Break Glass, Pull Pin – A Review of March & April at Hawaii Life
In the summer of 2018, I published a mid-year update detailing the back-to-back black swan events that Hawaii was facing that year, including massive flooding on Kauai and volcanic eruptions on the Big Island of Hawaii. These natural disasters were unprecedented, daunting, and consequential for our island communities and the Hawaii economy. From where we sit today, however, they seem to be in the far distant past relative to the magnitude of this year’s global pandemic. Especially in retrospect, since we ended up closing 2018 with $1.7 billion in sales, breaking every record we could have imagined for our company in the ten years since Hawaii Life’s inception.
Black swan events, by definition, are impossible to predict. They are outliers characterized by their extreme rarity and the outsized magnitude of their impact. As such, our team has spent the past few months responding as the landscape shifted under our feet and that of the global economy. I wanted to share a chronological unfolding of the events here at Hawaii Life since the beginning of March, as our leadership team has mobilized and marshaled a strategic plan to temper the potential longer-term effects of this 100-year event on our business.
I’m sharing this in the spirit of complete transparency because that’s how we have always operated and that’s how we will continue to operate vis-à-vis our clients, employees, agents, and our community.
On March 3 of this year, like many other Tuesdays, I woke up around 5 am, in time to catch the 7:39 am flight from Lihue to Honolulu. On arrival, I drove to our Kaimuki office for our weekly Oahu sales meeting. It was fairly well-attended—there were around 40 brokers and agents present. Since it was the first Tuesday of the month, the meeting was held at our Waialae Avenue location, which draws a slightly different crowd than other Oahu locations. Since I don’t attend every meeting, my presence may have also influenced the attendance.
I was a little thrown off by some surprising negative feedback privately issued by a newer agent about five minutes before the meeting began. Not a great way to start the day, especially since the general expectation of most sales meetings involves enthusiasm, enrollment, motivation, and positivity.
I had just returned from the CHRISTIE’S International Real Estate owners’ conference, where Lawrence Yun, the Chief Economist for the National Association of Realtors, had given a comprehensive (pre-COVID) presentation on the economy and its relative impacts on the housing market. I had his deck from the conference and was prepared to discuss some of the key points from his presentation. The general takeaways were that the economy was in good shape, home affordability was at an all-time high, and he didn’t see a recession coming in 2020 or 2021.
But there was already anxiety in the room. The U.S. had just reported its first coronavirus death over the weekend. There were 90,000 confirmed cases and 3,000 confirmed deaths worldwide. The stock market had been reeling since the week prior, posting its most significant losses in years. The Federal Reserve had just announced a surprise half-point rate cut, in an apparent effort to support the economy.
It’s going to get worse before it gets better.”
My focus in the meeting and at that time was on the economic implications of the situation. Whenever the stock market suffers massive losses, there are implications for real estate sales. I also wanted to be pragmatic. I made the statement that “It’s going to get worse before it gets better.” I was referring to both the public health crisis as well as the economic implications of it.
In my experience, salespeople have an extraordinarily difficult time processing bad news, however practical or real the news may be. I don’t mean this as a slight at all. I, too, am a salesperson. I can absolutely relate. The ability to remain optimistic in the face of challenges amounts to a superpower. It’s what makes sales possible. So it’s understandable that bad news might occur as a threat.
What I thought was my pragmatism in the meeting was not well-received. During the meeting, one agent ranted that any concern for the coronavirus was ultimately the result of a political stunt and that everyone was getting worked up over nothing. After the meeting, several agents told me that they come to the meetings to get motivated, not “depressed”. Another announced sarcastically on her way out, “Wow, bummer times!”
March 4 & 5
The following morning I flew to the Big Island for meetings in Kona. I had a couple of days of meetings lined up on the Big Island, one of which was at an estate we were auctioning with Concierge Auctions in Holualoa on the Big Island. Bidding was going to start on Friday of that week and I was coming in to see the house, meet the project manager, and a few of the prospective bidders.
One of the registered bidders for the auction was an international businessman. He’s in the hospitality business throughout Hawaii and in many countries in Asia. He was at the property when I arrived, standing with the project manager, watching the news on his laptop. We spoke briefly about the house, about Hawaii, and the impact, if any, of the coronavirus on the bidding at the auction. He told me that he’d been through a very challenging few months of business in Asia and that the U.S. “has no idea what’s coming.” He foresaw a wholesale shutdown of the hospitality business.
