Commercial Real Estate morning News Show
Leaders in the commercial real estate industry discuss the latest news and provide insights that you will get nowhere else!
Commercial Real Estate morning News Show
CRE News and Views Morning Show - July 30, 2024
Our journey then takes us north to Toronto, a city buzzing with construction and brimming with job opportunities. We scrutinize the affordability challenges and infrastructure pressures that come with rapid urban development, drawing parallels to similar scenarios in cities like Austin. Despite economic fluctuations, Canadians are still keen on investing in the U.S. and other global markets. Our discussion paints a vivid picture of the current economic landscape and investment trends, offering listeners a comprehensive view of the shifting dynamics in both Canadian and American real estate markets.
Wrapping up, we tackle the surge of foreign investment in the UK real estate market, particularly in London, and its repercussions on property ownership and social cohesion. Rising property prices, driven by foreign interests, pose significant barriers for younger generations aspiring to own homes. We delve into the socio-political consequences of an increasingly rental-oriented society, while also touching on the financial instability plaguing US hospitals owned by private equity. From repurposing traditional real estate assets to exploring the future of workplace flexibility and collaboration, our panel leaves no stone unturned. Tune in to gain valuable insights and prepare for the evolving landscape of commercial real estate.
All right, everybody, welcome to the next Commercial Real Estate News and Views show, and I have my esteemed panel this week Maria, dini, paul and Hector. Welcome everybody. I will let them all introduce themselves and then we'll get into the topics of the day, which is super awesome. So, maria, ladies, go first Go ahead, thank you.
Speaker 2:Thank you, amy. Thank you for making me a part of this esteemed panel. Look forward to the content. I've been in the industry as a CIO and head of IT for companies that include Morga and Manulife, and run an advisory for PwC as well, so I've actually been in this space for quite a while and love the PropTech side as well, because I've been a mentor for the Collier's TechStar Accelerator program when it was first kicked off, and look forward to the content today. Yes it'll be awesome, mr Taylor.
Speaker 3:Yes, I'm Dini Taylor. I've got I hate to say this 45 plus years of healthcare and medical real estate experience Currently the executive in charge of strategic relationships for HealthPeak, a public REIT that's focused on medical and life science, and I'm glad to be here today.
Speaker 1:Great. Thank you, Mr Koulonis.
Speaker 4:Hey everybody. I'm Hax Koulonis. I'm calling in from New York today. I don't know why I looked out and looked a little confused. New York again this week. I've been in co-working and flex space on the technology side since 2013,. So the baby in the room I'm guessing In this esteemed panel. I'm definitely going to learn from all of you as much as contribute, as much as I can, from all the shifts that are happening and kind of co-working flex office that side of the world.
Speaker 1:Awesome, mr Sheedy.
Speaker 5:I am Paul Sheedy, the CEO founder of Unified. We're an occupancy technology company and actually, Hector, we are extremely strong in the co-working side. We do a lot of work for co-working and occupancy and we sort of take our. We have two main focus points, one on sustainability and one on fire safety. So we use our occupancy technology and we use AI to do predictive analysis to tell a building in advance, floor-by-floor, what the plateau effect of each floor will be in terms of usage and use that to do some really smart stuff with lowering your energy bills. And, more importantly, as I'm up here in the 39th floor of a building, we do real-time evacuation of high-rise buildings so we know, when anything does go wrong, exactly how the building is evacuating in real time and we finally have the insurance sector taking this seriously and realizing, actually, if I've got to turn a dumb building into a smart building.
Speaker 1:I should have lower insurance premiums. So it's a good fast return on investment. Shocker, shocker those damn insurance companies. They eventually get around to it.
Speaker 1:And I am Amy Palvado, I'm your host. I'm the chairwoman of the US PropTech Council. I'm also a founder and CEO of a prop tech company called Facilimax, and I've been in the industry for a little while, no like since 2003. So for 21 years I've been in commercial real estate. So a little while. All right, let's get this started, and I can't be. I would be remiss if I did not bring this up, because this is what everybody's talking about and it's all. So. There's three central banks meeting this week it's the UK, it's the US and it's Japan. They're all meeting this week. Talking about what? And I think everybody's betting. There's so many news stories out that the US is going to lower interest rates in September. The inflation has actually decreased. True nation put out this thing that inflation has gone down 1.6 percent. So the the bets out there is like by 100. By september there's going to be a rate cut, um, and which will make everybody sigh, uh, uh, I guess, sigh, uh, relief, whatever, whatever I'm trying to say there.
Speaker 1:y'all know what I'm trying to say, I don't know what I'm trying to say, but anyway, but a breath of relief, sigh of relief, sigh of relief oh, my god, I have not had enough coffee today, oh my god so anyway, I should put some irish whiskey in my coffee, man, I'd be better I'd be better at it.
Speaker 1:Okay, but let's talk about this so it. But you know there's debates on, yes, the American people, everybody's going to get this and feel better. But I think a lot of people don't realize that maybe the banks have already calculated this into their interest rates, so they might not see it. That's what kind of the buzz is a little bit about. They've already calculated it in, so you're not going to see this big drop in in on the real estate side, on the interest rates. I don't know, let's throw it out there.
Speaker 5:What do we think about these lovely interest rates are hopefully coming down in september I think my view is that you know we've probably overreached the whole industry for a long time and there needs to be a reality check. We've certainly seen in some of the evaluations of technology companies that they've had a big hit a lot of them and I think maybe the property sector has to take this as a wake-up call to SAC and some more sense of where profitability needs to be in the sector. So I think it's a bit of a good time to maybe just bring some more common sense into everything we do in technology and building.
Speaker 1:Yeah, I feel you there. I feel you. Yeah, I know that and it's amazing to me how much those three banks actually, well, uk, us drives a lot of the and I didn't realize this when I talked to other people around the world but our, our economy and we drive a lot of the stuff that's happening worldwide, whether we want to or not. We could just kind of do it. Surprising to me that it does happen. But, yeah, I think the real estate sector I've the longest time thought needed to optimize. They haven't had to. They living high on the hog or out on like whatever man.
