There is a revolution underway whose ramifications are veryunclear. We may have finally reached the point where technologyactually does reduce the need for all levels of labor.

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Take a few examples: high speed stock trading has replacedtraders, computers now do the research for lawyers seeking pointsfor discovery and precedents for trial, new programs can betterdetermine if you should litigate or settle, Google cars are betterand safer drivers than humans, warehouses and many production linesare staffed by computers. One can look around and begin to find arapidly growing number of industries where computers and relatedtechnology is replacing humans and doing a better job. The supercomputer Watson can out think humans on many questions where recallof the answer to a specific question is required. Your newcar is really a computer on wheels, fighter aircraft go so fastthat computers are required to man many of the weapons systems.Robots can perform surgery on humans although controlled by a humandoctor. Figuring out the best diagnosis and treatment protocol isbeing done more and more by computers. ATMs do your banking. Youmake a check deposit with your smart phone. You call the carservice on your smart phone, you reserve a table at the restauranton Open Table and you book your travel on the computer. You shoponline for many of your needs.

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It has always been proven thattechnology really produces more and better jobs than previously andthe standard of living has been greatly improved. Not long agoLarry Summers said, “This set of developments is going to be thedefining economic feature of our time.” A company I know recentlybuilt a new factory to make a product they had made in an olderplant. The new plant has 90% fewer workers and produces more. NoObamacare, no diversity laws, no inability to fire someone becauseof their race or gender. No union, no OSHA, no making sure you haveyour quota of blacks and Latinos, and women managers. All you haveare a few technicians to make sure the computers are operatingproperly, and a couple of maintenance people to maintain theproduction equipment. Bookkeeping, warehousing, maintaininginventory in line with customer demand, shipping will be done bymachine. There are no more law libraries so there is no need forspace for that. Less space rented by law firms. Accounting is nowheavily digitized so less need for bodies in offices to count andrecord numbers. Electric meters are read by a computer in theheadquarters. If your cable box goes out it is diagnosed by acomputer at headquarters and a person on the phone is usually ableto solve the problem remotely-no service tech comes to yourhouse.

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One need just look around at allthe things that are now being developed to have machines take overfrom humans. Artificial intelligence has progressed to the pointthat in some industries and professions it is better than humans.And we are just at the start of this revolution. Call it industrialrevolution II or whatever you wish, but it is happening andrapidly.

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Mid-level staff is being phaseddown. Retail is requiring less square footage. Law firms requireless space. Working from home or remote locations is now common.All of this means less space needed for office use, less spaceneeded to house people and cars or trucks to do service calls, lessmalls, less of many types of real estate over the time. Therequirements of buildings will also be changing to require theability to handle heavy power needs and communication lines andfacilities. Less space for people. Far less space for paper files.It is all in the cloud now.

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The disruption of how we work, howwe employ people, and what we pay for lower skilled people willchange. People with creative skills to come up with new programs,apps, uses for artificial intelligence, and to fix complex systemswill command premiums. Lawyers of modest skill, traders, and evendoctors will possibly be less in demand and be replaced over timeby computers. This may all mean the less rapid recovery of thelabor market may possibly become the norm. The population of youngworkers may grow faster than the requirement for ordinary skilledpeople, so there may become more structural unemployment. This maybe why welders are in demand but not ordinary office workers. Wagegrowth may remain slower over time as the less skilled are notworth paying high wages to.

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Bill Gates said, "Twenty yearsfrom now. Labor demand for lots of skill sets will be substantiallylower." Unlike in the past where new technology created newindustries which then employed many more people, we could beentering an era where computers are doing those new jobs, notpeople.

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I am sure many reading this willsay, we heard all this many time before of the decades, and thistime is not different. I suggest, as Summers and Gates suggest,this time it might be different, and if it is, there will bematerial impacts on real estate in segments such as office, retail,and whether or not it will be economically justified to renovatemany older buildings to accommodate the new technology, andpotentially lower demand for square footage. In Manhattan there isalready substantial question if it is for many older buildings. Youneed to get yourself more up to speed on what is happening withtechnology as it will impact real estate over the long term. Noneof this is going to affect you immediately, but over the next 5-20years things will change substantially. This is the new industrialrevolution except it affects everything, and not justfactories.

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Joel Ross

Joel Ross began his career in Wall St as an investment banker in 1965, handling corporate advisory matters for a variety of clients. During the seventies he was CEO of North American operations for a UK based conglomerate, and sat on the parent company board. In 1981, he began his own firm handling leveraged buyouts, investment banking and real estate financing. In 1984 Ross began providing investment banking services and arranging financing for real estate transactions with his own firm, Ross Properties, Inc. In 1993 Ross and a partner, Lexington Mortgage, created the first Wall St hotel CMBS program in conjunction with Nomura. They went on to develop a similar CMBS program for another major Wall St investment bank and for five leading hotel companies. Lexington, in partnership with Mr. Ross established a hotel mortgage bank table funded by an investment bank, and making all CMBS hotel loans on their behalf. In 1999 he formed Citadel Realty Advisors as a successor to Ross Properties Corp., focusing on real estate investment banking in the US, UK and Paris. He has closed over $3.0 billion of financings for office, hotel, retail, land and multifamily projects. Ross is also a founder of Market Street Investors, a brownfield land development company, and has been involved in the acquisition of notes on defaulted loans and various REO assets in conjunction with several major investors. Ross was an adjunct professor in the graduate program at the NYU Hotel School. He is a member of Urban Land Institute and was a member of the leadership of his ULI council. In 1999, he conceived and co-authored with PricewaterhouseCoopers, the Hotel Mortgage Performance Report, a major study of hotel mortgage default rates.