WILLIAM T. PHILLIPS
An Oral History conducted by Larry N. Horton
STANFORD HISTORICAL SOCIETY ORAL HISTORY PROGRAM
Stanford University ©2019
Courtesy of Bill Phillips
William T. Phillips
Contents
Introduction p. 7 Abstract and Topics p. 9 Biography p. 11 Interview Transcripts p. 13 Curriculum Vitae p. 87 Interviewer Biography p. 89
5 6 Introduction
This oral history was conducted by the Stanford Historical Society Oral History Program in collaboration with the Stanford University Archives. The program is under the direction of the Oral History Committee of the Stanford Historical Society.
The Stanford Historical Society Oral History Program furthers the Society’s mission “to foster and support the documentation, study, publication, dissemination, and preservation of the history of the Leland Stanford Junior University.” The program explores the institutional history of the University, with an emphasis on the transformative post-WWII period, through interviews with leading faculty, staff, alumni, trustees, and others. The interview recordings and transcripts provide valuable additions to the existing collection of written and photographic materials in the Stanford University Archives.
Oral history is not a final, verified, or complete narrative of events. It is a unique, reflective, spoken account, offered by the interviewee in response to questioning, and as such it may be deeply personal. Each oral history is a reflection of the past as the interviewee remembers and recounts it. But memory and meaning vary from person to person; others may recall events differently. Used as primary source material, any one oral history will be compared with and evaluated in light of other evidence, such as contemporary texts and other oral histories, in arriving at an interpretation of the past. Although the interviewees have a past or current connection with Stanford University, they are not speaking as representatives of the University.
Each transcript is edited by program staff and by the interviewee for grammar, syntax, and occasional inaccuracies and to aid in overall clarity and readability--but is not fact-checked as such. The approach is to maintain the substantive content of the interview as well as the interviewee’s voice. As a result of this editing process, the transcript may not match the recording verbatim. If a substantive deletion has been made, this is generally indicated at the relevant place on the transcript. Substantive additions are noted in brackets or by footnote.
7 All uses of the interview transcripts and recordings are covered by a legal agreement between the interviewee and the Board of Trustees of the Leland Stanford Junior University (“Stanford”). The copyright to the transcripts and recordings, including the right to publish, is reserved by Stanford University.
The transcripts and recordings are freely made available for non-commercial purposes, with proper citation provided in print or electronic publication. No part of the transcripts or recordings may be used for commercial purposes without the written permission of the Stanford University Archivist or his/her representative. Requests for commercial use should be addressed to [email protected] and should indicate the items to be used, extent of usage, and purpose.
This oral history should be cited as: Phillips, William T. (2018). Oral History. Stanford Historical Society Oral History Program Interviews (SC0932). Department of Special Collections & University Archives, Stanford Libraries, Stanford, Calif.
8 Abstract and Topics
Bill Phillips served Stanford as director of Real Estate through its transition from the University Treasurer’s Office to the Stanford Management Company. In this oral history, Phillips recounts how he came to Stanford and how real estate operations at Stanford have changed in size and structure during his tenure. Projects discussed include the Stanford Research Park, Sand Hill Road improvements, the Stanford Shopping Center, the Rosewood Hotel, the Stanford Redwood City campus, and the expansion of the Stanford Hospital and the Lucile Packard Children’s Hospital.
Part 1 p. 13 [00:00:00 – 00:30:30] Growing up in Philadelphia, Pennsylvania • Attending University of Colorado at Boulder • Developing an interest in real estate • Attending MBA program at UC Berkeley in the 1960s • Impact of Professor Sherman Maisel • Working for Draper Companies, a shopping center development company • Traffic studies • Consulting work for a firm in Denver, Colorado • Returning to the Bay Area with Dillingham Corporation • Forming a new real estate consulting and investment management firm with ties to United Kingdom investors • Entitlement processes on the West Coast
[00:30:31 – 01:00:08] 1980s dip in real estate values • Coming to Stanford as director of Real Estate • Decision to take a pay cut to work at Stanford • Treasurer’s Office on Hamilton Avenue • Working with Rod Adams, head of the Treasurer’s Office • Structure of the Treasurer’s Office in the 1980s • Stanford Research Park • Formation of the Stanford Management Company in 1990s
[01:00:09 – 01:30:16] Working with Laurie Hoagland and Diane Healey after the creation of the Stanford Management Company • Changes in Real Estate Division under Curtis Feeny • Sand Hill Road improvement and expansion projects • Working with the City of Palo Alto • Land use in the Stanford Research Park • Risk in real estate
9 [01:30:17 – 01:56:57] History of the Stanford Shopping Center • Decision to sell a managing interest in the Shopping Center to Simon Properties Group • Tenants in the Stanford Shopping Center, including Edwards Luggage • Changes at the Shopping Center
Part 2 p. 55 [00:00:00 – 00:30:25] Political process of Sand Hill Road improvements, including ballot measures O and M • Building of the Rosewood Hotel in Menlo Park • Lands owned by Stanford • Dealing with City of Menlo Park
[00:30:26 – 00:59:55] Complexities of building hotels • Impact of 2008 Recession • Stanford’s advantages in real estate • Stanford Redwood City land purchase and development
[00:59:56 – 01:25:29] Stanford Hospital’s need for expansion and redevelopment • Town- gown relationships surrounding land use and development • New Stanford Hospital and Lucile Packard Children’s Hospital • Appreciation for Rod Adams, Laurie Hoagland, Curtis Feeny, and Andy Coe. • Reflections on growth of income from real estate and impact on university
10 William T. Phillips Biography
Bill Phillips joined the Stanford Treasurer’s office as Director of Real Estate Investments in May 1987. He became Executive Director of Real Estate when Stanford Management Company was formed in 1991. In 2006, he became Senior Associate Vice President of Land, Buildings and Real Estate. He was granted emeritus status in 2015 on his retirement from Stanford.
Prior to Stanford, Phillips was Executive Vice-President of Pacific Realty Advisors, which acquired and managed its real estate for UK pension funds and insurance companies. Before that he worked for Dillingham Construction Corporation in San Francisco. Phillips received his BS from the University of Colorado, Boulder and his MBA from UC Berkeley.
11 12 S T A N F O R D U N I V E R S I T Y
PROJECT: STANFORD STAFF ORAL HISTORY PROJECT
INTERVIEWEE: WILLIAM T. PHILLIPS
INTERVIEWER: LARRY N. HORTON
DATE OF INTERVIEW: JULY 24, 2018
PART: 1 OF 2
Horton: This is an oral history of Bill Phillips. I am Larry Horton conducting the
interview on the 24th of July, 2018. Bill, what year did you first start working
at Stanford?
Phillips: In 1987.
Horton: 1987. When did you retire from Stanford?
Phillips: In February of 2015.
Horton: We will then have quite a time discussing all those years. Now let’s find out
about your life before coming to Stanford. Tell us about yourself.
Phillips: [00:00:48] Well, I was born in January 1941. I was actually born on Franklin
Roosevelt’s birthday, which kind of shocked my mother since she was a
staunch Republican. I grew up in Philadelphia and went to school in
Philadelphia at a Friends’ school--Friends’ Central. My father was Quaker.
My mother was Roman Catholic so that was a strange mix of religions
brought together in one marriage. The time I spent at the Friends’ School in
Philadelphia was all my time basically in elementary, junior, and high school.
It was a very small school. I think my graduating class was about fifty people.
13 Horton: Did you have a football team?
Phillips: [00:02:17] I was on the football team, and I was also a member of the track
team.
Horton: With a school of fifty-three graduates, I was wondering if you had the
manpower to field a team.
Phillips: [00:02:37] Yes. It didn’t have to be a specialty team either. We had to play
both ways, for sure. I graduated in 1958. Everybody from my graduating
class pretty much went to another small college, usually back East. My
parents had moved to Denver, Colorado, two years before I graduated, even
though I stayed in Philadelphia, so I went back to Colorado. I was really
longing for a big school experience. I went to the University of Colorado at
Boulder. Like so many people that go to Boulder, I was enthralled by the
western vibe: the bigness of the country, the blueness of the sky, the snow
that comes down is perfect and then disappears, all the things that were very
opposite to what you had in terms of Philadelphia environment and climate.
I graduated from University of Colorado at Boulder in business
economics and then I decided to try and go to a school with an MBA
program that emphasized real estate. That was because I had been taken by
architecture when I was in the last few years of high school and also while I
was at the University of Colorado. The engineering part of architecture didn’t
appeal to me that much but the real estate part of architecture was very
appealing.
Horton: You liked deciding and the business transactions around real estate?
14 Phillips: Yes, exactly, and development, the realization of a negotiation, a concept, an
idea, in terms of actually seeing something at that kind of scale.
Horton: Were you exposed to that as a young kid?
Phillips: [00:05:33] I had an art teacher, [Hobson Pittman], who had me do drawing
and drafting at the Friends’ Central School and I got really into that and was
excited by it. I got good at it too. The actual engineering part of architecture
wasn’t fun for me at all. The other part--real estate--became what I enjoyed
doing.
Horton: But you hadn’t worked at it as a career, you just started to look into it?
Phillips: [00:06:12] Right. I probably didn’t know that but I knew I wanted to try and
explore it through somebody’s MBA program. There were a few schools--
UCLA, Berkeley, and University of Wisconsin at Madison that had MBA
programs with a real estate program as part of it. I got accepted at each one
of those. I decided that I wanted to go to Berkeley just because it seemed to
be the center of the world at that particular time. This was 1962 and a lot of
things were happening in San Francisco and in Berkeley. I ended up in
Berkeley with a two-year program that also allowed me to take some law at
Hastings Law School as part of my studies.
I can tell what a challenge it was. I went from Friends’ Central which
had really prepared me for college. I just blew through all my courses at the
University of Colorado. I went to Berkeley and I got totally flummoxed by
the amount of reading that I had to do. I remember my first year there I had
a professor of urban economics, Sherman Maisel, who finally noticed me
because I was getting basically Cs in his course and you can’t get Cs in MBA,
15 and he called me in. He was a very bright guy. He was doing a lot of work in the mortgage business, in terms of research and a lot of federal work for
Fannie Mae and other government agencies.
He brought me in and said, “You can’t get a C in urban economics or any course in graduate school so you’ve got to learn how to study here and perform well at Berkeley.”
I said, “I really try but look at your course, in particular. I have so much reading in there every week. It’s almost impossible for me to get through that reading, much less your reading plus everybody else’s reading.”
He said, “Are you trying to read all of it?”
I said, “Of course. You know, you assigned this.”
He said, “You’re only supposed to read what’s important.”
That was the charm that changed everything around for me. [00:09:48] All of a sudden it was like, “Oh, I can approach it as if I’m scanning stuff until I can see what’s important.” In that way too, I was also able to see what was likely to be on any exam. That totally changed my life and I kind of sailed through the MBA program after that. He was so impressed I think with how
I took his advice and what I did that he used me as a researcher on some of the consulting work that he was doing. I don’t know whether you ever heard of this because it was around your time, but there was a big Gulf Oil development--I think it’s been featured in KQED, Channel 9--that was called Marincello . It was going to be population of thirty thousand in the
Marin Headlands that Gulf Oil was going to develop up there.
16 He had me doing the economic consulting on that to try and figure
out how much each community in Marin County was going to be getting
from the development of this huge development, which, of course, nobody
in Marin was enthusiastic about. It was something that taught me a lot about,
not only development, but also about the politics and the economics of
development. He later went on to become one of the seven governors of the
Federal Reserve. That work for him plus his endorsement of me got me my
first good job.
Horton: It was after business school?
Phillips: This was after business school. This was 1964.
Horton: You completed business school in two years?
Phillips: Yes.
Horton: What is your first job?
Phillips: [00:12:03] The first job was with a big shopping center development
company that was in San Francisco. It was called the Draper Companies. It’s
not around any longer but some of their shopping centers still are. They did
Northgate in San Rafael, Del Monte Shopping Center in Monterey, and
Foothill Shopping Center in Oakland. They were attracted to me because I
had done a thesis on traffic and parking in regional shopping centers. Then at
Berkeley you did a thesis as part of your MBA. At that time, all shopping
centers basically had a zoning requirement that was about five spaces parking
for every thousand square feet of building.
The research and the conclusion to my thesis was that if you were a
big, regional shopping center with people shopping all day long and spread
17 out throughout the seasons and the holidays, you could afford to get away
with a lot less parking--3 ½ to 4 spaces per thousand. I sent it off to the
Urban Land Institute and, of course, they loved it because developers of
regional shopping centers saw the possibility they could build the same
amount of square footage with less land having to be purchased. Draper had
been attracted to me because they saw that information, so I went to work
for them. It was a fantastic year and a half. They tried to move from
shopping centers into residential and they got into a big, big residential
project in Marin County that became very problematic for them. The
financing burden of that was secured by everything they had--not only the
residential land but all the shopping center land.