Speaker 1:I have nine metaphors today. God, I'm really kind of sucking today. But we've been living high on the hog for a long time. They haven't had to need to optimize, haven't had the need to do any of that kind of stuff, and now that they are getting, um, you know, having to take a hard look at what they do, I think it's a good thing. I like it. I think it's a good thing. I like it. I think it's a great thing. I think we all need to grow up in the real estate world and actually act like a professional real estate company and I don't know manage our operations efficiently I mean the property sector is responsible for 40% of all CO2 emissions.
Speaker 5:And what I do? I try to surround myself with lots of other good technology companies where we're complementary to each other and we can see clear as day. You can go and put us in any building and by combining a number of technologies together, you've got to decrease your energy usage by 25%. At the end of the day, we've had the Kyoto Agreement, we've had the Paris Accord. The truth is, last year we burned more fossil fuels than we've ever done in the entire history of the world, and the property sector really has to take responsibility here. And I think this is where you know now that the market's getting squashed. If we can reduce everybody's energy down by 25%, well then. One, it's a good thing for your bottom line, but two, it's the right thing to do with the environment. So I think it's time for the sector to look in itself and actually make the change. Right now is my humble opinion.
Speaker 1:Thank you, alan. No, no, I feel you. I feel you there. Yes, so hopefully the interest rates, I mean, I can't imagine it goes down much, and even if it does, they're going to be so conservative because they don't want to get this wrong, that we're going to be stuck in this quagmire for a while, which is really good, because real estate does need to take a look at how it improves its operations for sure. All right, here's my Canadian story, maria. Are you ready? Yes, so apparently y'all had this weird tax law that happened, this capital gains.
Speaker 2:The capital gains? Yes, and everybody's upset about it yes, yeah, well, apparently.
Speaker 1:the capital gains yes, everybody's upset about it. Yes, yeah, well, apparently because they're so upset that it's going to change, it spurred all these real estate transactions, like in the last quarter there have been more than there's ever been like this big, huge wave of transactions because people are trying to beat the tax man. So I'm not sure what what that was all about, but it there's a capital gains tax hike is basically what's happening in Canada, yes, and it is affecting a lot of people's behaviors for sure, and rightfully so.
Speaker 2:Right, I mean there's and and you know, I think the tax tax consultants are very busy with trying to figure out how to right, how to adjust the transactions, how to kind of escape, let's say, or prevent, kind of the impact, let's say or prevent kind of the impact, let's say or minimize the impact of, of depending, if you know, whatever you do depends if it's a, you know, a residential investment or if it's a commercial investment. So there's going to be ways that they're trying to beat the impact but, yeah, not being looked at very positively this side of the border.
Speaker 1:No, I'm sure, but everybody you know beating the tax man. So I mean it was good for the real estate industry because there's transaction movement, but it was not.
Speaker 2:I mean, you know, I mean, the tax implications are not yes, yeah, or the future of it.
Speaker 1:Right, I mean I can't, yeah, I can't imagine. But and I, you know, I didn't know this I had this conversation with somebody who was very proud Canadian and he was like, quizzing me, he's like, amy, you Americans don't know anything. He's like what are the four biggest cities in North America? And I was like, ok, like I think I consider myself a little worldly, I'm like I don't, I don't know in the order I go New.
Speaker 1:York, LA, Mexico City is in there somewhere and I know Toronto or Chicago or Houston kind of fight for like in there too and he's like, oh, that was a great answer. Most Americans don't even include us in Canada and I was like, but I didn't realize Toronto was actually like the fourth largest city in North.
Speaker 5:America.
Speaker 2:Yeah, yeah, y'all are growing like crazy, it's like insane. Toronto is growing like crazy.
Speaker 1:It's like, yeah, toronto is, is growing yes, absolutely yeah.
Speaker 2:What's driving that growth in toronto? Well, I I would say it's kind of more of the activity that's going on, right. I mean, I certainly a lot that's. There's a lot of construction going on in development going on downtown, but there's also opportunity. I mean you're going to have to look at where the opportunities are for investment and it's it's really kind of in the heart of the city. And, yeah, the economics of it makes sense that if you want to find a job, you're going to find one in Toronto, right. So I think that's an opportunity for both, you know, those that are graduating, as you know, as, in addition to those who are in mid-career, there's just a lot of career opportunities right in the core, yeah, and then there's some you know there's a lot of. You know, although it's very expensive, there's, there's, you know that's the issue too just to find a man. So that's why there's the there's a lot of development but.
Speaker 2:I would say that it's an opportunity. Yeah, yeah, so I think that's what's driving kind of growth, for sure, yeah, that's awesome, yeah yeah, it's exciting it's very exciting.
Speaker 1:Look at you. Y'all are doing, doing cool things over there.
Speaker 2:Yes, yes, absolutely yes, yes, but just a lot. You know the way. I felt because in your, in your areas kind of experience a lot of, uh, because of the construction, because of development, the city's a mess kind of thing. Yeah, no, I commuting is hard.
Speaker 2:You know all of the things that make getting development the city's a mess kind of thing. Yeah, no, I, I commuting is hard, you know, all of the things that make getting into the city harder is is kind of causing some of the frustration, right. But and then you kind of think about the environmental impacts of all of that too.
Speaker 1:Right, it gets back to usg yeah, I know it depends on how they're building and what they're building and are they building? That's right, that's's yeah. Yeah, I mean that's affordability affordability right after.
Speaker 2:That's kind of top of mind for your political kind of issues, but it's the same here the affordability crisis and the supply and demand of affordable housing. I think that sits at the top of the agenda as well, right yeah, I mean austin went through the same thing.
