EW 083 – How An Experienced Real Estate Developer Successfully Completed A Landmark Mixed-Use Development – Winning With Raka Josan, President and CEO of Josan Properties

Gordon Sheppard (00:00.907)
Raka, welcome to the show.

Raka Josan (00:04.114)
Thank you. Thank you, Gordon. Thanks for having me.

Gordon Sheppard (00:06.124)
Well, it's so lucky to have you here as someone who's in that multi-generational situation in the real estate area with multiple specialties, multi-skills, multi educational background, so much sort of leadership chops in so many different areas that have now led you to this moment of leadership in your business. And I know a lot of people are gonna be very interested in learning so much about what you have to say, especially about your big win. but you know, people haven't met you just yet. So if you had to introduce yourself, what would you say?

Raka Josan (00:35.89)
Yeah, thanks, Gord. thanks for that generous introduction. I'm Rakha Josan, president and CEO of Josan Properties. Josan Properties is a Alberta-based commercial real estate owner, developer, and manager. We have about 250 million in assets under management in Western Canada. And we also have about a a team of about 170 dedicated professionals. So my you know, day to day is is running this company and and

Trying to to to lead my team and and help them be the best that they can.

Gordon Sheppard (01:11.598)
How you get commercial real estate right? Is it making good investments? Is it running things well? Like what's the secret sauce?

Raka Josan (01:19.58)
You know, I would say yes, both of those things. You know, how you invest, how you deploy capital is is very, very important. you know, your team, your operations are are vital. but really my you know

Kind of my understanding of real estate is based around cycles, real estate cycles. So, you know, there's a lot of volatility and you know it's longer term volatility, it's not like the stock market, but every asset class from retail, office, multifamily, even hospitality, if you include that, industrial, they all have their different cycles. And you'll notice that, you know, at some times everybody's talking about the industrial market. you know, in industrial real estate is where it's at, and you know, maybe they're longer cycles, so maybe seven or eight years.

Later, everyone will there's a glutton in industrial office or industrial supply, so stay away from industrial. And so you know, my understanding is really based off cycles, and that's that's really where I focus my attention is where is there kind of a down cycle right now and where can we see opportunity? So I'm a little bit contrarian in in my investment style where in everyone is kind of you know rushing into one.

asset class, I'm usually rushing out of that one. And when people are rushing out of one, I'm trying to jump in and find some opportunities. And then lastly, I'll say luck. You know, luck is definitely most certainly a factor that matters a lot in real estate, I think in business in general. But if I was to take the credit for our success at Josome Properties, it just wouldn't be fair because a lot of it has just been fortuitous. It's been situational. It's been, you know, I've been set up for success from with my with my parents and my father.

being second generation. So a lot of it is luck and and being in the right place at the right time.

Gordon Sheppard (03:04.332)
Interesting. So I'm hearing, you know, whiffs of Warren Buffett, whips whiffs of sort of the the the fairy princess somewhere in there, giving you a bit of luck along the way in terms of, you know, that contrarian thing meets sort of those moments. But my guess is that's kind of what it takes to build up that type of real estate portfolio that you're talking about. And then you've expanded also. There you do multiple things at your company. Is that fair if you had to describe it?

Raka Josan (03:28.719)
Yeah, yeah. I mean I would say the core of our business is commercial real estate. Commercial real estate and we we own and manage most of our own we own all of our portfolio obviously, but we we manage

our own and then we have some third-party property management as well. So really the heart of our business is multifamily real estate. So apartment buildings, it's kind of what I inherited from my my father 20 years ago, believe it or not. And you know since then I I kind of had us branch out into several into really all of the asset classes in in commercial real estate.

excuse me, other than the alternatives like storage and and healthcare and things like that. But we are in retail, we are in office, we are in multifamily, we have a small presence in industrial. Like I said, we have a hospitality portfolios with some hotels and restaurants. And then we do the third party property management. It's a newer business that we've launched.

About a year ago now. and it's it's growing and it's doing really well. And but it it's a it's a related but related business line but a separate kind of vertical within the Josan properties. So, you know, we kinda got our fingers spread all over in in commercial real estate, but again, it's because we're contrarian. So, you know, if the sh if the tide turns tomorrow in the office market, which is you know kind of in the doldrums right now and has been through COVID, if that all of a sudden becomes the you know the hot, new exciting thing and

the institutions are rushing back in, there's a chance we'll divest of our office assets, you know, because it's you know that's that's when you capitalize and and then we'll look at, hey, what are they running away from? Let's let's take a look at that and see if there's opportunities there.

