Brian Cannard, Retired Real Estate Manager at REI and Home Depot

Guest: Brian Cannard, retired real estate manager, REI (25 years) and Home Depot (12 years)

Host: Chris Hatch

Listen on Spotify

Summary

Recorded in Seattle, Chris Hatch talks with Brian Cannard, who spent 25 years at REI and 12 at Home Depot. Brian started at REI's third store in Portland in 1976, ran the Anchorage store, then became REI's first full-time real estate manager in 1991, growing the chain from three stores to about 60, mostly through owned and self-developed sites. He tells the stories behind the Seattle and Denver flagships, including leaking gasoline under an old laundry site, a historic trolley power plant, tax increment financing and historic tax credits. At Home Depot, which felt like being called up to the majors, he covers the race to beat Lowe's into markets, what he wanted from a broker, outparcels and REA reviews, real estate committee submissions and the IRR hurdle that killed a Spanish Fork deal. He also shares his retirement on a planning commission and as a Mount Rainier volunteer ranger.

Key Takeaways

• REI's membership model meant customers would find a store as long as it was accessible, visible and had good parking, so it could take value-oriented sites like converted warehouses.

• Self-developing owned stores kept REI's effective rent to depreciation plus a capital charge, and left a real estate "piggy bank" the company is now tapping through sale-leasebacks.

• Historic flagships can pencil when you stack incentives like tax increment financing, preservation grants and federal historic tax credits.

• At Home Depot, being first into a market mattered most. A later Lowe's typically took only 20 to 30% of sales.

• What Home Depot wanted in a broker: experience with 10-acre assemblages, deep market knowledge, no competing big-box clients, and a well-prepared, pre-toured market tour.

• Protect the anchor's operation. A short drive-thru stack on one outparcel can block a big box's entrance, so Home Depot required at least 10 cars of stacking.

• Real estate committee packages had to be 100% accurate, with a two-page pro forma, an executive summary and peer review before submission.

• Often you do the deal you can do, not the perfect one, because waiting costs sales and may let a competitor in first.

• Favor full signalized access over right-in, right-out. Customers shouldn't have to cheat death to get in and out.

• Road warriors should take time to explore the places they travel.

Transcript

[01:21] Chris Hatch: Welcome to the Dirt Dog Pod. I'm really excited about our guest, Brian Cannard.

[01:32] Brian Cannard: Happy to be here.

[01:34] Chris Hatch: Thanks, Brian. We were just chatting and catching up here, but you're the guest I've had on so far with the longest tenure in commercial real estate.

[01:45] Brian Cannard: Really.

[01:46] Chris Hatch: Yeah. So you spent 25 years at REI.

[01:52] Brian Cannard: Correct.

[01:53] Chris Hatch: And then you did 12 years at Home Depot.

[01:55] Brian Cannard: Correct.

[01:55] Chris Hatch: Wonderful. What a career: 37 years.

[01:58] Brian Cannard: It was two great companies and a wonderful time. I really enjoyed it.

[02:03] Chris Hatch: Tell us about when you started at REI.

[02:07] Brian Cannard: I started in 1976 in the Portland store as a supervisor. It was REI's third store, so I got in on the ground floor. Then in 1979, I took on the role of store manager for the Anchorage, Alaska store. That was a fun job. I was up there for seven years, expanded that store twice, and moved it, doubling its size. After that, I switched over and opened the Spokane store in 1986. In 1989, I left Spokane and opened the Federal Way store. And in 1991, I switched over to real estate manager. The vice president doing that job felt it needed somebody to focus on it full-time, not part-time as part of a VP job. So that's when I started, and it was an interesting time, because it was me, a guy with a pickup truck and a part-time secretary running the real estate department. By the time I left, we had the full crew: legal, sales forecasting, project management and design. So it was a real change from one guy in a pickup truck.

The focus then was very value-oriented. Deals had to be in the single digits. And I'll tell you, when you go to Washington, D.C., and try to do a deal in the single digits, it's hard to find. Usually what would happen is I'd find a warehouse space that happened to be zoned commercial, and we'd convert that warehouse space into retail. That's the only way you could do a single-digit deal.

[03:53] Chris Hatch: The cool part about REI... well, there are a lot of cool parts. But one of them is that your customers probably find you.

[04:01] Brian Cannard: Well, yeah. We were a little bit like Costco. We're membership-oriented. When you go to Costco, you're on a mission, and it doesn't really matter what's next door; you go to Costco. The same thing is somewhat true of REI. 85% of REI's sales were to members. So if we put a store up and there was a sufficient member population, they'd find us no matter where we were, it seemed, as long as we were accessible, somewhat visible and had good parking.

Anyway, REI was actually pretty cash-rich but operationally poor. Its model gave back 85% of the profits in the form of a dividend to members every year. So we had a lot of capital, but we didn't have the ability to spend a lot of operating money on leases. That's when we got into self-development. Initially, we'd buy a pad from a developer in a power center and build our own store, and from there we graduated to buying standalone parcels and developing them. The effective rental rate was just your depreciation plus an interest rate assigned to the capital. That became your effective rental rate, and it was much lower. When you put a developer in the middle, they obviously need to make a profit, and the effective rental rate would have gone up. So I pretty much learned on the job: leases, purchase and sale agreements, construction contracts, tenant spec requirements, reciprocal easement agreements. I learned all of those as I went. I had good consultants helping and advising me along the way, but it was all self-taught.

