 This is Think Tech Hawaii, Community Matters here. I can't hear that. Okay, we're back, we're live. I'm Jay Fidel. It's Monday morning. Oh my goodness. We have a special guest here today, Bill Self. He is actually slated to be a host himself, right Bill? Yes. He's an appraiser. We need this. We need to talk about real estate values in Hawaii, especially residential real estate values. Wait, welcome to the show Bill. Thank you. It's great. Yeah. I got to tell you a story first. Okay. Okay, a week ago I was going with our camera operator, Ian Davidson, to the big island trying to get on a plane. And we got on Nimitz Highway to get to the airport. Okay, and we found that Nimitz Highway was gummed up for miles with Hawaii 5-0. The police were involved. There were barricades and barriers everywhere. We could not make the turn to the airport. The airport, a major, a major transportation hub in the state, the airport. We couldn't get there. We missed our flight, Bill, okay? And I wouldn't have said much about it, except that I got up this morning, I tried to get onto the Polly Highway. Nope, there's a policeman there, and he says, no, you can't take this access road. You have to go around the horn. We're locking up this road, because you know why? I could see the trucks in the distance. Look to me like Hawaii 5-0. To say nothing about the fact that sometimes we work on the weekends, we try to get down Merchant Street to our studio here, and there they are, Hawaii 5-0. It'd be different if I really liked Hawaii 5-0, but I think their plots are really spent. The show is spent, it's done its arc, okay? But it still holds us up and gums us up. We are not happy with the fact that they're in the community and that they somehow get the police to barricade the roads and block us from getting where we need to go on a regular basis, Bill. That's my rant, and I'm sticking to it. I understand, I'm not insensitive to that, so I understand. Yes, just have to get off my chest. So, real estate appraisal. You're a specialist in residential real estate appraisal. I am competent, yes, in that field. Okay, I'll grant you that. All right. And today we're gonna talk about kakaako. As a matter of fact, is this what we want? What's doing in kakaako? How are values doing in kakaako? And it's been an extraordinary story, hasn't it? All of a sudden, from an industrial neighborhood where nobody really wanted to go, with a rubbish neighborhood, light industry, and all kinds of uses that were not consistent with the neighborhood, just a few blocks from the center of the city, all of a sudden, during the Abercrombie administration, and he encouraged it. We had these high rises going up like mushrooms everywhere. And most of them, if not all of them, despite the affordable housing claim, is they're all basically really expensive. And the infrastructure never got finished. So what we have is this raw development, which is planted right in the middle of that neighborhood and close to the center of our city, where people are paying the prices. And the Chinese are coming and paying a fortune for those retreat-type condos in which they do not live. One condo went for $95 million. How about that? How about that? $95 million. I have this good information. So what happened here? How could values have gotten that high? How does this appear to the eyes of an appraiser? Well, let's back up for a minute. And first of all, say that this concept was sold probably 15 years ago. Yeah, I agree. They've been looking ahead to do something with that area that serves the community and their interest, and they've done that. Number one, in terms of value, most markets are driven by demand. And in Hawaii, there's a real disparity in income levels. Number one, I think 86% of the people, income tax filers, make less than $100,000 a year. They couldn't qualify for the medium-priced home, let alone a luxury and condominium. So we're down to 14% or 15% of the populace. It could, in fact, afford to live there. Number two, nature drives everything. Open above demand, there's nature. And the nature of man is that he has built in his DNA self-preservation. And because money chases money, that sort of fuels that market. And people with money, there are larger numbers today than there ever have been. The world is smaller today. And Hawaii is fast becoming the Paris of the Pacific. And there's just demand for new experiences. As opposed to our generation, we're probably built over 60, if I didn't date you. Oh, speak for yourself. Whoops, oops, oops, I stand corrected. We're both over 50. Nonetheless, in that generation, we were more consumer-oriented. Now, they're more experience-oriented. They want the diversity, the eateries, and the casualness, and the 30 restaurants to choose from, a plethora of activities. And this location, it's laid out perfectly. I mean, I'm in awe of what they have there, from the waterfront park to the enclave to my mama, my mama, forgive me. My mama, Bay, to the channel, the right to Ala Moana, everything is in place. As you all know, in terms of activity, our number one activity in terms of females is shopping. So we're right next to the shopping center. We have all of these recreational activities. We have the water. It's ideal to evolve and build these units. And they are performing. As a matter of fact, they're outpacing the broader market. By broader market, I