Ep. 52 Spencer Levy
Spencer Levy is Chairman of Americas Research for CBRE and Senior Economic Advisor for CBRE. He plays an integral role in the development and implementation of the global research strategy and business plan. A CBRE veteran of more than 10 years, Spencer had previously served as Executive Managing Director in the company’s Capital Markets division.
Mr. Levy oversees the analytical activities of the CBRE research community within the Americas region and is responsible for the management of hundreds of professionals who are focused on producing market-leading insight and interpretative analysis on the latest real estate trends. Mr. Levy supports CBRE executives in their decision-making by providing insight into the impact of market trends related to strategic business planning, and analyst call preparation.
He serves as principal external spokesperson on real estate issues in the Americas region and has considerable media experience, providing market commentary for many national television, newspaper and internet outlets.
Mr. Levy joined CBRE in 2007 to lead the U.S. Eastern Division of the Capital Markets platform. Since then, he has assumed positions of increasing responsibility. As a part of senior management for the Capital Markets platform, Mr. Levy provided leadership for several areas in the United States and Latin America. Mr. Levy provided additional oversight of Retail, Auction and Investment Banking in the United States. He also directly serves a number of major clients.
Mr. Levy is a frequent speaker before industry groups, including NAIOP, ICSC, ULI and CREW. In 2010, he won CBRE’s Gary J. Beban Teamwork Award, which acknowledges professionals who take a multi-disciplinary approach to client service. Mr. Levy currently serves on the Board of Directors of the Baltimore Leadership School for Young Women.
Prior to joining CBRE, he was a principal at Stifel Nicolaus (formerly Legg Mason Capital Markets), a leading investment bank serving the real estate industry, where he played a significant role in M&A, IPO and private capital-raising activities. Before that, he served as assistant general counsel at the Witkoff Group and was an attorney at Fried Frank Harris Shriver & Jacobson and Jones Day Reavis & Pogue.
Mr. Levy resides in Owings Mill, Md. with his wife and three children. He is a graduate of Cornell University and Harvard Law School.
Chris Rising (00:50): Welcome to The Real Market with Chris Rising. I am really pleased about this podcast with Spencer Levy. He's the chairman of Americas Research and senior economic advisor for CBRE. We have a very engaging conversation. You want to know about where we are here in July 2020 in the real estate market and in the economy, Spencer lays it out unbelievably well. We talked about all types of real estate, retail and industrial hotel and office. We talked about where the world is heading, the challenges we're facing and I'd say, at the end of the day, this is a very optimistic podcast about where we're going.
Chris Rising (01:25): We're going to have some tough road to hoe over the next few months and year, but Spencer is very positive about what we're going to end up. I think you're really going to like this podcast. Spencer, welcome to the podcast.
Spencer Levy (01:38): Thank you for having me.
Chris Rising (01:39): I am very excited to have you here. I've seen you speak. I've been in the business a long time and seen a lot of economists speak. Let's just say your picture the Wikipedia of what someone who's spent their life in economics about. You're very animated about the things you talk about, and you're excited about it. I'm excited to have this conversation, but boy, is the world really bad as we sit here in July 2020. What are you seeing? What's your view of all of this?
Spencer Levy (02:12): Well, let me give you an alternative view of the world. The world in your gut is bad. The way you feel is bad. Most people have come at me for the same reason for the last three months because I have been optimistic over the last three months and I maintain that optimism and why? Because notwithstanding how your gut feels, how lonely and other stress you feel because of being at home, the data says otherwise. When I say the data, I'm not suggesting that we haven't seen a terrible rise in the disease in the last several weeks in Florida, in Texas, in California.
Spencer Levy (02:54): What I am saying is that the data that economists look at, including but not limited to the jobs data for both May and June materially outperformed, the stock market which bounced back so much faster than anybody could have anticipated, along with other objective metrics say, "You know what? Things are better than they feel and they will continue to be better than they feel until we are all out of lockdown." The fundamental reason why they're better than they feel is because a lot of the things that happened can't be seen.
Spencer Levy (03:29): You can see stores closed. You can see restaurants closed. You really can't touch and feel the level and the speed and the breadth of government support which in my opinion and most people's opinion and for what I do has not only raised the bottom of what could have been a cataclysm in March, economically, but may in fact give us fuel to move forward once we're past the disease. The world feels bad, but I'm still optimistic.
Chris Rising (03:57): That's good to hear it, and as a real estate developer, I'm an eternal optimist though I think the world is there are pundits out there on Twitter who are trying to convince us otherwise. I think one thing we should rightfully point out is that Congress and the administration acted far quicker than Congress and the administration was able to do in the great financial crisis and I agree with you. There's a lot in the system. It's also running out and we're hearing that the Democrats have already passed a $3.5 trillion bill and the Republicans have a $1 trillion bill.
