Weekend Interview: CBRE's Lew Horne On Industrial Regulations And How LA Can Solve Its Problems

This series goes deep with some of the most compelling figures in commercial real estate: the dealmakers, the game-changers, the city-shapers and the larger-than-life personalities who keep CRE interesting.

Lew Horne began his career at CBRE in 1984 and, after 40 years at the commercial real estate juggernaut, is a division president for advisory services at the firm covering the greater Los Angeles, Orange County and Inland Empire region. The region’s asset services, capital markets and valuations teams all fall under the umbrella of his oversight. 

His outlook on the region reads as cautiously optimistic. He’s a booster for SoCal and Los Angeles in particular, but he’s also quick to admit there’s work to be done to improve conditions for residents, businesses and commercial real estate. 

Horne spoke to Bisnow about pushback against commercial real estate in the form of looming industrial regulations and real estate transfer taxes, the challenges facing Los Angeles and whether the city seems to be up for those challenges.

Bisnow: When I meet people who have been through multiple cycles, who have seen the highs and the lows, I’m always curious how they view the market we’re in now. How does what you're seeing in commercial real estate now compare to what you've seen in previous years? 

Lew Horne: Everyone talks about back in the 70s [when there were elevated interest rates] but I would argue that the interest rate increase, when it went from 2% to 5% or 6%, was a more dramatic shift. It impacted everything – investment, real estate, building construction. And historically, those interest rates aren’t that bad. But what investors don't like and what developers can’t live with is uncertainty. So, if there's this perception that interest rates are really high and they're going to go down and that's going to impact value, you're going to have paralysis.

Bisnow: You cover Los Angeles, Orange County and the Inland Empire, and industrial real estate is big business here. There is a new bill on the governor's desk, AB 98, that would place significant new limits on where warehouses could be built in relation to homes, schools and other sensitive uses. What do you make of AB 98?

Horne: This is why we're very engaged with our civic leaders. A lot of the drivers around some of these policy changes are not as informed as they could be or should be. 

When you start making those kinds of restrictions and impacting industrial [real estate], whether it's distribution or manufacturing, you're impacting jobs. You're impacting the market in a way that's going to have other consequences, an impact beyond just that law or change — sometimes, an unintended impact. 

What we're trying to do as a company, what I'm trying to do with my team is to make sure that our civic leaders who are driving these laws at the city level, the county level and the state level are informed on all the consequences. I’m not a big fan of putting restrictions out there unless they’re really well thought out. 

Bisnow: To the point of getting involved with city and civic leaders, I've written about the industrial sector and how it’s kind of become a flashpoint for community pushback. How does CRE find a way forward on this issue? 

Horne: We've got to be mindful that the overall community is an ecosystem and you've got to have a balance — proper land use, proper zoning. It needs to be really thoughtful. 

Bisnow: Let’s turn to another polarizing issue: Measure ULA. You've been pretty vocal about your opposition to it and your hopes that the legal challenges to it would prevail. It seems like, as of now, the legal challenges and the repeal attempts have not yet been successful. If they don't ultimately succeed, how can CRE work within a Measure ULA universe?

Horne: The impact that it's having with investors goes back to my earlier comment around uncertainty. Measure ULA has created this uncertainty. All of a sudden, there’s a tax. It's not a transfer fee, it's a tax, and you've got to bake that into your numbers.

A lot of investors that we talk to, they're just very nervous about Los Angeles. There’s Measure ULA and there’s all of the other issues that go along with that: the difficulty around entitlements, the [California Environmental Quality Act] issues, the wage issues. We're seeing a lot of investors that are just saying, “We can't consider that. We're not going to consider a place where there's a lot of uncertainty.” 

Bisnow: We’ve talked a lot about things in LA that need to be improved, but I wondered, from your perspective, what is LA doing right? 

Horne: Listen, I've been and continue to be incredibly optimistic on Los Angeles and Southern California. What we offer to the world is incredible diversity, not just in our cultures, but also our ideas. Even with our issues – the shortage of affordable housing, our homelessness crisis – I think those are solvable issues. 

The mayor of Los Angeles has done a decent job, by the way, of reducing some of that red tape, but a lot more can be done to drive down the barriers to entry for housing. We've got to be able to get through a development project without a three-year or four-year delay for entitlements.

There are steps that are being taken now. I think I'd like to see that accelerated as much as possible, but these issues are solvable. 

Bisnow: Two of your children work in commercial real estate. I know high interest rates, inflation and other macroeconomic factors have made CRE challenging, especially for people who maybe don't have decades of experience watching cycles come and go. I'm curious if they've asked you for advice about how to get through this challenging time and what you’ve told them. 

Horne: One of my children sells office buildings, and she's selling quite a few of them. I think she's doing fine. It’s at rates that are not necessarily pleasing some of the selling investors, but certainly, the market will move. We’re starting to see a lot more trades, a lot of users who have a vested interest in local communities are buying because you can find properties today that are significantly cheaper than they were in the past. 

Bisnow: Give us a bold prediction for the rest of the year and beyond.

Horne: I think interest rates are going to drop. [They did.] I think that's going to spur a lot of activity. I think you're going to see well-located, well-managed, well-operated retail, office, industrial and multifamily flourish. I’m very optimistic. 

Bisnow: What is your weekend routine or favorite weekend activity?

Horne: My favorite weekend activity, by far, is being surrounded by my grandkids anywhere in  Southern California. I have four grandkids, with one on the way. We could be at the beach, at my home. But just being around my kids, around my friends, around my family.