October 30, 2024 • 43 mins
ABOUT JOE BRADY
JOE BRADY is an international corporate real estate expert who had a front-row seat to the evolution of retail, from brick and mortar to omnichannel, and is now seeing the same forces at play in office real estate. He has led real estate for Walgreens and scaled The Instant Group across the Americas while writing, speaking, and advising on the impact of accelerating technology, changing consumer behavior, and implications for consumer real estate.
Now based in Jacksonville, Florida, Brady remains one of the most sought-after voices on real estate's response to online disruption. In his best-selling book, "Work Shop: The consumer-driven transformation of Commercial Real Estate", Brady argues that omnichannel commerce and hybrid workplace models represent convergence points between traditional industry siloes.
THIS TOPIC IN A NUTSHELL:
Joe's journey in real estate
Retail business and company ventures
Brick & mortar shops vs. online e-commerce platform
Pros & Cons of opening up retail space
Creative destruction of spaces
Supply chain and demand
Leveraging technology in workspaces
Behavioral economics and work-life balance
Metrics of Productivity
Consumer-driven behavior
Work culture & collaboration
About his book - Work Shop
Connect with Joe Brady
KEY QUOTE:
“People want to engage in purposeful presence, not passive attendance.”
ABOUT THE WESTSIDE INVESTORS NETWORK
The Westside Investors Network is your community for investing knowledge for growth. For real estate professionals by real estate professionals. This show is focused on the next step in your career... investing, for those starting with nothing to multifamily syndication.
The Westside Investors Network strives to bring knowledge and education to real estate professionals that is seeking to gain more freedom in their life. The host AJ and Chris Shepard, are committed to sharing the wealth of knowledge that they have gained throughout the years to allow others the opportunity to learn and grow in their investing. They own Uptown Properties, a successful Property Management, and Brokerage Company. If you are interested in Property Management in the Portland Metro or Bend Metro Areas, please visit www.uptownpm.com. If you are interested in investing in multifamily syndication, please visit www.uptownsyndication.com.
#RealEstateInvesting #CommercialRealEstate #CRE #REstrategist #strategist #author #retail #RetailInvestment #OfficeSpaces #WorkShop #CommercialPortfolio #HybridWorkspace #Hybrid #WorkLifeBalance #WorkFromHome #ConsumerDriven #BehavioralEconomics #Technology #SupplyAndDemandChain #BrickAndMortar #PurposefulPresence #PassiveAttendance #CREtransformation #RealEstateInvestment #RealEstateEvolution #RentalProperty #PassiveWealth #WealthBuilder #InvestmentInsights #JoinTheWINpod #WestsideInvestorsNetwork
CONNECT WITH JOE:
Website: www.joebrady.ai
LinkedIn: https://www.linkedin.com/in/joebrady03
CONNECT WITH US
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Intro speaker (00:03):
Welcome to the Westside Investors Network. Win,
your community of investingknowledge for growth. This is
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(00:24):
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Trent Werner (00:40):
Welcome back to another episode of the Deal Deep
Dive segment on the WestsideInvestors Network podcast. I'm
your host, Trent Werner. In thissegment, our featured guests
will share their unique storieson a specific deal they've
invested in. We will dive deepinto finding the deal, financing
the deal, writing an offer, andthe due diligence. Do us a solid
and smash that subscribe button,leave us a rating, and share
(01:03):
this episode.
And now, let's dive deep.Welcome back to the Westside
Investors Network podcast. I'myour host, Trent Warner. On
today's episode, we're joined byJoe Brady. Joe is a globally
renowned commercial real estatestrategist with over thirty
years of experience.
Today, Joe and I are gonna talkabout his time being the head of
real estate divisions for largecorporations, as well as the
(01:26):
managing director at JLL forover a decade. Joe's also gonna
share his insights on whereretail, industrial, and office
space is and where it could beheading. We also covered Joe's
book, WorkShop, which is linkedin the show notes, and I highly
recommend you check out. Nowlet's welcome Joe Brady.
(01:47):
Alright.
Joe Brady joining the WestsideInvestors Network podcast. Joe,
I'm super excited to have you ontoday.
Joe Brady (01:53):
Thanks, Trent. Good to be on the Westside. Yeah. And
Trent Werner (01:57):
I guess we're you're calling in from the
Eastside. Right?
Joe Brady (02:00):
I am. Yeah. I've got the the other the other ocean.
I'm in the I'm in theJacksonville, Florida area, in
Ponte Vedra Beach, which, ishome to the PGA tour for those
golf fans around. And, we've hadfifteen days of or excuse me, 15
inches of rain, if you canbelieve it, in the last week.
(02:23):
So something's happening.
Trent Werner (02:25):
I'm in Oregon, and that's we haven't even come
close to that. We will, but butnot this time
Joe Brady (02:29):
of year. Yeah. Exactly.
Trent Werner (02:33):
Well, before we we dive in, just to let the
audience know, Joe and I aregonna talk about his career.
Obviously, it's very vast andhas tons of different insights
that we're gonna hear today. Andone thing that we wanna focus on
is Joe's expertise aroundcommercial real estate. Joe, how
long have you been doing it now?
Joe Brady (02:52):
About thirty five years.
Trent Werner (02:54):
Yeah. So you you've you've seen a couple of
things in your career, and I'mexcited to hear some of those
insights. So before we, youknow, get too crazy, where did
your career start, and what haveyou focused on throughout your
career?
Joe Brady (03:07):
Yeah. Trent, I I, I came out of business school, UNC
Chapel Hill, and went to work atFirst Chicago, which, was later
acquired by JPMorgan. So Ireally went into real estate
corporate finance. And in 1990,that was a an interesting time.
Resolution Trust Corporation,you know, we were definitely
(03:28):
going through, a trough, a cyclein the industry.
So I got to see an op lot ofworkouts happening. I got to
look at and study a lot of dealsthat went south and and
understand why they went south.But I very quickly pivoted to
the retail side of things andworked with a number of
(03:48):
different retailers leading upthrough. In fact, I you know,
you're in Oregon. Well, I workedfor Hollywood Video, which is a
company that doesn't existanymore, but was based in
Wilsonville.
And, spent a lot of timeactually, in in the Portland
market. But joined that companywhen it was at a hundred stores
(04:09):
and helped grow the chain inabout four and a half years to
2,000 stores. So really had, ataste of the the high volume
rollout, and so we were doingdeals literally every corner of
the country. I mean, I I evenwent to Minot, North Dakota in
January. So I don't advise that,by the way.
Trent Werner (04:31):
And and how did you how did you get into working
with the retail space out of,you know, corporate real estate
finance?
Joe Brady (04:40):
Yeah. I, I wound up working, before Hollywood. I
actually worked for Burger KingCorporation and was managing all
the real estate in the Midwestand took a took a hard left turn
and became a franchisee. So Iwas, a multi unit Burger King
franchisee as a, you know, kindof a 20 with a partner. And, you
(05:04):
know, I think as a young person,it's really important to learn
what you don't wanna do as muchas what you do wanna do.
And so after about the seventhdouble whopper with cheese
thrown at my head, I decided I Iwas I was better at buying land,
building buildings, kidding thewhole thing out. And when it
came time to turn the turn thelock and open it to the public
(05:26):
the first time, I'm out. So I, Ileft operations at that point.
Trent Werner (05:31):
Fair enough.
Joe Brady (05:31):
And I really, really wanted to focus on real estate,
and and that's when I actuallyhooked up with with Hollywood
Video. We had that reallyextraordinary rollout. And by
about February, the the homevideo business was starting to
sputter, and I had some partnersthat I worked with at Hollywood
Video, that in in aroundFebruary, we started an
(05:55):
outsourced retail real estatecompany. So we figured, hey. We
just opened 2,000 of thesethings all around the country.
We had brokers in every singlemarket with great we had great
relationships, and we reallyknew how to do this. So we
decided to take our show on theroad. And it's helpful to be
smart. It's better to behardworking. It's even it's even
(06:19):
better to be lucky.
And so one of our first clientswas through a relationship at
Hollywood Video, but with acompany that was called
VoiceStream Wireless out of outof Atlanta. And six months into
our engagement, they wereacquired by Deutsche Telecom to
become T Mobile USA. So we woundup opening another almost 2,000
(06:42):
T Mobile stores around thecountry in addition to Starbucks
and Texas Roadhouse and ahandful of other food and
beverage clients. And so weultimately sold that business in
02/2008 to JLL and reallycreated the retail platform at
JLL at that time. So it was, itit was good timing, particularly
(07:07):
since we closed again, beinglucky, 01/03/2008, we closed
with JLL.