Chris Rising (04:31): Anywhere in between is going to be a lot of fuel for us to get out, but when you have a pandemic that goes this long, there is a lot of proof throughout history that there is some behavioral changes that become very systemic. That's always something that can scare people. A recession, which we are most surely in, scares people. Outside of some of the things you talked about, is there a reason to be optimistic that the second we can go out, whether there's a vaccine or we all feel safe that things are going to really just go? Where do you think this public money is going to be placed and how are we going to see it, instead of just a massive depression?
Spencer Levy (05:17): It's hard to describe just how much money $5 trillion is. I'll put it in perspective for you. The biggest package that was passed during the global financial crisis was the TARP plan which is about $750 billion. That's less than one fifth the size of what's been passed so far, not only from the Treasury which is the original $2 trillion plan plus the monetary stimulus provided by the Fed which gets you about that $5 trillion and we're seeing more around the globe, $2 trillion from the EU which is extraordinary because in the last crisis, they hit the fiscal brakes very quickly.
Spencer Levy (05:57): I think the short story is that we're never going to feel better until we have a vaccine or some type of treatment. The mortality rate isn't so scary, but from an economic perspective, the government has put enough fuel into the system to allow us to catapult forward when that occurs, and in the meantime, keep us off the bottom and enable us to move forward. Now, let me be clear, this is a real estate podcast. Let's talk real estate for a second. Notwithstanding my macro-optimism, I'm not as optimistic about real estate even though that's my industry. When I say I'm not as optimistic, there are still pockets of optimism there, but the way we've broken down the industry is into three categories.
Spencer Levy (06:42): The category one are those asset types that are likely to bounce back in about a year and that's multifamily or apartments and industrial, those asset classes that are going to bounce back after about two years which is office and those that will take longer which is retail and hotels which is three years. Now, even within those assets, you have shades of gray. Because within retail and hotels, you have what's known as pent-up demand that are known to my colleague, Henry Chin in Hong Kong as revenge retail. People want to spend money and people will spend money. Even in some of those places, they'll bounce back faster.
Spencer Levy (07:18): You're going to see certain types of industrial not bounce back as fast on the optimistic end of the scale, so there's shades of gray there too, but notwithstanding our relative optimism from a macro standpoint, we're not Pollyanna, we realized that the slog is going to be very challenging in our industry in this one, two, three basis. I know that the bulk of this call or a large part of this call will be on the two, the office sector and its future, but even there, we think that the future looks more like the pre-COVID past than something else.
Chris Rising (07:47): I definitely want to get into office, but I really like to circling around retail and hotels. That part of real estate shares the experiential piece to it and I think what we saw before this all started in retail, if you didn't have an experience Amazon, Walmart, they were taking all your business. It's funny, I think grocery stores do have an experience that people are just pattern to like, "I want to touch my fruit," and those kind of things, but really, we had seen this coming, and now, it's just gone off a cliff. Hotels, obviously, if you're in a forced government lockdown and you can't get on airplanes and you can't drive places, hotels are going to be decimated.
Chris Rising (08:30): Do you see behavioral changes coming out of a three, six, year-long lockdown that will permanently change those or do you think it's just the lockdown that's the real culprit and people will go back to using retail, you said revenge retail and hotels?
Spencer Levy (08:49): Well, the term that I would use that a lot of people are using now is called acceleration of trend, with respect to some trends that we'd already seen, which is some forms of retail such as second-tier malls, certain department stores and other big box retailers that were already in trouble, this pushed them over the edge. The question you're really asking now is, will people go back to restaurants, to gyms? Will they go back to bowling alleys? My short answer is absolutely once they are comfortable, once they are safe.
Spencer Levy (09:20): I hate to use this example, but I use it a lot because it's, I think, the most relevant one. It's the example of what happened post-9/11. Post-9/11, many people were legitimately afraid to go back into the big cities. They were afraid to go back into big buildings, but what happened? These buildings were made safer with better security and people went back to these buildings and the cities like New York, DC, LA, San Francisco became stronger than ever because the environment in which they worked, lived and played in many people's mind was superior than other environments, than suburban environments for instance.
Spencer Levy (09:57): We will see the same thing here in restaurants, gyms, bowling alleys and the like once they are made more well or weller. I'm not even sure if that's a word, but I've been using it as an extension of safety or resilience or as a partner to sustainability. Once the wellness aspect is solved, people will go back in force and they will go back faster than you think because people don't go to restaurants because they need to go to restaurants. They don't go to offices because they need to go. They go there because they want to go and those want factors aren't going to change and I might argue that they might be even stronger when people see what life is like without them.
