Commercial Investment Real Estate Spring 2020 | Page 9

sprawl, you’re going to see more single-family homes, and you’re going to have a continued affordable housing crisis. What I suggest to everybody else — and I’ll say it again right now — is that the sky is the solution. Vertical density is the solution to the affordable hous- ing crisis, and the best way to solve that issue is to change the restrictive single-family zon- ing restrictions. This is what Minneapolis has done, and it’s a great initiative. CIRE: IN MARKETS WHERE RENT CONTROL IS ALREADY AN ISSUE OR IS BEING DISCUSSED, HOW CAN OWNERS AND OPERATORS PLAN FOR CAPITAL EXPENDITURES KNOWING THEIR INCOME IS SOMEWHAT CAPPED? LEVY: Well, that’s the challenge. It really comes down to what you are willing to not only pay for your building if you’re buying into the market, but what you are going to pay for capex in that building. And you probably are capped at a certain level. The downside of that isn’t just you’re not going to put capex in; the real downside is you’re not employing the plumbers, the carpenters, and the other trade professionals who would have done the work. It has this trickle-down negative impact not only on not creating more affordable housing units, more updated modern units. It also de- stroys jobs for trades that would have worked on these units. CIRE: YOU MENTIONED THE SOLUTION IS IN THE SKY FOR MARKETS LIKE MINNE- APOLIS. BUT IN URBAN AREAS WHERE RENT CONTROL IS ALREADY AN ISSUE, WHAT CAN BE DONE TO BOOST AFFORD- ABLE HOUSING? LEVY: There are a lot of creative solutions out there. I’ll give you a few examples that might sound a bit off the wall, but they are real pro- posals. Hong Kong is proposing an $80 billion island right in the middle of the harbor to build more affordable housing. Copenhagen is pro- posing to put a $20 billion island in the middle of the harbor to build affordable housing for 35,000 people. Every time I go to San Francis- co, I take a look out of the CBRE office and I see Treasure Island, which is between San Francis- co and Oakland, right under the Bay Bridge. I ask myself, why isn’t that being developed for affordable housing? Right now, it’s completely underdeveloped, with a few military bases on it. To me, that’s Exhibit A of where we should look to build. I would also support changing zoning laws to allow more affordable density. CIRE: OUTSIDE OF MULTIFAMILY, ARE OTHER MARKET SECTORS FACING CHALLENGES RELATED TO RENT CON- TROL, WHETHER IT BE OFFICE, RETAIL, OR INDUSTRIAL? CIREMAGAZINE.COM LEVY: These other sectors don’t seem to produce the same political will to cap rents. But at the same time, we are seeing, in cer- tain markets, changes in tax assessments on office buildings, in particular, which shift some of the burden from single-family onto [the office sector]. This has the same essential implication of rent control by increasing taxes on commercial buildings (as opposed to capping revenue). You are essentially putting a lid on rent growth in those markets. CIRE: FROM A PUBLIC RELATIONS STAND- POINT, WHAT CAN THE INDUSTRY DO TO SHOW RENT CONTROL ISN’T THE ANSWER? LEVY: Affordable housing needs to be a con- sideration, but these legislation and regula- tion initiatives are not the way to get it done. I’ll say this in a humorous way, even though it’s a serious issue — but the issue isn’t Gor- don Gekko who’s preventing new affordable housing units, though a lot of people like to think so. The issue is, for example, a little old lady in Pasadena who through NIMBYism, or not-in-my-backyard-ism, will simply not al- low the vertical density in her community. In the absence of loosening these restrictions, I think we’re going to be in a fight of misper- ception that it’s the industry that’s somehow at fault, that we are not willing to build these units. There is nothing further from the truth. If you give us the ability to build, we will. But if we can’t, the restrictions are such that land then gets more expensive. It’s an unfortunate vicious cycle. As you restrict the availability of inexpensive land to build, the other land gets more expensive, and you density. It’s unfortunate, but it’s out there. The infrastructure issue is solvable. How? It’s solvable because, even in California, when they were looking at putting additional ver- tical density into these communities, it was going to be near transit stops in Los Angeles. Actually, L.A. has been at the forefront of ac- tually getting some of this stuff done, trying to change the zoning laws near transit stops. But suburban communities within Califor- nia shot it down, even near transit stops. To me, the infrastructure issue is solvable by building more density, expanding out from urban centers to suburban transit areas. CIRE: THE INDUSTRY, BY ITS NATURE, IS GOING TO BE HESITANT TO AGREE TO RENT CONTROLS AND INCREASED REGULATIONS. BUT WHAT’S A PLAN B FOR CRE PROFESSIONALS? HOW CAN WE LET COMMUNITIES KNOW THAT BOTH AFFORD- ABLE RENT IS AN ISSUE AND RESPONSIBLE DEVELOPMENT IS ALSO POSSIBLE? LEVY: All I can say is that your city is immo- bile, but capital and talent can go anywhere, and it will go where it’s most efficient. Those Spencer Levy LISTEN ON: Apple Podcast build even less affordable housing units be- cause you have to build with a certain amount of rent to recoup your land costs. CIRE: AS FAR AS THE HESITATION TO BUILD VERTICALLY, IS THAT RELATED TO A LACK OF INFRASTRUCTURE TO MATCH THE INCREASED DENSITY? LEVY: There’s some of that. But there are some very good people who don’t want to have vertical density in their communities for bad reasons — and those reasons are not allowing, quite candidly, people of a lower socioeconomic strata to live in their com- munities and go to their schools. That’s the No. 1 reason why we don’t see a lot of vertical cities that are going to be most restrictive in their ability to attract new capital and new development are eventually going to get left behind. Nicholas Leider Senior content editor of Commercial Investment Real Estate Contact him at [email protected]. Editor’s note: This article is an adapted excerpt from a full- length Commercial Investment Real Estate podcast. To listen to the full episode, head to SoundCloud, iTunes, Spotify, or wherever you listen to your favorite podcasts. Don’t forget to subscribe, rate, and review. COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE 7