 Aloha and welcome to this week's edition of Business in Hawaii. I'm Deila and Yanagita and we're broadcasting live from the ThinkTech studios in downtown Honolulu. If you would like to tune in live, we are at www.thinktechhawaii.com and you can sign up and get on our mailing list there as well. The theme of Business in Hawaii is to highlight local businesses by local people and our guests share with us how they were able to build successes in a sometimes challenging environment. With us in the ThinkTech studios today is a familiar face. Ray Tsuchiyama is a real estate advisor and senior project manager with Cushman and Wakefield, Cheney Brooks. Ray is also a consultant and is an amazing resource for us. Ray, thank you for joining me today. I have to tell you if I ever want to know anything about anything literally, I would reach out to you. Your wealth of knowledge spans oceans, literally. Your knowledge of international relations, just amazing. So I don't know if our audience ever had a chance to hear about your background, where you came from, where it all started. Well, I always see myself as a boy from Kalihippalama. That's where I grew up, although I was born in Japan. And a lot of the things that I really see my success or interactions with people from all walks of life or in all regions like Asia Pacific or beyond comes from my education and interacting with people in Kalihippalama, which they taught me respect for each other and also really diversity and to kind of listen to what their backgrounds are all about. You just can't make assumptions about anybody that you first meet. And that has carried me through the years. Amazing. So I know that you've been at MIT. You've been with some of the largest corporations and organizations across the United States. So tell us about your background. Yes. Well, I worked in computers. First off, I was back in Massachusetts during the really the heyday mini-computers, a company that nobody talks about now, which is digital equipment, DEC. And I worked in their headquarters in Mainier, Massachusetts. It was an old woolen mill from the Civil War, where they developed mini-computers and super mini-computers. And then I returned to Hawaii in the early 80s, and I was in commercial and industrial real estate with three firms. And I can talk more in depth later about their lessons or insights. Number one, Castle and Cook Properties, all big five companies, still around and doing well. Manroir and Finland, which morphed into Colleys International, still one of the top three commercial industrial firms in Hawaii, in brokerage, investment and property management. The third, Mitsui Real Estate. And they used to own, of course, they still own the Halekalani Hotel, and also what is now the Topa Towers, which used to be called the Amfak Towers, and many other buildings throughout the U.S. and Hawaii. And I had an experience managing and kind of marketing there. And then I went to Japan for 20 years, where I worked for MIT and in the tech area, AOL, the analog devices and chips, semiconductors. And my last role was senior consultant to Google before the earthquake. And that brought me back to Hawaii after 2011. Wow, just amazing. I mean, somebody with a resume like that is definitely forced to be reckoned with. But what I'm really happy about is that we're here today to talk about maybe not a new endeavor for you, definitely not a new endeavor for you, but almost a rebirth into real estate for you. So I do know that you got your real estate license recently. Yeah, in November of 2018. So why did you do that? Well, I got it first in 1984, thereabouts, a different time, a different Hawaii at that point. And then as you know, I left for Japan for 20 years and didn't really use it. And now I'm back and after several years back in Hawaii, I thought, oh, this is a thing for me to reinvent myself, or you can really teach an old dog new tricks, or to relearn. And I entered a course like everybody else last November, Inet Realty. And the first one I took with John Stapleton, fortunately, passed away. That was in the 80s. And now with Krishman and Wakefield, Cheney Brooks. And Cheney Brooks is a name that goes back to the 70s and really has a great history in commercial and industrial real estate. So I'm back where I kind of was in the 80s in Hawaii. But it's a different place. And the 2019 I feel is going to be a very exciting year. Fantastic. I want to hear about how things were when you entered the market. But before we go there, I have to ask you, so you took the exam in the 80s and you took it now in 2018. Was it different? Not really. I think interestingly, in the 80s, what was different then is still an issue today, which is about agency. And during the 60s and 70s, there were a lot of incidents where, unfortunately, some bad apples just got together and kind of worked out deals without really being responsible for fiduciary responsibility to their seller or the buyer. And that had to be very cleaned up during the 80s. And that began a whole training in standards about agency. Who do you represent? And that is still around. That is still a big issue in 2018-19. You can be even a dual agent, but you