Horton: Let me ask a question. Nowadays everyone’s familiar with traffic, and traffic
studies are very complex, what was the state of the science of traffic
management, traffic understanding in those days?
Phillips: [00:14:56] It wasn’t nearly as sophisticated or as oriented to dealing with
congestion as it is today. It was basically traffic counts. All-day traffic counts
were important and peak-hour traffic counts were important, but more for
the fact that if you were a developer, you wanted a lot of traffic going by
your site. That was a good thing, not a bad thing. It did get me into
understanding how to measure traffic and the nuances of how traffic changes
throughout the day and the importance of that in terms of being able to
conserve development area so that you didn’t have too many parking spaces
and too much land devoted [to development].
18 Horton: In those days, the requirements for getting approval didn’t include the type
of detailed analysis we now have under California law and so forth?
Phillips: No, not even close.
Horton: Traffic was not necessarily something that every city council would look at?
Phillips: [00:16:41] No. As I said, traffic was important because if you wanted to build
a shopping center you wanted to have a lot of traffic. If you wanted to build
a shopping center, it had to have banks and it had to have gas stations, and
those needed lots of traffic. If you wanted to build a shopping center, it had
to have majors like department stores or if it was a small shopping center it
had to have grocery stores, and those needed traffic.
Horton: The orientation is what’s good for development, what are the positive
aspects for development, not what we have today which is quite the reverse--
what are the negative aspects of over-development.
Phillips: Right. Exactly right.
Horton: Please continue.
Phillips: [00:17:31] Anyway, the Draper Companies got a bit shaky. As a result, I
decided to move into something that would try and hone my skills in terms
of economic analysis and feasibility analysis. I found a land planning and
economic consultant in Denver, which I had heard about while I was at
Colorado. They decided I might be a good fit for their firm so I went back to
Denver for about a year and a half. I worked on a number of projects in the
United States, mostly outside of Denver. The reason the consulting firm was
in Denver was primarily because the Denver airport allowed you to get to
lots of different places quickly. I worked on recreation projects in Vail. Vail
19 was just starting then. I worked on golf course projects in the Carolinas and
in Florida and one in Sardinia, Sicily.
Horton: What would you do as your part on the team that was working on those
projects?
Phillips: [00:19:11] It was basically to do the economics at a sufficient level that the
developer of the project could use it to show a potential lender that the
project would be feasible and that they could give them a loan that could be
paid off when the project was completed, fully developed, and stabilized.
That’s what it was. Kind of like the work I did with Sherman Maisel with
Gulf Oil on the Marin Headlands. I did that for probably a year and a half,
maybe two years, but I had a longing to get back to San Francisco, in part
because it was now even more so the center of the world. A friend of mine
heard that Dillingham was starting up a development company in San
Francisco.
Dillingham was a Honolulu, Hawaii, based company that was mostly
construction but was trying to branch out into development. They were
trying to staff up. They had a number of development projects occurring in
San Francisco and on the Peninsula and they needed some young, energetic
kids from graduate schools to work on them. They hired me. I worked
initially on the Ice Houses in San Francisco, which was kind of a design
center project and mainly had a great group of young people who were
enthusiastic, energetic and wanted to rule the real estate world. Ned Spieker
[Warren E. Spieker Jr.] was working on Palo Alto Square at the time for
Dillingham.
20 I had another friend named Goldsmith who was working on the East
Bay in the new community of Emeryville, developing high rises along the
Bay. I was also working on the East Bay in the center of town, which was
being rejuvenated by the Grubb & Ellis Company. That was what I worked
on until probably early or late 1968.
Then the head of that development office for Dillingham decided he
wanted to go out on his own and he asked me if I would join him so that we
were just a two-man operation. We had a great stable of investors who were
willing to bankroll us to create a new company that would do real estate
consulting and real estate investment management. The group of investors
had links to the UK.
At that time, foreign companies were just beginning to think more
about owning real estate in the United States, particularly UK pension funds,
insurance companies, and even real estate companies. The UK was primarily
land lease territory and they liked the idea of getting into the major cities of
the United States and getting full fee real estate ownership and avoiding
having everything they were investing in be on land lease. We went over
there and successfully got a company started that was both an investment
company and a management company.
Horton: In the UK?
Phillips: [00:24:22] Yes, but it was based in the United States so it could do real estate
in the United States.
Horton: But you traveled?
Phillips: I traveled around.
21 Horton: You were trying to find the places for the people investing?
Phillips: Yes, and it was mostly on the West Coast. We were specializing in Seattle,
San Francisco, and Los Angeles.
Horton: Bill, let me ask you a question. In those days, if you owned the land, was the
entitlement process [as difficult as it is] today? Today ownership doesn’t
necessarily mean that you’ll get the entitlement that you want. In those days
if you owned the land, was it pretty sure thing you’d be able to develop it?
Phillips: [00:25:12] Entitlement was a lot easier than it is today, which isn’t a surprise
to anyone. I think Ned Spieker had problems with Palo Alto Square in Palo
Alto. I think in San Francisco, it was fairly well known that it was going to be
a slog unless you got the unions and certain neighborhood groups supporting
you.
Horton: So the difficulty of entitlements goes back quite a ways?
Phillips: Yes, yes. In San Francisco, Willie Brown was a very important part of your
entitlement strategy.
Horton: Before he [was elected] to the legislature.
Phillips: [00:26:07] Yes. Elsewhere, Seattle was not difficult. Los Angeles was not at
all difficult. San Diego was no problem whatsoever. If you wanted to have
real estate that was going to be valuable in the future, then it wasn’t a bad
strategy to try and find those areas where it was difficult to get entitlement, at
least difficult in the context of those days.
Horton: Because once successful, you had a serious, good investment.
Phillips: [00:26:57] Yes. That basically was something that I worked on and grew a
fairly significant portfolio of property until 1984 or 1985. I remember in 1969
22 when the moon landing occurred, I was over in Rome. That was an exciting
experience for a young kid. We went over there frequently for board
meetings but not to find real estate, just to make board presentations. The
excitement became less so in the early 1980s because the US real estate
market took a significant dip in 1983 and the English, at that time, realized
that what was happening to cap rates and sale values was likely to be
troublesome.
Horton: Tell me a little more about that dip in real estate values. Was that part of a
worldwide trend or was it pretty much affecting America or was it most of
the West?
Phillips: [00:28:43] It was pretty much affecting America. It was a financial cycle.
There was one just as we’ve seen with almost all the real estate dips. There
was over-financing and then the over-financing made it very difficult to get
any financing. This meant that you couldn’t get money to develop property.
Horton: What we would call the business cycle was really a form of regulation--no
one in charge, it was systemic.
Phillips: [00:29:26] It was like a seven to ten year cycle. It was interesting. Nineteen
seventy-three was a tough period, and 1983 was a very difficult down period
for real estate. 1989 to 1991 was the savings and loan crisis. I think 2000 was
the tech bust, which really wasn’t a lender.
Horton: The dot.com bust.
Phillips: [00:29:56] Yes. Then it was followed by another.
Horton: Two thousand eight is clearly a period of extraordinary misuse and egregious
financing.
23 Phillips: The savings and loan crisis which was the period 1989 to 1991-1992 was
probably the worst financial crisis that people had seen. It had a big effect on
all of the West.
Horton: Do you think it had a greater impact than 2008?
Phillips: Oh no, 2008 was the Great Recession.
Horton: You’re still in private business.
Phillips: [00:30:43] Yes. The UK companies basically pulled out, so my partner and I--
with what had become a slightly bigger company with maybe four or five
others--switched to US pension funds, insurance companies, and did, on a
pretty small scale, the same thing we had been doing with the UK investors.
It was not nearly as much fun as working for foreign investors. It was in that
environment in the fall of 1986 that I got a call from Rod Adams.
Horton: Rod called you? How did you know Rod?
Phillips: I didn’t know him.
Horton: How did he know about you?
Phillips: [00:31:52] What I heard was he knew about me because he had gotten a
recommendation--they needed a new director of Real Estate. Of course, they
had lost their previous director.
Horton: At Stanford?
Phillips: Yes.
Horton: Who was the previous director? Do you remember?
Phillips: [00:32:16] No, all I know is that Larry Owen was the interim real estate
director. This was with the treasurer’s office, not like the big real estate
responsibility of today. Rod called me. I think he had gotten a reference--
24 what I heard was that Tom Ford had heard about me from Northwestern
Mutual. Northwestern Mutual had done all of Tom’s financing for his
projects. I think he probably asked around. Northwestern Mutual had done a
lot of joint venture development and ownership with us with the UK folks. I
went to see Rod, interviewed him.
Horton: And he interviewed you.
Phillips: Yes.
Horton: Did you interview other people then?
Phillips: No, not really.
Horton: In those days, I think it was a small shop--one or two interviews.
Phillips: [00:33:27] He interviewed me and then I went back home, which was San
Francisco, and I didn’t hear anything from him. Basically, I wrote him a
couple times saying, “Let me know if you need me to come back down
there.” Never heard anything. I think it was fall of 1986. Then March of 1987
he calls me up and says, “Can you come down here and I’ve scheduled some
interviews for you with some other folks at Stanford.”
I said I’d love to do that. I came down again. At that time, I learned
that Rod had health issues. He told me that was one of the reasons it took so
long for him to get back to me and he apologized. He had set up interviews
that day and the following day with Larry Owen, with Ellen Smith--who was
running gift real estate and really had the most real estate experience of any
person that was working on real estate for Stanford at the time--and with
Rosemary McAndrews, [the highly regarded manager of the Stanford
Shopping Center].
25 Those people were the people who would report to me if I became
director of real estate because, as director of real estate, you basically just
oversaw the shopping center, gift real estate, and the real estate investment of
the endowment--nationwide at that time, now worldwide. The following day
I was to meet with Mike Hudnall, Robin Hamill [Robin Hamill Kennedy],
and possibly Zera Murphy.
Horton: No Bill Massy?
Phillips: [00:36:29] No Bill Massy. Kent Peterson I met with at some point. The
interviews were very interesting as, I’ve mentioned before. Ellen Smith was
great. Larry Owen was very accommodating. Rosemary made it clear that she
should probably be director of real estate. She had been a director of real
estate in the real estate land’s management section. She had overseen real
estate. Zera and Robin gave me perspective, as well as Kent, on what they
were doing over on campus in terms of the Research Park, and to some
extent over all the other real estate areas that weren’t part of the treasurer’s
office: and how things worked with the board of trustees and the real estate
committees.
Horton: Let’s focus on getting you hired and what your responsibilities are. Then I’m
going to ask you a lot of framework questions.
Phillips: [00:38:15] I was hired at what Rod told me was the best salary they could
possibly afford, which I think was about two-thirds of what I was making up
in San Francisco.
Horton: Do you mind mentioning your starting salary?
Phillips: I think it was $88,000 or something close.
26 Horton: Lot of money then.
Phillips: [00:38:47] Yes, it was. It was about two-thirds of what I was making, but it
was so different and so exciting, and working for a big university with a
national and worldwide reputation was intriguing.
Horton: Was this a big decision for you? Did you think a lot about it or once you got
the offer, did you sort of know you would take it?
Phillips: [00:39:22] I think I knew I would take it, but I had had a lot of time to think
about it between the time Rod first talked to me and when he came back to
me. May 1st of 1987, I joined Stanford and my first office was down on
Hamilton Avenue in the Treasurer’s Office.
Horton: I remember that. I don’t know how many years you were there, but you used
to have the greatest Christmas parties there.
Phillips: Yes, yes.
Horton: The rest of the campus would come in and see how well you lived.
Phillips: [00:40:25] Even the Waterworks wasn’t there then. It’s now I think above
where Waterworks is today.
Horton: It’s not far from City Hall. Right across the street.
Phillips: [00:40:35] It was a block away, yes.
Horton: Bill, now we’ve got you in an office called the Director of Real Estate on
Hamilton Avenue, which is part of Stanford. I’d like to step back because
this oral history is really not just for the current people to understand what
things are like now. People are going to be picking this up maybe fifty years,
hundred years, so I’m going to ask you some questions. For example, I
believe that someone like Rod Adams, who is not very well known around
27 now, had an enormously important job at that time. You were part of the
Treasurer’s Office. When you came to work at Stanford, I want you to sort
of sketch the outline of the organization for business. Basically, see if it’s fair
to say that Stanford has two huge, major enterprises. It has the academic
enterprise and then it has all these ancillary business related activities to
support that. They’re handled through different processes. Now on the
administrative side, can you just tell me what the organization chart was like
there. Not necessarily the chart, but how were the business functions
organized? Were they all under a single person who was the vice president
and, if so, who was that vice president and what did he control in 1987, so
far as you know?
