Corner of Berkshire & Fairfax Message Board

General Category => General Discussion => Topic started by: cherzeca on May 26, 2020, 10:06:21 AM

Title: the death of the urban office building
Post by: cherzeca on May 26, 2020, 10:06:21 AM
Covid's most lethal effect will be on urban office buildings imo.

anecdote:  a family member lives in NYC and works for a firm with national operations but whose executive offices and most of its operational staff work from a NYC office.  they have found that they are doing quite well with remote working on zoom etc.  HR did a survey and among other questions asked, "would you consider living someplace other than NYC if we went to remote working as a possible permanent option?"  50% of the 150 staff who replied answered YES.
Title: Re: the death of the urban office building
Post by: LC on May 26, 2020, 10:11:57 AM
Covid's most lethal effect will be on urban office buildings imo.

Not the 350,000 dead people?

I'm being slightly unfair but I think the point is that you have sensationalized the topic of reduced office space.

Personally I don't think there will be a "death of urban offices", but I do think we will see a measurable reduction in office space. How much? I would guess maybe 10-15% over the short term. And further, I think we will see companies rethink current and future processes to reduce their reliance on physical office space.

But the counterpoint is that for most people, work is a part of our identity and we are social creatures. So we will want to work around our colleagues.

From a selfish point as a REO in a  Tier 2 city (Denver), this would somewhat benefit me.
Title: Re: the death of the urban office building
Post by: patience_and_focus on May 26, 2020, 10:41:22 AM
Covid's most lethal effect will be on urban office buildings imo.

anecdote:  a family member lives in NYC and works for a firm with national operations but whose executive offices and most of its operational staff work from a NYC office.  they have found that they are doing quite well with remote working on zoom etc.  HR did a survey and among other questions asked, "would you consider living someplace other than NYC if we went to remote working as a possible permanent option?"  50% of the 150 staff who replied answered YES.

Agree in the short term. Disagree in the medium to long term (> 5 yrs). The powerful economic forces that have been making large cities grow even larger, especially over the last 30-40 years (shall I hazard to say at least a 100 years) are not going anywhere. This is a bump in that process. Large cities like London survived bouts of plague in the distant past. Modern cities like SF and NYC survived spanish flu, HIV etc. Asian cities like Hong Kong, Shanghai, and Singapore survived SARS (far more deadly than this current SARS-CoV2) and grew nevertheless in the last 20-25 years.

That doesn't mean there won't be damage and bankruptcy in real-estate tied to offices in the next 1-5 years. But I don't see long term trends changing, especially when this virus does not hit the young and urban crowd hard. The old folks living in cities or nearby crowded suburbs may move out at faster pace. Frankly that is desirable because at least in Bay area housing and construction is depressed partly due to NIMBY supporting older folks and outdated zoning laws. Young people are far more receptive of changing zoning and allowing construction of both residential and office buildings.
Title: Re: the death of the urban office building
Post by: Broeb22 on May 26, 2020, 10:46:51 AM
Agreed with LC that the thread itself is sensational.

Would retail space or hotels or AirBnB-dependent properties not be harder hit?

The counterpoint to your belief in the death of office space is how much space will exist between workers in the office of the future?

Will cubicles or open office spaces that saved space be a thing of the past? If that is that case, then won't companies need more office space to hold the same number of workers? Wouldn't that actually cause demand for office space to actually grow?

Like LC, I also agree that people are social and many would like to be in an office.

I also think that the sample size of the last 2-3 months when people are scared for their jobs and have few alternatives for their time is perhaps not a good data point to extrapolate from. Almost every industry is facing some degree of challenges, so if you're one of the lucky ones to have a job, you're probably pretty engaged with work right now. 2 years from now when things get back to "normal", maybe those same hard workers will not be working so hard, and maybe when more options are open outside the home some will decide to attach a fan to their mouse at 4 and head out for an early happy hour.
Title: Re: the death of the urban office building
Post by: mcliu on May 26, 2020, 10:50:10 AM
They didn’t have Zoom back then though.

A lot of knowledge work (marketing, accounting, finance, law, programming) can be done remotely.
Title: Re: the death of the urban office building
Post by: patience_and_focus on May 26, 2020, 11:02:02 AM
They didn’t have Zoom back then though.

A lot of knowledge work (marketing, accounting, finance, law, programming) can be done remotely.

Programming is a very good case study. Webex has been around for 20 years. Skype has been around for 15 years. Yet the image of a lone programmer coding away on a Hawaii beach is (mostly) a myth. Yes there are those, but very small percentage of overall number. If anything despite the new age tools, co-location was driving innovation in the software world. Now there is always an argument that webex and skype were clunky. But they were better than nothing during early-mid 90's, and still the co-lation of software engineers into city centers accelerated after that.
Title: Re: the death of the urban office building
Post by: cherzeca on May 26, 2020, 11:21:32 AM
appreciate the comments.

I think face to face business meetings will remain important.  but cubicle to cubicle daily work arrangements will be proven unnecessary by covid.

as to sensationalism, keep in mind that as to mortality rates, Minnesota has had more covid mortalities for people over 100 years old than for people less than 50 years old.  the fourth leading cause of death in US is nosocomial (medical/hospital malpractice).  the human species is imperfect, and sending covid infected people from hospitals to nursing homes is an example, should you need one.  so if we cant have an intelligent conversation about the long term effects of covid, then so be it...
Title: Re: the death of the urban office building
Post by: rkbabang on May 26, 2020, 12:45:56 PM
appreciate the comments.

I think face to face business meetings will remain important.  but cubicle to cubicle daily work arrangements will be proven unnecessary by covid.

as to sensationalism, keep in mind that as to mortality rates, Minnesota has had more covid mortalities for people over 100 years old than for people less than 50 years old.  the fourth leading cause of death in US is nosocomial (medical/hospital malpractice).  the human species is imperfect, and sending covid infected people from hospitals to nursing homes is an example, should you need one.  so if we cant have an intelligent conversation about the long term effects of covid, then so be it...

What this situation has proved beyond a reasonable doubt is that for many industries and types of workforces working from home is doable and productive.  What remains to be seen is whether or not people will want to long term, or whether management will let them.  My CEO just told us all that we probably will not ever return to an always in the office way of doing things and that working from home will be a large part of how we operate going forward even after this is all over.  I think in tech at least office space will be much reduced in the future.  Tech people being probably the least social (as a general rule anyway) and the work most doable from home, the effects should be most visible there.  I've talked to my uncle who is an insurance executive in Boston and he was saying how shocked he is how little having everyone working from home has effected their day to day business.  The work is all getting done and he would never have predicted that.  He doesn't like working from home personally though, but the company being headquartered in downtown Boston makes it problematic to re-open anytime soon since most of their employees take transit to work.  So who knows which industries and/or companies will change permanently, but what has changed is that it is no longer about whether or not it is possible.
Title: Re: the death of the urban office building
Post by: KJP on May 26, 2020, 01:39:50 PM
They didn’t have Zoom back then though.

A lot of knowledge work (marketing, accounting, finance, law, programming) can be done remotely.

Today's brief can easily be written remotely.  But how does a law firm develop tomorrow's partners, i.e., business generators?
Title: Re: the death of the urban office building
Post by: Castanza on May 26, 2020, 01:41:05 PM
They didn’t have Zoom back then though.

A lot of knowledge work (marketing, accounting, finance, law, programming) can be done remotely.

"Can" and "will" are two different things. At the very most I think a lot of companies will revise their work from home policy to be more flexible. Other than that nothing will change 5 years out. When in all of history have cities not been the driving force and focal point of business, commerce, industry, development, entertainment, athletics, and the arts? Never

So maybe some companies will consolidate office space down to accommodate part time wfh operations. What does that mean? Probably that you'll see more companies moving to big cities soaking up the new office space (if there truly is consolidation). 

For every 1 New Yorker looking to find a permanent wfh gig in the suburbs, you will have 100 driven individuals from Timbuktu looking to kick it in a high rise office.

Lastly the customer/client aspect and the effect offices have on them is not being mentioned. If I'm looking for a lawyer and paying them a lot of money, you can be damn sure I want to meet them face to face in a nice professional office instead of their "quaint" little home office that probably smells of baby diapers, dogs, or whatever they had for dinner the previous night. Skype has it's limitations as well. 
Title: Re: the death of the urban office building
Post by: fareastwarriors on May 26, 2020, 01:52:53 PM
If a company can get NYC or SF  with 30-50% cheaper rents, there would huge demand. Everything in big downtown metros are just too expensive.
Title: Re: the death of the urban office building
Post by: james22 on May 26, 2020, 02:30:23 PM
In order to understand the future of commercial real estate we must draw a distinction between companies’ shrinking demand for office space per employee and the market’s demand for office space. Companies take advantage of technological improvements to cut costs and reduce the amount of office space each worker occupies. As they cut costs, they become more productive; that is, the amount of value each worker adds to the enterprise goes up.

More productive firms can increase profits while expanding their market share by lowering the price they charge customers. These lower overall prices expand the market and existing businesses add employees. Because there are profits to be had, new businesses start up and office space remains strongly in demand even though the space per worker at individual firms goes down.


https://economics21.org/coronavirus-upends-nyc-commercial-real-estate
Title: Re: the death of the urban office building
Post by: cherzeca on May 26, 2020, 02:38:00 PM
They didn’t have Zoom back then though.

A lot of knowledge work (marketing, accounting, finance, law, programming) can be done remotely.

Today's brief can easily be written remotely.  But how does a law firm develop tomorrow's partners, i.e., business generators?

this is a good question and as a long time attorney at big law firms I do have a view.  there is ALOT of learning by watching as a lawyer, whether deal negotiation or litigation...some of this actually can be facilitated by zoom meeting. a young associate lawyer I know says she is getting more face time with partners on zoom than in office...but my point is that for most office-based businesses, I can foresee a reduction of office space requirements of as much as 50%...I think covid showed up that we can do that, a silver lining in a dark cloud 
Title: Re: the death of the urban office building
Post by: rb on May 26, 2020, 02:45:07 PM
They didn’t have Zoom back then though.

A lot of knowledge work (marketing, accounting, finance, law, programming) can be done remotely.
What?

Finance and law are probably some that for practical reasons are very hard to do remotely.

For those that think it's easy, let me paint this scenario for you.

Meet John. John is bight law associate working for Skadden Arps. John works from home under Skadden's new "Fuck the landlord" policy. John jumps on a zoom meeting for a live deal he's working on.

10 ft away in their 600 sqft NYC apartment is his roommate Andrew. Andrew is an ambitious 2nd year M&A associate at Morgan Stanley. He's working from home under MS's new "why should we pay rent policy".

John and Andrew don't want to move to Toledo where they can each afford their own place cause in Toledo the chicks are fat and in NYC the chicks are keeping it tight.
Title: Re: the death of the urban office building
Post by: Spekulatius on May 26, 2020, 03:10:03 PM
They didn’t have Zoom back then though.

A lot of knowledge work (marketing, accounting, finance, law, programming) can be done remotely.
What?

Finance and law are probably some that for practical reasons are very hard to do remotely.

For those that think it's easy, let me paint this scenario for you.

Meet John. John is bight law associate working for Skadden Arps. John works from home under Skadden's new "Fuck the landlord" policy. John jumps on a zoom meeting for a live deal he's working on.

10 ft away in their 600 sqft NYC apartment is his roommate Andrew. Andrew is an ambitious 2nd year M&A associate at Morgan Stanley. He's working from home under MS's new "why should we pay rent policy".

John and Andrew don't want to move to Toledo where they can each afford their own place cause in Toledo the chicks are fat and in NYC the chicks are keeping it tight.
With a NYC salary in Toledo, John and Andrew each buy a new house and have their pick of the top 5% of chicks there. They don’t  care that 80% of the chicks in Toledo are fat.

Anyways, jokes aside, I think any shift might be more driven by the companies than the employees. If the companies get the idea they only need some trophy RE to show off and scuttle 60% of their footprint after their digitized and virtualized their company, they might go head and just do that. While they are st it, why not benefit from a much larger labor pool, much of it in low cost areas and get people to work for less, adjusting for the lower cost of living.

And once there, why not hire employees from another country for much cheaper doing the same thing. All this could’ve done before, but once most business process are virtual, and location truly doesn’t matter, it’s a logical next step. Seems pretty bearish for white collar salaries to me.


Some enterprising remote workers pay it back by having two remote jobs at once and their bosses never find out.
Title: Re: the death of the urban office building
Post by: james22 on May 26, 2020, 03:49:35 PM
...why not hire employees from another country for much cheaper doing the same thing. All this could’ve done before, but once most business process are virtual, and location truly doesn’t matter, it’s a logical next step.

As an expat working from home (in-Kingdom) during this, I wonder if my employer might come to believe I can work as well from home in my home country and save themselves the expat (in-Kingdom hardship) premium they pay.
Title: Re: the death of the urban office building
Post by: Broeb22 on May 26, 2020, 05:35:39 PM
appreciate the comments.

I think face to face business meetings will remain important.  but cubicle to cubicle daily work arrangements will be proven unnecessary by covid.

as to sensationalism, keep in mind that as to mortality rates, Minnesota has had more covid mortalities for people over 100 years old than for people less than 50 years old.  the fourth leading cause of death in US is nosocomial (medical/hospital malpractice).  the human species is imperfect, and sending covid infected people from hospitals to nursing homes is an example, should you need one.  so if we cant have an intelligent conversation about the long term effects of covid, then so be it...

Sorry you thought the responses were so unintelligent to your click-bait thread title.

If I’m going to bet on one thing, I’m going to bet on human beings being social creatures and no pandemic is going to reverse millions of years of evolution in a couple years just because technology enables it.

There are so many reasons people will work in the same offices together again. Want to get a promotion? Good luck trying to do that and being a leader of people remotely. What percentage of your friends that you speak to regularly live within the same metro area as you?
Title: Re: the death of the urban office building
Post by: DTEJD1997 on May 26, 2020, 06:30:18 PM
They didn’t have Zoom back then though.

A lot of knowledge work (marketing, accounting, finance, law, programming) can be done remotely.

Today's brief can easily be written remotely.  But how does a law firm develop tomorrow's partners, i.e., business generators?

I've seen this and been involved with it first hand...

Some of the more nimble & "forward thinking" law firms are "in shoring" from Boston, NYC, LA & SF to say Detroit.  Specifically, they are moving low-end, low value work to a Detroit location.  In Detroit, you've got mail, power, interweb, and most other modern amenities.  You've also got VERY cheap office space, and most importantly of all, you've got hordes of desperate attorneys who are willing to work for $20 to $25 an hour reviewing & sorting & doing basic prep work on large cases.  You've got plenty of people fresh out of law skool, desperate to bring in some money, but you've also got seasoned attorneys from firms that disbanded after GFC.  You've also got attorneys downsized from government, all types.

Some of these cases that get farmed out will literally have MILLIONS of documents that need to be sorted & analyzed and have grunt work done.  Perfect for the Detroit attorney!

Detroit is not the only place, Chicago, Charlotte, Houston, Atlanta are other hot spots.

The high end work still gets done in NYC, along with client meetings (most of the time), and the partners and people on partner track.  So shrink down NYC 75%, keep the high end there, but move out most everything that can be done elsewhere.

This has been going on for the better part of a decade though.  I think it will continue to accelerate and why not spread to other sectors of the economy?
Title: Re: the death of the urban office building
Post by: cherzeca on May 26, 2020, 06:46:01 PM
They didn’t have Zoom back then though.

A lot of knowledge work (marketing, accounting, finance, law, programming) can be done remotely.

Today's brief can easily be written remotely.  But how does a law firm develop tomorrow's partners, i.e., business generators?

I've seen this and been involved with it first hand...

Some of the more nimble & "forward thinking" law firms are "in shoring" from Boston, NYC, LA & SF to say Detroit.  Specifically, they are moving low-end, low value work to a Detroit location.  In Detroit, you've got mail, power, interweb, and most other modern amenities.  You've also got VERY cheap office space, and most importantly of all, you've got hordes of desperate attorneys who are willing to work for $20 to $25 an hour reviewing & sorting & doing basic prep work on large cases.  You've got plenty of people fresh out of law skool, desperate to bring in some money, but you've also got seasoned attorneys from firms that disbanded after GFC.  You've also got attorneys downsized from government, all types.

Some of these cases that get farmed out will literally have MILLIONS of documents that need to be sorted & analyzed and have grunt work done.  Perfect for the Detroit attorney!

Detroit is not the only place, Chicago, Charlotte, Houston, Atlanta are other hot spots.

The high end work still gets done in NYC, along with client meetings (most of the time), and the partners and people on partner track.  So shrink down NYC 75%, keep the high end there, but move out most everything that can be done elsewhere.

This has been going on for the better part of a decade though.  I think it will continue to accelerate and why not spread to other sectors of the economy?

what you say is accurate, but this takes it one step forward.  contract work for doc review and discovery searches are being "offshored" at cheap rates to contract attorneys hired on a deal/case basis, but this new twist would have the important work done by all attorneys be done remotely...until there is a need to meet in person over something...this is happening now due to covid and there is no reason that wont continue imo
Title: Re: the death of the urban office building
Post by: DTEJD1997 on May 26, 2020, 07:32:46 PM
They didn’t have Zoom back then though.

A lot of knowledge work (marketing, accounting, finance, law, programming) can be done remotely.

Today's brief can easily be written remotely.  But how does a law firm develop tomorrow's partners, i.e., business generators?

I've seen this and been involved with it first hand...

Some of the more nimble & "forward thinking" law firms are "in shoring" from Boston, NYC, LA & SF to say Detroit.  Specifically, they are moving low-end, low value work to a Detroit location.  In Detroit, you've got mail, power, interweb, and most other modern amenities.  You've also got VERY cheap office space, and most importantly of all, you've got hordes of desperate attorneys who are willing to work for $20 to $25 an hour reviewing & sorting & doing basic prep work on large cases.  You've got plenty of people fresh out of law skool, desperate to bring in some money, but you've also got seasoned attorneys from firms that disbanded after GFC.  You've also got attorneys downsized from government, all types.

Some of these cases that get farmed out will literally have MILLIONS of documents that need to be sorted & analyzed and have grunt work done.  Perfect for the Detroit attorney!

Detroit is not the only place, Chicago, Charlotte, Houston, Atlanta are other hot spots.

The high end work still gets done in NYC, along with client meetings (most of the time), and the partners and people on partner track.  So shrink down NYC 75%, keep the high end there, but move out most everything that can be done elsewhere.

This has been going on for the better part of a decade though.  I think it will continue to accelerate and why not spread to other sectors of the economy?

what you say is accurate, but this takes it one step forward.  contract work for doc review and discovery searches are being "offshored" at cheap rates to contract attorneys hired on a deal/case basis, but this new twist would have the important work done by all attorneys be done remotely...until there is a need to meet in person over something...this is happening now due to covid and there is no reason that wont continue imo

yes, I forgot to mention that most work is now being done remotely.

I'm not sure how long that will last?  There are some clients that are NOTORIOUS about security.  Of course, it depends on the client and the firm.

In the past, remote work was rather rare...now it is rather common.

With the remote work, I would imagine you've got all sorts of potential problems, security & confidentiality being near the top of the list....then you've got technical problems....then you've got group dynamics and cohesiveness.  When I was working projects, the first few days were critical, as attorneys would discuss different theories, different things that they were seeing, and would try to act in a synchronized fashion.  Then you would have the group interfacing with the partner on conference calls.  I guess some of this could be done with dispersed work groups, but I would think that quality and efficiency would take a hit to some degree.

Pre-covid, there were some attorneys who were REAL germophobes.  There would always be Lysol wipes & dis-infectant.  Some of the women were really particular about this as we had shared workstations.  If those people were antsy about germs before all this happened, I can't imagine what they are like now.

I think we will know a lot more in a few months, if this is permanent, or if people start going back to offices.
Title: Re: the death of the urban office building
Post by: K2SO on May 27, 2020, 07:32:21 AM
In my opinion this work from home thing is actually proving to me why we NEED offices.

You can't form relationships over Zoom. You might be able to maintain them, but you can't form them. You can't truly build trust. You can't learn by watching how someone manages their day. You can't have spontaneous discussions by the coffee machine.

Let me take something like Shopify as an example, and many tech firms are in this position. They are saying that in the future they will have more employees working from home. Now I've been to their office. Free food and drink, including alcohol, for everyone, all day long. Once you've given this benefit to people, it's hard to take it away. This is a "get out of jail free" card for them. A way to take away this costly benefit without the blowback from employees.

