Nelson Rising
Company: Catellus Development Corp.
Title: President and Chief Executive
Born: Queens, N.Y., 1941
Education: Bachelor’s degree in economics from UCLA; law degree from UCLA School of Law
Most Admired Person: Warren Christopher “I got to know him at O’Melveny & Myers and I’ve admired his intellect and humanity over the years.”
Turning Point in Career: When he decided to discontinue practicing law, and go into business
Hobbies: Golf
Personal: Married, three children
Nelson Rising has been a major force behind some of the biggest real estate projects in Los Angeles and San Francisco in recent years. Before joining Catellus Development Corp. in 1994, he was a senior partner with Maguire Thomas Partners, one of the most powerful and prolific L.A. developers during the 1980s building boom. While there, Rising was the partner in charge of Library Square in downtown L.A., a project that includes the West’s tallest office building, and Playa Vista, the community being developed near Marina del Rey. He is now spearheading the massive Mission Bay project in San Francisco, and eventually will undertake yet another major commercial development near L.A.’s Union Station. In 1998 alone, Catellus has invested about $450 million in new capital projects.
Question: Where are we in the real estate cycle?
Answer: I think it would be foolish to ignore the fact that financial markets are still experiencing some turmoil. There’s a legitimate concern about what’s going to happen with the Japanese economy and what impact the Asian economic situation will have on the rest of the world. So this instability, coupled with the financial turmoil, has many people concerned about the impacts in the U.S.
My personal view is that the economy is stronger than it’s being perceived. I think it’s going to be a soft landing and I don’t think we’re going to go into recession. But if we do, I think we’re better able to deal with it today, as an industry, than ever before because of the supply-and-demand equilibrium in most product types. So it’s not as if we’re back in the early ’90s when every product type was overbuilt, and then you had a recession.
Q: What was the biggest difference between going from an entrepreneurial firm like Maguire Thomas Partners to a big public company?
A: The big change was to deal with an entrenched organization. One of the first things I did was to make significant structural changes. We did a 50 percent downsizing of the workforce and recruited the best entrepreneurial talent in the industry. My goal was to be an entrepreneurial company that happens to be public. That doesn’t mean we have to be ineffective and bureaucratic. We have now done so many more things than before. We have greatly expanded our activities into new markets.
Q: Besides downsizing and recruiting entrepreneurial talent, what other moves did you make after coming on board?
A: (We looked) at our vast portfolio of non-income-producing land assets. The ones that were non-strategic we sold and re-deployed the capital into more strategic efforts. We also restructured our balance sheet. Then we set about to become developers. We went from (developing) 400,000 square feet in my first year here to well over 4 million square feet in 1998, and we acquired a residential group. We set about to look at the entitlements of our major mixed-use projects and see if they made any sense. Then we established a growth strategy as to what new markets we wanted to be in.
I think the results have been quite extraordinary. Our earnings and the value of our assets have increased, our balance sheet has been improved, and we are poised to be a very successful, growth-oriented real estate operating company.
Q: Since you’ve done big projects in L.A. and San Francisco, how do the two places compare in terms of getting entitlements?
A: Each city has different rules but in the last analysis, it takes about the same time to work through a complicated approval process in both communities. I would be hard pressed to say Los Angeles is tougher or easier than San Francisco. My favorite thought on the subject is that entitlements in California is not rocket science it’s much more complicated than that. That applies equally to the Bay Area and Southern California.
Q: Have you found it tougher to get projects approved as neighborhood groups have become more vocal?
A: I don’t think it’s gotten more difficult. It’s been at a steady level for a couple of decades. But I think the developer really needs to assess what the legitimate public policy objectives of the jurisdiction are. If they can’t meet those public policy objectives with the project, they should think twice about doing it. My experience in the past has been, if you address the concerns, it’s a process that takes time, but there is light at the end of the tunnel.
Q: One idea of the Appointed Charter Reform Commission is to have area planning commissions. As a developer, would you favor that?
A: One of the most important things any urban city or county should do is to get to the point where there’s an overall environmental review done for the area. Land uses are designated and the traffic, storm drainage implications, water, sewer and utility issues are all analyzed. So developers and residents know what the ground rules are when they walk in, as opposed to having individual EIRs done for individual projects. That’s a very inefficient process.
What I’m suggesting is a very efficient process. Whether it’s with three planning commissions or one, I think the process can move ahead, so people will know what they’re getting into when they move into a neighborhood. That could be done with a small charge to each parcel that pays for the master environmental impact report.
Q: How should the region accommodate future growth?
A: There are areas that should have density and they’re called cities. Since World War II in Southern California and Northern California, we have followed the notion that the preferred environmental solution was low density. And what that gave us was urban sprawl. What we should have is densities located near transit corridors and allow a mixture of uses so that jobs can be located close to residences and retail uses can be close to the residential. Past zoning patterns have distributed the uses and have had a bias toward low density, which caused the umbilical cord to go farther and farther out, so we’ve stretched our transportation and air resources to the breaking point.
Q: What are Catellus’ future plans for development around Union Station?
A: Union Station is the center for transportation in Southern California and as we become more transit dependent, this will become a preferred location for office users. Someone can locate an office at Union Station and have a workforce coming from diverse places.
Having said that, the next question is, when will it be a viable office location? The downtown market still has vacancy to absorb and until that vacancy burns off, rents will not be at the level that will justify new building. Whether it’s 1999 or 2000 or 2001, I haven’t got a crystal ball. But you really can’t justify building an office building today without being able to get rents that are higher than the current market. We’ll be responsive to the market. We’re hard at work on various plans and alternatives. Markets have a tendency to change quickly, so we want to be ready for that.
Q: Did you suffer any fallout as investors perceived that real estate was becoming overbuilt?
A: The entire real estate sector has been devalued in the public marketplace over the last 120 days. There was a perception that there was going to be a slowdown or recession, and the last time we had a recession, real estate did not do well. I don’t think one can conclude fairly that it won’t do well in the next recession because the conditions are totally different. In the recession of the early 1990s, you had the macroeconomic recession with very high interest rates, relatively high inflation and virtually every product type in real estate overbuilt. At the same time, the business services sector was contracting because of the benefits finally being realized of the information technology. So the demand for office space went down, particularly in California. There was another concern (this year) that the industry was about to start overbuilding. That has not materialized. I think if you look at real estate today, it is probably as underpriced as it’s been in a very, very long time.
Q: Why did you decide to stop practicing law and go into business?
A: I was a very serious law student and I spend a lot of my time today with lawyers, so it wasn’t that so much. It was just that I was very interested in business and had always been, and I found that with my skills and talents it was more challenging.
Q: With Catellus based in San Francisco and projects underway all over, what is your schedule like?
A: I’m usually in San Francisco three days a week. On a typical week, I’m in L.A. two days. But a typical week does not find me in California the whole time. I’m in Denver, Portland and Chicago, and I need to deal with the investment community on Wall Street. It’s a rather nomadic existence.
Q: Doesn’t that get tiresome?
A: The biggest concern is being away from my family. There’s no way that can be made any easier. The largest challenge is, how does one maintain an efficiency while traveling? With a combination of voicemail and cell phones and faxes and e-mail, it’s easier than 20 years ago. It does have a price. But on the other hand, if you have a company that is in diverse locations and you have to deal with being a public company, travel just goes with the territory.
