Phase 2 - Real Estate 101 (How to or one big idea)

Podcast - Analyzing The Office Sector

Tyler Stewert
September 7, 2021
Podcast - Analyzing The Office Sector

Daniel Ismail, Analyst at Green Street Advisors, joined us on the podcast to discuss what is currently happening in the office sector.

Daniel is the lead analyst for Green Street's office team and has been with the firm for two years. His research contributions include initiating coverage of JBG Smith (the spinoff of Vornado’s D.C. assets), deep dives into West Coast office market health, and extensive work on Gateway vs. Non-Gateway markets and office leasing economics.

Daniel started his career with Green Street as a research intern during graduate school. He has a strong background in fundamental research, asset allocation, commercial real estate, and investment manager due diligence. Prior to joining Green Street in 2016, Daniel was an investment analyst for four years at the Automobile Club of Southern California, where he covered equity and fixed income investments for insurance, pension, and corporate portfolios.

Daniel earned an MBA from the Anderson School of Management at the University of California, Los Angeles. He graduated with a Bachelor of Arts in Business Administration and a concentration in Accounting and Finance from California State University, Fullerton. Daniel is a CFA Charterholder.


To learn more about the research done over at Green Street Advisors, you are invited to check out The Green Street Blog and to sign up for Green Street's Newsletter.

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Tyler Stewart - All opinions expressed by Adam, Tyler and podcast guests are solely their own opinions and do not reflect the opinion of RealCrowd. This podcast is for informational purposes only and should not be relied upon as the basis for investment decisions. To gain a better understanding of the risks associated with commercial real estate investing please consult your advisors. Hey listeners, Tyler here, before we start today's episode I wanted to quickly remind you to head to to enroll into our free, six-week course on the fundamentals behind commercial real estate investing. That's, thanks.

Adam Hooper - Hey, Tyler.

Tyler Stewart - Hey, Adam, how are you today?

Adam Hooper - Tyler, I'm good. And guess what, it wasn't us that started talking about the weather today.

Tyler Stewart - No, it wasn't.

Adam Hooper - It was not.

Tyler Stewart - It was Danny Ismail, from Green Street Advisors. He phoned us in from Newport Beach where apparently it wasn't as perfect as it usually is in Newport Beach. So we kind of took pride in our Portland sunshine today.

Adam Hooper - We did. We did. Really technical conversation today. A lot of really good information. Danny with Green Street, they are a real estate analysis firm that covers private markets, public markets, everything in between, so he's got a really unique insight into what makes the current real estate markets tick.

Tyler Stewart - Yeah, they're a research company and Danny does a lot of the research in the office sector. We got the information straight from the source.

Adam Hooper - Yeah. So again, forewarned it does get a little bit technical, up front, but I think there's a lot of really good information in there in the distinctions of how the public markets work, how valuations there might inform the private markets. We took a detour into talking a little bit about office, again that's Danny's specialty is the office market. So we talked about some trends that they're seeing there, gentrification. We talked a little bit some of their favorite markets going forward, some markets that have been maybe a little bit more you know restricted in growth. And he gave us the forecast for kind of where he sees growth going forward in 2019 and beyond.

Tyler Stewart - All together just a great episode from the analyst really giving you the nuts and bolts of the research.

Adam Hooper - Yeah, and I guess I would request listeners out there if you have questions or comments or anything you want us to followup on? Is this too technical? Do you like it technical, let us know? Send us an email to We love that feedback. Always again, ratings, reviews, iTunes, Google Play, SoundClound, wherever you listen to us. So with that Tyler I think we should probably get to it.

RealCrowd - This podcast is brought to you buy RealCrowd. The leader in online real estate investing. Visit to learn more about how we provide our members with direct access to commercial real estate investments. Don't forget to subscribe to the podcast on iTunes, Google Music or SoundCloud. RealCrowd, invest smartly.

Adam Hooper - Well Danny, thanks for joining us today. From Green Street, which office are you located in right now?

Danny Ismail - We have three offices at Green Street and I'm in the Newport Beach office.

Adam Hooper - Ah nice.

