Call Me Back - with Dan Senor - Blackstone’s Jonathan Pollack on Real-Estate Post Corona

Episode Date: June 11, 2021

Many have been surprised that areas of the real estate market are booming, Post Corona. So what do we know about the pandemic’s impact on an exodus from some cities, and the growth of other cities? One of the ways that I have learned on this limited series podcast is from our top flight guests, but also from our listeners. A business practitioner - an operator or investor - will hear one of our experts on the pod and get a hold of me with an alternative analysis; it’s like I get to crowdsource ideas from our listeners. Well today, we’re bringing one of those subscribers on the show. Jonathan Pollack is a Senior Managing Director at the Blackstone Group and Blackshone’s Global Head of the Real Estate Debt Strategies group. Blackstone is one of the largest owners of real estate in the world. Jon, who is based in New York, manages a large team, overseeing Blackstone’s real estate debt investment strategy. He’s also a member of the firm’s real estate investment committee, and serves on the board of Blackstone Mortgage Trust. Prior to joining Blackstone, he was a Managing Director and Global Head of Commercial Real Estate, as well as Head of Risk for Structured Finance, at Deutsche Bank. To call Jonathan Pollack a “New York Bull” may be overstating it, but let’s just say he’s a skeptic of some of the skeptics we have featured on Post Corona. So is real estate in New York and other big cities coming back? And what does it tell us about the future of cities? Or - did the Pandemic set them back in ways that will take too long to recover from?

There are entrenched interests, well-intentioned people and industries that really want to get the people back and get their industries reopened. And they're working hard and they have financial resources and they have talented people and they have fans. And they have a lot of tourists like waiting at the gates to come in and participate and be here. And I think not enough has changed for that course of daily life in New York City to be that disrupted. Welcome to Post-Corona, where we try to understand COVID-19's lasting impact on the economy, culture, and geopolitics. I'm Dan Senor. Many have been surprised that areas of the real estate market are booming post-corona. So what do we know about the pandemic's impact on an exodus from some cities and the growth of other cities? Cities that investors and the business press may not have been paying attention

to until the snow globe was shaken up this past year, and we now begin to see where everyone is landing. One of the ways that I have learned on this limited series podcast, Post-Corona, is from our top flight guests, but also from our listeners. A business practitioner, say an operator or an investor, will hear one of our experts on the pod and say, no, no, no, no, your guest has it all wrong. And then that listener will get a hold of me. It's like I get to crowdsource ideas from our listeners. Well, today we're bringing onto the show one of those subscribers.

Jonathan Pollack is a senior managing director at the Blackstone Group and Blackstone's head of the Real Estate Debt Strategies Group. Blackstone is one of the largest owners of real estate in the world. John, who's based in New York, manages a large team overseeing Blackstone's real estate debt investment strategy. He's also a member of the firm's Real Estate Investment Committee and serves on the board of Blackstone Mortgage Trust. Prior to joining Blackstone, John was a managing director and global head of commercial real estate, as well as head of risk for structured finance at Deutsche Bank. Full disclosure, John and I are old pals. We coached baseball together, little league that is.

And to call him a New York Bull may be overstating it, but let's just say he's a skeptic of some of the skeptics we have featured on the Post-Corona Podcast. So is real estate in New York and other big cities coming back? And what does it tell us about the future of cities? Or did the pandemic set them back in ways that will take way too long to recover from? This is Post-Corona. And I'm pleased to welcome my friend Jonathan Pollack from Blackstone to this conversation. Hey, Dan. How are you, John?

I'm great. It's great to be talking with you. Well, welcome to Post-Corona. By the way, I normally... Long-time listener. First-time contributor. Long-time listener. Long-time fan. Longer than coronavirus fan.

I will say, not only are you a first fan, but you're, let's be honest, you're sort of a first critic. Like, you were one of the first fans to call me and say, you know what, I gotta give you some feedback. You're getting some stuff wrong. So you're actually, like, the best kind of fan because you are, you don't hold back. Which means I know you're a detailed listener. Yeah, I was a little bit more optimistic about the state of the world. But some of this stuff is starting to happen already, so I'm going to look a little less smart at this point in the calendar than I did a few months ago. All right.

No, no, no. We'll give our listeners a report card. So to set this up, what Jonathan's referring to is several months ago, he called me and said, I loved your Subways episode. I thought your episode on this state of crime, trans-corona and post-corona is really interesting and compelling. But if I hear one trend in all these conversations, it's a little dark. You're a little too doom and gloom. And he painted a picture, you painted a picture of how things could actually turn around

post-corona much more quickly and with a lot of excitement and electricity than we were conveying on the podcast. So I said, let's have a conversation about it on one of these episodes. And you said, game on. So we are going to have that conversation through the context of your world and expertise, which is real estate investing, and also what you're seeing in terms of the turnaround and revitalization of cities through these real estate trends. Now, you have said, as I said, that too many of my guests are negative. And you told me that part of the problem with all the negativity is that, like The Matrix, great popular culture reference, like The Matrix, a whole new reality dropped in

