Drawing on extensive experience navigating major shifts in the commercial real estate market, Melissa Copley reflects on her practice with McGuireWoods partner and host Phil Coover. Now vice chairman at Newmark in Chicago, where she represents large tenants of office space in major metropolitan areas, Melissa highlights the impact of today’s economic and geopolitical conditions. As tenants consider issues of economic uncertainty and occupancy, they tend to put off decision-making. “I always like to have my clients start early, especially now. It is a shrinking pool of good alternatives,” she says. Tune in for other insights, including why AI can’t replace strategic brain power, what happens when premier space goes vacant, and what strong tenants are looking for in amenities. Spoiler: It’s beyond just a fitness center. 

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Real Estate for Breakfast, where McGuireWoods partner, Phil Coover, brings you essential conversations with leaders in commercial real estate, translating complex industry challenges into actionable insights.

Good morning. This is Real Estate for Breakfast podcast. I'm your host, Phil Coover. I'm a partner at McGuireWoods in our Chicago office and our real estate group. Today we have Melissa Copley. She is the vice chairman in Newmark, Chicago office. Melissa, thanks for coming on the show.

Hey, thanks so much for having me, Phillip. I appreciate it.

Yeah, this is going to be a fun one. I'm excited for you to tell us about tenant representation, office, what's going on downtown Chicago and what's going on nationally. Tell us a little bit about yourself and Newmark and then we'll take it from there.

Okay. Well, this is my 37th year in the business. I've been doing this for a long time since 1988 after business school at Kellogg and venture capital and banking. And came into it right at the S&L crisis days and have lived through several economic alternative environments, shall we say, S&L crisis, dot com bust, great recession, COVID, certainly 9/11. And every time one of those happens, there's a big ripple effect in commercial real estate. So when you're doing transactions and representing big occupiers, it definitely impacts those activities and can derail transactions for sure. And it always helps to have a strategic approach, aligning with business to make sure that the solution fits like a glove and enhances the business, supports the business. And it's also a very detailed consensus building process with lots of documentation and analysis, and then having negotiations so by the time we're done, there's no question that it's a good transaction.

Thank you. Appreciate that. So you represent large tenants, you used the word occupiers, so people that are taking up lots of office space in major metropolitan areas. I imagine you don't venture too much into the tertiary areas. You're more metro, right?

Sometimes tertiary. So for example, when I worked with United Health Group for five years, I represented them in a build to suit transaction in Duluth, Minnesota. Also represented Baker & Hostetler twice in Columbus, Ohio. Just represented a small accounting firm in Skokie. But yes, tend to do larger downtown office transactions. I've also done some industrial transactions for my longtime client, GHX Corporation. I represented them in a sale of a real industrial property outside of Houston and helped them secure a lease for a locomotive repair facility. So I had some sprinkled in with long-term client relationships. But I do tend to focus on large corporate as well as law firms in particular. I have worked with several AmLaw 100 law firms across their portfolio, including globally.

Yeah. I mean, that's how you first came on my radar is you represent a lot of the law firms that are our competitors. And I was like, "Oh, we need Melissa to help us get some greater office space because she's doing such great things for other firms." But as such, you get to see all of the brand new buildings, all of the nice new office. Tell us a little bit about, I know you have a national practice and I want to talk about your geographic reach, but we're in Chicago, I love Chicago, tell us a little bit about what's going on with Chicago office for professional service companies.

Okay. So I would say just in general, as far as tenant representation, that tenants are tending to put off decision making as long as they can, take longer because of economic uncertainty as well as the occupancy issue. So sort of getting back to big economic trend, the fact that we have both sides of the business, both the landlord side and the tenant side, in a challenging situation, that being the capital markets, as well as the occupancy from the tenant's perspective, because of those two factors and economic conditions and geopolitical conditions being what they are, there has been a bit of a slower to make decisions. Across tenants, I would just say generally. And so when that happens, it's always good to start early. I always like to have my clients start early, especially now. It is a shrinking pool of good alternatives.