Exponential Growth is a Difficult Concept to Grasp.”
He went on to say that “exponential growth is a difficult concept to grasp.” To illustrate, he took one of the 6” x 9” marketing postcards from the table in the foyer and asked, “Do you know how tall this would be if you were to fold it 50 times?” It felt like a parlor trick. I told him I didn’t. He asked me to guess, which led to me to say “20 feet”. He said, emphatically, “it would easily reach the moon, and that’s the part that nobody understands.”
I left feeling concerned for what was coming—wondering what would happen if flights stopped flying—if tourism in Hawaii were to stop, however briefly. If the economy would continue to slide. But I wasn’t panicked. I chalked it up to high-level business insight and not really much more.
I finished my meetings on the Big Island and flew home on Thursday night.
Break Glass, Pull Pin
By late February, Hawaii Life was facing cash flow challenges due to the exorbitant costs of an ongoing lawsuit. An estranged member of the company had been expelled for cause by the Hawaii courts, and even though we were “winning” for all intents and purposes, the resulting legal costs were forcing the company to significantly tighten its belt. The stock market’s contraction wasn’t helping matters, either.
On Friday, March 6, I regretfully conducted a first round of layoffs and contract renegotiations. It wasn’t the first time I’d had to lay off an employee or eliminate a position—but it was definitely the first time I’d had to conduct multiple layoffs on the same day. Most of the guidance I’ve been given regarding how best to lay off an employee includes not sharing how it feels personally, since my feelings, as the boss, aren’t relevant—and they likely pale in comparison to how the employee feels.
I was riddled with anxiety and adrenaline. These were not easy calls. Even though our employees handled it with grace and composure, it was among the more difficult things I’ve had to do professionally.
On Saturday, March 7, I had a meeting with the trustees of a very large listing I share with our team. I don’t usually take meetings on the weekends, but since this was the only time that worked for their schedule (and mine), we agreed to meet at Hawaii Life’s headquarters on Saturday morning. It was the first time someone refused to shake hands in light of the virus, and we sat farther apart than we otherwise would. It occurred as an unusually cold meeting as a result, despite the content of our discussion.
That evening, my wife and I had an important decision to make. I was expected to fly to Las Vegas to be a speaker at the Luxury Portfolio International (LPI) annual summit. Infections had already spiked in Europe and the U.S. had reported its first death. I knew there were already attendees canceling. I had a long conversation with Stephanie Anton, LPI CEO, about the challenges of organizing a conference for attendees from all over the world during the early stages of a global pandemic. Having produced the Worthshop Series for nearly a decade, I know firsthand what it’s like to have speakers cancel at the last minute. Stephanie has been a friend and a colleague for many years. I didn’t want to let her down.
If my wife weren’t planning to join me, though, I probably wouldn’t have gone. I had been traveling a lot already in 2020—and it was a strain on our marriage and my psyche. But since it was Vegas, and we might at least catch a show and a few nice meals, she was expecting to go. We decided that in the event of a travel ban or any challenges on the road—at least we’d be together.
Once we got to Vegas, things grew progressively more intense. The day we arrived, Italy announced a country-wide quarantine. Midway through the conference, the Dow had fallen more than 20% from its last peak in early February, and Trump had suspended all travel to the U.S. from Europe.
One of the first events I attended as part of the conference was a lunch of 30-35 top-selling brokers and agents from all over the world, primarily from North America. There was a short presentation and a Q&A by the Luxury Portfolio staff, and afterward, the brokers and agents engaged in a robust discussion. I found myself in yet another room of salespeople, all exhibiting a palpable denial about our current circumstances, even though we were still entirely unaware of the insanity that would follow in the coming months.
All of the tropes came out:
“This thing will be short-lived.”
“The market will be back quickly.”
“We’re having the best first quarter we’ve had in years.”
The only reason “v-shaped recovery” didn’t pass anyone’s lips was because there wasn’t yet anything from which to recover. Optimism abounded.
I tried to push back. In no uncertain terms, I made it clear that I thought everyone in the room was grossly underestimating the impacts of this virus. I may have made a name for myself as the most bearish person in the room. If not just bearish, maybe even resigned and cynical. I promised Stephanie I wouldn’t be so pessimistic on the main stage.
When I finally went on stage, I was speaking to a room that was only 60% full. I don’t think my presentation was exactly “on” (even though I never really do). But I had the good fortune of leaning on my co-presenter, Jeff Hyland of Hilton & Hyland, and his stunning images of very high-end homes in Beverly Hills that he’d recently sold.