Danny Ismail - Which normally has a pretty nice view but today's a bit cloudy. I always feel like a jerk complaining about, you know, the weather in Southern California. But when we do get a foggy day, I do you know, miss the beach and miss the views a little bit.

Adam Hooper - We'll relish in our sunshine here in Portland then. We'll take it. So why don't you tell us a little bit before we get into some more macro trends on the where we at in real estate, with the cycle and then specifically want to dig in on some conversation around the office market today. Can I take us a little bit back and how did you get in with Green Street? And a little bit about your background and how you got into the real estate game before we dig in?

Danny Ismail - Yeah, so in a prior life I was working in investment management. I was doing portfolio management for insurance and pension assets. Really high-level asset allocation type work for a few years. But while I was getting my Masters at UCLA I came across a posting by Green Street for an associate role and the more I dug into real estate and publicly traded REITs, the more I realized it made a good fit with my interests and with my experience in investment analysis. So joined Green Street shortly thereafter and have been covering the office sector for a few years and most recently made of head of the office sector and am leading the research on that sector.

Adam Hooper - Nice. And tell us a little bit for our listeners out there who may or may not have heard of Green Street, why don't you give us just a quick overview of what Green Street does, what services you guys provide to the industry?

Danny Ismail - So Green Street advises as a commercial real estate research firm founded over 30 years ago with three main product lines. The first is our real estate analytics product which is essentially a platform that helps private market investors answer the question of does New York Office make a better investment than San Francisco apartments? So helping to answer those really high-level strategic questions. The second is probably what we're best known for is our sector in REIT research which I'm a part of. So we cover over 120 publicly traded REITs across the U.S. and Europe. And we have the unique position of analyzing both the public and private market real estate markets. The third is our advisory group which is a consulting group which helps a variety of companies solve problems, across the world, solve real estate projects. Such as a retailer thinking about their real estate footprint or whether a company should convert into a REIT.

Adam Hooper - Got it, so you guys really have a cross section of all different areas of the industry right? Whether it's all the way down to private to public and everywhere in between.

Danny Ismail - Yeah, I mean it's really covering the entire gambit of commercial real estate. One important note is we're an independent shop so we don't have a brokerage or investment banking arms. So you know we can truly provide objective and unbiased advice and actual insight to our clients.

Adam Hooper - Good, and I'd be curious as we talked about this a little bit you know all the deals that are on RealCrowd are, and most in the space generally, are going to be private deals. So not a lot of either, I've seen a couple non-traded REITs, nothing public REIT that I know of in this space so I'd think it'd be curious to kind of get as we talk through these things kind of compare and contrast the differences which you might see in the public market versus how that would compare to what we might see more typically in the private markets as we kind of go through the conversation today. So we know Green Street obviously again for the research side and some of the stuff on the private markets, but maybe comparing and contrasting and let's start with that. Between public and private do those market cycles behave identical or is there a lag of one or the other? Is one leading the other? Just broad market cycles, how do public and private markets tend to interact in the real estate space?

Danny Ismail - That's an interesting question principally given how publicly traded REITs are traded today. So on average the publicly traded REIT market is trading at, call it a high, single-digit to their underlying property values. So essentially REIT investors are pretty skeptical about commercial real estate valuations, essentially saying they're too high. And historically REIT investors have gotten this right. So a big premium has generally, in the REIT world, is generally predictive of property appreciation and the opposite is true there. So discounts have generally been predictive of property deprecation in the private markets. This linkage has broken down a bit in the last few years so REIT investors has been bearish for a few years now and although what we're seeing is property appreciation hasn't slowed down over that time period, values have been going down broadly. A few sectors where that's been true but across the private real estate market values have been relatively flat for the last few years. And in REITs those discounts aren't equal across all sectors so while the public market discounts most REITs, apartments, office, and retail trade at the larger discounts relative to their private market values. Interesting fact is that New York Office REITS trade up the biggest discounts since the global financial crisis which you wouldn't really get that sense if you look at the private market for New York Office. Manufactured home parts and some of the niche sectors traded some pretty big premiums. And one of the main takeaways when we observe this you know this is a prime time

Danny Ismail - for a lot of the public guys to be selling their assets in the private market. So as I mentioned in general the public REITs are trading at a near double-digit discount to that underlying real estate it creates a good opportunity for these public traded REITs to sell at 100 cents on the dollar in the private market and either buy back their shares or retire debt at the company level. Fortunately not too many people are taking advantage of that today but it's a dynamic that's been in effect for the last few years.