There's been this flight to quality across every market for at least 10 years, so even prior to the pandemic, and so there's a dearth of review space, there's a dearth of sort of super class A trophy space at the tops of buildings with no new product under construction at this point in the central loop. And I mean central west in this area. So with that said, if you're a tenant of a couple floors, you've got alternatives. If you're 300,000 feet, that's going to be much more limited right now.

Yeah. It's kind of counterintuitive because you'd think if you weren't in the business every day like you are, that, oh, office space must be easy to get office. The landlords must be fighting over all of the good high quality tenants after post COVID vacancies down. You must be able to just walk out the door and people be handing out free office everywhere and incentives. But tell us more about that, the flight to quality issue, because that's something a lot of people don't think about. It's just there's not a lot of office being built in the past few years, and so the prime tenants want the prime spaces.

Right. So interesting, during the Great Recession, 300 Northwest South, a specific example, was finished in 2009, and it started in 07 by Hines. And so that building was delivered really at the start of the recovery of the recession, but then it was quite some time before more buildings came to market. And these days, you're going to need pre-leasing of 50% or so, roughly speaking, plus costs have gone up supremely. I mean, the quoted rents for a new building are more than, let's call it, twice sort of the top tier net rents in the city. And that's because of inflation and COVID. And there's some supply chain pressure still, but not as much as there used to be, but there's still GCs qualifying pricing based on that, and tariffs. So tariffs do have an impact on materials depending on what's being selected. So all those things, price pressure and with the economy being what it is, people ready to step up to that type of pricing, plus the fact that there's not as many large, large tenants, super large tenants, as in 100,000 and up, or 500,000, there's just very, very few of that.

So because of that, it takes a lot of cobbling together a couple of tenants to get the pre-leasing in place to be able to build. So that means you're looking at what's available. And it's true that about half of the leases that were in place pre COVID have yet to roll. So there's still a lot of decisions to be made about how much space people are going to lease. And there has been a lot of space given back for larger tenants, but we've also seen some larger tenants have contracted too much and then they take some space on top of a contraction. And flexibility is really important in a case where the building is heavily leased, like very little available space. If you're signing a longer term lease to cover the costs upfront, then you're going to need flexibility going forward. And if the building is quite full, it's very hard to get that especially contiguous space. And landlords are pushing back on encumbrances like ROFOs, having tenants encumber space for future flexibility there because they're trying to lease it now.

Yeah, right.

If it's available, it'll get leased if it's prime.

Yeah. No, some of the law firms did scale back too much, contracted too much. I had a friend and she left working for the government and she joined a law firm and went through the process to talk about their in house requirements. And then she gets there on the first day and they're like, "Yeah, we don't have a desk or office for you, so you actually have to work from home." And she said, "Why did I just..."

Oh, that's not good. The lawyer?

Yeah. And she's like, "I just..."

Got to have an office.

"I left my government job so I could work here and then I got to work from home." I think they figured it out.

It's crucial.

You mentioned occupancy factor.

Right.

What does that mean? Because I got a couple of ideas on what it might mean, but I want to hear what you're thinking.

Well, so Castle, who has thousands of data points from buildings across this portfolio, tracks occupancy. So anybody can look up the Castle reports on a weekly basis to see how many days a week on average people are coming into the office. What is not particularly clear in that data, and I've spoken with them, I mean, they'll tell you this, that when it says 100% in 2020, what was 100%? Because if we're at 50 or 60% now on average, not every day, then what was that off of, the 100%? Because I tour space all over the country and it was never full before. And so, what is that? I mean, 60 to 70% is the consensus that it was 60 to 70% with people in the office in that capacity in their office or in their workstation prior to COVID. So if it was 60 to 70%, if that's 100%, that means 50 to 60% is half of that. So that's like 30 to 40%, let's just say.

As much as there's tenants that are mandating or recommending people come in, say, three days a week or requesting people come in three days a week, if somebody, especially in a law firm, is a revenue producer, they're going to be able to come and go as they need to, and it's not going to be something that's actually impressed upon them. So you're just not seeing five days a week by any means. And if you're lucky, three. So there's a handful... I would say there's about 10 firms on the AmLaw 100 list that have a four day a week expectation, but that doesn't mean they're getting it.