Phillips: [00:42:25] I think they were organized under the treasurer and I believe that
he reported to the president of the university. I would need to check that but
that’s my memory. Basically Rod, as the treasurer, was responsible for all the
endowment investing. The organization chart looked somewhat like what the
Stanford Management Company looks like today with a lot of specialists in
different kinds of investments, with real estate being what I was overseeing.
There were other people who were doing bonds, different kinds of equities,
locational types varied.
Horton: The treasurer did not report to a vice president for business? He reported to
the board of trustees and probably the president?
Phillips: I’d have to check that.
Horton: That’s an important thing to know about.
28 Phillips: [00:43:49] Kent would probably know. I had contact with Bill Massy and I
don’t know whether that was part of real estate or whether it was part of his
oversight of the treasurer’s office. That’s something I probably can check on.
Horton: The point is you felt that you had joined the Treasurer’s Office.
Phillips: Yes, oh definitely.
Horton: Rod Adams was the head of the Treasurer’s Office. What other units were in
the Treasurer’s Office? You had Real Estate and you had Investment.
Phillips: [00:44:24] You had all these other different kinds of investments. You had
stocks, bonds, foreign investments, other fixed income, and venture capital.
Horton: I’m quite certain that the Board of Trustees must have had careful oversight
over the Treasurer’s Office and Rod would be the key person on that.
Phillip: [00:45:01] After I joined, Rod went through his really tough time with a
revisiting of his initial cancer that had now spread to his liver. He was back in
Washington, DC, a lot at NIH.
Horton: I ran into him on [flights to Washington].
Phillips: [00:45:31] I think there was a lot of folks on their own working for his
associate treasurer. Also, at that time, I think there were some noticeable
concerns about the real estate area and how much the folks on campus had
in terms of knowledge for something that the trustees felt should have a lot
of investment thought behind it: and particularly the idea that the Research
Park needed a more financial aspect to it. I think there was resistance to that
on the campus because the Research Park was basically considered to be
something that was a care-and-maintenance type of facility that you were
only running for the purpose of eventually having land that could come back
29 to the university for academic purposes. It was seen very much as an
academic enterprise.
Horton: In other words, it was at that time seen and maybe was set up as interim use
land. Then, over time, people looked at it and said, “No, we can always take
it back, but we should now manage it and maximize it for income, utility, and
purposes.
Phillips: Yes.
Horton: Was the entire Treasurer’s Office located down in Palo Alto?
Phillips: [00:48:05] Yes, although it was growing in size and real estate, particularly the
shopping center portion was growing. The shopping center folks had been
over at the shopping center. I think it was Rod’s desire and it was my desire
too to have it near me. We moved down a couple of blocks, maybe three
blocks to Cowper and Hamilton, in a Jim Baer building, which is right next
to the Garden Court Hotel. We were in there as the real estate office. That
freed up some room too for the upstairs of the remaining Treasurer’s Office
that remained also on Hamilton.
Horton: You can now understand how the Treasurer’s Office really was sort of
separate. It was an important unit that wasn’t on campus because it was
dealing so much with space concerns that were big on campus. It was a unit
connected with a lot of external activities as well as internal activities that can
be handled by a team there, whereas places like the controller’s office always
stayed on campus at that time. Was Encina taken over by them?
Phillips: Yes.
Horton: That was where the vice president was and the controller’s office [was].
30 Phillips: Yes.
Horton: As director of Real Estate at that time, how long were you in that position
before there was a significant change?
Phillips: [00:50:16] Not too long because I came in in 1987, and the change that was
most dramatic was the formation of the Stanford Management Company.
Horton: When was that?
Phillips: [00:50:35] I’m going to say 1991. It might have been 1990 but I remember it
as 1991. That was, I think, a result of the trustee concern about getting the
real estate to be more financially supportive of the university. There was also
a feeling that the expertise that was needed for real estate was not robust.
Ellen Smith, Rosemary, Larry Owen were experienced. The others who were
doing the real estate management on campus really didn’t have extensive real
estate experience.
Horton: You and your office weren’t out looking at places to buy land because it was
a good investment for Stanford, were you?
Phillips: [00:52:07] I was not doing that. My involvement in real estate investment was
primarily looking for managers of these major companies that were investing
in real estate for endowments and pension funds.
Horton: Were other people out trying to invest Stanford’s money in real estate?
Phillips: Yes, yes.
Horton: That’s an investment.
Phillips: Yes, just as they were for so many of the other areas.
Horton: Bill, before we get too deep into the transition to the Management Company,
let’s talk a little bit more about the real estate operation in the short time that
31 you were there. Did you have set objectives for income production? Were
you an income producing part of Stanford or were you sort of a maintaining
it?
Phillips: As part of the Treasurer’s Office?
Horton: Yes.
Phillips: [00:53:22] It was mostly income producing, although I remember we looked
at a number of real estate investments that were offered to us by managers
that specialized in things like agricultural lands and mobile home parks that
were considered to be interim uses where the profit part of the real estate
was going to come later on through some kind of sale, not unlike a venture
capital investment. A lot of the investment was in particular asset classes in
particular locations that were considered to be either really strong quality real
estate, which had lower income but were very secure and had potential to
hold value, to development, or existing real estate which needed some love
and care, reinvestment, upgrading. So it was a “buy low with the opportunity
to sell high” kind of thing.
Horton: You reported directly to Rod and the other people in the real estate office
reported to you. Is that correct?
Phillips: Yes.
Horton: Who are the other people that reported to Rod within the real estate office? I
mean, what were the functional categories of people?
Phillips: They were basically by investment category.
Horton: All of the others were?
32 Phillips: [00:55:42] Yes. The only one that I recall that was up at the associate level
[vs. director level] was Harry Turner, who was Rod’s right-hand person.
When Rod really had to devote most of his time to trying to get better, Harry
was running the operation.
Horton: When did Rod pass away?
Phillips: Oh God, it wasn’t that long after I got there.
Horton: Did someone take his place?
Phillips: [00:56:20] I don’t think anybody immediately took his place. I think they just
left Harry Turner in as the interim treasurer until the Stanford Management
Company was formed and then Laurie Hoagland [Laurance R. Hoagland Jr.]
became the CEO.
Horton: That makes sense. Now let’s step back and talk about the formation of the
Stanford Management Company from your perspective. When were you
aware of the internal background work in setting up the company, or was it
pretty much done by members of the board and others and then you found
out about it?
Phillips: [00:57:15] It was done pretty much by members of the board but I also knew
about it as they were working on it. I knew about it, in part, because of this
real estate consideration. Because the word was out that they weren’t going
to finalize how they were going to handle the real estate and merging the real
estate with campus real estate until the final approval by the board.
Horton: When the Management Company was set up, the primary focus was how to
handle the transactions in managing the fund for the endowment to
maximize income. When you found out about it, when it was announced, did
33 they announce it and then start searching for somebody or had they already
done the search and announced who the person would be?
Phillips: I don’t know. Laurie showed up pretty quickly so I’m assuming that they had
someone in mind or Laurie in mind as the person to become the CEO.
Horton: We can find that out separately.
Phillips: [00:58:42] From the real estate standpoint, they didn’t have anybody that they
knew was going to be in charge of the real estate portion. In the meantime,
we found out that there was going to be a merger on campus which, at that
point Diane Healey was in charge of.
Horton: She was responsible for what?
Phillips: [00:59:16] She was responsible for overseeing the campus real estate--the
Research Park and so on. When they created the Stanford Management
Company, we became co-directors of real estate, with our respective
specialties maintained, where she still had the Research Park folks and the
other campus real estate folks under her. I had the shopping center and real
estate functions under me.
Horton: You recall the early days when Laurie suddenly showed up and met with
everybody. How was that? What was that meeting like?
Phillips: [01:00:09] I think it was great. Laurie was somebody that everybody
respected because, as you know, he was a great listener. He was almost too
good a listener. He would listen so hard that he would have you talking your
pants off and probably getting to the point of embarrassment. He was very
much somebody who wanted input and advice as to how things were done. I
think the only thing that made Diane and I nervous was probably a year after
34 Laurie came on board, when he decided he wanted one person in charge of
real estate. Diane and I tried to talk him out of that, indicating we had
enough experience.
Horton: Yes, you weren’t getting in each other’s way.
Phillips: [01:01:26] He clearly had talked to other people and decided he wanted to
move in that direction. That was the effort that Diane and I got involved in
only by way of meeting some of the finalists, including Curtis [Curtis Feeny].
I think Jim Baer was a finalist too. I think it was clear that Curtis was his
person that he wanted to see be the one that was in charge of real estate.
Curtis had a phenomenal record, just a phenomenal record. I had overseen a
lot of real estate and a lot of development but I wasn’t even close to Curtis.
Horton: So it was a pretty smooth transition, wasn’t it?
Phillips: [01:02:40] It was a very smooth transition. Curtis opened up the office. We
had all been in private offices, very much leadership scale. We were up on
Sand Hill Road in a Tom Ford building and Curtis came in and threw out all
the closed offices and opened up the entire thing. I think a couple of people
had to maintain offices. Ellen Smith and Diane Healey couldn’t work in
anything but a private office, but I worked next to Curtis and Larry Owen
worked next to Curtis. It was probably the best work experience I ever had.
He taught me a lot.
Horton: It would be hard to find two more respected, outgoing, and effective leaders
than Laurie and Curtis. [They have] different styles but they both treated
people well, didn’t they?
35 Phillips: [01:03:53] Absolutely. I don’t know whether I said this or whether somebody
else did, but there are few people I know that, from the carry-over days of
low salaries when people found what Curtis’s salary was going to be or was,
the concept of someone coming in who managed so well up, sideways, and
down, somebody who could get twenty percent more effectiveness and
productivity from everybody who worked under him as well as achieve
everything he achieved on his own, was quite astounding. He not only taught
me a lot, he saved me a number of times from mistakes I had made in which
he basically, through his force of personality, was able to bail me out of it.
Horton: I actually recall the time when everyone was invited up for drinks for the first
time to meet him when he first came to campus. He was very impressive
right from the beginning.
Phillips: [01:05:29] Yes, and Bob Reidy [Robert C. Reidy] who came along much later
basically said the same thing. Working for Curtis in real estate is what really
helped advance him and it certainly helped advance me. After Curtis came on
board, we were about to get into the Sand Hill Road projects--1992 was
about the start of that. I think I decided then to try and create more value for
myself outside, even though I was still a director. I took advice that I gave
myself that I’ve heard you provide and that is, if you want to establish some
importance and some momentum in your career, do something nobody else
wants to do and do it well. [So I went to] Sand Hill Road and I decided that
I’d do the thing that nobody else knew anything about and that was traffic
and transportation. I worked with Fehr and Peers and I really studied how
36 they did their work and how their analysis went, and I worked between them
and [Palo Alto’s Transportation Manager], Marvin Overway.
Horton: Bill, it’s quite interesting because, in a way, this is anticipated by your thesis.
Phillips: Yes, yes.
Horton: You got very involved in traffic in graduate school, you had some deals with
it after that but then it got lost--not lost but your focus was then on real
estate transactions and setting up deals, is that correct?
Phillips: Yes.
Horton: And that was your career. Then you came to Stanford as a real estate man, in
charge of the real estate office and then now under Curtis, you recognized
that it was a critical element that, if we wouldn’t succeed on that, we wouldn’t
succeed in anything and then master the traffic and entitlement process.
Phillips: [01:08:12] Right. I knew that nobody else was going to be jumping in to that
aspect. It was either I learned about it along with the consultants, Fehr and
Peers, or it was going to be totally up to the consultants. I felt like I did have
at least some fundamental knowledge so that I could get up to speed on it.
Horton: Would you say that after the real estate is reorganized under Curtis and the
Stanford Management Company that your first major effort was to become
an expert on traffic and to handle the traffic elements of the things that came
up in the office?
Phillips: Yes, yes.
Horton: Were the testing grounds at Sand Hill Road, which was historically one of the
big traffic difficulties in the Bay Area?
37 Phillips: Yes, yes. After Sand Hill Road, I became sort of the combination of the
entitlement person but with the niche expertise of traffic and transportation.
