Rick Caruso: Why Billionaire Rick Caruso Gives His Personal Cell to Strangers and Neighbors | E177

20:07There's never only one way. There's multiple ways to get to where you want to be.

20:10Randall Kaplan:You went to the Marshall School, and then you want to go to business school, graduate business school, and your dad said, you're not doing that. You're going to law school. He threw down the hammer, and ultimately you said it was the best decision, one of the best in your lifetime. Right. I went to law school. I went to Michigan. I wanted to go to business school. I don't test well. I got into Northwestern Law School and I was grateful to go, but I hated every minute of it. Okay. Do you think graduate school is important today? And would you recommend that parents force their kids to go to school that they don't want to go to?

20:44I wouldn't recommend parents force. I would recommend that parents encourage and give a good reason why younger people should make a decision on their own at the end of the day. And you can always pivot. You can always go back to school. There's not a rule that the many you get out of college, you got to go right into graduate school or whatever the case is. People go back to school. One of my sons did that. He went back and got a master's and went back and got basically the equivalent of a PhD a few years after that. Those were all his choices. One son did go to law school. That was his choice.

21:16I was glad they did, you know, but it also depends on the individual. So I think, you know, I know Tina and I, our rule of parenting is, you know, there's a lot of unconditional love. We obviously want to give a lot of good guidance. But as kids grow up, you know, they make their own decisions. And we're fortunate we've got four kids that have made really great decisions. They're not perfect. Nobody is. But they're really good human beings. I'm very proud of them.

21:42Randall Kaplan:You graduated law school. Then you went to work at a firm called Finley Cumble. one of the biggest firms doing real estate law. Then it cratered. It went bankrupt. That's right. And you said at some point that if you listen to everybody else, you wouldn't be doing what you are doing today. I worked in Sun America. Eli Broad was my boss. I was the assistant to the chairman. I think you guys knew each other and crossed paths at some point. Yeah. And when I left to start a technology company, everyone thought I was absolutely nuts. You know, my mom said no. My dad said, what are you doing? You have a managing director title.

22:16Randall Kaplan:look at what you're doing. Should we be listening to our parents while they're giving us advice? Well, I think you should always listen. You should always listen. That doesn't mean you should do what they want you to do, you know, unless it's something dangerous. But in terms of career, you know, my dad was my best friend when my dad was alive. And we talked every day. The greatest gift he gave me, one of the greatest gifts he gave me, was not making me feel guilty about not going into his business. I know he wanted me to. It wasn't something that I felt passionate about, nor did I feel like I would be good at it in the car rental business.

22:49And I really wanted to be in the real estate business. Really informed me, one, it was a great gift. And two, it informed me in raising my own kids. You know, they've got to make their own decisions in what's best for them. I think it's tough to be truly happy if all you're doing is trying to accommodate your parents' wishes. At some point, that's going to catch up to you.

23:08Randall Kaplan:We always remember our first deal. When I came to LA in 1993, after graduating law school, with$3 ,000 in the bank, I lived on Midvale. In your duplex, the first one you bought was on Midvale in Massachusetts. Yeah, we're a small world. That's right. Tell us what that was like when you saw that building. And then tell everyone out there that of the care and love, you have to give that thing while you're having a full-time job as a lawyer, you're doing the gardening, the painting, everything else. Yeah, it was a great experience. I wanted to invest in real estate. I was practicing law and there was this duplex on the corner of Midvale and Massachusetts.

23:42It's still there today. Do you still own it? No, I still don't own it. I wish I did. You should buy it. I know. I got convinced.

23:48Randall Kaplan:Make it as a museum, the Caruso Museum. No, I wish I still had it, but it was a great property. I learned so much because I was the painter. I was the gardener. I was the leasing agent. I was everything and did it on the weekends and all those kind of things. It really helped me fashion the company I have today on how you can create value, how if you make something nice and attractive, you can enhance value, all of those kind of things, and how to do the leasing and convince somebody to lease the place. So it was a great experience, a really great experience. And I kept it for many, many years.

24:23And then as my company grew, some members of the company really convinced me to sell it because they felt it was taking more time than it should take, whatnot. I shouldn't have listened to that and kept it.

