Jim Osterling with Bridge Realty Advisors

Intro: Broadcasting live from the Business RadioX studios in Pasadena, California. This is Pasadena Business Radio. And now here’s your host.

Lee Kantor: Lee Kantor. Here. This episode of Pasadena Business Radio is brought to you by Xavier Inguanzo, realtor. Berkshire Hathaway HomeServices California Properties. Today on Pasadena Business Radio, we are honored to be talking to Jim Osterling, CEO of Bridge Realty Advisors. Welcome, Jim.

Jim Osterling: Thank you. And welcome. And it’s a it’s an honor to be to be on your show. Looking forward to it.

Lee Kantor: Well, I’m so excited to learn what you’re up to. Uh, please tell us a little bit about Bridge Realty Advisors. How are you serving folks?

Jim Osterling: Bridge Realty Advisors was established in 2002, and prior to that, I had been in a top executive in several major, well-known Southern California real estate development companies. Left the security blanket, if you will, of of large corporations and started out on my own. And the initial game plan was to provide services that I did previously as an employee at these major companies and instead provide those services, advisory services for consulting services to my clients. So we started out doing financial advisory services, which is just a fancy way of saying money raising, money finding real estate is a very capital intensive business. So in order for projects, even by major developers. To get completed. They require OPM, other people’s money, debt, money, equity, money, etc. and that’s how the business initially got started. We had some success. We raised capital for clients and earned our success fees or brokerage fees. And then we started. Investing in developing projects as principals.

Lee Kantor: Now, for folks who aren’t familiar with kind of the day to day of a real estate developer, can you share a little bit about what that’s like? Is it is it you have to have people come to you and say, I have this plot of land and I want to build a building, or do you like, stumble upon a plot of land and say, hey, this could be a whole neighborhood? Or like what is kind of the ins and outs of what you’re doing on, you know, kind of a daily basis.

Jim Osterling: So that’s truly a great question. There is no such thing as a typical day. Every day I start off, I have an idea in mind of what I’m going to accomplish that day, and along the way, something happens and and I get diverted to this, that or the other. So if you like structure and very planned out schedule for the day and regular routine hours, this is not the business that you want to be in because it’s long hours. It’s hard work, it’s very fulfilling work, and it’s unpredictable. To try to answer your question, do the deals come to me or do we go out seeking deals? The answer is a little bit of both. We have, um, I’ve been doing this for about 46 plus years now, and over time you start to see patterns and opportunities, um, based on the economic cycles and the interest rates and the in the capital market cycles. And so we have ideas of things that we can successfully develop at this particular time or whatever. Um, so we do have some strategic thought about what we’re trying to do and how to go about doing it. But the actual process of finding a project is very reactive. Even though our our we try to be proactive and strategic. And what I mean by that is, is the opportunity to develop something comes along when a property becomes available in the marketplace, a vacant parcel of land or land that has some old, unimproved buildings on it.

Jim Osterling: Um, that need to be scraped and developed, which is the same thing as vacant land. It just looks different. So even though we have strategic ideas of what we’re looking for right now, um, You have to find opportunities, properties that are available with which you can then pursue. And that particular development that you’re that you’re looking for. And to try to be a little more concrete about it. For example, right now in most markets, including Southern California, we don’t need to develop new office buildings, um, for fairly obvious reasons. Um, and that is, um, due to Covid and how the working world changed and we, we overnight flipped from mostly being in the office to being, uh, entirely working from home. And now we’ve, uh, kind of switched back to what’s called the hybrid model. But, um, in general, um, we have way too much office space because it’s being utilized less Than it was pre-COVID. And I just give that as an example. So strategically, right now we’re not looking for land to develop into office buildings. On the flip side, um, housing, we’ve been short changed, um, housing production nationwide, statewide, region wide for many, many years. So there’s still lots of opportunity for new residential development of all types luxury housing, uh, working, uh, working housing, affordable housing. And so we tend to be more active currently looking for those types of opportunities.

