Please note this automated transcription may contain errors.

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Richard Green: let's get started a very pleasant. Good morning to everyone. My name is Richard Green I am director of the USC Lusk Center for Real Estate and I would like to welcome you to this very special edition of lusk perspectives.

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Richard Green: I was trying to decide whether it's the 23rd or 24th webinar slash podcast we have done since we started on March 22 in the immediate aftermath of the pandemic.

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Richard Green: Well, we have with us today is the leadership team for the Lusk Center Chair Emile Haddad and Vice Chair Bill Witte, Emile is chairman of five point realty

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Richard Green: Bill is chair of related California they've been with each of their companies, since the beginning of those companies and I think it would be a factual thing to say they are the largest mixed use developers in California.

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Richard Green: Five point is well known for its development at the Great Park and Orange County. It is behind the Valencia development.

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Richard Green: Up near new call ranch and the Candlestick Park redevelopment in San Francisco.

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Richard Green: Related California is doing the Grand Avenue project right now in downtown Los Angeles. And as it happens, I walked by, for the first time in a long time. Yesterday a lot more there than there was four or five months ago.

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Richard Green: As well as related Santa Clara and other large project. But beyond the fact that they are people doing something very difficult

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Richard Green: Very difficult environment they're two of the most thoughtful people you'll ever meet in real estate development space. Both are very well read sort of thoughtful about the world environment.

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Richard Green: As well as their businesses. And so this conversation is going to be

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Richard Green: One that asked them for their views of the world. And of course, how it relates to real estate in general in their projects in particular. Now before we get started, I want you to know that there is a Q AMP a box.

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Richard Green: If you have a question for either of the gentlemen were about to speak with please type it into the box and I will correct those it's those who have been on these calls before

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Richard Green: Know what I do it is if there are several similar questions I combine them into one question, so we can get through as many

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Richard Green: As possible. And just see what's on the mind of our audience to the best we possibly can. So again, if you have a question, please type it into the

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Richard Green: Question and answer box. And so that, again, a meal and Bill welcome and thank you very much for being here.

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Richard Green: And I want to start with the following question is. So building a meal and I had a pre call maybe three or four weeks ago. And of course, the world has changed.

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Richard Green: considerably since we had that call. And as we noted before we let you all and not for the better. I want to ask you both when you first get up in the morning and thinking about your day. What are you most worried about at the moment. And let me start with a meal.

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Emile Haddad: Well, I think I'm, I'm really worried about the fact that

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Emile Haddad: We have something in the United States that is going to be a challenge for us.

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Emile Haddad: As it relates to navigating the waters of this pandemic and others that we breathe democracy.

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Emile Haddad: And, you know, this is what we're witnessing right now is the massiveness of democracy and I would not take anything about democracy, so please don't take this the wrong way.

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Emile Haddad: But at the same time. I mean, what we're seeing today is we're seeing our numbers. And the way we're trending is Israel intercom lot

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Emile Haddad: By by people's ability to say no to government and, you know, if you look at what happens in other parts of the world.

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Emile Haddad: There was a mandate and people follow them because they don't have the luxuries, we have

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Emile Haddad: So he was asking me about what I'm what was we went towards means that you know we need to understand that this is a moment of responsibility in democratic system.

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Emile Haddad: Which means we there is a time for us to say, I have the right to choose what I want to do. And there's a time for us to say, I know I can.

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Emile Haddad: But I don't think it's in the interest of the larger society for me to not follow in line. I think that's, that's one thing that serves me, similar to you can screen fire in the movie theater. And that's one thing that is excluded from, you know, priceless fee and then

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Emile Haddad: That Richard really serves me right now. Is it divided we have in this country where the political night drop right now the election and how much of the city you manage managing the situation of the violence is actually being political more than anything else.

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Richard Green: I just want to push back a little bit on that before I turn it over to Bill because, you know, Germany is democracy.

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Richard Green: And it's still a very robust one and Japan is a democracy and South Korea's democracy.

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Richard Green: And yet people there are handled this much better if you look at their numbers they and who knows they may have a second wave and

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Richard Green: I think one thing we've learned is never be content with where you are with Kobe because you never know when it could come back. But those are democratic society. So they have baggage this pretty well at least relative to offset would see

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Emile Haddad: Well, I think that you have to differentiate personal Germany into them have a lot

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Emile Haddad: Of dealing with the crises that have nothing to be motivation, whether it's wars on revolution, you know, a lot of things. So there's something that DNA.

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Emile Haddad: That understand that when you are facing a situation that impacts the whole country.

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Emile Haddad: And there are certain things that you have to assemble the name in terms of, you know, your other clients we in this country have never had anything in our soil since, you know, since the last part and dynamic

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Emile Haddad: That actually impacted the company or reading and math right now and i think it's it's a behavioral issue.

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Emile Haddad: And then two years in democracies, but we haven't discovered something that adds to that. And those are all the debates about persecution rights.

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Emile Haddad: And those are debates that I think maybe because of the age of the other countries have been debated before but today I mean look at the mask the mask has become not as simple

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Emile Haddad: As you can see my constitutional rights, you can make me worry about. So I don't know if it's the age of our company or if others. The fact that we have never really come through this, but I think that's probably what I would look at as the differentiator between US and Germany, Japan.

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Richard Green: So let me turn it to you what's worrying here when you first get up in the morning.

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William A. Witte: Well, at every level, both personally and professionally. There is an almost unprecedented level of uncertainty.