Chris Rising (10:39): Well, I have a couple teenagers and I can tell you that they are very much tired of the fact that they can't go to an open-air mall or can't go to Disneyland or can't just have a social life because they're pre-driving, but they're not preteens. I think that's an example. I think the people we saw doing the things around Memorial Day and Fourth of July who are the 20-year-olds show that if you don't have fear, you really want to get out there. I think those are relevant points.
Spencer Levy (11:09): Let me go one step further. This is not just indestructible youths that we're talking about here, okay? What we're talking about here are basic human behavior for humans of all stripes. The quote I would like to give is from a 1987 movie, Wall Street. In that movie, the quote was, "Greed is good. Greed works." I'm not going to get on this podcast and say, "Greed is good." Greed is not good. Greed is bad. That said, greed works from an economic perspective. What does that mean? It means that people will be motivated not only because of this pent-up demand to just get out and do something, but they'll be motivated by a deal, by a bargain, by value.
Spencer Levy (11:55): Things like cruise ships, when people hear cruise ships today, a lot of people say, "People will never get back on a cruise ship." Wrong answer. You know when people will get on cruise ships? On the first cruise that leaves the harbor. Why? Because cruising is awesome. You know what's more awesome than cruising? Cruising at a low price. That's precisely what's going to happen in some of these most hard-hit industries. They will price their experience down to zero, rip pick-up market share and people will move forward once they feel safer and price will work. It has always worked, will work again once people feel safe.
Chris Rising (12:35): I agree with you wholeheartedly. I loved that movie as well and he goes on to talk more about what greed does, but I think at the end of it, you're right. I think people, greed for life, greed for all those things are going to bring people back out once they feel safe. Before we talk about office and such, I do want to touch a little bit on industrial. You had said there's some industrial not performing well. From where we sit, I haven't seen it. I sit there with envy saying, "Why do we sell our industrial?" and basically, I have an office portfolio now, but we are very active in industrial.
Chris Rising (13:10): We continue to try to buy, but where we see just some really fundamental changes in industrial from say the '90s and early 2000s is it's not just the big box. It's not just a big industrial that people want, but there's the more local industrial buildings that seem to be thriving. It's not just the fact that if you get Amazon, you've just got gold and platinum and silver all rolled into one. It's that you've got people who want to be close to the Amazons, whether it's their direct competitors and all. I guess my first question because I was surprised to hear you say there was some industrial not doing well, what is that? For those that's going well, what's your path you see over the next couple years on industrial real estate development investment?
Spencer Levy (13:58): Well, I was giving a counterpoint to the broader point that industrial overall is doing exceptionally well. When I say exceptionally well, let me be clear that CBRE's forecast for industrial as a sector overall is better today as we're doing this podcast than in the pre-COVID period because all of the mega trends that matter from eCommerce to last mile to cold storage, all of them have now benefited in industrial. We believe the industrial rents and vacancy will be even stronger two years from now than we believe pre-COVID. I want to make that clear as a caveat, but some areas of industrial that aren't doing as well, some of the small Bay industrial is not doing as well, because some of that is experienced based. Some of it is smaller contractors who have been either out of work or the amount of work has been declining.
Spencer Levy (14:49): The one example I give is for anybody on this call like you and me that have kids, and for older folks who have grandkids, they've all been to a jump house. What do you think these jump houses are folks? They're in light industrial buildings. It is those types of users that aren't doing well, but overall, I can't say enough positive things about the industrial sector.
Chris Rising (15:07): That's terrific. Well, I've watched you speak in conferences over the years and watched your career. I was really excited that you wanted to do the podcast, but why don't you tell the audience a little bit about your career? Someone with your personality who's so energetic usually, you're always so positive when I see it. How did that personality become an economist? Why don't you tell us a little bit about yourself?
Spencer Levy (15:32): Well, that personality actually became a lawyer. I was a lawyer for five years. Then, I was a banker for seven years. Then, I ran capital markets for about five years at CBRE with some of my colleagues, Chris Ludeman and others. Then, I got a phone call. This is what happened. Six years ago, a close friend of mine, a mentor of mine, Steve Swerdlow, gave me a call and he was then the president of one of the divisions at CBRE. He said, "Spence, you should run research." I said, "No way." I said, "No way." I said, "I'm a deal guy. I like to speak to people the way I like to be spoken to. I like to communicate in a way that takes complicated issues and can speak to anybody."
