Disruption in the co-working and flexible spaces sector is on the way and will catch traditional landlords unprepared, WeWork CEO Sandeep Mathrani told the World Real Estate Summit held in Israel by law firm DLA Piper.
He said, “In the past, the focus was on long-term leases, buying buildings that provide rental income, building owners making money from the rent they collect sometimes, according to market value, and then selling the properties. But this philosophy of investors, on the one hand, and tenants, On the other hand – it no longer exists,” WeWork CEO Sandeep Mathrani said at the World Real Estate Summit held in Israel by law firm DLA Piper via a televised interview.
Mathrani added, “Today, tenants want short-term contracts and turnkey solutions, and they say to landlords: How are you going to finance us?” The whole idea of commercial property owners was that these 10/15/20 year leases enabled them to finance their tenants and were actually referred to as bonds. This is also why it was so easy to trade these assets. But today, when that bond-like advantage of shortening leases, rising tenant demands and dynamic pricing has all but vanished–keeping a commercial office building is as bad an investment as owning a hotel–a volatile income stems from rapidly changing prices and input-oriented budgeting.”
The 8th Israel Real Estate Summit organized by DLA Piper brings together major Israeli institutions active in the global real estate markets and leading real estate professionals from around the world. The summit is organized by the DLA Piper Israel group, led by Advs. Jeremy Lustman and Naomi Marrells. The speakers provided an opportunity for insightful discussion on key trends and issues driving change, creating opportunities for growth, investing capital in times of change and digital innovation in the real estate sector. Senior officials attending the summit from abroad include: Paul Bashir, Senior Managing Director, CEO – Europe, Harrison Street, Lowell Barron, Chief Investment Officer and Managing Partner, Brookfield Asset Management, Gabe Stein, Managing Director, President of Real Estate Asset Specialists EMEA and Asia Pacific, Novin and Abe Borock, General Manager, Head of US Debt, BentallGreenOak.
Sandeep, who spoke with Adv. Jay Epstein, Senior Partner and Co-Director of DlA Piper’s Renewables Division, illustrated his words with the example of “It happened to us yesterday with a tenant in Chicago.” “We had a tenant for about a year in one of the buildings, and they were going to move to the building across the street, to a really good landlord who builds a lot in this area. I would give you a ‘tenant’s allowance’ (the landlord’s share in the rent or capital cost of the property),” said the landlord. Subject to the terms in the contract), but I wouldn’t because: (1) I don’t know how strong your credit is, and (2) I need to manage my money – am I going to do it with tenant benefits, rent concession, pay off my debts? Better? The customer, who played in our favor, because this customer renewed his lease with us for another two years, especially since we offered a turnkey solution.”
Sandeep, who joined WeWork at the beginning of 2020, after serving as CEO of renewable energy investment giant Brookfield, also referred to the office industry in the “post-pandemic” era, saying: “We are in a ridiculous world that continues to evolve. Shared and flexible workspaces are here to stay.They are expected to make up 15-30% of the total office workspace market at the end of the decade.This is an industry where there has been no disruption so far.In a pre-pandemic world, large customers (enterprise customers) saw the spaces However, these same institutional clients want 80% of their properties to be built on traditional rentals and the other 20% on the “FLEX” model. That is, today they see the idea Flexible workspaces are an important part of the corporate and real estate ecosystem.Small and Medium Businesses (SMBs) also understand that if they want to be well located and attract talent, they must do so through co-working and flexible workspaces.And so, suddenly, companies like WeWork that provide Comprehensive, integrated and integrated solutions matter – at the ‘must-have’ level. And from this point of view – our industry is receiving excellent windfalls. “
In closing, Sandeep gave a glimpse into the future in co-working and flexible spaces and showcased his words using Uber as an example of a “serious disruption” in the taxi industry. Who would have thought that medals (licenses) for yellow taxis in the United States that cost millions would not be worth a penny today? Uber created the disruption. So if we borrow the example in the office world, can we create a collaborative economy in workplaces as well? Can we tell a customer, “You will use the office 3 days a week, and another customer will use the same office 2 days a week”? The question is: why not?! I think we will continue to evolve, and once such an evolution begins, it happens very quickly and will attract traditional landlords who are not ready for this change.”
Published by Globes, Israel business news – en.globes.co.il – on May 4, 2023.
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