24:34Randall Kaplan:There's a price for everything. It's the only, I've never sold a property we've built to date. We never will. I didn't build that property, but I still shouldn't have sold it. Good real estate, you just keep it. Let's talk about the parking lots and how those deals work. So you bought parking lots and then you got your dad at Dollar Rental Car, a credit tenant to lease them. And then you could get bank financing as well. So walk us through in simple terms for those people who don't have a math background, a finance background, how all that worked. I was eager to get out of the law business and I was an okay lawyer, but not particularly great.

25:12And I didn't want to be a lawyer my whole life. And so I went to my dad with an idea because they needed land to park cars. And I said, would you allow me to buy the land, lease it back to you? And then I can go to the bank with that lease and finance off of that lease. And basically I got a hundred percent financing. I didn't have the money.

25:29Randall Kaplan:No money down. No money down because of the credit of dollar, but also it was just land, asphalt, paint, the stripes and lighting. So there wasn't a lot of improvements. So the banks were comfortable with that. I did about 13 of those deals with dollar. And then I did it with enterprise rent a car. We did a few with budget rent a car and I kept expanding that. It became a great business. And then what happened was, is all of these properties were adjacent to airports. Airports started expanding. They needed the land. An IRS code that basically says if a government entity buys your property, you have the ability to reinvest within three years and not pay any taxes.

26:09So as the airport authorities were buying these properties, then I used those to build the Grove or to build the commons. I reinvested and I turned it into a development company.

26:19Randall Kaplan:When I was in college, I worked for the Taubman Company one summer. and I was technically in the property management group. Nothing was on computers those days. So I would look at all the rents and look at the last month's rents. It was very fascinating to me. They owned and built the Beverly Center, which you know, which was a major thing for Los Angeles when that came. Today it's kind of a third-tier mall, for lack of a better word. I know you would never use those words, but I'm going to use those words. And you bought your first retail center called the Burton Place in 1992, which is right around the corner from that.

26:54Randall Kaplan:So that was, as we build our career, we're always looking to do kind of the next biggest thing. So what was the process by which you were going around LA to look at that? It was a derelict disco when you bought it, you raised it, but what, what were you, what were you looking at? You know, when you were looking at that building? Yeah, we tore down the original building. There was an old nightclub on it. It was in an area that was a very strong retail area, right? You'd had the Beverly center, you had a lot of retail around it. So I didn't know what I was doing. I mean, I was learning as I went.

27:27I had no background in development. I had no background in retail. I had no background in building. But I just felt strongly that I could figure this thing out. And, you know, we had to vacate some land and we had to get the entitlements. It was trial by error. I mean, it was a great learning experience, but was able to get it approved, able to get it built, able to get it leased. and the building is there today. We're going to probably take that building down now and redevelop the property. But it was a great experience and it was very successful. But I literally didn't know what I was doing.

27:56But I think it's important for people to understand sometimes not knowing what you're doing is a real gift because you're not locked into the rules of the road. Like you have to build a mall that's got a roof on it and there's no sunlight, right? I didn't know the rules about building malls. So for me, I wanted to build what I enjoyed. being outside, having landscaping, having a fountain, having areas to sit and have dinner outside and lunch and to people watch. And so if you look at my projects, there's this evolution as they were built, more outdoor space, more common space, more landscaping, more fountains.

28:32At the time, people thought I was crazy because the mall industry maximized building and there There was no, you know, there was an old saying, if it grows or flows, it goes. You know, malls didn't like that stuff. It was an expense. But my view was you want people to come and enjoy themselves and stay longer and have dwell time. We're in the business of enriching lives. And when you're in the business of enriching lives, you're not building a big box with no windows. You're building something that actually makes people happy.

29:03Randall Kaplan:The goal of my show is to inspire, motivate people to be the best they can be. Most people who listen to the show are business people or they're working in jobs where they want to succeed. They want to make more money. And I haven't done a former poll on this work, but I'm guessing more than 50 percent of the people want to have their own business one day. OK. And so I've heard people like you who say, I'm going to go into something, even though I have no idea what I'm doing. Yeah. Is that what you're going to recommend to people who want to start their own business? Just go do it if you have no idea what you're doing.

