you know, I’d have— I’d have buyers lined up for the project when it was done. So I did that. And then about 1997, Rite Aid bought Thrifty Payless. And I’d never heard of Rite Aid. And they’ve been in business 61 years, and they came to us and said, “We think you would make a good developer for us. And we’d like to give you half of Sacramento.” And the one advantage I had as a developer is, you know, all the brokerage knowledge of every piece of land and every, you know, great intersection and so forth. And I said, “Well, I— half of Sacramento is not good enough for me.” They said, “Well, you know, just bring us deals.” I tied up 60 pieces of property in six months, and they signed 12 leases in that six months. And all of a sudden, I’ve have 12 times— I had 60 million dollars of projects to develop, and I didn’t even have a construction manager. So I just figured my way out, you know, through it and had this great relationship. And I was building these and I was selling them— some I was holding for cash flow. And they always had more land— it was never finding the perfect corner by itself. It always had— was five acres, it was three acres, it was eight acres, and that ended up creating more development. And you know, all of a sudden I’m building, you know, a hundred, hundred and twenty-five million dollars a year for like ten years. And you know, banks, you know, wanted to lend to me and everything was great. And then, you know, I— I held on to one Rite Aid too, too many— just one. And when they finally swirled, I’m still dealing with that property today. But now I’m building a $28 million project on that property because it was a great infill site. So eventually I just kept— Safeway came to me and asked me to place them in the market locations so they could reclaim market share. Because in this area, Raley’s, a local operator, had taken control of the market. They built nine Safeway-anchored shopping centers. I own most of those still— 25-year leases, great bumps, all designed for long-term ownership. They all do great volume. And then, you know, other tenants just— it just kept— I kept, you know, things going that way, and developing for tenants, you know, half a million square foot power center here, half a million square foot power center there. And then eventually I got into redeveloping the second dirtiest brownfield in the United States. Why? Maybe it was the challenge, I don’t know. I still think about it. But in 2001, I acquired from the Union Pacific 72 acres, which was the western terminus for the Transcontinental Railroad. And this property was incredibly well located, and it was just a dirty, dirty pit of dirt. And but everybody in the industry, as far as retailers, have been telling me, “Boy, if you can ever develop that, we’re there and we’ll pay top rent.” Well, there was a study that showed how much contamination was there. And I did the numbers and— and I bought it. So the— the chain of title went: Mexican Land Grant, Union Pacific, Petrovic Development Company. It’s— it’s one of those that that’s how short of— of ownership title there was, chain of title. And so I started cleaning it up. And when I got to the limits of what the study said was there, I noticed that there were still some— some darkened stripes of dirt in these pits. And so I spent four hundred thousand dollars— no partners on anything I’ve ever done. So you know, I’d want to get that out in the front. I— I was just using brokerage monies and— and cash flow from Rite Aids and Safeways and so forth to promote my developments. And I would only take on developments that I could self-fund. I did— I take fiduciary responsibility a thousand percent, meaning if I have a partner, I’ve got to spend all the time in the world to make sure that partner is taken care of and his investment. And taking that so seriously, I never wanted to be in that position where I had to not pay attention to something that made me more money because my responsibility was to that investor that might have put in a couple hundred thousand dollars. I did not want my integrity— it wouldn’t allow it, and I didn’t want to be ever accused of that. So, this project, this Curtis Park Crocker Village Union Pacific Rail Yard, was actually the Central Pacific, and they bought the Central Pacific. It ended up costing me $70 million to clean it up from an estimated $25 million. And when it was all said and done, I excavated 1.2 million cubic yards of dirt. Now, what— what does that mean? What’s the relationship to that? Well, if you take— it would fill up a professional football stadium to the rim. That’s how much dirt that is. And then the groundwater contamination— I pumped 1.3 billion with a B gallons of water and treated it. If you added up the rail cars that I filled up and sent to a special rubber-line pit in Utah, the train would be 20 miles long. Now I could only get 200 cars at a time because there’s special cars to carry this arsenic and lead type soil. And so through that process, I’m— I’m— I’m digging and cleaning, digging and cleaning. Then I had to go for entitlements because it was not in the general plan. It was