So it was really a good time toget out of being an entrepreneur
and having a big corporateumbrella to get get us through
the global financial crisis.
Trent Werner (07:23):
And when you were operating that business, working
in that business, what was yourday to day, or what were you
doing for these companies on thekind of on the show on the road
side that you were talkingabout?
Joe Brady (07:34):
The retailers need predictive analytics and revenue
forecasting. They need a wholehost of details and data, and we
had a whole team that couldprovide that. And so we could
build revenue forecasting modelsbased on a company's underlying
(07:55):
business, and it's vital to beable to say, you can pay this
rent because we think you'regonna produce this level of of
revenue. And our hit rate wasgood. So it it it really allowed
us to be differentiated.
So on one hand, we were helpingwith the strategy and the
planning upfront, and then wetook that into the next phase,
(08:17):
which was site selection, dealnegotiation, and then oversight
through construction untilopening. So really, you know,
the full life cycle of a of adeal.
Trent Werner (08:28):
So you were able to do what you enjoyed and what
you were good at all the waythrough until operations.
Joe Brady (08:34):
Exactly. Yes. No, no flying hamburgers. And, so I was
I was at, I was at JLL for nineyears, and that allowed me you
know, it's kind of fun becausewith the previous company, which
is called the Standard Group, Iwe had the the lower 48, and we
were doing deals literally inevery corner. Once we went to
(08:57):
JLL, it became this globalplatform.
So, again, in your neighborhood,Nike was one of our our clients,
and, we were working to open weopened 16 stores in Brazil
before both the Olympics and theWorld Cup. And so it was kind of
fun orchestrating that, wound uprolling Nike out throughout
(09:20):
Southeast Asia. And with JLL, itwas great. Although, I I covered
The Americas. I had colleaguesthat were able to take care of a
lot of the business in Asia.
So it was kinda cool to have,you know, an even bigger sandbox
to play in. And, I wound updoing some other things with
banking clients and leading thebanking industry group, which is
(09:41):
really interesting becauseclients like Goldman and
JPMorgan and HSBC were goingthrough pretty big changes
during that time. So it was, youknow, one of the one of the
challenges with JPMorgan cameduring Brexit or even pre Brexit
because JPMorgan has somethinglike 25,000 employees in The UK.
(10:05):
And when they saw this loomingBrexit thing happen, they they
they purposely said, okay. JLL,you need to go out and find us
homes for these people becausewe have to go to Frankfurt, we
have to go to Dublin, we have togo to Warsaw.
And and so, again, just reallyinteresting challenges to
tackle.
Trent Werner (10:26):
And how does I guess, I mean, you already
talked about JLL being a moreglobal scale compared to what
you're doing prior. Were thereany major differences aside from
the, I guess, the size of whatyou were doing compared to what
when you were operating your ownshop?
Joe Brady (10:42):
Yes. And I I think it was the the size and and
legitimacy to actually play on aglobal basis or to even engage
in The United States with someof the really big
multinationals. So, there'sthere's a tendency to go to the
big two, JLL or CBRE. I think, Ithink companies have found,
(11:03):
particularly when it comes tooutsourcing and and brokerage,
that you you you tend to go withthe the best team in a
particular market. But when itcomes to running an account
globally, it's really tough tocompete if you're, you know, if
you're just a a small regionalplayer.
So, yeah, we we were able to getaccess to to bigger clients.
Trent Werner (11:26):
And, obviously, you're talking a lot about
opening brick and mortar shopsevery corner. Everyone knows
that in the last, what, ten,fifteen years, things have kinda
migrated away from that in somecapacity even more in the last
three or four years. What areyour thoughts on going from all
these brick and mortars, 2,000locations for all these
(11:47):
different companies to theonline virtual world, and we
hear all over the news all thetime, all the square footage
that's vacant in downtown, youknow, urban cores. What are your
thoughts on on this topic?
Joe Brady (12:00):
Yeah. That's I mean, Trent, it's a really important
top. In the last ten years,there's been 100,000,000 square
feet of retail space taken outof the supply side of the
equation. And why is that? Well,it's a combination of
(12:20):
functionally and technicallytechnologically obsolete
retailers, who became irrelevantand and the subsequent malls
that were supporting those thosethose retailers.
So you think about a a b or a cmall. You know, many of those
(12:40):
have been either reconstitutedinto corporate, you know, office
campuses or a combination offlexible office space with gyms
and apartments. You you've seenall sorts of adaptive reuse
happening. You've also seen thelikes of this, you know, the
Sears and the j JC Penney's andsome of these other bigger boxes
that have just gone dark and,again, have been reconstituted
(13:05):
into something else. So we'reseeing a lot of creative
destruction of of space.
In other words, it's it'sgetting recycled. But net net,
there's been a a hundred millionsquare foot, reduction on the
supply side. Now from myperspective, what we've seen is
this dramatic acceleration of oftechnology. And you think about
(13:29):
I mean, it's it hasn't even beentwenty years since the iPhones
come out. Right?
02/2007. The power that thatsmartphone technology has given
the consumer has beenastounding. So now what we see
is omni omni channel retail orecommerce. Oftentimes, that that
(13:51):
sort of element of of online isreferred to as ecommerce. What
we've seen is a steady, increasein the in the percentage in
usage, and we definitely saw itspike during the pandemic.
It it got up to almost 20% of ofretail sales. Now retail sales
(14:12):
in The US are $3,000,000,000,000a year. It's now settling in at
15 to 16 trill, 15 or 16%, whichagain equates to, you know,
$4,400 almost $500,000,000,000in revenue happening online. Now
there's another element that'sthat's really important to note,
(14:34):
and I I sit on the board ofICSC, which is the trade group
for retail real estate. And ICSChas done some research called
the halo report, and we've we'renow up to our third iteration.
But in every iteration, we'vewe've taken credit card data
from Mastercard and Visa. Thethe data points are up to 25,000
(14:57):
data points. And what it's shownis that when a retailer opens a
brick and mortar store in atrade area, the online sales go
up by six to 8%. Conversely, ifa retailer closes a brick and
mortar store in a in a tradearea, online sales go down 12 to
(15:19):
14%. So there's a directrelationship.
The consumer is speaking, andshe's saying, I want agency,
autonomy, and optionality in howI use your brand. So I may wanna
go into the store today and havesomething delivered to my home.
I may wanna sit at home and haveit an order and go and pick it
(15:40):
up in store, or I might just sitat home and have it delivered.
Or if the boxes pile up at thefront door and I wanna bring
stuff back, I wanna be able tophysically do that. And so we're
seeing this this kind of thisflywheel happening in retail,
and it's essential to have thatthat balance between not only
(16:03):
the physical presence, but youryour online presence.
And and, you know, the samestories that we're hearing about
office right now are just remindme that I've seen this movie
before. Right? It's the clickbait. Like, no one's ever going
back to an office. There'sthere's no, you you you know,
all work can happen at home.
(16:24):
It was the same thing about tenyears ago. The the click bait
was brick and mortar stores aredead, and that couldn't be
farther from the truth. In fact,there's more CapEx going into
the existing stores today thanever because the consumer
doesn't just wanna come in, buysomething, and leave. They wanna
be a part of the meaning of thebrand. So you think about
(16:46):
Lululemon.
You think about Nike and some ofthe brand stores they're
opening. Think about Apple.Right? Now Apple emerged as sort
of this technology company to beprobably the highest per square
foot revenue of any retail useout there. It's astounding.
But people go to Apple becausethey wanna be associated with
(17:08):
the brand. They wanna they wannalook and browse. They wanna go
and have questions answered atthe Genius Bar. They wanna go
and study and learn through theclasses that happened there. I
mean, there's this wholemovement that happens around it,
and the successful retailers areable to harness that notion of
of purpose and meaning, youknow, to create better equity
(17:31):
brand equity with theircustomers.
Trent Werner (17:33):
So that's all really interesting that I didn't
I didn't necessarily think aboutfrom a retail standpoint of
being able to physically go. AndI'm I was thinking about it
myself. I'm guilty of it whereI'm shopping at Target. I can go
to one right down the streetwhere I can buy something
online. I was always under theassumption that for retail,
everyone wants convenience now,and I guess that's not the case.
(17:56):
Know, everyone shops on Amazonbecause it's convenient, comes
right to your house. Target,Walmart, all those companies
will ship things to your house.But the return aspect too and
the the the brand loyalty orbeing a part of the brand makes
perfect sense because, yeah,yeah, there's some days where I
don't wanna wait a day to go getsomething when I can see online
(18:16):
that they have it in the store,and I'm just gonna go get it. So
that's, that's reallyinteresting. It's something I
never thought about.
