Personalizing CRE: A Conversation with Mike Ablon of PegasusAblon (Part 1)

Mike Ablon, founding partner of PegasusAblon, joins Terry to share his insights into developing notable projects like the Dallas Design District using personalization and profiling. Plus, they discuss trends in mixed-use and multifamily real estate and if rental demand will slow down.

Leaning In is published every second and fourth Wednesday of the month. Subscribe on your preferred podcast app to hear part 2 of Mike and Terry’s discussion.



Terry Montesi: Today, I’m here with Mike Ablon, my friend and founding partner of PegasusAblon in Dallas. We discuss his journey of founding PegasusAblon and his work on Dallas Design District redevelopment. He touches on his projects and the key trends he sees as most influential for the future of commercial real estate.

Well, good afternoon, Mike. Thanks for being here with us today on Leaning In. I’d like to start by asking you to share your background and your journey toward co-founding PegasusAblon and some of the projects that you’ve done and some of the projects that you’re currently excited about.

Mike Ablon: Great. First of all, thank you for hosting this. You and I talk a lot about Dallas Fort Worth culture, cities, what makes them great. And you taking the time out of your schedule to kind of talk about this subject matter is great. So, thanks for doing that.

I think the most important part about your question, what was your background, is the thing I find interesting which is you and I have very different backgrounds. There is no background per se to what we do. You end up here. So, it is fun to talk about how everybody got here in their own way. I would be one of the oddballs that knew what I wanted to do with my life when I was very young. I wanted to become a master builder, a master craftsman at building buildings, cities, where commerce, culture, and city fabric come together. Still, my goal is to get to that level.

But I went to engineering school, and I went to architecture school, and I went to finance school. And then I went out in the field and worked for about 20 years to try to learn the pieces of the craft. I guess that’s kind of different because most of us kind of come from a background, and mine was a little more hybrid, but opened PegasusAblon 15 years ago. And I think the most important part about that is I was very fortunate to be the benefactor of great teachers and great mentors in the industry who gave me a piece of time, not just the opportunity, but some focus and some time to help me. So, I’m deeply indebted to the community you and I both kind of- they raised both of us. They were good to me, and they were good to you.

Montesi: Yes, sir. What about some of the projects you’ve worked on, like Dallas Design District and making it a vibrant neighborhood from what was really the industrial district focused on home furnishing showrooms? That project, some other projects that kind of illustrate what you do and why you do it.

Ablon: The Design District, I’ll start with that one because you mentioned it. It’s really interesting, to get your developer badge, there’s no licensing, but you do get a little badge. And to get that badge, you have to tear down about 20 buildings and scrape a city and start building again. And obviously that wasn’t what we did.

That part of town, as you said, we had 40 old one story warehouses, all kind of 1950s, 60s vintage. And it had a community there, the design community. Mainly, it was closed off to the public. It was private to just licensed professionals. But if you forget all that, you had a fabric of the city, and it was really fun to how does one take that vibe and that ethos of that fabric that’s there and capture it, keep it, preserve it, and build around it so that when you’re done, hopefully, not only is the design community still there, but suddenly people are living there, they’re working there, they’re recreating there.

I think the funnest part for me of that one that really kind of tells a little bit about what we did is when we put our restaurant cluster around the park, we bought a street in the city, condemned it, turned it into- closed the street off, made it a park, and wrapped the restaurants around it. The funnest part about that was I did the opposite of what was being done 15 years ago, which was if you had credit, I wouldn’t talk to you. If you heard of them, I wouldn’t talk to you. It was a no nationals policy. I only wanted local restauranteurs, local creatives, because it was the Design District, so get design food, and we have great talent.

And that as a culture, kind of becomes magnetic and you go down there because you know you’re not going to Starbucks and Chili’s, which are both great, but why drive past seven Starbucks and seven Chilis’ to go to a Starbucks and Chili’s. You go to a Meddlesome Moth or Ascension. There’s something fun, a local buy, a local restauranteur. And that was the kind of stuff you get on a project like that that I think is really fun.

Montesi: So, any lessons learned from that project that you could share with folks today? And is there anything you’d do differently, wish you’d done differently if you were starting over?

