How Energy and Transportation Projects Came to Dominate Construction

How Opportunity Zones Impact Property Investments

Construction is the backbone of industry. Without construction there would be no homes, businesses, schools, or warehouses. In recent years, the construction industry has seen a marked increase in the share of projects that are large scale energy and transportation projects. This is true in the United States and across most advanced nations around the world. The question then becomes: how did this shift take place and why? 

 

The Current State of Infrastructure Construction

The Current State of Infrastructure Construction

The American infrastructure is aging. Most major infrastructure projects are upgrades to existing systems such as Tennessee’s $15.6 billion sewer project or Nebraska’s $12.5 billion highway maintenance effort. Let’s take a deeper dive to understand how modern infrastructure construction budgets are being allocated by examining the Nebraska transportation transportation update:

 

 

  • $7.1 billion is to be spent on highway maintenance, repaving, and other repairs. This asset preservation budget is primarily eaten up by $6.4 billion allocated to pavement repairs, with the remainder going towards the state’s bridge system.
  • $3.6 billion is to be spent on expanding roadways by way of building new roads, widening existing roads, and more.
  • $1.8 billion is slated for modernization of transportation services including rural roadways, bridges, highways, and railway crossing junctions.

 

 

This plan may be specific to Nebraska, but it is indicative of a typical mega-construction project in the US today. As you can see by the numbers, the number one concern for many areas is simply upkeeping the existing infrastructure. Modernization and expansion efforts take up less than half of the budget.

 

Construction Trends in 2019 and Beyond

Construction of rapid mass transit

Here are a few construction trends surrounding energy and transportation which we expect to continue beyond 2019:

 

Transportation construction projects at or near airports: even modern airports are in need of an upgrade in 2019. Most airports have a logistical problem moving people between terminals, parking lots, and other airport facilities. Chicago’s O’hare airport has undergone a massive construction project to replace their usual shuttles with a more sophisticated light rail system. More airports are likely to follow.

 

Construction of rapid mass transit: construction on heavy rail, light rail, and other municipal rapid transit is also on the rise. Even mid-sized cities like Pittsburgh have invested heavily into light rail transit to improve their public transportation offerings in recent years.

 

Massive energy projects including new power plants, refineries, and more: while the exact future of the energy industry is in a state of flux with new technology and legislations coming and going all the time, the demand for new energy solutions and the aging energy infrastructure all but demands massive overhauls. 

 

Why Energy and Transportation?

As mentioned in the previous section, the energy sector has an uncertain future. One reality which is having an immediate impact on US energy construction is global demand for natural gas. The US is uniquely positioned to extract, produce, and provide natural gas to the global market. Additional energy-related products such as plastic refineries and chemical processing plants have all seen a demand increase in recent years. 

 

As for transportation, we can primarily thank a crumbling infrastructure alongside population growth for construction demands. Whether it is maintaining existing roads, constructing light rail systems, or paving new roadways, the demand for transportation remains high in both urban and rural areas. 

 

Mega-Construction Projects are Taking over Mid to Small Sized Contracts

Mega-Construction Projects are Taking over Mid to Small Sized Contract

To understand why mega-construction projects are outpacing small and medium sized projects, we must first understand where the infrastructure spending budgets come from. While the federal spending budget is more easily tracked, the vast majority of infrastructure assets are owned and controlled by state and local governments. So why are these smaller governments suddenly funding more multi-billion dollar construction projects rather than many small ones?

 

There is no singular answer, but a major reason is that approving one project is easier than approving multiple individual construction efforts. These mega-construction projects with budgets in excess of $1 billion are also sold as economy-boosters. Whether they be a new sports stadium, improved transportation at the airport, or improving the current energy solutions, generating buzz around these projects is easier for politicians. 

 

There is every reason to expect this trend to continue and possibly even gain momentum moving forward. Consider California’s high speed rail authority project. The total project was quoted in the $50 billion range, but has since been re-estimated at nearly $100 billion. This publicly funded mega-construction project will someday connect most of the main cities in California including but not limited to San Francisco, San Jose, Los Angeles, and San Diego. California’s project is commensurate with the state’s enormous wealth. Yet it remains a sign of the future of transportation and energy construction in the US.