If you have a job you can do remotely, and choose to spend most of your time at home, you are just a step or two away from having your job outsourced to India. Get in the office. Form and strengthen relationships. Learn. Mentor. Lead.  You can't do this shit from your kitchen table on Zoom. Sorry, you just can't. Unless you have no aspiration other than to be a cog in the machine.
 
Title: Re: the death of the urban office building
Post by: Jurgis on May 27, 2020, 07:47:12 AM
In my opinion this work from home thing is actually proving to me why we NEED offices.

You can't form relationships over Zoom. You might be able to maintain them, but you can't form them. You can't truly build trust. You can't learn by watching how someone manages their day. You can't have spontaneous discussions by the coffee machine.

Let me take something like Shopify as an example, and many tech firms are in this position. They are saying that in the future they will have more employees working from home. Now I've been to their office. Free food and drink, including alcohol, for everyone, all day long. Once you've given this benefit to people, it's hard to take it away. This is a "get out of jail free" card for them. A way to take away this costly benefit without the blowback from employees.

If you have a job you can do remotely, and choose to spend most of your time at home, you are just a step or two away from having your job outsourced to India. Get in the office. Form and strengthen relationships. Learn. Mentor. Lead.  You can't do this shit from your kitchen table on Zoom. Sorry, you just can't. Unless you have no aspiration other than to be a cog in the machine.

This thread and people in it are just rehashing the same arguments again and again that were already rehashed in other threads.

Not to (particularly) pick on you: I know two people in tech company who did the fastest career advances while working completely remotely. Closest office within maybe 100 miles or so. And yeah they learn, mentor, lead, etc. And they went up the career ladder way faster than people in the office who can schmooze, etc. So perhaps you should be more open minded.

Although I mostly agree that offices will survive.
Title: Re: the death of the urban office building
Post by: SharperDingaan on May 27, 2020, 08:35:45 AM
Office buildings are still required - it's just much less NYC Grade-A space, much more Detroit Grade-B space, and much less TOTAL space. We still socialize, work the office-cooler, etc - but in the Detroits, not NYC. NYC/London/Paris etc still have the elites - just not as many of them (posers failed the cut).

BUT - we no longer need the cast of thousands anymore.
Everyone is their own personal business, and the firm paying you is just ONE OF MANY - and a temporary pay cheque

SD
Title: Re: the death of the urban office building
Post by: cherzeca on May 27, 2020, 08:42:12 AM
They didn’t have Zoom back then though.

A lot of knowledge work (marketing, accounting, finance, law, programming) can be done remotely.

Today's brief can easily be written remotely.  But how does a law firm develop tomorrow's partners, i.e., business generators?

I've seen this and been involved with it first hand...

Some of the more nimble & "forward thinking" law firms are "in shoring" from Boston, NYC, LA & SF to say Detroit.  Specifically, they are moving low-end, low value work to a Detroit location.  In Detroit, you've got mail, power, interweb, and most other modern amenities.  You've also got VERY cheap office space, and most importantly of all, you've got hordes of desperate attorneys who are willing to work for $20 to $25 an hour reviewing & sorting & doing basic prep work on large cases.  You've got plenty of people fresh out of law skool, desperate to bring in some money, but you've also got seasoned attorneys from firms that disbanded after GFC.  You've also got attorneys downsized from government, all types.

Some of these cases that get farmed out will literally have MILLIONS of documents that need to be sorted & analyzed and have grunt work done.  Perfect for the Detroit attorney!

Detroit is not the only place, Chicago, Charlotte, Houston, Atlanta are other hot spots.

The high end work still gets done in NYC, along with client meetings (most of the time), and the partners and people on partner track.  So shrink down NYC 75%, keep the high end there, but move out most everything that can be done elsewhere.

This has been going on for the better part of a decade though.  I think it will continue to accelerate and why not spread to other sectors of the economy?

what you say is accurate, but this takes it one step forward.  contract work for doc review and discovery searches are being "offshored" at cheap rates to contract attorneys hired on a deal/case basis, but this new twist would have the important work done by all attorneys be done remotely...until there is a need to meet in person over something...this is happening now due to covid and there is no reason that wont continue imo

yes, I forgot to mention that most work is now being done remotely.

I'm not sure how long that will last?  There are some clients that are NOTORIOUS about security.  Of course, it depends on the client and the firm.

In the past, remote work was rather rare...now it is rather common.

With the remote work, I would imagine you've got all sorts of potential problems, security & confidentiality being near the top of the list....then you've got technical problems....then you've got group dynamics and cohesiveness.  When I was working projects, the first few days were critical, as attorneys would discuss different theories, different things that they were seeing, and would try to act in a synchronized fashion.  Then you would have the group interfacing with the partner on conference calls.  I guess some of this could be done with dispersed work groups, but I would think that quality and efficiency would take a hit to some degree.

Pre-covid, there were some attorneys who were REAL germophobes.  There would always be Lysol wipes & dis-infectant.  Some of the women were really particular about this as we had shared workstations.  If those people were antsy about germs before all this happened, I can't imagine what they are like now.

I think we will know a lot more in a few months, if this is permanent, or if people start going back to offices.

with encryption, I dont see security being an issue.  management will have to be more alert though. it cant look at card reader reports anymore for associates etc leaving the office at 11pm...
Title: Re: the death of the urban office building
Post by: cherzeca on May 27, 2020, 08:44:46 AM
In my opinion this work from home thing is actually proving to me why we NEED offices.

You can't form relationships over Zoom. You might be able to maintain them, but you can't form them. You can't truly build trust. You can't learn by watching how someone manages their day. You can't have spontaneous discussions by the coffee machine.

Let me take something like Shopify as an example, and many tech firms are in this position. They are saying that in the future they will have more employees working from home. Now I've been to their office. Free food and drink, including alcohol, for everyone, all day long. Once you've given this benefit to people, it's hard to take it away. This is a "get out of jail free" card for them. A way to take away this costly benefit without the blowback from employees.

If you have a job you can do remotely, and choose to spend most of your time at home, you are just a step or two away from having your job outsourced to India. Get in the office. Form and strengthen relationships. Learn. Mentor. Lead.  You can't do this shit from your kitchen table on Zoom. Sorry, you just can't. Unless you have no aspiration other than to be a cog in the machine.

this is a great post, but it addresses what associates and junior executives have to do...senior execs may not feel as strongly about the social/management aspects, and care more about the bottom line cost savings effect on their bonuses...
Title: Re: the death of the urban office building
Post by: DTEJD1997 on May 27, 2020, 08:58:59 AM
They didn’t have Zoom back then though.

A lot of knowledge work (marketing, accounting, finance, law, programming) can be done remotely.

Today's brief can easily be written remotely.  But how does a law firm develop tomorrow's partners, i.e., business generators?

I've seen this and been involved with it first hand...

Some of the more nimble & "forward thinking" law firms are "in shoring" from Boston, NYC, LA & SF to say Detroit.  Specifically, they are moving low-end, low value work to a Detroit location.  In Detroit, you've got mail, power, interweb, and most other modern amenities.  You've also got VERY cheap office space, and most importantly of all, you've got hordes of desperate attorneys who are willing to work for $20 to $25 an hour reviewing & sorting & doing basic prep work on large cases.  You've got plenty of people fresh out of law skool, desperate to bring in some money, but you've also got seasoned attorneys from firms that disbanded after GFC.  You've also got attorneys downsized from government, all types.

Some of these cases that get farmed out will literally have MILLIONS of documents that need to be sorted & analyzed and have grunt work done.  Perfect for the Detroit attorney!

Detroit is not the only place, Chicago, Charlotte, Houston, Atlanta are other hot spots.

The high end work still gets done in NYC, along with client meetings (most of the time), and the partners and people on partner track.  So shrink down NYC 75%, keep the high end there, but move out most everything that can be done elsewhere.

This has been going on for the better part of a decade though.  I think it will continue to accelerate and why not spread to other sectors of the economy?

what you say is accurate, but this takes it one step forward.  contract work for doc review and discovery searches are being "offshored" at cheap rates to contract attorneys hired on a deal/case basis, but this new twist would have the important work done by all attorneys be done remotely...until there is a need to meet in person over something...this is happening now due to covid and there is no reason that wont continue imo

yes, I forgot to mention that most work is now being done remotely.

I'm not sure how long that will last?  There are some clients that are NOTORIOUS about security.  Of course, it depends on the client and the firm.

In the past, remote work was rather rare...now it is rather common.

With the remote work, I would imagine you've got all sorts of potential problems, security & confidentiality being near the top of the list....then you've got technical problems....then you've got group dynamics and cohesiveness.  When I was working projects, the first few days were critical, as attorneys would discuss different theories, different things that they were seeing, and would try to act in a synchronized fashion.  Then you would have the group interfacing with the partner on conference calls.  I guess some of this could be done with dispersed work groups, but I would think that quality and efficiency would take a hit to some degree.

Pre-covid, there were some attorneys who were REAL germophobes.  There would always be Lysol wipes & dis-infectant.  Some of the women were really particular about this as we had shared workstations.  If those people were antsy about germs before all this happened, I can't imagine what they are like now.

I think we will know a lot more in a few months, if this is permanent, or if people start going back to offices.

with encryption, I dont see security being an issue.  management will have to be more alert though. it cant look at card reader reports anymore for associates etc leaving the office at 11pm...

High level encryption is certainly a must for remote legal work...but there are a myriad of OTHER security problems besides just the encryption issue.

One of the primary problems is potential waiver of attorney-client privilege if other people see/overhear legal matters being discussed.  For example, does the Amazon echo (other devices) waive attorney-client privilege?  What about spouse/children/significant other?

In a strict office setting, this can be controlled to a great degree.  With a remote worker gang, that becomes more problematic.

Title: Re: the death of the urban office building
Post by: Foreign Tuffett on May 27, 2020, 11:33:34 AM
In my opinion this work from home thing is actually proving to me why we NEED offices.

You can't form relationships over Zoom. You might be able to maintain them, but you can't form them. You can't truly build trust. You can't learn by watching how someone manages their day. You can't have spontaneous discussions by the coffee machine.

Let me take something like Shopify as an example, and many tech firms are in this position. They are saying that in the future they will have more employees working from home. Now I've been to their office. Free food and drink, including alcohol, for everyone, all day long. Once you've given this benefit to people, it's hard to take it away. This is a "get out of jail free" card for them. A way to take away this costly benefit without the blowback from employees.

If you have a job you can do remotely, and choose to spend most of your time at home, you are just a step or two away from having your job outsourced to India. Get in the office. Form and strengthen relationships. Learn. Mentor. Lead.  You can't do this shit from your kitchen table on Zoom. Sorry, you just can't. Unless you have no aspiration other than to be a cog in the machine.

Good post.

Too add to what he said: Yes, obviously a great deal (most? almost all?) of white collar type work CAN be done remotely, but there are very good reasons nearly all companies have offices:

Hard to build and maintain a healthy company culture and camaraderie when employees rarely (or never) meet in person.

Tough to track what people are actually doing (or not doing) all day. The unfortunate reality is that some people will try to "skate" along doing minimal work because they feel like they are completely unsupervised. It is time consuming and costly to fire these people as they will use a myriad of excuses (like internet outages) to extend the gravy train as long as possible.

People working from home tend to have big problems compartmentalizing the different parts of their life since they are spending so much time at the house. This leads to a lack of structure, which leads to weird shit like younger employees sending emails late at night, middle age employees working regular office hours, older employees sending emails at 5AM. This becomes even worse when everyone is in different timezones. The end result is that people feel like they need to check email 24/7, which makes them miserable

You will lose extroverted employees to jobs with more traditional office environments. Some people just can't stand sitting at home day-after-day

Difficult to hire effectively without meeting people in person

Hard to build a client's trust when you haven't met them in person. This is why outside sales tends to be more effective than inside sales. I have a friend whose sales job could 100% be done over the phone/internet, but prior to COVID he was on the road all the time. Why? Because relationships matter, and are best built in person.

There are a myriad of other reasons as well
Title: Re: the death of the urban office building
Post by: jschembs on May 27, 2020, 11:48:21 AM
In my opinion this work from home thing is actually proving to me why we NEED offices.

You can't form relationships over Zoom. You might be able to maintain them, but you can't form them. You can't truly build trust. You can't learn by watching how someone manages their day. You can't have spontaneous discussions by the coffee machine.

Let me take something like Shopify as an example, and many tech firms are in this position. They are saying that in the future they will have more employees working from home. Now I've been to their office. Free food and drink, including alcohol, for everyone, all day long. Once you've given this benefit to people, it's hard to take it away. This is a "get out of jail free" card for them. A way to take away this costly benefit without the blowback from employees.

If you have a job you can do remotely, and choose to spend most of your time at home, you are just a step or two away from having your job outsourced to India. Get in the office. Form and strengthen relationships. Learn. Mentor. Lead.  You can't do this shit from your kitchen table on Zoom. Sorry, you just can't. Unless you have no aspiration other than to be a cog in the machine.

this is a great post, but it addresses what associates and junior executives have to do...senior execs may not feel as strongly about the social/management aspects, and care more about the bottom line cost savings effect on their bonuses...

It's been interesting to see how COVID has adjusted my perspective on the value of face-to-face meetings.

For some perspective, I'm a partner at a regional M&A firm. Networking historically meant breakfasts, lunches, coffees, happy hours, larger events. I always felt a phone call didn't present nearly the same impact of a face-to-face meeting. While I agree that remains true for initial meetings and "relationship building," I've found phone calls to my existing network to be very productive and engaging - if anything, calling someone while we're both out of the office has far more intimacy.

Further to that point, think about the relative inefficiencies of a face-to-face meeting. Even for a quick 30-min coffee a few blocks from your office, you're likely nearly doubling that time with walk to/from, wait time for your drink, etc.

The takeaway for me is twofold. First, I can easily maintain networking with my existing contacts working remotely. While I'll certainly start going downtown during the summer, it's likely it'll split between in the office for more essential internal meetings, and more catch up calls at home. Second, many service firms are reevaluating their office composition, networking / marketing strategies, and as a byproduct, square footage needs.

I'm sure some of this is overreaction to the current environment, but I am convinced this will alter service work schedules and environments, with negative impacts on CRE. Further, the byproduct (which we're seeing in Seattle) is that retail / foodservice serving these markets will also be impacted, with resulting impact on CRE. As an example, Specialty's, a fairly entrenched breakfast/lunch/coffee chain with ~50 stores on the West Coast, closed shop last week.

https://www.sfgate.com/news/editorspicks/article/all-locations-of-Specialtys-close-15276064.php 
Title: Re: the death of the urban office building
Post by: Jurgis on May 27, 2020, 12:01:03 PM
Hard to build and maintain a healthy company culture and camaraderie when employees rarely (or never) meet in person.

Works just fine.

Quote
Tough to track what people are actually doing (or not doing) all day. The unfortunate reality is that some people will try to "skate" along doing minimal work because they feel like they are completely unsupervised. It is time consuming and costly to fire these people as they will use a myriad of excuses (like internet outages) to extend the gravy train as long as possible.

Not sure why you are so negative about other people. I haven't seen this happen through X number of distributed teams.

Quote
People working from home tend to have big problems compartmentalizing the different parts of their life since they are spending so much time at the house. This leads to a lack of structure, which leads to weird shit like younger employees sending emails late at night, middle age employees working regular office hours, older employees sending emails at 5AM. This becomes even worse when everyone is in different timezones. The end result is that people feel like they need to check email 24/7, which makes them miserable

None of this is an issue. Yeah, sure people send emails and messages at weird times. And other people answer them when they can. It's not an issue unless you make it one. In good distributed team nobody makes it into an issue.

Quote
Difficult to hire effectively without meeting people in person

Not an issue. Actually possibly positive since hiring then is done on merits and not based on (unconscious) biases.
Title: Re: the death of the urban office building
Post by: rkbabang on May 27, 2020, 12:23:55 PM
Hard to build and maintain a healthy company culture and camaraderie when employees rarely (or never) meet in person.

Works just fine. 

I agree.  I think I spend more time chatting and talking with my co-workers now than I did in the office.  I tended to stay at my desk for long stretches when I was working on something and not look up or talk to anyone.  Now everyone is a keyboard stroke away.


Quote
Quote
Tough to track what people are actually doing (or not doing) all day. The unfortunate reality is that some people will try to "skate" along doing minimal work because they feel like they are completely unsupervised. It is time consuming and costly to fire these people as they will use a myriad of excuses (like internet outages) to extend the gravy train as long as possible.

Not sure why you are so negative about other people. I haven't seen this happen through X number of distributed teams.

People like that will not last in the organization.  If an employee needs a babysitter, do you even want them back at the office?  You can goof off at your desk in the office as well.   People do their jobs or they don't.  No different.

Quote
Quote
People working from home tend to have big problems compartmentalizing the different parts of their life since they are spending so much time at the house. This leads to a lack of structure, which leads to weird shit like younger employees sending emails late at night, middle age employees working regular office hours, older employees sending emails at 5AM. This becomes even worse when everyone is in different timezones. The end result is that people feel like they need to check email 24/7, which makes them miserable

None of this is an issue. Yeah, sure people send emails and messages at weird times. And other people answer them when they can. It's not an issue unless you make it one. In good distributed team nobody makes it into an issue.

This is personal preference.  I've always had the ability to email my co-workers at 3AM from my phone and sometimes did.  I also never found it weird to come in in the morning and find that someone emailed me at 3AM and I'm checking it when I check it.   I've spent the last 2 years with 4 people on my team in China, so this is just normal for me.   I've never felt the need to check my email 24 hours a day.  You need to discipline yourself to work when your working and forget about it when your not.  The emails will be there in the morning when you start your day.

Quote
Quote
Difficult to hire effectively without meeting people in person

Not an issue. Actually possibly positive since hiring then is done on merits and not based on (unconscious) biases.

This definitely isn't an issue.  I've interviewed by phone/skype and it is just as effective even with hours long technical interviews.

I wonder if age has something to do with this.  Many are just set in their ways and eventually enough people in that age group will retire and the world will change.  Sometimes changes are like that.
Title: Re: the death of the urban office building
Post by: cherzeca on May 27, 2020, 01:25:45 PM
In my opinion this work from home thing is actually proving to me why we NEED offices.

You can't form relationships over Zoom. You might be able to maintain them, but you can't form them. You can't truly build trust. You can't learn by watching how someone manages their day. You can't have spontaneous discussions by the coffee machine.

Let me take something like Shopify as an example, and many tech firms are in this position. They are saying that in the future they will have more employees working from home. Now I've been to their office. Free food and drink, including alcohol, for everyone, all day long. Once you've given this benefit to people, it's hard to take it away. This is a "get out of jail free" card for them. A way to take away this costly benefit without the blowback from employees.

If you have a job you can do remotely, and choose to spend most of your time at home, you are just a step or two away from having your job outsourced to India. Get in the office. Form and strengthen relationships. Learn. Mentor. Lead.  You can't do this shit from your kitchen table on Zoom. Sorry, you just can't. Unless you have no aspiration other than to be a cog in the machine.

Good post.

Too add to what he said: Yes, obviously a great deal (most? almost all?) of white collar type work CAN be done remotely, but there are very good reasons nearly all companies have offices:

Hard to build and maintain a healthy company culture and camaraderie when employees rarely (or never) meet in person.

Tough to track what people are actually doing (or not doing) all day. The unfortunate reality is that some people will try to "skate" along doing minimal work because they feel like they are completely unsupervised. It is time consuming and costly to fire these people as they will use a myriad of excuses (like internet outages) to extend the gravy train as long as possible.

People working from home tend to have big problems compartmentalizing the different parts of their life since they are spending so much time at the house. This leads to a lack of structure, which leads to weird shit like younger employees sending emails late at night, middle age employees working regular office hours, older employees sending emails at 5AM. This becomes even worse when everyone is in different timezones. The end result is that people feel like they need to check email 24/7, which makes them miserable

You will lose extroverted employees to jobs with more traditional office environments. Some people just can't stand sitting at home day-after-day

Difficult to hire effectively without meeting people in person

Hard to build a client's trust when you haven't met them in person. This is why outside sales tends to be more effective than inside sales. I have a friend whose sales job could 100% be done over the phone/internet, but prior to COVID he was on the road all the time. Why? Because relationships matter, and are best built in person.