Horton: Under Curtis then, maybe you should tell us about Sand Hill Road.
Phillips: [01:09:57] I remember sitting next to Curtis and, at the very early stages when
we made our initial presentation--I think it was towards the end of the year in
1992, you probably remember that too--that the [Palo Alto City] council
basically heard what our ideas were. At that time, we were focused on the
shopping center as a plus because the city was looking at financial strain.
Again, this was the early 1990s, and so they were looking at budget problems
with revenues lagging because real estate development was being curtailed.
The big thing that we were focused on giving them was the shopping center
expansion.
I think senior housing was kind of secondary. Senior housing was
really garnering support from people who would show up to help us out. It
was clear when we made our initial presentation that it was going to be a slog
with the council. I recall that Jim Baer [a local developer] had said something
either by way of Palo Alto Weekly or even at that meeting that suggested that
Stanford really didn’t know what they were doing--it was such a large project,
[laughter] which wasn’t helpful. We also heard from the council that you
need to go out to the community, you have got to sell them on the project,
and then you have to come back and have the community on your side as
you go forward.
Horton: Yes, Bill, that’s what happened when the application first went in and they
had their first hearing. It said we need more community input. For the
38 people looking at this from the future, [can you give us a history of] what
Sand Hill Road is? Why is it important? Why did this problem need to be
repaired?
Phillips: [01:13:08] What we saw was a traffic congestion problem that would stymy
growth at the shopping center, and also would stymy growth at the hospital.
It was the idea of a road that was a major arterial that didn’t really connect to
any [other arterial] on the eastbound [El Camino] side. It really didn’t
connect to any other major arterial but found itself floundering, in its last
stages, because it just dumped into the Stanford Shopping Center. The idea
that needed to be addressed was that it had to somehow be corrected, along
with some fine tuning of the circulation system around the shopping center,
including Quarry Road--Quarry Road was just one lane, [one-way] at that
time.
The congestion issue, like so many, relates to the fact that a roadway
is four lanes in one section and then two lanes in another section. Then it
really dead ends as it finally gets into the shopping center.
Horton: I guess it had been identified several years before by the San Francisco Chronicle
as the biggest bottleneck in the Bay Area because Sand Hill Road connected
to 280 Freeway and it had a four-lane road going very nicely down until it hit
the intersection at Santa Cruz. Then it suddenly became a small two-lane
road, which just sort of fizzled into the Stanford Shopping Center parking
lot. A traveler could get off the freeway trying to go to Palo Alto and
suddenly find themselves next to I. Magnin’s not knowing how they got
there.
39 Phillips: Yes, and also it made access to the Stanford Hospital very difficult for
anybody.
Horton: Were there other attempts? Was Frank Morrow someone who worked for
you? Tell me about the other attempts to get Sand Hill Road improved or
with the housing projects over there.
Phillips: [01:16:03] You would know that better than I because everything I know
about that is what you’ve written in your diary.
Horton: Let me ask a question. When Frank worked with you, do you know much of
what happened with the senior housing project that he was working on that
was not approved? There was a major housing project that was not
approved.
Phillips: [01:16:28] Yes, what I heard about Frank was he had left maybe a year or a
year and a half before I came in. My understanding was that there were issues
of difference of opinion between how he wanted to do things and how the
trustees wanted to see things done. That might have been a Tom Ford issue.
I don’t know. I do know that when I came in, there was an incomplete RFP
[request for proposal] that was going on in connection with the senior
housing. There was a commercial, market-based apartment project that was
thought of as a way of completing that area on the north side of Sand Hill
Road. The expansion of the shopping center was one, at that time, that was
driven more by the opportunistic aspect of getting something before Palo
Alto that they could get excited about because it was going to bring a lot of
new revenue.
40 Horton: But by the time of the 1992 case, where we have the application that you had
talked about, Sand Hill Road had made attempts to pass something but they
had failed.
Phillips: Right, for different reasons.
Horton: There was a history of people not liking it, whether that was justified or not.
That was what people thought. In 1992, then you were pretty much very
heavily involved. Before 1992 when you first got in, did you have many
dealings with Andy Doty and the Community Relations Office?
Phillips: Yes, I think I did.
Horton: How would you rely on them for your projects?
Phillips: [01:18:57] I think that was basically our contact with the city, and our
presentations to the council were things that government and community
relations were front and center on. If I had any communication with some of
the council members early on, which I did, it was usually with Andy
alongside, then you later on.
Horton: Well Andy did it. And I only took over after he left.
Phillips: [01:19:46] Yes. Government was certainly more structured there with
government community relations as the entity that related to the council and
the city.
Horton: Yes, but that office and your office worked very closely on these matters,
very closely. What is your memory of the Sand Hill project? It took five years
to get Sand Hill Road through and it was a huge issue. When it was really
finally approved by the council, it went on the ballot; and it was one of the
41 most controversial issues in the whole Bay Area. What is your memory of
that period? What memories do you have of that?
Phillips: [01:20:36] My memory is that because it was taking so long, the strategy had
to change. The council’s lack of financial support due to the real estate
recession brought on by the savings and loan collapse had begun to start
repairing itself in the mid-1990s. All of the sudden, the shopping center’s
expansion was less important to them and housing was beginning to be more
important to them and to us. Fortunately, the senior housing was just the
glue that held the application together, because the support by the folks that
wanted to be the residents of that senior community continued to come out
and help us. That was what the council often had to listen to when they had
big debates over what should happen in terms of the development on that
side of Sand Hill Road. That’s what I remember.
Horton: After Sand Hill Road, what were the next challenges that you faced?
Phillips: [01:22:37] I didn’t face them but I think the next challenge was really the
Cancer Center that came after Sand Hill Road. By that time, the Research
Park had been very active in terms of utilizing the cover of Sand Hill Road. It
had been growing and realizing income performance that we hadn’t thought
was really possible until the real estate boom at the end of the 1990s leading
into the tech boom.
Horton: Was that based on new development of the park or was it based on increased
value and better deals that the university was able to extract?
Phillips: [01:23:45] Better deals. Making aggressive partnerships on companies who
maybe wanted to get out of the Research Park and wanted to sell their
42 properties but needed ground lease changes in order to do that. Working
with Curtis and Susan Meaney--who worked with Curtis on the Research
Park--basically we created partnerships that were designed to redevelop the
property and create new ground lease positions that had us sharing much
more in the income that was going to be produced.
Horton: Is it fair to say that a research park revival or considerable enhancement takes
place when Curtis comes in?
Phillips: [01:24:45] Yes. He took the instruction from the Board of Trustees, Bob
Bass, and others, to generate more revenue from the Research Park about
being active owners, developers, and managers. There was a lot of deal
making that fell into his hands and was quite successful. After Sand Hill
Road, we continued to do that, and I worked with Susan Meaney more after
that Sand Hill Road development approval on that aspect of income.
Horton: The increasing efficiency and the use of land in the Research Park has
continued since then, has it not?
Phillips: Yes, it has, definitely.
Horton: It’s considered more valuable to Stanford now than it was before Curtis
arrived?
Phillips: [01:26:03] Oh yes. I can double-check this but the number that comes to
mind is that in the very early 1990s, the Research Park was probably
generating two, three, four million dollars of income a year. That might jump
to seven, eight million occasionally when somebody came in and needed a
lease change and we charged them for it. An aggressive policy throughout the
Research Park of being active owners and developers has caused that to be--
43 the number’s probably low, but I’m going to say now [as of my 2015
retirement] produces about seventy million dollars a year. The change is
extraordinary and has been really helpful to the university in terms of its
contribution.
Horton: That’s an amount that increases every year. You get the increases in and you
continue every year to have bigger payouts than you’ve had before.
Phillips: Yes, but you had to be willing to take development risks in order to get that.
Horton: Discuss that development risk, for example.
Phillips: [01:27:45] Development risk is market risk. It’s the ups and downs of the
market. When I came on board, development risk was considered to be
significant in terms of if hazmat--which was prevalent in the Research Park--
was found to be a factor in whether you could actually redevelop a property
and lease it or ground lease it with that kind of issue associated with it. Risk
can be mitigated by research, evaluation and analysis, and so it took a lot of
that. It was deciding to tackle the problem as opposed to avoiding taking any
risk at all, which I think was the position of the university when I came.
Horton: Explain how that risk works. Is it because the university is putting some of
its own capital at risk in these projects? Is that the issue?
Phillips: Correct.
Horton: Like it’ll build something and then try to lease it out to people or does it have
a partner when it does that?
Phillips: Both.
Horton: It does both. The university uses its own resources and then because of that
they then recoup a greater percentage. Is that it?
44 Phillips: Right, correct.
Horton: I see. They managed that risk and the risk ended up to be rather good
returns.
Phillips: [01:29:44] Right, and it was done at a time when the market was moving
decidedly upward. The Research Park in the late 1990s was very much
ascendant and rents were growing at a very fast clip. Where a lender was
needed or where a partner was needed, we were able to find them without
any problem whatsoever.
Horton: Bill, let’s switch and talk about something else that you were involved in in a
very big way. That is selling a managing control of the Stanford Shopping
Center. First of all, could you just sketch the history of the shopping center
very briefly and then what happened when we sold, why did we do that and
what were the benefits and risks?
Phillips: [01:30:59] The history of the shopping center was that, like the Research
Park, it was initially developed in the mid-1950s. At that time, it was a unique
idea that Alf Brandin came up with, along with Colbert Coldwell--Coldwell
Banker--and it was a way of trying to deal with the pressing need of the
university for more money so that the university could grow. Fortunately, Alf
had Colbert Coldwell, who was considered to be the dean of real estate in
California at the time. Alf was a real estate genius and they created a
shopping center which had a material difference to it. Most shopping centers
had a Macy’s and a Penney’s and the standard shopping center stores. This
Stanford Shopping Center had an Emporium, which was the fanciest of the
department stores at that time at one end and I. Magnin at the other end and
45 then a lot of the Union Street stores in between--Roos-Atkins, Joseph
Magnin.
Horton: Had a Woolworth’s at one point.
Phillips: Had Woolworth’s.
Horton: Had a Purity Supermarket.
Phillips: [01:33:09] Had a Purity Supermarket as it grew, yes. Initially, it was unique in
that you were offering people a shopping center where if they were used to
shopping on Union Street, they could actually come to the Stanford
Shopping Center and shop at those very fine stores at the Stanford Shopping
Center. Nobody else had that kind of thing.
Horton: On the Peninsula, at the time the Stanford Shopping Center opened up,
there was San Francisco and then Stanford’s Shopping Center on the
Peninsula.
Phillips: [01:33:48] Right. Hillsdale was more a traditional shopping center.
Stonestown was more a traditional shopping center, although upscale. The
only really true, upscale, unique shopping center with Union Street stores was
Stanford. That was how it started and then it grew to have a Macy’s wing and
a Purity wing. Then later on across Arboretum, where the Nordstrom is now
and Saks Fifth Avenue was, it continued to maintain its very special, unique
character. Rosemary worked very hard. She was in charge of it and we were
running it. Every cent that needed to be invested was invested by the
university. It was managed intensively by the university and by Rosemary
primarily, who was very good at store selection and also very good at trying
to maintain a very strong local flavor.
46 Horton: Bill, when did Rosemary take over? It’s my recollection just from looking at it
that when Bob Augsburger was vice president, there was a major refreshing
of the shopping center in the early 1970s, which was [when] true physical and
programmatic changes occurred. Woolworth’s and Purity and things like that
go by the wayside.
Phillips: Woolworth’s didn’t go by the wayside until I came in. Purity went out early.
Horton: The trend, over time, was to bring in newer stores with sort of higher end
stores. Is that fair?
Phillips: Yes, yes.
Horton: If that’s the case, when did Stanford sell a managing interest and why did it
do so?
Phillips: [01:36:40] It was sold in 2003. I remember it was an idea that I had and
talked to others about. I talked to Larry Owen, I talked to Mike Hudnall, I
talked to a number of folks because it was considered to be a crown jewel of
the university real estate. The idea of ever selling it was usually met with
“Why would we ever want to do that?” I think the reason why we were
thinking it might be a good idea why--and I think people agreed with me on
this--was that the expansion from the Sand Hill Road projects that had been
allowed was probably the last notable expansion of the shopping center that
we were going to be able to achieve on our own.
Future values through expansion was going to be very hard to
achieve. Future value through lease negotiations and tenant changes was
going to be hard to achieve for us as the single owner of a shopping center.
