the death of the urban office building

[CharlesMunger]

Google to Buy New York City Office Building for $2.1 Billion https://www.wsj.com/articles/google-to-buy-new-york-city-office-building-for-2-1-billion-11632225600

[fareastwarriors]

 

Google’s $2.1 billion office building deal is latest sign of Big Tech’s muscle in Manhattan market

 

 

Google’s $2.1 billion deal to buy a Manhattan office building adds to the rapid growth of Silicon Alley.

 

Its latest deal brings its total square footage in Manhattan to over 3.1 million square feet.

 

The leasing activity from Big Tech has helped spark early signs of a recovery in the Manhattan office market, which has been hit hard by the Covid-19 pandemic and urban flight.

 

https://www.cnbc.com/2021/09/22/big-tech-is-helping-to-save-manhattans-real-estate-market-.html

[fareastwarriors]

Hines, Korean Pension Fund Bet Big on San Francisco Comeback

 

They plan to redevelop site of PG&E’s office campus in San Francisco

https://www.wsj.com/articles/hines-korean-pension-fund-bet-big-on-san-francisco-comeback-11632225601

 

Real-estate developer Hines Interests LP and a South Korean pension fund are planning a $2.5 billion-plus office and apartment project in San Francisco, a vote of confidence in one of the markets most upended by the pandemic.

 

Edited September 23, 2021 by fareastwarriors

[Morgan]

On 9/15/2021 at 10:12 PM, Spekulatius said:

Not sure where this post should go. This is a WFH study conducted by Microsoft Results are not positive, Imo:

https://www.nature.com/articles/s41562-021-01196-4

Basically sounds like WFH will be a competitive disadvantage for creative companies to a certain extent. 
 

Companies that only require data entry for example, don’t need to have an employees randomly meeting and interacting. WFH may be a competitive advantage in these cases. 

 

In Creativity, Inc, it talks about building the new cafeteria for Pixar and Steve Jobs required that it be set up so all employees would be in the same area and thus more likely to share different kinds of info, just like this study suggests.

[fareastwarriors]

NYC Office Market Revives With Tech Firms Hunting for Space

 

Microsoft, Roku among companies seeking Manhattan leases

Growing firms line up new offices even as staffs work remotely

 

https://www.bloomberg.com/news/articles/2021-09-24/nyc-tech-push-gains-steam-with-microsoft-roku-in-hunt-for-space

 

Video-streaming company Roku is in talks to lease more than 100,000 square feet at 5 Times Square in Midtown, and Microsoft is close to a deal for roughly 100,000 square feet in the Flatiron district, according to people familiar with the companies’ plans. Stripe recently took more than 100,000 square feet at a WeWork location in lower Manhattan, people familiar with the transaction said.  

[fareastwarriors]

Publicly-traded firms now own $1.64T of US real estate

 

Google and Amazon among major tech companies snapping up properties

 

https://therealdeal.com/2021/09/28/publicly-traded-firms-now-own-1-64t-of-us-real-estate/

[hasilp89]

https://www.bloomberg.com/news/articles/2022-03-08/morgan-stanley-workers-are-staying-despite-office-push-ceo-says?srnd=premium

the office is dead narrative may now be dead.

Edited March 8, 2022 by hasilp89

[Gregmal]

Yo so anyone given any thought to the future of office? I’ve kicked it around a little and strikingly it kind of looks IMO, like a lot of what WeWork kinda does???? Used the recent volatility to get about a 1.5% position so nothing high conviction….but I think we can all agree traditional office is kinda challenged. Probably meaningfully changed, forever. Interesting to see where it goes. A lot of other favorable stuff with WE as well ranging from dismal reputation, to spac, to recent IPO or whatever. Why the opportunity exists type stuff.

[Jaygo]

My take is that office is going the way of AMC. In that I mean to say that the original idea is fading fast( watching movies or shuffling paper) What is more likely is that the majority of the sq footage gets changed into something else. The survivors will be the best space that encourages people to want to go for the "feel" Allied properties in Toronto is a great example. These are former warehouses turned into exciting event space / office environments that make you feel good, essentially the opposite of a cubicle farm. 

 

Im 37  when I was younger it was all about downtown fancy shit, now its farm weddings and brewing our own beer. Times change and people change but I sure as hell wouldn't want to go into a high-rise office ( corner penthouse excluded of course )

[Spekulatius]

5 minutes ago, Jaygo said:

My take is that office is going the way of AMC. In that I mean to say that the original idea is fading fast( watching movies or shuffling paper) What is more likely is that the majority of the sq footage gets changed into something else. The survivors will be the best space that encourages people to want to go for the "feel" Allied properties in Toronto is a great example. These are former warehouses turned into exciting event space / office environments that make you feel good, essentially the opposite of a cubicle farm. 