There are a myriad of other reasons as well

most "town hall" meetings of the enterprise are done remotely over video.  I dont disagree that smaller teams need to develop chemistry, but the notion that you need everyone to commute to office to build chemistry is far fetched.

management can track employee engagement when employees work remotely...just not a savory thing to admit though.

most firms hiring process was already mostly remote engagement.  yes before covid, there was usually a final face to face meeting, but that is not being done with covid, and I expect many firms wont want to go back to pre-covid days if they liked fully remote hiring during covid

yes you need to face to face meet clients...hence the need for conference rooms, but not huge office space

most employees would rather forgo a commute than forgo the warm sociability of their coworkers imo.  millennials seems to prefer virtual sociability...
Title: Re: the death of the urban office building
Post by: SharperDingaan on May 27, 2020, 01:59:55 PM
The conversation just highlights that different functions, at different levels, are impacted differently.
It really comes down to an across-the-board 're-set' of expectations, throughout the company. Some will be able to handle the change, some will not.

White collar 'core hours' (CST, PST, GMT, EST, etc) are pretty meaningless, when there are no borders. The 'standard' becomes 'next working day' - and that is NOT between 9-5 'next working day'. You pay for quality task completion by day X, time Y - how it's done is to the employee. Hence the communication at weird times of day; but same outcome, productivity, etc. Just different execution.

Lean manufacturing has long impacted blue collar employment. WFH is just the early stages of lean manufacturing being applied to white collar employment. Good or bad, depending upon how individuals position themselves.

Our block-chain partnership recently let our office space 'go' - as it just wasn't worth it.
It is far more effective/efficient, for us to rent space as we need - and meet up at extended lunches within the GTA. Builds the collective EQ, does the social thing, keeps conversation focused; but requires discipline. When we need to pitch a client, rent a room close by and have them walk over. Underlines the cultural difference, and acceptable because this is 2020 - not last century, and we're tech.

SD



Title: Re: the death of the urban office building
Post by: K2SO on May 28, 2020, 08:34:32 AM
...senior execs may not feel as strongly about the social/management aspects, and care more about the bottom line cost savings effect on their bonuses...

As a senior exec, I'm not sure I agree with that. I'm still missing the interaction with others at and above my level, and even more importantly I'm losing the ability to build a strong connection with those who report to me. Especially newer employees. And as those ties become looser, I think their ties to the organization as a whole will also fray, meaning that they will be more easily poached by competitors.

Other great points here about the way work from home eliminates boundaries, etc. For any arguments that it's more efficient in some ways, it is damaging in other ways. I think every business is really a number of relationships, and relationships are best built and maintained in person. And this isn't a generational thing. My kids know this... no amount of video calls, phone calls, or texts with their friends is replacing seeing them face to face.
Title: Re: the death of the urban office building
Post by: cherzeca on May 28, 2020, 08:40:31 AM
...senior execs may not feel as strongly about the social/management aspects, and care more about the bottom line cost savings effect on their bonuses...

As a senior exec, I'm not sure I agree with that. I'm still missing the interaction with others at and above my level, and even more importantly I'm losing the ability to build a strong connection with those who report to me. Especially newer employees. And as those ties become looser, I think their ties to the organization as a whole will also fray, meaning that they will be more easily poached by competitors.

Other great points here about the way work from home eliminates boundaries, etc. For any arguments that it's more efficient in some ways, it is damaging in other ways. I think every business is really a number of relationships, and relationships are best built and maintained in person. And this isn't a generational thing. My kids know this... no amount of video calls, phone calls, or texts with their friends is replacing seeing them face to face.

good post and fair enough. onboarding employees sure isn't easy if done only virtually. 
Title: Re: the death of the urban office building
Post by: rkbabang on May 28, 2020, 11:38:08 AM
Yes, you have the break room and the watercooler.  In my office we had free coffee!  But does anyone else think it is a bit dehumanizing to spend all day everyday in a small box inside another box?   After driving through traffic to get there and then you get to drive through traffic afterwards to home when you're done? Maybe city dwellers who live inside small boxes inside of bigger boxes anyway don't see the difference, but it isn't just about work, it is a quality of life issue as well.  I guess I'm just not a city-person.  Why anyone would want to spend their lives inside a giant human anthill has never been something I've understood.
Title: Re: the death of the urban office building
Post by: Castanza on May 28, 2020, 11:50:25 AM
...senior execs may not feel as strongly about the social/management aspects, and care more about the bottom line cost savings effect on their bonuses...

As a senior exec, I'm not sure I agree with that. I'm still missing the interaction with others at and above my level, and even more importantly I'm losing the ability to build a strong connection with those who report to me. Especially newer employees. And as those ties become looser, I think their ties to the organization as a whole will also fray, meaning that they will be more easily poached by competitors.

Other great points here about the way work from home eliminates boundaries, etc. For any arguments that it's more efficient in some ways, it is damaging in other ways. I think every business is really a number of relationships, and relationships are best built and maintained in person. And this isn't a generational thing. My kids know this... no amount of video calls, phone calls, or texts with their friends is replacing seeing them face to face.

good post and fair enough. onboarding employees sure isn't easy if done only virtually.

I've helped to onboard probably over 200 individuals at a high level and maybe 20 deep dive technical onboarding over Skype with a bit of a language barrier (South American countries). Sure, it took a bit more time and there were some bumps in the road. But ultimately, it was successful.

I don't think this argument is about whether or not remote work can be done effectively. It's about whether or not people will want to do it long term. I think short term there may be some effect. But historically speaking cities and urban centers have always been desired.
Title: Re: the death of the urban office building
Post by: cherzeca on May 28, 2020, 12:05:53 PM
"But historically speaking cities and urban centers have always been desired."

I guess my thought is that cities will always be desired, but perhaps more so now as a cultural and societal privilege and luxury, and less so as a locus of commerce.
Title: Re: the death of the urban office building
Post by: rkbabang on May 28, 2020, 12:53:42 PM
"But historically speaking cities and urban centers have always been desired."

I guess my thought is that cities will always be desired, but perhaps more so now as a cultural and societal privilege and luxury, and less so as a locus of commerce.

Why have cities always been desired?   When travel and communication was more difficult and time consuming cities brought people and ideas together in one spot.  Population density was a necessity for ideas to spread and serendipitous meetings to take place.  Also it allowed an economy of scale for businesses.  All of that still happens in cities, but, I don't know if that is still entirely necessary.  People now meet and talk online just as easily as off, and with modern shipping the whole country is your marketplace.
Title: Re: the death of the urban office building
Post by: jschembs on May 28, 2020, 01:06:02 PM
"But historically speaking cities and urban centers have always been desired."

I guess my thought is that cities will always be desired, but perhaps more so now as a cultural and societal privilege and luxury, and less so as a locus of commerce.

Why have cities always been desired?   When travel and communication was more difficult and time consuming cities brought people and ideas together in one spot.  Population density was a necessity for ideas to spread and serendipitous meetings to take place.  Also it allowed an economy of scale for businesses.  All of that still happens in cities, but, I don't know if that is still entirely necessary.  People now meet and talk online just as easily as off, and with modern shipping the whole country is your marketplace.

Very well said. Still impossible to replicate human interaction, but virtual is good enough for much of day-to-day life, and when compared against cost and livability of cities, will be very interesting to see future trends.
Title: Re: the death of the urban office building
Post by: Gregmal on May 28, 2020, 01:25:29 PM
"But historically speaking cities and urban centers have always been desired."

I guess my thought is that cities will always be desired, but perhaps more so now as a cultural and societal privilege and luxury, and less so as a locus of commerce.

Why have cities always been desired?   When travel and communication was more difficult and time consuming cities brought people and ideas together in one spot.  Population density was a necessity for ideas to spread and serendipitous meetings to take place.  Also it allowed an economy of scale for businesses.  All of that still happens in cities, but, I don't know if that is still entirely necessary.  People now meet and talk online just as easily as off, and with modern shipping the whole country is your marketplace.

Cities offer lifestyles. For young, single people, having tons of other young, single people, and no shortage of things to do is quite a draw. You cant really match that anywhere else. City nightlife every night vs what? American Pie style house parties once a week? The big city offices are major draws for companies to recruit top talent.

Its almost a suburban right of passage in the neighborhood I grew up in to move to Hoboken or NYC for a few years after graduating college. Typically then, once that is out of the system, its back to the suburbs to start a family.
Title: Re: the death of the urban office building
Post by: DooDiligence on May 28, 2020, 01:30:59 PM
Yes, you have the break room and the watercooler.  In my office we had free coffee!  But does anyone else think it is a bit dehumanizing to spend all day everyday in a small box inside another box?   After driving through traffic to get there and then you get to drive through traffic afterwards to home when you're done? Maybe city dwellers who live inside small boxes inside of bigger boxes anyway don't see the difference, but it isn't just about work, it is a quality of life issue as well.  I guess I'm just not a city-person.  Why anyone would want to spend their lives inside a giant human anthill has never been something I've understood.

www.forbes.com/sites/brendarichardson/2020/05/13/rise-in-remote-work-could-spark-a-new-suburban-boom/#337538b454a5

If you put a goat in a box, it'll eat it's way out.
Title: Re: the death of the urban office building
Post by: Castanza on May 28, 2020, 02:06:00 PM
"But historically speaking cities and urban centers have always been desired."

I guess my thought is that cities will always be desired, but perhaps more so now as a cultural and societal privilege and luxury, and less so as a locus of commerce.

Why have cities always been desired?   When travel and communication was more difficult and time consuming cities brought people and ideas together in one spot.  Population density was a necessity for ideas to spread and serendipitous meetings to take place.  Also it allowed an economy of scale for businesses.  All of that still happens in cities, but, I don't know if that is still entirely necessary.  People now meet and talk online just as easily as off, and with modern shipping the whole country is your marketplace.

Sure, but there is also the other aspect of city living. Entertainment options. Cities are very much white collar work hard play hard. People who live in cities tend to “love the bustle”.

A bit off topic, but I mentioned in some thread before that all these big tech companies never build their new branches in rural or mid sized cities. Event though in my opinion that’s a step in the right direction for “revitalizing areas” it shows that there is more to big city living than big firm jobs. People (talent) for the most part want a mix of a good job in a fun area.

As I said before, for every 1 person looking to work full time remote in a lower cost of living area you will still have 10 wanting to claim their stake in the big city.
Title: Re: the death of the urban office building
Post by: Spekulatius on May 28, 2020, 04:37:36 PM
"But historically speaking cities and urban centers have always been desired."

I guess my thought is that cities will always be desired, but perhaps more so now as a cultural and societal privilege and luxury, and less so as a locus of commerce.

Why have cities always been desired?   When travel and communication was more difficult and time consuming cities brought people and ideas together in one spot.  Population density was a necessity for ideas to spread and serendipitous meetings to take place.  Also it allowed an economy of scale for businesses.  All of that still happens in cities, but, I don't know if that is still entirely necessary.  People now meet and talk online just as easily as off, and with modern shipping the whole country is your marketplace.

Very well said. Still impossible to replicate human interaction, but virtual is good enough for much of day-to-day life, and when compared against cost and livability of cities, will be very interesting to see future trends.

Cities may become virtual cities. We know have online community where members can have strong bonds . That wasn’t possible historically.
Title: Re: the death of the urban office building
Post by: shhughes1116 on May 28, 2020, 07:19:35 PM
"But historically speaking cities and urban centers have always been desired."

I guess my thought is that cities will always be desired, but perhaps more so now as a cultural and societal privilege and luxury, and less so as a locus of commerce.

Why have cities always been desired?   When travel and communication was more difficult and time consuming cities brought people and ideas together in one spot.  Population density was a necessity for ideas to spread and serendipitous meetings to take place.  Also it allowed an economy of scale for businesses.  All of that still happens in cities, but, I don't know if that is still entirely necessary.  People now meet and talk online just as easily as off, and with modern shipping the whole country is your marketplace.

Very well said. Still impossible to replicate human interaction, but virtual is good enough for much of day-to-day life, and when compared against cost and livability of cities, will be very interesting to see future trends.

Cities may become virtual cities. We know have online community where members can have strong bonds . That wasn’t possible historically.

Am I going to go to the virtual theater?  the virtual music arena?  the virtual ballpark?  the virtual museum?  the virtual skateboard park? the virtual hospital to have virtual surgery from a top-rated cardiothoracic surgeon?  Pardon the hyperbole, but you get my point. 

People are drawn to cities by the availability decent-paying jobs AND amenities/attractions that are not available in rural parts of the country.  The population density of [insert ruraltown USA) does not support a good theater, decent skateboard park, large music arena that attracts big-name artists, decent museum (history, art, sports, or something else), MLB/NFL ballpark, and/or NHL/NBA arena.  it certainly doesn't support a high-end hospital with top-rated physicians either - you are lucky to have a good general surgeon and a good general practitioner in ruraltown USA's local hospital.  So the idea that people are going to leave urban office buildings, and scatter to the four corners of the earth where they can work remotely from their house is far-fetched to me. 

I work 1/3 of the time at home, 1/3 of the time in the office, and 1/3 of the time on the road.  I have an entire team of folks around the country, similarly situated.  If I wanted, I could work 100% from home, and could do so wherever I want in the United States.  The same goes for my team.    But over the last 10 years, I have found that it is mind-numbing to work from home every single day, and it blurs the boundaries between work life and family life.  I have also found that locating myself in rural places, even for short periods of time, is boring.  This is not unique to me.  I see this same mentality across an organization with 10,000+ people.  People are hyper focused on working remote, on getting the hell out of the office, so they can enjoy sunshine and rainbows every day from the comfort of their own house.  Yet 90-95% of the people who go off to work 100% remote end up returning to the city and our office buildings.  They either went nuts working 100% remote in their small apartment in the city, or they went nuts (in a larger apartment or house) living in a rural area without the amenities they were accustomed to enjoying. 

I think we are going to see a huge cohort of folks jump on the 100% work-from-home bandwagon.  I think we are going to subsequently see, in maybe a year or two, that many of these folks want to return to the office building and the city for the reasons mentioned above. 

I think the endgame is that most white collar workers will do 50% of their time in the office building, and 50% of their time at home.  And most of these folks won't leave the city (or will return) because they will miss the action, the amenities, and the proximity of their friends/peers.

 
Title: Re: the death of the urban office building
Post by: thepupil on May 29, 2020, 10:10:15 AM
Hope everyone is well.

Here's an example of a fast growing, young hip, tech company with little prior NYC footprint signing a 10 year, 232,000 sq feet, replacing Skadden (super high paying) tenant who is moving to Hudson Yards.

TikTok wants to be in NYC.

TikTok has about 400 US employees, most in Culver City, Calif. Its expansion into Manhattan, where it had only a small office, is a big step forward for the company.  ByteDance is in the process of gradually moving its “center of power” away from China, Reuters reported this week.

#confirmationbias #potcommitted #belowPMV #youngpeoplewantogetpaidandlaidinNYC

Quote
Times Square has no tourists right now, but it will soon have TikTok.

SEE ALSO: Microsoft Expanding to 400K SF in Reston
The insanely popular video-sharing app’s parent company has signed a 10-year lease for 232,000 square feet at the Durst Organization’s One Five One, the 48-story tower formerly known as Four Times Square, Commercial Observer has learned.

The deal is a surprise blockbuster amidst the pandemic real estate freeze and represents a remarkable vote of confidence in the city. No sizable leases, reaching into the six digits, have been completed in Manhattan since the onset of the crisis in February, although a 740,000 square-footer is pending for Facebook at the Farley Post Office complex.

Although TikTok and Durst signed the lease last week, according to sources, the transaction isn’t complete until a sign-off by lenders – a technicality that’s expected to be done in a week or two. Credit won’t likely be an issue as TikTok’s parent, Beijing-based  digital conglomerate Byte Dance, has an estimated market value of $78 billion.

TikTok will  have seven floors – five at the tower’s top that were previously leased to Skadden Arps and two in the base that were previously for Conde Nast. The new lease leaves about 326,000 square feet of the tower’s 1.8 million square feet available.

Terms were not available. Asking rents for the Skadden floors ranged from $105 to $135 per square foot. The negotiations were kept under tight wraps.

“TikTok started looking last year,” a source said. “Their requirement grew from 50,000 square feet to a lot more. They checked out several other locations including at the World Trade Center.”   

TikTok was represented by CBRE’s vice chairman Sacha Zarba, executive vice president Jeffrey Fischer and vice president Alice Fair. Durst was repped in-house by executive vice president Tom Bow, senior managing director Rocco Romeo and senior leasing associate Tanya Grimaldo. The dealmakers either could not be reached or declined to comment.

TikTok has been downloaded more than 1.5 billion times globally and is estimated to have 60 million monthly users in the U.S. The 60-second video sharing platform has been called the “defining social media app of Generation Z” and is growing exponentially in popularity in the US despite concerns by some legislators about possible Chinese government censorship and data-sharing.  Tom Brady and Gisele Bundchen used it last week to post a funny video of themselves discussing the secrets of their marriage.

Appropriately for today’s “Disneyfied” Times Square, TikTok’s new CEO is former Walt Disney Company top streaming executive Kevin Mayer, who was also named ByteDance’s COO.


TikTok has about 400 US employees, most in Culver City, Calif. Its expansion into Manhattan, where it had only a small office, is a big step forward for the company.  ByteDance is in the process of gradually moving its “center of power” away from China, Reuters reported this week.

Durst’s game-changing tower opened in 1999 as the first of four new commercial skyscrapers at “The Crossroads of the World.” Original anchor tenant Conde Nast moved to the World Trade Center and the second-largest tenant, law firm Skadden Arps, is moving to One Manhattan West.

A $150 million capital improvements program – including a 46,000 amenity floor with a Charlie Palmer-curated food hall – helped lure new tenants including ICAP, BMO Capital Markets, RSM, Next, and Ampersand. Also, Nasdaq, which has its famous Market Site showroom at the corner of Seventh Avenue and West 43d Street, expanded its office space.

UPDATE: This story has been updated since publication to include the length of TikTok’s new lease.
Title: Re: the death of the urban office building
Post by: fareastwarriors on May 29, 2020, 10:18:02 AM
Hope everyone is well.

Here's an example of a fast growing, young hip, tech company with little prior NYC footprint signing a 10 year, 232,000 sq feet, replacing Skadden (super high paying) tenant who is moving to Hudson Yards.

TikTok wants to be in NYC.

TikTok has about 400 US employees, most in Culver City, Calif. Its expansion into Manhattan, where it had only a small office, is a big step forward for the company.  ByteDance is in the process of gradually moving its “center of power” away from China, Reuters reported this week.

#confirmationbias #potcommitted #belowPMV #youngpeoplewantogetpaidandlaidinNYC

Quote
Times Square has no tourists right now, but it will soon have TikTok.

SEE ALSO: Microsoft Expanding to 400K SF in Reston
The insanely popular video-sharing app’s parent company has signed a 10-year lease for 232,000 square feet at the Durst Organization’s One Five One, the 48-story tower formerly known as Four Times Square, Commercial Observer has learned.

The deal is a surprise blockbuster amidst the pandemic real estate freeze and represents a remarkable vote of confidence in the city. No sizable leases, reaching into the six digits, have been completed in Manhattan since the onset of the crisis in February, although a 740,000 square-footer is pending for Facebook at the Farley Post Office complex.

Although TikTok and Durst signed the lease last week, according to sources, the transaction isn’t complete until a sign-off by lenders – a technicality that’s expected to be done in a week or two. Credit won’t likely be an issue as TikTok’s parent, Beijing-based  digital conglomerate Byte Dance, has an estimated market value of $78 billion.

TikTok will  have seven floors – five at the tower’s top that were previously leased to Skadden Arps and two in the base that were previously for Conde Nast. The new lease leaves about 326,000 square feet of the tower’s 1.8 million square feet available.

Terms were not available. Asking rents for the Skadden floors ranged from $105 to $135 per square foot. The negotiations were kept under tight wraps.

“TikTok started looking last year,” a source said. “Their requirement grew from 50,000 square feet to a lot more. They checked out several other locations including at the World Trade Center.”   

TikTok was represented by CBRE’s vice chairman Sacha Zarba, executive vice president Jeffrey Fischer and vice president Alice Fair. Durst was repped in-house by executive vice president Tom Bow, senior managing director Rocco Romeo and senior leasing associate Tanya Grimaldo. The dealmakers either could not be reached or declined to comment.

TikTok has been downloaded more than 1.5 billion times globally and is estimated to have 60 million monthly users in the U.S. The 60-second video sharing platform has been called the “defining social media app of Generation Z” and is growing exponentially in popularity in the US despite concerns by some legislators about possible Chinese government censorship and data-sharing.  Tom Brady and Gisele Bundchen used it last week to post a funny video of themselves discussing the secrets of their marriage.

