How to Reposition Industrial Buildings for Tech, AI and Media Tenants

Darren Laureano (00:00)
I actually reverse engineered it from being an expert at certificate of occupancy, finishing the building, hitting a date with what I call a fact based schedule, and then working our way backwards to the decisions you have to make and the

one I just explained to you was if you work your way back from certificate of occupancy, what you find is you need to begin with what your end use is, which would be confuse most people in commercial real estate. And in this case, it was entertainment media production for recording studios and editing bays and screening bays and sophisticated, you know, admin operations. So we’re excited about that. Anyways, long story short, that went from a $12 million acquisition on a 40,000 square foot building

To ultimately once the lease was signed, a seventy-three million dollar valuation.

Joseph Crooms (01:32)
Hey everyone. Welcome to Investor Fuel Real Estate Pros Podcast. I am your host, Joseph Crooms. Today I’m joined by brothers.

One was supposed to pay the other. I don’t know anything about that, but that’s something that we brought out. But listen, we have two guests here, Stu and Darren, Laureano Is that correct?

Stuart Laureano (01:55)
Very close. Laureano

Joseph Crooms (01:57)
Laureano they’re our guests today. I’m gonna let them both say hello and then we’re gonna get right into their niches. So hey Stu and Darren, say hello to everybody.

Darren Laureano (02:10)
Joseph, thank you so much. It’s great to be here today. I’m Darren Laureano, I’m CEO and founder of Southern California Equity.

Stuart Laureano (02:18)
too. Yeah, that makes sense that he would start right. He is the CEO.

Joseph Crooms (02:21)
I’m not messing with that one.

Stuart Laureano (02:23)
And I will tell you this, it seems probably pretty obvious right now that he’s the brains and and I’m the beauty in the organization. So yeah, we’ll we look forward to sharing with you and and your audience today.

Joseph Crooms (02:36)
Hey Darren, you got way the way to go. We got brains and beauty. So beauty means they’re gonna bring some flavor to what the brains have to do. So we’ll word it that way. But welcome guys. so let’s dive right in. And you can both answer this question because you may answer it differently. So first of all, for people who are not familiar with your world, give us the short version. What’s your main focus today and what markets are you operating in?

Darren Laureano
Stu, Take that one.

Stuart Laureano (03:02)
To understand.

Yeah. So Southern California Equity is a commercial real estate investment platform, and we’re focused on a structural inefficiency in the market, what we like to call the middle market sweet spot. And those are deals that are anywhere from probably $15 to $50 million, urban infill assets. That’s a key. We target underperforming properties and innovation hubs that we call innovation-led cities. They’re typically two.

small and too operationally intensive for institutional investors, but too large for private buyers. So it really reduces competition and creates very, very attractive entry points for for our investors and and our model is positioned, you know, in a very, very unique way in a very, very unique market.

Joseph Crooms (03:53)
Darren, I heard him say urban markets. is is that your primary focus? I know you’re and tell us the marketing areas that you are operating in now, but is it mostly urban?

Darren Laureano
Yes, it’s mostly urban. High what we call high growth urban areas. They’re kind of next generation neighborhoods and commercial sectors and mainly, you know, hot large city environments, urban environments. So the innovation led cities that we have targeted are

defined by you know shifting demographics, you know, highly educated workforces and you know very diverse cultures. So that is Miami, Nashville, Austin, and Los Angeles.

Joseph Crooms
These are thank you. these are very key urban cities. Let me ask you that what metrics do you look at look at before you and before you give it a definition? This is a high-end, high populated area with educated people. What metrics do you use?

Darren Laureano
Yeah. Do you want to grab that one?

Stuart Laureano (04:51)
Yeah, so we believe that the best markets are markets where talent wants to be and businesses want to be. So when you have a talent pool, and that’s a very, very important part of you know our model is we’re around a lot of times markets with actually maybe exclusively markets with universities, research institutes, things of that nature. they’re urban focused and they’re

What we’d like to call clusters. And clusters are where certain types of companies like to cluster around together to share talent, to share resources. And these submarkets are very, very unique. They offer people are willing to pay a premium to be in these submarkets. occupiers will pay a premium to be there, employers will play a pay a premium to be there in these clusters. So that drives a lot of the submarkets, especially.

in these innovation led cities that we work in.