Speaker 1:We, we, we grew so fast, and when you grow like that, it does all the prices kind of rise. Grew so fast, and when you grow like that, it does All the prices kind of rise, and so everybody was complaining. Well, I mean, affordable housing is not just an Austin phenomena. But, yeah, it's kind of everywhere. But yeah, I mean that's kind of normally what happens with everything. But yes, I mean.
Speaker 2:And immigration right, immigration has changed, so that's that's another big factor, yeah.
Speaker 1:Yeah, it's interesting, yeah, Super it is super interesting. Well, that's okay. So the next story I did want to talk about well, and I did so the whole thing with Canada and the U? S and and and the whole thing around the interest rates, Canada is the real estate economy. Beside this anomaly in Toronto, is the real estate economy in Canada kind of similar to what's happening in the US? Yes, absolutely, yeah, absolutely.
Speaker 2:So I was going to say when you were talking about the interest rates, well, we're doing the same thing, everybody's, but it's a very slight decrease, right? It's that one point. Yeah, four percent or something like that, right, but I think at least they see it coming down in the right direction.
Speaker 1:Same with inflation, right, but it's whatever you do, yes, yeah, yeah, so as far as international investment goes, like for um, I you know we taught canadians invest in the us, invest in europe globally, globally everybody invest globally?
Speaker 1:um, and it same thing. The europeans invest in the us and we invest in europe and all these other great things are we seeing are? Are people staying home or are they still looking to invest? Um, paul, are you still looking to invest in the us? Because that was driving a lot of our transactions, like you know, when we were at the heyday, a lot of people were coming over to the US to invest and now it kind of slowed down. Are you seeing any of that still?
Speaker 5:Yeah, Sorry, in terms of UK companies looking to invest in property in the US, yeah, looking to invest in the US or the.
Speaker 1:US coming to the UK.
Speaker 5:We see a lot of Chinese money coming into UK to invest in big real estate projects. Here we also have the likes of Brookfield, which is very prominent. I'm here in Canary Wharf right now. They own half of Canary Wharf along with the Qataris, so the Qataris are putting a lot of money in. I believe the I'm here in Canary Wharf right now. They own half of Canary Wharf along with the Qataris, so the Qataris are putting a lot of money in. I believe the Saudis are coming in. We don't see, I wouldn't say we see a huge amount of American companies overall.
Speaker 5:Saying that, I was actually at 41 Lotbury yesterday, which is in the city of, of a 200-year-old building which used to be the NatWest building, and really, you know, taking the outer shell, really, but also changing the inside, incredibly, and that was a company called Pembroke, I believe it was, who were doing that. I wouldn't say the UK construction companies are going overseas as much, but I would say there's a lot of money here from mainly the Middle East and Far East coming into London.
Speaker 5:The thing with London is it's a bigger issue. I think even you guys have it's seen as a very, very safe place to put your money. So if you have foreign money overseas, do you really want to keep it in some of these countries Probably not, and I'd say it's a safe bet because of law and order et cetera. But the issue is I mean the problem I have looking longer term. I think we're just building up a massive issue here for the generation that will not be able to buy in the future, and that is an issue because, at the end of the day, if you can't buy, you can't build up an asset value behind you.
Speaker 5:When we do get to retirement age, what happens then? And I think this is actually I was watching a news program last night where they're expecting in the UK that by 2070, we'll go from where we are now at 100% of GDP debt to 300% by 2070. I think we've fundamentally got something very wrong here. I think you actually should have a fundamental right to be able to own property. We're now excluding a huge amount of people who will never get on the first rung of the ladder. I think we're making some big fundamental social problems here for ourselves longer term.
Speaker 1:So you're talking home ownership or just general home. Okay, yeah, I mean. So we're facing this kind of same things in the US and I think we talked about this last week and the fact that and Maria brought up a good point is, the longer that people can't buy a home, eventually they're just not gonna wanna, right? I mean, they're gonna get used to this new paradigm of renting right and they're not gonna own homes, which I thought was super interesting, because in the us there's like the homes that are now 65, it's dropped, but it was like or maybe 68, it's dropped below 60 to where it was a home buyer. A single family home buyer owned the homes in the us and it was a lot higher. It used to be like 70 or something crazy, um, and now it's dropped 10 basis points or 100 basis points because it's now not owned by home buyers anymore, it's owned by investors, which I find, you know it's far bigger in london, certainly, I know I know, um know, it's kind of.
Speaker 5:It's far bigger in London, certainly. I know. I think it's 28% of homes in London going back maybe five years ago were owned by foreign, non-taxpaying foreigners. Now that's just. You're setting yourself up for disaster here and you know you eventually have to ask yourself morally as a government you know, how do I decelerate this? How do I actually get some more social cohesion?
Speaker 5:The issue is for all democracies is all politicians are interested in is winning the next election, and if you're a homeowner and you ask the price gone up, happy, happy, right, you're going to get a vote from that government, but you're splitting, you're splitting society and I do think actually this is a bigger.
Speaker 5:In fact I think it's one of the biggest issues there is out there, because, as an immigrant into a country where you may be not getting that first rung from rich parents or whatever, you're actually now creating a racial issue here as well, where those who are immigrating from poor countries into Canada or USA or UK will never be able to get that first rung and therefore they will never be able to get that first wrong and therefore they will never be able to leave on that inheritance to the next generation, and what we'll see is a very big split in where we go politically as well.
Speaker 5:So it's one of those issues where it really is going to be tackled and I think it's actually gone too far already. But certainly at some point we're going to have to reel this in and actually look at how we manage properties. Going further, we can't get to the point where, even in the end, in 20, 30 years from now, 90% of the houses in the UK are owned by foreigners who are not even taxpayers in the UK. What point does that tipping point just go too far.
Speaker 1:Yeah, I know, and how do you sort of as much as?
Speaker 2:it's a government issue, it's a societal issue, right.
Speaker 5:Yeah, completely, completely yeah. And how do you? As much as it's a government issue.