Joe Brady (18:24):
And with your Amazon orders, you know, probably, I
don't know what percentage getsreturned, but you can walk down
to your local Whole Foods andjust drop that off. Right? I
mean, so there's simplicity inin that flywheel of how product,
the there there's a a positiveand a negative supply chain
(18:45):
that's happening. When I washead of real estate at
Walgreens, we we had a reversesupply chain location in
Valparaiso, Indiana. And lit itwas literally a deep dark hole
where returns just went to.
And I'm not sure whateverhappened to things there, but
they never they never emerged.They just disappeared.
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uptownsyndication.com today tolearn more. So we were talking
retail, and, obviously, you'veyou've shared a lot about
retail.
What about office? Becauseretail makes sense. Right? We we
just covered retail. But in turnlike, I hear of commercial real
estate, my first thing is officespace.
No one's going in the office,but then you have places like
(20:20):
Amazon, all these companiessaying, we need you back in. We
need you back in. But whatabout, you know, Downtown
Portland or Seattle or orwherever the the people have
these big the companies havethese big office spaces. What's
happening with those?
Joe Brady (20:35):
What's happening is that in parts of the Central
Business District that ispredominantly focused on office,
those areas, whether it's it'sit's parts of of Seattle, parts
of San Francisco, parts ofChicago, Downtown Portland,
(20:56):
those areas are having thebiggest problem right now
because the central businessdistricts rely on just work. And
we know that better businessdistricts where people want to
be have live, work, and play.They're healthy ecosystems that
have a a twenty four seven,three 60 five vibe going on, and
(21:20):
you can look. And and it's andit's what's interesting is it
tends to be cities that, thathave significant suburban mass
transit into, into those CBDs,probably less so for Portland.
But, again, you have sections ofPortland, which are which are
(21:40):
demonstrably that monoculture orthat kind of that monolithic
office type of component.
Then you have other really coolareas, Pearl District and
whatnot, where there's a lot ofaction happening twenty four
seven. That would tend to be abetter business district. So
what's what's happening? Well,during the pandemic, we saw the
(22:00):
residential Internetinfrastructure held up. We saw
that whole companies not onlydidn't blow up or didn't have,
you know, horrible cyberattacksaside from kind of what are
happening from nation states outthere.
We actually kept thingstogether, didn't we? In fact,
(22:22):
you know, I would say a vastmajority of people who worked
from home would tell you theyprobably work longer hours, they
probably work harder, and theywere probably more effective.
But there was a productivityparadox that happened between
workers and the managers abovethem. Microsoft did a a
(22:46):
research, study of 20,000employees. And of the of the
employees who were frontlineworkers, eighty percent said,
hey.
This this hybrid or work fromhome thing is really working.
I'm getting more done. I'mworking harder. I'm actually
working almost too hard. Themanagers of those people, 80% of
(23:09):
the managers said, we don'ttrust what those people are
doing at home.
We need to have them back in theoffice so that I can see that
they're sitting in their seat attheir cubicle, and therefore,
they're being productive. Nowboth sides have to give a
little. Right? And and I thinkwhat we've seen is, you know, a
(23:29):
stark reminder that, again,technology is accelerating, and
we're, for the most part, inthis new collar economy. Right?
Which means technology isenabling us to do our work,
whether it's doing a a podcasthere, we're on separate coasts,
or having a sales meeting, or,you know, having, you know, any
(23:52):
sort of marketing or creativeactivity. Now clearly, all of
that's much better when you'retogether, but it's not
impossible now to have itonline. So so, you know, a
number of things are happeningaround this future of work.
There's a struggle, between themanagers, you know, think
Dilbert managers. They wanttheir people back just because.
(24:15):
And the employees who aresaying, hey, wait a minute. I'm
I'm actually getting my stuffdone. And and so why do we work
Monday through Friday, nine tofive? You know, and it's almost
a a a, industrial era construct.Isn't it?
Right? I mean, that's why herethat we went to factories
because inputs would come in,we'd stand at our station, you
(24:37):
know, we'd work a machine, andthen there would be outputs.
But, again, you know, in thekeyboard economy where stuff
that we're doing can happen inan office, or there could be
days where you're totallyfocused and you're working at
home, or you're working at acoffee shop, or you're working
at a flex office space, we haveto have a better dialogue about
(24:58):
what it is that the companywants to achieve as opposed to
the what and why of you beingphysically in an office. Now
there's a lot of behavioraleconomics that comes into play
here. Did you see the movieMoneyball or, read the book,
Michael Lewis?
Right? And and, there there'ssome really interesting stories
(25:21):
about that, and I wrote about itin my book where Lewis, wrote
this book about baseball. Andthe next thing you know, he
knows he's getting a review by aUniversity of Chicago economist.
So not only is he an economistfrom the University of Chicago,
he's a Nobel Laureate. And he'stalking about how, you know,
(25:45):
Lewis is channeling thebehavioral economic works of
Danny Kahneman and AmosTrzabowski.
And it was so surprising toLewis that he had no idea what
this guy was talking about thathe, in fact, started researching
these two guys, Israelipsychologists, that came to, you
(26:07):
know, came to be in the latefifties and sixties. And he
wound up writing yet anotherbook called The Undoing Project,
which is phenomenallyinteresting. But these guys
talked an awful a lot aboutbiases and heuristics. Like, we
we make decisions in a differentway. We think we think fast and
(26:28):
slow.
You know, if if I said, Trent,what's two plus two? Our, you
know, our fast brain goes, oh,yeah. I know that one. But, you
know, 3,242 divided by pi, like,the fast brain doesn't process
that. We have to, like, reallywork it.
So why am I talking aboutbehavioral economics? Because
it's really important. Becausewe're talking about people now
(26:50):
as to whether they should be inan office or not or how they
behave around retail. Andthere's a couple of things
happening. One is this notion ofloss aversion.
People for two and a half yearsor three years have had an
inversion of work life balance.It's now actually life work
balance. And if you don't haveto commute an hour and a half
(27:12):
each way, you actually might beable to see your kids in the
morning, or see your partner, ormaybe work out, or sleep an
extra half an hour, or any of ahost of other things. But when I
lived in Chicago, and I workedat at Walgreens, it was 24
miles. It could take me 23miles.
(27:32):
Yes. I was exceed exceeding thespeed limit, but it also could
take me two hours each way.Right? And so it was just
brutal. And so through thepandemic, people realize, hey,
you know what?
I probably don't hate my job. Ihate my commute. So so there's
this element of loss or versionthat's happening with, with
(27:53):
people. And the other thing is anotion called reactance. In
other words, if you tellsomebody if I say, Trent, you
need to be in the office fivedays a week, you're gonna
viscerally react.
Again, there's another elementof loss aversion. I've lost my
autonomy and agency in how Iconduct my day, and people are
(28:14):
have pushed back. Now the firsttime Amazon reported, that you
you need to be in the officethree three days a week, you
have this extraordinary Slackresponse. There were 20,000
people on Slack saying, youknow, not no, but hell no. And
the same thing same thing ishappening now, relative to this
(28:36):
five day a week return coming upin in January.
But another element of of a biasis this, you know, sunk cost
fallacy. Right? There there isan element. If you're Amazon and
you own $50,000,000,000 worth ofreal estate. Right?
Not all of its office, but theyhave a massive office portfolio.
(28:59):
You're gonna expect people to goback and use it. Otherwise, you
have this asset that you've, youknow, that you've invested in,
but no one's using it. And so,there's a lot of push pull going
on there. I I I think there'ssome lessons though that that
corporate occupiers andinvestors and owners of office
(29:21):
buildings could heed.
And and that is that people wantto engage in purposeful
presence, not passiveattendance. People want leaders
helping them curate theirexperience as opposed to
managers saying, come to yourcubicle, sit there forty hours a
(29:43):
week, and therefore, you'redoing you're doing work. I mean,
that that's kinda ridiculous inand of itself. Right? People are
on, you know, fantasy footballor they're online shopping or
they're daydreaming or they'redoing whatever.
But and I also think there's anelement of of metrics. What are
we measuring? Everyone talksabout, oh, increased
productivity. Well, you know, ifI'm working for you, Trent, and
(30:06):
I call you up and say, hey,boss. I just sent out a hundred
emails.
Isn't that great? I was superproductive today. That none of
the if the none of those emailsactually were sent to the right
people or were the right thingto do, effective for the the
overall company's initiative,the bottom line, moving the
(30:26):
company forward? You know? Andso I think there there's
probably a need to have agreater focus on effectiveness
of what people are doing asopposed to productivity, unless
you run a call center or youwork in a factory.