Gordon Sheppard (05:04.429)
Boy, what an interesting that would just keep a sparkle in your eye. Like, right, you've got this contrarian look at things. I can see it in there. And funny enough, just checking your LinkedIn profile before we got here. Engineering in the background, MBA in the background. You could have done a lot of other things, but here you are leading the family business. Why, why do you want to be in this leadership sort of CEO leader role?

Raka Josan (05:25.275)
Well, you know, you you touched on it, the sparkle in the eye, like this business is just so exciting. you know, looking for deals, looking for opportunities. you know, turning assets around is also very rewarding. Like we we'll take often a somewhat neglected or I like to use the word dormant asset. You know, it's a dormant piece of real estate that is not being utilized to its full potential. Maybe it's mismanaged, maybe it's underutilized, utilized, you know, not not leased properly or whatever it is, and we'll take

Something like that and and you know put our touch on it, I'll say, with a lot of you know, blood, sweat, and tears, and and turn that asset around. And you know, when you when you you know, sometimes it's a lot of brain damage to get there, but when you get there, it's very, very rewarding. and you can see, like, okay, hey, this asset was sitting here for call it eight or ten years and not a lot happening with it. We came in and we executed a certain strategy, you know, we had a plan, we executed a strategy and

Usually it works out. I can't say all of the deals have been home runs and there's been some some that have not gone quite the way that we planned. but that's business. That's that's part of business and real estate. You can't win all. As long as you're winning more than you're losing, then usually come out ahead. But to answer your question, yeah, it's just it's it's passion for the business. Like I just love it. It's it's super exciting. There's something new every day. get to work with a great team and it's it's wonderful.

Gordon Sheppard (06:37.966)
Then you're doing yeah, then you're yeah.

Gordon Sheppard (06:49.036)
Interesting to hear. Yeah, those what is it? Mike Tyson. everyone's got a plan to you get punched in the face, right? And sounds like you've taken your Mike Tyson's along the way as you've done done your thing. Yeah. But that's what it Yeah, that's what it takes to learn along the way. Interesting. So it leads us to sort of our first big question here in this interview, which is if you had to describe your biggest win in this portfolio of everything you described, what would that win be? And how would you describe it?

Raka Josan (06:55.131)
That's right.

Taking a few punches in the face. Yeah, yeah, definitely. You got some brain damage from some projects.

Raka Josan (07:14.683)
Yeah, it's you know, along the lines of what I was just talking about in terms of turning an asset around. So our biggest win, I think, would be Connect Tower in Residences, which is a 20-story two hundred and twelve thousand square foot office tower smack dab in the heart of downtown Edmonton. and so this building we purchased it late 2023 into early 2024. you know, 2023 was still, if you remember

we were kind of coming out of COVID. There were still some lingering effects of COVID, definitely. And the office market was hugely, hugely impacted by COVID. And probably the one that's that that was the most impacted, I think, being being across all asset classes. I could say office and maybe hotels were the two that were the most impacted. And you know, that that

Building had been owned institutionally. this building, I should I'm in this building, so I should say this building, so was owned institutionally for a couple of decades. And the institution was out east. They're a great, great institution and they actually managed the property quite well, but they just didn't have an interest, to be honest. Their ninety-eight percent of their portfolio was out east, somewhere in Toronto and Montreal, and

you know, Edmonton was just not a concern for them. So it it just got neglected. Like I said, it was dormant. So it was, it was sitting there, it was a beautiful asset. and then you know, we we during COVID kind of re-strategized and said

You know, like I said, the contrarian view. So, you know, we're be greedy when others are fearful. What are people fearful of during COVID? Like I said, it was hotels and it was office buildings. And so we really focused on office and we ended up purchasing three office assets over the last few years and kind of coming out of COVID. One in COVID and then two kind of just immediately after COVID, this being one of them. but this one we were really able to do a complete turnaround on this asset. It was about 40% occupied when we took it over.

Raka Josan (09:09.861)
So 60% vacant, like I said, sitting dormant. It's now on the office side, 84% leased.