Darren Laureano (05:53)
We also like that I’ll jump in here, Joseph, a little bit, is those markets all have, you know, a series of a variety of distressed at properties and assets. So whether they’re industrial and kind of deferred maintenance distressed, or whether they’re economically or financially distressed in some way, shape, or form, we actually focus on things that are actually very difficult, things that our property skills and our investment strategy is really focused on and very skilled with a great team of people to solve them. So

That lends itself to all four of those markets also. Sort of similar question. so do you actually purchase the buildings outright or do you find the funding for those companies that may want to own or or or or is it a mixture of both? We have a series of what we call, you know, structured debt and equity placement ourselves. So we’re effectively buying them through an intercompany lending process within our own organization.

And then ultimately after we put go through our deep reposition method, which is a very intensive and invasive redevelopment, which we can, you know, share some some photos with your audience and they can see them on our website, Southern California Equity.com, can see some examples. but then we go through conventional financing.

Joseph Crooms
What type of companies are moving in now, especially with the high tech? is that sort of why you in these inner cities.
You know, that’s the boom now, you know. what are you all doing with those type of companies?

Darren Laureano
Well, I’ll jump in there. I think this might we might tag team this question. I think we both got probably things to say on this, but right away is our strategy revolves around tech centric property, commercial property. So it deals in very you know, kind of elite buildings for entertainment, digital media, content and production, sound stages, recording studios.

any other kind of tech centrics, AI based venture capital companies that require sort of technologically advanced spaces and indoor security. And then on top of that, the fund platform is very, very focused on medical biotech, which is also a very specialty in the in commercial property also. These things are not easy to do. they require a great deal of experience and skill, which is why our team kind of handles them. That’s why we targeted them.

And if you even think of the markets that we were in, Los Angeles has UCLA, Cedar Sinai, and USC Medical Research Institutes. Austin has UT Austin, which is a major university level research institute. Nashville, for those of people who don’t know, has Vanderbilt, which is an incredibly elite medical research institute. And then Miami has several, including the University of Miami. But Stu probably has some things to add to.

Stuart Laureano (08:39)
Yeah, I’ll say the the kinds of environments that we create. we call them class A Class A premier flex creative office, creative flex space really is the best way to say that. And it’s a mixture, as Darren’s saying, of of high-end environments that executives and management teams wanna be in. And then they have the operations team and you know, whether that be medical biotech or

You know, we talk about manufacturing pixels. You know, the the manufacturing industry is live and well. They just create them in different kinds of environments, different editing bays, different editing suites and finishing suites. so people are manufacturing pixels today and and we make that possible and create the environments that that innovation happens in. And that’s really where the occupiers and and major companies, the institutional occupiers we target, they want people back in the office. They want those

things that only happen collaboration only happens with proximity. And that’s a huge part that drives our spaces. But the kinds of spaces that we create and and occupiers that we work with, those those creative, you know, kinds of companies and and innovators, they don’t want to be in a high-rise building. They want to be in a low rise open mezzanine. They walk into an open office, maybe with their dog off the metro, and walk into an environment that creates collaboration. And those are the kinds of environments we created for twenty five years now and really pioneered that in the area of Los Angeles called Silicon Beach. So that kind of submarket is being modeled across the country and those are the kind of markets that that we target for very, very obvious and specific reasons.

Joseph Crooms (10:21)
Stu and Darren, let me ask you this question. What would a biotech company is it will they probably own the home building? Would they have their office space manufacturing as well as office? Can you describe and then what would the entertainer, which is a very popular business also, what would their buildings look like?