 

Going Forward

Unfortunately, the reality is that overall infrastructure spending is still down. Federal, state, and local governments had nearly $10 billion less in spending power for infrastructure projects in 2017 when compared to 2007. The good news is that Americans are growing more amenable to both increased spending on what is an increasingly outdated infrastructure including transportation and new energy solutions. 

 

The true trend is shifting from new construction to maintenance efforts. Despite the talk of modernizing transportation and energy infrastructure, most of those projects will be to retrofit current construction with modern solutions.

New Laws Banning Airbnb “Investor Units” Seek to Lessen the Housing Shortage

New Laws Banning Airbnb Investor Units Seek to Lessen the Housing Shortage

Airbnb can be thought of as a clearinghouse for short term lodging. While Airbnb does not own any of the properties it represents, it connects tens of millions of customers every year. The prevalence of Airbnb is disrupting the hotel industry in a similar way that Uber and Lyft disrupted the taxi and car service industry. By crowdsourcing inventory and employees, Airbnb takes a cut of the profits with minimal risk. 

 

It didn’t take long for investors to take notice of the Airbnb business model. Some real estate investors purchased “investor units” to try and profit from Airbnb customers. This set off a long string of events which has led to a recent legal battle between Airbnb and the city of Boston. It is difficult to say whether this lawsuit will be indicative of things to come, but one thing is for certain: the future of Airbnb investor units is in question.

 

How Airbnb Investor Units Work

How Airbnb Investor Units Work

Many professional real estate investors lept at the opportunity afforded by Airbnb. While the service was intended to be a home-sharing platform, those who own rental properties saw this as a way to capitalize on the latest hotel and travel trends. It should be stated that Airbnb insists that the majority of their users remain regular people renting out extra rooms in their homes. A 2014 report from the New York State Office found that 94 percent of Airbnb hosts listed 1 or 2 units. The remaining 6 percent listed between 3 and 272. 

 

That 94 percent number can be encouraging, but there are a few caveats. For one, these statistics are outdated and industry trends move definitively towards more investor involvement in the 5 years since the report. Additionally, even if 1 out of every 100 users was a large investment firm renting out units in the 100’s that tips the scales heavily toward real estate investors over regular Joes. In a service that was intended to give power to regular people, real estate investor units are threatening to take over.

 

Airbnb Investor Units and the Housing Shortage

Airbnb Investor Units and the Housing Shortage

One of the main problems with investors stepping into the Airbnb rental space is the trickle down effect that has on the affordable housing crisis. Major cities have been dealing with major housing shortages for years. Investor units owned by non-resident owners are essentially taking properties away from residents. Cities like Boston view this as a real estate emergency for several reasons:

 

 

  • Residential and commercial real estate is already scarce. In cities like New York, San Francisco, Boston, and many others, the demand already far outpaces the supply for real estate.
  • Investor units take away from housing inventory. Investors buying up rental properties only worsens the housing shortage problem. When residents are unable to find local properties in which they can live and work, the slippery slope gets even more slippery.
  • Property values skyrocket, becoming unaffordable. The American economy has long been dependent on home ownership. Investors taking away real estate to be used for tourist rentals is potentially damaging to the local economy.

 

 

The City of Boston vs. Airbnb

The City of Boston vs. Airbnb

This all brings us to Airbnb vs. Boston. In a federal lawsuit, Airbnb filed a grievance against the city of Boston citing severe restrictions on how they do business within the city limits. The lawsuit was recently settled out of court, with both sides agreeing to terms that would create an environment where Airbnb could continue to operate in Boston without investor units. Here are the basic terms of the agreement:

 

All units rented out through the Airbnb platform and other similar sites must be restricted to owner-occupied spaces or by landlords who reside within the building. Any properties owned by absentee landlords or real estate investors are strictly prohibited from listing rentals on Airbnb. In other words, the city of Boston has banned investor units through platforms like Airbnb. 

