The Bisnow Weekender: Uncle Sam Has A Problem CRE Could Solve
Thanks for reading the Bisnow Weekender, my personally curated roundup of the most impactful news, notable quotes, binge-worthy show recommendations and other colorful highlights from the Bisnow world of commercial real estate and beyond.
The federal government occupies just 12% of its designated headquarters buildings, according to a recent report.
For decades, the government has been sitting on a growing mountain of unused office space. In 2013, they finally decided to try and do something about it with a program under the Obama Administration called Freeze the Footprint, which morphed into Reduce the Footprint in 2015.
Then the pandemic happened, millions of federal workers decided to stay home and, well, the government is now sitting on hundreds of millions of square feet of near-empty office space. This underutilization not only signifies billions in squandered taxpayer funds but also mirrors the shifting dynamics of the modern workforce — especially in the wake of the pandemic-induced pivot towards remote work.
As Bisnow Washington D.C. reporter Emily Wishingrad uncovered this week after reviewing an oddly under-reported new report from the Public Buildings Reform Board, this isn't just about unused space. It's a broader commentary on the federal government's severe lack of agility in adapting to contemporary work practices and the evolving expectations of its workforce.
“It shows that those decisions are not getting made,” Dan Mathews, who oversaw the federal government’s real estate portfolio under the Trump administration and is now a member of the PBRB, said of the report. “The buildings are mostly empty.”
The General Services Administration's initiative to dispose of 23 properties, aiming for $1B in savings over a decade, epitomizes the urgent call for strategic real estate optimization. Yet this plan scratches only the surface of a much deeper issue that intertwines the government’s woeful financial prudence with its characteristic operational inefficiency.
Maybe the government should try something new, like looking at the commercial real estate industry, which is undergoing a similar upheaval — but meeting the challenge with a dramatically swifter, cutthroat response.
Why? Because in the private sector, inertia doesn’t pay the bills. You go out of business, you lose your job. There are actual consequences.
The PBRB report echoes that feeling and recommends the government look to the private sector for inspiration. “The federal taxpayer deserves the same approach to federal real estate management.”
— Mark F. Bonner, Bisnow Editor-in-Chief
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The Best Of Bisnow News: April 1-5
A New Generation Of The Ratner Family Is Ready To Build Its Own CRE Legacy — West Coast Editor Molly Armbrister
The Ratners are back.
Five years after the sale of their influential family business, Forest City Realty Trust, to Brookfield for $11.4B, brothers Kevin and Jon Ratner, along with business partner Luke Palmisano, are set to open five new apartment projects across the U.S. in the next 12 months.
The first project of their new company, named Max Collaborative after their grandfather, Forest City co-founder Max Ratner, is a head-turning collision of nature with glass and steel.
With its facade cracked open to reveal veins of greenery flowing to a rooftop garden amid Denver’s famously gritty River North district, the project is an aesthetic disruption from the norm and a statement about how the company plans to forge its own path.
“There’s going to be value inherent to building a better product and enduring some of the challenges that come with trying to disrupt a system that wants to be just kind of routinized,” Jon told Bisnow.
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WeWork Says 'Majority' Of Rightsizing Is Done, Sets May Target To Exit Bankruptcy — South Florida Reporter Matt Wasielewski
Coworking giant WeWork has determined its path forward on 90% of its approximately 500 global locations and is working to emerge from Chapter 11 bankruptcy in the U.S. and Canada by the end of May, it said in a release Tuesday.
The company said it reached agreements with landlords to amend 150 leases, although some of the contracts have yet to be executed, and it will maintain its leases at another 150 locations without changes to lease terms. Another roughly 150 locations will be shuttered through lease rejections or exits negotiated with its landlords.
The future of around 10% of WeWork’s global portfolio, or around 59 locations, remains in flux. The closures and changes to lease terms it's already negotiated will save WeWork more than $8B in future rent commitments, or more than 40% of its total rent costs, the firm said in the release.
