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Robert Brunswick:
Hello, my name is Robert Brunswick and I’m chairman of Buchanan Street Partners, a real estate investment management firm, and I’d like to welcome you to Counting Capital, a podcast we created on behalf of our clients, their families, registered investment advisors and lifelong learners at large, to educate them about real estate investing, investing more broadly and some specific industries. Today it’s a great treat for me to welcome a good friend and a significant contributor in the real estate space. Edward Cook of McCarthy and Cook. Edward, great to have you on the program.
Edward Cook:
Great to be here.
Robert Brunswick:
I know we’re going to have some fun today.
Edward Cook:
Absolutely, always with you.
Robert Brunswick:
Let’s get started. I was thinking about, for our listeners, it’s always helpful to understand backgrounds. Why do you think the way you do? So talk about your 30 plus year career in real estate, where you got educated, the path along the way.
Edward Cook:
So real estate for me always started with a notion that I wanted to be in a durable income producing stream. So I wanted to be in commercial real estate. So I went to University of Utah for two years and then I had a vision to go to USC because they had an exceptional real estate program and finance program and people like Rocky Tarantello, I’m sure you’ve heard that name, Cusward and others were there that literally lit my world on fire.
I started working during school, so I worked for the chief appraiser of First Interstate while I was in school and worked all two years almost while I was there at USC. And from there I got probably the best background. I have a lot of respect for MAI and the Appraisal Institute because I appraise shopping centers and hotels and marinas and office buildings. And I’ll still never forget the worst office market in American history is not Houston in 1984, but was San Jose, 48% vacant as far as the eye could see. Tilt up buildings with clear story windows vacant.
Robert Brunswick:
So Edward, is this during the RTC time?
Edward Cook:
Yes.
Robert Brunswick:
Okay, Resolution Trust Corporation, late eighties, early nineties.
Edward Cook:
That’s right.
Robert Brunswick:
You were appraising-
Edward Cook:
Appraising.
Robert Brunswick:
Properties.
Edward Cook:
That’s right.
Robert Brunswick:
As a young man learning the business and understanding how values are created or lost.
Edward Cook:
That’s correct.
Robert Brunswick:
Excellent.
Edward Cook:
Yes. So from USC I was very fortunate. I snuck into an MBA presentation as an undergrad and met the president of Maguire Thomas Partners, which was a big developer in downtown LA. And the remarkable thing was no one was sitting with him at the end of his keynote speech. And so of course I parked right next to him, and next thing you know, I was working for Maguire for almost two years, a year and a half.
Robert Brunswick:
So this is Rob Maguire himself you parked next to?
Edward Cook:
Rob Maguire, yeah.
Robert Brunswick:
Got it.
Edward Cook:
No, this was Jim, Ned Fox.
Robert Brunswick:
Ned Fox.
Edward Cook:
Who was the president of Maguire Thomas at the time.
Robert Brunswick:
Got it. Okay.
Edward Cook:
And so I had a great run and I was elevated to a program where MBAs were recruited from top schools, but I decided that I wanted to polish my education. So I went and I was only going to go to an East coast school just for various reasons, exposure and otherwise, and found myself at Wharton where I got another real estate major, a finance major, and an entrepreneurial management major.
So I was fortunate to waive out of a lot of classes and I came one course short of three majors, which was cool. And I also worked, I was the only person, actually you were not allowed technically to work. I worked through business school, which was pretty crazy, almost full-time. When I came out of there, I had lots of offers on Wall Street, but I actually went back to my knitting and stayed at Maguire Thomas Partners, and it actually turned to be a very good thing. It became a very dysfunctional place as we ended up in the great depression of real estate and I call it that. The second great depression of real estate was 1990 to 1995. We were very fortunate that we were sitting in an ivory tower, million square foot assets at a clip with basically our cashflow was $50 million in management fees. It was massive because they’re massive assets, but they were losing value, like you can’t believe.
Robert Brunswick:
So these are asset management fees, not necessarily property management fees?
Edward Cook:
No, these are property management fees.
Robert Brunswick:
Property management fees.
