Is CA Toppling NY as Center of the Universe?

Pupil: “Class-A office rents in San Francisco now surpass those in Manhattan. This is not a one-time deal; this is a permanent change in the nation’s economic structure.”

IRVINE, CA—In part 1 of our two-part exclusive interview, Colliers International ‘s west region president Martin Pupil told GlobeSt.com that the country is turning from a traditional factory and manufacturing economy to a dominant knowledge-based one, which has always been based in the west. In part 2, Pupil tells us all signs point to growth in the west as the result of that economic shift. GlobeSt.com: Is San Francisco as the center of the new economy, as you call it, a permanent change? Pupil: This is a permanent change, not a one-off aberration. It is now in its third year of record growth. Likewise, in Los Angeles, Hans Mumper , our managing director there, recently termed the West L.A. office market “bullet-proof” because, well, it is. It was hit by the move-outs of two major tech firms in the fourth quarter—Yahoo! and a major computer-game maker—yet the needle barely moved in the wake of their moves. In the same market, we sold a Beverly Hills office property in the fourth quarter for the highest price ever paid per square foot by an institutional investor . If that’s not enough, class-A office rents in San Francisco now surpass those in Manhattan. This is not a one-time deal; this is a permanent change in the nation’s economic structure. That’s why it is so important that our capital markets brokers be part of a multi-disciplinary team; so they can reflect and fulfill whatever our clients’ needs are. GlobeSt.com: Have you identified capital markets as a growth sector, especially here in the west, and are you growing that line of business? Pupil: Yes. Our capital-markets team is growing here because it is a reflection of the shift in the economy to the west. You may have noticed during the past 12 to 18 months, our institutional-investment brokers have done some of the largest industrial and R&D deals in the west with many of the largest institutional investors, developers and owners of commercial real estate . Again, we are not just responding to our clients, we are anticipating our capital-markets clients’ moves. GlobeSt.com: Looking forward, how do you see the economy shaping up, especially for the capital markets? Pupil: A recent ULI report said there was some slowing in global growth and some volatility in the world markets, but that generally the US market keeps getting stronger. I agree with the survey’s findings that for at least the next three years, conditions in the US—and especially in the western US—will continue to be favorable with no signs of an imminent downturn. But, again, I think we always need to take a calculated view of the markets because in the world we now inhabit, unpredictability can always show itself in ways both uncommon and unforeseen. Some people in the business call it the Black Swan event, the unforeseen threat from outside the real estate markets that could cause the economy and real estate to slow or decline rapidly. It’s an outlier, an event no one can predict because there was nothing on which to base a prediction. Think 9/11 —it was a Black Swan event. Think about acts of terror on a scale that we cannot imagine now, or the collapse of the Chinese economy, or something on that scale. In fact, many economists think the 2008 meltdown was a Black Swan event. I don’t expect one, but that’s just the point. No one ever expects one. It’s just prudent to be aware that unforeseen events can come from unexpected people, places and things. How are your capital markets brokers doing in Northern and Southern California, especially in the Inland Empire, where manufacturing is also making a comeback? Pupil: Spectacular is an understatement. If you put that question to John Hollingsworth , our managing director for industrial properties in the Greater Los Angeles region, he’d say the same thing: spectacular. Best years ever seen. Vacancies in the 1% to 2% range. As I mentioned, we’ve done some of the largest deals there for manufacturing, as well as logistics and warehousing . We did the Fisker Automotive deal recently that brought automobile manufacturing back to Southern California for the first time since 1992. We leased them a 500,000-square-foot building in Moreno Valley and, when we issued a nine-paragraph press release on it, the news exploded in the media. We were swamped with media calls. It made headlines on the front page of the L.A. Times “above the fold.” From there, it literally appeared in just about every other major and minor news outlet in the country. It was on National Public Radio , TV news programs, automotive blogs—even the International Herald Tribune . Just everywhere you looked the day of our announcement and the day after, the story was there on front pages. Our capital-markets brokers procured the land there for the building and we represented both Fisker and the developer of the building on the lease. Again, it’s starting in the west. GlobeSt.com: Does Fisker, which went bankrupt with government subsidies a few years ago, stand a chance this time around? Pupil: It’s totally different. Chinese investors own it now, and they have deep pockets and time on their side. Their sports car is beautiful and affordable and has the range and, as I have subsequently read, they may be hiring back many of the firm’s workers who were let go after the bankruptcy filing. GlobeSt.com: What about Tesla, since we’re talking about electric cars? Pupil: Interestingly, Tesla , the well-known electric-car maker, which has just introduced a mid-priced luxury model in the $35,000 range, underscores the point better than I. It just announced that the first consumers to get one of the new Teslas next year will be those in the west. Why? Because this is where it is manufactured and where Elon Musk , the founder, has his automobile and space operations—all in the west.  As production increases, the company will roll it out to the midwest, the south, and finally, the east. When it said the new $35,000 model would be ready in late 2017, what that means is you won’t be seeing them in the east until about a year later, I imagine. Another reason is that since most of the first-generation Teslas have been sold in the west, and current owners of Teslas were given first right of refusal to put a deposit down on the new one. But the biggest reason it’s being rolled out that way is it’s being manufactured here, in Emeryville, CA, known not only for Tesla but for a number of other tech firms. Emeryville is located smack dab between the University of California at Berkeley and the city of Oakland in the East Bay. It is no accident that all of these companies have located in the region: brainpower, skilled workers, education, weather—again, simple logic. It’s like a new manifest destiny for a new generation. When the nation was young and the federal government wanted it settled, it drew up what it termed Manifest Destiny. Citizens willing to move westward would be rewarded with land, money and the resources to settle it. GlobeSt.com: Since Colliers went public on both the NASDAQ and the Toronto stock exchanges, did this make a difference when dealing with Capital Market clients? Pupil: Yes, I think it did and does. Again, as I mentioned, we want to mirror our clients. There are only three global commercial real estate firms that trade publicly, and we’re one of them. Our investment clients, many of which are also trading publicly, want to deal with a firm that understands their overall goals when it comes to shareholder value. As a publicly traded firm, we understand how our capital-markets clients’ ultimate aim is to increase shareholder value, as it is ours. That understanding gives us an edge over many of our competitors who either don’t understand shareholder value or just put it into the equation.