The Real Market With Chris Rising – Ep. 59 Todd Doney
Chris Rising (00:49): Welcome to The Real Market with Chris Rising. Excited to have Todd Doney with me here today. Todd is a vice chairman at CBRE. He and I have known each other for too long that I want to mention because I still try to get along with Millennials. But we’ve known each other a long time. Todd, thanks for being on the podcast. Welcome to The Real Market.
Todd Doney (01:07): Yeah, great, Chris. Thanks for having me.
Chris Rising (01:10): We were talking pre-show and I was telling you that one of the things I’m excited about this year is we’ve done a lot with proptech people and really exciting technology, but I feel like the podcast has gotten a little bit away from the fundamentals about just what’s happening in real estate, what’s happening in certain markets, what’s happening especially in the office sector, so I’m excited to have you on because you’ve just been a leader in this business, especially on the landlord side, the mid-market kind of client. There’s this drum beat out there that somehow, office space isn’t going to be needed anymore and that everyone’s going to just work from anywhere, but not an office. I don’t happen to believe that but just here we are, 10 months into this pandemic. Do you believe the office is dead?
Todd Doney (01:53): No, not at all. You’ve seen a million of these surveys that went out when this COVID started asking the employees if they are as productive at home as they were in the office. Not surprising, the employees all said they were, but was that because that’s what they wanted their bosses to hear or were they actually really as productive? I think it’s the latter. I don’t think they’re as productive at home as they can be in the office.
Todd Doney (02:30): But the real heartbeat of a company comes from that collaboration, teamwork. The whole character of a company, you can’t get that when everybody’s working from home. I think what everybody’s sort of come to realize now is there are some really nice advantages of working from home. You don’t have to fight through traffic to get to the office. You may not have to shave. You may not put a suit on. You can have a little bit more free time during the day, let’s say, if you want to do a workout in the middle of the day. So there’s definitely some advantages, and I think employers realize that employees want that. I think they’re going to accommodate employees more in the future.
Todd Doney (03:16): What the survey’s saying now, basically, are most employees want a balance. They like the ability to work from home maybe a day or two a week. It’s roughly nine percent of employee survey said they’d like to work from home full-time.
Todd Doney (03:31): So the office is definitely not dead. I think people are pining to get back to the office. Especially those with young kids or not a great setup at their homes would love that environment.
Chris Rising (03:48): I think everything you’re saying makes sense. I think it’s going to be really… The challenge to this next generation of leaders is how do you accommodate the marketplace of people demanding more flexibility but at the same time, having culture. I think that gets lost a lot. I mean, I think people who are kind of pundits in all this are people who aren’t part of teams. They write from anywhere and they’re pontificating on what Apple’s going to do or [Box 00:04:16] is going to do, and then we’ve had a few CEOs that have come out and said, “You don’t don’t have to work from home.”
Chris Rising (04:20): I just think the way people interact… I know that this is a great interaction for you and I, but it’s not the same thing as having a meal or having a martini. These things are stopgaps, I think. That’s the way I look at it.
Todd Doney (04:34): Agree, agree.
Chris Rising (04:36): When you’re talking to your clients about immediate office use like if a lease is going to be due in two or three years, are you hearing that people want to get smaller or they want to get bigger? What are people talking about still in the pandemic?
Todd Doney (04:50): You know what’s interesting? I’m seeing a range of scenarios. For example, and this is public now because I saw it in the paper the other day, we renewed Disney in Burbank this year for 420,000 square feet, same footprint that they had before in the Disney Channel building. They recently signed another extension for the same footprint they have at another one of our buildings in Burbank. No change in terms of square footage. In fact, the larger lease was a long-term commitment. I think it’ll go down as the largest lease in California this year.
Chris Rising (05:32): Wow.
Todd Doney (05:32): So that’s one example. Another example is we just signed a renewal with O’Melveny & Myers, which is a firm you know well in downtown LA. They’re in 400 South Hope. They were occupying roughly 180,000 square feet before. They renewed for 111,000 feet, but with some very flexible terms that they could go back up to close to where they were. They’ve got a couple years to decide.
Todd Doney (06:03): I thought it was sort of an interesting quote that came from one of the senior people there. That was a long-term renewal that they signed, but the quote was basically don’t let the opportunities of a disaster go unrealized. So basically, they realized that there was an opportunity for them to get a really good economic deal. Once we provided them with the flexibility to sort of contract and grow… They don’t need to make a decision today about what their space is going to look like or how much they’re going to occupy. They just know they got a great real estate deal today and they’ve got basically a couple years to figure out how much they really need. They got a significant [inaudible 00:06:45] so they can sort of figure out if they’re going to redo their space, which I think they will, how they’re going to redo it. So I’ve seen both ranges so far.
