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Connect Retail West Q&A: Paragon's Jim Dillavou Talks Opportunities

Connect Retail West Q&A: Paragon’s Jim Dillavou Talks Opportunities

On Tuesday November 9th, Connect Media will host Connect Retail West, a commercial real estate event dedicated to “all things retail” at the Luxe Sunset Boulevard Hotel in Los Angeles, CA. One of the speakers at the conference is Jim Dillavou, Co-Founder and Principal of Paragon Commercial Group, who chatted with us about how his firm is handling the current economic headwinds, and how Paragon will capitalize on opportunities that may be presented.

Q: In the current climate, are you seeing more opportunities for ground-up development or in acquiring and repositioning existing properties?

A: Real estate investment is naturally cyclical so I have never understood why so many in our industry believe that trees grow to the sky. They don’t and, spoiler alert, they never will. Paragon’s portfolio was intentionally constructed in recognition of this fact. We are opportunistic investors who create value at varying points within economic cycles. So, to answer the question directly, our view is that opportunities (whether ground up or repositioning) always exist at the intersection of retailer demand and capital flows. Retailer demand today remains solid but credit markets are soft. Accordingly, we will adjust our capital stack (i.e. contribute more equity and less debt) and continue to be active in both ground-up and repositioning. We expect 2023-2024 to be our busiest year since 2009-2010.

Q: Geographically speaking, what are some previously untapped markets that have opened up for your neighborhood business in the past year or two?

A: Paragon’s business is primarily focused on grocery anchored centers in established neighborhoods. Historically it has taken decades for demographic shifts to meaningfully alter established neighborhoods. However, the pandemic exacerbated these shifts so we are spending more time thinking about neighborhood characteristics 20+ years into the future. Some existing markets will quite certainly be weaker while some are strengthening. Getting this calculus correct is important when making long term real estate investments.

Q: Are you anticipating a pipeline of opportunities for 2023 in properties that are functionally obsolete or in need of recapitalization?

A: Next year will certainly present opportunities. The more poignant question is whether developers will be able to take advantage of them given capital market uncertainties. Discretionary equity with flexibility in capital structuring, longer hold period optionality and strong lending relationships will be able to close deals. Developers that rely on deal-by-deal equity and debt with strictly defined investment horizons will find it much more difficult to get deals closed. Real estate is for investors, not traders. This fact is often forgotten when debt is free and exuberance plentiful.

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Inside The Story

Paragon Commercial GroupJim Dillavou

About Mark Nieto

Mark comes to ConnectCRE with an extensive background as a business and news reporter in San Francisco radio, as well as 35 years as a traffic reporter on several stations including KGO, KNBR, KCBS and KFRC. As a business reporter, Mark covered the tech world in Silicon Valley where he became familiar with real estate transactions in the hot Bay Area marketplace. He attended San Jose State University with a BA in Radio and TV Broadcasting and currently resides in the Lake Tahoe area where he gets to frequently enjoy all of his favorite activities: Golfing, Fishing, Hiking and Skiing.

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