Ep. 54 Richard Green
Richard K. Green, Ph.D. holds the Lusk Chair in Real Estate and is Professor in the Sol Price School of Public Policy and the Marshall School of Business. He recently finished a year as Senior Advisor for Housing Finance at the US Department of Housing and Urban Development, and as of July 1, 2016 became a Trustee of the Urban Land Institute. Prior to joining the USC faculty, Dr. Green spent four years as the Oliver T. Carr, Jr., Chair of Real Estate Finance at The George Washington University School of Business. He was Director of the Center for Washington Area Studies and the Center for Real Estate and Urban Studies at that institution. Dr. Green also taught real estate finance and economics courses for 12 years at the University of Wisconsin-Madison, where he was Wangard Faculty Scholar and Chair of Real Estate and Urban Land Economics. He also has been principal economist and director of financial strategy and policy analysis at Freddie Mac. More recently, he was a visiting professor of real estate at the University of Pennsylvania’s Wharton School, and he continues to retain an affiliation with Wharton. He is or has been involved with the Lincoln Institute of Land Policy, the Conference of Business Economists, the Center for Urban Land Economics Research, and the National Association of Industrial and Office Properties. Dr. Green also is a Weimer Fellow at the Homer Hoyt Institute, and a member of the faculty of the Selden Institute for Advanced Studies in Real Estate. He was recently President of the American Real Estate and Urban Economics Association.
Dr. Green earned his Ph.D. and M.S. in economics from the University of Wisconsin-Madison. He earned his A.B. in economics from Harvard University. His research addresses housing markets, housing policy, tax policy, transportation, mortgage finance and urban growth. He is a member of two academic journal editorial boards, and a reviewer for several others. His work is published in a number of journals including the American Economic Review, Journal of Economic Perspectives, Journal of Regional Science, Journal of Real Estate Finance and Economics, Journal of Urban Economics, Land Economics, Regional Science and Urban Economics, Real Estate Economics, Housing Policy Debate, Journal of Housing Economics, and Urban Studies. His book with Stephen Malpezzi, A Primer on U.S. Housing Markets and Housing Policy, is used at universities throughout the country, and he recently published a book, Introduction to Mortgages and Mortgage Backed Securities. His work has been cited or he has been quoted in the New York Times, The Wall Street Journal, The Washington Post, the Christian Science Monitor, the Los Angeles Times, Newsweek and the Economist, as well as other outlets. He spoke at the 31st annual Federal Reserve Bank of Kansas City Economic Symposium, and he has testified before US Senate and House Committees, as well as California Assembly Committees. The National Association of REALTORS, the Ford Foundation, and the Lincoln Institute for Land Policy have funded grants to support some of Dr. Green’s research. He consults for the World Bank.
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Chris Rising (00:00:50): Welcome to the real market with Chris Rising. I've got Richard Green on the podcast today. Richard holds the Lusk Chair in Real Estate and is professor in the Sol Price School of Public Policy in the Marshall School of Business at the University of Southern California.
Chris Rising (00:01:04): He is just a well-regarded professor. I've had the pleasure of knowing Richard over the years and pleasure of teaching in some classes over at USC. And we have a really interesting conversation about everything real estate, all the asset classes, talking about where the world's headed. I really think you're going to enjoy this discussion with Richard Green.
Chris Rising (00:01:26): Richard, we're in August 2020 and nobody's back at the office, nobody's back on campus. Who would have thought in March that was going to be the way it was going to go? But welcome to the show and I'm looking forward to having a great conversation with you.
Richard Green (00:01:40): It's a great pleasure to be with you, Chris. Thanks for inviting me.
Chris Rising (00:01:43): I think it's great. How are you doing through all this? I mean, you are not someone who goes to an office every day. You're not working on big deals with time crunches. You actually do something extraordinarily important which is show up on campus and mentor and teach young students and you're not allowed to do that anymore. How's the world treating you?
Richard Green (00:02:05): Well, I mean, we still do it, we just don't do it on campus. And one thing I'm very proud of is how my colleagues and I have responded to this. And when I say colleagues, I don't just mean my USC colleagues. Although, of course, I mean, especially them.
Richard Green (00:02:23): But we were told and I believe it was March 7th that you're not teaching your classroom for the next six weeks. You are going to be going online. And then, ultimately became of course the rest of the semester. And a lot of us had not had experiences doing this.
Richard Green (00:02:44): And it was hard to imagine doing it. And tell you the truth, Chris, I was frightened about whether I could do it well. We worked really hard to do it as well as we possibly could do it. My colleagues and I got together and we talked about what is it we need to do to make this a worthwhile experience.
Richard Green (00:03:07): And so, I changed how I ran my class all together it. I mean, I always like to have a lot of interaction. But I basically decided that in my three-hour time slot which is the blocks in which I teach, more than one hour of lecture was just too much, it would just be deadly.
Richard Green (00:03:25): And in fact, there's a lot of evidence that the longest people can pay attention to anything is about 20 minutes. And so, I mixed the class up and I was fortunate that I know a lot of people who say interesting things about real estate. And so, I would bring them into my classroom for the first half hour to hour where we would have... and I mostly interview them.
Richard Green (00:03:51): Sometimes they give a short presentation. We'd have Q&A with the students and then we discussed what we had just heard particularly as it related to the context of the readings, we had that week. And then, I would finish off the class by summarizing it up in a lecture.
Richard Green (00:04:05): And what I could say is at the end of the semester, when I was testing students since seeing their homework, it was as good as it's ever been. In fact, I think it was a little better. Now, one of the reasons for me, that may have been because students have nothing else to do.
Richard Green (00:04:20): They actually really buckled down on their schoolwork and did a really good job with it. So, I do think we are still mentoring students. I actually felt very close to the students I had this last semester. I felt we were going through something new together and trying to make it work as best we could.
Richard Green (00:04:41): I know a lot of my colleagues feel the same way. The challenge I think is going to be this fall now that the novelty has worn off and this is just what we're going to do. Can we sustain it at that level?
Chris Rising (00:04:56): Has USC taken a position on the whole year or just the first semester?
Richard Green (00:05:00): So far as I know now it's just the first semester.
Chris Rising (00:05:03): Interesting.
Richard Green (00:05:05): We just learned a day or two ago that we were going to be all online this fall semester. We really do want to open up when we can but it has to be safe, of course.
Chris Rising (00:05:15): So, it's not a month in and then we'll see they've made the formal announcement that first semester will be online. Well-
Richard Green (00:05:26): I'm actually not positive about that when we start the semester. So, we were going to start with a hybrid where some people came in for some classes or now going to all online starting in the fall semester whether it's sustained through the entire semester. Actually, we might. [inaudible 00:05:43] more carefully than I do.
Chris Rising (00:05:45): Yeah. And I'm sure all the parents are very excited about those tuition checks, all of that. But this is the new world we're in. And whether we like it or not, this is where we're at. And the reality is, there are certain parts of real estate that are on fire right now.
