Rossi still building from the ground up

The first commercial purchase Rob Rossi made was the old Phi Kappa Psi fraternity house on Garden Street in San Luis Obispo, about 150 feet from Rossi Enterprise headquarters on Pismo Street.

In 1976, a year out of Cal Poly’s architecture program, he was employed as an architect but financially strapped, so he asked his parents for a loan to buy the dilapidated structure. It not only smelled rotten, but it leaned like a sailboat on the open sea.

“Mom and Dad took out a second (mortgage) on their house in Ohio to loan me $5,000 to buy a fraternity house (along with local physician Jim Harrison) in shambles,’’ he said. “But I thought I could restore it.”

He did, transforming a seemingly hopeless property that he bought for $50,000 into a state government office (now a personal residence). It was a risk that ended up being the start of a journey in local real estate investing, spanning 36 years.

But Rossi, like many investors tangled in the real estate meltdown, is today faced with tough financial times.

It’s a complex environment that Rossi, one of the largest investors of commercial real estate in the county, contends is largely out of his control as the nation struggles to rebound from the recession.

“I don’t think anyone is immune to it or could plan around it,’’ Rossi said.

But it will be Rossi’s business decisions in the midst of a challenging economy that will impact communities here, which he has helped to shape through his many real estate enterprises.

Assets all around

Rossi’s ventures are vast and have grown considerably from that first Victorian-style building on Garden Street. They now encompass a host of assets in San Luis Obispo and reaching into Santa Barbara.

They include two golf courses, co-ownership of the Ancient Peaks winery and vineyards, the Avila Village Inn off the Bob Jones Bike Trail, co-ownership in the buildings that compose the French Hospital Medical Center in San Luis Obispo, and the Granada Building, a nine-story office building on State Street in Santa Barbara that cost nearly $100 million to improve.

While Rossi, 62, owns too many properties to list here, over the years, he’s been instrumental in purchasing dozens of commercial buildings and parcels of raw land throughout the county, often with the backing of close family friends and longtime business partners.

He bought the recently refurbished Fremont theater and built the Promontory office complex and the San Luis Obispo Country Club, along with real estate developer John King, an early investment partner who is dealing with his own financial challenges.

As well, Rossi owns the property at the corner of Santa Rosa, Higuera and Monterey streets with other partners, and he once had plans to build a 140-to-160-room hotel there.

Elsewhere in San Luis Obispo, he owns the Creamery, the building that houses the new Ciopinot restaurant and parking lot on Nipomo Street, and is part owner of the Warden Building, which is nearing completion of a seismic retrofit and remodel and houses Jim’s Campus Camera. In addition, he is co-owner of the old French Hospital at 1160 Marsh St., and the historic Motel Inn on Monterey Street and Highway 1 with King.

At one time, he owned land in San Luis Bay Estates in Avila with investor Rick Loughead and the former Mid-State Bank & Trust, before selling it off to individual residential developers.

In the North County, he is an investor with Karl Wittstrom and Doug Filliponi in the Santa Margarita Ranch, which he purchased from a Texas-based oil family in 1999.

After much controversy, Rossi and the others received approval from the county Board of Supervisors for the development of residences and recreational facilities. That approval is now the subject of a legal battle.

A learning curve

His foray into real estate, Rossi said, was borne out of a desire to play a larger role in helping to shape the community, incorporating his love of architecture, history and the people of San Luis Obispo.

Rossi teamed with classmates Bob Richmond and Ken Wolff and Cal Poly professor Tom Priest in 1974 to start an architecture firm. That firm later became RRM Design Group when Priest left and another architect, Victor Montgomery, joined the team.

Rossi sold his stake in the business in 1981 and set out to make further inroads in the world of commercial real estate.

“We looked at it (commercial real estate) as something that was a long-term investment and a stable investment,” he said.

In retrospect, Rossi acknowledges that there was a learning curve when he started out in business, and that led to a few failures, including the early days of RRM, which exists to this day but was losing money at the time. Rossi said that he and the other owners were living off of credit cards just to stay afloat.

Another was the Holiday Inn Express on Monterey Street, which he owned for several years in the 1980s before selling it to a friend when it, too, lost money.

“We lost our rear end on that one,’’ he recalled.

‘What can you do?’

Those early bumps, however, would prove helpful in navigating the rough financial landscape that Rossi confronts today as he juggles business arrangements. He’s paying off creditors, negotiating with tenants who have asked for concessions on leases, and trying to sell off some assets to complete existing projects, all in the midst of falling real estate values.

“We’re trying to make sure that we meet our obligations, and those have become more difficult to manage than in ordinary times when you could get lines of credit,’’ he said.

The future of the Motel Inn, for example, is uncertain. He bought the property with King shortly before Sept. 11, 2001, when they purchased the Apple Farm Inn together.

