Ep. 79 - Living Legends - John Cushman Part 3
About John Cushman, Chairman of Global Transactions, Cushman & Wakefield
John C. Cushman, III is a global leader in the commercial real estate industry. He currently serves as Chairman, Global Transactions, where he is responsible for formulating and articulating strategic policies and initiatives for Cushman & Wakefield on a national and global basis.
Over the course of his 50+ year career, John has played an instrumental role in advancing Cushman & Wakefield to its position as one of the top commercial real estate firms in the world. Prior to his becoming Chairman of the Board and subsequently Co-Chairman of the Board of Cushman & Wakefield, John was acknowledged by a variety of media sources as the top office leasing broker in the United States.
John began his career with Cushman & Wakefield in 1963 in New York City. In 1967, he moved to Los Angeles to open Cushman & Wakefield’s first office in Southern California. In 1965, he was responsible for 60% of Cushman & Wakefield’s offices in the United States. John and his twin brother, Louis B. Cushman, started their own firm in 1978, Cushman Realty Corporation, which they grew from two offices to operations in eleven US cities with over 200 employees. In 2001, Cushman Realty Corporation merged with Cushman & Wakefield, Inc. and John became Global Chairman of the Board of Cushman & Wakefield, Inc. In September 2015, Cushman & Wakefield merged with DTZ, with the newly formed organization retaining the storied Cushman & Wakefield name. In 2017, John served as Chairman of the Centennial Committee for Cushman & Wakefield’s 100th anniversary. He currently sits on Cushman & Wakefield’s Global Advisory Board.
In his free time, John enjoys golfing and spending time outdoors on his ranch with family and friends. He also serves as Chairman and Director of Zaca Mesa Winery in Santa Barbara County, California. John has served on the boards of 14 public corporations throughout his career.
Bachelor of Arts, Economics, Colgate University
Honorary Doctorate of Humane Letters, Colgate University
Advanced Management Program, Harvard Business School
Chris Rising (00:00:02):
Welcome to The Real Market with Chris Rising, the only podcast that brings the real estate conference panel to your headphones. You'll hear from superstars from every realm of commercial real estate, the biggest brokers, the most well known architects, the largest investors, and the most visionary developers. We'll learn what they do, how they do it and what drives their success. We'll discuss the latest trends across regional markets, capital flows, both national and global, and we'll explore technology's role in shaping all of them. We'll take a clear eye look at where we've been, where we are now and what's to come. Real conversations, real experts, real insights. This is The Real Market.
Chris Rising (00:00:50):
Welcome to The Real Market with Chris Rising. I'm excited to have our third episode with John Cushman, my mentor and a legend in the business. We've had two episodes where we talked about his days as a young broker and his younger life. We've talked about his years at Cushman Realty Corporation. Then we were just ending about this sale to Cushman & Wakefield. I brought up the story of what I think is one of the greatest real estate deals ever done by a broker, which is the headquarters for Unocal.
Chris Rising (00:01:22):
Just so I can set it up a little bit for everyone, John, for those who don't know Los Angeles really after World War II was based all around Spring Street and Main Street. That's where all the major law firms were and that was where everything was. Then as they built the freeways, the 5 Freeway and the 110, you saw the buildings start moving towards the freeway. That included the big project that John came out from New York to L.A. to do, which was the Bank of America ARCO deal, which now is City National Plaza.
Chris Rising (00:01:55):
But one of the really great deals in, I think, it was the eighties, I believe it was the eighties. It could have been the early nineties, but I'll let you tell this story in a moment, was that one of the major oil companies, Unocal was going to build a headquarters in downtown L.A. What was different about it was they were going to go do something that hadn't been done. Everybody was east of the 110 Freeway and this was a project that would be just on the other side of the freeway, on the west side of the freeway, still in downtown L.A., but it was kind of a Maverick move to do. John, you represented Unocal. Can you talk a little bit about how that deal came together? I know some of the feedback I've gotten when I've told people I was going to do this with you, is how did John ever get a client like Unocal? So can you give us that story?
John Cushman (00:02:45):
Downtown L.A. was home to multiple energy companies. One was Atlantic Richfield, one was Unocal, one was Superior Oil. When I first arrived, there was Standard Oil was located downtown. At the end of the day really, there were only two important energy companies, ARCO and Unocal in that order. Unocal was run by a guy for many decades had run the business name and he got in a greenmail situation with T. Boone Pickens. Pickens went after his company and he fought a noble battle, but he probably fought it too long because in the end, the CEO of Unocal ended up with the company, but he didn't have much left. There weren't many assets left.
