Latest / Own More Doors / #17 Is Office Space Dead? A Deep Dive into Office Real Estate (Sheva Hosseinzadeh)

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#17 Is Office Space Dead? A Deep Dive into Office Real Estate (Sheva Hosseinzadeh) · Own More Doors

0:00
SPEAKER_01: Hey everyone, uh Juan Weezar here with another Own More Doors podcast.
0:04
SPEAKER_01: I'm with my friend Shiva Joseansade, who's a local broker here in Long Beach.
0:08
SPEAKER_01: We partner up often and we we get a chance to work together.
0:11
SPEAKER_01: We pick each other's brains on different things that she's selling that I'm selling.
0:15
SPEAKER_01: And today we're gonna be talking about uh the the office space here in Long Beach in the LA area.
0:21
SPEAKER_01: And so, Shiva, thank you so much for being here.
0:23
SPEAKER_00: Thank you.
0:24
SPEAKER_01: So, so Shiva, you know, um we were talking the other day.
0:27
SPEAKER_01: So currently we have an office building that we're selling, and there's a second one that's gonna be coming up that we're gonna be partnering up and selling that one also.
0:35
SPEAKER_01: And you said something unique.
0:37
SPEAKER_01: I'm like, we got to talk about this.
0:38
SPEAKER_01: Sure.
0:38
SPEAKER_01: And so you said, hey, Juan, um, so right now, like the status of office or the perception everywhere, it's like office is dead, no one wants it, it's worthless.
0:51
SPEAKER_01: I mean, all these things are being said, right?
0:53
SPEAKER_01: Like, hey, sales are down, values are down, cap rates are up.
0:57
SPEAKER_01: So all these things like make a seller think, man, my office must not be worth much.
1:02
SPEAKER_01: And then there's this other thing of everyone's gonna work from home, no one's ever gonna go back to the office.
1:07
SPEAKER_01: I think, and I kind of want to talk about that too to see what you're seeing because I don't I don't believe that's the case.
1:13
SPEAKER_00: I don't think so.
1:14
SPEAKER_00: I mean, I go to the office every day, and I know a lot of people that do.
1:16
SPEAKER_00: I mean, office has changed, it's definitely unique now, and that people don't want to be there every day.
1:22
SPEAKER_00: Maybe they're only there three days a week or two days a week.
1:24
SPEAKER_00: So I still think that there is a need for office, and we're still doing leases and transactions now.
1:29
SPEAKER_00: It just looks a little bit different.
1:30
SPEAKER_00: Everyone's downsizing, a lot more open space rather than private offices because they are utilizing the space to share, to be shareable, to be utilized in a different, in a different light.
1:42
SPEAKER_01: One of the things that one of the things that we hear, and they they make it seem like it's so easy, which we know it's not.
1:46
SPEAKER_01: It's like, oh, just take that large office building high-rise and make it residential, like a piece of cake, voila, it's over, and then you've you know you've made money.
1:54
SPEAKER_01: Like that is like a nightmare situation for someone to be able to take an office building and make it just just the uh the process of uh of of the um use change, possibly zoning change, all these things that entitlements, yeah, just all that stuff.
2:08
SPEAKER_01: It's gotta be like really, really hard.
2:10
SPEAKER_01: I I know people think, oh, it's gonna be this easy thing, it's not.
2:13
SPEAKER_01: One thing you said that that really stood out, you said, hey Juan, um overall office is very affordable right now if you're buying.
2:24
SPEAKER_01: It's probably affordable if you're leasing, and you said they're no longer building new office space.
2:30
SPEAKER_00: Correct.
2:30
SPEAKER_00: Yeah, all the underutilized office buildings now are being converted to mixed-use residential projects, like you mentioned.
2:37
SPEAKER_01: All right.
2:38
SPEAKER_01: So then what we have, and this is the reason why I wanted to touch on this because part of our show is um getting people to think about investment opportunities, uh, getting people off the fence and and investing in some type of real estate.
2:51
SPEAKER_01: And and most times we talk about multifamily, we've talked about self-storage, we talked about um industrial last week, and so today we're gonna be talking about office, but like this is kind of a unique thing.
3:01
SPEAKER_01: So there's probably less uh office space now than there was a few years ago.
3:08
SPEAKER_01: Um for a couple reasons.
3:09
SPEAKER_01: Well, one, you people are motivated to change the use, thinking that the highest and best use of that office space is no longer office, and that no one's building a new office.
3:18
SPEAKER_01: Correct.
3:19
SPEAKER_01: And you know, and I know um people are gonna still want to go to an office space, even if it means less, even if it means, hey, we're no longer in a 20, 20,000 square foot office space, now we're in a 10, and everyone's kind of shifting down, but there's still need for it.
3:34
SPEAKER_01: So, what I was thinking when you're like, no one is building any more office space, I'm like, aha, buy office space.
3:41
SPEAKER_01: There's less of it, they're not making any more of it.
3:44
SPEAKER_00: Exactly.
3:44
SPEAKER_00: And eventually when the market shifts and people want to go back to the office, there's gonna be less availability.
3:50
SPEAKER_00: So it's gonna make your asset more valuable.
3:53
SPEAKER_00: When is that gonna happen?
