"We've got to get a couple of major wins"
A Boomtown Q+A with Central Park Square General Manager Patrick Sullivan
Interview by Stephanie Nakhleh and Minesh Bacrania
Photographs by Minesh Bacrania
Note: This interview has been edited for length and clarity.
On April 10th, Boomtown sat down with Patrick Sullivan, the general manager of Central Park Square, to discuss the challenges of being a commercial property manager.
Boomtown: Tell us about your personal background. What brought you here to Los Alamos and then into this particular position?
Patrick Sullivan: While I was working toward my MBA from the University of Texas at Dallas, I took an internship at LANL’s Technology Transfer Office. After graduation, I moved back to Los Alamos in January of 2003 and ended up at Los Alamos National Bank doing credit analysis for commercial loans. Not what I thought I’d gone to school for. I was there for about six months, then got on at LACDC [Los Alamos Commerce and Development Corporation] in August of 2003, where I worked for seven years. Then I went to the Lab for a year, working in their finance department, but quickly discovered LANL was not my cup of tea. I was CFO of the New Mexico Consortium for three years, then went back to LACDC for seven years as the executive director. In October of 2021, I had the opportunity to work for Philip Kunsberg here at Central Park Square. It was just time for me to make a change in career. The LACDC job was very public-facing. It’s kind of like a coach for a sports team: you run your course and then it's time for someone else to take over. I’ve been here for about two and a half years as the general manager. I handle all of the day-to-day operations for Philip Kunsberg, who owns Central Park Square as well as a couple of other properties in town.
The majority of my work is focused here at Central Park Square: I handle all the tenant interactions and relations: the leasing, all of the repair and maintenance work. We have a full time maintenance crew of three that keeps this place running smoothly. We’d be lost without them.
What fraction is leased by LANL versus LANL subcontractors and small businesses?
Percentage-wise, on a square foot basis, I don’t know. LANL leases the two 3-story office buildings on 15th Street. Then there are some small contractors, probably about six, that lease space as well.
You've seen this town for 20 years from many different angles. What's the business climate like in Los Alamos?
People say Los Alamos has more unique or stranger challenges than some other communities, which may be true, but I spent 14 years in economic development and I’ve talked to people all over the country, in large towns, small towns, rural towns, one-company towns, all of it, and I don’t think our challenges here are vastly different. What it boils down to is if you offer a good product, and you run your business well, you're going to be successful. That’s the perspective, internally, from the business itself. Externally, everybody has to deal with the same challenges. Right now it’s the workforce shortage, which is not unique to Los Alamos. Inflation is an issue as well. Businesses have to adjust prices to account for inflation and not having enough workforce. The challenges businesses face here are the same challenges they face everywhere.
What it boils down to is if you offer a good product, and you run your business well, you're going to be successful.
One thing that we do suffer from in Los Alamos is a lack of inventory of quality space. I’ve heard people say forever that there’s a vast number of vacant but usable buildings in town and I would tend to disagree with that. For a long time, the Mari-Mac Center was mostly vacant and is still mostly vacant. It's now under new ownership, but before, when Kroger owned it, I wouldn't even consider that part of the inventory in town. It was not available to anyone. Kroger stated very clearly for years “we will not lease any space and we will not sell it. We want it to sit empty.” Those exact words were said to me by an executive vice president of Kroger in a meeting.
Did they explain why?
Nope. Just looked at me stone cold and said that.
When you look at properties like the Hilltop House, it was in such disrepair it had to be torn down. The owners were unwilling or unable to do it, so the County stepped in and did it. Yes, those buildings were vacant, but I never considered them available. The lack of supply of quality space in town is noticeable.
I get calls on a routine basis from people looking for space. Mainly office space, but we get the occasional inquiry for retail. Most of the time it’s a national broker, saying they represent some anonymous company. A lot of the time you can infer whether it's a T-Mobile store or something similar. However, the inquiries are rarely for the type of retail that the community desires.
