GlobeSt.com: Talk a bit about how Lee and David ended up joining CityView. Did you have a prior working relationship?

Wagman: We've been partners with CityView for over five years. We've completed three projects together and are actually working on a fourth. During that time we developed a very close working relationship and a lot of respect for their team. We are developers, and Cityview is in the business of funding and partnering with good developers. With us, I think they saw some skill sets that are slightly outside of the business they had pursued to date and thought there could be complementary opportunities moving forward. And one of the things that initially attracted us is the strong platform that Henry and his team has built. We hope to bring our experience to that. From our point of view, it was a very easy transition.

Cisneros: We obviously enjoyed a working relationship. We'd approached David and Lee about investing in future funds, as opposed to individual projects within the funds. The conversation evolved to actually integrating them into the organization. For us, it's a great opportunity to welcome two top professionals in the field--national quality, world-class professionals in real estate investment. With their backgrounds, they add to Cityview's core mission--investing in urban and workforce housing.
In Lee's case, he has a strong record in commercial development, including iconic projects like Horton Plaza in San Diego. When that came on line, it was touted as a new kind of Downtown commercial strategy, and it has proved to be that and more in the subsequent years. Lee brings those skills to the emerging field of mixed-use investment, which I think is going to be very powerful going forward--the classic "new urbanism" mix that includes walkable residential.
David has an extensive background in apartments, both rental and for sale. He's won awards from the Urban Land Institute and others for his work in Emeryville, CA and so forth. So when you integrate that skill set and the team and experience, what you get is a company that can do workforce housing--as it has been--and can raise funds for rental properties, income-producing apartments and funds for mixed-use projects. So in one fell swoop, we broadened considerably Cityview's reach.

Martin: When Cityview was just getting started, they came and we talked about the creation of the company. I had been a CalPERS advisor back in the 1990s, and they asked about lessons I learned when I was in that position. We stayed in touch throughout their evolution and, over time, did some projects together and got to know each other through them. I gained a lot of respect for them. It's very nice when you find companies you can work with, where you have a lot of the same values and philosophy. Henry, like myself, has very much been an advocate for the city for most of his career. Our development focus has been projects that help improve the urban environment. In that sense, we were very much aligned.
So when CityView decided to diversify, they knew us and we knew them and it just came together. It was an opportunity for us to expand. At this point in time in the cycle, there's going to be a lot less development to be done, and a lot more acquisition and repositioning efforts, because you can acquire properties today below replacement costs. Unless there's a unique story, there will be fewer ground-up opportunities.

GlobeSt.com: Henry, when you decided to broaden Cityview's reach, what were the steps that led to this integration? Did you first decide to go into multifamily and then brought Lee and David in as your top choices? Or did you want to add Lee and David to your team, and going into multifamily was a fortunate byproduct?

Cisneros: It was the first scenario. We had been studying for some time the next iteration, the next concentric circle, beyond our original participation in for-sale urban housing, infill housing and workforce housing, but all of it was for sale. In fact, our funds are exclusively built for sale. Moving into the rental and mixed-us space would require raising additional capital. As we thought about seeking out investors to raise additional capital, Lee and David became aware of what we were doing and the conversation just gravitated toward a full integration of the teams, as opposed to just being investors and participants. We're going to do this together now.

Wagman: Product type is not the only thing we were looking to strategically expand. There was also our experience. David and I have deep development and operating company backgrounds--both of us having started out and entrepreneurially built our own companies, and run public companies--and we manage institutional capital. This skill set of being an operator and developer as well as an investment manager is going to be more important going forward, because it results in that partner relationship that we value very highly.

Cisneros: A good example is that CityView has become a very good expert in urban workforce housing, but it's always been on the single-family for-sale side, but it's a very small step to think about that in terms of apartments in the infill space. We all agree that is a logical next step. We're trying to have a lot more latitude in our collective skills, if you will. The company therefore evolves into an entity that can provide what we refer to as urban solutions--look at a site, a redevelopment area, work with a builder and see the full and logical potential of a project with all of the elements. That's very important. We therefore evolve from a company that's solely focused on funding homebuilders and housing to an entity we're describing as "smart capital for smart growth." And smart growth has come to mean urban, infill, perhaps slightly greater densities and mass transit-related developments.
A lot of trends are pulling back into the cities--investment by big institutions like universities in the cities, such as USC in Los Angeles, Columbia University in New York City, the University of Chicago complex in Chicago, or hospital or medical centers like Johns Hopkins in Baltimore, which has seen a lot of development around it. There are a lot of forces converging on the cities, and people referring to it as smart growth. We think you need a set of special skills and patience and knowledge of local government.

GlobeSt.com: In your approach to multifamily and mixed use, what strategy you intend to employ?