I would imagine that. Also, when law firms and other professional services are thinking long term about their office needs, are you hearing rumors of maybe AI trimming the amount of staff or professionals they might need?

Not really, but I would say everyone's using it already. We are, and we're not the only ones. So it doesn't replace the analytical, strategic brain power of a person who is interacting with a client, but it does provide some, perhaps, quick assessments of this, that, or the other thing or support in writing if people want that or summaries and things like that. But I would just say that frees up people to do more. I wouldn't say it means that there'll be less people doing it. I think that, especially in professional services where it's talent, that's what the companies and law firms are hiring. They're hiring the brain power and they're hiring the smartest people they can find. And I would also say that a dedicated seat environment is crucial.

As I wrote in one of my white papers some time ago, if you don't have that, if you don't have the place for the person to come in and collaborate and feel a sense of community and culture, then the loyalty or the glue kind of evaporates and they could go wherever for price, for money. And there has to be more than that to not only keep people, but for it to be a fulfilled employment experience.

Oh, I totally agree with that. Got to have people come in just so they feel part of the glue that keeps us together. I also, this is an aside, and we could do a whole podcast on AI, but we were talking at lunch last week because I think it creates a lot of work. Sure, it could help streamline, it can summarize things, it can write things, but when you're talking about negotiating a document, I've heard people say, "Well, won't the AIs just negotiate it for me?" It's like, "Well, we've had boilerplate contracts..."

I would say no to that.

"...for years." The issue is we got two parties, sometimes more, that are negotiating and just the AI is not going to negotiate with the other AI and just say, "Yeah, we're good. We'll split it and we'll just do market lease." You had people with thoughts. And actually you can kind of lazily get AI to do revisions to documents or summaries, but what you need is people narrowing issues and actually eliminating risks and deciding what risks they're willing to accept and not accept, and the AI just kind of throws everything out. You're just like, "Oh, now I have a 30 point issues list where really I need to start narrowing it down to the four things we care about to talk about."

I totally agree. I would just add that negotiations is a creative process, meaning you're opposite someone and you're finding the way through. And even now, I'm finding different ways to sort of skin the cat and find the solution that works for the other side as well. There's also the point of, you have to be able to articulate why it's okay to do something and give the other perspective. And this is on the fly. So it's this human interaction, body language, seeing how the person's reacting or hearing it in their voice, which you couldn't anticipate. It's not cut and dried. It's not like black and white in terms of just words on a page. There's a lot of storytelling. There's a lot of explaining. There's a lot of one side versus the other explaining why it's important to a particular client. And if you don't do that, then what? You just get to, either side says no, they're backed into a corner. That's the art of negotiations. That's a human thing.

Yeah. No, I'm with you. And I've heard a lot of people talk to AI, but we're users. We use it, we're proponents.

Yeah, I think it's great.

We're going to be doing great things, but it does not complete a dual party negotiated deal.

Totally.

So you need the human.

I'll give you one example how I used it this week. So have a lease in another city that I'm working on and the language is so overly complex. I can tell you exactly what those business terms are from my 40-page terms letter, but it came out so complex that it's hard to read, and that's because of the way the defined terms were written and so on. So I had AI give me a summary, and it's long, but it got it right. I mean, I know what the deal is, so I could check it. But when you have something like that where it could just put it in plain English, basically, that was helpful. I gave it to my client. I told them it's Newmark AI. I think it's important to, A, check it. You can't just take something off the shelf. It has to be checked, obviously, that that's true, and sometimes you find things missing or whatever, but it works.

I totally agree. I like that strategy too. When you get a document that's over 30, 50 pages, sometimes I just run it through just to, give me the one page overview of what it is that I'm reading and then I can dive in. Sometimes you don't want to create more things to read than the actual text, but a little roadmap.

I did have one of our AI specialists. I said, and I take my 40 page terms letter and my 150 page lease and get AI to tell me where the lease does not match up. That's a full-time two-day exercise for me. And it's not going to match it exactly, so I thought that would be a really interesting challenge for it, but I haven't done it yet.