Lee Kantor: Now, um, it’s funny because you mentioned two things that I’m curious about and maybe you can educate us about this. So if on one hand, you have all these office buildings that are maybe underutilized and you have all these people that are looking for homes, can you explain why it’s not that simple to just make the office building into like, condos, like, structurally, they were built for offices. So there’s some challenges in retrofitting an existing office building into, you know, a bunch of condos.

Jim Osterling: Yeah. Lee. Uh, excellent question. And we are seeing some conversion of some office buildings into residential, and we are seeking those opportunities as well. Um, but it’s not as simple as just saying, oh, gosh, we have a bunch of empty office buildings, and we’re going to convert them into much needed residential. And in simple terms, um, most modern office buildings that are designed and optimized for today’s, uh, working for working world, uh, offices that people work in, um, tend to be fat rectangles. This is very simple, but it’s important. And, um, residential. One of the fundamental things that you need to do is to bring, um, air and light into most all of a residential area, um, your bedroom areas, ideally your living room areas, less, less important for the kitchen and bathroom areas. And when you have a big fat rectangle, you can put some form of residential around the perimeter of that former office building. But the core, the center of that office building, is very deep within, and it’s hard to get to design floor plans that go all the way into a big fat rectangle.

Jim Osterling: So what we find is the office buildings that lend themselves best to residential conversion tend to be skinnier buildings, and therefore they tend to be older. So, for example, in downtown Los Angeles. Many years ago, they passed the Arrow Adaptive Reuse Ordinance, and that ordinance allowed developers to relatively, uh, in a streamlined way, convert old office buildings into much needed residential. And that work because those old, beautiful Beaux Arts building, the downtown um, finance district, uh, and so on, had u-shapes and E shapes because there was no air conditioning back in the 1920s. So they needed to to have the ability to open windows. And so these were skinny buildings and they’ve been, um, fairly readily converted. And there’s more of that inventory available in downtown LA and elsewhere. So we will see some, um, office conversions to residential. We we have seen and will continue to see that. Um, but it is a very complicated and costly process. Um, and so it’s not a slam dunk as, as we would think and hope that it might be.

Lee Kantor: And I thought another limiting factor was the plumbing that most offices have, like bathrooms only, you know, in one portion.

Jim Osterling: Thank you. Yeah. So when you look at the design of a of a modern high rise office building or mid-rise office building, all of the utilities come up through what is called the core or the center of the building. And so in your core, you’ve been in an office building. You’re going to have the elevators in the core. You get off the elevators and the plumbing. The bathroom tends to be somewhere right around the elevator in the center of the building, in the core. And those are called chases. So you have plumbing chases and drainage chases coming up that core. You have electrical conduit coming up that core. But yeah, that’s that’s it. So the plumbing ends at the core area because that’s where your office kitchens and bathrooms are located. And like we’ve already discussed, the residential units are going to be at the, at the exterior, um, at the, the outer edge of the, the building, not there in the core. So yes, bringing plumbing and drainage, um, to every different unit is is a significant cost.

Lee Kantor: Now, um, in today’s business climate where we’re dealing with higher interest rates, there’s now tariffs. How does that change. Maybe the opportunities like um, in every economic situation we have there’s there there’s always opportunities. What is there opportunity in um in real estate development. When you’re when you have these kind of challenges of high interest rates, uh, tariffs and even some of the immigration policy that that might be affecting labor.