 

All Airbnb hosts must register their units with the city of Boston by December 2019 in order to be considered eligible moving forward. Once approved, Airbnb hosts must display registration numbers on all listings in order to provide transparency both to renters and to city officials. 

 

Going Forward

Airbnb’s legal battles with Boston may be the most high profile case so far, but it likely will not be the last. This is one of the reasons why investor units have been popular amongst individual real estate investors but have remained unpopular for large real estate investment firms. The fact remains, investor units for platforms like Airbnb are incredibly risky as of the writing of this article. Nationwide housing shortages and public demand is trending towards similar anti-investor unit laws being passed in other major cities. 

 

Airbnb was always intended to be used by individuals on both sides of the equations. Real estate investors saw an opportunity to make a quick buck, and many did. Looking forward, it is quite possible that the investor unit party will be coming to an end.

Hiring Bounces Back in November

Employers were signaling caution as summer wound down. The ADP private payrolls report for November showed a big drop early last week; and then on Friday, the Census Bureau released its Employment Summary for November and reported that 266,000 jobs were created. That’s about 40% more than the consensus forecast of Wall Street economists.

There were some details to unpack that moderated the gains a little. The great manufacturing number was inflated by 60,000 GM workers returning from strike (which dampened the October report). Construction jobs grew by only 1,000 from October, a surprise given the amount of activity; however, not a surprise given the severe shortage of workers. On the other hand, strong performance in the financial and business services sectors, and especially healthcare, showed there is still some life in the expansion. Some of the highlights:

  • Unemployment fell back to 3.5%. That’s the lowest for 50 years.
  • Wage gains were modest at 3.1% year-over-year but were much higher at the lowest end of the wage-earning spectrum.
  • The broadest measure of unemployment fell to 6.9%.

There are two significant positive conclusions that can be drawn from the November report (bearing in mind that it’s one month’s data of course). First is that consumers are in good standing. Virtually anyone who wants to work is working. Wages are growing at twice the rate of inflation. The consumer drives the economy and the consumer should be happy. The second conclusion is that businesses aren’t as negative as was thought. Because business investment has been declining, concerns about the economy were becoming self-fulfilling. So far there is no data showing that other business investment is ticking upward but the jobs report shows that businesses are still investing in their most expensive asset: people. Moreover, a Vestige survey showed that 60% of business owners plan to add staff in 2020, while only 4% say they are cutting.

In regional construction news, Thomas Construction was awarded a $7.5 million contract to repair the Somerset Lake Dam. Turner Construction was awarded $5 million buildout of Pitt’s BST. PJ Dick was selected for the $55 million Pennley Place East office/retail development in East Liberty. Metis Construction started work on the new $2.2 million JP Morgan Chase branch in McCandless Crossing. Continental Building Co. was issued a permit for $3.2 million buildout for ServiceLink at Pittsburgh International Business Park in Moon Township. Walnut Capital was selected to develop the lot adjacent the Children’s Science Center. Walnut was also chosen to develop the graduate student and faculty market rate housing in Pitt’s lower campus.

Suburban Office Growth

Suburban Office Growth

That morning commute from the suburbs into downtown might be getting a little easier in the coming years. Suburban office growth has taken off for investors and for businesses in recent years, and this trend appears to be strengthening over time. Yet some more conservative estimates warn that short term, overbuilding may lead to greater supply than current market demand. As is the case with many things, the truth likely resides somewhere in the middle.

 

Projected Value of Suburban Commercial Real Estate

Projected Value of Suburban Commercial Real Estate

Urban commercial real estate has become increasingly volatile in recent years. High cap rates and pricing in traditionally urban areas has driven many investors to the suburbs. Consider America’s biggest urban market: New York, which as recently experienced a 37 percent decrease in urban sales volume. This may be influenced by a lack of available real estate for sale, but a significant downturn also indicates a real lack of interest in high priced urban commercial real estate.