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William A. Witte: That creates discomfort.

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William A. Witte: It makes accomplishing anything difficult. It makes planning challenging know my wife likes to watch the news on TV. I can't watch it anymore. But I hear it in the background.

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William A. Witte: I'm old enough to at least vaguely remember the Nixon years in the Vietnam War.

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William A. Witte: And that's the closest parallel I can think of to what the country is meal set is going through politically now, but I think this is far more concerning and worse.

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William A. Witte: Also, the world is much less together than it ever was, in the old days, there was communism and there was not communism and that wasn't necessarily healthy

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William A. Witte: Now, especially given the, shall we say, volatile leadership, certainly in this country at others very difficult to think ahead and predict how we're going to get past us, even though I believe that we will

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William A. Witte: If you look at California at the local level, sometimes even at the county level and at the state level as a meal suggested the polarization is so intense intends to suck all the air out of the room and make rational dialogue on issues of importance to all of us very difficult

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William A. Witte: In other words, you can't simply disagree. You have to disagree with increasing levels of rancor

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William A. Witte: We see it. I'm in Orange County right now and in certain parts of the county here, there's almost there's a visceral opposition to wearing masks, not withstanding the data.

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William A. Witte: And the cues from above and different levels of government even within the county offer different requirements and information.

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William A. Witte: I think everybody realizes, all of those things. I just, I've been around long enough to suggest that this is an unprecedented level of them.

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Richard Green: Can I follow up on your point about the math in Orange County when people are pulled on mask wearing. There is a supermajority in favor of it and something like three quarters of Americans say

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Richard Green: That they do wear a mask. At least most of the time when they are out and I can't believe Orange County.

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Richard Green: Is that different from the country in terms of its behavior, at least in terms of what people people how people said they behave

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Richard Green: But the people who have been coming the any masters. I'll call them have been extremely loud about it and there was effective peace and the Orange County Register in the last couple of days about how it a hearing on masks.

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Richard Green: I'm the head of whoever was having the hearing basically suppressed the pro mask crowd.

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Richard Green: And had of 20 people speak 19 be anti mask. Well, there were hundreds of written comments in support of masks. And so this, this is a broader point, I think, is it's not so much that the majority gets its way is that the loudest voices seem to have disproportionate impact so

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William A. Witte: If you go to any city council meeting on a hotly contested real estate project.

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William A. Witte: The loudest voices in the room will inevitably be the opponents. They may not be often are not a majority but they're the most

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William A. Witte: Resolved.

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William A. Witte: They're the most committed, and I suspect. THAT'S WHAT YOU'RE GETTING HERE NOW Orange County also has something else, not every place has, it has beaches and it's the summer.

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William A. Witte: So I don't want to focus on Orange County, but it just goes to the larger question about polarization that things have become so tribal

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Richard Green: So let me move from sort of the broad, what are the issues out in the world to talking about how it how you're rethinking your business. If you're rethinking your business at all. I can't believe you're not in light of

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Richard Green: The events that will set up last four and a half months since we sort of went indoors mid March.

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Richard Green: How does it influence or has it influenced the speed at which you're doing things your marketing approaches are you decided there are things you're not going to, what are the tangible impacts of this and I'll go in reverse order. This time, and ask Bill to go first time as

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William A. Witte: Well, you know, it depends on what part of our business. We have an unusual business model. And that were very large and active developer of affordable housing as well as high end urban and mixed use developments.

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William A. Witte: Starting in reverse, because it's the more challenging in are two very large mixed use projects and Grand Avenue in Santa Clara.

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William A. Witte: In the case of Grand Avenue while under construction and in Santa Clara about to start construction, we've had to rethink how much of the components of our mix of us is particularly on the retail side how much we do

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William A. Witte: Grant Avenue has to be built all its course being built all at once. At least this phase.

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William A. Witte: So you're making you're having to make decisions midstream. Now what we're not doing in either case is slowing down.

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William A. Witte: You know, and option. I'll be at a challenging one would be to say, let's just take the foot off the gas, but I don't. I think our view in general in the in the business sense is

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William A. Witte: If you have the opportunity to certainly get things entitled and approved, of course, Grand Avenue is under construction San average and parents entitled

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William A. Witte: You should do that. You always want to be prepared for when opportunity presents itself. We are also looking to the possible normalization of construction costs doesn't help us in Grand Avenue, it might in Santa Clara.

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William A. Witte: But the biggest challenge.

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Richard Green: Excuse me, the light doesn't help you and grant me

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William A. Witte: Well, we're already under construction and largely bought out

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Richard Green: Okay, you're largely bought. Okay.

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William A. Witte: In the larger market rate world.

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William A. Witte: We are the most active develop residential developer in San Francisco right now just had a very large project approved this week. Another in the works.

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William A. Witte: But our strategy, which was already in place was given where we are at the end of a cycle pre coded is not to have large land acquisition costs, but rather enter into deals that were options.

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William A. Witte: So we didn't have to close on land. We didn't have to get too heavily financially committed. We also have opportunities. We're working on in Santa Monica and Hollywood.

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William A. Witte: Where we're using that same approach and it's working. And one thing that a crisis does is in some quarters. It does inject summer reality into landowners and joint venture partners and the affordable side is very different. It's full speed ahead.

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William A. Witte: There are some challenges which I will talk about later. We've just one RFP for affordable housing in Mountain View Lake Tahoe South Lake Tahoe Oakland and just outside Sacramento.

