Pat Donahue ’78 (business administration – marketing), chairman and CEO of Newport Beach-based real estate investment trust company Donahue Schriber Realty Group Inc., is a recipient of Cal State Fullerton’s 2019 Vision & Visionaries award, the highest honor bestowed on alumni of the university. Donahue discusses the outlook for the commercial real estate market and advice for young professionals seeking careers in this industry.
From office space to industrial warehouses to high-end apartment constructions, the commercial real estate industry has been front and center in the economic rebound of the past decade, particularly in Southern California.
While most experts agree that the sector should remain at least moderately strong in the near term, Pat Donahue ’78, Cal State Fullerton business administration – marketing graduate and chairman and CEO of Donahue Schriber Realty Group Inc., says the growth areas among the major products that define the industry, including industrial, office, retail and apartment spaces, are changing.
“Industrial has never been at the top of interest levels for investors, but for the first time in my 40 years in the industry, it is at the top of the capital stack. This speaks volumes to what’s going on in the industry,” says Donahue. “Apartments are very strong and maintaining their value because we aren’t building many homes. Office remains in the middle while retail, which at many times has been at or near the top of preferences, is now at the bottom, because of the narrative about e-commerce and Amazon.”
Donahue encourages young professionals interested in real estate to consider the commercial sector. But he also cautions that they must be aware of structural changes in this space, such as the dominance of major institutions as compared with entrepreneurships and the changing preferences for land use.
“It is a great time to enter the industry, and there is plenty of capital interested in it, especially as pension funds have to invest in commercial real estate,” he says. “But if you’re thinking about going into the industry, you want to make sure that you are a student of the game and watch how the game is played and how it’s changed. The opportunities are how to align yourself with the capital that wants to be in the sector but doesn’t know how to operate in it.”
The Crystal Ball – for OC and the Nation
Despite slowdowns in the residential real estate market and concern about a new property values bubble, Donahue points to the continued desirability of Orange County, from economic and lifestyle perspectives, as the impetus for continued vitality.
“When you put it to scale, California is the world’s fifth-largest economy, and Orange County is the third-largest economy in the state. There’s so much of an economic engine here, and it is a remarkable place to work and live,” says the long time O.C. resident. “As long as you have work, and employment is at record highs and shows no signs of slowing, most people won’t move from Orange County. This will mean a good, steady improvement for the next three to five years.”
But despite the positive signs, Donahue sees no end in sight to the downturn in ground-up retail real estate development, noting that in 2007, his company was part of 17 ground-up retail developments across the western U.S., but today is only participating in a single such project.
“For 33 of my 40 years in the industry, commercial real estate was delivering 125 million square feet of space for new shopping centers nationally. Last year, they delivered less than 20 million,” he says. “There’s no sign that retail will come back anytime soon, and in my opinion won’t come back until more houses are built.”
Refurbishing existing retail space, rather than new construction, is likely the wave of the future. “Across the nation, we are at more than 25 square feet of retail space per capita, which would be double of any other economy. That’s a lot of retail space that has to be absorbed and repurposed,” he says. “Some of it will be knocked down, some will be rethought. We have a lot of work to do, but I don’t think it will come out in brand-new development. It will be redoing existing properties. It is a great time to own great retail just not to be building it from the ground up.”
Getting Started and Staying Strong in Commercial Real Estate
Interested in a career in commercial real estate? Donahue says the first step is identifying the sector that most interests you, such as industrial, office, retail or multi family. The market can even further be dissected by various functions, such as leasing, investment sales, management and finance.
“Everyone is looking for people. With the unemployment rate under 4%, it is a great time to get a start no matter what you’re doing,” he says. “Today’s students have great timing to get started. It is much better than when I graduated, when the economy was in recession and interest rates were 18%. It’s also much better than 10 years ago in the midst of the financial crisis.”
For Donahue, a commercial real estate career came about almost accidentally. His professional journey leads him to encourage today’s students to take initiative in getting started in any industry.
“Everyone is told to follow their passion, and that’s fine, but if your passion is being a musician , and you don’t have any talent, it’s hard to eat,” says Donahue. “Make sure you’re doing something. When I was 23 years old, I was painting houses and landscaping. I didn’t know what I wanted to do, and real estate wasn’t anything of interest at the time. Forty years later, I can say it was a remarkable career.”
Even at age 48 (he is now 63), Donahue did not predict his current role as CEO and chairman of the company he had worked for since graduating from CSUF . But the sudden death of his brother Dan would lead him to head the company.
“The highlights or the times when I think I did a good job all came out of crises,” he says. “This included my brother passing away, the 1994 Northridge earthquake when our No. 1 asset had to be closed down as we lost our parking structure, and the financial crisis of 2008-2010 when we had to navigate the financial world and bring in equity and financially re-engineer the company.”
“Everyone thinks there’s a formula to get to the top. There’s no formula,” says Donahue. “There’s a lot of luck or fate involved, and you don’t have any control of that. But you have to go to work. Get into opportunities and solve problems. There’s an interesting quote I like from Albert Einstein, ‘ Strive not to be a success, but rather to be of value.’
Using Success to Give Back
Pat Donahue and his company support three initiatives related to Cal State Fullerton: Guardian Scholars, which assists former foster youth transitioning to college and career; the Real Estate and Land Use Institute, which supports an annual industry-focused outlook event ; and the university’s Veterans Resource Center through the Orange County Real Estate Luncheon, which benefits new and returning students who have served in the U.S. armed forces.
Donahue says his desire to give back stems from two experiences. “The first one was the death of my brother. It was a chaotic period, not only for the company, but for our entire family. Giving back was a way to grieve. That was the genesis of how we got actively involved,” he says. “The other piece was when I heard Jack Welch speak. In my generation, Jack was the CEO of CEOs, who had built GE into what Apple is today. When I heard Jack speak, he said in his thick Boston Irish accent, ‘Only successful companies can give back to their communities.’”
It would be a sentiment that would encourage both Donahue’s business success and his philanthropic commitment. “If you are successful, you have a responsibility to give back. I took both as a challenge.
While Donahue looks to his alma mater for opportunities to make a difference, the real estate executive stresses that he seeks results, rather than familiarity, in choosing social profit endeavors. “We get involved where we think we can make a difference and have the ability to measure results. If those programs weren’t making a difference, we wouldn’t be involved no matter where I went to school,” he says.
Launching Your Future in Real Estate
The Cal State Fullerton Real Estate and Land Use Institute supports academic programs with coursework covering the many sectors of real estate, including residential, commercial and property management. The institute also supports networking and mentoring opportunities, for students, young professionals and industry leaders.