 

Instead, the projected value of the suburban commercial real estate market looks positive. This is particularly true for high value markets such as New York and San Francisco, where foreign buyers are effectively pricing out the competition in the urban space. The majority of Americans do live in suburban areas, which offers yet another unique advantage to employers looking to find their next commercial real estate rental or purchase.

 

A key factor in the value of suburban markets lies in their location and convenience. Commercial real estate within walking distance of retail amenities is projected to hold a higher value that suburban real estate that is more isolated. These mini-pockets of urban lifestyles allow for businesses to pay suburban prices with the convenience of an urban location.

 

The bottom line is that suburban commercial real estate is less expensive, has potentially high upside, and is becoming increasingly appealing to investors and businesses alike. The key is finding the suburban location and amenities which can sustain a commercial investment long term.

 

Suburban Offices vs. CBD

Suburban Offices vs. CBD

To a certain extent, urban sprawl has blurred the lines between urban and suburban real estate. Yet there remains a premium when it comes to traditional downtown work spaces that many companies and real estate investors are no longer willing to pay. The differences between suburban and central business district workspaces may be diminishing over time, but here are a few key factors which keep the distinction relevant:

 

Access to transportation: public transportation access is a huge driver of commercial property desirability and therefore it is a huge driver of commercial property value. While a massive amount of Americans enjoy access to public transportation including subway systems and city buses, nearly half have no access to public transportation. The value add of CBD is that properties are all but guaranteed the convenience of a nearby transportation option.

 

Walkability: along these lines, being within walking distance of retail amenities, restaurants, and other conveniences drives value. CBD again comes out ahead here, but modern suburban planning is catching up quickly. 

 

Price points: no matter how much we talk about how trendy and desirable suburban office space has become, central business district real estate pricing remains nearly double the cost of their suburban counterparts per square foot. This difference simply cannot be overlooked. The biggest difference between these two real estate options is, and will likely remain, the price.

 

The Advantages and Benefits of Suburban Office Growth

The Advantages and Benefits of Suburban Office Growth

As referenced above, the largest benefit of suburban office growth is undoubtedly the cost savings. Yet there are so many advantages that come with expanding beyond city limits. Here are just a few:

 

  • Commuting is easier for employees. Besides the issue of public transportation, suburban offices will reduce commute time for the vast majority of employees. Whether that comes via going against the flow of rush hour traffic or avoiding long commutes altogether, this is a huge plus.
  • Parking is cheaper, easier, and more accessible. Along those lines, suburbia comes with more space, and with more space comes more parking options. Employees will likely no longer have to shell out an hour’s pay just to find a spot to park.
  • Curb appeal is improved and often more prominent. Unless you are looking for a specific urban vibe to your workspace, properties in the suburbs generally afford greater curb appeal to visitors. Signage is more prominent and the options for landscaping and other exterior features are far greater.
  • Suburban offices tend to have a campus feel. The hustle and bustle of downtown life is appealing for many, but can certainly wear on already frayed nerves. Suburban office space offers a more serene, campus-like atmosphere which appeals to workers and employers alike.

 

Going Forward

The market is strong for suburban office growth. With lower barrier to entry and an increasing public interest in moving away from central business districts, the future of commercial real estate seems to be turning suburban. The key to smart investing is picking locations which are convenient with high quality amenities. If employers can offer the convenience of a downtown work environment without the hassle, all for a lower price? What is there to lose?

The Impact of Climate Change on Real Estate

The Impact of Climate Change on Real Estate

Climate change, also referred to as global warming, has accelerated in the past century. The normal ebbs and flows of our planetary climate have jumped off course beginning in the mid 20th century. Political opinion, root causes, and other debates aside, this trend is set to continue or even accelerate in the near future. The impact of climate change has been felt in many industries, and the real estate market is certainly no exception. 

