June 28, 2007

By Booyeon Lee, Los Angeles Business Journal

Title: Arden Realty chair and professor of finance at UCLA Anderson School of Management; director of the university’s Richard S. Ziman Center for Real Estate
Born: 1953, Sacramento
Education: Bachelor’s, Master’s and Ph.D. in economics from the University of California, Berkeley
Career Turning Point: Served on the staff of the Federal Reserve Board in Washington, D.C., and was responsible for analysis of forecasting domestic housing markets
Hobbies: Cycling, running, reading and travel
Personal: Married with two grown sons

Stuart GabrielStuart Gabriel is an eminent figure in local real estate. He was the longtime leader in USC’s real estate department until he decided to move across town to be director of UCLA’s Richard S. Ziman Center for Real Estate, a post he took earlier this month. He is also a professor of finance at UCLA Anderson School of Management. A lover of nature and an avid cyclist who biked 100 miles round trip to Big Bear two weeks ago, Gabriel characterizes himself as a child of the ’70s whose interest in social justice and urban renewal got him interested in housing issues. Gabriel believes that given the strength in L.A.’s demographics, with no indication of a weakening labor market, the fundamentals of the L.A. housing market are robust. However, he said it could take years before L.A.’s current real estate swoon recovers completely. With three degrees from University of California, Berkeley, Gabriel says he knows whom he’ll be rooting for during the football season and seemed relieved that he wouldn’t have to choose between the Trojans and the Bruins.

Question: What has it been like to transition to a competing university after 17 years at USC? What was the main impetus for your move?

Answer: The Anderson School of Management has been extremely gracious and welcoming. The primary impetus was that the kind people of Anderson school came and found me and kind of clobbered me over the head. I wasn’t looking for work, but the leadership of Anderson made a very compelling case, a very attractive case to me.

Q: You’ve been a Trojan for years. Now that you’re a Bruin, what will you do during the football season?

A: I have three degrees from the University of California, Berkeley. That’s my answer.

Q: Real estate is the lifeblood of Los Angeles. How has it evolved in recent years?

A: The story with L.A. in a nutshell is that transportation costs are getting significantly higher over time and will continue to move up both in terms of the out-of-pocket cost of commuting as well as the time cost of commuting. Our freeways are terribly congested, and given limitations on state and federal funding, the likelihood of building major rapid transit systems or freeways is very low. This forces people to live closer in and commute shorter distances. This means L.A. is densifying. We’re going to see more vertical constructions and less in the way of old school tract single-family subdivision developments in far-flung areas of suburbia.

Q: Is “Urban L.A.” finally being born? What will L.A. look like in the next decade?

A: Urban L.A. is being born. It’s been born downtown, born in Westwood, born all over Westside. L.A. of tomorrow will have a lot of condo high-rises and rental high-rise properties that are closer in. L.A. in a decade from now will look like an older East Coast city or a European city in terms of a very densely populated vertical core. It will be pedestrian-friendly with much more reliance on public transportation. I myself prefer a bicycle. My aspiration is to commute by bike some day.

Q: You see this taking shape on Wilshire Boulevard, where the tallest residential buildings proposed are anchored by MTA stations, right?

A: That actually follows an explicit policy for the city of Los Angeles to encourage mixed-use development, including residential, retail and office space, within direct proximity to transit station. This is a play out of the playbook of the highly esteemed international cities. If you go to Tokyo, for instance, and you go around the city on the JR line, you see that every transit stop is packed with development that goes many stories up and below the surface. You see this in Paris or London and yes, this will be the future of L.A.

Q: How will this shape the surrounding areas of Wilshire Boulevard, such as Koreatown, in the future?

A: Koreatown is blessed with a profoundly advantageous location. It’s really at the core of the L.A. metropolitan area. And Koreatown, like its neighbors south of the Santa Monica Freeway, have for decades been undervalued. If you look again at the commute constraints and where employment is being developed, there’s no doubt in my mind that there’s a very bright future for real estate in and around Koreatown as well as the real estate in South L.A.

Q: How has the mortgage market changed with regards to the exotic loans that have been eliminated since the subprime meltdown?

A: One way of describing the subprime sector is to think about a pendulum that has swung really hard from one end of its rotation to the other. If you turn the clock back four years, we had an extraordinarily accommodating monetary policy on the part of the Fed, generational lows in mortgage interest rates, and the introduction of innovative mortgage designs, including many subprime, negatively amortizing interest-only types of instruments. Now the pendulum has swung to the opposite extreme. Regulation has tightened significantly. Underwriting has tightened. Certain instruments will no longer be purchased by the secondary market. The Fed has tightened monetary policy very significantly, making mortgages expensive. All those factors together have made for a very different mortgage environment.

Q: The L.A. market continues to swoon. When do you expect it to recover?

A: Over the mid- to long run, given the strength in demographics, and unlike prior situations with no observable weakening of labor markets, we will definitely get through this. It’s not this quarter; it’s not next quarter. The metric is one of years rather than months. These things tend to persist longer than we hope for. We have a metropolitan area that’s growing, subject to population and income growth as well as employment growth. All of these fundamentals look pretty healthy. What doesn’t look healthy is affordability, in terms of the availability of credit and the cost of credit. Because the Fed brought the short term rates up by more than 400 basis points from a low level of 1 percent to the current 5.25 percent, all the adjustable rate mortgages originated in recent years are going to ratchet up. It’s anticipated that the typical adjustment in payment is going to be 25 percent, which is going to be difficult for most households to cope with.