[05:51] Chris Hatch: What was your background prior to that?

[05:53] Brian Cannard: It wasn't very business-oriented. It was recreation and parks management. I had a degree from Western Washington University. I was a great outdoor guy, and I was able to parlay that into more of a business career.

[06:08] Chris Hatch: Tell us about 1979, when you moved to Anchorage. That's got to be a bit of a change.

[06:19] Brian Cannard: That was a big move for this kid, out of Portland up to Anchorage. It was February, so it was cold. And first of all, I did not have an appropriate car. I had two air-cooled Volkswagens. Oh boy, let me tell you, there was no heat involved in driving those cars around Anchorage in 1979. So it took a while to get used to being up there. But Alaskans are wonderful people. I made friends right away and had a lot of really fun outdoor adventures. I was able to climb Denali with good friends. I spent a lot of time whitewater kayaking, because that was a passion of mine. And skiing; I was on the ski patrol up there. I had a great time in Alaska. It was too much fun for a guy in his early 30s with no kids.

[07:16] Chris Hatch: Those long winter days have got to get to you, though.

[07:19] Brian Cannard: Well, I remember turning the key in the store door at 10 a.m. and watching the sun come up, and then it would go down at about three, and you could watch it slowly setting. It's not like it was pitch black, though. The sun was always just over the horizon, so you had a little light, but it was not bright.

[07:37] Chris Hatch: Funny. What a funny place. So during that time at REI, you saw just about everything, right? You started in operations, running stores...

[07:50] Brian Cannard: And ended up at the administrative headquarters, which was down in Kent at that time. That was living in the fishbowl. But I enjoyed all those people down there. We had great camaraderie. At that time, if you had a lunch break, you could go out for a run or a bike ride, and there was always somebody there to join you. It was a great company to work for.

[08:16] Chris Hatch: So a really infectious culture there.

[08:19] Brian Cannard: Of course, yeah. Top to bottom.

[08:21] Chris Hatch: That's good. It's a brand that's always had a certain cachet and niche to it. It's fun.

[08:30] Brian Cannard: There were a couple of deals I thought you might be interested in. One was the Seattle flagship store. Have you been to it?

[08:38] Chris Hatch: I've not been to it.

[08:39] Brian Cannard: It's worth a stop. It's two city blocks. It was formerly occupied by the Overall Laundry company, which delivered and picked up dirty laundry all over the city. We were concerned about possible contamination because it was a laundry facility. We had 19 underground storage tanks, mostly residential, from when the site was originally a residential development. Those oil tanks were pretty much empty and no concern. There were also some hydraulic lifts, but they didn't pose any problem. And they didn't use dry cleaning solvents, which was a good thing.

[09:18] Chris Hatch: No perc.

[09:19] Brian Cannard: No perc, because that was my biggest concern. That stuff just flows everywhere, like greased lightning. But then one day I got a call saying, "You need to come down here." I came down to the construction site, and a backhoe operator was digging what looked like a slurry of mud and putting it into a dump truck. At that point, I was really afraid somebody would strike a match, because it was gasoline. It turned out they had stored gasoline there for their delivery truck fleet, and the tanks had leaked. It hit the footing drains of the building, went all the way around, and then exited out into the city street. So that was a big hiccup that no real estate guy wants to find out about on his watch.

[10:06] Chris Hatch: No.

[10:06] Brian Cannard: But anyway, that was a $50 million project. And since then, from what I've observed, sales at that store have skyrocketed and really made that issue go away.

[10:20] Chris Hatch: How big was that store?

[10:22] Brian Cannard: 100,000 square feet. The average REI store was 25,000 feet, so it was four times bigger than the average REI store. And a $50 million project. Quite a bit bigger than we were used to.

[10:34] Chris Hatch: Were there any items in the budget that pushed that number up more than others? Something you really wanted to do?

[10:42] Brian Cannard: Well, yes. We did something pretty unique. We built a climbing wall that was sort of a pinnacle. We used a French company to build this climbing wall, and it looks kind of like a lantern sitting on the corner of the building. The architects used the term "steeple"; that's how they were able to get it above the height limits. It sits there enclosed in glass right off I-5, highly visible. Really an iconic structure.

[11:13] Chris Hatch: I've seen pictures of it. I just haven't been in the store.

[11:15] Brian Cannard: It was quite the wall.

[11:17] Chris Hatch: And I guess in some circles it probably is a little bit of a house of worship, right? Back to the steeple.

[11:25] Brian Cannard: I guess so, yeah.

[11:28] Chris Hatch: Funny. So you did the flagship store. And does REI own that location?

[11:34] Brian Cannard: Yes, they bought it. And the other one that was really interesting and had all the trimmings was the Denver flagship store. It was originally the Forney Transportation Museum, and before that it was the original power-generating plant for all the electric trolleys throughout Denver. Half of this big brick building held the generators, electric generators driven by steam, and the other half held all the boilers needed to create the steam. I walked in, and you could look up at the parapet and see bricks falling off. It was really in bad shape, and we needed a lot of help to get that project done. Again, it was a $50 million project. We got half a million dollars from the Colorado Historical Society as a grant to do all the tuckpointing on all that brick. You'd walk up, and the whole building was encased in scaffolding, and all you could hear was the gentle taps of these guys with their trowels and picks, digging out bad mortar and putting in new.