Chris Rising (00:06:03): And there's lots to be said about it. There are other parts that are in deep distress and other parts are hanging in and may pivot one way or the other, we don't know. Is there an area of real estate that you enjoy most teaching? Or just how are you looking at teaching online with real estate in such a, I mean, it's pretty hard to give anybody any A's because one plus one is not equaling to these days.
Richard Green (00:06:30): Yeah. So, your first question is a really interesting one. Because I love pretty much all real estate, maybe US what I preferred. I mean, maybe data senders I'm not that excited about, they're really important. They're actually doing very well as you know.
Richard Green (00:06:48): But it's hard to get really excited about the influence on data senders on the surrounding environment in which that they set. I think housing is something that I've done a lot of work on. Obviously, the thing that makes housing really important to us to the business is it's a way everybody interacts with real estate.
Richard Green (00:07:11): So, the fun thing about teaching real estate is that it's something that everybody has. You can't be on this earth without dealing with real estate one way or another. And for everybody that involves either housing or aspiration to have housing and never know if we're going to get into homelessness.
Richard Green (00:07:30): But I hope we could spend a few minutes talking about that, that is something I worry a lot about. And retail, absolutely fascinating, bureau cues that retailers put up there in order to get people to do this. The way you organize a shopping center, the spillover effects.
Richard Green (00:07:50): I think retail will continue to be an important amenity but I also think it's a real problem sector and I've thought so for some time. That doesn't mean I don't find it fascinating. Office buildings, now, think about office building is so interesting because there are so many issues of safety involved.
Richard Green (00:08:14): And by that, I don't just mean within the office space itself. But also, if you're going to suddenly make people's homes part of the office environment, what are the implications of that for things like cybersecurity, for things like workers compensation and so on. So, there's just this ecosystem of work out there that I find very interesting.
Richard Green (00:08:36): And warehouses, industrial space is an area I have loved for years and it's the least glamorous and perhaps after housing the most useful space there is. If you think of the density of economic activity that happens in an industrial building, it's really remarkable. And I think one of my favorite novels was written by Tom Wolfe about 30, 40 years ago-
Chris Rising (00:09:02): A Man in Full?
Richard Green (00:09:03): A Man in Full.
Chris Rising (00:09:04): Oh, is that one of the great books ever?
Richard Green (00:09:05): It is. And if you're a call, the guy had a choice between trying to save a downtown Atlanta office building which was cratering and a refrigerated warehouse which was doing great and he decided to sell the warehouse in order to try to set the office building and winds up with nothing. What he should have done is given the keys to the office building to the lender and stuck with the-
Chris Rising (00:09:26): But he found stoicism. So-
Richard Green (00:09:30): All right, okay. All right. But I-
Chris Rising (00:09:31): We could do a whole show. That is probably one of the great books on real estate and Tom Wolfe talks about it. Some of the characters which quite frankly, we don't have in real estate anymore, the Cousins, the John Cushmans, the Rob McGuires, those people aren't as around as much.
Chris Rising (00:09:50): And they're all pixelated in that one scene or they're all compilations of them when they go to the ranch when he's trying to convince the gym owner of all things if you look back on it. The gym owner who has a bunch of [inaudible 00:10:04] a bunch of space in that office building. That is a great book.
Richard Green (00:10:08): Yeah. But industrial is a great real estate even if it looks homogeneous.
Chris Rising (00:10:16): Yeah. Well, I think probably one of the interesting things for our audience to go through is just if we walk through it. I mean, I just got off a call before this with a group of YPO real estate friends. And we'll start with offices and we'll go through each of them.
Chris Rising (00:10:34): But we were just giving our updates on what we're seeing in the world and things that I said is, if you own a class say office building with a long weighted average lease term, with quality credit tenants, you're doing pretty well right now.
Chris Rising (00:10:48): I mean, for those buildings, art collections are 94% to 98%. And if you took out some of the smaller retail, it's close to 100%. And that includes with tenants we work who the buildings we own. We have one building in Denver where they're at, they're paying.
Chris Rising (00:11:05): However, if you look at value add, some of my colleagues were saying, if you're a lender or if you're an operator, what is the lease rate today? We just don't have lease deals being done. And therefore, you can't make expectations. You can't set reasonable comps out there.
Chris Rising (00:11:25): And more so, if you talk to any broker, lease activity is way down. I mean, way down, not down 10% but down 90%. So, in one asset class, you see a rush to that quality and then you see a flee. So, our punchline was, if you can hang on long enough, the opportunity value adds in '21, or '22, or '23 is going to be pretty good.
Chris Rising (00:11:50): But boy, is it going to be hard to get there. Is that similar to what you're seeing or the analysis that you do through ULI and some of the other things that are involved there? Are you seeing similar things-
Richard Green (00:12:01): Yeah. That that story you're telling is very familiar, although it is interesting. I have had owners of office buildings complained to me that some of their most famous tenants have been refusing to pay the rent on the grounds that they have a strong negotiating position. But that they've come around the last couple of -
Chris Rising (00:12:22): They do. I mean, some of the law firms early on, wow, unbelievable. The positions that we had in some of our buildings including a law firm that one of their partners is the biggest advocate on behalf of landlords. And yet, the firm was trying to claim that even though there's a force majeure that says in a force majeure or a pandemic, you agreed you would still pay rent but somehow that doesn't apply. So, I definitely experienced that.
Richard Green (00:12:52): Yeah. But my understanding is that's calm down considerably in the last couple of months. Yeah. I mean, one of the things I do think that what Congress came together to do with the Cares Act was really important. Then is one of the reasons we're seeing collections be pretty good and in apartments at office which is I think the PDP program is a really good idea.
Richard Green (00:13:22): I think an unemployment supplement was a really good idea and we can talk some about that. So, I'm not surprised that you're seeing good collections right now. I also think, as you said, if you have long term leases in place, so long as people are what I'll call solvent as opposed to liquid and let's talk a little bit about the difference between those two.
Richard Green (00:13:49): Chances are if you can hang on, you're pretty good. And even an exercise that we do is if you do a discounted cash flow analysis. So, really actually believe in those in my neck of the woods. Suppose you have a building where your collections fall by 50% for two years.
Richard Green (00:14:06): But then, it snaps back to where it was before. Your diminution in value is maybe 7%, 8%, something like that. I mean, you never like any diminution but it's not catastrophic. And in particular, given how the financial structure is pretty good right now which is to say people generally don't have too much debt.
Richard Green (00:14:29): If they hit a refinance with a 7% diminution of value, if I'm a lender, I want to do that refinance. I mean, for starters, it just doesn't make any sense from a regulatory standpoint to take the building back. Technical defaults just don't make sense if you're that environment.
Richard Green (00:14:46): So, I think we're well situated in terms of there not being too much leverage in the sector in general. I mean, of course, we can find exceptions for that. But and here's the big but, the liquidity issue is a big issue. And if things like PPP stop, if people run out of money, then you're going to start seeing your leases impaired a lot more.