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William A. Witte: So the interest in a need for affordable housing is probably greater than ever. There are a variety of challenges. Again, which implementing these and executing on these which, you know, we can talk about later.

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Richard Green: Just curious how when you say a low income housing or 40 excuse me, affordable housing is that all life tech stuff, or is it other kinds as well.

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William A. Witte: With the exception of our Sacramento area project, which is a so called missing middle project and area that we hope to exploit in the months and years ahead, they're all low income housing tax credit projects.

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William A. Witte: Grant. We also have an office in Portland and in a year and a half, we're in our fifth and sixth project. They're all affordable all hundred percent affordable.

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Richard Green: Is busy.

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Richard Green: Yes, like kind of

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Richard Green: Tell a meal. How is this influence how you're doing business.

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Emile Haddad: Let me start by saying that it is very dangerous for people who have

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Emile Haddad: For taking this moment in time to shift.

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Emile Haddad: Their thinking radically from what they were thinking about before and and change the strategy.

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Emile Haddad: While you're here inside to extrapolate from this, because this is a very unusual time. So I think from our perspective.

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Emile Haddad: Which you know me well enough to know that you know at the foundation of what I do is the history of survival. I mean, that's, that's the thing. So we were ready.

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Emile Haddad: For a moment like this with a contingency plan and the first thing you do in a crisis is to survive and survive with the least amount of damage possible. So when the day after comes

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Emile Haddad: You don't end up having to dig yourself out of the pool hall. So for us, survival meant something simple, which is

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Emile Haddad: Within 24 hours we implemented a contingency plan. It was all about liquidity in cash. We always were very low on data. Now, we don't have that sponsor and Richard five years from now. Those are the things that hurt you.

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Emile Haddad: Then executing thing you do once you protect yourself from adequate point of view is making sure that you're not going to be forced to sell assets at the discount and start from the point

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Emile Haddad: Of acid evaluation that will take a long time to recover and then you look at you know your lines of defense for us is that very simple our associates are our number one priority. And I say that

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Emile Haddad: Although one CEOs will tell you, it's the shareholders, but we're not associate the shareholders are going to be so. So for us, how to make sure we come out of this.

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Emile Haddad: As well as possible. No layoffs no federal laws know lots of people not so bad. That was the first thing we did

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Emile Haddad: The only thing we did was doing something that you and I and others have had a lot of discussions about which is what's happening in the world.

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Emile Haddad: That we live right now in terms of disruption and how real estate going to look like in 1020 years. And I think what the spirit is doing is accelerating. A lot of that.

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Emile Haddad: So, you know, that would be very much focusing on the healthcare and arguing and collaborating with healthcare.

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Emile Haddad: And I've been saying for one style that I think technology is going to disrupt healthcare next and telling me that sermon and

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Emile Haddad: Artificial Intelligence is going to be a big factor in that. So what this is doing now is accelerating that because people who are not comfortable with telemedicine are having to do it today.

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Emile Haddad: So from our perspective, what we're doing is saying, Okay, well, this is

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Emile Haddad: We're going to survive this. We're come on the other side of this, how do we start implementing and accelerating someone working a lot

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Emile Haddad: On isolating things that we wanted to see happen maybe over five or 10 years that are probably going to happen.

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Emile Haddad: In a shorter period. And the last thing we're doing is acknowledging finally that the model of employment.

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Emile Haddad: That came as a result of the Industrial Revolution and the fact that the nine to five. All of these cycles of times and managing time is his

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Emile Haddad: I will say at five o'clock every elevator in every office building your staff, it can be that everybody finishes at work at five o'clock. Exactly. You know, I see you got better, it's better

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Emile Haddad: I was wondering what we were doing first and then I realized what it was. So anyway, I think that we all have to start thinking about that model of employment that fits more the next

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Emile Haddad: Revolution. You know, the one that will be living in rather than the old one. This nine to five.

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Emile Haddad: Is out the window. But that doesn't mean everybody's going to be working remotely because they want, because you can't build a culture through zoom. So we're gonna have to think about that and we do a lot of thinking about that.

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Richard Green: So I want to show you some bell touched on retail and reveal you you basically just touched on office at home. So I'd like to push on those two areas, a little more

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Richard Green: I know both of you have retail components in your development, a retail was troubled before Cove, it hit, I think, when did argue that would call it is done is accelerated.

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Richard Green: Inevitable in retail. And so what is the role of retail within real estate development in the years going forward. What does it look like. So that would that would be one question. And in this sort of beyond called it

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Richard Green: A broader question and then Emil your point about nine to five being obsolete and yet people need to be

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Richard Green: In the office, sometimes because we need to interact with each other in order to get our work done and zoom doesn't always cut the mustard.

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Richard Green: In that regard, well, how do you see office playing out and what are off. What is our office space look like

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Richard Green: In the future, is it hotel space, but with more distance between stations. How many days a week do people go into the office. How many days a week do you need them to be in the office in order to get that culture building so

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Richard Green: Under retailer often I'll let either one of you go first. Whoever would like, but if we can hear your thoughts about those two areas in greater depth that I know the audience will appreciate that.

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William A. Witte: Well, on the subject of retail or I'll just say non residential space and mixed use developments, you know, I think appoint a meal Nate is worth noting. I'll give an example.

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William A. Witte: We just opened a 550 unit 40 story residential tower in the mid market area of San Francisco.

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William A. Witte: And includes a significant and historic component, the building like 12,000 square foot.

