April 27, 2017 - From the April, 2017 issue

FivePoint CEO Assesses Southern California’s Housing Trends & Current Needs

The destruction of the cosmopolitan city of Beirut by the Lebanese Civil War inspired Emile Haddad, CEO and Chairman of FivePoint Holdings, to build new communities that transform the urban and suburban landscape. At the recent USC Real Estate Forum, Haddad, introduced by Professor George Lefcoe, shared the keen demographic insight that informs FivePoint’s strategy, and commented on the housing crisis. TPR presents an excerpt of Haddad’s presentation.


Emile Haddad

“FivePoint’s development strategy is driven by demographics, and how they are changing both nationally and globally.” —Emile Haddad, CEO and Chairman, FivePoint Holdings

George Lefcoe: Emile Haddad grew up in Beirut at a time when it was, not only safe and beautiful, but one of the major cosmopolitan cities in the world. Things changed, and Emile came to America. And what he’s doing now is transforming the way we think about new communities.

As CEO of FivePoint Holdings, LLC, Emile is transforming the urban landscape in parts of San Francisco, Los Angeles, and Orange County in order to bring us out of the dreary, boring endless tracts of housing of “suburbia”—the ‘50s and ‘60s model—and into a model for new communities that give people the same opportunities to work, live, and play in their neighborhoods as we have in the city.

Emile Haddad: Beirut was a great metropolitan city until the civil war started, when I was 17. I came here in 1986, when I was about 28. I lived through that war for about 11 years, and a lot of what I do today is due to my witnessing the destruction of communities during that period. That’s what drives me to spend a lot of time on community building.

I say that because when FivePoint thinks about building communities, we don’t think mainly about the architecture element. We spend most of our time thinking about the social elements of community—what makes it a real community.

The philosophy behind FivePoint’s strategy has been in play for about two decades. It’s driven by demographics, and how they are changing both nationally and globally. Let me take you back to how the company has grown.

I am a civil engineer by education. In 1986, I was like a kid in a candy store in the world of development. There was a development boom in California, and I started trying to understand why this country was developing and growing in a different way than the rest of the world. I came to the conclusion that four factors had come together to create a perfect storm.

One was the infrastructure that was built during the Depression, which was intended for the creation of jobs, but actually also induced growth. In fact, it created a lot of opportunities for premature growth; the 5 Freeway is a good local example of that.

The second was dual income, which gave people instantaneous disposable income. The third was the amount of love that the American public had for the automobile, which is why the car became the nucleus of all of our planning and development going forward.

The fourth was the government subsidy of mortgages. Those all came together and gave birth to an industry that we refer to today as the homebuilding industry.

Really, it was nothing more than people who decided to buy a ranch 10 minutes out from the employment centers and build another town, and the white picket fence became the symbol of the American dream.

Well, that 10 minutes turned into a nightmare of two hours. We all remember, back in the late ’80s, seeing people leaving Moreno Valley at 4:00 in the morning, and then going back to their kids late at night. That created a lot of issues.

Between the consumer pushing back at the concept of driving back to his white picket fence, and movements pushing back on the supply side—environmental movements, including CEQA, which had an impact on slowing growth—the elasticity of suburban sprawl started going away.

I also realized that we are in a very interesting period of history in terms of demographics, at both the national and global levels. For the last five decades, consumption and development have been driven by Baby Boomers; everything has been catered to them. By 2027, 75 million of us are going to be retired, and we’re going to start thinking differently.

The next up and coming generation is the millennials. By 2027—10 years from now—the youngest millennial will be 33 and the oldest will be 50. They’re going to be the ones driving the engine going forward. Among Generation Z, which we don’t even talk about today, the youngest will be going to college and the oldest will be 32.

This is a major shift in demographics. But interestingly enough, we’re finding that, as the Baby Boomer retires and Gen Y comes into the world of consumption, there are a lot of common factors between the two.

They both want to live a 24/7 lifestyle. They both want the ability to be closer to urban areas. Boomers are not inclined to play golf in the desert anymore; they still want to be active. They want to consult; they want to be close to family and medical facilities. And Gen Y is willing to sleep on a couch in San Francisco in order to be in the urban core.

The biggest challenge for them, as they start getting married and building families, is going to be: How do we avoid them being dislocated to suburbia? Well, I don’t think suburbia is going to be the same suburbia that we saw in the past.

Now, there’s a global factor here that I think people don’t talk enough about. We live in times today that are very similar to the turn of the 20th Century. We are in a period that I refer to as the disruptive period of the digital revolution, where the new economy is disrupting the old economy.

