The COVID-19 pandemic brought many changes to society, one of which is the increasing popularity of remote work. Although the pandemic is largely in the rear-view mirror, many workers continue to enjoy the flexibility of working from home.
Real estate mogul Sam Zell is not a fan of this trend.
“All of this discussion about work from home is basically a bunch of bullshit,” he said at the 27th Annual REIT Symposium hosted by the New York University’s Schack Institute of Real Estate.
The problem has to do with people’s productivity when they are not in the office.
“One of the biggest lies in the world is that people working from home are more productive than people working in the office,” Zell said. “You have much less productivity if you’re working from home in your pajamas with three little kids running around than if you’re in an office.”
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Time To Head Back To The Office?
While technology enables people to communicate and collaborate from virtually anywhere in the world, Zell believes there is still value in being in the same room.
“There’s an enormous difference between a Zoom board meeting and a meeting in person,” he said. “A Zoom board meeting is a board meeting where everyone sits and listens to recitations. An in-person meeting is where the real discussion takes place.”
If you are worried about job security — layoffs have been happening a lot these days — you might want to spend more time in the cubicle.
“We’re all reading about layoffs in the newspapers. It will be interesting to see what percentage of those who lost their jobs worked from home and what percentage of them are people who came into the office,” Zell said.
Making Billions In Commercial Real Estate
Zell founded Equity Group Investments in 1968 and made billions in real estate. Notably, he sold Equity Office Properties Trust to Blackstone in 2007 for $39 billion.
The work-from-home trend has impacted occupancy at many office buildings. But if more employers share Zell’s view and bring their employees back on site, office properties could see better days ahead.
For investors looking to gain exposure to the segment, here are two real estate investment trusts (REITs) that Wall Street finds particularly attractive.
Boston Properties Inc. BXP: Boston Properties has a portfolio of office buildings concentrated in Boston, Los Angeles, New York, San Francisco, Seattle and Washington, D.C., totaling 54.5 million square feet. They are 91% leased with a weighted average lease term of 7.6 years. Evercore ISI analyst Steve Sakwa has an Outperform rating on Bosto Properties and a price target of $66, implying a potential upside of 24%.
Alexandria Real Estate Equities Inc. ARE: Alexandria Real Estate Equities is a pioneer in the life science real estate niche. The company owns, operates and develops life science, agtech and advanced technology campuses in innovation cluster locations, including greater Boston, the San Francisco Bay Area, New York City, San Diego, Seattle and the Maryland and Research Triangle. The REIT’s operating properties in North America have an occupancy rate of 93.6%. Mizuho analyst Vikram Malhotra has a Buy rating on Alexandria and a price target of $145, around 17% above the current levels.
If you want to invest in real estate but don’t share Zell’s view on remote work, remember that there are other types of income-generating properties aside from office buildings. And you don’t have to risk too much to get in the game. With crowdfunding platforms, it’s easy for retail investors to buy shares of more resilient real estate assets such as multifamily properties or farmland.
Photo credit: "Sam Zell Shares The Secrets To His Success" via The Ross School of Business - University of Michigan on YouTube.
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