TenantSee Weekly: Wayne Gretzky and the Young Generation
Wayne Gretzky attributed his success, in part, to his ability to “…skate to where the puck is going, not where it’s been”. This was among the skills that made him a great hockey player. This same skill can help companies and individuals be more successful in business. Yet it’s not what comes natural to us. Have you seen young children play hockey, soccer, or similar sports? A child’s first instinct is to go where the puck or the ball is, resulting in a highly ineffective throng of players. In business, it can also be hard to go where others are not. It requires instinct, thorough analysis and understanding of a market; and, most importantly, confidence to stay the course.
TenantSee Weekly: Reconnecting Work to Place
Lately I’ve been contemplating Enrico Morreti’s 2012 book “The New Geography of Jobs”. In it, Morreti makes the case that urban winners and losers are determined, in large part, based on the extent of geographic concentrations of high-tech employment. San Francisco was perhaps the most prominent example of the thriving economic ecosystems that can emerge when tech employment is aggregated in one region. I believe Morreti’s core thesis remains correct. But his ecosystems are more fragile than we may have anticipated. In fact, it seems they can unravel in much less time than they took to build.
TenantSee Weekly: Social Facilitation
Here’s how ChatGPT defines social facilitation: “Social facilitation is a psychological phenomenon that refers to the influence of the presence of others on an individual's performance of a task. It describes how the mere presence of other people, whether they are spectators, colleagues, or competitors, can affect an individual's behavior and performance.” In 1898, Indiana University’s Norman Triplett studied cyclists to determine differences in performance when racing other humans vs. the clock. He found, “…bodily presence of another contestant participating simultaneously in the race serves to liberate latent energy not ordinarily available…” I’ve experienced my own version of this in training for and running marathons. Without fail, I was always able to run faster and farther when in the presence of others. It turns out we have the capacity to do better, to do more, but reaching that next level is not easily accomplished alone.
TenantSee Weekly: The Lingering Fog of a Bull Market
The Lingering Fog of a Bull Market.
Advisors on the right side of a bull market end up looking good, no matter what they do. This was certainly the case for landlord advisors in the San Francisco office market for the ~10 years leading up to the pandemic, a time when you could win for losing, as the deal you failed to make was often (quickly) replaced by a new deal at better rental economics due to rapidly appreciating rents. Today, both landlord advisors and the investors they advise are, in some cases, suffering from the lingering effects of the bull market.
TenantSee Weeky: It's Not Really About the Office
It’s Not Really About the Office
We’re experiencing a behavioral shift which is changing one of the most pervasive social institutions of our time; namely, how, and where white-collar workers work. Few societal constructs impact individuals, or society, as much as where and how we work. The collective dialogue about this change, especially between employer and employee, has at times been challenging. However, we’re now entering a more hopeful phase of the conversation, one which promises to finally move us to a new place, letting go of the idea that we must revert to pre-pandemic norms.
TenantSee Weekly: Meet WALT
WALT, or weighted average lease term, is an essential metric in the valuation of office buildings as it forecasts the stability of future cash flow. WALT was less important back when office markets like San Francisco were seeing aggressive year over year rent growth. Back then vacancy was worth more than leased space, the theory being a buyer could take advantage of vacant space to capture higher rent (necessary to justify inflated pricing which baked in aggressive rent growth assumptions). However, in the broader historical context of valuation, the idea that vacancy is worth more than occupancy is antithetical to defining value. Indeed, the more prevalent (and logical) approach to value hinges on the quality and duration of the net operating income. Of course, this approach is less sexy as it disables a seller’s capacity to “sell the dream”. The buyer is buying stability and yield, both of which are measurable going in.
TenantSee Weekly: What Could Go Right?
Mass psychology is literally contagious (that’s how it becomes “mass”). This is especially true in times of change, when a significant event has precipitated such change (e.g., the pandemic). These events can be positive or negative. In our current state, the catalyst was negative, and, in many ways, has resulted in a decidedly negative outlook. When things turn negative, there will always be market casualties (just as a rising tide lifts all boats in the positive context). For example, the impact to investors in the domestic office sector has been mostly negative. As change unfolds, it can have knock-on impacts that weren’t necessarily anticipated. For example, the demise of urban downtowns due to shifts in daily worker population. Collective sentiment tends to aggregate around a view and stay there until some brave souls dare to take the contrarian view. As these contrarians see success, it spurs others to jump on board and the collective sentiment begins to shift, once again, in the other direction.
TenantSee Weekly: Knowledge, Leverage, and Opaque Markets
An office lease is a unique financial transaction. While supply data is widely available, the values associated with completed leases are not so readily available, nor is the financial position of the landlord and its partners. In effect, despite the preponderance of available data in residential markets (e.g., Zillow, etc.), office markets remain opaque. The educated occupier can certainly access more information today than in decades past. But it’s not enough to merely know available spaces. Achieving a complete understanding of the markets can only be accomplished by partnering with a firm which is engaged in the market in a variety of very specific contexts. You need an intimate understanding of landlord motivations, capital structures, and even the intricate dynamics of tenants within a building. Yet many real estate service firms don’t have this information because they lack the practice groups.
TenantSee Weekly: I Digress...
A little AI distraction to cheer your day (and relieve us of yet another discussion about workplace). Ever wandered through the streets and felt like you've stepped into the future? With their undeniable presence here in San Francisco, the driverless car is quickly becoming the most prominent representation of AI in our daily lives. If you spend any time in San Francisco neighborhoods, you can’t miss them. The other day, as I chatted with a neighbor, I counted 6 autonomous vehicles casually cruise by our front door within a span of 10 minutes. Intriguing, right? And today, in a twist of irony, I was held up by one. Blocked by a double-parked UPS truck, the driverless car hesitated, unsure about navigating into the lane of oncoming traffic. Of course, all the drivers in the opposing lane weren’t too keen to make space for the driverless car, as one normally would (or at least the more decent among us would) for a human-driven vehicle. Hence, we waited.