Speaker 2:It's a societal issue, right, Completely, completely, yeah, and that's that's. That's a little bit of a challenge for a lot of people at the rise of the renter we talked about last week is is really kind of the the way it's going for both. You know, a few kinds of generations right, I think it's the boomers are supporting everybody else right now, right, I mean, mean, that's, that's the reality too and that's what is toxic. People are wondering, or kind of trying to think about, how to gift their, their children through kind of holding, you know, buying some real estate and pushing them to trust, right?
Speaker 5:exactly yeah, and I think what you know, when the boomers do start dropping off that cliff, um you know, the amount of money being left is absolutely astronomical.
Speaker 5:It's huge and maybe that is the only maybe true inheritance tax, which has obviously been a big thing here in the UK. I'm not sure what it's like in the US or Canada, but it's been a big thing for a long time here. Maybe that has to be the leverage for that going back in to the government to actually invest in properties for people getting the first wrong. Back in to the government to actually invest in properties for people getting the first wrong Because the boomers. Let's face facts in the history of the world, nobody has ever done better than the boomers and nobody ever will again in my view.
Speaker 5:I certainly look at my parents. I think the house they bought has gone up 400 times since they bought it. Is that going to happen nowadays? I don't think so. I think that has to be a reset and maybe maybe that is just a case of, you know, people will not be inheriting that massive amount of money they thought they're going to inherit, because I actually has probably the only fair way of going forward, but it is society deciding. They're going to have to have a higher social value here rather than rather than politicians just keeping those who own sets happy.
Speaker 2:Yeah, excellent, you know, and that's you're right. Basically, by gifting, the generation that remains will be able to get into the market or trade, be able to trade in the market because they have something right. So that's the way we're going to avoid the capital gains tax.
Speaker 1:Or one way, one way to do it Capital circle.
Speaker 2:We're back to capital gains One way. But you're right, you're absolutely right, paul, you're talking about that exact issue is how do we, how do we do this for our, our children, our grandchildren, right? Yeah, yeah, for sure.
Speaker 1:All right. Next story, and this is the one in Dini I were talking earlier about. So and this brings up a whole interesting other conversation about hospitals. So Steward is going bankrupt and they own several hospitals and several medical office buildings and it's been an interesting conversation because it's going to bring up a whole can of worms around. Should private equity own hospitals can of worms around. Should private equity own hospitals because it's providing medical care to the world. I know you in the UK don't get this because y'all have like public health care. You're just like, hey, what are you talking about, willis? Like it's like y'all are crazy. But I'm going to throw this over to Dini and he can talk about what he can talk about. But it is going to be an interesting ride for us in the medical real estate space over the next years to come, I would assume. So I'm going to let Danny take this.
Speaker 3:Yeah, I, you know just a little bit of history. I'm sure it's not the only private company backed by private equity that owns hospitals or has owned hospitals in the US, but what is getting the attention is their bankruptcy and the number of hospitals that, if they are not sold through bankruptcy, will close and the potential loss of health care in those communities. That's what's really brought it to light is the potential loss of health care in those communities. That's what's really brought it to light is the potential loss of health care in specific areas where these hospitals are located, and, as kind of the investigation of all of this is going, it's gotten the attention of state legislatures where these hospitals are located, attorney generals and also Congress, and so there's a lot of meetings going on there. There have been senators that have gone to Massachusetts, where some of these hospitals are, and having hearings there. There's congressional hearings, and then there is proposed legislation in some of the states to prevent both REITs such as one that I work for and others any REIT owning a hospital or private equity having ultimate ownership in the entity that owns the hospital, and to prevent that legally. You know where that goes.
Speaker 3:I have no idea, though, that healthcare in the US is very different than other countries due to the amount of government funding, even though we have probably 50 to 60% of our healthcare is paid by the government. But the real estate is what is different, because when a private equity company or someone like Stewart owns the operations, they then can sell the real estate to a private real estate owner or a REIT or somebody else, and then you get into what's the impact of rent and all the other things that go on from a real estate standpoint into the operations and financial success or failure of the hospital. And it is getting a lot of attention. It's likely to even bring back all the discussions of not-for-profit status of hospitals versus for-profit. So we'll hear about it for months to come and hopefully it won't become an election issue and all those other things to make it even bigger.
Speaker 1:Yeah, it says. There's a story out that they're going to close two Boston area hospitals by Labor Day.
Speaker 2:Right.
Speaker 1:Yeah, which is unfortunate, right? I mean, you know I, yeah, I can't, it's so, it's, it's odd, because you never expect a hospital to go under, right? You just think that they're going to, you know, they're always going to be there, like this is just weird. But yeah, no, I can't, I can't imagine that whole.
Speaker 3:Well, the other the other overlay to this is and it's and it's not the case in Boston by any chance but you know, in the US, there are certain areas of the US that have too many hospital, too many hospital beds, and so it's really adding confusion over the right number of beds in an inpatient environment to take care of the patients and to address that, which is a separate issue and should be looked at, totally different than the issue of ownership and financial success or expectations and returns, and all from hospital operations. And that's the struggle. There are areas of the US that need more hospital beds because they don't have enough, and then there's clearly areas that are over bedded and those hospitals likely should close, but they shouldn't close because of bankruptcy. I mean, that's not the intent, it's not like the free market, so to speak.
Speaker 1:Right now, I feel you. I feel you there. And you know, and it doesn't help that the Americans keep moving around the US and people leave, and you know, and then the hospital is like oh, we have a, you know medical deserts and all these other things, because people keep moving around and yeah, I find that, yeah it's, I'm sure it makes it a nightmare. You can't just put up a hospital tomorrow, I would assume. I think it takes a little while to build one.
