Artificially Intelligent with Sam Maule and Maia Bittner

Tech and Real Estate: Adapting to Post-Pandemic Work Models

• Sam Maule, Maia Bittner, Rachel Morrissey

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Witness the dramatic transformation of commercial real estate as we discuss the staggering fall of St. Louis's tallest tower, from a $205 million valuation in 2006 to just $3.6 million today. We bring you an expert analysis from Joe Brady, who unpacks the "urban doom loop" and the potential for city revitalization through strategic public-private partnerships. Using Detroit's impressive resurgence, fueled by investments from Dan Gilbert of Rocket Mortgage, as a prime example, Joe shares his unique perspectives on reversing urban decline.

Explore the ongoing shifts in urban development and how office spaces and retail sectors are adapting post-COVID. We debate the potential strategies banks and property owners might employ to handle the instability, drawing parallels to the "extend and pretend" tactics seen during the retail downturn. Delve into the challenges and opportunities faced by B and C office buildings in New York City, and learn from successful urban redevelopment projects in Tampa and Chicago. Also, discover the surprising real estate trends in San Francisco, where condo prices are dropping despite the city's tech dominance.

Get insights into the future of hybrid work models and the evolving landscape of office spaces. We critique the outdated notion of mandatory in-office presence and advocate for flexible work arrangements that suit diverse employee needs, drawing on examples from companies like Chime and JP Morgan. 

Hosts: Sam Maule & Maia Bittner


Maia Bittner:

Hey, thanks for joining us for another episode of Artificially Intelligent. I'm Maia Bittner, your perpetual FinTech intern.

Sam Maule:

And I'm the other intern who fetches coffee, Sam Maul e. Good to see you, Maia. How you been this week?

Maia Bittner:

You know I've been good. It's very April, showers brings me flowers vibes over here in rural Washington State.

Sam Maule:

And just to make sure we have the US covered. Here in Florida it is blazing hot, is it? Yeah, blazing, blazing hot, but I picked it. I decided to live here. So you know you get what you get. But there was a story, Maia, as usual this week, that caught my attention and kind of leads us to what we're going to talk about today. And I don't know if you saw this one, but it's coming out of St Louis and there's an example there of how the commercial US office market is just taking a hit right now. So the tallest tower in St Louis sold for $205 million back in 2006, and it sold for $3.6 million a few weeks ago. Now, I'm not good at math. I saw that, yeah, it tends to be, if my poor math skills are right that former AT&T Center 44-story high-rise. That is one heck of a hit. One heck of a hit.

Maia Bittner:

And I think I saw so it's all one space, right, it was all AT&T and that's not really the style of big office buildings these days anymore. And so I think people are saying, look, yes, it was sold for very cheap, but that's because if you wanted to cut it up into individual offices to serve different customers, it'd be a pretty expensive remodel. It's an old building. Things are changing right. Everyone's citing work from home as another big trend. That's changing the demand for commercial real estate.

Sam Maule:

So yeah, it's one of my favorite topics. I have a good friend of mine, Hi, Joe Brady.

Maia Bittner:

Hello Sam Hello.

Sam Maule:

Maia, Joe and I yeah, I, I love Joe. I've known him for years, Um, and let's see if I get all this right. Joe, a former executive with JLL, which is one of the largest commercial real estate companies in the world. Uh, a great stint at Walgreens and boots doing real estate for them, which I'm sure was just a very pleasant experience and very tough. You were the CEO of North America for the Instant Group, which is a very cool company. What was the Instant Group? Can you give us a two-second brief?

Joe Brady:

Sure, the Instant Group is essentially the Airbnb of flexible office space, so they're one of the largest aggregators that owns the rails on which people can book flexible office space, generally in chunks of days, weeks, months, and in addition, the company also built out office space on behalf of multinationals, so a number of very large clients like American Express, netflix, gsk, amazon and so forth. So, yeah, they're on the front row, front seat, seeing how the world of work is changing.

Sam Maule:

Yeah, he sent me some amazing pictures about six months ago, Maia setting up the Netflix office in Argentina. I wasn't jealous whatsoever as I was stuck in Jacksonville, florida. That was a very humble brag, joe. Thank you for doing that. But you retired, wrote a book, did some teaching and then unretired. And what are you doing?