We also got what they thought was the last great DURA tax increment financing deal. DURA was the Denver Urban Renewal Authority, and they gave us $10 million in tax increment financing, based on the difference between our Colorado Boulevard store and the new store we were relocating to. So if we made $10 million at the old store and $15 million at the new store, we got to keep the tax generated by that $5 million difference. And it paid off early, which was great. So the store was a big success. We also applied for and got a 25% federal tax credit on every item we put into that project, because we renovated that old building to National Park Service standards. You could not take a pressure washer to the outside of the building. You had to use a special solvent and cleaning process to remove 100 years' worth of grime and dirt. It was rather interesting.

The guy responsible for the Forney Transportation Museum was Jack Forney, and he told me a story I think your listeners might find interesting, or at least kind of funny. He had a 500-ton locomotive, the biggest steam locomotive ever made, the Big Boy.

[14:02] Chris Hatch: Sounds like a monster.

[14:03] Brian Cannard: It was huge. To move it, he laid down track, dragged it ahead, then picked up the track from behind and put it in front. Well, he crossed over several storm sewers, and to do that, he had to have people down there shoring them up. He told me that one day two guys were down in the storm sewer when a flash flood broke out above.

[14:25] Chris Hatch: Oh my.

[14:25] Brian Cannard: One guy made it out the top of the storm sewer just as the water rose up around him. The other guy got flushed out into the Platte River.

[14:34] Chris Hatch: That must have been quite a ride. No kidding. If I were that guy, I'd be wondering, "Is there a grate at the end of this? How's this going to go?"

[14:44] Brian Cannard: Sure hope not. Anyway, it was quite a story and quite a project.

[14:52] Chris Hatch: Two fun projects there, with those two flagships.

[14:57] Brian Cannard: Yeah. As I traveled around the country, one thing I always tried to do was explore the area a little. On my first trip with the CEO at REI, we stayed in downtown Philadelphia, and he said, "I always like to stay here. Come along." So we went for a walk, and I was amazed. Out here in the West, we don't have really old things. Philadelphia is full of old things. We walked out the door, turned left, and there was Ben Franklin's grave. That same night we saw the Liberty Bell, Independence Hall and Betsy Ross's house, all within a short walk. I was blown away, and it made me commit to taking a little extra time on my travels to learn about each area and explore. I'd encourage anybody who's a road warrior to do that. You're only living this life once; you might as well experience all you can. So I'd try to end a trip on a Thursday or Friday and take the weekend for more adventures.

[15:56] Chris Hatch: Love that. What went into the decision to pick a flagship store location in Denver?

[16:04] Brian Cannard: The Seattle flagship store was a relocation of our old store on Capitol Hill, and it was a huge success. That thing really took off, and the CEO at the time thought it would be a good idea to have another one. Denver was another of our great markets, one we could anchor with a flagship store. We put another one in Minneapolis, not nearly as iconic, but still a big store. At that time, these stores had a lot of interactive features. I think most of those have gone away. They were helpful in publicizing the initial opening. The climbing wall is still there. But we used to demonstrate backpacking stoves, and that's kind of gone away, along with a few other things. In Denver, and I don't know if it's still there, they had a cold room you could walk into that was set at zero degrees.

[16:58] Chris Hatch: Try out your jacket.

[16:59] Brian Cannard: Try out your jacket and see how you felt about it. So the CEO made the call that these iconic stores were good for us to invest in, and we did a few.

[17:12] Chris Hatch: It's super fun, too, because most people never get the opportunity to work on a flagship, and you did a few of them.

[17:19] Brian Cannard: These were career deals. It was really fun to be part of that team. And they were true team efforts. You don't do something like that just as the real estate manager. You've got a whole host of people in the company, and consultants, of course.

[17:36] Chris Hatch: Oh, yeah. Historic preservation, all of it. You know, so much of our job is creating spaces. I think one of the most rewarding things for me is creating a space where two friends might get together for a hamburger, or a grandparent and grandchild might go for a meal. It's so rewarding. I've got to imagine that when you're working on a flagship, it's that feeling, but much higher.

[18:04] Brian Cannard: Oh, yeah. It's great to walk into an REI store you've developed or helped develop and see all the people there getting geared up and ready to go out. They're my kind of people.

[18:16] Chris Hatch: Right. It's in the blood. In the years you spent on the operational side, what's the wildest customer interaction you ever had, the wildest retail experience on the front line?

[18:34] Brian Cannard: As a store manager, you always cringed a little when you heard, "Store manager to customer service." Usually that meant somebody was not happy. There were some really strange encounters. One guy was returning snowshoes that were all broken up. "What happened here?" They were wooden. "Well, I came across a whole slew of trees that had fallen over the snow, and I tried to walk over them, and the snowshoes broke. They shouldn't have broken." Are you kidding me? The guy weighed over 200 pounds, and these were wooden. They weren't indestructible. I suggested he buy his next pair of snowshoes somewhere else, but we did give him his money back.

[19:17] Chris Hatch: That is interesting. How often have I heard that in a store: "Store manager to the front."

[19:23] Brian Cannard: Well, at REI, and I think it's still pretty much true today, we guaranteed the products we sold. If you weren't happy with something, sometimes the "not happy" was a little odd, but we'd take it back.