Ablon: Yeah. We bought that and started it, and then this little thing came along called the Great Recession. Over the last couple years with COVID, we’ve forgotten about it a little bit, but that was a nice little run there of about five years.

Montesi: The GFC.

Ablon: Yeah. And it can turn a four-year project into an eight-year project in the blink of an eye. So not so much a lesson learned, but an observation from life is, hey, things happen. I use that as the word, things happen. But also, when you lay out your timeline, if you don’t lay out for what’s going to happen, you don’t know what it is, but something is going to happen. And I don’t mean that just from a schedule. I mean from your financial outlook, how you lay it all out, it can actually, unfortunately, take a lot of fun and a great project down. So fortuitously, that one was able to weather the recession.

What would we do differently? Boy, I could give a list because I don’t think I’ve ever been completely happy with anything I’ve worked on. I think the only thing I would do more of is invite in the public in one form or fashion. And by that, I don’t necessarily mean advertise, but if the notion was to be designed and inclusive, then how does one do that? We really did a lot of blogging, which back 15 years ago probably sounded like clogging because most people weren’t aware of it or doing it. It was kind of new, especially for real estate. Now it sounds a little kind of mundane, but more of that.

Montesi: Thank you very much, sir. So, I know you’re a big trends guy and read a lot of the publications that really focus on current thinking and consumer and lifestyle trends. So, what are some of those that you see influencing the future of retail, mixed-use, and commercial real estate?

Ablon: That’s a fun question because when we talk about bricks and mortar and real estate, a lot of time, we want to bring people here. We want them to come here for what they can’t buy on the internet. And the default on that is the old F and B, food and beverage, which is actually to go back to what really began in the mid-90s, which was the experience economy.

Now, in the same kind of ilk, we went from mass commodification to mass personalization in the 90s and the early 2000s. And now we’re really in an era of not just personalization but micro personalization. It isn’t just your local chain, like at Ascension now where we had the first one in the Design District, and now there’s, I don’t know, eight to ten of them. But actually, micro personal, where there is one in your neighborhood, and it’s Sarah’s because Sarah lives in the neighborhood, and she runs it. And I think it’s really a push towards individual identity in a time where everything is ubiquitous. It’s everything’s on the internet and it’s depersonalizing to a large degree and Zoom calls. And you really just want to feel like you’re alive and the more it’s personal.

So, I think we’re going to see more and more of what we see in sticks and bricks get as close as it can to being really personal to Montesi, to where when Terry goes there, Terry really feels like Terry, and it’s about Terry. And everything else, Terry could buy online. So, he is not going there to get what he can get online, unless he needs it in the next 30 minutes, which usually isn’t the case unless it’s the grocery store or the drug store. It’s really about what resonates personally.

And I think the other shift that I’m looking at, and you and I watched this, we had this trend to – I’m going to use a quote – live, work, play, probably came on board about 15 years ago. And live, work, play, and mixed-use, those words, got confused with the word adjacent buildings. Usually in a neighborhood, they’re not stacked on top of each other like a submarine sandwich. It does that in New York, but the density of New York is New York. It’s not the rest of the world. It would be an apartment next to a drug store, next to a park, next to a this, next to or adjacent to.

And somewhere in there, we started trying to think that if it’s mixed-use, it all has to be mixed up in one building. And what time has shown is two things. First of all, market cycles are different for retail, office, apartments, and other property types. And when you stack them all like a submarine sandwich under one loan, under one roof, you really expose the asset from a financial standpoint. You really expose it from being able to execute really well as any of the above. And it’s the notion of, well, together, they’ll do well.

And they’re different ownerships sometimes. I mean, you and I know that. The people who like to own apartments really don’t like to own office buildings, for instance, and vice versa. So, when you’re really talking about what do you think might happen, it’s not that we’re not going to see mixed-use. I think we’re going to see a lot of adjacent use in a mixed-use plan more than we see mixed-use under one roof. I think that’ll really sort it out over the next generation.

Montesi: Yeah, that’s so much about walkability and about convenience and about neighborhoods that you feel a real part of and that you have to have some level of density, whether it’s stacked on top or next to, really driven by land price and existing density, et cetera. But you and I are completely in agreement there. I think that I agree with you that adjacent is easier to execute, lower risk. But I don’t think one’s necessarily better than the other. So, I agree.