Speaker 5:Right, I haven't built a hospital actually and that's one point, I think, which gets back to our core discussion you know we're not. We're not living longer, we're actually just taking longer to die. And the more and more we're coming up with new cures, the more expensive it is. And the whole point is we're not putting money into the system to look after where we're going to be in 20, 30, 40 years' time. When pensions first came out in the 40s 50s, you're expected to live for four years, especially if you're 69. That was how it was calculated. Now we're living to 70s, 80s, 90s, and now we're curing more things, which is costing more money. And this is where there has to be a fundamental shift back on exactly how taxation and where money goes has to be realigned. I mean, it's just.
Speaker 5:I think democracies are literally fooling us what the long-term is, long-term position? And actually what I've been proposing here in the UK is that mid-term of each election a year, two and a half, because we have every five years here, not four years that we get all the parties together and we agree what the foundation for the next 10, 20, 30, 40 years is, and then they piddle around every five years, changing the curtain sort of situation, but you stick to what a long-term foundation of the country should be, because this sort of four or five-year term stuff where we just come in and out and we just try and win the next election is not what it's all about, and I think that's sort of the public, because we're the problem. The public need to educate themselves and be more aware of what is actually going to happen. How, if we have shrinking populations and childbirth rates, how am I going to live an extra 20, 30 years longer than my parents lived and fund all that? It's big changes need to be made.
Speaker 1:All shady for prime minister. You got my vote, man.
Speaker 5:I can't believe you got my vote. Come on, president of the least. No.
Speaker 2:Jeannie, a quick question. How are, like, with these hospitals closing, how are they repurposing the space like it? Would it become a wellness clinic like? I read an article about wellness clinics kind of being the rage. Like how would they repurpose the space?
Speaker 3:that's a that's very, that's very difficult and and I would tell you yeah, you can, you can do, you can do wellness. You can have, uh, uh, still have, still have urgent care and those kinds of things and physician offices. But if it's truly a hospital that's built like traditional, many times they're torn down and the land is just sold off.
Speaker 3:Oh yes, oh yeah, depending on the age. The other is and I've seen this happen in some markets you can turn them into some type of assisted living, all those kind of things where you're converting those rooms, and but that's a very expensive process. So you've got to basically get the hospital for free and get all kinds of municipality support to do a redevelopment of an existing hospital. To do a redevelopment of an existing hospital. It's very difficult to turn it into something else, and sometimes universities will take them and use them for classrooms and teaching areas. That's been used in some markets, but it's difficult. And the older it is, then you get into all the environmental issues. If a hospital was built in the 40s and 50s, you got asbestos, you got all the problems, and so it's just sometimes it's better to just tear it down.
Speaker 1:Yeah, all right. Okay, we're going to move over to Hector. Hector, you get to answer these next ones. Are you ready? All right? So well, it's not well, it's sort of news. Well, it's not well, it's sort of news. I wonder what I mean. It's sort of good news, I guess.
Speaker 1:So there's a lot of talk about and this goes for everybody, but there's a lot of talk about the commercial foreclosures in the US. I basically suggest that I love the Wall Street Journal, I love anybody who tries to crystal ball anything and predict anything, because it's just so much fodder for fun to poke at. But they suggest that the surge in commercial properties, foreclosures, suggest that the bottom is near. This is a wall street journal. I'm like whatever. We don't know where the damn bottom is. We have no clue. Um, but the, the major ones and this is the leading of the foreclosures, the major ones is obviously leaded, led by the delinquencies of the mortgages, led by office, and then it's office, then it's retail, then it's multifamily. So office is a big deal. We don't know how they're going to repurpose these buildings, but it's interesting to see if you have any news from the co-working front or the office front that you're hearing about these foreclosures and and what's happening there.
Speaker 4:I mean I think a lot of people have gone back to drawing board, going back to what paul just showed us out of the window and what we discussed last week, kind of repurposing that hsbc building in canary wharf, a lot of projects on a study like that, how do you turn an office asset into something that's not classified as an office? Um, that is obviously a big piece that a lot of people are trying to figure out. You know, if the office building is what the issue is, what if it becomes a multi-use building? Right, that that's the building. You guys saw the renderings last week. It's going to be gorgeous if they get it right. Um, and there's going to be big chunks of it missing, which is going to be a fantastic addition to the skyline.
Speaker 4:But over in the us, obviously, it comes down to the capital markets. At the end of the day, the big problem that co-working and flex space operators value and we've discussed this last week and it comes up again and again and again because it's something that's continuously being beat on the drum is the fact that flex floor plans are valued at zero net value, right? So when they go to a bank and they ask for a loan or they try to remortgage or they try to go to the lenders. They're like oh, those six floors that are driving all the profit for this entire building are valued at zero. And until that is fixed, until there is precedent, until there is someone with a big enough swing to show, hey, this is actually a valuable asset or an asset that can be valued at higher than net zero. That's kind of where the big problem is with kind of bringing flex in. It drives revenue, but it doesn't help the valuation of the building. And so you're seeing a lot of folks in a bunch of organizations and a lot of both government and private sectors trying to figure out what needs to be done to start valuing those floor plans as more than zero. And there's a few obviously big moves that are being made there. But there's also the big I think it's the Blackstone deal that's trying to sell their portfolio. Now, if they get that transaction through, we have precedent. We have a valuation of a floor plan that has flex. We have valuation across multiple markets. You now have something you can go to the bank with and that's when I think it's going to help a lot of office owners get out of the trouble they're in because they know that flex drives up their revenue. It's cost efficient to run All the benefits we know about flex.
Speaker 4:The problem is the valuation. They're stuck between a rock and a hard place. It's the same as why people didn't give out, you know, during during covid, why they didn't give out lease at lower terms, because it drops the valuation of their building. They suddenly have to go give the bank the keys back to the bank because now they cannot agree to the loan values. So, yes, there is a bottom coming, but there's all this kind of fluff that's holding the market up right now and we have to make the right strategic moves to get that to a point where we can bottom out and start kind of seeing incremental values of office buildings. And it may be from flex and maybe from kind of the hybridization and this, this multi-use strategy that we're kind of seeing roll out. Um, but that's kind of what we're seeing.
