Transcript
Dean Wehrli:
Welcome to New Home Insights, the podcast by John Burns Real Estate Consulting. I’m your host, Dean Wehrli. Today, I actually have two real estate giants on the show with me. It’s the legendary John Burns, the Founder and CEO of JBREC, and the even more legendary, sorry about that John, Emile Haddad, who runs FivePoint, one of the biggest land developers around, with some of the best master plan sites in California. John has known Emile for a very long time, so John, I’ll ask you to give a better introduction than I could.
John Burns:
Well, I really can’t think of anybody better to put this in perspective than Emile Haddad. I first met Emile in the early 1990s, when I was a consultant at KPMG. And we were working on the Bramalea account, and he was at Bramalea right after the S&L collapse. Then Lennar purchased Bramalea, so Emile became one of the leaders at Lennar, leading them through several cycles. And through the last cycle, he emerged with a brand new publicly held land developer company called FivePoint Holdings.
John Burns:
But he’s got a really unique background and is as articulate as anybody I know in putting things in perspective. So, with that, I’m going to turn it over to the two of you, and I’m just going to enjoy listening for the most part.
Dean Wehrli:
All right. So let’s start. Actually, let’s go back a little ways, Emile. And we’ll go back to actually … You lived a life, your formative years were in Lebanon, in Beirut. And I’ll just have you reflect on that a little bit, and how maybe that allows you to have an attitude that not everyone has about the current COVID-19 and kind of shelter-in-place world we live in.
Emile Haddad:
Sure, Dean, thank you. And John, thanks a lot for the flattering introduction. We have seen a lot together since we started actually working together. And I’m sure at some point in time, we’ll reflect back on this period and put it in our memoir the same way we have done other moments like this.
Emile Haddad:
So, Dean, I grew up in Beirut, in Lebanon, and went to the American University of Beirut, actually. And for people who might not know much about Lebanon, Beirut used to be referred to as the Paris of the Middle East, up until the civil war. A very vibrant city, and a beautiful city by the Mediterranean. And we had it all good, and life was very nice. And I didn’t really have enough appreciation for it until it changed on us, which is happening to a lot of people right now, where a lot of things that we took for granted, today we have an appreciation for.
Emile Haddad:
So, anyway, war started, the civil war started when I was 17, in 1975. And I lived 11 years through it. And I always said that my perspective on life, in everything that I do day to day, whether it’s in business or my personal life, was really shaped by that period. As you can imagine, people establish their own personality and views during the period between the ages of the teens and the late 20s.
Emile Haddad:
And mine was developed during a very unusual period, where we had to navigate a lot of challenges, all the way from hours of bombings, and sitting there around an elevator, waiting for whether this is going to be the moment or not, losing a lot of friends, losing family, seeing a lot of unfortunate situations around us, navigating streets with snipers. And going to college, and graduating, and playing sports. And doing everything else that the world was doing, but we were doing it under different conditions. Most of the time we lived, we had no electricity, no running water, and no food, no gas.
Emile Haddad:
And humans adapt. We all adapt. And we adapted to conditions that, if you were to look at it from the outside, you would think it’s very difficult for people to be able to adapt to that. So, a lot of what we’re going through right now is reminding me a lot of that period, because when the world goes upside down on you all of a sudden, and when the Earth shifts, and things that you had and took for granted become something that is a luxury, the symbol of this one is the toilet paper, but I mean, a lot of things were the same.
Emile Haddad:
I think that perspectives change, views change, relationships change. People get tested. People get to react differently. And that’s what we’re all going through right now. It’s not dissimilar than that life. And because I have lived through that, and because, not only that we have to navigate tough conditions as a result of the war, but talking about the economies. I started a company after I graduated, and the currency devaluated from five pounds, to $1, to $3,000, pounds per dollar.
Emile Haddad:
So, you go through both the economic as well as the hardship as people, and you learn a few things. And you learn that there’s always a good thing that comes out of situations like this, and I know it’s very strange to say it now. But people will view people the day after based on behavior during these periods.
Emile Haddad:
And if you think about how many people we all are reaching out to to check on, people who you either haven’t spoken to for a long time, or people who you might not have even gotten along with, but you felt the urge to check on them. Those are all past us. We are all in the same boat right now. We are all fighting the same battle together. As a result, we are now one society, in many ways globally. And none of us are looking at things except through a very simple lens of survival as humans.