Edward Cook:
We were keeping the company going. So it turned out to be an amazing place to be because we were weathering when the Trammell Crows and others were blowing up and the partnerships were blowing up because of the excess building in that time. We were weathering it, but our big comeuppance was coming and fortunately we were re-gentrifying ourselves and trying to figure out what we’re going to do. I was part of the vision committee. There was an alligator committee that my partner ran. I was on the vision committee and there was an operational committee. And it’s a fun story because there’s three elements to this. The operating story was spending all their time converting Maguire Thomas partners to Apple computers. The alligator committee was responsible for restructuring 4.2 billion in debt, including having swapped, and this is for the future and for the past swapped all our debt at 10.2%. And it literally-
Robert Brunswick:
So this is the alligator committee, sorry, the Apple reinvention was?
Edward Cook:
Operating committee.
Robert Brunswick:
Operating and alligator. And the third was?
Edward Cook:
The third was the vision committee.
Robert Brunswick:
Vision committee, okay.
Edward Cook:
Yeah. And so I was part of that and we were very fortunate to have a gentleman running around who was $2,500 an hour from Arthur Anderson consultants, and I’ll never forget him because he’s probably the most valuable guy in my career, and not for the reasons you might think. He ran around and basically said, “Everything we know is turned upside down.” The Internet is nascent. This is 1995, 1994 and is dial up. You can hear the modem click in and you get online and basically run around and give speeches and say, “Everything you know about real estate is going to change.” And basically walked through our offices and said, “You’re all working in a buggy whip business called office, and this is going to be very important for I’m sure for later conversations we’ll have.” And then one day he gave his penultimate speech, which was, “When was the last time you ever went to a shopping center?”
He said they were dead as well. I thought, “Well, I just got married and I just came from Newport Center Fashion Island and enjoyed a movie and walked around and did a little window shopping.” And I thought I got more and more agitated with this guy because everything he said was so definitive and seemingly so intellectually devoid of reality.
Robert Brunswick:
Reality.
Edward Cook:
That that moment that day, he became one of my favorite equations, one of the most powerful and simple equations on earth. It’s called the inverse equation, one over X. I still can see his face and it’s still one over X printed right on his forehead. Everything he said, I did the opposite and I’d smile every day he came in. He’d walk by my office and he’d always have some crumbling words about what I’m doing. And I said, “Talk to me. Tell me what you’re thinking,” because everything he thought I did the opposite.
Robert Brunswick:
So I want to stop you for a second because, so I’m thinking about mentors and how important mentors are to all of us. He was almost a reverse mentor of sorts. But so we talked about college, we talked about Maguire Thomas early, we then came back to Maguire Thomas, and then you really, and we’ll get to in a bit here, but I want to ask you other questions starting McCarthy Cook. So you’ve really been at Maguire Thomas and McCarthy Cook your whole business career
Edward Cook:
35 years, yes.
Robert Brunswick:
Right, which is old school. Kids today are students today, or younger people today might have more stops on their journey, but you’ve been very focused, but part of that is your move to entrepreneurship. But as you reflect on your earlier years and where you are today, if you were to think about your skillsets that lined up ideally for the real estate space, what does Edward Cook bring to bear from a talent and skillset and aptitude standpoint that has made you so successful in your business career?
Edward Cook:
So I was a B or a C math student.
Robert Brunswick:
B or C math student. Okay.
Edward Cook:
But I had a pretty good gift of gab and I liked marketing. And so I spent all my time and focus on becoming the best I could be. And I became a finance guy. I became a finance analyst and worked on the most complicated finance stuff we had and realized once the numbers were applicable and it was applied mathematics, I was actually exceptional with it. I feel like I wasn’t taught well. I needed the Singapore method when I got the American method, that didn’t work. So I took my weakness and made my absolute strength and then had all the rest of my things to play with, which was design skills and marketing skills and organization skills and detail orientation.
Robert Brunswick:
But I could argue that those could be applicable to lots of industry. So what particularly made those applicable to real estate for you?
Edward Cook:
Only because I had an early vision income producing real estate. It was in my DNA growing up working for real estate families. So real estate was always there, but it could have been, I had 10 business plans coming out of business school. One was the electric car, I was going to dis intermediate the internal combustion engine two, I was going to do electronic readers books, essentially electronic books.
Robert Brunswick:
My gosh.
Edward Cook:
Three, flat screen TV and I was going to reinvent the toilet to make it more water efficient. I had 10 business plans like that. About six of them became legendary business plans.
Robert Brunswick:
I was going to say three out of those four would’ve been home runs for sure.