Appropriately for today’s “Disneyfied” Times Square, TikTok’s new CEO is former Walt Disney Company top streaming executive Kevin Mayer, who was also named ByteDance’s COO.


TikTok has about 400 US employees, most in Culver City, Calif. Its expansion into Manhattan, where it had only a small office, is a big step forward for the company.  ByteDance is in the process of gradually moving its “center of power” away from China, Reuters reported this week.

Durst’s game-changing tower opened in 1999 as the first of four new commercial skyscrapers at “The Crossroads of the World.” Original anchor tenant Conde Nast moved to the World Trade Center and the second-largest tenant, law firm Skadden Arps, is moving to One Manhattan West.

A $150 million capital improvements program – including a 46,000 amenity floor with a Charlie Palmer-curated food hall – helped lure new tenants including ICAP, BMO Capital Markets, RSM, Next, and Ampersand. Also, Nasdaq, which has its famous Market Site showroom at the corner of Seventh Avenue and West 43d Street, expanded its office space.

UPDATE: This story has been updated since publication to include the length of TikTok’s new lease.

thepupil to the rescue of all the urban commercial real estate!
:)
Title: Re: the death of the urban office building
Post by: rkbabang on May 29, 2020, 10:27:03 AM
Am I going to go to the virtual theater?  the virtual music arena?  the virtual ballpark?  the virtual museum?  the virtual skateboard park? the virtual hospital to have virtual surgery from a top-rated cardiothoracic surgeon?  Pardon the hyperbole, but you get my point. 

Sure I like to live within an hour drive of a city (I'm about an hour drive from Boston), but do you go to the theater or the hospital everyday?   Cities are nice places to visit, but I wouldn't want to live (or work) there.
Title: Re: the death of the urban office building
Post by: mcliu on May 29, 2020, 01:51:32 PM
What's the impact on CRE if even 20% of people WFM (either permanent, or just taking 1 day off a week to WFH)?
Title: Re: the death of the urban office building
Post by: cherzeca on May 29, 2020, 02:29:16 PM
whither NYC?  I have talked to a bunch of my millennial friends/offspring of friends, and for 50% or so of them, working from home means not having to live in NYC when apt lease is up.  people thinking Atlanta, Boston...NYC has gotten something of a covid rep

NYC will survive, but I dont know if it will prosper
Title: Re: the death of the urban office building
Post by: SHDL on May 29, 2020, 03:08:30 PM
I’m in DC and I did a quick search to see how the high end apartment market is doing in my area. Vacancies seem elevated ... to say the least. Nice buildings that I think used to have around 5 vacancies this time of the year now have like 20. Hard to say if this is permanent but if it is the economic impact will be huge.
Title: Re: the death of the urban office building
Post by: lnofeisone on May 29, 2020, 03:37:36 PM
I’m in DC and I did a quick search to see how the high end apartment market is doing in my area. Vacancies seem elevated ... to say the least. Nice buildings that I think used to have around 5 vacancies this time of the year now have like 20. Hard to say if this is permanent but if it is the economic impact will be huge.

I saw the same trend here in DC. Lots of availability in the high-end market. Few of our friends are now playing hardball with management companies because they are not getting amenities that were originally promised. Mid-market seems to be doing a bit better. Had friends rent a basement in about a week with plenty of qualified applicants.
Title: Re: the death of the urban office building
Post by: Spekulatius on May 29, 2020, 03:59:13 PM
Am I going to go to the virtual theater?  the virtual music arena?  the virtual ballpark?  the virtual museum?  the virtual skateboard park? the virtual hospital to have virtual surgery from a top-rated cardiothoracic surgeon?  Pardon the hyperbole, but you get my point. 

Sure I like to live within an hour drive of a city (I'm about an hour drive from Boston), but do you go to the theater or the hospital everyday?   Cities are nice places to visit, but I wouldn't want to live (or work) there.

MF had a pretty good podcast about 18 hour cities and suburbs as an investment thesis for real estate. This was pre COVID. Makes a lot of sense to me, you live in an area where you get most stuff and drive to a city when you want to do something special. This makes even more sense if you can get equivalent pay without a commute or paying an arm and a leg for a shoebox Appartement.

But then there are folks who just can’t live without the hustle of a large city. So each it’s own.
Title: Re: the death of the urban office building
Post by: SharperDingaan on May 30, 2020, 07:06:01 AM
A high-tech/new age company locates in a city, because that's where the labour is. If you're targeting the talented 'hip labour pool', you have to be where they want to live, and pay up - as the cost of doing business. California, Boston or Toronto for tech; NYC, Chicago, SF, or Toronto for finance; LA, Toronto, or Vancouver for entertainment production. Houston, or Calgary for o/g.

But ... everyone gets old  and your time as the 'hip' ... is a limited term engagement.
You lived in the city to find a mate, once you find one ... you live in the 'burbs if you want to raise a family. You split, the kids grow up, and you move back to the city for the amenities. Grade-B space in the 'burbs of a major city targets this pool, and the value-add to both employer/employee is low-hanging fruit. The functional comparative is Grade-A space in a 2nd Tier city (Detroit).

For most companies, 1/2 to 2/3 of the white-collar workforce really doesn't 'need' to be in downtown Grade-A space -  it's primarily operating leverage on the fixed cost of the space, prestige as part of the comp, and inertia. It worked, because like an airline ... the more people you could jam in the space (or aircraft), the lower the cost/seat - which social distancing no longer allows. Move that workforce to Grade-B space and you both save material $ and RAISE the comp value of Grade-A seat prestige. 

The truly evil will also change industry comp incentives within the Grade-A space - by paying most of the bonus in 'prestige', via society page advertising (eg: Harrod's high-end christmas gift basket) - and NOT in money. 'Cause .... if you live/work in Manhattan, you must already be independently wealthy - so why are we just giving more money to millionaires? when the prestige of 'social rank' is more valuable? And as the shareholders who gave you the opportunity, it elevates our 'social rank' as well. 'White-wall' investment banking firms did very well for a reason - and their approach can be copied   ;)

In the words of Gordon Gekko, Greed is good!, Greed works!
https://www.americanrhetoric.com/MovieSpeeches/moviespeechwallstreet.html

And it is coming to the office space near you.

SD


Title: Re: the death of the urban office building
Post by: cherzeca on May 30, 2020, 09:59:43 AM
@sd

not sure I caught all of that, but it reminds me what women say when they buy new expensive handbags...it is not to attract guys but to impress other women.  nice offices are like that, you come into work and execs feel good about themselves when they look around at the art and polished wood.  all of this comes at a cost, and if this is no longer really needed for some 50% of your office staff's labor hours, then that is an easy cost to cut
Title: Re: the death of the urban office building
Post by: thepupil on May 30, 2020, 11:20:32 AM
I think the answer is a big giant “it depends”. And I think a big factor is tenant quality/profitability which will determine price sensitivity. As one extreme, New Mountain Capital leases the top 2 floors of 1633 Broadway as their headquarters, 108K square feet @ $85/foot = $9mm / year, the lease goes to 2035. New Mountain Capital manages $20B and is about to raise a new $8B PE fund on which they’ll charge 1.5-2% on committed capital. Assuming 2% on the $8B ($160mm management fee and 1% on the another Guesstimated  $15B or capital, $150mm of management fee), NMC probably has about $300mm of management fees coming in. Not sure how many people work there, but they have 187 employees on LinkedIn, so I think they’re doing okay with that level of management fee which is not the only source of revenue (the deal by deal carry will certainly being in more revenue) Now is NMC going to try and save a lousy $9mm trying to weasel out of its lease or trying to move associates to the hinterland? No, of course not.

 If people that work there want to be in NYC on the top 2 floors of a big building, they’ll be there. If they lose one big LP for having a shitty office (do not put this past LP’s) or lose talent because some dude likes another PE firm’s office better and that guy’s very good, they haven’t saved any money at all. I’ve never met a 28 year old I banker who said “man I can’t wait to move to Westchester (or even Hawaii/Asheville/boulder, Jackson Hole”

I have zero concerns about NMC not paying their rent for the next 15 years and I think the 25-35 yr olds who do all the work, want to live and work in the city

On the other end of the spectrum, PGRE has a big tenant in McGraw Hill Education, an Apollo owned overlevered company in secular decline. They’ll file, reject the lease, and if the company continues to exist, they probably won’t lease 100K feet in midtown because some distressed debt fund or PE form that owns the post reorg will say “hmmm we can lease 50K feet in noweheresville for $30 instead of 100K feet in NYC for $60” and they’ll save $5mm or whatever and think that that’s important.

I think supply/demand imbalance is inevitable (at least in NYC) and spot lease rates will endure significant declines for an extended period of time. I do think working in an office has appeal and that a decline in rents will increase demand and also decrease new supply formation, such that the fundamentals of the far out years are more likely to look like today (the peak) than the trough. If you think rents go down 30-40% and stay there, you don’t really want to own any offices (They are priced such that you probably won’t lose a ton of money, but you may not make any). If you think the potential for long term mean reversion (after the fall) and the NYC premium continuing  exist to any degree, you want to own these.

To mitigate risks and have staying power, focusing  on tenant quality and lease duration is important, even better if there is non recourse interest only financing in place, or unlevered buildings, giving the equity full access to contracted NOI / cash flow, which again de-risks you. To use PGRE again, they do about $700mm or rent /$400mm NOI/$50mm g&A/$120mm interest/ $200mm ish free cash flow. 40% of leases expire in more than 10 years and the WAL is 7-8. Let’s say FCF glides to $100mm over 8 years and averages $150mm/year as tenants go bankrupt or space is renewed at lower rates. Over 8 years the equity would get $1.2B of FCF; the stock trades for $1.4B equity (market cap less net cash). There are some holes in this argument (not all their maturities are that long) but my point is that contracted cash flow de-risks you over time. They also own 2mm sf w/o a mortgage.

I don’t think I’m going out on a limb and saying the share price implies almost no residual value for the buildings; I can’t tell you the future of remote work, only the present of low valuations a a collapse in implied value/foot / rapid rise in cap rates.

https://www.google.com/amp/s/www.globest.com/2018/05/03/mcgraw-hill-moves-from-midtown-south-to-midtown/%3famp=1

https://www.google.com/amp/s/therealdeal.com/2019/02/05/asset-manager-new-mountain-capital-inks-100k-sf-lease-in-midtown/amp/
Title: Re: the death of the urban office building
Post by: cherzeca on May 30, 2020, 01:38:43 PM
new mountain's assets go out the elevator every evening.  if they dont come back in the morning they are done. plenty of hedge funds have stars leave to do their own thing.  and all of that capital has a string on it.  I think HFs need the constant face to facer time back and forth discussion more than most other businesses and need nice offices as a signal to investors, so I get the impetus...but HFs are a somewhat isolated case
Title: Re: the death of the urban office building
Post by: thepupil on May 30, 2020, 02:04:19 PM
Not sure what you are saying. New Mountain is a private equity firm; they are in the market for their flagship PE fund; it is going to be $8billion+. PE firms charge 2% on committed capital, then the management fee steps down after 5-6 years (Or sometimes when they raise the next fund)  to 1%-1.5% on invested capital. So New Mountain has the old fund assets (and debt funds) paying management fees; that goes down as its liquidated. Then they have the new fund management fees which will last for 10+ years. I would consider them a very good tenant of high credit quality as their committed capital is a liability of large institutional investors (pensions, endowments, etc)

Are you saying that NMC is of poor credit quality and you wouldn’t consider their lease to be money good? That seems a stretch. They have 10+ years manamgent fees and assuming half decent performance, will be raising another fund in 5 years. In the article below about their recent fund raise it talks about a 4% GP commitment, so the GP is putting in $320mm of their money into the new fund. I like obligations of firms run by super wealthy people that have multi-year obligations from big institutions. Seems safe enough to me.

You can’t fill 400mm square feet of NYC office with PE firms, but you can pre-lease 65% of One Vandy to them (plus some law firms and banks), for example.
https://en.m.wikipedia.org/wiki/One_Vanderbilt

https://www.buyoutsinsider.com/new-mountain-targets-8bn-on-new-flagship-750m-on-non-control-fund/

Real estate is a combination of a bond and a stock. The bond is the lease term and the stock is the residual; I think a lot of buildings are trading almost close to the value of the bond; there’s massive uncertainty on the residual/stock of course because of all this stuff. But in some cases the bond portion goes out 10 or even 15 years

Like ALX’s Bloomberg lease where you get average of $75mm/year for 9 years; that’s a good bond to own. Now 2029 is difficult to underwrite of course
Title: Re: the death of the urban office building
Post by: SharperDingaan on May 30, 2020, 02:56:45 PM
Execs will always get the Grade-A space as it's non-taxable comp. but the cost of the 'extras' comes out of the C-Suite bonus pool.
Hence there's incentive to keep the total cost low, relative to the size of the bonus pool - which can only happen if the pool is stupid big (I-Banks, etc). Hence in a good years (most of the time), it's not an issue; in bad times the exec + the space are fat. 

Long ago I was reminded by a former french madam/financial advisor, that a great many of the young and beautiful/handsome in this population - are playing a different game. Todays mistress, tomorrows trophy wife, along with a prenup. Todays boytoy, under a 'lease' arrangement with generous termination. The buff bods, expensive handbags/heels, and Armani suits - are business tools.

Sadly she has passed away now,
but it put a whole new spin on the Les Miserables, 'Master of the House'

SD


Title: Re: the death of the urban office building
Post by: cherzeca on May 30, 2020, 03:18:34 PM
Not sure what you are saying. New Mountain is a private equity firm; they are in the market for their flagship PE fund; it is going to be $8billion+. PE firms charge 2% on committed capital, then the management fee steps down after 5-6 years (Or sometimes when they raise the next fund)  to 1%-1.5% on invested capital. So New Mountain has the old fund assets (and debt funds) paying management fees; that goes down as its liquidated. Then they have the new fund management fees which will last for 10+ years. I would consider them a very good tenant of high credit quality as their committed capital is a liability of large institutional investors (pensions, endowments, etc)

Are you saying that NMC is of poor credit quality and you wouldn’t consider their lease to be money good? That seems a stretch. They have 10+ years manamgent fees and assuming half decent performance, will be raising another fund in 5 years. In the article below about their recent fund raise it talks about a 4% GP commitment, so the GP is putting in $320mm of their money into the new fund. I like obligations of firms run by super wealthy people that have multi-year obligations from big institutions. Seems safe enough to me.

You can’t fill 400mm square feet of NYC office with PE firms, but you can pre-lease 65% of One Vandy to them (plus some law firms and banks), for example.
https://en.m.wikipedia.org/wiki/One_Vanderbilt

https://www.buyoutsinsider.com/new-mountain-targets-8bn-on-new-flagship-750m-on-non-control-fund/

Real estate is a combination of a bond and a stock. The bond is the lease term and the stock is the residual; I think a lot of buildings are trading almost close to the value of the bond; there’s massive uncertainty on the residual/stock of course because of all this stuff. But in some cases the bond portion goes out 10 or even 15 years

Like ALX’s Bloomberg lease where you get average of $75mm/year for 9 years; that’s a good bond to own. Now 2029 is difficult to underwrite of course

I am saying that plenty of HF/PE funds have boomed and burst. their longevity usually doesn't outlast the long term lease.  but NYC is very beholden to financial markets for its economic survival and the good news is many of these firms will continue to lease and discourage working from home.  but also NYC was beginning to become a burgeoning tech center, and these are exactly the firms that will downsize their lease obligations
Title: Re: the death of the urban office building
Post by: thepupil on May 30, 2020, 08:37:13 PM
We’ll have to agree to disagree on the usual longevity of PE firms. I’m actually not aware of a any large buyout firm “going bust”. I googled to try to find one but couldn’t. Using some arbitrary cut off like $2 billion of committed capital for last fund, can you name a PE firm that reached that and then folded/shut down? I’m not exactly a PE expert, but can’t think of one. HF’s have far shorter duration of capital, so I’ll agree with you there.

 There’s lots of talk of a PE bubble, but at the same time PE has $1.5 trillion of dry powder to invest to rescue their own overlevered companies or find new deals.

Anyways, was just using New Mountain as an example of what i would consider to be a price insensitive tenant. Generally I think we are going into an office downturn and you want to own buildings with long term leases with price insensitive tenants.

I agree that tech is a super important component of NYC office now; We’ll have to see how things shake out; as tech gets less aggressive in leasing space that will contribute to the supply demand imbalance.

Just ten floors down from New Mountain for example is MongoDB. They are on the hook for their lease for another 10 years. Guess we’ll have to see in 2030 if they still want their NYC HQ or to go totally remote.
Title: Re: the death of the urban office building
Post by: cherzeca on May 31, 2020, 11:07:36 AM
"sing some arbitrary cut off like $2 billion of committed capital for last fund, can you name a PE firm that reached that and then folded/shut down? "

a bunch.  Forstmann Little, Wesray probably most prominent.  not bust, just rich enough to stop
Title: Re: the death of the urban office building
Post by: thepupil on May 31, 2020, 11:38:54 AM
Forstmann Little appears to have lasted 37 years and about 10-15 years after it made poor investments in the late 90s (just did some googling). Doesn’t that illustrate the longevity of these firms?

Anyways need to go make some calls on my DynaTAC, the Quotron doesn’t seem to be working right today...

EDIT: By the way, clicked on a lot of American PE firms on this list and only found 3 that no longer exist (2 of which you mentioned). Wikipedia is not all encompassing, but again, it would seem to me the evidence suggests that PE firms last a long time and very rarely suddenly go out of business.
https://en.m.wikipedia.org/wiki/List_of_private_equity_firms
Title: Re: the death of the urban office building
Post by: cherzeca on June 02, 2020, 12:48:43 PM
when bergdrof's on 5th ave gets ransacked, what again is the reason a ceo wants office space in NYC?  "fire next time" has become this time.
Title: Re: the death of the urban office building
Post by: Broeb22 on June 02, 2020, 02:10:35 PM
when bergdrof's on 5th ave gets ransacked, what again is the reason a ceo wants office space in NYC?  "fire next time" has become this time.

I would have bet that this same argument would have been had in October 2001 after 9/11, and many people would have thought NYC office space is a dying breed because what executive wants to risk his or her life to just have a nice view of the Hudson River?. Turns out they were really wrong, and those who doubt urban office real estate will again be really wrong. But as Liberty likes to say, that's what makes a market.

Title: Re: the death of the urban office building
Post by: thepupil on June 02, 2020, 03:21:40 PM
when bergdrof's on 5th ave gets ransacked, what again is the reason a ceo wants office space in NYC?  "fire next time" has become this time.

Given your conviction, which stocks should we sell/short? At what price would they be longs?
Title: Re: the death of the urban office building
Post by: cherzeca on June 02, 2020, 03:31:15 PM
when bergdrof's on 5th ave gets ransacked, what again is the reason a ceo wants office space in NYC?  "fire next time" has become this time.

Given your conviction, which stocks should we sell/short? At what price would they be longs?

I think you could do a pairs trade, vno short and amt long for example (no position).  as for your PE arg, they are a pimple on the office leasing scene.  HFs/PE firms beginning to move to Florida
Title: Re: the death of the urban office building
Post by: ratiman on June 03, 2020, 05:26:23 AM
I've read that retail can be as much as 50% of the revenue and 75% of the value of an urban office building. That's hard to believe but if that's true then all these boarded up shops are really bad news for urban office buildings.
Title: Re: the death of the urban office building
Post by: thepupil on June 03, 2020, 06:11:05 AM
I've read that retail can be as much as 50% of the revenue and 75% of the value of an urban office building. That's hard to believe but if that's true then all these boarded up shops are really bad news for urban office buildings.

I would encourage you to have a look at the numerous threads on office REITs and assess whether that is the case.

PGRE derives <5% from retail, parking, theatre

ALX has about half its NOI from retail, but that's because they own a lot of retail in Queens. For their main office asset (731 Lexington), the office is far more valuable.

CUZ doesn't have much.