 

It may be a tempting thought to envision ourselves as being untouchable if we leave in a temperate area, far away from the coastline. The fact of the matter is that all real estate values may be touched by climate change in the coming years. It isn’t just hurricanes that change real estate values. New laws, regulations, and economic realities which may result from climate change will likely lead to a volatile real estate landscape.

 

How Climate Change Devalues Real Estate

How Climate Change Devalues Real Estate

To understand the reality of how climate change impacts real estate, let’s look at some of the more well known examples of real change already being experienced today.

 

A recent study performed by the First Street Foundation concluded that amongst Mid-Atlantic states, nearly $16 billion was lost from residential real estate values alone between the years of 2005 and 2017. The reasons for these real estate devaluations? Rising sea levels, tidal flooding, and the associated fallout. Florida was found to have the largest financial loss. While this study focused on residences, the commercial real estate market was hit equally hard.

 

Another less obvious reason why commercial real estate properties lose their value due to climate change is the influx of stronger, more frequent storms. Many of us have heard that climate change has caused warmer waters and stronger hurricanes. Climate change has also been potentially linked to worsening tornado seasons in the midwest and across the globe. All of this can destroy real estate, raise insurance rates, and devalue properties overall.

 

Using Climate Change Projections to Make Wise Real Estate Investments 

Using Climate Change Projections to Make Wise Real Estate Investments

Of course it isn’t all doom and gloom. There are ways for savvy real estate investors to educate themselves on climate change and its impact on future decisions. While it may take time to develop a deep understanding of this relationship, even a cursory understanding of how climate change will impact your region’s real estate market can be a start.

 

Immediate risks include some of what we discussed in the previous sections: namely flooding, hurricanes, tornadoes, droughts, and so forth. Some regions have always been subject to these considerations while some regions may find themselves in the crosshairs for the first time. These types of risks are potentially catastrophic including total loss of investment and/or lengthy closures.

 

Less immediate risks might include an area being depressed over time due to climate change. The relationship between climate change, population growth, industry regulations, and everything in between can be the difference between a highly profitable investment in commercial real estate and a financial failure. 

 

Last but not least, insurance costs are expected to increase due to climate change. This may impact your region more or less depending on the volatility of the climate and by extension the likelihood of property damage due to climate-related events. As with all real estate (and business) decisions, the decisions stems from weighing the potential benefits vs. the possible risks.

 

Coastal Property Values are Taking a Major Hit

How Climate Change Devalues Real Estate

With the melodrama of the 24 hour news cycle, it can be hard to separate fact from fiction. Are sea levels truly rising causing massive property damage or is this yet another Y2K? We already referenced the massive financial losses which have been incurred all along the eastern seaboard. Unfortunately, those losses are just the tip of the proverbial iceberg.

 

Records for real estate damage resulting from natural disasters are being broken all the time. In 2017, the total costs in real estate damage caused by floods, wildfires, and other natural disasters topped $300 billion in the US. And yes, rising sea levels will continue to be a very real threat to any real estate close to our shorelines. 

 

If you have an interest in real estate in a city like Miami, New York or New Orleans, this might come as old news. If you live inland, the potential ripple effect might cause shifts in real estate valuation in either direction. As Mark Twain once quipped, “buy land, they’re not making it anymore”.

 

Going Forward

When it comes to projections on climate change, the future is murky. What we do know is that the real estate market has already seen a material impact as both a direct and indirect result of rising temperatures, stronger storms, and everything in between. Moving forward, businesses and real estate investors should keep climate change on their checklist for any potential real estate transaction. Even the most seemingly isolated locations are not isolated from the shifting climate.

 

The trickle down impact of stricter environmental regulations might also influence real estate value as well as local, state, and national economies. As with all economic shifts, staying ahead of the curve might well lead to the greatest possible outcome.

Is Industrial Real Estate Dying in Major Cities?

Is Industrial Real Estate Dying in Major Cities

There has been a lot of speculation over what aspects of real estate are growing, and which are not. Some experts say that the number of homebuyers will increase, and others say that renting will continue going strong. One trend that has been observed in commercial real estate, is a decline in a specific type of CRE, industrial real estate. 

