WEBVTT - The National Real Estate Dynamic

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<v Speaker 1>This is Bloomberg Business Week. I'm Carole Masser and I'm

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<v Speaker 1>Bloomberg Quick Takes Tim Stanibek. We're here every day bringing

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<v Speaker 1>Week reporters and editors, not to mention our journalists and

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<v Speaker 1>You can also listen to our radio show at two

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<v Speaker 1>pm Eastern Time on Bloomberg Radio, or watch us on

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<v Speaker 1>YouTube search Bloomberg Global News. The Financial Times wrote earlier

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<v Speaker 1>this year about property in the pandemic and how it

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<v Speaker 1>was the great reckoning that never arrived. Quotation marks around that,

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<v Speaker 1>quoting our next guest in that article as saying that

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<v Speaker 1>working from home is a revolution in its early stages,

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<v Speaker 1>and that office properties will eventually see their value shredded

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<v Speaker 1>by or more. He said that most in the article.

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<v Speaker 1>That's Michael Michael Silver, chairman of Vestian. He joins us

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<v Speaker 1>now once again on the phone from Chicago. Michael, it's

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<v Speaker 1>really great to have you back on the show. How

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<v Speaker 1>are you fine? And thank you appreciate it. Do you

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<v Speaker 1>still hold that is where we're going to see the

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<v Speaker 1>value is is terms in terms of value destruction when

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<v Speaker 1>it comes to commercial real estate. Oh, absolutely, you know,

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<v Speaker 1>if there's any if I have any reassessment, it could

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<v Speaker 1>it will probably be greater than that. But I can

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<v Speaker 1>tell you that even the there was a report recently

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<v Speaker 1>with the State of New York saying that the value

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<v Speaker 1>of New York office buildings has dropped around already, uh,

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<v Speaker 1>just recently issued and uh, you know by the way

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<v Speaker 1>they calculate value, taking thirty billion dollars out of the

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<v Speaker 1>value of office inventory. So and I noticed when people

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<v Speaker 1>started putting buildings on the market, especially if they're what

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<v Speaker 1>I would call Class B buildings, they're already at for

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<v Speaker 1>people who don't follow real estate so closely clad, Okay,

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<v Speaker 1>Class A buildings would be buildings that are just coming

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<v Speaker 1>on the market with a lot of amenities, or they're

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<v Speaker 1>somewhere in the area around ten to fifteen years old.

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<v Speaker 1>Class B buildings are usually uh, somewhere in the area

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<v Speaker 1>of twenty forty years old. And then you get into

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<v Speaker 1>a CE quality building unless you're totally redoing the building.

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<v Speaker 1>So it's the B buildings that are now suffering the most.

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<v Speaker 1>The A buildings, if there's leasing activity, are enjoying the

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<v Speaker 1>uptick and leasing activity even though they're making greater financial

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<v Speaker 1>concessions to attract tenants than they did a year ago

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<v Speaker 1>or they did pre pandemic. I mean right. We did

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<v Speaker 1>actually some reporting earlier this year. We I use the

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<v Speaker 1>editorial we know abu Hire, Tom Maloney, Natalie Wong and

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<v Speaker 1>specifically looking at New York tax bill showing the damage

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<v Speaker 1>to real estate, specifically in Manhattan. This was back in June,

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<v Speaker 1>and what they found, a review the city's final tax

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<v Speaker 1>roll shows, uh that just about every corner of commercial

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<v Speaker 1>real estate was touched. Office building southern market value for

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<v Speaker 1>tax purposes dropped by citywide. That was data that was

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<v Speaker 1>released by the Department of Finance. Hotels and retail properties

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<v Speaker 1>sank more than so you think so, right, So I

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<v Speaker 1>just that's exactly what you were talking about. You think

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<v Speaker 1>it gets worse from here, You think it continues to

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<v Speaker 1>go down, no question, because the you know, the the

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<v Speaker 1>fun headlines that the larger real estate companies release about

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<v Speaker 1>Google buying the building, or Facebook leasing the old post office,

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<v Speaker 1>or Amazon doing West side leasing that is maybe of

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<v Speaker 1>the marketplace. The majority of the marketplace, even though tech

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<v Speaker 1>workers have increased dramatically within New York especially over the

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<v Speaker 1>last ten years, the majority of the marketplace is professional

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<v Speaker 1>business services, and it's finance services and the financial the

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<v Speaker 1>banks and related you know, to the banks, insurance companies,

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<v Speaker 1>they're they're already shrinking or moving out of New York City.