Ablon: Yeah, that’s a great point. And again, I was giving a general thought of where do we think we’ll see things change. I mean, people talk about New York, but if you look at New York, Dallas and Fort Worth are about a hundred years old really. New York is 400 years old, and New York was actually built as single use. It just gentrified, and I’ll use the word re-gentrified – I don’t think it’s in the dictionary, but this is a podcast, so I’m going to use the word because there’s no dictionary connected to it. And then it re-gentrified 30 generations over and over; it became highly mixed. It didn’t start that way. And it densified and densified.

Urbanity, modernity brings density, and that brings walkability and some of the things you and I both kind of talked about that we cherish, that vibrancy and that uniqueness and that character. But a lot of that, you can’t just superficially go build it at once. You have to let time kind of play its cards, have its choice of songs.

Montesi: Yeah, no doubt. Move over to multifamily for a minute. You’ve got some interesting multifamily experience with some innovative developments, including the Design District just north of the Galleria up in Frisco. So, I know you’re paying attention to the trends of rental housing. So, what are some of the trends you see affecting the future of multifamily?

Ablon: I think the single greatest shift is – and I’m not going to have my facts exactly right, but I think they’re really darn close – in 2006, right before the Great Recession, the percentages were 69/31, 31% rental and 69% home ownership in the United States. And over the course of the recession, in a five-, seven-year window, that actually shifted to about from 31 to about 34% multifamily, and the ownership went down. And the reason that’s important is, if you look at population in just raw numbers, it equates to about a million apartments per percent. So, 3 million more apartments versus houses, and that’s a radical shift on America’s financial structure, how America creates and preserves wealth.

And I will go out on a limb on this Montesi podcast and say I bet in years, the United States is 50% rental and 50% ownership. And that is to say, I think we’re going to see a radical shift on the conversation of housing being from home ownership to rental. When I was growing up, you were pretty much a renter by need. And now, a large preponderance of the housing we’re talking about is rentals for a renter by choice. It’s not that nobody can afford a house. There’s an affordability question for sure, but that correlates to all housing, whether it’s rental or sales. I’m saying that there’s a whole notion of society changing where you don’t want to own a house. That whole notion of mobility is more than just a laptop and a cell phone. It’s mobility of jobs. It’s mobility of city. It’s mobility in a deeper sense of not wanting to actually be constrained. And so, when you have a – and just for the conversation, pretend like I end up being right, just for humor.

Montesi: I know you’ve been right a few times, so we’ll make an assumption you’re going to be right again.

Ablon: When you go through a titanic shift like that, what it really means is that when you’re talking about “apartments” or rental housing, you’re actually not talking about a renter by need. You’re talking about a renter by choice. You’re talking about a whole lot more upper end rental, a whole lot more middle end rental, a whole lot more lower end. And that in itself will really affect- you almost have to use it, in my mind, as a guide stone when talking about trends because each of those are going to go a completely different direction from the other by just quick instance. The higher end is about hospitality and luxury. The middle is about wraparound services. And the bottom becomes about efficiency and affordability for more shade and shelter and location.

That shift, a radical shift of a large portion of this country becoming a renter, as opposed to you and I, when we came out of school, we rented and when we could afford it, it was a rite of passage to buy a house, this generation, we might see that rite of passage be, eh, I don’t think so. I’ll get a different kind of rental. Maybe I’ll get a single-family rental house. But I’m not buying a house, I’m renting a house. And then that all drops into the multifamily conversation in its own way. I think that is the single biggest shift that I don’t hear anybody really talking about.

Montesi: So, Mike, when you think about multifamily that you’re currently visioning and thinking about in the future, separate and apart from the statistics you just mentioned that you believe are going to be very different, that’s going to create a very radically different balance of home ownership versus rental, do you see things changing relative to five and ten years from now what type of product amenities and services will need to be offered at multifamily projects as this continues to happen relative to more renters versus owners?

