Marc Betesh  0:00  

I was asked what did I think was going to happen? Was there going to be any permanent net effect on the on the commercial market? And my prediction was a five to 8% net reduction in demand just because of, of a shift in, in behavior. But looking at it now, I think it’s going to be greater than that. I think it’s, I think you’re looking at an eight to eight to 15%, at least in the office markets, which is five to eight to me was was massive, and eight to 15. Is is whatever the word is, I don’t want to use the word catastrophic, but it’s it’s a it’s a very, very big disruption very big.

Announcer  0:42  

Welcome to CRE PN Radio for influential commercial real estate professionals who work with investors, buyers and sellers of commercial real estate coast to coast whether you’re an investor, broker, lender, property manager, attorney or accountant We are here to learn from the experts.

J Darrin Gross  1:01  

Welcome to commercial real estate pro networks, CRE PN Radio. Thanks for joining us. My name is J. Darrin Gross. This is the podcast focused on commercial real estate investment and risk management strategies. Weekly, we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio. 

Today, my guest is Marc Betesh. Marc is the CEO and founder of Visual Lease, which helps to improve the financial, legal and operational performance of commercial leases. And a former commercial real estate lawyer who has helped companies in fortune 500. Companies navigate and manage their leases. 

And in just a minute, we’re gonna speak with Marc about 2022 commercial real estate predictions. But first, a quick reminder, if you like our show, CRE PN Radio, there are a couple things you can do to help. You can like, share and subscribe. And as always, we encourage you to leave a comment, we’d love to hear from our listeners. Also, if you’d like to see how I answer my guest star, be sure to check out our YouTube channel. You can find us on youtube at commercial real estate pro network. While you’re there, we would encourage you to please subscribe as well. And with that, I want to welcome my guest, Marc, welcome to CRE PN Radio.

Marc Betesh  2:29  

Thank you. Well, nice to be here.

J Darrin Gross  2:32  

Well, I’m looking forward to our conversation today. But before we get started, if you could take just a minute and share with listeners a little bit about your background.

Marc Betesh  2:40  

Sure. I work primarily on the occupant, occupant side, the tenant side, I’m a real estate attorney practiced in New York for a number of years. And way back in 1985 started a business that many landlords hate, which is called lease auditing. I was really the founder of that little mini cottage industry 35 years ago, but I really I got there because I was so frustrated negotiating leases on behalf of my clients. And and realize that the despite all the work that we did at the negotiating table, and both sides by the way, it’s not just one side and all the effort and time and expense going into negotiating leases was often often really not put into effect in real life. The leases ended up in drawers. And nobody knew what they said. And here, I was working so hard to make sure that my client was protected and its interests were protected, especially for large commercial leases, which I worked on almost exclusively. And realize that that despite all the great things that I had negotiated at the at the bargaining table, that our clients, these big companies really weren’t paying any attention after the fact we’re in looking at the clauses when when bills came into them, they didn’t pull the leases out. They didn’t know what the leases said. Basically just paying whatever the bill invoices showed and built a business around going in and trying to help commercial large commercial tenants check their leases to make sure they’re getting the benefit of what they bargained for. We built that business fairly successful, represented a lot of large fortune 50 fortune 100 companies. And after about 10 years realize that the problems still persist persisted we were we were putting a bandaid on it. We were correcting invoices, we were correcting bills, but the underlying problem was that companies really didn’t know what their leases said. And we saw This very pronounced by pulling a file from a client, you know, major company would give us their leases, we’d open up a file and we would read the read the lease, and it would say, for example, the tenant has no obligation to pay for real estate taxes. And then we look on the right side of the file folder, and there’s a stamped real estate tax bill paid. And, and the problem was, they just didn’t know what the lease has said. So we said this could be solved with technology. And we we built a software platform called Visual Lease, to really make leases visible to make them transparent, to bring them to the fingertips of whoever needed to see them. Not just tenants but, but lessors. Lenders, whoever needed to see the leases, we now had them organized, a summarized, plotted out financially, really created a whole ecosystem around keeping control over leases. That system was was successful, we, we, we put it into a number of large companies. And we’ve had some clients now some customers now that have been with us for for over 20 years. The The interesting thing is over the past, I’d say the past eight or nine years, with all of the new talk about the lease accounting rules, there’s been a heavy emphasis on on accounting for leases. And so it’s an area that we have always dealt with with our platform. But now it’s really stimulated the market quite a bit. And we’ve grown pretty substantially over the past five years or so.