The Current Industrial Real Estate Landscape

The Current Industrial Real Estate Landscape

Nashville, Dallas, and Boston each rank within the top 6 for real estate investment potential in a report published by the Urban Land Institute. These fast growing cities have a lot of ongoing real estate development, but despite their thriving commercial real estate market, they are each beginning to run out of space for industrial real estate. 

 

Holladay Properties is currently working in Nashville to construct a warehouse and distribution park. The five industrial buildings that make up this park will be located near the Nashville International Airport, and are currently being described as one of the last industrial projects of its size. 

 

Many developers prefer to use available land for the development of office space, retail space, or residential space. This is because the potential rental fees are higher with these types of tenants. Steve Horrell, an industrial broker and development consultant in Nashville, referred to the rent earned through industrial properties as “the lowest rung on the totem pole”. With the profit incentive for non-industrial development outperforming industrial properties to this degree, the majority of available land ends up being taken for alternate commercial purposes.

Declining Industrial Space

Declining Industrial Space

With land being bought up for smaller, non-industrial projects, the warehouse and distribution park is considered to be one of the final industrial projects of its size. It is not just Nashville that is experiencing this, but Dallas and Boston as well. Not only is industrial real estate growth stalled in these cities, but over the last decade, Dallas has actually been demolishing or converting industrial properties. In Boston, there have been even larger losses in industrial space. Richard Lawson, a writer for CoStar, reported on this, saying that:

 

The east Dallas area, which includes the popular Deep Ellum neighborhood that once was the main industrial area, has had a “net reduction of about 500,000 square feet of industrial space since 2008,” according to CoStar’s Dallas market report.

 

Reporting on the situation in Boston’s major industrial areas, Lawson stated: 

 

More than 20 million square feet has been dropped from that area’s industrial inventory in a decade, according to CoStar’s Boston market report. Now the trend is spreading to the more popular warmer climates across the United States.

 

Though they were once considered to be industrial powerhouses, the industrial space in these fast growing cities is projected to continue falling. Steve Horrell analyzed the current state of industrial real estate in Nashville by saying, “We’re pretty well out of dirt to build anything 5 to 7 miles’ from the county courthouse in downtown Nashville…We’re chewing up industrial buildings in our own neighborhoods for other uses.”

 

Horrell also added that it is “difficult for companies wanting 5,000 to 15,000 square feet to find space, particularly as older, existing buildings disappear”. CoStar analyzed the gains and losses in the industrial market, and found that Davidson County (the county that Nashville belongs to) has seen a net loss of industrial real estate in the last decade. There were approximately 3 million square feet of industrial projects developed in the county across that decade, while about 3.36 million square feet of industrial space was demolished or converted.

The Future of Industrial Real Estate

The Future of Industrial Real Estate

While the presence of industrial projects in cities is beginning to disappear, that does not mean that these projects will cease to exist in the coming future. With the growth of Amazon and other online shopping companies, warehouses have become even more of a necessity. The locations of these warehouses end up being pushed just outside of major cities. This is done so that the valuable city land can be used for more profitable (higher rent) properties like the aforementioned offices and residential spaces. 

 

Looking at the areas outside of Davidson county, there is a lot more available space for industrial development. This means that the future of industrial real estate will most likely involve moving out of big, fast growing cities, and settling down in the surrounding counties. The need for industrial development isn’t going to disappear, it is just moving to a location that allows its profitability to compete with other forms of commercial real estate.

Going Forward

Large industrial development projects will not be frequently seen in big cities moving forward. It is more valuable to the development companies to build that space into one that provides higher rental fees from future tenants. However, while the available land for industrial real estate declines in fast growing cities, it will not disappear completely. The demand for industrial real estate still exists, so instead of dying out, industrial development projects will simply move outside of major cities where industrial space still exists. This is likely to be the trend moving forward.