Richard Green (00:15:12): And so, I am actually very nervous that the Senate went home for the weekend. And I am not wise enough to know exactly what a deal should look like. I mean, if I'm the Republicans, I'm taking what the House did, with the Heroes Act and modifying it here or there and just saying, "Okay, let's be done with it."
Richard Green (00:15:35): I really don't understand why you'd want to put the economy at risk in a political year. But the absence of legislation at this point, another slug of relief stimulus, whatever you want to call it, that makes me very nervous at the moment. Other than that, I agree with you about if you can hang on, there's lots of office stuff that's going to look pretty good.
Chris Rising (00:15:59): Well, let's dive a little deeper because you do bring a unique perspective. You've been in government. You've advised people in government both. I know, Castro at HUD and then you've also done things with Freddie Mac. If you're a public policy person, if you are an elected official.
Chris Rising (00:16:18): Do you think that the nuances of what you just went through are hitting home with them that these are dominoes that they're just falling over. It has felt a little bit like to me that they've chosen the bad guy and that person is the owner of a building because the lenders we are seeing foreclosures.
Chris Rising (00:16:41): But it's tickling all the way down. Do you feel like our representatives whether they're Republican or Democrat can feel what you just explained? You've been there, you've had the policy discussions, do they feel it? And therefore, maybe perhaps act on it instead of going home for the weekend?
Richard Green (00:16:56): Yeah. Chris, that's a really good question. And what I will say just going back to when the Cares Act was passed, which was late March, early April. I was very impressed that everybody got together and got something pretty good done. And of course, there are people who complained about specific aspects of it.
Richard Green (00:17:17): You know what, when you're dealing with a crisis, you're not going to get it exactly right. Even all these years, later, people complain about tarp, bailing out Goldman Sachs. And yeah, I think Goldman Sachs didn't need to be bailed out quite as much as it was.
Richard Green (00:17:35): But you know what, when the world is coming to an end, you just do what you need to do and there's going to be things you get slightly wrong. And at the end of the day, tarp work, it kept us from going over the cliff. And so, part of it is I think we've reached a point where people have gotten a little too used to this crisis.
Richard Green (00:17:56): And so, they're going back to their ideological positions on things as opposed to the practical, jeez, we just got to get something done and we got to get money out. We got to get it in the hands of people. We need to get it in the hands of businesses.
Richard Green (00:18:11): And now, I agree. I agree with you but it's a problem that people look at landlords as bad guys. And I try to explain to them well, if they don't collect right, they don't pay their mortgages and that creates a huge problem for the financial system.
Richard Green (00:18:26): There are also people who say, "Oh, look, by having generous unemployment benefits, we're discouraging people from working." And there's really good work that's been done in the last week that shows moral hazard here is not an issue. It's remarkable people will go to back to work when there is a safe job available for them even if it means they're making less money than they are unemployment.
Richard Green (00:18:48): Because you know what, people like going to work. People like working. It's important to their sense of wellbeing. And so, I find these arguments just silly in this environment. And-
Chris Rising (00:19:01): If I could jump in really quick on that because I want to give a real-world experience. I have a dear friend and I happen to be an investor in his business. It's a gym and it's been around for 10 years. And obviously, it's been decimated. But there was a window of time a few weeks ago when he could reopen.
Chris Rising (00:19:20): He did everything you could possibly do reopened and said to his employees, "I'll see if I can rehire you. Let's see what happens." Every one of them said, "We don't want to be on unemployment, we want to come back to work." And what he found was, people were afraid to come back to the gym.
Chris Rising (00:19:39): So, it's not that the people who were taking unemployment that used to work for him are being bad. There's no job for them to come back to because people still are afraid. And sometimes when I hear and I sit probably right down the middle of this political spectrum.
Chris Rising (00:19:54): But this is not a question of people saying, "Hey, I'd rather sit at home." It's the fact is that 10 million people may not have jobs that come back. And think about some of the great restaurants where someone's been 30 years as a waiter, that job probably not coming back if that restaurant is lucky enough to come around but probably not.
Richard Green (00:20:15): So, by the way, public service announcement. If you're lucky like me and still have your job and are still getting paid, go to your local restaurants, do take out and give a 20% tip on the takeout, please.
Chris Rising (00:20:28): That's right. Well, let's talk a little bit about it because you made some good points. A TARP, it took a year and a half I think if I had my memories correct or at least a year before TARP was passed. PPP, Cares Act all happened within weeks of the pandemic. So, that's a big difference.
Chris Rising (00:20:47): Congress saw huge pandemic and they dealt with it. I agree with you that there's some right now falling back to political positions on both sides of the aisle. But the reality is that that as of this weekend, there are people who have no income and where the real pain is going to be felt in the month of August and September and probably October.
Chris Rising (00:21:10): I just can't imagine, election year that's going to continue. I think our debt ceiling, the government would shut down for a couple, I think they're going to solve it. But what I'm leaning towards is if they "solve it," what do you think that's going to look like for Americans? And this really hits office and retail.
Richard Green (00:21:31): Yeah. So, let's separate office and retail because I think the impact is very different for both. In office, you have businesses that are basically able to operate the way they were. But and well, no, not the way they were before but law firms are still doing law stuff.
Richard Green (00:21:54): Accounting firms are still doing accounting stuff. People are doing it from home so they're not that many people in the office but they're doing business. They're generating revenue. They can afford to pay the rent. They might need a loan to help supplement them.
Richard Green (00:22:08): But basically, those office space businesses can more or less do the jobs that they were doing before. And they have leases and they want to come back to the office, so they don't want to default on their leases. So, where's the thing about retail, you hit on something really important, Chris, is people don't want to go.
Richard Green (00:22:26): It's not just about shutdown rules. And one of the things that's really, I don't think it's been underscored enough, is long before Governor Newsome shutdown California. People would stop going to restaurants. The shutdown order clamped it down to zero.
Richard Green (00:22:45): But restaurant traffic, if you look at OpenTable data had dropped by 90%. So, it wasn't people being told to stay home, it was that people were scared of going out. And so, the idea that you're going to recreationally shop, I think we're a long way away from that.
Richard Green (00:23:05): And so, now, the thing that's also hard about retail relative to office is if you look at your office tenants, particularly in the A class stuff, those are good businesses that, and by good, I'm not making a moral judgment. I mean, they're solving businesses, their cash flow is good. If you look at retail space, I mean, the weaknesses were there before COVID. What I say is there were a lot of comorbidities in retail.
Richard Green (00:23:34): So, JCPenney was in trouble before COVID. Lord & Taylor was in trouble before COVID. What COVID has done is accelerated what I thought was inevitable which is that these businesses that really don't cater to the needs of people right now, were not going to do well.
Richard Green (00:23:56): And so, that's just hundreds of thousands, millions of square feet around the country that's in a sense so obsolete. And it wasn't COVID that made it obsolete, it was COVID that accelerated that obsolescence. And so, that's why said I think retail just faces much greater challenges. The way you put it with office I think is exactly right. If you could just survive for three years. It's going to be a good product.