mean the markets that are ancillary to elsewhere in the state. Yeah, elsewhere in the state, yes, yes. Yeah, well, it seems to me that these prices are really astronomical for the state. And this is a whole issue about the relationship of the prices in that area with the prices elsewhere, the distinction you make. And that sort of changes things, doesn't it? All of a sudden, you get a very high value neighborhood and higher and faster and fancier than any place else, like Palm Court in Ala Moana, a really fancy retail that the local people cannot afford. They don't go there. And a lot of the owners are really absentee in the fullest sense. They don't come around except on holidays. And meanwhile, the place is vacant. And it's taking up real estate. And it's blocking our view and the sun and the sky and all those things of value. And Hawaii becoming a skyscraper, residential skyscraper community in Kaka'ako. And some people feel that doesn't work. Well, there are limits on such a thing. If I can just jump in here quickly, there's a reason for that. The building envelope is very narrow in Hawaii, as you well know. They can only go up. What makes that place special is what they can't replicate. And that's what they're buying. I mean, they're buying, if I can use the language, an ecosystem that's already in place from the land to the water to the activities. That's what they want. Number two, I'll say it again, we are motivated by our own interest. And we're also money-motivated. And money chases money into criminality. And it has no conscience, not an ounce. And that's what's driving this market. They're saying, what's in it for me? Now, as far as the troops are concerned, people that carry a lunch bucket or drive a truck or cops, et cetera, who can't afford that price tag, it's a bit futile. Because they have to be subsidized in order to participate. And that's like the old feudal system where they couldn't afford the land. They don't own everything. There you go. And they would trade that for their labor. I mean, it's to the point in some areas that there's class distinction because it's a luxury enclave. Is it not? It is indeed. And not only that, it's hip. It's young. It's energized. You see what I'm saying? We'll see. We'll see. The jury's out on that. But if I'm a millennial, I can't afford one of those units. And I. But no, you cannot. But the market, what it appeals to, you mentioned, I mean, the Chinese are paying cash. I hope that I didn't miss a week by saying Chinese. I'm saying that there are buyers outside of. Well, from Asia. Our resident from Asia, yes. There are paying cash, which really distorts the market. Yeah. They want to be here. They can see the future. Plus, perhaps the most, the biggest thing to consider is that interest rates are at historical lows. In our lifetimes, we will never see interest rates this low again. First of all, it benefits developers because the cost of money is cheap, and it benefits us. And people know that it's finite. It's only for a matter of time. So they're jumping on this and arriving as far as they can. So how did we get here? I don't fully understand it. Maybe you have a kind of historical continuum track. Let's go back to the 70s, I think, when HCDA was created, and the place was pretty much a mess. It was really raucous then. And it was a garbage pile in Kakaako Park there, the Ocean Front Park. How did we get to a place where condos can sell for $95 million? By the way, it was listed at over $100 million. That's an aberration, and that's one of very few. That's atypical in the marketplace. There is a median price that drives it. And primarily, it's for adults. It's an executive appeal. It's not for a guy carrying a lunch bucket. That kind of luxury lifestyle. What they're capturing, again, are the views and its convenience. People are done with driving from the suburbs back to the city. They know now they want to move inside that hub. They want to walk to their gym class and their yoga class. They want things at their fingertips. That concept is being sold. So what are the factors that sort of ginned it up this way? Location, location, location, location. But it's also something else. It's the luxury aspect. It's the many buildings. So like, if I'm in one luxury building in the middle of a slum, it's not nearly so valuable. No, that violates the theory of conformity. Birds with feathers smell the same. There's a homogeneality with money and class. It's self-supporting. It's all called collusion. Yes, because they're going to make certain that the values stay where they should be. Yeah. That's a community feedback kind of thing. Yes, that's built into it. They're not doing this to lose money, but to make money. And that's what drives the system. Now, at a certain point, an oak tree only grows so high, as you well know. There's always that point of diminishing return. Clearly, we haven't tipped yet, because I think that whatever we conceived is going to be. They're going to 400 feet. Then they'll probably go to 700 feet. What are they now? I think they're 300 feet or something like that. They're under that. But once you're 250 feet up. What's the difference? What do you think? The difference. Go for it. Yes. Abercrombie wanted it higher yet. He was, he was, well, forget the address. Now you're, now you're getting political. And that's a whole different animal. Well, there