front of our eyes overnight last March, March of 2020. And it just, it was like binary. It was like we were living one existence and then we, you know, the governments around the world told the entire economy, the global economy to just shut down and it just shut down overnight. And then we were, woke up the next morning living another reality. And I think what you're saying is, I think what you were saying is, once we flipped at another reality, it's impossible to imagine that, like what going back looks like. So what did you mean by that? Yeah, it's hard. I mean, listen, I still hear this from my friends who haven't ventured into the city yet and tried to go back into their offices. You know, they ask me questions like, and I'm sure a lot of people still wonder this, what's

it like to go into an office building lobby? But my own experience with it was when we first started coming back into the office, you know, very carefully, lots of testing, lots of PPE, really over the summer, but more fulsomely last September, I had this realization. It's really where that matrix concept hit me that once I was back in my seat at my desk and doing my job the way I had always done it, I almost couldn't remember what it was like to be sitting at my kitchen table, trying to do my job from there. Um, and you know, I work in a very interactive environment, collaboration, and, um, you know, the velocity of ideas and just seeing each other every day, the socialization of that is very important to what we do. So it's been a great experience. But more importantly, I was

feeling the absence of that when I was home. And I really so profoundly felt the importance of that when I was here. And it was such a strong experience that I, like I said, I couldn't, almost couldn't remember what work from home felt like. And my thesis, which I'm starting to see play out in lots of different components of society is that once you go back to doing the things that were once normal, they just immediately start to feel normal again. And you see it in travel. I was in Detroit and Chicago last week. I have a junior in high school. We were actually trying to see some colleges and the air force guys are already starting that that's terrifying i it's for our listeners i know i know johnson's kids so that's just jarring to me that he's for a long time i mean we know them through little

league baseball when they're five years old so um i mean the airports were mobbed mobbed i mean detroit airport o'hara it felt like a Tuesday in 2019. Was everyone wearing masks? Most people were wearing masks, yeah. I mean, I think probably everybody was wearing masks, especially because you have to wear them on the planes. So I'm sure people were just wearing them anyway. And you can feel it in the traffic that's picking up in these cities. So, yeah, I think as life becomes more available. Listen, the other thing is, and this is a trend.

We can talk about how this trend translates into real estate. But one of the trends in the world that we had been following for a number of years, and you saw it play through during the stay-at-home orders, is a lot of consumption has shifted to experiences. So let's talk about that. And there's so much pent-up demand to do things, to travel. So tell me what you define as experiences. So in the old world, I would say traveling. Travel. Lots of people just take weekend trips now and go hiking places, exploring places.

Live entertainment, theater, sports. Sports, all of that stuff, right? Getting out of the house and doing things. And then you also included experience exercise exercise so wait now convert that into the in-home life during the stay-at-home orders the uh quarantine and where did you see people spending money record sales of pelotons record subscription levels to streaming services um bitcoin speculation things that are entertaining.

You know, I mean, not to say that a lot of that Bitcoin investment isn't more than just speculation, but there's a lot of fun and interest in these things. And that's where a lot of the time and energy was spent and money. And I think that there is just this significant pentup demand to get out and experience the world again go to shows and if you think about new york city which is really where i i picked at your guests um negativity i don't want to paint too broad of a brush but definitely the tone of the first few episodes were will new york don't worry i'm gonna get my guests those guests back on and have them respond to jonathan pollack so this is gonna So this is going to be like a ping pong.

Don't worry, Nicole Gelinas and Raihan Salam, they're coming back to pop back at Pollack. And then a year from now, we can do an in-person pod where we all talk about what it's like now. But, you know, you have, so now you have, New York is one of the greatest tourist destinations in the world. You have 15 months or so where nobody has come here as a tourist. And so that's a massive amount of pent up demand. And then you also have everyone who lives around here, who uses the city almost like tourists that are going to be major consumers of tourism, tourist activities, you know, museums, by the way, by one piece of advice for the New Yorkers listening to this podcast, go to the museums now before the tourists come back. It's a wonderful experience. You can stand in front of your favorite Van Gogh for as long as

you like. And you make an appointment. So like you, you're, you have like a slot at a number of these museums. So you, you really like the, the, you have the place yourself. And when you say people from around here, you mean like including the tri-state area, right? The whole tri-state area. Yeah. Yeah. So I just got back from Israel, and I was struck by that. In Israel, I had assumed the tourism industry had been decimated because of COVID. And tourism, as you can imagine, Israel is a big part of the economy. And what I was struck by there is you had this strange combination of Israelis not really