John Cushman (00:03:55):
They needed money. They were desperate for money. As Chris said, they were on the other side of the freeway. They were west of the 110 Freeway where they'd been for many years and they had their headquarters there. The executive vice president and CFO called me and said, "John, we need you to help us because we need some money pretty quickly." I had done business with Unocal before. I did a big transaction with him that was what was called 911 Wilshire and they took most of the space in that building. So I had a relationship with Unocal. He called me up and he said, "We need to raise a lot of cash quickly and I think we ought to sell this complex." That was a really interesting call because who really wanted to go on the west side of the freeway?
John Cushman (00:05:05):
I was retained to sell the complex. The valuation process was complicated, but we valued the property. It was a lot of money that we figured we could sell it for. Bren was really interested in it, Donald Bren. So I talked to Donald and he said, "John, you're never going to get more than what I'll pay, which is 120 million." I said, "Donald, that's not enough. We got to get a lot more money." In the end of the day, we sold the building for 205 million to a very wealthy individual located in Philadelphia. It was a transaction where I negotiated and we were able to secure a value and a purchase price of 205 million. His name was Henry Hillman. He was Mr. Republican in Pennsylvania. So I talked to the fellow who was president of their real estate company, but I wanted to be absolutely sure that this transaction was going to really happen.
John Cushman (00:06:34):
So I flew to Pennsylvania, met him at the finest club in the city. I said, "Mr Hillman, I have one question. Are you giving me your word that you're going to do this transaction?" He's a multi-billionaire a wonderful gentleman. He looked me in the eye and said, "John, we're going to close on this transaction at 205 million," and we did. The next step was that entity that bought the property from Unocal designed an enormous skyscraper. I negotiated a lease in that skyscraper for about 600,000 feet for Unocal. The bottom line of it is that as time moved on, they went through the design phase, it became complicated in the economy and whether it was right to build this enormous building west of the freeway. By far, it would've been the largest and it was going to be a beautiful world headquarters project.
John Cushman (00:07:54):
So what happened was it sort of went in a little bit of a pause, but in the process I negotiated the lease. We executed the lease, we executed a commission agreement, and I thought I've got an idea. Maybe I need to buy some insurance for myself. So normally the way the commission would work on a major project like that is you get paid half on signing and half on occupancy. Well, occupancy was a very uncertain event because the building hadn't even started. So I wrote the commission agreement to say 50% on signing and 50% on occupancy. But I added a few words that were important and the words were, but no event later than June 30 dash and it was a year or so, maybe two, after we thought the building would be done. But remember, the building never got built.
John Cushman (00:09:07):
So I sent an invoice for millions of dollars. It was approaching six million. I sent the invoice to the developer and they were wonderful people, but they had no intention of paying me because the building never got built. They hired multiple law firms to figure out how to not pay me. I didn't hire any law firms because I rested my case on the words, but in no event later than. They finally, finally gave up. They came to my office at 601 South Figueroa, and they said, "John, we have a gift for you." So what's the gift? It was a Vaseline jar and in the jar was the commission for millions and millions of dollars all wrapped up with Vaseline. I still have the Vaseline jar and it's kind of weird looking because every time my wife sees it, she wants to throw it out. I said, "You can't throw it out. That's a wonderful memory."
John Cushman (00:10:25):
They then wrote a check without all of Vaseline, but I kept the Vaseline jar, which still has the check in it. It was a memento to a transaction which had a lot of twists and turns in the road, but is one of the more interesting that I've experienced in my career.
Chris Rising (00:10:49):
That is such a great story. In a lot of ways, it talks about how brokerage used to be done and how it's different today, I think. I mean, we ended talking about selling Cushman Realty to Cushman & Wakefield that happened, and it turned out to be a great success for you and for your brother, Lou. But it also, in a lot of ways, was an ending of an era about that independent shop. I mean, there were guys like Julien Studley, who you knew very well, and the original people that you battled against at CB where it was really a broker was as hustle as much as you can. You weren't really defined to an asset class. You canvas one day to find a tenant and then the next day you're talking to an owner about selling.