J Darrin Gross  6:45  

That’s awesome. I can totally appreciate that, as an insurance broker. How many times I’ve seen leases, and I think most often the sentiment, as you get towards the end of a deal is just to get it done. Without totally understanding what’s in that. I’m curious, in all of your experience, is there any one area that you can point to that typically overlooked or is usually a trouble spot for, for tenants in a lease?

Marc Betesh  7:17  

We we tend to focus on the financial terms, which are obviously the most important terms generally. The more complex the leases, the more likely it is the practice is to the practice will be to diverge from what the document says. As attorneys, we often work very, very hard to tailor the transaction to the unique situation of our clients. And we so we see two things we see we see, out and out missteps we don’t we don’t often see deliberate over Billings, or things like that, it typically is and the problem, the problem of the complexity is not only for the tenants, it’s also for the landlords, everybody has the same problem, you have a lease, it’s 125 pages long, give or take, it could be 250 pages long. But you have a very long, very complex lease, and everyone took such care to get it to the right spot. The two problems are number one, people don’t read it. And so they don’t know what it says and Miss there. And then the second place is that the attorneys themselves don’t often get it right. They often get it wrong. They often think they’re getting it right. They’re trying to express what the parties all agree to. But like we’ve seen in many contracts, and all of us have seen this, I’m sure you’ve seen it as well. You know what you thought you were agreeing to five years later you go back and you scratch your head? And you say, is that really what I meant? What you know, what, what was it supposed to be capturing? And that’s what I mean when I see the attorney often don’t get it right, because they think they’ve got it. And everyone, everyone at the table knows what everybody else means. Add five years to that equation, and nobody remembers anything. And so now you’re trying to read language in its in its plain form, and trying to decipher what everybody meant. So the more complex provisions, the things that are anomalous that really go off the standard lease clause are the things where people make the biggest mistakes.

J Darrin Gross  9:34  

Got it. Well and Visualease, do you are you able to kind of navigate or give more of a rigid framework to that where people know where to look? So it’s not such an abstract or forgotten?

Marc Betesh  9:48  

Yeah, the thing with Visual Lease is is that it’s intended to standardize diverse leases. So think about this from a from a lessor perspective. Fa If a landlord has 100 leases, it likely has two or three forms that it’s using across the entire portfolio. You know, when you when a tenant wants to lease space in a building, the landlord gives it its form, not the tenants form. So if you have a building with 20 tenants in it, you have 20 tenants that have, for the most part, the same lease. So if you have 100 tenants, you have 100 of the same or similar leases. If you’re a tenant, and you have 100 leases, you have 100, different landlords with 100 different lease forms. So you can think about how difficult it is to manage this. From a portfolio standpoint, what you really need to do is to find a way to standardize all these leases in ways that are important to you. And so what visual lease does is it creates a framework so that you can you identify what the important things are, obviously, we suggest what we think are the most important things but but the beauty of the of our platform is that it’s very flexible. So if you are, for example, a law firm, and you want to track things that pertain to the way you operate your law offices, the number of partners in number of associates a number of support staff, you can track that and you can track that, think about that, if you have 3040 leases across the country, and a law firm, you’ll track that information. And now it’s usable for you, you can you can see where the where the distribution of the partners and the associates and the support staff are, you can do analyses of the cost per square foot for each of these people. And so you can do all that stuff at a portfolio level. And if you’re, if you’re a if you’re a warehousing tenant, right? You don’t care about partners and Associates, but you care about ceiling heights and number of bay doors, and things like that. So so those are the unique things that you can tailor to but the standard things are, you know, all the insurance provisions or their maintenance and repair provisions. All the indemnification provisions, all of the rent provisions, all of those things, if you can standardize across a portfolio gives you gives a gives a user tremendous power to be able to shape the portfolio move from high cost areas to low cost areas, more efficient areas to less efficient, from less efficient areas. So you can do all of that work. If you have a bird’s eye view. And to create the bird’s eye view, you really need to have a way to standardize this information.

J Darrin Gross  12:35  

No. Sounds Sounds great. I mean, I just again, knowing kind of the the challenges that tenants face. And like you mentioned, you know, if you’re a landlord, you have one lease, many, many copies. If you’re a tenant, you have many leases, all all different. Yeah, that’s I love that. Just another couple of quick questions about Visual Lease. So is the what’s the ideal prospect candidate for for working with Visual Lease? Is that a multi location multi tenant? Is there a number there? Is there can you kind of identify who your sweet spot? customers?

