Change is inevitable in real estate, but the last three decades have been a rollercoaster for those on the commercial end. Barry DiRaimondo has seen it all: tech booms, tech busts, a worldwide financial crisis, economic shifts, and a global pandemic that, among other things, created a hybrid and remote workforce overnight. Once-bustling offices stood empty for weeks that turned into months, and it wasn’t long before CRE values crashed, even in cities where return-to-work mandates took place earlier than others. Then, in March 2022, the Federal Reserve began raising interest rates and would continue to do so until recently, causing what some experts call a full commercial real estate recession. “Until the markets thaw, the world is kind of stuck. Not just us, but across the board.”
This article was written by Victoria Kertz and originally published by The California Business Journal.
DiRaimondo joined Lincoln Property Company in 1985; it later became Legacy Partners Commercial and, in 2000, he took over the reins and was named President. He added Chief Executive to his title and completed a management buyout in 2014 and renamed the firm to SteelWave. SteelWave has developed about 130 million square feet of western commercial building space over the last 35 years and invested around $18 billion. In the 1980s and ’90s, the firm cast a wider net in terms of locations, but today, SteelWave only buys in cities that have shown historical growth and, only in places where the senior team members would personally like to live. The theory was simple, “If we wanted to live there, then lots of others do too”. SteelWave believes that each of their regional teams must be indigenous to the markets that they are investing in and be active participants in local community fabric. Likewise, DiRaimondo has placed three-hour maximum plane ride radius from SFO for himself to the markets that he broadly oversees. He has no plans to extend that radius farther east.
They focus on the tech hubs: Seattle, Portland, SF Bay Area, LA, OC, SD, Denver and Austin. Coincidently, nearly 70 percent of their real estate portfolio is in California. “Everything we do is catered to the tech industry,” he says, including traditional, media, bio and defense tech. SteelWave famously acquired the former Los Angeles Times Orange County printing press building in Costa Mesa in 2017 and helped transform it into an airy yet modern 650,000 SF base for Anduril, a defense contractor and maker of specialized drones. DiRaimondo says that part of the space was set to become a 55,000-square-foot market hall initially, but that deal fell through when Covid hit in 2020.
Today, SteelWave concentrates on four verticals: creative office space, life sciences, industrial, and high-end mixed-use projects that go beyond the standard office-and-residential equation. He says companies want to provide vibrant, pleasant workspaces for their employees in new or reimagined office buildings, and it can be quite the challenge. “You have to create a work environment where people actually want to come to work,” he says. “You’re competing with their couch.” Tech firms, in particular, are embracing remote and hybrid work schedules.
That said, SteelWave has no shortage of large projects in the works, like a large industrial deal in southern California, life science facilities in the Bay Area, San Diego, Boulder and Seattle and a mixed-use space in the Los Angeles region. DiRaimondo feels that very few mixed-use properties make the most of their location. “In my mind, mixed-use done right is fully integrated,” he says. Housing, office, retail, and hospitality should blend together. ”The overall project is way better than the sum of the individual parts.”
With opportunities returning, SteelWave is cutting a new path for a new set of investors – and something that has yet to be successfully done by any other firm. His son, Mitch DiRaimondo, is a Gen Z crypto-native who started a cryptocurrency hedge fund in college before he graduated in 2020. While in school he interned one summer with SteelWave. CRE, his son noted, could be used to back digital investments and bridge tangible asset with real cash flow into the digital 3.0 ecosystem. The challenge is that most SteelWave deals are $100 million and higher, a price that most U.S. retail crypto investors, even the biggest ones, are not quite ready to dive into. His challenge was how they could bring institutions into the ecosystem and bridge them into this digital revolution.
The answer? A simple real estate product: buildings with long-term leases in place to tech firms like Apple or Google. The existing buildings have cash flow, require no additional retrofitting, and have a name-brand tenant. They recently launched a fund, which will acquire not a single building but 15-20 of them at heavily discounted pricing given the current capital market dislocation. Each investor in the fund can take their initial ownership interest as either a digital security or a traditional LP interest. Those that choose the traditional LP interest will maintain a no cost option to convert their LP interest into a digital security at a future date when the ecosystem can provide scalable, safe and fluid secondary liquidity. The digital security can either be traded peer to peer or listed on any number regulated exchanges. It’s a very straightforward CRE investment strategy with a very unique ownership wrapper for the institutional fund investors that gives them free optionality to participate in the digital revolution.
In early 2023, Mitch DiRaimondp took the reins of subsidiary SteelWave Digital, whose initial investor base is comprised mostly of individuals from the Middle East or Singapore (DiRaimondo says the U.S. is about three or four years behind regarding institutional-level digital investments.) The new digital arm is domiciled in Bermuda to provide favorable tax treatment to non US investors while also providing a straight forward and friendly digital security regulatory environment. The feedback has been positive thus far. “I think this is the first fund of scale that provides digital optionality to the investors,” he says.
By the end of 2024, DiRaimondo hopes to have the fund fully raised and starting to deploy. If all goes well, he plans to raise funds for similar projects or even create joint ventures with fund investors for more complicated deals. SteelWave Digital may eventually become “an avenue at some point in time to provide capital to the other SteelWave entities that acquire and develop real estate.” But, as in any new venture, patience is critical. What grows quickly, he warns, can always drop quickly.
As interest rates seem poised to fall in coming months, CRE investors see a glimmer of hope; DiRaimondo does, too, especially in the Bay Area and all tech centers where innovation grows. “Never bet against tech,” he says, “the Silicon Valley isn’t going anywhere.” With decades of experience and a solid foundation, he’s ready to take SteelWave through the next big boom and navigate the challenges ahead.