Out of an abundance of caution, I didn’t attend most of the group functions at the event. My wife and I joked that we were spending our time in Vegas huddled together in our hotel room, working remotely. When we did go out for dinner one evening, we happened to choose the same restaurant where a group of Hawaii Life’s brokers and agents in attendance at the conference were dining. My wife, Elif, who hadn’t yet met many of them, had her first social distancing challenge when she politely declined hugs from a few of them (hugging is a thing in Hawaii.)
On March 12, on the final day of the Luxury Portfolio Conference, I drafted an email to all of the employees in our company suspending all business-related travel and asking everyone who could to work from home. It’s important to note that Hawaii Life operates on five different islands. Our leadership team travels almost daily around the state, so this was a relatively significant decision.
That evening, we learned that the NBA became the first major U.S. sports league to permanently suspend their season because of the pandemic. On the following day, March 13th, the President declared a national emergency. The reality of the situation was quickly growing much more serious. My wife and I were planning to spend the weekend in Los Angeles to see family before flying home to Hawaii. Given the pace of everything, we elected to forego the family visit and come home sooner.
As we were leaving Vegas, we had a conversation with our airport shuttle driver about coronavirus and everything that was going on. He said that Vegas would be fine because people can always drive there and that the city was looking forward to the upcoming NCAA tournament since it would bring a lot of business to town. I couldn’t bring myself to say how unlikely I thought that was.
On the evening of Friday the 13th, I sent my first pandemic-related email to the entire company. We canceled open houses, asked the entire company to work from home, and outlined social distancing behaviors for contract-related meetings and inspections.
Given that it was the weekend, and many of our brokers and agents were planning on open houses for the following Sunday, my email prompted a lot of very awkward conversations. I didn’t expect to have to convince anyone that it was a good idea to forego inviting the general public into our clients’ homes. But the reality hadn’t fully settled in yet, and many people were struggling with how best to respond.
The anxiety inside the company, and across the state, was quickly growing.
We were still in aggressive contraction-mode. As the news continued to pour in, I was making ongoing layoff calls and compensation renegotiations. On March 16, we cut the compensation of our Brokers-in-Charge by 30%.
Our Vacation Rental Management business was hemorrhaging. Our team was processing hundreds of vacation booking cancellations. We were caught between our clients, the homeowners whose homes we manage, and their prospective guests. Kahea Zietz, the Broker-in-Charge of our Property Management and Vacations Division, was navigating a full-blown business meltdown. Her team became a sounding board for deeply concerned and financially-threatened visitors and the collective emotional stress that came not only from canceling a vacation but also from the global pandemic.
To add to the confusion surrounding vacation rentals, Airbnb made a unilateral decision to refund all guests regardless of any cancellation policies set by owners, thus creating an expectation for every guest and making it difficult for us to enforce the cancellation policies in our owners’ contracts. After an extraordinary amount of blowback and negative press, Airbnb realized their decision ultimately damaged their most important relationships (i.e., the vast majority of their supply). They subsequently offered their hosts 25% of the amount they would have received on the date of cancellation.
Every individual booking and cancellation had different circumstances and different demands. Some guests had travel insurance; most did not. Some were content to rebook their stay for another time later in the year – many did not. Some of our clients, the homeowners, were adamant that the guests honor the contract’s cancellation policies, others agreed to full refunds. Our team did their best to handle each individual booking with care.
By the end of March, we had canceled 463 vacation rental bookings and lost over $400,000 in commission revenue. It was not an easy situation, and it was still ongoing.
On March 17, I received an internal message from one of our top-selling brokers:
“That this email about leasehold contracts is the only thing I’ve heard from the company speaks volumes.”
I knew him well enough to realize that this was a legitimate complaint. He was referencing an email that I wasn’t yet aware of, but after a little digging, I found a mundane email to all the agents in the company from one of our BICs about a contract procedure for leasehold properties. No mention of coronavirus or the economic downturn.
Point taken. Now was not the time to be tone-deaf.
It was totally inappropriate for us to be so out of touch with our own crew. We had all been head-down in business triage – but now, more than ever, we needed to be overcommunicating with everyone in the company. (Which, I’ll confess, has never really been my style.)
I called an all-hands meeting of our Brokers-in-Charge and we got into action. We formed four committees designed to share information and communicate with the company: Education, Brokerage, Communications & Training, and Philanthropy. We developed a schedule and a format to communicate on these topics, daily, with the rest of the company.
