Speaker 1: This is Bloomberg Business Week. I'm Carole Masser and I'm
Speaker 1: Bloomberg Quick Takes Tim Stanibek. We're here every day bringing
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Speaker 1: You can also listen to our radio show at two
Speaker 1: pm Eastern Time on Bloomberg Radio, or watch us on
Speaker 1: YouTube search Bloomberg Global News. The Financial Times wrote earlier
Speaker 1: this year about property in the pandemic and how it
Speaker 1: was the great reckoning that never arrived. Quotation marks around that,
Speaker 1: quoting our next guest in that article as saying that
Speaker 1: working from home is a revolution in its early stages,
Speaker 1: and that office properties will eventually see their value shredded
Speaker 1: by or more. He said that most in the article.
Speaker 1: That's Michael Michael Silver, chairman of Vestian. He joins us
Speaker 1: now once again on the phone from Chicago. Michael, it's
Speaker 1: really great to have you back on the show. How
Speaker 1: are you fine? And thank you appreciate it. Do you
Speaker 1: still hold that is where we're going to see the
Speaker 1: value is is terms in terms of value destruction when
Speaker 1: it comes to commercial real estate. Oh, absolutely, you know,
Speaker 1: if there's any if I have any reassessment, it could
Speaker 1: it will probably be greater than that. But I can
Speaker 1: tell you that even the there was a report recently
Speaker 1: with the State of New York saying that the value
Speaker 1: of New York office buildings has dropped around already, uh,
Speaker 1: just recently issued and uh, you know by the way
Speaker 1: they calculate value, taking thirty billion dollars out of the
Speaker 1: value of office inventory. So and I noticed when people
Speaker 1: started putting buildings on the market, especially if they're what
Speaker 1: I would call Class B buildings, they're already at for
Speaker 1: people who don't follow real estate so closely clad, Okay,
Speaker 1: Class A buildings would be buildings that are just coming
Speaker 1: on the market with a lot of amenities, or they're
Speaker 1: somewhere in the area around ten to fifteen years old.
Speaker 1: Class B buildings are usually uh, somewhere in the area
Speaker 1: of twenty forty years old. And then you get into
Speaker 1: a CE quality building unless you're totally redoing the building.
Speaker 1: So it's the B buildings that are now suffering the most.
Speaker 1: The A buildings, if there's leasing activity, are enjoying the
Speaker 1: uptick and leasing activity even though they're making greater financial
Speaker 1: concessions to attract tenants than they did a year ago
Speaker 1: or they did pre pandemic. I mean right. We did
Speaker 1: actually some reporting earlier this year. We I use the
Speaker 1: editorial we know abu Hire, Tom Maloney, Natalie Wong and
Speaker 1: specifically looking at New York tax bill showing the damage
Speaker 1: to real estate, specifically in Manhattan. This was back in June,
Speaker 1: and what they found, a review the city's final tax
Speaker 1: roll shows, uh that just about every corner of commercial
Speaker 1: real estate was touched. Office building southern market value for
Speaker 1: tax purposes dropped by citywide. That was data that was
Speaker 1: released by the Department of Finance. Hotels and retail properties
Speaker 1: sank more than so you think so, right, So I
Speaker 1: just that's exactly what you were talking about. You think
Speaker 1: it gets worse from here, You think it continues to
Speaker 1: go down, no question, because the you know, the the
Speaker 1: fun headlines that the larger real estate companies release about
Speaker 1: Google buying the building, or Facebook leasing the old post office,
Speaker 1: or Amazon doing West side leasing that is maybe of
Speaker 1: the marketplace. The majority of the marketplace, even though tech
Speaker 1: workers have increased dramatically within New York especially over the
Speaker 1: last ten years, the majority of the marketplace is professional
Speaker 1: business services, and it's finance services and the financial the
Speaker 1: banks and related you know, to the banks, insurance companies,
Speaker 1: they're they're already shrinking or moving out of New York City.
Speaker 1: So you know, it's that's why you have to reconcile
Speaker 1: all this information by saying that in UH by mid
Speaker 1: mid the vacancy rate in New York is mid nineteen,
Speaker 1: it was around ten. The New York market has four
Speaker 1: hundred and fifty million feet of property. UM. So that's
Speaker 1: another fifty million feet on the market. Michael, you work
Speaker 1: with a lot of well known clients or your your
Speaker 1: company has, whether it's Cargo, Chrysler, three M, Caterpillar, Mercedes, Benz, Union, Pacific,
Speaker 1: t I, so many others. So you get to see
Speaker 1: a lot of what's going on in terms of the
Speaker 1: corporate realist eight UH and commercial real estate needs of
Speaker 1: the corporate community. Who is taking more space, who's looking
Speaker 1: to unload space right now? Well, UM, I can tell
Speaker 1: you that even UM the well, there's some um in
Speaker 1: the in the health industry, they're taking more space. Life
Speaker 1: science companies are taking more space. The allocation that a
Speaker 1: life science footage has doubled. Um, I can tell you that, um,
Speaker 1: the you know a lot of most companies are going
Speaker 1: the other way. You know, I can tell you that
Speaker 1: there are well known names that you know. Take for example,
Speaker 1: No Artists. No Artists Made is a worldwide global pharmaceutical
Speaker 1: who recently who made their mad developed iconic buildings all
Speaker 1: over the world with renowned architects such as Renzo Piano
Speaker 1: and Fury and everybody else and trying to attract people
Speaker 1: to new ways to work and interact with each other.