being able to travel outside of the country, but they have this wanderlust. I mean, culturally, they have this wanderlust. They always are on the move. They always want to be traveling. And so you try to go to any restaurant. So I was in Israel when there were virtually no foreigners in Israel. They weren't allowing, they were not allowing non-Israelis in. So you try to go to a restaurant and you'd need a reservation a month in advance. You try to go to a hotel, the hotels are booked, which means Israelis, I spoke to Israeli friends, they're like, oh yeah, like a friend of mine in Tel Aviv says, oh yeah, I took my kids to Nazareth. It's an hour and a half away. My kids go to New York. They've been to New York five times, but they've never been to Nazareth, which is an hour and a half drive. So they were suddenly

exploring all these places that were in their, literally in their neighborhood. And so it was a huge infusion of revenue to the tourism industry. It was just locally generated. And I think what you're saying is we're going to start to see the same thing here. Well, I think on two fronts, right? So first of all, domestic travel is already rebounding everywhere in the way that you're describing. We've made investments in UK leisure recently because it's, you know, the people are trapped kind of closer to home and it's easier to travel locally. And drive to destination hotels have performed incredibly well recently because it's just been

easier, you know, even really over the past six months. But also, you know, in New York specifically, everyone has their favorite restaurants. A lot of people haven't been to them in a long time um there are a lot of restaurants that have closed the new ones that open are going to be exciting and generate a lot of traffic when broadway reopens in the fall it's going to be you know i i would guess it's probably going to be very difficult to get a ticket um so i just think it's it's it's hospitality it's travel locally getting in cars getting in rvs going places going to the hotel three hours away from you, but also coming into the cities that you haven't been to in a long time that you live near and having those experiences that you used to love or experiencing the new cities that you move to if you move somewhere else. By the way, the cities, yes, they've gone through a pretty significant struggle in the past year. But if someone moved to the suburbs, it doesn't mean they left the city economically.

They might not live in an apartment anymore. But they're still there, right? And as these cities reopen, those same people— Meaning they're still part of the larger ecosystem. The larger ecosystem. So as the suburbs get a little bigger, that's okay. It's fine for the downtowners. They're going to be busy anyway.

You said that you were coming into the office during the lockdowns and when you were in the office, there were some people around. So you realized how much you missed that collaboration, that in-person experience. And therefore, the transition to normalcy for you would probably be both smooth and probably more expedited than for most on the one hand. On the other hand, I know plenty of people who say, you know, work from home. While I won't work from home full-time forever, what it has shown me is it's availed me of these technology tools that I didn't know I had, or I didn't feel were secure or didn't feel were safe or cost efficient or whatever. And I suddenly got really comfortable with them really quickly.

And my work-life balance has actually improved. I hear this a lot from people who say, you know what? I can do my job and I can be home when my kids come home from school. I can do my job and help my kids with homework and not feel disconnected. And my productivity at work has not gone down. There's been study after study after study, particularly the big investment banks that show that work productivity has not gone down during the lockdowns. And so there's a lot of people saying, I don't, I may not want to work from home full time. I may not want to work from home full time. I don't want to work from work full time.

I'm going to do some kind of hybrid. And that's a reality, to come back to your matrix example, that's a reality that they wouldn't have known but for this last year plus. They now know it. And if a huge part of the professional labor force is only coming into the office two or three days a week rather than five days a week, that's a big change at a macro level. It is. And there's a lot in what you just said, so let's unpack a little bit. First of all, it's definitely not a one-size-fits-all situation, right?

It's down to the individual, as you said. It's down to the corporation, as you said. And in a lot of cases, it's going to be down to whole industries. And industries, I think, will wind up moving within the industry in somewhat lockstep because the competition for talent is going to rely to some degree on what kinds of decisions you make as a company. So each industry will normalize around certain new realities of the combination of using technology and work from home in a hybrid

situation. The work-life balance thing I can completely relate to, kind of in two different directions. I mean, for me, having different phases of the day, going to the office and looking forward to coming home at night has been a positive experience relative to never being able to leave my computer because I'm always there because I wake up in the morning, go do that. And then, you know, turn off my computer, go to bed at night because I'm always in the same place. So, but again, people have different opinions about that. They get different things out of that experience, depending on what they do, what the pace of their day is like, what their industry is like, you know, where this intersects

with Zoom again is business travel, obviously slowed to close to nothing and not traveling, not having dinners to go to, you know, made my workday a bit more productive. But I think it also limited the amount of interpersonal reactions that I could have. Again, something that's important to me and the work that I do. So I'm looking forward to a bit more of that. Zoom was a good substitute for some of that business travel, but there's really not much substituted for a lot of the interpersonal in-person interactions. I think the bigger thing you're driving at there is really how are we going to use office space going forward? And that's really going to be case by case and market by market. We talked a little bit already about how the COVID period has been an accelerator of trends. And one of the big trends that has accelerated here is the movement of

people around the country, driven a lot by technology jobs, driven by certain preferences, driven by politics, driven by weather in some cases. And, you know, this big one-off opportunity to move that people had while they were working from home, I think will have some lasting impact on the shape of where people live. And so office is very much a case by case and almost the hardest of all the real estate asset classes to call coming out of this. You know, in innovation centers like the Bay Area and Seattle, I still think there's going to be tremendous demand for space. Those companies continue to grow really, really fast. And even though they're opening new offices and new