Chris Rising (00:24:28): Well, you know what's interesting is, I used to do this. I probably should bring it back. But I used to show a video on space that was the opening to LA law in the late 80s. And the reason I would show it is they would show how a law firm use office space in the 80s.
Chris Rising (00:24:45): And then, I would also take a clip from the Dolly Parton movie 9 to 5, and the reason I would show that is there were these floors of typewriters and typists doing things, typing. And I know when I started as a young lawyer in the early 90s, we had a whole floor of word processing.
Chris Rising (00:25:03): And my point is, is that office has evolved. And we don't have any of those things but office is still important. We've had firms like Yahoo and IBM who've tried a whole work from home all the time, it didn't work. They've come back. I think coming out of this, you've got a recession that means a CFO is going to look to cut people.
Chris Rising (00:25:23): They're going to look to cut expenses. If they can give back some real estate, they're going to do that. You've got a new generation of leaders. You've got Gen Xers now who are CEOs. And millennials, they're going to look at doing things a little bit different.
Chris Rising (00:25:37): And we got a whole lot of new things to rip off that book, the new thing. We have a whole lot of new technology. But all of that to me says that there will be a reason to have an office place, a people can congregate and communicate but it's just going to look different than it did before COVID has accelerated it.
Chris Rising (00:25:56): But I think what's different about retail is that retail much like when you used to have file rooms, an office has still set up to have inventory and that's what's killing retail is you can have experience, but that's what Disneyland is. That's what the grove is.
Chris Rising (00:26:17): That's an experience and you'd go and you'll buy a trinket or you'll buy stuff. But I think what retail hasn't gotten figured out yet is how do they evolve from an inventory model for someone who needs to buy a pair of shoes so you have all these Nikes in the back.
Chris Rising (00:26:33): To now, where people are like I know how Nikes fit, I can just order it online. So, it'll be interesting to see because retail needs to figure it out. I think I agree with you. There are malls all over America that are wall street financed that are going to be ghost towns.
Richard Green (00:26:48): So, can I put it? I think there are two retailers that have been brilliant at adjusting and it's worth mentioning them and one is Target. And one of the things and it comes to it, it's both are going to make your inventory at point. So, what's happened in Target is they've changed their format. They decided to start building small stores.
Richard Green (00:27:07): And the first one of them was actually in the USC village near me. And they find that it's very successful. Okay, what are they doing at small stores? They're basically having a smaller variety of products but they're using technology to keep very careful track of what people really want there to be when they walk in the store.
Richard Green (00:27:29): So, that's the first thing. And so, the second thing is that they have figured out how to develop a relationship between the bricks-and-mortar in the online. So, there are people who don't want to wait for their Amazon Prime to get to them. And so, what do they do to Target? You go online, you order stuff.
Richard Green (00:27:52): They have a warehouse that's close and they promise within three hours or something like that you can drive through a drive thru window and get your bags of stuff and off. And so, they have figured out how to combine efficiencies in the bricks-and-mortar space with developing real, I hate the word synergy because it's so overused, but real synergy between their online stuff and their bricks-and-mortar stuff.
Richard Green (00:28:24): The other one is Costco. And so, the thing about Costco is when you talk about experience, you talk about the grove and you're talking about Disneyland and that's amazing experiences. I love the [inaudible 00:28:38] thing at Disneyland. It's absolutely fabulous.
Richard Green (00:28:42): But you know what, Costco experienced too. And what do they do? They set up something that's so appealing that it is I call Costco the most democratic place in America because you see people from every walk of life in that place. It's the only place I know where you can see a 40-year-old Toyota pickup with stuff piled in the back of it next to a Lamborghini.
Richard Green (00:29:05): You see people of every race, ethnicity, sexual preference, the whole thing in that store. And why is it? Because the value is amazing. Now, you think inventory, you think Costco has a ton of it. And in a sense, it does. But they actually have a very limited number of products. So, they're very careful about what I put in that store. So, they know what stuff people really want to buy. And I find that model fascinating.
Chris Rising (00:29:29): Well, I think it's a good segue into industrial. We were just having a meeting [inaudible 00:29:34]. And one of the discussions was traditionally, you think of industrial you think of big warehouses. And you think of what was built in Ontario and New Jersey, these big warehouses in the 90s and 2000s.
Chris Rising (00:29:50): That is an important part of industrial. But where the growth is, is on something much smaller. It's finding a population of 100,000 and 200,000 people. It could be a sub market of Salt Lake City or Dallas or Denver. It's 100,000 square foot building that is the mid sort facility.
Chris Rising (00:30:14): Or, it's the 50,000 square foot building that's the last local urban stop to meet these needs of the on-demand buyer online. And that's just not going away. I think millennials are a larger generation than baby boomers. Gen Z following right behind them is a little bit more like my Gen X.
Chris Rising (00:30:34): These habits aren't going to change. In my opinion, I think you're going to continue to see industrial. The other thing is, industrial is not the old industrial in terms of [crosstalk 00:30:46]. No. And the bandwidth need, the electrical needs. The way that the logistics work with robots, I mean, these are very sophisticated buildings.
Chris Rising (00:30:58): These aren't just pallets of stuff sitting there. And I think, our company really believes having spent a lot of our last 10 years in value at office really believes that value at industrial, taking industrial in and around urban centers and repositioning it for 21st century industrial needs is an area we want to spend time.
Chris Rising (00:31:21): So, I don't know if that has come into the academic circles yet if you're seeing people talk, if you had a logistics person that you've talked to just talk about how different that 50,000 or 100,000 square foot industrial building is than the million square foot one.
Richard Green (00:31:38): Yeah. And we've had guests talk about it and it's funny [inaudible 00:31:41] thing I would like to add to our real estate curriculum specifically a class on logistics and the science of logistics, how do you determine. So, it used to be when we would teach market analysis, the property type we would focus on would be retail, right?
Richard Green (00:31:58): What's the right corner. And now, I think it's got to be industrial, is where do you put the building? What size is that building? A phenomenon that I find fascinating is the beginning of multi storey industrial. And if you go to Singapore and Hong Kong where land values are very expensive but they want Amazon as much as anybody.
Richard Green (00:32:18): I mean, you see the extraordinary 11-storey, 13-storey industrial buildings, you could see the trucks go up and down. Amazing. In places where property values are high. Well, there actually as a multi storey place in Queens, multi storey industrial buildings in Queens. So, yeah. It's not your old industrial space anymore.
Richard Green (00:32:40): And the last mile thing, one of the things that I don't have the spatial imagination to figure out. But when I see like there's still a bunch of dead Kmart sites around the country. And if you look at where they are, you would think those would be great places for last mile. But I understand the problem is getting trucks in and out of those parking lots is a problem. So, I don't know if those sites can ever be reconfigured or not. But-
Chris Rising (00:33:05): Our understanding for this smaller 50,000 to 100,000 square foot building or maybe a little bit more, you still need 15 acres as a minimum because of the truck ins and outs. Even with the different models of trucks and on everything's on a big 18-wheeler anymore. But even with that, you still need to have the way things essentially say about adding logistics to a real estate class.
