Guest: Diego Pacheco
Topics: ACE Pickleball, leasing deals

Transcript:

Chris Ressa 0:00
This is Retail Retold, the story of how that store ended up in your neighborhood. I’m your host, Chris Ressa. And I invite you to join my conversation with some of the retail industry’s biggest influencers. This podcast is brought to you by DLC Management.

Welcome to retail told everyone, I’m your host, Chris Ressa. And I am here with Diego Pacheco, the chief growth officer at ACE Pickleball. Everyone has been seeing the boom in pickleball. I’m excited to have him here. It’s going to be an interesting episode. Welcome to the show, Diego.

Diego Pacheco 0:40
Thanks for having me, Chris.

Ressa 0:41
So do tell us a little bit more about you and who you are.

Pacheco 0:46
Yeah, so you know, I right out of undergrad joined CBRE in a recent graduate rotational program that was known in the industry as the Willow program. First time they had brought it back since 2008. And I fell in love with retail real estate as soon as I got there, and I actually was kind of forced into the job by my dad when I had other options in front of me. And I was like I don’t want to do office. That’s boring industrial NAT. But you know, there was somebody really well-known in the industry. Todd Caruso CBRE, who was talking about it and I go, You know what, I like shopping. I like real estate. This seems the art and science is really there. So I went into retail real estate, spent about five years at CBRE doing everything from retail investment sales all the way to my ultimate final stop doing big box leasing for new stores and dispositions for Kroger, Rite Aid PetSmart. And my biggest client skies and Sky Zone trampoline parks, which is how I met the team that is now working on ace. And you know during that time with Sky Zone, I got really good at convincing landlords how to think about a crazy concept such as trampoline parks in retail spaces. I did over 120 deals in the course of four years. So you know, right back at it with ace just different narrative on Pickleball.

Ressa 2:06
And you just moved from San Francisco to New York. I did. What brought you to New York.

Pacheco 2:17
You know, the ACE teams on the East Coast. One of ACEs co founders Joe Sexton is based in New York City. And you know, New York’s always had a special place in my heart. So, you know, why not now? I love it. And how are you liking the city? It’s great. You know, you’re never bored. In fact, you know, there’s too much socialization and too many options. Can’t go outside though without breathing and spending $100. There. That is true. That is true. So why don’t you tell us a little bit more about ace pickable? Yeah, so, you know, Ace pickleball Club was the brainchild of our co founders Jay Dietrich and Joe Sexton. Both Jay and Joe had met when they were working at Sky Zone trampoline parks. And you know, during 2020 J had moved to Florida and was playing pickleball outside. And you know, pickleball in Florida, you know, the two are very synonymous. It’s one of the largest regions for the sport. But Jay’s wife said, Hey, playing outdoors, we can barely get on a cork supply and demands an issue. And the weather in Florida sucks. It’s too hot. It’s too windy, it’s always raining, you should take the sport indoors. And that’s when the thesis was born was hey, as pickleball club is really a real estate play. And it aligned with Jays professional background. He makes that with calling Joe Sexton who has a really strong background in franchise sales. And they said, hey, if we ever had a vision of building an indoor pickleball club brand, is it best to go out and fundraise one pot of corporate capital or go the franchise route. And we all realize that our network is firmly franchising. We know all the largest franchisees in the recreational space, fitness space, you name it. And that was the quickest way to get you know, 200 plus locations open and operating without all the capital risk that comes with the capital about corporate capital balance sheet within a five year period. So the vision was born. ACE has really been in stealth mode for a couple years now working on the concept and you know, a lot of people keep asking, Where did you all come from? Because we didn’t really go public until March of 2023 When our franchise agreement went public. And since that time, you know we’ve sold now 38 franchise units since March.

Ressa 4:49
Oh boy. So that’s that’s phenomenal. How big is nice pickleball

Pacheco 4:54
You know, our one in Roswell, Georgia, our corporate location that’s about 36,000 square feet. We’re getting in 14 indoor courts there are standards specifically range from 25,000. All the way up to 50. Got it and and open today is just the Roswell location. Correct? Correct. But so you got a lot of deals working pickleball sigh You got a lot of deals work? Do I have no time for sleep, Chris, you know, we’re looking to the industry forever. It’s all about knowing the retail landlords getting those off market deals. And my cell phone has no shortage of text messages from all the guys in our industry. We’ve known for over four decades now saying, Hey, I have this box coming back. Let’s do it. So we’re working on a lot of off market stuff that you can go on our LinkedIn, you can see the markets we’ve announced. But there’s going to be some really exciting things coming to fruition in the next two to three months that are just coming from all of our backgrounds and retail real estate. So before I get into, and we talk about like just an overview of pickleball.