Chris Rising (06:52): Wow. Well, you’ve just mentioned two fairly big tenants. You have Disney and O’Melveny. I know there’s a lot of people who listen to this who want to understand how do you get to the point in your career as a broker to represent those kind of tenants. Why don’t we take a second, just kind of go back and talk a little bit about your career. How did you get into brokerage? When did you know brokerage was going to be the career as opposed to just a stepping stone? Why don’t you let us know a little bit?
Todd Doney (07:23): I grew up in San Marino and went to San Marino High School. My dad was in the real estate business. He was selling mobile home parks. As a junior in high school, I was pretty naïve about colleges, really didn’t know what I wanted to do in my life. I thought maybe I would go ahead and major in real estate.
Todd Doney (07:44): I was a fairly average student, so I did a little homework on schools that had real estate degrees which were, at the end of the day, Boulder, University of Colorado Boulder, Arizona State, San Diego State all had real estate programs. I applied to those three. I got into all three of those, and then I went to visit Arizona State with my father. There was a lot of attractive parts of ASU as I toured it. I’m trying to be politically correct. I said, “Hey, this looks like a pretty good place for me to go,” and that was as cerebral as my decision was. It turned out great.
Todd Doney (08:29): I had a great four years there. I joined a fraternity. I was president of my fraternity house. The whole plan was when I graduated, was to go work with my dad doing mobile home parks. His company was literally four people, including my older brother. Right at graduation, my older brother suggested that perhaps it’d be better if I went to work for a large company first. “Otherwise,” he said, “you’re just going to get your father’s opinion of life for your whole life.” That was actually some pretty good advice.
Todd Doney (09:00): So I interviewed with a few firms, including Cushman & Wakefield in downtown LA. My across the street neighbor was working there. He was nine years older than me. He just happened to be getting busy and he needed a young person, so I interviewed with Bob Ortiz, who you know well, and fortunately got that job. And then within a couple few years, Bob Ortiz recruited the person I worked for, John Watson, and myself over to Cushman Realty to work with John Cushman, another person and company that you know very well.
Todd Doney (09:39): So that was how it all started. Literally, I remember my interview with Bob Ortiz. He’s like, “So what do you want to do?” I was like, “I don’t know. What are my choices?” He said, “Well, you can do industrial real estate. Actually, our most successful guy is an industrial broker.” I said, “What’s that again?” He goes, “It’s warehouses and [inaudible 00:09:58] and commerce and stuff.” I’m like, “No, that doesn’t sound great.” He said retail, I go, “Okay, what’s retail again?” He said, “That could be a Nordstrom’s or a yogurt store.” I’m like, “No.” He goes, “Or commercial. We’re in the downtown LA.” He’s like, “These high-rise buildings around here.” I’m like, “Yeah. No, that’s exactly what I want to do.”
Todd Doney (10:15): It all worked out after that, but it was a good opportunity that I was given. Cushman Wakefield’s a great firm to start with. Bunch of good people. Bob was terrific, Timmy. My mentor John Watson was terrific. It was a great way to get into the business. Chris Rising (10:35): Well, let me ask you this. Do you think the way that you started in the business… And I want to hear a little bit about what your first month and first year was like, but do you think there’s similarities to today or has the business evolved so much that a young person today can’t really make the same connection?
Todd Doney (10:51): I mean, I think it has evolved, to the point where I think you and I are similar in that we’ve got a lot of friends who have kids that are graduating from school that are interested in real estate who they ask you to talk to. My kids have friends that want to get into real estate. I never say no. I talk to these kids. I say yes to every single one of them.
Todd Doney (11:15): I just think in the days that I got into real estate, the requirement to have some experience before that first interview in terms of an internship or summer jobs, you didn’t really have to have that. Now, these kids that are trying to get into firms like ours, the resumes are amazing. I’m talking to these kids that are coming out of college and they may have their license already. They may have worked for two or three real estate firms already for the previous three summers. They may have been working for one during the school year. They may have already gotten ARGUS certified. I think they’re just coming a lot more qualified to the position.
Todd Doney (12:01): Our summer internship at CB, we get somewhere close to 600, 700 applications before we actually have to turn it off. It’s an online application process and there’s only something like 24 spots available. The candidates that we have are amazing. Our program’s really good and so I do think it’s more difficult these days to get in with the good firms.
Todd Doney (12:25): I also think the young people have seen some of the money that we’ve all been making for the last five or 10 or 15 years and that looks very attractive to them. When I’m talking to them I’m saying, “You’re correct. There are some amazing opportunities in our industry.” But when that next recession happens, and you’ve seen it before when the broker [inaudible 00:12:48] get washed out, we’ll see if they all have the same interest in getting into our business as they do now when things have been really good.
Chris Rising (12:56): What I find interesting is the tool skillset has increased so much because of software. The ability to use ARGUS, which it’s a supersized, on steroids Excel spreadsheet, is what ARGUS is, but… We can’t even hire someone if you don’t have that skillset. It’s not like the old days where if you were really good with the Thomas guy, you really had an advantage and you can figure that out on your own. You can’t do that today.