Marc Betesh  13:15  

Well, anyone that has more than, you know, more than a handful of leases need some way to track them, right? We have, we have some customers that have, you know, 30 leases, 40 leases, we have some that have 20,000 leases. So really, it really varies across industries. You know, some of some of our larger customers are big industries, we have a lot of hospitals, we have a lot of business service entities, banks, mortgage banks, all kinds of companies. But really, if you think about how I always go back to you have one lease, right. So if you’re a company and you have one lease, you can give it to your accounting department, they can pretty much manage it. If you have three leases, they could probably still do it. Get up to 10 it’s starting to take a lot of time, get up to 20 you really need someone dedicated, you get up to 50 and some of these entities like I said have 1000s of locations or 1000s of leases. And by the way, this isn’t just this isn’t just real estate leases that could or this could also also be equipment leases, because equipment we manage equipment leases as well and you could well imagine that equipment leases are much higher volume than real estate, right? You could have a single real estate office with with you know, 100 pieces of equipment in it or you could be a manufacturer and have all kinds of all kinds of manufacturing equipment. So but but anytime you have a quantity of leases beyond, you know beyond 1015 leases, you really need some way to do it. Some people try to do this with Excel And Excel is perfectly fine. If you’re not getting too heavy into the details of these leases, the problem with Excel these days is that because of the new lease accounting rules that are now applied, that have been in place for public companies, and are now going into place for private companies, Excel is very, very tough to use, because there’s so many calculations and so many nuances to the way the lease accounting has to work that to do with Excel will take you 10 times more time than it’s worth.

J Darrin Gross  15:35  

Right, right. Now, I love the the sharing kind of ideal and just kind of the how the problem exponentially gets harder to manage. And, like I said, if you have a couple, it’s, it’s something that you can probably on the top of your head, can remember the key points, but as you get into the multiples and stuff, it’s just to get out of hand on and find the same thing, even with insurance, you know, with the clients that have, you know, started out with a couple of different properties, and they’ll have a couple different policies, and then they they just, you know, insurance, billing is so much fun, there’s usually a policy number doesn’t tell you the address or, or whatever kind of thing and it gets a little complicated. So, you know, same kind of thing. The blanket policies or master policies are good idea. But But anyway, the reason we’re talking today and want to get into kind of more the topic of of our conversation is more looking forward, looking forward towards 2022. And and what the commercial real estate market holds. I’m curious, you’ve been doing this, since you said 85. You’ve been in commercial real estate. You’ve certainly seen multiple cycles. You know, highs and lows and the lows are usually referred to as kind of a correction where there’s something economically that happened that that, you know, stopped the progress. Some people lost other people were able to pick up good deals. Since the last crash, the Great Recession, 2007-2009. Maybe we start there and kind of talk about what, what you’ve seen. And maybe if we can talk about some of the things that historically or, you know, the challenges and then talk about what you see coming next year.

Marc Betesh  17:41  

So the since since that last crash at the end of the 2000s I think the real estate markets have all steadily improved. They’ve all built over time, its take out, take out COVID for the time being and just think about where the economy was going. Everything was strengthening. I think the I think the the biggest factor was the acceleration of the of the internet economy. It probably did a good deal of disruption in the retail sector. It increased the demand in the office sector for all the knowledge workers that were behind all of the technology. I don’t know if if logistics and warehousing went through I mean logistics grew warehousing, you know, you have the same number of people consuming the same number of goods. You’re just you’re just getting them in a different way. So that’s why I say there was disruption in the retail sector from from the internet economy, but I don’t know if there was a disruption in the warehousing sector. But everything seemed to be moving and improving fairly steadily. Until COVID hit I think we were seeing I remember talking about the about the Dow Oh, I think it was five years ago or so. And people were saying, you know, where do you think the Dow is gonna go and I said to me 20 23,000 24,000 25,000 even and people looked at me like I was crazy. There’s no way it’s going to get that high. No way and they told me and then sure enough, it was it was right there before COVID hit. So I thought I think just generally there was a very steady improvement of the economy of all sectors. Obviously with COVID you know, somebody pulled the plug on the drain and now everything got disrupted. And so what the real predictions looking forward are really going to be around what has the disruption from COVID really caused both on on a temporary basis. And on a permanent basis. I think temporary temporarily. We, you know, the disruptions are pretty obvious, right? office buildings are empty, people are working from home. Logistics is exploding because of the new forms of distribution of goods. Retail is pretty badly impacted. And that’s kind of the temporary thing, the more permanent thing, it’s funny I was interviewed a year ago. And I was asked, What did I think was going to happen was there going to be any permanent net effect on the on the, on the commercial markets, and my prediction was a five to 8% net reduction in demand, just because of, of a shift in, in behavior. But looking at it now, I think it’s going to be greater than that, I think it’s, I think you’re looking at an eight to eight to 15%, at least in the office markets, which is five to eight to me was was massive, and eight to 15 is is whatever the word is, I don’t want to use the word catastrophic. But it’s, it’s a, it’s a very, very big disruption very big.

