Why Building a Crosswalk in LA Is Kafkaesque

The episode opens with Bill McBride, a legendary housing market analyst who called the 2008 subprime crisis and subsequent recovery, and Zach Lazary, founder of The Western Company, discussing LA's unique real estate landscape. Lazary, who comes from a theater background, expresses frustration with uninspiring commercial developments and aims to infuse real estate projects with artistic vision, similar to how A24 approaches filmmaking. He contrasts LA's surprising abundance of independent businesses—mom-and-pop shops, donut stores, linoleum emporiums—with New York's higher density and costs, attributing LA's diversity to affordability that allows creative professionals to survive. McBride adds that LA's spread-out density, compared to New York's concentrated urban model, enables this ecosystem to flourish. Lazary describes his approach to finding tenants as curating artists with vision rather than chasing reliable chains like Shake Shack. When asked about profitability versus taste, he notes that real estate retains value even if individual tenants fail, unlike film where lack of audience means total loss. On zoning, McBride highlights California's housing crisis and recent progressive policies like ADU (Accessory Dwelling Unit) laws that allow secondary units on residential properties, though he notes these represent only modest increases to housing stock. He points out that California has prevented density reduction in beach communities despite wealthy residents buying multiple homes to build mansions. Lazary's vision centers on aggregating multiple properties to create complete neighborhoods, inspired by Jane Jacobs' concept of the 'sidewalk ballet' in Greenwich Village, where culture emerges naturally from mixed-use development. He identifies LA's critical problem: approximately 95% of the city is residentially zoned, meaning when main streets lose their commercial vitality, residents have nowhere else to find culture or independent businesses. The conversation touches on the bizarre bureaucracy of municipal infrastructure—getting approval for a simple crosswalk involves million-dollar engineering requirements, underground electrical vaults, and multi-year timelines. Lazary describes this as 'Kafkaesque.' On the commercial real estate industry's current crisis, Lazary argues that financial engineering and cap rate arbitrage no longer work in the current interest rate environment, forcing developers to actually create desirable products. He notes that rents are increasing in their development areas because they've invested in quality and talent, whereas most new LA apartment buildings inspire indifference rather than excitement. The hosts raise the parking paradox: LA requires cars and thus parking, yet large parking areas destroy neighborhood aesthetics. McBride mentions that ADU construction has worsened street parking in some neighborhoods. Lazary, lacking driving experience from his NY upbringing, acknowledges this as his 'biggest blind spot,' but notes valet services can mitigate the issue. Discussion of self-driving cars emerges as a potential game-changer that could eliminate garages, reshape house design, and reduce police interactions. On supply chain challenges, Lazary explains that developers must now compete fiercely for construction materials like transformers, requiring relationship-building with suppliers and advance purchasing with storage requirements. The episode closes optimistically, with both speakers bullish on LA's long-term prospects, though acknowledging two major challenges: housing affordability and California's water crisis.