Spencer Levy (16:24): By the way, I treat everybody exactly the same. Whether you're the CEO or the junior analyst, I'm going to treat you the same. I said, "But here's the kicker. If you give me this job and have the foresight or lack of foresight to just give me this job, I'm doing it my way. What you see is what you get." What actually happened after that, the reason why I have this current role, which I've now been in for five plus or minus years, is because I got a big break. In life, even lucky guys like me get breaks once in a while that matter. The break I got was this.
Spencer Levy (17:02): A very good friend of mine at my company, Ed Schreyer who's now the COO of the Americas called me up and said, "Spence, you should do an economic overview at the Americas Summit and we had like 3,000 people there." I said, "Well, do you want me to play it by the book or do you want me to do it my way?" He says, "No, I want you to do it your way." I went full out. I did a costume change in the middle of an economics presentation. I had multiple people participated. I had multiple videos. I had jokes. It was the first economics presentation in the history of the world before or probably since that got a standing ovation from 3,000 people, including but not limited to every senior executive, every senior client at my company. Afterwards, some of the very senior people in my company said, "Spence, this is what you're going to do," and here we are.
Chris Rising (17:51): That's a great story. Now, where did you go to undergrad and where did you go to law school?
Spencer Levy (17:56): I went to Cornell and I had an industrial labor relations degree. I try to get an official economics minor, but they wouldn't give it to me. I was only allowed to get one major, which was ILR, but I had a heavy economics grounding then, and then, I went to Harvard Law School.
Chris Rising (18:11): Terrific. Well, I have great respect for that. It sounds like you were a practicing lawyer who got good. I was a practicing lawyer who got very bored and moved on from that. Now, you're based in Baltimore, wonderful city. I went to Duke University and had a lot of friends who played lacrosse and I played football. Got to spend a lot of time in Baltimore. What is it about Baltimore why you call it home?
Spencer Levy (18:37): Well, I'm a New York guy. I can make this a very complicated story. I'll make it a very simple one. New York guy married a lovely young woman from Baltimore 20 years ago, but that wasn't the only reason. It really had to do with career more than it had to do with the fact that my wife's family is from here and they're terrific people. I'm very fortunate to be here, but the short answer is I was a lawyer and I was unhappy lawyer. I didn't like being a lawyer. I didn't dislike being a lawyer, but I would say it wasn't creative enough for me.
Spencer Levy (19:07): I was looking for a job in banking or private equity and most of the folks in investment banking and in private equity didn't think a lawyer could add. In this case, they were right. Somebody did give me a break, another mentor of mine, Dick Himelfarb, right here in Baltimore and he's an ex-lawyer himself and he did the best thing for me that professionally that anybody maybe has ever done. He said, "Spencer, you're a smart guy, you got great personality, but you don't know anything." He stuck me in a cube for two years and he taught me how to underwrite real estate.
Spencer Levy (19:43): After five years of being a lawyer, he then stuck me in a cube for two years of underwriting all different forms of real estate, and late hours, the whole deal and it gave me the grounding to catapult me to whatever it is that I do today because not can I talk the talk and certainly one of my skills is communication, I actually teach public speaking, but I can actually walk the walk because I understand real estate at a very fundamental level.
Chris Rising (20:12): I think that's such a great story. I do have a lot of people who contact me through this and just through what I do in my professional career. A lot of lawyers and a lot of people who are maybe brokers, they always call and say, "Well, I just want to do like you did and move over to this side, your side of the aisle." I say, "I spent four years in college. I was a teacher for a couple years. I, then, went to law school. I practiced law. I got the fortune and opportunity to work under John Cushman and really see how all deals get done. Then, I spent two years teaching myself how to use ARGUS and Excel."
Chris Rising (20:46): I was in my early 30s before I even made a move over to the principal side. I think just the same story you said people forget that. We have a lot of Millennials in our audience here and it's a helpful reminder to say that when you go horizontal, you don't really ever go horizontal. You go down vertically and get the skillset that allows you to go up. I appreciate you sharing that that story. One of the things we talked about just at the beginning before we went on the podcast was the fact that the last I checked CBRE's headquarters are not in Baltimore. If you're not in a headquarters, you usually want to be in New York, but you've chosen Baltimore.
Chris Rising (21:25): That hits on the theme of office these days, which is, some people call it work from home. I had an employee, say the other day, "We should call it live from work." I'm very focused on calling it a mobile workforce, but the threat that those of us who own a lot of office that we see out there has encompassed in what Jack Dorsey said. Jack Dorsey said that everybody from Twitter now, even though they have a wonderful headquarters, can work from home. We'll get into a talk about office fundamentals in a second, but what do you what is your view on that statement that all of a sudden working from an office doesn't matter anymore, everybody can work from home?
