SPECIAL REPORT 2021
THE REGION’S BUSINESS MAGAZINE
DSW
COMMERCIAL REAL ESTATE 20 YEARS
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DSW at 20
Motivation Meets Opportunity By Rodney Campbell
The story of DSW Commercial Real Estate begins with the unlikely combination of grocery store equipment, a business plan written on a cocktail napkin and good cigars. Principal, CEO & Designated Broker Michael Sarabia is celebrating 20 years in business with DSW this year. His road to success started when he met Mark Schnuck, DESCO Group’s chairman, in 1998. DESCO has acquired, developed and redeveloped more than $1 billion of property in its history. Schnuck’s family also owns more than 100 grocery stores in the Midwest. Before starting DESCO’s Tucson office, Sarabia was part of a family business that sold refrigeration cases for storing meat and produce in grocery stores. Motivation, meet opportunity. “We were chatting about real estate,” 94 BizTucson
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Sarabia said. “We shared a good cigar. We started a nice relationship.” Mutual interests kept the two in touch. Eventually, talk about opening a DESCO office in Southern Arizona turned serious. It was an opportunity to take advantage of a growing market. “I loved grocery stores and understood them,” Sarabia said. “I went to visit him in Missouri a couple of times, and we hatched a plan to open DESCO Southwest. We wrote a business plan on a cocktail napkin, and he sent me a check to open the office.” Jim Gillespie was Sarabia’s first business partner in the Tucson office. Gillespie’s parents, Ann and Bruce, opened another DESCO office in Phoenix in 2003. “Jim was a big influence on our office in the early days,” said Sarabia, who at-
tended the University of Arizona with Gillespie. “Bruce and Ann were good teachers. The Gillespies are a big real estate family.” Eventually, Jim Gillespie’s career took him in another direction and Sarabia was ready to go on his own. He first raised the topic of a buyout of DESCO while duck hunting with Schnuck in Missouri. Sarabia said he wanted to “grow and grow,” while Schnuck and his family preferred to hold back. “They wanted to make sure their assets were doing OK,” Sarabia said. “They were not of the mentality to buy a bunch of other assets.” After talking it over with his family, Schnuck agreed in 2016. Sarabia and his current business partner, James Hardman, negotiated the terms and DSW was born. “God has been walkwww.BizTucson.com
ing with us over the years and helping to guide us,” Sarabia said. Schnuck also took the extra step of giving Sarabia a year of further training and legal assistance. It was just another in a line of generous gestures – Schnuck helped finance the business for the first two years when Sarabia and Gillespie were partners in the early 2000s. “We inherited a very good platform that had been running for 75 years,” Sarabia said. “Mark was a great mentor. He really helped us.” Sarabia hired his sister, Sandra, as a property manager at DESCO in 2015, and when DSW was formed, it truly became a family business. She handles the company’s office and medical center accounts. “It is great working with Sandy,” he said. “She loves helping people and is really a team player.” Sandra Sarabia said her priority is to ensure that DSW’s clients are treated as well as her family. Sandra drew inspiwww.BizTucson.com
ration from her mother, Delia, whose many wise words of advice guide her actions today. “One of my mom’s sayings was, ‘Always leave a place better than you found it,’ ” she said. “DSW Commercial has a relatively small staff for the portfolio we manage and own, so we are a family and treat our tenants and partners as such. When we are entrusted with our partners’ assets, our goal is to make sure that it progressively gets better than when it was placed in our care. “Exceeding the needs and expectations of tenants creates loyalty and increases value. We want our company name to be synonymous with outstanding, responsive service.” The Sarabias’ father, Jose Luis, also played a key role in establishing the family work ethic. He was an immigrant from Mexico who came to the United States to fulfill his dreams. After serving in the Korean War, “Louie,” as friends called him, settled in
Tucson and worked nights while studying at the UArizona. After graduating, he worked as an accountant for a grocery supply company that he eventually bought, turning it into a successful family business. “When we were kids, he used to drive around to show us nice homes in the Foothills,” Michael said. “He would say we should set our sights on something like that. He said a house like that would be ours if we worked hard and stayed out of trouble. He influenced us to work hard and strive to be better.” Louie was also active in the community, joining service organizations, including the Knights of Columbus and Rotary Club. Michael has followed in those footsteps as a member of Southern Arizona Leadership Council and numerous other regional organizations. “He always said you have to give back to help the less fortunate,” Michael said. “He showed us by example. continued on page 96 >>> Summer 2021
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PHOTO COURTESY DSW COMMERCIAL REAL ESTATE