Speaker 1:Yeah, I mean, it's this looming thing Offices. They don't know what to do with themselves, and I know that co-working can save the day. It's actually a model that works. I mean, it's a model that people want, and the fact that financing hasn't gotten on board is just insane to me. I mean, but there's got to be some sort of finance. Is it like debt funds, like private money that's got to be entered into this space?
Speaker 4:Yeah, there is. The problem is it still doesn't value the building, and that's what's worrying a lot of landlords. We're seeing an increased amount of owner-operators tishman, spire, heinz, etc. Bringing flex into their building because it's their building. They're the ones that hold the asset. Therefore, even if they take a hit on those four floors, their revenue enough covers the rest of the of the issues the problem comes in is when you're an operator and you're releasing that space, so you're making a management agreement or you're doing all of these kind of pieces with the landlord. That is not your company, like that's when it becomes more murkier.
Speaker 4:Um, but going back to what you're saying about the cities and the, and like the fact that co-working is useful, we are seeing cities like chicago, tulsa, uh, etc. Bringing co-working and funding it as a government expense and letting it regenerate areas. Because once you have football, you now have retail. If you have retail, you then have residential.
Speaker 4:If you don't have people coming to those centers, you have that doom loop that keeps happening again and again and again. The buildings empty out, the restaurants around that, the cafes around that, the retail around that, and it just creates this everlasting doom loop unless someone goes in and says we need people coming in here, whether it's underrepresented founders, whether it's startups who we're funding through x program like throw people back into those buildings. Make it an incentivized reason to be there. Give the tax breaks that they're giving and kind of they used to give an outside and especially in new jersey, to go kind of set up a factory somewhere out in the countryside. Give those tax breaks to come back into the cities through things like co-working and that's how we're going to rebuild the city centers.
Speaker 1:Yeah, no, I feel you. I feel you there. I mean I think it's. Yes, I mean it's, I don't know. I work from home, I work from an office. I do both. I like both. There's reasons why I do both. I like the freedom to have both and I think co-working is the way that people can do that. Right, I mean it's. You know, I can't imagine forcing people to drudge into an office, like everybody has to be there. I mean, I just like it's, like like who would force that upon an employee?
Speaker 4:like I think it's also.
Speaker 4:Yeah, just the way we we look at offices has changed. It's not only it used to be a destination that you go to, you're forced to go somewhere. It was mandated that you go to a specific place. What we're seeing now is ecosystem of workspaces. So if you look in kind of boston, for example, you have a company called Work Bar. There they have a bunch of city center locations, but they also have a whole bunch of locations, small locations, spread across the suburbs, and what they do is they sell membership to an employer and their employees can use any of those locations, whether it's near home, whether it's in the city center, and then they coordinate their teamwork around where they're all going to collect that time, and that's allowing people to get to the office without going into an office.
Speaker 4:And so these kind of strategies are a little bit more forward-looking because you don't have to kind of focus everyone to go to a specific building, but everyone can still get work done, everyone can still collaborate next to each other. Or you sit in a space that's not your home and you can ignore the washing machine that's running in the corner or the pile of laundry that needs to be folded and actually get some work done and deliver that presentation, that meeting, etc. So, yeah, I think it's just a shift in the strategy and landlords are getting involved, local governments are getting involved. Um, it's just going to take time for the banks to be like, okay, this is something that we've got enough data, let's start valuing input money, putting loans into it and being able to buy properties that have this yeah, I think the corporate presence, though that has the traditional corporate presence, has really been community, right.
Speaker 2:I mean, growing up in that and having a workplace to go to is associated with the community of where you work, and and that's been threatened right and disrupted through all of what we do. I'm not really sure where it's going to land, but, to your point, flexibility is probably paramount in terms of what employees are looking for. The challenge is, though is flex really a way to create that community? Can you continue to create that community if you don't have a one location corporate presence? Or is that corporate presence? Should that be distributed? To your point, hector, is that the corporation of the future? So, when you do build a business, do you have a storefront, so to speak, or don't you? What's going to work? So I do think it's going to land somewhere in the middle, but I do think that sense of community is what really challenges even the younger generation in terms of their relationships. I mean, how do they forge relationships and networks? So I think that's a challenge.
Speaker 2:What we try to do at Manulife is create neighborhoods and the concept of neighborhood is very similar to flex and just bring people into those neighborhoods and have them sit there to collaborate, but they didn't have to come in every day. Um, pandemic kind of stood in the way of solidifying that idea, but I think it's still kind of. The concept of flex is like let's create these communities of people that collaborate together, just that you kind of challenge the, the whole relationship building and workplace. I have a workplace to go to, so I think that's something that I think there's an opportunity for those of us that are thought leaders to help drive that disruption, or maybe the opportunity again right To challenge what's going on today.
Speaker 4:Yeah, absolutely. I mean, I think back to when I started my current company. It was founded in 2019 and I'd never met my co-founder. He was an American in Europe, I was a European in America. I wrote a post about this idea and we landed on founding a middleware tech company without ever meeting. We built our team remotely and then the pandemic happened. So we were already set up to handle that. That's how we structured the company, set up to handle that. That's how we structure a company. So increasing.
Speaker 4:A lot of folks have realized that, yeah, they can have people work together, but they don't necessarily have to work on the same projects together. You could have everyone in the Jersey City location for your company all working in the same place, have the camaraderie, have the networking, not have conflicts of interest because they're dating or seeing each other or whatever it is, but all work for the same company. In the way companies interact and engage is it's a huge, uh, uh, sub-industry. Now it's become not even a cottage industry. It's a billion dollar industry, creating workspaces that are dispersed, that bring people together and inspire them to come to the office and then doing kind of um, quarterly, uh, kind of get-togethers for entire regions. So we're seeing this kind of companies like slack, automatic. These are all kind of remote first companies, but they're now figuring out that we want to bring people together more frequently. We want them to have the autonomy to spring up offices wherever they need them. And that's the big shift that we're kind of seeing these forward thinking companies look at. So we have HQ where our CEO et cetera work from. Then you have these kind of hubs of remote offices. Then you also have these pop-up offices where people are booking three days a week and it's their office for three days a week and then the other two days a week it's another company's office, but they never actually think about the logistics of that because tech is enabling them to think about office as a tool and not as just something they have to go to.