locations and hiring people in those places, they're still growing very much and very quickly in the home offices. The content boom that's happened because of the quarantine was an acceleration of a content boom that was already happening. And Los Angeles has been packed. Office space is hard to come by. Studio space, really hard to come by. And I don't think that's a trend that's going to change as a result of this, even though Los Angeles is another city that's gotten some negative headlines through this period of time. So it is really it's case by case. It's city by city, those tech jobs moving to,

you know, the newer hot cities like Nashville and Austin and Atlanta, you know, some cities in North Carolina, those jobs are real, they're going to be there. And that's going to have an impact on the population and the economic activity in those cities, for sure. Let's talk about some of those cities, because I'm curious what you're seeing at Blackstone. So I just read a study that Steve Case put out. Here it is. All right, Steve Case, who's been investing

over the last few years through his venture fund in the sort of less, what we call less like prime, you know, investing in economic clusters in markets that we wouldn't consider prime cities. And he, let me just pull this up. Okay, so he is seeing, so he produced this study, analysis comparing metro areas inflow-outflow ratio based on LinkedIn users' profile. Okay, so this is a LinkedIn study that he was citing. Metros with the largest gains, Jacksonville, Florida, Hartford,

Connecticut, Salt Lake City, Utah, Miami, Florida, Cleveland, Ohio, Colorado Springs, Colorado, Tampa Bay, Florida, Austin, Texas, Richmond, Virginia, Kansas City, Missouri. So I was surprised by a lot of these places. Let's just pick one. Cleveland. All right. Cleveland, Ohio. I love Cleveland, by the way. I've got roots ties in Cleveland. So 11%, 11.5% gain based on professionals who are LinkedIn relocating there.

By the way, the cities where the outflows are are the ones you predicted. San Francisco, New York, Seattle, Portland, Los Angeles, Chicago. So are these cities the ones that the Jacksonvilles, the Salt Lakes, the Clevelands, are they on your radar? Like, are you at Blackstone? Are you looking, you're looking nationally at the different markets? Are you seeing these, what we would normally call kind of mid-tier cities popping this way?

So we definitely follow the data. I mean, that is real estate, if I leave your listeners with nothing else, is a very simple supply and demand business, right? These boxes are fixed, there's development, cities grow, but they grow in response to movement of people. And so population trends are very important to follow. Blackstone has really built out its data science efforts over the years and also is one of the largest owners of real estate in the world, we have tremendous access to data just from the assets that we own. We own close to 100,000 apartment units around the US. And that's just a lot of leasing activity. So we can really spot trends through that as well. But we also do things like scrape LinkedIn data

and job postings. And so we're always looking for those growing markets. And especially through really what the two main focus sectors have been for us over the past few years, we've touched a lot of the really a lot of the whole country. And the same is true in Europe and a lot of Asia as well, because we're looking for where that growth is and we're looking to invest in apartments in places where populations are growing. We're looking to invest in warehouses in places where there is increasing population density because the e-commerce trends follow that. So it is definitely a major theme for real estate investors of all size. My friends who are smaller developers are very active in a lot of the markets you just mentioned. And in these places where these – what we would traditionally see as smaller markets, is the – is that – so you say warehouses. Is it – so it's commercial real estate obviously as well as residential? Like it is home developments, apartments? So, yeah, two different flavors of homes, right?

You have, first of all, single family homes we're building at the fastest pace we have in 10 years, which is important. It's important for economic for the economic rebound. It's also important because we've had a housing shortage in this country that's been pretty persistent for a long time. And it's why you see this significant rise in house prices. But it's also apartment buildings, really, you know, basic standard garden style apartment building. By garden style, I mean, you know, a little bit of a campus with a few buildings on it, maybe a pool and a fitness center. Those already, again, another trend accelerant. Major city centers had gotten very expensive. And so rental apartments

in those major city centers had gotten fairly expensive. And so what we were seeing was people moving to easily commutable locations just outside of city centers. So we talk about this big, you know, transfer of people out of city centers to the suburbs because of COVID. But on a smaller scale, it was happening already. We were seeing a lot more demand, increasing demand for garden style apartments, near transportation nodes in all the cities you just described and the more traditional larger cities as well. And there's, you know, there's development of apartments, but really the interesting and I think really exciting for the economy trend has been this significant uptick in development of single-family homes around the country. So let's talk about Manhattan then,

because when I walk around Manhattan, the city looks like a fraction, New York City looks like a fraction of itself, at least in Midtown Manhattan. Do you, and so I often wonder, what is gonna happen to Midtown Manhattan? Maybe it's the matrix reality that you're laying out, that at some point it's gonna come back and it's the matrix reality that you're laying out that it's, you know, at some point it's going to come back and it's going to come back big.