Oh, I use that all the time, actually. I get a term sheet for a lease, contract, loan docs, and I feed it into Harvey AI is what we use and I feed it all in there. One of the first things I do is just, are there letter of intent terms in these documents? It'll give you...

I'm going to check that.

Two pages, it'll let you know, "This is where it strays from the letter of intent." I once had a client telling me it's just getting the term sheet in the document is just table stakes. The rest is...

Oh, but they're never in there.

You're right. It never happens.

It's never going to be over until somebody's ready to sign the lease. There's always something in the terms letter that is not in the lease until the end.

Yeah.

I mean, so yeah, no, it's first step and then getting everybody to behave. I honor it.

Yeah. So in the Chicago market or people see, I remember a few years ago hearing about the race to amenities, what's the most desirable thing a strong tenant is looking for?

Okay. Well, there's definitely... And because I work across markets, I've seen some variation on that, and depending on the market. Like for example, San Francisco had very few amenities in any of the buildings. When it was sub 5% vacancy, they had literally no amenities because it was all office space. And so now it's catch up. And of course we've had them for quite some time, so we're very familiar what they should be or could be. But I would say we're sort of at a new frontier with what's coming out these days, which is, it's not just a fitness center and it's certainly not in the lower level with no windows, it's more like a spa, and it's a really attractive place to be. Now, I have seen some of the newest ones where they're full. People are in them because they're appealing and they're attracting people who want to work out.

Also, I think a lot of people did work out at home during COVID, and it gives some people relief from that, a changed environment. But there's also other collaboration space. There's coworking that buildings sometimes offer for overflow space, which can be helpful if they have surges, if they're not having a one-to-one ratio on seating. But I would say that most do recognize they want to have a seat for everybody in some fashion on all days that people are in. But aside from a spot like Fitness Center and coworking, tenant lounges, if there's a place with food and beverage, meaning... So if you have a place where you can go get a drink at three o'clock with a colleague on your way out and it's very convenient and it's an upscale, nice environment, those are popular. And also having the ability to get coffee at a coffee bar type environment with a colleague or even on your way in, pick up some food, those kinds of things, food and beverage is always crucial.

And if the tenant lounge doesn't have that, they say you can bring it in for special events or whatever, it will sit empty. There will be no one there. That's like, okay, you got the envelope, but there's nothing in it. So people don't go. They need the food and beverage and then they will go. Otherwise, they'll go to somewhere else. They'll stay in their office or go to a restaurant.

Yeah, totally. No, it's too much work to go get the food and bring it back or order it in.

And I would say conference centers, high tech, lots of technology are good and important to have, although the AMLO 100 law firms are going to have their own, but there may be a big training facility or multipurpose room with a dividing wall that may come in handy for tenants who would reserve those. And those are appealing, especially for mid to small tenants that don't have that space.

And then what's happening with buildings that are extremely vacant? What's happening? So you probably focus more of your time, I guess, on the premier office. Just out of curiosity, what happens to these buildings and just becomes more vacant, more outdated?

I mean, if there's a mortgage expiring and then the building goes into deed in lieu of foreclosure or into foreclosure and there's no money to do transactions, meaning capital for tenant improvements, the tenants are going to leave, and then you have a sinking ship. And when it starts to happen and people see others leaving, it becomes really empty. And I got a case like that in another city where the landlord was supposedly committed to the complex all along. This was saying they're all along committed to long-term hold. If it takes 12 years like it did their other asset, they're going to put money in, they're going to lease it, it's going to happen. But instead, they started looking at buyers to sell it. And then it was, oh, maybe they would convert it. Oh, that's not easy to convert it, especially with some tenants in there. So people are sort of looking for the answers, but it's not obvious. It's very expensive to convert to residential if the floor plate's too big.

Also, operable windows, are you going to have that? It's required in some cities. Plus the other thing is plumbing. An apartment and hotel requires a lot of plumbing that office doesn't have. So these are real issues, not to mention the cost. So unless there's sort of government support or some sort of benefit tax or something, it becomes sort of economically unfeasible. So what happens eventually is the building will trade at a rock bottom price. But I once said to a mezlender, it seems to me this is the time when fortunes are made, generational wealth. If you can pick up a building for less than $50 a foot that costs hundreds of dollars to build. And he said to me, "What if it never comes back?" So I don't think we've ever had that before, and that's because of two sides at once. And this flight to quality and there's really two tiers of... As the head of our global research just said this morning to me, he said, we were on a call with the Federal Reserve Bank of Chicago.