Chris Rising (13:23): Well, talk a little bit about your first day or two on the job, and then I want to talk about what your day on the job is today. But when you first started at C&W, what was the experience in the first month or two, knowing nothing about real estate? What’d you do?
Todd Doney (13:39): When I was interviewing [inaudible 00:13:42] Wakefield, I did get this call from Bob Ortiz who said, “I’ve got two spots available. There’s 80 people for it. I’m going to offer it to you and another guy.” He asked me when I could start. I had to pick a summer program at ASU to finish up. That, I want to say, finished July 6. I was thinking about maybe doing that summer Europe thing that a bunch of people do when they graduate from college so I said, “Well, Mr. Ortiz, how about… Let’s see, July, August. How about September? Would that be a good time?” He’s like, “No, if you want the job, you got to start July 9,” which was the following Monday.
Todd Doney (14:16): What he had me doing was they had just taken on a listing out of Monterey Park, the LA Corporate Center, and there was a trailer there. I basically had to man this trailer by myself in the morning for four or five hours and then John Eichler, who you know, was the other guy that got hired with me that summer of ’84 and he had to man the trailer in the afternoons. My first summer was half a day at Monterey Park and then half a day in the downtown [inaudible 00:14:48] Cushman Wakefield and then canvassing, knocking on doors as much as you could to sort of start drumming up some business.
Chris Rising (14:57): I was fortunate to have Jim Travers, who’s a classic on my podcast, and Jim is legendary for canvassing buildings. I mean, we’re using terms right now that are foreign to young people today because after 9/11, you couldn’t just walk in buildings. You couldn’t just walk in. Nobody is receptive to a stranger walking into a business today.
Chris Rising (15:18): In a world that is dominated by things like Zoom and our software and all, what is your view on the world? How do you get business today? Is it still the roots of what you were doing in 1984, ’85, ’86, or is it just radically different and so these stories are fun to tell, but they’re not relevant? What do you think?
Todd Doney (15:41): Well, I have to say I’m fortunate, having been in the business as long as I have, that I have a really good network of relationships and a deep bench of clients so I don’t have to canvas like I did in those early days. At the end of the day, we’re all salesman and so the fundamentals of being a salesman still exist. You may be using technology more than the knocking on doors, but I can tell you, our young people, and especially I’ve got a young person join me November pre-COVID, and those guys are struggling. It’s really hard right now for them to develop business.
Todd Doney (16:23): You and I have known each other 30 years. Having a Zoom call is no problem for you and I. But if you try to have a young person trying to establish a relationship with a potential client over Zoom, it’s so hard. You’ve got a bunch of young men and women in our industry right now who are trying to get their careers started. First of all, they can’t go interface like we’re used to interfacing with a potential client. The reality is most potential clients really don’t want to talk about real estate right now. They’re still trying to figure out their business. They’re working from home. Unless they have an upcoming lease expiring, they’re putting off those calls and those meetings.
Todd Doney (17:04): Quite frankly, most people are just getting Zoom exhausted at this point. We have a corporate client… This story came through our workplace group… who has now formally announced within the company you can’t have more than five Zoom meetings a day. They just think people are just exhausted from it. After your fifth, you got to pick up a phone or you got to text or you got to email somebody, but they don’t want people to have 10 calls a day anymore.
Chris Rising (17:35): Well, I think there’s a lot of fertile ground for young people today because nobody’s quite figured out. I don’t think LinkedIn’s the answer. I mean, I get so many outreaches via LinkedIn that I don’t even look at because come on, try a little harder. Get my phone number. Get my email address. Do something. I think there’s going to be some opportunity with all of this technology that is being so institutionalized for young people to figure out business.
Chris Rising (18:03): I was on a call earlier today with Marc Ganzi who’s the new CEO of Colony. He raised six billion dollars last year all on Zoom. But it wasn’t like this. They put together investor tours. They get the engineer with the GoPro and they made it into an event. I was so impressed hearing Marc talk about the world. I’m not saying that every young person should be doing something like that, but they’re going to come up with things because there is a new interaction. Even when the world does reopen and the fear factor’s gone and we’re interacting, there are going to be parts of this that we just stick with because it’s easier. I’m anxious to hear how the brokerage firms do it.
Chris Rising (18:47): One thing I was excited to have you on because I… We’ve been friends a long time and I’ve admired you. When I left brokerage… I mean I don’t know if I ever told you this, but you were one of the reasons I said, “I don’t think this is right for me,” because I always got so tied into whether this was a good deal or a bad deal and [inaudible 00:19:04]. You were able to do it, but you had these friendships and relationships with clients that were so much deeper than I felt I was going to be able to do as a salesperson. I think that’s a lot of what your success is, that people really trust you. You’ve had this ability to be friends and also articulate what’s… As a counselor. Was that something you think you were just born with, or did you watch mentors who you said, “Oh, this is how they’re getting business. I need to emulate them”?