Completing the WeWork Takeover

Completing the WeWork Takeover

The collapse of WeWork has made headlines around the country, and outside of it. Everyone has heard of what happened, and now it is time to look to the future of the We Company subsidiary. With less than a month before the company was set to run out of money, a WeWork takeover seemed inevitable. There were two options on the board to avoid going out of business. The first offer was a bailout from JP Morgan Chase and several of WeWork’s other lenders, while the second offer was to be taken over by SoftBank.

WeWork Takeover Options

WeWork Takeover Options

WeWork had connections to both JP Morgan and SoftBank. SoftBank was a big investor in The We Company, while JP Morgan Chase was former CEO Adam Neumann’s personal bank. JP Morgan had underwritten some of WeWork’s loans, but SoftBank’s offer included paying off some of Neumann’s debts. 

 

Choosing one of these deals was necessary to avoid going out of business. If WeWork was to go bankrupt, it would have a significant impact on the commercial real estate industry. CNBC broke down why it would be bad for real estate if WeWork was to go bankrupt. Since WeWork deals in long-term leases, any landlord that has rented space out to them would suffer. The number of landlords is not small seeing as how the company leases tens of millions of square feet of office space across New York, San Francisco, and London.

WeWork Takeover Moving Forward

WeWork Takeover Moving Forward

With bankruptcy off the table, WeWork decided to accept SoftBank’s offer. With this, the WeWork takeover was finally underway. While he did maintain some voting power, Neumann was removed as CEO. SoftBank now owns 80% of WeWork, and plans on advising the new CEOs moving forward.

 

SoftBank already controls two seats on The We Company’s board, and has tapped Bolivian-born executive and billionaire Marcelo Claure to lead 20 of its staffers in managing WeWork’s turnaround, the WSJ reports. Claure will advise co-CEOs Artie Minson and Sebastian Gunningham in deciding how to best cut costs to shorten the company’s path to profitability.

 

Now that the WeWork takeover is being implemented, does this save the company? WeWork had multiple deals that were still being negotiated that have now been halted. There are also business relationships that have presumably ended due to a new level of caution. A frustrated landlord, who wished to remain anonymous, had been in talks with WeWork, and commented on the current situation:

 

Now, the latest thing they told us after the SoftBank bailout was announced, [was] ‘we are still on hold, and we could be back to you in two days, two weeks — or never.

What’s Next

What’s Next

To some of WeWork’s business partners, they see its collapse as a new opportunity. WeWork served as a middleman to connect them with tenants, but with those relationships already formed, they can cut WeWork out of the process and deal directly with the businesses. This idea was mirrored by Steven Durels, the Director of Leasing for SL Green. He looked at one of his company’s properties, that WeWork rents out and leases to Amazon, and explained that a lease would be made directly with Amazon in a scenario where WeWork was no longer a factor.

 

So, if there were no WeWork, Amazon would simply be our tenant, they step into that lease next day, there would be interruption of services and no break in our income.

 

The coworking industry has also been thriving outside of WeWork. The Real Estate Board of New York reported on the flexible office space available in the region, and WeWork makes up 28% of it. This is a big enough percentage to cause problems by going out of business, but small enough where there are alternative options post-takeover. 

 

Vornado Realty Trust, for example, plans to start offering flexible office space for tenants in the coming future. The president of Vornado, Michael Franco, commented on WeWork, and the Trust’s upcoming plans.

 

While we appreciate some of the creativity that WeWork brought to the office business, we chose to lease our space to end users with better credit over the past few years…We will brand this space under the Vornado name and, importantly, retain the bulk of the upside.

Going Forward

After its brush with bankruptcy, WeWork is going to have some difficulty getting back on its feet. It had a lot of relationships and partnerships with landlords around the world, but those landlords have either begun to doubt WeWork, or are enacting backup plans so that they do not have to be reliant on it. This puts WeWork in the position of having to prove itself all over again, and regain the trust of those it did business with.

 

SoftBank’s takeover and cash infusions may have saved WeWork for now, but there’s no telling whether its new leadership will be able to right the ship moving forward.