What sort of businesses are Los Alamos residents asking for?
People here want more options for clothing, shows, outdoor gear. Everyone wants more restaurant opportunities, and I think just commercial activity in general. That said, I think Central Park Square has become the hub of commercial activity, both restaurant and otherwise, in town. We've worked hard to try to get a good mix of tenants to do that.
Central Park Square has been quite successful. What is the magic sauce? What are you doing differently from others?
I don’t want to speak to what other people are not doing, but I can tell you what we do here. We’re very insistent and meticulous about the quality of the space that we provide. Our maintenance crew takes pride in the physical appearance, but also in the building systems. If we have a problem with an HVAC unit, we are on it right away.
When did Mr. Kunsberg take ownership of the property?
He bought it in 2011 from Tom Netuschil. Tom set that high standard to begin with: a combination of physical appearance and responsiveness to tenants’ issues. I have a good relationship with all the tenants here. Sometimes we need to fix something, sometimes they need to fix something, but we have that conversation and move on from there. We try to be very attentive and responsive to our tenants here, and try to do everything we can to ensure they are successful.
A common belief is that there’s an oligopoly of landlords in this town. Not a monopoly, but very few landlords controlling much of the commercial real estate. What are your thoughts?
In the past five years I’ve seen a lot of properties change ownership to what I would consider non-local owners. Matt Miles [a Colorado-based developer, see here] bought CB Fox, the Reel Deal, Natural Grocers. He also bought 195 East Road, where Anytime Fitness is, the TRK building, but he's since sold that. He also sold the Reel Deal, which is now SALA.
The two buildings which are next to the vacant lot across from Ashley Pond where the school admin center is have not been locally owned for several years. They were sold a few years ago to a Real Estate Investment Trust I believe. And Mari-Mac was sold in May of 2023.
Columbus Capital owns Mari-Mac now, right?
Yes, Columbus Capital owns that and they also own where the BMS daycare is. They’re local: and have done developments in Santa Fe.
One thing we hear a lot of people say about commercial landlords is that it's easier to rent to the Lab and get them to pay whatever the top market rate is, and small businesses are just icing on the cake.
If the Laboratory wants to lease a space, they have to put together a package that goes to the NNSA's real-estate division. That’s a lengthy approval process; sometimes it takes years to get that done. Once they have permission to lease the space, the Laboratory orders an appraisal on the space to determine the market rate for rent. Then that has to then go back to the NNSA for evaluation and scoring according to OMB [Office of Management and Budget] standards. The value of the lease cannot exceed a certain percentage of the value of the property. The Laboratory is not allowed to pay above or below a very tight range within whatever the market rate is determined to be for that community.
But what if LANL itself is warping the market?
They can’t, because the appraisal doesn’t support that. When the appraisal comes back on a property that indicates what the rate is for that community, they have to pay within that rate.
LANL leases require what’s called a “full-service lease” from the landlord. In most standard commercial leases you would find anywhere in the country, the property owner is generally responsible for the exterior of the building, the HVAC system, the roof, and the walls. The tenant is responsible for anything inside. If there’s an electrical issue inside the suite, if there’s a plumbing issue inside, the tenant takes that on. However, LANL requires a full-service lease where the landlord is required to maintain both the interior and exterior. That’s built into their lease rate, but it’s also separate from what the market rate of rent is determined to be. The reason for that is because NNSA rules make it difficult for LANL to perform tenant improvements or maintenance in properties they do not own. In terms of having the Laboratory as a tenant, a property owner has a much larger burden and a much larger scope of work to manage that building for the Laboratory than they would for any other tenant.
Is that also true for LANL subcontractors and related small businesses here?
No, LANL subcontractors are not bound by NNSA policies regarding leased space.