And on the residential side, so what we did is we converted almost half of the building, about 45% of the building, to residential apartment units. And those are almost full. Like we started leasing about three months ago, and we're almost full. Within a month or two, we should be completely full. So the blended kind of occupancy would be somewhere around 90-92% once we're full on the residential side. And we continue to see office tenants come into the building as well. We're getting offers every month and making deals. And this has just been a complete success.

story and a turnaround that that's been a really, really big win for us. again, not without some doubters, not without some difficulties and roadblocks and you know, surprises in construction because we're taking a you know 46-year-old building and converting it, you know, putting new systems in and all of these things. So lots of difficulties along the way. But we just had our grand opening last week. We have now

I think almost a hundred people living in the building and we have I believe three hundred working in the building. So that's from a total of a maybe about eighty to a hundred people that were here before we took over. So we we took this asset that was really kind of just, you know, sitting there and neglected. And now we've turned in this place just full of life and vibrancy and our lobby is full and the restaurant is full and the coffee shop is full. And yeah, it's just it's just an amazing kind of turnaround story. And

You know, some of it is luck for sure, but I think we timed it right with the purchase and and the strategy the strategy worked.

Gordon Sheppard (10:51.106)
There are some city planners and councils and people across North America that want to hear this exact type of story where you took something that was an older asset, because a lot of older assets across cities around the world, I'm going to say, but certainly in North America. The downtown vibrancy is a big issue municipally for a lot of people. And you said, no, we went in there and took something that really wasn't doing much. And then we've turned it into something quite vital, including that residency piece, which I'm sure is on almost the innovative side of things. When you're converting an old building, I would expect there's something about

Raka Josan (10:58.503)
Yeah.

Gordon Sheppard (11:20.622)
pulling all that together and working your way through regulatory and all those things that you need to do to make it occur that would make it a shining star. I think in your I'm sure in your portfolio and then also something that people would aspire to do. Is that fair?

Raka Josan (11:33.788)
Yeah, yeah, definitely, definitely. You know, we've had a huge positive, huge amount of positive support from the community, not only the real estate community, the business community, even even the city of Edmonton. you know, unfortunately they weren't able to come to the table with any kind of financial assistance or otherwise. they helped us through the permitting process and that that helped you know, that was quite smooth. So we appreciate that. But you know, we're we're encouraging the city of Edmonton to kind of follow the lead of the city of Calgary on residential conversions. They've been huge.

successful in Calgary and they've just re-upped their program and and I think they have over 20 buildings that are some converted but in the queue to be converted. and it's just been a hugely successful program and and we were fortunate fortunate enough with our timing that we were able to you know carry this out and execute this strategy without any support from from municipal government or any level of government but you know I think most projects it would be very difficult to pencil out.

to especially these days because you know we're kind of we're we're past COVID's in the rearview mirror. Office, you know, there's murmurs now of office market really kind of gaining some steam. And especially out east, you know, we were I was just out east in Toronto and talking to some larger institutions. They were saying, you know, office is is back. You know, we're we're getting we're getting there's debt available, tenants are knocking on the door. It's turning right now, as we speak, it's turning from a tenants market into a landlord's market because there's no new supply coming on.

And you know, the there's there's a demand for for office space. Everyone's coming back to the office. So so yeah, no, it's it's worked out for us. it's been great, huge amount of support from the community and and lots of lots of kudos and lots of love. So we appreciate that.

Gordon Sheppard (13:19.481)
Wonderful. Well, so we know what the win is. You took a specific building and you turned it into something that it wasn't going to be. And it was really because of you folks that you kind of did it, I'm going to say, right? So let's jump into the anatomy of the win and explore this a little bit and look at the strategy, highlights, work plan, people, operations, and results. So strategically, I mean, you've been talking all the way along about your vision, you know, for being a contrarian sort of, you know, if if we say vision, mission, values, that kind of thing or goals. What sort of highlights do you like to say strategically made this win occur?

Raka Josan (13:39.376)
Yeah.

Raka Josan (13:48.774)
Yeah, I I I think you're right. we've been kinda talking about it all along, but that contrarian

kind of strategy of of getting into assets that or an asset class, not sp not s a necessarily specific asset or a specific business, but a an asset class in commercial real estate. An office was that for us, and we we just leaned in hard to it and we had some belief that the office market would recover. I I definitely did not have a crystal ball and did not know when it would come back. I thought it could take two years or five years or seven or eight or ten years. And we've just

fortunate enough to time the market right and buy well enough that we were able to weather that storm, even if it was going to take longer than it has. I'll say, you know, from my perspective, the office market is well into recovery now and on the upswing. but yeah, the strategy was really to get into the office asset class. And then once we we that secured this building, it was okay, well, what do you do now with 60% of the building vacant? We know that.