Todd Doney (19:41): Thank you, by the way. That’s a nice compliment. I would say probably one of the bigger influences in my life was the same guy you and I both worked for, and that was John Cushman. I had thought I worked hard before I started working for him, and then you saw the way he worked. I mean, John was basically 24/7. I think that instilled a lot of good practices for me in the business.
Todd Doney (20:13): You do realize as a broker you really only have sort of two things that you trade on. That’s your knowledge and your reputation. In our business, reputation’s everything and so I tried to be really, really smart and learn the business, kind of like John would’ve taught us and all the different disciplines, and then you earn a lot of trust with your clients on assignments when perhaps some brokers would say, “Hey, that’s a good enough deal. Let’s get it closed.” In those couple of instances when you counsel your client that… You tell them, “You know what? I don’t think we’re there yet. I think there’s a little more to get,” they really appreciate that.
Todd Doney (21:00): When you start getting that reputation as having the interest of the client first and foremost, I think it just really helps your career because word of mouth in our business is really pretty significant. When we do interview for business, you’ll typically include a couple references. When those people call my references, I get some of the nice comments like you just mentioned.
Todd Doney (21:23): It’s just a combination… Remember John saying, too, “The harder you work, the luckier you get”? I thought there was a lot of truth to that as well. It’s just a combination. And then I remember Bob would always hate when I say that I think there’s a little luck involved in our business. Because I do know people that are smart, they work really hard, but just sometimes things didn’t go their way, or the company they spend a ton of time with never transacted any significant business. I just feel really fortunate. I worked really hard and I’ve gotten lucky in certain times of my career, which has been really helpful.
Chris Rising (21:59): Well, I mean it’s humble thing to say and I do agree that the history books sometimes don’t recognize the luck piece for a lot of people, but I also think you put yourself in position where people want to help you. I think that’s a little lost in some of this Millennial ethos of “[inaudible 00:22:18] all big dreams. I do it all myself,” that having people who support you is very important. One of the things I wanted to get into is you’ve gone from Cushman & Wakefield to Cushman Realty, and then you went to… Now I’m blanking on the name.
Todd Doney (22:36): Insignia.
Chris Rising (22:37): Insignia, Andrew Farkas, and then to CB. All of these companies had different things that were appealing about it. I just was curious how you would say the evolution of the business has gone, and then take it to why you think CB is such a great place for you.
Todd Doney (22:54): The business has definitely evolved since I’ve got into it, but the nuts and bolts have remained the same. It’s creating great results from your clients. Basically, the transition from Cushman & Wakefield to Cushman Realty didn’t even seem like one because I just kept that same boss who just recruited me to his new place of business. And then my leap to Insignia was an opportunity that I was given by that company who was trying to grow their offices here in the West. Financially, they made an attractive offer to me. It wasn’t because I had any displeasure with where I was working. I liked all those people. I liked John and Bob and everybody. There was not any dissatisfaction I had with the company. It was just a good opportunity.
Todd Doney (23:48): And then when CBRE bought Insignia, I actually spent some time… I didn’t actually think I wanted to work at CBRE, so I was going to start my own company. I actually cut a deal with Jim Thomas to start my own company. He had acquired City National, the old ARCO Plaza project, and he was going to office my company within his space, give me that listing, share some third-party revenue. So we’re actually starting to document that new company and then CB, again, sort of made me another attractive offer to stay there. It turned out to be a great decision. I think CBRE’s a fantastic firm. I love our management.
Todd Doney (24:31): When I first got in the business, my perception of CB was just sort of this big, slow-moving behemoth where guys just put their leasing signs in front of a property and waited for the phone to ring. I think it’s evolved so much since then. I think a lot had to do with some of the acquisitions. When they acquired Insignia, which was the Edward S. Gordon company basically out of New York, that group had a much more aggressive style of business that was so much different than the California brokers’ mentality of business, and I just think that aggressiveness bled through the whole company and was transformative. I think it was fantastic.
Todd Doney (25:09): And then the acquisition of the Trammell Crow Company, again, another line of business that’s been fantastic for us that also came along with some fantastic executives. I mean, if you look at our senior leadership now, it’s basically… Bob Sulentic, Mike Lafitte, these guys are all legacy Trammell Crow people. So our company now, I think we’re close to 90,000 employees or something, and led by a bunch of terrific, terrific people. Really good management. They’re giving us all the tools. They’re spending a ton on technology. They continue to acquire companies and good people, so it’s been a terrific move for me.