Emile Haddad:
And I learnt those things. And I also learnt that as much as it might feel like there’s no light at the end of the tunnel, and everybody gets frustrated, and it feels like this will never end, it will end. And when it does, I believe that we will be stronger, we will be better, we will have a good adjustment of perspective on things. And those who were prepared for moments like this will end up coming out of it stronger. Those–
Dean Wehrli:
Do you think … I mean, folks in the housing industry talk about quote-unquote war stories from the housing market. You have real war stories to learn from. Do you think that allows you to sort of keep calm and carry on, and keep your head as these times seem very desperate?
Emile Haddad:
100%. I mean, look, fortunately or unfortunately, my experiences allowed me to stay calm. Because when you grow up in war, and it’s not a day or two, you learn that if you’re not going to be calm, and if you’re not going to stay focused under very tough conditions, the probability of you not surviving becomes higher, because you’re not thinking. You’re just reacting. You’re emotional.
Emile Haddad:
And as a result, I think that I now have it in my DNA, to where I have a very steady way of looking at things in up markets, and down markets, and good times, and bad times. Because you can actually get even more hurt in good times by getting a little bit too drunk with the good times, and therefore, you could be hurt.
Emile Haddad:
So, to answer your question, it’s yes. My mother always read a poem for me and for my brother called “If” by Kipling. And it’s a great poem for people to read, because the start of the poem talks about, if you can keep your head while everybody else is losing theirs, then you know, the poem continues and establishes what happens. But yeah, I mean, you live in those conditions, and you are trained more to deal with things like this in a much different way.
Dean Wehrli:
So let’s fast forward a little bit to a different experience you had a little later. As John mentioned, you were at Bramalea in the 1990s, a big builder-developer in California, southern California. And it was bought out by Lennar in 1995. Those were kind of boom and bust times. What did that experience teach you?
Emile Haddad:
Well, it taught me a lot. First of all, I came to this country in ‘86, and it was really the beginning of the boom of the 80s. And coming from where I came from, I was like a kid in the candy store. Because I mean, I never saw the amount of construction and growth. Cities like Palmdale, and Moreno Valley, and places like that were all coming out of the ground. And I wasn’t used to something like that. I was used to seeing one building at a time come out.
Emile Haddad:
And it really had me think about the drivers behind that. And I started reaching conclusions, which really was later on what led to the creation of FivePoint. And I’ll get to it in a second. And then, in 1990, the world went upside down on us. I came to this country with my fiancé. We got married there. We’ll be married now for 34 years. And my parents, and my aunt, who lived with me. And got reunited with a brother who came here very young and went to school over here.
Emile Haddad:
And we all lived together for five years. We had nothing, because we left everything behind when we came. And so, in 1990, I was still making probably about $11, $12 an hour. And the world goes upside down, with a lot of responsibility that was on my shoulders and my brother’s shoulders. And then, you start making sure that there isn’t a day that passes that you lose your job, because the people you love are going to be on the street. And that actually gives you a very interesting motivation and view.
Emile Haddad:
So, the Bramalea bankruptcy, I mean, Bramalea experience, went from 1990, the market shifts. 1995, our parent company in Canada, after five years of living through the downtime, had to file a Chapter 11, or their equivalent of a Chapter 11. That pushed us to file a Chapter 11 here. By that time, I had been promoted up to a position of senior management. I was, I think, the Senior Vice President or Executive Vice President.
Emile Haddad:
And there were two of us who were basically the top two survivors of the company at that time, out of the Bramalea situation, while we’re in bankruptcy. And one of them is Jeff Roos, who’s a known name in the industry, and he still is a senior guy at Lennar. And he and I were sort of like the two people who, one day we figured out, rather than liquidating the company, we’re going to try to keep it together. And then fate brought us together, where Lennar and … we made the decision to partner with them, and that’s how actually Lennar came to California.
Emile Haddad:
At that time, I had concluded that what I wanted to do is really incubate a company inside Lennar, besides my day job. That really became FivePoint, which was a company that focused on these large redevelopment opportunities in the primary markets in California. And start building a new way of cities that where going to be more looking into how people are going to coexist as a result of the digital revolution, rather than how we build cities as a product of the industrial revolution, which really were all driven by the automobile. And everything that we did was all connecting places with cars.
Emile Haddad:
And the world going forward looked like it was going to be different, and I had reasons. So, that was the Bramalea experience. But I tell you what I learnt that time. I learnt that if you look at a situation like a bankruptcy, where you don’t have money, and you could actually be out of a job, and your parents are going to be on the street, if you’re willing to keep that perspective, that calmness, and have enough courage to trust yourself and trust the team that is in the trench with you, knowing that you all have each other’s back, then you can actually turn a situation like that into what became the beginning of Lennar and the growth of Lennar.