29:33Well, no, but the rule is you need to be smart. You need to do your homework. You need to do your due diligence, of course. But you also need to believe in yourself. And that's where I think it gets down to what are you good at doing? You know, what are those core competencies that you have? And then build off of those core competencies. I just felt strongly that I had a vision of what I could achieve. And so I kept being very disciplined and worked at that vision. If I would have said, I'm going to start by building the grove, that would have been a pretty tall order. I probably would have failed doing that.

30:09And so where I started was in real estate was this duplex, was making sure that the lights worked, the lawn was nice, the flowers looked pretty. that it was the nicest little duplex along the street, that I could add value to it, that I could lease it for more. There was a guy, I'll give you a quick story. There was my duplex and there was a duplex across the street. We were both having open houses. And there was a guy named Kenny Leventhal. And Kenny Leventhal was the son of the famous accountant. And he was, and I didn't know him at the time. And he was looking at the duplex across the street, came out, then he looked at mine.

30:42And he said to me, he said, why would I pay you more than living right across the street? I said, because every morning when you wake up and open your door and you look at this and you see the flowers and the lawn and the paint and everything's pristine, you're going to be upset that you don't live here. And he ended up living in that unit for about eight years. What validated my belief was if you make things a little bit nicer, you can incrementally move the needle on value. You can move the needle on rent. You can charge higher rents because there's going to be better performance. I started there and I built off of that knowledge to get to building Burton Place in 1992 and then moving on to Encino Marketplace.

31:26But I learned as I went, made mistakes as I went, and I would pivot quickly. I think one of the most important rules in business is make a mistake, pivot quickly. Change it up. Don't dwell on the mistake. Just change it up. Try something else and see what works. But it has to start with this inner confidence that I can figure this out. I'm a big believer, and my poor kids their whole lives have heard this, there is a solution to every problem. It may not be the solution you want, but there's a solution out there. And if you keep working towards finding a solution, you'll figure it out.

32:01Randall Kaplan:All right. So Burton Place, 1992. Yeah. Then you got 10 years. You got Encino Marketplace and all these properties, right? Calabasio Center. And then here comes the Grove in 2002, 10 years later, 640 ,000 square foot, 25 acre site, 50 high-end stores. You revolutionized outdoor shopping by making it a community attraction. 20 million people go to the Grove every year, more than Disneyland, which is 17.5 million. What was the vision there? Where did, what was the first day you drove by and said, this is the old farmer's market. It's been here a hundred years, same family. I think I'm going to call up the owner and say, I want to redevelop this whole thing.

32:40Randall Kaplan:What was the moment? I cold a moment. The moment was what I was just saying. It was building things and there was a continued to be an evolution, not a revolution, an evolution. I saw what worked really well in Encino. And then we go did the promenade at Westlake and we did more of what worked really well. Then we did Calabasas and we did a little bit more of worked really well. Then when I got to the Grove, that area, everybody told me was long dead. Don't touch it. You know, there was methane gas problems. The farmer's market was in financial trouble, all this kind of stuff. I looked at it and I said, I've got this incredible piece of real estate here.

33:20I got Beverly Hills on one side, Hancock Park on the other side. That's where local knowledge and real estate really matters. I think local knowledge is one of the most important things if you want to be in the development business in real estate. And I said, I'm going to just build upon what's worked. And we're going to create our own environment now, which was very controversial. We're not going to open up to the street. We're going to create our own environment because I want to transport people to a better time and place. I want to enrich people's lives. And we want to celebrate a little bit of history in Los Angeles.

33:50L.A. had a trolley. So why don't we do a trolley? And I'm flying back from New York on United Airlines and I'm going through their in-flight magazine. And there was this picture of a trolley, a double-decker trolley in Hong Kong. And when I landed, I called my lead architect, who we still work together. He's the head of design for the company.

34:09Randall Kaplan:What's his name? shout out to Dave Williams. Brilliant. I could never have done what I've done without Dave Williams. He is the genius of the design of all of this because I can explain to him what I want. I can't draw it. He gets into my head and together these things happen. But he is a brilliant architect. And I said, I got this idea. Let's build a trolley. Let's have the trolley go through and connect it to the farmer's market. And it will be this physical and psychological connection between the Grove and the market. And of course, the Gilmore family that owned the market loved the idea. But if I'm in the business of building a mall, you're never going to build a trolley.