Ablon: That’s a really fascinating question. We used to kind of look at it, I wasn’t really in the business, but my understanding is you kind of had apartments over here for tall people and apartments over here for short people. And if, hypothetically, we go to more renters at longer term, then it isn’t just the apartment for Terry or the apartment for Mike. It’s the apartment for Terry when he is 22 and out of college. And then, it’s the apartment for Terry maybe when he is going through family formation, or rental property, however you want to- And then, it’s the renter for Terry post children after they move out. It’s actually different seasons of Terry’s life. So, it’s not just what do these folks or those folks want, it’s actually what does this person want in different seasons of their life.

And so, again, as we see a proliferation of more and more rental versus ownership, you’re going to see a deeper stratification of the product that’s built because they address different ideas. This might be more of a place that, again, you never build it for one group and tell anybody else they can’t get there. That’s illegal and it should be, and I don’t agree with it. But it will resonate more with a given group, and group as in demographically in their life cycle. So, I think that’s going to be really fascinating because right now we typically go through the checklist: okay, do you have stainless steel? Do you have granite countertops? And do you have your pool and your gym? It’s really first-class boiler plate. It’s really topnotch boiler plate, but it is at the same time boiler plate.

And I think the market will get deeper. And when the marketplace gets deeper in terms of customers, then you can see people customize their product a little more. So, these units over here have more integral kitchens because people who want to cook more resonates. It’s hard to do that now, but the more you have, it’s like going to a big university, there’s a higher chance there’s ten people who want to have chess, and you have a chess club. There’s ten people who like to catch butterflies; there’s a butterfly club. The more your audience, the bigger it is – I know you love my analogy.

Montesi: Yeah, the butterfly club. So, breaking news, there may be a totally new trend at universities in this country, the butterfly club.

Ablon: But the thing about that that’s really interesting – profile, profile, profile. And by profiling, I mean what is it that resonates with a group of people such as, to go back to when you asked about the Design District, the profiling there wasn’t about millennials. It wasn’t as much about their income bracket, where do they work. It was actually about, for the Design District, it was about aspirational creatives. We weren’t building housing for artists. That’s not where artists live. Artists live in a beat-up old warehouse or in a garage and wear black clothes and a black hat. This was about aspirational creatives, people who wanted to be around it, they didn’t necessarily do it. And it was profiling out aspirational creatives. When I say profiling, I’m very careful of what is an interest that is a commonality that differentiates, so somebody wants to live in a design district versus an uptown or a downtown.

Montesi: Well, it could be as simple as – I don’t think of it as profiling in the negative way – we have a project that’s primarily built for people that work from home. We may have a project that’s primarily built for people that don’t work from home or empty nesters – hey, this project is clearly- and you don’t necessarily say that, but just because of the size of the units, more storage because people are taking stuff, they had a big house. So, you’re building them for different needs is really what it is. And if you go from 34, 35% renters to 50% renters, there will be a lot more demand side. And so, segmenting that extra demand will make more sense. That’s very interesting you say that.

Ablon: I’ll stay on that for a second because you said something really interesting just there. I’m going to go back to a not great piece of our recent history, 9/11, and after 9/11, for all of us that were in the business, we remember the conversations very distinctly. Nobody’s ever going to build another tall building. Nobody’s ever going to office or live or rent in another tall building. People are going to move out of New York. They were all highly reactive moments. They weren’t proactive looking on the mega trends and the meta shifts. They were caught in the moment.

For the last two years, there’s been a lot of conversation which was highly reactive to this COVID environment that we have been in. It’s been a very tragic time with a lot of illness and sickness, and that has a reaction that is everybody wants to move out of the city. We all heard that. The reaction is everybody’s going to work from home. They’re all highly reactive moments, but in the exact conversation you had, do people move out to the suburbs more and do we have a different kind of creation of suburban, urban in the suburbs, or is that not communicated? If you’re building in the suburb, do you build an extra bedroom for the home office? More twos and threes than ones and twos for family formation, for the home office? Or is that more relevant in the big city?

So, there’s been a lot of conversation, and it’s been hard to really clinically parse out how much of that is reactive. I’m not going to say we’ll return to a normal, but after more normalization, how much of that will we look back on as reactive versus larger paradigm shifts?

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