3:54
SPEAKER_00: It might be five years from now, seven years from now, ten years from now, but there is gonna be a shift that's gonna be coming.
4:00
SPEAKER_00: People aren't gonna want to work from home in the manner that they've been doing forever.
4:03
SPEAKER_00: I think ultimately they're gonna get tired.
4:05
SPEAKER_00: And I'm already seeing it.
4:06
SPEAKER_00: Some people that have been working home for three or five years, they already want to go into an office space.
4:11
SPEAKER_00: Oh, we just want a space, even if it's a couple of days out of the week that we can come and work out of.
4:15
SPEAKER_00: So then what's gonna happen?
4:16
SPEAKER_00: The rates are gonna go up.
4:18
SPEAKER_00: There's gonna be, you know, more property.
4:20
SPEAKER_00: They're gonna be added value now and increasing the value in the future.
4:24
SPEAKER_00: And right now, though, the challenge with buying office is that you have to be able to afford it, either cash or obtain seller financing.
4:32
SPEAKER_00: Because right now you can't get a loan through a bank if you're buying an office building.
4:36
SPEAKER_00: And that's why the cap rates on them are between eight and 10%.
4:40
SPEAKER_01: So, Shiva, so before all this, if someone wanted to buy an office building, not for use, I guess this would just be purely investment.
4:48
SPEAKER_01: Like several years ago, like how much of a down payment was was uh what was an investor having to put on an office building?
4:55
SPEAKER_00: It was it was still 20% conventional, 20 to 30 percent, depending on the vacancy and options.
5:00
SPEAKER_01: Which seems great to me.
5:02
SPEAKER_00: Yeah.
5:03
SPEAKER_01: And but now you're saying that that financing has dried up.
5:06
SPEAKER_00: There's no options.
5:07
SPEAKER_00: You there is no lender right now in the market that would even finance an office building.
5:12
SPEAKER_01: And tell us why.
5:13
SPEAKER_00: It's because it's high risk, it's considered high risk because of what happened with the pandemic, and a lot of office buildings went down to 50% vacancy, some even more, some a little bit less.
5:23
SPEAKER_00: But right now, the lenders are just saying, we don't think that office is going to make it.
5:29
SPEAKER_00: We don't want a loan on it.
5:30
SPEAKER_00: So if you don't have cash or you're not gonna be able to find a seller to do seller financing, then office might not make sense.
5:37
SPEAKER_00: But in the future it will because you're getting these crazy returns on your investment.
5:41
SPEAKER_00: You're buying them for almost 50% off the value of what it would have been pre-pandemic days.
5:47
SPEAKER_00: And ultimately, I think long term, when office does come back or or there's a need for it, the value is gonna be in the asset.
5:54
SPEAKER_01: Shiva, when we're talking about office space, you know, I don't I don't know what people imagine.
5:59
SPEAKER_01: I mean, maybe someone imagines like a downtown high-rise, but sometimes, Shiva, like when I think of office space, I'm like, there could be a 5,000, 2,000 square foot office space.
6:08
SPEAKER_01: Yeah, I mean, it doesn't have to be less like tons and tons of square footage.
6:13
SPEAKER_01: It so, but there is office financing for for those folks who are gonna use 51% of it.
6:21
SPEAKER_01: Owner user only.
6:22
SPEAKER_00: Yeah, yeah.
6:23
SPEAKER_00: And that's in fact, that's the one thing the lenders want to do, especially for medical.
6:27
SPEAKER_00: If you're an owner user right now, they will loan all day long.
6:31
SPEAKER_00: They find that, especially for medical uses because medical is doing very well in this market, that that's a less riskier investment.
6:40
SPEAKER_00: It's just a traditional what you would think of like a 10-story office building, you know, a high-rise.
6:45
SPEAKER_00: Those are the ones that are struggling.
6:47
SPEAKER_00: Those are the ones that lenders won't touch.
6:48
SPEAKER_00: Owner user, absolutely.
6:50
SPEAKER_01: Shiva, when we talked about cap rates, um, where where were the cap rates before all this?
6:57
SPEAKER_00: About five.
6:58
SPEAKER_01: Okay.
6:58
SPEAKER_00: Yeah.
6:59
SPEAKER_01: Okay.
7:00
SPEAKER_00: And where in some cases, depending on where the property was located, maybe four and a half, some areas, maybe five and a half, but you know, averaging five percent.
7:08
SPEAKER_00: Now they're eight to ten percent.
7:11
SPEAKER_01: Okay, so for anyone listening, and this is why it matters.
7:15
SPEAKER_01: In the world of real estate, um, as as a cap rate rises, values decrease significantly.
7:25
SPEAKER_01: Um the cap rate is simply a ratio of net operating income uh and and and and cap rate and or value, it's kind of interchangeable, but it it it allows investors to figure out sometimes sometimes an investor would say, like, when she was telling me that that cap rates are at eight or ten, apartment buildings would not be that high.
7:46
SPEAKER_01: And then so an investor would say, Oh, it's at eight or ten, which is a benefit to the investor because they're getting better financing, it's going to be a better return.
7:55
SPEAKER_01: Um, but then there's that perceived risk.
