The National Real Estate Dynamic

You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio, or watch us on YouTube search Bloomberg Global News. The Financial Times wrote earlier this year about property in the pandemic and how it was the great reckoning that never arrived. Quotation marks around that, quoting our next guest in that article as saying that working from home is a revolution in its early stages, and that office properties will eventually see their value shredded

by or more. He said that most in the article. That's Michael Michael Silver, chairman of Vestian. He joins us now once again on the phone from Chicago. Michael, it's really great to have you back on the show. How are you fine? And thank you appreciate it. Do you still hold that is where we're going to see the value is is terms in terms of value destruction when it comes to commercial real estate. Oh, absolutely, you know, if there's any if I have any reassessment, it could

it will probably be greater than that. But I can tell you that even the there was a report recently with the State of New York saying that the value of New York office buildings has dropped around already, uh, just recently issued and uh, you know by the way they calculate value, taking thirty billion dollars out of the

value of office inventory. So and I noticed when people started putting buildings on the market, especially if they're what I would call Class B buildings, they're already at for people who don't follow real estate so closely clad, Okay, Class A buildings would be buildings that are just coming on the market with a lot of amenities, or they're somewhere in the area around ten to fifteen years old. Class B buildings are usually uh, somewhere in the area

of twenty forty years old. And then you get into a CE quality building unless you're totally redoing the building. So it's the B buildings that are now suffering the most. The A buildings, if there's leasing activity, are enjoying the uptick and leasing activity even though they're making greater financial concessions to attract tenants than they did a year ago or they did pre pandemic. I mean right. We did

actually some reporting earlier this year. We I use the editorial we know abu Hire, Tom Maloney, Natalie Wong and specifically looking at New York tax bill showing the damage to real estate, specifically in Manhattan. This was back in June, and what they found, a review the city's final tax roll shows, uh that just about every corner of commercial real estate was touched. Office building southern market value for tax purposes dropped by citywide. That was data that was

released by the Department of Finance. Hotels and retail properties sank more than so you think so, right, So I just that's exactly what you were talking about. You think it gets worse from here, You think it continues to go down, no question, because the you know, the the fun headlines that the larger real estate companies release about Google buying the building, or Facebook leasing the old post office, or Amazon doing West side leasing that is maybe of

the marketplace. The majority of the marketplace, even though tech workers have increased dramatically within New York especially over the last ten years, the majority of the marketplace is professional business services, and it's finance services and the financial the banks and related you know, to the banks, insurance companies, they're they're already shrinking or moving out of New York City.

So you know, it's that's why you have to reconcile all this information by saying that in UH by mid mid the vacancy rate in New York is mid nineteen, it was around ten. The New York market has four hundred and fifty million feet of property. UM. So that's another fifty million feet on the market. Michael, you work with a lot of well known clients or your your company has, whether it's Cargo, Chrysler, three M, Caterpillar, Mercedes, Benz, Union, Pacific,

t I, so many others. So you get to see a lot of what's going on in terms of the corporate realist eight UH and commercial real estate needs of the corporate community. Who is taking more space, who's looking to unload space right now? Well, UM, I can tell you that even UM the well, there's some um in the in the health industry, they're taking more space. Life science companies are taking more space. The allocation that a

life science footage has doubled. Um, I can tell you that, um, the you know a lot of most companies are going the other way. You know, I can tell you that there are well known names that you know. Take for example,

No Artists. No Artists Made is a worldwide global pharmaceutical who recently who made their mad developed iconic buildings all over the world with renowned architects such as Renzo Piano and Fury and everybody else and trying to attract people to new ways to work and interact with each other. And now they've adapted a remote policy. Large pharmaceuticals who were working with their large even large, very large tech companies have said they are fine with getting rid of

half of their footprint. Recently, saw Price Waterhouse Cooper said to all the people like work remote, by the way, that doesn't mean that they're not going to get together and collaborate. They will, and there's a setup for that. But these are forty five thousand workers who would who have been told that they can work remotely. So they are our companies in the life science sector, the lab sector, the healthcare sector, they are expanding. Okay, come you know

they're they're really expanding. We just expanded a healthcare company in in the Chicago suburban area from you know, five thousand feet to fifty thousand square feet. So they're expanding. But when you're talking about a lot of iconic, well known names, the trend is to give back space allow workers to work remotely. But it's not going to be

only working remotely. It's just going to be a replacement of the notion they're going to work at an office is the first thing you do as opposed to working remotely. So it's trending towards the opposite. So, Michael, does that mean that the commercial real estate as I knew it before the pandemic never gets back to pre pandemic levels? Um? I would I would say in the foreseeable future, that's correct. I would say that this is going to take ten

years to unwind at least. And the reason it's going to get better is because eventually people there's a lot of buildings in the pipeline. There's probably a hundred million square feet of space, and the pipeline plan for the United States. So when that, you know, comes to an end um, you know, and then the demand for space, even though it's a demand for reduced space, will catch up. And eventually you'll see a lot of buildings that I

would even call subb buildings. They're going to be taken out of inventory and either totally bought at rock bottom prices and redone. Uh And eventually it'll all catch up. But for the foreseeable future, and now I'm talking about years, you're going to see an increase in remote work. And it's not going to be office work first. It's going to be remote work first. But that doesn't mean that people aren't going to be going into an office. They will.

And the advantage of all this, there's a big advantage of all this, meaning that companies save money on real estate, so they save money on the cost of maintaining real estate. So maybe workspace was just a little early, you know.

And of course there were some other problems, but I mean, that whole idea of just renting out space, we heard it from from various leaders throughout the pandemic of I know one financial firm that gave up space or early went out to Connecticut and they said, you know, we'll use work Yeah, we work, say work spaces. Yeah. As I was looking at another company, I was looking at actually something Workspace Group PLC. A read but I mean,

are we going to see more of that? You'll see, um, you'll see companies take uh, they're demand down number one and we're talking about reducing their footprint all over the world by millions of number one of the remainder space. You'll see that we Work or the Regiuses or you know other coworking names becoming about fifteen of the remainder space. So yes, those coworking spaces will will have an increase in demand. So renter's market buyer's market right now, Yes,

incredibly So. I think it's going to get better for the renter and it's going to get better for the buyer. I wouldn't be so quick. I think we're going through an iteration. It's very similar to retail online. You know, people thought about going to a mall first before they thought about going online, and then gradually now people think about going online before they think about going to a mall. And I think the same thing is happening in the office set where it starts out being office first. It's

kind of a fat, old fashioned factory model. Then people have say it's okay to collaborate and work home and look at the tools that we get to do that. And then people start working remotely, meaning they're more than four hours from where the company is located that they're working from. So you're going to see another iteration of this, and I think they'll be fits and starts, but eventually it'll be remote first with office and it's very similar. It tracts a similar thing to online. It is just

interesting to see how things are evolving. Hey, listen Michael. Always get to check in with you, Michael Silver, Chairman Investition, on the phone in Chicago. Things are changing. Thanks for listening to Bloomberg Business Week. Download the podcast on iTunes, SoundCloud, or Bloomberg dot com. And you can also listen to our radio show at two pm East in on Bloomberg Radio or watch us on YouTube search Bloomberg Global News. H