34:45It's an expense. You make no money. It costs you a lot of money. And what do you get for it? If I'm in the business of enriching lives, a trolley makes sense. And I would say this to people in business, define your business in a way that gives you permission to do things that your competitors don't do. Because every mall company was building malls. They all look alike. They all operate the same way. The business model is all the same. And when I'm in the business of building something that enriches lives, all of a sudden, a fountain, the dances, makes sense. Music makes sense. A park makes sense.

35:18Nice trees make sense. A trolley makes sense. And what it does is it changes your business model and it bends the curve and puts a moat around your business where others have a tough time to compete. That's where you want to be in business. You want to be in business that has high barriers of entry that make it difficult to duplicate. I don't want to build a mall in the middle of the desert where if you took an aerial shot, it looks like the face of the moon because it's easy to get the entitlements to do that. If you look at every one of our properties, they're in jurisdictions that are incredibly difficult to get entitlements.

35:53Go build a five-star resort on the beach in California. It's like an impossibility. And then, by the way, have a train running through the middle of it. Right. Right. Those are the things that excite us is how we do things so differently because we look at it through the lens of the guest experience, the customer experience. You know, it's given us an ability to be competitive where other people just can't compete with us.

36:20Randall Kaplan:You mentioned something really critical and it's been one of the hallmarks of my own successful career, cold calling. So you're driving around, you figure out who owns this property. It's a huge piece of property. How many times do you think they had been cold called before you got on the phone with them? Or you went to go see them? I don't know. But I'm a big believer in cold calling. Tell everybody out there. I still do it. People are afraid to do it, right? And why? How important is cold calling to our success? I think it's one of the most important things. And I do it today. I call people I don't know.

36:56I reach out to them with no agenda and just say, I'd like to get to know you and learn how you did something. You've got to do that. You can't be in a silo. You've got to get out of your office, get on the street, meet people, do different things. I got to tell you something. It saved us during COVID. Nobody had a playbook in COVID. I started calling other CEOs around the country saying, what are you doing and how are you doing it? How are you protecting your employees? You know, how are you protecting your guests? How are you protecting your business? All these kind of things. I think being curious and asking a lot of questions, being humble, saying, I don't know how to do that.

37:28Tell me how you did it. Incredibly valuable.

37:31Randall Kaplan:So you have a calling card today, right? You're Rick Caruso. Everyone knows who you are. If they don't, they're going to Google you in a millisecond. He's a Forbes 400 guy worth$6 billion. I have a calling card. I'm a co-founder of a very successful$12 billion publicly traded technology company. I can make those calls as well. but what if people, 99 % of people don't have that ability to do it today? You network. Networking is really important. If you're in the real estate business, join a real estate club, join YPO, join organizations that provide networking. That's how I got started. There was a guy named Carl Terzian years and years ago that sort of took me under his wing.

38:11His business was networking and he would put me into different groups and organizations and I went on a hospital board and I got to know a lot of people. I was, you know, 25 years old. I had no idea what I was doing, but I started meeting a lot of people and learning from a lot of people and, and, uh, creating great friendships with a lot of people. And it was a huge help in my career.

38:32Randall Kaplan:That's interesting. I mean, I met Carl Terzian as well when I was 26 years old and I came out here. I forget the club that was on top of the Regency club, the Regency Club. That's where he held court. Eli Brode took over that office to make it his family office at the end of the day. Okay. So let's talk about the performance of the Grove. I always wondered what happened to the old Regency Club. That was a great place. It's sales per square foot are three times the national average. Three of your 15 properties are within the top 15 of all properties. I think the only retail space that beats yours is the Bell Harbor shops in Florida.

39:08I think we're pretty close. Okay. Close. Maybe we're meeting them now.

39:11Randall Kaplan:Close by. So what are the three main secrets to your success? Why is your performance three times better than everybody else? I have a lot of really smart, good people that operate the company. Okay. So team is number one. Team is number one. The team, the passion of the team, the expertise of the team, and the commitment of the team. We build great properties, but most and most importantly, we are completely focused on the consumer. And we have two things that we take a look at every single day. We look at the guest experience, you walking onto the property, and we look at the customer experience.

