Sam Zell, the notorious “Grave Dancer” of commercial real estate known for his salty tongue, is always happy to have a platform.
Last week, he took the opportunity offered by New York University’s Schack Institute of Real Estate to address a crowd of admirers in the gilded dining room of the Pierre Hotel, half-a-block from Central Park. He was in a cheeky mood, at least when the conversation turned to today’s third-rail of commercial real estate: office properties abandoned by remote workers.
“All of this discussion about work from home is basically a bunch of bullshit,” Zell said, to the roar of laughter and then thunderous applause from the approximately 250 people assembled for his appearance.
His rationale was a common one, at least among big executives who say they can get more productivity out of their employees in an office setting. He explained how he can’t “motivate by modem,” and that remote work is just no substitute for the personal interaction that’s useful for everyone from board members to young people starting their careers.
Zell, who sold his Equity Office company to Blackstone in 2007 for $39 billion — the largest leveraged buyout ever at the time — then surmised that if one examined the recent slew of tech layoffs, they might find that people who worked from home were more likely to be laid off than those that don’t. Heads nodded, once again.
The value of big office properties is hanging in the balance as corporate tenants pull back on space, or don’t renew leases altogether. The trend and dire outlook had real estate giant Brookfield defaulting on a loan tied to offices this month for the second time this year. WeWork, a once celebrated investment and cornerstone of the co-working space movement, was just warned that it could be delisted from the New York Stock Exchange. (WeWork CEO Sandeep Mathrani was slated to speak at the Schack conference but was absent from his panel).
Zell found himself in good company, however. Office doomers have it all wrong, other commercial property professionals would say at the conference, despite what they admitted were tough times.
Owen Thomas, CEO and Chairman of Boston Properties, the largest office REIT, blamed much of the recent office stress not so much on remote work but the soaring financing costs plaguing the entire industry. Businesses are taking less space, yes, but that’s because of the “recession” hitting corporations right now, even as consumers continue to spend.
“I’m not suggesting that work from home is not an issue,” Thomas said. “It is.”
But other than on the West Coast, he asserted that most businesses have employees back in the office several days a week. Last year, when fewer employees were going into offices, Boston Properties had “kind of a normal year,” in terms of space leased. The company is facing a more challenging year in 2023 when there are more people back in the office but the economy is contracting, he said.
The path forward for Boston Properties, which largely develops new, highly-amenitized office buildings, is simple, Thomas said.
“We already invested the capital, let’s lease the portfolio,” he said. “And also by doing that, we would disprove the skeptics about work from home.”
For those that seem to have sidestepped the office mess, there was a sense of victory. That included Blackstone, whose portfolio was heavy with office assets in 2007.
“Today, traditional office in the US — which was more than half of our business — is now 2% of our global business,” Nadeem Meghji, head of Blackstone’s American real estate business, told the Schack audience.