Chris Rising (25:51): Well, I don’t think CBRE’s gotten the credit it deserves for the fact that you digitized all of your workflow several years ago. So when the pandemic hit, it wasn’t like people had to go in the office and take things off fax machines and do the… Your company was digitized and ready to handle a work from anywhere strategy. I give Lew Horne credit. I give the senior leadership from Trammell Crow credit, but I also give credit to the more senior brokers who said, “We’re going to do this and we’re going to do it this way,” because it’s allowed you to have great success over the last 10 months.
Todd Doney (26:28): Well, I got to tell you, when… I give Lew Horne all that credit because when he came up with this sort of free-addressing concept, it’s hard to believe it’s been probably seven years ago or so. We started socializing it and then looking for space to build out.
Todd Doney (26:45): I was going to lose my 400-square-foot corner office and then have to sort of share a space if I was out of town. I think I might’ve even told Lew at one point this is going to be a career-ending decision that he’s making right here. This is going to be horrible. He had all kinds of threats of people that were going to leave if we did it. He pushed through and he did it, and it turned out to be fantastic. Our downtown LA office ended being this amazing showcase. The amount of visitors, clients, other real estate firms, lawyers, architects, furniture people that were coming through our space looking at that new model, it was fantastic for our business. Fantastic.
Todd Doney (27:32): That became the model that we rolled out across the nation and actually, Lew is now studying because a bunch of our offices in LA expire in the next few years. Lew’s already thinking about, “Hey, what’s the future look like? What are we going to do next time”
Chris Rising (27:49): It’s an interesting question. The future of office, I was listening to a podcast with Tim Cook. He said the reason they did the Spaceship was they wanted to meet every need a person would need. Not just a place to work, but a place for spiritual, for meditation, for working out, a place for their kids to have daycare because they firmly believe in this creative collision concept. And then you go to the other spectrum, BitHub and some of these others who say, “We’ll never have an office again, but we will do quarterly retreats. We’ll have these clubhouses.” That’s what Box has… Not Box, but Dropbox has said. “We’re turning our office into clubhouses, not places work gets done.”
Chris Rising (28:31): I don’t think we’re going to know because we got to get out of this pandemic, but I do think that there’s this recognition that office real estate has got to be more holistic. It can’t just be a place where you work and that’s it because people work everywhere. What do you see? You’ve signed some big leases. You mentioned two. I don’t know what we can talk about down in Englewood, but if you can let us know a little bit about what… You mentioned it earlier, but there are some big leases signed that you’ve been a part of. Were people going to pull the plug at the last second? What do you think?
Todd Doney (29:08): I mean, addition to… On the Disney one, both the Disney deals in Burbank, I was on the landlord side of those. I represented my good friend Jeff Worthe and Blackstone and then downtown, I represented GLL, which is the owners of 400 South Hope and PNC Bank. And then we did sign the lease at Hollywood Park with NFL Media this year. They ended up taking almost 300,000 square feet and so they’re working on their [inaudible 00:29:33] improvements now in that building. That’s a beautiful new building. They’ll move in next year, sometime. I got a nice transaction with Wells Fargo Bank at 707, a renewal that we did.
Todd Doney (29:47): So yeah, it’s been a good year. I mean, not a lot of new absorption. If you look at those transactions, for the most part, other than the NFL they’re sort of renewal stuff. I represent Brookfield downtown and Wells Fargo Center, a couple and a half million square feet, and we just spent a significant amount of money on the Halo, which is that sort of retail component. It’s beautiful, turned out beautiful. We’re just anxious to be able to get people through there, but just touring velocity, as you know from your downtown product, is just… It’s just slow right now. People are hesitant to go on tours.
Chris Rising (30:31): I want to talk a little bit about the software that you use. There’s a group of people out there in the Twitterverse who want to see real estate, whether it’s buying, selling homes or doing a lease deal, just become a click of a button like you’re buying… You’re on Robinhood or something. You and I have gone through it. Remember the days of VOP, when they did the simple lease and you can have this lease everywhere? There are a lot of reasons why real estate doesn’t lend itself to that. One is the capital cost, the term of a lease. What do you think about… I mean, VTS is one thing. It’s simplified our ability to talk with our brokers. I still have weekly calls on all of our five million square feet, but I love VTS. It’s a wonderful thing. But what do you think? Do you think we’re going to move the real estate business to the one touch of a Robinhood kind of mentality where, “Oh, I need to lease 100,000 feet. I can just do it in a five-second transaction”?
Todd Doney (31:32): I don’t. I don’t. Especially for the larger transactions, I just think there are too many nuances to digitize. I mean, can it happen in the smaller spec suite arena where maybe the tenant doesn’t have a tremendous amount of leverage? I look at insurance policies that you and I buy like our car insurance. I’m looking at umbrella insurance. You never negotiate those insurance policies. State Farm just says, “Here’s the policy.”