7:57
SPEAKER_01: So that's that's the trade-off is the the perception that there's perceived risk.
8:02
SPEAKER_01: Um so that means that there's tremendous, tremendous value.
8:06
SPEAKER_01: And the fact that there's no financing is in a way even better.
8:10
SPEAKER_01: That means that there's I all I'm imagining, Shiva, right now is a shrinking pool of buyers.
8:17
SPEAKER_01: And what I'm imagining, and you tell me if I'm wrong, motivated sellers.
8:22
SPEAKER_01: Uh from from tell me otherwise.
8:25
SPEAKER_01: I saw you roll your eyes.
8:26
SPEAKER_01: I don't know if the camera got it.
8:27
SPEAKER_00: I'd love to say the sellers are motivated, but you know, imagine if you're an office building owner and you know, let's say I have a client specifically in downtown, you know, they bought a building and they thought this building was worth 20 million.
8:40
SPEAKER_00: I mean, that's they thought, and it would have been maybe, and I know if we look back at comms pre-pandemic days, they probably were selling close to 20 million.
8:49
SPEAKER_00: But right now, the offers that this guy is getting on his property are 10 million, almost half of what the value would have been before the pandemic.
8:59
SPEAKER_00: Now, these investors are, you know, they are aggressive.
9:02
SPEAKER_00: They're they're very bullish on what they want.
9:04
SPEAKER_00: They know that nobody can buy office right now.
9:07
SPEAKER_00: Yeah, they know that there's no lending available, they know that there's fewer buyers, and so they're they're throwing these ridiculous offers out there.
9:14
SPEAKER_00: And if the sellers want to sell their properties, you know, they don't really have a choice but to work with some of these buyers.
9:19
SPEAKER_00: Others who can't afford to keep them are gonna probably wait it out.
9:23
SPEAKER_00: So they're not as motivated as you think to some degree.
9:26
SPEAKER_01: Right.
9:26
SPEAKER_01: So I don't blame the buyers for acting that way right now.
9:30
SPEAKER_01: And okay, so let's let's use that example.
9:32
SPEAKER_01: All right.
9:33
SPEAKER_01: So the property was worth 20 million, now it's worth 10 million, and an investor is actually chasing it.
9:38
SPEAKER_00: Yes.
9:39
SPEAKER_01: For what reason?
9:41
SPEAKER_00: Well, okay, so a lot of the investors that we have looking at this property, many of them want to do a conversion as well.
9:47
SPEAKER_00: So many of them are saying, well, maybe I'll do some sort of, I'll keep it as office now because there's some long-term leases in place.
9:53
SPEAKER_00: So maybe in the future I'll do some sort of housing component or maybe a hotel type development.
9:58
SPEAKER_00: Um, I have one buyer that wanted it strictly as an investment.
10:02
SPEAKER_00: And when they're looking at the income and then they're building out the cap rate, they're all kind of coming out at the same price.
10:06
SPEAKER_00: We've had three buyers all within that nine to 10 million dollar range.
10:11
SPEAKER_00: And that's very low.
10:15
SPEAKER_00: If you're looking at a hundred and four thousand square foot building in the heart of downtown Long Beach, I mean, it's I don't know what it comes out to on a price per square foot, but I think it's like a hundred dollars a square foot.
10:26
SPEAKER_01: I mean, it's you can't build for a hundred dollars.
10:28
SPEAKER_00: Yeah, you can't even build that.
10:30
SPEAKER_01: Which which some investors buy simply on that.
10:32
SPEAKER_01: I mean, you know, some investors look, well, geez, if I can't build for that, it must be a good investment.
10:38
SPEAKER_01: Yeah.
10:38
SPEAKER_01: Has anyone looked at these office buildings that that that you list, Shiva, and want to strictly keep it office and maybe it's having the narrative that I'm thinking, like, this thing's gonna bounce back and get in while while it's low?
10:48
SPEAKER_01: I mean, because that's what we're that's where my mind is going.
10:51
SPEAKER_01: Or is it just my mind and it's just it's in So no, I agree with you.
10:55
SPEAKER_00: And we have another building in Cerritos, and the we're in um negotiations very far along in the negotiations now.
11:02
SPEAKER_00: Uh, it's a bit of a discount, but not significantly.
11:04
SPEAKER_00: We were asking 11 million.
11:06
SPEAKER_00: They're offering 10 million now.
11:07
SPEAKER_00: We're really close to finalizing the PSA.
11:10
SPEAKER_00: But ultimately, they're keeping it as office.
11:13
SPEAKER_00: Eventually, though, they want to convert it into strictly medical office, and that's where they think they're gonna get that return back.
11:19
SPEAKER_00: But for now, it makes sense.
11:21
SPEAKER_00: It's right next to the Cerrito Small.
11:23
SPEAKER_00: It's a great location, it has ample parking.
11:26
SPEAKER_00: The buildings are nicely suitable for their future development plans.
11:30
SPEAKER_00: And so those are there are some buyers, very few, but there are some out there.
11:35
SPEAKER_01: Talk to us about, you know, I don't want to call it like a C-class office building, but let's just talk about like a more neighborhood office building.
11:43
SPEAKER_01: I don't know, I'm just gonna pick a number.
