Desiato: You started your career at Union Bank. What brought you to TMG?

Covarrubias: [Founder] David Martin had just moved out here from Alabama. We worked together as real estate lenders. He left the bank to work for a developer and in 1984 he started what was then called the Martin Group. I was at the point when I wasn't having fun anymore. We had dinner and a 20-minute job interview and I left the bank in 1988.

Desiato: Talk about the transition from being a lender to borrower.

Covarrubias: We all know the expression, "neither a borrower nor a lender be". I got that really wrong. But my background worked well for me and the company. We had relationships with a lot of developers and, to be honest, we saw a lot of them go broke. We learned lots of way you can go broke in real estate. So my real estate financing background helps us keep true to our business plan and what we're willing to give up or not give up, so the legacy goes on for more than one cycle.

Desiato: How do you distinguish yourself from the competition?

Covarrubias: There is so much money chasing real estate and it's looking for different ways to arbitrage. Our arbitrage is to find broken assets or assets that need significant fixing, let's say an office that needs a seismic upgrade. For us the niche is value-add. That's why we'll always be different. The rest of the product markets--whether it's an apartment REIT or office REIT--are a commodity business. It's hard for us to sell a portfolio. Each of our assets is one of a kind and they're not even the same product type.

Desiato: How does that translate into your M.O.?

Covarrubias: The classic rule of thumb is that there is no rule of thumb. We try to go big when things look bleak and when things look great cut back, slow down and do smaller deals. Or, we'll switch products. We've done condo projects, but we just got a $100-million equity investment from CalPers with which we'll be able to do $400 million of residential projects. We'll keep looking for broken deals. But with the money from CalPers, we now have a housing strategy with a long vista. I'd love to find some broken residential deals.

Desiato: This area of the country was not always developer-friendly. Is it changed?

Covarrubias: It's much worse. But the harder it is to get something entitled, the more likely it is to be successful. A lot of the value is created by the difficulty of doing it. We all moan and grown, rightly or wrongly, about entitlements being so difficult, but at least the developer knows there won't be five more of the same type popping up nearby.

Desiato: What concerns you the most?

Covarrubias: Every cycle ends with something unpredictable, and it's almost impossible to worry about anything specifically. There are issues we can control and the stuff we can't predict. All you can plan on are the relationships and partners that can get you through.