Emile Haddad:
And it was that simple shift from, oh my god, I’m going to lose my job, and we’re all going to end up being dispersed and work for different companies, to, let’s keep everybody together, let’s have each other’s back, and let’s work together in the trench, and let’s give it a shot to see if we can keep this company together. That small shift became a much larger opportunity not only for us, but for a lot of other people as well.
Dean Wehrli:
So you see opportunity. That experience helps you kind of navigate the downturns, and you look to the downturns for opportunity. Is that fair to say?
Emile Haddad:
Well, yeah. Look, we’re a cyclical business. And during the Bramalea period, we had our bankruptcy council called Bill O’Bell. And I’ll never forget it, Bill said to me, out of scares comes opportunity. And it’s so true. I mean, every situation provides you an opportunity, and we are often so much distracted by the challenges we have, we don’t see the opportunities that are in front of us.
Emile Haddad:
But as a cyclical business, and our industry is a cyclical business, we always are looking for, how do you take advantage of good times to position yourself for any shift when the market shifts down? And when the market is down and when everybody’s running scared, this is the time that we believe is to position yourself for the good times.
Emile Haddad:
So, FivePoint was created in 2009, the early part of 2009, when everybody thought housing is dead, and the world is coming to an end, and there will never, ever be an opportunity to build and sell homes. At that time, a lot of people were speculating. And it was at that time when I made a decision with a few people who joined me to start the company.
Emile Haddad:
And we built it, and took advantage of the period between 2009 and 2011 or 12, when the market started coming back, to reposition to assets. We recapitalized them, restructured everything from the capital point of view, repositioned approvals, and became operational. And John will tell you, those were not easy things to do during that time.
Emile Haddad:
And as a result, when the market came back, we were well positioned to start taking advantage of the good market. And while the market was doing well between the 2012 and the 2019, rather than us chasing growth, we chose to create value out of our own assets, and de-lever. And as a matter of fact, when we went public in 2017, we went public with 40,000 home sites and 23 million square feet of commercial opportunities to be built, with zero debt. And that was very important. So that’s what I mean by you manage for the down in the up, and the up in the down.
Dean Wehrli:
Speaking of your portfolio, so you have three phenomenal master plans in California, two in southern California, one in northern California. Maybe your crown jewel right now is the Great Park master plan in Irvine, in Orange County, in southern California. Tell us a little bit about Great Park, and maybe what’s been happening there since COVID-19 hit.
Emile Haddad:
Well, the Great Park is the most advanced right now and we are very proud of it. There’s a lot of things that are happening that really have nothing to do with real estate as we think about it. Because we tend to think of what we do more as a community builder, and not differentiate by residential, or commercial, or industrial. So, it’s unusual to have a community where you speak about in terms of a partnership with Live Nation on a 12,000 seat amphitheater, or a larger sports complex in the country, or partnership with the Ducks, or partnership with the City of Hope, or things like that.
Emile Haddad:
What we’re trying to do is really build a city that we view as a city that’s going to coexist with the way the future is going to look. Now, in terms of what’s happening, so, in the first four weeks or five weeks since we all became much more sensitized to COVID-19, in the first two weeks, we went from an average of nine to 10 homes per week, we jumped to 24 homes, and then 25 homes. Then we went back to nine. And then, we ended up going to zero sales. And then, we had a week where we had zero sales and a couple of cancellations.
Emile Haddad:
Interesting enough, this morning I got the sales report, and last week, we had three sales and zero cancellations.
Dean Wehrli:
Hey, good times.
Emile Haddad:
And it’s interesting because zero cancellations tells you that although people are having difficulty getting their mortgages right now, with all of the stay-at-home situation, but still, people are committed to their homes and closing. And more importantly, to have three sales when we have … all of our sales offices are closed, and people are buying remotely, it’s an interesting one. That doesn’t define a trend yet, but I thought that was a very interesting thing. Because I’m not sure, John would probably know more, but I’m not sure how many people can say they’re selling new homes right now, without any interaction.
Dean Wehrli:
Yeah, no, it’s been a tough slog for most builders, for sure. You’re right, one week is nowhere near a trend, but maybe the simmering of the cancellations, which have been skyrocketing, is hopeful, at least.
Emile Haddad:
Yeah, I think so. And look, the other thing that has nothing to do with that, typical home sales or commercial, that we’ve been focusing on at the Great Park, is we have a partnership with the City of Hope and other healthcare providers. And one of the things that we’ve been focusing on is creating a model here of how the future of healthcare delivery might look like, including utilizing technology, and diagnostics at home, and things like that.