Spencer Levy (22:09): Well, first of all, I have tremendous respect for Jack Dorsey, Twitter and all the CEOs who have made statements similar to what he made about how many of their employees can work from home over the long term. I certainly don't want to take them to task in any way, but I will say that many people that are making these statements are both looking at the short term, trying to make their employees comfortable, happy, secure, and that's one of the motivations. They're very cost focused which is another motivation, but also as I am an early 1980s rock and roll fan and I like to quote that song, "We are in the heat of the moment." That is a song by Asia for those people who aren't early 1980s rock and roll fans.
Spencer Levy (22:55): I think once we are out of the heat of the moment and we aren't so cost focused and we're not so concerned about safety, we'll still be concerned about safety, but safety won't be as great of a risk, we will then focus on the things that matter to drive great enterprises forward. What drives a great enterprise forward talent, the attraction and retention of that talent, the productivity of that talent and all of those things are enhanced by working in a traditional office setting. I base that on all of the research we've done over the last 10 years.
Spencer Levy (23:29): I base it upon a study that was done by Stanford University in 2015, probably the best study I've seen on work from home that showed exactly what you think it would show, that there are a lot of people that can work from home, that people are more efficient working from home, and then, it can save some company some money to have some employees working from home. What that study also showed was that two-thirds of the employees in that study who elected to work from home during the study period elected to go back to the office because they lost all of their soft skills or the ability to gain the soft skills that you require to advance in your career. They were hit from a promotional perspective, didn't get promoted as much.
Spencer Levy (24:11): All of the things that mattered for the long term for these employees didn't work quite as well from working from home, even though from an efficiency and a cost-savings perspective, yes, some employees can work from home, and yes, because of demographic changes in the United States, in particular, Millennials getting older, getting married, having kids. We had already seen an increase of what we call the fluid workplace, people working from home, people working from the office, working from the back of a Starbucks and that may accelerate the trend, but it won't end the fact that people want to be in the office for all of the factors of talent, productivity, creating a culture, that your company can make it most competitive over the long term.
Chris Rising (24:52): That makes a lot of sense. I thought your colleague, Mary Anne Tighe had a very good quote when she said, "Look, at the end of the day, people want to be in the room where it happens," and to quote Hamilton. When I hear some of this, I say, "Really, you're 24 years old. You've just graduated from a great school and your first job is told, 'Here's your computer. We never need to see you in person. Just do this.'" I don't find that. I also think every business book that was ever written, from good to great and all these others, talk about culture and I just don't see how culture gets fostered through a Zoom call every day or 18 of them as the world seems to be.
Spencer Levy (25:30): Well, there's no professional in the whole business I have more respect for than Mary Anne Tighe. Another thing she said recently is that, "If you are a 25-year-old professional, where do you want to work?" I think the question answers itself.
Chris Rising (25:43): I agree with you. I think one of the things I really want our audience to know is you produced some of the best research I have seen. One of the things that you've all spent a lot of time on and you're just an expert on is where tech talent wants to be. I know we started the year, I heard you speak and I've spoken on this, there's about 20 cities in the United States, maybe there's a few more, where tech talent was really centering and there were some reasons why that was happening. We've used your research in front of our investors quite often, but can you talk a little bit I know you've recently put out something new that I highly encourage our audience to go find on the CBRE website, but you put out something about Scoring Tech Talent in 2020. Can you talk a little bit about that?
Spencer Levy (26:31): Sure. This is a study that we've been doing now for quite some time, at least five, six, seven years, maybe longer, two terrific researchers calling Colin Yasukochi and Lexi Russell are the primary authors of it. We rank cities, not only in the United States but in Canada, and now in this year for the first time in Latin America. It's having high concentrations of high-quality tech talent. When we say high quality, we have various different measures of quality. We also measure cost. We also measure availability. Then, we measure some softer factors like live, work, play in terms of the ability to attract talent.
Spencer Levy (27:09): As a for instance, there'll be no surprises which cities come out on top which includes San Francisco, DC, Seattle, Toronto and New York, but there are a lot of smaller cities too that have great concentrations of talent, but you can get it at a lower cost. Many of these cities create the talent in excess of what stays in the market. The way we look at certain cities is on a brain-gain basis, those cities that are net gainers of talent from outside the market and brain-drain cities, those cities that actually create a glut of talent which creates great upside potential.