Vornado is the most prominently "retail-y" pure office REIT (ALX has more, but its not an office REIT, it's a cash + bloomberg bond + Queens Retail + Queens multifamily + office residual REIT). Note that some of ALX's retail is rock solid, like Costco/Ikea etc. Some is not so good (Container Store).

https://therealdeal.com/2019/04/18/vornado-sells-45-stake-in-prime-manhattan-retail-portfolio-valued-at-5-6b/

Vornado has about $1 billion of office NOI and $200mm of retail NOI at share, the bulk of which is derived from Upper 5th Avenue and Times Square (the stores that are being looted). As of the great 2019 retail de-risking event, Vornado's exposure is primarily through a joint venture with a wealthy family (Crown Acquisition's) whose patriarch died of coronavirus recently (RIP) and whose son is head of retail at Vornado (Haim Chera). The other JV partner in the common equity is the Qatari sovereign wealth fund.

Vornado sold half its equity in the bulk of its retail last year at a sub 5 cap. In order to avoid transfer taxes / a big cap gains hit (or maybe to help get the sale done), Vornado provided seller financing in the form of a $1.8 billion preferred interest in the joint venture. This preferred is money good as long as the value of these properties doesn't fall to a very big degree (assuming the Qatari's wouldn't throw good money after bad to save their common equity investment). 

As far as what percent of value is in the retail, I'd direct you to VNO's 4Q2019 supplemental which gives a breakdown of how the company sees value. They think their NYC office portfolio is worth $18.8 billion (hilarious in the context of what's happened to the stock) and their retail portfolio is worth $4.8 billion. They have additional exposure throughout the $1.8 billion pref. So by the company's measure, about $6.6 billion of the $31 billion of assets are directly retail related.

All of those values are decidedly "pre-covid" but unless you think high street retail and office have declined in a very different way, the relative percentages are the same.

Page 22
https://s23.q4cdn.com/623119702/files/doc_financials/2019/q4/vno_4q_2019_supplemental.pdf

Hope that helps.

I am happy to be accused of focusing too much on the micro trees rather than the macro/big picture forest here, but I would encourage you all to look at the specific securities; there's lots of stuff out there put forth by me and a few others.

Plenty of bull cases to attack!
Title: Re: the death of the urban office building
Post by: cherzeca on June 03, 2020, 09:13:08 AM
"I am happy to be accused of focusing too much on the micro trees rather than the macro/big picture forest here, but I would encourage you all to look at the specific securities; there's lots of stuff out there put forth by me and a few others.

Plenty of bull cases to attack!"

which is why I did not pout first post of this new threat on a specific issuer like VNO.  I am making a very macro, not micro, case. one can make an argument that at some point the stronger can buy up the weaker at very cheap prices, but until then, you are going to see CMO defaults increasing and investors shying away from urban office.
Title: Re: the death of the urban office building
Post by: thepupil on June 03, 2020, 09:50:53 AM
I would suggest BXMT as a good short to express your view.

It’s a diversified pool of commercial mortgages approaching 1x book; 54% office , 17% hospitality

The book is 100% performing and the loans attach around 65% LTV, but there’s back leverage and office buildings are dead so you should see some defaults. $18B loan book and like $4B of equity; the losses will get nice and big quickly if office is dead.

Note, I am short in small size, but not really material in comparison to the longs.

There’s a thread on it, but I didn’t do much work beyond what I wrote.

As far as focusing on the macro vs the micro, I’ll repeat that the micro (the leases/tenants/debt) are very important in determining one’s view.

The macro could be “NYC office rents are going to plunge by 40% in 2 years!” The micro could be “Alexander’s office NOI is contractually going to go from $68 million to $84 million over the next 9 years”. Both could be correct, but lead to different positioning. A highly negative 0-5 year outlook could have literally no effect on the fundamentals / cash flow of a company (in that unique case which is a big part of my office exposure)

Given the unemployment rate and supply demand dynamics, I think everyone should be bearish of NYC office fundamentals. Given the valuations of the securities (particularly a few weeks back and at the March lows) it’s hard not to be Uber bulled up. Call it cognitive dissonance but I think that is warranted when the fundamentals of these buildings in many cases are locked in for a long time or change gradually.

Investors can shy away from office and have been; that has little effect on the cash flows.

I will say that with VNO’s big move up lately, it’s getting a little scary in that we haven’t heard about Farley Facebook in a while, since it was leaked they were trying to sign by Memorial Day weekend. If Facebook walks, I think VNO will go down a lot irrespective of valuation, feel free to place your bets!

Title: Re: the death of the urban office building
Post by: cherzeca on June 07, 2020, 05:40:20 PM
https://www.wsj.com/articles/who-needs-cities-when-we-all-work-from-home-11591394516?mod=markets_lead_pos10
Title: Re: the death of the urban office building
Post by: thepupil on August 03, 2020, 03:29:58 PM
I promised myself I'd bump this thread when Facebook leased at Farley.

of course my office stock picks are still underperforming stinkers. this is not a gloat. but I would say that leasing in general has been "wait and see, if up for renewal, renew" with a few big new leases like TikTok in NYC at 4 times square, Facebook at Farley Post office, etc.

Quote
Facebook is officially coming to the Farley Post Office redevelopment, in what is certain to be a major boost for New York’s struggling office market.

The social media giant has signed a lease for 730,000 square feet of space at the property, landlord Vornado Realty Trust announced Monday.




News of Facebook’s interest in the massive complex broke late last year. But as the coronavirus pandemic raised questions about companies’ need for large offices, there was much hand-wringing over whether or not the deal would go through.

Related: Revenge of the hoodies: Big Tech may be breaking up with Big Office for good

Facebook in May announced its shift to a distributed workforce, a move that could see up to half of the company’s 45,000 employees go remote in the next few years. Many major tech companies have made similar announcements since, putting a big question mark on the tech industry’s appetite for new office space in prime markets. Vornado CEO Steve Roth on Monday said in a prepared statement that Facebook’s decision “reinforces New York’s position as the nation’s second tech hub.” Robert Cookson, who oversees real estate for the social networking giant, said that the company looked forward to being a part of this iconic New York City landmark’s future for years to come.”

Facebook’s New York city office is currently located at Vornado’s 770 Broadway. The company also signed on last year for more than 1.5 million square feet nearby at Hudson Yards.
Title: Re: the death of the urban office building
Post by: cherzeca on August 03, 2020, 03:40:17 PM
as a New Yorker, I am most pleased to see this! I still think there are a lot of service firms who have done quite well WFH during covid, and going forward they will look at their lease expense obligations with a jaundiced eye
Title: Re: the death of the urban office building
Post by: thepupil on August 03, 2020, 03:46:38 PM
Agreed that there will be blood in office; we also don’t know if this is to replace their existing footage at 770 Broadway or in addition and the terms/ price.

I do think it really helps the overall tone in terms of keeping office space (and high paying jobs in the glorious yuppie playgrounds that are NYC/SF/LA/DC etc) as a weapon in the war for young talent at tech/finance etc.
Title: Re: the death of the urban office building
Post by: Castanza on August 06, 2020, 02:20:19 PM
My company which has a 45B market cap just decided to not renew office leases in California locations Chicago and possibly Miami and Phoenix. They also canceled the building of a new office building where I live which wasn’t even going to be started until 2025.

My company is not in any type of fundamental trouble. They simply said they want to adapt to the changing work environment and will pursue permanent work from home accommodations. If they need office space for “employee get togethers” they said they will rent out work spaces for weeks at a time. They said employees have proven to be productive while working from home and that this frees up capital to improve the business in other areas.

Edit: should have clarified. This is not across the board but for one business segment (tech/infrastructure)
 
Title: Re: the death of the urban office building
Post by: John Hjorth on August 06, 2020, 02:41:28 PM
Thank you for sharing, Castanza,

It's indeed important information.
Title: Re: the death of the urban office building
Post by: cherzeca on August 20, 2020, 10:24:56 AM
"reimagining" the urban office:  https://hbr.org/2020/08/reimagining-the-urban-office?ab=hero-subleft-1

interesting that WeWork's model fits well within a new urban office typology (HBS authors' word, I would have said layout)...WeWork would have been sitting in the catbird seat now if it could have managed itself without all of the vainglory
Title: Re: the death of the urban office building
Post by: Castanza on August 20, 2020, 11:04:55 AM
Meanwhile every home builder is trading at all time highs (GRBK, MTH, PHM, DHI)
Title: Re: the death of the urban office building
Post by: Nomad on August 20, 2020, 12:10:48 PM
This was too good not to post:

https://www.bloomberg.com/news/articles/2020-08-20/nyc-landlords-press-finance-bosses-to-speed-return-and-save-city

Quote

“I’ve been really pushing the CEOs to bring people back into the office,” said Jeff Blau, the head of Related Cos., the developer behind the Hudson Yards project. “I’ve been using a little bit of guilt trip and a little bit of coaxing.”

...

Blau and his peers have been taking turns getting on the horn with chief executives and their lieutenants in charge of overseeing vast tracts of offices. The group includes RXR Realty’s Scott Rechler, Rudin Management’s William Rudin and Marc Holliday of SL Green Realty, New York’s biggest office landlord. “We’re creating our own fate by not bringing people back and restarting the largest economic engine in the country,” said Rechler, whose RXR Realty controls 25.5 million square feet of commercial real estate -- roughly equivalent to 10 Empire State Buildings. “It’s as much of a civic obligation as anything else.”

...

“The CEOs of several companies I’ve talked to have mentioned that it’s a patriotic duty to have their people come back to the office,” said Rudin.

Title: Re: the death of the urban office building
Post by: LC on August 20, 2020, 12:14:53 PM
My coworkers, particularly the NYC based ones, are sick of working from home. One individual complained to me that the types of collaboration, meetings, group work, etc...it all takes 1.5x-2x as long. 10, 12 hour workdays are becoming routine. They find it difficult to hit the "off switch" for the workday while stuck at home.

Just some anecdotal evidence for the thread.
Title: Re: the death of the urban office building
Post by: Gregmal on August 20, 2020, 12:23:55 PM
My coworkers, particularly the NYC based ones, are sick of working from home. One individual complained to me that the types of collaboration, meetings, group work, etc...it all takes 1.5x-2x as long. 10, 12 hour workdays are becoming routine. They find it difficult to hit the "off switch" for the workday while stuck at home.

Just some anecdotal evidence for the thread.

Yup, my wife mentioned the same thing. Nobody respects boundaries with WFM. Emails and messages come in at all hours of the day and night. Its a disaster, especially with kids.
Title: Re: the death of the urban office building
Post by: K2SO on August 20, 2020, 12:27:19 PM
Let me tell you what my coworkers are experiencing this week.
Widespread IT issues working remotely causing serious delays in important work.
Communications over email can be abrupt and impersonal. It's causing some tension which I'm guessing wouldn't happen if people were speaking face to face.
The longer this goes on, the less appeal it will have to most, in my opinion.
Title: Re: the death of the urban office building
Post by: fareastwarriors on August 20, 2020, 12:29:12 PM
My coworkers, particularly the NYC based ones, are sick of working from home. One individual complained to me that the types of collaboration, meetings, group work, etc...it all takes 1.5x-2x as long. 10, 12 hour workdays are becoming routine. They find it difficult to hit the "off switch" for the workday while stuck at home.

Just some anecdotal evidence for the thread.

My gf and her coworkers here in the SF Bay Area are tired of working from home too. Too boring, too lonely. Sure work gets done but at what cost!

She's going crazy.
Title: Re: the death of the urban office building
Post by: cherzeca on August 20, 2020, 01:22:58 PM
Let me tell you what my coworkers are experiencing this week.
Widespread IT issues working remotely causing serious delays in important work.
Communications over email can be abrupt and impersonal. It's causing some tension which I'm guessing wouldn't happen if people were speaking face to face.
The longer this goes on, the less appeal it will have to most, in my opinion.

many home locations were not set up for WFH.  you needed broadband, obvi, but you also need to pay for the biggest pipe that is on offer, and you need a good mesh network in the home.  lots of folks I have talked to have no clue what it takes for two people to zooms in different rooms...so poetic am I.
Title: Re: the death of the urban office building
Post by: Spekulatius on August 20, 2020, 01:24:22 PM
Quote from: fareastwarriors

My gf and her coworkers here in the SF Bay Area are tired of working from home too. Too boring, too lonely. Sure work gets done but at what cost!

She's going crazy.

Time for you to step up. You can earn valuable brownie points now.
Title: Re: the death of the urban office building
Post by: rkbabang on August 20, 2020, 02:08:49 PM
I still love working from home and would be extremely disappointed if I had to go back.  Everyone of my coworkers feels the same way.  Maybe we are all anti-social techies on the spectrum, but not everyone loves sitting in traffic to sit in a cubicle all day under fluorescent lights, just so we can talk about things in the break room for a few minutes.  I can call any of my coworkers and chat any time I want from home. 

Also the emails at all hours thing doesn't bother me.  When I'm off work, I shut down my computer and then I don't check anything until I turn it back on in the morning.  I have access on my phone too, but all notifications are disabled.  It sounds like some people are not very disciplined in separating their working life from their home life, but that isn't the fault of the people sending the messages.  I sometimes think of something and fire off a quick message to someone after hours knowing that they won't see it until morning, and people do the same to me.  If you can't pull yourself away from your work, then spending time in an office building isn't going to help you.

Title: Re: the death of the urban office building
Post by: cherzeca on August 20, 2020, 02:20:46 PM
WFH needs to go though a maturation phase.  like every new cultural/societal trend, there are fits and starts.  some teams need to work in full presence, some can work zooming.  this all needs to get sorted out.  I find that the nascent movement to satellite offices with no big HQ to be a promising trend. a hybrid that splits the difference between full HQ and full WFH.  while I find much to admire about FB and AMZN, their move to large urban office lease signings/RE buys says more to me about them and their profitability than about what I thing the overall dynamic will largely become
Title: Re: the death of the urban office building
Post by: Castanza on August 20, 2020, 02:57:01 PM
I still love working from home and would be extremely disappointed if I had to go back.  Everyone of my coworkers feels the same way.  Maybe we are all anti-social techies on the spectrum, but not everyone loves sitting in traffic to sit in a cubicle all day under fluorescent lights, just so we can talk about things in the break room for a few minutes.  I can call any of my coworkers and chat any time I want from home. 

Also the emails at all hours thing doesn't bother me.  When I'm off work, I shut down my computer and then I don't check anything until I turn it back on in the morning.  I have access on my phone too, but all notifications are disabled.  It sounds like some people are not very disciplined in separating their working life from their home life, but that isn't the fault of the people sending the messages.  I sometimes think of something and fire off a quick message to someone after hours knowing that they won't see it until morning, and people do the same to me.  If you can't pull yourself away from your work, then spending time in an office building isn't going to help you.

I agree with this. I wasn’t too sure at first, but have really grown to like it a lot. The flexibility and schedule planning is perfect for me. Nothing like doing some early morning fly fishing before work. Or come deer season, sitting in the stand.
Title: Re: the death of the urban office building
Post by: Castanza on August 21, 2020, 10:19:03 AM
If the remote work idea takes off and we truly do have a reduction in urban office occupancy, wouldn't it be reasonable to suggest a decrease in wages due to a reduction in cost of living? Perhaps employees would still live in the general area for lifestyle choices. Either way, I haven't seen it mentioned but it could provide some incentive for companies to push remote work with possible trade offs in productivity.

Thoughts?
Title: Re: the death of the urban office building
Post by: rkbabang on August 21, 2020, 10:39:17 AM
If the remote work idea takes off and we truly do have a reduction in urban office occupancy, wouldn't it be reasonable to suggest a decrease in wages due to a reduction in cost of living? Perhaps employees would still live in the general area for lifestyle choices. Either way, I haven't seen it mentioned but it could provide some incentive for companies to push remote work with possible trade offs in productivity.

Thoughts?

Unless someone moves to a cheaper area there can be increased costs to remote work.  Increased air-conditioning/electricity costs, office/computer/networking/bandwidth costs, etc, so I'm not sure people would be happy with decreased wages.  But there is also a substantial decrease in transportation costs, so it might still be on the money saving side for most employees, I don't know.
Title: Re: the death of the urban office building
Post by: cherzeca on August 21, 2020, 12:25:05 PM
40 hour work week can shrink without loss of productivity, though most office folks don't punch a clock...at end of day, think about how this affects maternity/paternity leave...which need not exist (at least at full strength) with WFH
Title: Re: the death of the urban office building
Post by: Castanza on August 21, 2020, 12:44:16 PM
If the remote work idea takes off and we truly do have a reduction in urban office occupancy, wouldn't it be reasonable to suggest a decrease in wages due to a reduction in cost of living? Perhaps employees would still live in the general area for lifestyle choices. Either way, I haven't seen it mentioned but it could provide some incentive for companies to push remote work with possible trade offs in productivity.

Thoughts?

Unless someone moves to a cheaper area there can be increased costs to remote work.  Increased air-conditioning/electricity costs, office/computer/networking/bandwidth costs, etc, so I'm not sure people would be happy with decreased wages.  But there is also a substantial decrease in transportation costs, so it might still be on the money saving side for most employees, I don't know.

Do you think WFH would change usage that much? Most people seem to run a pretty good internet plan in their house already because of all their devices and streaming. Personally I have't changed much. I have changed my A/C habits a bit, but my bill has generally been in line with the prior year. I have saved about 3-4k miles driven from this so far which probably offsets any consumption costs.

I guess it depends on the individual setup. 
Title: Re: the death of the urban office building
Post by: rkbabang on August 21, 2020, 01:41:33 PM
If the remote work idea takes off and we truly do have a reduction in urban office occupancy, wouldn't it be reasonable to suggest a decrease in wages due to a reduction in cost of living? Perhaps employees would still live in the general area for lifestyle choices. Either way, I haven't seen it mentioned but it could provide some incentive for companies to push remote work with possible trade offs in productivity.

Thoughts?

Unless someone moves to a cheaper area there can be increased costs to remote work.  Increased air-conditioning/electricity costs, office/computer/networking/bandwidth costs, etc, so I'm not sure people would be happy with decreased wages.  But there is also a substantial decrease in transportation costs, so it might still be on the money saving side for most employees, I don't know.

Do you think WFH would change usage that much? Most people seem to run a pretty good internet plan in their house already because of all their devices and streaming. Personally I have't changed much. I have changed my A/C habits a bit, but my bill has generally been in line with the prior year. I have saved about 3-4k miles driven from this so far which probably offsets any consumption costs.

I guess it depends on the individual setup. 

I already had 600Mbps service so I didn't have to change anything, but I've talked to people who had to upgrade (2 working from home, plus kids doing remote learning and only had dsl).

I did notice an increase in air conditioning costs, we basically cool the house to a comfortable temperature 24/7, where we used to turn it up 5 or 6 degrees during the day.  But not doing my 30 mile each way commute makes up for that and then some.   I bought a new monitor and bought a copy of windows to run on my iMac so that I could use that as a wireless monitor as well connected to my company laptop.  Also bought an ethernet to usb-c connector to hard wire my laptop to my network.  I guess technically I could have expensed that to my company, but I didn't bother.
I also needed a new home office chair, because I found sitting all day in the one I had just wasn't working.  For me it has been a plus financially, but I can imagine if someone had increases in bills and they didn't have a long commute anyway it could go the other way.
Title: Re: the death of the urban office building
Post by: Gregmal on August 22, 2020, 10:28:15 AM
Spoke with a good friend this morning; guy is part owner of a group that owns a number of very prominent NYC restaurants. Good news is that they are preparing a lawsuit demanding the ability to reopen. Its downright disgraceful what De Blasio and Cuomo are doing. After mismanaging everything in March/April...they now continue to suffocate their business operators despite the fact that there are nearly no new cases, and even more horrendously, seem to be indicating to restaurant owners that they will not even consider indoor dining until a vaccine is here. Why isn't there a desire for folks to go back to the office? Part of my theory is that the ambience of NYC is what draws people in. Not a farfetched theory. So why exactly would one want to live/work in NYC if the only things currently available are drugs, violence, and homeless people??? The politicians really need to be replaced. Hopefully the lawsuit is successful and/or the politicians relent. They have straight up commandeered the livelihoods of so many NYers.

Another good side question. How can cities and states demand payments of property taxes from businesses they are refusing to let operate? Specifically, taxes that are largely based on corporate/commercial tax rates and not residential or "no use" rates? If nothing else, they should suspend property taxes for any business they are refusing to let open at full capacity.
Title: Re: the death of the urban office building
Post by: cubsfan on August 22, 2020, 11:41:30 AM
Spoke with a good friend this morning; guy is part owner of a group that owns a number of very prominent NYC restaurants. Good news is that they are preparing a lawsuit demanding the ability to reopen. Its downright disgraceful what De Blasio and Cuomo are doing. After mismanaging everything in March/April...they now continue to suffocate their business operators despite the fact that there are nearly no new cases, and even more horrendously, seem to be indicating to restaurant owners that they will not even consider indoor dining until a vaccine is here. Why isn't there a desire for folks to go back to the office? Part of my theory is that the ambience of NYC is what draws people in. Not a farfetched theory. So why exactly would one want to live/work in NYC if the only things currently available are drugs, violence, and homeless people??? The politicians really need to be replaced. Hopefully the lawsuit is successful and/or the politicians relent. They have straight up commandeered the livelihoods of so many NYers.

