☠️ Is remote work killing commercial real estate?

Hello, Best Ever Community!

In today’s newsletter, Darin Davis of Presario Ventures shares 20+ years of real estate knowledge, the WFH vs. CRE battle continues, and Veena Jetti explains why WeWork is a coworking industry anomaly.

This week’s newsletter is brought to you by Jake & Gino's Multifamily Mastery 6 — the financial vacation for smart people — happening this October 14 & 15 in Orlando, Florida. Learn more about Multifamily Mastery 6 here.

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Onward!

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ON THE BEST EVER SHOW

🧭 Darin Davis — Navigating the Shifting Tides of Real Estate Investing: Insights from a Seasoned Pro: Darin shares his extensive 22-year journey in the real estate industry, revealing how lessons from the 2008 financial crisis helped prepare him for today’s market. Listen here.

🏚 Rebekah Taylor — How to Embrace Holistic Wealth: Rebekah shares her journey from house hacking in Lynchburg, Virginia, to partnering with top-class operators in the commercial real estate space. Listen here. 

💡 Derek Vickers — From Insurance Sales to Mobile Home Parks: How This Investor Built a $100 Million Portfolio in Two Years: Derek dives deep into his experiences, shedding light on the pitfalls to avoid, the importance of systems, and the transformative power of hiring right in the commercial real estate realm. Listen here.

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THE WFH TUG-O-WAR

While it’s been estimated that the work-from-home movement could wipe out $800 billion from the value of office buildings in major cities worldwide by 2030, employers are moving to shift this tide. Return-to-office mandates are becoming increasingly popular, from small companies to giants like Meta and Goldman Sachs. One contributing factor to this trend?

The state of the commercial real estate market.

👣 In the last two years, 75% of companies have increased their CRE footprint, according to a report from Unispace. Meanwhile, demand for CRE loans has weakened, prices have declined, interest rates have increased, and banks have tightened their standards on CRE loans. All this means that employers are struggling to squeeze the value out of their expensive commercial real estate holdings.

🏢 The answer? Return-to-office mandates. Not just to alleviate the sting of paying for unoccupied office space, but to benefit retail, hospitality, or other CRE holdings companies may have. In New York City alone, a $12.4 billion revenue loss can be attributed to remote work, as Manhattan commuters working from home — even just a couple of days a week — spend less overall on food, entertainment, and retail. In turn, transit revenue shrinks and the commercial property tax base contracts, resulting in lost revenue for local governments, as well as eroding profits for — and in some cases killing — small businesses, weakening the local economy and the CRE market at large.

🏦 The greater impact of a predominantly work-from-home environment can be seen in the outlook for banks. The potential financial losses in the $20 trillion CRE industry could heighten the risk of bank failures. The 2023 Financial Stability Report shows that financial institutions own 60% of all CRE loans, placing both regional and major banks in vulnerable positions in a fluctuating market. Return-to-office mandates, should they be successful, have the (however limited) potential to help stabilize banks with large CRE portfolios in an already volatile market.

​​❤️ The problem?​​ People still love remote work. In fact, they love it so much that some workers have taken pay cuts as high as 20% to land a remote job. According to Business Insider, on LinkedIn in August, only 9% of job listings were fully remote, down from the 21% peak in March 2022. However, these few remote listings drew almost 50% of all applications on the platform. Similarly, on ZipRecruiter, remote positions receive three times the number of applicants compared to in-office roles, a surge that's more than double the response seen for remote jobs at the start of the previous year.

The verdict on who wins this tug-o-war remains to be seen. But while interest rates, vacancy rates, inflation, and declining property values have all been thorns in the sides of CRE investors, particularly in the office space, this seemingly peripheral battle of employers vs. remote work and how it develops in 2024 is a key factor investors should be watching.

📰 Other CRE News

A “Record Collapse”: Following the fall of three major banks, regional banks initiated an unprecedented reduction in lending. A new report details the extent of the pullback.