Adam Hooper - Interesting. And so then investors that are looking at investing or acquiring assets in the private market those values are, well let me go a different way to question this. Do discount to REIT valuations drive private-market value or does private-market value drive the REIT valuations? Or are they completely uncorrelated?

Danny Ismail - Well eventually they should be correlated. Because the REIT is essentially a look-through or a pass-through to the private market. And generally as I mentioned earlier that the public REIT investor simply because you know you're trading a lot quicker, you're getting daily pricing of essentially that real estate it should be predictive of property pricing. But that linkage just hasn't happened and when it will? That's hard to say, as I mentioned New York Office has been trading at double-digit type discounts for the last two, three years now in the public market. In the private market you still see a healthy bid for those assets, you still see skinny cap rates and some pretty big trades. So eventually the public market is saying that commercial real estate valuations are too high though what it'll take on the private market side to see it catch up to the public market is just hard to say.

Adam Hooper - And are there any data points or trends or indicators that you guys are watching that would suggest a change in either of those evaluation metrics?

Danny Ismail - On my end, on the Office side, so the Office sector, particularly gateway Office companies have been trading at the widest discounts in the public REIT land. I think if you were to see some of the bigger companies go away and really take advantage of that disparity between the public and private market pricing it could have a bit of a collapse in terms of that NAV cap that if public market investors thought that the REITs were serious about closing that gap that maybe you can have a bit of that disparity shrinking. Though what that catalyst will ultimately be is pretty hard to say. I mean we're in fairly unique times in the economy given we've had ultra-low interest rates for a better part of this cycle. The cycle's gone on longer than I think most people would have predicted. So it's a pretty unique time that if you were to have looked back three years ago you would have said oh, well it looks like the public market is getting ahead of the private market, but we haven't seen that convergence happen.

Adam Hooper - So we recently had David Pascale come on and we were talking about federal funds rate and how some of those key you know lending rates affect real estate and potentially going into an inflationary environment here. How did the public markets react differently than a private market would in an inflationary environment or an environment where you have rising cost-of-capital, essentially?

Danny Ismail - Green Street, you know we have a tool that we combined both the signals provided by the public REIT market as well as the corporate bond market. So when we look at the cost of debt we look at the yield on corporate bonds as well as the yield on junk bonds. So right now, traditionally, commercial real estate should provide you a return slightly above that of corporate debts and slightly inline with that of high-yield debt. Right now commercial real estate returns about a 110 bps higher than that of long-term, B/AA rated bonds. And about 40 bps less than that on high-yield debt. So you combine that and commercial real estate looks relatively fairly priced to fixed income. And that's despite you know, a fairly decent rise in rates this year. But with respect to REITs, as I mentioned earlier, given that big discount the commercial real estate market and private market looks a bit expensive relative, given the signal by the private REIT or the signal by the public market. You tie this altogether and you would assume that given those factors that it starts interest rates rising, big discounts in the public market that property appreciation would get signaled to, or excuse me, that signal would be for the private market to decline, but Green Street's opinion is just given the amount of debt on the sidelines, given how long this has happened, given how much capital there is to put to work it's hard to see private market values doing anything different than what they have been doing over the last few years which is essentially not changing very much.

Adam Hooper - So to relate that to, I guess again, kind of a tough question, not the crystal ball but like in terms of relation to overall market cycle reaching a maturation point? Do you guys foresee anything that could trigger a pull-back in value or a correction? Or kind of more of the same fairly steady, maybe some slight growth going forward?