The idea was that we probably hit the wall in terms of growth that we [could]
47 manage ourselves. We were also seeing cap rates drop for major regional
retail. The idea was that if we wanted to market it any time, this was probably
the best time. That was probably Mike McCaffery’s time? I think Mike
tended to agree with that and a number of trustees saw it in a similar fashion-
-Bob Burke.
Horton: Now Mike McCaffery is the head of the Management Company. Took over
after Laurie Hoagland.
Phillips: [01:39:50] Right. The idea now of “No, we’ve got to always hold on to this
because it’s the crown jewel,” was beginning to be met with an argument that
you can’t hold on to something forever and this may be a good time to try
and sell it.
Horton: Cash out the crown jewel.
Phillips: [01:40:19] Yes, because major shopping centers were being bought for four
percent, five percent cap rates [net income divided by cap rate equals value or
price] at that time, which was unheard of in the history of retail transactions,
although it isn’t today. We decided to hire a very experienced firm Eastdil
Secured that worked with the major retail real estate owners around the
country. We let them know that we were going to be entertaining offers and
then people started to come in and survey it and talk to us. We found there
was an enormous amount of interest. I think the interest was pared a bit
because we insisted on a fifty-one-year ground lease and we insisted on a
twenty-five percent revenue share as being our payment for the ground lease.
We also had as an extremely important criterion for whom we might
do this with as being someone who would run it very much with the care that
48 Stanford would and with the quality-first insistence that we would hold
ourselves to if we continued as the sole owner.
Horton: That’s important because Stanford’s name, by this time, has considerably
appreciated over the years so the Stanford name itself was quite an
advantage. Also I guess others would be concerned that if someone came in
and did a terrible job, it would reflect badly on the Stanford name. Those are
things that you had to deal with.
Phillips: [01:42:54] Yes. There were people who dropped out in addition because
though they were in and were willing initially to be accepting of a ground
lease, they decided that it probably wasn’t going to be good for their overall
shareholder value or they were a company that wasn’t known solely as a
high-end shopping center company. We wanted somebody that would be
very caring, and there were probably three or four that we came down to in
the final selection. Simon [Simon Properties Group] was one of those, of
course. I think Macerich was another one.
Horton: What were those firms like? Each of the people who were potential buyers,
were they owners of other big shopping centers elsewhere?
Phillips: [01:44:05] Yes, and big owners of shopping centers, although I think Simon,
at the time and still is, probably the largest mall owner.
Horton: In amount of sales?
Phillips: In terms of the amount of square footage.
Horton: Is it also manager of a lot of high end shopping centers?
Phillips: [01:44:34] Yes. There were other companies too. Macerich has a lot of high
end shopping centers, and they were well thought of and made a very good
49 presentation. Simon certainly read our message about wanting to have quality
management and [was] willing to listen to us if we didn’t like anything that
was being planned. I think everybody who was interested in the Stanford
Shopping Center saw the leverage that they could use to make revenue
improvements at Stanford Shopping Center because they could maneuver
tenants out of the [Stanford] shopping center into other shopping centers
they own as a way of getting lesser performers out and getting better
performers in. They could also move people who really wanted to be in the
Stanford Shopping Center into Stanford Shopping Center from other
locations they held. Anytime you’re talking to a tenant that is for the moment
extremely desirable, the higher-end quality shopping centers you can offer
them space in, the better chance you have of getting them under your control
and moving them in.
Horton: In operating a shopping center, especially if you have many stores, one of the
key things is making sure that you don’t have weak performers because weak
performers bring down others a bit. Do strong performers bring in new
people?
Phillips: Yes.
Horton: It’s an ongoing matter, I imagine, for good management to take a look at
[potential customers].
Phillips: [01:47:08] Yes, but what suffers in practice is that grand strategy tends to
force out a lot of the local folks who have a loyal customer following.
Basically if they’re not performing as well as the new standard of elevated
sales performance that’s occurring, you lose them, you lose their customers,
50 and, to a degree, you lose the uniqueness. If you’ve known the shopping
center for a long time, you’ve known that there was a women’s wear store
called Cielo which was very fashionable and ended up moving out. The
luggage store that’s there now is only there because Stanford lobbied very
hard to retain it because it’s popular with local people.
Horton: Edwards?
Phillips: [01:48:26] Edwards Luggage. Even though it can’t pay the rent that they
[Simon] could easily get for that store location, it brings in a following and
local people that do shop at the new stores that Simon has brought in.
Horton: You get down to your negotiating so why did you choose Simon?
Phillips: [01:48:58] Just because we had a strong meeting of the minds that Simon
really indicated a willingness to follow the Stanford philosophy of shopping
center quality and running the shopping center in a way that Stanford felt
was important. A couple of examples would be if you look at a lot of
shopping centers today, they have a lot of kiosks in the mall areas. That’s
been a fairly reliable revenue generator for shopping centers. We’ve never
liked the idea of kiosks or merchandising in the mall. We tested that idea with
Simon and basically said, “If you want to try and do some of that, you need
to check with us first and we need to like the idea. If we don’t like the idea,
we want you to tell us that you won’t pursue it.”
Horton: Do you have an agreement with Simon that the Board of Trustees and others
thought would protect Stanford’s interests?
Phillips: [01:50:35] Yes. It’s not as strong as we originally tried to get and one of the
reasons was we found out that if we were insistent that we had total
51 discretion over whether they can do it or not, we were going to lose money
from the sale. We also got assurance from Simon that these ideas would be
brought to us for our approval not to be unreasonably withheld and that they
would strongly consider our disapproval as being something they would not
go ahead with.
Horton: Is it a fifty-one-year agreement you have with Simon?
Phillips: It’s now a little bit longer because when they did the most recent common
area investment in work, we extended the ground lease.
Horton: You extended it to help them pay for that improvement. Basically has it
turned out to be a very successful financial arrangement for Stanford?
Phillips: [01:51:56] For Stanford, it has been very successful financially. The rents on
average are much higher than I think we could have ever achieved.
Horton: We’re free of managing expenses and we’ve just received the twenty-five
percent of the [gross revenue as leasehold rent].
Phillips: Yes, and that’s certainly grown.
Horton: Do you think Simon is happy with it as well?
Phillips: Simon’s very happy with it.
Horton: This turned out to be a win-win.
Phillips: [01:52:32] Yes. Now we’re into a new age with retail. I think Simon realizes
that this is a new age. Bricks and mortar retail stores are struggling. More and
more our shopping centers are being redeveloped with an increasing amount
of office space and activity space like gyms and movie theatres. The new
retail paradigm has got everybody shaking their head a bit and is useful in
some places more than others. We’ve been lucky in that we’ve gotten a
52 number of major tenants that were in downtown Palo Alto to move out with
new bricks and mortar stores that are still appealing to customers.
Anthropologie is one. North Face is another. They’re inhabiting the new
space that is being created.
Even though the shopping center isn’t growing in terms of overall
square footage, the idea of, say, taking down Emporium, which became
Bloomingdale’s, which was too large for a current-day department store, and
replacing it with a much smaller Bloomingdale’s and then filling it in with
stores that are popular to visit like Lululemon, Anthropologie, and [others].
Horton: You take the same square footage, use it differently and get more people.
Phillips: [01:55:05] Yes, and you’d get much higher sales per square foot because with
most stores you have percentage rent, which means you get a cut of very
good sales performance. Microsoft has become recently especially a great
store and, of course, Apple has become a wonderful store.
Horton: I went to buy a TV once. I went to the Sony store that I’ve always gone to
and it was a Tesla store. That’s the new shopping center having a Tesla store.
Phillips: [01:55:46] Yes. It’ll be interesting. Tesla has become shaky. If you listen to or
watch CNBC in the morning sometimes, the Tesla saga is one that, like its
founder, jumps from week to week. It’s probably the only major technology
company out there that people have very strong opinions against it and
where it’s susceptible to those against-opinions because it gets all of its
money through new stock raisings.
Horton: It remains to be seen but it’s a very interesting development.
53 Phillips: Yes, it’s the one company that like the technology bust of 2000 is susceptible
to running out of cash.
[End of Part 1 of 2 - Interview with William T. Phillips - July 24, 2018]
54 S T A N F O R D U N I V E R S I T Y
PROJECT: STANFORD STAFF ORAL HISTORY PROJECT
INTERVIEWEE: WILLIAM T. PHILLIPS
INTERVIEWER: LARRY N. HORTON
DATE OF INTERVIEW: JULY 25, 2018
PART: 2 OF 2
Horton: This is part two of an oral history interview with Bill Phillips. It is being done
on July 25, 2018. Bill, in our conversation yesterday about land use at
Stanford, you covered a lot of areas. Is there anything you would like to
reflect on and make additional comments about what we discussed
yesterday?
Phillips: [00:00:31] Probably the most important thing I did not mention that I
thought about last night was that the Sand Hill Road projects had a political
process as part of the final approval. There was a referendum initiative
process. That was the first time I had really ever had to do something like
meeting with people, knocking on doors, getting up early in the morning and
putting leaflets on door handles. I participated in discussions with supporters
and other community members over the weekend about the issues involved
and why they should vote to approve what had been approved by the City
Council, which was our project, and I manned telephones. That was
something I had never done before and I think it helped me in a number of
ways. That made me realize that nothing’s done until it’s done.
55 Horton: Was this your first real introduction to an overtly political process?
Phillips: [00:02:10] Absolutely, yes, and the first time I had to be out there utilizing
shoe leather, my own energy and will to keep going to try and get to as many
people as possible and convince them that this was a good idea.
Horton: Remind us of the political situation at the time. The City Council has
approved the Sand Hill Road projects as you had asked in three parts. They
approved it and then they said they wanted to have a referendum where the
electorate in Palo Alto would vote for or against the action that they had
taken. Was there another issue on the ballot as well?
Phillips: [00:03:05] Yes, there was an initiative that the opponents of the project had
put on the ballot. That was a competing project that had a project description
only, had not had any kind of environmental review or testing, and actually
had some economic and environmental consequences that didn’t have to be
discussed very much. It just all had to do with sounding good.
Horton: There would be two measures on the same ballot?
Phillips: Yes.
Horton: A Measure M, I think it was, which was the opposition’s and a Measure O,
which was approving what the council had done.
Phillips: Correct.
Horton: What would have happened if Measure M had won?
Phillips: [00:04:11] If Measure M had won then it would have, in essence, been a
denial of the approval that the council had provided on the project that we
submitted.
Horton: It would have killed the entire projects?
56 Phillips: Yes.
Horton: Stanford would not have proceeded under Measure M with whatever it
provided?
Phillips: No.
Horton: Without winning this ballot measure, the project would be dead and all the
time spent on it would be dead.
Phillips: Yes.
Horton: You worked on that a great deal?
Phillips: Yes.
Horton: Did you think you would win?
Phillips: Yes. Yes.
Horton: Did you win?
Phillips: Yes. [laughter]
Horton: It must have been very satisfying.
Phillips: [00:05:08] It was and I’m sure it was satisfying for you because the major
reason I think it won was because of the way you orchestrated the strategy
and tactics for dealing with the political situation.
Horton: The point is how did this experience with the raw politics of land use issue
help you or influence your future decisions?
Phillips: [00:05:43] I think it was a realization that any significant project could be
exposed to that process and so you better have a strategy built into your
entitlement program to handle that process. Councils were not unlikely to
make decisions and then want to put those decisions to the voters. Your
opposition was not unlikely to submit competing ideas in the hope that they
57 could defeat the approval of your project. I think that was important. It also
shows that it was critically important that you have your community outreach
very solid, very strong and very wide so you could bring them to your aid in
the final council approval and to your aid in that process as well.
Horton: The community outreach program I think was largely organized by you and
Andy Coe in your respective offices and you did many things for the
Management Company which included organizing weekend walks along with
Andy in which both [of you] cooperated in working I thought very effectively
with the community.
Phillips: Yes, I agree. I think Diane Healey was part of that group.
Horton: Isn’t it fair to say that the opposition was extremely well organized and very
active as well?
Phillips: [00:07:52] Yes, and sometimes very intimidating to our supporters, such that
they would be challenged at council meetings when they would show up and
argue that they were getting some kind of special consideration or treatment
from Stanford for being there. People from the shopping center that showed
up to be supporters were challenged that they were going to get rent breaks
or lease extensions or things like that and they ought to complain about it.
You had a lot of people who just were never used to being exposed to that
kind of inconsiderate behavior. That was tough.
Horton: In your long tenure at Stanford, was there any other issue that became as
highly political as Sand Hill and that resulted in a ballot measure?
Phillips: No.
58 Horton: Others probably were quite highly political but didn’t reach the ballot stage.
Is that correct?
Phillips: Correct.
