By Callan Smith | Rose Law Group Reporter
In this week’s continuing Q&A series we spoke with Michael Kern, president of Communities Southwest, via email.
You are an example of the American Dream real estate style. It sounds like you got a great education, were hired by a company you loved and now you lead it—is that really the story or can you fill in some details?
I’m not sure if my life/career is an example of the American Dream, but it has certainly been my dream from a fairly young age. Probably starting around age ten or eleven I became interested in a career as a real estate developer; of course, at that age I thought that meant I would get to drive bulldozers regularly, lol. After a less than 100% focused four years in high school I spent a year working a manual labor job in Wisconsin near where I grew up and contemplated the next step in my life.
I chose to head out to Arizona and attend ASU the following year (Fall 1997) and enrolled in the Architecture undergrad program. During an intro to architecture class that first semester we had a presentation of the Housing and Urban Development degree and I was hooked immediately. I excelled in that atmosphere, graduating Magna Cum Laude and first in my class. That degree was very well focused on the skills necessary to start a career in this business and also introduced me to many industry participants through their use of industry members as faculty. One of those faculty members was Mark Borushko, who introduced me to the then President of Communities Southwest (“CSW”) Mark Voigt.
I was hired as an Intern by Voigt in June 2001 and worked my ass off. I proved my value and quickly moved up the ladder as advancement opportunities became available. My knowledge of this business continued to grow organically as I stepped through most of the jobs available on the entitlement side of the business. Through this same period, I built not only the knowledge necessary to theoretically operate in this business, but also the trust necessary to execute effectively. I credit the founder of CSW, Mr. Dennis Knight, with teaching me what “trust” really means and how essential it is to success in business.
Where are your land holdings now and are you hunting for more? If so and if you can, tell us where?
The vast majority of our land assets are in the Phoenix Metro area. We target land in what I would consider the “B” ring of the market where available land still exists and demand for homes is high, but we will also invest further out into the “exurban” areas for a particularly attractive investment potential. My favorite markets today are North Queen Creek and North Peoria. Both of these areas have available land, are very attractive places to live and generally have fair and predictable local land-use regulations.
What is the craziest project you have worked on in terms of best (publicly shareable) story, be it entitlement insanity, buyer/seller disagreement, City process, etc.?
My craziest entitlement story comes from a period when I was wrapping up some of CSW’s prior cycle investments in the Southern California Market. We were working to complete a biological evaluation (CEQA process) for a property that was at the time actively cultivated with a fairly small rock outcropping in the center of the farm field. During this process our environmental consultant concluded that we did not have any listed biological species within the property but that we did have appropriate habitat for the un-listed, un-federally protected “LA Pocket Mouse” within the isolated rock outcropping area. The regulators response to our report was to request that we cease all farming operations on the property for a period of three years and then re-examine the rock outcropping to see if the LA Pocket Mouse had then inhabited the property… This was one of my first very memorable experiences with the “anti-development, stop suburban development by whatever means available” mindset and is at the core of why we no longer invest in the California market.
What is your favorite project you have had anything to do with?
My favorite project is The Meadows in Peoria. The Meadows is an almost 700-acre residential master plan property that we purchased from the Arizona State Land Department in February 2007. As you could imagine, our investment timing was poor. In 2007 I was the Project Manager assigned to this project and continued to directly manage it through to this day. It felt like a constant swim upstream, most of the time feeling more like a raging river. But the experience taught me how difficult this business can be and how important trustworthiness is in your relationships with your investors, land sellers, customers, City Staff, local politicians, consultants and employees. And at the end of all of that, we built a wonderful community that will stand the test of time, have ecstatic investors, very happy customers and a tremendous amount of trust built with the City of Peoria.
What is the biggest challenge to making deals work right now?
Increasing improvement costs/scope and unpredictable local land use regulation. The quality of the infrastructure we’re building today is top notch and will last for decades, but the municipalities constantly ask for more and better infrastructure but largely refuse to participate in the long-term financing of these costs. On top of that, as the market heats up, those same municipalities will change the rules mid-investment by increasing buffers, impact fees and general improvement scope. That type of unpredictability in a business where investments are made that already potentially span economic cycles is extremely frustrating and is what keeps me up at night, just kidding I sleep like a baby.
We hear you are pretty into cars—we were thinking maybe that meant driving fast but maybe it means fixing them up—do share?
I do love machines, especially ones with LOTS of horsepower. I have a particular passion for off-roading and out of both necessity and interest have become a decent mechanic over the years. My current garage project is the restoration of a 64’ Corvette that my father purchased in 66’ and was his daily driver into the late 70’s where it was retired to his barn in Wisconsin until last fall when we pulled it out and shipped it to AZ for a three-generation resto project with my father, my son and I all behind the wrenches.
You appreciate good architecture—what is your favorite style and what style home do you live in… did you fix up your current home and if so how?
My first two homes were definitely “fixer-uppers” which I gutted and remodeled largely by myself. I’m a huge proponent of home ownership and believe it is a great way for people to build wealth, particularly if you’re willing to put in the sweat and hard work of planning and completing remodeling activities. As far as good architecture is concerned, I probably appreciate good engineering more than good architecture; functionality being paramount. So, I live in what I would call a very well designed and built, well located and highly amenitized “Cookie Cutter McMansion”, lol. Although Nate Nathan would disagree that it is well located as he says I “live in the sticks”.