[19:41] Chris Hatch: A lot of your stores have gotten done, and we haven't gotten into the Home Depot phase of your career yet. But you mentioned tax increment financing. I've done some TIF deals, but walk me through the basic mechanics of what's happening there.

[20:01] Brian Cannard: Well, as I explained, we made $10 million in sales at the old store, moved to a new store, and were able to get tax increment financing. I don't believe it's all that popular anymore, and at the time it was somewhat controversial. A lot of civic leaders felt they were leaving tax money on the table by doing it. But in this case, without it, that flagship store would not have happened. I can say that with confidence. So if we did $10 million at one store and $15 million at the new store, the difference is $5 million, right? And if there was a city sales tax of, say, 5% on that $5 million, we got to keep it.

[20:47] Chris Hatch: That's a quarter million dollars.

[20:49] Brian Cannard: Yes. We'd collect the tax, and they'd pay it back to us. That was worth a net present value of $10 million over 10 years that we were able to collect.

[21:00] Chris Hatch: So that basically helps you solve the math as you're putting together the pro forma to spend $50 million on this flagship location.

[21:07] Brian Cannard: Right. On its own, without the grant we got, the federal tax credit and the tax increment financing, it probably would not have happened.

[21:17] Chris Hatch: Why were the metrics like that? Maybe I'm just thinking about my personal REI experiences. As a dad of five kids, when I go into REI, my receipts are a little longer and the bills are a little bigger. It's not like REI sells inexpensive merchandise. It's usually pretty high-quality, nice stuff, which is great. You'd think that would be a business with a little better margin and some good profit. Is there a reason you had to solve for that single-digit rent number all the time?

[21:52] Brian Cannard: Well, retailers use different metrics to justify whether or not to make an investment. At that time, REI's CFO had decided on something called contribution margin: what a store contributes to overhead had to be a certain percentage to justify it. That's what I worked to: hitting that contribution margin. Home Depot had a different metric altogether. And at that time, I think REI's average margin was somewhere around 39 or 40%. It has to have gone up quite a bit for them to afford the new rents they've been paying at some of the newer sites. They shifted from a self-development model to a leasing model, which preserves their cash but has more operating costs associated with it. I'm not in touch enough with what's going on at REI today to comment on how things changed after I left.

[23:01] Chris Hatch: You started in the '70s and left around 2000. How many stores did they have when you started?

[23:08] Brian Cannard: They had three stores.

[23:09] Chris Hatch: And how many when you left?

[23:11] Brian Cannard: Around 60.

[23:12] Chris Hatch: 60. That's pretty tremendous growth.

[23:15] Brian Cannard: Yeah, we did a lot of fun deals.

[23:22] Chris Hatch: And you left quite a piggy bank, because most of those were owned stores.

[23:25] Brian Cannard: Oh, yeah, sure. I've seen from a couple of news releases that REI is doing sale-leasebacks and all that. So they're taking the piggy bank we left them and using it to help pay today's bills. I feel good about the fact that the team and I were able to create that much wealth for the company.

[23:49] Chris Hatch: That's great. And for the members, really. At the end of the day, they're the owners, right?

[23:54] Brian Cannard: At the end of the day, that's true.

[23:55] Chris Hatch: Is that how it works? Do the members own the real estate as well?

[24:00] Brian Cannard: Well, every member has a share, and the share can't be sold. I'm not quite sure what would happen at the end of the day if the company were split up. Right now, I understand they're going through some tough times.

[24:14] Chris Hatch: Interesting. Okay, so you spent 25 years at REI crafting this vision and getting some flagship stores open. Amazing ride.

[24:27] Brian Cannard: It was fun. It was great.

[24:28] Chris Hatch: And then you left and said, "I've enjoyed doing these small deals, 40,000 feet. Let's go to the big boys."

[24:38] Brian Cannard: It was like being called up from Triple-A to the majors.

[24:43] Chris Hatch: Was it really?

[24:43] Brian Cannard: Yeah. I walked in the door at Home Depot, and everybody there had a lot of real estate experience. It was a truly professional operation. Most of the folks who were real estate managers like me came out of the grocery business, which, like REI, is very value-oriented. They had a ton of development experience similar to mine, just more in depth. So it was a real step up. Initially I handled Oregon, which has very tough land use laws. I think Oregon, along with Colorado, is one of the birthplaces of land use planning. Everything was top-down from Salem, the capital. If you took an industrial parcel out of the zoning and rezoned it commercial, as we did, you had to replace that industrial land with something comparable, or you wouldn't get the rezone. At one point, Home Depot was the largest developer of real estate in Oregon, with over a million square feet of retail stores in two years.

[25:49] Chris Hatch: Wow.

[25:51] Brian Cannard: That was a lot of fun. Money was not a problem. It seemed like you couldn't spend it fast enough. One deal involved giving ODOT a million dollars toward an overpass to get our store approved for transportation.

[26:09] Chris Hatch: Just a casual line item, an extra million in there.

[26:12] Brian Cannard: Another deal was an assemblage with multiple sellers, where we had to buy out an RV park. And one guy's deal involved not only paying his price but also buying him a new pickup truck. So we did that.

[26:29] Chris Hatch: When you say money wasn't hard to come by...

[26:33] Brian Cannard: Well, for instance, at one point I was asked whether I'd done the geotech work yet on a particular project. I said, "Well, that's $25,000, and no, I haven't done it yet, because we're not under contract." And the reply was, "Get it done. Let's find out what the bad news is, and move on if we have to."