That's and and especially when we bought, it was still, like I said, just the tail end of COVID and nobody was talking about return to office quite yet. And so we thought, you know, we gotta do something else with this. Like it's just not viable as an office building today. It may be viable as a full office building in five or ten years or seven years, but today we gotta do something to increase the value and the revenue and and

profitability of this of this business. So strategy was twofold. One was to get into the office ac asset class, two was to convert the at least some of the excess space or the vacant space into another use, which, you know, what made the most sense was definitely residential. There's there's always a you know, we we hear the story all over Canada and really all over

Raka Josan (15:39.305)
world in in terms of the lack of housing, housing supply needs to be increased and and maybe with an affordable component. And so so that was our strategy. Though it was kind of two pronged get into the office asset class. Once you do, what do you do with that office asset to repurpose it or kind of turn it around? Yeah and also

Gordon Sheppard (15:57.808)
Yeah, and all suiting your vision along the way to take bets when other people aren't taking those bets. And you know the sweats and nightmares of whatever working capital in terms of you know what that means along the way, but then you've got that longer haul vision as well, and you're getting some payola for your your sort of your whole investment thesis, in a sense, is getting, you know, demonstrated through this story that you're telling. Okay, so strategy, anytime we have a strategy, we need a work plan. And we've heard a little bit about it. So you bought the building, if I say on the timeline.

you know, when did you get the building and then what were the highlights along that timeline?

Raka Josan (16:30.738)
Yeah, sure. So we we started the kind of process in I would say mid kind of fall twenty twenty three. So that's why I say we're still coming out of COVID. Nobody was hot on office. and we just kinda heard about this building through the grapevine. were able to secure it before it got

you know, advertise on the market. Not that there would have been many buyers anyways, because nobody was looking at office, but we were lucky enough to get it off market. and we ended up closing in March 2024. and so during the few months in between we did a whole lot of due diligence on, you know, the the feasibility of converting an an older office building. And so I think one part of kind of you call it the work plan.

'Cause when I originally looked at this asset, I was alone. So Josan Properties was gonna purchase this thing one hundred percent and and figure out what to do with it. As I was kind of going through it, I I, you know, talked to to a our a general contractor who builds a lot of our ground up development. We do a lot of multifamily ground up development. Their name's Fillmore Construction. So I talked to

you know, filmmore guys, the ownership there. And I said, hey, would you guys be interested in coming in with me on this 50%? Because I saw that there would this would be a really challenging project to execute. you know, if I was to hire them as a third party, that's a little bit different than bringing them in as a partner. And to be honest, that was that was just

don't want to give myself a pat on the back, but that's really the the thing that made the project work because when the Filmer guys came in, they said, Yeah, we'd love to be part of this as a fifty-fifty partner. They came in for fifty percent and then they carried out the construction and obviously with

Raka Josan (18:14.062)
know collaboration with us on the management side because we still had a full office building here. We had a not a full office building, but a 40% occupied office building. And there were 21 tenants that we had, you know, operating businesses in the building. And so we had to manage that. So Josan Properties, that's our kind of expertise is property management. So we we kind of, you know, we siloed ourselves and that's why our partnership works so well and it worked so well on this project was, you know, we communicated with each other, but we had our we had our individual duties and responsibilities and our silos. And ours was property management and theirs was construction.

and we work together to execute here. But really bringing in that partner, I think, was the master stroke that made this project really a success.

Gordon Sheppard (18:54.809)
Well, and enormous efficiencies along the way, right? Cause suddenly you've knocked the margin into investment as opposed to margin on the Fillmore side from the construction point of view, which is great. I'm sure whatever their X, five X, 10X, whatever their their thinking was coming into this type of situation, you know, because they know they know how profitable they can be just in in, you know, getting hired to do their work. But this is something that that worked well. And then there's also something about your ability to partner. That's really interesting. That's nuanced, right? In terms of

The confidence in you, your confidence in them, what a strong you know, piece of the puzzle. So when we look to about putting that suit mix together. So that's really interesting. So we we know what the win is. We know sort of you want to get in this asset class. We know then you brought on this right partnership at the right time and and those sort of moments along the way. I was curious about feasibility. you mentioned in there. How do you, how do you know something doesn't have a major structural problem or a

Raka Josan (19:25.502)
Mm-hmm.

Gordon Sheppard (19:47.843)
You know, how do you actually know this is gonna work out in a sense? And I I'm I I don't know your business well enough to say there could be some landmines in there. How do you try and clear them out?

