The CEO of WeWork worldwide, Sandeep Mathrani, spoke at the global real estate conference held this morning (Thursday) in Israel by the law firm DLA Piper, and referred to the collaborative future of the office market: "There is no reason that an office that is rented out two days a week to one tenant, will not be rented out to a tenant on the other days Other".
According to him: "When such evolution and disruption begin, as happened with Uber, they happen very quickly and will catch traditional property owners when they are not ready for change"
"In the past, the focus was on long-term leases, buying buildings that provide rental income, the owners of the buildings make money from the rent they raise from time to time, according to the market value, and then sell the properties. But this philosophy of investors on the one hand and tenants on the other - has ceased to exist. Today, the tenants are interested in short-term contracts and comprehensive solutions, and they say to the property owners: How will you finance them? The whole idea of the property owners was that the leases that enabled the financing for the tenants were signed for 10, 15 or 20 years and were, in effect, used like bonds. That is why it was It is easy to trade these properties. But today, when the bond-like component has disappeared, with the shortening of the contract term, the increase in tenants' demands and the dynamic pricing - owning offices has become as bad as owning a hotel - it is an investment with a fluctuating return due to rapidly changing prices and inputs."
The global real estate conference of the DLA Piper law firm in Israel (Photo: Idan Kanfi)
The global real estate conference of the law firm DLA Piper was held in Israel for the tenth year. The conference is organized by the Israeli branch of DLA Piper in Israel, led by attorneys Jeremy Lustman and Naomi Merrils.
As part of the conference, those present discussed capital investment in real estate during turbulent periods of change, investments in non-traditional types of real estate assets and innovation in real estate in the areas of real estate technologies, ESG and health.
Sandeep, who spoke with Jay Epstein, senior partner and co-director of Dla Piper's real estate department, illustrated his words with an example that "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.
The landlord said: I was going to give you a "Tenant Allowance" (participation of the owner in the rent or the capitalization of the property subject to the conditions in the contract) but I will not do so because: (1) I do not know how strong your credit is;
and (2) I need to manage my cash - will I do this through tenants' benefit, rent concession, paying off my debt?
How can I best manage my cash?
In the end, he had to decide not to give the tenants a "tenant allowance" and this played into our hands because the tenant ended up renewing his contract with us for two more years, because we gave him a complete solution."
Therefore, Sandeep argued, "I think the basic paradigm of how we used to invest in commercial real estate, based on our tenants' lines of credit, is now in jeopardy.
As was the case in the past, we will begin to see situations where the building owners request a 'letter of credit' for the 'tenants' allowance' because they simply do not know who will be the tenant who will come to rent the property.
This is such an old approach, from 15-20 years ago, or even an approach that was common in the 80's... and all these situations give a boost to the shared and flexible workspace sector, for the simple reason that the tenants get a comprehensive solution and they get our property in return ".
Wework Tel Aviv (photo: screenshot, screenshot)
Sandeep, who joined WeWork at the beginning of 2020, after serving as the CEO of the real estate investment giant Brookfield, even referred to the office industry in the 'post-corona' era, saying that "We are in an ironic world that continues and develops. Shared and flexible workspaces will continue and stay with us ; they are even expected to make up 15-30% of the total office workspace market at the end of the decade, and this is an industry in which no disruption has occurred to date. In the world before the pandemic, the large clients (Enterprise Clients) saw shared spaces as a "nice to have" Have) or a kind of "benefit". However, today, the large business customers want 80% of their properties to be based on traditional rentals and another 20% to be based on the "flexible" model (FLEX). That is, today they see the idea of flexible workspaces As an important part of their corporate ecosystem and real estate holdings.
Also small and medium businesses (SMB),
They understand that if they want to be present in a good location and attract talent, they must do so through the shared and flexible workspaces.
And so all of a sudden, companies like WeWork that provide perfect work solutions, end-to-end (Turnkey), become important - at the level of "Must Have".
From this point of view - our industry receives an excellent windfall".
At the end of his speech, Sandeep gave a glimpse of the future in the field of co-working spaces and demonstrated his words using UBER which, according to him, created "Serious Disruption" (Serious Disruption) in the taxi industry.
"Who would have believed that the medallions (licenses) of the yellow taxicabs in the USA that cost millions, would not be worth a penny today?
Uber created this disruption.
So if we borrow the example of the world of offices, can we create a cooperative economy in the work spaces as well?
Can we tell the client 'you will use the office 3 days a week and another client will use the same office 2 days a week'?
And the question is 'why not?!'
I think we will continue to evolve and once such an evolution begins, it happens very quickly and will catch traditional property owners when they are not ready for this change."
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