Chris Rising (00:11:34):
When you sold Cushman Realty to Cushman & Wakefield, were you seeing the tea leaves change, that this business was becoming much more corporate? Did that lead into it or was it just, it was just too good a fit for Cushman Realty to merge back into Cushman & Whitefield?
John Cushman (00:11:51):
It was a couple of things, Chris. It was too good at fit and Arthur Mirante was the CEO of Cushman & Wakefield, a wonderful guy. Since I had left the firm in '78, we had a lot of good fortune over 23 years and pretty much beat them every time we went to battle in the office building business. We became a very big force with the offices in 11 cities. I would say significant control in five of those 11 cities and Cushman & Wakefield realized that they really needed to figure out how to bring us back into the fold. It was like the Cushman family returning to the Cushman family. It was a situation which I discussed with Cushman & Wakefield on and off for almost 10 years because I left and it was gone for 23, but after a dozen years, they realized Cushman Realty is just killing us everywhere, New York, Houston, L.A., San Francisco, all over the place.
John Cushman (00:13:14):
So I reached an agreement, to come back to the company. It was extremely strong in terms of the financial aspects of it for me personally. So I did the transaction. I came back. My twin brother, Lou, became chairman of the board. I became president and CEO, and they treated me with great respect. It was kind of a wonderful return because, as you know, Chris, when I departed Cushman & Wakefield, it wasn't so great. It was not the best chapter of my career. This chapter, coming home was wonderful. As the chairman of the board and a major shareholder, I had a lot of leeway and we had a very different company at that time in 2001 because remember, this happened just before 9/11.
Chris Rising (00:14:39):
John Cushman (00:14:40):
There were a couple of things that I never told Cushman & Wakefield that were bothering me. I had a medical issue where I had a problem with my heart and I didn't know what it was. I went to the Cleveland Clinic and had a valve in my heart, not replaced but repaired. So they didn't have to open me all up. It was a little scar and I knew that was coming. I suppose ethically, I probably should have told him, but I didn't want to tell because I didn't know whether that would spook them. The other thing is I realized that I was getting older and would the value of my company continue to explode favorably with increase after increase year after year? I didn't know whether the financial model that I had would be sustainable, but it was the best model in America. No one had a better model. The bottom line of that model is completely different than anything that exists today. Today we would have no way of replicating it.
John Cushman (00:16:09):
So what we did, as you remember because we were together, what we had was very high powered people in every discipline, property management, accounting, in capital markets, in consulting. These were all people who were highly paid. They were paid more, when we sold the company, than those same positions would get today. Interestingly enough, the model today wouldn't work, but then nobody can compete with us. The only firm that was of our type was Eddie Gordon in New York City, and Eddie Gordon was the best of the best. He was unbelievable. He owned New York, but we put a pretty big dent in Eddie Gordon's backyard, but they were so good it didn't matter. We did more larger transactions than they did in their own backyard, but the model was fantastic. That's why we kept winning because at Cushman & Wakefield and CBRE and Savills and Studley, in each of those firms, the broker ended up having to pay for financial services or pay for consulting.
John Cushman (00:17:47):
At Cushman Realty, nobody had to pay for anything. So we were, we were like... Well, I've said to you before. In fact, we were the navy seals of commercial office space leasing in America. It didn't matter where we went. It didn't matter. It didn't matter whether we went to Cleveland or whether we went to Houston, New York City, Rochester, New York, San Francisco, Orange County. It was an incredible experience and it just got better and better. But if I had to do it again, I'd do it the same way I did it. Could I have gone maybe another five or 10 years? I don't know, but maybe five. 10, I don't know. Everybody thought, "Listen, when he gets older, he won't be very good. He'll just disappear." Well, I don't plan to disappear anytime soon.
John Cushman (00:18:57):
You and I talked about it in the first section, my whole life is built around one word, relationships. Those relationships have been founded on hard work and ethical course, no shortcuts in life. Take risks, not unreasonable, but some pretty good risks because if you don't take any risk, you're going to end up in the middle and no one will remember, ever remember, who you were. So I've had a great career. From the time I did the transaction with Cushman & Wakefield, it's very interesting because the following after I left Cleveland, it was the last airplane to leave Cleveland and all the US airspace was closed because of 9/11. The doctor told me when I got home, he said, "I don't want you to do any business for six weeks." He said, "I don't want you to read the paper or call people on the phone." I really couldn't agree with his book commitment.