[26:53] Chris Hatch: So was the result that, because of the challenges of getting stores open, the market was undersupplied, and when you opened a store, it had really good volume?

[27:05] Brian Cannard: Well, we certainly performed to what we thought our sales were going to be. And the saying usually was, "You need to beat Lowe's to that market, or it's a bad day for you." So beating Lowe's meant doing what you had to do. Spend the money if you had to do geotech or traffic studies or environmental, whatever you had to do. Get it done, do it properly and get that store built. Those were growth days. When I walked in at Home Depot, they were still doing 100 stores a year. When I left, they were doing one store a year. So it was a very different experience at the very end. Big change, definitely.

Anyway, I ended up at the Northwest division. People left and people got laid off as the volume of stores died down, and I ended up in charge of all of the Northwestern United States and all of Canada. But in 2012, they decided to close the Northwest office, and I elected not to go to Atlanta. That's when I made the shift. It was the best team I've ever worked with, and a really great company.

[28:14] Chris Hatch: Did you help them branch into Canada as a new entry, or were they already there?

[28:19] Brian Cannard: No, Canada was already well established. I worked on a couple of new stores, mostly out on the East Coast.

[28:29] Chris Hatch: What are some of the differences in doing real estate in Canada, site selection-wise or process-wise? Or does it feel pretty similar?

[28:38] Brian Cannard: It felt very similar. Because they'd been operating up there for years, they had really good teams in place. So I just slid right in and fulfilled my role as the real estate guy, which was to look over deals and be kind of the player-coach on the team.

[29:01] Chris Hatch: Going back to your comment, "If Lowe's beats you to this market, it's a bad day," I've always kind of wondered how that feels. We've attended all these ICSC events for years, and I've always wondered what it's like when you're at Home Depot and you have this, if you will, enemy, Lowe's, that you're competing with for sites. But at the end of the day, these are really small conferences. You see the Lowe's people; you run into them at the same cocktail parties. Are you kind of joking about it?

[29:36] Brian Cannard: Well, we really didn't socialize that much with the opposition.

[29:40] Chris Hatch: So little trash talking.

[29:42] Brian Cannard: Not very much trash talking, no. We kind of kept to ourselves, and I think Lowe's did too. You didn't want to inadvertently spill the beans about where you were looking. You didn't want that to happen.

[29:59] Chris Hatch: It's interesting.

[30:01] Brian Cannard: I thought maybe you'd be interested in what I looked for in a broker.

[30:04] Chris Hatch: Yeah, absolutely.

[30:06] Brian Cannard: First of all, experience with Home Depot-size deals. If you want to be a Home Depot broker, you'd better have put together some 10-acre deals, so we have confidence you can either do the assemblage or properly identify the site. Somebody who knows the market inside and out, and all the players in it, who's buying and who's selling. A clear understanding of what Home Depot needs, and awareness of all the potential issues that might crop up on any site, be it traffic, environmental and all that. They usually have some sense of what's going on with a site. They have no conflicts: they're not representing Lowe's or Walmart or a similar retailer looking for similar sites. Can't have that. We need to be number one, not number two.

They do a good job on tour. They're well prepared. They've pre-toured the market, so they know exactly where they're going and how they're going to chauffeur you around. They know things like how many households are in the trade area, where growth is headed, whether future infrastructure like roads and bridges is coming, and the timing of all that. And they're really on top of what the competition is up to, along with the other major retailers. If Walmart was in a town, we knew right off the top of our heads that it was a town we should look at. Walmart could go into smaller communities, but we knew pretty soon we'd probably be there with them, or Lowe's would be. So we always checked those out.

There were a lot of other aspects to the real estate manager job at Home Depot. One was disposing of surplus property if we had to close stores. Another was creating value, like creating an outparcel. In many, many instances, we had something like 600 parking spaces when we only needed more like 450. So we'd look to carve out an outparcel and sell it to a developer or a user. We also spent a lot of time on REA issues. If somebody was developing a site plan and we had control over their development, we spent a lot of time reviewing it to make sure it wasn't going to impact our traffic flow. A classic example: Krispy Kreme doughnuts came to town in Issaquah, and their car stacking was not sufficient. The cars lining up to go through that darn doughnut drive-thru stretched all the way across our entrance and completely screwed us up. It cost us a lot of money in lost sales. After that, we spent a lot more time reviewing any potential layout, and we adjusted our stacking requirements to make sure a user could stack at least 10 cars before we'd let them proceed.

[32:59] Chris Hatch: We've bought a couple of outparcels from anchor tenants, and we've attempted to buy a lot of outparcels from anchor tenants. That process always blows my mind. It feels a little like trying to turn a cruise ship around to pick up a dinghy.

[33:17] Brian Cannard: Well, Home Depot, and I think most large retailers, are very protective of their operations. They spent a lot of time and effort building that store, and they don't want a Krispy Kreme doughnut shop to screw up their entire operation. So yeah, it gets a lot of scrutiny, and it has to go through several layers of approvals before you finally get the okay.

[33:38] Chris Hatch: I've worked on probably 30 REA Home Depot outparcels and probably only converted five of them.

[33:45] Brian Cannard: Such a low hit ratio.

