WEBVTT

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JUDY WOODRUFF: There are fears
that COVID-19 cases might
spike again, and it's not clear

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how long many of us will
be working from home.

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Paul Solman looks at the
consequences for commercial real
estate. It's a second of two

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reports for Making Sense.

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NICHOLAS BLOOM, Stanford
University: I could
easily see downtown
skyscrapers in the center

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of big cities falling in
value by 60, 70 percent.

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PAUL SOLMAN: Economist Nick
Bloom says three factors are
about to devastate the office

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skyscrapers of the world's
mega-cities, one, of
course, the COVID economy.

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NICHOLAS BLOOM: This is really
looking like being, you know,
a long and incredibly painful

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recession, the likes of which
I don't think anyone alive
currently has seen before.

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PAUL SOLMAN: Well, maybe,
maybe not. But there's a
second factor, says Bob
Edelstein, who teaches

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real estate economics: a sharp
shift to working from home.

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ROBERT EDELSTEIN, University
of California, Berkeley: Just
recently, we saw a Facebook

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saying they're going to have
employees work remotely forever.
Other companies are considering

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that.

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PAUL SOLMAN: Bad news for, among
others, shared workspace giant
WeWork. The largest private

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renter of New York office
space was already hemorrhaging
money before the pandemic.

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Now?

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ROBERT EDELSTEIN: Do you want
to go into an office space
where three people have used

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it this day and share
some facilities?

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PAUL SOLMAN: Now, WeWork
says they are stepping
up sanitization, but
there's still a third

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factor, anxiety about
working at close quarters.

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ROBERT EDELSTEIN: You will see
people worrying about social
distance distancing within the

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office market, and,
therefore, there's going to
be more space per employee.

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PAUL SOLMAN: One glimpse of
this future comes via a new
video from office space services

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giant Cushman & Wakefield:

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NICHOLAS BLOOM: Imagine you now
need twice as much space per
person, probably three times

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as much space per person in a
large skyscraper because they
were packed in like sardines

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before. For the next three or
four years, people are going
to be really uncomfortable

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about being in close offices,
tightly packed elevators.

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DAVID KENNY, CEO, The Nielsen
Company: Anything that requires
an elevator is going to be very

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hard.

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PAUL SOLMAN: Dave Kenny, CEO of
the Nielsen Company, a global
market research firm, has

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done the math on how long it
would take his employees in
Lower Manhattan to get to their

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desks under the new CDC office
guidelines, one person at
a time in any elevator less

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than six feet across.

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DAVID KENNY: I calculated to,
to refill our, you know, floors
in New York, people would

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be in line for over four
hours to use the elevator up
and use the elevator down.

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PAUL SOLMAN: Bottom line, then,
predicts Nick Boom succinctly:

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NICHOLAS BLOOM:
Catastrophic drops in value.

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DOUGLAS DURST, Chairman, The
Durst Organization: Obviously,
as an owner of commercial office

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space, I think he's wrong.

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PAUL SOLMAN: Douglas Durst's
family business owns or manages
8.5 million square feet of

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New York office space, including
One World Trade Center and
the former Conde Nast building

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in Times Square, where TikTok,
the wildly popular Chinese-owned
video sharing app, just

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leased seven floors.

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DOUGLAS DURST: We are actively
leasing space even now. The
demand is not going away, so

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we don't think there'll be
any need to reduce rents.

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MARY ANN TIGHE, CEO, CBRE New
York Tri-State Region: I'm
not declaring the death knell

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of offices.

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PAUL SOLMAN: Superbroker Mary
Ann Tighe is New York CEO of
the world's largest real estate

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services firm.

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MARY ANN TIGHE: Yay, we can
all get each other on the
screen. But it doesn't tell

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us a darn thing about
real-life work from home.

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PAUL SOLMAN: Have there been no
fire sales of office buildings
from landlords who need

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the cash?

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MARY ANN TIGHE: There have been
no fire sales to date. This
is not a moment where you want

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to place a valuation on
an asset, simply because
you may get an answer
you're not going to

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like. And the answer may
be different a month from
now or six months from now.