The last time we witnessed something like this was when the Industrial Revolution finally disrupted the Agricultural Revolution. The Model T was built, and was followed by the graviton. That’s when new technology ended up taking out the old technology.

That created a lot of resistance from people who couldn’t adapt to the new economy—the Luddites in England among them—and that, in turn, began creating population and demographic shifts.

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There’s a big difference between an aging population and sudden demographic shifts. The shifts at the turn of the 20th Century as a result of industrialization were sudden. Cities like London started being built. Eventually people started to resist the sudden influx of people, and we all know what happened next: movements like Fascism and Nazism. All of that was happening against the backdrop of the Industrial Revolution disrupting the political system.

This country was the biggest beneficiary of the tectonic shifts at that time. As people started fleeing to safe haven, capital and the brain drain started coming to America. We are all the beneficiaries of that.

Today, we are living in very similar times. The digital revolution is disrupting the old economy. Uber is taking out the taxi system, among 20 other examples. And we’re starting to see the next phase of this disruption in politics: Brexit, what happened in the election here, and what will happen in Europe.

As a result of all this, we at Five Point believe that, in the coming decade, the US is going to see a similar immigration vector to the one we saw back in the 1920s and ’30s. 60 percent of the growth of this country is going to come from immigration.

When I came here, they used to say it took seven years for an immigrant to establish the credit to buy a home. Today, they fly first class and buy in cash. In Irvine, which is still viewed as a suburban market, 85 percent of our buyers are coming from greater Asia—from China, Korea, India, Pakistan, and Iran. 40 percent pay cash, and the other 60 percent make a down payment of 40 percent.

One thing that I want us to do in terms of our thinking about planning is to totally get away from what we’ve seen in the last four or five decades, which is the segregation of uses, ages, and incomes.

Now, our approach to development is to scrap all that. We mix everything. We mix incomes; we mix uses; we mix ethnic groups; we mix ages. And we believe that it’s that mixing of things that will create the place that the next generation is going to look for—whether it is Boomers moving down, Gen Ys, or immigrants.

At FivePoint, the models we look to when we build are great cities. We look at what makes great cities, great cities. And it’s that mixing of everything that makes the magic of a great city. Then, we try to supplement that with what some of these places are missing—like good schools, for instance. That’s the model we apply in our development. We put a lot of focus on the social elements that connect people to each other.

We have 40,000 residential units that we own and are developing in the state of California. We control about another 15,000. We are developing 21 million square feet of commercial. We are in only three markets: San Francisco, Los Angeles, and Irvine.

In San Francisco, we own 12,000 residential units and about 5 million square feet of commercial, and we’re partners on another 8,000 homes and another million square feet. Overall, we are involved in building 20,000 residential units and about 6 million square feet of commercial in downtown San Francisco.

In LA, we have a development in the city of Valencia, Newhall Ranch. Down in Irvine, we are developing a master plan for what are today known as the Great Park Neighborhoods.

We started development on this community about four years ago. About 2,000 people are living there. Right now, Irvine is all Mediterranean, beige, traditional homes. This, on the other hand, is contemporary architecture—three-story homes with elevated rooftop entertainment and things like that.

Nearby, we’re building the largest sports complex in the country—the Orange County Great Park Sports Park. It is 2.5 the size of Disneyland, and it will open this summer in July. The Anaheim Ducks are building four ice sheets there on 280,000 square feet, and we’re going to have an aquatics center for USA Water Polo.

We will also soon start building an amphitheater with Live Nation Entertainment. It is an interim live music venue, called FivePoint Amphitheatre, that will have 12,000 seats.

It is within walking distance from the Irvine Transportation Center. We’re working on turning that train station, which is a commuter station, into a Grand Central-, European-like station. You’ll get out of the station and enter a European-style plaza with restaurants and hotels. Then you’ll walk along a street that looks like it belongs in Los Angeles or Barcelona, and end up at the amphitheater and other music venues.

Early next year, we’ll start construction on a village that will have a hotel, food, and beverage, and that will be very organic in nature rather than having chain stores. We also built a $300 million high school, which just opened in August.

Our concept for the Great Park Neighborhoods is to change the way Orange County is lived in—with high-paying jobs, a downtown train station that opens up this whole area to all of California, an entertainment area, a sports complex, and a village.

What we hope to do is create places where every segment of our coming population will be able to live. In Irvine right now, the median new-home price is $1.1 million. We’re starting at $650,000 and our next product will be $400,000. These are for people in their late 20s and empty nesters.

The goal is to provide this generation with an alternative to having to go to suburbia, and to start a community and create a place where people can actually have social relationships for the next 25 years.

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© 2019 The Planning Report | David Abel, Publisher, ABL, Inc.