Jim Osterling: Yeah. You’ve hit on some really important and impactful issues that are affecting real estate right now. In my 46 year career, um, real estate development has never been easy. There’s always challenges. But I will say right now, at this particular time, second quarter of 2025, the amount of headwinds and challenges that a property faces to be successfully developed or redeveloped, um, is extremely challenging for the reasons that you’ve already mentioned the mortgage rates, whether it’s for your home loan or mine, or for a commercial property, an office, a shopping center, an apartment building. The mortgage rates have gone from about 3% back in, say, 2021 to about 7% today, and that more than doubling of interest rates has a tremendous, tremendous impact on getting a building to cash flow and being able to make its debt service. So that’s the interest rate, significant, um, impact. Um, we are hoping that rates will come down soon. I thought they would, um, start to come down already, but they haven’t. They’ve remained stubbornly high and inflation has remained somewhat stubbornly high. Uh, the next element you mentioned is cost increases. Um, um, the cost to produce real estate, the labor and materials was creeping up and getting high before Covid. Covid disrupted the Did the supply chains and made the material costs higher and very much affected the labor base. Uh, so labor became more scarce and more expensive.

Jim Osterling: So coming out of Covid, um, the costs increased a lot. Um, I thought once the supply chains got back to normal again, coming out of Covid and the and the labor return to the market, those costs would decrease. And I was wrong. They did not. Um, and then so we were already in this environment of, of higher costs and higher interest rates, and then the two current um, shocks to the system that we haven’t felt yet, really, but we are definitely going to feel them. Is immigration reform certain types of construction, uh, is very much affected by immigration reform. Other types are not. Uh, if you’re doing a Large scale downtown anywhere USA high rise with with union labor. Not so much impacted by immigration reform. If you’re doing, um, your own home remodel or if you’re doing track development somewhere, let’s say in Southern California, that labor base is much more impacted by immigration reform. Uh, the full impact of that hasn’t been felt yet, but it will be. Um, and then, uh, you mentioned the tariff reform. Um, a surprisingly large amount of our building materials do come from China. So a 145% tariff on goods from China is just a cost increase, uh, that, that a project can’t bear on top of everything else, all the other shocks that we’ve said.

Jim Osterling: So the great equalizer or the plug number in our know, development pro forma is the land price. And we if you owned a valuable parcel of land, you don’t want to hear what I’m going to tell you. And that is is because of all of these interest rate increase and costs of production increases, the LRB, the land residual, the amount that I can pay to buy your land and make a successful, profitable development out of it. The price that I’m willing and able to pay has gone down. And so there’s stiff resistance by land sellers to not wanting to reduce their land prices. So, um, things are kind of, um, stuck right now on the land acquisition side. And something has to give either our interest rates or our production costs have to come down, or sellers are going to have to adjust their expectations. And these are all normal frictions in the marketplace between buyers and sellers of land. But the exacerbated right now by all of these, these confluence of cost increase factors that are that are hitting us all at once. So in summary, it’s a really, really challenging time. We look at about 100 potential deals for every 1 or 2 that we might do. And, um, the filter has become even more extreme as we look at today’s market.

Lee Kantor: Yeah, you can’t squeeze just part of the balloon. It’s going to have an effect on other parts. So something has to give. Something has to give at some point. Right. You know, I guess the if you have land now, you’re just kind of in a holding pattern and hoping something else changes. But if it doesn’t change, at some point you’re going to have to make some adjustments.

Jim Osterling: You know, from right from my vantage point. I’m not seeing a lot of land currently moving, but there’s others in the system that are, you know, the the commercial, um, uh, real estate brokers that, that, um, list and buy land. They might be able to tell you that there’s more transactions perhaps, than I see. Again, we look at a lot of deals and we just, uh, we’ve always been very disciplined and very conservative. Um, but, um, we’re looking at a lot of deals, and they just, um, don’t make sense in today’s high cost environment.

Lee Kantor: Right? The math has to math. Right?

Jim Osterling: Yeah. Yeah.

Jim Osterling: Correct.

Lee Kantor: Now, um, beyond the financial, uh, returns, is there, uh, kind of a bigger why to to why you do what you do is, um, you know, um, you know, there’s a financial aspect obviously, to it, but there has to be something rewarding seeing a building go up or seeing a neighborhood, you know, come to life and seeing families going in there. And the impact that you’re making in a community with your work. It has to be so rewarding. Is there a story you can share about, you know, that side of the business?