Joe Brady:

today. So today I'm a partner with a company called LRG Investors, and LRG Investors was founded nine years ago in the San Francisco Bay Area by my friends Steve Cutter and Josh Amoroso, and Steve had founded a brokerage company 20 years ago called Lockhouse Retail Group. Thus the LRG and Lockhouse has really grown into the premier retail brokerage company in Northern California. They've expanded to Santa Barbara and LA and they work with over 130 different plus retail concepts different plus retail concepts. So you know I looked at the landscape. I've always been connected with retail. Sam, as you know, sit on the board of ICSC, which is the industry trade group, and while I was at the instant group, I would go to trustee meetings and represent daytime population. I was representing where people worked, and that's very important for companies like Target and Walgreens and also owners of real estate, because in the absence of daytime population, you just have pain. Bad things happen.

Joe Brady:

You know, and so you mentioned St Louis, and there was a recent article in the Wall Street Journal about St Louis and how, in addition to the AT&T Center, you mentioned. The AT&T Center you mentioned it's really going through what many cities are going through right now, which is an urban doom loop. Doesn't sound good, does it? It's a good name for this episode. It's not. But near and dear Sam to your heart. Detroit was one of the first pioneers to thoroughly go through an urban doom loop, and the good news for other cities is they are emerging stronger than ever. Now it takes a public-private partnership. It takes a friendly billionaire For Detroit, it's Dan Gilbert, who's invested over $5.6 billion.

Sam Maule:

Oh and Joe, you raise a good point real quick from Maia, so I've got to get a fintech little hook in here. Do you remember where Dan Gilbert comes from, ready for this one? Let's see if she. I love trivia questions from Maia because it's very rare that I can stump her on anything. Rocket Mortgage, the guy who owns Rocket Mortgage and the Cleveland Yep. So the guy that owns Rocket Mortgage more or less owns all of downtown Detroit, right?

Joe Brady:

now. Wow, isn't that cool.

Maia Bittner:

Yeah, detroit's on the up and up. I don't know if I would say it's stronger than ever, but it's-.

Sam Maule:

Stronger than it's been in 30 years, 30, 40 years.

Joe Brady:

Yeah, yeah, I mean, there was a time when residential real estate was valued more for agriculture than it was for residential in downtown Detroit, right, so they've come up from there. You know what we're seeing in the St Louis market. You know St Louis. What we're seeing in Chicago in the loop, what we're seeing in the financial district and in Soma, in San Francisco and and scores of other cities, is this migration away from the central business district in favor of better business districts. The logical post-pandemic better area to work is close to home or the suburbs, and so retail in the suburbs has just been really strong.

Joe Brady:

There's been a resurgence, and what's happening, though, is if, before the pandemic, there were call it, four and a half, five days a week of people commuting into city center using food, beverage and other service retailers, that number is now down to two or two and a half days a week, so it gets really difficult for the food retailers, the service retailers, to really exist on two days a week. So many have closed. My old company, walgreens, has closed many, and there's other headwinds that they're contending with, but the fact of the matter is, you get into this doom loop where there aren't that many people coming downtown ancillary services. So revenue starts going down and the cities really have one of two choices, right? You either try to tax whoever's left and Boston just announced that that was something that they're going to try to do or you cut city services, and you know you have bad and worse from from your options. It's not. It's not good.

Sam Maule:

It gets back to your urban doom loop and just to make it even more fun. So Maia and I always look at this from like a payments or a banking little point of view. And, Maia, I don't know if you've seen the stories it gets back to Anytime. There's kind of a doom story. It's amazing the piling in that comes in from media. We all get it, it's what we like to read about. But Fox News and Reuters and a couple of others have talked about this impact we're seeing on commercial real estate. Late February there was an article saying that there's a $1.5 trillion in commercial mortgage debt is due by the end of 2025. And I'll repeat that number because it's a cool number $1.5 trillion.

Maia Bittner:

Trillion with a T.