Another good side question. How can cities and states demand payments of property taxes from businesses they are refusing to let operate? Specifically, taxes that are largely based on corporate/commercial tax rates and not residential or "no use" rates? If nothing else, they should suspend property taxes for any business they are refusing to let open at full capacity.

So 7 Covid fatalities yesterday in NY, and none in NJ - and the State and City still locked down??

No, that is not politically motivated. Let's destroy more livelihoods.
Title: Re: the death of the urban office building
Post by: KJP on August 22, 2020, 12:02:31 PM
Why isn't there a desire for folks to go back to the office? Part of my theory is that the ambience of NYC is what draws people in. Not a farfetched theory.

I don't think that's unique to NYC.  One of the main reasons for me to go into my downtown Philadelphia office is to network/see friends for lunch, coffee, drinks, etc.  Most of that is not currently available, so I've been to my office twice in the last six months and don't plan on going more frequently until more dining and drinking options are available and I'm comfortable going to them.  I personally don't plan to go to any indoor restaurants/bars anytime soon, so it's still the virus that's keeping me away, but I assume there are others who would return but for the drinking/dining restrictions.
Title: Re: the death of the urban office building
Post by: Gregmal on August 22, 2020, 12:06:47 PM
Whats unfortunate is that many of these business owners have indeed been good sports about this whole thing. They haven't been overly aggressive or demanding and have up until this point, largely taken the high road. But you're now looking at these scumbag politicians having taken away their livelihood for nearly half a year! With no end in sight! You look at NYC, and despite the constant boasting about "beating the virus", the numbers dont lie. Why was NY/NJ easily the worst in terms of virus casualties during their peaks, and now despite being "on the other side", literally for months now, such an outlier in terms of any kind of rebound in economic activity? NYC has THE WORST economic outlook in the country. They've gotten the worst of both worlds, and there isn't really any other explanation than the actions of De Blasio and Cuomo. Are NYers somehow less resilient than other parts of the country...I doubt it. Both residents, and folks traveling in, such as KJP mentioned, currently have no reason to be there.
Title: Re: the death of the urban office building
Post by: fareastwarriors on August 23, 2020, 09:51:03 AM
Many Companies Planned to Reopen Offices After Labor Day. With Coronavirus Still Around, They’re Rethinking That.

Companies had hoped to bring homebound workforces back in September, but employee outcry and fears over outbreaks have led bosses to change course

https://www.wsj.com/articles/many-companies-planned-to-reopen-offices-after-labor-day-with-coronavirus-still-around-theyre-rethinking-that-11598175001?mod=hp_lead_pos1 (https://www.wsj.com/articles/many-companies-planned-to-reopen-offices-after-labor-day-with-coronavirus-still-around-theyre-rethinking-that-11598175001?mod=hp_lead_pos1)
Title: Re: the death of the urban office building
Post by: LearningMachine on August 23, 2020, 07:45:10 PM
I have been following this thread, and I feel folks have been taking extreme positions: (1) office building is dead, or (2) we are going back to office.

I think everyone will agree that what will end up happening will be somewhere on the spectrum between #1 and #2.  I wonder if we should express that point on the spectrum by what would be the vacancy rate in office?

Moody's is now predicting vacancy of 19.1% in 2021 and 20% in 2022: https://www.bloomberg.com/press-releases/2020-08-17/moody-s-analytics-forecasts-us-office-vacancy-rate-hitting-historic-high-of-19-9-in-2021.

What do folks think vacancy rate might be post-Covid in 2021-2022?  Based on what I'm hearing, I think it will probably fall between 20% and 30%.

I wonder if folks might be underestimating the impact on pricing from 20-30% vacancy in office and retail.  Because prices are based on incremental supply/demand, a 15% vacancy can cause 50% drop in prices.

In Detroit, 20% vacancy in houses caused holding banks to sell houses for $1 each to avoid paying property taxes and to avoid legal liability.   

Imagine you own 10 million sqft of office space, which was all rented pre-Covid and could cover your mortgage payments and property taxes. Imagine, post-Covid only 75% is rented. If you couldn’t cover mortgage payments and property taxes with the rent anymore, what will you do with the remaining 2.5 million sqft? Will you sell/rent it for whatever price you could get?  What if many such folks have to do that to survive?  Would they do it even if price is 75% off?

Also, what do folks think the effect of that vacancy rate will be on NYC office PSF?  What is lowest salvage PSF that would make it profitable for a developer to convert office to condo or multifamily given rental rates at the time?
Title: Re: the death of the urban office building
Post by: LC on August 23, 2020, 07:52:07 PM
10%

Rumors of office space demise are greatly exaggerated
Title: Re: the death of the urban office building
Post by: LearningMachine on August 23, 2020, 07:56:23 PM
10% vacancy rate? 

Lets hear more thoughts.

Fyi, we are already at 17.1%:  https://www.reuters.com/article/us-usa-property/u-s-office-apartment-vacancy-rates-rise-marginally-in-second-quarter-reis-idUSKBN2492QJ
Title: Re: the death of the urban office building
Post by: bizaro86 on August 23, 2020, 08:01:48 PM
This probably isn't a perfect conparable, but Calgary office vacancy has been in the 25% range for awhile now. The cause there is low oil prices and pipeline issues, not Covid, so the city is well ahead of the curve there.

This has been going on for years, and so far there haven't been conversions, even though residential has held up way better. Asking rents are holding firm in the $15 psf range, which is down ~70% or more from peak figures 5-7 years ago.

Title: Re: the death of the urban office building
Post by: Gregmal on August 23, 2020, 08:38:37 PM
Yea NYC suburbs it isn't uncommon to see multi tenant office at 20-30% vacancies even pre COVID. It will be interesting to see what the incremental changes turn out to be, as the data becomes available. I've long been more negative on future of office than future of retail for this reason. I've personally visited dozens of the non big city office complexes and campuses, and frankly, always came to the same conclusion. If all you have to offer your workers is a cubicle or at best, a window with a view of I-80...why would they want to come to the office. Well, when governors and mayors are effectively shutting everything there is to do in the big cities, that same narrative is what you are left with. Hopefully this insanity corrects itself. You look at a place like NYC, and its sad, but also deserved given that they voted these politicians into office, but you tax everyone to death and drive out your wealthy....you shut down small businesses...you put severe restrictions on what businesses can operate and those that can are at fractional capacity....well, after a while there just won't be anything or anyone left willing to keep the scheme going. As the big dollar tax contributors flee..who is left to pay? The firms you won't let operate? The ones still around who you put on poor financial footing because of politically driven policy decisions?
Title: Re: the death of the urban office building
Post by: fareastwarriors on August 24, 2020, 12:36:44 AM
Safe bet? Sovereign funds rethink once-reliable real estate

https://www.reuters.com/article/us-swf-realestate-insight/safe-bet-sovereign-funds-rethink-once-reliable-real-estate-idUSKBN25K0JC
Title: Re: the death of the urban office building
Post by: SharperDingaan on August 24, 2020, 06:40:37 AM
The reality is that there's just too much RE - and a lot of it is stranded.
A NYC has so many bars/eateries, because so many travel in/out of the city every day - reduce flow by 20%, and you clearly don't need all the existing bars/eateries. The demand for bars/eateries didn't just displace to the 'burbs either - WFH people don't eat/go out anywhere near as much as they did when travelling to/from the city core.

Rational capital allocators will simply asset strip RE, and reallocate the capital to 'hotter' categories of the utility segment.
Less capital in the asset buy/sell cycle reducing prices. Growing unpopularity reducing sentiment, and compressing multiples. Hardly surprising that owners are very nervous - there's lots of uncertainty, and very little upside.

The same $ for a place in the city, gets you a much bigger place in the 'burbs - and better schools/infrastructure. All you need to make it worthwhile, is good internet, good public transit, and ability to do WFH at least 2 days/week - not a big stretch. If a company allows 2 days/week WFH, it only needs 60-70% of the current space. Split that space between core and 'burb 'rent a space', and the annual rent expense comes down by HALF.

Sure, industry will argue against WFH, but it's pretty much a done deal.
Industry just doesn't want the disruption.

SD


Title: Re: the death of the urban office building
Post by: cherzeca on August 24, 2020, 07:58:19 AM
my question is to what extent is this a massive buying opportunity for RE, and if so what kind.  I am intrigued by the AirBnB IPO as I think it will be offered at an attractive valuation compared to mid to long term value (when covid is a nasty memory).  I also think this can be a reverse-japan moment, where unlike buying at top in mid 80s (Rock Center), patient capital might get distressed urban RE at some point (I don't see distressed selling yet but you would think this should arise soon).  with stock market at all time high, where can one find value today?  real assets like RE as opposed to financial assets? especially if inflation returns?
Title: Re: the death of the urban office building
Post by: thepupil on August 24, 2020, 08:44:08 AM
I think supply/demand imbalance is inevitable (at least in NYC) and spot lease rates will endure significant declines for an extended period of time. I do think working in an office has appeal and that a decline in rents will increase demand and also decrease new supply formation, such that the fundamentals of the far out years are more likely to look like today (the peak) than the trough. If you think rents go down 30-40% and stay there, you don’t really want to own any offices (They are priced such that you probably won’t lose a ton of money, but you may not make any). If you think the potential for long term mean reversion (after the fall) and the NYC premium continuing  exist to any degree, you want to own these.

To mitigate risks and have staying power, focusing  on tenant quality and lease duration is important, even better if there is non recourse interest only financing in place, or unlevered buildings, giving the equity full access to contracted NOI / cash flow, which again de-risks you. To use PGRE again, they do about $700mm or rent /$400mm NOI/$50mm g&A/$120mm interest/ $200mm ish free cash flow. 40% of leases expire in more than 10 years and the WAL is 7-8. Let’s say FCF glides to $100mm over 8 years and averages $150mm/year as tenants go bankrupt or space is renewed at lower rates. Over 8 years the equity would get $1.2B of FCF; the stock trades for $1.4B equity (market cap less net cash). There are some holes in this argument (not all their maturities are that long) but my point is that contracted cash flow de-risks you over time. They also own 2mm sf w/o a mortgage.

I don’t think I’m going out on a limb and saying the share price implies almost no residual value for the buildings; I can’t tell you the future of remote work, only the present of low valuations a a collapse in implied value/foot / rapid rise in cap rates.



this is still how I feel about all this discussion.

I agree with LearningMachine's point as it relates to the operating leverage in a building. There's a good chapter in Jim Grant's book "the trouble with prosperity" that outlines the history of a single building (40 Wall Street) from its construction right before Depression to when the Donald takes it over for basically nothing outlining the cyclicality in valuations/rents of this single asset over the years/decades. I recommend the book in general.
https://en.wikipedia.org/wiki/40_Wall_Street

I think it's very difficult to analyze the macro and have zero answers to the "what's the rent per foot / value per foot, 3 years out" as I don't think that's underwriteable and is a cause for the general puking of these stocks. Can only observe the present de-rating, the balance sheet/leases/liquidity/quality of individual companies and decide whether or not its a good risk reward. I think this is a very unsatisfying answer and makes one feel like a sucker. But i think any bull or bear who tells you occupancy/rent per foot / whatever with any degree of precision is probably kidding themselves. 

I think bifurcation and a flight to quality is also likely. I own a mix of truly trophy/high quality and more commoditized stuff. In some cases (PGRE) my bear case on the more commoditized stuff is about 2/3 lower than peak prices on an asset basis.

I hate to always go back to the individual stocks, but it's the only way in my view to meaningfully frame the risk/reward or what may happen in certain scenarios. 

As an example, PGRE owns 1325 AoA. I'm marking this at $360mm ($450 / foot. 13.5% gross rental yield, ~7% cap rate before taking into account some known/likley moveouts/bk's) in my base case and at $180mm (an unscientific 50% haircut) in my bear case ($225 / foot). this building was marked at $595 million in PGRE's 2014 IPO.  I do this for their 3 unlevered buildings and get 30-60% of the stock price (bear to base) and they have 20-23% in net cash), so from cash and unlevered buildings I get 50-83% of stock price. Then I value the two trophy assets at a 6 cap (1633 and One Market), which is a significant haircut to recent trades/refinances and get equity stakes worth 30-60% of the stock price. In my bear case on those I cut the equity in half on the 6 cap. For example, 1633 broadway in a bear case is at $1.675B (they sold a recent stake at $2.4B asset value) with $1.25B of debt = $375mm equity value ($337mm for PGRE's stake).

 the financing is in place for 9 years and the buildings is throwing off $80 mm of cash flow after w/ long lease terms, so 4x net cash flow for the equity it feels pretty bearish to me.

All in before I get to the other 8 buildings, I'm at 80-150% of the stock price. In my bear case, I assume they give up every other building and the stock has 18% downside on value basis (but would surely go down even more). 

so I'd repeat that to me it feels like there are a ton of problems "priced in", and that the risk/reward is asymmetric to the upside. I could be wrong and shit could be worse than I expect. Maybe my bear case haircuts of 1/3 (asset level, 50% equity level trophy asset w/ long term financing in place) to 2/3 (commodity w/ known move-out / vacancy) aren't bearish enough. Maybe NYC will be driven into the ground by its leadership. Maybe not.

who the hell knows. I sure don't.

we'll just have to see how dumb this post looks in a few years.


Title: Re: the death of the urban office building
Post by: thepupil on August 24, 2020, 09:12:06 AM
also i think it's veyr hard to pin down a "value per foot" for anything because this stuff is not fungible. the differences in quality/occupancy/term/etc. are pretty wide between an individual REITs own buildings and then between the various REITs, and then between cities and property types etc.
Title: Re: the death of the urban office building
Post by: fareastwarriors on August 24, 2020, 09:46:56 AM

Real Estate Investors Skip Paying Loans While Raising Billions

 Mall and hotel CMBS debts go into default as Covid hits value
 Some lenders are willing to sell back loans at a discount

https://www.bloomberg.com/news/articles/2020-08-24/real-estate-investors-skip-paying-loans-while-raising-billions?srnd=premium (https://www.bloomberg.com/news/articles/2020-08-24/real-estate-investors-skip-paying-loans-while-raising-billions?srnd=premium)
Title: Re: the death of the urban office building
Post by: fareastwarriors on August 25, 2020, 08:50:04 AM


JPMorgan will have staff cycle between office and remote work in a move that may remake Wall Street

Workers in JPMorgan’s corporate and investment bank will cycle between days spent at the office and at home, keeping the ability to work remotely on a part-time basis, according to Daniel Pinto, head of the massive division.

The announcement by JPMorgan, the world’s biggest Wall Street bank by revenue, could pressure other financial firms to offer similar arrangements.

JPMorgan could shutter backup trading floors located outside New York and London as a result of the move.

https://www.cnbc.com/2020/08/25/jpmorgan-will-have-staff-cycle-between-office-and-remote-work-in-a-move-that-may-remake-wall-street.html (https://www.cnbc.com/2020/08/25/jpmorgan-will-have-staff-cycle-between-office-and-remote-work-in-a-move-that-may-remake-wall-street.html)
Title: Re: the death of the urban office building
Post by: cherzeca on August 25, 2020, 09:15:38 AM
"JPMorgan could shutter backup trading floors located outside New York and London as a result of the move."

I would think traders would definitely prosper from working on site.  it is the corp fin deal/relationship guys who could easily switch between WFH and office. 

as for law firms, a large tenant base for urban offices, I could see similar fluidity, with office attendance balanced with WFH for all lawyers, and senior lawyers probably WFH as much as they can
Title: Re: the death of the urban office building
Post by: fareastwarriors on August 25, 2020, 09:34:35 AM
Hundreds of thousands of people looking for suburban homes — Sternlicht on exodus from cities

“I would say it’s not as driven by the Covid situation as it is safety and law and order,” global investor Barry Sternlicht told CNBC.

The  Starwood Capital founder said tax policy is another critical force contributing to affluent people leaving, particularly New York City.

“I’ve become a real estate broker for Miami. I keep sending friends down and showing them houses they can buy, and they’re buying,” he said.

https://www.cnbc.com/2020/08/25/barry-sternlicht-hundreds-of-thousands-looking-for-suburban-homes.html

Quote
“They’re leaving now. I’ve become a real estate broker for Miami,” added Sternlicht, who firm is headquartered in Miami Beach. “I keep sending friends down and showing them houses they can buy, and they’re buying.”

Mr Sternlicht still has time to act as a broker?  ;D
Always hustling, I guess...
Title: Re: the death of the urban office building
Post by: LearningMachine on August 25, 2020, 09:59:58 AM
Workers in JPMorgan’s corporate and investment bank will cycle between days spent at the office and at home, keeping the ability to work remotely on a part-time basis, according to Daniel Pinto, head of the massive division.

A big telecom company in Vancouver, Canada went along the same path, and guess where it led eventually?

Some years ago, everyone was working 100% in offices.  Then, they started letting people WFH one day a week.  After sometime, that went to WFH two days a week.   After sometime, it went to working from office two days a week, and rotation model similar to what JPM is thinking, where each team knew which two days of the week they were in office.  Then, they went to "hoteling" at the team level where you could book one day a week for your team.  Then, the teams started meeting downtown for lunch one day a week instead of going into office.  The company then started realizing teams are socializing outside and not even coming to office.  This was all Pre-Covid.  Then Covid hit.  Having had that realization before Covid already, the company told folks to get their stuff out of the building by end of July because they are going to now sell the building.
Title: Re: the death of the urban office building
Post by: fareastwarriors on August 26, 2020, 08:22:23 AM
Sam Zell: CEOs can help cities recover by returning to offices, not ‘hiding out in the Hamptons’

https://www.cnbc.com/2020/08/26/sam-zell-ceos-can-help-us-cities-recover-by-returning-to-offices.html (https://www.cnbc.com/2020/08/26/sam-zell-ceos-can-help-us-cities-recover-by-returning-to-offices.html)

Billionaire investor Sam Zell told CNBC that corporate leaders have a role to play in helping U.S. cities stave off a serious economic decline.

“It’s going to require leaders of all the companies to come back to their offices and lead the people and create the opportunity,” Zell said.

“Hiding out in the Hamptons or hiding out in Vermont or wherever doesn’t make any sense and is counter-productive,” said the chairman of Chicago-based Equity Group Investments.
Title: Re: the death of the urban office building
Post by: rkbabang on August 26, 2020, 08:35:51 AM
Sam Zell: CEOs can help cities recover by returning to offices, not ‘hiding out in the Hamptons’

https://www.cnbc.com/2020/08/26/sam-zell-ceos-can-help-us-cities-recover-by-returning-to-offices.html (https://www.cnbc.com/2020/08/26/sam-zell-ceos-can-help-us-cities-recover-by-returning-to-offices.html)

Billionaire investor Sam Zell told CNBC that corporate leaders have a role to play in helping U.S. cities stave off a serious economic decline.

“It’s going to require leaders of all the companies to come back to their offices and lead the people and create the opportunity,” Zell said.

“Hiding out in the Hamptons or hiding out in Vermont or wherever doesn’t make any sense and is counter-productive,” said the chairman of Chicago-based Equity Group Investments.

Corporate leaders have a duty to do what's best for their companies and shareholders.  They have no obligation to "save cities".
Title: Re: the death of the urban office building
Post by: Jurgis on August 26, 2020, 11:52:28 AM
Sam Zell: CEOs can help cities recover by returning to offices, not ‘hiding out in the Hamptons’

https://www.cnbc.com/2020/08/26/sam-zell-ceos-can-help-us-cities-recover-by-returning-to-offices.html (https://www.cnbc.com/2020/08/26/sam-zell-ceos-can-help-us-cities-recover-by-returning-to-offices.html)

Billionaire investor Sam Zell told CNBC that corporate leaders have a role to play in helping U.S. cities stave off a serious economic decline.

“It’s going to require leaders of all the companies to come back to their offices and lead the people and create the opportunity,” Zell said.

“Hiding out in the Hamptons or hiding out in Vermont or wherever doesn’t make any sense and is counter-productive,” said the chairman of Chicago-based Equity Group Investments.