And it’s really because of the awakening that, that knowledge workers have will come to, and companies have come to, in that people can operate from anywhere. And because they can operate from anywhere, they want to operate from anywhere. And, and if that’s the case, they’re going to be reluctant to go back to the office, we obviously, there are obvious negatives about not working in the office and not working together and not having the synergy. And we can talk about all that. But if you look at the the real behaviors, until those negatives rise up and become significant, which I’m not sure they will, people will adapt. The, the new reality is that is that you don’t need 20,000 square feet of office space, you could do what you could do with three or five, right? Because everyone, everybody needs 100 to 200 square feet of space, right? They all need that. They need space, they needed to ask, they need monitors, they need what they need. But you don’t have to have it in the office, you can have that at home. And so and so the the the need to aggregate 100 people at 200 square foot feet, a person is not there anymore. We see in our own office, how this is working, we have our office open, we are all working from home, and our office is open. And people don’t go in. And so that has led to the reality that people can work from anywhere. The migration then to people working remotely. They can they can so you see this, the great migration of employees. Think about this for a moment. The biggest factor in migration of workers has has been employment over the past 50 years. You get a job in Los Angeles, you have to move to Los Angeles, you get a job in New York, you have to move to New York. Well, now you don’t have to do that. So why would people move to Los Angeles or New York except for other reasons. They’re not going to move because of their work. And if that’s the case, then then people are going to use lifestyle as the primary driver and not their employment situs. And if now they’re using lifestyle, now you’re gonna see migration to more lifestyle, positive environments. But the 100 the 200 square feet of space, that remember you have that desk at home, it’s sitting there in your apartment or in your house, it’s sitting there. You also have another 100 to 200 square feet of space in your office. We no longer need the office at all at all. NET demand is going to drop net demand is going to drop. And,

J Darrin Gross  24:42  

yeah, no, I’m just going to ask it. As lifestyle lifestyle becomes kind of the new driver for where people migrate to or locate. And certainly the whole The internet is what makes this possible. How do you see The the net effect on these major markets? Do you see a just a repositioning? Do you see it as a population loss? Do you see, you know, the future of New York and LA, it’s hard to imagine that, that there would be a significant change to where there wouldn’t be people are, you know, they wouldn’t be the the centers, the economic centers that they are, do you? Do you see that changing?

Marc Betesh  25:31  

I think you’re gonna see, I love New York, for example, Manhattan is a lifestyle magnet. It’s also and I don’t want to say that, obviously, 100% of the people are not going to leave, but you’re going to have many people that are going to scratch their heads that are living in the suburbs of these metropolitan areas that are going to scratch their heads and say, why am I driving an hour to get to an office and an hour to get home to do an hour’s worth of work. So a one hour meeting becomes a three hour meeting, an eight hour day becomes a 10 hour day. And so it’s just a balance. And this is all possible. Because of the technology. This didn’t exist 10 years ago, but if it existed, hey, it was accelerated by the onset of COVID. And everyone was forced on March 13 2019, they were forced into a new lifestyle. And guess what, it did pretty well. And everyone woke up six months later, or a year later and said, this is pretty good. My lifestyle is improved. I’m just as productive in fact, because I’m gaining two hours a day I’m more productive and more productive. And I have a better lifestyle Why would I go back that’s really the key

J Darrin Gross  27:07  

that’s that’s a reality that I’m fully aware of. I personally was always kind of an office guy that went in and, and figured, like technology it was I don’t know really functional I guess we were if I hadn’t fully implemented it but but you’re right I mean, you know, just the commute there the time spent in the race to to and from the office and and you know, even just the the you know, the the appendages to that whether it be the dry cleaner or all these other other things that have lessened their importance is pretty significant. Let me ask you this. So so we identified basically the the office issue, or the office market and how it will be affected going forward. What do you see in in you, you kind of touched on this a little bit when we when we talked about retail, and more of the warehousing kind of thing? Do you What are your thoughts on on those, those markets?

