00:00:02 Speaker 1: Bloomberg Audio Studios Podcasts Radio News. 00:00:09 Speaker 2: Music Hello, and welcome to another live episode of the Odd Lots podcast. 00:00:22 Speaker 3: I'm Joe Wiesenthal. 00:00:24 Speaker 4: And I'm Tracy Alloway. 00:00:25 Speaker 2: So we're here at the Vermont Theater in Hollywood. And of course, you talk about Hollywood, but you also have to talk about the real estate industry. We know this has always been a hub of booming real estate industry. But what do the changes in economic development and the housing market, how does it manifest itself here? 00:00:42 Speaker 5: That's right. 00:00:43 Speaker 3: So we have a real treat for you. 00:00:44 Speaker 4: We're going to be speaking to an absolute legend in the world of residential real estate, someone who actually called the subprime bubble before 2008, and maybe even more importantly, called the bottom of the housing market after 2008. And then we're also going to be speaking to a relative newcomer in the world of commercial property, someone who's doing new things in L.A. and trying to develop basically a new neighborhood. 00:01:08 Speaker 2: So enjoy our conversation with the legend Bill McBride of Calculated Risk, as well as Zach Lazzari, real estate developer, founder. 00:01:17 Speaker 3: Of The Western Company. Thank you both so much. Zach, what do you what do you do? What's your job? 00:01:23 Speaker 5: I'm a real estate professional. 00:01:25 Speaker 3: Okay, what does that mean? 00:01:26 Speaker 2: Because there are a lot of people who could say those words. 00:01:30 Speaker 1: So my goal with the Western Company, the goal that we have is that being able to say I'm a real estate professional is more exciting than it normally is. So I come from a theater and acting background. And what I noticed was the developments that I was seeing in Los Angeles moved here in about 2014. 00:01:50 Speaker 6: Okay. 00:01:53 Speaker 5: You'd have a really exciting neighborhood. 00:01:54 Speaker 1: Pop up in Silver Lake or Echo Park or Highland Park. And then whenever scaffolding would go up for a new building, there's generally a, oh, oh no, what's that going to be? And that's not the reaction that you should have when a new building is being built. 00:02:09 Speaker 5: There should be some excitement. What is that going to be? 00:02:12 Speaker 1: What kind of new creative spirit is going to enter into that structure? And I just don't think the commercial real estate industry is that inspiring in that way? Those outcomes haven't been so inspiring. So our goal is to sort of infuse development with the art spirit. 00:02:32 Speaker 4: I'm going to ask a very basic L.A. question, and I'd be curious to get both your takes on this. And again, Joe gave the caveat earlier, which is we've been to L.A. a couple of times, but we don't know that much about it. Whenever I come here, I am sort of stunned by the diversity of independent businesses compared. 00:02:48 Speaker 3: To New York. 00:02:49 Speaker 5: I think about this all the time. 00:02:50 Speaker 7: Yeah, there's so many mom and pop shops. 00:02:53 Speaker 4: I passed by a linoleum emporium on the way over here, which I just don't think you would ever see in New York. And I'm sure the direction of travel for a lot of independent businesses isn't that great. But how have so many managed to survive in L.A. so far compared to other places in the U.S. 00:03:14 Speaker 1: Well, I went to school in New York, went to NYU, and a lot of my most talented friends left New York and moved to Los Angeles because New York just got too expensive and yeah LA it's it's while it's expensive to buy a home in LA you can generally find a good rental deal in a really exciting neighborhood um it's a lot harder to do that in New York City so you have people who are just dedicated to their craft who can survive in LA and focus on their art Versus in New York, it's a lot more difficult to be able to focus on your craft while being able to pay rent. So I think you just have more of an experimental group of people who are moving out here and who exist and trying to start and create new ideas. 00:04:00 Speaker 3: Bill, thoughts? 00:04:02 Speaker 6: I would also address the density issue. In New York, you have really high density and therefore you're going to have high rent. 00:04:09 Speaker 7: For a particular location. Here we're really spread out. 00:04:12 Speaker 6: Yeah. which is an issue, by the way. We should address zoning in LA because we can't stay spread out forever or as spread out as we are. But I think that's a reason that you see so many mom and pop shops, which is great. In my community, I live right off PCH, Pacific Coast Highway, and most of the stores are mom and pops. There are some chain restaurants and stuff. So I think it's the density. 