John Cushman (00:20:13):
When I got home, I got a call the next morning at six o'clock and they said, "Turn on your TV." The airplanes were tragically hitting the 110 story Twin World Trade Center. I got a call from the government to do something that was unbelievable. It was highly classified. That was the first thing I did the day following my return, where I wasn't supposed to read the paper or make business calls. I put together a very significant transaction for the US government. So it was a great start and Cushman & Wakefield second beginning was really terrific.
Chris Rising (00:21:02):
What did you see when you came back to the... Obviously Cushman & Wakefield was a global company at that point and large. What did you see that was different from when you had left before? What did you say that I need to have some influence on to make us a better company?
John Cushman (00:21:23):
Well, I would make this comment. It was a lot bigger company than I left. When I started at Cushman & Wakefield, I don't want to say that I knew everyone, but I knew most people. When I came back, obviously I had a 23-year gap and there were a lot of new people that I didn't know. I liked the senior management team. I worked closely with in the transaction, putting it together with Mirante and then with Mosler and Santora. That was 2001 and everything was going along great until we hit a speed bump in the '07, '08 where the wheels in essence came off. It was the only downturn in my career that was really catastrophic. The other ones I seemed to work through, but that one was such that we had to get rid of 300 million of G&A. We had companies that we had to cut loose that had great potential. It was a sad day in many respects. Mosler and John Santora to orchestrated most of that.
John Cushman (00:22:52):
We had to do it to survive, but the company was a lot different. It was, of course, more bureaucratic than when I left. Today, it's more bureaucratic than when I joined up again in 2001. I guess it goes with the territory. If you said, what was different? I saw lots of opportunities to improve the leadership. To me, it's the key to the lock at your company, Cushman & Wakefield. Any corporation, institution, academic institution, you have to have the right people in the right jobs. It's always an opportunity to raise the bar. So if you said to me today, do I see opportunities for Cushman & Wakefield to be better? Of course? Do I think the company is a better company than when I left it? Absolutely. But it's a very competitive environment. The spread between Cushman & Wakefield and JLL is like two and a half times. Between Cushman & Wakefield and CBRE it's like six times. So will it be easy to catch either of them? No. Do I think we can catch one of them? Yes.
John Cushman (00:24:31):
Remember, we're a public company now. So the game plan is that your EBITDA and your earnings have to be credible and have to be on a course that Wall Street finds interesting because remember, today we're owned about 30% by three firms, Ontario Teachers, Texas Pacific and PAG, P-A-G in Asia. Their position is down from where it was when Texas Pacific started out and Brett White started out coming back and becoming the CEO of the firm. So today, I'm not on the administrative side of the business. I guess I'm a lucky guy because I have all the memories of what it was like and I have the relationships to this day. So I'm able to get away with things, I guess, because of my past and my age that aren't available to the 25 year old new brokers in the system.
John Cushman (00:26:00):
It's a different game for the men and women today, but I'm very proud of all the people that I worked with at Cushman Realty that stayed with Cushman & Wakefield. Almost everybody came over and eventually many of them left and went other places. I'm friends with all of them. I'm not one who believes that when somebody leaves a company, I often hear them say, "Oh, that person, they really weren't very good and it was good to get rid of them." I believe that the people we had at Cushman Realty that joined Cushman & Wakefield and then left are many of the best real estate players in the business, across the company, across the country rather, north, south, east, west. I'm proud of those people. I'm not going to cut any bridges because it's important that you maintain good relationships, even with those people that you meet, and you and I have met a few, that are pretty undesirable. Some are more than undesirable and we want to leave them in our past, but generally speaking, you've got to see the good side of everybody.
Chris Rising (00:27:28):
So John, just real quickly, I wanted to touch on the GFC, the 2007, the 2010 period and then what we're going through now. I mean, I agree with you. I thought that period of time was as scary as it could be mainly because we didn't know there was capital out there for anything. It was just a sucking sound of liquidity coming out of the market in everything. But yet today, especially on the office side, our industrial has done well and impossible to buy multifamily. That's doing well. But there are offices at a real tipping point. When you have big companies and new companies that dominate like Airbnb or Facebook Meta and even to a certain extent, Microsoft and Apple not demanding people come back to an office.