But, again, in this new collareconomy, the keyboard economy
where we're trading ininformation and ideas and
(30:47):
relationships, you know, why arewe hamstrung with an industrial
era construct of having to be inan office five days a week,
forty hours, you know, fortyhours a week?
Trent Werner (30:58):
Well, and and you kinda touched on it already, but
I I think of the reason I askedis because I was up in Seattle
not too long ago and Microsoftdumped like 200,000 square feet
or something in Bellevue, Iwanna say. And so I was curious
your thoughts, because from myopinion, it seems like some of
these large corporations aren'tgonna get rid of office or or
(31:19):
their office space. They're justgonna shrink it a little bit.
And then your point, Joe, maybemaybe there's gonna be more
conversations of hybridschedules and things like that.
I know my mom works at Nike, andin the summertime, it's three
days a week, you know, Tuesday,Wednesday, Thursday, most weeks,
and they have a entire week off,you know, free of charge in the
(31:40):
summertime and all that stuff.
And so it seems like thecorporations, if they want their
employees to get back in theoffice three days a week,
they're gonna have to, like yousaid, compromise in some
capacity, whether it's hybridschedules or or what whatever it
may be. But I I can't imaginethat office space is just gonna
be gone. That's just that'sthat's not gonna happen. So I'm
(32:02):
I'm I was curious to hear whatyou had to say about the hybrid
schedule and and things of thatnature. What are your what are
your opinions on, I guess,industrial or warehouses because
of this online presence and andecommerce and and everything
like that?
You mentioned Amazon. I I knowfor a fact Amazon has plenty of
(32:24):
warehouse space. And are thereother companies that are gonna
be spending their money,investing their money on
warehouses versus building newoffice space for their
employees?
Joe Brady (32:35):
Yeah. I think it'll be that a balance. Right? The
distribution centers that arehave popped up throughout the
world are humming at fullcapacity. The real interesting
challenge is that last milewithin the distribution network,
that distribution node, youknow, and we've seen drugstores
(32:57):
serve as that as as that node.
What's what's reallyinteresting, and if you think
about this massive platformshift we're going through in AI,
that we're seeing this increasedimportance on data centers that
that need to be filled withGPUs, those graphical processing
(33:20):
units from NVIDIA and the liketo help drive how fast AI is
exploding. Right? So so asyou're thinking about the
industrial asset class, yes, wewill continue to see strong
performance out of distributioncenters, but the data centers
are really where it's at rightnow. And they're really
(33:44):
expensive. It's very difficultto, you know, to fill a data
center with NVIDIA chips.
Companies like AndreessenHorowitz, who are, you know, a
venture capital firm, areactually buying chips that
they're making available toportfolio companies they're
investing in. Right? I mean,that's never happened before.
(34:05):
It's kind of a cool thing that'shappening.
Trent Werner (34:08):
Yeah. So, basically, to to summarize,
retail's here to stay, office ishere to stay. I guess, one one
more question about officespace. So we have all of this
vacancy, right? I know, I mean,Portland is a, has a million
square feet of vacant officespace.
I'm sure there's biggermetropolises that have plenty
more square foot, square feetthat are vacant. What's gonna
(34:31):
happen with that? Do you thinkpeople start going back to the
those offices, or do those getrepurposed into something else?
Joe Brady (34:38):
Yeah. And I and I think you have to look at the
the design of the building, theage of the building. If anything
we learned out of the pandemic,it's we need to be in healthy
buildings, not sick buildings.And when you think about fresh
air intake and and fresh airturnover in buildings, Some of
(35:00):
these older buildings weredesigned to turn over air maybe
twice an hour. Right?
And we know and they didn't haveany filtration. And we know now
that because of airborne virusesand such that we wanna see, you
know, every 15 turn up fourtimes an hour. Right? Not once
an hour. So you've gottechnological obsolescence you
(35:21):
have to deal with.
You have floor plates that youhave to deal with. Oftentimes,
if you get larger than 15 or20,000 square feet per floor
plate, it gets really, reallydifficult to convert that
building into residential. Sothe stuff that's larger than
that, that's the $64,000question right now. What to do
(35:41):
with those buildings? You youknow, there's only so much self
storage or vertical farms orbrewpubs you can you can put in
some of these obsoletebuildings.
In New York City, Seventy FivePercent of the office stock was
built before the IBM mainframe,which, is that was sixty years
ago. So you have a you know, andand the same thing that happened
(36:06):
in retail is happening inoffice, which is b and c class
assets are losing value and arebecoming somewhat obsolete. And
there will have to be, again, asI talked about that creative
destruction. Will people comeback? Of of course, they will.
And and and I I often say thathybrid work and omnichannel
(36:30):
retail or ecommerce are twosides of the same coin, and it's
all driven by the consumer. Andand so, you know, leaders who
want people to come back willneed to nudge them back and
think about ways where it'sworth the commute to come in.
(36:50):
We've heard this term thaton-site is the new off-site. So
making sure that you're gettingpeople together. If you want
that collaboration to happen,you know, have everyone
together.
Maybe there's a guest speaker.Maybe there's, you know, a
social hour. Maybe there's ahost of other things. Maybe
there's a all hands meeting andsenior management's able to
share some information. So, youknow, I I don't think you have
(37:12):
to be in an office five days aweek to develop culture.
I will tell you what will erodeculture very quickly is if you
mandate people back. And so thiswhole notion of culture and
collaboration that you're tryingto foster through this mandate
absolutely just undermines theinitiative because of the
reactance of people. You know,you're hiring adults and then
(37:34):
you're treating them likechildren. It's not gonna end
well.
Trent Werner (37:38):
Yeah. That's and coming from someone who works
predominantly at home, I come tothe office to because this is
where all the equipment is forthese, but I can do everything
from my house or going andvisiting the different assets
that we manage. And so when Ihear someone say, oh, I have to
be in the office, no, you don't.As long as you can, you know, as
(37:59):
long as you have a job thatallows for that. But to your
point, Joe, is if someone wereto tell me I need to be here
five days a week for eight hourseach day, I I would tell them
no.
I'm not gonna do that. That'syou know? So it's it's gonna
come down. It'll be interestingto see how these companies and
these and these corporationshandle that and what, I guess,
(38:22):
what comes of it. Again, Nike, Ithink, does a great job building
that culture.
Everyone that lives around herewants to work at Nike because
they have great benefits and,you know, summertime, you get
half day of Fridays and a whole,you know, wellness week during
August or whenever it is. Thoseare the things that I think a
lot of corporations are gonnahave to look at and say, hey.
(38:42):
How do we entice our employeesand that want to come into the
office, come to the the HQ, andbe productive here? Because I
think it's it's easy to tellthat someone could be productive
from their house as long asthey're self driven enough to
make that happen.
Joe Brady (38:58):
And, you know, and and from an office perspective,
you, you know, you could thinkabout the hub and spoke model
where you have the the HQ, andthen you can have spokes either
in a city or in a region. Andnow with flexible office space,
we have the opportunity to setup locations and test and see
(39:20):
how people use that space. Arethey going to it? And if they're
not going to it, then drop it.But if you have if you have a
ton of people going there andcongregating, then you have
evidence that suggests, well,maybe I should do a five year
lease.
Part of the problem with theoffice asset class is that our
businesses are changing at afrequency of weeks, months, and
(39:44):
quarters. Right? You know, withtechnology changing, you know,
you don't know what yourbusiness is gonna look like in
five years. Yet if you go into anew office building, you have to
sign a ten year lease. Now not abig deal if you're a CPA firm,
consultant, or or a, anattorney.
But if you're a tech company,you don't know how much space
(40:07):
you're gonna need in two years,let alone ten. And so, you know,
there has to be ways to test andset up space. There has to be
ways for teams then to cometogether and maybe work for a
month or two. And so it's reallyinteresting now to have this
this whole another layer offlexible office space that can
be accessed by the hour, theday, week, and a series of
(40:28):
months as well.
Trent Werner (40:29):
Absolutely. Alright, Joe. I know I see your
book behind you. Can you give usa quick, what's the title and
and a and a quick synopsis ofthe book? That way people can go
check it out.
Joe Brady (40:41):
Sure. It's called workshop, and it's about, the
consumer driven transformationof commercial real estate. Yeah.
I talk an awful lot about thehistory of work, the history of
technology, how that's changedconsumer behavior, and the
lessons that we've learned in inretail, and what could be
applied to the world of work.Workshop is a play on the fact
(41:06):
that twenty years ago, shop wasliterally a noun.
It was a physical place. We hadto go to a shop to spend our
money. And then very quicklywith technology, it became a
verb. Right? So we now shop.
