September 18, 2002
Ziman Center's Fourth Annual Multi-Family Housing Conference Expands to Examine Entire Southern California Area
An audience of 300 filled an auditorium at the Skirball Cultural Center for the Richard S. Ziman Center for Real Estate’s Multi-Family Housing Conference on Sept. 18, 2002. This is the first time the conference has been held at a venue outside the school, home of the Ziman Center. Bruce Willison, dean of The school, welcomed representatives from Southern California’s real estate industry who had gathered to hear experts from the private, public and nonprofit sectors share their vision of the future for the region’s apartment building markets. Also on hand to help open the conference were Walter Torous, professor of finance at UCLA Anderson and director of the Ziman Center, and John Long, managing partner of Highridge Partners and chairman of the Ziman Center. The center’s namesake, Richard Ziman, chairman and CEO of Arden Realty, Inc., added his greetings to the introduction.
Now in its fourth year, the all-day conference seeks to bridge the gap between real estate research and practice and is supported by 22 corporate and media sponsors, including Bank of America, Chicago Title Company, Ernst & Young and the Los Angeles Times. This year for the first time the conference and its forecast focused on the entire Southern California region; previously only the Greater Los Angeles area was included.
The opening speech by Richard Banks, president of the west division of Archstone-Smith, gave an overview of opportunities and challenges in the current market. Mr. Banks detailed the changes he sees in process throughout the industry, but he expects the long-term prospects to be very positive.
“Southern California continues to be one of the strongest markets in the nation,” Mr. Banks said.
Gene Rosenfeld, UCLA Anderson alumnus (’56) and member of the Board of Visitors, introduced the Honorable Jerry Brown, mayor of Oakland, Calif., who delivered the luncheon keynote address in the Ahmanson Ballroom under its semicircular skylight. It was a fast-paced witty chronicle of the rigors and rewards of urban revival in his city, in which he listed housing as one of the three crucial areas when attempting to revitalize any locality with schools and crime as the other two.
Mayor Brown contrasted the experience of running a city versus running a state, noting that when he was governor of California, he dealt primarily with officials. On the city level, any citizen has the absolute right to attend city council meetings, which he refers to as “the micro-universe of unreality,” so he has far more direct interaction with individuals in his constituency. Unfortunately, the vast majority of those with whom he has contact want to complain about something, and development is one of the biggest issues, virtually guaranteed to draw a crowd of dissenters.
“There are a lot of opinions out there, and it doesn’t take many opinions to add weight to the deliberation process,” Mayor Brown said. “Any group of people can dominate the scene.”
Mayor Brown bemoaned the ever-increasing complexity of decision making on housing development and reviewed some of the contributing factors. Compliance with guidelines from the city’s general plan, for example, which in Oakland includes the inexplicable proviso that a building cannot create any “unreasonable shadows.” Also bearing on the outcome are considerations of environmental impact and preservation of historic sites, which he commented does not necessarily mean esthetically pleasing.
Mayor Brown regards attracting private sector capital as key to success, and because of space constraints, the need for what he euphemistically calls “elegant density.” He acknowledges that because of people’s resistance to change, securing approval is “hard slugging trench warfare every step of the way” and not for “the weak or faint hearted,” but he believes that “common sense will prevail” and it can be done. He cites his own city as proof, since he says Oakland is working and development is happening. Mayor Brown considers the discouraging difficulties of reaching consensus just part of the nature of city life and well worth the effort.
“That’s the promise of the city — interest, excitement, risk and change,” Mayor Brown concluded. “I’m big on cities.”
The conference also included Dr. Stephen D. Cauley, associate director of the Ziman Center, who presented his predictions for Southern California’s prospects in multi-family housing. Barring any sever shocks in the economy or unrealistic expectations driving excessive future price increases, he sees positive long-term investment opportunity. However, Dr. Cauley noted that there will be lapses in meeting the needs of certain segments of the market, especially lower income families.
Following Dr. Cauley’s forecast, the first panel discussed their assessment of its implications. The panelists agreed with concerns about supply not meeting demand in segments of the market and view the problem as continuing for at least the next few years. Concerns were raised about low-income population not being able to participate in the market and the pressing need to find solutions. At least one participant believes this “two-tiered economic structure is the greatest threat” to our collective long-term interest. Participants also cited the length and difficulty of the construction approval process as a major obstacle, which now requires political and public relations skills to negotiate.
The second panel focused on access to capital markets and concluded there is an ample supply of funding available, including money for smaller projects. The experts advised exploring different sources, because each lender looks at a given property differently, and as one panelist remarked, relationships are key.
Determining where to invest, assuming you have secured funding, was the subject explored by a third panel composed of representatives from Los Angeles County, Orange County and San Diego County. Because of the constraints of the tremendous under-supply of rental properties, their suggestions included: holding and renovating existing properties, knowing the trends in the area before proceeding, and being prepared to make quick decisions.
Creating low cost and affordable housing in California was the focus of the final panel discussion. The necessity of providing this type of housing is apparent to the panelists who view it as reaching a point where it must overcome the frequently encountered community resistance. However, one of the panelists remarked that “people would rather have a dog pound next door than affordable housing.” More dense mixed-use developments are considered a trend that can help solve the problem and should include some targeted at middle-income households like teachers, firemen and police, who currently have no government subsidies. However, it was noted that it is still very difficult to make even a bond-subsidized project work in the more distressed neighborhoods.