Marc Betesh  28:21  

Well, there’s a certain sector of retail that will always be that will always be fairly vibrant. But let’s take one of the most stable parts of retail to use it as a straw man here. Let’s look at grocery shopping, right? You’re going to hop in the car, go to your local market, get fresh groceries, and that really is probably one of the one of the things that you think would never change yet even that even that has has has changed right people are ordering, ordering non perishables from and you know a supermarket has half maybe if you think about the grocery section and that probably has 30 to 40% perishable and the rest of it non perishable, right. So the non perm non perishable portion can be ordered through an app and can be delivered to you in a box. And so even that so I see the biggest disruptors here as being the availability and the ease with which with which you can order and have goods and goods delivered to you. So now you look at so you look at that and all of this is a cost benefit analysis. It’s all imbalance. We all go through this. All of us you may everyone that we know it goes through the same thing, you know, should I order it on Amazon or somewhere else? Where should I go to the store? Right, we all go through this. And you look at the pros and the cons, the pros, and by the way, a companies like Amazon are looking at this just as much as we are, they look at the pros and the cons, the cons are, I don’t have it immediately. The pros are, I can choose from 20 different models. Whereas if I go to the store, I’m limited to three. And so you know, and the cost, the costs are relatively comparable, they might be cheaper one versus the other. So there’s, there’s this real disruption that comes forget COVID COVID, just exacerbated it or accelerated this trend, the trend was already there. Because the I remember when Amazon first came out, I said, this is this is amazing. I can order if I want to, I don’t know, if I want to charge her for my cell phone, I can go to the store and buy one, and they’ll have one, there are two there. Or I can go to Amazon, see the ratings, pick the one I want order the one I want, and I’ll have it in a day. So if I can wait, I will. That’s the cost benefit. That creates a lot of disruption, it makes it very, very difficult for retailers to to compete. And so retail is has retailers have to find new ways to compete with lifestyle with a comparable pricing with comparable availability with just in time. So they have to create magnets and ways to attract customers in order to in order to entice them to use that experience versus the very sterile experience of ordering online. And so it’s just a cost benefit that we all go through. But, but I think retail is is it will reach a new equilibrium. But it is definitely shifting right now. I don’t think we’re at that equilibrium yet.

J Darrin Gross  32:07  

In the retail model, I’m curious, you mentioned a little bit about the office, seeing that the space requirements you know, if you had 20,000 square feet, you might need 3000? Do you see something similar in the retail based on you know, more of the shift to the online option? Do you see like the the showroom model being more of a, you know, what’s selling that’s hot, or a place that you can need to see any of that changing?

Marc Betesh  32:38  

I don’t know, you know, I often think about this, I don’t know, because the more you, the more you shrink the in store experience, the less of a magnet you have. So the natural tendency would be, hey, I’m not selling as much. Let me reduce my footprint, let me find a way to cut my costs let me not not, I’m not going to stock so many different models of this particular item. But by doing that, you’re basically cutting their throat because you’re, you’re the very thing that might bring people in is the thing that you’re you’re cutting back on. And so but it takes quite a bit of capital in order to compete in that market. And you look at you look at retailers like Costco and you go in there and there are 3040 televisions to choose from. Right? If you’re if you’re a an electronics store with 10 televisions, you can’t compete, you need to have the 30 or 40 you need to have that. And so then it’s the same thing with clothing and it’s the same thing with with with any kind of in store shopping. Clothing, I think will clothing is much more personal experience, I think clothing will will stay I don’t think people are ordering a significant amount of attire through online sources. I just think that’s something that people a like the experience and B get a better result. It’s it’s, it’s it happens but it’s I don’t think it’s that much fun to order 10 dresses or 10 shirts or 10 pairs of pants and then have to return nine of them.