A notice of default, the first step in the foreclosure process, has been issued on the portion of the property where two partially constructed buildings sit. Real estate documents show that $4.5 million is owed to the lender, and Rossi said no replacement financing on the loan has been found.

“The lender didn’t want to renew the loan,’’ Rossi said.

A search for an investment partner is ongoing, with one potential Canadian investor identified, Rossi said.

“I’m sure it’s everyone’s frustration that it’s an incomplete icon of the past,’’ he noted.

But Rossi describes the current economic environment as unusual and the worst in recent memory, and he said he’s trying to keep a positive attitude.

Investors like Rossi operate by having a certain amount of working capital, which they combine with loans in order to make commercial real estate investments. When the investments are no longer able to provide a return, it becomes difficult to pay down the debt.

“Financing is literally tied down,’’ he explained. “It exists, but it’s like one of the old adages, ‘I’ll make you a loan if you really don’t need the money.’

“We try to stay connected with our tenants and our lenders, and try to stay on top of things the best we can. People that owed us money have filed for bankruptcy. What can you do?”

Rossi said that given the economic climate, he would entertain the idea of selling any number of properties for the right offer.

He is negotiating with a San Luis Obispo County buyer who wants to purchase the Granada building in Santa Barbara.

Locally, the owners of Miner’s Ace Hardware are negotiating to lease a portion of the Pacific Coast Home & Garden property from Rossi. The business closed recently.

And at Avila Beach Golf Resort and Blacklake in Nipomo, two properties he owns, he has made personnel and price cuts to control costs at a time when golf rounds have remained flat. He has no plans to sell the courses, but in this real estate marketplace, he said that he might consider it if the right offer came along.

Rossi has also taken a step back from his involvement in Fossil Pointe LLC, a group chosen by Chevron to spearhead the development of a land-use plan for the former Unocal tank farm site on the bluffs above Avila Beach.

Suzanne Parker, spokeswoman for Chevron business and real estate services, said most of the discussion on the project has been internal, but the project plan “continues to evolve” in light of the multiple voices involved in the project and the current real estate market.

Rossi had considered becoming an owner of the property at one time, but said he’s now offering his “two cents once in a while.”

A major influence

Rossi acknowledges that his insatiable curiosity, determination and drive — traits he says he picked up from his self-reliant parents — have caused him to be overcommitted. But he said it’s that same drive to have a hand in projects that are highly valued by the community that has served him in good stead.

When he proposed Blacklake Golf Course in Nipomo, the San Luis Obispo Country Club and the development of Avila Village, where Woodstone Marketplace in Avila Beach now sits, there was some push back, he said.

Controversy surrounding Rossi’s Santa Margarita Ranch proposal persists today, and some believe he has wielded too much power in the planning process.

Sarah Christie, the former county Planning Commissioner, said she’s met Rossi several times and respects some of the projects he’s completed.

“His historic infill and historic restoration projects have been terrific,’’ she said.

Christie has voiced concern, however, over the Santa Margarita Ranch proposal, which she calls an “unmitigatable disaster.” She recalled working for ECOSLO in 1998, when a coalition was formed to preserve the ranch while allowing Rossi to make a profit selling for conservation purposes. Rossi decided on another route, which at that time didn’t work in his favor.

Investors and developers such as Rossi, she said, are “able to exert an outsized influence over how the community grows and develops.”

Those who know him well say his influence has been welcome.

Claire Clark, economic development manager for the city of San Luis Obispo, said Rossi’s influence is so great that it would be dearly felt if he were to one day stop working on his projects.

“It’s unusual to find somebody who is so emotionally grounded in our town who comes up routinely with really great ideas,’’ Clark said, noting that Rossi has worked hard to get his buildings retrofitted in a timely manner.

Rollie McCormick, a 30-year friend and commercial real estate appraiser, said Rossi is a businessman with vision.

“The thing I like about him is that he’s the only person I know who can see tomorrow,’’ he said.

An unclear future

For Rossi, the commercial real estate investment business remains uncertain. And as he sat in his headquarters in an old fire station he saved from the city’s bulldozer, he talked about how there are some projects (like his proposed Andrews Hotel on Santa Rosa Street between Higuera and Marsh) that — either because of a lack of time or financing — he may never get to see built.

But as long as there is a thriving San Luis Obispo, Rossi said, people will be interested in owning a piece of it. The lack of financing, he said, “is not the end of the world.”

Looking ahead, “how financing is done will be different,’’ he said.

“There will be more cash probably, more institutional investors. People like our town, and people like the character of our town. I suspect there will be buyers and users of buildings (in the county).”

And Rossi will likely be in the mix, although he doesn’t anticipate taking on any new “adventures.”

“We have more than enough already.”