Chris Rising (00:33:33): We had a discussion recently. And we were talking about the fact that people don't focus as much. Tim Cook of Apple, his background was not as a computer scientist. His background was around logistics and inventory and product lines and how you get things from China to the United States and he's the CEO of the largest company in the world.
Chris Rising (00:33:57): And that's what he thinks about all assignment. And if it's if it's happening there at the largest company in the world as well as Amazon is the second largest, at least close, imagine how that just comes down into real estate. I remember being at a ULI event in 1996.
Chris Rising (00:34:13): And somebody came up and introduce himself as a logistics person, I had no idea what that meant. And I was expecting to see somebody in work boots and jeans and no, he was in a suit and tie all that. And that's the first I'd really heard about logistics in '96.
Richard Green (00:34:30): So, I have to at this point, give a shout out to a Trojan Kristina Raspe who runs real estate for Apple.
Chris Rising (00:34:36): She's a superstar.
Richard Green (00:34:37): Was actually a student of mine 12 years ago. So, yeah.
Chris Rising (00:34:43): Well, I don't know her personally but I know lots of people through the LA real estate community who speaks so highly of her. And she's very important to what's happening in Hollywood in Culver City right now. In her role, they are making decisions about where people are going to work and therefore, where people are going to live that are continuing to shape our city.
Chris Rising (00:35:09): So, I'm grateful she was well educated, even though my dad would kick me in the shins that I just said that about a Trojan. But well educated and she's good and she has a great reputation. Let me just move the conversation into some of the other things we're dealing with around real estate and in a COVID world.
Chris Rising (00:35:29): Obviously, housing is a big issue. Whether it's just getting something entitled, in a city, the single-family house versus a multi residential and then homelessness. From where you set and where you teach, tell me a little bit about your thoughts on where we sit in August 2020 of a COVID world and the prospects of residential.
Richard Green (00:35:59): Yeah. So, I think important trait is if people do work at home more and we really didn't get into this much. I read your white paper by the way which really good. The idea that people are going to work from home all the time, I actually don't believe that.
Richard Green (00:36:22): I think Jack Dorsey in a couple of years is going to say, yeah, if you work with Twitter you got to come in sometimes. But I think people are going to work at home much more than they did before. Because I think we're seeing it can work. I do think you need to have the accidental conversation.
Richard Green (00:36:37): People do need to be in the office sometimes but they don't need to be there five days a week. So, what does that mean? I think it means people are going to really want more space. And so, I think a non-dense residential will probably do very well.
Richard Green (00:36:57): Now, that doesn't necessarily mean owner-occupied houses but it does mean people would rather be in a garden apartment with three bedrooms than a high rise with one. The other thing, people are going to be working from home more. It should have an impact on traffic.
Richard Green (00:37:18): So, about one third of all trips are work related. So, if people stay home stay at home two days a week to work, you're cutting those work trips by about 40%. So, you're cutting traffic by 40% times 30% by 12%, 13%. That's going to make a difference.
Richard Green (00:37:41): I think you'll see that. Now, there'll be a little bit of back folks, people will say okay, the roads are more open so I could do other things. But during the day, I don't know how important that's going to be. And so, it means people are going to be able to save themselves between, okay, I only have to commute three days a week.
Richard Green (00:37:58): When I do the traffic is going to be a little better. I can live for the rep. And so, I think that a short run impact of this is going to be... and I don't like saints, I love big cities and I love density and all that stuff. But I think the fact is, we are going to see people live in larger places for the route and cheaper places.
Richard Green (00:38:21): A phenomenon we're seeing right now when I talk to landlords is how many people are moving from Southern Cal. And this was already happening but it's accelerated to move in from Southern California to Las Vegas and Phoenix. Now, Las Vegas has no jobs right now.
Richard Green (00:38:36): So, why is anybody moving to Las Vegas? Well, they can do their work in Ontario from Vegas at a much cheaper cost in a bigger place. And so, that could be an impact on the housing market. Homebuilders doing very well right now, so that's a good thing. But they're also being very cautious. So, they're not acquiring new land. And so, they're basically going through their back inventory of land right now and they're going to use it up pretty soon.
Richard Green (00:39:13): And what that means is, when we come back, when the economy comes back as much as we already have a problem with a backlog of housing need, it's going to be even worse. Because you don't just flip a switch and say, "Oh, there's some land over there and we're going to develop it and put in stuff." You basically set that process back a year or two.
Richard Green (00:39:38): So, that makes me very nervous about our ability to meet the demand for housing which of course is I think and I've been doing research on this. Certainly, a good part of homelessness relates to mental health and addiction issues but it's less than half, I'm convinced it's less than half. And one of the things about when you look at people who are mentally ill, one thing we observe is that when people become homeless.
Richard Green (00:40:12): If they're not mentally ill at the time they become homeless, if they remain homeless for more than a certain period of time, they become mentally ill. And so, housing alone will not solve the problem but it's a big part of the problem. So, I am one of these guys who is absolutely convinced unless we build a lot more housing. This thing is going to get worse instead of getting better.
Chris Rising (00:40:36): Well, let's talk a little bit about, I think this is the premise of my white paper is we're still in the bunker. There's a hurricane going over, any decisions or triage decisions. When you look at Google what they really said not the headlines. When you look at what Facebook really said about going, you can still work from home until July 2021.
Chris Rising (00:40:58): It was tied to the issues schools and kids not being in schools as opposed to a strategic decision that everyone's work from home the way. Even Jack Dorsey says all the time. He said if you can work from home, boy, that makes me feel good. My job is so not relevant that I can work from home peace, I don't know about that.
Chris Rising (00:41:20): But this is about how I want to keep on housing. So, what we're saying in San Francisco and New York for a great extent is if you had a job that required you to work in those two cities. You had an apartment paying an exorbitantly high rent, and you've now just been given the assurance, you don't need to be back here until a year from now. There's a mass exodus because why would you renew your lease? And I've heard I've heard in San Francisco rents have not dropped 5% or 10%-
Richard Green (00:41:47): 12.
Chris Rising (00:41:47): ... 25% and 30% just to try to keep people there. But what we don't know is that now after people have moved out, are they going to want to come back? I mean, I'm a big believer in cities. And I think flukes written in January, we talked about them. And I will tell you, the benefit right now people ask me our office is open and all people because we're an essential business.
Chris Rising (00:42:09): But one of the main reasons I like going to the office, my commute is 15 minutes from Pasadena. It hadn't been 15 minutes most of my professional career. If it goes back to an hour, are my habits such of the... in our people's houses there go, "I'm just going to stay away."
Chris Rising (00:42:26): I think we've been here before and it ebbs and flows. COVID has done something that pushed it, so maybe cities will. Remember New York in the 70s, maybe we're going to have a decade of big cities not being great places to be because they're not solving homelessness and all of that. But go ahead.