Or it sort of doesn't really come back big and you have this incredible inventory in the middle of the city that could be turned into residential. Yeah. So let's talk about residential in New York first and then we'll get to Midtown in a second. Okay. Because they relate to each other the leading indicator to life rebounding in new york city isn't traffic and and things like that that we talked about apartment sales and apartment rentals have been at record volumes since december like consistently week over week month over month numbers that the brokerage houses have never seen before. Okay, so let's stay on that just for one second, because that's surprising to me,

because December strikes me as a particularly dark period during the pandemic, when it was, A, the weather was terrible, so people really couldn't leave their homes. B, there was no real, you know, immediate path out of this that was obvious before us. C, we had news every day about these variants. And so, and there was, I know we quibble about this, you and I, but there was also these stories about safety on public transportation, safety on the streets, deterioration of public safety, and the prospect of the cost of living going up because of increases in taxes and regulations and all the rest. And so December would not have been a time in which I would imagine you would see a beginning of a boom. Yeah. So you start to see the numbers really tick up then.

And I think what happens is when we're in this moment where we're all sitting at home and you feel like you have every option in the world, if you wanted to exercise it, to find a new place to live in Manhattan. I mean, this is the thing. If you don't live in New York City, it's not so much the cost. That's obviously a major factor. But it's also that the spaces are also different. And having a choice really matters. And oftentimes, if you're looking to move in the normal flow of things, you don't really have many choices.

So when there's a moment in time where you can really shop for an apartment start to happen or leases start to move in buildings that they were focused on, it really started to accelerate the trend. But it really started to happen in the latter part of December. But it is continuing. And I think it's a leading indicator that people are preparing to get back to their normal lives. I think people are excited about the city reopening. I'd also challenge the notion that the whole city feels like a shell because in a lot of the residential neighborhoods, it's hard to get a reservation at lunch. It's hard to get a reservation at dinner. There's people pouring out into the streets at bars at night. So people are here. They're just not in Midtown, to your point. Midtown is very quiet. I have noticed the lines at the salad places that are still open getting a bit longer. I mean, that's going to be an

interesting thing because so many restaurants have had to close, unfortunately, that as the population, you know, the daily population in Manhattan rebuilds, you know, I don't know if the restaurant's reopening is going to happen as fast as people need to find places to eat. Just like those traffic nodes I was talking about. It's hard to get in and out of the Holland Tunnel because there's not as many people riding the train right now. Same thing, I think, with the salad place you used to like to go to or the sit-down restaurant you used to like to go to. So you think there's going to be a lag. So all these ancillary services, like restaurants, for example, around Midtown, that's going to take some time.

It just naturally takes time, right? services, like restaurants, for example, around Midtown, that's going to take some time. It just naturally takes time, right? Someone's got to have a business plan and reopen the space, or hopefully, in some cases, they've just been, you know, closed for a while and planning to reopen. But I definitely am seeing, I'm seeing, I would say slightly longer lines, I think you're starting to again, another leading edge you're seeing. And this has been in the press a lot. I mean, de Blasio just called all the city workers back to the office, right? Jamie Dimon's been very vocal about this. A lot of the business leaders in New York City have been pretty vocal that they're expecting their people back in the office.

And so you will start to see more and more people come back. And again, this is just reinforcing this trend of leasing and purchasing activity in apartments. Now, you asked a specific question about what happens to these office buildings. I think it's going to be very much case by case and block by block, like everything in New York City. Another trend that was accelerated by COVID is there's a very strong preference for newer space. If you've been in one of the newer office buildings that's been built in the last 10 years in Manhattan, they just feel very different from buildings that were built even as recently as the 90s.

Ceilings are higher. Window lines are better. The air quality and circulation is really great. And so the first awakenings of leasing traffic and leasing activity that we're noticing are in great buildings, great locations, transportation nodes. One Vanderbilt, which just got completed over the past year or so, is almost completely full. I was talking to the guys at SL Green. They're actually out getting that financed. And I think they're reporting 90% occupancy or so. And that's all leases. A lot of that's leases that have been signed in the past six months. So there's a strong preference for newer stuff.

You know, the trend towards the west side of Manhattan with Hudson Yards being built and the meatpacking district becoming what it is and people showing very strong preferences for living where we live in or moved out from where we used to live together in Tribeca and in the West Village, that was pulling a lot of office demand towards that part of Manhattan. A lot of new buildings have been built there. I think that will continue. But one thing that's hard to unseat is Grand Central and Penn Station, frankly. I mean, these transportation nodes that millions of people rely on are historically the most important indicators of

where there's going to be demand for real estate. And, you know, like a lot of embedded institutions in New York, they're very hard to unseat, right? New York has an amazing hospital system. There aren't a lot of other cities in the U.S. that can compete with that. People want to be near that. It attracts a ton of jobs as well there's a lot of schools a lot of very high quality schools in this city and that's something that keeps people here there's great transportation i thought um the podcast you had about the subway system was fascinating a lot of a lot of really thought-provoking things just about the democracy of that subway system how important it is to people to be able to get to jobs without a new car. That's why public safety on public transportation is actually the ultimate, not the ultimate,