On March 19, I sent my second company-wide email regarding the coronavirus. We formally closed all of our offices around the state, as well as drafted contract addenda for both listing and purchase contracts to provide flexibility for our clients in light of the ongoing proclamations, stay-at-home orders, and travel bans. We outlined the weeks to follow and our commitment to keeping everyone updated.
Also on March 19, the Governor of California, Hawaii’s largest feeder market for both tourism and real estate, issued a statewide order for people to stay in their homes. The State of Hawaii announced that it was closing all K-12 schools across the state.
That Friday, March 20, the stock market closed out its worst week since 2008. The Dow sank 900 points. New York State joined California, ordering all residents to stay in their homes unless they had vital reasons to go out.
Our Creative Team launched a Covid-19 Resource Page on Hawaiilife.com, with a comprehensive FAQ section, video posts, and links to resources. It’s an incredible body of work, and it’s been very highly-trafficked and well received by our clients, brokers, and people in the real estate industry.
That same Monday, our employee leasing company, ProService Hawaii, informed us that they would require either a direct wire transfer or a cashier’s check to process payroll for the company. Apparently, they were concerned that since so many companies were facing cash shortfalls, they might be in a situation where they funded our payroll before our ACH deposit cleared their bank. Even though Hawaii Life has never bounced a check or missed a payroll in the company’s history, I was now expected to physically go to our bank and organize payment in order to make payroll… by no later than Wednesday.
Anyone who knows me well knows that waiting on unnecessary bureaucracy (i.e., sending a wire at the bank) is not exactly one of my strong suits. I physically went into the Bank of Hawaii branch in Princeville that week to meet with an employee who was wearing the equivalent of welder’s mask in order to organize a wire transfer to ProService’s account so that they could proceed with our payroll.
That same day, Governor Ige issued the third in a series of emergency proclamations, ordering the entire state to stay at home and work at home and defining “essential” businesses. Vacation rentals across the state were effectively banned with this new order.
The Board of the Hawaii Life Charitable Fund voted to match the next $40,000 in donations to the fund and donate the entire amount to the Hawaii Resilience Fund at the Hawaii Community Foundation. Their decision remains one of the most moving and inspiring actions our company has taken in response to the pandemic.
The Hawaii Resilience Fund was established by the Hawaii Community Foundation on March 18th with the stated purpose to rapidly deploy resources to community nonprofits and healthcare providers working to address the impacts of COVID-19 in Hawai‘i.
We are still raising funds towards our matching pledge. Donations can be made at give.hawaiilife.com
A mandatory 14-day quarantine is put in place for all incoming air and cruise ship passenger arrivals.
On April 3, the property on the Big Island which was sold at auction closed escrow for a sale price of $3,725,000. There had been a total of 10 bidders and more than 30 individual bids in the process. Hawaii Life has conducted more than 30 auctions with Concierge Auctions over the years and I’ve never seen a larger field of bidders. To provide some context, it appears that what’s happening in the world may create more demand for Hawaii’s high-end real estate.
We spent the first few days of April scrambling to apply for the Payroll Protection Program. We had innumerable questions about the application and had to sprint to get our books in order to apply. We had an emergency session with financial advisers on Saturday, April 4, and submitted our application later that day.
We elected to apply not through our bank, but rather through American Savings Bank (ASB), where our employee leasing company, ProService banks.
Two weeks later, that posed an interesting challenge when the application finally came through their system. Because Hawaii Life doesn’t bank with ASB, we had to verify our identity and the existence of our company, which meant driving to Puhi (about an hour’s drive) to their corporate headquarters with our Articles of Incorporation and other business documents—in person, with our drivers’ licenses.
Similar to the need to send a wire transfer in order to make payroll, the idea of endangering ourselves to process bank paperwork wasn’t exactly appealing—and that’s when the beauty of Hawaii’s relationship culture kicked in. It turns out that the woman in charge of processing our loan had taken a Leadership Kauai course with my wife. Leadership Kauai is a nonprofit organization that takes a class of 15-20 adults through an intensive, 10-month mobile classroom program that consists of leadership development and networking. She graciously agreed to verify my identity by way of a Facetime call with me and my wife and accepted our documents via email. Our loan was approved, and the funds were wired.
