The Simple But Daunting Formula To Stave Off Office Building Defaults: Be More Creative

Warnings from large global banks, including Citigroup, J.P. Morgan Chase and Wells Fargo, that more than $40 billion in commercial real estate loans were coming due by the end of 2024 came as early as April this year.

But the current and potential defaults associated with just one commercial real estate sector (CRE) sector — office space — have the banks' largest share of attention.  As recent record vacancy rates and bank defaults in Los Angeles; San Francisco; the Washington, D.C. metro; Austin, Texas; New York; and Chicago have shown, the expectation that workers would return to the workplace soon has not occurred. 

The big question for office investors and owners is not just, "How do we get people back to work?" but, "What do we do when our lease is up, and should we move or renovate," according to a recent article in the Harvard Business Review (HBR). Most of these issues would be solved if companies could figure out how to fill their now-empty offices.  

HBR talked to the co-founder and managing principal of Hartford-based Amenta Emma Architects, Tony Amenta. Amenta is an ardent proponent of people coming back to the office. He discussed changing office design as one way to encourage that.  

"I think that employers seem to understand that it's not all about the space," he said. "I wish it were, for architects' sake, but technology plays a role, flexibility is huge and accommodating employees' needs is important. Maybe it's just a battle for which days to be in the office. Employers are spending a lot more energy and time on these things."

The companies that have had the most success bringing back employees have been tech-based companies like Microsoft Corp. and Twitter Inc. They believe it's nearly impossible to collaborate and create separately from home.  

Another of those creative tech companies is mobile games giant Playstudios Inc., which is trying to manage return-to-work incentives in offices around the world, including Tel Aviv, Israel; Belgrade, Serbia; and Vietnam, as well as San Francisco, Las Vegas and Portland, Oregon, in the U.S. Playstudios CEO Andrew Pascal, agreed that for a creative company like his, with between 850 and 900 employees, coming back to the office is imperative to its success. 

"It's a lot harder to collaborate on a Zoom call and although an effective and efficient way for people to communicate, it doesn't allow you to connect to the natural rhythm that you find when you're together in a room and in person," Pascal told Benzinga. "There's no substitute for people working together. If you spend time in our offices, you'd see that. Our Tel Aviv office is a cool old warehouse with an interior workspace designed with a lot of separate pods and the infrastructure needed to support particular teams." 

With offices abroad and in the U.S., one thing Pascal has battled in his company is the difference in his non-U.S. locations relating to employee willingness to return to work. 

The employee return rate has been "different by region," he said. "Internationally, 80% of our workforce has returned, but in the U.S., only 20% of our teams initially elected to come back to the office. Our approach was to do some things in the office, which created reasons for them to come back. We hosted workshops and employee events where it was viewed that the office was the place to come and leave fully stimulated, and they wanted more of that." 

But with the still-evolving post-pandemic attitudes of workers in the U.S., Pascal believes that the responsibility for getting employees off their home-based laptops and back to work lies in the hands of business leaders. 

"Fundamentally, if people at the end of a day at work feel they're better off having been there physically and are engaged more deeply and their work product was better or more elevated, the resistance to getting into a car and commuting is not as much a barrier," Pascal said. "It's up to us as leaders to create that kind of environment."  

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Photo of Playstudios employees supplied by Playstudios