Jim Osterling: Well, um, it is very rewarding. And it it’s it’s long hours. Um, I work 50 to 70 hours a week, and you’re constantly juggling from one project to the next. And, um, working on a land acquisition, um, today, tomorrow, you might be working on a, uh, with your, um, creative team, the architect and design team, you know, working on design challenges. Um, uh, the next day, you might be doing CM Construction management, um, um, or doing all of the above, um, you know, every day on a daily basis. So the rewards are the variety of work that you do. The, the, um, the reward of seeing a vacant piece of land turn into, uh, real estate, where you’re providing homes for families, where you’re providing places for people to work, to shop, uh, to entertain, to to, uh, recreate. Um, and I’ll give you a local story that has been particularly rewarding and fulfilling to me. Uh, right here in Pasadena. Uh, a few years back, we embarked on a new development, um, that successfully was completed back in, um, uh, 1921. Um, pardon me. We started it in 21, and we finished it in 1923.

Jim Osterling: This is called Pasadena Studios at 280. North Oakland and its 180 unit apartment building. What makes that project particularly rewarding and fulfilling to me personally, is that every single one of those units is affordable for those in the greatest need in our community. And these are technical terms called very low and extremely low income residents. So everybody living in that property has to make below certain levels of income to qualify. And then their rent is a relatively manageable 30% of their income. And um, it enables somebody to live in Pasadena, um, that otherwise wouldn’t. And possibly because they work in Pasadena or otherwise. And that was a very rewarding project. And today, that project is fully leased. We have about one vacancy that’s going to be filled in in a couple of weeks after we turn over that unit and move somebody new in. So, um, and the thanks that we’ve received from the staff in the city of Pasadena and the elected officials bringing much needed affordable housing to our city, it’s just been a a very rewarding experience.

Lee Kantor: Now what in your ideal world, if if communities were trying to, um, create more affordable housing, do you need that kind of private public partnership in order to pull something like this off in a, in a fairly efficient manner?

Jim Osterling: Um, yes. Uh, excellent question. And, uh, I believe the answer is yes. Um, I grew up in Chicago and I watched the C.H. in Chicago Housing Authority, where they would develop and own and manage the affordable housing for low income folks. And these were high rises, and they were notoriously poorly developed, poorly managed, and all kinds of problems associated with many of those buildings have been demolished and rebuilt. And coming out of that, I learned a lesson. You need the public incentive to make affordable housing attractive and able to be developed by the private sector developers, such as our company. Um, and but the the business of designing and constructing and owning and operating a business is a very, very, um, entrepreneurial business that requires, you know, constant attention and hard work. And so I think the best mix to provide as much affordable housing as possible, um, is private sector execution with public sector, um, uh, incentives. And in the case of Pasadena Studios, in a in a quick nutshell, it was tax exempt bonds and tax credits that enabled us to drive the affordability of every one of those units down to those lowest levels, very low and extremely low income residents. We couldn’t have done it without those those government incentives.

Lee Kantor: Now, um, as we’re getting ready to wrap up, I think we’d be remiss without mentioning, um, the rebuilding of Altadena, Pacific Palisades after the wildfires. Can you talk about what, uh, real estate developers role is in dealing with something, you know, a tragic event like that. And and where there is, um, a place for real estate developers to really use their expertise to reboot an area like that.