Daniel Gielchinksy, a bankruptcy attorney who isn’t involved in the case but has been closely following the restructuring, said WeWork’s announcement Tuesday was “priming the pump” ahead of the next hearing on April 18.
“I do think WeWork wants to hold on to those leases and sees value in them, otherwise they would have rejected them,” he said. “I think that this press announcement was designed to bring pressure on the holdout landlords to complete the negotiation process.”
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Everyone 'Knows' Elections Impact CRE. But Does The Data Back It Up? — Dallas-Fort Worth Reporter Olivia Lueckemeyer
“Investing on emotion is a bad idea,” Nationwide Financial Chief of Investment Research Mark Hackett said. “Investing on political emotion is potentially catastrophic.”
Data suggests that uncertainty around elections tends to have a negligible effect on commercial property transactions, with little to no impact on the volume of leases or sales shown over the past five elections. Perhaps more importantly, there is very little data to suggest the outcome of a federal election has a material impact on investment returns.
“There is very little correlation between who is in power and the strength of the market,” Hackett said. “There is really no discernible pattern.”
Despite those statistics, nearly half of investors in a recent Nationwide survey said they believe the results of presidential and congressional elections will have a greater impact on their portfolios than market performance.
More Big News From The Week…
— Bob Knakal Launches New Investment Sales Firm With A Focus On AI
— Smart Glass Maker View Reaches Deal To Go Private, Will File For Bankruptcy
— Newmark: $2T In Debt Maturing By 2026, $670B Of It 'Potentially Troubled'
— How Airbnb Is Going From Multifamily 'Bad Guy' To Landlord Partner
— Hydrogen Could Fuel A New Industrial CRE Revolution
— Brighton Beach, 'Little Secret' Next Door To Coney Island, Remains Developer Enigma
— How Life Sciences Startups Have Changed Their Leasing Strategies
My Slightly On/Off-Topic Media Diet
Last Year Was Bad For Commercial Real Estate. 2024 Could Be Worse. (WaPo): “The central bank is expected to cut rates multiple times this year, but those moves won’t bring borrowing costs down considerably. And in the end, that could leave lenders and borrowers to face the tough reality that they can’t ‘pretend’ their properties and loans haven’t lost value any longer. [Lonnie Hendry, chief product officer at Trepp] said the strategy of extending and pretending might be the wrong medicine for the current moment. ‘There’s some revisionist history about why it worked, so people are leaning into it now,’ he said. ‘If enough lenders extend loans and the market doesn’t improve, it could have some real catastrophic impact.’”
Skyrocketing U.S. Debt Could Trigger Market Shock, CBO Chief Says (Semafor): “Skyrocketing debt combined with high interest rates mean the country might not be able to afford crucial borrowing in the future, with the U.S. set to pay $1 trillion to creditors in 2026, the FT said. It could also, the CBO warned in a report, ‘erode confidence in the U.S. dollar as the dominant international reserve currency.’ … Democrats and Republicans are both responsible.”
They Came For Florida's Sun And Sand. They Got Soaring Costs And A Culture War. (NBC News): “But while hundreds of thousands of new residents have flocked to the state on the promise of beautiful weather, no income tax and lower costs, nearly 500,000 left in 2022, according to the most recent census data. Contributing to their move was a perfect storm of soaring insurance costs, a hostile political environment, worsening traffic and extreme weather, according to interviews with more than a dozen recent transplants and longtime residents who left the state in the past two years.”
The Latest D.C. Empty-Office Pivot: Weddings (Axios D.C.): “‘We need to think more like hotels,’ CEO Oliver Carr tells Axios. ‘We've got beautiful buildings in great locations with spectacular views, but we haven't been maximizing the potential of the asset.’”
This Final Four Team Isn’t A Long Shot. It’s A 23,512-to-1 Miracle. (WSJ): “N.C. State has won nine games in a row. Now they’re two wins away from a national title. The odds of this happening: lower than the likelihood that you’ll be struck by lightning.”