Emile Haddad:
And that’s been now a process we’ve been going through for several years. And we believe that out of this situation, there’s going to be an acceleration of such type of deliveries. And telemedicine and things like that are going to become a reality. And we are working right now on putting together a pilot project that allows us to use sensors for monitoring people at home, with real time monitoring, and make sure that if somebody gets a scratchy throat, they don’t run to the emergency, and if they’re not sick, they might be exposing themself or overrun.
Emile Haddad:
And start really proofing up a concept of how your home becomes your diagnostic … goes through diagnostics with you, with all the technology, and try to bring healthcare to the home, rather than have everybody who’s not feeling well go to a centralized location. That’s a big part of our focus at the Great Park right now as a model.
Dean Wehrli:
So, really kind of embedding at least sort of early stage primary healthcare into the home? Into the whole community? Into each individual home? That’s the idea?
Emile Haddad:
Exactly. I mean, before the COVID-19, we were already in advanced discussions with companies like Masimo and others about incorporating sensors in schools, and commercial buildings, and homes that can monitor temperature. And interesting enough, that was before we all ended up here. My point used to be, if you think about how many people walked in during the flu season into an office, and infect several people, and how many hours are lost because we don’t send somebody home who’s already sick, because we don’t know that they’re sick. If we have an ability to do that in schools, we would be saving a lot of lost hours. That was the thinking.
Emile Haddad:
Now, obviously we have a much different perspective even on this. So, yeah, I think that we have technology today that allows you to be monitored, and have everything you need for your doctor to know how you’re doing while you’re still at home. And we are really, right now, in advanced thinking and discussions to start proofing up that model.
Dean Wehrli:
That’s interesting. You’ll have a friendly hologram doctor who will show up in your living room and tell you what’s what.
Emile Haddad:
Well, I don’t know that we’ll do hologram yet, but I can tell you, here today, you can have your doctor on the screen, and they can monitor exactly what they need to monitor, and you don’t need to go see them.
Dean Wehrli:
I want the AI, but that’s just me.
Emile Haddad:
That’s coming next, but be careful, that will be dangerous.
Dean Wehrli:
That’s true. What’s your sense of how buyers are … Obviously, we have COVID-19 right in the middle of it. We could argue about how long before we sort of ease back from the sheltering in place, but that day will come. What do you think, your sense of how buyers will react when we do start to lift the shelter-in-place orders?
Emile Haddad:
So, look, I think that this is not a situation that is similar to the 2008, 2009 period. Those were different drivers that got us through that place, and as a result, there was the loss of jobs, and the regain of jobs took a longer period. So if you start with jobs, which are, a lot of them are being lost right now, those are jobs that are lost temporarily. So if you were a nurse at the dentist’s office, or if you work at a hairdresser or small restaurant, you obviously have been either furloughed or laid off temporarily, and you are now filing for unemployment. And therefore, the unemployment numbers are going up very quickly.
Emile Haddad:
But once we’re allowed to come back into more of a normal life, the dentist is going to open, and the hairdresser’s going to open. And those types of businesses will bring the unemployment numbers down quickly. And therefore those jobs really are not being lost. They have just been put on ice a little bit until we come out of this situation. So-
Dean Wehrli:
I’m sorry, I was just going to ask, to finish that thought, are you worried at all about the ability or the psychology of interacting for those folks after the lift? I think Bill Gates has said that he thinks that a lot of people aren’t going to go back to doing those things you just said until there’s a vaccine. Are you worried at all about that [people] doing those things?
Emile Haddad:
I think there’s going to be a short term period where people are going to be very apprehensive. And I think that we’re going to be used to wearing masks and seeing people wearing masks for a long time. I think that there are some businesses that will take longer. I think that some industries like the airline industry and the hotel industry will probably be lagging behind.
Emile Haddad:
But look, humans will always find a way to go back to do what they always did. And I don’t think there’s going to be a long term adjustment in behavior, to where people are not going to go to restaurants or bars, or interact. I don’t think so. I actually think that, yes, there is going to be a period where people are going to be worried, whether it is when we find a vaccine, or whether when we start seeing that there’s no more cases being announced.
Emile Haddad:
But I think people are gradually going to start coming back into a normal life. Some will feel more comfortable doing it earlier than others. But when all is said and done, whether it’s a year from now, or six months, or nine months, or a year and a half, it doesn’t matter what the period is. It’s not a very long period. And I think you’re going to see that everybody’s going to be anxious to go back to a normal life.