Danny Ismail - Yeah, you know generally we agree with you. It is very long in the real estate cycle, but if you look at fundamentals across most of the major property sectors, you know you're generally looking at inflation type growth. I mean if you look across the metrics on the economy whether it be unemployment, consumption, the fiscal and tax stimulus. You know Office using job growth, venture capital, I mean all those factors continue to point to a pretty healthy economy so while we think that you know the overall cycle is long in the tooth it'll be more of a deceleration of property price appreciation and financial growth rather than you know any near-term, immediate correction because the pillars of the economy are simply incredibly supportive of commercial real estate today.

Adam Hooper - Do you see that as differing across product types or that's generally you know office, retail, industrial, fairly similar dynamic across all the different product types out there?

Danny Ismail - I think it's, that was a general statement for commercial real estate in general. I think if you look at the individual property types, I mean there are some sectors that are in a better position today than others. I mean I can point to two at the opposite end of the spectrum industrial looks incredibly healthy today just given the tailwinds of ecommerce and the amount of reconfiguration of supply chains and overnight delivery and the immediacy that consumers are demanding of internet commerce. And the opposite end of that retail has generally been, has struggled the last few years. We've written down retail commercial property values on our end about 15 to 20% for malls and strip-centers. So generally tougher as you drill down into the sectors you can point to several headwinds and tailwinds for various sectors, as I mentioned for industrial and retail. But in general commercial real estate in general, probably will continue to trade sideways over the next few years.

Adam Hooper - And then with office it's maybe we can dig a little bit more into office considering that's one of the areas that you focus on primarily. Some of these changes that are happening with creative offices, and coworking and shared office space. Just the notion of how users interact with office space, right, how is that impacting some of your predictions or valuations or thoughts around that going forward.

Danny Ismail - On the office side I mean the biggest trends as you mentioned, you know creative offices or open office, however you want to define it. The biggest impact that we've seen on office fundamentals has been on the densification of office space. So let's say in 2010 you signed a lease for 100,000 square feet for your employees. Then in 2018 you're renewing that lease, well let's say you no longer have the same amount of employees or even more you're taking up say 15 to 20% less square feet, and you're actually just packing in your employees in a smaller space. It's a stat that doesn't show up in the supply grow stats but if you think about it it's essentially a tight of shadow inventory that's been hitting most major office markets. And I'll point to New York, which is you know a few weeks ago WeWork became the largest tenant in New York, and they tend to run their office space much denser than a traditional office company, a traditional tenant would. So you look at New York fundamentals over the last few years while supply growth has been elevated relative to recent history, supply growth in New York the last few years has been around 1% of inventory. That shadow supply via densification and the reconfiguring of office spaces in Green Street's opinion has had a pretty big impact in terms of fundamentals. You really haven't really seen net-effect of rent growth over the last year over year and for the next few years it continues to look like a tough environment simply because if you're getting that same amount of job growth but your tenants are taking less space

Danny Ismail - you need to have essentially more, a higher amount of employment growth to compensate for that increased utilization. So it creates a real drag on office fundamentals that isn't apparent in the commercial real estate if you just look at inventory growth stats, but it's a type of hitting growth that's had a huge impact over the last few years.

Adam Hooper - Is there any way, do you guys track or do you have any gut feel for where we're at in that densification process? I mean is it still on the front-end of that? At what point does densification kind of reach it's max, right? It seems like it continues to be more and more, again started with creative office, open office and now you've got WeWorks, again this coworking space, how far does that go?

Danny Ismail - Yeah that's it, that's a question we've been trying to answer on our end for a while. Green Street has you know a variety of data that we can look at but the issue has always been attempting to tie the total amount of employees to the square footage of a region. Generally those are two disparate data sources. You're looking at either the Bureau of Labor statistics combined with you know one of the major brokerage houses or Green Street's data and generally those don't tie very well. But our gut feel in talking to both the publicly traded REITs and the private operators is it feels like we're in the later innings of this, but it doesn't seem like a trend, it seems more of a paradigm shift that people and employers will just be shifting more to, denser office configurations. So maybe call this cycle, you know what 15 to 20% denser configurations, on average, for your average tenant. How much further that has to go, that's a tough question to answer. It depends on the type of tenants and how they're using the space. Our gut is at Green Street is you know best estimate given the available data, has a little bit further to go but I don't think it'll be as drastic as you've seen over the last you know call it five, six years.

