 Dick Cushman, a developer, a planner, a trustee, an investor. Let's welcome Dick Cushman for our Wake Up keynote. Good morning everybody. It's very nice to be here in Aloha. Thank you all for getting up and coming out. When I met with Jay to discuss the topic that he assigned me, I asked him what it meant. He said he had no idea. And I told him I didn't either, in addition to which I've almost never done any public speaking, you're about to see why shortly. So I hope we can start with low expectations and kind of build on that. I'm really not kidding when I mean that I'm not going to be faithful to the assigned topic because neither here I could figure out what it meant. But I would like to start by talking about understanding the directional change in economies and how difficult it is to see it start or finish. I was in this room, I think 15 years or more ago, with a business leader in the community who has since deceased by the name of Herb Purnell. Many of you may remember Herb. And over lunch I asked him in his career if he was ever successful in finding out when economies turned down. And then was he good at looking forward and saying, I think it's about to change and go up. He said he was very successful over 40 years of predicting the down cycle because he found that they were more statistical. That you could look at data and say, wow, the average house appreciates it 2% or 3% a year and they're going up 10%, that's probably got to stop. Things are, everybody's getting wealthy, stock market's all rising, it's just too good. And then he said he managed his business activities around the expectation of it not being as good as it currently was. And was successful at sitting around the corner. But he never saw it happening when we were at the bottom going down flat at the bottom and becoming up because there was no data. And it's all psychological. And so the issue for us in this room and for the state, the country and the world right now is reorienting your gyro to the realities of where we are. And the velocity of change that we're going to experience. And I want to spend most of my time talking about what I think is the most astonishing period in a compressed moment of time in Hawaii since statehood. And I'm going to make the argument that this tiny period of time is so extraordinary that it will never be repeated again. And you can draw your own conclusions from it and maybe it will inform the speakers you're going to hear later today who are both much better prepared and much smarter than I am. So this is the low point of the presentation that's going to get better later today. Let me make the argument about why I think this is a really remarkable period of time. And I'm going to start with leadership. And I'm going to break leadership down into four categories. With corporate Hawaii leadership, banks, four major banks. And the time frame I'm talking about is going back roughly a year and four roughly years. So I got this sort of moving period of time, but it's very short. In that time frame, we are going to have four new CEOs in every major bank in the state. Two of them are not going to be from Hawaii. So if you take the top 10 companies in the state, four of which are banks, all four banks, new leadership, one time frame. Utilities of which we have three. We're going to have a new CEO at the Oceanic Cable Vision. We have a new CEO at the electric company. And we have the same CEO at the phone company, but a new owner. So in the utilities, you're going to have three non-Hawaii leadership changes all at the same time that the four banks are changing. Let's round out the scorecard with three other major companies. Alexander and Baldwin, a brand new CEO. The James Campbell Company, a brand new CEO. And I'm going to put Command Mayor Schools in three different categories, but they deserve, in my view, to be in the business category because they are one of the largest financial institutions in the state. And in the next few months, they're going to elect the third trustee who are not the legacy trustees. So in that boardroom, you're going to have for the first time a voting majority that is not the past. That's 10 companies, one tiny period of time, all new leaders. That's just the beginning. Let's talk about education. Let's start at the university level. University of Hawaii, you already have a brand new leader. Hilo University of Hawaii at Hilo, you have a new leader. Shamanat, you have a new leader. HPU in June, you're going to have a new leader. The first time in 41 years, right? It's not been the president of that university. Leaving aside BYU, you're going to have a complete change of leadership at the collegiate level in the state. Come down to secondary education. Kamehameha School is into another category as an educator, as the largest private school. Again, they're going to have new leadership in their boardroom. And of course, we're going to get a new superintendent of schools. Five categories. All the education leadership in the state is going to change. At the same time, all of the business leadership in the state is changing in this tiny little period of time. The easiest category and the one that Jay spoke about a few minutes ago, of course, is political. So at the same time this is happening, we're going to lose and change a governor, elected officials, a governor, a lieutenant governor, and by extension, thereby, a new attorney general. Hopefully, there's going to be a new Chief Justice of the Supreme Court. A new mayor, managing director, and a new U.S. congressperson. This is all happening at the same time. And not to wish ill on anyone or botching on anyone's life, but if you look out from an actuarial standpoint, just looking statistically, in the next three years, unfortunately, we will probably have new U.S. senators. Just statistically. Keep that in mind because it's going to be important to something we're going to talk about in a little bit. So leaving aside those last two, and whatever happens in the presidential election, because there is always the possibility that we will lose our native son as a president, but just leave those three aside. We have extraordinary political transformation to go along with education and business. Fourth and final category for the one of a better topic heading, I will call the Hawaiian situation. So if you look at the Hawaiian organizations and think about where they're transforming, again, commandment of schools fits in lots of categories here. Commandment of schools has new leadership. By process, when we have a new change in the governor, we're going to have a new head of DHHL. And Clyde keeps saying he's going to retire at OHA. I'm not sure whether that will happen, but just assume for a second that Clyde does. So you take three of the biggest organizations in the state with respect to the Hawaiian community, then you're going to change management at the senior leadership positions concurrently. That's 22 leadership changes in one, moving 12 month period, leaving aside what might happen actually at the senator level. 