His point was you have to look at each asset. Meaning even if it's a class B, it may have a great tenant roster of local tenants who aren't going anywhere and the pricing is where they need to be. So that building may be fine. It's not like every class B is in trouble, and it's not like every class A is fine either. And I would say there's kind of like two tier class As. There's the super trophy, but then there's the ones where everyone wants to be. But then there's this sort of 30 year old class A where they don't want to be there for a number of reasons, including they may not have floor to ceiling glass because in the early 90s, it wasn't like that. They tried to build them to look like they were sort of conservative or I would say not as contemporary as what's being built today, more traditional, granite outside and so on, and that means less windows, less window space.

I was going to ask you what you thought of some of these... We are starting to see some of these buildings trade at, there's the one with the diamond shaped top building on like 150 North Michigan, I think it is, and you're starting to see some of these deals, and I forget what the numbers are.

The Economic Club just announced they're going there, the headquarters.

Oh, nice.

Yeah.

Nice. That's great. We had former guests of the podcast was part of the group that picked that up, but you started to see them buy it for 25 cents to the dollar, 30 cents, 40 cents of dollar of what these things traded for five, 10 years ago. Do you think that's... This goes to what you were just discussing, but is that a deal or is that going to be a long kind of gamble to bring back to life?

Well, so depends on the philosophy of then the buyer because if they are just going to try to clear it at whatever price it'll lease for because they can, because they bought it at this low, low price, that's one thing, but it doesn't do as much for the image of that building or the city. But there's other cases like Onni who's out of Canada who just renovated The Bell at 225 West Randolph, created three floors of amenities, completely replaced and gut renovation of all the systems, the windows, everything, and it leased up pretty quickly. It's not full, but almost. I think it's 85% ish.

Yeah, that's great.

And they just bought 161 North Clark, which is right opposite what Google's doing at the Thompson Center with Reschke. So that type of buyer who's a developer is going to change it and infuse it with capital and it basically becomes the next hottest thing. And that's what happened back in the late 90s after the SNL crisis. Well, the first thing that happened was the smaller buildings got built in the West Loop, 525 West Van Buren and 550 West Washington. Those smaller buildings got built first, couple hundred thousand feet, 400,000 feet. There's also this opportunity to renovate like the Boeing building or 161 North Clark, which does have tenants in it. And so those opportunities can be, let's just say, not as hard to do because the rents are in the living. They're not $80 a foot net, there's 30s or 40s. And so as a result, it becomes the next best thing to lease.

Yeah. Especially with a good, desirable location

Exactly.

And for your workers.

A location is key. That's one of the things. It's got to be really accessible with people for them to come in. That's one of the key things, that it's well located.

That's why I refuse to work on the east side of the Loop anymore because I used to work in Prudential Plaza and I can't walk across that loop every day, twice a day.

Yeah. Some people like it, but most would want to be close.

Yeah. And there are trains that go that way if you happen to live like Diana or something.

Or live in the city and drive.

Right.

But that's not everybody.

Well, let's talk about geography. As people, a lot of people, I think this used to be a little bit like this in law too for real estate especially, but I think years ago, a lot of people with, and even today, there's a sentiment of you hire a real estate broker that's local because they know the market the best, but you've made a decision intentionally to have licenses in many states and to really have your practice be national, international, which I think as you want to go upmarket, there's always so many upmarket deals in one geographic location. So you must have made an intentional decision along the way to make your practice national and international.

So with me, it really started with venture capital. I was working for the person whose money we were investing at this venture capital company, and I ran all the numbers and it was all about acquiring companies, but then also helping them run more efficiently. And I did all kinds of things besides the financial analysis. I did cost analysis, I did shipping contract negotiations, just a wide array of things. So I was very business focused and financial statements focused because of that work. And then I was recruited by LaSalle Partners to interview with three different groups, capital markets, tenant rep and land. I had 22 hour long interviews and I was convinced by Jerry Rose, who founded tenant rep at LaSalle, that that was the place for me because it wasn't a natural, "Ooh, I'm going to finish at number one Kellogg Business School and go be a broker."