Jim Osterling: Yeah. The, the, um, uh, the Palisades Fire and the Eden fire were just horrific. Nobody anticipated the scope and extent we know that we live in in areas where wildfires are prevalent. They start in the mountains, and then they can and do move down into the residential areas. Uh, I’m a resident of Altadena. Uh, Scarlett and I, my wife, we were very fortunate. We fled our home on Tuesday, January 7th at 6:30 p.m.. That that, uh, Eden fireball was coming right at us from the Edison transmission tower, which we live very close to. We knew that our neighborhood and our homes were going to be destroyed, and the winds changed after we fled during the night, and we returned the next day in a home was still standing, albeit smoke damaged. We have so many friends, neighbors, uh, people that I know from, uh, the community from from our club, from being in elected office, easily 200 folks that we know personally that lost their home and that many and more like us that were smoke damage and evacuated. We, um, just returned to our home a couple three weeks ago and just glad to be back in and so fortunate that our home was, was, um, uh, saved, albeit smoke damaged. Um, to try to answer your question, um, there’s going to be there has been already a variety of reactions. By those that were, um, so unfortunate to lose their homes, ranging from immediately going out and hiring an architect and getting started on the redesign and the rebuilding process to, um, many folks just saying this is not how I want to spend my next two or 3 or 4 years.

Jim Osterling: It’s really hard work. It’s not something I know that much about. I’m not good at it. I don’t want to do it. It’s going to be very costly. And there’s already been, um, a number of homes placed on the market. Um, I don’t really see a big role for large scale real estate developers in the rebuilding of the Palisades and the Eaton Fire. I think you will see small scale, um, developers. Maybe it’s a general contractor that that is willing to go out and buy land and use his contractor base and his own resources to build something, maybe to live in themselves, maybe on a spec basis to rebuild. So there’s certainly a role there. And professional developers such as myself, um, we do this on a day to day basis and have much more experience. As I mentioned, I’ve been doing this for 46 years, and every day I do this, I learn more and learn what I don’t know. And so for folks that have never done this before, um, it can be daunting. It can be a daunting task. Uh, both the city of LA for the Palisades and LA County for Eden. They have pledged to streamline the rebuilding process, and I believe they will, but it’s still a complex undertaking, higher in architect overseeing their work.

Jim Osterling: And then the the biggest challenge is on January 6th. Many of us were properly insured. I think, you know, if our building, if our home had burned down in isolation, um, our insurance coverage would have been enough to rebuild our home. But none of us, none of us anticipated 5000 homes over there in the Palisades and 6000 homes here, um, in Altadena. And not to mention all the commercial and apartment structures that went up at one time. And that’s going to be a tremendous stress on our architect and engineering, uh, base, the design professionals. It’s going to have a huge impact on the The construction industry capacity to rebuild all of these homes at the very time that we’re dealing with immigration reform and, and, and tariffs and all of that. And simply put, on January 8th, all of us, um, ourselves included, we were underinsured. Um, uh, we thought we had proper levels of insurance, but the costs of rebuilding all of our homes overnight increased by 50% by 100%. We don’t really know. And nobody had insurance up to that level. So those that do rebuild, um, many of them, most of them. All of them perhaps, uh, in addition to whatever they can get from their insurance proceeds, um, will need to come out of pocket with additional capital or build something smaller than what they had before.

Jim Osterling: There’s various choices. So in addition to that work being difficult, detail oriented, and time consuming and challenging, it’s also very costly. And and some of the folks have just said this is not for me, and they’ve put their lots for sale. Um, um, large public home builders. And I’ve worked for large private home builders, typically will buy a large acreage of land and develop 100 homes or 200 homes or 5000 homes on those large acreages. This is not going to be like that. They’re going to have a lot here and a lot there that comes up for sale. Um, so it’s not going to be a large tract development, like, you know, you would see in Orange County in the Inland Empire. That’s not necessarily a bad thing. One of the unique things about architecture, about Altadena. That that we all love is the variety of architecture and the variety of people that live here. And, um, it has a different look and feel than Irvine, California, where I’ve built many, many tract homes. Um, and people love Altadena for the diversity of people, for the diversity of, of housing that that we live in. So it’ll be a small scale opportunity here and there for, for smaller developers. And, and I’m not saying that in a negative way. That’s, that’s not a bad thing at all.