Dean Wehrli:
And then the jobs start to roll back, and-
Emile Haddad:
I think that the jobs will roll back. I think that doesn’t mean that there’s not going to be a tail to this, there’s not going to be hardship. We’re fortunate enough in this country to be able to keep on injecting money and printing money, and I think that the government seems to be very much focused on doing what it did in 2008, 2009, and that is to keep on creating stimuli for the economy.
Emile Haddad:
But I think if you look at the fundamentals, the fundamentals have not changed from the day before. I think that, as I said, there’s going to be a little bit of a behavioral shift for awhile that might create a delay, mainly for airlines and hotels. But I think a lot of the small businesses that lost a lot of these jobs are going to get them back quickly.
Dean Wehrli:
And following that up, and the folks start going back to new home sales offices?
Emile Haddad:
Yeah, they will. And look, I think that if we want to go back in history and try to extrapolate from a situation in history that could inform us about how the future’s going to look like, probably for us as a country here, I would probably say the post 9/11 period would be more appropriate than your typical recessions, like 2008, 2009, because it happened as a result of a shock to the system that created this change in behavior and mindset.
Emile Haddad:
And if you look at what happened after that, the government ended up pumping a lot of money in the system, and that put a lot of capital in the hands of people. And we all know that the residential market ended up benefiting. Mortgages were cheap. There was a lot of capital. Creative ideas came into the picture, some good, some not good.
Dean Wehrli:
Yeah.
Emile Haddad:
We also, from the bubble, that got built. I think that we have a very similar dynamic right now. We have similar factors. I think you have a lot of money that’s going to get in the system. Rates are down, which means mortgage rates are going to go down. And once banks get a little bit more comfortable with lending, because right now, in the last week or two, banks are being very careful about FICO scores and things like that, because they’re worried about giving a mortgage to somebody who might lose their job.
Emile Haddad:
But once that stabilizes, I think there’s going to be a better environment for home buying. And I think we’re all getting reacquainted with the beauty of the home. Not the aesthetic beauty, but how good it feels to be home, and connected with home. And I called it back then, and I call it right now, it’s a cocoon factor. We all are going through it right now. And I think that our relationship with our home is going to be stronger for a long time. And as a result of the two factors, I think that you’re going to see that the residential market is going to actually be a beneficiary out of this when it’s all said and done.
Dean Wehrli:
Do you think that will include or translate into home and land prices? What do you see happening, in the near term at least, with the home prices and land prices?
Emile Haddad:
Well, I think that from my perspective, once we readjust to a more of the path that we were on before this detour that we all had to take, I think that nothing has changed from the fundamentals. We already had a huge imbalance of supply and demand. Look, John will tell you, I never talk about one housing market, because the housing market is very much driven by factors in each of the sub-markets, and it’s very much a micro market. So I can speak to the markets we’re in, but I can’t speak to every market in the country.
Emile Haddad:
But the markets we’re in already had a huge pent up demand, no supply. I think if anything, there’s going to be a delay factor now, because a lot of people have put on hold things, and will probably keep things on hold for awhile, which means that this is creating more of a constraint on supply. I think that the demand is … there’s going to be the demand.
Emile Haddad:
And I think that that imbalance of supply and demand is really the cornerstone of our company. Because our company strategy’s always been driven in getting into markets where it’s a very high barrier to entry, and markets where very limited supply. And by us dominating the supply in each of these markets, we feel that that gives us a lot of protection against any shifts in demand as a result of any economic shifts.
Emile Haddad:
So I don’t think anything is going to change. I think there’s going to be, as I said, we took a detour. And once we find our way back to the path we were on, and we will, I think that you’re going to see potentially even more of a appreciation in home prices than we had before, because of the artificial constraint that we create within this period.
Dean Wehrli:
Do you think there will be any changes, any lasting changes at least, for home builders post-COVID?
Emile Haddad:
I don’t know that there’s anything right now that I see that will have a change to home builders. I think home builders before COVID-19 were at that point in the cycle where they started revisiting some of their business models, including how do they buy land, how much of the land they want to buy on the balance sheet, how much of the balance sheet. I think we started seeing some consolidation in the industry, which is typical when you reach a certain point in the cycle.
Emile Haddad:
I think that the builders were starting to think about how do they counter the cost. I think that this is actually going to adjust things. I think as a result of this, builders will be able to, at least for a short period, get more favorable cost structures to build homes, and give them a little bit more relief, which means if the market comes back to more of a normal market on the demand, this period might help on the cost side of the equation. And therefore, reporting of builders would be more favorable.