22 leadership changes in one tiny moment of time. I don't know exactly how this is going to come out, but my math is that between seven and nine of them, if you take the 17 non-elected changes, leaving aside the elected officials, there are 17 non-elected changes, between seven and nine of them are not going to be from Hawaii. Some of them are already in place. So roughly, just use simple math, half of the leadership changes that are coming in this one time period are people who are not from here. This is almost statistically impossible to recreate. I mean, the probabilities of having that much change happen in any community in one time frame this small is immeasurable. What's it mean? And what's it mean to these new leaders who are taking over organizations? That's the pregnant question you're going to get a lot more dimension on from your panels today. But in thinking about this from the point of view of the reality, and I'm starting this way because I want us to have a point of departure that this is not yesterday. Tomorrow is going to look completely dissimilar to yesterday. If for no other reasons then, we've got a lot of new people who are leading us from today to tomorrow. You take that group of folks and you sit in their chairs and you think about where we're going. The first question that might be asked is where are we leaving from? Well, let's say that we're leaving from an economy that Morph already wants, from an agricultural-based economy into, say, the 1970s, 1980s, to a non-agricultural-based economy that was predicated on three major components, government slash military spending, the visitor industry and construction. So let's decompose those and look forward and say, how sturdy is the Holy Trinity? Well, let's start with government spending. Go back to my caution about the fact that we have already lost 22 years of seniority in the House in Congress and that we're going to lose actuarially or really the gentleman I would call the franchise. Now we can't have a stock market that has a short long on Senator Noy because it could make a lot of money doing that. And we're going to lose both of our senators. So if you want to predicate for what the implications are when Senator Noy is no longer there, look at the state of Alaska following the loss of Ted Stevens' election. I don't have, I've never verified this but I have heard from friends in Alaska that their federal flow of funds dropped by almost 40% one year. So if you want a template, I think that that might not be exactly accurate but it's probably a range of motion. So anybody in this room who doesn't believe that the state is going to have a major downdraft in federal funding I think is not being realistic. So I would score one leg of the stool as shortening going forward and not something that we should continue to rely on as we have over the last 30 plus years. Sort of the visitor industry. This is also interesting to me because a lot of people in the community really don't understand what it means to grow the visitor industry. Don't confuse occupancy with capacity. Capacity is the amount of rooms the industry has and at any given time it expands and contracts based on demand. We've gone through a slow period. Demand is rising but what we're not doing is growing the plant. So as our biggest industry we're not growing capacity. Room additions are the only way to grow capacity. Eventually you have the same number of rooms when they get to a point where they can't be more full you're through. And we have been there in the past in the last five years we have run close to that capacity number. So the only way we can grow that plant is to grow rooms. There is a saying in the hospitality industry no ocean no sun no rooms. What's that mean that means that you have new rooms they have to be on the water on a leeward coast where they have weather and water. You cannot build hotels off the beach in Hawaii people don't come here for that. Milliline market is not a great place for a hotel. And you have to have the weather to go with it. Now if we took a really modest growth rate most communities would look at their basic industry and say how can we grow it. There's only one way to be really clear about this is only one way you can grow the industry that's to expand room count. There's no other way. So let's say you had a modest ambition about growing the industry at two percent a year. What does that mean in real terms just make it sort of tangible. Well think the Holly Kalani and I'll rig a reef on the beach plus 300 rooms. You got to open one of those. If you wanted to go at two percent a year for a decade that's very modest rate of growth. You have to open one of those every 365 days on a leeward coast that serve has infrastructure where the political and the cultural will to tolerate that exists. I suggest to you that's not possible. I suggest that if you look at the land use plans around that as well as the community sentiment the growth of the industry is questionable. So second leg of the stool not robust in terms of growing. I think we might be living with what we see is what we have. And the third part is construction. This period of time fascinates me because not only are you seeing this giant transformation