Darren Laureano
Yeah, no problem. so on the biotech side, that’s more of a technical.
challenge for an individual property allocator and real estate platform. They are so difficult to do, they have so many regulatory requirements, and the tenants, you know, have such a high demand for their own build outs technologically. They have clean rooms, they have redundant systems for everything. They need very specific, you know, lockout rooms for air s air changes within their environment. Typically they’re doing research, not so much the manufacturing, although that certainly does happen. But I would say largely it ends up being a research facility to develop some new technology in medical healthcare or something along those lines. That’s what we’ve seen commonly.

They don’t really buy their own buildings. They do occasionally for sure. Like any large corporation might, but they usually begin, you know, with some kind of long term commitment, single occupant lease for, you know, a high credit tenant. Ultimately, it might have an option to buy the asset after the fact and ultimately they stay a long time. Gotcha. Thank you, Michelle. And then separately, I guess I can, you know, answer the entertainment side of things.

You know, entertainment’s a really interesting market, you know, because when you say, you know, recording studios, sound stations, and those types of things, and certainly you’re in the you know, entertainment, you know, content creator space, so you kind of know this a little bit for sure, is it’s not just giant corporate studios. They are individual, you know, creators all over the place that cluster together that have, you know, work off each other and feed off each other to create and innovate different kinds of contents. directors, producers.

of both film media and recording or music. They all work out of their own individual, you know, boutique spaces that they’re very demanding in and they have very high requirements. And usually they want to be off the grid. They don’t want to be noticed. They don’t want, they want to blend into the environment they’re in, but they do have, you know, very nice spaces and very technical spaces. They are not on the lots can normally unless they’re in

direct production of a major motion picture or commercial or something. but largely that’s the places that we’re targeting, the creative artists themselves and the environments that they, you know, inspire them to create their art. And that’s what you
Focus on

Joseph Crooms (13:12)
Stuart, anything else you want to add to that?

Stuart Laureano (13:14)
Yeah, I would say this that, you know, the producers are the ones that shape these companies. It’s, you know, it’s kind of cool to have creative people and you see them on screen or, you know, content creators of whatever they might be, but the producers have certain requirements in their lifestyle, where they want to work and the kind of environments that they want to be in. And really that drives these kind of HQs that we that we support.

And the footprints are getting smaller, yes. And that’s why our model works very, very well. We’re not building high rises. We create low rise creative flex space that is a lot of open and mezzanine areas, outdoor spaces. These are the kinds of we like to say there’s a flight to quality going on right now, and that’s probably not new information in commercial. We like to say it’s even a flight to luxury. And it’s almost like, you know, some of the producers

And executives, they want to go to a space that feels like home, maybe even better than home. And that creates a an attraction to the right kinds of talent where they’re going to be spending quality time here now and return to office. And our world is, you know, TikTok just announced as an example, five days a week in the office. And you need to have an attractive environment where people want to be. And that’s the driver, of our business model, how we create high net operating income is l the golden

You know, the golden treasure in this is a single high credit tenant that signs a long-term lease. That’s what really drives net operating income for us and stable cash flows.

Darren Laureano (14:51)
Yeah, the one thing, Joseph, I would probably add to that too is, you know, our model is built on speed. The reason why we do things the way we do them is for velocity of the transaction. And and it’s not a mistake that that sort of appeals itself to industrial properties that we can turn into first class facilities. But we also do that because we can customize buildings to tenants in the market. So they don’t have to wait two, three, four years for their building to be done. They can

They can work with us, you know, halfway through and when our team is so good at what we do, we can chew gum and walk at the same time. So we can start the building and then build a relationship with them and help them customize it the way they want.

Joseph Crooms
Let’s talk about chewing gum and walking at the same time. That’s a very interesting term. I use it with my daughter a lot. She’s a key brief, but it means something different with her. But it sounds like when you constantly talk about your team, are y’all a one almost a one-shot stop?

When they come to you guys and explain how that happens.