Edward Cook:
So I was Tesla number 995 buyer because Musk did it.
Robert Brunswick:
So a lot of my guests next to their name would be disruptors. So what you’ve described is your disruptive nature and your willingness to think outside the box and to challenge conventionality. So we’re going to talk more about that as we think about what’s going on in your space today. And I say that disruptive-
Edward Cook:
I’m a Gemini, so I go both ways.
Robert Brunswick:
There you go. I got a Gemini daughter. But as I think about disruptors, they’re the reason we have the new creativity that we have. They make the pioneers of our businesses. So if I can ask you to think about today and what’s different in the real estate business today than when you started? Just a couple of broad touch points for us as we frame today’s conversation.
Edward Cook:
Information access. In the day you had a black sky that was that thick, and if you wanted to look up where vacancy rates were or what rental rates were, you sat there in a catalog in your desk. I was called the librarian. So I was the guy in the firm that had something from everywhere around the world. I could tell you oil prices, I could tell you the St. Louis Fed M2, I could tell you anything. And I just decided I wanted that information, that knowledge. But it was in a cabinet literally. And they would always come to me and ask me, “What’s going on with steel prices?” I’d say, “Okay, well here’s the data from the latest whatever.” Today, it’s instantaneous. It’s at your fingertips. It’s a golden age like none other. And the future is actually incredibly bright if we don’t kill ourselves first. We are living in the golden age of knowledge. We will double our knowledge in the next 10 years.
Robert Brunswick:
And access to that knowledge.
Edward Cook:
And access-
Robert Brunswick:
To make better decisions.
Edward Cook:
And applicability of that knowledge. And the second major mega trend, if you will or current, is that the entire supply chain has been finally disrupted. 75, 80 years of since literally World War I of building materials and processes are finally getting disrupted thanks to the green movement. So you now have the ability to innovate and find products and materials that are so substantially demonstrably higher performance, lower energy intake output that is transforming your ability to do things. We’re able to design things we never could before. We were told by our architect to meet Title 24. In the state of California, the government wants you to work in a CI block building filled with R55 installation with no windows. But people want to work in environments that are visually connected to the outdoors and that will not change in our opinion. The glass building is the single least efficient structure.
It was designed actually in the World Fair for just after World War II, and it is horrendous in terms of its energy footprint. It lets in light, which creates a heat effect, greenhouse, it has all kinds of… And it has no insulating value, glass. So we spent four years, for example, chasing around the world and the technology that are exploding today will blow your mind. And we ended up with probably what will be the last full floor to ceiling glass building in Los Angeles. It’s triple pane, double air gap glass, and the first ever used in North America, Swiss glass, which is triple pane and has laminated screen meshing between it, all this to kick up the energy efficiency. All this didn’t exist just years ago.
Robert Brunswick:
So I love your passion on this. So I heard two Is so far, information access and innovation as a disruptor, right? So is there a third that you would share in terms of the differences today versus when you got in the business that have changed the way you operate your business model?
Edward Cook:
Yeah, I think it has to be the capital markets. They’re so much deeper.
Robert Brunswick:
Access to public and private liquidity of predictable capital.
Edward Cook:
Absolutely, yes. Notwithstanding all the upheavals, every time the financial system comes back more robust, more liquid, more transparent, more sources.
Robert Brunswick:
And real estate has become a suitable alternative with predictability of outcomes which allow more capital to float to that space.
Edward Cook:
That’s right.
Robert Brunswick:
I couldn’t agree with you more.
Edward Cook:
Yep.
Robert Brunswick:
So let’s turn to, gosh, few of us have had opportunities to work for icons. So Rob Maguire is absolutely an icon of real estate development in West LA and Los Angeles. So what takeaways did you get from that stewardship, that mentorship, that guidepost as a young person?
Edward Cook:
Very fortunate. I affectionately called him the Viking because the helmet came off, the blood was in it and he drank it and there was only one speed, it was fast. And there’s only one direction, it was forward. And he was just in defeatable. And what you learn from him was markets more than anything, he had a visceral fundamental belief that markets aren’t linear. And they don’t, when the Lotus spreadsheet now Excel was invented and everybody put the 3% growth on it, he thought it was the dumbest thing he’d ever seen. So he’d look at markets and say, “I think it’s going to be up 20% this year.” And lo and behold, he’d be right. And why? Because of his own dyslexic math that he would do. And he combined that with a passion for design and quality environments that he was a Don Coyote, he tilted windmills. Fortunately he had a good crew around him because if he didn’t have that, he would’ve gone upside down more than the twice that he did go upside down.