00:04:39 Speaker 2: That I have to say, I've talked about this. 00:04:42 Speaker 3: I love strip malls. 00:04:43 Speaker 2: I love seeing the Korean restaurant next to the tooth whitening place, next to the vape shop, next to the karate school. 00:04:53 Speaker 3: To me, that's one of my faves. I love driving by. 00:04:56 Speaker 4: Truly multi-use development. 00:04:58 Speaker 2: But Zach, when you're thinking about, okay, you want this to be, you want to create a building that actually get people excited rather than another building. 00:05:08 Speaker 3: What are the ingredients to that? 00:05:10 Speaker 1: I think you have to be focused on, so the way that we're trying to approach finding tenants, we like to think of it like almost like how a 24 tries to find filmmakers. 00:05:19 Speaker 4: Yeah. 00:05:20 Speaker 2: Okay. 00:05:20 Speaker 1: So how can we find someone who has a vision? We're not trying to find another Shake Shack. 00:05:26 Speaker 5: I mean, yeah. So Shake Shack is awesome. 00:05:29 Speaker 1: I love going to Shake Shack when I'm at the airport, but I don't necessarily need Shake Shack everywhere else. So I think people get a lot more excited when people are trying new things and are trying to, to test the limits of even pastries, whatever it is, if you're passionate about a thing, then that passion usually translates into an exciting new result. 00:05:49 Speaker 5: So that's how we approach trying to find tenants. 00:05:51 Speaker 4: How do you think about the trade-off, if there is one, between taste and, I guess, profitability? Because I think about A24. A24 makes a bunch of really good movies. There are a lot of good movies out there that don't necessarily make a lot of money. And unfortunately, some of the movies that make a lot of money are, you know, Marvel superhero things that are the same thing over and over as we were discussing with Hayes. 00:06:13 Speaker 5: But how do you. 00:06:14 Speaker 4: Turn taste into actual profit when it comes to property? 00:06:19 Speaker 1: Well, the lucky thing about real estate is even if the tenant fails, which is sad, but the real estate still maintains its value. 00:06:29 Speaker 5: And then a new tenant generally will come in. 00:06:30 Speaker 1: It's not like a movie where if no one sees the movie, you just write off the loss. So the real estate generally retains its value. even if there's a failure. 00:06:39 Speaker 3: Bill, you mentioned zoning. 00:06:41 Speaker 2: And one of the questions, you know, we've had a lot of conversations about zoning, but, you know, people fight about, oh, is this residential? 00:06:50 Speaker 3: Is this business, et cetera? From your perspective, like. 00:06:55 Speaker 2: When you think about we want to crack the puzzle, we want to make affordability, et cetera, we want this to be lively. 00:07:01 Speaker 3: In your research, how important. 00:07:03 Speaker 2: Is like getting that regulatory piece of the puzzle correct? 00:07:08 Speaker 7: But if you talk to the home builders or the apartment builders, it's the biggest piece. 00:07:11 Speaker 5: Okay. 00:07:11 Speaker 6: So I think getting zoning changed. I mean, you know, we've passed some things in California. California has. 00:07:19 Speaker 7: But the ADU laws. Yeah. 00:07:24 Speaker 6: ADUs are really taking off in a lot of parts of California. 00:07:27 Speaker 7: Yeah. Now, the only problem is that's a. 00:07:30 Speaker 6: Small increase to the housing stock. But, you know, actual zoning is really– changing zoning is really hard. You know, they have done some things like near transport centers you can build a lot higher density. One of the things that we're in an official housing crisis in California. So I think we're still in it. They announced it four or five years ago. And you weren't allowed to reduce density. So if you bought a six-unit apartment building, you couldn't build four condos. Or in my community, what was happening was... People with all kinds of money were buying two or three homes in a row and building a real mansion, not a McMansion. 00:08:13 Speaker 7: And they've stopped that. 00:08:16 Speaker 6: Because density was actually decreasing in the beach communities, which. 00:08:20 Speaker 7: You know, is kind of the opposite of what we kind of need. 00:08:24 Speaker 6: And I'm speaking a little bit against my own interest in that because we'll have more traffic and stuff. 00:08:29 Speaker 3: Thank you for your public interest. 