is an important input in leveling the economic situation of a city because it means someone from an outer borough can get to a job that pays decently that that person can support his or her family. And the key to that is being able to do it safely, which you can't do in a city by the way, or not, you can't, but it's increasingly difficult in a city like Chicago. Not to overemphasize, you know, the importance of this, but just having more people around inherently makes these spaces safer. You know, I think we talked about this briefly at the start,

but New York city, the street grade of Manhattan in particular, felt pretty desolate for a while at the start of COVID. And just as more people have trickled back in and as people have moved back into the residential areas, there's a lot less of that safety concern. I think, I hope, you'll start to hear those same things about the subway system relatively soon as people really have to get back to the office. In the meantime, a lot of companies are offering travel vouchers for other ways to get to the office. Yeah, what I mean, when you talk to to leaders at the NYPD, they say that key to security in a big city like New York is not just the the NYPD personnel on patrol, which is very important, and we need more of it. But it's also just having a lot of pedestrian eyes on the streets,

on the subways, just the more eyes there are, the better. And one of the scary parts, elements of the last year is just fewer people makes it fewer eyes, which makes it easier for people to get away with crime. Let me ask you, do you, peak New York, like before COVID, there was a sense that the city had gotten so expensive and so intense and so crowded. It was like, I hear this term all the time, we're like at peak New York City. Like every one of your senses was being pushed to the limit. It was like in New York City. And COVID obviously turned the dial way down.

Do you think that is like sort of a reset of sorts for young people who will say, you know what, the city now is going to be a lot more affordable. The city is going to be a little more chill. We needed that. Yeah, I mean, first of all, over the summer when I was trying to really puzzle these things out and we were still living in that first version of the matrix, I would talk to the young people on my team. We've got a lot of people in their 20s working on my team. And I'd ask, you know, you are wherever you're at your parents' house in New Jersey, you're living with friends in Colorado, wherever you've gone to. Are you excited to get back to New York City? What are your friends thinking? And almost universally, they all said, I just want my 20s in New York. You know, I just I want to get, you know, I want to get back to the office. I want to go out at night. I want to have a weekend life. I just I feel like I'm getting I feel like I'm missing out. So I think that that demand was there in a way that wasn't really well publicized. And I think there's something to what you're saying.

Look, I mean, just as you can't be too binary about, um, what every company is going to do about their office space. You really can't be too binary about this either. I mean, most of the people you read about having moved to Florida are buying $20 million homes. This isn't the group cohort you're talking about, but that's maybe clearing out space for that cohort, right? And frankly, rising taxes in New York City for the person in their 20s and 30s trying to make it

isn't front of mind. It's finding a great place to live, to your point. And if it's a little bit less expensive to move here, that's probably a positive. And certainly all the transaction volume, I'm talking about our apartments, both purchases and rentals are happening at discounts to where things were before COVID. So I think that's also explaining why there's so much activity. In terms of both office, the future of office space and the future

of apartments, I've heard some people, and this is anecdotal, I've heard some people say, I'm definitely going to work from home more than I did before. I do want to get back to the office, but I'm also going to work from home more than I did before. So it's this hybrid model. But I live in a studio or a one-bedroom or two-bedroom apartment with, you know, three kids, you know, in the case of the two bedroom apartment, if me or me and my spouse are going to be working more from home, we're just going to need more space. Like this is not sustainable. What we did over the last year that life in New York was basically, I mean, the trade

for life in New York is you live most of your life outside of your home. Not most, a lot of your life outside of your home between the public amenities, public transportation, parks, museums, theater, sports, restaurants. You live a lot your life outside of your home, between the public amenities, public transportation, parks, museums, theater, sports, restaurants. You live a lot of that outside of your home. And so you pay a lot of money for a small piece of property to have access to all those external amenities. If suddenly we're all going to be, or many people are going to be doing some hybrid

of work from home and work from work, they're going to need more space at home. I mean, like I said, they could get through it for a year, but it's a much different deal if it's a long-term proposition. So I guess my one question is, are you expecting to see the way people live in their homes will change? Do you think about that from your perspective, from your perch investing in real estate? And then also the way offices are organized. Like, are you seeing changes in how, after a pandemic, people think differently about how they share

office space? Both great questions. I think the early signs you see about your question about homes is you can just see in the home sales data around the US. And I think the reason we're building more homes as well, there is more demand for more space. People need a little bit more flexibility of space at home. They've experienced that now. They want to keep,

they want to preserve that. I also think, you know, on the New York front, why do people move? Why is there, you know, why do people get excited about signing a lease or buying an apartment? It's because it's a little bit better than what they had before. So I think there is an element of that driving all of this housing activity. And I think you've had this one-off major population movement event, and in all cases, people are expressing their views about housing and I think generally looking for a little bit more flexibility of space. In terms of how office space will be used, I think it's a little early to tell. I mean, there certainly has been, again, trend accelerators. There was already a lot of work going into technologies