Spencer Levy (27:45): Some of those brain drain cities are cities like Boston and Washington, DC and LA and Chicago. Great cities, they just create too much talent. That to me creates great opportunity in some of those places. Now, it's also good to be a brain-gain city because people want to go there and those places surprise you, either of San Francisco, Toronto and Vancouver, but it just shows that there's a great amount of tech talent, a great way for companies not only to find it, but finding the right cost basis, both from a standpoint of office space cost, but from your employees perspective, cost of living.
Chris Rising (28:25): Well, it's interesting, as I've heard you talk about this in the past. We started this podcast. We talked about the pandemic and people really being in the bunker. We've talked about the fact that there is certainly going to be tough times ahead and you gave your one, two and three. We're talking a little bit now about there's this great generational change happening which is the Baby Boomers are retiring, the Gen Xers and some Millennials are taking over. The average age of a public company CEO today is 51. The CFO is 48. That really, I think, shows that people are focused in on city or doing things the way the Boomers didn't. That leads me to the role that technology is playing across all industries.
Chris Rising (29:11): I've often said, "I think every company today is a tech company of some sort because either you're fighting for that same talent or you're using such technology, you have to have that kind of technology in your business." What do you see from the office perspective as the biggest threats? Is it that technology is going to make some of these white collar jobs go away? Is it that people are going to just work from home and that's it? You got new leadership coming in. They're fighting through a pandemic. They're going to be fighting through a recession. What are the challenges that you see about the office industry across the country and across the world right now?
Spencer Levy (29:53): The obvious one is that over the next 12 to 18 months, you're going to see materially declined physical occupancy. Less people in the office building. That's going to disproportionately impact some of the great office markets of the world, including San Francisco, New York, Chicago, places that are both dependent upon mass transit and have tall buildings. It limits the number of people who could take the elevators up and down every day. People are going to be clouded in their vision of office until we get back to a point where people are no longer afraid to go to the office because there's been either a vaccine or some type of treatments of the disease isn't so fatal.
Spencer Levy (30:36): The biggest risk is that this 12 to 18-month period becomes longer than that. 12 to 18 months from now is a long, long time. During that time, many tenants that were thinking about expanding will probably renew in place which is what we're seeing today. A lot of short-term renewals. There may be even some tenants that are just letting their leases expire. Entirely. I think that's a very small amount, but some will. You're also going to see a change in definition of what is the "office" from the CBD only office to more of a hub and spoke model where you're going to see people having their main office downtown and then satellite offices in the suburbs.
Spencer Levy (31:16): We're already seeing that in the suburbs of New York City where I speak to my leaders of the regions outside of the city, Westchester, Fairfield County, New Jersey, etcetera and they are seeing a material increase in what we call in our business TIMs, tenants in market, looking for the short-term one to three years space. Yes, they are also looking for coworking space to work in in the short term. The biggest threat to office is this 12 to 18 months last longer, but I would say beyond that, has there been a cultural shift towards work from home that is greater than the 10% of the space ballpark that some people are talking about. Some people think it's 20. Some people think it's less, but clearly there's been an angle Increase in fluidity within the space.
Spencer Levy (32:02): From an office ownership perspective, the winners are going to be the people who can make their buildings weller, and again, I don't even know that's a word, but have an increased amount of wellness in the building to make people feel safe post pandemic. That's going to be not just hand sanitizers and social distancing. There's going to be some structural changes to some of these buildings including enhanced HVAC. Here's an interesting little factoid, if you want to be LEED Gold certified or you want to hit a high energy star rating, if you have operable windows, you get a demerit.
Spencer Levy (32:39): What does that mean for wellness? Are you going to say, "Well, we're just going to let hot and cold air blow out of the building and waste all this energy"? Well, those are the kind of questions that people need to answer and technology needs to improve so that you can have both a sustainable building but also give people wellness. Those buildings that are at the vanguard of wellness will be more competitive than others in the short and long term.
Chris Rising (33:01): I think that's a great answer. It's interesting we own a historic building in Downtown LA that we've restored and what we lose in having operable windows in that fit well or the wellness, we picked up in so many other areas and we think telling tenants that you can open your windows is a good thing right now. We're still maintaining our LEED Platinum, but we are telling people, "You can open some windows, just to try to leave space." One of the things I want to get into with you about is as it relates to tech is one of the fourth pieces of my thesis of where we are and you can beat it apart is that about 10 or 12 years ago, Marc Andreessen said that software was eating the world.
Chris Rising (33:48): I am sensing that there are just jobs that aren't going to come back out of this because technology has eaten them. Some things as simple as using great software for scheduling could be the end of all of people that's their only job. If you're going to be assistant for someone, you got to be able to do more than that. Is there anything noticeable that you're seeing as I'm talking about software eating the world and where we're at, it's going to affect the office occupier? Do you have a window onto that or any thoughts on that?