Horton: Anything else on that?
Phillips: No.
Horton: That is an important point. Bill, let me ask you now about three other major
projects that happened during your tenure. Can you describe the building of
the Rosewood Hotel and the background to that and how it happened?
Phillips: [00:09:40] Rosewood was an interesting one. It harkened back to that twenty-
one-acre site. When I first came to Stanford, we had completed a ground
lease, which really was an option to ground lease at that point in time. I’m
going to say in 1988-1989, and that was with Westin Hotels. They were going
to build a 260-room hotel spread out on that site.
Horton: Bill, let me stop for a moment so that people who are reading this history will
understand this important point. Stanford has 8,180 acres in six political
jurisdictions so when you work on land use, isn’t it the case that you have to
work in every case with one primary jurisdiction and the other jurisdictions
may require some work because they’re adjacent and are secondary? Each
entity has to be handled separately. Most of the things that we have talked
about so far have been in the jurisdiction of either Santa Clara County or
Palo Alto. Where is this land where the Rosewood is talking about? Where is
that located?
Phillips: It’s at I-280 and Sand Hill Road, which is in the jurisdiction of Menlo Park.
Horton: It’s the city of Menlo Park.
59 Phillips: [00:11:50] Right. The Westin Hotel was basically going to be a project that
would need approval by the City Council of Menlo Park. As with most hotel
projects, they seemed amenable to it because hotels produced an occupancy
tax that was anywhere from ten to twelve percent back then on the room
rate. It’s quite a strong contributor to their financial side.
Horton: You say that political jurisdictions like having hotels [because they are good
income producers for local governments]?
Phillips: Yes, absolutely.
Horton: The tax situation is highly favorable to income for them.
Phillips: [00:12:50] Yes. Sales tax on a shopping center ends up being about a one-
percent revenue share to the city but the hotel tax tends to be ten times that.
It’s something that they like to see. That was at the end of the 1980s. At the
end of the 1980s, there was a boom in real estate that was causing a growth
level that was making community residents nervous and causing traffic that
was making people nervous. The process of getting ready to move forward
for Westin was beginning to look little bit more tenuous because of that
community sentiment. Also there was an attorney in the area who was
working cities from Monterey, Santa Cruz, up through the Peninsula and
who was using money from concerned residents about growth to allege that
there were defects in the city’s growth plans that needed to be corrected
because [according to the attorney] if they didn’t correct them there would be
a defect and they could not go ahead and approve any new development.
What I recall is that, as we went into that early 1990s period and the
savings and loans crisis took hold and projects were faltering because of lack
60 of financing, the City Council for Menlo Park was also getting nervous about
this individual who had written a letter saying that there wasn’t a traffic plan
as part of their general plan that was consistent with the rest of their general
plan and that they might be sued on that. They began to say that they would
put a moratorium on any real estate development until they had done some
research on that or until they had updated their master plan.
Horton: When did that moratorium begin?
Phillips: I’m going to say 1990 or 1991.
Horton: This is in the time before the Sand Hill Road projects have begun?
Phillips: Oh yes.
Horton: Begun--to be applied for.
Phillips: [00:16:12] Yes. The [Menlo Park] council invoked a moratorium. It was one
developer, Tom Ford, who pushed back on a project that he had in the
pipeline and got them to back off on his project. Westin did not want to back
off on its project initially but instead came to Stanford and said, “With the
financing markets the way they are and with us facing this moratorium, what
we’d like to do is have you consider a completely different hotel project on
that property--a high [tall] project basically--that would be far less costly.”
Stanford, at that point, was nervous about their commitment to going ahead
and they were really nervous about the look and feel of that project next to all
the low-rise office space that they had and other developers had in the area.
Horton: So the site you’re talking about is in Stanford’s lands that are within the city
of Menlo Park. As you go up Sand Hill Road from Stanford, is that on the
right or the left hand side?
61 Phillips: It’s on the left hand side. It’s in a bowl but it’s very much a project that really
starts the foothills of the Santa Cruz Mountains once you get onto the other
side of I-280.
Horton: So it’s a vacant spot?
Phillips: [00:18:13] Yes. We had ground leased another development right next to it
and SLAC [Stanford Linear Accelerator] was not that far away. The idea of a
high-rise hotel similar to something that you would see next to the San
Francisco International Airport would have been highly inappropriate. We
mutually agreed that we would terminate the option and seek development
on the site at a better time. It took Menlo Park quite a while to update their
master plan. I think that extended into the Sand Hill Road project period.
Horton: Stanford and Westin had sought an arrangement to build something there
but, except for being a concept, it was never formally applied for. Is that
correct?
Phillips: [00:19:42] I think it was not formally applied for but it probably went
through some preliminary evaluation.
Horton: Yes, and it was in the newspapers. It was a potential project and so the idea
of its size and so forth would have been a public issue.
Phillips: Yes, it was pretty well defined.
Horton: That goes away.
Phillips: [00:20:04] Yes, and we knew it wasn’t going to come back until we felt like
we had a council in Menlo Park that would approve it.
Horton: Could you step back and just say what have the politics been like in dealing
with Palo Alto and Menlo Park? Do they both have generally the same
62 positions or are they quite independent? Does the politics change from time
to time?
Phillips: [00:20:37] The politics change from time to time and Menlo Park with a five-
member City Council can change dramatically. It can go from reasonable
growth to no growth in one election cycle and we saw an extended period in
the 1990s that the Menlo Park Council was basically no growth.
Horton: All right. You decided to wait until you got a council that might be not as
strongly no growth?
Phillips: Yes.
Horton: When did that occur?
Phillips: [00:21:25] That occurred in the early 2000s. Once again, we were seeing
market conditions change such that because of the tech bust, development
was basically stopping, and the hotel market had certainly fallen off
completely. Menlo Park, as [were] other cities, was looking for revenue
sources. We thought, “Okay, this is a good time. This is the time we want to
go before the City Council.” We talked to all the City Council members and
saw that we had at least three that would be more than happy to consider a
hotel and maybe four that would vote for a hotel. We knew that we wanted
to get something more in terms of land use on that property than just the
hotel.
Our strategy there was to scale down the hotel but make it much
higher quality so that the transit occupancy tax would be what it would be for
a two-hundred-plus-room hotel sprawled out on the site but we could get the
63 same amount of transit occupancy tax for a hundred and twenty-room hotel,
which would rent for a much higher average daily rate.
Horton: For the Menlo Park community and the political leaders who don’t like
massive buildings, having a smaller building of higher quality fit right into
what they wanted: getting the same amount of income as a big building but
none of the problems that go with the big buildings.
Phillips: [00:23:43] Right. We had a competition both for the hotel and our other
component, which was going to be 100,000 square feet of office, which was
going to be a primary economic driver for the university. We had a selection
process that ended up with a company, Broadreach, that was going to do the
hotel and the office. Broadreach had a hotel operator, Rosewood, that was
interested in pursuing the project. Actually there was no other quality hotel at
that time that was interested because of the financial market conditions.
Some of that was because they had already developed hotels nearby or were
about to; Ritz Carlton was over in Half Moon Bay, and Four Seasons was
looking at East Palo Alto. Marriott and some of the others that rely heavily
on financing were just not interested because of the softness in the financial
markets.
Horton: Bill, we were just at the point where you were describing the hotel occupancy
tax and the advantages to Menlo Park. Where do things go from there?
Phillips: [00:25:44] I think what was happening is I had informally checked in with the
City Council members and there was agreement among a majority of them
that they certainly liked the hotel project. They wished the office project was
smaller but they could probably approve the 100,000 square feet of office if
64 that was really necessary in order to make the hotel happen. The project then
evolved. I think that was the end of 2004. It was December of 2004 but what
happened in just a matter of days or weeks was that the university decided
that it wanted to be the developer of the office project and it had a donor
who was willing to build it for the university.
The developer of the office project wasn’t interested in just doing the
office project. All of a sudden, the university became the developer of the
office and hotel project. We had to make the presentations and get the
entitlements, as opposed to having a third party developer taking on that
role.
Horton: Normally, if you had given the rights for a third party developer for a project,
they would go and have to do all the political work and get the approvals and
so forth.
Phillips: Yes.
Horton: If it’s a university project, then you would have to do that?
Phillips: Yes.
Horton: In the normal case, Stanford would work with a developer who would do all
the work to get the entitlements and do all the building. Then Stanford gets
the benefit of it all being done. Also, the developer itself would work with a
hotel or some other [entity] to buy that portion?
Phillips: Yes, or ground lease it.
Horton: Or ground lease it. In this case there was a situation where to move forward,
it had to be a university project.
Phillips: Yes.
65 Horton: And this was unlike any other major commercial project you’ve had?
Phillips: No, we had begun to be an out-front owner [and] developer in the Research
Park.
Horton: This is part of the same spirit that Curtis used in the Research Park by taking
risk as you said earlier.
Phillips: [00:29:11] Yes. The difference here was we had no experience in hotels.
Ownership of a hotel was something that we had no desire for, but in this
case it was kind of forced on us because one developer who was willing to do
the hotel was only going to do the hotel if they could also do the office. We
actually went back to the developer we had been working with and said,
“We’ll let you continue the work on the hotel but we’re going to take over
the office.” The response was that they were only interested in a combined
project. The reasons for that would be understandable under any economic
conditions.
Horton: Is that because hotels are a higher risk than offices?
Phillips: [00:30:26] Hotels are higher risk and they’re a specialty project. You have to
manage it and you have to know the hotel business even when you have an
experienced operator. We see that hotel developers who use other operators
like Four Seasons or Marriott or Hyatt still know the hotel business, even
though they have an operator working on the business of the hotel day in,
day out. We just didn’t have the hotel experience even though we had other
ground leases for hotels. We had to learn the hotel business. In fact, we hired
one of the people who had been working with Rosewood on other projects
66 and used that person as a consultant for a while as we got our sea legs for
hotels.
Horton: Is this even in the design of the project?
Phillips: Yes, definitely. Very much so in the design.
Horton: You had this outside developer who knew Rosewood.
Phillips: [00:31:53] Yes, and--after twisting his arm--was willing to work as a
consultant and not an equity partner in the hotel. We then moved forward.
Early 2005, we went to the Board of Trustees and explained how the original
concept had changed. We said we were going to be taking on the leadership
role for both the office and the hotel and then gave them a timetable that
included an EIR entitlement in 2006 with the opportunity to break ground in
2006 and then grand opening in 2008. Unfortunately, I think we opened
April of 2008.
Horton: Beginning of the great recession?
Phillips: [00:33:06] Yes. We went from the tech bust which set us up for entitlements
to 2008 opening, which was probably the worst possible time to open a
hotel, especially one where the average daily rate was supposed to be close to
four hundred dollars a night.
Horton: For the people listening to this interview, I’ll say this site is right at the corner
of Highway 280, which is a major freeway from San Jose to San Francisco,
and Sand Hill Road. It has great advantage of being able to get off there and
go to the airport or go down to Stanford or Palo Alto, and for the Silicon
Valley it’s an ideal location.
67 Phillips: [00:34:08] Absolutely ideal and for a high-end hotel, as we’ve seen since that
time, you would be the only major hotel with quality restaurant, spa, and
meeting facilities in the middle of the Sand Hill Road venture capital
community, where there’s about 1.1 million square feet of office space
mostly occupied by venture capitalists.
Horton: It’s important for people to know that Sand Hill Road at this time is
probably one of the largest collections of venture capitalists in the entire
world.
Phillips: Yes, and some of the highest rents in the entire world, which is one of the
things that made the office portion of the project so attractive.
Horton: What was the result? Rosewood opens and what is the result then for
Stanford?
Phillips: [00:35:14] The result was a very tough couple of years--2008-2009 were
tough. The target nightly rate of $385 was never close to being achieved. The
office building was being leased up at rents that were commensurate with
everything else that was going on on Sand Hill Road. The office project was
carrying [financially] the hotel for that difficult period. Then as we got past
2009, the great recession was beginning to be over and companies were once
again allowing their business people to find real quality hotels and they were
willing to use meeting rooms and do meeting events and pay for catering.
Pretty soon the growth in revenue was basically where we had hoped to get
[it].
The hotel was very costly to build because it was a low-rise hotel,
meaning that you didn’t have the cost-reducing advantages of building floors
68 on top of each other. It was important that it stay low rise and not impede
the views of our other properties and other tenants just to the north or the
west of it.
Horton: This has turned out to be a very successful venture for Stanford?
Phillips: [00:37:33] Oh yes, now it has. I think today the Rosewood has a Michelin
starred restaurant. Its spa is very popular. The room rate is in the low four
hundreds to eight hundred, and it does a pretty good weekend business too,
which is something most hotels in our area do not do.