never thought to be useful for anything. And I knew it was gonna be a challenge, but again, I like a challenge. So it turns out the people that wrote the California Environmental Quality Act under Jerry Brown, California governor’s first administration, all the state attorneys that wrote it lived abutting this rail yard. And these are like Mandami, Mandami, you know, socialist, communist type people that believe no one should make money, but do all these things. Two hundred and thirty community meetings, five years, an EIR report that— was larger than the— the Healthcare Act— it was twenty-three hundred pages, the largest EIR in the history of California. Finally, after forty-three changes, the city council said, “These people are never going to be satisfied,” and they approved the project unanimously. That was in September 28, 2010. So then I went on to build, and so as I went on to build, everything was going well. It was about 600 homes, affordable housing, and about a 200,000 square foot shopping center. And I signed Safeway up, but they said they wanted a fuel station. Well, because the activists, the anarchists, who are just a bunch of bullies, were sore over losing the overall entitlement battle, they decided to take me on with the fuel station. And this was not a gas station. This was a fuel station, like we see, you know, Walmart and everybody has. And there’s no auto repair or anything. And all the studies said there’s no risk to human health, because I placed it up against the railroad tracks that were left. And far away— 700 feet away from homes— there was just no— no human risk at all. And so, and there’s two criteria for a gas station: it’s risk to human health and public nuisance. Those are the only two criteria. And public nuisance is where a stack of cars ends up on a public street, and that’s considered a public nuisance. And this had neither. So I— I got approval at the Planning Commission, and that’s all I needed. And the neighbors appealed, and it went to the City Council. And what a lot of people don’t understand, which you learn these lessons the hard way, is that whenever something gets to the ultimate deciding body that is the minimum body required to approve it— in this case, the Planning Commission— and it gets appealed, the then-appealing body, whether it be a city council or board of supervisors, is now operating under the rules of superior court judges. That’s the adjudicatory part of the equation. So they can’t come in with bias, they can’t come in with their mind already made up, they can’t— they can’t step over the line and teach people what to say or anything. Well, this one guy, Jay Schenirer, and former NBA All-Star Kevin Johnson, who was our mayor, got together and decided that number one, they were gonna get back at me. And the neighbors were threatening Schenirer that they were gonna take him out of office, and that’s the one thing a politician hates to hear. And Johnson had a group of investors, once they had cleaned up the property, thought he could bankrupt me and then buy the property for pennies on the dollar. So they voted no with no basis. And so then I filed a writ. Difference between a writ and a tort: writ is where you submit the record to the city— I mean to a judge— and they make a decision based on just what the evidence is, no discovery or anything. A tort is where you sue for damages. I filed both. But the city destroyed all their records despite three court orders that I knew ahead of time to get issued to not destroy any evidence. And because of that, he let me do some discovery. And they battled me 21 court hearings over three and a half years to try to uncover what I knew was a smoking gun. And eventually the smoking gun came out, and it was a memo that was written the night before the hearing that was circulated to the entire city council that said, “We’re going to deny this project. This is going to be the motion to deny it. It’s going to be motioned by Jay Schenirer. It’s going to be seconded by Steve Hansen. And the rest of us are going to vote no. And we have programmed several public speakers that are against this from the Curtis Park neighborhood for what they’re to say to support our decision.” And that ended up— I get— I got my hands on it, and that was really bad on top of uncovering emails where Schenirer was having meetings in his house with the heads of the neighborhood and coming up with strategies and talking points to use at the hearing. So after four years and about three million dollars in legal fees, I prevailed. But the judge, instead of issuing the conditional use permit for the gas station, said, “Just give the man a fair hearing.” When I finally got to the hearing, they read from another script and denied it again. So I filed another writ. Meanwhile, my tort’s clicking along for damages, and it’s starting to look like every bit of 70, 80 million dollars in damages. And the city manager, who had just started when this whole thing began, started to understand that the council had lied to him, as did the city attorney. And he came to me— he’s a very good man— and he says, “Paul, how do we make