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William A. Witte: Could be retail place we leased it to a company which was started. Interestingly, by my knees called Tia, which is about health care for women and it's taken off for a variety of reasons. Now that isn't where we would have been looking

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William A. Witte: Six months ago and traditional players fell out as much because of Cobra. It is because of changes in retail

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William A. Witte: So I think if you look at the history of quote unquote retail. It's always evolved over time and there is always an opportunity

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William A. Witte: To if you stay ahead of the curve to find an occupant of space. I think where you get in trouble is when you're so committed to say a movie theater at a time when the future of movie theaters may be more uncertain so that that's one comment.

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William A. Witte: You know, we are not primarily a retail developer. It's an amenity enlarge mixed use projects be a Grand Avenue or Santa Clara and before coven food and beverage and entertainment have become the new retail

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William A. Witte: To some degree, if you look at demographics and consumer behavior that is more a coven phenomenon than a cycle or where we are in the retail world phenomenon.

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William A. Witte: And I think the jury is out not and whether there will still be demand there, but how quickly it will be able to be put back into play.

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Emile Haddad: So I knew with Bill and I would just maybe look at it from a little bit of a different time. First of all, whether it's retail office. Everything is going to be all dependent on the behavior of the consumer.

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Emile Haddad: So you really have to start looking at what people are interested in, there's one thing that we're seeing right now is in this country in that social socialization.

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Emile Haddad: Is extremely critical for people. People are taking the risk of infecting themselves paper. I think in the risk of affecting the elderly, because they cannot get away from being social

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Emile Haddad: And I think that you have to look at that as the behavior that's going to drive a lot of states going for them. So I believe that we are going to be living in a time

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Emile Haddad: Where songs socialization is going to be at the heart of everything we need to think about and to unique experiences that people are looking for people are not going to be going for the boilerplate.

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Emile Haddad: So whether it's retail or whether it's office. I think that we need to be thinking as of the States as a space that attracts people put a unique experience.

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Emile Haddad: And place it becomes more of a social experience, we started seeing retail chain from the old retail without where they do the sales to the back and move the experience to the front.

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Emile Haddad: And we started seeing retail become much more married to food and beverage and areas of experience because it wasn't any more where people wanted to go to buy something.

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Emile Haddad: It was coming to go and have a unique experience and socialize and oh by the way if they find something they like, they will bite. So we started seeing it already, and then gone back to my point. I think it's going to be acceleration

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Emile Haddad: And I am willing to make a bold prediction that as we get out of the scope of 19

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Emile Haddad: And as we start looking ahead, and this is going to be unfortunately a longer period than the most frustrating period that people think right now.

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Emile Haddad: I think we might actually be seeing a roaring 20s all over again. I think people out of suppression is going to get them to be much more social.

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Emile Haddad: They're going to be more than wanting to be at the office because we are able to have been fed up of zoom. And again, I want to be back together.

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Emile Haddad: But then you have to be back together again your nine to five. Everybody goes into a cubicle, you have to think about your strengths as a space of people coming together to collaborate

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Richard Green: So I saw, I

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Richard Green: I want to express a little skepticism to that view. But before I do, I do need to note that a meals last bold prediction turned out to be exactly right, which was at our board meeting last March.

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Richard Green: He said this is going to be really bad. And he talked about the fragility of the economy that ran as lean as our economy did and how that made us particularly vulnerable. So as I disagree with a meal. Remember a meal was right. So this is what I'm about to say could

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Richard Green: Were like wrong, but the whole experience that certain things about the experience thing i'd like but the reactions to this well. So first of all, I tried bill but

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William A. Witte: I just wanted to say that sometimes you have to dig in a little before making judgments on those points, for example, at least in our company.

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William A. Witte: To a meals point, the younger people, for sure. Want to be able to go to the office. Absolutely. They miss it. They missed the social interaction, they missed the corporate culture development.

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William A. Witte: It may be, and it's somewhat true anyway but they don't feel they need to be there from nine to five every day that they can work remotely as they have been

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William A. Witte: But I think you have a bifurcation here at least what we're seeing is that younger people still feel that I don't see any evidence that Millennials have which I have three are looking to move and

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William A. Witte: To the suburbs. At age 27 but by the same token, in the major urban areas. There's been an explosion of demand for high end housing in the wealthy suburbs in Napa, and Sonoma in Marin County in Northern California in Westchester County outside

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William A. Witte: New York City. So there's a bit of a generational gap, those who feel well you know I don't really have to be in an office full time. And by the way, the cities are kind of shut down. I don't know how long that will take

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William A. Witte: Their clearly as a shifting of demand. I don't mean all might have some common in this room, his own sites initially. See that among first time homebuyers where I think there are still challenges.

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Richard Green: So that was the experience coin.

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Richard Green: So a couple of things about that is, one is we can talk all we want about government shutting things down or not shutting it down. But at the end of the day, we know that people actually leave government on this stuff.

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Richard Green: So people were staying home, not everybody, but lots of people were staying home before Gavin Newsom pulled him stay home.

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Richard Green: You had the NBA shut down before they were ordered to shut down.

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Richard Green: We're seeing it now. I think so. I was we were taking a walk down Main Street in Santa Monica last night.

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Richard Green: And one of my favorite restaurants in Santa Monica ish and one main and they now have this nice thing out in the street where you can eat.

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Richard Green: Which Patty and I decided, well, we've got, we have to do that sometime soon. But what was striking to me is that there were lots of empty tables and this was like 738 o'clock, so it was Prime Time to eat.