Darren Laureano
Yeah. So it’s a really good question. Yeah. Southern California Equity is built out of five different teams actually, from finance and development and investing and risk management, and which is a huge part of this. We really haven’t got into yet, but we’re specialists in risk, liability, and delay. And I find that those are very misunderstood things in commercial real estate. That we can do a whole show on that yours on you know itself if you want to sometime.

but and then you know our development team is strong. So the only things that we’re not doing, which I believe probably should be done by the experts because especially in the types of things we do is construction and property management. I believe those are you know very locally based, you know, and sourced and best off building relationships with experts and those two things. But everything else we’re doing, we source all the deals. We have our own in-house architecture firm, we handle the development ourselves.

the deal sourcing is critical. I can tell you right now, you know, we I don’t I don’t quite want to say distrusting, but I can say that I am very skeptical of outside information and outside people and what I consider to be guesswork rather than facts.

Joseph Crooms
Let me ask you this question. I know relationships is everything according to what you’re both saying. let’s talk about those outside of your company. What type of

reputation are you looking for for construction and then property managers. Do you have a set of property managers in Miami, set of dip a tipping group that you have working in Austin? Tell me about that.

Darren Laureano
Yes, we do in each of the markets they’re different. and I can tell you my preference has been historically for boutique operators for to support us rather than

corporate, although I can’t say we definitely have some corporate operators for sure. But I find the boutique guys, you know, can be a little bit more let’s say outside the box. Let’s put it that way. I, you know, we live outside the box. We don’t we we haven’t seen the box in years. We have no idea where the box is. I’ve climbed over the top of the box, behind the box, around the box. I buried myself in boxes, but I can tell you one thing, I’ve never been in one. So I think that’s probably why I like the boutique guys.

Joseph Crooms
Stu, what do you think?

Stuart Laureano (18:16)
Yeah, I mean you hit on something that’s critically important and you know, a big differentiator is, you know, we are a vertically oriented platform, a vertically integrated platform. We control as much of the investment life cycle as possible from acquisition through disposition. But there are places where we need support. Property management is is a good one as we manage these assets. And yeah, the

responsiveness that you get from a local, more boutique kind of operator is very, very attractive to us. We’re entrepreneurs. Yes, we operate at an institutional level, but we’re entrepreneurs at heart and and we find we’re like minded and those are the kind of people that we’re most attracted to are our other entrepreneurs rather than a, you know, maybe JL or CBRE or whoever those people might be. They’re great organizations. They do great things, but for our day to day and what

Allows us to serve our investors and our occupiers. Yeah.
That’s what we’re looking for.

Joseph Crooms (19:17)
What’s been the key to making keeping your machine running smooth?

Darren Laureano
that one’s actually totally simple. The acquisition targeting system and the accelerated appreciation algorithm that we created years ago. That’s the foundation with which the organization was created. it’s part of our origin story of, you know, really how we got here. And that system, you know, Stuart and I joke that you I’ve been

Not joke, it’s serious. I was threatened for it over the years. I was begged for it over the years. I was insulted over it for the years, but you know what? I would just never, you know, part with the secret and what I consider to be, you know, our intellectual property and our most valuable asset. But the acquisition targeting system of how we source deals and how we find them and how we value them is critical.

Joseph Crooms
Stu, anything on that else you want to add?

Stuart Laureano (20:08)
Yeah,

I love the way you introduced that, Joseph. I mean, you’re tracking what you know, you’re smelling what we’re cooking, man. I’m telling you. You know, you talked about the machine. We have created what we like to call a commercial real estate investing machine. And it’s a technically it’s a technical machine from our source code, which is you know, the culture of our organization, to our operating system, which are the core disciplines that that Darren’s alluded to, particularly around governance and risk management. and

The differentiator is what we’ve talked about a little bit right now. The the algorithm that runs our machine has three very specific playbooks that help minimize risk and expedite delivery of products. Speed is because we operate on rules-based systems. It’s a machine, it’s not guesswork. And then finally the operations, which is the engine, is our vertically integrated platform. It synchronizes everything.

in the investment life cycle. And like I said, we like to coin our phrase and we have content materials. We’re a commercial real estate investment machine.

Joseph Crooms (21:17)
Mm, like that. Tell me something about a recent project that you built. Tell me you know, tell me about how you started and what is it, what does it look like now?