11:45
SPEAKER_01: 10,000 square foot building with multiple tenants.
11:47
SPEAKER_01: Maybe I'll add it about a thousand a square um a thousand square foot, you know.
11:52
SPEAKER_01: So just different offices and and their lease and it's operating.
11:56
SPEAKER_01: You're telling me there's no financing for that either.
11:59
SPEAKER_00: No, no, you can't get a loan right now.
12:01
SPEAKER_01: So they're office.
12:02
SPEAKER_01: So I wonder, you know, listen, Shiva, like not every office uh owner is uh corporation and it like it's possible that you have some independent office owners out there that probably have no idea of of the massive uh um uh price price cut that just happened to their property.
12:24
SPEAKER_00: No.
12:24
SPEAKER_00: I mean, well, uh it depends on where you're at.
12:27
SPEAKER_00: And if you're trying to look to even sell your building, and I I'm telling you, some people are shocked.
12:32
SPEAKER_00: I mean, even this new proposal we're working on.
12:34
SPEAKER_00: I I'm still running all the numbers, but when I'm looking at the comps, I'm thinking, God, they might be really surprised at how much the values have come down.
12:44
SPEAKER_01: So it okay, so values are down, cap rates are up.
12:48
SPEAKER_01: That from an investment standpoint is good.
12:50
SPEAKER_01: If you buy if you were to buy an office building, can we lease the space today?
12:54
SPEAKER_01: Or I mean, like, are you gonna just there's no one leasing it?
12:57
SPEAKER_00: They will lease it.
12:58
SPEAKER_00: It's just a matter of how long.
13:00
SPEAKER_00: And and I just walked a property right before I got here, and the guy just it's a raw shell condition.
13:07
SPEAKER_00: There's no HVAC, the roof is exposed, there's no flooring, the restrooms aren't built out.
13:12
SPEAKER_00: And he says, go ahead and put this on the market.
13:14
SPEAKER_00: I said, There's no way you're never gonna rent this thing.
13:16
SPEAKER_00: You're gonna have to put it in a shell.
13:18
SPEAKER_00: You're gonna have to put in the flooring, build out the restroom, put in the drop ceiling, install the HVAC, because there's so much of vacancy on the market.
13:27
SPEAKER_00: Someone's gonna come and look at your building and look at how much cost is gonna have to go into the space, look at another building and say that that's moving ready and that's more attractive, and they're gonna go in that direction.
13:37
SPEAKER_00: So it depends on what is an owner willing to do?
13:39
SPEAKER_00: How flexible are they on the base rent, how much free rent are they offering?
13:44
SPEAKER_00: All those things factor into helping us get spaces rented.
13:47
SPEAKER_00: So owners have to be flexible.
13:49
SPEAKER_00: And if they are, we're renting the spaces.
13:51
SPEAKER_00: I mean, we at, you know, the building I just mentioned that's also for sale.
13:55
SPEAKER_00: We've done a significant amount of leases there, almost at full occupancy in the property.
13:59
SPEAKER_00: And it's because they're motivated, they're flexible, they're willing to work with the tenants.
14:03
SPEAKER_00: Other owners, they want pre-pandemic rents, they don't want to offer free rent, they don't want to build out the space.
14:09
SPEAKER_00: Well, then your property's just gonna sit.
14:10
SPEAKER_00: I mean, that's that's the market that we're in.
14:13
SPEAKER_00: And we're not miracle workers, but we do what we can.
14:16
SPEAKER_00: And right now in the city of Long Beach, the vacancy rate for office is just under 30%.
14:22
SPEAKER_00: And guess what?
14:23
SPEAKER_00: 17% of that to 19% of it is just in our downtown.
14:29
SPEAKER_00: So big chunk of the vacancies in the downtown market, and because there's a lot of high-rise buildings.
14:34
SPEAKER_00: And you know, when those buildings are sitting vacant, it's affecting the rest of the community.
14:38
SPEAKER_00: All the restaurants are affected, all the businesses are affected, all the people that would go and eat at lunchtime or shop during the day, that's gone.
14:46
SPEAKER_00: So that's where you're seeing a lot of businesses even are saying, Well, I've got to go somewhere else, maybe in a more highly residential community to make up for that loss of income.
14:57
SPEAKER_01: You know, when you're talking about the it's a domino effect.
15:01
SPEAKER_01: It's a day, yeah, it's a negative domino effect.
15:04
SPEAKER_01: These there used to be people coming to downtown and now there's less.
15:08
SPEAKER_01: And then we lose a restaurant like Michael's Pizzeria that I love.
15:11
SPEAKER_00: Yeah.
15:12
SPEAKER_01: Uh in downtown.
15:13
SPEAKER_00: We lost Pier 76 for this very same reason.
15:17
SPEAKER_00: Great operator, great restaurant, booming before the pandemic.
15:21
SPEAKER_00: Afterward, he just couldn't, he couldn't get anyone in a space.
15:24
SPEAKER_00: He relied on the office building, which he was located in.
15:26
SPEAKER_00: He's on the ground floor of a multi-tenant massive office building, the Walls Fargo building, and he lost his business overnight.