Q: With all this institutional knowledge, have you cashed out in the real estate market? Where do you live?

A: No, I haven’t cashed out. I live in the Conejo Valley in the Westlake Village area, and I’ve been living in the same house for 15 years. This is the house where my kids grew up in a very pleasant community with very good public schools.

Q: That’s sounds like a long commute.

A: It’s the kind of thing you do for your kids, right?

Q: What do you think of these $35 million super-expensive homes? Is this healthy for L.A.?

A: This is the market talking. And those homes wouldn’t be there if there wasn’t a demand for those homes. This is an indication that here in L.A., like in New York or London or Paris, there is a non-trivial class of individuals who are extremely wealthy and they like to live in nice houses. It’s a submarket and we have lots of different submarkets.

Q: In terms of analysis and forecasts, USC has been portrayed as booster-ish, while UCLA has been seen as bearish. Where do you fit in?

A: I know the economic forecasters in both places really well and I would say that there clearly is room for differences of opinion. Their crystal ball gets awfully murky at times even with the best data and the best econometric models and we are all trying to do our best to cull insights out of those models and data.

Q: How did you decide to get into the study of real estate?

A: My grandfather was a homebuilder and my father is a civil engineer. That’s one way to answer the question. The other is that as an undergraduate at Berkeley, I spent a year working for a housing research group in Washington D.C. run by Ralph Nader, way back in the days of Nader’s Raiders. This kicked in an initial interest in real estate. As a graduate student in economics, I became very interested in public and social policy and social issues. I grew up in the ’70s when there was a lot of social turbulence. A lot of those problems focused on urban problems. Cities were burning. There was great racial strife in cities and downtowns were being emptied out as the populations flooded to the suburbs. And it was my interest in urban issues that made me focus my Ph.D. in economics on urban housing markets. I then moved on to the Fed where I did macroeconomics of real estate markets and finally back to academia with continued focus in real estate financing.

Q: When was the most memorable time in your childhood?

A: I spent some of my high school years in Israel, because my father took a sabbatical there as a professor of engineering. Because I traveled a fair amount in Europe and in the Middle East, I got a taste for different cultures and lifestyles and issues at a fairly young age. I also lived through a war or two in Israel that taught me a few lessons of life at a fairly young age.

Q: Which wars did you live through?

A: I was there during the 1973 Yom Kippur War and also during the Lebanon War in the early 1980s.

Q: What was the toughest stretch of your career?

A: I think that like many households, probably the toughest time was as a young assistant professor with young children and lack of job security, seeking to attain tenure and to do right in my fathering activities and obviously, with the constraints of university-based incomes.

Q: What is your favorite part of job?

A: I really enjoy all the different parts of my job. I enjoy that my job changes every day and sometimes every hour. I never get bored. You have a lot of discretion as to what you teach and how you teach. You have a lot of autonomy as to what you get to do research on. There’s a lot of creativity and dynamic in both of those activities. My job, as in many jobs in today’s world, require a lot hours. It helps if you enjoy what you do.

Q: What do you do on your free time?

A: Like many people my age, not every piece of my knee is still intact. I’ve been a runner for about 30 years, but recently I’ve taken up cycling and I’ve met some friends who have encouraged me to join them in their escapades. The latest one was this past Saturday where we rode up to Big Bear and back.

Q: How long was the journey?

A: It took about eight hours, including about an hour of rest stops. We started at 6:30 a.m. and got in at 3:30 p.m. We drove out to the Inland Empire and parked near University of Redlands, and from there went up the hill to Big Bear, around the lake and back down the hill. Altogether it was about 100 miles.

Q: What do you like the best about being on a bike?

A: I like riding and hiking both because you’re in nature and you have a lot of scenery often times beautiful and changing because you’re moving. At the same time, you’re getting a high-level physical activity that’s fun and challenging. It’s usually done with friends so I enjoy just kind of shooting the breeze and having fun.

Q: What kind of legacy do you want to leave behind? What would you like your tombstone to say, for example?

A: I’d want it to say that I helped to create some higher levels of understanding and respect and love in the activities that I engaged in and somehow they added up to some dimension of goodness.

Q: Is that how do you measure your success?

A: Partially. I also have to publish a lot, or else. (Laughing.)

Q: What is your favorite piece of real estate in LA?

A: This is actually pretty easy. It’s the Santa Monica Mountains. And it’s the glorious vistas of the Pacific and it’s the oak trees and the pine trees and the wonderful nature of that environment.

About UCLA Anderson School of Management
UCLA Anderson School of Management, established in 1935, is regarded among the very best business schools in the world.  UCLA Anderson faculty are ranked #1 in "intellectual capital" by BusinessWeek and are renowned for their teaching excellence and research in advancing management thinking.  Each year, UCLA Anderson provides management education to more than 1,600 students enrolled in MBA, Executive MBA, Fully-Employed MBA and doctoral programs, and to more than 2,000 professional managers through executive education programs.  Combining highly selective admissions, varied and innovative learning programs, and a world-wide network of 35,000 alumni, UCLA Anderson develops and prepares global leaders.

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