We shop online or we shop in astore. And I maintain that work
is going through that samething. Before the pandemic,
Trent, you and I, if we said,hey. We're going to work. That
(41:28):
meant we're going to an officetypically, right, for the most
part.
Since the pandemic, those twohave been decoupled. So work has
gone from a noun, a physicalplace, now to a thing that we do
irrespective of place. And sothat's the play on on workshop.
And so your listeners can checkit out on Amazon. You can go to
(41:49):
my website, joebrady.ai.
There's a link to Amazon andBarnes and Noble and other
places to to buy the book. Butit's been really fun to do. It's
been fun to put my thoughts outthere and, been getting some
really interesting feedback.
Trent Werner (42:04):
Very nice. We'll make sure that that gets linked.
And is there any other placethat you would like for people
to connect with you aside fromjoebrady.ai?
Joe Brady (42:13):
Yeah. So if you go to that joebrady.ai, my LinkedIn,
is there. You can connect there,and then there's, all my contact
information so you can reachout. I'll see the best landing
place.
Trent Werner (42:26):
Well, thank you for sharing all of your insights
about the different assetclasses that we cover today and,
you know, where where we mightbe headed in the in the future
with retail, industrial, as wellas office space. Thank you, Joe.
Joe Brady (42:40):
Thank you, Trent. Great being with you.
Intro speaker (42:42):
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Trent Werner (00:40):
Welcome back to another episode of the Deal Deep
Dive segment on the WestsideInvestors Network podcast. I'm
your host, Trent Werner. In thissegment, our featured guests
will share their unique storieson a specific deal they've
invested in. We will dive deepinto finding the deal, financing
the deal, writing an offer, andthe due diligence. Do us a solid
and smash that subscribe button,leave us a rating, and share
(01:03):
this episode.
And now, let's dive deep.Welcome back to the Westside
Investors Network podcast. I'myour host, Trent Warner. On
today's episode, we're joined byJoe Brady. Joe is a globally
renowned commercial real estatestrategist with over thirty
years of experience.
Today, Joe and I are gonna talkabout his time being the head of
real estate divisions for largecorporations, as well as the
(01:26):
managing director at JLL forover a decade. Joe's also gonna
share his insights on whereretail, industrial, and office
space is and where it could beheading. We also covered Joe's
book, WorkShop, which is linkedin the show notes, and I highly
recommend you check out. Nowlet's welcome Joe Brady.
(01:47):
Alright.
Joe Brady joining the WestsideInvestors Network podcast. Joe,
I'm super excited to have you ontoday.
Joe Brady (01:53):
Thanks, Trent. Good to be on the Westside. Yeah. And
Trent Werner (01:57):
I guess we're you're calling in from the
Eastside. Right?
Joe Brady (02:00):
I am. Yeah. I've got the the other the other ocean.
I'm in the I'm in theJacksonville, Florida area, in
Ponte Vedra Beach, which, ishome to the PGA tour for those
golf fans around. And, we've hadfifteen days of or excuse me, 15
inches of rain, if you canbelieve it, in the last week.
(02:23):
So something's happening.
Trent Werner (02:25):
I'm in Oregon, and that's we haven't even come
close to that. We will, but butnot this time
Joe Brady (02:29):
of year. Yeah. Exactly.
Trent Werner (02:33):
Well, before we we dive in, just to let the
audience know, Joe and I aregonna talk about his career.
Obviously, it's very vast andhas tons of different insights
that we're gonna hear today. Andone thing that we wanna focus on
is Joe's expertise aroundcommercial real estate. Joe, how
long have you been doing it now?
Joe Brady (02:52):
About thirty five years.
Trent Werner (02:54):
Yeah. So you you've you've seen a couple of
things in your career, and I'mexcited to hear some of those
insights. So before we, youknow, get too crazy, where did
your career start, and what haveyou focused on throughout your
career?
Joe Brady (03:07):
Yeah. Trent, I I, I came out of business school, UNC
Chapel Hill, and went to work atFirst Chicago, which, was later
acquired by JPMorgan. So Ireally went into real estate
corporate finance. And in 1990,that was a an interesting time.
Resolution Trust Corporation,you know, we were definitely
(03:28):
going through, a trough, a cyclein the industry.
So I got to see an op lot ofworkouts happening. I got to
look at and study a lot of dealsthat went south and and
understand why they went south.But I very quickly pivoted to
the retail side of things andworked with a number of
(03:48):
different retailers leading upthrough. In fact, I you know,
you're in Oregon. Well, I workedfor Hollywood Video, which is a
company that doesn't existanymore, but was based in
Wilsonville.
And, spent a lot of timeactually, in in the Portland
market. But joined that companywhen it was at a hundred stores
(04:09):
and helped grow the chain inabout four and a half years to
2,000 stores. So really had, ataste of the the high volume
rollout, and so we were doingdeals literally every corner of
the country. I mean, I I evenwent to Minot, North Dakota in
January. So I don't advise that,by the way.
Trent Werner (04:31):
And and how did you how did you get into working
with the retail space out of,you know, corporate real estate
finance?
Joe Brady (04:40):
Yeah. I, I wound up working, before Hollywood. I
actually worked for Burger KingCorporation and was managing all
the real estate in the Midwestand took a took a hard left turn
and became a franchisee. So Iwas, a multi unit Burger King
franchisee as a, you know, kindof a 20 with a partner. And, you
(05:04):
know, I think as a young person,it's really important to learn
what you don't wanna do as muchas what you do wanna do.
And so after about the seventhdouble whopper with cheese
thrown at my head, I decided I Iwas I was better at buying land,
building buildings, kidding thewhole thing out. And when it
came time to turn the turn thelock and open it to the public
(05:26):
the first time, I'm out. So I, Ileft operations at that point.
Trent Werner (05:31):
Fair enough.
Joe Brady (05:31):
And I really, really wanted to focus on real estate,
and and that's when I actuallyhooked up with with Hollywood
Video. We had that reallyextraordinary rollout. And by
about February, the the homevideo business was starting to
sputter, and I had some partnersthat I worked with at Hollywood
Video, that in in aroundFebruary, we started an
(05:55):
outsourced retail real estatecompany. So we figured, hey. We
just opened 2,000 of thesethings all around the country.
We had brokers in every singlemarket with great we had great
relationships, and we reallyknew how to do this. So we
decided to take our show on theroad. And it's helpful to be
smart. It's better to behardworking. It's even it's even
(06:19):
better to be lucky.
And so one of our first clientswas through a relationship at
Hollywood Video, but with acompany that was called
VoiceStream Wireless out of outof Atlanta. And six months into
our engagement, they wereacquired by Deutsche Telecom to
become T Mobile USA. So we woundup opening another almost 2,000
(06:42):
T Mobile stores around thecountry in addition to Starbucks
and Texas Roadhouse and ahandful of other food and
beverage clients. And so weultimately sold that business in
02/2008 to JLL and reallycreated the retail platform at
JLL at that time. So it was, itit was good timing, particularly
(07:07):
since we closed again, beinglucky, 01/03/2008, we closed
with JLL.
So it was really a good time toget out of being an entrepreneur
and having a big corporateumbrella to get get us through
the global financial crisis.
Trent Werner (07:23):
And when you were operating that business, working
in that business, what was yourday to day, or what were you
doing for these companies on thekind of on the show on the road
side that you were talkingabout?
Joe Brady (07:34):
The retailers need predictive analytics and revenue
forecasting. They need a wholehost of details and data, and we
had a whole team that couldprovide that. And so we could
build revenue forecasting modelsbased on a company's underlying
(07:55):
business, and it's vital to beable to say, you can pay this
rent because we think you'regonna produce this level of of
revenue. And our hit rate wasgood. So it it it really allowed
us to be differentiated.
So on one hand, we were helpingwith the strategy and the
planning upfront, and then wetook that into the next phase,
(08:17):
which was site selection, dealnegotiation, and then oversight
through construction untilopening. So really, you know,
the full life cycle of a of adeal.
Trent Werner (08:28):
So you were able to do what you enjoyed and what
you were good at all the waythrough until operations.
Joe Brady (08:34):
Exactly. Yes. No, no flying hamburgers. And, so I was
I was at, I was at JLL for nineyears, and that allowed me you
know, it's kind of fun becausewith the previous company, which
is called the Standard Group, Iwe had the the lower 48, and we
were doing deals literally inevery corner. Once we went to
(08:57):
JLL, it became this globalplatform.