New York Prisoners Sue To Watch The April 8 Eclipse, Citing Religious Grounds. (CBS News): “The lawsuit says even an atheist inmate wants to view the eclipse to ‘celebrate common humanity.’ … ‘They have a profound, sincerely held religious belief that this eclipse is important to the practice of their religion,’ Alston & Bird's Chris McCardle said.”
Bisnow Weekend Interview Preview
Monumental Sports & Entertainment owns two professional sports franchises, the NBA’s Washington Wizards and NHL’s Washington Capitals, and it sent shockwaves through the nation’s capital in December when it announced plans to move the teams from D.C. to Virginia - a plan that died last week.
After Virginia’s legislature refused to fund the plan for a 12-acre, $2B arena-anchored entertainment District in Alexandria, the teams' owner went back to D.C. to negotiate a $515M deal to renovate their arena and keep the teams downtown. Monumental and Mayor Muriel Bowser signed a term sheet last week, and the D.C. Council approved the plan Tuesday.
Monumental Sports President of Venues Jordan Silberman, who oversees the Capital One Arena and the company’s other sports facilities, spoke to Bisnow D.C. Reporter Emily Wishingrad this week about the Virginia plan that fell through and the new plans to upgrade and expand its current and future home.
Bisnow: In Virginia, you were planning to build on 12 acres of land a $2B entertainment district. Could you talk about some of the appeal of those plans and how you’ve rerouted those priorities?
Silberman: I think we learned a lot in that experience of what we would want and what it takes to be successful and kind of have that landing area. The city came back to us with a strong offer to match everything that we were going to be able to achieve in Potomac Yard at Cap One – through the expansion into Gallery Place, to shutting down streets on game nights, to have fan plazas and activations, to coordinating some of the city services around safety and security.
A lot of what was so enticing about Potomac Yard, the mayor and Nina Albert and their whole staff really came to the table with a full a full menu of everything that was great about Potomac Yard. So we think that again, through the 200K SF at Gallery Place and what we’re able to do with some of our existing office and tenant spaces inside Cap One, we’ll be able to replicate that same type of experience.
The Weekend Interview goes live every Friday evening — head to www.bisnow.com over the weekend to check it out!
Jobs! Jobs! Jobs!
Here are this week’s top jobs over at Bisnow's careers platform, SelectLeaders. Reach out to SelectLeaders Managing Director Ryan Neale to learn more. You can email him at ryan.neale@bisnow.com.
Chief Financial Officer — Lead financial operations for a Beverly Hills, family-owned, real estate investment company
Managing Director — Oversee the planning and execution of Harvard's project portfolio, project delivery standards, controls, and resources
Head of Virginia Tech Real Estate Department — Lead a growing department with a strong national reputation.
Vice President, Property Operations — Oversee the operational and financial performance of a portfolio of multifamily and mixed-use properties
Hey, Molly, What Are You Going To Binge This Weekend?
Now that it’s April, it’s time to start thinking about my garden, so I’ll plant all of my seeds (inside, we still have two more months of Colorado’s temperamental spring weather) and then watch over them obsessively for the rest of the weekend. On the entertainment side, I always have two books going at once, one physical and one audio. My current paper book is Counterweight by Djuna, one of the best-known sci-fi writers in their home country of South Korea. And because I’m fascinated by all things dystopian, I’m listening to Sand by Hugh Howey, better known for writing the Silo series, an excellent trilogy Apple TV made into a show last year. We’re also finally getting out to see Dune 2. So I guess if you take all of those things together, what I’m really binging this weekend is … dirt.
— Molly Armbrister, West Coast Editor
Upcoming Bisnow Events And Webinars
Wednesday, April 10 (Denver): Denver Industrial Update
Thursday, April 11 (Fort Lauderdale): South Florida Condo Summit
Thursday, April 11 (Chicago): Chicago Office Summit
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How did I do? You can send all love letters and dissents directly to me at mark.bonner@bisnow.com.
