Douglas Wilson Companies - Fall 2022 Newsletter

BEACH STREET DEVELOPMENT ADVANCES ON HOUSTONAREA SURF DESTINATION WITH DWC ADVISORY

Paving the Way for A Surf Boom

From urban mixed use to condo complexes, DWC has developed a wide array of properties over the last several decades. But for the first time in 2018, the firm began work with a group based in Southern California that has taken on an entirely new project type for the firm and for much of the U.S.: manmade surf destinations.

Technology that produces ocean-like surf in a commercially viable manner is relatively new. Breaking that technology barrier combined with a substantial worldwide market for surfing makes this new entertainment-based concept ripe for development. For the first time, surfing also found its way into the 2020 Tokyo Olympic Games, which will bring further attention and worldwide involvement to the sport — from locations both on and off the coasts. These spectacular water and wave installations will attract board sports enthusiasts from around the world and also will open the sport to an even more substantial market of participants.

“The sheer numbers are incredible,” says Alex Bergman, a Principal focused on finance and development for DWC client Beach Street Development, which is at the forefront of the man-made surf market. “There are [reportedly] 35 million-plus surfers and that number is [likely] grossly understated. It is a roughly $75 billion global industry which is more than most realize. Now it’s becoming even more televised and high profile.”

From The West Coast to Texas:

Bringing the Surf

A surf lagoon features a large-scale water installation with cutting-edge technology that creates a series of ocean-like waves especially suitable for surfing. The Beach Street team is bringing the experience to several U.S. and international sites, with their vision building upon the surf to also provide a full-service resort experience including food service and lodging, spa and fitness facilities, a surf academy for lessons and group use and a world-class hospitality team on site to maximize the surf resort experience.

(Continued from cover)

CONNECTING

DWC Team on the Move

DWC Chairman and CEO Douglas Wilson will speak during the 19th annual IMN Winter Forum on Real Estate Opportunity & Private Fund Investing, to be held January 18-20 in Laguna Beach, California.

Douglas Wilson also will be speaking at the upcoming February 7 meeting of the San Diego North County Estate Planning Council. He will discuss the economic forecast as it relates to today’s real estate environment.

Douglas Wilson Companies’ Vice President Ryan Baker has been selected by Receivership News to author its longstanding Heard in the Halls column, appearing in each quarterly issue published by the California Receivers Forum. Heard in the Halls provides a snapshot of the latest receiver industry news and issues as a service to the professional receivership community.

The market potential is enormous, not only in areas historically known for surf culture, but also in markets like Houston, where DWC currently is advising on a second project with Beach Street. By expanding to non-coastal markets, Beach Street’s leadership notes, surf lagoons resolve some key problems faced by surfers in natural surf destinations.

“The ocean is getting over-crowded and it can be difficult to get waves,” says Blake Hess, Chief Operating Officer for Beach Street. “The ocean can be very intimidating and often prevents people from ever attempting to surf. Beach Street surf lagoons are monitored by lifeguards, have state-of-the-art filtration systems, and can create world-class waves at the push of a button. These features minimize the anxiety and create an optimal environment for learning and progressing. There is a huge benefit to consistent quality waves. In the ocean, a surfer’s opportunities to learn new moves don’t happen that often. In a surf lagoon you can get more wave time in a single afternoon than some surfers will see in an entire year in the ocean.”

Realizing the market potential in non-coastal areas as well as coastal areas with limited exposure to surfable waves led Houston to emerge as a prime site for Beach Street Development. Given Houston is now home to over 7 million people and has some access to poor surf, there is a surprisingly large and hungry population of surfers there. Combined with Houston airports that welcome some 60 million visitors per year — spending a collective billions of dollars on recreation — the market is an A+ for man-made surf, according to Beach Street’s research. The state is also home to Texas Surf Museum, which was established in Corpus Christi in 2005.

“The numbers support [the expansion],” Bergman says. “We expect that much of the market penetration is going to be among nonsurfers. Many [of Houston’s future surfers] don’t even surf yet.”

