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Urban Real Estate Success_ Insights from Don Peebles · Earn Your Leisure

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  Speaker 1: So you know, you made your career in DC, New York,
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  Speaker 1: Miami urban areas, right, so urban urban development. So what
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  Speaker 1: is what separates successful urban development from non success because
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  Speaker 1: we see a lot of like LA is famous, this
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  Speaker 1: abandoned building. I think the guy was from China, but
• 0:21
  Speaker 1: they have graffiti all over it. He never finished construction,
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  Speaker 1: so you know, and we hear about so many office
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  Speaker 1: buildings in New York City right now that's vacant. So
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  Speaker 1: the urban landscape as far as real estate development is,
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  Speaker 1: I guess you know you could win or lose, right,
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  Speaker 1: So from your illustrious career, what separates the winners from
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  Speaker 1: the losers when it comes to urban real estate development?
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  Speaker 2: Good question, by the way. So the first thing is
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  Speaker 2: real estates are very straightforward business. It's a supply and
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  Speaker 2: demand business. You know, if the supply is abundant, prices
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  Speaker 2: are down. If supply is tight, then prices are up,
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  Speaker 2: especially with if demand is strong. And so places like
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  Speaker 2: New York City are supply constrained. It's hard to build.
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  Speaker 2: Most of the land is developed on. If you look
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  Speaker 2: at a place like LA, you know there's a lot
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  Speaker 2: of open land to be developed and it's hard to
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  Speaker 2: develop in l A in terms of getting approvals and
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  Speaker 2: going through their process. Also, LA is very spread out,
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  Speaker 2: so it doesn't have kind of core employment centers or
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  Speaker 2: economic centers. And New York does, d C. Does you know,
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  Speaker 2: you look at Charlotte, it does. It was uptown, you
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  Speaker 2: look at Chicago, you know, but you look at San Francisco.
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  Speaker 2: So what's happened is LA has been hit like everyone
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  Speaker 2: else with you know, a remote working and uh and
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  Speaker 2: and you know the other impacts of COVID. And the
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  Speaker 2: difference is is that people don't even live near where
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  Speaker 2: they generally work in LA and everything stretched out, So
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  Speaker 2: it's going to be a bigger lift for LA to
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  Speaker 2: come back. New York. On the other hand, while office
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  Speaker 2: buildings there's a one hundred plus million square feet of
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  Speaker 2: office space it's empty. That's the size of the entire
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  Speaker 2: office market in Washington, DC. And however, while there's less
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  Speaker 2: demand for office space, there's significant demand for housing and
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  Speaker 2: so converting those buildings or tearing them down and rebuilding
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  Speaker 2: with housing. So there's a use for the land and
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  Speaker 2: the product. And that's why we like urban development is
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  Speaker 2: because it's where large numbers of people live and large
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  Speaker 2: numbers of people work and they're economic engines and so
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  Speaker 2: even with you know, an unprecedented hit. So I think
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  Speaker 2: that one of the things that you want to focus
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  Speaker 2: on is investing in markets that are long term competitive
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  Speaker 2: where there's significant supply constrained. My view is that New
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  Speaker 2: York City, America's largest city, financial capital of the country
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  Speaker 2: and of the world. Essentially it's going to bounce back. Washington, DC,
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  Speaker 2: nations capitals, the most powerful nations in the world, will
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  Speaker 2: bounce back. San Francisco Tech and innovation center will bounce back.
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  Speaker 2: So those cities are the ones that have been hit
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  Speaker 2: the hardest. Then you have places like Dallas, Austin, Houston,
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  Speaker 2: and Texas for example, where it's a very pro business environment.
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  Speaker 2: You'll see growth there, no state income tax, same thing
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  Speaker 2: with Nashville, no state income tax, pro growth, you'll see
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  Speaker 2: more growth there. So if you'ys are want to invest
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  Speaker 2: in places where there's significant growth because of fundamentals like
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  Speaker 2: tax policy and business policy, your sound or that there's
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  Speaker 2: an opportunity to play a market cycle because they've been
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  Speaker 2: artificially depressed.
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  Speaker 3: Yeah, So does it feel like that that's the solution
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  Speaker 3: right when you're talking about you know, we hive eded
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  Speaker 3: it in the past when you're talking about commercial real
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  Speaker 3: estate and how endangered that was, and we spoke about
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  Speaker 3: that at Market Monday's Live at MSG. Converting commercial into
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  Speaker 3: residential as a process, though right there's zoning laws as permits.
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  Speaker 3: Talk about that because it does it work in your
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  Speaker 3: favor obviously because your illustrious career, whereas a new developer,
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  Speaker 3: a new contractor, it wouldn't be as easy going forward
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  Speaker 3: with that, right I would assume.
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  Speaker 2: Well, yeah, I mean not all buildings are right for conversion.
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  Speaker 2: I mean, we've been converting office buildings for two and
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  Speaker 2: a half decades and to other uses, so we've got
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  Speaker 2: a lot more experience in doing that, and so that's
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  Speaker 2: going to help us identify the buildings that are actually
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  Speaker 2: economically efficient to actually convert. And so that's one of
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  Speaker 2: the key things is under not every buildings right for conversion,
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  Speaker 2: regardless of its location. It just structurally not able to
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  Speaker 2: make that conversion. And one of the challenges that New
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  Speaker 2: York has is that the buildings are so big they
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  Speaker 2: would be massive undertakings, and that they would have too
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  Speaker 2: many units in one place. And so I think that's
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  Speaker 2: going to be some of the trouble. What is happening, though,
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  Speaker 2: is Chicago, DC, New York, Sanford, Cisco and other cities
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  Speaker 2: recognize the hit that they're taking in their marketplaces because
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  Speaker 2: workers are not coming back to many of these buildings
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  Speaker 2: and they're sitting empty, and so that means that the
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  Speaker 2: stores and the other businesses that benefit from the presence
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  Speaker 2: of these office buildings, those businesses are struggling or going
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  Speaker 2: out of business. So they've got to incentivize new uses
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  Speaker 2: for those properties, and so they're giving tax policy and
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  Speaker 2: they're accelerating zoning changes and making zoning changes. Even Los Angeles,
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  Speaker 2: which is very difficult to build in past a zoning
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  Speaker 2: law that allows conversions for buildings that were built before
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  Speaker 2: nineteen seventy five, you can convert them without going through
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  Speaker 2: a land use or entitlement process. So they're trying and
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  Speaker 2: that should follow in the coming months. You'll begin to
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  Speaker 2: see more financial incentives at the local level, and then
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  Speaker 2: probably in first quarter second quarter of next year, once
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  Speaker 2: the presidential election is over, you'll end up seeing federal
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  Speaker 2: tax policy that will incentivize conversions as well, with some
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  Speaker 2: form of tax relief for those types of conversions.