Adam Hooper - Yeah. And then once that kind of reaches max density, if you will, do you anticipate that some of those more traditional fundamentals of supply and demand and that impact on returns I guess, will return back to more fundamentals or will this have a shift on how we look at some of those key metrics?

Danny Ismail - Well I think it's interesting because missing in this conversation is a CapX. So if you have an office space that is not, or own an office building that is not yet setup to accommodate that kind of denser configuration. We recently dug into CapX and we think that CapX in the office sector is by far the most onerous in all property sectors and that includes hotels. We use a normalized CapX estimate. We're estimating that close to a third of your NOI is an appropriate amount to reserve as CapX reserve. If you think about that in terms of returning to normal fundamentals it seems like, well for those landlords that are setup to do that might enjoy some benefit but for those who are not they're going to be struggling to keep up and have to put a lot of money into rebuilding simply to get market like or close to market-like returns for their assets.

Adam Hooper - Yeah, I want to kind of roll that back a little bit. So for listeners out there that might not have heard some of these terms before. So CapX is Capital Expenditures. So when you're, an office tenant moves out and you need to reconfigure the internal offices or paint or carpet, you know kind of the improvements within the space, right, that's what you're considering a CapX Capital Expenditure for re-tenanting that office space, is that correct?

Danny Ismail - Correct, so essentially as you mentioned we have two buckets, the first being what you just mentioned sort of the tenant turnover. That anytime a tenant moves you have to clear out the space and reconfigure it to whatever they're needs are. And the second would be maintenance. Just the normal maintenance that you have to put into a building to kind of keep it at the competitive level. So if you had an A type building what do you need to spend to keep it up roughly the same type of quality in the market.

Adam Hooper - Okay and then you said roughly one-third of NOI, Net Operating Income, is appropriate for a CapX reserve. So basically as an owner of a property the metric that you guys are looking at is roughly one-third of my annual net operating income. I should have that amount of cash in a reserve somewhere to cover these maintenance and re-tenanting costs, essentially?

Danny Ismail - Correct. So our methodology in terms of how we got to that figure. So where we sit, where Green Street sits in commercial real estate land is we have assets in both the public and private market data. And we have a pretty long time series through multiple cycles of both the publicly traded REITs and as well as access to the private market data. Both of those point to that one-third number I just mentioned so it sounds like an incredibly high number.

Adam Hooper - It's really high yeah.

Danny Ismail - I know, yeah. And when you say that hey, the office business is a more capital intensive business than that of hotels you know it kind of raises some eyebrows, but you just look at the data both by the publicly traded REITs and the private market that's what it's pointing to. You know when Green Street put out that number I was expecting more pushback, you know from some of the public or private market guys and actually been the opposite. The feedback that we've received, now that seems pretty appropriate.

Adam Hooper - And how does that compare to other product types if you're looking at multi-family or industrial I'm assuming is way, way less than that but hospitality, multi-family how does that compare?

Danny Ismail - So across property sectors as I mentioned office is by far the most expensive in terms of CapX. You look across the property sectors.

Adam Hooper - Oh it sounds like you're shuffling paper there, you're finding numbers for us. I like real numbers.

Danny Ismail - I'm getting specific numbers. Just 'cause I didn't want to speak out of line for some line a sector heads here. So if you think about apartments or the resi type assets, that's close to one-third less, or excuse me a third of office CapX. As I mentioned if office CapX is about a third of your annual NOI. Apartments or resi generally closer to 10%, so low-level digits. So when you think about your total returns that has a massive impact.

Adam Hooper - Right.

Danny Ismail - On your projected IROR, as I mentioned Green Street has been in business for 30 years, one of our hallmarks is we consistently think that both the public and private market underestimate the true cost of owning commercial real estate for a full-cycle. And we think the directionality for the office business as I just mentioned the headwinds given by densification or the WeWorks of the world all point you in that direction of it going higher. And lost within this is rising construction costs. You know it's not getting any cheaper to build a building or to construct the materials of the building. So all this is contributing to rising capital expenditures across the board.