[33:46] Chris Hatch: Yeah, because something always got in the way. Something was discovered. For instance, a major utility was running right through the parcel and couldn't be disturbed or moved. On our last one, we were under contract on a Walmart outparcel, a carve-out in Casper, Wyoming. With that particular setup, there's a Walmart and a Sam's Club side by side. When I met with the city, the only way we could tie into the storm drain was to go right in front and cut up the drive aisle at the main entrance to Sam's Club. And it was like, "Okay, we're done here."

[34:20] Brian Cannard: All right. This is not happening.

[34:22] Chris Hatch: This is never going to happen. I'm not even sending that site plan to operations. I already know it's not going to happen.

[34:29] Brian Cannard: Right. We spent a lot of time documenting everything. We had an online portal where we uploaded everything having to do with any of our stores. So they track everything, including the competition. That was a big deal: making sure we knew exactly what was going on with every Lowe's or Menards or any of those guys, so it wasn't a surprise to operations.

[34:54] Chris Hatch: You left in 2012. First, do you know how many stores Home Depot had when you left?

[35:05] Brian Cannard: No, I don't. I think there were 1,000.

[35:08] Chris Hatch: How many people does it take just to run the existing portfolio? Maybe not lease administrators, maybe more asset managers, because Home Depot owns so many of its properties.

[35:19] Brian Cannard: Well, they have a separate division responsible for property management, with several lawyers and administrators. I couldn't tell you exactly how many. As for real estate managers, I think we had four or five divisions, each with a director, back when things were really running and gunning, and each office had at least four or five real estate managers. When I rolled into the Northwest office, we had four real estate managers, two construction project managers, a construction manager and about four admins. So it was a pretty good-sized office, and a really fun team to work with.

[36:07] Chris Hatch: Really rolling, compared to REI.

[36:08] Brian Cannard: Where I was it, yeah. It was fun, because you could go talk to the guys: "Have you ever encountered this?" You'd describe some situation you were trying to work out to make your deal happen, and usually they had some experience to share to help you out.

The other thing we spent a lot of time on was tracking voids. In other words, where do we have potential for another store that won't kill a store that's already open? Or if we have a store that's overburdened, what do we do? For instance, in Bellevue, Home Depot was there first with a great location and was doing big business, and there was a Lowe's in Bellevue too. Then Lowe's lost their lease and left town. All of a sudden, the Bellevue store, which was already doing huge numbers, was completely overwhelmed. This is recent, so I don't know the exact details, but I know they opened in an old Sam's Club, midway between that store and another one, specifically to bleed off some of the Bellevue store's volume. So we'd spend time looking for that: where's the opportunity? And when we had an opportunity, we'd work with our construction guys and our sales forecasting team to prepare a pro forma with sales and expenses and figure out whether the thing would pencil.

[37:31] Chris Hatch: What did it typically cost to build one?

[37:33] Brian Cannard: They were typically a 100,000-foot box. A typical Home Depot store was 100,000 square feet with a 12,000-foot garden center. I think it still is today, actually.

[37:41] Chris Hatch: 102,000 square feet. And what was it running to build one of those?

[37:46] Brian Cannard: I just looked at some of my old pro formas, and they were $15 to $35 million, depending on the project.

[37:53] Chris Hatch: Interesting. It's such a fun company, though. It's got such a culture and a brand to it.

[38:00] Brian Cannard: There are a lot of people who really bleed orange, as they say. They had a lot of ex-military, so a lot of very competent operators, people who knew how to be organized and carry out a plan. Not so much on the real estate side, but on the operations side, they had a lot of those guys.

[38:24] Chris Hatch: To zero in for a minute on a specific store site in my backyard in Salt Lake: I believe you and your broker, Dave [Winnie], assembled the store at 33rd South and Highland, right? How many properties did you assemble there?

[38:41] Brian Cannard: That was before my time. I can't really help you with that.

[38:44] Chris Hatch: I want to say it was somewhere around a 25-to-28-property assemblage to get that store open.

[38:51] Brian Cannard: Well, Dave [Winnie] was certainly one of the best brokers I ever worked with. He was extremely competent. A nice guy to boot. But speaking of Salt Lake, there was one project... At one point, Home Depot was doing deals with internal rates of return as low as 6%, and at that time we were all scratching our heads, "Wow, that's really low," because it had been 12. Then the word came that we were only doing deals that generated a 9% internal rate of return. So a lot of deals had to be killed. And one of the ones we walked away from, which I think whoever has my job now is probably kicking themselves about, was in Spanish Fork.

[39:30] Chris Hatch: Yes, because now Lowe's is in the market, but not at that site.

[39:35] Brian Cannard: Costco took that site. Highly visible, really accessible. It would have been a great site for Home Depot.

[39:39] Chris Hatch: Killer location.

[39:40] Brian Cannard: But we had to walk away from it. At that time, it didn't meet the metrics.

[39:46] Chris Hatch: And that 9% was a return-on-cost metric?

[39:49] Brian Cannard: Internal rate of return. IRR.

[39:53] Chris Hatch: Okay. And typically, Home Depot owns a lot of its properties, right?

[39:58] Brian Cannard: I'd say at least 95%.

[40:00] Chris Hatch: I think that's one of the most interesting things, at least from a pure standpoint, when you compare it to Lowe's, which leases pretty regularly. Big difference.

[40:10] Brian Cannard: Well, Home Depot generated piles of cash, so they could afford to put that cash into their retail stores. Interestingly enough, though, as far as I know, they don't own their distribution centers. They lease those from third parties.