00:08:30 Speaker 6: By the way, just to add to Zach's comment, when I'm talking with him, I think one of the things that really adds value to what he's doing is he's taking an area and building it into a community and making it kind of like you go into that community and it's like a symphony. And I thought it was an incredibly exciting idea to do. not just build one building, which is what a lot of people do, but they are taking multiple buildings and trying to build a whole community with new restaurants and a real vision for that. And I think that will have a real big impact. 00:09:07 Speaker 4: Wait, Zach, say more about that. So what happens when you're buying multiple buildings in a single neighborhood and sort of aggregating those developments versus maybe just like cherry picking a few properties that are scattered across the city? 00:09:20 Speaker 1: So yes, the idea for what we're doing on Western and Melrose came mostly from reading this book, The Death and Life of Great American Cities by Jane Jacobs. And she was talking about the sidewalk ballet in Greenwich Village. And growing up in New York City, I'd seen that firsthand. And Greenwich Village is one of the most exciting neighborhoods to just walk around and do nothing because you're experiencing culture by just existing. And that was the one thing I felt like was missing in Los Angeles. There are a few of these great main streets in LA, but there's very few. And generally when they exist, they end up sort of turning into airport shopping malls. 00:10:00 Speaker 5: Eventually. 00:10:01 Speaker 1: And that's just very disappointing because speaking of zoning, New York is basically all mixed use. So if there's a street, I mean, Manhattan at this point is so expensive that it's hard to have independent businesses. But for a while, even if there were a lot of chains on one street, you could go to a side street and see something interesting. LA doesn't have the luxury of doing that because roughly 95% of the city is residentially zoned. 00:10:24 Speaker 5: So if you have a community that. 00:10:26 Speaker 1: Has their main street, have all of the culture and life taken out of it, then that's it. 00:10:32 Speaker 5: You got nothing because it's just residential around you. 00:10:35 Speaker 2: You know, sometimes there are these fights on Twitter where they talk about like, what are the best, most walkable cities? And it's like, oh, New York is very, very walkable. And then there's like, oh, LA is at the bottom. Except it's always so nice, the weather out here. 00:10:50 Speaker 3: I don't mind walking an hour. So I'm actually totally fine. 00:10:53 Speaker 2: I actually think LA is a great walking city because I never have to worry about the weather. 00:10:58 Speaker 3: I think it's one of the most walkable cities. It's so pleasant to walk here. But can I... No, I love walking here. But it does not, I guess, suppose... You'll be walking for a long time. 00:11:09 Speaker 4: Yeah, it's great. 00:11:10 Speaker 3: I love walking for a long time here, and I've taken many. 00:11:12 Speaker 2: Long walks in L.A., but I know it does not meet what most people are talking about when they say walkable. 00:11:33 Speaker 5: Okay, you have this vision, this. 00:11:34 Speaker 3: Community, et cetera. 00:11:36 Speaker 2: How much right now is your business being affected or how much when you're thinking about this, are you thinking about the headwinds. 00:11:44 Speaker 5: That we talked about with Hayes right before it? 00:11:47 Speaker 3: The fact that there is this very. 00:11:48 Speaker 2: Big industry that is on the decline and how does that make you think about the business, the opportunity set? 00:11:55 Speaker 1: So I think the commercial real estate industry is having a really tough time because for a long time we've been able to make money by financially engineering outcomes. And now the financial conditions are not super great for those financially engineered outcomes. You can't get a cap rate and an interest rate arbitrage and make money. You can't throw a bunch of people in a room of 140 IQ and do some spreadsheets and figure out how to make money when the interest rates are higher than what you bought the building for on a cap rate. So now you actually have to make the product good. 00:12:32 Speaker 5: I see what you're saying. 00:12:32 Speaker 1: And I think that's what's really exciting about what we're doing is we're seeing rents increase where we are because I think we've made a really exciting product by investing in talent. There's a lot of new apartment buildings in LA. I don't think many people go around going, wow, that's such a beautiful, cool new apartment building. I think most people are like, oh God, not another one of those boring, generic apartment buildings. So I think the commercial real estate industry, now we have to actually make good products if we want. 00:13:00 Speaker 5: To make money. 