Robert Brunswick:
So that in its own right was an interesting experience to see that volatility of financial stability.
Edward Cook:
Our first thing we decided when we left Maguire was to take all the good and leave all the bad. And we did do that. And for 25 years we’ve been stable and not lived through either the same spike upward or the same travails downward that he did. So I learned from him on that as well, what not to do as much what to do. But he was absolutely exceptional in his vision and his drive and determination was probably the thing that was most impactful.
Robert Brunswick:
So Edward, there’s a McCarthy in McCarthy Cook. Phenomenal story about a partnership that has lasted for a long time, still a great partnership today. Tom started working with you at Maguire, is that correct?
Edward Cook:
I actually interviewed with him as a financial analyst when he was CFO of Shurl Curci’s Transpacific Development.
Robert Brunswick:
Oh, there’s a name.
Edward Cook:
And he didn’t hire me and I’m thankful because I ended up at Maguire Thomas. And then less than a year later, he ended up at Maguire Thomas and walked down the hall and saw me in the office and said, “What are you doing here?” And he said, Well, of course you’re here.” And that struck up a great friendship-
Robert Brunswick:
What a great story.
Edward Cook:
And working relationship for 10 years at Maguire.
Robert Brunswick:
I did not know this story.
Edward Cook:
Yeah.
Robert Brunswick:
So what is McCarthy Cook?
Edward Cook:
So McCarthy Cook is a vertically integrated real estate operating company with the sole mission of being a discipline investor first and foremost. But we bolt on all the, as we affectionately say, “We do the real things with real estate.” We entitle, we develop, we construction manage, we lease, we property manage, we do the whole, we’re visioneers and executioners of real estate business plans.
Robert Brunswick:
You do a lot of retrofits too?
Edward Cook:
What’s that?
Robert Brunswick:
Retrofits, renovations.
Edward Cook:
Yeah. Of course, of course. Yes. And we do it with, we’ve done it for 25 years without discretion and with the best financial partners in the world, Blackstone, Morgan Stanley, JP Morgan.
Robert Brunswick:
So I want to slow down for a second when you said without discretion, because for some folks listening, they might not know what that means. The capital that you’ve always used to do, your visionary real estate investing has been at the discretion of somebody else as an investment advisor. Is that fair?
Edward Cook:
That’s correct. What we do is we vision an asset and a future play and then we bring along the best partner for that in a relationship approach from underwriting day one to day Z. And we’re successful. If we’re successful for not, we move on to the next deal. And that has resulted in tremendous long-term relationships with these capital partners.
Robert Brunswick:
I want to just go back to that because it’s one of the differences today than when we all started in the business is this access to capital and this capital partner relationships. You mentioned some of the biggest names, Blackstone, JP Morgan, Northwood. Who did I miss?
Edward Cook:
Morgan Stanley.
Robert Brunswick:
Morgan Stanley, Prudential, okay.
Edward Cook:
Northwestern Mutual.
Robert Brunswick:
So these people partner with you, they provide the equity and the debt or just the equity?
Edward Cook:
Equity. We’ve never had a debt and equity, but we have bought unlevered.
Robert Brunswick:
And what kind of rights do they have over you and how does the relationship work?
Edward Cook:
Yeah so we are always the managing partner of a partnership as the visioneers and executioners of the business plan. But there are many rights that are held by our institutional partners and we live very comfortably at times with, we view ourselves as almost sucker fish on the shark. And we have all the capability and the capacities of our institutional partners, but we bring all the entrepreneurship and the zeal and the problem solving of our entrepreneurial venture.
Robert Brunswick:
So I might characterize it in an ideal partnership. They outsource the real estate operations, the finding of real estate, the running of real estate. You outsource the raising of capital and in that regard, you align well together under a partnership.
Edward Cook:
Yes.
Robert Brunswick:
That’s excellent. And what does the company own today? Tell us a little bit about the assets.