in leadership. But for the first time since statehood on this island in the next few months the state land use commission is going to rule on two applications. One favor of hopefully in favor of the R Horton and one for Castle and Cook. The last two major land use initiatives that are open in urbanizing the land for the foreseeable future on a water. It's the same period of time that's few months. What that means is that for the first time since statehood everyone in this community can look at a plan and actually count the rooftops that are left on this island. You can count the parks the schools the square footage of retail office industrial. It's a it's going to be a firm metric against that you can then begin to apply historic utilization rates. And believe me at the Campbell company they study this daily. And so you can then get a projection of how many years it will be before we have consumed the rest of the urbanized land on this island. And failing the political and community will to urbanize the North Shore of Oahu or the Central Plain from Waiwa from Waiwa down to the Haleiva. Which has gigantic infrastructure and community resistance issues. It's my view that you're looking at the final blueprint for the growth of white. That's great news for some. But if you're in the construction industry you look out and see that's a 30 minute. I mean that's that's a 30 some year supply. If you're a young 20 something year old say I want to get into this business either as a professional as an architect an engineer a surveyor or a construction worker. You may say well 30 years that's my career but 10 or 15 years from now. Why would you enter that profession if you knew you were looking at the diminishing capacity to continue to build the velocity that we've grown relying on for the last 30 or 40 years. The governor I think spoke about this two years ago in her state of the state address saying that we had to disengage ourselves from the narcotic of the real estate cycles. And I think that now we can see how long that has to last. So you take those three together. I got new leaders looking at the past saying chief I'm not that curious about the past. How are we going to go forward in the future and where can it be different. The only thing that we know for sure is that all of this congestive change. We'll undoubtedly bring different relationship metrics and relationship dynamics that we don't know how they will unwind but they're not going to be the same as they have been over the last 30 years. I personally think as you know I'm a real estate developer all we do is change stuff everybody hates. You know I love change. Not everybody's enthusiastic about changes as developers are. But when you look at things like Beachwalk where we people don't realize that we shrunk the hotel inventory. We blew up 700 rooms and never came back. But you know old for new and that kind of stuff either we have a tolerance for or we're going to find ourselves trapped in the expectations of repeating yesterday. And my argument is that that's just not plausible. Where's a big wild card in this. To me one of the great disruptors positively and negatively is the Hawaiian issue. Gigantic. If the Cockabill passes out this session. We're going to be asked to build a whole nother we're going to do statehood all over again on a mini version. No one has any idea what that will mean. We don't know whether the rating agencies who provide rated capital to the state public comments will say cheese we don't know what that means. We're downgrading everybody's debt or they may say this is terrific because it takes the uncertainty off the table. If it doesn't pass you have the lingering uncertainty about how does the Hawaiian recognition issue get resolved. So uncertainty is not great. Certainly may not appear to be great but at least you know what it is. But I view the Hawaiian community potential for leadership as one of the real pluses. Very short amount of time but I'm going to give you my big five speech. When I came here in 1971 there were big five companies that were all agricultural based. You know who they were. Today there's a new big five. It's not new but there's another big five who are here and if you think about who they are might surprise you. Think of it in this term. Oh ha DHHL Lillio Kalani and you can pick one of these two categories you can pick the state of the James Campbell company who are entirely owned by Hawaiians or Queen Emma Foundation was left by for a Hawaiian legacy. Take your pick those five present value 1980 the big five public companies and those five they're almost exactly the same size. And so the potential that reside that resides in the Hawaiian community is enormous. The opportunity for leadership is terrific. I don't know where this is going. I'm very hopeful about why because it's such a special place but make no mistake that we're in the center of change and anybody who tries to stand in front of a train that's gone really fast generally has bad outcomes. So it's better kind of you know get on the train in the bus. One of the interesting things and I'll close with this at Herb Pernell said to me in this room as I said at the beginning when I asked him about the change he said you know when I saw economy slowing down the hardest thing to do was to muster up the intellectual courage to look at all the facts and say I think this is just not going to last. But it's like he said it was like being on a really crowded bus and everybody's wanting to get on the bus. He said I want to get off and everybody said why do you want to get off is a great ride. You know look at all the people are trying to get on. They can even get on the bus. It's so busy and he said having the courage to get off the bus and then the same thing in reverse which is where we are now is to get back on the bus. It takes leadership and the leadership of Hawaii in this transformation may find new traction going new directions. We're going to hear more about that this morning. I'm sorry that we can't have Q&A and I'm happy we can't have Q&A. So it's been a real treat to be here Jay thank you for allowing me to be here.