Spencer Levy (34:28): When you speak to the largest tech companies in the world and I do on a regular basis, we've been asking them that very question, "What are the changes because of technology?" I think the changes that you're seeing are both in the home and in the office, but they both augur for the same basic thing, flexibility. I think that the flexibility that's granted by technology will have a somewhat lower day-to-day physical occupancy of your typical office space, but does it mean you need less office space if there's less densification and is the person that has the flexibility to work at home more and they may want to work at home more because they have young kids like I do, does that mean that they don't go want to go back to the office?
Spencer Levy (35:13): To your question, are some workers going to become obsolete because of this change? Are we going to see an acceleration of certain trends? Look, when I was a young lawyer in New York City, the administrative assistance to lawyer ratio was about two lawyers for every one admin. By the time where we are today, it might be seven or eight to one. What you're going to see is certain types of things where people can self-help in certain ways become scarcer, but I want to harp on one critical fact here. While there are certain things that software can do, while fintech and tech in the real estate space can make things more efficient, I am a strong believer in the human factors.
Spencer Levy (36:02): As a matter of fact, I think the human factor in the years to come will never be more important in real estate than it was before because there are only three things matter when you negotiate a deal, facts, logic and leverage. I can give you or anybody else all the facts and logic in the world. You give me the leverage and let's negotiate. How do you understand leverage? Only a human can understand leverage and leverage is not a financial leverage. It is leverage of how to get the deal done. That comes through relationships, through, "How do you sense a certain different structure or way to do a deal? Where are the problems? How do you get a different bidder involved? How do you change the structure?"
Spencer Levy (36:43): All those things are human. Will those things be enhanced by tech? Absolutely. Will they be faster by tech? Absolutely, but great real estate professionals will still be needed in the future, perhaps more so in certain areas. There are some areas that might be more challenged that are more tech heavy, but nevertheless, humans aren't going anywhere, particularly in businesses like real estate.
Chris Rising (37:04): I'm really glad you said that because I am missing my breakfast meetings, my lunch meetings, my events. I'm missing the fact that there is an art to a deal. I think if you really look at everything that's going on, one of the things that's really missing is that we are in front of each other to talk about ideas and to talk about things. I appreciate everything you just said. Talking about where we are here in July 2020. You gave some date ranges on some things, but if you have to just give your best guess where we're going to be in July 2021, what do you think our world looks like globally? What do you think it looks like in real estate?
Spencer Levy (37:52): When I speak about topics that I'm not an expert, I always like to give a caveat. I am not a medical expert. I am a real estate expert. I am an economics expert, but as it relates to the course of the disease, when the vaccine will be done, when we'll have more palliative treatment, I am looking at third-party information. At the same time, what I'm also looking at is what are the facts on the ground in Asia and in Europe. While the US situation has been tragically far messier than any of us wanted it to be, we have seen a much cleaner situation in Asia because they follow what's called the three Ts, testing, tracking and technology.
Spencer Levy (38:38): Notwithstanding how messy it's been here, I think we are now coming around to more universal mask use. I think we are going to be coming around to more ubiquitous testing tracking technology. I give that as a wrapper because whatever happens with a disease and rearing its ugly head, as long as TTT gets better, as long as mask use gets better, as long as people can move around, all I will say we'll be in a lot better place in July of 2021 than we are today. Will be fully back? Not until we have a vaccine and palliative treatment, but we'll be a lot further back then or a lot be more advanced from a TTT perspective, from other perspectives and life will be more normal, but we probably will not be fully normal to the first quarter of 2022.
Chris Rising (39:27): I think that makes a lot of sense. Just look at the May numbers when people thought we were opening up, May and June, and people rushing back to work. When we do our internal analysis, one of the themes I keep harping on is, this is not a recession caused by some fundamental factors in the economy. This is caused by a pandemic. We've never seen this before, a forced government shutdown. There are businesses that no matter how much they wanted open weren't allowed to open. That's not the same thing as, "I'm in a business that's not profitable and I have to shut it down and lose 1,000 jobs." It's not profitable because it shut down. I think that makes a lot of sense.
Chris Rising (40:06): One of the things we always like to talk about, we're having a great conversation on this show is though, we live in a world that is more, I use the term mobile workforce, but I think you used liquid or something like that, which means that you rely a lot on your technology, whether it's a laptop or a smartphone. How do you like living in this world where we're always connected? How do you survive it?