BizREALESTATE
BizREALESTATE continued from page 95 He helped a lot of people. The best way to help people is by leaning back and pulling them forward.” DSW uses that approach when working with business partners. Michael Sarabia said no one wins when only one side benefits. “We have vendors on our projects that tell us costs are going up,” he said. “If they’re doing a good job, we won’t stop working with them. Sometimes, the cheapest price isn’t the way to go. It will all work out longterm.” Sarabia tries to use as many Tucson vendors as possible. DSW has eight fulltime employees and almost 20 others who work on a contract basis. While Sarabia sometimes looks to the Phoenix market for talent, he aims to stick closer to home. “We really believe ‘Tucson first’ is not just a business model. It helps all of us,” he said. “Our architects, engineers, legal counsel, accounting and roofing companies are all from Tucson.” Sarabia and his team have been working with tenants to keep them go-
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ing during the coronavirus pandemic. Many had to close at least temporarily, and all made major adjustments to the way they do business. That required a delicate balance between helping tenants and ensuring that investors who work with DSW had their interests protected. A little compromise served both sides well. “During COVID, our role was to advocate for our tenants’ needs while protecting our owners,” Sandra Sarabia said. “We were able to get rents abated or reduced for several tenants who then extended their leases for a comparable period to offset the reductions. This allowed us to help several businesses remain open and survive that challenging time yet minimally affect our investor’s returns.” Looking back over the past 20 years, Michael Sarabia chalks up much of his success to the support he received from Schnuck and the DESCO team.
What he learned along the way was the importance of setting up longterm goals and resisting the lure of the quick buck. “He didn’t want to show me how to buy an apartment complex or a Starbucks and sell it,” Sarabia said of Schnuck. “He wanted to show me the business of owning a portfolio of assets. Mark taught me how to build a model that could sustain our business and families for another generation.”
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PHOTOS: COURTESY SWAIM ASSOCIATES
James Hardman
Principal & Director of Asset Management & Leasing DSW Commercial Real Estate
Michael Sarabia
Principal, CEO & Designated Broker DSW Commercial Real Estate 98 BizTucson
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From left
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From Mentor to Partner DSW Team ‘Treats People Right’ By Rodney Campbell In 2004, when Michael Sarabia brought James Hardman on board at DSW Commercial Real Estate, then known as DESCO Southwest, he saw a world of potential in the recent University of Arizona graduate. Better yet, he saw a young man with some real-estate experience who could be trained to fit the way the three-yearold company did things. Hardman was a fresh slate, eager to learn the business. “When James started working for us, he didn’t have any bad habits,” Sarabia said. “We encouraged him to get here early and make sure everything was handled before he left for the day. We groomed him to be a manager.” Seventeen years later, Sarabia and Hardman are business partners. Hardman became DSW’s principal and director of asset management and leasing in 2016 when he and Sarabia negotiated a buyout of DESCO. When that deal came together, Sarabia knew his younger counterpart had earned a prominent role. “When the buyout happened, I was the owner of the company,” Sarabia said. “I decided to make James a partner. I wanted someone to stand shoulder to shoulder with me.” Real estate was part of Hardman’s life growing up. His mother owned a company named SHS Management before partnering with his father to www.BizTucson.com
form Hardman Real Estate Services. At its peak, the company managed 3,000 units. Hardman earned his real estate license at age 18 and sold houses while in college. His first job was at Long Realty, but he learned that residential real estate wasn’t his calling. Commercial real estate was his future and Hardman credits Sarabia for teaching him the ins and outs. “He’s really a mentor to me in many ways,” said Hardman, who has a bachelor’s degree in regional development. “He was that way when we started working together. He got me pretty green and showed me the ropes. I’ve learned a lot from him.” Hardman’s and Sarabia’s strengths complement each other. Sarabia enjoys what he calls “big-game hunting” – trying to find significant deals that will raise the company’s profile and boost the bottom line. Hardman handles the operations side, meeting with Sarabia numerous times a day to develop strategies and bounce ideas off one another. “We have totally different personalities,” Sarabia said. “I like the big picture, the view from 30,000 feet. I appreciate putting the big deal together, finding the partners. James is good at keeping the details moving forward. He’s great on the management and operations sides. I look to him on that.”