J Darrin Gross  34:25  

Right right right now it’s interesting to think of this we’re talking the recent experiences for me and I and you mentioned like the clothing one I can remember ordering some shirts and either they they came in the wrong size or something was wrong or whatever and and the the it was a an online purchase. They directed me to the nearest retail place to exchange it rather than ship it back which I you know in the old days it was shipped back and then they’ll credit your account and you can order something different kind of thing and I thought huh That’s kind of like a different way of moving your inventory around, you know, instead of you having a central place and and then if you apply that forward, I’m kind of curious if maybe more of the, you know, the, the local retail location is not more of a plugged in facilitator of some of the orders, as opposed to that central warehouse model, which, you know, historically kind of a hub and spoke kind of thing. If you think about all of the inventory that these, you know, retailers have to have, if it’s for the in store experience, versus Now a lot of times you’re finding that there’s a delay to get your, you know, your, your size, or whatever it is trying to buy. It’s just fascinating, I think, you know, when you when you look at all of them, you know, all of the technology being applied to all the purchases we make now, and how it’s kind of like, it’s understood, I know, even recently is that they had a Best Buy, you know, and there’s like, one, one piece available for what I need. Normally there’s a there’s a hook or whatever, there’d be like, you know, two or three hooks, and they’d be all this deep, and I was thinking like, you know, or something like that, if you’re only if you’re only selling a few of these, it would make more sense to have, you know, more of a connected database. And I assume that’s what what’s going on behind the scenes of that there’s some some, some sort of a way that when you go and you buy it, it could come from any one of their locations, as opposed to the local one that I went to that was I was hoping to get taken care of right then. But fascinating.

Marc Betesh  36:41  

That’s what happens. I mean, the you know, the in store experience is one of smelling, touching, feeling, you know, seeing with your own eyes, not looking at a screen to be able to buy things and that sensory experience is very important. The other thing that’s that will happen with retail if if retailers are smart is they will stress the the in store personal experience that they will get. You know, you we’re all human beings, we’re not robots are not machines. And we like we like the good in store experience. And by the way, these days, and I’m sure you’ve experienced the same thing because of shortages and labor, retailers and everyone else is having a very difficult time staffing and having the proper levels of staff. And so, you know, not only having the right levels of staff, but having the right quality of staff and having the ability to train. So that disruption is occurred in in in both quantitative ways and qualitative ways. And that that creates additional difficulty for retailers, and we’ve all been there. We’ve been in stores, we’ve been in restaurants, where they can’t find it a restaurant, for example. I know I’ve experienced this personally, where where the waiters, the waitstaff are terrible. And if you if you mentioned it to the management, they’ll say, yeah, we had to we had to use our bus staff in order to wait tables because we can’t get waiters. And so you’re This is what’s going on across across all industries, not just There, there. It’s there. It’s you know, it’s something that that we see in touch every day. But this is happening in the back rooms as well. And so the disruption that’s occurred and that disruption, by the way is primarily COVID. Like COVID disruption, not not just pure economic disruption.

J Darrin Gross  38:56  

Right, right. Now that that disruption is real, and it’s it is happening everywhere. Speaking of disruption, I’m kind of curious This is a theme that I’m running into everywhere. And it’s just basically the supply chain disruption. How do you see that affecting the real estate market? And if so, how? In 2022?

Marc Betesh  39:30  

Well, supply chain supply chain disruption is affecting everything. It’s affecting, it’s affecting everything. Obviously. Companies that depend on supply chain more are obviously more effective, right. So physical, physical delivery of goods. You know, we talked about there are different levels of supply chain disruption to there’s supply chain disruption with the chain itself is disrupted, and their supply chain where where supplies are unavailable, and therefore the manufacturing is unavailable. So I read an interesting article in the Wall Street Journal recently that, that went through an example of a particular manufacturing facility. And the fact that it got goods from that each time it built, I don’t remember what the item was, but each time it built one of these items, it had hundreds of components that came from all over the world. And, and even if you look at at the, at the intermediate components, right, you need a, you need an assembly of something, well, the parts that go in, and so you buy that assembly from a particular supplier, but the supplier can’t get the parts to build the assembly. So you can’t even get the assembly built. And therefore you can’t get the assembly delivered to you. And therefore you can’t produce your your item. Right. So that’s going to affect different industries in different ways. But like I said, obviously the things that are more dependent on physical delivery of goods are going to be more disrupted.

J Darrin Gross  41:17  

Right. We talked about retail and kind of the warehouse markets, do you have any thoughts on housing or, or any of the other sectors?