Chris Rising (00:28:20):
I was pretty excited to see that yesterday Elon Musk said, if you want to work at Tesla, we expect you in the office 40 hours a week. Otherwise, go find another job. I don't say that be... I obviously said that with some self interest, but I also say it because I just believe that companies are teams. As soon as an NFL team says to his players, "Oh, you just work out on your own and just show up at practice once in a while," then I'll believe that maybe you won't have office. But you're right in the middle of the storm. You rep for the last two years. You've been representing tenants who haven't really wanted an office space. What do you see about the demand for office and what does that mean for your business and our economy if office has really changed?
John Cushman (00:29:05):
It's a fascinating question. In every situation where I had the good fortune to be involved and my colleagues as well, the subject of the workplace strategy is the first subject of discussion every time we meet. The bottom line of it is I tell all of our clients and I mean this from the bottom of my heart, the only thing certain about the hard work that each of these companies are doing is they're going to get it wrong. They're not going to get it right. They can do the best they can. Do they work three days a week and not work Monday and Friday? For instance, at Cushman & Wakefield, between Memorial Day and Labor Day, in almost all the offices, they have the opportunity on Friday to only work part of the day, for a certain classification of the employees.
John Cushman (00:30:12):
My take on it is this. I read that statement from Elon Musk. I happen to be a fan of him. I think he's a modern day Albert Einstein, but he's also pretty quick to make comments that somehow come back to haunt him where he gets in trouble, whether it's with shareholders or the SEC. I would not have made that statement. Early on, many months back, both the CEO of JPMorgan Chase and Goldman Sachs pretty much had a stern message to the employees. You're coming back by X date. They're two of the most powerful people in the world with two of the most extraordinary companies in the world. They might be able to get away with it, but I think when you make statements like that, you're going to find a lot of challenges and headwinds. When you peel the onion back, there's always issues.
John Cushman (00:31:27):
I think what Elon Musk said will resonate and be picked up across the world, not just America, across the world. It's the same thing as the statement that Jamie Dimon said yesterday, where he referred to the future and used the word hurricane. If Jamie Dimon sneezes, the world catches a cold. What he said yesterday, I haven't looked, I'm going to look right now to see where the market is because unbelievable, but it's up 289 points. I can't believe it. My guess is last night when I went to sleep, I thought what Dimon said would resonate across the world and create semi-panic.
John Cushman (00:32:29):
So the bottom line of it is I do not believe, Chris, there's any right answer. It's different by companies, type of companies, geography, inner city, rural. It's a big, big difference. My own opinion is 100% return to the workplace, in my opinion, and I'm going to use a strong word, never. I do not believe across the board it will ever be back the way it once was. My own experience with the companies I'm working with is very mixed between geographies and type of businesses when coming back. Some are at 30%, some are at 40, some are at 50.
John Cushman (00:33:25):
The bottom line of it is I can remember when all entities were focused on recruitment, one, and retention. Those two issues have switched where recruitment is less important than retention because all these companies have invested in people and these people are extraordinary. They know their business. They know their jobs and they are part of a culture. So today, I think that's very important. To get those people to stay, you have to raise wages. Well, the problem with that is I describe inflation in a very simple way. If the prices, if wages go up and productivity goes up, no inflation. But if wages go up and productivity stays the same or even goes down, you got a real problem. That's inflation. We absolutely have inflation.
John Cushman (00:34:43):
I myself do not agree with the federal reserve on their comment that they're going to have inflation easily under control or under control. I think it's complicated. I don't think it's simple. I don't think it'll be a quick fix. I think in many cases, in the commercial real estate sector, there is a pause right now where people like you and others who are looking to buy an asset are thinking about, wow, my cost to capital, the inflation. Do these tenants want a long lease or they want to kind of clip me and want all the rights to get out of the lease after they sign the lease? So I think, and I know for a fact, that companies that were selling assets that they put together earlier in the year that were supposed to close at this timeframe, I would say on the lower end, B property, C property and lower, there's a potential real pause where people are going to take a deep breath and say, let's wait.
John Cushman (00:36:06):
We saw that early on in the pandemic where instead of the tenants renewing for 10 years, 15 years, they renewed for 18 months, two years. I, myself, participated in many of those transactions. Today, I would tell you that particular course is not as available to the big corporate tenants that have a lease expanding. They have to do something. They can go out of business. They can renew the lease. They can renew the lease with a lot less space, attempt to reduce the rent and create flexibility. But I'm finding there are lots of major leases being done with the big corporations. I'm seeing it particularly way more, I'm seeing it in New York than California.