15:34
SPEAKER_00: And then, you know, unfortunately, there wasn't any support from the city, a little bit of support from the landlord, but not enough to keep him in business.
15:41
SPEAKER_00: And he had five locations at what time and had to close most of them down.
15:47
SPEAKER_01: Sheba, when you're give us some perspective because you said 30% office vacancy seems outrageously high to me.
15:54
SPEAKER_00: It used to be 15 to 20 hours.
15:56
SPEAKER_00: That's what I wanted to know.
15:57
SPEAKER_00: Yeah.
15:57
SPEAKER_00: So it is almost doubled.
15:59
SPEAKER_01: And and Sheba, like, I don't like I know you don't follow probably the San Diego office uh because you that's just simply too far, but like is Orange County, Marina Del Rey, LA, are they experiencing this high of a I'm sure LA is probably higher than us.
16:15
SPEAKER_00: I don't know about Marina del Rey or it's a smaller community, smaller market.
16:19
SPEAKER_00: So I probably they're having the same type of issues.
16:22
SPEAKER_00: I mean, I think it's everywhere.
16:24
SPEAKER_00: I mean, I don't think it's you know specific to a certain city.
16:28
SPEAKER_00: I think overall people are looking at office differently.
16:32
SPEAKER_00: They want to utilize office differently, and so you're just they're not renewing leases or they're downsizing dramatically, and so you're just having more vacancy all throughout.
16:42
SPEAKER_01: Wow.
16:42
SPEAKER_01: You know, I I um like on Twitter, you know, slash X, I follow a lot of real estate people, and they'll they'll grab an office building nationwide and like this one sold for a hundred million and now it's going for like I mean 20 million.
16:57
SPEAKER_01: I mean it's like it's less than 50 percent.
16:59
SPEAKER_01: Yeah.
17:00
SPEAKER_01: And so I I'm like, holy smokes, these are like super smart people investing in an asset that they believe is gonna be worth double that, not less.
17:09
SPEAKER_01: And that's what's happening.
17:10
SPEAKER_00: Yeah.
17:11
SPEAKER_00: There's a uh a broker that he's like the office broker in LA.
17:15
SPEAKER_00: He's um part of was part of our company for many years, and we work very closely with him.
17:20
SPEAKER_00: Still do.
17:20
SPEAKER_00: In fact, I was emailing him just today, and he said he's got more office listings than he's ever had in his career, and he can't move them.
17:28
SPEAKER_00: Like that's how difficult the market is.
17:30
SPEAKER_00: And that unfortunately, the investors don't see the value.
17:33
SPEAKER_00: I don't think in LA, obviously, there's a lot more inventory compared to Long Beach, but they're not even doing conversions as much as much as they were before.
17:43
SPEAKER_00: Even development has slowed down overall, but regardless, he's just having a very difficult time.
17:49
SPEAKER_01: You know, I I imagine when you're talking about a lot of employers are downsizing.
17:57
SPEAKER_01: I would think that when you have a high-rise office building that you're able to accommodate that downsize.
18:04
SPEAKER_01: Oh, you don't need 10,000, great, here's 5,000.
18:07
SPEAKER_01: You don't need 5,000, great, here's 2,500.
18:09
SPEAKER_01: And and I I would think that those spaces would be occupied, but clearly with 30% vacancy here in Long Beach, that's not the case.
18:16
SPEAKER_00: That's some of it's happening, but some owners or some tenants are just they're going to different properties, they want to go out of different areas.
18:23
SPEAKER_00: Our downtown is having an unhoused population issue, and that is drawing a lot of businesses out of our city.
18:31
SPEAKER_00: In fact, even to be honest with you, I mean, we've been even considering, you know, leaving the downtown, even though we've had an office there for over 20 years.
18:40
SPEAKER_00: And we've just thought, gosh, maybe, you know, you can't walk to our library or walk across the street without being encountered or, you know, encampments everywhere.
18:48
SPEAKER_00: And so until that gets resolved, I just don't see a lot of people wanting to or being enticed to come to our downtown.
18:54
SPEAKER_00: Unfortunately, though, in our city, office availability is shrinking.
19:00
SPEAKER_00: So people want to be near second in PCH.
19:03
SPEAKER_00: That's probably the highest demographics, nicest part of our city.
19:07
SPEAKER_00: There were three major office buildings along that general intersection.
19:12
SPEAKER_00: All three of those office buildings have been sold for development and entitlements have been approved.
19:17
SPEAKER_00: Pretty soon they're going to do a shovel in the ground and start construction there.
19:21
SPEAKER_00: Those buildings are full of tenants.
19:23
SPEAKER_00: Where are those tenants going to relocate to?
19:25
SPEAKER_00: There is nowhere within that area that even has office now.
19:29
SPEAKER_00: So they either have to go to Los Alamitos, they have to go to Seal Beach, they have to go to Orange County.
19:34
SPEAKER_00: We're losing them because they don't, they're refusing to go to our downtown, they're refusing to go to our East Long Beach, and they won't go to Bixby Knolls, which is really the heart of where majority of our office buildings are.
19:45
SPEAKER_00: The only other option is there's one building along the traffic circle in Long Beach, which, you know, is really all that's available.