Marc Betesh  41:30  

Well, housing, housing, is going through a very high level of disruption as well, too. But it’s not disruption in the negative sense. I think housing, housing is is a is a very hot transactional market right now. I believe that that with the other side of the migration question that we talked about a few minutes ago about offices and about how people aren’t going to need offices as much anymore, or they’ll change the way they use offices. You’re also having people moving from high tax jurisdictions to low tax jurisdictions, from from mediocre lifestyle environments to high quality lifestyle environments. From from high cost environments to low cost environments, you’re going to have all of that go on you you’re also going to see continued disruption of the of the how of the employment market where where you’re going to have some some balancing and rebalancing of wages across across the economy. People that are being hired in one place that work in another place, you’re gonna have some rebalancing that goes on there as well, in terms of in terms of salaries and wages. But I think the housing market from a real estate perspective will continue to be very hot, people are all moving, there’s a lot of Oh, there are quite a few transactions. Right now, I think the real estate, residential brokerage market is probably, in my opinion going to be one of the hottest areas.

J Darrin Gross  43:17  

So let me ask you this. Looking forward, the real estate market has been kind of on an upward trend except for as we’ve talked about some of the retail and office as of lay which are more of a COVID kind of onset, do you see a a wrinkle or a reset across the board or do you think that it will be kind of Market to Market asset class to asset class based on any kind of potential correction coming?

Marc Betesh  44:01  

First, I think because of the because of two factors because of technology and because because of technology and maybe it’s all because of technology creating the the the aggressive migration of people around the country, quite frankly, around the world, but let’s just focus on the US for now around the country, people are gonna move around your the the, the ability to predict and the ability to understand the uses of each of these. Let me go back. What I see is that the is that you’re going to have a widening of the markets in the following sense you know that you know, longer, we’re going to look at localized markets, you’re going to look at national markets, because people are can move around freely and you have less restrictions, you’re going to see an opening of the markets. The good analogy is, is that of labor that I alluded to a minute or two ago. So let’s say you have a person that lives in, in, in the Midwest, that that earns for their job, let’s say $50,000 a year. And they see a job, a remote job in New York City, the same job, but they can, if they were to live in New York City, and they took that job, that job would be $100,000 job. But because they live in the Midwest, it’s a $50,000 job locally there, well, they’re going to be very attracted to the $100,000 $200,000 position. Now the employer in New York, sees that it has $100,000 position that it can fill for $50,000. And what will happen is, the $50,000 job will be it won’t be it won’t be 100. But it won’t be 50. Either, it’ll be 60, it’ll be 65, there will be an equilibrium that that little sub market will reach. And the employers in New York will be able to hire people for for less, because they’re a high cost jurisdiction. And, and the local people in the Midwest will start flocking to the jobs that are paying higher, just think about this on a macro scale. And you can see all of these adjustments going on and all these little mini markets, where, where it’s almost like a dilution of the concentration of the labor markets, whether they’re low labor, low cost labor markets, or high cost labor markets, you’re gonna see a dilution of that across a wider and broader economy. And that all causes disruption. And it will be asset to asset it will be industry to industry, it will be wherever it is. But the the the the fact that the was, you know, I often think about the development of Europe, you know, and Europe developed the way it did, primarily because of the geography, right, you have very high mountainous, mountainous regions that separate one group of people from another group of people, and they all go off on their own, and they all develop their own unique cultures, right. So if you were to mow down all the mountains, you would see a blending and blending in a migration that would occur that otherwise couldn’t, couldn’t overcome the mountains before. It’s the same thing here the walls between markets are now dropping, technology is causing those those walls to drop, and therefore you’re having more migration, more dilution of concentrated markets. And it’s this is the, this is the biggest disruption that I see. And, yes, you’ll have, you’ll have intermediate disruption in, in, you know, in the office market, the retail market, the housing market, all these things will adjust, and then they’ll reach a new level of equilibrium. I don’t think it’s going to happen for another five to 10 years. But I think over the next five to 10 years, you’re gonna see a real awakening and an adjustment to the economy until we find a new a new normal.