Adam Hooper - So I guess you said, since hopefully you have more papers there, you said about 10% reserves for multi-family. What does you guys see in hospitality or industrial? Do you have that?

Danny Ismail - Yeah. Hospitality would be among one of the more expensive ones. So not quite as expensive as office, so around that one-third mark but closer to that data point. Industrial will be significantly less than that. So call it about half of what you would for hospitality or an office building.

Adam Hooper - So similar to multi-family for industrial?

Danny Ismail - Correct.

Adam Hooper - Okay, good. That's great info. That does seem shockingly high, a third of your NOI for CapX reserve. That does seem high but again when you think about it all the costs that go in with maintaining that. I guess do you think that will change I guess as the densification reaches that saturation point? Right I mean you can only open up your office in terms of creative office. Right, I mean that's one of the benefits is you theoretically have a much lower, at least on the re-tenanting side, a much lower re-tenanting cost. Maybe not so much the maintenance side. Or maybe that offsets, right? The lower re-tenanting costs is your maintenance now increased because you've got more people in there? Have you guys looked at how that's going to change with this densification trend?

Danny Ismail - Well, what's interesting is that you know just giving a backdrop of the economy you'd assume that re-tenanting costs would be going down. You know fairly low unemployment, you'd think that pricing power which is essentially re-tenanting costs, right. Giving a concession to a tenant would be declining in this time, in fact it's been the opposite. It's actually been more costly to re-tenant over the last few years than at the beginning of the cycle. And it's hard to see what causes that reversal, you know even if you've built out or reconfigured your space to be more accommodating to an open-office configuration. The next tenant that wants to move in there doesn't want to do, you know, completely different. And reminds me a bit of a government subsidy or a government entitlement you know that once you give it away, once you start giving it you can't take it back.

Adam Hooper - Right.

Danny Ismail - So it's hard to see what causes that reversal. Because certainly you would assume at this point in the cycle that it would be the opposite. That you would be seeing more pricing power favoring office landlords, but you just haven't seen that.

Adam Hooper - And do you see similar trends across urban office versus suburban office? Or are those two different dynamics?

Danny Ismail - Yeah, what's interesting is when we revisited our CapX estimates is that where we increased our estimates the most has been more in the gateway side. So New York and D.C., CapX both on the maintenance side have increased over the last few years and again that's both in the public and private market side. Suburban side we've always been more cautious on in terms of our CapX estimates. But it's been surprising that on the gateway side one would assume just given urbanization and you know the growth of cities that office landlords may not have to give away as many concessions or put as much into their buildings to keep them competitive relative to their suburban peers, that hasn't happened this cycle.

Adam Hooper - And are there between again kind of gateway or suburban do you see much difference in the outlook for overall trends, you know we're kind of talking inflationary growth rates, do you see that different in one geographic location or the other?

Danny Ismail - Yeah, I would say in general we bucket how we favor market office fundamentals into three distinct groups. So our favorite markets would be the West Coast gateway markets, so I don't think we touched on this in this conversation, but tech related job growth has really been the driver or a significant driver of commercial real estate returns, particularly office returns this cycle. The net absorption by tech-related, office job-growth has just dominated the stats. So the San Francisco's of the world, West L.A. and Seattle all strike us as having some of the best fundamental growth over the next few years. We follow that by what we call our sunbelt markets. So Atlanta, Austin, Nashville, Charlotte, simply because it's a really strong demographic trends, expansion by major employers strike us as another second strongest sub-group of office fundamentals in the country. And our least favorite markets are as I mentioned earlier, just given rising CapX and densification are East Coast gateway markets. So that would be New York and D.C., just given the amount of supply hitting those markets rising onto CapX and just relatively flat net effect of rent growth, those markets are probably going to be tough in the next few years. And if you look over at the public markets the public market agrees with that view. As I mentioned New York office REITs have been trading at some of the worst discounts to their private market values since The Great Recession.