No, I was going into a strategic approach to real estate to help companies and occupiers align real estate across their portfolio strategically for that business, which would have a very big impact on the financials because after people, unless it's manufacturing, it's going to be the number one cost. So I like that impact. I like transactions. I like negotiating the strategic aspect. And by the way, it was a salary bonus approach to tenant rep, not commission-based. So we all were very aligned with the clients, the strategy and doing things that best supported the business. And it was a natural alignment to focus on the portfolio, starting with interviews at the C-suite level, documenting... I did strategic planning for United Health Group across all their businesses and interviewed all the way up to Steve Hemsley, the president at the time, head of IT, head of all the businesses, and helped them create a strategy that worked for the separate businesses as well as together if they were consolidating in any markets.

And so that approach, the strategic approach, is what grabbed me, especially because I could execute because I love that part. It's not just... So if you're just advising, you You're not delivering the goods. If you do both, you're actually showing them what could be and then getting it done, which I find very exciting that you can point to the results that you've achieved, that they wanted. It all starts with them. So that's how I got to... And I'm aggressive when it comes to negotiations. I'm very detailed and I push for my clients because I know what they need and I know what we can get. Also, the cross market thing, and we've talked about this, is very beneficial. You bring one thing, one good practice and you're bringing it to another market and they're like, "We've never seen that before." And you're like, "Yeah, but it works. Here's why. And it's better for you too." That sort of thing. And so the cross market thing is great. It's very beneficial for the client. And they're the ones who are going to be the ones to say they want you to do it, negotiate.

They're the ones who want your analysis, your advisory, your strategy that supports them because we know them best, and then get those things done. So for one client in Paris, for example, they needed more space and was negotiating to expand. And we were open to an extension at the same time, but the landlord was giving us an above market rate because it was sometime in advance. So I recommended to the client that they not extend the lease, just do the expansion. And then when we went back for the renewal and went to market, we got a much better economic deal as well as a ton of flexibility and identity and all kinds of other stuff. So you have to be able to know when you advise not to do something as much as to do something.

You said something in there that you caught me smiling part of the way through that really resonated with me is one thing that I always joke about with my wife and others is consultants. You hire consultants just to come in and they're like, "Increase revenues and reduce costs," But then they don't go do the work. And it's like, I find the joy, and you do too, that you're afraid is delivering the goods. It's pretty easy to do the back office or the White Castle legal work where you're like, "I'll mark up a document, tell the client what they should do." The fun is like, you make that hard recommendation and they're like, "Oh, now I need to go actually do it. I have to actually call the other lawyer. I have to make that deal happen. I have to get it." That's the satisfying part.

Yeah, absolutely.

Actually follow through on the advice.

And I love it when, because I've done this for clients where we'll do generic alternatives analysis on an idea that we're looking at with them, and we run the numbers and we're going to be conservative, we don't want to over promise. And then we go to market and we blow that away because the leverage you create in the market is something you can't necessarily anticipate how far people will go, landlords will go to get that tenant. So that part's really exciting.

Yeah, it's really fun. So when markets are doing really well or unexpectedly well, and I'm going to kind of shade this a little bit because I just want to hear about San Francisco a little bit. I'm interested because it takes a beating in the news, Chicago takes a beating in the news, and then I walk downtown Chicago and I'm like, "This place is beautiful. It is the best it's looked in decades."

I love Chicago. I think it's one of the, if not the most beautiful city, and I've been to so many. The water, the river, the lake, all that and just the natural beauty of it mixed in with the great architecture that we have across history, not just the newest stuff, but also the newest stuff, is really unmatched. I don't care where else you look. Plus we have nature, grass, trees, parks and so on. You can live in the city and you don't have to have a three hour commute round trip. But I just done the cities. I mean, New York has landed us some very huge tenants. Deloitte just signed 850,000 feet to go to Related's newest building that's not yet built in Hudson Yards. And I've toured Hudson Yards. I've been in there. I've met with Related, I've seen their plan and everything. There's challenges with one track in, one way in, to, you have to essentially take another train to get there if you come in as a commuter.