Sam Zell should lead by example and go into a crowded office every day.
Title: Re: the death of the urban office building
Post by: SharperDingaan on August 26, 2020, 12:51:29 PM
He's just talking his book.
If nobody follows his advice the Q4/Q1 opportunities can be more reliably identified.

https://markets.businessinsider.com/news/stocks/stock-market-outlook-sam-zell-invest-significant-opportunities-end-year-2020-8-1029537249#

"One industry containing this uncertainty is retail. Zell said he used to be one of the largest retail owners in the US, but called the industry a "falling knife" that hasn't reached its bottom yet. The industry hasn't fully felt the impacts of ecommerce yet, and Zell is hesitant to invest in it right away. The pandemic has led to low transaction levels, but as activity picks up it will be easier to identify potential investments, the investor famous for buying distressed assets said." 

The obvious target is the retail heavy REIT's, and conversion of the surplus space into large condominiums - the mystery is to what extent 'burb WFH becomes the norm. Who is going to buy those condominiums, how many, why, and at what price. Then how do you move the remaining space when retail and office are over-saturated. 

SD
Title: Re: the death of the urban office building
Post by: fareastwarriors on August 26, 2020, 03:03:48 PM
U.S. Commercial-Property Prices Fall With Worst Yet to Come

https://www.bloomberg.com/news/articles/2020-08-26/u-s-commercial-property-prices-fall-and-worst-is-yet-to-come?srnd=premium (https://www.bloomberg.com/news/articles/2020-08-26/u-s-commercial-property-prices-fall-and-worst-is-yet-to-come?srnd=premium)

 Hotel, retail and office values all decline year-over-year

 Outlook dims as the economic toll from pandemic deepens
Title: Re: the death of the urban office building
Post by: Spekulatius on August 26, 2020, 04:36:41 PM
Sam Zell: CEOs can help cities recover by returning to offices, not ‘hiding out in the Hamptons’

https://www.cnbc.com/2020/08/26/sam-zell-ceos-can-help-us-cities-recover-by-returning-to-offices.html (https://www.cnbc.com/2020/08/26/sam-zell-ceos-can-help-us-cities-recover-by-returning-to-offices.html)

Billionaire investor Sam Zell told CNBC that corporate leaders have a role to play in helping U.S. cities stave off a serious economic decline.

“It’s going to require leaders of all the companies to come back to their offices and lead the people and create the opportunity,” Zell said.

“Hiding out in the Hamptons or hiding out in Vermont or wherever doesn’t make any sense and is counter-productive,” said the chairman of Chicago-based Equity Group Investments.

Sam Zell should lead by example and go into a crowded office every day.

What he means is that somebody else takes the lead while He runs his empire from a yacht. It’s all Bs anyways. There will be plenty of people and jobs going back to the cities if rents and RE becomes cheap enough.
Title: Re: the death of the urban office building
Post by: fareastwarriors on August 27, 2020, 01:18:04 PM
NYC Landlord Stepping Up Back-to-Office Campaign With Banks

https://www.bloomberg.com/news/articles/2020-08-27/nyc-landlord-stepping-up-back-to-office-campaign-with-banks?srnd=premium (https://www.bloomberg.com/news/articles/2020-08-27/nyc-landlord-stepping-up-back-to-office-campaign-with-banks?srnd=premium)
Title: Re: the death of the urban office building
Post by: Gregmal on August 29, 2020, 09:06:57 AM
https://nypost.com/2020/08/28/madison-square-garden-to-be-a-2020-voting-site-starting-oct-24/


Hmmm. We can open the Garden for political reasons, but not for business as usual....thats the current state of NY, and probably what I'd expect it to be for the next few months.
Title: Re: the death of the urban office building
Post by: thepupil on August 29, 2020, 12:23:33 PM
https://www.sfchronicle.com/business/article/Pinterest-cancels-huge-SF-office-lease-in-unbuilt-15523170.php
https://www.bizjournals.com/sanfrancisco/news/2020/08/28/pinterest-terminates-soma-lease.html
https://sfist.com/2020/08/29/pinterest-abandons-massive-soma-office-lease-amid-surge-in-remote-work/


https://www.tmgpartners.com/portfolio/88-bluxome
https://news.theregistrysf.com/alexandria-pay-140mm-88-bluxome-san-francisco-plans-project-1mm-sq-ft/

will be interesting to see what happens with this project after Pinterest cancels a huge lease
Title: Re: the death of the urban office building
Post by: fareastwarriors on August 31, 2020, 11:43:24 PM
Return to big offices? Why bank branches may get a new lease of life


https://www.reuters.com/article/us-health-coronavirus-banks-branches-ana/return-to-big-offices-why-bank-branches-may-get-a-new-lease-of-life-idUSKBN25S3UB
Title: Re: the death of the urban office building
Post by: fareastwarriors on September 01, 2020, 08:19:20 AM
Aby Rosen buys Midtown office building for $350M

RFR seeking to lease 522 Fifth Avenue to a single tenant

https://therealdeal.com/2020/09/01/aby-rosen-buys-midtown-office-building-for-350m/ (https://therealdeal.com/2020/09/01/aby-rosen-buys-midtown-office-building-for-350m/)

Aby Rosen’s RFR just closed on a 23-story, 575,000-square-foot office tower in Midtown Manhattan for $350 million. Morgan Stanley sold the property at 522 Fifth Avenue, which it used as its headquarters for its wealth management division.
...
In April, Rosen considered but decided against buying 900 Third Avenue in Midtown from Paramount Group for $400 million and a retail condo at 1600 Broadway in Times Square that was on the market for more than $200 million, according to Business Insider.
Title: Re: the death of the urban office building
Post by: LearningMachine on September 01, 2020, 11:30:41 AM
Aby Rosen buys Midtown office building for $350M

RFR seeking to lease 522 Fifth Avenue to a single tenant

https://therealdeal.com/2020/09/01/aby-rosen-buys-midtown-office-building-for-350m/ (https://therealdeal.com/2020/09/01/aby-rosen-buys-midtown-office-building-for-350m/)

Aby Rosen’s RFR just closed on a 23-story, 575,000-square-foot office tower in Midtown Manhattan for $350 million. Morgan Stanley sold the property at 522 Fifth Avenue, which it used as its headquarters for its wealth management division.
...
In April, Rosen considered but decided against buying 900 Third Avenue in Midtown from Paramount Group for $400 million and a retail condo at 1600 Broadway in Times Square that was on the market for more than $200 million, according to Business Insider.

Wondering if anyone knows how the quality of square footage of VNO, PRGE and ESRT compares to Morgan Stanley Headquarters at 522 Fifth Avenue trading at $609 PSF?
Title: Re: the death of the urban office building
Post by: thepupil on September 01, 2020, 01:38:19 PM
I don't want to make too much of one data point, but I'd say its a generally postive comp. It's a well located, but very old building that was last renovated substantially in 1998 according to what i can find. I assume there will be substantial rehab/capital to invest in addition offset by the income from MSIM's rent.

it looks like some of ESRT's assets or maybe PGRE's 712 Fifth (but 712 Fifth looks nicer/higher rent), unless i'm missing something where they were renovated substantially. I could be wrong and this is testing the limits of my understanding the nuances of NYC office.

Morgan Stanley wants to be in a more modern space.

without knowing the economics of the leaseback it's hard to conclude much though. 

http://wikimapia.org/169522/522-Fifth-Avenue

Quote
318-foot, 23-story office building originally completed in 1898 as the 11-story Sherry Hotel. Designed by McKim, Mead & White, it was converted to offices in 1919. It was the scene of notorious parties while the Sherry Hotel: At one held by C.K.G. Billings in 1903 to celebrate the opening of his stables, the guests sat on horseback and the waiters dressed as jockeys. James Hazen Hyde, vice president of Equitable Life Insurance, spent $200,000 of his company's money here at a party meant to recreate Versailles; public outrage forced Hyde to flee the country and prompted reform of the insurance industry.

The building was extensively renovated and expanded in 1960, to designs by Eggers & Higgins, with a setback ziggurat peak rising to 23 stories. The building was renovated again in 1996 to a design by Sydness Architects, when the sole tenant was still JP Morgan, and a new base by Gensler Architects was constructed in 2016, except for at the west end on 44th Street. On the Fifth Avenue side, the building is distinguished by a landmark clock and a grand colonnaded entrance foyer illuminated by tiered iron chandeliers. It was reclad in 2018.

The modern 2-story base is clad in a glass curtain wall with clear panes exposing pale-green paneled piers. Beige metal panels run across the tops of the 1st & 2nd floors. The main entrance is at the center of the east facade on 5th Avenue. The western bays on 44th Street are clad in light-grey granite with light rustication. There is a service entrance is the westernmost bay and a loading dock in the next bay to the left, both with brown metal louvers at the 2nd floor.

The upper floors are clad in limestone, with rows of single-windows in silver metal frames. The western two bays on the north facade set back above the 10th floor, with the rest of the building setting back above the 11th floor. In the western two bays, the windows are replaced by metal louvers at the 3rd & 4th floors, and also at the 3rd floor in the next bay to the east. There are additional setbacks above the 14th, 18th, and 21st floor, deeper on the east facade than the north.

522 Fifth Avenue had been home to J.P Morgan since 1919, and is also currently occupied by Botticelli and Orvis, however, in 2006 Morgan Stanley executed a long-term lease of the 595,430 square foot facility to house its growing wealth management business.

https://www.cmalert.com/search.pl?ARTICLE=189592

Quote
CMA
May 22, 2020 
RFR Seeks Debt to Buy Fifth Avenue Offices
RFR Holding is on the hunt for a $300 million loan to finance its purchase of an office condominium at 522 Fifth Avenue in Midtown Manhattan.

The New York investment shop is asking for quotes on a mortgage with a term of five years, including extensions, on the 553,000 square feet of space. That would match the lease agreement with the sole tenant, Morgan Stanley. Newmark is shopping the assignment, which has some atypical aspects that could help attract lenders in a time of economic uncertainty.

RFR, led by Aby Rosen and Michael Fuchs, agreed to buy the condo from Morgan Stanley via CBRE in early March, before the full fallout from the coronavirus pandemic became apparent. The purchase price would be around $350 million.

As previously reported by sister publication Real Estate Alert, RFR negotiated a relatively long due-diligence period, as it occasionally does, that gave it about six months to close. That was viewed as an advantage given that the commercial-property financing market had essentially frozen. It has since begun to thaw a bit, but remains spotty.

The proposed deal carries features apparently meant to ease lenders’ concerns about backing a large acquisition. For example, a source said Morgan Stanley has agreed to a sale-leaseback arrangement that includes a full corporate guarantee of its rent for up to five years. However, either RFR or the investment bank can cut the lease short, at 3.5 years, if they choose. RFR intends to lock in one or more tenants to take all of the space before the term is up.

In addition, the proposed structure includes an unusual cash sweep that, for a period of time, would direct income from the property toward reducing the balance of the loan.

Morgan Stanley uses the property as the headquarters for its investment-management division. It bought the 23-story building from Broadway Partners in 2007 and divided it into office and retail condos in 2014. That year, it sold the 27,000 sf of retail space on the first two floors for $165 million to a partnership including Ashkenazy Acquisition of New York and German investor Deka Immobilien. That space has remained vacant. The bank listed the office portion around the beginning of the year.

The property is at 44th Street, one block north of Bryant Park and two blocks west of Grand Central Terminal. It was constructed in 1896 and opened as the Sherry Hotel. It was later converted to offices, and heavily redeveloped in the 1960s.
Title: Re: the death of the urban office building
Post by: thepupil on September 01, 2020, 02:01:18 PM
https://rew-online.com/rfr-closes-on-350m-deal-for-522-fifth-plans-custom-office/

more details here. the building is described as a "blank canvas" where they are looking to custom design the whole property for a single tenant for 2024 lease.

tough to compare this with other space.
Title: Re: the death of the urban office building
Post by: cherzeca on September 01, 2020, 02:09:47 PM
https://rew-online.com/rfr-closes-on-350m-deal-for-522-fifth-plans-custom-office/

more details here. the building is described as a "blank canvas" where they are looking to custom design the whole property for a single tenant for 2024 lease.

tough to compare this with other space.

German money (Rosen) is long long long term money.  I remember reading that the polo flagship store site on 72/mad was long term leased at a 6% rate...this was a long time ago when 6% was meh.  turned out to be a smart move
Title: Re: the death of the urban office building
Post by: LearningMachine on September 01, 2020, 04:23:39 PM
I don't want to make too much of one data point

Agreed, pupil, we shouldn't read too much into this one data point, and that too from mid-March 2020.   Good to know though that was the price for "blank canvas" at that moment.
Title: Re: the death of the urban office building
Post by: fareastwarriors on September 02, 2020, 01:05:11 PM


Got space? Manhattan office availability hits 7-year high
Leasing down 21% in August as sublet space dilutes market

https://therealdeal.com/2020/09/02/got-space-manhattan-office-availability-hits-7-year-high/?utm_source=internal&utm_medium=widget&utm_campaign=feature_posts
 (https://therealdeal.com/2020/09/02/got-space-manhattan-office-availability-hits-7-year-high/?utm_source=internal&utm_medium=widget&utm_campaign=feature_posts)
Title: Re: the death of the urban office building
Post by: BG2008 on September 02, 2020, 08:16:19 PM
https://www.cnbc.com/2020/09/02/google-mountain-view-tech-hub-proposal-pictures.html

Death of the urban office, Google is building a campus.  Granted it's not urban.  I think SF and NYC are very different and have some similarities.  I think SF is smaller and not conducive to public transportation.  NYC has great subway network that should function well once we have a vaccine.  These are nuances that I wasn't as cognizant of until speaking to a few SF techies recently.
Title: Re: the death of the urban office building
Post by: fareastwarriors on September 03, 2020, 08:42:20 AM
Nearly One-Fourth of Manhattan’s Available Office Space Is Up For Sublease: Report

https://commercialobserver.com/2020/09/manhattan-office-market-sublet-space-coronavirus/ (https://commercialobserver.com/2020/09/manhattan-office-market-sublet-space-coronavirus/)
Title: Re: the death of the urban office building
Post by: fareastwarriors on September 07, 2020, 12:28:29 PM
Google Abandons Plan to Rent Dublin Office for 2,000 Workers

https://www.bnnbloomberg.ca/google-abandons-plan-to-rent-dublin-office-for-2-000-workers-1.1490492 (https://www.bnnbloomberg.ca/google-abandons-plan-to-rent-dublin-office-for-2-000-workers-1.1490492)

Alphabet Inc’s Google unit walked away from a plan to rent space in Dublin for as many 2,000 workers, shelving one of the city’s biggest real-estate deals in recent years.

Google had been in talks to rent about 202,000 sq ft (18,766 square meters) of space at the Sorting Office, close to the Irish capital’s south quays, adding to its array of sites in the city.
Title: Re: the death of the urban office building
Post by: thepupil on September 11, 2020, 04:55:18 AM
All you really need to know lol

Congratulations to JPMorgan Chase for ordering everyone BACK TO OFFICE on September 21st. Will always be better than working from home!
@realdonaldtrump

When DJT is opining on your thesis, you know it’s become way too much of a battleground stock/s
Title: Re: the death of the urban office building
Post by: Nomad on September 11, 2020, 07:13:22 AM
All you really need to know lol

Congratulations to JPMorgan Chase for ordering everyone BACK TO OFFICE on September 21st. Will always be better than working from home!
@realdonaldtrump

When DJT is opining on your thesis, you know it’s become way too much of a battleground stock/s

Well, that settles it. Get out there and die for the landlords!
Title: Re: the death of the urban office building
Post by: CorpRaider on September 11, 2020, 07:43:09 AM
That WSJ op ed from the Related Cos exec was very Randy Duke, "Turn those machines back on!"  Scariest thing I've seen. haha.

Some activist should take a run at SLG or VNO with a nice spread deck on converting to industrial (ghost kitchens and fulfillment), data storage, and trailer parks in the sky.
Title: Re: the death of the urban office building
Post by: fareastwarriors on September 11, 2020, 09:57:59 AM
https://www.cnbc.com/2020/09/11/rxr-realty-ceo-scott-rechler-to-mayor-bill-de-blasio-on-city-clean-up.html (https://www.cnbc.com/2020/09/11/rxr-realty-ceo-scott-rechler-to-mayor-bill-de-blasio-on-city-clean-up.html)

Real estate CEO: NYC mayor must make streets safer, cleaner so people will want to return
Title: Re: the death of the urban office building
Post by: realassetsvalue on September 14, 2020, 12:54:56 PM
Facebook buys the brand new 400,000 sq ft building in Bellevue that REI built as their HQ after REI decided not to occupy for $370m, ~$925 PSF: https://www.seattletimes.com/business/real-estate/facebook-will-buy-former-rei-headquarters-in-bellevue/
Title: Re: the death of the urban office building
Post by: fareastwarriors on September 14, 2020, 06:36:45 PM
At JPMorgan, Productivity Falls for Staff Working at Home

 ‘Creative combustion’ has taken a hit, KBW analysts say
 JPMorgan CEO Dimon discussed bank’s findings with KBW

https://www.bloomberg.com/news/articles/2020-09-14/at-jpmorgan-productivity-falls-for-younger-employees-at-home?srnd=premium (https://www.bloomberg.com/news/articles/2020-09-14/at-jpmorgan-productivity-falls-for-younger-employees-at-home?srnd=premium)
Title: Re: the death of the urban office building
Post by: CorpRaider on September 15, 2020, 08:01:01 AM
Whelp.
Title: Re: the death of the urban office building
Post by: Nomad on September 15, 2020, 08:24:54 AM
At JPMorgan, Productivity Falls for Staff Working at Home

 ‘Creative combustion’ has taken a hit, KBW analysts say
 JPMorgan CEO Dimon discussed bank’s findings with KBW

https://www.bloomberg.com/news/articles/2020-09-14/at-jpmorgan-productivity-falls-for-younger-employees-at-home?srnd=premium (https://www.bloomberg.com/news/articles/2020-09-14/at-jpmorgan-productivity-falls-for-younger-employees-at-home?srnd=premium)

You can really smell the desperation wafting out of Manhattan - big writedowns must be looming.

I'll give 1:2 odds on the JPM "study" being completely non-empirical. This is my favorite part by far:

Quote
Work output was particularly affected on Mondays and Fridays, according to findings discussed by Chief Executive Officer Jamie Dimon in a private meeting with Keefe, Bruyette & Woods analysts
Title: Re: the death of the urban office building
Post by: fareastwarriors on September 15, 2020, 11:24:27 AM
At JPMorgan, Productivity Falls for Staff Working at Home

 ‘Creative combustion’ has taken a hit, KBW analysts say
 JPMorgan CEO Dimon discussed bank’s findings with KBW

https://www.bloomberg.com/news/articles/2020-09-14/at-jpmorgan-productivity-falls-for-younger-employees-at-home?srnd=premium (https://www.bloomberg.com/news/articles/2020-09-14/at-jpmorgan-productivity-falls-for-younger-employees-at-home?srnd=premium)

You can really smell the desperation wafting out of Manhattan - big writedowns must be looming.

I'll give 1:2 odds on the JPM "study" being completely non-empirical. This is my favorite part by far:

Quote
Work output was particularly affected on Mondays and Fridays, according to findings discussed by Chief Executive Officer Jamie Dimon in a private meeting with Keefe, Bruyette & Woods analysts

JPMorgan Sends Some Traders Home After Worker Contracts Covid-19

https://www.bloomberg.com/news/articles/2020-09-15/jpmorgan-sends-some-traders-home-after-worker-contracts-covid-19?srnd=premium
Title: Re: the death of the urban office building
Post by: Spekulatius on September 15, 2020, 12:05:29 PM
Quote from: Nomad

I'll give 1:2 odds on the JPM "study" being completely non-empirical. This is my favorite part by far:

[quote
Work output was particularly affected on Mondays and Fridays, according to findings discussed by Chief Executive Officer Jamie Dimon in a private meeting with Keefe, Bruyette & Woods analysts
[/quote]

Monday’s and Fridays less productive? I would like to know what’s the difference to being in the office then?
Title: Re: the death of the urban office building
Post by: Gregmal on September 15, 2020, 12:12:19 PM
Quote from: Nomad

I'll give 1:2 odds on the JPM "study" being completely non-empirical. This is my favorite part by far:

[quote
Work output was particularly affected on Mondays and Fridays, according to findings discussed by Chief Executive Officer Jamie Dimon in a private meeting with Keefe, Bruyette & Woods analysts

Monday’s and Fridays less productive? I would like to know what’s the difference to being in the office then?
[/quote]

Liquor supply 25 ft away vs down the block?
Title: Re: the death of the urban office building
Post by: Foreign Tuffett on September 15, 2020, 12:16:26 PM
Quote from: Nomad

I'll give 1:2 odds on the JPM "study" being completely non-empirical. This is my favorite part by far:

[quote
Work output was particularly affected on Mondays and Fridays, according to findings discussed by Chief Executive Officer Jamie Dimon in a private meeting with Keefe, Bruyette & Woods analysts

Monday’s and Fridays less productive? I would like to know what’s the difference to being in the office then?