Sam Maule:

With a T in commercial mortgage debt is due and we've already seen you know what's going on with interest rates right now and what's happening, so you know the potential impact on banking. The Mortgage Bankers Association said roughly $929 billion worth of commercial real estate loans are set to mature this year, which means you're going to have to refinance, which means this is going to be some interesting. I think we call it ripple effects. Potentially, if this bleeds into banking and I don't know if this is just a big bank issue Is this some of the smaller banks and some of the community centers, because it gets back to what cities are really being hit by this and what cities aren't.

Maia Bittner:

The cities being hit by this, yeah, and which banks have exposure to the commercial real estate in those cities?

Joe Brady:

Yeah, I think there's another. You know the hits keep happening, so let me pile on a little. Maia and Sam. So not only will there be $1.5 trillion in commercial debt maturing by the end of 2025, but near 50% of office leases will expire by the end of 2025 as well. So you have this double effect that's happening, but I do think it's really important to take the $1.5 trillion and acknowledge that that right, wrong or indifferent largely resides in regional banks. The large money center banks have very little exposure to commercial real estate. Even if they originated, they probably would offload it. And then, even within the commercial real estate heading, there are multiple asset classes, some which are doing quite well.

Joe Brady:

Retail right now is doing quite well, and why? Because it wasn't that long ago that we heard about this whole retail apocalypse that was happening. I often use the phrase office is having a retail moment right now Because, you know, post global financial crisis, everyone, coupled with the increase in technology, there was this thinking that no one would ever leave their homes again because shopping would happen and things would mysteriously arrive at our door all hours. Right, and the fact of the matter is, what we see is omni-channel retail and what we see is the consumer is voting with her wallet and determining whether she wants to go into a brick and mortar store or sit at home and have something delivered, or have it delivered at home and have it returned to the store, or order it from home and pick it up in the store. So there's been this consumer primacy that's taken hold in the retail sense and, sam I may have mentioned this to you, Maia, I'll share it this construct that before 1999 or so, when Jeff Bezos was on the cover of Time magazine as the first person of the year, as opposed to man of the year what we saw was shop operating as a noun. It was a physical place, it was the four walls, it's where you went. And then, soon after, as technology continued to accelerate and we became untethered with smartphones and so forth, shop became a verb. It's literally a thing you do, right.

Joe Brady:

And what's happening now post-pandemic, is work is following that same pattern. It's going from a noun, a place we used to go Sam would say, I'm going to work which was synonymous with office. Those two are now decoupled and work is becoming a verb. It's a thing you do, irrespective of place. So what is that place and where do people want to be, and what we're finding is the consumer wants to be in healthy ecosystems that allow live, work and play all to happen in and around the same area. And for suburban grocery, anchored shopping centers right now they're doing great. So if part of the $1.5 trillion also includes retail, then that's okay because actually that part of the asset class is doing quite well and values are increasing.

Joe Brady:

The real challenge in that number is what percentage of those assets are office or office, and I would argue that the banks and the owners will do exactly what they did in the retail downslide, which is extend and pretend and try to do the necessary workouts and hopefully owners have enough oxygen, ie money, that they can muddle through this down period. But make no mistake, there will be creative destruction. There's a dramatic reduction in B and C malls around the country. There will be a dramatic reduction in B and C office buildings, in fact, in New York City. So just one last thing, sam, because I think you'll find this interesting In New York City, 70% of the building stock of the office buildings were built before the IBM mainframe, that's before 1964.

Sam Maule:

You've already hit on a couple of points which made me smile and, Maia, I know that you'll think this too. When you talked about shopping and that concept of retail being a verb, Maia and I come out of banking. Banking morphed into a verb. What? Around 2008,? Maia, we talk about it there, and what's also hilarious still to me is it's an. It's a. It's an effect that came out of covid, where everything shifted desperately to online retail, everybody buying online, but what we've seen is that that hockey stick correction going back to the standard growth we were seeing before COVID, meaning the percentage of sales in the US. I've just looked this up E-commerce comprised 15.6% of total retail sales in the US in 2023.

Sam Maule:

And the projections during COVID were ridiculous. And we saw all the hiring. We saw it at Google, where I used to work at. We saw it at Apple. You take your pick.