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Richard Green: And usually, you can't get a table at that restaurant at 730 on a Wednesday night, and what that's telling these people are still too afraid.

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Richard Green: And we actually have other evidence is to actually go out and do stuff so that it until I think we have a vaccine.

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Richard Green: It's hard for me to see the experience thing is going to be a big driver of demand. That's the first thing. And the second thing, it's always been striking to me.

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Richard Green: That for the provider of the real estate experience is an expensive thing to do. It requires heavy tenant improvements that need to be amortized over a period of years.

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Richard Green: That also might involve a tenant that doesn't survive over that length of time.

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Richard Green: In order to repay those tenant improvement. Now, maybe the spillover it's happening and mixed use context that you could sell the houses for more

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Richard Green: For the office space becomes more valuable as a result of having those amenities, but is is an f&b focused center a sustainable center financially in a locker.

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Emile Haddad: But let me, let me just make sure to find something when I talked about the experience being at the heart of how we have to think about things going forward.

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Emile Haddad: I was talking about at the polls and damage because it was, in fact, I said that because I believe this epidemic is going to take longer, and people are going to be much more frustrated with the situation of being separated in the home. That's what's going I think drive a lot of the anxiousness

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Emile Haddad: Okay, this is not today. And I agree.

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Emile Haddad: I mean today that people are coming and doing that other people who either under in are in denial or they feel like they're, you know,

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Emile Haddad: To watch. I remember those days. I mean, there were almost somebody sitting there, even though the bullets were flying because they felt. Okay.

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Emile Haddad: So I think that that's key. The, the topic of

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Emile Haddad: You know, sustainability of the FB a retail

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Emile Haddad: You today. You have to be you have people who will stand in line in front of Starbucks paying a lot of money for a cup of coffee that I can't even pronounce the name of

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Emile Haddad: And rather than having five cup of coffees and they can't afford it. They have one today you have people who are looking for names of restaurants that only exists in one place and then had some unique thing about food.

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Emile Haddad: So I actually think for the right experience. People are willing to compromise quality for what they perceive as quantity

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Emile Haddad: I think that, you know, from my perspective, in order for us not to rely on others. Can the f&b and experience to to be able to make sure that that amenity As Bill mentioned sustains will will manage it ourselves. We're partnering with scoping

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Emile Haddad: Today credit off the tenant doesn't mean anything to me.

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Emile Haddad: I'd much rather get, you know, 100 smooth players in my space rather than rely on one that might go belly up tomorrow and if out of the hundred snowed players, I create a very unique experience and 15% of 20% don't make it on much better off than the room.

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William A. Witte: So to that point, Richard, a couple of examples. When we started out Santa Clara six or seven years ago, the presumption was there would be two department store anchors.

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William A. Witte: The notion of a department store anchor is now obsolete almost anywhere. So that's a scale question.

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William A. Witte: But even before Kobe we saw in the f&b space restaurants moving to more casual even the high end restaurants fewer white tablecloth.

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William A. Witte: Type efforts, even the fancier food purveyors opening fast casual places places that could even before Koba accommodate a lot of takeout. So I don't see the demand for food and beverage.

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William A. Witte: being reduced. Obviously the pandemic has to be brought under some control to change people's behavior.

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William A. Witte: But the effective demand is there. The question is timing and I think it will take a different shape and to a meals point you will be lots more smaller players, you won't have as many large players, not just department stores but other large

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Richard Green: Users of space.

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Richard Green: And our lenders willing to finance places that don't have credit tenants or do you get your does this mean your sources of capital, just have to be different from traditional capitals versus

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Emile Haddad: On

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Richard Green: What used to be when you done your right to read. So it used to be when a lender would underwriter retail center.

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Richard Green: They would look at that. That's why all of our shopping malls became so boring, right, is they all have the same tenants in them.

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Richard Green: Because if basically, you didn't have a lot of credit as a tenant or a double debt you couldn't get the developer couldn't get

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Richard Green: Alone refinanced or in place to build the shopping center in the first place. So you're both talking about that that world is gone.

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Richard Green: You're talking about getting more Nietzsche tenants and getting diversification benefits from having a variety of tenants. But how are, how did lenders look at that, when their underwriting

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Emile Haddad: So let me just quickly, I think that what you just touched on means that a lot of the people who, you know,

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Emile Haddad: Labeled as developers who did all these shopping centers were nothing but middle people who basically tied up melanin, and then and finance the project based on the credit of the tenant.

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Emile Haddad: And really, they're all the data is just simply executable and and play and we have a lot of people who play developer who you can say this is the same mixture of developers related

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Emile Haddad: I think that's probably is going to be what's going to disappear.

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Emile Haddad: It's going to be the religions of the world, find the local the currency of the world, the people who did it will look at them.

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Emile Haddad: Rather than the tenant.

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William A. Witte: Yeah. I would also I would add to that that again we're sort of splitting hairs here. But as you see more move to smaller spaces.

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William A. Witte: Maybe not so much national chains, but I can give you example, certainly in our buildings in San Francisco.

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William A. Witte: Of tenants potential tenants who were, they were creating niche products, but from credit tenants. And I think that's an important distinction to make. Now as you get into the suburbs.

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William A. Witte: Maybe a little more challenging. And I'll give a perfect example friend of mine. Some of you on the call may know of him Shaheen said that he

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William A. Witte: Did something very unique in the 90s, he created in Costa Mesa places called the lab and the camp, which could be in the East Village in Manhattan. Except there in Orange County.