John Cushman (00:37:15):
I think the high rise office building as a focus has a lot of challenges and headwinds in almost every city. When I say, you can't generalize as you know because our business is very local. I always tell people, if you ask me about Burbank, how's the market, I'd say, well, do you mean downtown Burbank, do you mean the media district, or do you mean the airport? Do you mean institutional real estate or do you mean investor grade? Then we can start to have a comment because people always ask you at a cocktail party, how's a real estate business? Well, it's an impossible question to answer until you get very specific.
John Cushman (00:38:13):
So I think the mistakes that get made in the real estate commercial world are that people don't do enough homework on the micro market. They got to peel the onion back so far so they understand what makes everything tick. You just can't generalize. So I think the return to the workplace will be very mixed. I would say there's a fundamental focus on three things. One the bigger tenants, the more sophisticated tenants, the corporations, the institutions generally and even the professional firms, the accounting firms to be very specific and many of the law firms, they want to do three things. They want to reduce their footprint. One. Two, they want to reduce their overhead. Three, they want to create immense flexibility.
John Cushman (00:39:22):
The latter one is, in my opinion, available in most places today to the tenants that are large and sophisticated. They're the challenge for the landlord, the equity and the debt because today, a big tenant anywhere that has a good broker can negotiate pre-commencement rights before they, let's say, sign a lease and are moving in. In two years, a building's going to be built. In that pre-commencement period, they can drop floors. They can add floors. Then when the lease starts, they'll have options to expand. Rights of first offer, options to renew and as well options to terminate. That's flexibility because I was once a landlord who took a wrong turn in the road and started building big buildings and I realized it's not for the fainthearted. It's for the people who have real staying power on these high rise, 40, 50, 60, 70 story buildings because a lot can go wrong.
John Cushman (00:40:53):
I think what the tenants want right now, I think generally the landlords across America in the high rise market, it's not everywhere, try to hold the perception that the rates are not being reduced. But at the end of the day, they will be reduced. At the end of the day, if you look at downtown San Francisco, downtown L.A., Chicago and New York, the vacancy rate is horrific. It's over 20%. In some places, it's 30%. Now that's the high rise office in the center city.
John Cushman (00:41:37):
There are other buildings in the center city that will escape this problem. There are also real estate, office real estate, in the suburbs that will not experience this. As an example, downtown L.A. and west L.A. are as different as San Francisco is to New Orleans. There's no correlation. Before the pandemic, San Francisco had the highest rates in the country. Today, the sublease space is in the neighborhood of 30%. If you add to that, the shadow space the corporations really don't need, but they don't want to put it on the market. They don't want to take the write-offs.
John Cushman (00:42:30):
So it's a complicated market in the office based sector. I think that we will not see what I experienced in my early years. Then even in my own case, I built some really fantastic high rise buildings. None of them had any pre-leasing. I'll give you the best example of all. In Burbank, I was fortunate to team up with MetLife, had a wonderful site and built a building. It was 21 floors. I had no pre-leasing and I realized that the lenders, MetLife, had great faith in my ability to lease. I had great faith in myself, but I was confused because I soon realized I didn't have any tenants. So I did what you would not do. I did what Tishman and Hines would not do. I had a possibility to make a lease with a new company called the Disney Channel, not the parent Disney that Michael Eisner was CEO of. It was a startup run by a CEO named John Cook. They had a requirement and I said, "I better go for this."
John Cushman (00:43:58):
So I made a lease with Disney Channel. Didn't have any credit of consequence for 36 months. I did all the tenant improvements and gave him the right to terminate in 18 months. I guarantee you that I want to find a landlord that would do that deal. Let me tell you how it all ended. It ended with the most important media company in the world, Disney, took the entire building and ended up with all 12 floors and it was a home run for me. There was a point where Michael Eisner and senior management of Disney said, "Hey, we need to own this building. We are the only tenant in the whole building." It was a great investment. I was the developer, the leasing agent, the managing agent. But there's an example, Chris, of taking unreasonable risk. I guarantee it, you wouldn't do that. I had to convince MetLife that we had to spend the capital and then give them the right to terminate. Well, the ending was fantastic.
