Midtown’s Early Believer: Thomas Roth
Source: Sacramento Business Journal, Ben van der Meer
Photo: Thomas Roth has been investing in midtown Sacramento for nearly 35 years and cultivating its emergence as the region’s top nightlife destination (Midtown’s Cantina Alley, Dennis McCoy)
Thomas Roth has been investing in midtown Sacramento for nearly 35 years and cultivating its emergence as the region’s top nightlife destination
Forty years ago, a dental technician and lab owner in Santa Barbara decided he wanted to supplement his income with real estate investments.
It took awhile, but you can see the result of that decision on just about any night of the week now on 24th and K streets in midtown Sacramento. If it’s not a raucous Sac Brew Bike pedaling to a stop at Der Biergarten, it’s pedestrians checking out the public market at the former church across the street. Or a group laughing over drinks at The Golden Bear.
But Thomas Roth, who made the pivot to real estate investor from dental tech and never looked back, doesn’t seem to put much stock in being one of the people who helped midtown become the region’s hippest entertainment district.
“I’m just a little guy doing stuff I liked,” said Roth, whose property portfolio includes more than 20 mostly commercial buildings in midtown. “Meeting people, you learn how to interact, and eventually you do what you love to do. In real estate, you meet a lot of people.”
Roth’s real estate investments began modestly, with a residential building in Southern California in 1974. A previous owner had added a third unit to the building without permits; when Roth took a look, the building had been on the market for two years. He bought it anyway, he said, figuring the price was right and worst-case, he’d have to tear the building down. He didn’t, he said, but in the 1970s, property prices in that area were so high any owner had to make sure it generated revenue right away.
Roth said he established a reputation by either offering returns of 10% to 12% to lenders without giving them a stake in property ownership, or specializing in troubled properties or ones with good upside potential.
When his then-wife got a job with the state of California, she and Roth relocated to Sacramento in 1979, and he got a real estate license and found a new market to explore. Of the neighborhoods he looked at, he said, midtown was the most eclectic.
“Almost every building was different, a lot of different styles of buildings, different values, different sizes,” he said. “You could buy something that was hard to evaluate.”
The first local building he bought and kept, 2322 K St. in 1985, was a lesson in the sometimes unpredictable nature of tenants. Roth said the previous owner needed cash flow, so he traded him mortgages he owned for the title to 2322 K. Soon after he got it, though, he learned the tenant, a gift shop, was already planning to move out. Roth backfilled with Rick’s Dessert Diner, which over the next few decades became a local institution, though it moved six years ago to a larger building Roth doesn’t own on nearby J Street.
Beginning in the 1980s, Roth acquired more than a dozen midtown Sacramento properties, either commercial or residential converted to commercial. Today, those buildings house some of the most popular businesses in the neighborhood, including Der Biergarten, Midtown’s Cantina Alley and coffee and coworking space The Trade.
Because midtown wasn’t then the hot investment area it is now, there were scary times, Roth said. On the southwest corner of 23rd and K streets, the building for a long-standing restaurant called Drago’s burned down, and Roth bought the lot and then a remaining building next door in 2000. Young men just out of college with an idea for a bar and restaurant approached him about the building; they opened long-running midtown spot The Golden Bear there in 2004. The empty lot stayed that way until another entrepreneur wanted to open a German-style beer garden there with a shipping container motif; that became Der Biergarten.
Jonathan Modrow, a co-owner of The Golden Bear, said it took some convincing to get a lease for 2326 K St., which previously housed an unsuccessful cafe.
By the time the building needed a full renovation in 2009, though, Roth bore the costs up front, and Modrow and his partner eventually paid him back.
“Complicated,” is how Modrow said he’d describe the relationship with Roth. “Over time, it’s grown. We do our best to come to terms and find a win-win for both sides, and we believe that’s something we can continue to do in the future.”
The intersection of 23rd and K became a hub for Roth’s investments for two reasons: Feel and zoning, he said. Because the area was zoned for commercial use, it was easy to convert residential buildings into unique commercial concepts and benefit from the change in rents. A house at 2315 K St. became first True Love Coffee House and more recently The Flamingo House; two doors down, a triplex has been converted into the popular Midtown’s Cantina Alley.
“It was about having the right tenants and offering people things they like,” Roth said, describing how in the 1990s and 2000s, he noticed midtown becoming a destination in addition to a neighborhood. “I think it’s exciting.”
Roth said patience and strong relationships are how he finds tenants who end up being successful. If a business owner in his property needs help, he’ll help. And if something takes off, Roth said, he doesn’t believe in selling to make a quick dollar.
Emily Baime Michaels, executive director of the Midtown Association, said Roth deserves credit as a patron and supporter of locally owned, independent businesses.
“He sees midtown as a very dynamic neighborhood, but a neighborhood nonetheless,” she said. Roth has played a big role in working with her organization and the city of Sacramento to create events like Third Thursday, which closes down the street at 24th and K for more local vendors to set up temporarily and draw crowds of pedestrians. “He’s really focused on the local.”
As midtown has become a bigger nightlife destination, though, it’s continued to evolve. Second Saturday began as a nighttime art stroll. Some of that is fading away, though, as younger adults don’t have as much money to invest in art and more galleries have closed, Roth said.
“The most important thing driving Thomas, number one, is the people. Does he like them, and does he think he can get along with them? And he wants great concepts and financial viability.”
There’s also occasional tension between business owners and new residents who’ve moved in for walkable amenities, but sometimes blanch at being neighbors to loud bars and restaurants. Roth said when people are reasonable, such issues can be worked out.
“Overall, people are reasonable,” he said. “If there’s a problem, you have to address it.”
A commercial real estate broker who said he’s probably done 15 deals with Roth said the owner’s belief in relationships as a key to good business isn’t just lip service.
Brian Jacks, of Jacks Commercial Real Estate, said he and Roth don’t even draw up formal contracts when Jacks gets a tenant for one of Roth’s buildings.
“The most important thing driving Thomas, No. 1, is the people. Does he like them, and does he think he can get along with them?” Jacks said. “And he wants great concepts and financial viability.”
When Jacks first met Roth five years ago, it was to bring a barbecue restaurant to 2322 K St. after Rick’s Dessert Diner left. At the time, Jacks was the local presence for a brokerage based elsewhere, he said. But Roth encouraged him to strike out on his own, and he did.
Though Roth said he prefers to buy and hold, both Baime Michaels and Jacks said he’ll sell when it makes sense. For six years, he owned the Order of the Eastern Star building at 2719 K St. Built more than 90 years ago as a meeting place for a fraternal society, the building’s unique layout and age made it a challenge to find the right use, and it was empty for years. Last year, though, Southern California-based Hume Development Inc. suggested converting it into a hotel, and after the city signed off, Roth sold it to Hume earlier this year.
“He’s not afraid to take on large, historically significant projects until the right idea comes along,” Baime Michaels said.
Roth isn’t done investing. Not long after selling the Eastern Star, he used an exchange deal to buy two other midtown properties, including the building at 1815 K St. housing popular Southern restaurant The Porch.
But while other investors may look at neighborhoods around Sacramento and elsewhere hoping to find a future midtown, Roth laughs when asked if he’s ever considered doing so.
“You can stretch too much,” he said.