Hardman appreciates Sarabia’s local connection. Sarabia is a member of Southern Arizona Leadership Council and volunteers for numerous organizations in the region. The lifelong Tucsonan also coaches football at Salpointe Catholic High School. “Mike’s a great people person,” said Hardman, who’s a member of the Urban Land Institute and the Metropolitan Pima Alliance. “He’s always out there. He’s really civic-minded. He knows everybody in town. I know people, but he’s to the nth degree.” Sarabia lauds Hardman’s ability to work with clients and vendors. Hardman oversees DSW’s third-party asset management, lease administration, office association management and facilities management. “James is a hard worker who has an extremely high moral compass,” Sarabia said. “He’s going to do what’s right on the deal. That’s important when you’re managing your and other people’s property.” Together, they are part of the leadership of a company that has been in business for two decades in an unpredictable industry. Hardman said there’s a simple secret to their success. “At our core, we’re just a couple of guys who treat people right,” he said. “Going by the ‘Golden Rule’ is how we treat our customers and vendors.” Biz Summer 2021
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A Legacy Property
Campbell Plaza a Treasure for DSW It took more than one serious effort for DSW Commercial Real Estate to acquire Campbell Plaza. The property means that much to DSW’s team, which is filled with Tucson natives who grew up shopping at the plaza. When the plaza went on the market 10 years ago, DSW and Michael Sarabia, the company’s principal, CEO and designated broker, made a strong offer on the property, which measures more than 190,000 square feet and is situated in a valuable link between the University of Arizona and Catalina Foothills. Unfortunately for the locally owned company, a California group submitted the winning bid. But that wasn’t the last shot that Sarabia and his team took. The outof-state group put Campbell Plaza, on Campbell Avenue between Blacklidge Drive and Glenn Street, back on the market in 2017 and DSW jumped at the second chance, adding the plaza to its portfolio. “We did significant financial analysis on that property,” said James Hardman, DSW principal and director of asset management and leasing. “There’s intrinsic value in having 17 acres on Campbell.” DSW leadership also believed in the importance of local ownership for the property. It’s one of the reasons why 100 BizTucson
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they were so dogged in their pursuit. “It’s imperative in a lot of ways to have local ownership,” Sarabia said. “When you understand history, you want to make the property better. I’m in that corridor five times a week. It’s important to have local people put their hearts into it.” Sarabia and Hardman are Tucson natives. Both graduated from high school and college here and had parents who owned local businesses. Sarabia’s were in the grocery store equipment field and Hardman’s owned a real estate services company. “I’m a central Tucson guy,” Hardman said. “I remember going to Coffee, Etc. when I was in school. (The plaza has) been around forever. It’s a good central location. Campbell is more than a road. It’s a major economic corridor.” The purchase price was the largest in DSW’s history at the time. It’s continued to invest by making improvements to the property, including a revamp of the Albertson’s grocery store, better lighting and more attractive landscaping. They also are filling empty spaces with the types of businesses that should be successful in the area. “Campbell Plaza is in a great location,” Sarabia said. “Money comes down the street from the foothills. It has a great grocery store, and a World Gym
is going in there. There are salons there, and a new restaurant is going into the former Old Chicago space. It will bring more energy to the corridor.” Academies of Math and Science has had an office in the plaza for two years. In that time, DSW and the charter school have formed a strong partnership. “DSW has been extremely attentive to all of our needs,” said Ettor Strada, AMS director of exceptional student services. “Every time we reach out to them, for any reason, they make us feel as if we are the only tenants and immediately address our needs. “They are a fantastic organization to work with in order to ensure our business has a stable environment to conduct our day-to-day operations.” A legacy property, Campbell Plaza has several lifetimes left. DSW intends to continue making it a relevant part of Tucsonans’ lives by giving tenants exceptional service and keeping the plaza ahead of customer expectations. “For us to be able to take the plaza to the next generation by giving it better curb appeal is something we really treasure,” Sarabia said. “A lot of people from the university, foothills and downtown areas shop there. It’s going to move into the next generation.”