Building and Designing a Surf Lagoon

An up-and-coming asset type, there are few blueprints for creating a man-made surf destination, much less a formula for selecting the right site, designing for environmental standards and gaining the necessary entitlements. Upon their inaugural landmark project in Palm Desert, Beach Street

Development Co-Founding Partners Doug Sheres and John Luff sought the expertise of DWC as a land use consultant to work through needed steps toward groundbreaking. Today, the same team is approaching groundbreaking on the Houston project.

“Through our working together, we’ve been able to successfully get these projects entitled,” DWC President Michele Vives says. “This is despite it being a new type of asset and land use. Beach Street’s unique expertise and 90 years of combined team experience in surf technology, real estate development, project finance and particularly, in surf lagoon operations, allows them to bring this opportunity to the forefront of major markets in the U.S. and abroad.”

The group also leverages real-world experience to navigate considerations unique to surf destinations, such as water conservation. In Palm Desert, Beach Street worked with the city to create the “Turf for Surf” program, which saves more water annually than the surf lagoon uses, by replacing nonessential turf on the neighboring golf course with drought tolerant landscaping.

The team continues to maintain involvement in the surf community nationwide and globally, with recent speaking engagements in October during the 2022 Surf Park Summit, an annual industry event that Beach Street Founding Partner John Luff co-founded in 2013.

Paving the Way for the Future of Surf

While Beach Street initially sought a peer review and guidance in managing architects and the entitlement process, today DWC is an exclusive advisor to the organization on its pipeline of surf destination projects, providing a variety of advisory services from development to finance. The Houston project is expected to be making waves within three years of land procurement, a timeline cut nearly in half since the planning process for the Palm Desert project began.

“Though DWC is well known as a principal developer, we are unique in that we have also provided a variety of fee-based real estate advisory services to numerous institutional and private clients,” Vives says. “I don’t think there is another group like Beach Street to develop manmade resort surfing destinations and our relationship with them is a great example of the advisory services we provide at DWC.”

INSIDE THE CANNABIS MARKET: LESSONS LEARNED

Douglas Wilson Companies

DWC Experiences Cannabis Market Through

Ongoing Receivership

When cannabis was legalized for recreational use in California in 2016, only a handful of states had gone through the process of opening the market for marijuana manufacturing, distribution and sales. Today, six years later, many reports point to the instability of the market and its growth challenges.

Operating a cannabis-related business in today’s market is challenging, and DWC has seen this firsthand throughout one of

Furthermore, because the cost of operating remains significant, the illicit market for marijuana remains very active, leading to competitive challenges.

“Experience is crucial and having a team available that knows what they are doing is an important part of succeeding in today’s cannabis market,” says Ryan Baker, DWC vice president, who is serving as receiver in a California cannabis case. “From navigating the regulations to knowing how to operate, cannabis companies continue to face many hurdles.”

Consumer payments — Similarly, most credit card transactions for cannabis purchases are not permitted, which can lead to payment and cash management woes for sellers. DWC has gained experience with alternative payment systems that function similar to credit and enable consumers to make purchases without cash.

Regulations — Through our receivership work, DWC has a wealth of cannabis regulatory knowledge, as well as the licensing renewal process.

Security — Cannabis dispensaries are targets due to their cash on hand, meaning a comprehensive approach to security is essential.

our ongoing receivership assignments. Because bankruptcy courts operate federally, cannabis companies currently are unable to file for bankruptcy protection. In essence, if cannabis companies are in need of restructuring or workout support, receivership can be a key tool for them to liquidate, recover value and repay debts.

Given the state of the market in California and in other states, we expect to see many more of these troubled scenarios on the horizon. In the meantime, we’ve learned a lot about how to succeed in the cannabis market.

The Challenges Around Cannabis

While the early outlook for cannabis companies was very bright, many of the difficult realities around cannabis operations have since come to light. In large part because marijuana is not legal federally for recreational use, financing is difficult, cash is critical, licensing is challenging and regulations are ever changing.