Edward Cook:
Yeah, we own about 4 million feet. So we own a million square foot asset in San Francisco called China Basin that we’ve owned for 20 plus years. We are just opening a one of a kind asset in west LA. 600,000 feet of transformative post COVID office. We can talk about a little later, I’m sure. We own 850,000 feet in Orange County. We have a 4,000 foot life science development in San Diego. And back up in San Francisco we are a novel quarter million square foot life science building that we are the only private sector landlord on the UCSF campus with the Sandler Neurosciences Institute. So we are office and life science principally today are the two main areas of our focus.
Robert Brunswick:
So Edward, I can’t think of a more ideal guest to have on than yourself in regards to your focus and your passion and your experiences with the office space. We look back to, I often share with people, did the pandemic caused the challenges with office or was that transformation of office already in place and the pandemic just expedited it? But a lot of people want to write off office. When I was in the business back in the nineties, I recall it was the three Cs that were going to be the demise of the CBD office, crime, commute, and communication and everything was going to be a suburban office. And we all know that what happened with that projection, it didn’t come to reality. So is office just going to need to change? It is changing, it should change or should we be writing off and short selling office?
Edward Cook:
Let’s go back to Mr. Inverse. So we launched-
Robert Brunswick:
Mr.? Sorry?
Edward Cook:
Mr. Inverse.
Robert Brunswick:
Okay, good.
Edward Cook:
Arthur Anderson, $2,500 an hour consultant who was my favorite friend and chief protagonist. Remember he said, “Office buildings are dodo birds. You might as well be making buggy whips.” And our first instinct was that he’s absolutely wrong because it’s the knowledge factory of the future. And it turned out we were exactly right. We went out and bought as many office buildings as we could. We bought a billion dollars worth with Blackstone from ’94 to around 2001 or 1999.
And he was wrong because when the dot comers all coalesced, they all beside raising lots of money on these fictitious business plans, the first thing they did was go out and get more office space than they needed for the pool halls and all the rest of the things. And so we made a killing buying office buildings at a hundred dollars a foot and selling them for two, $300 a foot that you couldn’t replace for four to $500 a foot. Roll the cameras forward to today. I don’t know why the old adage the more things change, the more they stay the same still resonates in my conscience and in my intuition. But this is different. Realistically, we had a series of buildings in the 1980s that were built on poor business plans, horribly funded a hundred percent construction finance, so-
Robert Brunswick:
Bad capital stacks.
Edward Cook:
Bad capital stacks. Developer specials that never should have been executed because they were just get the building up. It’s an office building, so it’s going to trade. This is 1980s to early 1990s. It’s going to trade and we’ll make money. And those buildings today are echoing and are literally functionally and economically obsolete. And there is a broad swath of those. I would say it’s somewhere 10 to 20% of the entire office stock.
Robert Brunswick:
So is this Bs and Cs, predominantly Cs now?
Edward Cook:
It can be As what could be known as As. It could be a building that has a substandard window line or a complexion in the wrong location that’s moved away from the center of gravity for whether it’s transit or amenities that leave it just orphaned.
Robert Brunswick:
You can’t change its location.
Edward Cook:
You can’t change it. So it is different Today an office is going to be under tremendous stress. And I wouldn’t say the same thing to Mr. Inverse as I would today, but I also feel like I believe we turned a corner in the summer, this last summer with at least the impetus to come back to work from all the thought leaders that are out there. The thing that’s keeping people from work and America is less occupied as a whole than any other industrialized country. And California in particular is less occupied than any other place in the United States. And I think it has a lot to do with one of the Cs you said, which is commute. So we have generally high traffic heavy commutes in California. And so we also have a more entrepreneurial culture and I think people have just nestled in their homes and we’re seeing 25, low twenties to mid-twenties, return to work rates to the office when other parts of the country are at 50% on average and Europe’s over 60%.
Robert Brunswick:
Yeah, you’ll correct me, but I understand Japan is in the nineties, so I’m wondering if this is cultural. Is that an imperialistic country and they just mandate and dictate their office workers to return?
Edward Cook:
Yes.
Robert Brunswick:
So maybe that too will happen here at some point as leaders of companies choose to have their employees back in the office and the employee doesn’t have the leverage they maybe once had.