Martin:We're looking for opportunities across the product spectrum. When you're looking for housing opportunities in an urban environment, be it for sale or rental, most of it is not on the street; it tends to be in the air. So the natural use of that street-level portion of the project is ancillary retail. Mixed-use opportunities result from that retail and housing combination.
Hoboken, NJ is a great example. Hoboken 20 years ago would be a typical CityView/TMG project. It's close to the urban center and had historical industrial uses. There were opportunities to upgrade those uses and add both for-sale and rental housing for workforce populations. I did a project very similar to that in the 1980s in Emeryville, CA, which would be like the "Hoboken" of San Francisco. It was an old industrial area, and we acquired the land and we added offices, apartments, a movie theatre, jazz clubs, retailing--we essentially created a mixed-use urban village that ultimately led to companies like Pixar relocating their headquarters there. We also acquired a vacant office building in Downtown Los Angeles a few years ago and converted it to condominiums with retail on the ground floor. There are plenty of jobs in Downtown LA but not much housing, and this brought housing close to the jobs. Those are the kinds of projects we've been doing at the Martin Group for 25 years, and we want to continue to be doing at CityView.

GlobeSt.com: Does CityView's strategic expansion have anything to do with the overall shift in economy and housing market? How have you had to alter your business plans in response to the market turmoil?

Cisneros:It has more to do with the logical evolution in urban investment. While we are absolutely committed to for-sale and workforce housing, particularly with our present investors, we are giving a lot of attention to asset management in this environment¬. We've always expected the company to grow to the concentric circles that surround that target. So if workforce is a percentage of that target, then rental apartments are logically the next circle, and ancillary mixed-use commercial is another circle. And things like related infrastructure, because we work on water and sewer and streets and public transit and so forth, may be another eventual addition. That's always been the growth objective.
This economy has taught us that it is wise to be broad and diversified so that as one sector slips--like for-sale has--we'll be fine. People still have to live somewhere, and we've seen projected upticks in the rental space. In some sense, it's the perfect counterbalance. There are some lessons learned from this, but it's consistent with the strategy we would have pursued in any event. I could argue that we probably would have been farther along had it not been for the economic downturn, since it's impacted the investors.

Martin:You know the old saying, "buy low, sell high." To be successful with an investment, you start by having a low basis going in, and working hard to improve that investment over time. The argument would be that the 2007 to 2008 period was the wrong time to be making investments, and 2010 and 2011 may be the right time to make investments. You've got to have the courage to believe that over time, the economy and the markets will come back. This is actually the absolute right time to be looking for those opportunities because, due to the difficulties in the market, you have fewer competitors, prices are lower and it's a great time to put your bet down on the table. Unlike other groups who may be just buying a building and holding onto it with the hope that conditions improve, we buy things where we can add value. Not only will you benefit from the market's recovery, but you're also adding value from your efforts, so you get kind of a two-fer out of it.

GlobeSt.com: All three of you are arguably powerhouses in the real estate industry, with decades worth of achievements. How are you bringing your experience and knowledge to your current efforts and roles?

Wagman: I've had a 30-plus-year career as a developer of urban projects in both the commercial space and mixed-use space. David's very deep in exactly the same things, with the addition of a great career in building apartments. And as a developer/owner/operator, the mindset we bring into the institutional money management, the capital space, is exactly the same decisions: What's a good, fundamental project? What makes it good? How do you partner well with a developer and what value can we add to that relationship? How do you create and maintain value for yourself and the communities in which you do business? It's just a natural extension of everything we've been doing.

Martin: My first real cycle was the end of the 1970s and early 1980s. We went through another cycle in the late 1980s and early 1990s, and then the dot-com bust in the early part of this decade. This is cycle four or five for me. By having the benefit of that experience, you know that what goes down doesn't go down forever, and what goes up doesn't go up forever. Hopefully it makes you smart about the kinds of bets you place. For example, I sold the vast majority of my real estate holdings in 2007 into a pretty healthy market, when people thought the tree was going to grow through the sky. Having been through the cycle a few times, you just knew that wasn't going to be the case. If you took this entire business and you took it to its simplest form, the challenge is to buy below replacement cost and sell above replacement cost. If you could just do that, you could have very successful financial results for your investors. This is a market where things are available to be acquired well below replacement cost.

Cisneros: Part of the culture of CityView has been to be very hands on. I've preached to our team over the years that we want to be more like partners with the builders than financiers. Which means diving deep into innards of a project, if you will, and spending time on it. Lee and David have been doing that for years. So it's a very good cultural fit in terms of people who are willing to walk the sites and see for themselves and keep projects on budget and watch timetables and assess carefully the prospects for a project, and make good and professional judgments. So I'm very excited about a firm that is not thought of as a high flyer or is pushing the envelope of creative financing, but rather, very basic--doing urban development in a way that is likely to produce sound results both in terms of the communities we're in and in our investment returns.