 

Im 37  when I was younger it was all about downtown fancy shit, now its farm weddings and brewing our own beer. Times change and people change but I sure as hell wouldn't want to go into a high-rise office ( corner penthouse excluded of course )

I am going to my suburban office and nothing has changed. I don’t think much has changed in the area I live in either. Traffic is still a bit less than in 2019, so I think that means Office has been somewhat affected,  but I fail to see a fundamental change here, more like a gradual one that slowly seems to be reversing.

Maybe not all Office is the same and suburban office has different dynamics than big cities? The rest of the world doesn’t necessarily look like NYC.

Edited March 18, 2022 by Spekulatius

[Jaygo]

Sorry I should have said i'm speaking to downtown office stuff specifically. Suburban office parks are definitely hurting though. Maybe the campus style tech or R&D facilities are still busy but the bland office parks are going to find that the space is just not worth the money or they dont need as much space as expected. 

 

 

 

 

[Spekulatius]

Agreed on this. Office usage for the company I work for has not changed, but a lot of this supports light manufacturing operations. I do see tenants round moving out and bland Office parks being less busy. Some of them seemed to move to nicer locations, which I  think could point to @Gregmal Line of thinking. I would not want to own B & C class Office real estate in the suburbs either at this point.

[Gregmal]

Ok so we aren’t there yet, it’s early. But is anyone seeing the potential glimmer of hope here? The current conspiracy to destroy a wonderful jobs market in order to shift power back to the corporate elites is almost guaranteed to result in a large scale return to the office. Will it be pre COVID levels? No. Certain jobs just don’t need the office. But there’s many things that do and right now those companies just don’t have the leverage over their employees to pull it off. 

[Dinar]

According to NY Post, Goldman Sachs sent out an email earlier today telling people to go back to the office 5 days a week.  The question is whether it will stick.   In my opinion, there are three problems as far as GS is concerned: a) a lot of people who work for the firm do not need to work, and treasure the absence of commute, so how many will actually comply? b) Economically speaking, people may decide that it is no longer worth working for the firm (not on the business side, but support staff).   NYC/Jersey city has seen rents rise 15-20% in the past year and probably 30%+ from pre-pandemic levels, GS has not raised compensation 30% since 2019.  Given that most of the staff lives in the suburbs, when it costs  $3600 per year to commute from Bergen County to 200 West or $4800 from Scarsdale and one is saving 15-20 hours per week by working from home, some people may decide it no longer makes economic sense to work for GS and look either for jobs that allow remote full time, or several days a week, or are in mid-town or even in the suburbs.  c) People have changed their lifestyle in the last couple of years - acquired pets, for instance, which will require dog walkers if nobody is home to walk them.  Working during the winter from say Florida or Hawaii and in the summer from Europe or Long Island or Maine is plenty attractive.  Sure, if GS pays me $2MM per year, I will be in the office 5 days a week, although if I do not need the money since I am say 35-40, then the calculus may change.  However, if I work in the back office and get $120-$150K, and now you are telling me that I need to be in the office 5 days a week, which means $3-5K annual commuting costs, say another $2-3K in extra lunch/dry cleaning costs and on top of that, I need to be spending 15-20 hours per week on the train/bus, then may be I look for another gig.  After all, there are 11MM jobs available.   I think this will spectacularly backfire unless GS significantly boosts comp particularly for the lower paid part of the workforce, and I guarantee you that ain't going to happen.  

[Spekulatius]

@Dinar maybe GS just needs to move these lower paying jobs away from Manhattan. Havn't‘t they done this anyways over the years? Perhaps this is just their way of getting rid of some people in the leaner times to come and move these jobs to cheaper locations where they can pay less.

[Gregmal]

Goldman is a totally different culture animal than most companies. You'll continue to see companies moving to more efficient locations, but I would think a return to office is something pushed very hard if the elites are indeed able to destroy the current problem of employee leverage. A friend told me two days ago she got a job offer from Bed Bath and Beyond in their marketing dept. Currently theyre offering 20% sign on, doing 3 days a week in office, and by Q4 gonna push 5 days a week in office. My only thought was like yo I thought they were filing for bankruptcy LOL. But if some zombie like Bed Bath is trying that I think everyone else will too. Right now the jobs market is good enough people can say no. What happens when they no longer have alternatives? Do we really think companies offer WFM out of the kindness of their hearts?

[Dinar]

19 minutes ago, Spekulatius said:

@Dinar maybe GS just needs to move these lower paying jobs away from Manhattan. Havn't‘t they done this anyways over the years? Perhaps this is just their way of getting rid of some people in the leaner times to come and move these jobs to cheaper locations where they can pay less.

Yes, they ought to.  They have done some - Salt Lake City, et all, but not enough.  