Speaker 1: And now they've adapted a remote policy. Large pharmaceuticals who
Speaker 1: were working with their large even large, very large tech
Speaker 1: companies have said they are fine with getting rid of
Speaker 1: half of their footprint. Recently, saw Price Waterhouse Cooper said
Speaker 1: to all the people like work remote, by the way,
Speaker 1: that doesn't mean that they're not going to get together
Speaker 1: and collaborate. They will, and there's a setup for that.
Speaker 1: But these are forty five thousand workers who would who
Speaker 1: have been told that they can work remotely. So they
Speaker 1: are our companies in the life science sector, the lab sector,
Speaker 1: the healthcare sector, they are expanding. Okay, come you know
Speaker 1: they're they're really expanding. We just expanded a healthcare company
Speaker 1: in in the Chicago suburban area from you know, five
Speaker 1: thousand feet to fifty thousand square feet. So they're expanding.
Speaker 1: But when you're talking about a lot of iconic, well
Speaker 1: known names, the trend is to give back space allow
Speaker 1: workers to work remotely. But it's not going to be
Speaker 1: only working remotely. It's just going to be a replacement
Speaker 1: of the notion they're going to work at an office
Speaker 1: is the first thing you do as opposed to working remotely.
Speaker 1: So it's trending towards the opposite. So, Michael, does that
Speaker 1: mean that the commercial real estate as I knew it
Speaker 1: before the pandemic never gets back to pre pandemic levels? Um?
Speaker 1: I would I would say in the foreseeable future, that's correct.
Speaker 1: I would say that this is going to take ten
Speaker 1: years to unwind at least. And the reason it's going
Speaker 1: to get better is because eventually people there's a lot
Speaker 1: of buildings in the pipeline. There's probably a hundred million
Speaker 1: square feet of space, and the pipeline plan for the
Speaker 1: United States. So when that, you know, comes to an
Speaker 1: end um, you know, and then the demand for space,
Speaker 1: even though it's a demand for reduced space, will catch up.
Speaker 1: And eventually you'll see a lot of buildings that I
Speaker 1: would even call subb buildings. They're going to be taken
Speaker 1: out of inventory and either totally bought at rock bottom
Speaker 1: prices and redone. Uh And eventually it'll all catch up.
Speaker 1: But for the foreseeable future, and now I'm talking about years,
Speaker 1: you're going to see an increase in remote work. And
Speaker 1: it's not going to be office work first. It's going
Speaker 1: to be remote work first. But that doesn't mean that
Speaker 1: people aren't going to be going into an office. They will.
Speaker 1: And the advantage of all this, there's a big advantage
Speaker 1: of all this, meaning that companies save money on real estate,
Speaker 1: so they save money on the cost of maintaining real estate.
Speaker 1: So maybe workspace was just a little early, you know.
Speaker 1: And of course there were some other problems, but I mean,
Speaker 1: that whole idea of just renting out space, we heard
Speaker 1: it from from various leaders throughout the pandemic of I
Speaker 1: know one financial firm that gave up space or early
Speaker 1: went out to Connecticut and they said, you know, we'll
Speaker 1: use work Yeah, we work, say work spaces. Yeah. As
Speaker 1: I was looking at another company, I was looking at
Speaker 1: actually something Workspace Group PLC. A read but I mean,
Speaker 1: are we going to see more of that? You'll see, um,
Speaker 1: you'll see companies take uh, they're demand down number one
Speaker 1: and we're talking about reducing their footprint all over the
Speaker 1: world by millions of number one of the remainder space.
Speaker 1: You'll see that we Work or the Regiuses or you
Speaker 1: know other coworking names becoming about fifteen of the remainder space.
Speaker 1: So yes, those coworking spaces will will have an increase
Speaker 1: in demand. So renter's market buyer's market right now, Yes,
Speaker 1: incredibly So. I think it's going to get better for
Speaker 1: the renter and it's going to get better for the buyer.
Speaker 1: I wouldn't be so quick. I think we're going through
Speaker 1: an iteration. It's very similar to retail online. You know,
Speaker 1: people thought about going to a mall first before they
Speaker 1: thought about going online, and then gradually now people think
Speaker 1: about going online before they think about going to a mall.
Speaker 1: And I think the same thing is happening in the
Speaker 1: office set where it starts out being office first. It's
Speaker 1: kind of a fat, old fashioned factory model. Then people
Speaker 1: have say it's okay to collaborate and work home and
Speaker 1: look at the tools that we get to do that.
Speaker 1: And then people start working remotely, meaning they're more than
Speaker 1: four hours from where the company is located that they're
Speaker 1: working from. So you're going to see another iteration of this,
Speaker 1: and I think they'll be fits and starts, but eventually
Speaker 1: it'll be remote first with office and it's very similar.
Speaker 1: It tracts a similar thing to online. It is just
Speaker 1: interesting to see how things are evolving. Hey, listen Michael.
Speaker 1: Always get to check in with you, Michael Silver, Chairman Investition,
Speaker 1: on the phone in Chicago. Things are changing. Thanks for
Speaker 1: listening to Bloomberg Business Week. Download the podcast on iTunes, SoundCloud,
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