Ressa 5:59
I, I do think it’s interesting, because landlords are super excited about this concept.

And I think the consumer is craving pickleball.

Pacheco 6:13
But as far it seems like there’s an arms race, there’s all these pickleball concepts, most of them don’t have significant locations open to date, right? Like, I don’t, is there a pickleball concept that has 20 locations open yet? No. And ace will be the first. Okay, it’s just, you know, give us eight months from now. And you’ll start seeing that scale. And you’re absolutely hit the nail on the head. This is the biggest space right now where you see a lot of one-offs happening. And the biggest question we’re getting from landlords are, is there any brand that has experience in the space and that scaling with one brand? You know, the UAE answer that is a there’s nobody that has experience in the pickleball space, because pickleball just emerged in the last three to four years. So we’re all figuring it out together. But as far as teams that have operational experience scaling similar concepts in one brand, that looks like Ace for the time being, we don’t see another group that has emerged to give us competition in that space yet, but we absolutely knew it know what’s coming in the next six to 12 months, because it’s a large arms race. As you said, We’ve never seen anything moves quickly.

Ressa 7:26
Arms Race, everyone’s like, Oh my God, when everyone sees like, the consumer behavior moving to this, everyone’s like, how do I capitalize on this? And so there’s an arms race here. I think the franchise way is an interesting way to scale quickly, especially if you have franchise routes. So that that is super interesting to me.

Pacheco 7:47
When, when people are thinking about pickleball concepts, you mentioned 14 courts 25 to 50,000 feet, is there a large food and beverage component, the way we look at pickleball and Ace is we see the industry in two verticals. The first is entertainment, which has that food and beverage component. You know a lot of the entertainment concepts you see the chicken and the pickles camp pickle all of those groups popping up. And they have significant experience in the space. However, you know, there’ll be some meaningful differences there. The first being from a real estate perspective cost the build up for that entertainment can be anywhere from 10 to 25 million depending if you’re going ground up or retrofitting. And then you get into the true business model. It’s a restaurant with restaurant margins, different operating staff requirements, all of those pieces. And the consumer that’s going to those is looking to go and have drinks, watch the game, they’re not there to come multiple times a week. Now the space we sit in is what we call indoor recreational and tournament play. That’s for that consumer that wants to play pickleball two to three times a week wants to be part of a tournament, meet a social group, no matter if they’re in a beginner stage or advanced stage. And you know, these are where you see those groups emerging. We’re a very different operational model, our build outs are very different costs, you know, they can go anywhere, depending if we’re getting a beautiful Bed Bath and Beyond from 600,000 up to 1.5 million just depending on the landlord work. But you know, they’re two different areas. So you know, specifically for indoor recreational tournament play food and beverage is not part of our thesis because it just takes a different turn on the business model. So we prefer to go with prepackaged snacks and over the counter drinks. super interesting. And

Ressa 9:35
you mentioned depending on the landlord, the landlord on the other line of this call for you which is me we’ll be sending you some sites after this call no doubt.

But the so that that was a really good explanation. And do you see from a real estate you mentioned that that the beyond Do you see this working In the types of real estate that fish users and trampoline parks took in traditional shopping centers,