Emile Haddad:
But I don’t see really anything right now that tells me that there’s anything changing. There might be individuals. I mean, look, this is a period that is having a lot of us revisit where we are in life. And you might have a builder or two where the principal might be at the point where they were contemplating retiring or have a different change. And as a result, they might decide to sell the company. But I don’t think that the COVID-19 issue itself is going to change a major change in behavior or dynamic of home building.
Dean Wehrli:
Not even with publics? I mean, publics traditionally have just a easier access to capital, right, to cheaper capital. Do you think there could be some interplay between public and private based on that resulting from this?
Emile Haddad:
Again, I can speak to my markets. And our markets right here, there aren’t many privates left. So it’s all publics, and we started seeing the consolidation being public to public. And I’m not going to be surprised if I am right, and we go back to a more, the normal path we were on. And if anything, this might actually be a little bit more of an extension of the up cycle.
Emile Haddad:
If that is the case, then I’m not going to be surprised if we start seeing more combinations and consolidation in the industry. The home building industry is challenged because in many ways, it’s been selling itself as a manufacturing business and a retail business. But it has a lot more challenges than the retail or manufacturing business, because their raw material is not readily available, and every home is a factory. A lot of the things that, if you are a manufacturing business, you keep on fine tuning, to create more of a margin, home building doesn’t have that benefit.
Emile Haddad:
And at some point in time, you get to a size where you have to start thinking the business model itself. And I think that we might actually start seeing builders start thinking about home construction differently, meaning modulars, panelizations, things that give you more efficiency in building a home, than using the same nail and the same hammer that we’ve used for three, 400 years.
Dean Wehrli:
Let’s switch over to consumers. Are consumers, home buyers going to change out of this at all?
Emile Haddad:
I don’t think so. I mean, I don’t see anything in the immediate that would change. I think there’ll be incremental changes that will start happening, and there will be more acceleration of certain things that we all expected to see in the future. I’ll give you an example.
Emile Haddad:
Today, people are much more comfortable with doing virtual meetings. I think virtual education is now something that’s becoming more of a proven concept. I think that as a result of this acceleration of a inability to get comfortable using technology for human interaction in different ways, it might start having us change the way we start reacting to a consumer who’s going to be much more interested in working out of their home, for instance, because some companies might now say, “Look, we proved that during COVID-19, we can do a Zoom, and we can have a lot of things done without having face to face. Why wouldn’t we allow our people to start working out of the home part time or full time?”
Emile Haddad:
And if that’s the case, then we have to react to that consumer, by making sure that the space, and technology, and everything else is available for that. Those are the things that I think the consumer is going to start changing. I mean, whether we start thinking about building schools in ways to adjust for that.
Emile Haddad:
But I don’t think you’re going to see anything immediate in the consumer. I think the consumer is going to be extremely sensitized to issues that have to do with healthcare. I think people are going to be asking a lot of questions about why did New York all go through what it went through, and had the challenges, versus California. And there’s a lot of answers to that, in my opinion.
Emile Haddad:
But those are questions that will be asked, that I think will lead to more recognition of a need to, as we think about mitigating traffic impacts and other impacts that are created by growth, we need to start thinking about mitigating healthcare needs, and making sure that as the population grows, that the ability for that population to be served from a healthcare is also being looked at.
Emile Haddad:
Those are the things that I think will happen. I think everybody is going to come out of this thinking about their health, and we better start thinking about the future of healthcare today, because consumers are going to demand a different way of handling it.
Dean Wehrli:
Well, those are pretty big things there. I mean, you started answering the question with not a huge change, but those changes that you just said means we got to think about home office and other spaces within the home. We got to think about in-home medical changes in the design of the home. And we have to think, as builders, we have to think about bulking up on our virtual sales, and how we interact with our buyers. Those are big things.
Emile Haddad:
Yeah. No, no, those are big things. What I meant is, you’re not going to see them happen overnight. Those will take time, because the adjustment to all of that is going to take time. But I think what I was saying is the consumer’s going to be much more open minded. And actually, we might, during this COVID-19, have put the consumer more ahead of the curve than the builders are, because the consumer now is more ready to accept, and we as an industry have not really been thinking a lot about it.
Dean Wehrli:
So, all these things you’re talking about, how is that sort of helping you figure out how to position FivePoint for the future? Are you making plans, given what’s happening now?