That Friday, I made the most intense decision I’ve made in the history of the company. I laid off all of our Brokers-in-Charge responsible for sales—twelve brokers across the state. Effective immediately, all contracts would be routed to Rhonda Hay, Hawaii Life’s Director of Operations. I would be the only person in the company with the authority to sign on or sign off brokers or agents to the company.
It still wasn’t the last round of layoffs we had to go through, unfortunately, but our team took it incredibly well. They’re still leaders in our company—helping to guide our salespeople and clients through this crisis.
I didn’t foresee the competitive blowback that this move would create. Word got out among our competitors that we had laid off our leadership team, and the recruitment efforts picked up intensely. Nearly every one of them has since been aggressively recruited by our competition, along with most of our salespeople.
Perhaps somewhat counterintuitively, Hawaii Life has never really been much of a recruiting company. I’m certainly well aware of the adages in residential real estate about the importance of recruitment and retention, but our focus has always been on our product—our service. We’ve let the results speak for themselves, and that’s what has attracted people to work with us.
It’s humbling that none of our team has jumped ship and it’s a testament to our culture – to the company culture they created.
On April 17, Neal Norman closed a sale in Hanalei in which we represented both the buyer and the seller, at a sale price of $36,750,000. It was an arduous transaction that took many months to organize, but the fact that it was initiated and closed all during the pandemic provided a glimmer of a silver lining.
April was a challenging month, adjusting to the new normal. Like most organizations, we hosted innumerable virtual meetings, keeping our teams informed and staying abreast of the unfolding situation. We’ve definitely connected more virtually than we were meeting in person before the pandemic.
Even while the vacation rental cancellations continued (with another 443 cancellations in April and 256 so far in May) the value of having on-island property managers became very obvious to our property management clients. We were able to monitor their homes and navigate the cancellations in real-time, providing a degree of service that didn’t happen with some of the big-tech booking platforms (Airbnb and VRBO, for example).
On the real estate sales side, we’ve canceled 143 real estate transactions on behalf of clients, for over $139 million in total sales to date since March. For context, we successfully closed $436 million in sales in the same period. That our team was able to keep approximately 70% of our sales volume together is incredible.
At a news conference on Monday, May 18, Governor Ige unveiled a four-phase plan for reopening Hawaii’s economy, announcing that “medium-risk” businesses and activities would be allowed to resume operations in early June, with social distancing measures in place. For the most part, Hawaii residents have been very compliant with these measures, resulting in the lowest mortality rate in the country and one of the lowest rates of infection, as of this writing (following only Alaska and Montana).
Our success in flattening the curve in Hawaii has come at a very high price, though. Honolulu’s Civil Beat reported on May 26 that Hawaii’s official unemployment rate stands at 22.3% for the month of April, noting that there are flaws in the survey methodology. Even if a conservative estimate, that’s one in four residents in a state that relies heavily on the tourism industry to buoy our economy. The tourism sector makes up more than 20% of Hawaii’s economy and provided almost $18 billion in revenue, more than 200,000 local jobs, along with more than $2 billion in state tax revenue in 2019. (Source: Hawaii Tourism Authority).
In Hawaii’s real estate sector, listing inventory in most of Hawaii is down nearly 40% compared to the same period in 2019, which was considered a relatively low inventory year. There is an obvious backlog of listing inventory set to hit the market once the stay-at-home orders are finally lifted.
Despite the extended stay-at-home orders, the 14-day quarantine period for incoming travelers, and the economic downturn, we’re still listing and selling real estate. We’re conducting virtual showings, either with 3-D Matterport technology or video walkthroughs. We’ve managed to close a remarkable 636 transactions for our clients this year, and we still have 246 pending transactions.
Many of us have developed a renewed appreciation for our homes and for Hawaii. Of all the places in the world—our isolation in the middle of the Pacific became our strongest protection, especially when coupled with our island culture of caring for our neighbors. Our aloha for our community has kept us relatively safe from harm. We’re so fortunate to be here.
We don’t yet know how the timeline of this pandemic will map itself out. It’s still a moving target. There may still be more surprises on the horizon. The economic forecasts alone are fairly daunting.
We started Hawaii Life in May of 2008 and signed our Articles of Incorporation on May 30 of that year. We knew then to focus on our product and our people. To pay attention. That focus paid off.
Now our greatest challenge—as human beings and as a collective—is to extract meaning from this mayhem. What we’ve learned from the events of the last few months will inform how we’ll operate in the unwritten chapters ahead—both as a business and as a community.