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William A. Witte: He has a few credit tenants, but the food and beverage. People are all the type of niche players, you were talking about.

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William A. Witte: It takes initially a certain amount of equity and it takes a discipline, if someone's not making it to replace them with somebody else. So when you talk about how lenders view it until coven

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William A. Witte: Where you had a unique product and enough equity even a quote unquote smaller player was able to succeed because the rents per square foot would be very high. You could afford a certain amount of turnover.

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William A. Witte: We're in a new world.

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William A. Witte: It's not clear. You know how people will react until this thing is brought under control.

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Richard Green: So I want to start turning to the audience. And by the way, I should note that among the audience is the current installment of the Ross program in real estate, which is happening right now. Once we have 25

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Richard Green: really fine students from that program on the call. And I'd like to read a comment from one of the members and then get into a start getting into question.

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Richard Green: comment is from Cindy Hansen is currently the Ross program and it is on the issue of masks and she just said she's from Taiwan.

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Richard Green: And she says the reason they're so compliant, simply because of salt SARS, and they understand how important it is to protect them.

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Richard Green: And so that gets to a meals point is when you have memory of a catastrophe. You know how important it is to avoid having it happen again.

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Richard Green: The other thing gets to I think of meals similarities point is Cindy says that the government really enforces the quarantine with GPS crack tracking

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Richard Green: To make sure whoever's effective and foreigners lead in Taiwan center located at 14 days before starting any activities and that gets that's something I can't imagine Americans tolerate it.

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Richard Green: Although the fact of the matter is for horizon or at AMP t know where you are in every point anyway so sort of the idea that we really not being watched. I think as a whole.

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Emile Haddad: So that's the biggest

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Emile Haddad: That's our biggest challenge right now because in Germany or another companies they trust you and they will know exactly where you were and if

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Emile Haddad: You were in a bottle of the city that common factor, they will come take you from home and would you want it for 14 days.

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Emile Haddad: You will have a riots in the streets over here that we tell people, we're going to track them underground from home and put them in one team because they were. I mean, that's the, that's the challenge. I was talking about.

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William A. Witte: So,

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William A. Witte: Brett, Richard. You know, I don't know what different behavior will come out of this in that regard. But I would remind people that I think it was until 911

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William A. Witte: YOU DIDN'T GO THROUGH METAL DETECTORS at airports, I could be wrong on the timing. But all of a sudden in over the last 20 years now. There's metal detectors everywhere. We never had that before.

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William A. Witte: So sometimes events like this trigger societal changes that then become if not comfortable somewhat routine.

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Emile Haddad: But, but, but Bill, to your point, if you don't go to the metal detector. You don't get on a plane.

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William A. Witte: Right.

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Emile Haddad: A lot of simple here. We don't say to people, we don't wear a mask, you can get out of home.

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William A. Witte: Right.

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Emile Haddad: Oh, and you know people. People don't like 65% of the five miles on the on the freeway because of cultural change. They do it because of the drive over the other thing.

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Emile Haddad: And I think until you start really putting some teeth behind the mandates, people will feel like, then I can, it's a it's a suggestion.

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William A. Witte: For office by the way i given the resistance to exactly that type of regulation now I'm wondering, Richard, maybe. Remember how did we ever pass national laws for seatbelts.

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Richard Green: It came down to Congress decided that states would not get transportation assistance if they didn't have those laws. Okay. And so it was money.

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Richard Green: Yeah and we didn't go from 55% it was wearing seatbelts to 85% of US wearing seatbelts.

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Richard Green: So it's a really, it's a good point. I, you know, because Bill, you raise the issue of social church. I am going to bring up a question. And again, I'm starting to step on the two from the audience. But I think is an important one to talk about

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Richard Green: Is the Black Lives Matter movement. If you go back to before Charlottesville. There was net disapproval nationally

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Richard Green: Of that movement. The most recent polling. I've seen says, A plus 20% approval for Black Lives Matter. Um, how do you see the issues that are being raised as a result of George Floyd and BLM influencing real estate going forward.

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William A. Witte: Well,

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Richard Green: He just went on you, but

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William A. Witte: A couple of things. First of all, I think part of the change in polling is people are really able to see for themselves firsthand exactly what happened, rather than just reading about it.

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William A. Witte: The second thing I would say is I think there. Maybe it was nascent but people looking at it, not just what they see on the news, but as Black Lives Matter cap small be small l small m rather than

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William A. Witte: Making a judgment about their perception, at least have some organization. We've had a lot of internal discussion in our company I've kept it internal

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William A. Witte: We've long had at least some reminder we have active partnerships and affordable housing developments, we've developed with nine different African American churches, including the largest such in LA and open. So it's not a new topic.

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William A. Witte: For us, I think what I would say though that we've had the most reflection on internally is how little

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William A. Witte: Involvement, not only in the market rate real estate world. But even in the affordable housing world there is of people of color, particularly Latino and African American

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William A. Witte: It. There's a complete disconnect not intentional between populations being served and the people in the real estate world who are serving them. It's not bad faith.

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William A. Witte: It's something that's I will just say has generated a lot of, I mean the Ross program USC, in and of itself by its relative unique this

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William A. Witte: Is a comment on that.

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Emile Haddad: So we'll let me just, you know, how much that is the topic is near and dear to my heart, not the BLM as much as the old issue of inequity.