Lee Kantor: Right? Because you lose that economy of scale when you’re building the tract homes.

Jim Osterling: Yeah. There is economy of scale of building. You know, when we would do a typical 100 lot tract, we had developed 4 or 5 floor plans, and then we dress them up with different elevations to make the homes look more varied than that. But we were building the same 4 or 5 homes repetitively. And yes, there were some economies of scale and you go up a learning curve of building the same thing over and over. But to be honest with you, it is a more repetitive and, um, less diverse and you could say more boring product. I’ve built wonderful production homes that I’m very proud of, the homes and the communities and providing housing for families. But but it is a more competitive product.

Lee Kantor: Is there a place for any of the new technology, like with 3D printing and things like that, to, you know, make things more affordable or efficient?

Jim Osterling: Oh excellent question. Um, you know, in the same way that Covid accelerated various things, um, you know, including like, uh, more, um, Amazon.com, you know, buying, um, you know, through the internet. This rebuilding will definitely do that. I follow the, the 3D printing. I haven’t really seen how that’s going to work, um, yet. Um, I think, though, what you are going to see is you’re going to see, um, well designed modular housing. So just for example, in Altadena and in the Palisades, one of the things that they’re allowing homeowners to do if they want is to build first an Adu, an accessory dwelling unit on their lot so that they can move in and, and, um, get out of whatever temporary housing they’re in, um, while they then do the larger build on the lot, the main residence, the main house, that’s something that some will do. Um, not everybody, but that’s an opportunity. He? And, um, if you can bring in, um, that adu in a in a modular format. Already pre-built at a at a nearby factory and transported to the site. You can do that. Uh, more quickly. Um, maybe more cost effectively, maybe not. So I think I, I think we’ll see. Modular. Um, um, housing, we’re going to see, um, pre, uh, approved plans. And that’s important because it can take a long time for the city of LA or the County of LA to approve your building plans. And if you have some pre-approved plans that are already planned, checked and approved by the city, by the county, uh, that streamlines your design process.

Jim Osterling: And then you will get some, uh, learning curve and economy of scale when you build those pre-built plans, but it’s not going to look like a track development. Um, you know, in the, in the Inland Empire and Orange County, let’s say, because, um, it’s these, these, um, pre-approved plan homes are going to be sprinkled here and there throughout. So it’s not going to be a a bland, boring, uniform environment. You’re going to have a lot of people doing their own thing, rebuilding their home much the way it was before. You’ll have a few lots here and there that do get sold that, that, um, um, you could put a pre-approved plan on or you could custom build a plan for that home. So, um, we had a lot of lovely old homes from the 20s. I used to live in a beautiful Monterey colonial built in 1932, and I hope the current residents, that home was burned down. I hope they do something beautiful, but it probably won’t look the same as it was before. Um, and, um, there are some of us architectural preservations, myself included, that love those old classic homes, but we have to, um, move on and we have to look forward and we have to see what new modern designs, um, those homeowners are going to, to choose to do.

Lee Kantor: Well, Jim, thank you so much for sharing your story today. Um, if somebody wants to learn more, have more substantive conversation with you or somebody on your team, is there a website for bridge?

Jim Osterling: Yeah. The the website for bridge is, uh, w ww dot bridge Advisors. Dot com. And uh, at that website, uh, you are. Our contact information is available and we’re happy to, um, talk to anybody that’s interested. And particularly for the Altadena rebuild, I’ve tried to be a knowledgeable resource in our community to help friends and acquaintances with with questions that they have, and I’m going to continue to try to help our community rebuild in that way.

Lee Kantor: Well, thank you again for sharing your story, doing such important work, and we appreciate you.

Jim Osterling: Yeah, thank you for for doing what you do and getting the word out about what’s going on in our local business community. That’s important work.

Lee Kantor: All right. Well, thank you very much. This is Lee Kantor. We’ll see you all next time on Pasadena Business Radio.