Speaker 4:And that is changing a lot of companies approach to strategy. If you go look at the job boards now, the amount of people who are hiring now for workspace strategy, workspace directors, your remote directors just kind of figuring out the puzzle pieces have all changed right? We all know that people want to come together. We want to build culture. We want to come together. We want to build culture. We want to give that, that, that route to promotions, that cultural and corporate lifestyle. But not the best talent doesn't live where you are or may not be able to come to where you are, and so if you can hire the best people in the world, wherever they are, we're going to have stronger companies. It's just going to take time, especially for the companies that are large enough to be like container ships. It's going to take them some time to turn right, um, and so they will well, I think it's a change in of the guard right.
Speaker 2:It's a change in of the guards. I think that's where it's where it's gonna, wherever that's gonna land. I mean, I grew up like I started my career in an environment where I had to be in the office five days, but it was a work environment of five days plus where, unless your bum was in the seat, you weren't valued or you weren't a committed employee and there's a perception of value and contribution when you're in a built environment.
Speaker 2:For some, some leaders right so I think the value of your productivity is different, but anyway, I'm going to come to this from a different angle.
Speaker 5:Okay, and I'm very, very unpopular about my view on this, by the way, I've been using FlexOffice now for 11 years solid and it's suited me down to ground. I've been able to expand up and bring down and it's been amazing. My last company I grew 20 offices in 16 countries, so I had offices in Thailand and Moscow and Kiev and Germany, france, and five offices in the US and they were offices we took out leases. It was very like God, how many people am I going to have in four to five years? And it was really, really a pain in the ass. So, flex, if I was starting again in 2003, starting my company in 2003, I would definitely have gone for Flex everywhere. Back then it was leases and a real big headache. A real big headache. So I get Flex is amazing.
Speaker 5:What I don't agree with everybody here and I know I'm controversial with this I actually think fundamentally, we are making a big mistake not having people together. Now, for me personally as a CEO, it was an absolute pain in the butt having to be working remotely during COVID because my work, the amount of work I had to do, because we had a very wide group, from sales to IT, and some people are very introverted and they're not going to reach out. And you're sitting there still trying to remember who the hell am I calling next right? And a lot of people are not calling you. Trying to remember who the hell am I calling next right? A lot of people are not calling you. You have to be the one instigating all of this the whole time. I think for some companies, this is great. I think there's a few problems. One your business. Why am I here now? Because when I was much, much younger, I was very, very lucky to be working on some incredibly intelligent people. Where I was sitting in those meetings I was seeing how everything from the way they behaved, the way they conduct themselves in meetings, etc. I'm sorry, but you're working at home in some flat where you live all 24 hours a day. That is not good for your mental health too. You're not learning basics of manners and basics of what you need to do to progress your career on, and I can tell you hand in heart, I was damn lucky to have worked around some absolutely genius people when I was much, much younger and I used those twice as much as I used that and that's why I probably am now in reverse. People being around me are learning from me and how I conduct myself on this TV show, for example, but I don't think we're doing our Well.
Speaker 5:I disagree with many things. What we're seeing is much, much faster turnover in jobs. You go in and you do a job for six months or a year. The next, this generation, come on now don't have, in my view, loyalty to a company. It's all about you're just a stepping stone to the next thing. That isn't good for you as a company. If you're having high numbers of staff turnover, that's not good for you as a company. I don't think it's good for you, as the employee who's jumping all the time thinks it's great because I actually make an extra thousand pounds.
Speaker 5:I move to amy's company and next month I'm going to go to maria. She's going to offer me a thousand pound lecture. That's how fundamental. Do you go sticking in there, learning the, the real cogs of a company and the personalities and what all the functions are and all the rest? It's good.
Speaker 5:I have actually decided everybody's back in the office every day. I only have one, but one person works remotely in egypt because, quite frankly, he's fantastic and he's never caused me any issues ever and I know he's diligent as hell and I let one of my other staff take a monday off. He's got to do some very intense work where he has to focus totally, otherwise you're in end the story. Amazon package get it delivered to the office. Um, I decided to be hardline and actually our productivity is phenomenal. Every micro conversation that happens is overheard by everybody and we're all on the same page and I know it's controversial and very against everyone to go, but you know what it works for me, it's working for the company and my retention rates are very high and our growth is going through the roof.
Speaker 1:Yeah, so what you're talking about is this whole thing that corporations were looking at, I guess about 10, 15 years ago, around knowledge management, right, you have. You don't know what your people know, and that's like the biggest thing that escapes a lot of employers. We have thousands of employees and we don't. They have millions of skills that we don't even know what they have. We know what their job is, we know what they do, but so when you get in, like when you get in these remote workplaces, you lose. You lose that even more, right, at least when you're around and you go oh, you speak korean. I had no idea we have like three korean customers. This would be great to know that you spoke korean. You need to be in these meetings, right, but yeah, I mean spend most of the time in the right.
Speaker 5:We expect to spend a big chunk of our for 24 hours, eight hours, with lots of people who you're with all day long. Right, and it's building that into personality. How, how's your wife doing? How's the dog, how's it? You know it, just it, it, it. I think it's good.
Speaker 5:I mean, I think if you look at, like, where we're going on on on your reproduction, all the rest, the more, more you're isolating people, unless they're going into relationships. I mean this is just, I think it's just a bad idea. Um, I think it'd be handled differently. I do think the flex piece is a fantastic piece because actually you get to meet only people in your organization but other companies in that building. So I think that's fantastic. But I do think we need to and, by the way, this is a US, canada and UK issue.