have to be very careful. How do you respond to an offer? How do you communicate information to each other? It is still an issue. Otherwise, land, the history from the great Mahelep, a leasehold versus fee simple, have not changed at all. Well, it's good to know. That's good to know that the knowledge that you had initially just kind of carried forward, just maybe morphed a little bit into some newer issues. So tell me, what was the real estate market like back in the 80s, when you did it the first time? Well, in the early 80s, America was really ravaged by what we don't see today, which is called stagflation. The end of the Carter years and the beginning of the Reagan years was a time of economic downturn. You could have a stagnated economy, which means things are not moving. And then you have high inflation at the same time. 1980 was a year of 13.5 percent inflation. There were interest rates going up to 18 percent. Housing development stopped for many, many developers. And it was a very different time. And it was just before 84, 85, which will be the tsunami of Japanese investment. So that five years was like a in-between time from the 70s and then comes the foreign investment boom. Wow. Okay. So the other thing is you have a memory like, I know they say elephants, but you remember the most intricate details of so many things. Just amazing. So the real estate market now signs in Hawaii real estate indicators from back then to... Well, let's look at December of 2018, which kind of gives maybe a portent of what's happening. And it's interesting, there's a press release from the Honolulu Board of Realtors that said in December 2017, there were 361 house sales. One year later, there's only 259, a 30 percent drop. But what does that mean? Are people waiting to put in an offer? Maybe they're waiting for declining prices. We may see an explosion in Q1 in the spring for buyers to step up or they feel that prices will go down a little bit more. So I don't know what that portents, but there are some realtors who do put their properties on MLS, the multiple listening services. If it gets too long, they withdraw it and then they come back again. So you don't really see how long some properties are in the market and maybe a much longer time than some people think, especially in the higher, higher property levels. So what are the macro trends affecting Hawaii? Hawaii's real estate industry then and now? Yeah. Well, one is interest rates, which is Fed is thinking about raising to 2.5. And then if you add another 1 percent, that's the more interest rates, I mean 3.5, 3.8 or whatever. And that is so low still, back to 16, 17, 18 percent, that's the more. Number two, unemployment, very low, very low. Hawaii may have one of the lowest unemployment rates in the entire nation. The other area is, of course, in currencies, I predict that in Q1, the Japanese yen will increase in value for several reasons, vis-a-vis the US dollar. And it's going to be this volatility in the Nikkei stock market as people are moving to a safe haven at the yen. The April 1st abdication of the emperor will see a lot of consumer demand coming up. There's going to be a lot more visitors to Hawaii. So that's an area I think some realtors are looking at. Stronger yen means more buying power. That's a macro trend. The Chinese renminbi I predict will decrease in value to the US dollar. It used to be, when I was going to China in the early 2000, it used to be 8.4, 8.5 to a dollar. It went all the way down to 6. Now it's climbing back to 6.5. It may go to 7. And so there's a volatility in the trade issues between the US and China. And there's a slowdown in the Chinese economy right now. So one area that people may look at is the number of visitors during Chinese new years going outside of China. If they're going to closer places like Korea, Japan, or Southeast Asia, or Australia, that means they don't have that much money. They want to keep their money. If they're going to Vegas, to Vancouver, to London, and buying a lot of consumer goods, then you see, well, the economy seems to be still very strong. So what about those micro trends in Hawaii real estate, especially where some of the major players are concerned? Well, I think we're in a kind of curious in-between period. And some older, more established firms, brands like Kahala Associates and Jane Warrell, are gone. You have teams now. For example, Myron Keir, he has a team at Better Homes and Gardens. There's the Ihara team at Keller Williams. There's preview agents, the top, you know, 10 preview agents who do the top properties at Kowa Banker. They're still there increasing their share. And so there's more done by less, fewer people. But when I say like Better Homes and Gardens or Keller Woods, they didn't exist five years ago. They're new entrants. So, you know, if you go back 20 years, Herbert Horitas and so forth, more of the locations, there will be much more in the market. So there's some changes here in residential, yeah. And like Pacific Elite came in, and they're now statewide. For Kowa Banker, there's still a Oahu office and a Maui office. So a statewide marketing effort is still not that rare. So it's a new