to make space a bit more flexible, even like movable walls and things like that, so that you could change the way space gets used through time and even over the course of the day. I think it's a little early to tell how that's going to go. Building owners and landlords and companies that control their own space were already reacting to that. And I think this is going to be a really interesting time for unpacking how that space creativity winds up. And, you know, another use case for Office, which had kind of had its ups and downs just before COVID, was the co-working model. And I think there's a pretty strong use case for that going forward. That's a little different. Co-working meaning like the WeWork

model? Like the WeWork model. And I think a little different than what was originally imagined. But if you're not going to go to the office five days a week, let's say you live in the suburbs, you're not going to commute an hour and a half into the city. That's the thing you're saving, but you still want to have another space you go to. Maybe you didn't get a bigger house, or maybe you just want to be able to leave the house and go home at the end of the day. Having a second, whether it's a satellite office of your company, whether it's a co-working environment you can go to, or even if you live in the city and you're just not going to get on the subway one day a week or something like that. I do think there's a bit of a use case for that as well, but it's early.

We're going to feel these things out as people reemerge in cities. I want to switch gears to the prices we're seeing of the inputs that are necessary to make your industry tick. Building costs and, you know, price of lumber, price of steel, price of cement. We, you know, you know the data. I mean, the numbers like on cement and steel from just like as recently as the end of this year has skyrocketed. Timber, right. And then you have disruptions in supply chains,

which is also associated with this period in COVID. So tell us how you're seeing all those factors, those trends play out, and how they'll when the supply chains get disrupted and there's an air pocket in production activity or delivery activity, and then you have what we're having now, which is a reacceleration of development and construction activity, and you're missing a wedge of supply from a portion of last year, there's a bit of a moment where prices are going to spike as people need immediate delivery of certain goods that's you know that sort of thing happens in commodities all the time not my area of expertise and i don't think yours but you definitely see that happen from time to time and i think that's what we're experiencing a lot of cases um it is it can be disruptive i mean real estate as i said in the beginning is a supply and demand business. And as demand grows, as people move to a new place, as the population of Austin, Texas grows, you're going to see a lot of development there to meet that demand.

That's the supply component. And that'll be office buildings and apartments and warehouses and pretty much every real estate asset class. And you need those inputs. And so that can be a constraining factor on supply. Again, not to cop out on the question, I think it just depends on how long, how persistent these price disruptions are, whether they're just transitory related to those disruptions and supply chains and some of the trade dynamics in the world over the past 12 months, or whether it's something a bit more permanent related to, you know, the

stimulus and all the cash that's in the system. I think I tend to think things will level off, it seems to be historically what happens with commodity prices, they go through these moments, and then they level back off. But if it's persistent, it will certainly have a damping effect on on supply at a time when there's, you know, in certain markets, you know, tremendously growing demand. You, you said earlier, you alluded to this, and you've said this, to me, and just conversations we've had over the last year that you said, look, there's, throughout American history, throughout the history of any, you know, society, there are these periods where there's sort of population mobility, and it kind of happens, and people make big changes in their lives, and then they settle into a new normal, and that new normal sustains

itself for a while, and this could have been that. It could have been that. But you're basically also saying it's not going to be that. I mean, we're going to see a little bit of it. You can see these points, these mid-tier markets, there's some change. But by and large, the picture you're painting is, take it a year from now, I'm just picking a time frame, a year from now, so let's call it spring of 2022. In your mind, I think, and again, we'll come back in spring of 2022

and play the tape and see if you're right, but you're basically saying in spring of 2022, we'll be walking around New York City, and it won't really look that much different than, you know, January of 2020. Well, let's – so let's break that down a little bit. I think you've had one of – I don't think – apparently we've had one of the biggest population migration moments of our lifetimes at least. It's a unique condition in the sense that it's not permanent, at least not for everybody. There are some people for whom this will be sticky. You

know, they'll get to, they'll have lived in, you know, Denver or wherever for a year, having left another major city and decide that's a better life for them. And maybe, you know, whenever, whatever the breakpoint moment is, they'll switch jobs and they'll reorient their careers in Denver, or maybe they won't have to, because they'll get the flexibility from their employer to, to stay there. So there's definitely going to be an element of that, but I don't think it's everyone who moved, right? I think there's going to be most people will return to the lives they had before this, you know, cities like New York will have that draw, whether it's the person that left or whether it's another person taking their spot,

you know, jobs, vibrancy, all the things that we talked about earlier over the course of this podcast. So, you know, if New York had, if Manhattan, I should say, had five and a half million people on a typical day in Manhattan between tourists and commuters and people who live here, you know, in 2019, if that number drops to 5 million, I don't think it's going to feel that different, even though that's a 10% decline. It may have an impact on New York's economy and the budget of the city and the state. But in terms of the economic vibrancy around here on a day-to-day basis and, you know,

how far in advance you have to book reservations at restaurants and tickets at shows, it's still going to feel like a pretty happening place. And that's still a very powerful economy, and it probably begets other kinds of growth that you and I can't even imagine right now. And you've also said, even if it's that, even if we're talking about the daily traffic within the city going down from, you know, at least in Manhattan from, you know, five plus million to four million, whatever it is, even at that reduced number, there's still nowhere else in the world that you can get that kind of population density with so much action in one place.