are factors. You know, there are factors that came into CACACO. For example, and I'm just throwing this out. Sure. Your consideration. Okay. One is the rails going through there. Oh, that's it. Is that help values? Without a doubt. The rail was going through. As a matter of fact, I did an appraisal there on a high end unit. And I was in the lobby waiting for the gentleman to meet me to take me up to his unit. And when I got there, he was actually there ahead of me. And the first thing he said was, you're late. And I said, let me tell you why. I said, an explanation is better than... Was it a Y5O? No, it wasn't. No, okay. But he was Asian. And we went up and I learned in talking to... This was a multimillion dollar purchase, by the way. And I'm not going to breach any confidentiality, but it was a multiple million dollar deal. And he said that he owned more than one. And he said, the rail is going in without a doubt. You see, the rail is much like a river. I'm speaking poetically. It's okay. We like that. But as you well know that along the river, everything is grown. And that's what's going to happen. The nourishment thing. Oh, it really is. Because growth has to have... And even the prospect of rail. Yes. I mean, it may not be for many years. It may not be in general, if it were out of money, but the prospect is a factor. Well, that's where the masses come into it, and the taxation, and the excise tax, and which is... I mean, that's where they... You're trying to fuel this thing or fund it. And that's where it gets a little bit messy. But in terms of serving the community, I'll say it again, they're going to have to subsidize the people who serve them their lattes and park their cars for them and entertain them. Right. They're going to have to literally... That may or may not happen. It should happen. It should happen. It's a moral point of view. And for that matter, any Gallup-powered point of view. Yes. But now we're getting into something that's... It's off the point. It is. Let me ask you about more factors. Go ahead. This area lies between downtown and Victoria Ward shopping centers. Okay. All that. Those shopping centers are being torn down in favor of not more shopping centers, not more shopping centers, more condos. Sure. We're going to have continuous condos all the way from downtown to Alamoana, as it seems like. Sure. How does that affect it? Would it be better if there were more retail in there instead? No. Let me tell you how... This is... We'll talk theory for about two minutes. Number one, they do a test called highest and best use at old school, but they're making certain that it's legally permissible, physically possible, financially feasible, and maximally productive. That test is run first. And that's usually made on the dirt. And that's where it becomes political, because prices don't reflect the market. The prices are induced by the market, or the market is induced in relevance to the prices. Do you follow me? Mm-hmm. And then once that concept is sold, demand plays a role. This is where everybody wants to be, and that pushes prices higher, and that forces the people... You see, incomes haven't kept pace in, my God, 50 years. But the same dynamic occurred 140 years ago with the land grab, where they would actually say, go West, young man, and put a stake in the ground, and that 160 acres or quarter parcel is yours, or quarter section is yours. Yeah. 80% of the homesteaders were speculators. Nature doesn't change. No. Humanity doesn't change. No, just not. We're the same beast. And it's, let me eat first, and it'll be all right. Like your story this morning about 5.0, let me go first, and you'll be all right. This is how it really works. Take what you can. Yeah. Oh, when you can. And we're going to, speaking of timing and taking, we're going to take a short break, actually. Oh. Okay. And we're talking about Kakaako, and the title of our show is, what is it? The land is my everything. Okay. Yeah. Okay. We'll be right back in one minute. You'll see. Wait there. Stop leaving. This is Think Tech Hawaii, raising public awareness. Guys, don't forget to check me out right here at the Prince of Investing. I'm your host, Prince Dykes, each and every Tuesdays at 11 a.m. Hawaii time. I'm going to be right here. I'll be right here from some of the best investment minds across the globe. In real estate, finances, stocks, hedge funds, managers, all their great stuff. Thank you. Hi. I'm Pete McGinnis-Mark, and every Monday at one o'clock, I present Think Tech Hawaii's research in Manoa, where we bring together researchers from across the campus to describe a whole series of scientifically interesting topics of interest both to Hawaii and around the world. So hopefully, you can join me one o'clock Monday afternoon for Think Tech Hawaii's research in Manoa. Okay. We're back with Bill Self. The land is my everything, or is it our everything? Our everything. Our everything. And we're talking about kakaako. Is this what we want in kakaako, and is this is what we want in other parts of the state? It's a laboratory. Kakaako is a laboratory, and where it went may not be exactly what you expected, but that's what the market did to us. And that's what the market may do to us in other places. For example, in Kalei, where there's a lot of talk about building another kakaako. In any event, talk about other factors that