[Dinar]

Greg, you are absolutely correct.  The question is, how many people across the economy are working because they want to rather than because they have to?  If it is say 10% of the labor force, and half of them quit, then employers have zero leverage.  I guess we will find out.  

[lnofeisone]

I think my glimmer of hope will be when the labor market takes a dive and stay there for a short bit. Currently, the market is still extremely strong. We've had few folks hired away just few weeks ago and these individuals had numerous performance issues with us. 

 

My firm has 2 large office (20+ floor) buildings in the DC region. One is known as the densest office for our firm in the world. They are both employee-light - maybe 20% of what it used to be. My teams go in 1x every 2 weeks and I think they will just leave if I ask for more. 

 

Still early, IMO. 

[CorpRaider]

We don't have a thread AFAIK, but I've been looking at VNO and buying some SLG and JBGS lately so I want to drop some notes here, probably not worth a blog post. 

 

A) NYT hates Penn redevelopment plan? (or maybe New York Today newsletter does:  https://www.nytimes.com/2022/08/30/nyregion/penn-station-towers.html)  IMO, they do have a point about dropping more office even if it's going to be a decade +.  I need to read some VNO stuff about what they're thinking; I guess oversupply is the other guy's problem.  But midtown sucks big time and I think making it all more like the rest of Manhattan even FIDI would be a great idea. 

 

B) SLG, I would rather have my one vandy already built; prefer their more opportunistic less dirt guy ethos:  relatively limited, selective (re)development.  Buy backs were legit; then pivoting to Korean money/asset management if stock is cheap/cost of capital too high are all great but mgmt been slapped down on comp a few times lately (good that shareholder are engaged I guess), but then I was reading their filings and WTF is this deal about Holliday and COO getting ~1% side pockets on one vandy upside.  LOL they paid based on "independent appraisal".  Red flags.  Also, pivoting to retiring the floating stuff coming up this year is alright but obviously not ideal (buybacks above $80.  Balance sheet is somewhat (hah) opaque with the debt and jvs and whatnot, but I love the specialty merchant bank/RE PE shop in NYC thing.  Mezzanine gods have flexed on some great deals and they get access and info that way for sure.  Of course, I guess you get sued more often.  

 

I tend to think more and more people are going to be back to like it was before covid at some point.  We had good video conferencing software and hardware with polycom stuff that would focus on the speaker and blow up the relevant camera shot in like 2005.  Granted it was only in the meeting/board rooms, so it's cheaper/better but I don't but that it's like a step change.  If you go to the meeting or are present in the office the partner (or whatever the BSD is called in your industry) remembers you exist and you get more work/get staffed on stuff and you will end up more likely to survive the layoffs and/or get promoted over remote guy.  Also, first thing I do to start vetting an investment, law, whatever firm is pull up shots of their address/HQ.  Even all these interviews on Bloomberg and whatnot are laggy and crappy camera quality so the guest who is willing to drive in should get booked over the competitor unless it's like diller from his yacht.

 

But I mean with dirt in Manhattan or DC below book, and better liquidity and management etc, I don't really have to believe any of that BS I just typed about the asset class.  

 

Note to self, look at $BXP if Boston ever becomes a real city.

 

Edited September 13, 2022 by CorpRaider

[Gregmal]

Leasing activity seems to be stronger than otherwise expected lately. NY area especially. 

[tede02]

Jim Bianco has been repeating the "death of office" narrative lately. But I'm skeptical. It seems similar to "death of retail." Has office utilization changed...yes. But an apocolypse seems unlikely. 

[Gregmal]

In 2020 there were people 100% convinced covid killed retail. Then retail rose like a Phoenix from the ashes. Now these people marvel at 4-5 cap rates on grocery anchors. 

 

Office I always thought was different because people like shopping way more than they like going into the office. Its also unpopular to push folks back during a "pandemic". But it seems, especially in fun places like NYC or whatever, that theres not only a market for it, but also now with the "kill the economy" cult lobbying like there's no tomorrow, likely a future scenario where workers no longer have a choice. 

[Libs]

This is sobering. SF is an extreme case, but still-

 

https://sfstandard.com/business/san-francisco-braces-for-epic-commercial-real-estate-crash/

[Gregmal]

2 minutes ago, Libs said:

This is sobering. SF is an extreme case, but still-

 

https://sfstandard.com/business/san-francisco-braces-for-epic-commercial-real-estate-crash/

Ya so is their residential markets. But don’t feel bad for them, they’ve had two decades like few will ever see. It’s a result of their wokeness. Tech, aka them, drives work from home. All the new age mantra they embrace will be their undoing. I’d be much more comfortable in Boston which is a life science and financial hub, or NY which is heavily old school financial machismo and a good mix of everything else. Chicago is dead and SF is not dead but due for a major correction.