Maia Bittner:

All the tech companies gearing up, because everything was going to shift to online, and now e-commerce is kind of struggling. Compared to forecast, it turns out people have reverted back to their very slow adoption of e-commerce, and it was kind of just a moment of time with the pandemic. I wonder, though, if this is. We're just on a cycle. You know how fashion comes in cycles. It's like, famously, the 50s had a flight to the suburbs. Then people got excited about cities again.

Joe Brady:

Now I'm listening to Joe talk about how, oh yeah, people want to live like right in with the grocery stores and with the retail and where they work, and have all that in the same community and it's that same kind of flight to the suburbs. Again, not too far from where Sam and I live, there's a project generally referred to as Water Street and a gentleman named Jeff Vinnick who led back to Magellan Funds for Fidelity. There is a connection there on the investment side. So he actually not only does he own the Tampa Bay Lightning, but he built the sports arena there as well and he partnered with Cascade Investments, which is Bill Gates' investment vehicle, to reimagine downtown Tampa and in so doing, what we saw were multifamily housing, we saw grocery stores come in, we saw medical, we saw office and restaurants and hotels and it became this really very interesting place.

Joe Brady:

Many people didn't even realize there was a downtown Tampa.

Joe Brady:

And but my best example, my best example really going from a central business district to a better business district or a better living district, is Chicago, where I lived for 30 years and you think about the loop right now which was the bastion of finance and LaSalle Street was just home to the Fed and Continental Bank, and we could talk about all sorts of ghost stories from that era.

Joe Brady:

But as we saw, post-pandemic, the loop has really emptied out. It's really frighteningly more of a monoculture ie work than it is a healthy ecosystem live, work, play. But just two miles to the west and Sam, you know this because Google helped ignite what was happening in the Fulton Market area you have now an area that was originally all about meatpacking and wholesale produce, and it was the market for the city of Chicago that converted into hipster loft. Residential Restaurants followed and then, lo and behold, google came in. And once Google came in, we saw this massive change that happened. Mcdonald's brought their world headquarters from Oak Brook down to Fulton Market. Nobu Hotel opened. The restaurants are fabulous. The rents are significantly higher in Fulton Market than they are in the Loop. So while the suburbs have been attractive, there are good stories that we should point to around these healthy ecosystems.

Sam Maule:

Well then, what about? All right. So Maia and I come out of the fintech world, which means we've both spent a significant part of our lives in San Francisco, which still is the I would say, argue the heart of fintech in the US. We'll go back and forth between New York and Austin or Miami and I would say, yeah, it's still especially with. Ai right the number of companies based out of San Francisco, and yet I constantly read about horror stories about the property values in San Francisco.

Maia Bittner:

So, joe, putting on a consultant hat I'm looking at condos in Soma that are selling for below their like 2012 sale price.

Sam Maule:

Are you serious?

Maia Bittner:

I mean the growth. Yeah, I mean tons of them. It's crazy to watch what's happening, particularly around mid-market, where the Twitter building is and Civic Center Growth yeah, I mean tons of them. It's crazy to watch what's happening, in particular, around mid-market, where the Twitter building is and Civic Center, but even other parts of Soma the condo market is just being destroyed there.

Sam Maule:

That's amazing. So, again, East Coast bias. Right, I don't make it out to San Francisco as much as I used to, so it's everything I'm reading about this, you know I'm it's it's. It's fascinating to try to get a grasp on what's actually happening, Because everything I read is that AI companies are flourishing there, that people and a lot of the technology and engineers, folks that had left to move to say, to Texas or Florida, even you know, Denver have been coming back. But to hear that is.

Maia Bittner:

I think that's still true. I think so. I think San Francisco is booming and it's kind of it's what Joe is saying Like there's areas that people want to live in and work in and do everything in. It is not Soma, it is not the financial district in San Francisco right, it's Hayes Valley, it's other neighborhoods that people are living, working, playing. I think San Francisco is thriving, particularly with AI, just not those specific neighborhoods, which is interesting, and so much of the industry of San Francisco was in the financial district for the longest time.