Richard Green (00:42:44): No, I mean, long run New York is going to do what New York always does, it will rebound. I've no doubt. London has been in London for a very long time for a reason. New York's been the largest city in the United States since 1790 census for a reason.
Richard Green (00:43:01): No. If you're taking 10 years out, people are going to want and particularly what we know is high skilled people really want the amenities of cities. But in the shorter run and by that I don't mean six months. I mean, let's talk about the important part of the infrastructure of cities is restaurants.
Richard Green (00:43:23): The longer we go shut down, the more of them are going to be gone. And I think part of the rationale for paying that high rent is, yeah, the rent sucks, and I have this little tiny place. But boy, I can walk to that sushi place or I could walk to that Italian place. And I really love that as part of my life.
Richard Green (00:43:40): I'm hearing fascinated to, I love being able to walk to Celestina which again, go to your restaurant, tip them 20% even though they're not serving you, keep them in business. I worry that as this drags on that infrastructure falling apart and so that really important part of what makes a city appealing will go away for a while.
Richard Green (00:44:01): You're not going to have restaurants come back instantaneously. Think about things like galleries. So, just list everything that makes a city a fun place to be. If we can keep those things alive to survive then maybe the rebound happens faster. But I think those amenities are incredibly important in people's decision that they're willing to pay too much rent for too little space to be in those places.
Chris Rising (00:44:35): Yeah. It's hard to know where we sit, what these psychological changes are going to be because I agree with you. I think there's restaurants that aren't coming back but there'll be other restaurants. And those chefs or those restaurant tours, this will be a painful period but we'll have a comeback.
Chris Rising (00:44:55): And the question I have especially if we're going back to restaurants because we both seem to like restaurants which [crosstalk 00:45:01] is how different are they going to be? I mean, I love places in Pasadena, the steak at Chop House and things like that. It's going to be a long time before I want to be in a booth in a crowded restaurant, the old smoky bar thing.
Chris Rising (00:45:18): So, they're going to have to refine themselves. And I think it's going to dictate how people come back is whether they feel safe. And fortunately, I don't think it's enough just to have a vaccine. It's something bigger than that.
Richard Green (00:45:31): Well, I think something they're doing in New York that's really wise is allowing encroachment into the streets pretty now with less traffic and letting restaurants have a lot more outdoor space. And to me, I mean, we could spend an hour talking about how I think zoning is crazy in the US.
Richard Green (00:45:50): But you know what, one of the one of the few good things to come up this is LA is now making it easier for outdoor eating areas for restaurants. You go to Europe, everybody eats outdoors all the time. So, one of my favorite cities is Quebec City.
Richard Green (00:46:06): The only downside of Quebec City because it's really cold. People eat outside in December in Quebec City. Now, they have the heaters and all this stuff. And in terms of feeling comfortable, I think people will be far more, I mean, we know that the disease doesn't spread anywhere near as readily outside as it does inside. And so, those were changes I think are going to be important.
Chris Rising (00:46:28): Well, on that since you I know you're very involved with ULI. And I do want to touch a little bit on zoning. I've long been an advocate that we shouldn't allow street side parking on high streets and which is very European and I'm thinking of it all.
Chris Rising (00:46:45): But do you think that that there's going to be ramifications from this or a change of thinking and in a broad enough sense that we're going to see zoning change and some of the some of the cities whether it's Pasadena or similar or Salt Lake City, or?
Richard Green (00:47:00): Well, Pasadena I'm not so sure. It's a very blue town but in some ways it's a very conservative town. So, I mean, I live off a street half a block from street Carlos Robles Avenue which is a major north south street. I think we should have six-storey apartment buildings up in [inaudible 00:47:20]. So, I don't think that's going to happen anytime soon.
Chris Rising (00:47:23): I'll introduce you to a few of your neighbors who agree with you [crosstalk 00:47:28].
Richard Green (00:47:29): Yeah, I know those neighbors. But in a sense, think about this is, many of us are already violating zoning in a sense. And that I live in a house that's R1 which means I'm not supposed to be running a business out of it. And I'm doing all my work from my house.
Richard Green (00:47:52): So, the use of my house is now [inaudible 00:47:57] to residential space. I think nobody's going to tell me to stop doing my work here. But technically, right, is my house is an office building now in a sense. My wife has a home office. I have a home office. Chris Rising (00:48:15): You've had kids who were still of that age. I know your kids are older but also be in school.
Richard Green (00:48:19): Yeah. I mean, this is a place of work. And so, I think, loosening up that rigid thinking about single use zoning is something that this will lead to. The other thing that I find encouraging is more and more officials that I talked to local officials do understand that as much as they want ground floor retail in buildings is just not working.
Richard Green (00:48:48): And so, what else can you do that's cool for the area that meets the need and that stuff. So, the willingness to let go of this idealized vision that people have of how they want their community to look I think is something that might change. Los Angeles is doing something that I really like. I think it needs to be done more.
Richard Green (00:49:14): But the transit-oriented communities initiative which basically makes, it's a very transparent proposition which says if you're in a transit rich area in exchange for having a certain share of your units be affordable for 55 years, you get a density bonus. And the relationship between those two things is transparent, right.
Richard Green (00:49:36): You don't negotiate it. It's just there. And then, it's ministerial if you need it. I'd love to see us do more of that thing. And I think that could be a very successful mechanism for transforming LA. I think the ADU legislation is very encouraging. So, I think we're actually moving in the right direction.
Chris Rising (00:50:00): Yeah. I think the ADU is very important. I agree with you. We're always going to have nimbyism. They're starting to see it in other states who never had it before. Because people get involved in their communities and change is tough. But I also think that there is a public policy planning piece.
Chris Rising (00:50:16): I mean, Paris would not be Paris, London would not be London if they didn't have people. And even in New York City wouldn't be one of those. We didn't plan for the future. And I think with the COVID reaction, we're going to look at things differently and want to plan differently.
Chris Rising (00:50:30): And I hope we have the courage in these cities to do that. We spent a lot of time talking about real estate and zoning and different things. But one of the things I wanted to ask you about, I was on a panel recently with a gentleman I have great respect for named Don Peebles.
Chris Rising (00:50:46): And Don is an African American developer based out of New York. And we spent a lot of time talking about real estate as a job opportunity for women and people of color. And traditionally, and it's been most of my life. All my life in real estate has been predominantly white male and not just regionally.
Chris Rising (00:51:08): I mean, it's that way across the country. I guess my first question for you is, what are you seeing in people's interest in real estate at USC? Is it more diverse? Or is it still really the sons of real estate brokers and real estate owners?
Richard Green (00:51:24): The way I would put it is it's getting better but it's still not good. I like the way you asked the question. We are seeing far more daughters of real estate owners interested in our undergraduate program which has about 360 students in it is something like one quarter to one third women.
Richard Green (00:51:47): So, that's much better than if you look at the landscape of real estate development but it's not where it needs to be. The contrast I draw is my wife was the medical school class of 1990.