Emile Haddad:
Yeah, it’s interesting. Because we started this company, and the whole strategy of this company, from even when I was still at Lennar, incubating it, is to take these large positions we have, which basically, we’re building three cities inside major metropolitan areas, and try to look at each one of them as a model of a city of the future.
Emile Haddad:
And because we are not going to be the ones building a city from scratch, forget about the infrastructure, but I’m talking about all of the different components, we have not starting going out and reaching out to potential partners in each of the areas that we believe is going to be an important component of a city. And having those partners come and sit at the table with us and build the city in collaboration.
Emile Haddad:
City of Hope in cancer is a great example, where they became our partner, and as a result now, we have a much larger universe that’s looking at healthcare, and how do you actually start proofing up a different healthcare delivery. How do you start thinking about sports differently? How do you start thinking about entertainment delivery? Our food and beverages, all an incubation, food and beverage.
Emile Haddad:
Everything we’re doing is all being done in collaboration with brands that are looking into the future, realizing that they have to adjust their way of doing things. And we’re inviting them all to come in and say, if we all can build a showcase of how the future’s going to look like, why wouldn’t we do it? Microsoft years ago used to have a home that they used to call the home of the future, where you go there, and it has all the technology inside the home, that they were imaging that it’s going to be part of the future.
Emile Haddad:
Think about it this way. We are building cities that can have a lot of people come and put spade in different components of how does the city look like in the future. We started that. We were talking about Uber healthcare way before COVID-19 and we were working on that. We were talking about food and beverage being tied to healthcare and medical, to fitness, to education. We were talking about an ability to have a process here, where you will be individually assessed, and you will have your unique menu, as well as your unique training that day.
Emile Haddad:
We started thinking about how do you actually look at utilizing technology in connectivity of all these elements, to where when we talk about wellness, we’re not only talking about wellness in terms of exercise or somebody says, eat better and workout more, and you’ll be fine. But much more looking at customizing it.
Emile Haddad:
So, those are things that we were deep into it. And lastly, we spent very little time on the architecture side and much more on those type of discussions nowadays. So, you will see us probably be much more accelerating some of this. And you are going to see that what we’re really going to be focusing on is less the outside façade of the buildings we’re building, and much more the inside relationship between each of these different elements, to create a place where we can start saying, well, this looks like the future.
Dean Wehrli:
So maybe the city of the future is a little sooner now due to COVID-19.
Emile Haddad:
I think the whole world is going to be accelerated as a result of that. I think that there’s one thing that I feel very comfortable saying will come out of it, is that we are going to now accelerate the future, especially in the area of technology, by at least a decade as a result of this.
Dean Wehrli:
Wow, okay.
Emile Haddad:
I mean, look at virtual learning. I sit on a lot of boards of schools and universities, and we’ve been talking about virtual classes and virtual learning for the longest time. And a lot of people have online classes. But look at what’s happened today. The whole world has been pushed to use it and do it virtually. And whether you’re in kindergarten or you’re a PhD student, you’re actually taking virtual classes.
Emile Haddad:
If we don’t think we’re going to come out of it with a much higher level of comfort, that that’s going to be a way of the future, I was talking, I’m on the board of a couple of universities. I was saying, I’ve been saying for the longest time, why aren’t we giving degrees to people all over the world, by giving them virtual classes?
Emile Haddad:
You know how many people in India, and China, and the Middle East, and Africa, who can’t come to this country and go to a Ivy League or a USC, or UCLA, or UCI? If we can actually have them participate from their homes and get degrees, we not only are expanding our footprint as universities, but we’re actually helping elevate society, so we can start bridging gaps in between social levels. So I think the rippling effect of this could be very interesting.
Dean Wehrli:
I had not thought of that. That would be an amazing effect. It would sort of make the incredibly coveted US higher education more egalitarian, wouldn’t it? As opposed where it is now, where it’s mostly the very affluent from South Korea, and Taiwan, et cetera.
Emile Haddad:
Sure.
Dean Wehrli:
Emile, you’ve been amazingly generous with your time. So let’s end with a little bit bigger picture of a question. What is your long term view, in a very holistic way, for the housing market?
Emile Haddad:
Look, I think that the housing market always follows jobs. I think that it used to be for awhile, where housing follow infrastructure that was built, and that was the product of the 50s, and 60s, and maybe 70s, where because a lot of the infrastructure that was built to create jobs as a result of the Great Depression. We basically had an ability to start leaping and building these communities in a leap way. But that was very artificial, because we basically were inducing growth in areas that were not sustainable, and that’s one of the reasons we had a lot of swings and cycles for the longest time.