Sam Maule:

So, joe, if you throw a consultant hat on, so I get the city of San Francisco and the mayor to bring you in to say, okay, so what do we do with the financial district? What do we do with all of this property that's sitting here? Joe just left everybody. He went out the door. That was too hard.

Joe Brady:

That was too hard. Yeah, I mean, I think it really needs to be a thorough public-private endeavor to figure out what's the reason to be in the financial district today. It's not like you can move a basketball arena there, or baseball, Although you know Soma has a baseball area. I do think there are other issues at play with some cities around safety. You know they've gotten into this doom loop now where the safety and security has been threatened and it's not turning around quickly, and so it's going to take a while to fix the problem.

Sam Maule:

That's for sure. We saw that in New York, though. I mean, Joe, you and I are old enough, right, when I was growing up, you didn't go to New York. I mean, that was and I grew from, and I'm from Detroit, everybody I'm from Philadelphia, I'm from Detroit.

Joe Brady:

There you go. Oh, there you go.

Sam Maule:

So the two of us, but you know what I mean. And yet New York did go through a massive change and still, to this day, it's one of my favorite cities to go to.

Joe Brady:

It is, but it went through a bankruptcy. Detroit went through a bankruptcy. I mean, you've had this local mismanagement. You look around at unfunded pension plans and it's just frankly unsustainable. And then, putting my retail hat back on, the issue of organized retail crime is a $100 billion a year problem in the US economy $100 billion a year. There is a Tony Soprano of the dark supply chain who is managing the stolen goods coming out of the Walgreens and the Targets and everything else. In New York City alone, for Walgreens the number was between 80 and $100 million a year of just organized retail crime. This isn't little old lady stealing a tube of lipstick. This is a giant, hefty bag where arms are cleaning out whole shelves of product and as a result, it's now really uninteresting to go into any of those stores because everything's locked up and there's not enough staff and it's just those goods get resold.

Sam Maule:

I'm not saying it's all bodegas, but you'll see those goods resold in bodegas. I have sat down on multiple occasions over a bourbon to say is there a blockchain solution that we could imply into the supply chain and use with law enforcement to track these? Because the the, the TAM on this is ridiculous. The amount of goods actually stolen and this is or I agree, joe this is organized crime. You know how do you address that, because this does get back to these organizations.

Maia Bittner:

Well, and I'm a I mean, I'm a cheapskate. So I buy a lot of stuff on eBay. I buy stuff on Poshmark occasionally stuff off the sidewalk, right and I think so much of that is stolen. I buy a lot of stuff on Facebook marketplace and I think even you know I bought something on Poshmark recently, an Ember mug. I don't know if you know those smart mugs that keep your coffee warm all the time. I'm a fan. I bought an Ember mug. It's taking forever to get shipped. I'm pretty sure that people just put up listings, they wait for someone to buy it and then they go steal it and ship it to you. I have no doubt to buy it and then they go steal it and ship it to you.

Sam Maule:

I have no doubt.

Maia Bittner:

It's like a zero not zero risk, but zero market risk, zero selling risk way to go about it. They get the demand first and then go take stuff off the shelves. So I mean, blockchain is an interesting idea. I do think, like all of these online marketplaces, have a little bit of a liability here and they're not really stepping up to it.

Sam Maule:

It's like a gnarly situation and it just makes stuff more expensive. Here's here's what I find fascinating. Yeah, and I'll tell you, Maia, we've talked about this on multiple occasions. So, joe, one of the reasons we started the podcast is so we can learn stuff right. So, because the the I think we've used this word ecosystem about 20 times on the podcast, so let's keep going with it. The ecosystem, that is payments, that is banking, that is real estate. What I love about all this is the mingling. We're just continually seeing this right, that that that all of these verticals keep starting to cross over and are so interrelated. So we talked about commercial real estate and the potential impact on banking in the US, and it sounds like regional banks pay attention. Organized crime when it comes to goods and what it's doing, how we actually work and live and how companies pick where their headquarters are going to be and how you bring your employees on. I work at a completely virtual company, Maia.

Sam Maule:

I am assuming at Chime it's very heavy virtual. I'm sure you've got engineers in California that are together, but I don't know.