We found this quote in the Los Alamos Daily Post from 2021. Matt Miles said, “In the commercial real estate world, the value of the lease … is what predicates the value of the building, it depends entirely on the credit quality on the tenant and of course the Lab has all the credit quality … anything less than that if you have local small shop … (or) quasi retail … you have to assess those but normally they can’t pay the same lease rate and that lease rate is required when you go in and do a significant upgrade.” Then he said he doesn't have a plan and is not focused on Los Alamos at this time.
I would agree with part of what he said. We look for quality credit for all of our tenants, whether they're the Laboratory, a Lab contractor, or a local small business. You don't want a situation where a tenant is struggling and can’t pay rent. Every landlord should do some due diligence before they lease a space to someone. He specifically was talking about a lease rate that was dependent on improvements in a building. I don’t know what his situation was, but in my experience with LANL, both here and when I was with LACDC, LANL must pay for their own improvements in a building. They don’t have a choice, so that doesn't affect the lease rate.
Even with a full-service lease, they have to pay?
If there are tenant improvements that are done in a commercial space, the tenant covers the cost.
So it’s different from residential where if my water heater goes out, I could get my landlord to fix it.
If it’s not a stopped-up sink inside of a space, but it’s the actual plumbing system underground, then the property owner should take care of that. If there’s a light bulb that needs to be changed, any non-LANL tenant here in Central Park Square needs to do that themselves. But if there’s a light bulb that needs to be changed in a space that LANL leases, we have to do that. So I would disagree that it’s easier to lease to the Lab. There are requirements in leasing to the Laboratory that you don’t get when you lease to other tenants. The myth that you can charge whatever you want in rent, and the Lab or their Lab contractors will pay it is just that: a myth.
If a new tenant moves into a space and finds mold, is that the landlord's responsibility?
Every property owner is going to treat it differently. Typically that’s defined in the lease, and every lease is a little bit different. When I was at LACDC, one of the things I tried to encourage folks to do is to fully read and understand their lease before they signed it. It may look like ten pages of boilerplate legalese, but there are very important clauses that you need to understand. So if there’s mold in a space, it’s between the landlord and the tenant to decide how to remediate that. Was it caused by the tenant? Was it caused by a prior tenant? Was it caused by negligence of the landlord? All of those things would factor into how it should be dealt with.
The myth that you can charge whatever you want in rent, and the Lab or their Lab contractors will pay it is just that: a myth.
When, for example, Wolf & Mermaid moved in, they had to do a lot of work to retrofit Don Taylor’s old space, and they paid for the improvements. Is that a normal way of doing things?
That’s a normal course of action. Tenant improvements in a space are just that — tenant improvements. In each new lease there is the opportunity for the tenant and the property owner to agree on what the property owner is going to contribute to a tenant improvement, and what the tenant needs to contribute. It’s going to be different in every situation, on a tenant-by-tenant basis.
A property owner wants nothing more than for every tenant to be wildly successful because that’s good for the property owner, too. I'll dispel the myth of the greedy property owner who just wants to collect a rent check. What benefit is it for a property owner to impede the success of their tenants? That’s counterproductive.
Let’s say you’ve got two tenants coming in paying the same thing. One is a restaurant, one is a small Lab subcontractor. If it’s already an office space, is it just easier to rent them an office space?
When someone comes into a space and turns it into a restaurant with a full kitchen, grease traps, vent hoods, all of it, it’s very difficult to convert that space into a different type of usable space. If a property owner was to take on a large cost to convert a space into a restaurant, then that space is going to be restaurant space for a long time. Then you get into the volatility of the restaurant industry. It’s an extremely difficult industry. Restaurants open and close all the time. There are tons of outside factors that affect how successful a restaurant is. That’s why restaurants are hard everywhere in the country.
On the other hand, when you have office space, you encourage modular furniture, walls or cubicles: then there’s nothing permanent in the space. The tenant can take their furniture with them when they leave, and you have an open shell that is very flexible for a new tenant to come into.
What’s the vacancy rate for commercial space around town? How does it compare to the national average?
Oh, we’re much lower vacancy here. It's very tight. That goes back to lack of supply.