00:13:01 Speaker 4: Okay, so speaking of making good products, I read one of the things you're doing as part of your developing is you're building city infrastructure as well. So installing things like crosswalks. What's the process of creating a crosswalk in LA? 00:13:21 Speaker 5: It's like a Kafka novel. It's just horrible. 00:13:24 Speaker 3: Tell us more. 00:13:25 Speaker 1: Oh, we got a great email. We got approved for a crosswalk on Clinton and Western. And it said it'll be built in a few years or more. 00:13:36 Speaker 3: Wait, what's the constraint? 00:13:40 Speaker 4: Like what is the actual holdup? What's your sense of the holdup? 00:13:45 Speaker 1: They, uh, there's no really process to get one. You can, you have to pay for it. That's they're like, Oh yeah, we'll, we'll totally approve that for you, but it's going to cost a million dollars. And then we're like, just to put a, stop like a light and they're like well the engineering the electrical and then you got to go put a vault underneath for us so it's like they're like what are you going to do for us interesting It's funny to think a few years are up. It reminds me of when I used to, as a young kid, like be a vinyl record collector and you'd see the 99 cents and up bins. And it's like, so this is the bin that contained, you could have a hundred dollar record in the 99 cents and up bins. 00:14:27 Speaker 2: I'm curious, Bill, you talk to the home builders. Have they become more of the product mindset? Like, do they, are they going in the same direction where it's like, okay, it's not just good enough to have like a master plan community or something. 00:14:42 Speaker 3: We have to think about. 00:14:43 Speaker 2: The freestanding home as a desirable product rather than just a place to live. 00:14:48 Speaker 5: Is that a thing yet? 00:14:49 Speaker 6: Well, you know, most of the home builders that I speak to are infill builders. I do talk to some of the larger builders that the number one thing I've heard from them is they're concerned. 00:15:00 Speaker 7: They were really into the build to rent model. Yes, yes. 00:15:05 Speaker 6: And that's kind of under pressure right now. So as far as building a community, I still think they're sticking with their master plan. 00:15:12 Speaker 7: Got it. 00:15:13 Speaker 6: So it's interesting to hear him say that about the crosswalk because policy and zoning and regulatory issues are the number one thing I hear from home builders. 00:15:26 Speaker 7: They all feel right across. Of course, good times, bad times, that's always their number one issue. 00:15:32 Speaker 4: I have another basic LA question. despite what Joe says about this being a walkable city, lots of people drive, right? Which means you have to have parking if you're doing a commercial development, right? Everyone needs to get there. And at the same time, I imagine having huge portions of the city as designated parking lots is not that attractive if you're trying to create a neighborhood or maybe even if you're trying to produce profit. How do you think about the trade-off between parking versus creating a beautiful neighborhood with many tasteful buildings? 00:16:07 Speaker 1: It's definitely my biggest blind spot because I didn't drive for most of my life living in New York. So people who are from L.A. are always asking me what the parking situation is. And I'm like, why do you keep asking me about the parking? Don't you want to know what the restaurants are? And they're like, well, where am I going to park? 00:16:26 Speaker 5: I had a friend. I have a friend from L.A. who will park. 00:16:31 Speaker 1: And then we're going half a block north and he'll get out, he'll drive his car and then park half a block north. 00:16:36 Speaker 4: Wow. 00:16:37 Speaker 7: Yeah. 00:16:37 Speaker 5: But no, it's a thing. 00:16:39 Speaker 7: It's a thing. 00:16:39 Speaker 1: Especially if you have kids, like you got to get them in the car seats, get them out of the car seats. So if you can't park, it's like Fairfax is like just horrendous parking. And sometimes you'll just not go to the business if the parking's that bad. 00:16:52 Speaker 5: But you can you can make it work with valet. 00:16:55 Speaker 6: Let me add something here too. I mentioned the ADUs and that they have picked up a little bit. But one of the rules with the ADUs is you don't have to have off-street parking. So what's happening in a lot of the communities where they are building a lot of ADUs is the streets are just packed. 00:17:11 Speaker 7: So even worse than they were before. 00:17:14 Speaker 6: So parking, until we get real self-driving cars and nobody has to have a car anymore, parking is a huge issue. 00:17:22 Speaker 5: Koreatown. is one of the craziest parking situations, maybe on the planet. 00:17:27 Speaker 6: Really? 