Spencer Levy (40:32): Well, let me start with this, I love my family, I love my dog, I'd like to go back to the office and I feel like a lot of other people do because there needs to be a separation of different segments of your life in order to have a true live, work, play life because one of the reasons why a lot of people are stressed out now or have what's known as Zoom fatigue, is because you're always on. There is no separation. I've been fortunate in the last six, eight weeks and that my son plays travel baseball. I've been getting out of the house because I've been driving to and from Baltimore and North and South Carolina. I was in Atlanta until this morning.
Spencer Levy (41:16): I've at least been able to get out a little bit. Now I've been wearing a mask and gloves and my wife put a visor on me when I was on the plane, but the coping has been difficult because I'm a guy who's done 200,000 miles a year for the last several years of travel, multiple times a year to Europe, etcetera. It's been a big adjustment. I will say I've been more efficient in terms of actually doing more stuff. I've never spoken to more people in the last three months than ever before, but I have not been more productive. That's really the key distinction.
Spencer Levy (41:51): A lot of people use the word productivity incorrectly in my opinion because productivity isn't just producing more widgets. True profit. productivity is higher value add work that can only come through collaboration. I do feel some of that has been lost.
Chris Rising (42:07): I agree with you and I also think in March, everybody thought they're going to lose their job. People were working 10 times more than they were. They were trying to be more productive. I think there's also this fatigue that set in. It was easier in March and April to say, "Look, by July we're probably going to be okay. Well, now, we're sitting in July and the numbers look even worse. I am sensing this "put my head in the sand." The other thing that I had never really appreciated until this happened was there is such value in walking by somebody and saying, "Oh, I just remembered this, or, "Oh, I have this idea."
Chris Rising (42:43): No matter what you do, a text is not the same thing. A Zoom call is not the same thing. I'm pleased to hear you say that and the other piece is the kids are not at school. I have a son who plays travel baseball. I have a daughter who's an amazing volleyball and wanted track during high school. I firmly believe the work schedule is predicated on the school schedule, whether you have kids or not. You need a Zoom call, people are available all the time because their kids are sitting at home working too. I think that's been a real drain that people haven't appreciated.
Spencer Levy (43:17): Well, I think it's one thing to be a drain and I don't want to get into a heavy duty discussion over social issues, but there's so negatively impacts. We talked about rich and poor, haves and have nots as a way some people frame it, but folks that are living in jobs where they can't be on a Zoom call, they have to physically be there. If it's a burden on folks who can do Zoom, boy, what a burden on people who can't and childcare and other issues. It's not just my heart goes out for them, it makes me angry. It really makes me angry to think just how folks like that are just being, I wouldn't go so far as to say mistreated.
Spencer Levy (44:00): If life was unfair before, it's doubly so now. We need to find a way to really focus on helping these folks that have to work outside of the home and making sure that their kids are not just taken care of but thriving. Very challenging, very challenging.
Chris Rising (44:19): I appreciate you saying that. I think it's really important. I think about it every time I go to the grocery store. Every time I've been out and about. All of our buildings are open. I know the majority of real estate owners have their buildings open. We have janitorial people. We have security guards and parking people. I try very hard to thank them because they are really at the frontlines. That's not even getting into the hospital workers and the emergency personnel. It's certainly a trying time. I've really, really enjoyed this conversation. You get a lot of people come up to you after you speak, but the last time I saw you, I came up and I said, "I really appreciate all the things you said." This is quite an honor to have you on this podcast, Spencer. I really appreciate it.
Spencer Levy (45:04): Well, I appreciate you having me. I'm glad we had this conversation. All I could say, if this is a final thought moment, is from a macro perspective, I maintain my optimism. I know you don't feel it in your guts and I know that as we talked about the last point, some people are far more negatively impacted than others. It's not just my heart goes out to you, we need to find solutions for you because we don't want this to be something that is a permanent setback. From a real estate perspective, I'm also optimistic, though I'm much more measured in this one, two, three scenario. It's going be a tough slog the next 12 to 18 months, no matter how you cut it, but we will come out of this stronger than ever after the fact.
Chris Rising (45:46): Wow, Spencer, that was an incredible conversation. Thank you so much. For those in our audience who like to follow Spencer on Twitter, his Twitter handle is @SpencerGLevy and that's S-P-E-N-C-E-R, G, L-E-V-Y. He's also on LinkedIn. Please don't forget to subscribe to the podcast The Real Market with Chris Rising. You can find it on any of the podcasting platforms, Apple or Spotify. Please follow me on Twitter @ChrisRising and you can also follow our company @RisingRP. Please follow me on LinkedIn as well. Thank you so much. I hope you enjoyed the podcast.