Stuart Laureano (21:32)
Darren, why don’t you go for that? Give him a case study.

Darren Laureano (21:36)
yeah. So I mean we can take we can take any variety of them, but one of our best case studies probably the best example that we could probably give was for originally it was as an investment spin out in our original platform was for Watt Companies, which is an LA based firm, and we did an acquisition of a fifty thousand foot

What was misunderstood to be a warehouse building, but was actually a manufacturing building, which is a very common misconception of and a very important one when you do what we do. and ultimately we kind of moved in with what we call our accelerated appreciation algorithm, which basically increases the value, changes the property into something totally different. So without even picking up a hammer, we did it on paper and we were able to turn that misunderstood.

non-warehouse building that was actually a manufacturing building into an entertainment media production facility without picking up a hammer, which I can tell you there’s a lot of commercial real estate guys that are very confused out there with what I just said. And then some guys who want to be in commercial real estate who are very excited about what I just said. But where

That was all ultimately.

Darren Laureano (22:52)
it started and it was a two step process, which is very typical for us.

And then ultimately after that was done, we finished all the engineering to increase and expand the footprint of the building. Well, not sorry, not footprint of the building, but expand the size of the building by using interior mezzanines. We added about 8,000 feet to the 45 ,it

Darren Laureano (23:09)
Forty five thousand feet, whatever.

Darren Laureano (23:11)
was. ultimately, there was discussion with a tenant. I’m probably not gonna say, well, I could say who that tenant is. The tenant was a company called it’s called Company Three. They’re one of the largest post production.

entertainment editors in the entire world. they we were able to talk to them. And that’s is what I kind of talk about, the multidisciplinary nature of what it is that we done and what we do every day is when you’re talking to a tenant, a high credit tenant like that, you’re actually not really talking to the tenants. And I think this is really a misconception in commercial real estate. You’re talking to the attorneys and the lawyers.

And the attorneys and the lawyers for those who represent the tenants on those sides, they are interested in one thing transactional confidence and certificate of occupancy of when you can deliver the space to them. And I have developed our system and our acquisition targeting system. I actually reverse engineered it from being an expert at certificate of occupancy, finishing the building, hitting a date with what I call a fact based schedule, and then working our way backwards to the decisions you have to make and the

one I just explained to you was if you work your way back from certificate of occupancy, what you find is you need to begin with what your end use is, which would be confuse most people in commercial real estate. And in this case, it was entertainment media production for recording studios and editing bays and screening bays and sophisticated, you know, admin operations. So we’re excited about that. Anyways, long story short, that went from a $12 million acquisition on a 40,000 square foot building

To ultimately once the lease was signed, a seventy-three million dollar valuation.

Joseph Crooms
Stu, let me put this question to you. Thank you for what there. How has AI revolutionized your business?

Stuart Laureano (24:59)
Yeah, that’s a great question.

Darren Laureano (25:00)
Goes to, man. This is your this is your world.

Stuart Laureano (25:03)
Yeah, so you know, here AI does a lot of things in commercial real estate and you’re hearing processes that are streamlining operations and we’ve certainly, you know, integrated those in into our daily workflows. but the thing that I’m excited about and is more from a risk and risk protection for our investors is we are

Trying to digitize all of our experts’ knowledge to create and clone the genius of Darren and clone the genius of some of our teams, where we are able to create knowledge continuity by documenting and creating what we call AI co-pilots, especially for all of our key personnel. So knowledge continuity says in a lot of cases and in big institutions.

Where somebody walks out the door, all their experience and knowledge walked out the door with them. So as we are creating AI co-pilots, it digitizes the experts’ intuition and instincts. And it’s like having our best expert in every room that we’re in and in every meeting that we’re in. So that’s our most exciting implementation in my mind of AI and what that means for investors is security.

and risk mitigation and that our talent stays in-house regardless even of where some of our best personnel might be because that is a reality. We’ve had a very tight team, we’ve been together for many, many years. but that’s the most exciting thing I think we’re doing with AI. Yes, people are doing all kinds of stuff with you know operational workflow. and we love that part. And our people are really smart at that. but that’s the thing that turns me on the most right now is is the AI co-pilots that we’re creating right now.