So, again, in your neighborhood,Nike was one of our our clients,
and, we were working to open weopened 16 stores in Brazil
before both the Olympics and theWorld Cup. And so it was kind of
fun orchestrating that, wound uprolling Nike out throughout
(09:20):
Southeast Asia. And with JLL, itwas great. Although, I I covered
The Americas. I had colleaguesthat were able to take care of a
lot of the business in Asia.
So it was kinda cool to have,you know, an even bigger sandbox
to play in. And, I wound updoing some other things with
banking clients and leading thebanking industry group, which is
(09:41):
really interesting becauseclients like Goldman and
JPMorgan and HSBC were goingthrough pretty big changes
during that time. So it was, youknow, one of the one of the
challenges with JPMorgan cameduring Brexit or even pre Brexit
because JPMorgan has somethinglike 25,000 employees in The UK.
(10:05):
And when they saw this loomingBrexit thing happen, they they
they purposely said, okay. JLL,you need to go out and find us
homes for these people becausewe have to go to Frankfurt, we
have to go to Dublin, we have togo to Warsaw.
And and so, again, just reallyinteresting challenges to
tackle.
Trent Werner (10:26):
And how does I guess, I mean, you already
talked about JLL being a moreglobal scale compared to what
you're doing prior. Were thereany major differences aside from
the, I guess, the size of whatyou were doing compared to what
when you were operating your ownshop?
Joe Brady (10:42):
Yes. And I I think it was the the size and and
legitimacy to actually play on aglobal basis or to even engage
in The United States with someof the really big
multinationals. So, there'sthere's a tendency to go to the
big two, JLL or CBRE. I think, Ithink companies have found,
(11:03):
particularly when it comes tooutsourcing and and brokerage,
that you you you tend to go withthe the best team in a
particular market. But when itcomes to running an account
globally, it's really tough tocompete if you're, you know, if
you're just a a small regionalplayer.
So, yeah, we we were able to getaccess to to bigger clients.
Trent Werner (11:26):
And, obviously, you're talking a lot about
opening brick and mortar shopsevery corner. Everyone knows
that in the last, what, ten,fifteen years, things have kinda
migrated away from that in somecapacity even more in the last
three or four years. What areyour thoughts on going from all
these brick and mortars, 2,000locations for all these
(11:47):
different companies to theonline virtual world, and we
hear all over the news all thetime, all the square footage
that's vacant in downtown, youknow, urban cores. What are your
thoughts on on this topic?
Joe Brady (12:00):
Yeah. That's I mean, Trent, it's a really important
top. In the last ten years,there's been 100,000,000 square
feet of retail space taken outof the supply side of the
equation. And why is that? Well,it's a combination of
(12:20):
functionally and technicallytechnologically obsolete
retailers, who became irrelevantand and the subsequent malls
that were supporting those thosethose retailers.
So you think about a a b or a cmall. You know, many of those
(12:40):
have been either reconstitutedinto corporate, you know, office
campuses or a combination offlexible office space with gyms
and apartments. You you've seenall sorts of adaptive reuse
happening. You've also seen thelikes of this, you know, the
Sears and the j JC Penney's andsome of these other bigger boxes
that have just gone dark and,again, have been reconstituted
(13:05):
into something else. So we'reseeing a lot of creative
destruction of of space.
In other words, it's it'sgetting recycled. But net net,
there's been a a hundred millionsquare foot, reduction on the
supply side. Now from myperspective, what we've seen is
this dramatic acceleration of oftechnology. And you think about
(13:29):
I mean, it's it hasn't even beentwenty years since the iPhones
come out. Right?
02/2007. The power that thatsmartphone technology has given
the consumer has beenastounding. So now what we see
is omni omni channel retail orecommerce. Oftentimes, that that
(13:51):
sort of element of of online isreferred to as ecommerce. What
we've seen is a steady, increasein the in the percentage in
usage, and we definitely saw itspike during the pandemic.
It it got up to almost 20% of ofretail sales. Now retail sales
(14:12):
in The US are $3,000,000,000,000a year. It's now settling in at
15 to 16 trill, 15 or 16%, whichagain equates to, you know,
$4,400 almost $500,000,000,000in revenue happening online. Now
there's another element that'sthat's really important to note,
(14:34):
and I I sit on the board ofICSC, which is the trade group
for retail real estate. And ICSChas done some research called
the halo report, and we've we'renow up to our third iteration.
But in every iteration, we'vewe've taken credit card data
from Mastercard and Visa. Thethe data points are up to 25,000
(14:57):
data points. And what it's shownis that when a retailer opens a
brick and mortar store in atrade area, the online sales go
up by six to 8%. Conversely, ifa retailer closes a brick and
mortar store in a in a tradearea, online sales go down 12 to
(15:19):
14%. So there's a directrelationship.
The consumer is speaking, andshe's saying, I want agency,
autonomy, and optionality in howI use your brand. So I may wanna
go into the store today and havesomething delivered to my home.
I may wanna sit at home and haveit an order and go and pick it
(15:40):
up in store, or I might just sitat home and have it delivered.
Or if the boxes pile up at thefront door and I wanna bring
stuff back, I wanna be able tophysically do that. And so we're
seeing this this kind of thisflywheel happening in retail,
and it's essential to have thatthat balance between not only
(16:03):
the physical presence, but youryour online presence.
And and, you know, the samestories that we're hearing about
office right now are just remindme that I've seen this movie
before. Right? It's the clickbait. Like, no one's ever going
back to an office. There'sthere's no, you you you know,
all work can happen at home.
(16:24):
It was the same thing about tenyears ago. The the click bait
was brick and mortar stores aredead, and that couldn't be
farther from the truth. In fact,there's more CapEx going into
the existing stores today thanever because the consumer
doesn't just wanna come in, buysomething, and leave. They wanna
be a part of the meaning of thebrand. So you think about
(16:46):
Lululemon.
You think about Nike and some ofthe brand stores they're
opening. Think about Apple.Right? Now Apple emerged as sort
of this technology company to beprobably the highest per square
foot revenue of any retail useout there. It's astounding.
But people go to Apple becausethey wanna be associated with
(17:08):
the brand. They wanna they wannalook and browse. They wanna go
and have questions answered atthe Genius Bar. They wanna go
and study and learn through theclasses that happened there. I
mean, there's this wholemovement that happens around it,
and the successful retailers areable to harness that notion of
of purpose and meaning, youknow, to create better equity
(17:31):
brand equity with theircustomers.
Trent Werner (17:33):
So that's all really interesting that I didn't
I didn't necessarily think aboutfrom a retail standpoint of
being able to physically go. AndI'm I was thinking about it
myself. I'm guilty of it whereI'm shopping at Target. I can go
to one right down the streetwhere I can buy something
online. I was always under theassumption that for retail,
everyone wants convenience now,and I guess that's not the case.
(17:56):
Know, everyone shops on Amazonbecause it's convenient, comes
right to your house. Target,Walmart, all those companies
will ship things to your house.But the return aspect too and
the the the brand loyalty orbeing a part of the brand makes
perfect sense because, yeah,yeah, there's some days where I
don't wanna wait a day to go getsomething when I can see online
(18:16):
that they have it in the store,and I'm just gonna go get it. So
that's, that's reallyinteresting. It's something I
never thought about.
Joe Brady (18:24):
And with your Amazon orders, you know, probably, I
don't know what percentage getsreturned, but you can walk down
to your local Whole Foods andjust drop that off. Right? I
mean, so there's simplicity inin that flywheel of how product,
the there there's a a positiveand a negative supply chain
(18:45):
that's happening. When I washead of real estate at
Walgreens, we we had a reversesupply chain location in
Valparaiso, Indiana. And lit itwas literally a deep dark hole
where returns just went to.
And I'm not sure whateverhappened to things there, but
they never they never emerged.They just disappeared.
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uptownsyndication.com today tolearn more. So we were talking
retail, and, obviously, you'veyou've shared a lot about
retail.
What about office? Becauseretail makes sense. Right? We we
just covered retail. But in turnlike, I hear of commercial real
estate, my first thing is officespace.
No one's going in the office,but then you have places like
(20:20):
Amazon, all these companiessaying, we need you back in. We
need you back in. But whatabout, you know, Downtown
Portland or Seattle or orwherever the the people have
these big the companies havethese big office spaces. What's
happening with those?
Joe Brady (20:35):
What's happening is that in parts of the Central
Business District that ispredominantly focused on office,
those areas, whether it's it'sit's parts of of Seattle, parts
of San Francisco, parts ofChicago, Downtown Portland,
(20:56):
those areas are having thebiggest problem right now
because the central businessdistricts rely on just work. And
we know that better businessdistricts where people want to
be have live, work, and play.They're healthy ecosystems that
have a a twenty four seven,three 60 five vibe going on, and
(21:20):
you can look. And and it's andit's what's interesting is it
tends to be cities that, thathave significant suburban mass
transit into, into those CBDs,probably less so for Portland.