But also what's not as much written about is what gets left behind. So this big tenant moves and we had a client, I won't name it, but big law firm that... Huge. Went from one to the other. And that's a big lease, but they just put a giant hole in the other one. And those buildings were built in the 60s, so work has to get done. And my niece lives in New York. I would just say that whether or not people are going into the office, they might be if they have small apartments or whatever, or they may prefer not to go in. Depends on the industry, of course, and the person. And I've heard some cases where young people are only in a couple days a week because they don't have room for them. So it's a bit of a mix messaging, but there seems to be a lot of activity there.

And as far as San Francisco goes, San Francisco and Houston were the two sort of weakest markets after COVID, and I happened to be in both of them. And the thing about San Francisco is that the big companies like Amazon and Salesforce took up extra buildings. So when the markets were sub 5% vacancy, they were essentially grabbing for the future. But then when COVID hit and people stopped coming in, they put those buildings back to market. And AI has been a boom, but not to the same degree. Although if you talk to people in that market, they would say it's sort of a land grab for that type of space, but they're not necessarily taking as much space and they're being more conservative in how much space they take. Probably PE companies and the private equity companies who are investing in them, they're being much more conservative on space take up than what we had seen in the past where these big companies were buying buildings or leasing entire buildings just to have them in their back pocket.

So it wasn't the same amount of lease up, and so it's still very much a mix of buildings in that market. And I would say just a huge range of pricing. I mean, it's incredible what we're seeing. There may be an $80 spread on rents in that market.

Yeah.

That's what we're seeing. And it's also not always about how new the building is in San Francisco, it's always about the views. So that part is different from other cities like Chicago where the vintage counts, like how new is it? What it's like, all glass, and location is key. We were talking about that a little bit before. That commute, that walk to the trains or how you get there needs to be short, needs to be as good as possible for people, and it's got to have that appeal. It really makes a difference, people wanting to go in. Oh, it does.

Yeah.

So we're excited. We're moving to Salesforce Tower in May and everybody's excited about it, and we're going to see the river in both directions on the lake, and it's thrilling. Plus it does enhance culture when people come in, assuming they like each other.

Yeah.

And luckily we have that at Newmark. We've got a lot of good sort of mojo going in that direction.

Yeah. Yeah. They have that nice outdoor space right along the river too in that building that they took the time to invest in. And they have walkways and it's really quite...

You can come over when I'm over there and we'll have a coffee.

That sounds good. So what do you think? Office, it's here to stay?

Oh, I do. Look, I come in five days a week. I like being in my office and I like it when there's people around and it's the place where work gets done. I'm not saying you can't get done work elsewhere, of course I was working on my computer late last night on something, but the best place for me to be with people as well as have that space to focus 100% at work is at the office. And I think that the leaders of the companies and the law firms recognize that, and want people to come back. The Zoom training or Zoom conferencing is not going to go away. And there's a lot of benefits for that, that being you can negotiate with somebody across the ocean and see their face. That's crucial.

Really cool.

It's great. But that visit, that in person visit and just the daily experience is really enhanced by human connection.

It totally is. I think that's a great way to end this. So Melissa, thank you very much for coming on the show. Appreciate it.

Thanks so much for having me, Phillip. I really enjoyed it.

Thank you for joining us on this episode of Real Estate for Breakfast. To learn more about today's discussion, please email host Phil Coover at pcoover@mcguirewoods.com. We look forward to hearing from you. This series was recorded and is being made available by McGuireWoods for informational purposes only. By accessing this series, you acknowledge that McGuireWoods makes no warranty, guarantee, or representation as to the accuracy or sufficiency of the information featured in this installment. The views, information, or opinions expressed are solely those of the individuals involved and do not necessarily reflect those of McGuire Woods. This series should not be used as a substitute for competent legal advice from a licensed professional attorney in your state and should not be construed as an offer to make or consider any investment or course of action.