Darren Laureano (27:01)
Just to add to that just a touch, we’ve also seen a lot where our thirty year track record, three decades of the ups and downs of the real estate industry has been already fed into our AI tools. So y it’s it’s building from a foundation. It’s knowledge is being created from a foundation that nobody has. so we’re able to feed a lot of data into that engine that ultimately can, you know

benefit everybody in their individual roles. Really great.

Stuart Laureano (27:34)
what we like to call those are intelligence centers. So we’ve got this history that’s been recorded and fed into a large language model. And those intelligence centers help all people, whether they’re new or seasoned or experienced, in each operational area. So there’s an intelligence center for acquisitions. There’s an intelligence center for our operational algorithm, what we call

the accelerated appreciation algorithm. There’s intelligence centers that back up each of the most important parts of our vertically integrated platform that are yes accessible to the newest person and it streamlines their day to day and it’s fed by the intuition and instincts of thirty years of of of successful operations.

Joseph Crooms (28:38)
Well, thank you for saying that. Man, we’re running out of time. let me ask Darren, is there anything a question that it that I did not ask that you think I should have asked that’s very important that you can before I I go back to Stu or whoever’s gonna answer at the end on how to get in touch with you guys, is there a question that I did not ask?

Darren Laureano
No, I think you covered it. I think you covered it really, really well. And it is a very complex subject.

certainly commercial real estate, especially the way we do it. So we could do a few different shows on that. and hopefully we’ll get a chance to spend some more time on risk, liability, and delay. I think that’s very important. I think there’s probably a lot of younger people out there that would like to hear some of that. we can save that for another time, but I think that would probably be the only topic that we we probably could get into more detail.

Joseph Crooms
All right. So I’m gonna pass it back to Stu. Stu, tell us how do we get in touch with you guys.

Stuart Laureano (29:34)
Yeah, we appreciate the time that you’ve given us here. We we look forward to getting to know you you and your organization better. a lot of what we do is so visual. If you go visit our website at southerncaliforniaequity.com and look at our portfolio and track record section, a lot of this conversation will come to life and and see the kind of environments we create. We’re very active on social. You can find us on LinkedIn with a lot of

of education. We feel education is, you know, the heart of of what we’d like to do because we’re innovators. And we’d be happy to maybe even do workshops for, you know, some of your and webinars maybe for some of your audience. And Instagram, you can find Southern California Equity on Instagram as well. And again, highly visual. What we do looks it’s amazing. It it looks great. We we started out talking all about that when we started our raise. Realize people don’t investors don’t really care about that. But after they figure out the strategy is solid and we’re smart.

They love looking at our stuff and your audience will too.

Joseph Crooms (30:32)
Thank you so very much. Darren, anything else you want to say?

Darren Laureano
No, thanks for having us here on Investor Fuel. Great to be with you. And hopefully you’ll have us back.

Sounds good. Perfect. Well, listen, I appreciate you both. Stuart, you did a good job getting a check from your brother. And Darren, you did a good job telling the story since you paid. You know what I’m saying? Yeah. But you guys were fantastic. And first of all, I want to thank you on behalf of our listening audience.

We need more people in space who are doing things innovatively, thinking out of the box. thanks again for being here, both Stu and Darren. So for those of you tuning in, I know you got value from this. make sure you subscribe. We got more conversations coming from operators, just like Stu and Darren.

Darren, there may not be two of them, it may just be one, but we got some information and but we hopefully also will have Darren and Stuart back again to tell us a take us a little bit deeper. We also say to you guys, any friends that you think that will benefit from coming to Investor Fuel, please let them come as well. So we’ll see you at the next episode. I’m gonna give the guys an opportunity to say bye again. Guys, say bye to everybody.

Darren Laureano (31:55)
Thanks, for having us.