Todd Doney (32:04): I think to extent, there are small office spaces. It could get to a point where if somebody’s in the market, there’s enough transparency that they can see what rental rates are in a certain building and they could just sign up for a 30-dollar net, three years [inaudible 00:32:19] deal. That could happen. I just think the larger deals, when you’re negotiating some of the finer points of operating expenses and capital contributions and things like that, I think it’s just too tough to put into a computer program.
Chris Rising (32:33): Yeah, and there’s a trust factor. I mean, I think the problem with Opendoor and some of these others is just the biggest investment a person typically makes in their life is in their home. It gets a little scary when you’re a button away and it’s over and “Oh my God, I can’t get out of it. Who do I talk to?” I agree with you on that.
Chris Rising (32:51): One of the areas I wanted to get into is that you spend at least half, if not more than half of your life representing landlords in Southern California. There is, if you read the papers, this mass exodus. Oracle is picking up and leaving California. HP moves their headquarters. Are you seeing companies, at this point, literally fleeing California or what’s your view of it? How do you look at California for business and for real estate?
Todd Doney (33:24): The answer is yes. I mean, I think that we have some amazing weather. We have a tremendous amount of talent in the state. The colleges and universities are putting out amazing young men and women, and companies realized that a lot of that talent would like to live in California. There’s a lot of great things about California, but I think people are starting to get fed up with the taxes. I think people are starting to get fed up with transportation and traffic. I think we’ve got a homeless population that’s not getting addressed very well. When you layer on top of that this COVID event, I think that was the final straw for a lot of people.
Todd Doney (34:16): As you know, I have a home in Jackson Hole, Wyoming. The market over the summer there was booming. I mean, there wasn’t any housing inventory because people were moving from New York and California to places like Wyoming, Utah, Sun Valley, all those sort of places. I think you are seeing companies leave. I don’t think it’s the death of California by any means because our weather here is fantastic. There’s no bugs. The ability to be in LA and drive 45 minutes and be at a beach, or an hour and a half and be in a desert, or an hour to Santa Barbara, an hour to Big Bear, that’s an amazing environment. But we’ve got our challenges, for sure.
Chris Rising (35:06): As kind of a second generation Los Angeleno where downtown, it was really important what my father did, what I’ve done, in the state of California, so much of its history has been about opportunity. One of the things I love about Los Angeles is nobody really asks where you’re from. Nobody cares about what your background is. It’s just, “Can you get things done?” But it’s become inhospitable in ways that I think are very damaging.
Chris Rising (35:30): As someone who’s always kind of been moderate to the left like myself, it’s hard to sit here and look and… My wife and I look at it, too, where else we want to live, what else we want to do, and I think this pendulum’s got to swing back. You can’t have a one party rule super majority. It’s got to swing back, and I think the way that it’ll do it is business. I don’t like to get into politics too much here, but to kind of bring that back, as you’re looking on your tenant rep side, as the companies that you’re talking to, do you feel that there’s a commandment to look at other options outside of California?
Todd Doney (36:08): Yeah. I mean, for those companies that can, absolutely. Absolutely. We’ve got a huge labor analytics group that basically our clients tap into to, if nothing else, make sure they check the box to see “If I were to move a significant part of my labor to another market, what does that do from a cost basis?” Our labor analytics group can also tell you… If you’re looking in Tulsa, Phoenix, Reno, they can tell you after some simple questions of the type of labor that you’re going to be relocating there, how deep that market is for that labor, who you’re going to compete against for that labor and what’s that cost that labor’s going to look like.
Todd Doney (36:56): A lot of our clients who have people that they can relocate, they’ll look at that and they’ll see if that makes a difference. At the end of the day, sometimes they’ll say, “No, that’s not enough money for me to move the needle,” for one reason or other, but other times they’ll say, “Hey, Austin, Texas looks pretty good all of a sudden.”
Chris Rising (37:15): Well, I think one of the scary things for the state has been HP didn’t really move any people. They just moved their headquarters and where the tax base was. I’ve seen that with some other companies. They’re saying, “Hey, we still need to be in California to meet a certain need, but we’re not going to have the central nerve system of the business there.”
Chris Rising (37:36): What I think people don’t quite remember is a lot of civic and charitable things are driven by companies that have their headquarters there. If we’re going to continue to lose them… I mean, the Los Angeles of the 1970s, ’80s, the First Interstate Bank and… You go through all the big companies, ARCO and all that, they’re gone and then there are not people giving to the charitable causes and all that stuff. I think we forget that.
Todd Doney (38:02): Huge, Chris, huge. You could create this list of downtown LA, [inaudible 00:38:06] Bank, ARCO, Pac Bell, LA Times, Unocal, these guys were all huge supporters of the city and it really hurts. Chris Rising (38:16):
Yeah, it does. I think we got a lot to deal with. Kind of flipping back to CBRE and the things that you’re working on, here we are in January of 2021. You set your annual business plan and you kind of look at where the world’s going. No one’s ever going to be right on these predictions [inaudible 00:38:36], but what do you think is going to happen over 2021 as it relates to real estate in California?