Liquor supply 25 ft away vs down the block?
[/quote]


Hungover on Mondays and half sloshed on Friday afternoons
Title: Re: the death of the urban office building
Post by: thepupil on September 15, 2020, 12:41:14 PM
JPMorgan Sends Some Traders Home After Worker Contracts Covid-19
https://www.bloomberg.com/news/articles/2020-09-15/jpmorgan-sends-some-traders-home-after-worker-contracts-covid-19?srnd=premium

while this does not affect the 2,3,5 year outcome of office REITs, I am surprised they didn't trade down on this.

It’s an awful headline / data point.
Title: Re: the death of the urban office building
Post by: fareastwarriors on September 15, 2020, 09:32:11 PM
Stripe Workers Who Relocate Get $20,000 Bonus and a Pay Cut

https://www.bloomberg.com/news/articles/2020-09-15/stripe-employees-who-relocate-to-get-20-000-bonus-and-a-pay-cut?srnd=premium
Title: Re: the death of the urban office building
Post by: thepupil on September 16, 2020, 06:15:54 AM
there are so few post-covid trades of big buildings going on, but here's one

https://therealdeal.com/2020/09/16/what-tenants-are-paying-at-shvo-and-deutsche-finances-big-red-building/
https://therealdeal.com/chicago/2020/08/12/aig-goldman-lend-on-shvos-big-red-buy-in-chicago/
https://en.wikipedia.org/wiki/CNA_Center

Chicago "Big Red" building (I think of it as the CNA building because Loews' CNA was there for a long time and it's a pretty unique building. If you have visited Chicago, you probably recognize it, if of course, when you visit places your idea of a good time is gazing the skyline and thinking of cap rates / rent per foot etc.

The building is 1.2 million square feet, and was purchased for $376 million or $313/foot.

It last traded for $108 million in 2016. CNA sold it to be redeveloped, so without more effort, we don't know what the 2016 buyer's basis is, but I assume they made substantial $ on this.
https://www.chicagobusiness.com/article/20151216/CRED03/151219886/cna-selling-big-red-moving-hq-to-new-office-tower

AIG and Goldman Sachs are providing an 8 year interest only loan. Not sure of the rate, can't find it.

$240 million (63% of the price)

The property is 90% leased at $21.60 / foot which is below market of $40 / foot.
Northern Trust is the biggest tenant for 45% of the space. Their lease goes to 2035.
chicago Housing Authority is 18% to 2037
These two pay $21 / foot and $18 / foot respectively

Average base rent per square foot in the building is in the low-$20 range, well below market rates for the East Loop submarket, where gross asking lease rates are more than $39 per square foot.

If there were no operating costs/property taxes, etc., this would be a 6.2% cap rate, but is probably actually a VERY low cap rate, BUT rents are 1/2 of market, so it's tough to really think about what the cap rate is. The rents won't reset for a very long time in some cases.

I think this is a bullish comp overall for basically any office REIT, but it's just one data point.

If a building in Chicago where the biggest tenants are locked into paying $21 / foot for a long time is worth $313 / foot, what do you think the class A portfolio in sunbelt cities* that's paying $40 / foot, that is CUZ is worth? What do you think theMart (VNO's Chicago asset / huge tech hub) is worth?

if one can get 63% 8 year IO financing on this, what do you think the finacning looks like for better buildings in better geographies.

*as in cities that aren't going bankrupt like Chicago.

Title: Re: the death of the urban office building
Post by: cherzeca on September 17, 2020, 12:26:13 PM
"Data from Brivo, a company that provides access-control systems for workplaces, shows that “unlocks” at offices—when someone uses their credentials to enter an office—in late August were down 51% from the end of February. By comparison, visits to manufacturing and warehouse locations, where fewer jobs can be done remotely, remained down by a third."

https://www.wsj.com/articles/americas-offices-sit-half-empty-six-months-into-the-covid-19-pandemic-11600344000?mod=hp_featst_pos4
Title: Re: the death of the urban office building
Post by: thepupil on September 17, 2020, 01:48:04 PM
"Data from Brivo, a company that provides access-control systems for workplaces, shows that “unlocks” at offices—when someone uses their credentials to enter an office—in late August were down 51% from the end of February. By comparison, visits to manufacturing and warehouse locations, where fewer jobs can be done remotely, remained down by a third."

https://www.wsj.com/articles/americas-offices-sit-half-empty-six-months-into-the-covid-19-pandemic-11600344000?mod=hp_featst_pos4

thanks for sharing. these numbers are shockingly high. I am amazed that half of people are back in some places. the NYC REITs have been saying 10%-20% of people are back and I would've guessed 15-25% elsewhere (in the US). this article is very different than what my impression is from following the REITs.

weird.

trying to think if there a reason that locks/unlocks would overstate occupancy? data seems suspiciously good to me.

Maybe the nuance is that higher rent type of tenants (tech/finance/law etc) that are in the blue chip buildings are functioning better remotely whereas some others are more eager to get back to the office?

Vornado speaking yesterday at BofA
Quote
So, it's going to take some time. Today the utilization rates remain in the low double-digits, that's up from the summer, but we expect that to be 20%, 25% probably as we get further on the [year], as companies are going to remain conservative. But at the same time we're also selectively starting to hear companies that had planned to come back January 1, that are now saying, You know what, let's make that October. Maybe it's going for a third, maybe it's for half.

Title: Re: the death of the urban office building
Post by: cherzeca on September 17, 2020, 02:52:09 PM
down 51% from February is not nominally 51% of course.  didn't say what February % was
Title: Re: the death of the urban office building
Post by: bizaro86 on September 17, 2020, 03:27:24 PM

trying to think if there a reason that locks/unlocks would overstate occupancy? data seems suspiciously good to me.


It seems possible that it slightly overstates occupancy. My last office job you scanned your pass at a big glass door. If someone else on the floor was on the elevator with you, only one of you scanned.

If you're the only person coming in today, that's one scan just for you, but 3 of you on the same elevator would still be 1 scan.

Its also possible that scans would understate occupancy. Pre covid-19, I might have gone for a coffee and a lunch outside the building. I bet more people are staying in their buildings now (1 scan per day instead of 3-4)
Title: Re: the death of the urban office building
Post by: CorpRaider on September 17, 2020, 06:16:32 PM
I would be less inclined to go into my office in midtown where I normally ride the path/subway or take an uber versus driving my Tahoe to my suburbia nightmare office park with a view of a retention pond in Atlanta or Houston where there is really no viable public transportation anyway and the traffic is now slightly less hellish.  So I would buy that NYC is lower than RUS. 
Title: Re: the death of the urban office building
Post by: fareastwarriors on September 17, 2020, 06:47:46 PM
Korean Air eyes sale of LA’s tallest tower
Debt-ridden airline lends subsidiary nearly $1B to refinance maturing loan on LA’s tallest tower

https://therealdeal.com/2020/09/17/korean-air-eyes-sale-of-wilshire-grand/ (https://therealdeal.com/2020/09/17/korean-air-eyes-sale-of-wilshire-grand/)
Title: Re: the death of the urban office building
Post by: fareastwarriors on September 18, 2020, 10:45:29 AM
https://therealdeal.com/2020/09/18/700m-seattle-office-tower-buy-would-be-among-largest-covid-era-property-deals/ (https://therealdeal.com/2020/09/18/700m-seattle-office-tower-buy-would-be-among-largest-covid-era-property-deals/)

The sale price is reported to be 800 billion Korean won, or about $688 million,...

The largest tenant at the 701,000-square-foot property is Utah-based experience management company Qualtrics, which leased 275,000 square feet at the building for its co-headquarters last fall. The company also acquired naming rights to the 38-story tower, which was originally known as 2+U.

Other long term tenants at the property include Indeed.com, Dropbox and co-working firm Spaces. Its central location in downtown Seattle and stable rent roll attracted the attention of several other bidders besides Hana, according to Maeil.
Title: Re: the death of the urban office building
Post by: fareastwarriors on September 18, 2020, 11:49:25 AM
JPMorgan Sends Some Traders Home After Worker Contracts Covid-19
https://www.bloomberg.com/news/articles/2020-09-15/jpmorgan-sends-some-traders-home-after-worker-contracts-covid-19?srnd=premium

while this does not affect the 2,3,5 year outcome of office REITs, I am surprised they didn't trade down on this.

It’s an awful headline / data point.



Wall Street Return-to-Work Push Finds Virus Won’t Cooperate

 New infections crop up at Goldman Sachs, JPMorgan, Barclays

 Executives fear productivity and company culture is suffering


https://www.bloomberg.com/news/articles/2020-09-18/wall-street-s-return-to-office-push-finds-virus-won-t-cooperate?srnd=premium (https://www.bloomberg.com/news/articles/2020-09-18/wall-street-s-return-to-office-push-finds-virus-won-t-cooperate?srnd=premium)
Title: Re: the death of the urban office building
Post by: fareastwarriors on September 23, 2020, 05:05:32 PM
Google will try ‘hybrid’ work-from-home models, as most employees don’t want to come in every day


https://www.cnbc.com/2020/09/23/google-ceo-sundar-pichai-considering-hybrid-work-from-home-models.html (https://www.cnbc.com/2020/09/23/google-ceo-sundar-pichai-considering-hybrid-work-from-home-models.html)

more WFH days, not WFH forever...Make sense.


Title: Re: the death of the urban office building
Post by: CorpRaider on September 23, 2020, 05:09:33 PM
If I had to try and code from one of those shared desks I would never want to come in.
Title: Re: the death of the urban office building
Post by: LearningMachine on September 23, 2020, 09:05:30 PM
Google will try ‘hybrid’ work-from-home models, as most employees don’t want to come in every day


https://www.cnbc.com/2020/09/23/google-ceo-sundar-pichai-considering-hybrid-work-from-home-models.html (https://www.cnbc.com/2020/09/23/google-ceo-sundar-pichai-considering-hybrid-work-from-home-models.html)

more WFH days, not WFH forever...Make sense.

Looks like a very balanced approach.  For us as investors, I'm thinking two implications from his two statements in his interview with the Time Magazine at https://www.youtube.com/watch?v=hpn1rebBfqY:

As other companies do the same, looks like this means the impact will be effective supply available will be higher for both office space and housing options.  In other words, vacancy will be higher.  Incremental supply can cause big swings in price as 20% vacancy did in Detroit.
Title: Re: the death of the urban office building
Post by: mattee2264 on September 24, 2020, 01:51:18 AM
 I think a hybrid model makes a lot of sense. A way of getting the best of both worlds. Also caters for differences in job functions. For example at the momentcompanies tend to like sales teams onsite whereas back office e.g. IT and accounts are being allowed to continue WFH.

 Perhaps another implication will be that companies try to save money by moving their HQ to cheaper locations. There isn't the same need to have a central location that is easy for people to commute to if people are WFH most days. So you might get little business parks cropping up in the suburbs as opposed to the traditional city office blocks.

 Either way I think there will be a reset of office rents as leases roll off and a lot more vacant space which will be difficult to repurpose.
Title: Re: the death of the urban office building
Post by: KJP on September 24, 2020, 04:38:59 AM
Google will try ‘hybrid’ work-from-home models, as most employees don’t want to come in every day


https://www.cnbc.com/2020/09/23/google-ceo-sundar-pichai-considering-hybrid-work-from-home-models.html (https://www.cnbc.com/2020/09/23/google-ceo-sundar-pichai-considering-hybrid-work-from-home-models.html)

more WFH days, not WFH forever...Make sense.

Looks like a very balanced approach.  For us as investors, I'm thinking two implications from his two statements in his interview with the Time Magazine at https://www.youtube.com/watch?v=hpn1rebBfqY:
  • More employees could spread out into exurbs: Sundar wants to give employees flexibility so that they don't have to commute 2 hours, e.g. on Fridays, as those commutes prevent employees from being able to make plans with friends and families. This would mean more employees could move farther out, increasing the supply of housing they could consider for living, in turn, decreasing the price of housing within 45-min of campus.
  • Company sites could shrink in size: Sundar wants to have concept of "onsites", when employees get together to meet in person.  If employees are going to meet only for "onsites", this could reduce the square footage needed for company, decreasing demand for office space, decreasing office supply.

As other companies do the same, looks like this means the impact will be effective supply available will be higher for both office space and housing options.  In other words, vacancy will be higher.  Incremental supply can cause big swings in price as 20% vacancy did in Detroit.

What are the implications for mass transit systems?  If WFH permanently cut commuting days by 50%, how do, for example, the LIRR (NYC), Metro-North (NYC), NJ Transit (north and central NJ) and SEPTA (Philly) survive? If you don't have those commuter rails, how do people get into the city on the 50% of days they want to come in?

Also, what about climate change?  It is common to see companies pushing toward (at least purported) carbon neutrality.  How can you do that if your HQ is inaccessible except by car, which would be the case for essentially all suburban or exurban locations?

More broadly, many cities are the hub in a local hub-and-spoke (road and rail) transport network that may be not be so easy to unwind.
Title: Re: the death of the urban office building
Post by: LearningMachine on September 24, 2020, 09:05:09 AM
Google will try ‘hybrid’ work-from-home models, as most employees don’t want to come in every day


https://www.cnbc.com/2020/09/23/google-ceo-sundar-pichai-considering-hybrid-work-from-home-models.html (https://www.cnbc.com/2020/09/23/google-ceo-sundar-pichai-considering-hybrid-work-from-home-models.html)

more WFH days, not WFH forever...Make sense.

Looks like a very balanced approach.  For us as investors, I'm thinking two implications from his two statements in his interview with the Time Magazine at https://www.youtube.com/watch?v=hpn1rebBfqY:
  • More employees could spread out into exurbs: Sundar wants to give employees flexibility so that they don't have to commute 2 hours, e.g. on Fridays, as those commutes prevent employees from being able to make plans with friends and families. This would mean more employees could move farther out, increasing the supply of housing they could consider for living, in turn, decreasing the price of housing within 45-min of campus.
  • Company sites could shrink in size: Sundar wants to have concept of "onsites", when employees get together to meet in person.  If employees are going to meet only for "onsites", this could reduce the square footage needed for company, decreasing demand for office space, decreasing office supply.

As other companies do the same, looks like this means the impact will be effective supply available will be higher for both office space and housing options.  In other words, vacancy will be higher.  Incremental supply can cause big swings in price as 20% vacancy did in Detroit.

What are the implications for mass transit systems?  If WFH permanently cut commuting days by 50%, how do, for example, the LIRR (NYC), Metro-North (NYC), NJ Transit (north and central NJ) and SEPTA (Philly) survive? If you don't have those commuter rails, how do people get into the city on the 50% of days they want to come in?

Also, what about climate change?  It is common to see companies pushing toward (at least purported) carbon neutrality.  How can you do that if your HQ is inaccessible except by car, which would be the case for essentially all suburban or exurban locations?

More broadly, many cities are the hub in a local hub-and-spoke (road and rail) transport network that may be not be so easy to unwind.

Maybe there are short-term to medium-term hiccups for transit, but I wonder if long term, businesses located on the outskirts will be able to afford to move their shrunk footprints into Manhattan for its central transit-accessible location, giving themselves access to wider pool of employees to pick from, or choose to do their "onsites" in a central location accessible through transit for most employees in the region.
Title: Re: the death of the urban office building
Post by: thepupil on September 29, 2020, 06:17:19 AM
"Data from Brivo, a company that provides access-control systems for workplaces, shows that “unlocks” at offices—when someone uses their credentials to enter an office—in late August were down 51% from the end of February. By comparison, visits to manufacturing and warehouse locations, where fewer jobs can be done remotely, remained down by a third."

https://www.wsj.com/articles/americas-offices-sit-half-empty-six-months-into-the-covid-19-pandemic-11600344000?mod=hp_featst_pos4

thanks for sharing. these numbers are shockingly high. I am amazed that half of people are back in some places. the NYC REITs have been saying 10%-20% of people are back and I would've guessed 15-25% elsewhere (in the US). this article is very different than what my impression is from following the REITs.

weird.

trying to think if there a reason that locks/unlocks would overstate occupancy? data seems suspiciously good to me.

Maybe the nuance is that higher rent type of tenants (tech/finance/law etc) that are in the blue chip buildings are functioning better remotely whereas some others are more eager to get back to the office?

Vornado speaking yesterday at BofA
Quote
So, it's going to take some time. Today the utilization rates remain in the low double-digits, that's up from the summer, but we expect that to be 20%, 25% probably as we get further on the [year], as companies are going to remain conservative. But at the same time we're also selectively starting to hear companies that had planned to come back January 1, that are now saying, You know what, let's make that October. Maybe it's going for a third, maybe it's for half.

to follow up here, ther'e a bloomberg article today saying Manhattan office is about 10% full and other major cities are more like 25%. If you pro forma'd for the real estate industry's 50%+* occupancy in Manhattan, you'd probably be in the single digits.


*for the record, I think this is kind of dumb for them to be "leading by example". Can you imagine the headline if Related/VNO/SLG's/BPY's leasing/acquisition team gets covid? tenants will return because they want to/feel good about doing so, not because their landlord is in the office.

Title: Re: the death of the urban office building
Post by: SharperDingaan on September 29, 2020, 08:28:39 AM
"Maybe there are short-term to medium-term hiccups for transit, but I wonder if long term, businesses located on the outskirts will be able to afford to move their shrunk footprints into Manhattan for its central transit-accessible location, giving themselves access to wider pool of employees to pick from, or choose to do their "onsites" in a central location accessible through transit for most employees in the region."

Standard practice is an "on-site" in the burb, and the bigger "on-sites" in the central location. Rent the space as you need it, do your motivational (sales) meetings downtown, versus some resort somewhere. Minimizes the Covid risk, and saves on the airfare/accommodation/ancillary costs.

Subways/metro's are funded from climate change related fee collections.
Drive a SUV? Pay more gas tax on your monster, and some of it goes to covering the costs of the lesser polluting subway/metro.

SD
 
Title: Re: the death of the urban office building
Post by: LearningMachine on September 29, 2020, 09:19:24 AM
Standard practice is an "on-site" in the burb, and the bigger "on-sites" in the central location. Rent the space as you need it, do your motivational (sales) meetings downtown, versus some resort somewhere. Minimizes the Covid risk, and saves on the airfare/accommodation/ancillary costs.

Thanks SharperDingaan for sharing.  To help us learn more, would it be possible to share more, e.g. your general source of "standard practice",  and what frequency your source indicates for "on-site" in the burb and bigger "onsites" in the central location?

In the tech world pre-Covid, some leadership teams did "offsites" once a quarter to a year and the location was determined based on making sure everyone could get there easily.  Sometimes the location could be another building within the same company or a conference room at a hotel nearby.  So, I was thinking Sundar was drawing an analogy to "offsites" when he mentioned "onsites".  Because these onsites will now probably be done by all employees not just leadership teams, and they are meant to replace regular face-to-face daily meetings, maybe the frequency could be more than a quarter to a year, e.g. maybe once a month, or more in some unique cases that would benefit from higher frequency.  I was thinking the location would be based on what works the best for the employees in the region since over time, a team could be formed from employees across the entire region not just one suburb.  Over time, the location that would work for all employees in each team would tend to be a centrally accessible location.

Some companies might also want to cater to both (1) young talent that wants to come into office more frequently, and (2) senior talent with families that would rather work from home.  I think this is why Facebook, Apple, Amazon and Google are acquiring/leasing sites in Manhattan for the young talent to come in more frequently, and to potentially do "onsites" there as well for senior talent.

All that said, looks like we both agree that the square footage needed would be so much lower than what it is today.  This will end up causing both (1) company permanent sites to shrink in size, and (2) senior employees with families to spread out more into exurbs or smaller towns nearby as they need to make the trip to "onsites" only once in a while instead of daily.