Maia Bittner:

It's probably a mix. Chime has an office in downtown San Francisco in the financial district.

Sam Maule:

You go Chime there, you in downtown.

Maia Bittner:

San Francisco in the financial district. You go, chime, there you go. It is hybrid, I think. So. Like many companies, you get paid more if you live in a higher cost of living place and you're going into the office, so there's certainly like incentives to do that. The people who are local to an office go in some days a week, um, you, the people who are local to an office, go in some days a week, um, and I work remotely a hundred percent of the time. It's kind of a hybrid and it's interesting. Like I, actually I don't like working remotely, I like going into the office.

Sam Maule:

Oh, joe, you want to talk on that. I agree I. I may blend, I enjoy the benefits of remote, but I get people are going to hate me for saying this I get the most done when I'm in person. I really get soity the energy that happens when we're together is profound and it can't be replaced on a screen.

Joe Brady:

The rub that I have is this notion that we need to be in an office Monday through Friday, nine to five. Right, that is an industrial era construct. Now we are operating in the keyboard economy, in the conceptual age, where the outcome of our work, our ideas and innovations and so forth they're not widgets. So I believe there is a really strong case to be made around hybrid and hybrid work to me is the flip side of the coin of omni-channel retail, where the consumer is really at the center or someone making money has the agency and autonomy, as well as the optionality, to decide where to go to be the most productive.

Joe Brady:

And again, this conversation tends to get really reductive to the point where there's one silver bullet. And if you're a new parent, you have different priorities in your life and different requirements. If you're an empty nester, the way I am, I have other requirements now with aging parents and in-laws, right? So there is a life-work balance that's happening now and what companies need to do is create let me go to the I'll use it for the 22nd time an ecosystem of places. Uh, where, right, it's a good thing. It's not a drinking game, right, sam?

Sam Maule:

we'd be blotto. We can do that, okay we can make a drinking game out of, but there needs to be.

Joe Brady:

There needs to be a a network of it's almost a network of places where people can work and there needs to be. All of this conversation doesn't necessarily say offices go away. What my position is that irrelevant, functionally obsolete offices need to go away. Functionally obsolete offices need to go away. And in New York City, if you look at one Vanderbilt that just went up, right next to Grand Central.

Joe Brady:

Station. They're getting rents in the $250 range and the building is completely full. It's filled with amenities. You look at what JP Morgan's doing at 270 Park Avenue. Now what's really interesting is my friends at JP Morgan hired Norman Foster and Partners to be their architect of this fabulous, fabulous building. It'll house 14,000 employees, compared to the old building that only could house 3,000. The entire first two floors are see-through. So you're going to have this wonderful park area between Park Avenue and Madison Avenue and it will be an extraordinary space. You know what else Foster and Partners have done?

Sam Maule:

Every Apple store have done every apple store. I'll go figure they also. In that case, they also did these. I was going to say they did the staircase for city for their uh office down in chelsea, um, by the way, so if so, yeah, if you need to learn to, if you need an architect, folks, I think we just got it and also I think we actually got that landed. Now it's just again. It's fascinating to see the overlap and to see how this affects so many different industries. It's one we need to watch, especially in the commercial banking side, to see what the long-term effects are. But, folks, I hate to say it, we're out of time. Joe, for those that want to learn so much more about the space, about where work is headed about, hey, what's going to happen to San Francisco and New York? How do they reach out to you? What's the best place?

Joe Brady:

Uh, that is a, a new website that uh, um, I've put up to support, uh, a book that's coming out at the end of May called workshop the consumer centric transformation of commercial real estate. Uh, we talk about a lot of these themes in it, and, uh, I'm on LinkedIn as well, so look forward to connecting.

Sam Maule:

Nothing like a good book. Plug, folks, same for me. If you want to reach out to me, Linkedin always easiest way to get a hold of me. If you want to give us ideas for another episode, if you want to actually dig in deeper on these topics, Maia, how about you? What's the best place?

Maia Bittner:

Best place is on Twitter. I'm @ Maia B. I have open DMs.

Sam Maule:

I'd love to hear from you All right, everybody, thanks for listening to this week and we'll see you next week.