Edward Cook:
That’s right. There’s no way with a great organization, unless you are a gamer or a programmer that can be in a dark room and always wants their headset on and doesn’t need to talk to anybody, that organizations will wilt and will not thrive and survive. That’s why you have the JP Morgans coming out with the statements that they’re making and others that are saying, “You’ve got to come back to work and you will.” But they’re going to come back to a different workplace. And so LA for example and our project up there is a great barometer for this. So we opened literally just months ago. So this project in LA has an acre and a half of outdoor event space, has the largest assemblage space, outdoor assembly space in LA private. 2,300 people can caucus in this amazing integrated indoor outdoor, what we call a Japanese inspired rooftop beer garden with event lawn and campus cabanas and a conference building that articulates with 270 degrees of glass and roll and pour taps and a beer garden and exhibition kitchen with pizza ovens and all this.
And so what you see is we’re probably the only leases going on in Los Angeles right now. Los Angeles is one of the most difficult markets in the country, San Francisco as well. And we’re seeing leasing because the project is what I am now the HR department for the companies of the future that want their people back into their culture and to be building their collaborative work culture and productivity back. And they’re asking me all the things you can do. I’m their HR department. So I tour around CEOs and say, “Well, here’s pickleball over here. Here’s your basketball court, here’s your campus cabanas. So when Tom Cruise wants 3:00 PM charcuterie board and rose wine cabana number three, it’s done because there’s a whole food and beverage ecosystem that anchors this whole project.” 600,000 feet of what we call light infused workspace because it’s lumen.
Because I told you before, we spent four years yelling at Gensler in this case that we’re not putting ceramic frit on the exterior of the building. So we’re looking outside of a snow cone. We’re going to Germany, we’re finding this ultra-high performance glass and putting the first ever triple pane double air gap, which means you have a pane of glass, you have an air gap, you have another pane of glass, you have an air gap and another pane of glass. The IGU, the glazing unit, weighs 60 pounds a foot. It’s massive. And this building now leases from the inside out and the outside in and is connected to the outdoors and it has this ecosystem together with, by the way, five per thousand parking, five spaces per thousand square feet. At the same time, we’re also the first project to offer private transit to public transit. And we’re the first Tesla supercharger in a private office building in California.
Robert Brunswick:
So Edward, I love the passion. I’m sold. I’m envisioning you as their HR director and getting them excited about why they want to be in this phenomenal work environment, this extraordinary building that’s thought through every element of its existence. But when that decision maker for that tenant says, “My tenants want to have flexibility to work from home.” I think we’d have to just accept the reality that there needs to be more customization of work schedules and allowance for. So how does that change a landlord and a capital partner’s perspective about this income stream and how they look at their investment together?
Edward Cook:
Well first on the work side of it, you would think everything would’ve changed. And for example, they would never go back to the dense work environment that they were. Interestingly, we’re seeing that in some cases, not in all cases, but in some cases.
Robert Brunswick:
You’re seeing them go back?
Edward Cook:
Yes.
Robert Brunswick:
Okay.
Edward Cook:
So for example, one relatively large tenant international corporation looking at the building plan space to a degree I’ve never heard before. 20 per thousand, meaning 20 people per thousand square feet. That’s 50 square feet a person. So it’s basically you and I in this little space here.
Robert Brunswick:
When you and I grew up in the business, it was maybe 200 feet per person.
Edward Cook:
250 feet per person.
Robert Brunswick:
250 per person. Okay.
Edward Cook:
250.
Robert Brunswick:
So tight. Dense.
Edward Cook:
Tight, tight, because they want to be able to get everybody in the smallest amount of space. So it’s expensive space. They can take the smallest footprint, but they want that calling card to say, “When you come to work, this is the energized environment you’re going to be in.” So we’re seeing that. And on the other hand, we’re seeing a little more luxurious in some cases where they’re spreading out. We’re seeing everything under the sun, but we’re not seeing hermetically sealed work environments. You have to be every six or 10 feet apart and back to all private offices or back to all benching. It’s…
Robert Brunswick:
Yeah, and my comments weren’t so much in an avoidance of the germ in the redesign.
Edward Cook:
I know. You want to know-
Robert Brunswick:
It was more about a lifestyle flexibility that some people believe they’re actually more productive from home.
Edward Cook:
Yes. And there’s a case for that, and we are seeing most businesses look at between a Monday and a Friday optional day. But some businesses are working against that as we speak. I keep waiting for the first major loss of data, major breach of corporate intelligence to happen with somebody. If I was China, I’d be sending all the spies over here in living rooms across America for people working.
Robert Brunswick:
Interesting.