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<v Speaker 1>So you know, it's that's why you have to reconcile

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<v Speaker 1>all this information by saying that in UH by mid

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<v Speaker 1>mid the vacancy rate in New York is mid nineteen,

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<v Speaker 1>it was around ten. The New York market has four

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<v Speaker 1>hundred and fifty million feet of property. UM. So that's

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<v Speaker 1>another fifty million feet on the market. Michael, you work

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<v Speaker 1>with a lot of well known clients or your your

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<v Speaker 1>company has, whether it's Cargo, Chrysler, three M, Caterpillar, Mercedes, Benz, Union, Pacific,

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<v Speaker 1>t I, so many others. So you get to see

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<v Speaker 1>a lot of what's going on in terms of the

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<v Speaker 1>corporate realist eight UH and commercial real estate needs of

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<v Speaker 1>the corporate community. Who is taking more space, who's looking

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<v Speaker 1>to unload space right now? Well, UM, I can tell

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<v Speaker 1>you that even UM the well, there's some um in

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<v Speaker 1>the in the health industry, they're taking more space. Life

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<v Speaker 1>science companies are taking more space. The allocation that a

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<v Speaker 1>life science footage has doubled. Um, I can tell you that, um,

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<v Speaker 1>the you know a lot of most companies are going

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<v Speaker 1>the other way. You know, I can tell you that

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<v Speaker 1>there are well known names that you know. Take for example,

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<v Speaker 1>No Artists. No Artists Made is a worldwide global pharmaceutical

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<v Speaker 1>who recently who made their mad developed iconic buildings all

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<v Speaker 1>over the world with renowned architects such as Renzo Piano

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<v Speaker 1>and Fury and everybody else and trying to attract people

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<v Speaker 1>to new ways to work and interact with each other.

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<v Speaker 1>And now they've adapted a remote policy. Large pharmaceuticals who

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<v Speaker 1>were working with their large even large, very large tech

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<v Speaker 1>companies have said they are fine with getting rid of

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<v Speaker 1>half of their footprint. Recently, saw Price Waterhouse Cooper said

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<v Speaker 1>to all the people like work remote, by the way,

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<v Speaker 1>that doesn't mean that they're not going to get together

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<v Speaker 1>and collaborate. They will, and there's a setup for that.

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<v Speaker 1>But these are forty five thousand workers who would who

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<v Speaker 1>have been told that they can work remotely. So they

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<v Speaker 1>are our companies in the life science sector, the lab sector,

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<v Speaker 1>the healthcare sector, they are expanding. Okay, come you know

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<v Speaker 1>they're they're really expanding. We just expanded a healthcare company

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<v Speaker 1>in in the Chicago suburban area from you know, five

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<v Speaker 1>thousand feet to fifty thousand square feet. So they're expanding.

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<v Speaker 1>But when you're talking about a lot of iconic, well

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<v Speaker 1>known names, the trend is to give back space allow

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<v Speaker 1>workers to work remotely. But it's not going to be

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<v Speaker 1>only working remotely. It's just going to be a replacement

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<v Speaker 1>of the notion they're going to work at an office

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<v Speaker 1>is the first thing you do as opposed to working remotely.

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<v Speaker 1>So it's trending towards the opposite. So, Michael, does that

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<v Speaker 1>mean that the commercial real estate as I knew it

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<v Speaker 1>before the pandemic never gets back to pre pandemic levels? Um?

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<v Speaker 1>I would I would say in the foreseeable future, that's correct.

