Commercial Real Estate & Advisory

Commercial Real Estate’s Great Reckoning

NPR | By NPR | October 7, 2020




So, Cardiff, whenever I think about commercial real estate or read a story about it, I think about our offices at NPR in New York.



VANEK SMITH: I know. They’re right by Times Square. We worked on the 19th floor of this big skyscraper. It was filled with workers, people in publishing, fashion, insurance, a lot of lawyers.

GARCIA: Yeah, that’s right. The streets around midtown Manhattan are, like, full of people in suits, and they’re rushing to and from the subway. They’re catching Ubers, grabbing coffees, talking on their phones.

VANEK SMITH: Yes. And that area of Manhattan is some of the most expensive real estate in the world. Commercial real estate in that area is just, like, very, very high stakes.

GARCIA: Steve Rappaport has been in the commercial real estate business in Manhattan for 15 years. And he says it is not for the faint of heart. It’s competitive. It’s fast-paced. It’s all commission-based.

STEVE RAPPAPORT: Exciting – I love it.

VANEK SMITH: Oh, yes. The ABCs of getting paid in commercial real estate – always be closing. Always be closing.

You have to hustle for everything.

RAPPAPORT: Yup, so no deals, no commission. And in the brokerage world, 10% of the brokers make about 90% of the money.

VANEK SMITH: Were you in the 10%?


RAPPAPORT: I think I’m in a good position.

VANEK SMITH: He was in the 10%, don’t you think?


GARCIA: Yeah. I’m guessing he was, and he just was, you know, being modest.

VANEK SMITH: He was being modest. And, of course, it’s not just the real estate side of things that’s competitive. I mean, New York is not an easy place for a business to thrive. It’s very cutthroat. And Steve says business owners have to be really careful about the location and the space they choose because that is the kind of thing that could make or break a business.

RAPPAPORT: It has to be the right price, the right configuration, the right ceiling height. They have to feel that it creates the right environment because retail is drama. You’re setting the stage.

GARCIA: If you set the right stage, you can make a fortune. If you set the wrong stage, you could lose everything, lose your shirt. Steve says in the world of commercial real estate, 500 square feet is generally the smallest space. That would be like a tiny, little coffee shop with no tables. But that tiny space packs a big rent punch.

RAPPAPORT: In Times Square and Fifth Avenue, spaces could be 2,000 per square foot.

VANEK SMITH: That’s like a million dollars a year.

RAPPAPORT: In those neighborhoods, yeah – and you don’t find many 500-square-foot stores on Fifth Avenue.

VANEK SMITH: So it starts at a million dollars a year.


GARCIA: Wow. You got to sell a lot of coffee to pay that kind of rent.

VANEK SMITH: That is so much coffee.

GARCIA: (Laughter) But those are the rents people were paying, and those rents had been going up for years and years. And then in March, they stopped. In fact, everything stopped.

RAPPAPORT: It really flatlined business.

VANEK SMITH: Steve says everything just hit a wall. People who had been looking for space to open up a restaurant or bar – they all stopped looking. People who had a space to rent – they were not getting any bites.

RAPPAPORT: There were very many people quite frightened.

VANEK SMITH: Were you frightened?

RAPPAPORT: You know, I was not happy.

VANEK SMITH: (Laughter).

RAPPAPORT: I was sad because…


RAPPAPORT: I was sad for those who were hurt and who were losing their businesses and are still losing their businesses. It’s an uncertain future.

GARCIA: Steve says there is some action now, but business is not even a third of what it was just eight months ago.

VANEK SMITH: I mean, how long do you think it’ll be before you’re back to 100%?

RAPPAPORT: Two years – within two years, we’re really going to see a definite uptick.

VANEK SMITH: And you think you’ll be back to 100% maybe.

RAPPAPORT: Or the new 100%, you know, whatever that is.

VANEK SMITH: So here is the problem with real estate right now. This is not a typical recession because this recession has been accompanied by stay-at-home orders and a big cultural shift in the way that we work. And commercial real estate right now is getting it from all sides.

GARCIA: Yeah. First, a lot of businesses have closed in the U.S., nearly 100,000 since March. All of those storefronts and offices are now empty.