Raka Josan (19:57.523)
Yeah, no, that's a great question and and a very valid one, especially on a project like this. So, you know, part of that was bringing in someone, you know, Filmer Construction I think is now in a couple of weeks celebrating the thirty fifth anniversary. So they're a very seasoned

veteran general contractor that's been in construction for for decades and decades. So that helped a lot, but we also did a a lot of due diligence. We did a lot of you know kind of our environmental and structural and mechanical electrical investigations prior to removing our conditions. And you know overall we we were actually quite impressed with the way you know the previous owner had maintained the building. Like they had actually put in a lot of money into the building, new boilers, you know, within the past five years before we put

They had new boilers, new elevators, a new lobby, a new roof, partially a new roof. And so, you know, there was a lot of these things that just got checked off for us. And we said, hey, you know, if if they've done all this level of work, we're pretty confident in in moving forward here. Now I will say we did build in a huge contingency and we did eat it all up during the project and and maybe went over that a little bit, to be quite honest. We were over budget a little bit. but some of that was to be expected. You know, this is something that

There are very, very few contractors general or subs, you know, when you get into mechanical electrical. very few contractors and and even engineers have experience doing this kind of thing, especially in Alberta.

There's a bunch now down in Calgary, you know, recently that have gained that experience. But before this, you know, before COVID, yeah, I would say almost nobody was doing this. You know, there would be a a a couple of buildings a decade that got converted. So it was a it was a kind of, you know, monumental undertaking. And we had to be sure, we did our due diligence. And like I said, there were still skeletons in the closets, you know, when we when we opened up some walls, we found some things that we were quite surprised at.

Raka Josan (21:54.026)
But you know, that's that was part of the that was part of the program. That was part of the the the bet when we got into it. So it all in all it turned out okay. Like I said, a little bit over budget, a little bit over time, but well worth it. at the end of the day, we've come out with a with a wonderful product that's that's that's you know, doing well for us on the on the income statement as well. That's right.

Gordon Sheppard (22:14.82)
Sounds like the bones were there. Do you know what I mean? Like and I appreciate, I mean, I'm gonna say any major construction, reconstruction, whatever has stuff along the way and everybody would understand that. But it's really neat to hear about what it takes to get this to work. And then funny enough, you're now building up expertise in this asset class that I'm gonna say is

Raka Josan (22:31.357)
Yeah, and I'll add to that Gord. like we the bones were definitely there. That that's what we saw and

And we reflect back on that because since we got into this building and we kind of got halfway along and we said, you know what, I think we think this is gonna work out really well, and we've gained all this experience, we've done all the heavy lifting already. so we know what surprises we found by that time when we were about 50% through the project. After that, it was just finishing, and so there were you know less surprises moving forward. And so we started looking around in the market, especially in Edmonton, for another office building that would fit the bill to repeat the process. And it's been very difficult. We haven't been able to find

One yet. and and like I said, this this building just had the bones. it had a good, responsible, institutional owner prior to us that took care of the asset really well. and and there were some other things like the you know, to do a partial conversion, you really don't want too much you know overlap or inter intermixing of your two.

kind of tenant, you know, your residential tenants versus your your office tenants. And this building was set up really well in that way where it was kind of like two towers, one on top of the other, because the elevator banks were split. So that, you know, three elevators service the bottom half of the building, three elevators service the top half of the building. And on top of that, the mechanical systems were split. So the top, the top half of the building was serviced by a mechanical penthouse on the on the roof. And the bottom half was serviced by a separate mechanical room on the second floor.

So in a lot of ways, this building just kind of checked all the boxes. So again, I come back to the luck to be honest to find this asset the way we did and to purchase it for what we did. There was definitely some luck involved. And but we were maybe just in the right place at the right time and able to pull that trigger when maybe others hesitated.

Gordon Sheppard (24:17.877)
Fantastic. I mean so good to hear about the details from an expert in this story because this is again no guarantees when you get into this type of project. And it's something that's, you know, obviously you've been able to pull to g pull this all together. I'm just gonna stop there. This is gonna sound funny. I think there's can you see me right now?

Raka Josan (24:34.771)
I I can. It went out for a second, but it it came back. Yeah.

Gordon Sheppard (24:36.863)
Yeah. And so yeah, okay. So I'm just gonna okay, I just need to I'm gonna ask you to log back in. I'm gonna 'cause I'm gonna log out, I'm gonna log back in. There's something there's some sort of internet little thing that came up. So I'll log out, log back in. We're really good up till now. It's excellent. We can we can pick it up no problem. But I just need to log out and log back in. Thanks.

Raka Josan (24:43.535)
Okay.

Raka Josan (24:50.459)
Okay.

Okay, we'll do that.