Speaker 5:Europeans are back in work. The Far East are back in work five days, six days a week. This is us, and we are the ones who, quite frankly, are becoming less and less and less productive. You look at our productivity rates. They've been flatlining like it's a dead body in the UK for so many years. I can't even tell you. I mean you're actually clapping yourself in the back, as with 0% growth last year productivity, I'm like my God we should be hanging our heads in shame and I think we've got to take a step back and think a bit deeper.
Speaker 2:So Europe is back in the office five days a week.
Speaker 5:No, no, no. Europe is not back in the office. I have offices that we do occupancy technology in, okay, and they have had for years 2% occupancy in some of the buildings, 2%.
Speaker 5:Now my issue with that is they have all the lights on all the air conditioning, on everything running for 2% of people in an office. I'm like what is wrong with you people? Um, and again we have to decide. You know, okay, if we're down to two percent or five percent, you close the office on a friday. You tell people oh, you have to work from home. What you know? We're waiting to think. Remember, the other 98 percent are at home with all their electricity on and so we're just making like it's environmentally.
Speaker 4:It's a really bad idea yeah, I just want to add one note, paul, to what you mentioned earlier and you just mentioned now, right, um, I'm not going to defend flex here, I'm definitely not. It's not a sort of a sort I'll fall on, but the one thing that we're definitely seeing is in the big cities london, new york, san francisco people cannot afford to live in those cities, and so they are. Your employers are kind of forcing them pay. Some live in a lifestyle, work-life balance. You cannot afford to keep this job or go to work for a company that will let you live somewhere. You can go, your kids can afford school, you can afford a house, you can build up a lifestyle, you can build savings, because that's what we're seeing with the next generation.
Speaker 4:It's not that they're just only hopping from job to job. It's also that they need to be able to cover these costs. Inflation is going up faster than it was going up, faster than wages were. The only way to get a raise in many companies was to leave to another company, and so you had to kind of figure out these pieces as well. But I agree, having people together, and maybe that's why we're kind of seeing more off-sites or on-sites being coordinated quarterly, monthly, where the whole global team, the whole national team, comes together, works together for a week and then dissipates for three weeks. We haven't figured it out, but we have to remember that not everyone can live in New York, london et cetera, and we want those people working for our companies.
Speaker 5:Totally agree. I've actually, if I've lost staff in the last couple of years, it's been for that one reason, that one reason to can't afford to live in London any longer. I mean, it's bonkers. And a really good statistic I actually ran was when I first came to London and had a shitty job, nothing worth talking about, earning very little money. I bought my first flat. I incredibly looked at that same flat now From my salary today and what I'm doing now, my multiples don't work to buy the same flat. I mean we got it wrong. Right, we've really got it wrong. That house had gone up by 900%. How's that? That doesn't make sense like at all. Yes, well, and that's what I think I think amy, amy I will
Speaker 3:yeah, go ahead amy, I will just contribute on the working together. It is really one of the fundamentals of life science. By having scientists and researchers all in the same building, working on various things, where they're sharing ideas, it works there. Now it's got all the other issues of funding and companies that barely make it from one cycle to the next, but that collaboration works and I think it works in just about any industry. And I would say I am a proponent that you're in the office and that's where advancement occurs, that's where best training occurs, all of those things.
Speaker 3:And the people that just want to task, just want to work for a paycheck, that's the ones that are at home and working remotely. And there are people that want to do that. I get it. We interview people all the time and the first question is not salary do that? I get it. We interview people all the time and the first question is not salary or anything, it's how many days do I have to be in the office? And I kind of go. That's a nutty question, I mean, why would you ask that in the interview? But that's what happens, all right.
Speaker 1:Yeah, no, I feel you. Well, go ahead and do your. This is, our hour is up. Y'all this has been so much fun. This is what happens when I get all my friends together and we talk real estate. It's super fast.
Speaker 3:So, Dean, you can do your outro and we'll call it a day. Well, I will say what I said earlier, and that is just watch what's happening to the ownership of hospital real estate. It is fundamentally probably going to change in the next five years, Wow.
Speaker 2:I know.
Speaker 1:Paul, thanks for joining us today. You can do your outro.
Speaker 5:Look, it's an ever-changing world. We have to just open our minds up and not be so pulled by the narrative that maybe we're fed by those with a vested interest. It's great, let's keep going. A little more common sense, I'd say, would be great for all of us to take away.
Speaker 1:Oh yeah, I'm sorry. Politicians have no common sense. All right, Hector.
Speaker 4:I realized that when I introduced myself, I never said any of the companies that I work for or any of the projects that I run, so I'm going to just say the last thing. There are projects that I run, so I'm going to just say the last thing. There are more than three brands, three companies in co-working. If you want to get a kind of global look at what is happening in industry, my free newsletter is called this week in co-workingcom. Feel free to subscribe. Um, I send that out every thursday morning. Um, and yeah, there's a lot happening right now.
Speaker 2:It's a very exciting time to watch this market very cool, yes I think he said this uh, this come true, so be open-minded, right, be open-minded and, and and be prepared to pivot and maybe consider new ideas, working right, new ideas of how to manage, because I think that we have to remain that way, um, in the industry, and maybe try to help accelerate that kind of thinking for us. Thank you again, though, great panel, yeah, I've learned a lot, and.
Speaker 1:I am Amy Palvado and I am your host. This is the CRE News and Views Morning Show. It happens every Tuesday and I will say I want to say thank you to our sponsors. Lerner Associates is in the UK and they do mergers and acquisitions for PropTech and Ben Lerner has been so gracious to be one of our founding sponsors. So I want to thank Ben for helping us out and being a sponsor of the US PropTech Council. If you want more information, go visit us at proptechcouncilcom and we will see y'all next week. Thanks for coming.
Speaker 5:It's been great.
Speaker 3:Thank you.