Richard Green (00:52:03): And that was the first medical school class that nationally was more than 50% women. So, that was not to give away my wife's age but that was so 30 years ago, right? And real estate isn't even close to that yet. And I think part of it is it doesn't occur to people that this is a possibility for them.
Richard Green (00:52:24): There a couple things that I'm very proud of that we do but again not enough is there's a program that ULI called Urban Plan which is a way to bring real estate into high schools. And we did this program with Alliance Tech up in Lincoln Heights last year.
Richard Green (00:52:45): And I got to see these Latino kids say, I had no idea that I could own an apartment building. It's like it hadn't even occurred to them before. And to see the light bulbs go on was fantastic. And then, we do a program called the Ross program which is an executive program that's designed to bring people of color who are professionally successful into the real estate business.
Richard Green (00:53:09): And we do with 50 people a year go through that but these are just beginnings. I think the key is we need people in the real estate community to be going into high schools and saying this is something you should think about doing. And by that, I don't mean Harvard Westlake, nothing against Harvard Westlake.
Richard Green (00:53:33): But need to be going into our public schools and showing, capturing the imagination of people at a young age that this is a way they can change their community. This is a way they can build wealth. And the great thing about real estate is, is it is entrepreneurial.
Richard Green (00:53:53): If you want it to be you could start by getting a Fannie Mae loan to buy off four unit, live in one of the units, manage the other three, make the place better, make a profit, refinance and move on. It's in principle could be a low barrier to entry business but you need to teach people how to get into it.
Chris Rising (00:54:15): I think you've hit some really important things. I think the one thing about the business it's a mentor-based business. Because you really have to understand the ups and downs and how you sign a document, how you do a guarantee or not doing guarantee.
Chris Rising (00:54:29): So, it's not a business no matter what your color and what your gender is that books really give you the sense of it until you do it. I'm sure that a rocket scientist would tell me the same thing about rocket science but I do find it that. I also found that we can't deny that there were generations of laws and redlining put in place to keep it exclusively white male.
Chris Rising (00:54:55): And I think another thing is they haven't done a lot of great shows outside of realtor shows are anything within popular culture to open someone's eyes to say this would be great. But having said all that, there are so many great opportunities because the fact is other industries.
Chris Rising (00:55:14): People who are our clients are our tenants, are our renters are all of different genders and different backgrounds and different colors. And those are the ones who ultimately buy our product. And so, there's such a great opportunity. And when I was hit with this, I'd probably tell the story too often.
Chris Rising (00:55:32): But one of our biggest deals in 2012 tenant going from 10,000 to 60,000 feet. And I showed up at that time what I've been trained to do white shirt, dark suit, red tie and this woman who was running the business. So, I have great respect for [Sophia Marosa 00:55:47] said get out of here. I don't meet with white men in dark suits.
Chris Rising (00:55:51): I mean, that was the client. She freed me for so many things. I don't wear dark suits anymore and white shirts and red ties. But I mean ultimately, we are beholden to our clients. And that's what I try to express to young people is no, there's opportunity here that you're not saying,
Richard Green (00:56:08): Well, Chris, that's why it's not just a moral imperative which it is but it's a business imperative. And I am absolutely convinced. I remember sitting in the ULI meeting maybe 15 years ago on the future of shopping centers and listening to senior retail executives talking about, chuckling about taking the steering wheel away from their wife when they drove by the shopping center so they didn't spend too much money.
Richard Green (00:56:39): And at that time, only 6% of American households were a husband who worked, a wife who didn't with kids at home. It's less than that now. And I thought this business is in trouble because they don't know who their customers are. And we're a country that will be a majority minority. I'm not exactly sure what that means.
Richard Green (00:57:08): But non-Hispanic whites will be less than half the country in less than 20 years. And if we have a business that doesn't understand who half the customers are and by that means knowing what it's like to live the lives of those customers, you're going to have a business who doesn't do very well. And so, yeah, I think there needs to be urgency.
Chris Rising (00:57:33): Well, I tell you, I saw a statistic recently that if you have a five-year-old or younger, the parents of five-year olds and younger are more nonwhite than white. It's hitting in any smart business person has got to jump on. But let's start [inaudible 00:57:51]. So, tell us a little bit about how a Wisconsin Badger ends up now a member of the nation of Troy.
Chris Rising (00:58:01): Now, tell us a little bit about your background. And you've mentioned your wife several times. And I know you have children who are adults now and doing things. But tell us how you got interested in real estate and what brought you from Wisconsin out to Los Angeles?
Richard Green (00:58:14): So, how much time do we have, Chris? I followed my girlfriend to Wisconsin for graduate school, she became my wife. And she was getting a PhD in the history of science. She was a budding Darwin scholar. And they had a very fine economics department at Wisconsin.
Richard Green (00:58:38): So, I entered the PhD program there. And at the time that she was about to embark on her dissertation, she says to me, you know what, I think I want to go to medical school instead. And I said, okay, that's fine. Then [inaudible 00:58:58] make money.
Richard Green (00:58:59): So, I was running dissertation which was actually an international trade dissertation. I noticed a job in the newspaper, they had job ads, the newspaper for a research director for the Wisconsin Realtors Association. I didn't know what a realtor was but I knew what research was.
Richard Green (00:59:17): And so, I actually wrote a letter and put it a resume, again, type these things up and put it in an envelope and put a stamp on it and sent it off. And this guy named [Bill Melcasian 00:59:28] hired me, called me up the next day because the mail would get within town there in a day.
Richard Green (00:59:34): He said, let's have a beer. And we met. And two days later, he offered me a job and I told him I know nothing about real estate but I know how to do research. So, you're going to have to give me time to read and learn real estate. Well, in the end of the day, he never gave me time to read learn but I read and learn anyway.
Richard Green (00:59:53): And I found that I really liked it. And part of it is I've loved cities since I was a little kid. And I've loved things like the World Almanac when I was eight years old was something that I would just come through. And I'd want to know what was the biggest city in the country and who had moved up and down the population charts and all that stuff.
Richard Green (01:00:15): So, real estate was a natural fit. Then this guy at Wisconsin who lead the real estate department there named [Carrie Bendel 01:00:21], who's the guy who succeeded Jim Graaskamp whose name many of your listeners might know offered me a job.
Richard Green (01:00:27): And so, I became a real estate professor. I was at Wisconsin for 12 years. My wife does medical school. She does residency. She does fellowship. She does a public health degree. And then, she gets offered a job in Washington DC which is the perfect job for her.
Richard Green (01:00:44): So, I followed her to DC. And I go to work for Freddie, spend about 15 months of Freddie, learned a lot. Liked being a professor. Friends at Penn said come on up and teach Penn. I said, okay, I'll do that. So, I commute to Philadelphia for a little while but we still have kids at home. I did get home for dinner pretty much every night. But it's exhausting to do that. Chris Rising (01:01:10): Well, were you working with [Peter Letterman 01:01:11] then too?