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PHOTO COURTESY DSW COMMERCIAL REAL ESTATE
By Rodney Campbell
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IMAGE MCMAHON DESIGN BUILD, LLC
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Diverse and Agile
DSW Keeps Its Options Open for the Future When COVID-19 shook the commercial real estate world, firms had to rethink their business models. The world changed quickly as people started working from home, retail went even further online and uncertainty reigned. Fortunately for DSW Commercial Real Estate, its two principals, Michael Sarabia and James Hardman, are constantly study-
ing the market and anticipating trends. Their willingness to pivot has made the company an example of how to win as some competitors are losing. They occasionally take chances, pull back when they must and always keep an eye on the horizon, even when the outlook is hazy. “We love retail, but post-COVID, we’re looking at grocery-anchored centers,” Sarabia said. “They did well during the downturn. We like that space.”
Portfolio diversity is more important than ever. The DSW team believes retail has its place, but the company is being more selective in its pursuits. Forbes magazine reports that existing premium office space prices dropped an average of 13% last year. Even as those markets have become unstable, new opportunities are popping up. “Retail used to be the darling, but that has changed to industrial and multi-family,” Hardman said. DSW has a team of eight employees, each hand-picked for their abilities to contribute to the company’s success and ensure that it thrives. Hardman, who is responsible for day-to-day operations, has seen the team mature in his 17 years with the company and believes everyone in the office has strengths that will help the company grow. “Our team feels like a good family,” he said. “We have a good company cul-
PHOTO: BRENT G. MATHIS
By Rodney Campbell
continued on page 104 >>> From left: James Hardman, Michael Sarabia, Mandy Verdugo, Chris Lundin, Sandra Sarabia and Lorraine Bentley
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BizREALESTATE continued from page 102 ture and would like to build on that. It’s important to have the right people with good skill sets. We want them to be visionary and enjoy the business. “We need people who have a passion for what they do. With the right team in place, the business could be perpetual.” DSW manages more than 1 million square feet of property. The team has a number of priorities, including making smart acquisitions that help the bottom line and keeping current tenants happy through preventive maintenance and enhancements that increase curb appeal. “Making sure we perform on the things we own is important,” Hardman said. “Some owners don’t put a lot into their properties. Normal maintenance is important to ensure that everything is the quality we want.” Property management is an increasingly vital revenue stream for DSW. It manages well-performing spots in Tucson such as Wilmot Plaza and Sky-
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line Esplanade. It also manages Mesa Grand Spectrum and other properties in the Phoenix metro area. “Growing our third-party business is always important,” Hardman said. “Those opportunities will continue to present themselves.”
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Retail used to be the darling, but that has changed to industrial and multi-family.
”
– James Hardman Principal & Director of Asset Management & Leasing DSW Commercial Real Estate
Hardman and Sarabia keep an eye on how companies react when the business atmosphere changes. Their studies include competitors and even world-
wide conglomerates that have nothing to do with commercial real estate. What have they learned? Being agile and open to change are vital to sustained success. “We have always been students of the market, and we aren’t afraid to implement business strategies that have proven successful in other markets,” Sarabia said. “I always look back at the IBM example. They did it their way for many years and their competitors passed them.” While the commercial real estate business will always have peaks and valleys, DSW has survived and thrived. Twenty years in, the team is looking years down the road. “I am very proud of what Michael and James have built here at DSW and the many ways that we try to pay it forward in the Tucson community,” said Sandra Sarabia, Michael’s sister and a DSW property manager. “We are expanding into new markets, which will allow us to continue to be diverse and agile well into the future.”
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