[40:27] Chris Hatch: Really.

[40:27] Brian Cannard: They'll do reverse build-to-suits.

[40:29] Chris Hatch: What was it like to get a site ready for real estate committee?

[40:36] Brian Cannard: Obviously, you really had to make sure your submission was spot on. Cross all your T's, dot all your I's. They had a two-page pro forma sheet we had to fill out, including sales and estimated expenses, plus an executive summary of the site's attributes, or any issues surrounding the site they needed to be aware of. Whether the competition was coming in and you'd better do it now, or that if the site wasn't nailed down now it was going to go away because Walmart was nipping at our heels, something like that. You really had to make sure it was 100% accurate. We always did a peer review. I'd ship it off to one of my real estate manager peers and say, "Hey, take a look at what I'm just about to submit. Make sure I didn't screw anything up." You want 100% accuracy, because it went before the CEO and the whole real estate executive committee. You just did not want to talk about a bad day.

[41:39] Chris Hatch: Did you need to show up in person to present?

[41:42] Brian Cannard: No. We had a West Coast director and an East Coast director, and they would show up and make the presentation. I would have loved to, but that was not our role.

[41:54] Chris Hatch: I'd assume presenting to your director was its own set of pressures, though.

[41:59] Brian Cannard: Yeah. We'd run them through it to make sure they understood all the nuances of the site, because they were the ones who'd be in the hot seat trying to explain it.

[42:06] Chris Hatch: What does it feel like? Is it like that sick feeling you get in college when you forgot about a quiz?

[42:12] Brian Cannard: Oh, yeah. You'd almost lose sleep making sure it was 100% accurate. This is the big leagues. You don't screw up. You don't put in the wrong digit.

[42:25] Chris Hatch: I was going to say, it's $30 million a store, right?

[42:28] Brian Cannard: Right. Big, huge investments, and big potential sales and profits for the company if it was done correctly.

[42:39] Chris Hatch: Interesting. And how did that compare to what you had at REI, especially toward the end, with whatever committee selected new store sites?

[42:49] Brian Cannard: Well, at REI I was the one who presented, and I presented to the board's finance committee. That was always interesting, because you could develop a relationship with those people. They generally approved all the deals I threw at them, if a deal made it that far. Plenty of deals were killed in committee before they went to the board, for one reason or another, because they didn't meet all of our metrics. But it was always interesting to go to a board meeting, present to the finance committee, and then sit in on the full board and listen to what they were deliberating on.

[43:30] Chris Hatch: Interesting. And who sat on the finance committee? The CFO, I assume?

[43:34] Brian Cannard: Well, at the time I was there, it was Sally Jewell. Sally later became CEO of REI, and then U.S. Secretary of the Interior. She was an interesting person, very engaging.

[43:50] Chris Hatch: The outdoor passion is just there in every story so far, every team member. It's through and through.

[43:57] Brian Cannard: Like I said, I was an outdoor guy through and through before I showed up at REI. And when you work in one of those stores, everybody who comes through the doors has an interesting story to tell. Alaska was particularly interesting. You had the governor coming in, U.S. Senator Ted Stevens, the mayor. Everybody came through your doors. That's not true of every REI store, but you get some really interesting people who come in with stories about the adventures they've had.

[44:27] Chris Hatch: Wild. Okay, so you're making this investment recommendation to the committee: "Hey, let's go spend $30 million and put a store at this intersection." What caused you to choose one intersection versus the next one a mile down the road?

[44:45] Brian Cannard: Oftentimes we didn't have a choice. It's not like there are 10-acre sites on every corner. So it frequently became: do the deal you can do, not the perfect deal you'll never be able to do. Because in the meantime, you lose sales while you sit around waiting for it to happen, and maybe Lowe's gets in ahead of you, and that's not a good day. So often, do the deal you can do.

What's interesting is that if Home Depot was in town and Lowe's came in, you'd think your sales would drop by half. No. You'd only lose maybe 20 or 30% to cannibalization. It's bad, but not as bad as half. So being first in was huge, because once you've captured the market, people are used to it. They've got their traffic patterns set and they're used to going to you. It's really hard for the second one in to bust in.

[45:43] Chris Hatch: And what's it like trying to land locations? For example, we're recording this podcast in Seattle. It's probably harder to buy land here than in some other places.

[45:55] Brian Cannard: The Seattle area is very constrained because of the mountains and lakes and Puget Sound. You have very little flat land. If you go to a state with flat land in every direction, the opportunities are more prevalent. But to answer your question about why I'd choose one site over another: usually it involved access. Is it just right-in, right-out, or do you have a full signalized intersection, which is usually what we'd look for? You want your customer to be able to get in without having to cheat death getting in or out of your store. That's a big deal. So a fully signalized intersection is preferable to a right-in, right-out situation.

[46:43] Chris Hatch: Pacific Northwest real estate blows my mind. I was out in front of your Poulsbo location yesterday. We've been looking at the dirt in front of it for a couple of the QSR clients we work with. I'm sitting there waiting at the light to turn left, thinking, "I should be able to see a Home Depot and a Walmart right now, but all I can see is this gigantic hill."

[47:09] Brian Cannard: I did not do that deal. But yeah, there's been some really interesting site work on some of these Home Depots to make them work.