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Emile Haddad: That does now even highlighted more what they call the 90 and that's why you know we were supposed to Austin. That's why we started the whole program of sustainable society.

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Emile Haddad: Because I go back to what lessons can we learn from the last revolutions last hundred years that we want to make sure we don't repeat going forward. And one of the things that we did is we abandoned the inner cities because they would not attractive to live during the factory.

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Emile Haddad: And those who had the ability many whites when to suburbia created suburbia. And the more we we moved the benefits of suburbia. The more we love the inner cities Toronto.

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Emile Haddad: Public education, you know, all the issues that came in and then you know we have now a huge an entity that exists.

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Emile Haddad: I hope that when people talk about blood Black Lives Matter or or any better, but black lives matter is not only about meaning of life and death.

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Emile Haddad: Meaning like Black Lives Matter let's let's make sure we bring back activity education. Let's be back things because life is not about you know

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Emile Haddad: Am I, where am I alive in this is all movement of unfortunate situation where we saw somebody being, you know, killed in essence.

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Emile Haddad: But I want to go beyond that I want to talk about life, meaning we need to go back and redevelop the inner cities, we need to build back education. Like, like we're doing at USC in the inner cities, we need to provide job training.

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Emile Haddad: We need to be able to go back and lift people up so we can bridge the gap that exists today in society.

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Emile Haddad: And that's I think what we've been focusing on, as you know, and that's hoping is what we're going to tell you, I tell you, being on the task force of the governor

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Emile Haddad: Probably the number one issue that has been highlighted, more than any is the inequities the digital divide.

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Emile Haddad: The fact that kids who are learning in school today. And again, getting the same education because some people have access to technology, some people don't. Those things are going to accelerate hopefully the focus on fixing things that we need to fix so

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Richard Green: If you can tell us, excuse me, I just wonder if you could tell us a little bit about that test first because the audience may not be familiar

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Richard Green: With it, and then Bill I I'll turn it back over to you.

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Emile Haddad: So, I mean, the government you know couple of months ago, maybe more announced a task force for

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Emile Haddad: The recovery of the economy and jobs and really the task forces mainly focused on how do we get the economy going. Why we are keeping an eye on health and short.

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Emile Haddad: term and long term. And it has some some big names. I mean, I don't know how I ended up on it, but you have people like Rick and so on. It's like

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Emile Haddad: Bye bye, good and like Tim Cook and others and Janet Yellen, so he put together a group of people around business from environmental from labor.

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Emile Haddad: And in them with some of the government. And then we read committees, where every one of the committee's is focused on something so I coach the capital market and infrastructure committee where our focus is all on

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Emile Haddad: Infrastructure short term and long term for job creation and hoping that maybe this is a moment in time that allows us to do something we did back during the Great Depression.

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Emile Haddad: Not that I'm predicting Great Depression. When we build a lot of infrastructure to create jobs and that's what enable the country to really propelled very quickly. So

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Emile Haddad: You know we meet every other week as a task force on zone with the governor and the whole Task Force and we we have meetings.

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Emile Haddad: To meetings every other week with the with the infrastructure committee, so we'll see. I mean, it's still new as you can imagine, everybody's drinking from a fire hydrant right now. And a lot of it is focused on health and and there's a lot of openings and

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William A. Witte: Well, Richard. I was gonna say when you asked how that might see that in our businesses. I think one thing we're already seeing, I'll give you some examples.

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William A. Witte: Are recent high rise approval in San Francisco was part of a rezoning of a mid market area that then next Avenue and Market Street called the hub.

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William A. Witte: includes three towers there ultimately 15 other sites.

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William A. Witte: The planning commission and Board of Supervisors approval was conditioned on the planning department undertaking with some specified community organizations.

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William A. Witte: The study of the social and equity impacts of this and how that's how much it could be mitigated but to emil's point of how it can be improved.

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William A. Witte: We're seeing that in the Crenshaw district in LA right now. A I wouldn't say sudden at all, but more of a focus on

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William A. Witte: gentrification and not whether it's good or bad, but how can we improve the lives of those who stayed behind who didn't move to the Inland Empire. For example, I think you're going to see that, certainly in the urban area is continuing for some time and appropriately so

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Richard Green: Um, let's move to the top, we have about nine minutes left. And there, there's a question from scarlet Yahoo's in part of the Ross group. This year about affordable housing.

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Richard Green: Into her questions, is quite specific but since we don't have a lot of time left. I just sort of like to get a sense from you.

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Richard Green: Because both of you work on affordable housing, both of you care a lot about the problem that it creates for us here in California, both from a social justice and an economic perspective.

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Richard Green: What about the system right now is most broken. If you could fix one thing so that we would have more of it. What would that thing be and let me start with Bill on this one.

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William A. Witte: Well,

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William A. Witte: It's almost too easy to say there is no one thing

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William A. Witte: You know, affordable housing is viewed as a resource issue. Often we need more subsidies and that's true but I view it more within the context of land use that it's really not just about affordable housing. It's a what's broken somewhat in California is conflicting inconsistent.

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William A. Witte: Obsolete regulations on land use challenges, of course, a state this large and complex hard to have one statewide standard

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William A. Witte: But until unless there is a more, let's just look at it. Regionally, I would say even on a county wide basis more regional planning.

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William A. Witte: The ability to financially politically and otherwise create more affordable housing will always be constrained. There's a lot of resources there. Now, if not sufficient.