39:43The customer experience is Nordstrom, Tiffany, Alla Yoga, whatever. That's our customer. They're paying our bills. We have to service them well. We have to make sure that we are doing everything we can, that when their customer shows up, they have a great experience and they come back over and over and over again. And then there's the guest experience. You walk on the property, it's clean. You feel safe. It's happy. The music is right. It's frictionless to get in and out of the garage. All of those things we think about every day when we open up these properties, you have to have both of those things.

40:15People have infinite choices. They don't have to go to the Grove. They can go a million other places to go shop or to go hang out. I've got to give you a reason every day to show up there and to come back. And when you leave to say that was a great experience, it's critical to do that. We do that in our hotel. We do that in our apartments. And we do it in our retail centers. Architectural critics pan the Grove.

40:39Randall Kaplan:They said you're creating a Disneyland. It was ugly. They got people to complain about it. How important is it to tune out the naysayers? because if we all listen to people who criticize us, we would never be where we are today. Right. And then how good did it feel when at the end of the day at work and everybody loves it? Yeah, listen, architectural critics are architectural critics. Okay, great. I'm sure there was critics of St. Peter's Cathedral and of the Coliseum. I don't spend any time listening to that. I really don't. What I spend a lot of time doing is going around the country and going around the world with the team and studying what works and what doesn't work.

41:18What streets are great? And why is that street great? The height of the curb, the spacing of the trees, the rhythm of the lights, the energy on it, the scale. We go around and we look at what doesn't work, but people built it for whatever reason. It's been failing. You want to learn from other people's failures, too, and other people's success. So, you know, a critic is a critic. I don't spend any time on that.

41:37Randall Kaplan:So let's talk about the Rosewood Miramar Beach, one of my favorite properties. Thank you. Me too. It is a spectacular 25-acre site on the beach in Montecito. Yeah. 162 rooms. That's right. Ty Warner bought it from Ian Schrager. That's right. For$50 million. Then you paid$57 million a few years later. I paid$50. $50 million. Right. It was$47 and then$50 million. Rumored to cost$200 million roughly to build a property. No one really wanted that property. And one of the things that you did, I mean, the local residents didn't. I mean, there was a railroad going right through the property. You know, before you get down to that amazing restaurant, you get down to the beach.

42:19Randall Kaplan:And for those people who haven't been there, it really is very expensive. But it's an incredible piece of property. Great hotel. One of the things that you did to overcome opposition, there was a ton of opposition, right? This was an 11-year project. And so... Well, we got our entitlements within a couple of years. And there was a lot of opposition, a lot of concern, a lot of legitimate concern from the locals. But then we had the Great Recession and we put everything on hold. OK, but one of the amazing things that you did that almost nobody does. And I always say this to people, by the way. I mean, I get criticized all the way.

42:52Randall Kaplan:No one does that. And then I come back with, well, that's exactly why you should. Well, it's true. So what did I do? And what do you do is you gave your cell number out to local residents and said, call me if you have any concerns. Sure. But it's all about the community. You know, I've done that since the day I built my first project. You give your cell number out to people? Yeah. Today? Yeah. Yet, so many people have my cell number. It's going to blow up after today. You're never going to be able to use your phone again. I'm walking into a community. Our company is walking into a community. And we used to just be me and one other person when I built Burton Place.

43:27I'm asking permission to build something in your community, in your neighborhood. I need to listen to you. I need to hear what your concerns are. And what I need to do is I need to make the project represent what that community really wants and make sure what they really don't want, we don't do. Because I want them to advocate for me. I want them to be their project. I would have never been able to get the Grove approved, Palisades Village approved, Miramar approved. These are areas that are so tough on new developments if the community wasn't alongside with me to build these things. So we take a lot of time and I go to every community meeting myself and we have all these hearings with people.

44:12And we start out by saying, tell us what you want. Tell us what you don't want. What are you worried about? And, you know, we were able to get that project approved. We were just able to get an expansion of it approved, you know, which is very unusual. and even with the Coastal Commission, a 5-0 vote. We're a good neighbor. We pride ourselves in being a good neighbor from the beginning to the end. We remain a good neighbor in the community.

44:55Thank you.