Lessons Learned Through Receivership

Currently, DWC is serving as receiver in a partnership dispute case that arose from conflicts around operating and financing for a cannabis dispensary in West Hollywood. Once a thriving operation covering four key license types — retail, distribution, manufacturing and growing — the business soon fell into financial distress, leaving the two partners at odds.

Throughout the receivership, DWC has navigated several challenging areas unique to cannabis companies:

Banking and finance — Because recreational cannabis use is not legal federally, traditional financing, including bank financing, is extremely challenging for cannabis sellers to obtain. DWC has developed relationships with several banks that do business in the cannabis market, and are able to open accounts relatively quickly.

Taxes — Taxes on cannabis are relatively high compared with many other goods, and while different states levy different taxes, they generally fall into three categories: taxes on the product’s price, taxes on the product’s weight, and taxes on the product’s potency. Many dispensaries face tax payment backlogs amassed during their early operations. This can lead to cash flow issues when the taxes finally need to be repaid.

Competition — Early projections estimated there would be roughly 3,000 legal cannabis sellers in California, yet the actual count is less than half that number. Cannabis operations continue to be challenging — and not as lucrative — as many had anticipated. This will lead to future workout and receivership scenarios, with DWC positioned as an experienced receiver.

“The cannabis industry has many complexities, from licensing renewals to finance,” Baker says. “It’s also becoming harder to exit the industry as an investor because valuations are not what they once were. A receiver can help negotiate back taxes, handle cash management and work to resolve partnership disputes. This will be increasingly important as this burgeoning industry evolves.”

INSIDE THE LATEST HEALTH AND SAFETY RECEIVERSHIPS

Doulgas Wilson Companies Receivership

How cities are pursuing receivership to resolve code violations

Oftentimes, receivers are appointed by courts in private matters involving property or business owners and their lenders or creditors. In many cases, receivership is utilized as a bankruptcy alternative to preserve asset value.

Yet it can also be a critical tool — as it has been in several recent DWC assignments — for local agencies tasked with code enforcement and with protecting the health and safety of the general public.

Cleaning Up A Public Hazard

In one recent assignment, DWC was appointed as a receiver to ensure the legality of operations being run out of a 135,000 square foot industrial property in Los Angeles County. The property had been raided by local law enforcement numerous times, uncovering various forms of illegal drug activity.

Police conducted a subsequent raid due to illegal nightclub operations, finding multiple tenants of the building did not have business licenses under the city code and lacked necessary permits. The safety and structure of the building was also at issue.

The city contacted the property owner in an effort to resolve the violations, but to no avail.

Without the cooperation of the property owner, the city opted to pursue the appointment of a receiver to ensure the safety and legality of the property and its operations. Upon commencing the assignment, DWC learned of a major fire on the site, which also meant there were environmental contamination concerns relating to the property’s safety.

“There will be many more of these receiverships where cities pursue a receiver to ensure public safety,” says DWC Chairman and CEO Douglas Wilson. “These are very viable solutions to

DWC WELCOMES NEW CONTROLLER

Wilson Companies

DWC is pleased to announce that Ms. Rene Weidman has joined the firm as Controller. Ms. Weidman, a Certified Public Accountant, began in her new role with DWC in July, and has since been closely involved with the firm’s corporate activities as well as our client work.

Most recently, Ms. Weidman served as controller for a San Diego-based manufacturing and distribution company, with her expertise spanning cost and variance analysis, due diligence, cash flow forecasting, business valuation and financial and audit preparation.

With a deep background in forensic accounting, Ms. Weidman has previously testified as an expert witness in dozens of cases. She applies

ensure code and licensing requirements are being met, particularly because the resolution is funded by the estate and the owner, rather than the city.”

Ensuring Future Health and Safety

When it comes to health and safety receiverships, DWC is uniquely positioned to assist cities and their code enforcement agencies due to our longstanding history as a developer and advisor to real estate owners. Our knowledge of building code and enforcement, construction management, environmental factors, entitlements and commercial real estate operations position us to enlist trusted experts and leverage our experience to resolve these health and safety matters going forward.