[47:19] Chris Hatch: What a wild place to select real estate. It's just very interesting up here.

[47:24] Brian Cannard: That's true, and it is a challenge. Oftentimes you end up like the last deal I'm aware of that they did, that old Sam's Club in Renton. That thing sat vacant for years, and it only became economically viable to put a store there once Lowe's had to shut down in Bellevue. And even then, you're kind of stuck with what was developed earlier. So the parking lot at that store is different from most of the ones you see at a Home Depot. It's a little cut up, but that's what they were left with.

[48:03] Chris Hatch: Is there a certain maximum grade, a maximum slope, for the parking lot?

[48:08] Brian Cannard: Certainly. The big concern is lumber carts. People are loading up their vehicles, they turn away from their shopping cart, and it rolls down the hill. That doesn't work very well. I'm not a civil engineer, so I don't know what that grade is, but there is one. And the other interesting thing is that Home Depot floors had huge floor-loading requirements. Imagine a forklift driving around with a whole sling of sheetrock on it. The pressure on those tires is huge. So Home Depot floors are built like an industrial distribution center.

[48:46] Chris Hatch: So more like a 16- or 18-inch slab kind of situation?

[48:49] Brian Cannard: I forget what the pounds were, but it was huge. That added to the cost, but it prevented accidents and kept the floor from deteriorating over time.

[49:01] Chris Hatch: So in 2012 you left Home Depot, and you've been enjoying retirement.

[49:07] Brian Cannard: Yeah. I applied and was accepted to the planning commission of my local town, Newcastle, so I've spent some time doing that, and I hope to continue. And volunteering up at Mount Rainier as a volunteer ranger has been really rewarding. I go up there and hike in the summertime.

[49:26] Chris Hatch: That sounds like an epic situation.

[49:28] Brian Cannard: It's really fun. You get people from all over the world showing up up there. It's world class. And what's the number one question people have? "Where's the bathroom?"

[49:42] Chris Hatch: That's great.

[49:42] Brian Cannard: But we have two jobs up there. The number one job is to protect the people from the mountain, and the next job is to protect the mountain from the people. You get people who won't stay on the trail, who harass wildlife, who want to fly their drone, build a campfire in the middle of a meadow, or camp in the middle of a meadow instead of a designated spot. But they're also just curious: "What's this? What's that?" And we're able to point things out and give them a sense of what goes on up at Mount Rainier.

[50:15] Chris Hatch: That's fun. I imagine the planning commission is more of a sport for you than anything else.

[50:20] Brian Cannard: It's just a way to give back to my community, and I've enjoyed it a lot. With the number of times I've appeared before planning commissions and city councils, I have some idea of how they function, so I've been able to give back that way.

[50:39] Chris Hatch: It truly is such a fun part of the process. When you're early on a big project, and especially when you've got a really good, collaborative set of folks at the planning commission, it is a lot of fun.

[50:55] Brian Cannard: It is. And you're right, it's very collaborative. They all have varying degrees of experience in whatever we're working on, and in some cases inexperience. So each of us tries to help the others understand the issues we're dealing with.

[51:12] Chris Hatch: What do you miss about commercial real estate?

[51:15] Brian Cannard: The people. I really enjoyed all the people I worked with, both at the companies and in the brokerage community at large. I loved going to ICSC. That was always fun, especially the one in Las Vegas, seeing people from all over the country in one spot and being able to touch base with that many people that quickly. It was very helpful and really interesting. And over the years, when I left REI and went to work for Home Depot, it was gratifying that I was able to work with the same brokers I'd been working with at REI. It was just like coming right back home.

[52:00] Chris Hatch: Felt natural.

[52:00] Brian Cannard: It did, yeah.

[52:02] Chris Hatch: I assume that when you retire from a 37-year commercial real estate career like yours, you basically retire with something like 9 million Marriott points.

[52:14] Brian Cannard: Well, I had a ton of Alaska Airlines miles. I was down in Oregon every other week, so a lot of segments and a lot of flying. I burned through all of that, though.

[52:26] Chris Hatch: Well, there you go. As you should, right? You're a true road warrior. If you could jump in the time machine and go back and talk to the 25-year-old version of yourself, what would you coach yourself on?

[52:40] Brian Cannard: Well, I'd go even further back. I'd go to the college student and say, "Take a bunch of business classes. You're going to appreciate having done that." That's one thing. And the other is, I'd think about becoming a developer myself. If I had the knowledge I have now, I'd think about that today. Although it's got to be daunting to be a developer with interest rates where they are, and in retail, not many people are expanding in big box or mid-box.

[53:12] Chris Hatch: It's a QSR world, right?

[53:13] Brian Cannard: Exactly. Everything's got a drive-thru.

[53:17] Chris Hatch: So doing the big REA Home Depot deals is difficult. It's a different cadence, too. I describe ours as ADHD development. Whereas you might work on a Home Depot that takes five to nine years to get done, we did a Dutch Bros earlier this year, in '24, and we were in and out of the entire deal in five months. Bought the land, built the building and sold it inside of five months.

[53:48] Brian Cannard: It's a different deal. It's quick-paced.

[53:51] Chris Hatch: It's quick-paced. Well, I appreciate you spending time today and telling us your story.

[53:56] Brian Cannard: Thank you, Chris. Good to see you again.

[53:57] Chris Hatch: Pleasure to see you.