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PAUL SOLMAN: Take BlackRock,
CBS' iconic Manhattan
headquarters, which
Tighe's firm had been

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preparing to sell for over
a billion dollars. It's
now off the market. Why?

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MARY ANN TIGHE: I think people
are on pause waiting to see
what the market reveals.

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PAUL SOLMAN: Bob Edelstein,
however, has evidence
that uncertainty is
actually killing real

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estate deals at the moment.

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ROBERT EDELSTEIN: I'm privy
to 10 recent potential
transactions. Six have
stopped negotiating.

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I don't know if they will ever
negotiate again. Three of them
were negotiated and had gone

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hard, which means the deposit
was accepted and would not
be returnable if the deal was

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not consummated.

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PAUL SOLMAN: So they put
down millions of dollars as a
deposit and then just walked

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away?

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ROBERT EDELSTEIN: Yes, because
they would have required many
more millions to consummate

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the transaction. And
they felt, as most people
do, uncertain about the
future, and they weren't

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willing to risk
these extra dollars.

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PAUL SOLMAN: For dramatic
evidence of price drops, though,
look at the stocks of companies

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that invest solely in office
buildings, down six times more
than the S&P 500 this year.

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But current rents have been
unaffected, Doug Durst insists,
for at least one very good

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reason.

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DOUGLAS DURST: In the large
office buildings, the tenants
have signed long-term leases at

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least 10 years or longer.

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PAUL SOLMAN: Yes,
agrees Bob Edelstein.

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ROBERT EDELSTEIN: It's better
to have 10-year leases, but
they may not be as good as the

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paper they're written on.

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PAUL SOLMAN: In fact, some
office tenants have already
tried to renege, says Mary Ann

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Tighe.

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MARY ANN TIGHE: Discussion
number one was, I'm not using
my space. Why am I paying rent?

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PAUL SOLMAN: The response?

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MARY ANN TIGHE: Show us your
2019 financials and your 2020
budget. Show us where you are

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in terms of revenue. Show us
that you don't have business
interruption insurance, and

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show us that you have
applied for every kind
of government help.

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Once we get all that
information, we're
happy to sit with you.
We're not -- happy is an

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overstatement. We will sit with
you and review the situation.

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DOUGLAS DURST: Any tenant who
has difficulty, we are talking
with and trying to make sure

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that they're able to
get through this period.

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MATTHEW JACOBS, BLDG Partners
LLC: If the return to normal
is measured in years, and

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not months, there may be an
opportunity in all of this.

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PAUL SOLMAN: Los Angeles
developer Matt Jacobs'
latest project, lofts
to live and work in,

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favored by artists
types, selling just fine,
despite the pandemic.

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MATTHEW JACOBS: We have
visual artists. We have people
editing television programs. We

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have YouTube stars.

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We have had one broker ask for
a coronavirus discount, but we
have sold a number of live-work

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lofts over the past
month at original market
prices, no discounts.

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PAUL SOLMAN: So Jacobs
has reframed the
office space crisis.

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MATTHEW JACOBS: I'm in
California, where we
have a tremendous and
sustained housing crisis.

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And housing is expensive
and it's scarce.

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A lot of those office
buildings that we considered
class A buildings are not
going to have tremendous

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utility right now, but they
have perfect opportunity
to be converted to
housing. A well-built steel

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or concrete building is a
perfect environment for housing.

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PAUL SOLMAN: Including
in cities like New York,
says Mary Ann Tighe.

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MARY ANN TIGHE: The downtown
Manhattan market before 9/11 had
15,000 residents. Today, it's

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approaching 70,000 residents.

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Many of those residents
are residing in office
buildings that have been
converted to residential

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rentals. So, I do envision
that older stock will
go in that direction.

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PAUL SOLMAN: What price that
older stock will fetch any time
soon, however, is enough to

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worry anyone who owns
commercial office space.

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This is Paul Solman.