Next Realty has carved out a busy niche in the Chicago-area commercial real estate market. Under Hochberg’s leadership, the company has during its history completed 45 transactions valued at more than $400 million.
Midwest Real Estate News recently spoke with Hochberg about moving on after Sportmart, the commercial real estate market, the challenges facing retailers and the busy times in his home market of Chicago.
What led you to found Next Realty?
Andy Hochberg: My family had a sporting goods business founded by my father, Sportmart. I worked there many years coming out of law school. At the time when we eventually sold the company, I was its CEO. Sportmart had been such a big part of my life. But then, after the sale, I had to come up with a new career.
One of the first things I had done when at Sportmart was site selection, picking new sites for our stores. I was always interested in the real estate side of the business. My first job at Sportmart was real estate director. Even when we had the company, I was always managing the properties, buying new stores, that kind of thing.
I remember that the deal to sell the company closed on a Friday. I woke up on a Monday and thought, ‘What am I going to do next?’
What was that feeling like?
Hochberg: That was 1998. I was 35. It was nerve-wracking. On Friday, I had 4,000 employees. On Monday, I had me. I had to find a new career. I wasn’t sure if I was going to be an investor. But eventually I settled on real estate. I did run for Congress in 2000. I didn’t win, but if I had, that might have steered my life in a different direction. In the end, though, I kept coming back to real estate.
How did you get Next Realty started?
Hochberg: It was about finding the right investors. We have always had a committed group of investors. From the very first deals we did, we had outside investors in our business who have grown with us and have been very loyal. During most of the early years, we found a property and invested our own money in it. Generally, we are the largest investors in the projects we invest in. We have, though, found loyal outside investors who want to invest alongside us, too.
Where there some early deals that helped Next Realty get off to a good start?
Hochberg: The best early transaction was a Best Buy store in suburban Philadelphia about 25 years ago. Best Buy divided the real estate interest. They had the ground lease and the remainder was broken into separate real estate investments. We bought each individually and combined them. That made the property much more valuable.
How busy is Next Realty today?
Hochberg: We have 30 employees and about $250 million dollars of assets under management all across the country. Most of our investments are in the Chicago area. But we do have assets in Hawaii, New Jersey, the D.C. area, Nashville, Wisconsin. Most of it, though, is in the Chicago area.
What do you look for in an investment?
Hochberg: Each of our three different categories – retail, parking and industrial – have different criteria. We have made a point of developing that criteria over time. We are pretty selective in the opportunities we seek. I can’t, though, answer that question in a sentence or two. It’s pretty complex what we look for in an investment.
What do you enjoy the most about this business?
Hochberg: I like businesses that are transaction-oriented as opposed to ones that are based on a lot of operational detail. Retail had a lot of operational detail with it. I like a business where there are fewer but larger decisions. I like when you can create a lot of value with a relatively small organization. With private equity firms and investment firms, you don’t need a large headcount to have a profitable and successful business.
What are some of your thoughts on the retail business today?
Hochberg: Retail is moving quickly today. It is certainly a business of haves and have-nots today. Some companies are performing so strongly and are thriving. Others are disappearing, companies like Sports Authority being a good example. A lot of the challenges are because of companies that are too highly leveraged. You can’t blame all the troubles retailers are having on Amazon.
I think you are going to see some new store formats start to develop that allow for easier pick-up and make it easier for ecommerce transactions to take place in the physical store format. I’m not exactly sure what they will look like. It stands to reason, though, that stores will need to show less product and deliver more products easily and efficiently for customers.
I think that direction-finding software like Waze has made it easier to find more obscure locations. I’m not sure that people selling to the public will need to be at main-and-main quite so much today. They can do well at more obscure, less expensive locations because people can find them more easily today.
What makes you such a good fit for this business?
Hochberg: I think you need to be patient. You have to do your homework and you have to be analytical. You have to be able to build trust with partners and counterparties. I try to bring those qualities to this business.
How strong is the market today?
Hochberg: Deals are taking more time today. I have more time for interviews like this because the deal flow is slower. Prices are too high in the market right now. One thing you can be sure of, though, is that this will change. When it will change is anyone’s guess.
What are some of the bigger changes you’ve seen in commercial real estate during your career?
Hochberg: Access to capital is a lot easier for start-up entrepreneurs. There was a time when drug stores were doing a lot of deals, when banks were doing a lot of deals. Now the industry is built more around restaurants and franchises doing a lot of deals. The big-box world has changed. When I started in this business, chains were opening up a large number of stores. That has all changed. There are still a lot of successful chains, but everyone has had to adjust.
We used to have a frequent buyer program at Sportmart. If you used a card, we’d give you points. We knew what you were buying. We kept track of it. No one at the time, the manufacturers, had any interest in this information. Today, all people are talking about is your data and how people are using it and selling it. When we sold Sportmart, no one had any interest in this data at all.