Edward Cook:
To 16 ways to Sunday steal all of our information. Companies are going to have to go back to some level of security. But to your point, yes, we are seeing that. And so they’re staggering work weeks and they’re giving flexibility, but they know they have to get people back to work to build. Because in particular what I’m seeing is young people and we track young people, we’re watching the stories. And it would be everything you’re thinking of. The young person who shows up to the office is getting the promotion and getting the next job and the person who’s sitting in pick your place, Park City or Tahoe is getting left behind.
Robert Brunswick:
So there might be a differentiated workforce by choice.
Edward Cook:
Yes.
Robert Brunswick:
Those that want to get ahead and maybe be in a different level within an organization might look for the full-time employment.
Edward Cook:
Absolutely.
Robert Brunswick:
So the customization of the tenant. So in an optimistic way, because you’re an optimist, I would almost say that this is a chance for those survivors in office to evolve and to develop that true mass customization of their product line.
Edward Cook:
That’s right.
Robert Brunswick:
To allow for this type of flexibility.
Edward Cook:
We don’t talk about the words creative office, we use the word we pretty much coined it, we actually put an ROT on it to try to, but it’s not legally permissible, but we’re claiming it because it was first spoken here, experiential office. And what does that mean? That means a workplace that has all the amenities you can possibly think of. We have another trademark called Make Time for the Weekend. So what we’re trying to do is create work environments where we can do every single thing under the sun we can think of to make your work environment productive, to give you more time for the weekend. So we can change tires, we can fill up your car, we can wash your car. We have the only shoe shine in town. There’s a thousand things. We have grow gardens, we have take home meals, you name it.
All these things you can do, dry cleaning, to maximize. These are things that were in the last couple of cycles, but we’re trying to maximize time for the weekend. We’re trying to create experiential work environments where we infuse them with human run amenities. So it means that we have a chef that’s taking real vegetables from a grow garden and cooking them in the cafe and that we are delivering actually vegetables to our tenants that are grown right in the project that make this workplace someplace that we, interestingly, when we created these in the last five, seven years, we actually for the first time see people bring their kids to work. They might be after school and the father and mother has to work another couple hours and they’re playing around and they’re eating oranges in the grove or doing those kinds of things.
Robert Brunswick:
This is very insightful as you’re bringing to life a positive element of this evolution of office, which I think optimists and business people want to hear. So I appreciate you sharing that. So as I think about new investments and your investment partners, I’m a capital markets born and bred individual. So I think about what that equity might want from you. Are they listening? Are they signing up? Are they in agreement with this evolution of office as you’ve described it? And in turn, can there be opportunities for you to maybe take advantage of this transformation of the survivors and the non survivors in office as you look at making new investments?
Edward Cook:
Yeah, good question. So remember, I’m a Gemini, so I’m a brutal realist on the one hand, and I’m an absolute inveterate optimist on the other. Brutal, brutally brutal truth, today there is an office building that is going to go vertical in America today.
Robert Brunswick:
So just to be clear for our listeners, you’re saying no new construction of office, nothing going vertical because capital just won’t sign up, be it debt or equity?
Edward Cook:
That’s correct. Yeah.
Robert Brunswick:
Okay.
Edward Cook:
I think we have a supply shock, but in a totally different novel way than we’ve ever seen in the country. The supply shock from the RTC and the SNLs over building or in the late nineties in the dot com boom is totally different than today because the supply shock is that you now have evaporated something like 20, 25% of all demand for office because of this hybrid-
Robert Brunswick:
Choice.
Edward Cook:
Choice and downsizing law firms in particular being large scale users, 40% on average is the reduction in the footprint of law offices around the country. So I don’t think you’re going to see, we’re not likely to be out there arguing to go ground up on a lot of office. And that’s where our other side of our business has been our focus for many years in particular now life science.
Robert Brunswick:
So I want to talk as we move to wrapping this a little bit, I could go on with you because this is so informative and I love your vision and what you’ve done with your own business. I just want to understand a little bit about the favorite part of the job for you. So I want to bring you back to as we started. This is by all definition, a very tough time in our business, broadly without specificity. So what’s the most favorite thing you’re doing today? What do you enjoy most about your job, even though it may be a tougher time in the environment?
Edward Cook:
Every single day is different. So we affectionately think of ourselves as the point of the sword.
Robert Brunswick:
The point of the sword?
