Commercial Real Estate

Transcript

Emily Kelly
Partner, Real Estate

What is the current outlook for commercial real estate investment and development? (00:06)

It is uncertain at this moment in time. I think there is even less certainty now than there was six months ago, but everyone is excited for the next cycle and confident that we will see one soon. We are working with our clients to help them take advantage of opportunities and be poised to enter the market and ride the next wave while also being cognizant of the risks that still remain.

How are you helping clients navigate shifting market conditions? (00:36)

We help our clients respond to market conditions as a matter of course. Development is always an uncertain game. Right now, we are in a period with more challenges on the horizon, but we are always helping clients look toward the future and try to predict what flexibility they need in their deals, what the challenges will be so that they can bring those deals to completion and maximize their profits and expected returns.

How are companies rethinking office and lab leasing post-pandemic? (01:11)

Post-pandemic companies are looking for a lot more flexibility in leasing. We are looking for flexibility in giving back space for contractions. We are also seeing our landlord clients and both our tenant clients look for opportunities for improved amenity space to attract people back to the office. They are working with our clients to identify helpful provisions in their leases that give them the flexibility to maintain a hybrid work environment for their employees.

How are lease models changing? (0:1:47)

We are seeing a very active sublease market and even though there are challenges with office, the Class A really nice buildings in downtown Seattle that our clients own are still getting a lot of attention and seeing a lot of activity. We are not seeing new development of office that would create opportunities for new leases yet, but we are hopeful that as Seattle continues to thrive and with Amazon's return to the office five days a week, we are seeing a market improvement in downtown, and we are poised to help our clients take advantage of that new environment and provide office space for tenants as they continue to grow in this area.

How are landlords and tenants managing risk in long-term leases? (02:37)

One of the challenges that I see tenants face is to not truly understand the costs associated with a lease and their build-out of space. This is something that often comes back to bite them very quickly after lease signing, and they realize that they missed a pretty critical allocation of responsibility. Our landlord clients are much more familiar with their form. We help them develop it over many years. We learn from past experiences, and we are always honing and making it better and more precise for them to protect them.

On the tenant side, it is a lot more challenging to come in and fully understand the risks and costs associated with a lease. When we work with tenants, we really understand their concerns and help them understand this incredibly long document that has been developed over many years so that they can protect themselves and understand the costs associated with entering a new transaction.

How is AI affecting commercial real estate? (03:41)

AI is such a promising and exciting opportunity for many of our clients. We are seeing clients harness AI to improve efficiencies in construction scheduling and in permit issuance, and in managing their portfolios. There is a sense that there is a lot of untapped opportunity. We are educating ourselves so that we have a good understanding of the menu of options that are out there currently, and we are providing our clients with guidance about how they can improve efficiencies by taking advantage of these opportunities while also protecting against a lot of the unknowns that are associated with AI at this stage.

What challenges are clients facing right now? (04:29)

Right now, I am seeing a lot of clients face challenges with deals that they entered three years ago that they thought would be breaking ground right now and the current market is just not supporting that. We are working with clients and their counterparties to problem solve, see how we can get a longer runway for these deals to come together in pencil, and find ways to move things forward, in a time of uncertainty, in a way that equally shares the risk or fairly shares the risk between the parties, so that they can reach a mutually beneficial outcome.