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William A. Witte: It takes too long. So you'll hear data on how much units and dollars and all this. But if you look at the annual delivery, especially in Roseville, California. It's not what it needs to be. And that's a large part of the reason

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Emile Haddad: Some

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Emile Haddad: Kind of this way, affordable housing so far has been nothing more than a mitigation.

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Emile Haddad: It is separated from the need for housing. It is a compliance issue. If you're going to build this project, you will have to build 10% affordable.

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Emile Haddad: And a lot of people used to look at it as a negative, but then a corner and all that and we tend to look at affordable housing really more in the context of houses.

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Emile Haddad: And I think that if you start thinking about affordable housing as mitigation and think about housing as it broad base opportunity.

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Emile Haddad: That you give for a very diversified community, then you start thinking about affordable housing and not as mitigation. I think that the biggest challenge you have in housing.

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Emile Haddad: Now that I put affordable housing and housing is local governments.

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Emile Haddad: objecting to or not allowing housing to happen because what you know both the supervisors and council members don't get elected because they are group projects because of a lot of historical newbie movements.

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Emile Haddad: I think that the state was to create the right incentives and they stick an account with the local government to say

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Emile Haddad: You have to produce. I mean, we have the numbers that came up, which is the after you know the shortage of housing that we haven't any point

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Emile Haddad: And it has been allocated to cities. If you go to a city and say city X your requirement is to build 30,000 homes and if you are going to build 30,000 homes.

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Emile Haddad: You are going to have x percentage of that to fit within a certain price because it's not only

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Emile Haddad: It's also workforce housing. We have a lot of teachers and police, fire that certain one community, but they can't live

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Emile Haddad: And if you create an incentive. The state has a book that's the bonus program.

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Emile Haddad: Which basically says, if you're willing to take your affordable housing and push it all to be very low income, you get a certain density bonus for market fit.

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Emile Haddad: Those are programs and our incentive programs incentive for developer and instead of the for the city to provide housing and data mindset of

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Emile Haddad: As a mitigation, but as a socially, I think, was not shifting the way we think about

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Richard Green: So we're at 1155 and I know we have to let bill ago right at noon. So I want to finish off with a broad question, and I'm sorry, those of us questions. I didn't get to today.

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Richard Green: But it's about the future of California. So during Kobe post coven or are you a bowl on California bear on California

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Richard Green: Before all of this, we have lots of people moving to Phoenix. Lots of people moving to Las Vegas. What, what do you see the evolution of the state are you are you a buyer thoroughly or a buyer because you built developers here. But what what do you, what is your outlook for us to sustain

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Emile Haddad: I can start with you want there really isn't um I had always been and will always be extremely bullish on California

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Emile Haddad: How we met the phone company where the company that has basically tied his future when we don't build anywhere else with just the California developer. And that's because if you go back that everything that has changed the way the world.

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Emile Haddad: Live came from the statement me, whether it's moving to say what is the internet with is the.com whether it's all the things that are happening.

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Emile Haddad: And this is a place that will always be a placement innovation and it will always be debating, I have been hearing about the demise of K 20 since I came to this country 35 plus years ago.

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Emile Haddad: But don't we really we're talking about is there are certain people who are going to spend with them and all the economy.

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Emile Haddad: As the state leads and new economy that you find it difficult to be to live in the state, either because of you know taxes prime cost, whatever it is, or because the gentleman here.

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Emile Haddad: So if you ask me. I am extremely bullish and if anything I'm even more bullish because what this the damage is going to do is going to be many more things tax.

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Emile Haddad: Or burden, think about how do we make sure that we don't get into the situation in the future.

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Emile Haddad: And think tanks cluster together Silicon Valley is the first example of a city of the future, and it was not built by dawn. It was built by people who just simply wanted to cluster together to create the bigger. Think of that thing time and look what what it did to the world so understandable.

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Richard Green: Oh,

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William A. Witte: I would echo that. I think we shouldn't be in our businesses. If we don't believe that. I do think touching on something and meal said that a lot of the innovation of the future.

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William A. Witte: That will continue to support a strong California is going to come more from the private sector than from government for a whole lot of reasons we're already seeing that

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William A. Witte: Obviously times like this test, the ability of the state. I will leave you with this anecdote. I came to San Francisco in 1981

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William A. Witte: To work for Dianne Feinstein and housing as mayor. There's an article. Someone recently sent me april of 1981 and it starts out reading about high housing costs and displacement

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William A. Witte: If you didn't know the date you could have thought the art. The article was written last year, but that was 40 years ago. And I'm not saying that's a good thing, but to emil's point

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William A. Witte: People have been predicting the demise of California for similar reasons for many, many years and a combination of innovation dynamism, frankly, immigration, I might add.

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William A. Witte: Have buoyed it and I think will continue to there's going to be ups and downs but I'm bullish

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Richard Green: So Bill witty from related California a male dog from five point, both of you from the left, center for mental state. Thanks so much.

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Richard Green: For spending an hour with us this morning and for your insightful comments. Our next less perspective will be led by the very capable Maryland board my wonderful colleague

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Richard Green: I will be missing for the first time, is I'll be on vacation next week.

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Richard Green: And it will be about changing technologies of housing and will feature Rick holiday from factory OS Janet Stevenson from Terra and Luciano Silberman

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Richard Green: Was department chair of the Astronomy Department of Civil Engineering and the attorney school here at USC. So thank you all very much for joining us. I know. Mary Lynn will look forward to seeing you next week. And I look forward to seeing you in two weeks. Have a great rest of your day.