innovation. We do need to take a quick break. But let's take that break. And when we come back, let's talk about some trends. I want to pick your brain about some trends. And then talk about your new adventure. I'd like to know more about that. So we are going to take that break. We will see you back here shortly. This is Business in Hawaii. Welcome back. This is Business in Hawaii. Today we have Ray Tsuchiyama, not an unfamiliar face here at ThinkTech. But when we left Ray, we were talking about how the trends have changed from back in the 80s to now, and the changes that have occurred. And the international market, the strengthening of the yen, and perhaps we're waiting to see what's going to happen with China and how that's going to fold into the mix. But we were talking about pricing. And you had mentioned to me on our break that supply inventory is... Right. And this has been pointed out by Paul Brubaker, the great economist, local economist. And he went into back in the day in the 70s and 80s. And there were years when there were like 10,000 to 14,000 housing units entering the market. We don't have that anymore. So that supply and inventory is very crucial to the real estate market in terms of pricing and so forth. And what is relevant even back then is still an issue today, which is the permitting and zoning process, which affects the price of the finished house or apartment building and so forth. And that adds a lot to higher prices than in mainland. In mainland, many places, I'm not saying we should be like Houston, which transforms ag land to BMX mixed use like nine months. But there has to be some way of increasing inventory we have to build. So I'm going to go far and we're going to ask you to make some predictions. Well, yeah. So there's some micro trends that affect I think the real estate market. And the one is that people, especially young people are leaving the state. And that is not a good sign because that means that the demographic that has a great job and pays taxes are leaving. And those taxes pay for the roads and government and all kinds of services and so forth. So that's one thing that is very, very rare for a state to lose people. That's not one. Number two, there's a flip side. There's, of course, the seniors who still remain in Hawaii. They're downsizing. They're moving from larger homes into condominiums. And so, but we still lack hospices, a lot more senior facilities. That's another one. And there's another third one, which is the aging infrastructure. A lot of the homes are old when you think a lot of plantation homes are built before the war or just after the war. Even when you look at a great place like the Gold Coast, a lot of those co-ops were built around statehood again. So some of the condo or co-op owners are being hit by assessments that may be as high as $50,000 to $100,000 per unit. The pipes are corroding, the sewage systems and all kinds of infrastructure. So that's a third micro point. The final micro point is I'm still an optimist. I'm still an optimist that somehow we can get a new tack with mass transit. That the last four or five stations from Ala Moana to Waiki could be a great public-private partnership. And again, the reason you have mass transit is that you are responding to population growth. You don't want more cars, so you have mass transit to take care of people who otherwise would be on the road. If you have a declining population, that takes away the reason for mass transit, which is very ironic. We're in 2019. However, we should not be seen as TOD or transportation-oriented development. I'm taking words from Paul Brubaker, but we should see it as development-oriented transportation. How can we enhance the inner core of Honolulu so that people can live and go to the workplaces along the stations of the line and not use a car? Does the industry ever consider what they can do to change some of those micro trends? You were mentioning young people leaving, the older folks not having facilities. Does the industry ever get proactive about what they can do to change a trend like that? I think people are aware of that. And I think people in the Chamber of Commerce are really aware of these issues and challenges. I mean, the number one issue should be public education for the state and, of course, how to diversify the economy so that people who want to be in certain areas, tech sector or finance, can remain in Hawaii. This is a larger issue than purely real estate. And why should the real estate sector be the vanguard of economic diversification? Maybe they could be, but again, that should be a leadership of the state and chambers of commerce and so forth. But that, to me, is an indication that we are not addressing that very economic disconnect in our society. You know, I believe that it's really a collective effort of all of our communities coming together, Governor Ige, with his campaign for 20x25 and then, of course, the promotion of STEM education, robotics, those are all great efforts to try to address perhaps bringing a different type of education, educated people to Hawaii. Now, you know, it's very interesting you say that because in a society, you want to change human