Pacheco 10:10
if there’s a trampoline park closing down in a market, I know about it, because I tell our brokers, those are the best specs, because column spacing is almost identical clear heights, we know we have the same wheelhouse, it’s perfect. So yes, think about what you see for fitness users, trampoline parks, those are the types of space we’re targeting. And from a revenue perspective and a traffic perspective, you know, what, what can what are people expecting from the pickleball space on like a, at different units, and obviously, it’s different if you’re either to the entertainment world versus the recreation and tournament play? Yeah, you know, we’re very clear on that we pay rent. However, you know, you think about in the recreational space, those users can pay a very different rent, because it’s a different revenue model, whether its membership base, specifically for pickleball, you see a few different ways people are slicing and dicing the pricing model for this indoor recreational tournament play model. And you know, for the average consumer, it’s going to be membership, a one time initiation fee, or a drop in fee, or some kind of mix of all of those pricing is still not gravitated to one center of being it really depends on what market you’re in what kind of product you’re offering. You know, for us in our location in Roswell, Georgia, which is northern Atlanta, we are charging $129 a month for unlimited play, or $20 a day for unlimited play and during our drop in hours. Now, if you’re coming into play three to four times a week, which a lot of our drop in people have, it becomes pretty simple math equation saying, Oh, I’m paying $80 To play four times in a week, why wouldn’t I just do the $129 a month unlimited membership model. And beyond that, you have a few different pieces, we’re special events, you know, we have a lot of corporate users that want to reserve out sure facility because they love getting people on their employees on the court having a good time. But you know, the real upside for this is tournament play, whether it’s professional organizations, or a local league that wants to put on a tournament, and they don’t want to deal with predicting what the weather’s going to be three weeks out, they want to come book out the facility to know they’re gonna be able to run the best tournament with technology on the courts and Professional Regulation size courts. So you know, that’s the area we’ve seen grow. You know, tournament play has been up 300% year over year, and just the last few years, I see that as the biggest upside for the model. Interesting. And do you have locker rooms in your facility? We do not as of yet, you know, we work with we build on our bathrooms to full occupancy code to make sure we can get as many people in there. However, you know, if we start seeing a need to have those locker rooms, we will start probably moving to a model where that’s part of it. Got it?

Ressa 12:55
This is super fascinating. I think the question that the skeptics out there, let’s talk to the skeptics for a second. It’s all I do. Alright, so one of the and you’re going to be the ambassador for pickleball, not just ace, I’m going to ask a tough question. You ready, shoot.

To the skeptics out there? Why is pickleball not a fad?

Pacheco 13:20
You know, Pickleball is not a fad. Because you’ve seen billions and billions of dollars get thrown into this industry in just the last three years, you have a large institutionalization of the sport when the Olympics start saying they’re considering making an Olympic sport, when you have two large professional organizations that are born over a short period of time. In our case, that’s the PPA and MLP are the two professional organizations. And you know, the joke on the street that’s not really a joke is that it’s harder to buy a major league pickleball team than it is to buy an NBA team.

In you know, and there actually was an article, I think it was the New York Times or Business Week, but they did the math. And they said the ROI to own a major league pickleball team and all of the branding dollars associated with that was higher given the audience growth and the engagement in the sport than it was for the NBA. Now you take all those pieces away from Wall Street to the professional teams. And you look at it from a perspective of how big is the pie for the demographic for the sport? After COVID People were wanting socialization, but they weren’t necessarily wanting to go to the bar and resume that kind of active social life where they’re just drinking and eating and talking. They want to get on the courts and get their blood flowing. So they’ve been locked in a house for a while. And how could they do that? Pickleball is a sport where the court is a fraction of the size of a tennis court. People don’t have to necessarily be super physically active or in shape to get on the court. It allows you to socialize while

volley the ball back and forth, you can pick up a pickleball racket for the first time and learn the sport within five minutes. Now, when you look at the 160% growth year over year since 2019, the sports interest, it all speaks to those interest, I mean to those themes we’re seeing. Now, the last thing I’ll say is when we open up the doors for our grand opening in Roswell in late July, I’ve never seen a more diverse crowd in my life. Ranging from age ranges, we saw everything from a three-year-old to an eight-year-old on the court, to people of all different physical levels of activity from, you know, people who were pro-sponsored. And that consumer pie is huge, because after COVID, people are looking for an activity that isn’t just going to the bar and drinking or have eating food, they want to become more physically active. And Pickleball is a sport that was born once in a lifetime, you don’t see an emergence of sport like this. And we’ve seen the data say pickleball growth has been 160% from players going in court year over year, since 2020. Now, when you think about the factors that get people really interest in pickleball, it’s that it’s a really easy sport to learn. No matter if you are a professional athlete or you haven’t run outside in four years, you’re going to be able to get on the court learn the game and have a good time. The court is a fraction of the size of a tennis court. So it allows for much easier conversation as you’re volleying the ball back and forth and it’s not intimidating. And also the cost of entry for the sport is very low, you can get a paddle for as low as $10. Or you know, there are the brands that sell for $350 paddles. Now when we opened the doors at Roswell for our grand opening in late July, I’ve never seen a more diverse crowd. We had everybody from a three year old who had just picked up a paddle to an 80 year old to professional slowly sponsored players to people who had never ever played the sport in their life. And everybody was excited having a good time. And that narrative is continued to build and show ourselves that it is really cemented now that we’re in week three of operating Roswell