Down to Earth: Multifamily rents have flattened out and are expected to remain flat for the rest of the year, likely to mirror the pre-pandemic 2019 trend.

Bottoming Out: Apartment sales volume has dropped 14.9% from last year — a 74% YOY decline — but it has shown signs of slowing.

Preferred Equity Surge: Due to capital scarcity in multifamily, developers are turning to alternative funding like preferred equity, which is now drawing investors with its higher-than-average returns.

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MULTIFAMILY MASTERY 6

👋 Want to see some amazing speakers and top experts in multifamily? Then you won't want to miss Jake & Gino's Multifamily Mastery 6 conference! Special guests include:

• David Greene

• Chris Voss

• Brad Lea

• Luke Wren

• Philip McKernan

• & MORE!

Jake & Gino have been gracious enough to provide us with a discount of $197/ticket! Just click THIS LINK to register!

WHEN: October 14 & 15, 2023
WHERE: Gaylord Palms Resort, Orlando, FL

🤗 See you there!

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FROM VEENA JETTI

📉 We’ve all seen the headlines about WeWork over the past couple of months. As we continue to watch their very public — and very drastic — financial dilemmas unfold, it’s easy to assume that coworking spaces aren’t a wise investment at the moment.

However, that assumption would be misguided.

🌱 Over the past few years, the coworking industry has actually experienced remarkable growth. Recent data reveals that the coworking industry in the United States is on a continuous upswing, with a notable 10% surge in the number of adaptable workspaces during the second quarter of 2023.

💻 In her latest blog post, Veena Jetti explains why coworking spaces are currently in such high demand. For example:

• Cost-Effectiveness: Large corporations see the value in coworking spaces as a way to provide flexibility to their employees, allowing them to work remotely and collaborate with external partners while remaining cost-effective.
  

• Enticing Perks: Coworking spaces often offer a range of attractive perks and amenities such as complimentary refreshments, fitness facilities, childcare services, nap pods, and pet-friendly policies, enhancing the overall work experience and fostering a sense of community.
  

• Increased Networking Opportunities: These spaces also facilitate networking through communal areas, organized networking events, and member directories, allowing professionals to build valuable connections and access collaborative opportunities.

💬 “These spaces have gained popularity among entrepreneurs, freelancers, and small businesses due to their flexibility, cost-effectiveness, and community-oriented environment. This growing demand can present an opportunity for commercial real estate investors to capitalize on the trend and generate attractive returns.” —Veena Jetti

👉 Read the full article. 

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FREE DOCUMENT DOWNLOAD

💸 Potential Benefits and Drawbacks of Interest-Only Commercial Loans

When securing an agency loan and deciding whether to pay interest-only or pay principal plus interest from day one, here are some things to think about.

👉 Download now!

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INVESTOR ATTRACTION ACADEMY

🧠 Want to learn how to achieve a significant edge in capital raising and effortlessly attract high-net-worth investors? Then join Best Ever CRE and Yakov Smart of Investor Attraction Academy in a FREE live webinar on October 26.

🎓 In this 30-minute webinar, you'll learn:

• The #1 question you should be asking yourself when it comes to finding investors beyond your current network. Hint: It's NOT what you think!

• Why AI is an untapped goldmine for raising capital and attracting high-net-worth accredited investors.

• The hidden system for booking meetings with potential investors and raising capital on auto-pilot.

👉 Register here to join us at 2 p.m. EST on October 26.

Can't make it on October 26th? Register anyway, and we'll send you the replay.

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WHAT WE’RE READING

Join Joe Fairless, founder of Best Ever CRE and co-founder of Ashcroft Capital, for the Best Ever Book Club, a non-fiction book club (led by Joe) in which we read and discuss books that can have a positive impact on our lives as real estate investors.

This month, we're reading The Asset Mindset by Daniel Fielding.

✍️ Sign up for the Best Ever Book Club today!

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Hope you have a Best Ever rest of your week!

—Joe Fairless