may affect valuations one way or the other. So for example, we have the homeless. The homeless are there. And you can push them away, but they'll be back, and it's political hot potato. It's hard to push them away, and it's hard to have them there. Nobody's cup of tea, if you will. So how does it affect a $95 million condo? You look out the window over your horizon pool, and down there below, you see blue tents everywhere. Yes. And you see across the street in this beautiful park, which is a valley of factor, in your acquisition of the property, you see it's filled with homeless people. Yes. How does this affect value? Do people blow it off? Yes. They don't take it seriously, huh? No they don't. They don't know how to treat it. Number one, in terms of the homeless, it's temporal. It doesn't adversely affect the marketability. They can assuage that. They can relocate homeless people, but, and there's no market for them. If there were a market, we would, that problem would go away in about six months. There were money in homeless people. In a biblical sense, and ideally, when the rich man takes the land, the poor get the corners. Well, we're not that moral. I'm not even certain that the concept of morality can be sold is something we thought of and we pretend to adhere to, but I'm not sure that it is a focal point when it comes to making money. As a matter of fact, we don't even buy a shelter for the right reasons. We buy a shelter based on profitability. We should buy a home for the right reason. We're not doing that. But everything's driven by money. That's our new God, if you will. That's our life spread. Things that affect the marketability. You mentioned that. I'll say it again. Everything is already here. This concept is sold. It's anchored by Alamoana. It's preserved by the ocean. Part of its identity. Yes. Yes. Well, when I made the point that land is everything, that's kind of a misnomer because it's not everything, but in a philosophical sense, it gives us our identity, our language, our culture, our food, even our dance, the hula, the softness of it comes from the land. Our names. We have ourselves. Barack Obama's Korean-African name is from Africa. Yeah. Yoshida is a Japanese name. It's from the Orient. I mean, land, it's the only thing worth fighting for, if you will, because it lasts just under everything from the core of the earth to the heavens and everything on it. So we have sea change. We have sea change. Yes. As a matter of fact, that was raised when they were trying to establish a biosafety laboratory at the medical school, which is at sea level, right? And everybody was worried that the sea would come up, and these antigens in the biomedical laboratory would wind up getting into the community, and that would be bad for public health. The fact is we have sea change. We have climate change. It's not going to stop, even if Hawaii was the most disciplined place in the world on preventing and using renewable fuels and all that. The rest of the world is not in the same place, and it's a world collaborative that's at risk here. So my concern for Kakaako, for all these multi-million dollar buildings, multi-billion dollars, some of them, is that sea change is going to affect their operation. People may have to leave them. I'm not even talking about tsunamis. I understand. You're just talking about sea change, where all of a sudden, you know, a party of building is underwater, and it stays that way. Does that affect value? I mean, I don't think people take that seriously either. Well, that's tough to gauge, but it would affect value. Think about land that land never depreciates. You see, the principle of value is based on the demand for it, its use, its scarcity, and its transferability. And when it becomes more scarce, it becomes more valuable. So the sea change is going to push prices higher. We're going to have less of Hawaii to deal with, and all this incredible demand for this perfect weather, et cetera, will push prices higher. What we fail to do very often is to plan for change. I mean, things unravel. A sure praise. Yeah. The car breaks down. Yeah. Yes. It's built into everything. This thing called push and pull. Is this a dynamic? Is it built into the prices now? No. No. No. Kakaako, if I have to pay $95 million for a condo, that's not how the market works. Now, there's no such thing as a free market because government has its fingers around everything. We need to talk about it. Thus the taxes. Yeah. Okay. But in a philosophical sense, what drives the market is the demand for it. You put a house on the market that's priced right, let's say $900,000 for a two bedroom condo in Kakaako with a nice view, an extreme view, it means unobstructed. You're going to get 12, maybe 10 offers. That pent up demand. That's an affordable number for a plethora of... And as you said, it identifies with the location, with the park nearby, with the best prospect of highest and best use, and people overlook, the market overlooks things that maybe they should consider more carefully, things that will catch them later. Yeah. Well, the market, even that's misleading. We are the market. Yes, we are. We're this dynamic. I'm not part of that market at Kakaako. If you live there, tell me now, it's a full disclosure thing. No, I don't live there. But we are part of the market. Yeah. We are. It's a human thing. It's our community. And