“For cities and agencies that have jurisdiction to enforce building code, this is truly a remedy for them,” says DWC President Michele Vives. “Our experience lends itself directly to these scenarios.”

her analytical and problem-solving skill set in working closely with DWC’s executive team on receivership assignments, advisory work and real estate development operations.

“We are thrilled to welcome Rene to DWC,” says company CEO and Chairman Douglas Wilson. “Rene’s experience as a controller as well as her wealth of knowledge when it comes to forensic accounting and analysis is a major asset to our team and to our clients. We look forward to introducing Rene in the coming months to our clients and associates who have not yet had the pleasure of working with her.”

Douglas

A MESSAGE FROM OUR CHAIRMAN & CEO

DOUGLAS P. WILSON

STORM CLOUDS ON THE HORIZON

The foundation of the DWC business model was built on the premise of providing institutional real estate advisory services that could navigate all economic cycles. While developing the 1.2 million-square-foot Symphony Towers project in San Diego during the 80’s, I witnessed firsthand many of my former colleagues in my prior home, Denver, dealing with the economic energy collapse that devastated the Western U.S. and Canada at that time. I observed firsthand the unpredictability and power of cycles, which can lead to general economic disruption and a devastating toll on the real estate markets.

Throughout all of the subsequent cycles, DWC has continued to grow and build upon its foundation by adapting its services to meet the changing markets. We’ve done this without ever compromising our commitment to our loyal clients or the quality of our services. This is reflected in the 1,200 projects across 32 states with a value exceeding $15 billion that we have managed, alone as a receiver or serving another fiduciary role. These projects have spanned both state and federal courts and in addition to leveraging our pedigree in real estate, we have provided resolution for numerous operating companies, partnership disputes and other scenarios. Our diversified menu of services is

balanced by our Legacy Asset and Real Estate Advisory service platforms.

Looking ahead, with two consecutive quarters of GDP contraction behind us and a sustained environment of historically high inflation, all of the signs are in place that point to an economic correction; a reality which is no longer “if,” but “when.” But based on our diversified service and vast experience with all parts of the economic cycle, we are a “canary in the coal mine” when future trouble looms. This is due to our deep relationships with the various suppliers of debt and equity, their servicing and special asset platforms, and the lawyers that represent creditor rights.

We have a strong leadership team in place to carry on the quality of our brand as we navigate the storm clouds ahead, and we look forward to working with many of you to work through these future challenging times with the continued goal of achieving the best result.

Sincerely, Douglas P. Wilson

dwilson@douglaswilson.com 619-906-4312

San Diego

1620 Fifth Avenue Suite 400 San Diego, CA 92101

Los Angeles/ Orange County

19200 Von Karman Avenue Suite 416 Irvine, CA 92612

Las Vegas

330 E Warm Springs Road Suite B43 Las Vegas, NV 89119

Phoenix

502 South College Avenue  Suite 300 Tempe, AZ 85281

San Francisco

50 California Street Suite 1500 San Francisco, CA 94111 Washington, D.C. 1200 G Street NW Suite 800 Washington, DC 20005

IN THIS ISSUE

When DWC founder, Douglas Wilson, moved to San Diego in the early 1980s from the busted energy bubble of Denver, he was thinking big.

As DWC enters its fourth decade, it does so with an executive suite of high-achieving young professionals who have already experienced a round or two of cycles.

PAVING THE WAY FOR THE FUTURE OF SURF

How Douglas Wilson Companies is playing a part in bringing surf parks into the mainstream.

CANNABIS OPERATIONS: LESSONS LEARNED

As cannabis companies face new and growing challenges, DWC shares lessons learned from an ongoing receivership.

DWC PERSONNEL NEWS HEALTH AND SAFETY RECEIVERSHIPS

Rene Weidman, Controller, joins Douglas Wilson Companies in new role.

When cities and municipalities need the help of an experienced receiver.