00:17:27 Speaker 7: Oh, yeah. 00:17:28 Speaker 1: People will, there'll be no spots. My wife lived in Koreatown for a little while. And then there's people who are, like, just sitting there all day. And then once someone leaves, they're, like, coordinating how to get all the spots. 00:17:41 Speaker 5: So Koreatown's pretty rough. 00:17:43 Speaker 1: But I do think with self-driving cars, parking will become less important. 00:17:47 Speaker 2: No, I'm fascinated by this question because it's like the car drives you to work and then goes to some centralized lot, like, I want to do like a bunch of episodes because it could just end up meaningfully restructuring cities and how they're organized. 00:18:00 Speaker 7: Let me just interrupt you quickly. It also would change the way houses look. Yeah, right. 00:18:05 Speaker 6: Because right now in a lot of communities, you've got these garages in front and they're really ugly. 00:18:09 Speaker 3: Yeah. 00:18:09 Speaker 7: You know, and it would be really nice if those all went away. 00:18:12 Speaker 6: And my brother pointed out to me one of the biggest changes, of course, would be self-driving would be. 00:18:18 Speaker 7: Police interactions go way down. 00:18:20 Speaker 4: Yes, right. 00:18:22 Speaker 2: It also means lower speeding ticket revenue. There are all kinds of, there are going to be no speeding tickets anymore, which is going to hurt. 00:18:29 Speaker 7: I hope this happens in my lifetime. 00:18:31 Speaker 2: I have a question, you know, this is a question that I probably would have asked very first off in like 2021 or 2022, then it faded. 00:18:40 Speaker 3: But I'm curious now, how hard is it to like. 00:18:44 Speaker 2: Find construction materials or like HVAC things or all or the electricity transformers yeah like because what now we know there's incredible competition for a lot of that stuff is that showing up in your development timelines transformers yeah so what's. 00:19:00 Speaker 5: Happening up with that you got to fight for it yeah yeah what does. 00:19:04 Speaker 4: That actually mean though do you pay a higher price or do you I don't everyone always talks about building the relationship with the supplier do you become their best friend how does fight for it. 00:19:13 Speaker 5: Mean Yeah, you got to find a guy who knows a guy. 00:19:16 Speaker 7: Find the guy. 00:19:17 Speaker 5: And then you got to buy it in advance and then store it somewhere. 00:19:20 Speaker 6: Huh. 00:19:20 Speaker 5: Yeah, it's like, yeah, it gets weird. 00:19:23 Speaker 4: So do you have a garage just like full of Transformers somewhere? 00:19:26 Speaker 5: I might. 00:19:27 Speaker 3: No, like when you were like. 00:19:30 Speaker 3: It's a very valuable. 00:19:32 Speaker 2: Tracy's going to add that to her prepper. I probably will. As my fellow prepper, yeah, got to have a garage full of Transformers. 00:19:41 Speaker 5: Got to do it together. 00:19:43 Speaker 3: Long term, people are always going to love living around here. 00:19:46 Speaker 2: We can talk about Hollywood, sure, but this is heaven on earth here. 00:19:51 Speaker 5: This is God's country. 00:19:53 Speaker 3: In the end, it's. 00:19:54 Speaker 5: Always going to be great, right? 00:19:57 Speaker 7: That's my. 00:19:59 Speaker 1: L.A. 00:20:00 Speaker 7: Take. 00:20:01 Speaker 1: I think Los Angeles has the highest ceiling of any city in the world. 00:20:05 Speaker 3: I completely agree. I'm such an L.A. 00:20:10 Speaker 6: We have two problems. One is the cost of housing, which we need to address, and the other is water. 00:20:21 Speaker 7: Water in California is a huge, huge issue. 00:20:23 Speaker 2: Another topic we could talk for a long time, but Bill and Zach, thank you so much for joining us at OzLots Live. 00:20:30 Speaker 3: We really appreciate you and both of you. 00:20:41 Speaker 7: Thank you. 00:20:48 Speaker 4: That was our conversation with Bill McBride and Zach Lasry, recorded live in L.A. I'm Tracy Alloway. You can follow me at Tracy Alloway. 00:20:56 Speaker 3: And I'm Joe Wiesenthal. You can follow me at The Stalwart. 00:20:59 Speaker 2: Follow our producers, Carmen Rodriguez at Carmen Armand, Dash O'Bennett at Dashbot, Kale Brooks at Kale Brooks, and Kevin Lozano at Kevin Lloyd Lozano. 00:21:07 Speaker 4: And for more OddLots content, you should check out our daily newsletter. You can find that at Bloomberg.com forward slash OddLots. 00:21:13 Speaker 2: And you can chat about all of these topics, including real estate, in our Discord, discord.gg. 00:21:19 Speaker 4: And if you enjoyed this conversation, then please leave a comment or like the video, or better yet, subscribe. 00:21:25 Speaker 3: Thanks for watching and listening. 00:21:43 Speaker 7: Thank you.