Richard Green (01:01:12): Peter had retired just before I had. But [Susan Wocter 01:01:16] and I have done a lot of writing together. [Joe Turco 01:01:19] has been a friend of mine for many years. [Todd Sinai 01:01:22], they have a great crew out there. And then 2007, [Stuart Gabriel 01:01:30], who was running the LUS Center which the job I have now calls me up and says, "Hey, I'm thinking of moving over to UCLA. What do you think?"
Richard Green (01:01:36): And I said, "Well, Stuart, I can't give you advice on this because I want your job." So, he winds up taking the Simon Center job and then I get recruited at USC. And my wife says, "You followed me around and I know you really want that job. I'll figure it out." And so, she followed me back here to LA.
Richard Green (01:01:55): And now, she is a physician professor at UCLA. So, your dad had like that. Number four hospital in the country. And she is listed in LA Magazine as one of LA's best doctors. So, it's worked out very well for her here. And we're very lucky. If you have two professionals with two professional salaries. I think LA is the best city in the world you can live in.
Chris Rising (01:02:24): Yeah. Well, what about your children? Where do they consider? They consider DC is where they were brought up-
Richard Green (01:02:30): Well, they grew up in Wisconsin. We moved when they were 12. Yeah, they were 12. And I'm happy to say that they were not happy about moving as 12-year olds aren't but they actually came to really love Washington DC and appreciated on the broadening experience relative to Madison, Wisconsin.
Richard Green (01:02:55): And I'm proud to say one of them just started as a producer for science podcasts at Spotify. And the other teaches computer art at the University of Illinois in Chicago. So, she lives in Chicago.
Chris Rising (01:03:10): Terrific. That's terrific. Well, we've had a great conversation. But I want to go back to the beginning. You're getting ready to start a semester of teaching for USC. You've had three months at the end of the last year to do it online. What are you thinking about? What are your objectives as a teacher to, I don't know if you're teaching undergrad as well, but let's just say to a 22 year old.
Richard Green (01:03:42): It should happen. So, this semester it's just MBAs that I'm teaching. It moves around. But yeah, it is-
Chris Rising (01:03:48): What are your expectations or what are you trying to impart to people? Is there anything different because it won't be in person, I've had the real pleasure of teaching at USC but going in and giving presentations to students in the MBA program at USC. I've always enjoyed going there and giving them. It's a great atmosphere to do it. But it's got to be different. So, how are you thinking about the year?
Richard Green (01:04:10): So, the first thing is, I think there there are two things that have to be brought into my classes that well, one is actually something I have been bringing to my classes for some time it is one is we do need to talk about the implications of COVID.
Richard Green (01:04:27): And the class I'm teaching this fall is a mortgage backed securities class. And so, you think about if you're a lender, how do you look at modifications right now? If you're a borrower, how do you interact with your lender? If you're a CMBS, how do you deal with the governance issues that are inherent to CMBS when you have problems where you're going to a special servicer?
Richard Green (01:04:53): And so, it was funny when I was teaching in 2009, 2010, 2011 we talked about the stress that all the time. And now, students stop seeming interested in it. And so, I did a lot less. We're going to be doing a lot more of that again. And then, from an investment opportunity, when you want to buy the stress test, is this a good way to be acquiring real estate?
Richard Green (01:05:15): And how do you know and that thing? So, there'll be a lot more emphasis on that. And then, the issues we're talking about today is how do you underwrite an office building? As from a lender perspective, how do you want to write a shopping center right now if you just think about it just the raw land underneath the shopping center at the moment.
Richard Green (01:05:34): So, that's the first thing. The second thing is Black Lives Matter. One of the things that have always spent time talking about is access to credit issues. And I do think people of color have not had access to the best quality credit even though they are very safe risks.
Richard Green (01:06:02): And I talk a lot about the analytics behind that point of view. It's not just a political statement, everything's a political statement. But also, and there's a way you could identify people who are excellent borrowers who don't meet traditional metrics of what an excellent borrower may be.
Richard Green (01:06:19): So, for example people with thin credit files can often be very good credit risks. People where the whole family basically is in on the mortgage, even though there's only one signatory to it could be very credit risks. But for those broader issues of fair access to wealth building opportunity is something I'm going to be talking about. So, subject matter absolutely.
Richard Green (01:06:43): We're going to focus on things that we focused on less in the past. Second thing is taking advantage of this opportunity to have a lot of people from the east coast address my class. So, the way I'm doing this is I'm doing a series of interviews. I'm hoping to do one half an hour interview per week for my class where because of time zone differences, it doesn't work to have people live.
Richard Green (01:07:08): And I occasionally will fly people to LA but I can't afford to do that too much. Now, I could call my friends in New York, I can call my friends in Washington, I can call my friends in Boston, and say, "Hey, are you willing to take a half hour interview with me?"
Richard Green (01:07:22): And use that as a kickoff point for discussion at the beginning of class. And so, basically exposing them to a whole panoply of people also, of course, some great people from here in California that normally they wouldn't be exposed to in the course of me doing a class and making that part of their homework.
Richard Green (01:07:40): So, they're prepared to respond to it over the course of the year. And I will say this, I'm going to come back to last spring a little bit and I think it will continue in the fall. There's a lot of complaints about millennials and Gen Z years and they're entitled and blah, blah, blah, nonsense.
Richard Green (01:08:01): I mean, can you find millennials who are knuckleheads? Absolutely. But as a group, the resilience of this bunch of students I taught last spring was inspiring to me. You know what, no whining. I didn't have a single student whine. And I'm hoping I'm going to see the same thing this fall.
Richard Green (01:08:23): I think they know we are doing the best we can to make this as good as possible. And so, learning how to get through things together when they're not all that they could be is I think a valuable learning experience and teaching experience itself.
Chris Rising (01:08:36): I do too. I'll to tell you and it sounds like an exciting class for this semester. I think the part on special services will be pretty short. They just don't pick up the phone.
Richard Green (01:08:48): So, what do you do about that?
Chris Rising (01:08:50): You could do a yes or no question [inaudible 01:08:52] part of their grade on it. [inaudible 01:08:54]. The servicers are definitely the ostriches and all of those. Their heads are in the sand hoping that somehow PPP is going to solve this or whatever. But boy, this has been such a great conversation.
Chris Rising (01:09:08): I've really enjoyed it. Thank you for sharing your knowledge and your experience and some of your personal stories. I really am enjoyed doing this over Zoom and all but I I'm looking forward to catch up with a glass of wine and tell a student with you-
Richard Green (01:09:28): I would love that. And you know you and your dad are so highly regarded in the real estate community. It was an honor that you asked me to join here.
Chris Rising (01:09:33): Thanks, Richard. I really appreciate it. I really enjoyed our conversation. For those who want to follow Richard on Twitter his Twitter handle is @keynesianr. So, @-K-E-Y-N-E-S-I-A-N-R. And don't forget to follow podcast. You can follow us on any of the podcast platforms Apple or Spotify, The Real Market with Chris Rising. And don't forget to follow me on twitter @chrisrising. Thanks so much.