Todd Doney (38:43): I’ll be sort of LA specific, probably, in my comments as opposed to California in general, let’s say. Our vacancy’s been ticking up. I mean, our fourth quarter numbers will come out shortly. You’re going to see the vacancy again increased over the third quarter. Our sublease reports, we’ve been tracking sublease space since this pandemic started. It’s been a significant increase since the beginning of the year. The good news people will see is that it didn’t really increase in December, so the good news was we might’ve topped out on that component.
Todd Doney (39:23): I still think LA is a fairly healthy market. We have maybe seven million square feet under construction, which isn’t a lot on a 200-million-square-foot base. A lot of that is pre-lease so from the supply side, I don’t get too concerned. I think the vacancy probably continues to tick up for another quarter or two.
Todd Doney (39:48): Our Econometric Advisors group has been doing a number of different scenarios. Our baseline scenario is vacancy peaks sometime in the next quarter or two. The models that we’re running now are starting to take into consideration the work from home models.
Todd Doney (40:14): The question everybody’s asking is when we sort of get back to business, how much of the workforce is going to work from home and how’s that affect demand and absorption? We’re starting to run some scenarios at five and 10% increase of a work from home population. What that does is at sort of a five percent increase in work from home, it pushes out the peak vacancy dates further, sort of into ’22. If you start to look at a 10% increase from work from home, it pushes that even further out and starts to really exacerbate the recovery of when you sort of get back to peak rents. So right-
Chris Rising (40:59): Well, I think you hit on something that is extraordinarily important for people to understand. When retail went from sales moving five percent online, you didn’t see seismic shifts. When it went to 10%, that’s when you saw retail physical stores greatly affected. If in office we go to 10% of the workforce works for a company but doesn’t office there, that’s going to have a tremendous effect on our occupancy and our absorption.
Todd Doney (41:31): Huge. Yeah, really very significant. Just in preparation for our call, I’ve been looking at just a couple of our baseline graphs for vacancies and work from home models. We’re also trying to… And again, our clients who are just coming to us, our clients right now are just… They’re just pining for information. They want our opinion and so we’re running a lot of numbers.
Todd Doney (41:59): We’re trying to do some comparisons against… How does this compare again the 2008 financial crisis? How does this compare against the dot-com bubble? What was the time between the peaks and valleys? And get back to market [inaudible 00:42:15]. We’re trying to look at cumulative rent declines, total changes in vacancy, and just counsel our clients the best we can.
Todd Doney (42:27): I think we’re headed in the right direction in terms of the vaccine. I mean, I think if we can get that rolled out and people feel comfortable about getting back to the office, that’s certainly going to be helpful. I mean, we got to get our restaurants open in California. I mean, that whole industry is just suffering so much.
Todd Doney (42:50): I think we got like six tough weeks ahead of us here in Los Angeles. I mean, I have fairly decent insight to some of our hospitals here in LA like Cedars and Huntington Hospital and they’re surging. They’ve got minimal capacity. You and I both live in Pasadena. I don’t know if you get the Pasadena Now every morning but here in Pasadena, we could go a week or two with no fatalities and then there’d be one. It was typically somebody in a nursing home. I think we had eight deaths yesterday. Only three were in nursing homes. That’s just not a good sign. I think we got to get through this [inaudible 00:43:32].
Chris Rising (43:33): I definitely agree with you on that. I was talking with someone earlier. We’ve gone from “I don’t know anybody who has it,” to “Well, I know people who had it and they got over it. It’s no big deal,” to now, it’s touching everybody. I’m hearing these horror stories of “I took my father to three hospitals before we got him into a hospital or my mother into this.” I think right now, we are in a very scary period. I hope that we can get the vaccine out.
Chris Rising (44:00): As you look at the business models out there, is there anything that you’ve seen in the last nine months that make you think certain businesses are going to be dramatic in how they operate differently, or are people just using this technology still as a way to push through it as opposed to… I mean, we’re not going to hear… Are we going to hear Disney one day saying, “No one’s ever coming in the office”?
Todd Doney (44:26): No. No, I don’t think so, but I do… And I can’t use names. I don’t want to use names of my clients, but I do have clients who, for example, had 1100 IT people in offices in LA who said, “Do I really need 1100 people in the office for that IT function?” That IT function’s not a sales function, and so they’ve engaged our company and our workplace group to start studying who can work from home, how long will they work from home, what are the HR issues of that, what are the legal issues of that, and they’re starting to sort of [inaudible 00:45:03]. At the end of the day, I think some of those employees will be working from home a lot more, if not full-time.