VANEK SMITH: And that has major ripple effects because it is not just the empty office buildings that are feeling the effects of the current change. It’s all the businesses around the empty office buildings.

GARCIA: Yeah – bars, coffee shops, restaurants, dry cleaners, clothing stores. Those businesses count on people commuting and moving around town and coming to work and going out after work. And when people are staying at home, it’s just less business for everyone.

VANEK SMITH: And even when people do start going back to work, chances are they’ll be going in less often. And also, there probably won’t be nearly as many people going back to the office.

MOE VELA: Oh, no, I think this is a permanent change.

VANEK SMITH: Coming up after the break, the new business of helping people work from home.


VANEK SMITH: So on the one hand, you’ve got Steve Rappaport leasing million-dollar spaces to coffee shops and restaurants and clothing stores in Manhattan. His business counts on people being out and about, going to shops, counts on foot traffic.

GARCIA: Yeah. On the other hand, you’ve got this guy.

VELA: Everyone wins in a remote workforce model, so why would you not do it?

GARCIA: Moe Vela is a remote workplace consultant with a company called TransparentBusiness. Moe called us from his little farmhouse in the mountains of Vermont.

VELA: And I was able to conduct my global consulting business in a place of tranquility and serenity.

VANEK SMITH: Do you have, like, a country routine? Do you go on, like, a hike? Or…

VELA: Yes, I do every day. In fact, in about an hour and a half is my daily two-mile hike.

VANEK SMITH: Moe says he spends a lot of his days talking to, like, CEOs and heads of businesses and giving them his remote work sales pitch.

VELA: Let’s start with employers. They save on the average of $11,000 per employee per year.

VANEK SMITH: Is that, like, rent and stuff?

VELA: Yeah, rents. Productivity goes up all the way as much as 40% in some cases. Employees – Stacey, think about no stinky trains, no stuffed-up buses, no bumper-to-bumper traffic.

GARCIA: You can work in your pajamas, take a Netflix break with no shame – not that we ever do that.

VANEK SMITH: That’s right.


GARCIA: And if that’s not enough to convince you…

VELA: The fifth category of winners in a remote workforce model is climate change and battling climate change and saving the planet because carbon emissions are down in a remote workforce model.

GARCIA: Working from home will save the world, I think, is the claim here.

VANEK SMITH: Planet saved if you work from home. I know, and it seems like a lot of companies are jumping on this bandwagon. A recent survey of hundreds of CEOs found that nearly 70% of them were planning to permanently cut back on their office space.

GARCIA: Facebook, for example, has said that it expects about half of its workforce to work from home in the future. Twitter, Zappos and Slack all saying the same thing – and Pinterest just paid $90 million almost to get out of its lease at a big building in downtown San Francisco.

VANEK SMITH: So where does that leave Steve Rappaport and our million-dollar coffee shop? Steve says right now rent prices have dropped around 20%, and he expects they’ll drop about 15% more. But Steve says, you know, he has seen recessions and cultural shifts and workplace changes come and go. And what stayed the same? New York real estate is always a good bet.

RAPPAPORT: Perhaps office occupancy will drop, but something else will develop to take its place. I am not in the doom-and-gloom group on thinking that New York will permanently change.

VANEK SMITH: It’s kind of a sizable group.

RAPPAPORT: Yeah. Many times, many people are wrong.

GARCIA: And, in fact, Steve says he’s already seeing some people invest right now – people buying buildings, expanding their businesses, taking advantage of a moment when so many others think commercial real estate could be over. Steve says he has seen this before – Sept. 11, 2008 housing crash. People were saying the same things back then after those events, and those people turned out to be wrong.

VANEK SMITH: It sounds like you really believe in the business of New York.

RAPPAPORT: I believe in the business of New York, and I believe in the soul of New York.


RAPPAPORT: And, you know, they’re both strong, both resilient and both very beautiful.


VANEK SMITH: This episode of THE INDICATOR was produced by Jamila Huxtable and Darian Woods. It was fact-checked by Sean Saldana. THE INDICATOR is edited by Paddy Hirsch and is a production of NPR.