Emile Haddad:
But housing always follows jobs. And if you look at where the jobs in the future economy are going, they’re all heading to more urbanized areas. It’s back to the urban core. That’s where innovation is happening. That’s where the cluster of think tanks are happening. That’s where the employee of the new economy wants to be, in San Francisco, in New York, in Boston, in Denver, in places like that.
Emile Haddad:
And I think that as a result, the challenge for all of us is going to be, how do you actually provide housing for all these people, and make it affordable? I think that you’re going to see consumers feeling much more comfortable in living in a smaller home than the previous generation did. I think that it’s going to be a challenge for the secondary, tertiary markets on the long term, unless we focus on mass transit, mainly trains, high speed trains, that can start connecting places like Bakersfield, for instance, with downtown Los Angeles or downtown San Francisco in 25 minutes.
Emile Haddad:
If we can do that, then I would say then we solve a big part of the affordability of housing. But I think where we’re heading is something that’s going to be very similar with places like London, and Tokyo, and different places, where the demand was more in the cities, but the availability of homes in the cities were not great. I think-
Dean Wehrli:
But I just want to play devil’s advocate for a second. We talked earlier about telecommuting and how COVID-19 actually might lead to more virtual interaction and more telecommuting. Couldn’t that potentially counter this sort of jobs urbanization trend you’re talking about?
Emile Haddad:
Absolutely. That’s what I was going to say. I mean, I think that the-
Dean Wehrli:
Oh, sorry.
Emile Haddad:
No, no, you’re 100% right. The one thing that has changed, and the one variable that I wouldn’t have put that much emphasis on before COVID-19, that we will do that going forward and we have to, is, could some of these jobs be done in areas that are more in the suburban virtually? Probably some, yes. But you still have to ask yourself the question, is that where that generation wants to live?
Emile Haddad:
Because a lot of what’s driving, actually, businesses like Salesforce and others to go to San Francisco and New York is because the talent itself is saying, “Unless I’m in San Francisco or in New York, I’m not interested in your company.” It’s like the model is being flipped on its head, where talent used to chase employers. Today, employers are chasing talent. It’s sort of like talent is the, to the digital revolution, is what ——— used to be for the agricultural revolution. It’s the main resource that’s needed.
Emile Haddad:
Every CEO of a new economy company is competing for talent. And talent is saying, I really am not interested in suburbia. I’m not interested in the white picket fence. I’m interested in a 24/7 lifestyle. I’m okay sleeping on a couch in San Francisco, rather than having a home in Tracy. So, I think you have to really listen carefully to the consumer before we jump to, is the technology going to now change the consumer behavior?
Emile Haddad:
And it’s too new to me for me to come to a conclusion, but my instincts tell me, we’re not going to be able to convince that 26 year old, 27 year old, that hey, why don’t you buy a home in Bakersfield? Nothing against Bakersfield, by the way. And go buy a white picket fence in Bakersfield, and telecommute, work virtually, and you’ll be fine. Because that person is not looking for that lifestyle.
Dean Wehrli:
Yeah. And until they get married or have a kid, and then that couch gets very crowded.
Emile Haddad:
It does, I have to tell you. I mean, I grew up in southern Beirut, and every family was raised in a flat. I mean, I was home in a 2,000 square feet flat. And we had one of the trends that were bigger. So people get adjusted to a lifestyle if they want to stay close to employment and everything else. So, interesting things to see. But I think that, my bet is still that the world is going to become much more gravitated towards the urban areas, as we were predicting before, and nothing’s going to change long term.
Dean Wehrli:
Yeah. So focus on the jobs and focus on where talent wants to live.
Emile Haddad:
Exactly, and not necessarily in that order. I would listen very carefully to the talent first and where it wants to go, because that’s where the jobs … the jobs will follow them.
John Burns:
I think that’s a great way to end this, Dean, to listen to the consumer, and listen to the talent. And boy, Emile, you gave us some tremendous perspective, a lot of clarity, great vision for the future. I think the whole concept of technology accelerating, just think about how much it has accelerated in the last month. It’s just amazing. Thank you again for your time. This was just invaluable to me and to all the people who are going to be listening.
Emile Haddad:
Well, thank you very much. I’m always available. John, you and I have been through these times before, and we hopefully will be talking to people in good times and the bad times, and let people know that there’s always a good day that comes after this.
Emile Haddad:
Thanks, Dean.
Dean Wehrli:
Awesome. Thank you, guys. Okay, thanks everyone. That’s it. Again, appreciate your time, Emile, and to John. Please join us for the next New Home Insights Podcast. See you then.