It would help increase supply to demo some old buildings, then build up several stories. Why aren’t we seeing that happen, especially now that it's allowed?
Because the cost of new construction is going to drive lease rates. Construction costs, material and supplies, cost of craft labor, and the cost of borrowing money all drive lease rates up on the project, oftentimes to rates that would not be tolerated by the market.
Why didn’t building up happen 10, 15 years ago when it was more affordable?
One, the code was different then and did not allow for us to go up as high. Two, Los Alamos never attracted outside investment money to the scale that was needed to do a project like that. Our population was too low for looking at commercial retail work. In terms of sheer office space, the demand wasn't there at the time. When the Laboratory started their big hiring spree six or so years ago, we added hundreds of residents to town, with many more thousand commuting up every day. More businesses needed to be here: that's really when the commercial demand started to go up. But then the cost to build is going up exponentially higher. Again, you’ll see that everywhere unless it's a multibillion dollar development firm doing something in a place where they know it's a low-risk environment.
Is there a population minimum for opening a Target, Home Depot, something similar?
Every major retailer has their own algorithm as to how they would site and place a store. It has to do with population — not just in the community, but within some radius. They’re all different. It also has to do with population growth, they want to see sustained growth over a period of time. They don’t want stagnant population levels, which we had here for a long time and still have. The housing market is very tight, but from a big picture perspective, our population is still pretty static and has been for 30 years.
They also look at income levels, to a lesser degree. I used to talk to retail chains all the time. We’d say, “Our purchasing power here is more representative of a population of 60,000 than 20,000.” And that did not move the needle at all. So when you say you want a Trader Joe’s or Target, we’re never going to meet their criteria.
A lot of it is because of our remoteness. We’re at the end of the cul-de-sac. I would argue that we do have regional buying power with the amount of commuters that come in, but that seems to be very difficult for a lot of these national chains to understand. It’s so different from what they do. And they’re looking to minimize risk themselves, so it’s hard for them to say, “We’re going to think out of the box and do something that’s a little more risky for us,” when they can go do something that is much lower risk.
Let’s talk about those labor issues. We can barely staff Smith’s. You go anywhere else, they've got a high-school workforce and economic diversity. Can you talk about that?
Every place is looking for people to work. In some locations high-school kids are working because it’s a necessity for their household, it’s a part of their family’s income. That probably is not as prevalent here. But I don’t know if students don’t work as much here because their families have a lot of money and they don’t need to — it may be more that income levels here allow for students to do more extracurricular activities, to focus more on academics, because there are healthy, stable incomes here. Where in other communities, they may need to work.
Then again, it’s also a myth that everyone in town, and you all know this from your last four part series, has very high incomes and that’s just absolutely not the case. There are a lot of families here that do not have two incomes coming from the Laboratory. We also don’t have a large college-age population. In Española they’ve got Northern New Mexico College or down in Socorro with New Mexico Tech, you’ve got college kids, and college kids oftentimes need to work. We just don’t have that population here.
Can we attract it?
Not with housing the way it is. The premium that you would have to pay someone to come up here to work, because of the commute time and travel costs, you’re probably going to price yourself out of business that way. There are jobs available everywhere else, too.
One of the things we’ve seen here — this isn’t a criticism of the Laboratory, it’s just a fact — is that they’ve hired so many people they’ve sucked up the available workforce. That’s a regional effect you’ll see anywhere from Santa Fe to Española.
You mentioned housing: from the commercial real estate perspective, what housing policies would make the town economically more vibrant?
That’s an interesting question, especially when you’re getting into land use. Lack of developable land here is a big problem and, as you stated, that means we’re going to have to be denser and we’re going to have to build up if we’re going to add units. I’ve always been of the mind, and I could be wrong, that 25,000 people is probably the max our county can support with our existing infrastructure. To add another 10,000 people to town? Think about how that would affect the roads, the utilities, and the school system. We’d have to build more schools. Our current schools couldn’t handle that much, they are at capacity now. You’ve got to have a realistic view of what the town can support, and that’s probably somewhere between 20,000 to 25,000 people, unless there was the acquisition of a lot more developable property.