behavior for the good, right? When you look at real estate, there are over 80,000 probably who have passed the test. So they paid $450, $500 stayed in a classroom, and many of them are inactive. They're not in active brokerage. And then you say, but they took that risk because they saw that they could further themselves and develop better earning potential. Now, you could say the same, why aren't there 80,000 software coders or people who are experts in Asia Pacific trade or exports, many areas. But they're not doing that. When I was in Vietnam in Hanoi at 10 o'clock at night, I looked for my taxi and it was a fuzzy glow from a building. And there were all these people studying coding at 10 o'clock at night. You see, how can you provide incentives so that you can mold a society where you want to go? I'm not saying that the people should not become realtors, but they're taking that risk and they see an incentive to become a real estate broker because that would add more salary, more compensation or whatever in their lives. But even if they became a coder, does that mean they have a great job? I don't see the Googles or Facebooks and Amazons in Hawaii. They're not here. And the other thing is maybe we should focus on developing a computer science department at UH or other places that would be in the top 25 or 50. That is a great goal in five years. And of course, the other thing is if we want to develop real estate apps and be the leader in real estate for the globe, why not have a center real estate and synergize it with the computer science department? So I hear your passion. I hear your passion for real estate. I hear your passion for technology. So tell me about how technology has impacted other industries. I know that you keep up with the the biggest and the greatest and all of the happenings. But in 2019, how does technology affect the real estate industry? You know, this is every January from the past several years, people make predictions or prognosinate into the future. And this is a very complicated issue because there's, for example, how do you transfer the technology for Pokemon Go for AR, augmented reality, which is that's an example of AR, or virtual reality to showing Kahala homes or Kainuki homes or Maui homes or whatever. How do you use a smartphone or tablets to show people or how and there are companies out there that are trying to exclude realtors. I mean, many realtors feel that real estate is a very local, local profession. I mean, there's a person who who are experts in Manoa, for example, only or on West Maui or something like that. So how do you do this? This is a very difficult question. I think what we have to the other question we have to ask first is, what is the uptake for technology among people in general? Do you see people using smartphones more or laptops or tablets? I don't think so. I don't think we are at a level at San Francisco or New York or other places. I think we have to get people up a level before we start talking about apps and so forth that will be leveraged by the general public for real estate. So how do we do that? Well, I think, you know, for all companies, especially, there should be certain ways of doing work. But you see, it's not just technology alone. When I worked for MIT, one of the most complex issues during the 90s was, why did technology go into companies, but productivity didn't increase? Very interesting question. And they found out later that unless you change management, you know, levels of management, how people report to each other, remember millennials are quite different animals. They do things and just because you have technology doesn't mean that everybody will use it or leverage it to become productive. So I think that is the first key. How do you change companies to become 21st century innovative companies and also see that they can build global platforms? Remember, we're in a market of 1.2, 1.4 million people. What if people here could develop apps to get 10 cents from every mobile smartphone user in China? We're talking real money. Right. We're talking real money, but we have to do it in Chinese language. How do you work for China mobile? How do you work for iPhones and Android platforms? There's a lot of things to get there. But again, I think we have a lot of groups like Chinese language experts, mobile software, tourism, all kinds of real estate, but they're not working together. We are in a siloed society. It's very unfortunate. Which is interesting, given our culture of bringing people together, of Ohana, and it's really amazing. I knew this was going to happen that we have so much to ask you and so much to glean from you. But unfortunately, we are out of time. I am so thankful that you joined us and gave us an outlook, the 2019 outlook, and I know that we'll come and tap you again to get the update on how we're doing. But thank you so much for joining us. We are out of time. I wanted to thank the wonderful production staff here at the studio. If you would like to be a guest on our show, please email your information to shows at thinktechhawaii.com. Business in Hawaii airs every Thursday at 2 o'clock and we look forward to seeing you here next week.