Ressa 17:07
sold everyone Pickleball is not a fad. We have institutional money, the Wall Street factor entering the sport, we’ve got professional organization, we’ve got the consumer macro trend of being active. This is a sport that anyone can pick up and it caters to every demographic. A once in a lifetime opportunity as we don’t see sports like this just emerge out of nowhere. Really interesting perspective there Diego would really appreciate that, you know, summary of why Pickleball is not a fad to very cool.

Pacheco 17:44
Let’s, let’s bring us to Roswell, Georgia, and why don’t you tell us how that all happened and how you ended up with the location down in Roswell. So as I mentioned, you know, the team, you know, Jane Doe specifically have been thinking about what a pickleball club could be now for some time. And you know, when it came time and fundraising was closed in 2022, Jay went through a tear of saying, Okay, let’s find the best real estate deal. And he had his wish list of where he wanted to be demographics wise, and what the structural specifications had to look like. And so we were really opportunistic, for what location number one could be, or where it could be. And, you know, ultimately, the best opportunity presented itself in Roswell, Georgia, at bricks, Moore’s kings market, it was 36,000 square foot space that had 24 foot clear heights with impeccable column spacing. And that’s something important to note about pickleball column spacing is everything because you can’t have a column in the middle of the court, you need to make sure you have industry regulation courts, that’s what’s going to make or break you from the very baseline of this. So it all just worked out swimmingly, especially when we’re taking a bet on what is a new revenue model that has no food and beverage component. So you know, for us being new entrants to the space, but also just being in a totally new industry, where there’s not great clean historical data on how indoor recreational and tournament play facilities are going to perform. This was the best opportunity and you know, we also, you know, my background, you know, where I’ve worked at Heinz and Prudential as well, and we know what it takes to get through an investment committee. The best thing and the bottleneck in this process is getting the landlord by him because like, why you can you get the doors open, and to align with the likes of bricks more early on and get their thumbs up and stamp of approval. That was really key for us to be able to unlock all of the deals with some of the larger landlords that you’re going to be seeing become public news in the next few months from us.

Ressa 19:50
I’m going to I’m going to be one of those landlords soon. I’m excited because the the we so I know the center really well. We’re across the street. We own the

Like putting the shopping center in Roswell. So super interesting.

Pacheco 20:07
Were when you when this first started to unfold, how did they need to get a lot of waivers? Was there the waiver process? I love this question because you know, everybody always says we must have get a lot of waivers, you can’t do this deal. And waivers are my favorite thing to get. So specifically for this deal, we had to get a waiver from Publix, which is you known is known as one of the most difficult players in the southeast. Guess what we flew through that they love the idea that that we’re going to be bringing more consumers specifically of this demographic that is paying $129 a month to play unlimited pickleball to the center because that had only positive things for their sales numbers. Now, I won’t spoil it. But we are currently in the middle of a handful of deals with some very interesting restrictions. And you know, we’ve all we’ve cut through it all in our careers in many, many ways. And I think you know, as long as we continue the narrative and the traffic that we’re seeing coming to Roswell continues to hold in terms of us being able to define what that traffic pattern is, what the demographic is, it only is good things to these retail co tenants that have said, Hey, we don’t want this kind of fitness recreational use in our center. So you know, I love a challenge, the more restrictions you give me the better.

Ressa 21:28
Well, I you know, I’ve like dumped myself to see who here they’ll see the chief waiver officer.

But that is a that is a great line on at least you know what you’re in for at a minimum.