But, again, you have sections ofPortland, which are which are
(21:40):
demonstrably that monoculture orthat kind of that monolithic
office type of component.
Then you have other really coolareas, Pearl District and
whatnot, where there's a lot ofaction happening twenty four
seven. That would tend to be abetter business district. So
what's what's happening? Well,during the pandemic, we saw the
(22:00):
residential Internetinfrastructure held up. We saw
that whole companies not onlydidn't blow up or didn't have,
you know, horrible cyberattacksaside from kind of what are
happening from nation states outthere.
We actually kept thingstogether, didn't we? In fact,
(22:22):
you know, I would say a vastmajority of people who worked
from home would tell you theyprobably work longer hours, they
probably work harder, and theywere probably more effective.
But there was a productivityparadox that happened between
workers and the managers abovethem. Microsoft did a a
(22:46):
research, study of 20,000employees. And of the of the
employees who were frontlineworkers, eighty percent said,
hey.
This this hybrid or work fromhome thing is really working.
I'm getting more done. I'mworking harder. I'm actually
working almost too hard. Themanagers of those people, 80% of
(23:09):
the managers said, we don'ttrust what those people are
doing at home.
We need to have them back in theoffice so that I can see that
they're sitting in their seat attheir cubicle, and therefore,
they're being productive. Nowboth sides have to give a
little. Right? And and I thinkwhat we've seen is, you know, a
(23:29):
stark reminder that, again,technology is accelerating, and
we're, for the most part, inthis new collar economy. Right?
Which means technology isenabling us to do our work,
whether it's doing a a podcasthere, we're on separate coasts,
or having a sales meeting, or,you know, having, you know, any
(23:52):
sort of marketing or creativeactivity. Now clearly, all of
that's much better when you'retogether, but it's not
impossible now to have itonline. So so, you know, a
number of things are happeningaround this future of work.
There's a struggle, between themanagers, you know, think
Dilbert managers. They wanttheir people back just because.
(24:15):
And the employees who aresaying, hey, wait a minute. I'm
I'm actually getting my stuffdone. And and so why do we work
Monday through Friday, nine tofive? You know, and it's almost
a a a, industrial era construct.Isn't it?
Right? I mean, that's why herethat we went to factories
because inputs would come in,we'd stand at our station, you
(24:37):
know, we'd work a machine, andthen there would be outputs.
But, again, you know, in thekeyboard economy where stuff
that we're doing can happen inan office, or there could be
days where you're totallyfocused and you're working at
home, or you're working at acoffee shop, or you're working
at a flex office space, we haveto have a better dialogue about
(24:58):
what it is that the companywants to achieve as opposed to
the what and why of you beingphysically in an office. Now
there's a lot of behavioraleconomics that comes into play
here. Did you see the movieMoneyball or, read the book,
Michael Lewis?
Right? And and, there there'ssome really interesting stories
(25:21):
about that, and I wrote about itin my book where Lewis, wrote
this book about baseball. Andthe next thing you know, he
knows he's getting a review by aUniversity of Chicago economist.
So not only is he an economistfrom the University of Chicago,
he's a Nobel Laureate. And he'stalking about how, you know,
(25:45):
Lewis is channeling thebehavioral economic works of
Danny Kahneman and AmosTrzabowski.
And it was so surprising toLewis that he had no idea what
this guy was talking about thathe, in fact, started researching
these two guys, Israelipsychologists, that came to, you
(26:07):
know, came to be in the latefifties and sixties. And he
wound up writing yet anotherbook called The Undoing Project,
which is phenomenallyinteresting. But these guys
talked an awful a lot aboutbiases and heuristics. Like, we
we make decisions in a differentway. We think we think fast and
(26:28):
slow.
You know, if if I said, Trent,what's two plus two? Our, you
know, our fast brain goes, oh,yeah. I know that one. But, you
know, 3,242 divided by pi, like,the fast brain doesn't process
that. We have to, like, reallywork it.
So why am I talking aboutbehavioral economics? Because
it's really important. Becausewe're talking about people now
(26:50):
as to whether they should be inan office or not or how they
behave around retail. Andthere's a couple of things
happening. One is this notion ofloss aversion.
People for two and a half yearsor three years have had an
inversion of work life balance.It's now actually life work
balance. And if you don't haveto commute an hour and a half
(27:12):
each way, you actually might beable to see your kids in the
morning, or see your partner, ormaybe work out, or sleep an
extra half an hour, or any of ahost of other things. But when I
lived in Chicago, and I workedat at Walgreens, it was 24
miles. It could take me 23miles.
(27:32):
Yes. I was exceed exceeding thespeed limit, but it also could
take me two hours each way.Right? And so it was just
brutal. And so through thepandemic, people realize, hey,
you know what?
I probably don't hate my job. Ihate my commute. So so there's
this element of loss or versionthat's happening with, with
(27:53):
people. And the other thing is anotion called reactance. In
other words, if you tellsomebody if I say, Trent, you
need to be in the office fivedays a week, you're gonna
viscerally react.
Again, there's another elementof loss aversion. I've lost my
autonomy and agency in how Iconduct my day, and people are
(28:14):
have pushed back. Now the firsttime Amazon reported, that you
you need to be in the officethree three days a week, you
have this extraordinary Slackresponse. There were 20,000
people on Slack saying, youknow, not no, but hell no. And
the same thing same thing ishappening now, relative to this
(28:36):
five day a week return coming upin in January.
But another element of of a biasis this, you know, sunk cost
fallacy. Right? There there isan element. If you're Amazon and
you own $50,000,000,000 worth ofreal estate. Right?
Not all of its office, but theyhave a massive office portfolio.
(28:59):
You're gonna expect people to goback and use it. Otherwise, you
have this asset that you've, youknow, that you've invested in,
but no one's using it. And so,there's a lot of push pull going
on there. I I I think there'ssome lessons though that that
corporate occupiers andinvestors and owners of office
(29:21):
buildings could heed.
And and that is that people wantto engage in purposeful
presence, not passiveattendance. People want leaders
helping them curate theirexperience as opposed to
managers saying, come to yourcubicle, sit there forty hours a
(29:43):
week, and therefore, you'redoing you're doing work. I mean,
that that's kinda ridiculous inand of itself. Right? People are
on, you know, fantasy footballor they're online shopping or
they're daydreaming or they'redoing whatever.
But and I also think there's anelement of of metrics. What are
we measuring? Everyone talksabout, oh, increased
productivity. Well, you know, ifI'm working for you, Trent, and
(30:06):
I call you up and say, hey,boss. I just sent out a hundred
emails.
Isn't that great? I was superproductive today. That none of
the if the none of those emailsactually were sent to the right
people or were the right thingto do, effective for the the
overall company's initiative,the bottom line, moving the
(30:26):
company forward? You know? Andso I think there there's
probably a need to have agreater focus on effectiveness
of what people are doing asopposed to productivity, unless
you run a call center or youwork in a factory.
But, again, in this new collareconomy, the keyboard economy
where we're trading ininformation and ideas and
(30:47):
relationships, you know, why arewe hamstrung with an industrial
era construct of having to be inan office five days a week,
forty hours, you know, fortyhours a week?
Trent Werner (30:58):
Well, and and you kinda touched on it already, but
I I think of the reason I askedis because I was up in Seattle
not too long ago and Microsoftdumped like 200,000 square feet
or something in Bellevue, Iwanna say. And so I was curious
your thoughts, because from myopinion, it seems like some of
these large corporations aren'tgonna get rid of office or or
(31:19):
their office space. They're justgonna shrink it a little bit.
And then your point, Joe, maybemaybe there's gonna be more
conversations of hybridschedules and things like that.
I know my mom works at Nike, andin the summertime, it's three
days a week, you know, Tuesday,Wednesday, Thursday, most weeks,
and they have a entire week off,you know, free of charge in the
(31:40):
summertime and all that stuff.
And so it seems like thecorporations, if they want their
employees to get back in theoffice three days a week,
they're gonna have to, like yousaid, compromise in some
capacity, whether it's hybridschedules or or what whatever it
may be. But I I can't imaginethat office space is just gonna
be gone. That's just that'sthat's not gonna happen. So I'm
(32:02):
I'm I was curious to hear whatyou had to say about the hybrid
schedule and and things of thatnature. What are your what are
your opinions on, I guess,industrial or warehouses because
of this online presence and andecommerce and and everything
like that?