Edward Cook:
The point of the sword. We’re working with architects, we’re working on refining business plans and operating models and graphics and marketing and working on finance. And every day is a new challenge and a new opportunity. And notwithstanding how difficult it is today, we’ve been blessed with several market cycles, including the inaugural one that launched our business in 1995, which in that day, in that time, I’ll never forget that same consultant who basically looked at me having just graduated from Wharton with my MBA and basically said I was worthless. He said that to my face, that I was of no use to society and that’s why he became Mr. one over X to me and a great motivator. You are going to see tremendous opportunities out of this.
Robert Brunswick:
You will see opportunities?
Edward Cook:
You will, absolutely.
Robert Brunswick:
Yes.
Edward Cook:
I would love to see and say that of the 20, 15 to 25% of office buildings in America that are functionally and economically obsolete, that you can convert them into the next Coral Reef of living opportunity. For example, we don’t have enough housing in America. Boom. These structures are built, they’re already sealed and operational, but sadly, and we studied it in great detail, it’s very, very difficult.
Robert Brunswick:
Some work better than others, most don’t work.
Edward Cook:
It might be 5%, 3%, 2%. It’s less than double-digit percent of buildings that could be rationally converted unless we radically rethink our living models as well, which we might have to do and we might want to do. The government has to change and it is in places. The only way it’s going to work, buildings will have to be given for free with a government subsidy. And the third element is they’re going to have to change completely their zoning and their building regulations.
So for example, you could house people very effectively, and a lot of people are currently housed in New York in windowless basements because that’s all they can afford. And every young person wants to be in New York today. New York is happening because why? Because they’re back to work. So the leaders, the young thought leaders, the young energetic people in this country are flocking to New York. Rents are off the charts for low end departments. You can’t get one. They fly off the shelf as soon as they come available because they want to be there in the ecosystem where there are young, vibrant social interactions all day and they’re not flocking to San Francisco.
Robert Brunswick:
A podcast opportunity for another time, which is really the highest and best use of some office going forward. The evolution, the adaptive reuse, we see it in medical office and just some great locations, some great sites. But we’ll save that for another day. But you’ve touched it and I think it’s great. I want to ask you two last questions. You and I met as I was pitching you to join an organization which we’re now both members and that called YPO. So I often talk to people about working in the business, working on the business. So some of the things I enjoy most in my career as I look back is things that I worked on the business where you can take a break away from it to reflect upon what other things might be going on. So what is YPO? What has it done for you and how do you describe it to folks?
Edward Cook:
Oh, wow. Yeah, it’s been an extraordinary, I’m all about learning.
Robert Brunswick:
Young Presidents.
Edward Cook:
Young Presidents Organization is just an extraordinary lifelong learning opportunity and expanded by however many minds we have, expanded by however many contacts they have has just been an extraordinary learning opportunity for me.
Robert Brunswick:
Well now you’re the leader of our particular chapter, which is wonderful to see you at work. I always say making better leaders through idea exchange and lifelong learning. And I just know it’s now a passion of yours. It was a passion before, but it’s just great to see that experience influence you like it has and to see you lead. There’s a lot of lifelong learners on our listening group today, and I think it would be a great end if you could just share with the younger people some ideas, some contributions, some thoughts, some recommendations as they look at their business career and their life going forward, things that you might replay or just affirm that work so well for you.
Edward Cook:
I have three relationships that go between 25 and 35 years back to college. I have relationships with three professors, one whom I have brunch with two times a year. And so I’m still learning and they’re learning from me and I’m learning from them, extraordinary minds, once in a lifetime minds. So I really encourage young people to. Not many people think about their colleges and keeping that in their life. But I have kept it in my life since both undergraduate and graduate school. YPO has given exposure to broad learning that I just eat up. And it’s what informs the innovation as well, because I’m constantly picking ideas. When we think about whether it’s an office environment or a life science environment where we’re trying to create the discoveries of the future, it’s all about infusing that environment with things of the future and as it evolves. So I would say that staying focused on never getting complacent and never saying that good enough is, is what drives me.
Robert Brunswick:
A great takeaway and a great wrap. I hope you all have enjoyed this as much as I have. Edward Cook is a great thought leader and I think you’ve got a good sense for that in our session today. So I hope you all had some good learning here on Counting Capital. We look forward to seeing you next month. Thank you very much.