19:52
SPEAKER_01: And I mean, there we're talking you know, over a hundred thousand square foot.
19:58
SPEAKER_01: Uh like uh I mean, what's it these are huge buildings, huge, and and hundreds of tenants uh could go to that location.
20:05
SPEAKER_01: Yeah.
20:05
SPEAKER_01: When you were saying that they're gonna be forced um to move, and obviously they are because it's gonna go up for development.
20:12
SPEAKER_01: Um I was assuming, I'm like, great, this is we need downtown to change, right?
20:18
SPEAKER_01: And I was like, great, if those businesses come to downtown and they get affordable rates, but you're saying, hey, they're telling you when and and they're having the discussions with you, you're the one that's placing them.
20:28
SPEAKER_01: They don't want to come to downtown.
20:30
SPEAKER_01: That's a problem.
20:31
SPEAKER_00: Is one parking?
20:32
SPEAKER_00: Parking can be an issue because a lot of the office buildings in downtown don't have a lot of parking.
20:37
SPEAKER_00: And if they do, it's paid parking.
20:39
SPEAKER_00: So they have to factor in the paid parking into their overall monthly rents.
20:43
SPEAKER_00: So sometimes that's an issue where they go, Oh, I don't want to pay for parking, so let's go look at other locations.
20:48
SPEAKER_00: But the other, and the most important, of course, is the unhoused population and the homeless issue that we're facing.
20:56
SPEAKER_01: And is that going to be corrected?
21:00
SPEAKER_00: The future will we'll only we'll have to wait and see.
21:04
SPEAKER_00: I mean, there was um there a city just released a memo.
21:07
SPEAKER_00: There was a Supreme Court ruling that was overturned that now makes homelessness encampments leak illegal, where before it was legal.
21:15
SPEAKER_00: So now cities, ordinances, municipalities, police officers, they have regulations now that they can implement.
21:24
SPEAKER_00: But the city just released a 10-page memo on how they're gonna incorporate this change.
21:30
SPEAKER_00: And it was very detailed, but a lot of it really just ultimately means they're gonna start off with citations.
21:35
SPEAKER_00: They're gonna citate any homeless person that is creating an encampment and has been there for more than a certain period of time.
21:43
SPEAKER_00: Or if somebody complains and calls and says, hey, there's this person loitering or encamping, and can you guys do something?
21:49
SPEAKER_00: So after the citation is posted, I think they have a certain amount of time to vacate.
21:53
SPEAKER_00: And then thereafter, they're gonna just come and basically clean up the area.
21:58
SPEAKER_00: So if you get a certain Amount of citations, now the police can arrest you.
22:02
SPEAKER_00: I don't think that's how you solve this problem.
22:05
SPEAKER_00: I mean, these people aren't, they shouldn't be arrested.
22:08
SPEAKER_00: They should just be forced into services.
22:10
SPEAKER_00: There's so many programs that can help anyone with mental illness, drug addiction, uh, you know, whatever other issues these people are facing.
22:20
SPEAKER_00: There's the programs, they just don't want them.
22:23
SPEAKER_00: They they refuse the services.
22:25
SPEAKER_00: And even in our downtown, the DLBA, they have a homeless outreach individual that's paid by the organization to make relationships with these homeless people to help these people get into housing.
22:35
SPEAKER_00: And in one year or six months of working in her position, she's got five people off the streets.
22:42
SPEAKER_00: And out of those five people, three of them wanted to go right back.
22:45
SPEAKER_00: So, and they had a one-year hotel voucher where they can stay at a hotel in the city that the city purchased because they bought four or five of them for one year, for free, and they don't want it.
22:58
SPEAKER_00: They want to be back on the streets, they want to be doing whatever drugs or, you know, they don't want to follow the rules.
23:03
SPEAKER_00: And we don't have any control over that.
23:05
SPEAKER_00: Nobody can say, no, you have to stay here and get sober and get into a program.
23:10
SPEAKER_00: And that's where I think the issue is.
23:12
SPEAKER_00: I mean, arresting them, they're just going to be back out on the street again in a matter of weeks and they're going to be doing the same thing that they're doing.
23:18
SPEAKER_00: I will say though, I'm just happy that the city, that this regulation is now in place.
23:24
SPEAKER_00: I'm happy the city has somewhat of a plan on how to deal with this.
23:29
SPEAKER_00: It's better than what we have now, and it's better than not doing anything.
23:32
SPEAKER_00: So I think we're moving a little bit closer in the right direction.
23:35
SPEAKER_00: But this isn't going to get resolved overnight.
23:37
SPEAKER_00: You know, they just did a homeless count.
23:39
SPEAKER_00: In our downtown alone, there's 155,000.
23:42
SPEAKER_00: I'm sorry, 155 unhoused people just in our downtown.
23:47
SPEAKER_00: That's a lot.
23:48
SPEAKER_01: Where would you know where I mean, you've been part of the downtown business alliance for a very long time.
23:53
SPEAKER_01: You've been on the board.
23:54
SPEAKER_01: And where was it before?
23:55
SPEAKER_01: Just so that give us some perspective.
23:56
SPEAKER_00: They never had a count before.
23:58
SPEAKER_00: So this is the first time ever that they actually did a homeless count and found out there was 155 people.