Adam Hooper - So potentially a buying opportunity in the public markets then if again if you believe in the overall fundamentals and long-term growth, the discounts to asset value could potentially be a buying opportunity?

Danny Ismail - Absolutely if you were a believer in those markets and were making an allocation to office real estate in say New York, you know when you have some of these big, well-known companies trading at over 20% discounts to the private markets you're essentially getting very similar or the same exposure at 80 cents-on-the-dollar. Right, that's an extremely appealing deal relative to paying full price on the private market.

Adam Hooper - Yeah, and have you seen much institutional capital going outside of the gateway markets?

Danny Ismail - You know we've seen a little bit of that but not in a wholesale way that would be implied by the public market. So as I mentioned the public market has been heavily discounted to be New York centric REITs, but in the Sunbelt, REITs have been receiving relatively favorable pricing in the public market. So they're trading closer to the private market values. But we really haven't seen, we've seen a little here and there but not in a wholesale way that just given the demographic trends in our opinion relatively more attractive IRs we haven't seen that happen in a big way. I think it's tough for say particularly foreign institutions to make a big commitment to say Atlanta or Austin. You know when you're pitching to your investment committee presumably it's a lot easier to pitch a New York office building than one in say Nashville or...

Adam Hooper - Austin?

Danny Ismail - Yeah it looks better, the pictures look better generally on your annual reports, when your doing office tours you're generally hitting the major markets, you know the San Franciscos, New Yorks, Austins, D.C.s of the world. In our opinion that created a pretty big bid for, you know New York Office over the last few years has been foreign buyers. But in the public market has been telling or at least sending a pretty strong signal that you know returns look a little bit better or a little bit closer to reality in the Sunbelt markets.

Tyler Stewart - Speaking of trends when you look at the West Coast market it is on the rise and the East Coast market may be on the decline. Historically do you have any data for how long those trends can last?

Danny Ismail - Yeah, well historically I mean this is a bit of a shift because New York is generally, over the last say 20 years, has historically outperformed in terms of an office market. So really one of the things that we spend some time here internally has been looking at supply barriers. And what are true supply barriers in these markets and as I mentioned New York outperforming historically has generally been because it's basically flat to no supply growth over that time period. And now with the opening of Hudson Yards on the far west side and also because of densification you've seen New York underperform over the last few years. And it's hard to see what causes a reversal in that trend. As opposed to that on the West Coast, San Francisco and West L.A., you have true high barriers to meet new supply in those markets. So in San Francisco with Prop M you know an artificial limitation on the amount of new office space that you can have constructed in the city each year. And in West L.A, I went to UCLA and if you've ever driven around L.A or lived in L.A., it's just a horrible market to put any new supply in. Incredible amounts of nimbyism, terrible traffic. It's really hard to envision any type of meaningful supply growth west of the 405 anytime soon that you know is not in a specific concentrated area, like Fly Vista was. So just really true barriers to supply that we think will continue to have that trend of West Coast office outperforming that of the East Coast. Where you just have structurally lower barriers to supply. As well as the demand drivers seem stronger on the West Coast as well

Danny Ismail - where you just have, that's where you know tech and media are centered. Venture capital flows the strongest, so it's hard to see what causes reversal in terms of those geographic areas.

Adam Hooper - Yeah, that's good. And we're here in Portland which is seeing I think a lot of the similar dynamics. Maybe not as institutional or a lot of public market activity here but I think that's a similar trend that we're seeing here in Portland for sure and other. We had I guess on the podcast talking about these kind of technology hubs, right. The change of economies from more physical labor based towards this knowledge based economy, I think where we're seeing that again has a lot of those core fundamentals for office growth going forward.

Danny Ismail - Right and I think you've seen that you know in some of the markets I just mentioned not doing as well as the West Coast being some of the more old economy whether it be financial services or real estate, insurance, you know lag in kind so as you mentioned the more tech-centric economy.

Adam Hooper - Good, well as we're about to turn the corner here, 2019, what does your crystal ball say for us?