Chris Rising (00:45:22):
Well, unfortunately I'd say that the market is such that we're going to have to do that. I think there are just landlords and lenders are going to have to get to the realization that while everyone likes this a 15 year lease with a credit tenant, the world we live in going forward probably isn't going to be that. So I think somebody on Wall Street needs to be the new Ethan Penner and come up with something along a CMBS that has one-year termed leases in it and see if they can chop that up and sell it. But right now, I think even with the rebirth of WeWork and some of these other people out there, there's still that you put a lot of money out and if you can't get that long term lease, what does that mean for the value of the building? But you've done business in Japan and in Tokyo. That market seems to have been able to survive on annual one year leases. So maybe there's an answer out there, but I agree with you.
Chris Rising (00:46:24):
I think that the biggest issue that we face in the office sector is there's a lot of people who want to believe it was the old days when we had word processing floors and we had one secretary for one person and that's the way office is always going to be. Then there's this new push that says, look, office needs to be as flexible as possible because it's really not meeting the work needs of somebody. Somebody can get that work done anywhere. That's got to meet the team needs of people and the collaborative needs of people and it's a whole new world. So I think it's going to be interesting over the next couple of years.
Chris Rising (00:46:58):
I do believe that the CBDs will come back. I think, I think the biggest problem with the CBDs coming out of the pandemic is people don't feel safe, huge homeless issues, and they didn't feel safe getting on public transportation. When we get past the pandemic fears and cities reclaim their streets, these CBD are the equally inconvenient for people that have to come into work three days a week. So they make a lot of sense, but we shall see. It's hard owning a lot of three million square feet of office and not knowing the answer to that.
John Cushman (00:47:32):
Well, you look across the world and there are cities like Toronto, Canada that have a very low vacancy rate. They're just booming along. A lot of people thought they were recruiting and competing against people in their own industry when in fact, the leader of the pack today in the processing of people, the recruitment of people, the wages of people is the technology sector. As an example, the banks aren't competing against banks to get people. They're competing against Microsoft and Facebook and Twitter and everyone else. Do I see changes in that sector? Absolutely. You saw that the CFO of Amazon who's my next door neighbor where I live in the desert announced that they had too much space and too many people, and they were going to cut 10 million square feet. They'll probably cut more and they don't have to announce what they're going to do. They'll just do it.
John Cushman (00:49:03):
But one of the problems that I see, let's take New York as an example, in the early days, Uris Building Corporation was a major developer in New York. They sold to Olympia & York. Olympia & York bought that portfolio of many, many buildings at the best location for like $350 million. The problem today is many of those buildings are in the wrong location. I've watched New York move west. When I started in business, I made lots of leases on Third Avenue. That's not where the clients that I've been working with want to be. They're moving west. So what do you have on the west side? You have the enormous Related development at Hudson Yards. You have the Brookfield development with One Manhattan West, Two Manhattan West. You have the enormous Vornado development at Penn Station.
John Cushman (00:50:14):
The issue is that many of those older buildings that Uris built have the wrong floor size, the wrong core to glass depth, the wrong slab height, floor to ceiling, and antiquated systems where they had the air conditioning double duct system at the exterior, which sometimes was as much as two feet deep that was included in the rentable. The rentable in New York today in the best buildings, the trophy building of which there are on a couple of, on two hands, the best of the best, those buildings have a loss factor of 28.5. The loss factor in a building that you might do in a new building, in a build to suit might be 15% on the BOMA method of measurement. New York has a different method of measurement, and it's not something that as a broker representing a tenant, you can win the argument on. You have to pay the piper.
John Cushman (00:51:37):
So I think today the tenants, they want to do more with less and do it better. They want lots of amenities. They want the access to outdoor. Today, these outdoor terraces like in New York are the absolute best if you have these new buildings. They have them at the Spiral. They have them at One Madison. They have them in multiple buildings. You're right when you talk about things that are impacting some of the cities like L.A., Downtown L.A. is suffering, yet west L.A. is booming. $100 rents are in west L.A. and downtown L.A., the rents are less. They're a third to a half of that in terms of total occupancy cost. So every city is different.
John Cushman (00:52:43):
Cities like Houston, which boomed for decade after decade after decade was driven by the energy sector. You might ask, will it go back up? My guess is energy today is probably at 116, something like that. Well, you can remember when it was very low. Having said that, the producers aren't drilling a lot of wells and we have a situation in America, which I don't personally agree with. I'm all for green. I'm for anything that can help the climate, and we need to desperately do that. But the fact that we were independent energy wise a couple years ago, this impacts you, Chris, because if the cost of power goes up because we don't have the energy and we have to buy oil from Venezuela or Norway or anywhere, which we could have had our own supplies here and we don't. I think it's a tragic policy mistake in the country, but I'm not in charge of that. I'm the recipient of having to deal with it.