Yeah, there's a few global cities like that, right? And it's a short list and it has a lot going for it. And I don't think that changes. And, um, and you know, back to your point near your question earlier, people are, people will move. This will change dynamics, population dynamics. As we said earlier, it's a, it is accelerated trends. If you were thinking about moving to Nashville and you had the chance to take a year of not working from your office and try out living in Nashville and you like it, you're going to stay. That's not everybody. And not everybody tried a different city. A lot of people that you and I know moved out of Manhattan into New Jersey

or Connecticut for the year. And some of those people will come back and some of those people will be permanently suburban residents. But, you know, over time, as things normalize, the most powerful movement mover of people is jobs. And that I don't think will change as a general driver of how these things go. And New York City, I think, will continue to be a major center of jobs. And some of those jobs, you know, some of those industries are uniquely present here, like financial services. And at the same time, I think that the more technology oriented new economy firms are going to continue to grow, as I said in the beginning, both in the Bay Area and Seattle where they've been, and they're going to grow in these new markets. And that will create

jobs in those markets and people will move to those places because they're exciting, they're vibrant, they're happening. Speaking of some of these smaller markets, I was just reading about new initiatives in Tulsa, Topeka, Kansas, northwest Arkansas, Tucson, Arizona, Savannah, Georgia, where the cities are offering financial incentives for people to move there. So basically targeting recent graduates or workers in their 20s, like some of the same people who you said, I don't want to miss out on living my 20s in New York. Some of these places are now saying, well, you know what, we'll pay you to come live here and try it out, and we're going to try and build a critical mass. Are you, I mean, do you think those kinds of programs get any traction? And are you, are you seeing that? Are you seeing some of these cities work? Like, I know there's the story of the

mayor of Miami who's working like a maniac to try to get people to relocate to Miami, but even some of these smaller cities, are you seeing cities saying this is our smaller market saying this is our moment? I mean, I, you know, I don't know the specifics in every one of those cases, but cities offering incentives for people to move is a story as old as time, whether it's at the individual level or the corporate level. I mean, the entire state of Texas and the entire state of Florida have no state income tax for individuals. So that's one giant incentive, you know, begging you to move there, right? I think what's happening is that more and more places are finding the formula of what works, a little bit of nightlife, a little bit of a music scene, whatever it is that defines the

culture in their area. And they're trying to get that critical mass of jobs. And they're saying, look, this is a pleasant place to live. It's really nice. You can have a real job and a real life and a real career here. And they're piggybacking off of some of the great things that have happened in earlier success stories like Nashville, like Austin, like Atlanta, like Raleigh. I don't want to leave anybody out. There's a lot of new cities that have had an amazing run in the past few years. All right. But we're going to wrap with just in short, lay out your – which is not taking away anything from these other cities,

but just lay out succinctly why you're a bull, a New York City bull. Why New York, like just what are the inputs that existed before COVID that will still be here after COVID? The attractiveness of living here no i understand the question i'm trying to try to you asked me to be succinct no you don't have to be succinct you can you can i'm trying to be thoughtful you can be rambling we'll take it we'll take it no matter what i mean for as long as we've known it it's been one of the most vibrant places to live in the

world it's been one of the best job markets in the world it's been one of the best job markets in the world. It's been one of the best cultural centers in the world. And it would take a lot to unseat that. And I think working against that, and this is, I remember this actually from the conversation you and I had a few months ago that sparked this. There are a lot, just as much as there are big forces out there cutting into those advantages because of quarantine and, you know, just people not coming to the office. There are entrenched interests, like well-intentioned people and industries that really want to get the people back and get their industries reopened. And they're working hard and they have financial resources

and they have talented people and they have fans. And they have a lot of tourists like waiting at the gates to come in. And not only tourists, locals waiting at the gates to come in and participate and be here. And I just, I think not enough has changed for that course of daily life in New life in new york city to be that disrupted all right there you have it the the bull case for why i'm going to bring you back in a year and we're gonna and we're gonna we're gonna play some of these clips and see if you were right okay well just let's not get like into specifics of like line items in the city budget and things like that.

Okay. Don't worry. Don't worry. Fair enough. Jonathan Pollack, thanks for joining the conversation. Great to see you. Dan, it was wonderful. Thank you.

That's our show for today. If you have questions or ideas for future episodes, tweet at me, at Dan Senal. Post-Corona is produced and edited by Ilan Benatar. Until next time, I'm your host, Dan Senor.