Horton: That means there is a risk that if the economy turned down this project at
Stanford could turn out to be a bad decision or has it reached a point already
that it has paid back?
Phillips: [00:38:29] I think it’s reached a point already where it’s stable and basically
whether it requires a subsidy or not from the office, the project components
together are going to make it a very profitable project. I think the idea is
maybe the ground lease will be created for the hotel and maybe the hotel will
be transferred to somebody who would be interested in taking it on. There’s
probably a lot of interest in people having a mature hotel.
Horton: The importance of this project is we had land that Stanford owns which was
lying fallow and now we’ve been able to turn that land into a substantial
producer of income which goes into the endowment and supports the
educational and research mission at the university?
Phillips: [00:39:38] Correct, yes. It also shows the value of being patient and waiting
for a receptive council where you know you have the votes, where you can
count the votes just when you start.
69 Horton: Do you think, Bill, that Stanford’s ability to wait for favorable political wins
is an advantage that very few other business people have?
Phillips: Yes, absolutely.
Horton: They would not be able to wait as long as Stanford can until it can get a fair
project?
Phillips: [00:40:25] Yes, absolutely. I think if you ask private developers what is
Stanford’s biggest advantage, they would say, “Well you can go and get
entitlements for development any time you want to. We [private developers]
can only do it when the financial markets are strong. The financial markets
are strong usually when there’s lots of development applying for entitlement.
That makes it that much tougher for us to do it.”
Horton: You also said that politically Stanford can’t do it at any time. It can only do it
when the political situation permits.
Phillips: [00:41:08] That’s when it’s best for us to do it. Yes. That’s because, in part,
we’re Stanford and we can’t go anywhere else. It’s our land and our projects
have to be on our land. Other developers, if they find a lack of positive
reception from a certain community or city, can take that project and go
somewhere else.
Horton: For Stanford too, Bill, it’s important that what they do is a good, long-term
matter for the entire university. One factor in that is why Stanford, although
it has much land, much of it is still undeveloped and much of it will remain
undeveloped.
Phillips: That’s correct. Yes.
70 Horton: That’s a very interesting story about the Rosewood. Now an entire project
like this, was this about a seven, eight, ten-year project? I guess if you go
back to the Westin period where you were thinking about a hotel there, we’re
really about something that is fifteen years [in the making].
Phillips: Yes.
Horton: Let’s go back. Let’s discuss the move to Redwood City. Describe what that
is, why it’s taking place, and what do I mean by the move to Redwood City?
Phillips: [00:42:55] I’m going to talk about it in terms of the portion where I was
involved and where it became a concept that other people really followed
through on. I’m not going to talk about the follow-through that much. I’m
going to talk about the purchase of the Redwood City land.
Horton: And the reason for it.
Phillips: [00:43:28] Yes. Again, this goes back to a general economic condition. There
was the tech bust. In 2002, 2003, you had a lot of companies that had built
properties that they couldn’t occupy and/or had gone out of business. John
Scully was on the Stanford Management Company Board at that time--[he
was a trustee too]--and thinking on behalf of Stanford, John said to the folks
in Real Estate, “You ought to really take advantage of the buyers’ market that
is out there now and start to look at properties that you could acquire that
would be helpful in dealing with your university expansion needs in the
future.”
Horton: Who is John Scully?
Phillips: John Scully has a private equity [and investment] firm, [SPO Partners] up in
San Francisco and is considered to be a very knowledgeable investor.
71 Horton: This is not the same John Sculley that was at Apple?
Phillips: [00:45:08] No. Somebody that Mike McCaffery knew well. As I said, a highly
respected private equity guy and a wonderful guy. When he spoke, people
listened. One idea was, “Okay, let’s look at space or land that we could
acquire as a university that hopefully is already entitled and have a backup for
the next GUP in the event that that becomes a real slog and we don’t get all
the square footage we need--a place that we can move to.”
Horton: You mean the next general use permit?
Phillips: Yes.
Horton: That general use permit is in Santa Clara County but this land you’re talking
about now is in San Mateo County. Is that correct?
Phillips: Right.
Horton: But you considered it part of the whole region?
Phillips: Yes.
Horton: Redwood City is how far from Stanford?
Phillips: [00:46:23] It’s probably a fifteen or twenty minute drive. When I was roaming
the area with John Scully, we were looking at everything from probably
Sunnyvale on up to Redwood City and Pacific Shores of Redwood City, that
area. The hospital, at the same time, was looking for some off-campus clinic
space. They had an orthopedic program that they wanted to expand--sleep
disorder and a number of other things that were clamoring for space which
just wasn’t going to be available on or near campus. They were beginning to
develop an urgent need for space. Their requirements were they wanted
something to the north of the hospital.
72 I think the university was probably more interested in something to
the south if it was going to be utilized for offsite staff that didn’t need to be
right on campus all the time. A major site that we looked at was owned by a
company called The Martin Group, which is very well known up in San
Francisco. I think Deutsche Bank might have been involved too. That was
the Excite@Home site. Excite@Home had built their headquarters
development on a portion of the site that they owned but they never
occupied it. There were four buildings of about 360,000 square feet that
could be purchased for a very good price at the time, not much different
from a lot of stuff that could be picked up. It was something that with John
Scully’s advice we began to hone in on.
The value there was that it had an adjoining amount of acreage which
had buildings on it and had been entitled for a certain amount of
Excite@Home redevelopment but that could have be used for the
university’s staff expansion. The four buildings that Excite@Home was
going to use for their headquarters could be converted to clinics facility. The
hospital was very interested in that. I started working on that probably [in]
2004 and the acquisition of that went fairly quickly. By the end of 2005, I’d
been able to negotiate a contract that the hospital [would] buy the four
buildings and an option to buy the other portion of the site for the university
staff expansion. Then we closed both purchases at the end of 2005.
Horton: What do you mean by staff expansion?
73 Phillips: [00:51:01] The university staff. What we’re doing now over there, which was
buildings that could afford space for staff of the university that were growing
but didn’t need to be on campus.
Horton: One strong impetus for getting this Redwood City project was that it’s
increasingly difficult to get space in Santa Clara County on our campus
through the general use permit. It’s a difficult process. The university was
making the decision to take quite a number of its staff members that have
traditionally been on the campus and move those offices to Redwood City,
so that the space on the campus could be used for instructional and research
use. Is that the general purpose behind it?
Phillips: Yes.
Horton: That’s very important.
Phillips: [00:52:07] Yes. It was beginning to evolve as a policy--that, even if we could
have gotten all the square footage that we might have needed for housing of
staff, the underlying cost and value of that space was too great to be used for
people who didn’t need to be on campus.
Horton: Yes, because through communications and the new business technologies,
the work could be done quite satisfactorily fifteen minutes away?
Phillips: Yes.
Horton: You bought the property. By the way, it is important for people to
understand that the Stanford Hospital is actually a separate organization run
by a separate board of trustees so that you really did have to work with them
the way you would work with a completely different company. It just so
happens that the Stanford Board of Trustees owns [both the university and
74 the hospital]. Nonetheless, they have their own management, they have their
own board and so it did require you to truly make a negotiation that was
good for them.
Phillips: [00:53:29] Yes, and they have a board of directors. I wasn’t unfamiliar with
the board of directors of the hospital or the medical school because, on
various pieces on Welch Road, I had worked to acquire those on behalf of
the administration over there. I knew how to work with them on property
acquisition.
Horton: You ended up purchasing this as you had the part going to the hospitals.
Driving down the freeway you see that Stanford Hospital sign there. It’s busy
all the time. How were you going to use the rest of the project? Were those
largely empty buildings or lightly used buildings? Would be able to use those
for your purposes?
Phillips: You mean the non-headquarters buildings?
Horton: Yes.
Phillips: [00:54:46] We weren’t really sure but we felt like the amount of square
footage and the condition of the buildings, even though they had been
renovated, really weren’t going to be up to the standard that Stanford would
want to use for its employees and functions. The idea was to allow the
tenants that were over in that area to occupy it, and it was about 500,000
square feet. You had 360,000 square feet that was the hospital and then you
had approximately 500,000 square feet that was on the existing property on
the other side of Broadway. Then it became someone else’s task to figure out
a way to create entitlements and get a development agreement that would
75 allow the university to have as much flexibility in terms of new building and
development on the other side of the street from the hospital clinics
buildings.
Horton: What was the upshot of those negotiations? Did you get a new project? Get a
new entitlement?
Phillips: [00:56:20] Yes. The entitlements amounted to about 1,500,000 square feet, so
quite a good, hefty increase in development. It was a net increase of about a
million square feet. You have the clinics facility which is just really humming
along right now. All the buildings are now fully occupied with clinic facilities.
They’re developing a new garage over there. The first phase of university
buildings is in the process of going up. They look sensational. They have very
much the Stanford look and quality to them. I think the Land, Buildings, and
Real Estate folks are going to be moving in around middle of 2019.
Horton: You had to get those entitlements from the City of Redwood City?
Phillips: Yes.
Horton: What was it like working with Redwood City as compared to say with Palo
Alto or Menlo Park?
Phillips: [00:57:48] Night and day. The City of Redwood City was interested in our
willingness to do a development agreement and not because they could
squeeze a lot of money from us. They wanted to see a vibrant presence of
Stanford in their community. I think the idea of Stanford in Redwood City
was an important concept.
76 Horton: When it’s finally completed, that will be a large place for Stanford staff. Many
of the operations that are central to Stanford that have always been done
here will now be done in Redwood City.
Phillips: [00:58:46] Yes. An [added development of a] million and a half [square feet].
I think you’re probably going to get the hospital or the Medical School taking
some of that space, but the vast majority of the million and a half square feet
will be utilized by the university’s academic [not faculty and nonacademic]
staff
Horton: That is an important new element of Stanford--Stanford in Redwood City--
and it will be very important way down into the future since we now own
that land.
Phillips: [00:59:26] Yes, kudos to John Scully.
Horton: Bill, the third area in which there’s been something very major in recent
years, which is a complex issue, is about the Stanford Hospitals. By that I
mean the Stanford Hospital and the Lucille Packard [Children’s] Hospital.
Could you give us the background of that, what happened, and how it was
done?
Phillips: [00:59:56] Both Stanford Hospital and the Children’s Hospital were
approaching a strong need for redevelopment and expansion. The stimulus
for that was a state requirement for being able to continue operation of the
hospitals during a major earthquake. The redevelopment that was going to be
required by state legislation really combined with an assessment of the need
for expansion. The determination by both the Children’s Hospital and the
Stanford Hospital was that they wanted to be able to expand where they
77 were--on site. In early 2006, the concept was broached with Palo Alto of
getting hospital expansion approved by Palo Alto because these properties
were [under the jurisdiction of] the City of Palo Alto, not Santa Clara
County.
The city, at that time with Frank Benest as city manager, seemed
receptive to the idea of the hospital buildings becoming better and larger, but
they really wanted something that would be economically advantageous as
well. They encouraged an expansion of the Stanford Shopping Center as
being part of the project submittal.
Horton: Historically, that’s a bit odd, isn’t it, Bill? To get the Sand Hill Road projects,
the City of Palo Alto reduced in half what we had asked for in expansion at
the shopping center. Now a decade later, they want to add more. Is that what
happened?
Phillips: [01:03:08] That’s correct. [laughter] Remember at the beginning of the Sand
Hill Road projects, they were very excited about the expansion of the
shopping center because of the economic conditions at the beginning. Here,
they were also excited about expansion of the shopping center because it was
2006 and you were in the lead-up to the great recession. The great recession
began its early showing in probably 2005 and then hit everywhere and very
severely in 2008. The city was beginning to feel the strain of lack of
development. I think Frank Benest was interested in something that would
be quite important to the city in terms of revenue, whereas the hospital
doesn’t pay property tax, doesn’t have a transit occupancy tax, and doesn’t
78 have a sales tax. A hospital was just for the good of the community basically, for the good of Stanford and for the health of the community.
The other thing that the city [liked]--and Frank Benest led this idea and Simon was happy to go along with [it]--was that if we would include the expansion of the shopping center--240,000 square feet and a 120-room hotel.
Frank Benest, as I recall--and I think you had even more conversations directly with him--was basically promising an eighteen-month [environmental impact report] approval and entitlement approval timetable if the shopping center was part of what we were proposing. We began in earnest the project description and beginnings of the EIR process in 2007 and then, to make a long story short, it became more and more difficult to get through the process.