this go away? Because you’re kicking our ass.” I mean, yeah, every hearing I was winning. And I said, “Look, you know, I don’t want to be suing the city, but when you leave…” Safeway’s lease was conditioned on the gas station, so I couldn’t kick off the shopping center until I had that gas station. And my carry was $10,000 per day on all the land, every day. I figured it out to the minute at one point. That just depressed me. Anyway, long story short, or try to make it shorter, I settled. And the way I settled it is I found out that money that— that trades hands is treated as ordinary income, and the money they cost me, you know, would have been basis in the property. So I made them pay me nine million dollars in cash and then pay eighteen million dollars for an office building that I owned downtown that was worth about two. And then I took that— those proceeds, and I invested it in triple-net single-tenant assets in Texas and didn’t pay any tax on it. And I had enough offsetting losses for the nine million in cash. And I could have taken it a step further, but it— it did affect my health. You know, I was in the hospital three times. I was in the doctor’s office having outpatient surgery four other times. I was on the front page of the Sacramento Bee a half a dozen times with above-the-fold excerpts from emails between the former city manager and— the councilman Schenirer saying, “I think Petrovich is insane, in need of— medical help.” And my kids are reading this, and the community is reading this. And here I built— built this whole career of doing good, donating a lot of money, taking infill projects on in very tough neighborhoods. In fact, in the Crocker Village Shopping Center, I made Safeway, as a condition of the lease, hire all 250 employees from our— our most impoverished community. And these were people that, you know, and they were of all races, it was just a very poor community. And what happened was these 250 jobs were union jobs with benefits for the whole family. If one part-time employee, it gets benefits for the whole family. And that resulted in 7.5 million of wages and benefits going to— into this community every year. And now it’s been, you know, seven or eight years, so we’re, you know, we’re looking at 50, 60 million dollars, which then gets spent within the community and turns over five times. And Safeway has continued to hire from this community. And one very strange, positive thing that came out of that is that I called it a dig— a dignified hand-up instead of a handout. That was the name I gave to the program, because it wasn’t just giving people something. It was, “Hey, you want a good job? You want a— you want a union job? You want benefits for your whole family?” And I worked with the Urban League to help train these people just to interview, because some of them couldn’t even look the interviewer in the eye— they didn’t have that experience. And now they protect the shopping center. I have like zero crime. I have like zero shrink from my retailers. And it also solved a food desert at the same time, because no grocer would go in their community. And it was just past— it was on a free— it was just off a freeway, about a third of a mile. So they finally had a place to shop that wasn’t, you know, a corner liquor store where they’re paying, you know, a fortune for, or a Dollar Tree or you know, whatever. There was healthy food. So that to me is one of the, you know, bigger accomplishments in my life is— is— is helping so many with that dign— dignity that goes with it.

Scott Bursey (30:02)
Paul, you have done what so many would say is impossible. Thank you. Thank you for that. And for our listeners that want to follow your journey and collaborate with you, what is the best way for them to reach out and continue this conversation?

Paul Petrovich (30:21)
Well, I am extraordinarily busy and I don’t want to sound, you know, whatever, but I am so busy right now trying to land the plane after 45 years. They can go to my website, petrovichdevelopment.com, and there’s an “About” section there. Doesn’t tell the full story— I haven’t updated it in years— but if they want to write emails, you know, I— I’ll try to answer them. But I get so many solicitations of “do this, do that,” not for like what we’re doing, but you know, that happens and I’m happy to do that when I can. But I don’t have time to talk on the phone and— and mentor, unfortunately. I just don’t have that time. I’d love to, but you know, I’ve been having 45 years. I’m 67 next month. I want to enjoy my life a little more. Okay. That’s the whole purpose that I— I don’t have 10, 15 more years. I’m gonna be no, you know.

Scott Bursey (31:22)
So, absolutely. Well, thank you for joining us today, my friend. This has been absolutely a pleasure. And to our listeners, we appreciate you. If you received value from today’s episode, please subscribe. We’ll be filling your tanks with the lineup of elite guests, just like Paul, who are accelerating and setting the pace for the rest of the industry. Until next time, keep your standards high and your vision clear. We’ll see you on the next episode, everyone.