Chris Rising (00:54:08):
Well, John, this has been a great conversation. I wanted to end with a question. You've watched this business evolve. When things were really rolling, you were able to touch every side of the real estate business. When Cushman Realty was really humming, you were doing investment sales. You were doing big leases for tenants and landlords. You were doing consulting work, development consulting. The business has changed radically today. That term specialization, what do you specialize in real estate brokerage is a big thing today. So if you were looking at the future as a 25 year old, do you think that having a career in real estate brokerage starting today at 25 would offer the same opportunities or more opportunities or less from when you were 25 and starting?
John Cushman (00:55:01):
Oh, it's totally different. First of all, when I started the brokerage business was razzle-dazzle. You got up in the morning and you threw something against a wall and maybe it would stick. Today, you better be very focused. You have to know your subject matter cold. Specialization is so great that at any company, CBRE, Cushman & Wakefield, you have people that specialize in bioscience, that specialize in data centers, that specialize in hospitality, that specialize in nonprofits. So when I started out, you didn't have to specialize in anything. Today, you really have to know your business and very different. When I started out, it was less of a team work process. Today, you're not going to do a major transaction. Impossible to do a big, big lease without a lot of people in the capital market side, the finance side, the project development side, the property management, facilities management side.
John Cushman (00:56:26):
So one of the big differences is today, there are a lot more people with their finger in the pie, want a piece of the spoils. You know who else wants a piece of the spoils? The tenant? In my early career, there was no such thing, at least in my world. Maybe I was just lucky, but the deals, the transactions I did in leasing or capital markets, I didn't have to give anything back to the tenant. If you represent a big tenant today, and in our company, we have relationships with what we call GOS. It's a very different world in terms of how they interact with big corporations who want single points of contact and they want consistency and they want innovation and creativity.
John Cushman (00:57:36):
If you're asking me, do I think all these tenants are getting that, absolutely not. They are not all getting that. That's why you see the deck chair move. One firm, either C&W, CBRE, JLL, or someone else gets in the mix. Someone gets, like musical chairs, taken out of the game. But it's still a business where young people can do well. If I had a chance to do my career over, I would probably do it the same way, but I'll tell you one strategy I would've had and I didn't do it. I would've bought when I was 25 or 30, a 5,000 square foot industrial building. The next year, if my income was suitable, I would've bought a 25,000 square foot building and then 50 and then 100 and then 500, because I look at people like Ed Roski, are you kidding me? He's got a portfolio that's such a cash machine. He's owned those assets forever.
John Cushman (00:58:53):
When the tenant leaves, it's not this enormous obstacle you face and I face. Most of my transactions were where do you get the capital to do the TIs? When people want $100 or $120, $150 in TIs in the industrial world, you have some people come in on the weekend, sweep the place out, paint the 5% space that was office space, clean it up and make it tidy and release it. I did not do that. I've done okay. I'm not complaining because I've had plenty of good luck in different strategies and alternative investing. But if I had done my career again, that's the one thing I would've done differently.
Chris Rising (00:59:48):
Well, that's terrific. Well, John, I've so enjoyed these last three hours of going through your career and your life and sharing your wisdom. Obviously, I've deep affection and love for you as a mentor and as a friend. I'm so glad we got the opportunity to get this so people can learn from all your experience. So thank you so much.
John Cushman (01:00:09):
Thanks, Chris. It's really been a wonderful experience to share the ups and downs of my career and the twist and turns in the road. I know in my career there'll be more and I look forward to that as well.
Chris Rising (01:00:25):
I have no doubt. Thank you, John.
John Cushman (01:00:28):
Chris Rising (01:00:30):
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Speaker 3 (01:00:54):
This episode of The Real Market is brought to you by Rising Investor Platform. The platform provides accredited investors with exclusive real estate investment opportunities on a deal by deal basis across various asset classes, including office industrial, hospitality, multi-family and data. The platform also provides an inside look at deals in our pipeline while giving investors the chance to indicate interest before it's too late. We recently funded our acquisition of 9320 Telstar, a mixed use office industrial property in El Monte, California using our investor platform. To learn more about how accredited investors can join the Rising Investor Platform, please visit risinginvestorplatform.com.