J Darrin Gross  48:37  

No, that’s fascinating. You know, it’s it’s one thing to look at the last crash or correction and point to all the factors that cause that and try and look for those in today’s market. But that’s not the that’s not what’s taking effect here. That’s not you know, those aren’t the, the levers in play. And, you know, kind of like what you said I, that whole blurring of the marketplace, and even you know, an example you provided the Midwest employee and then the New York employer. If that, if that new middle ground, it’s a win win for both. That’s right and and i think that’s kind of the I think that’s pretty interesting when you think about that, how that how that will shake out there, but

Marc Betesh  49:28  

You don’t have to look at them, you kinda have to look at the trends and just kind of extrapolate them just extend them to their logical conclusions. And you can just see how I mean that that conversation that I just had about 50,000 versus 100,000. Right? That’s that’s going to take some time. It’s not going to happen right away. But you’ll see people the employer will have an employer will have a choice of two comparable employees. One for 50 and one for 100 or one for 60 and one for 70, whatever it is, it’s going to be 50 and 100. And then a couple of you know, sometime later, it’s going to be 60 and 90, and it’s going to be 70 and 80. Right. And so you’re going to see the adjustment happen over time. But you can see the adjustment happening, you can see it, you just predicted,

J Darrin Gross  50:22  

it makes complete sense. And again, a win win for both sides, right? The West employee has an increase in salary and the employer in New York has a lower cost. So that’s interesting. Hey, Mark, we could, I’d like to shift gears here for a second. Sure. As I’ve mentioned, by day, I’m an insurance broker. And I work with my clients to assess risk and determine what to do with the risk. And there’s three strategies that we typically look at, we first look to see if we can avoid the risk. When that’s not an option, we look to see if there’s a way to minimize the risk. And when you we can either avoid or minimize a risk. And we look to see if we could transfer the risk. And that’s what an insurance policy is. And I like to ask my guests, if they can look at their own situation, their clients, investors the market, however, you choose to frame this question, but it to see if you can identify what you consider to be the biggest risk. And for clarification, while I am an insurance broker, I’m not necessarily looking for an insurance related answer as risk is everywhere. And so if you’re willing, I’d like to ask you, Marc Betesh,  what is the BIGGEST RISK?

Marc Betesh  51:49  

I think the BIGGEST RISK is under estimating what’s going on right now, I just think about the discussions I’ve had here and prior conversations about, for example, the office market. If you don’t, we nobody likes to see negativity, nobody likes to predict doom and gloom. But if you’re not fully informed, and understand the trends that are going on, you are going to make bad decisions. And so you really need to look at all the information you can understand human behavior, understand what’s predictable, what’s not predictable, you’re never going to predict things that are not predictable, but you need to be able to understand the things that that are and, and and use your own common sense to determine where you think things are going. The the real estate markets, the one thing we know for sure is that they’re not going to stay the way they are. So now the next step is how will they change? That’s part of this conversation and other conversations and looking at, you know, kind of look in the mirror and try to figure out what would you do? What would you do if you were placed in that position? What decision would you make for yourself for your family? And, and what makes you think that you’re any different than anybody else? These are all human human decisions that we’re faced with in normal decisions. And you know, when you get in the car in the morning to commute to work, and you know, you don’t have to, what’s the human decision you’re gonna make? I hate this. I, you know, before we before we put up with it, it was something that we didn’t have a choice about. When you start to have choices, you start to think about those choices. And so when you talk about risk, the risks to me, I mean, we could quantify all kinds of risks, but the real risk is, is being uninformed. And and and trying to believe series that you don’t truly own yourself. Look at your own behavior. Look at the way people behave. And then you’ll you you, instinctively all of us, all of us instinctively know what’s happening. We may not like it. We may not be used to it. But we understand that and just you have to you have to rely on that gut.

J Darrin Gross  54:41  

I think there’s a lot of truth in that. And I appreciate you sharing that. Hey Marc, where can listeners go if they’d like to learn more or connect with you?

Marc Betesh  54:52  

So we have certainly our website VisualLease dot com has our product. KBA Lease dot com  has our lease Audit Services, I’m on LinkedIn, you can find me we publish lots of lots of articles and predictions we do. You know, we have hundreds of 1000s of leases in our system. We do statistical analyses of trends and things like that. So I would say if you if you if you’re interested in if anyone’s interested in that, go go to the Visual Lease dot comm website. We have lots of content there that I think people will find interesting.

J Darrin Gross  55:33  

Awesome. Marc cannot say thanks enough for taking the time to talk today. I’ve enjoyed it. I’ve learned a lot, and I look forward to doing it again soon.

Marc Betesh  55:44  

My pleasure. Hope I hope it was informative. 

J Darrin Gross  55:47  

Alright. For our listeners, if you like this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow. That’s all we’ve got this week. Until next time, thanks for listening to commercial real estate pro networks. CRE PN Radio.

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