24:04
SPEAKER_01: Well, let me ask you something.
24:05
SPEAKER_01: You've been working down there for 20 years now, going to the same office building.
24:10
SPEAKER_01: Is it worse?
24:11
SPEAKER_00: Oh, yeah.
24:12
SPEAKER_01: Okay.
24:13
SPEAKER_00: Oh yeah.
24:13
SPEAKER_00: Oh yeah.
24:14
SPEAKER_00: To the point where we used to have this really beautiful fountain in front of our property.
24:18
SPEAKER_00: We used to always have it going, you know, all throughout the day.
24:22
SPEAKER_00: We had to empty it because we would come to work and find people showering or using it or sleeping in it.
24:29
SPEAKER_00: And so we had to say, okay, we have to get rid of this fountain.
24:33
SPEAKER_00: Um, we have a secure building.
24:34
SPEAKER_00: Somehow, sometimes people get in.
24:36
SPEAKER_00: We don't, we don't know how.
24:38
SPEAKER_00: Um, we've had to kick people out of our elevators.
24:41
SPEAKER_00: I mean, these are things that we never had to.
24:44
SPEAKER_00: I've been in my building for 14 years, and I've never experienced these kinds of issues.
24:49
SPEAKER_00: And I know it's not just us.
24:51
SPEAKER_01: I mean, everybody in our downtown is experiencing um Shiva, you know, our channel is very pro-Long Beach and we want to sell Long Beach, but right now I'm I'm just I know it doesn't sound like well, gathering.
25:04
SPEAKER_01: No, I'm just thinking that things are gonna get worse before they get better.
25:07
SPEAKER_00: Yeah.
25:09
SPEAKER_01: So let me tell you what I'm seeing now.
25:10
SPEAKER_01: I and this is based off of our conversation today.
25:14
SPEAKER_01: Um you might you're probably gonna get more office tenants to leave.
25:21
SPEAKER_01: You're gonna continue to get more restaurants that leave, and so all that's gonna like really motivate people to like once their lease is coming up that they're gonna leave.
25:30
SPEAKER_01: Your people who want to sell the buildings are gonna say, well, now I have a bigger vacancy than before.
25:35
SPEAKER_01: We're at 30.
25:36
SPEAKER_01: Could it get higher?
25:38
SPEAKER_00: I don't know.
25:39
SPEAKER_00: I think we're kind of at the worst with the vacancy.
25:42
SPEAKER_00: I don't see it going up.
25:44
SPEAKER_00: It could, but it seems that you know, we've been what in the pandemic for almost five years now.
25:49
SPEAKER_00: I mean, post-pandemic world, I mean, I don't think that that's a good question.
25:56
SPEAKER_00: I'm not sure.
25:57
SPEAKER_00: I don't know.
25:58
SPEAKER_01: What what about this?
25:59
SPEAKER_01: Um, and I know you gotta go here shortly.
26:03
SPEAKER_01: For someone who's who says, Hey, I'm interested in coming to downtown.
26:08
SPEAKER_01: What what where are office rates right now?
26:10
SPEAKER_01: And are I would assume they're better.
26:13
SPEAKER_00: They are better.
26:14
SPEAKER_00: Um, they're still somewhat high, in my opinion, because we were just helping someone look for office space in downtown, and we were kind of shocked at where the rates were.
26:21
SPEAKER_00: On the low end, you're about$1.50, depending on what part of the city.
26:26
SPEAKER_00: On the high end, you could be up to like$250 to$275 a square foot.
26:30
SPEAKER_00: So A-class buildings, you're on the higher end.
26:32
SPEAKER_00: More like C-class buildings, you could be on the lower end.
26:35
SPEAKER_00: There's some buildings that they're going down to a dollar a square foot, depending, you know, it's some along Pacific Avenue or other corridors that, you know, haven't really improved their and maybe lack of parking, they're hard to rent.
26:48
SPEAKER_00: There, I mean, we have a medical building along Pacific with no parking, and it's been it's been two years.
26:53
SPEAKER_00: We have toured it several times and and nobody's interested in it.
26:56
SPEAKER_00: And so now those owners are saying, well, maybe it's just time I sell it because I can't.
27:00
SPEAKER_00: And ironically, we we tested the market on a sale for a short period of time and we got more interest on the sale than we did on the lease because those people that were interested in it wanted to own it and occupy it for their business.
27:12
SPEAKER_01: Okay.
27:13
SPEAKER_00: Um, I just I, you know, back to your other question.
27:16
SPEAKER_00: I don't think the market is going to get worse as it relates to office.
27:19
SPEAKER_00: I think we've kind we're kind of at that worst period.
27:22
SPEAKER_00: I think hopefully in the next couple of years it'll start getting better.
27:25
SPEAKER_01: And obviously, what what could help is uh if the lenders come back to the office market.
27:32
SPEAKER_00: Yes, yes.
27:33
SPEAKER_00: If there's financing, if there's financing, then somebody will because if there's no financing, then you you really are limited to these buyers that have only cash.
27:43
SPEAKER_01: Yeah, I didn't realize that.
27:44
SPEAKER_01: Yeah, yeah.