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<v Speaker 1>I would say that this is going to take ten

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<v Speaker 1>years to unwind at least. And the reason it's going

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<v Speaker 1>to get better is because eventually people there's a lot

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<v Speaker 1>of buildings in the pipeline. There's probably a hundred million

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<v Speaker 1>square feet of space, and the pipeline plan for the

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<v Speaker 1>United States. So when that, you know, comes to an

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<v Speaker 1>end um, you know, and then the demand for space,

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<v Speaker 1>even though it's a demand for reduced space, will catch up.

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<v Speaker 1>And eventually you'll see a lot of buildings that I

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<v Speaker 1>would even call subb buildings. They're going to be taken

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<v Speaker 1>out of inventory and either totally bought at rock bottom

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<v Speaker 1>prices and redone. Uh And eventually it'll all catch up.

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<v Speaker 1>But for the foreseeable future, and now I'm talking about years,

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<v Speaker 1>you're going to see an increase in remote work. And

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<v Speaker 1>it's not going to be office work first. It's going

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<v Speaker 1>to be remote work first. But that doesn't mean that

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<v Speaker 1>people aren't going to be going into an office. They will.

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<v Speaker 1>And the advantage of all this, there's a big advantage

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<v Speaker 1>of all this, meaning that companies save money on real estate,

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<v Speaker 1>so they save money on the cost of maintaining real estate.

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<v Speaker 1>So maybe workspace was just a little early, you know.

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<v Speaker 1>And of course there were some other problems, but I mean,

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<v Speaker 1>that whole idea of just renting out space, we heard

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<v Speaker 1>it from from various leaders throughout the pandemic of I

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<v Speaker 1>know one financial firm that gave up space or early

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<v Speaker 1>went out to Connecticut and they said, you know, we'll

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<v Speaker 1>use work Yeah, we work, say work spaces. Yeah. As

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<v Speaker 1>I was looking at another company, I was looking at

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<v Speaker 1>actually something Workspace Group PLC. A read but I mean,

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<v Speaker 1>are we going to see more of that? You'll see, um,

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<v Speaker 1>you'll see companies take uh, they're demand down number one

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<v Speaker 1>and we're talking about reducing their footprint all over the

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<v Speaker 1>world by millions of number one of the remainder space.

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<v Speaker 1>You'll see that we Work or the Regiuses or you

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<v Speaker 1>know other coworking names becoming about fifteen of the remainder space.

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<v Speaker 1>So yes, those coworking spaces will will have an increase

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<v Speaker 1>in demand. So renter's market buyer's market right now, Yes,

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<v Speaker 1>incredibly So. I think it's going to get better for

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<v Speaker 1>the renter and it's going to get better for the buyer.

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<v Speaker 1>I wouldn't be so quick. I think we're going through

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<v Speaker 1>an iteration. It's very similar to retail online. You know,

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<v Speaker 1>people thought about going to a mall first before they

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<v Speaker 1>thought about going online, and then gradually now people think

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<v Speaker 1>about going online before they think about going to a mall.

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<v Speaker 1>And I think the same thing is happening in the

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<v Speaker 1>office set where it starts out being office first. It's

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<v Speaker 1>kind of a fat, old fashioned factory model. Then people

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<v Speaker 1>have say it's okay to collaborate and work home and

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<v Speaker 1>look at the tools that we get to do that.

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<v Speaker 1>And then people start working remotely, meaning they're more than

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<v Speaker 1>four hours from where the company is located that they're

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<v Speaker 1>working from. So you're going to see another iteration of this,

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<v Speaker 1>and I think they'll be fits and starts, but eventually

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<v Speaker 1>it'll be remote first with office and it's very similar.

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<v Speaker 1>It tracts a similar thing to online. It is just

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<v Speaker 1>interesting to see how things are evolving. Hey, listen Michael.

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<v Speaker 1>Always get to check in with you, Michael Silver, Chairman Investition,

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<v Speaker 1>on the phone in Chicago. Things are changing. Thanks for

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<v Speaker 1>listening to Bloomberg Business Week. Download the podcast on iTunes, SoundCloud,

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