our community more than just the people living in the States. And at a certain point, there's going to be a pushback. And I think what will occur first, either a war or interest rates, will radicalize the market. And that will affect Kakaako. They might go flat for a number of years. Okay? But if it continues down this path, I mean, I don't see how it can, quite frankly. If it can, for the last, hasn't been two years, for the last nearly three and a half years, all of the markets have been performing. Yeah. It's been a, I mean, it's a different kind of analysis when you buy stocks and bonds. But if I, one of the things, you know, for example, that attracts me, a positive thing to come into this market is shopping. As you said, Alamoana, not only for my wife, but for me. I mean, everybody gets involved. So it's a value, it's a factor, you know, in establishing value. On the other hand, if we had a war, if we had, you know, some kind of, which is not unlikely. Yeah, natural disaster, what have you, any number of things, and all of a sudden the beaches are empty, the airport is super quiet. Okay? How does that affect value? Because these guys, a lot of these guys who bought these condos, are depending on the continued healthy tourist economy. Okay. Well, that would have an adverse effect. Prices would flatten and they would decline. But bear in mind that money is made in real estate on both ends of the spectrum. There are people right now looking for that market, the tank, and take advantage because it's coming right back. It's all a matter of time. Yeah, yeah. That's why I mentioned the fact that land is under everything. It's finite. And there's no cost production with land. It's a gift from God. We have to manage it. Manage it. It's an operative word, Bill. I think it's so important. That requires power. Yeah. And right now, like, there are too few with the power. We need a broader base, a broader voice, because there are a lot of objections to which taking place, but those voices aren't being heard, because they don't have the power. They can't influence the change as necessary, because we're still chasing the dollars. Yeah. Yeah. I mean, we had Oz Stender here, you know, native Hawaiian guy and, you know, a big figure, a heroic figure. And his latest piece, and it's been written up, is we have too many tourists coming. Yes. It's an island. And, you know, you've got to contain the development of an island, otherwise you lose what you started. You know, the useful life of one of those condos, poured in concrete, it's not 50 years or 100. It's probably 200 years. Easily. Easily. Maybe more. Maybe more. You can fix it up. It's solid as a rock for a long time. Yes. And it doesn't go away. And if people think that one day it's going to be green grass again. No. No. It's not the way we have defined ourselves. Yes, it is. So the government has a, as you mentioned, the government has an example. Oh, and play a large role. I mean, that's part of the constraint that, from the zoning to how you're taxed on it. Yeah. It's the same place controls that it, I call it creative economics. Yeah. Yes. Well, so what do you think you're going to do on this show going forward? I mean, in those issues and other issues? Well, you know, here's the key. In terms of issues, I think that a man my age, Below 50, wasn't it? Below, yeah. Yeah. Right in there. Yeah. There should be something to give back to the community. And I think information is the key. I mean, that's the basis of all secrecy. You find out more than you know. I have a secret. It's power. It's power. As a matter of fact, to give a really quick example, I'm also a veteran. They're also elevating vets. But in the real world, the most valued component of war is information. The spy is the most coveted because he has the information. And second to the spy is logistics. The soldier is the most expendable. And that's misleading. It really is misleading. But they're selling the concept. It's like we're drinking the Kool-Aid on this. Because what's really important is what's not what they're saying, it's what they're not saying. And I know when I was in Vietnam, I don't want to go down that road necessarily. But there was a reality there that it's like kissing a girl. You don't know what it's like until you've kissed one. That's the premise of war. You don't know what it's like until you've been there. Until you've been there. And if you haven't been there, you know what it's like. No frame, no frame of reference. That's why the historical approach, the continuum of history, experience, if you don't remember history, you're doomed to relive it and all that. That's why history is important and appraising, too. I just want to say in terms of appraising, I've done it for almost 35 years, I'm grateful for the experience and the privilege. It's a great responsibility, as tight as that much sound. And there are three approaches to value, and there's also a fourth, and that's called common sense, sprinkle that dust on each report. Well, I'm really looking forward to your show, Bill. I am, too. I'd like to give that some thought, because I think that I have something to offer, particularly to young people. Yeah. At least, I hope so. Bill Self, appraiser, on the life is our everything. Okay. We'll be back. You'll see him again here on Think Tech. Thank you so much, Bill. Thank you, Jay. Aloha.