[01:06:20] The council might have had the votes for the entitlement approval, but we really couldn’t count the votes at that time. Many of the mitigations that were assigned to the shopping center because of its growth were beginning to impact and delay the hospital projects. I think it was finally in 2009 that the university leadership, all the way up to the president, decided this process is not going well for the hospitals. Not only is it not being approved in the timetable that was originally promised; but, in fact, the mitigation needs for the shopping center were being thrust on the hospital project and on the university. We dropped the shopping center project as part of the EIR, rewrote the project description to exclude it, and then proceeded after that time to move ahead without the drag of the shopping center project.
79 Horton: Let me ask a question for someone listening about this. The way you’re
describing it, the city and particularly the city manager wanted the shopping
center and the hospital, and were happy with both. But as it moved forward,
the shopping center project turned out to be a serious drag on what we were
getting for the hospital. So when you dropped [the shopping center], it must
have been a very dramatic decision. How did the city react?
Phillips: [01:08:55] I think the city was very unhappy. I don’t know that every council
member was unhappy but there were certainly several unhappy council
members. With a clarification of what would be removed from the EIR
analysis in terms of impact on the city; they began to understand why that
was problematic. Again, the timing is so important. This was 2009 and now
people were beginning to feel better about the great recession. I think the
[effect] of the retail growth became of less importance to the economic
health of the city. Certainly some members wanted the aspects of retail sales
tax and transit occupancy tax from the hotel. I think we were very clear that
basically this was now a stand-alone project for the hospitals.
Horton: You did that because the hospitals are vital, not merely just for the public
health in the community, but for the research and education programs in the
university. It’s a basic purpose of the university, is that correct?
Phillips: Correct.
Horton: The shopping center is not.
Phillips: [01:11:06] Correct. I think it was explained that basically, to the extent that
the hospitals needed then and maybe in the future, the roadway capacity and
the other environmental capacities that are built into an EIR analysis. Those
80 need to be reserved for the health and growth of the university and not to
fight for the growth of the shopping center.
Horton: Now that [was the] university point of view--did you think that many people
in Palo Alto understood that as well and fundamentally agreed?
Phillips: I think a lot of people did. I think the city folks were more concerned
because they were the ones tasked with helping with the budget items that
they were facing.
Horton: Once you made that dramatic decision, how did the process go after that?
Phillips: [01:12:29] It went slower than we had hoped. In part, it was probably
because the city shifted to looking at the development agreement and the
“community benefits” that can be asked for under a development agreement
as a way of replacing some of the economic benefits they thought they were
going to get from the shopping center. We had a real struggle--it became a
typical real estate project. It wasn’t like, “We’re all behind this because it’s a
hospital. We know it needs to be fixed.”
Horton: I think this is confusing to some people, Bill, because down in Mountain
View, they tax themselves for the hospitals. Other communities raise money
for the hospitals. In this case, Stanford was willing to one hundred percent
pay for the hospital and yet, the local community, the City of Palo Alto,
thought it should be paid for the privilege of Stanford doing that.
Phillips: Yes, it’s odd, isn’t it?
Horton: I guess to the university the question is if you want the hospitals, in order to
meet and support the education and research goals, we will simply have to
pay more than other people elsewhere would have to pay for a hospital.
81 Phillips: [01:14:13] Yes. Because we have a requirement that doesn’t allow us to think
strongly and practically about other choices.
Horton: This hospital project definitely ties into decisions that the university made in
the late [twentieth] century. Had they not made those decisions, such projects
as the improvements on Sand Hill Road [then you wouldn’t be able to do
projects for the hospital]. Did you think you’d be able to have achieved
approval of the hospital project if Sand Hill Road had not been already been
improved?
Phillips: No, no, definitely not. Definitely not.
Horton: It was the university’s foresight in giving priority to the road that helped
enable this project to be completed?
Phillips: Yes.
Horton: When you finally end up with a project, what was approved?
Phillips: [01:15:39] What was approved was a 1.3 million square foot hospital
expansion, including hospital bed expansion, some clinic expansion at the old
Hoover Hospital site on Quarry Road, and basically a replacement of a
number of School of Medicine buildings, that had become totally outdated,
for use as research [spaces]. The School of Medicine portion was really a
square foot for square foot replacement. The net 1.3 million square feet
hospital expansion was basically the two hospitals.
Horton: A new, modern hospital?
Phillips: Yes.
Horton: Is that a whole new building?
82 Phillips: Yes. For the most part, it’s a whole new building which ends up being a wing
of the existing buildings that are still there--the same thing with Children’s
Hospital.
Horton: Is the old Edward Durell Stone Hospital going to remain?
Phillips: Not forever. At some point, the development agreement requires it to be
replaced by some additional clinic facilities that are connected with the
hospital.
Horton: When will this new Stanford Hospital come online?
Phillips: It’s already up and being furnished. You can actually tour [the facility].
Horton: Do you think it’ll be open for the public in 2019?
Phillips: Yes.
Horton: Wasn’t there also another aspect that went along at the same time of the
Children’s Hospital expansion? Considerable expansion.
Phillips: [01:18:07] Yes. I haven’t been around for the grand opening so I haven’t
gotten the current story on when they’re planning on actually admitting
patients into there but basically, they’ve had people touring that building and,
as you can see from the outside, it’s in the very late completion stages.
Horton: This project is completed and it looks like it’s all coming up soon. We will
have a brand new medical complex for teaching and research that will be
probably a match to any in the state.
Phillips: [01:18:59] Yes. That’s important because that state requirement applies to
everybody in the state, so they have everybody upgrading their facilities and
many upgrading, modernizing and expanding their facilities. It’s important
83 that we’ve taken this opportunity, as have others, to improve our facilities
and keep them in the forefront of the top quality of hospitals in the state.
Horton: I think Stanford already has the advantage which very few universities do of
having its Medical School and a hospital in walking distance of the Chemistry
Department, the Physics Department, and Engineering, and I think we even
have a new department in a new building of Bioengineering.
Phillips: Yes.
Horton: That gives Stanford quite a leg up.
Phillips: Yes and cross-collaboration has been extremely important to Stanford.
Horton: Without this new facility and the work that you and your team did, that
wouldn’t exist.
Phillips: Right.
Horton: That’s very, very important.
Phillips: [01:20:24] Yes, and you can see how UCSF has had to kind of cobble
together, especially at its Mission Bay site, a similar cross-collaboration of
hospital learning and research. They’ve done it with a lot of difficulty because
they were already spread out around the city. We’ve been able to continue to
maintain it at one site [plus the Redwood City clinics].
Horton: Yes, I remember that Laurel Heights problem they had many years ago.
Phillips: Yes.
Horton: Bill, this has really been a remarkable story. When you step back and look at
your twenty-eight years here at Stanford, do you have any reflections on what
you were doing and the satisfaction you received from projects you worked
on?
84 Phillips: I look back on my career here as one that has been tremendously satisfying. I
worked for wonderful people: Rod for way too short a period of time, and
with Laurie.
Horton: Laurie Hoagland.
Phillips: [01:21:48] Laurie Hoagland, who taught me a lot about patience and listening.
He also was somebody who would review my writing and correct it in ways
that not many other people have because they always thought I was a pretty
polished writer. I grew in that respect. Curtis taught me how to manage and
work with people, taught me about the importance of relationships and how
to negotiate more effectively. Andy [Andy Coe] really helped me in those
early Sand Hill Road years to polish my presentations because my oral
presentations were very bad initially. Andy would review those with me after
I did them and tell me, quite frankly, where I needed to improve.
Horton: This was Andy Doty?
Phillips: [No, it was Andy Coe]
Horton: He was very skilled in this.
Phillips: [01:23:10] Yes. I think seeing the way the income from the local real estate
grew and improved in a very dramatic fashion had to be very satisfying. You
could feel the same way that Alf Brandin and Tom Ford and the pioneers
who saw a university that was desperately in need of funds to grow, be able
to achieve that through mostly real estate policies and successes. A much
larger real estate organization would have been able to do the same thing so
that you’ve now got a university that’s one of the wealthiest in terms of
85 endowment to support academic growth and attract really the best minds
from all over the world.
Horton: It all must be very gratifying to know that the income that you’ve talked
about goes to support the education, research, and into financial aid so that
any student who can apply and succeed in obtaining admission can come to
Stanford regardless of their financial circumstances.
Phillips: [01:25:01] Yes, absolutely. The leading schools today are the ones that have
this ability. To attract the best and the brightest, you’ve got to be able to do it
on a needs blind basis.
Horton: Bill, thank you so much for all you’ve done for Stanford and thank you for
participating in this oral history.
Phillips: Thanks. It’s been fun.
[End of Part 2 of 2 - Interview with William T. Phillips - July 25, 2018]
86 William T. Phillips Curriculum Vitae
Stanford University 1987 - 2015:
Bill joined the University’s Treasurer’s Office in May 1987 as Director of Real Estate.
After the Treasurer’s Office, Bill moved to become Managing Director of Real Estate at Stanford Management Company. There he was both a critical team member – most often involving the key traffic transportation and fiscal impact areas – and the key negotiator for significant acquisitions and dispositions. Most notable among the foregoing were the entitlements for the Sand Hill Road Projects (628 units of Stanford West Apartments, Shopping Center expansion of 80,000 s.f., approximately 500 units of senior living and support, and expansion to four lanes of Sand Hill Road); key negotiator in the ground lease to Simon Properties Group of the Stanford Shopping Center for a gross value of $440 million; principal negotiator in the acquisition of 11 acres and 360,500 s.f. of clinic space for Stanford Hospital and Clinics in Redwood City and subsequent purchase, totaling 35 acres, of adjacent parcels for eventual expansion of University staff and School of Medicine/SHC clinics; and sole entitlement lead for the 126-room Rosewood Hotel and 100,000 s.f. office complex on Sand Hill Road in Menlo Park.
During 2006, Bill joined Stanford LBRE as Senior Associate Vice President and was given the task of lead negotiator for the Stanford University Medical Center Hospitals Replacement and Renewal Project. The Development Agreement for this was finally approved in mid-2011 and allows for the net expansion of over 1.3M s.f. of medical development (including replacement of the Stone Complex with research and clinics buildings) at an eventual cost of over $5 billion.
Other Experience:
Pacific Realty Advisors, San Francisco 1982 - Present Executive Vice President and Director
Pacific General Development Company, San Francisco 1969-1982 Executive Vice President and Director
Dillingham Development Corporation, San Francisco 1968-1969 Project Manager
HOH Associates, Denver 1965-1968 Associate
87 The Draper Companies, San Francisco 1964-1965 Project Manager
Education:
1958-1962 University of Colorado, Boulder - BS, June 1962.
1962-1964 University of California, Berkeley - MBA, June 1964. National Association of Homebuilder’s Scholarship; California Real Estate Association’s Glenn D. Willaman Foundation Scholarship.
Publications:
“Acquisition and Financing of Improved Real Estate,” Creative Real Estate Financing. New York: Practicing Law Institute, 1990.
“Where We Are Today: Problems and Solutions,” Real Estate: Valuation Techniques and Portfolio Management. Charlottesville, VA: The Institute of Chartered Financial Analysts, 1988.
88 Interviewer Biography Larry N. Horton
Larry N. Horton retired as Stanford’s senior associate vice president and director of government and community relations in 2013.
The son of a Southern Pacific Railroad switchman and a housewife, Larry Horton was born in Louisiana and eventually made his way to Stanford where he earned his BA in political science in 1962. He was drafted into the US Army thereafter, serving two years in Western Europe during the Vietnam War era. Returning to Stanford, he completed his master’s degree in history in 1966. In 1970, Horton became the assistant and associate dean of student affairs. He went to Washington, DC, in 1996-1997, and participated in the President’s Executive Exchange Program under presidents Ford and Carter, where he served as an assistant to the Secretary of Health and Human Services before returning to Stanford.
A recipient of the Kenneth M. Cuthbertson Award for Exceptional Service, his decades of work include shepherding the 2000 Community Plan/General Use Permit, the Mayfield Development Agreement, and the conclusion of the Trails Agreement with Santa Clara County. Horton helped to define several major chapters in Stanford’s history, including developing housing for women and minorities and shaping federal research policy, federal patent legislation, and federal immigration and national security issues that could limit access for foreign students. He also handled controversial and potentially damaging episodes such as a congressional review into allegations of over-billing on federal contracts in the early 1990s and the contentious Sand Hill Road development in 1997.
Horton has served on the board of the Stanford Historical Society and its Oral History Committee since 2015. He also serves on the boards of TheatreWorks and Stanford Campus Residential Leaseholders.
89