You mentioned Amazon. I I knowfor a fact Amazon has plenty of
(32:24):
warehouse space. And are thereother companies that are gonna
be spending their money,investing their money on
warehouses versus building newoffice space for their
employees?
Joe Brady (32:35):
Yeah. I think it'll be that a balance. Right? The
distribution centers that arehave popped up throughout the
world are humming at fullcapacity. The real interesting
challenge is that last milewithin the distribution network,
that distribution node, youknow, and we've seen drugstores
(32:57):
serve as that as as that node.
What's what's reallyinteresting, and if you think
about this massive platformshift we're going through in AI,
that we're seeing this increasedimportance on data centers that
that need to be filled withGPUs, those graphical processing
(33:20):
units from NVIDIA and the liketo help drive how fast AI is
exploding. Right? So so asyou're thinking about the
industrial asset class, yes, wewill continue to see strong
performance out of distributioncenters, but the data centers
are really where it's at rightnow. And they're really
(33:44):
expensive. It's very difficultto, you know, to fill a data
center with NVIDIA chips.
Companies like AndreessenHorowitz, who are, you know, a
venture capital firm, areactually buying chips that
they're making available toportfolio companies they're
investing in. Right? I mean,that's never happened before.
(34:05):
It's kind of a cool thing that'shappening.
Trent Werner (34:08):
Yeah. So, basically, to to summarize,
retail's here to stay, office ishere to stay. I guess, one one
more question about officespace. So we have all of this
vacancy, right? I know, I mean,Portland is a, has a million
square feet of vacant officespace.
I'm sure there's biggermetropolises that have plenty
more square foot, square feetthat are vacant. What's gonna
(34:31):
happen with that? Do you thinkpeople start going back to the
those offices, or do those getrepurposed into something else?
Joe Brady (34:38):
Yeah. And I and I think you have to look at the
the design of the building, theage of the building. If anything
we learned out of the pandemic,it's we need to be in healthy
buildings, not sick buildings.And when you think about fresh
air intake and and fresh airturnover in buildings, Some of
(35:00):
these older buildings weredesigned to turn over air maybe
twice an hour. Right?
And we know and they didn't haveany filtration. And we know now
that because of airborne virusesand such that we wanna see, you
know, every 15 turn up fourtimes an hour. Right? Not once
an hour. So you've gottechnological obsolescence you
(35:21):
have to deal with.
You have floor plates that youhave to deal with. Oftentimes,
if you get larger than 15 or20,000 square feet per floor
plate, it gets really, reallydifficult to convert that
building into residential. Sothe stuff that's larger than
that, that's the $64,000question right now. What to do
(35:41):
with those buildings? You youknow, there's only so much self
storage or vertical farms orbrewpubs you can you can put in
some of these obsoletebuildings.
In New York City, Seventy FivePercent of the office stock was
built before the IBM mainframe,which, is that was sixty years
ago. So you have a you know, andand the same thing that happened
(36:06):
in retail is happening inoffice, which is b and c class
assets are losing value and arebecoming somewhat obsolete. And
there will have to be, again, asI talked about that creative
destruction. Will people comeback? Of of course, they will.
And and and I I often say thathybrid work and omnichannel
(36:30):
retail or ecommerce are twosides of the same coin, and it's
all driven by the consumer. Andand so, you know, leaders who
want people to come back willneed to nudge them back and
think about ways where it'sworth the commute to come in.
(36:50):
We've heard this term thaton-site is the new off-site. So
making sure that you're gettingpeople together. If you want
that collaboration to happen,you know, have everyone
together.
Maybe there's a guest speaker.Maybe there's, you know, a
social hour. Maybe there's ahost of other things. Maybe
there's a all hands meeting andsenior management's able to
share some information. So, youknow, I I don't think you have
(37:12):
to be in an office five days aweek to develop culture.
I will tell you what will erodeculture very quickly is if you
mandate people back. And so thiswhole notion of culture and
collaboration that you're tryingto foster through this mandate
absolutely just undermines theinitiative because of the
reactance of people. You know,you're hiring adults and then
(37:34):
you're treating them likechildren. It's not gonna end
well.
Trent Werner (37:38):
Yeah. That's and coming from someone who works
predominantly at home, I come tothe office to because this is
where all the equipment is forthese, but I can do everything
from my house or going andvisiting the different assets
that we manage. And so when Ihear someone say, oh, I have to
be in the office, no, you don't.As long as you can, you know, as
(37:59):
long as you have a job thatallows for that. But to your
point, Joe, is if someone wereto tell me I need to be here
five days a week for eight hourseach day, I I would tell them
no.
I'm not gonna do that. That'syou know? So it's it's gonna
come down. It'll be interestingto see how these companies and
these and these corporationshandle that and what, I guess,
(38:22):
what comes of it. Again, Nike, Ithink, does a great job building
that culture.
Everyone that lives around herewants to work at Nike because
they have great benefits and,you know, summertime, you get
half day of Fridays and a whole,you know, wellness week during
August or whenever it is. Thoseare the things that I think a
lot of corporations are gonnahave to look at and say, hey.
(38:42):
How do we entice our employeesand that want to come into the
office, come to the the HQ, andbe productive here? Because I
think it's it's easy to tellthat someone could be productive
from their house as long asthey're self driven enough to
make that happen.
Joe Brady (38:58):
And, you know, and and from an office perspective,
you, you know, you could thinkabout the hub and spoke model
where you have the the HQ, andthen you can have spokes either
in a city or in a region. Andnow with flexible office space,
we have the opportunity to setup locations and test and see
(39:20):
how people use that space. Arethey going to it? And if they're
not going to it, then drop it.But if you have if you have a
ton of people going there andcongregating, then you have
evidence that suggests, well,maybe I should do a five year
lease.
Part of the problem with theoffice asset class is that our
businesses are changing at afrequency of weeks, months, and
(39:44):
quarters. Right? You know, withtechnology changing, you know,
you don't know what yourbusiness is gonna look like in
five years. Yet if you go into anew office building, you have to
sign a ten year lease. Now not abig deal if you're a CPA firm,
consultant, or or a, anattorney.
But if you're a tech company,you don't know how much space
(40:07):
you're gonna need in two years,let alone ten. And so, you know,
there has to be ways to test andset up space. There has to be
ways for teams then to cometogether and maybe work for a
month or two. And so it's reallyinteresting now to have this
this whole another layer offlexible office space that can
be accessed by the hour, theday, week, and a series of
(40:28):
months as well.
Trent Werner (40:29):
Absolutely. Alright, Joe. I know I see your
book behind you. Can you give usa quick, what's the title and
and a and a quick synopsis ofthe book? That way people can go
check it out.
Joe Brady (40:41):
Sure. It's called workshop, and it's about, the
consumer driven transformationof commercial real estate. Yeah.
I talk an awful lot about thehistory of work, the history of
technology, how that's changedconsumer behavior, and the
lessons that we've learned in inretail, and what could be
applied to the world of work.Workshop is a play on the fact
(41:06):
that twenty years ago, shop wasliterally a noun.
It was a physical place. We hadto go to a shop to spend our
money. And then very quicklywith technology, it became a
verb. Right? So we now shop.
We shop online or we shop in astore. And I maintain that work
is going through that samething. Before the pandemic,
Trent, you and I, if we said,hey. We're going to work. That
(41:28):
meant we're going to an officetypically, right, for the most
part.
Since the pandemic, those twohave been decoupled. So work has
gone from a noun, a physicalplace, now to a thing that we do
irrespective of place. And sothat's the play on on workshop.
And so your listeners can checkit out on Amazon. You can go to
(41:49):
my website, joebrady.ai.
There's a link to Amazon andBarnes and Noble and other
places to to buy the book. Butit's been really fun to do. It's
been fun to put my thoughts outthere and, been getting some
really interesting feedback.
Trent Werner (42:04):
Very nice. We'll make sure that that gets linked.
And is there any other placethat you would like for people
to connect with you aside fromjoebrady.ai?
Joe Brady (42:13):
Yeah. So if you go to that joebrady.ai, my LinkedIn,
is there. You can connect there,and then there's, all my contact
information so you can reachout. I'll see the best landing
place.
Trent Werner (42:26):
Well, thank you for sharing all of your insights
about the different assetclasses that we cover today and,
you know, where where we mightbe headed in the in the future
with retail, industrial, as wellas office space. Thank you, Joe.
Joe Brady (42:40):
Thank you, Trent. Great being with you.
Intro speaker (42:42):
Thank you for listening to this episode of the
Real Estate ProfessionalsInvesting podcast on Wynn, your
community of investing knowledgefor growth. We hope that this
episode has increased yourknowledge and added value to
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(43:02):
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Thank you again, and enjoy yourday.
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