The Indicator from Planet Money - Commercial Real Estate's Great Reckoning

The coronavirus has caused a massive downturn in commercial real estate. As the pandemic continues and companies back out of leases, the future of commercial real estate is brought into question.

  • Play Speed:
Content Keywords: real estate Steve Rappaport NPR New York

so Curtis, whatever you think about commercial real estate or read a story about it, I think about our offices at NPR in New York. I know they're ripe in Time Square. We work on the 19th floor of his big skyscraper was filled with workers people in publishing fashion insurance auto lawyers around Midtown Manhattan there like full of people in suits and they're rushing to and from the subway. They're catching birds grabbing coffee talking on their phones just in that area of Manhattan is some of the most expensive real estate in the world commercial real estate in that area. Just like very very high-stakes. Steve Rappaport has been in the commercial real estate business in Manhattan for 15 years, and he says it is not for the faint-of-heart competitive fast paced. It's all commission-based ABCs of getting paid in commercial real estate always be closing always be closing you have to hustle for everything.

No commission and in The Brokerage World 10% of the Brokers make about 90% of the money at 10%

I think I'm in a good position to 10%

I'm guessing he was and he just was being modest.

These are the things that competitive. I mean New York is not an easy place for a business to thrive. It's very cut-throat and Steve's as business owners have to be really careful about the location and the space they choose because that is the kind of thing that could make or break a business the right price or the right ceiling height. They have to feel that it creates the right environment because retailers drama, you're setting the stage stage. You can make a fortune to shut the wrong stage. You can lose everything who's your shirt Steve says in the world of commercial real estate 500 square feet is generally the smallest space that be like a tiny little coffee shop with no tables that tiny space packs a big rent punch Times Square and 5th Avenue spaces to beat mm per square foot.

scrap wood storage on 5th Avenue

Wow, you got to sell a lot of coffee to pay. That kind of cat is so much copy.

But those with the rent people were paying and those runs have been going up for years and years and then in March, they stopped everything stopped business. He says everything just hit a wall people who have been looking for space to open up a restaurant or Barbie. I'll stop looking people had a space to rent. They were not getting any bites. Very many people.

Quite frightened. Were you frightened?

You know.

I was not happy.

I was I was sad because

I was sad for those who hurt and who are losing their businesses and are still losing their businesses. It's an uncertain future. This is not even a third of what it was just eight months ago. I mean, how long do you think it'll be before you're back to 100%

Two years within two years. We were going to say at a definite uptick.

Or the new hundred percent, you know, whatever whatever that is.

The problem with real estate right now. This is not a typical recession because this recession has been accompanied by a stay-at-home orders and a big cultural shift in the way that we work and Commercial Real Estate right now is getting it from all sides. Yeah, first a lot of businesses closed in the US nearly a hundred thousand since March all of those storefronts and offices are now empty the ripple effect because it is not just the empty office buildings that are feeling the effects of the current change. It's all of the businesses around the empty Office Buildings bars coffee shops restaurants dry cleaners clothing stores, those businesses count on people commuting and moving around town and coming to work and going out after work and when people are staying at home, it's just Less business for everyone and even when people do you start going back to work chances are they'll be going in less often and also there probably won't be nearly as many people going back to the office.

business of helping people work from home

support for NPR in the following message come from Sunrise Sunrise makes it easy for anyone to invest in high-quality real estate by building you a portfolio with there more than 1 billion dollars in assets get started at indicator to have your first 90 days of advisory fees waived.

So on the one hand you got Steve Rappaport leasing million-dollar spaces to copy shops and restaurants in clothing stores in Manhattan his business Council on people being out and about going to shots Kaplan foot track down the other hand you got this guy everyone wins in a remote Workforce model. So why would you not do it? Mobella is a remote workplace consultant with a company called transparent business Mo called us from his little farmhouse in the mountains of Vermont and I was able to conduct by global Consulting business place of tranquility and serenity High Everyday. In fact in about an hour and a half is my daily to mile hike Works sales pitch start with employer. They save on the average of $11,000 per employee per year productivity goes up all the way as much as 40%

In some cases employees Stacy think about no stinky trains. No stuff. Buses. No bumper to bumper traffic.

Sprayed with no shame not that we ever do that and if that's not enough to convince you V category winners in a remote Workforce model is climate change in battling climate change and saving the planet carbon emissions are down in a remote Workforce model. I need to claim here. It seems like a lot of companies are jumping on this bandwagon a recent survey of hundreds of CEOs found that nearly 70% of them were planning to permanently cut back on their office space has said that it expects about half of its Workforce to work from home in the future Twitter is a post in slack all saying the same thing and Pinterest just paid 90 million dollars almost to get out of its leaves in a big building in Downtown San Francisco. So where does that leave Steve Rappaport and our million dollar Coffee Shop season is it right now rent prices have dropped around 20% and he expects they'll drop about 15% more.

But she says, you know, he's seen recessions and cultural shifts and workplace changes come and go and what stayed the same New York real estate is always a good bet if it's evil drop.

But something else will develop to take its place.

I am not in the Dubin group. I'll see you like New York or permanently change people the wrong. And in fact, Steve says he's already seeing some people invest right now people buying buildings expanding their businesses taking advantage of a moment when so many others think commercial real estate could be over Steve says he has seen this before 911 2008 housing crash people were saying the same things back then after those events and those people turned out to be wrong. You really believe in the business of New York.

I believe it's business New York, and I believe the song.


got strong resilience and both very beautiful.

This episode of the indicator was produced by Jamila Huxtable and Darian was it was fact-checked by Sean. Saldania, the indicators edited by Patty Hearst and is a production of NPR.

With the unemployment rate at record highs right now millions of Americans are without health insurance. How are Healthcare became tied to our jobs and how a temporary solution turned into an everlasting problem. Listen to through line from NPR where we go back in time to understand the present.
Translate the current page