A problem that we run into is when people retire from the Laboratory, their life is here, oftentimes their kids have come back and worked here, so they don’t want to leave. They stay in very large houses, so you don’t have that cycle where people can stair-step up in terms of house, freeing up the bottom level of starter homes for new families or for people early in their career.
We also need missing-middle housing, which is for the two-income families where neither one is working at the Laboratory. I know the North Mesa project is looking to try to address that. In 2019, the county did a housing study that showed that we were about 3500 units short of demand, and that was five years ago. We’ve probably added somewhere around 750 units, in terms of what’s occupied, what’s currently being built, and what's in the queue. We still have a ways to go. I think it's going to take some changing of opinions about how we build.
I’ve said this forever: I can’t think of a better way to help businesses than to put more people in closer proximity to those businesses.
If someone comes in and says, “Yes, I would like to build a mixed use development with 300 units, it’s going to go six or seven stories up,” downtown's going to look different, and people are going to have views of the mountains that are different. On the other hand, if you want a thriving business sector? I’ve said this forever: I can’t think of a better way to help businesses than to put more people in closer proximity to those businesses. And since our business community is generally the downtown area, having more people live downtown will do nothing but benefit our local businesses.
You’ve been here, you’ve had all this experience, you’ve seen it all. Why has the town been so dead for the last 20 or 30 years?
I don’t think it has been dead. When he was a county councilor, David Izraelevitz was tracking the opening and closing of businesses. There was this thought that, oh, everything’s closing and no one supports local business. But a lot of times a business closing has nothing to do with whether it was supported or not. Someone may have a health issue. There may be a family matter. They may be nearing retirement. They may just not want to run a business, it’s a hard thing to do, especially in a retail or restaurant type business. Just because something closes doesn’t mean the town is failing or it isn’t supporting the business. When you look at what has closed over the years and what’s opened over the years, I think it’s a pretty normal cycle, not so different than what you’d see in other communities. When I talk to colleagues in economic development, when I was in that career, we were very normal in terms of churn of businesses. There are several businesses in town that have been in business here for over 15 years, some over 20. Ruby K’s is 19 years old. You can go around and name several businesses that have been thriving here. It goes back to what I said: if you run a business well, if you have a good product, and you provide good service, you should be successful.
I'm going to push back on that because I (Stephanie) do remember what was around when I was a kid in White Rock. The Village was a thriving, walkable, wonderful retail area. It had a movie theater and a bowling alley. Now, it is blighted, dead. And our downtown up here in Los Alamos is not attractive except for the MainStreet work that they did right on Central.
The White Rock situation is a little beyond my time in town, and beyond my understanding. At some point in time, I don’t know when, the majority of The Village changed ownership and the folks that bought it, I think, were inexperienced in terms of commercial property ownership.
And those people still own it?
Yes. I believe most of it.
Why didn’t somebody go in and buy it?
Because the price that the owners demanded was astronomically too high.
So they didn’t adjust or say, “I guess we asked too much.” As business people, we usually lower our price.
I think with that group in particular, it was complete naiveté. They had no idea. They weren’t business people, that was the problem.
That actually does explain White Rock. But what about places like Metzger’s? Driving past Metzger’s, there are things falling off of the building. There are other out-of-code buildings that needed to be demolished decades ago.
So I can’t speak to how other property owners handle their property, but we take a lot of pride in the appearance here at Central Park Square. It’s something that’s important to us, and I think it’s a good part of why we’ve been successful at attracting tenants and being fully occupied.
You’re the only place one can’t find a parking spot on a Thursday night. Is there a residential/commercial discrepancy on code violations? We hear LAC hands out code violations to residents for weeds that are a bit tall, but they don't tell commercial businesses to stop letting shingles fall off of their roof.