27:46
SPEAKER_01: I'm over here complaining about oh, well, we have rent control and we have all these things.
27:49
SPEAKER_00: No financing is which is terrible too.
27:52
SPEAKER_00: I'm trying to evict a tenant in my building.
27:54
SPEAKER_00: Oh my god, what a nightmare of a process.
27:58
SPEAKER_00: It's making me like never want to own residential again.
28:02
SPEAKER_01: You know, Shiva, uh our business is um is up, and you know, we're very grateful for for the folks who put their trust and support in us.
28:11
SPEAKER_01: Yeah.
28:11
SPEAKER_01: But a lot of the reasons why our business is up is people are just fed up.
28:16
SPEAKER_00: Yeah.
28:17
SPEAKER_01: And they want out.
28:18
SPEAKER_01: It's not that it's the perfect time, it's it's it's none of that.
28:21
SPEAKER_01: It's yeah, they're worn down.
28:22
SPEAKER_01: They're they're just no one's looking after me.
28:25
SPEAKER_01: I'm I'm, you know, as a housing provider, I'm the enemy number one.
28:30
SPEAKER_01: I'm to blame for the housing problems.
28:32
SPEAKER_01: Like, and I'm like, really?
28:33
SPEAKER_01: You know, and which is the most shocking thing that we um make them be the villains, which which is not the case.
28:41
SPEAKER_01: They're the actual housing provider.
28:43
SPEAKER_00: Yeah.
28:43
SPEAKER_01: Anyhow, that's that's a different topic.
28:45
SPEAKER_01: Today's today's about office.
28:47
SPEAKER_01: Uh Sheba, I know that you gotta go.
28:49
SPEAKER_01: Um, two things.
28:51
SPEAKER_01: Someone wants to get a hold of you because they want to list a property.
28:53
SPEAKER_01: Yeah, absolutely.
28:54
SPEAKER_01: How can they get a hold of you?
28:56
SPEAKER_01: Someone wants to uh uh um get some office space.
29:00
SPEAKER_00: Yeah.
29:00
SPEAKER_01: What's how should they contact you?
29:02
SPEAKER_01: My cell phone, best number.
29:04
SPEAKER_01: You want to get leave your number here?
29:05
SPEAKER_00: Yeah, 562-400-5949.
29:08
SPEAKER_01: Perfect.
29:09
SPEAKER_01: And then I will leave you with the final word, whatever that might be.
29:13
SPEAKER_00: Okay.
29:13
SPEAKER_00: Me?
29:14
SPEAKER_01: Yes.
29:14
SPEAKER_00: Oh, leave, okay.
29:16
SPEAKER_00: Oh, goodness.
29:17
SPEAKER_00: Um, I think if it's your time to buy, buy.
29:20
SPEAKER_00: There is no right time in the market.
29:22
SPEAKER_00: Everyone, I and I was, you know, guilty.
29:24
SPEAKER_00: I was looking for a house for years and I just kept thinking, God, I am waiting for the right time.
29:28
SPEAKER_00: And finally I just did it.
29:30
SPEAKER_00: And I'm happy I did it.
29:31
SPEAKER_00: And I and I realize the markets are always going to be up and down.
29:35
SPEAKER_00: They're always changing.
29:37
SPEAKER_00: And just if it's your time, just make the move.
29:40
SPEAKER_00: Whether it's commercial real estate, residential real estate, whether you're looking to buy a home, if you've got the money saved, you've been looking for a while, you come across the right property, just make the move.
29:49
SPEAKER_00: The market will always shift.
29:51
SPEAKER_00: So don't follow the market or try to chase the market.
29:54
SPEAKER_00: Just do it when it's your time.
29:56
SPEAKER_01: Um, with that, if anyone's listening to this and believes what I believe is that this is the perfect time to buy office building, and you're not in my area, call me.
30:06
SPEAKER_01: Only because I I'm seeing an opportunity where everyone might be thinking, get the hell out of office.
30:12
SPEAKER_01: I'm almost thinking this is the time to get in, uh, depending on the size and where the property's at.
30:17
SPEAKER_01: Office is not.
30:18
SPEAKER_01: Well, listen, the values right now, I get it.
30:21
SPEAKER_01: It uh we could say office is dead, but office there there's gonna be there's there's gonna be demand for office.
30:29
SPEAKER_01: People are gonna go back to people who have already gone back to work.
30:32
SPEAKER_01: I never left the office, by the way.
30:34
SPEAKER_01: Yeah, and now I'm I'm glad that I own these two office condos here that I'm like, oh, this is great.
30:38
SPEAKER_01: There's gonna be demand if I ever want to lease them.
30:40
SPEAKER_01: But um, Sheba, thank you so much.
30:42
SPEAKER_01: We're gonna continue to have you back.
30:43
SPEAKER_01: Um you're you're an expert in what you do, whether it's retail, whether it's office, medical office.
30:52
SPEAKER_01: It's we always enjoy talking and learning from you.
30:54
SPEAKER_01: And you know, your boots on the ground, you're out there learning, you're you're a partner in the company, you're growing your company, and we respect everything you do.
31:00
SPEAKER_01: So thank you so much for your time.
31:01
SPEAKER_00: Thank you.