Danny Ismail - Yeah, as I mentioned you know the economy still seems on pretty strong footing and you know just the amount of, in terms of whether it being tax cuts or fiscal stimulus or you know just incredibly low unemployment rates it still seems like the economy will be supportive of commercial real estate. As I mentioned it seems like most, you know this is across all markets, all sectors, but it seems like demand and supply are roughly in check. So it seems like inflation like rent growth will be the story of '19. In terms of property values, as I mentioned, both the public REIT market as well as the commercial bond market are both pointing to roughly flat values that we've seen over the last few years. But I think some of the trends that I'm paying attention to on the office side is that it still seems like office using job growth remains healthy, we saw a bit of a deceleration heading into '18, particularly in some of the more tech-centric markets you mentioned. But just given the amount of venture capital as healthy as the tech sector seems to be it seems like it'll be another very similar to '18 in terms of fundamentals and property appreciation.

Adam Hooper - And are there any indicators or statistics or market trends out there that we can maybe share with our listeners that you guys keep a special watch on that might be a leading indicator either it's the good or bad, of some of these things we've been talking about?

Danny Ismail - Yeah, traditionally as I mentioned the public market would be a leading indicator, excuse me the public REIT market would be a leading indicator of the private market. But that linkage is broken down over the last few years and if anything at least in the office side discounts to underlying private real estate values have widened this year. Which is a bit surprising given how healthy the economy has been. So that's been one of the signals that we continue to watch. The others are your traditional how well is the tech sector doing? So over the last few years venture capital funding has been either at record or near record highs. And really if you see a pull back or a decline in terms of the amount of funds either invested or being raised by venture capitalists I think that would be a decent signal of hey is there something going on here? Is there a lack of available opportunities or is the tech sector cooling off? I think that would, excuse me, we think that would be an interesting stat to continue to monitor. And of course interest rates as well, you know sometime today I think we'll get a notification that the FED raised rates again and of course the pace and the velocity will continue to be worth monitoring as well.

Adam Hooper - Perfect those are some good things to keep an eye out for for listeners out there is for seeing what 2019 brings us. Well, Danny I don't know if you have any information about how listeners might be able to learn more about Green Street? I know you guys do a lot of webinars have some educational materials out there, if you want to take a second to do that we'll include links in the show notes for where people can get to those resources?

Danny Ismail - Yeah, so we have a lot of resources at our website at and we recommend signing up for emails to be alerted to any research or insights that we offer. We're also on social media, so LinkedIn and Twitter. Follow us there and keep aware of what we're publishing.

Adam Hooper - Perfect, again we'll have links to all that for our listeners. So is there anything else that we didn't cover? Anything else you want to add or ask us for the show today?

Danny Ismail - Yeah, I think one thing we didn't cover, you know I mentioned a few times just how big the discounts are in the public REIT world is you would assume that there'd be more M&A activity and you'd have bigger institutions buying out some of these REITs, I've seen a bit of that early in the '18, its cooled off a little bit over the last few months, but you know we think that'll be another factor to keep an eye on into 2018, '19. Is are you seeing this big institutions actually committing capital and capitalizing on the big discounts of the underlying private real estate market? 'cause again that's another indication of where the private real estate market is going is if no one is buying these big REITs at these big discounts what does that spell for the underlying private market value?

Adam Hooper - Suggesting that again a bigger institution might come in, acquire the REIT stock essentially and then be able to liquidate that in the private market and then you're building in that delta when you buy the REIT, essentially right?

Danny Ismail - Correct, yeah it should be have made a pretty favorable world for continued M&A, whether or not that continues, Green Street thinks it will, but again another trend to look into 2019.

Adam Hooper - Well maybe we'll have you back on here as we get to 2019 and see where we at with that.

Danny Ismail - Yeah, that'd be great.

Adam Hooper - Perfect, alright Danny, well thank you for your time, we appreciate a lot of really good information today. Listeners out there as always we appreciate reviews and ratings on iTunes. If you have any questions please send us an email to and with that we'll catch you on the next one.

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