I don’t know how their code enforcement works. I know LAC has stated publicly that it’s complaint-driven, as opposed to being proactive with them going out searching for violations. If there’s something grossly negligent, I think they would go ahead and say something.
But why does our downtown look so much worse than others’? If we go to, say, Durango, it doesn’t look like this.
A lot of the buildings here were built back in the 1960s when the town first opened, and probably weren’t meant to be 60-year-lifespan buildings, they were more temporary-type buildings. Through whatever factors they have just remained, and the owners of those properties have chosen to keep them as they are.
There’s all this talk of economic development and tourism, growth, revitalizing. What would it take? Will it change or will it just be the same?
I think it’s going to take a healthy mix of local entrepreneurs, outside developers, and investors that have the financial capacity to do something large and risky. I don’t believe we have many experienced developers locally that have the risk tolerance or financial capacity to come in and do a $50- to $100-million project.
If you wanted to bulldoze the old CB Fox building, then put a first-floor retail or restaurant, maybe second-floor offices, then residential on floors three through seven with maybe 50 to 70 residential units, my guess is that's probably in the $25- to $30-million range.
I think it’s going to take a healthy mix of local entrepreneurs, outside developers, and investors that have the financial capacity to do something large and risky.
You need a good mix of local entrepreneurs who have a solid business plan in whatever drives the demand for space. Then you have to have the financial capacity and the expertise in real estate to actually build something new. Again, Los Alamos being remote, and being stagnant in population, it’s hard for these experienced developers from other places to see the potential here. Some do: I know there are some developers actively working on projects with the County. The County has had their RFP out for 20th Street and that redevelopment for some time now. I hope they’re close to making a decision there.
I think that a key point of revitalization in the downtown is to have a thriving development at Mari-Mac. Whatever happens on 20th Street can be a catalyst as well. When you get someone to come in and take that financial risk, and they do a good project that’s performing well, you start to get momentum and attract others who are saying, “Well, they committed to this and it’s worked out okay. Why don’t we come in and take a look?” We’ve got to get a couple of major wins like that for the town.
What about Los Alamos County? Some complain they can be obstructionist.
Every community I have ever spoken to has said their municipality was obstructionist. While I’ve experienced things that are different from what I’ve seen in other communities, I don’t think the county government here does anything that’s overtly antagonistic or obstructionist. What a lot of this relates back to is, what does the code say? People say, “If I want to come in and make a change to a property, I’ve got to jump through 17 hoops.” Well, you’re going to have to do that anywhere. Some communities have much more restrictive code. Some have much less restrictive code.
How would you describe ours?
I would say our county has historically been more conservative in how they interpret codes — the building code, the fire code, the development code. I think our development code, until it was recently redone, was antiquated. It no longer matched modern development. That was a huge lift that went through P & Z*. I was involved in that to some degree at LACDC. The old development code was impeding growth for the town. But they recognized it, overhauled it, it’s much better now.
Fire code and building code are a little bit different. Those are internationally accepted and adopted, and everyone interprets them a little differently. You’ll hear a story of company X saying, “Oh, the County was ridiculous, I had to do all this stuff.” Then you talk to the County and their story is a bit different. It’s probably always somewhere in the middle. There’s always things I think the County can do better, but, again, it does not behoove them to be actively obstructionist to businesses in the community.
What do you think they could do better?
I think some of their internal processes could be improved in terms of how permitting is done. There’s always room for improvement in terms of communication, especially the one-on-ones with business owners. But I know they’re working on it and they have been for a while. A lot of things that have improved over the 20 years I've been here. Review times for permits are much faster now, the sign code is much easier to interpret and implement.
There’s a small group of very vocal people, especially on social media, that jump to conclusions and perpetuate falsehoods, without having all of the facts or fully understanding a situation. Most are not business owners. If you talk to a business owner in town, they often have different stories than what was stated on social media.
This was great. Thank you. It’s nice to hear from a different perspective.