And, you know, you mentioned bricks, mortar, large landlord, good friends over there. I don’t know if you’ve dealt with Matty Ryan, when you were working on this down there. But the

Pacheco 21:54
when when you were first working on it, were they suspect of the concept was that like, were they kind of like, concern? were they concerned? And how much did you have to do to like, pat them on the shoulder and be like, Guys, this is gonna be okay, I promise you No, you find that theme in the space today is that either landlords is really no in between actually, you know, either landlords are super hot on the concept. They’re like, we see the future of pickleball. Or they’re not, and they totally want to close their doors. I have my list of who the ones that have closed their doors are. And I tell our franchisees don’t even go bother, because we only date landlords that want to date us because we want to get open as quickly as possible during this arms race. We want the best deals possible. And why would we spend our time begging with a landlord that just has no interest, we can do much better elsewhere. Now specifically at Briggs more, they are one of those groups that saw the vision. They love that it was near their Southeast Regional headquarters. They loved that they could host their corporate events there that was actually part of the deal was promising. They could do their Christmas party. And they’ve been phenomenal partners in it because they see the vision and you know, we’re doing a handful more deals with them right now. So you know, those are the landlords, we love the ones that see the vision that loved pickleball and can understand it. And they were one of the early adopters in the institutional space for sure. Incredible.

Ressa 23:17
Okay, well, what a cool story. How long did it take to go from like when you started to now open for the pickleball? Various pickleball in Roswell?

Pacheco 23:28
Well, you know, we signed the lease in January of 2023 and got our certificate of occupancy at the end of July.

We took it in very, you know, gray shell condition. And you know, from January to July that involve getting all of our building permits or architectural plan set. Once we got the keys, we were able to get the construction timeline down to about 120 days. Okay, you good work. That’s our cheat thing is we tell landlords, you want a tenant that’s gonna get open and operating within six months from signing that lease. It’s us. I love that. I love that. Okay. Well, super interesting story. I pick up all thanks for telling the story on Roswell. I want to take us to one of the last parts of the show. I call it retail wisdom. I got three questions for you. Are you ready, Diego. Let’s go. All right, question one. What extinct retailer Do you wish would come back from the dead? You know, it’s funny I was when I was moving. A couple weeks ago I found an old coat my closet is the best quality I’ve ever had. And it was Jack spade, which was the brother brand Kate Spade. And I remember being 25 years old and devastated when the shore store closed down because it was good quality clothing at not a bad price. And they had some really good looking stuff. So I would have to say Jack spade. All right. No one’s ever said that. I’ll show I’d love to answer. Question two. What’s the last item over $20 You bought in a store?

Well, I have a golden doodle that I spoil way too. much so it was definitely these organic no Rawhide bones that he loves. I love it. I love it. Final question, Diego, if you and I were shopping at Target, and I lost you what I would I find you?

Ressa 25:13
Definitely the Home Goods section. All right. Well, I see your department’s looking awesome where you’re at. I can see you spent some time there. So it looks good. Thanks.

Diego, this has been fantastic. Thank you so much. Anything we didn’t talk about on the pickleball? about pickleball? About ace that you want to tell everybody?

Pacheco 25:36
Using you say that asked that question, Chris. Because, you know, one question I keep getting from landlords about pickleball is if we sign a lease, can you guys actually get the doors open? And I think that’s, you know, a question that’s going to keep coming up in the industry is how do you build a pickleball? Facility? What does it look like? We see a lot of different variations and quality of constructions. A lot of the indoor facilities actually do not have H back, which you think about that in the summer, it actually becomes more miserable to play indoors and outdoors. So you know, for us, you know, we have an in house development team that is really focused on this and helping us get a real strong grasp on what those development costs are going to be up front. So we can put it into the model at the end of the day. And our chief development officer has opened up over 225 large format facilities across the United States and internationally in his career. So when we go into a market, we have a pre tapped in to understand what the permitting process in the Phoenix Arizona is going to be who the best general contractors and architects are and how to get this down to a process. So you know, I think it will be interesting to see how this whole space really comes. shakes out with all the new entrants in the space specifically when it comes to construction and getting open.

Ressa 26:47
Super interesting. Diego, this has been fascinating. Thanks for joining me tell retold I’m looking forward to seeing a lot more facilities open and wanting to DLC center. Absolutely. Thanks for having me, Chris. Thank you for listening to retail retold. If you want to share a story about a retail real estate deal that you were a part of on our show. Please reach out to us at retail retold at dlcmgmt.com. This show highlights the stories behind the deals from all perspectives. So it doesn’t matter if you are a retailer, broker, entrepreneur, architect or an attorney. Also, don’t forget to subscribe to retail retold so you don’t miss out on next Thursday’s episode