Chris Rising (45:11): One thing about Los Angeles that’s unique, and it explains part of our homeless problem, is that it’s a very supply-constrained market. It’s a very difficult place for people to build new product. From the office side, that’s a good deterrent. But you look at what’s happened within this infotainment and the Netflix, the Hulus, and they have exploded. The consistent beat I hear from them is, “We are a creative business. We need people around each other to be writers and to create shows,” and all that. They’re not going away, but there’s not much office space left in Burbank or Hollywood or West Hollywood. Do you see that, meaning that you’re going to see some of those Hulus and such and Netflix start to expand throughout the region? What do you see from that group that we have a sense probably will expand their office footprint?
Todd Doney (46:12): Well, for sure Los Angeles has benefited the last five, six years from content creation, this whole technology and entertainment. You can go down the list of Apple, Amazon, Hulus, Disney, Netflix, and I think they all like to be around each other. Right now, I think that we have to realize in LA that they’re almost the engine driving the train. I mean, they have probably become what keeps us growing. Because when you look at a TV show or a movie, it’s post-production, it’s advertising, it’s the legal, the accounting practices that all serve those industries. That’s a lot of jobs and so when production ramps up… I think production is still going on. You and I both have a friend here in that business and I think they are still making shows and movies. They got limited people on sets and so forth.
Todd Doney (47:14): But I think that entertainment industry likes to congregate in this area. I mean, maybe if there’s functions that they could put outside of LA and make it work they’ll consider it, but I think… I mean, I look at Disney as an example. Without a theme park open, a cruise ship on the water, their stock is at an all-time high, which is amazing. It’s amazing. I just don’t know if that’s all because of Disney+, but it’s amazing, without the income of those parks or anything, where their stock is these days.
Chris Rising (47:52): Well, I will say The Mandalorian season two is giving me a lot of pleasure in this downturn, so I agree on that. Well, this has been a terrific conversation. I do want to end with one thing. You spend a lot of time mentoring young people today. Can you just kind of give the pitch real quick what you would tell someone in their early 20s, mid-20s who want to be a real estate broker today?
Todd Doney (48:15): Yeah, so I… And again, it’s probably two or three times a week I talk to somebody young about getting in the business. The opportunities in our business are fantastic. The pluses are you could make a couple few million dollars within a few years in the business if everything goes right. The downside is most of these jobs come without any paychecks. It’s completely commission-based. You either have to have some support with the family… I mean, I lived in my parents’ garage on a king-size waterbed for the first 18 months after college because I wasn’t making any money.
Todd Doney (48:52): It’s a great business. There’s some great opportunities there. You need to put yourself in a position… It’s hard. It’s hard right now to get a job with one of the good companies, with the JLL, the Cushman Wakefield, the CB, especially now. Most of those companies have all sort of let people go and tightened their belt during this COVID.
Todd Doney (49:14): One of the things I tell the young people, first of all, if you’re deciding to get into real estate, you got to decide what you’re going to do. Do you want to do brokerage? Do you want to do investment sales just like I went through? Retail? Multifamily? Cold storage? We have so many business lines. And then I tell people… Which is always sort of interesting… I go, “Hey, where do you picture yourself in five years? Where do you want to live? Most likely, you’re going to get married and raise a family. Do you want to be in Manhattan Beach? Do you want to be out in Ontario?” Because a lot of times, I’ll see people get into the real estate business or try to get into the real estate business in a geography that they really don’t want to be in long-term.
Todd Doney (49:55): I think when I look back at part of my success was not only just from canvassing and knocking on doors, but a lot of it was those relationships I got within my community, whether it was someone I met on my Boy Scout board, or my one friend that I golf with ended up becoming the CEO of Nestle and I ended up doing all of Nestle’s work in the US, or Mike Perry was on my Mayfield Junior School Board and I ended up doing all of IndyMac’s work. I tell these young people, “You have to get all the fundamentals of a business and [inaudible 00:50:26], but you also have to get engaged in the community.”
Todd Doney (50:28): As you know, John Cushman taught us philanthropy, it’s not a choice. It’s an obligation, so I tell these kids to find something they want to get involved with and jump all in. It’s sort of a combination of all those recommendations I give to young people.
Chris Rising (50:47): Yeah, I think they’re all accurate. I think they are and I think find them, mine them and grind them, right?
Todd Doney (50:51): Right. Right, right, right.
Chris Rising (50:51): You got to find them, you got to mine them and you got to get business out of them. That’s great. Well, Todd, I really appreciate it. I appreciate your friendship over the years. Appreciate you coming on the podcast. Thank you so much.
Todd Doney (51:04): My pleasure. Tell AC and the family I say hello.
Chris Rising (51:07): I will. And please don’t forget to follow us. We’d really appreciate if you subscribe to the podcast. You can do that on Apple iTunes or any of the other podcasting services. It’s The Real Market with Chris Rising. Follow us on Twitter at @ChrisRising or @RisingRP, and please follow our blog, chrisrising.com or risingrp.com. Thanks so much.
